Halliburton Oil Well Cementing Company v. Reily, 24

• Decision Date: 13 May 1963
• Docket Number: No. 24,24
• Citation: 373 U.S. 64,10 L.Ed.2d 202,83 S.Ct. 1201
• Parties: HALLIBURTON OIL WELL CEMENTING COMPANY, Appellant, v. James S. REILY, Collector of Revenue, State of Louisiana. Re
• Court: U.S. Supreme Court

373 U.S. 64

83 S.Ct. 1201

10 L.Ed.2d 202

HALLIBURTON OIL WELL CEMENTING COMPANY, Appellant,

v James S. REILY, Collector of Revenue, State of Louisiana.

No. 24.

Reargued Dec. 3, 1962.

Decided May 13, 1963.

Rehearing Denied June 17, 1963.

See 374 U.S. 858, 83 S.Ct. 1861.

Benjamin B. Taylor, Jr., Baton Rouge, La., for appellant.

Chapman L. Sanford, Baton Rouge, La., for appellee.

Mr. Chief Justice WARREN delivered the opinion of the Court.

The sole issue before us is whether the Louisiana use tax, as applied to the appellant, discriminates against interstate commerce in violation of the Commerce Clause of the Constitution.

The Louisiana sales and use taxes follow the basic pattern approved by this Court in Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814. Louisiana Revised Statutes, Tit. 47, § 302, LSA, provides for the imposition of a tax '(a)t the rate of two per centum (2%) of the sales price of each item or article of tangible personal property when sold at retail in this state * * *.'¹ It imposes another tax '(a)t the rate of two per centum (2%) of the cost prices of each item or article of tangible personal property when the same is not sold but is used * * * in this state * * *.'² This latter tax, commonly known as a use tax, is to be reduced by the amount of any similar sales or use tax paid on the item in a different State. La.Rev.Stat.Ann. § 47:305. As noted by the Louisiana Supreme Court below and approved in Silas Mason, the purpose of such a sales-use tax scheme is to make all tangible property used or consumed in the State subject to a uniform tax burden irrespective of whether it is acquired within the State, making it subject to the sales tax, or from without the State, making it subject to a use tax at the same rate. The appellant admits the validity of such a scheme. It contends, however, that in this case Louisiana has departed from the norm of tax equality and imposes on the appellant a greater tax burden solely because the property it uses in Louisiana is brought from out-of-state. The difference in tax burden is admitted by the appellee.

The facts were stipulated by the parties. The appellant is engaged in the business of servicing oil wells in a number of oil producing States, including Louisiana. Its business requires the use of specialized equipment including oil well cementing trucks and electrical well logging trucks. These trucks and their equipment are not generally available on the retail market, but are manufactured by the appellant at its principal place of business in Duncan, Oklahoma. The raw materials and semifinished and finished articles necessary for the manufacture of these units are acquired on the open market by the appellant and assembled by its employees. The completed units are tested at Duncan and then assigned to specific field camps maintained by the appellant. The assignment is permanent unless better use of the unit can be made at another camp. None of these units is manufactured or held for sale to third parties.

Between January 1, 1952, and May 31, 1955, the appellant shipped new and used units of its specialized equipment to field camps in Louisiana. In its Louisiana tax returns filed for these years, the appellant calculated and paid use taxes upon the value of the raw materials and semifinished and finished articles used in manufacturing the units. The appellant did not include in its calculations the value of labor and shop overhead attributable to assembling the units. It is admitted that this cost factor would not have been taxed had the appellant assembled its units in Louisiana rather than in Oklahoma. The stipulation of facts stated:

'If Halliburton had purchased its materials, operated its shops, and incurred its Labor and Shop Overhead expenses at a location within the State of Louisiana, there would have been a sales tax due to the State of Louisiana upon the cost of materials purchased in Louisiana and a Use Tax on materials purchased outside of Louisiana; but there would have been no Louisiana sales tax or use tax due upon the Labor and Shop Overhead.'

Nevertheless, in September 1955, the Louisiana Collector of Revenue, the appellee, assessed a deficiency of $36,238.43 in taxes, including interest, on the labor and shop overhead cost of assembling the units. The Collector held that this was required by the language of the use tax section of the statute which levies the 2% use tax on the 'cost price' of the item, 'cost price' being defined in an earlier section as the actual cost without deductions on account of 'labor or service cost, * * * or any other expenses whatsoever.' La.Rev.Stat.Ann. § 47:301(3).

