Goldberg v. Sweet
488 U.S. 252 (1989)

Annotate this Case

U.S. Supreme Court

Goldberg v. Sweet, 488 U.S. 252 (1989)

Goldberg v. Sweet

No. 87-826

Argued October 12, 1988

Decided January 10, 1989*

488 U.S. 252



In light of recent technological changes creating billions of possible electronic paths that an interstate telephone call can take from one point to another, which paths are often indirect, typically bear no relation to state boundaries, and are virtually impossible to trace and record, Illinois passed its Telecommunications Excise Tax Act (Tax Act), which, inter alia, imposes a 5% tax on the gross charges of interstate telecommunications originated or terminated in the State and charged to an Illinois service address, regardless of where a particular call is billed or paid; provides a credit to any taxpayer upon proof that another State has taxed the same call; and requires telecommunications retailers, like appellant GTE Sprint Communications Corporation (Sprint), to collect the tax from consumers. The Illinois trial court held that the tax violates the Commerce Clause of the Federal Constitution in a class action brought by appellant Illinois residents, who were subject to and paid the tax, against appellee Director of the State's Department of Revenue and various long-distance telephone carriers, including Sprint, which crossclaimed against the Director. However, the State Supreme Court reversed, ruling that the tax satisfies the four-pronged test set forth in Complete Auto Transit, Inc. v. Brady,430 U. S. 274, and its progeny, for determining compliance with the Commerce Clause. All parties concede in this Court that the tax satisfies the first prong of the Complete Auto test; i.e., it is applied to an activity having a substantial nexus with Illinois.

Held: The Illinois tax does not violate the Commerce Clause, since it satisfies the final three prongs of the Complete Auto test. Pp. 488 U. S. 259-267.

(a) The tax is fairly apportioned. It is internally consistent, since it is so structured that, if every State were to impose an identical tax on only those interstate phone calls which are charged to an in-state service address, only one State would tax each such call and, accordingly, no multiple taxation would result. The tax is also externally consistent even though it is assessed on the gross charges of an interstate activity, since

Page 488 U. S. 253

it is reasonably limited to the in-state business activity which triggers the taxable event in light of its practical or economic effects on interstate activity. Because it is assessed on the individual consumer, collected by the retailer, and accompanies the retail purchase of an interstate call, the tax's economic effect is like that of a sales tax, such that it reasonably reflects the way that consumers purchase interstate calls and can permissibly be based on gross charges even though the retail purchase, which triggers simultaneous activity in several States, is not a purely local event. Moreover, the risk of multiple taxation is low, since only two types of States -- a State like Illinois which taxes interstate calls billed to an in-state address and a State which taxes calls billed or paid in state -- have a substantial enough nexus to tax an interstate call. In any event, actual multiple taxation is precluded by the Tax Act's credit provision. Furthermore, an apportionment formula based on mileage or some other geographic division of interstate calls would produce insurmountable administrative and technical barriers, since such calls involve the intangible movement of electronic impulses through vast computerized networks. Pp. 488 U. S. 260-265.

(b) The tax does not discriminate against interstate commerce by allocating a larger share of its burden to interstate calls, since that burden falls on in-state consumers, rather than on out-of-state consumers, and since, unlike mileage on state highways, the exact path of thousands of electronic signals can neither be traced nor recorded. American Trucking Assns., Inc. v. Scheiner,483 U. S. 266, distinguished. Pp. 488 U. S. 265-266.

(c) The tax is fairly related to services which the State provides to the benefit of taxpayers. Such services are not limited to those provided to telecommunications equipment used during interstate calls, but also include the ability to subscribe to telephone service and to own or rent telephone equipment at an address within the State, as well as police and fire protection and other general services. Pp. 488 U. S. 266-267.

117 Ill.2d 493, 512 N.E.2d 1262, affirmed.

MARSHALL, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, WHITE, BLACKMUN, and KENNEDY, JJ., joined, in all but Part II-C of which STEVENS, J., joined, and in Parts I, II-A, II-D, and III of which O'CONNOR, J., joined. STEVENS, J., post, p. 488 U. S. 268, and O'CONNOR, J., post, p. 488 U. S. 270, filed opinions concurring in part and concurring in the judgment. SCALIA, J., filed an opinion concurring in the judgment, post, p. 488 U. S. 271.

Page 488 U. S. 254

JUSTICE MARSHALL delivered the opinion of the Court.

In this appeal, we must decide whether a tax on interstate telecommunications imposed by the State of Illinois violates the Commerce Clause. We hold that it does not.



These cases come to us against a backdrop of massive technological and legal changes in the telecommunications industry. [Footnote 1] Years ago, all interstate telephone calls were relayed through electric wires and transferred by human operators working switchboards. Those days are past. Today, a computerized network of electronic paths transmits thousands of electronic signals per minute through a complex system of microwave radios, fiber optics, satellites and cables. DOJ

Page 488 U. S. 255

Report 1.2-1.6, 1.8; Brief for MCI Telecommunications Corporation as Amicus Curiae 2. When fully connected, this network offers billions of paths from one point to another. DOJ Report 1.18. When a direct path is full or not working efficiently, the computer system instantly activates another path. Signals may even change paths in the middle of a telephone call without perceptible interruption. Brief for National Conference of State Legislatures et al. as Amici Curiae 6. Thus, the path taken by the electronic signals is often indirect, and typically bears no relation to state boundaries. [Footnote 2] The number of possible paths, the nature of the electronic signals, and the system of computerized switching make it virtually impossible to trace and record the actual paths taken by the electronic signals which create an individual telephone call.

The explosion in new telecommunications technologies and the breakup of the AT&T monopoly [Footnote 3] has led a number of States to revise the taxes they impose on the telecommunications industry. [Footnote 4] In 1985, Illinois passed the Illinois

Page 488 U. S. 256

Telecommunications Excise Tax Act (Tax Act), Ill.Rev.Stat., ch. 120,

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