Holmes Company, Ltd v. Namara

• Decision Date: 16 May 1988
• Docket Number: No. 87-267,87-267
• Citation: 486 U.S. 24,100 L.Ed.2d 21,108 S.Ct. 1619
• Parties: D.H. HOLMES COMPANY, LTD., Appellant, v. Shirley McNAMARA, Secretary of Revenue and Taxation of Louisiana
• Court: U.S. Supreme Court

486 U.S. 24

108 S.Ct. 1619

100 L.Ed.2d 21

D.H. HOLMES COMPANY, LTD., Appellant,

v Shirley McNAMARA, Secretary of Revenue and Taxation of Louisiana.

No. 87-267.

Argued March 22, 1988.

Decided May 16, 1988.

Syllabus

Appellant, a Louisiana corporation which operates 13 department stores realizing over $100 million in annual sales in that State, contracted with several out-of-state companies to design, print, and distribute merchandise catalogs. Appellant paid for the catalogs, which were shipped free of charge to addressees; supplied the contractors with lists of addressees, 82% of whom were Louisiana residents; instructed postal authorities to return undeliverable catalogs to its New Orleans store; and initiated the distribution to improve its sales and name recognition among Louisiana residents. Appellant did not pay any sales taxes where the catalogs were designed or printed. The Louisiana Department of Revenue and Taxation, of which appellee is Secretary, assessed taxes on the catalogs' value under a statute imposing a 3% use tax on all tangible personal property used in Louisiana and defining "use" as the exercise of any right or power over such property incident to ownership, including distribution. When appellant refused to pay the tax, the State filed and won a collection suit in state court. The Louisiana Court of Appeal affirmed, finding that once the catalogs landed in Louisiana mailboxes they left the stream of interstate commerce and became part of the property mass of the State; that distribution of the catalogs constituted "use" subject to taxation under the statute; and that, under the four-pronged test for determining the validity of state taxes articulated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326, the use tax did not violate the Commerce Clause of the Federal Constitution.

Held: The application of Louisiana's use tax to appellant's catalogs does not violate the Commerce Clause. It is largely irrelevant for Clause purposes whether the catalogs "came to rest" in the Louisiana customers' mailboxes or whether they were still considered in the stream of interstate commerce, since Complete Auto recognized that, with certain restrictions, interstate commerce may be required to pay its fair share of state taxes. Moreover, the argument that the assessment against the catalogs was in essence a tax on the mere presence of goods within the State is without merit, since distribution constitutes use under the statute. Furthermore, the application of the tax to the catalogs satisfies each prong of the Complete Auto test. The taxing scheme is fairly ap- portioned, since it provides a credit against the use tax for sales taxes paid in other States, and since the use tax was imposed only on those catalogs distributed in-state, and not on those sent to out-of-state customers. The tax structure likewise does not discriminate against interstate commerce, since the use tax, which is designed to compensate the State for revenue lost on out-of-state purchases of goods used in-state, is equal to the sales tax on the same goods purchased in-state; in fact, both taxes are set forth in the same statutory sections. The use tax is also fairly related to state-provided services that facilitate appellant's in-state sales, including fire and police protection for appellant's stores and mass transit and public roads which benefit appellant's customers. Finally, appellant's activity had a substantial nexus with Louisiana, since appellant controlled the distribution of the catalogs to approximately 400,000 state residents, the distribution was directly aimed at expanding and enhancing its Louisiana business, and it has a significant presence in the State in terms of number of stores and annual sales volume. Cf. National Geographic Society v. California Bd. of Equalization, 430 U.S. 551, 97 S.Ct. 1386, 51 L.Ed.2d 631. National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505, distinguished. Pp. 29-34.

505 So.2d 102 (La.App. 4th Cir.1987), affirmed.

REHNQUIST, C.J., delivered the opinion for a unanimous Court.

Andrew Rinker, Jr., New Orleans, La., for appellant.

Robert G. Pugh, Shreveport, La., for appellee.

Chief Justice REHNQUIST delivered the opinion of the Court.

Appellant, a Louisiana corporation, challenges the State's imposition of a use tax on catalogs printed at appellant's direction outside Louisiana and shipped to prospective customers within the State. The Louisiana Court of Appeal found that this application of the use tax did not violate the Commerce Clause of the Federal Constitution. We affirm.