Also during this period, the appellant purchased 14 oil well cementing service units from the Spartan Tool and Service Company of Houston, Texas. Spartan was not regularly engaged in the sale of such equipment and made the sale after deciding to liquidate its oil well servicing business. The appellant transferred these units to Louisiana. On one other occasion, the appellant purchased an airplane from the Western Newspaper Union of New York, a company not regularly engaged in the business of selling airplanes. The appellant acquired the plane for use in Louisiana. No Louisiana use tax was declared or paid subsequent to the transfer of these items to Louisiana. It is admitted in the stipulation of facts that had these acquisitions been made within Louisiana, they would have not been taxed. This is occasioned by the fact that the sales tax section of the statute applies only to sales made at retail and not to isolated sales by those not regularly engaged in the business of selling the item involved. Nevertheless, the Collector assessed a deficiency of $4,404.22 on the value of these items since the use tax on goods imported from out-of-state contains no equivalent distinction between isolated and retail sales.

The appellant paid the deficiency under protest and brought an action in the Louisiana District Court for the Nineteenth District for a refund pursuant to La.Rev.Stat.Ann. § 47:1576, alleging that this unequal tax burden is a discrimination against interstate commerce. The District Court found the assessment discriminatory. On appeal, the Louisiana Supreme Court reversed, holding that since no unreasonable distinctions or classifications had been drawn in the Louisiana sales and use tax statute, the incidental discrepancy in tax burden did not amount to a discrimination against interstate commerce. 241 La. 67, 127 So.2d 502. On appeal to this Court, we noted probable jurisdiction. 368 U.S. 809, 82 S.Ct. 60, 7 L.Ed.2d 19. The case was first argued during the October Term 1961. We subsequently ordered it reargued. 369 U.S. 835, 82 S.Ct. 865, 7 L.Ed.2d 841.

I.

This is another in a long line of cases attacking state taxation as unduly burdening interstate commerce. As this Court stated in Best & Co. v. Maxwell, 311 U.S. 454, 455—456, 61 S.Ct. 334, 335, 85 L.Ed. 275: 'In each case it is our duty to determine whether the statute under attack, whatever its name may be, will in its practical operation work discrimination against interstate commerce.' This concern with the actuality of operation, a dominant theme running through all state taxation cases, extends to every aspect of the tax operations. Thus, in Nippert v. Richmond, 327 U.S. 416, 66 S.Ct. 586, 90 L.Ed. 760, the City of Richmond placed a fixed fee and earnings tax on itinerant solicitors of sales within the city. On its face, the ordinance applied to in-state as well as out-of-state distributors doing business by means of itinerant solicitors. The Court noted, however, the very fact that a distributor is out-of-state makes his use of, and dependence on, solicitors more likely. Thus, 'the very difference between interstate and local trade, taken in conjunction with the inherent character of the tax, makes equality of application as between those two classes of commerce, generally speaking, impossible.' 327 U.S. at 432, 66 S.Ct. at 594. The Court concluded that the tax was 'discriminatory in favor of the local merchant as against the out-of-state one.' 327 U.S. at 431, 66 S.Ct. at 593. Considered in isolation, the Louisiana use tax is discriminatory; it was intended to apply primarily to goods acquired out-of-state and used in Louisiana.³ If it stood alone, it would be invalid. However, a proper analysis must take 'the whole scheme of taxation into account.' Galveston, H. & S.A.R. Co. v. Texas, 210 U.S. 217, 227, 28 S.Ct. 638, 640, 52 L.Ed. 1031; Gregg Dyeing Co. v. Query, 286 U.S. 472, 479—- 480, 52 S.Ct. 631, 634, 76 L.Ed. 1232. Thus, in Best & Co. v. Maxwell, supra, the Court compared the solicitation tax with the equivalent tax on local retail merchants before finding it discriminatory. 311 U.S., at 456. See Memphis Steam Laundry Cleaner, Inc., v. Stone, 342 U.S. 389, 394—395, 72 S.Ct. 424, 427, 96 L.Ed. 436; cf. Phillips Chemical Co. v. Dumas School District, 361 U.S. 376, 80 S.Ct. 474, 4 L.Ed.2d 384.

When Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814, reached this Court on appeal, the Court considered the Washington use tax in the context of the tax scheme of which it was a part, as a 'compensating tax' intended to complement the state sales tax. So considered, the Court concluded: 'Equality is the theme that runs through all the sections of the statute. * * * No one who uses property in Washington after buying it at retail is to be exempt from a tax upon the privilege of enjoyment except to the extent that he has paid a use or sales tax somewhere.' The use tax is 'upon one activity or incident,' and the sales tax is 'upon another, but the sum is the same when the reckoning is closed.' The burden on the out-of-state acquisition 'is balanced by an equal burden where the sale is strictly local.' 300 U.S., at 583—584, 57 S.Ct. at 527.

The conclusion is inescapable: equal treatment for in-state and out-of-state taxpayers...