I

Appellant D. H. Holmes Company, Ltd., is a Louisiana corporation with its principal place of business and registered office in New Orleans. Holmes owns and operates 13 department stores in various locations throughout Louisiana that employ about 5,000 workers. It has approximately 500,000 credit card customers and an estimated 1,000,000 other customers within the State.

In 1979-1981, Holmes contracted with several New York companies for the design and printing of merchandise catalogs. The catalogs were designed in New York, but were actually printed in Atlanta, Boston, and Oklahoma City. From these locations, 82% of the catalogs were directly mailed to residents of Louisiana; the remainder of the catalogs were mailed to customers in Alabama, Mississippi, and Florida, or were sent to Holmes for distribution at its flagship store on Canal Street in New Orleans. The catalogs were shipped free of charge to the addressee, and their entire cost (about $2 million for the 3-year period), including mailing, was borne by Holmes. Holmes did not, however, pay any sales tax where the catalogs were designed or printed.

Although the merchandise catalogs were mailed to selected customers, they contained instructions to the postal carrier to leave them with the current resident if the addressee had moved, and to return undeliverable catalogs to Holmes' Canal Street store. Holmes freely concedes that the purpose of the catalogs was to promote sales at its stores and to instill name recognition in future buyers. The catalogs included inserts which could be used to order Holmes' products by mail.

The Louisiana Department of Revenue and Taxation, of which appellee is the current Secretary, conducted an audit of Holmes' tax returns for 1979-1981 and determined that it was liable for delinquent use taxes on the value of the catalogs. The Department of Revenue and Taxation assessed the use tax pursuant to La.Rev.Stat.Ann. §§ 47:302 and 47:321 (West 1970 and Supp.1988), which are set forth in the margin.¹ Together, §§ 47:302(A)(2) and 47:321(A)(2) impose a use tax of 3% on all tangible personal property used in Louisiana. "Use," as defined elsewhere in the statute, is the exercise of any right or power over tangible personal property incident to ownership, and includes consumption, distribution, and storage. See La.Rev.Stat.Ann. §§ 47:301(18) and (19) (West 1970 and Supp. 1988). The use tax is designed to compensate the State for sales tax that is lost when goods are purchased out-of-state and brought for use into Louisiana, and is calculated on the retail price the property would have brought when imported.

When Holmes refused to pay the use tax assessed against it, the State filed suit in Louisiana Civil District Court to collect the tax.² In response to the State's complaint, Holmes answered that it owed no tax under §§ 47:302 and 47:321 as properly applied, a position Holmes claimed was reinforced by La.Rev.Stat.Ann. § 47:305(5) (West 1970).³ Holmes also contended that the use tax violated the Commerce Clause of the Federal Constitution.

After a 2-day bench trial, the District Court determined that the distribution of the catalogs in Louisiana was "intended for the use of D.H. Holmes in increasing its sales to potential customers who are residents of Louisiana." No. 83-15523 (La.Civ.Dist.Ct., July 19, 1985), App. to Juris. Statement 12A, 21A. The court also found that "[o]nce the catalogs reach the residences of the prospective customers to whom they are addressed, Louisiana taxing authority reaches the resting place of the catalogs," id., at 22A, and concluded that the application of the use tax statutes did not unconstitutionally burden interstate commerce. The court then ordered Holmes to pay the State $49,937.03, plus interest and attorney's fees, which was the amount the parties stipulated as due on the use tax.

The Louisiana Court of Appeal, Fourth Circuit, affirmed the judgment of the trial court. 505 So.2d 102 (1987). After reviewing the Louisiana use tax statute, the Court of Appeal found that the catalog distribution was properly subjected to the tax, since once the catalogs landed in Louisiana mailboxes they left the stream of interstate commerce and became part of the property mass of the State. Furthermore, "[d]istribution of the catalogs certainly constitutes 'use' by Holmes under the statute and is subject to the tax." Id., at 105. Turning to the federal question in the case, the Court of Appeal analyzed the use tax under the test we articulated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), and found that it did not violate the Commerce Clause.

The Louisiana Supreme Court denied discretionary review. 506 So.2d 1224 (1987). We noted probable jurisdiction, pursuant to 28 U.S.C. § 1257(2). 484 U.S. 923, 108 S.Ct. 283, 98 L.Ed.2d 244 (1987).

II

The Commerce Clause of the Constitution, Art. I, § 8, cl. 3, provides that Congress shall have the power "[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Even where Congress has not acted affirmatively to protect interstate commerce, the Clause prevents States from discriminating against that commerce. The "distinction between the power of the State to shelter its people from...