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, 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 apportioned,
Page 486 U. S. 25
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.
National Bellas Hess, Inc. v. Department of Revenue of
Illinois, 386 U. S. 753,
distinguished. Pp.
486 U. S.
29-34.
505 So. 2d 102, affirmed.
REHNQUIST, C.J., delivered the opinion for a unanimous
Court.
Page 486 U. S. 26
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 appellant's Canal Street
store. Holmes freely concedes that the purpose of the catalogs was
to promote sales at its stores and to
Page 486 U. S. 27
instill name recognition in future buyers. The catalogs included
inserts which could be used to order appellant's 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. [
Footnote 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
Page 486 U. S. 28
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. [
Footnote 2] In response
to the State's complaint, appellant answered that it owed no tax
under §§ 47:302 and 47:321 as properly applied, a position
appellant claimed was reinforced by La.Rev.Stat.Ann. § 47:305(5)
(West 1970). [
Footnote 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
Page 486 U. S. 29
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
(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 (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 menaces to their health or safety and from fraud, even
when those dangers emanate from interstate
Page 486 U. S. 30
commerce, and its lack of power to retard, burden or constrict
the flow of such commerce for their economic advantage, is one
deeply rooted in both our history and our law."
H. P. Hood & Sons v. Du Mond, 336 U.
S. 525,
336 U. S. 533
(1949).
One frequent source of conflict of this kind occurs when a State
seeks to tax the sale or use of goods within its borders.
See,
e.g., Colonial Pipeline Co. v. Traigle, 421 U.
S. 100 (1975);
Memphis Natural Gas Co. v.
Stone, 335 U. S. 80
(1948). This recurring dilemma is exemplified in what has come to
be the leading case in the area,
Complete Auto Transit, Inc. v.
Brady, supra. In
Complete Auto, Mississippi imposed a
tax on appellant's business of in-state transportation of motor
vehicles manufactured outside the State. We found that the State's
tax did not violate the Commerce Clause, because appellant's
activity had a substantial nexus with Mississippi and the tax was
fairly apportioned, did not discriminate against interstate
commerce, and was fairly related to benefits provided by the State.
Id. at
430 U. S.
287.
This four-part formulation has since been used to evaluate the
validity of state taxes
vis-a-vis the Commerce Clause in a
number of contexts. Two Terms ago, for instance, we upheld a
Florida tax on aviation fuel purchased within the State, finding
that all four of the
Complete Auto criteria were
satisfied.
Wardair Canada Inc. v. Florida Dept. of
Revenue, 477 U. S. 1 (1986).
The
Complete Auto test has also been employed to test the
constitutionality of business and occupation taxes,
Department
of Revenue of Washington v. Association of Washington Stevedoring
Cos., 435 U. S. 734
(1978); mineral severance taxes,
Commonwealth Edison Co. v.
Montana, 453 U. S. 609
(1981); and the taxation of income received by an out-of-state
corporation from its in-state subsidiaries,
Mobil Oil Corp. v.
Commissioner of Taxes of Vermont, 445 U.
S. 425 (1980).
Complete Auto abandoned the abstract notion that
interstate commerce "itself " cannot be taxed by the States. We
Page 486 U. S. 31
recognized that, with certain restrictions, interstate commerce
may be required to pay its fair share of state taxes. Accordingly,
in the present case, it really makes little difference for Commerce
Clause purposes whether appellant's catalogs "came to rest" in the
mailboxes of its Louisiana customers or whether they were still
considered in the stream of interstate commerce. This distinction
may be of some importance for other purposes (in determining, for
instance, whether a "taxable moment" has occurred,
see 505
So.2d at 105), but for Commerce Clause analysis, it is largely
irrelevant.
Holmes argues that Louisiana's assessment against its
merchandise catalogs is in essence a tax on the mere presence of
goods within the State. This contention was expressly rejected by
the Louisiana Court of Appeal's finding that the
distribution of the catalogs constituted use under §§
47:302 and 47:321. We accept this construction of state law, and
thus see no merit in the argument that Louisiana has attempted to
tax only the existence of goods within the State.
In the case before us, then, the application of Louisiana's use
tax to Holmes' catalogs does not violate the Commerce Clause if the
tax complies with the four prongs of
Complete Auto. We
have no doubt that the second and third elements of the test are
satisfied. The Louisiana taxing scheme is fairly apportioned, for
it provides a credit against its use tax for sales taxes that have
been paid in other States.
See La.Rev.Stat.Ann. §
47:303(A) (West 1970) ("A credit against the use tax imposed by
this Chapter shall be granted to taxpayers who have paid a similar
tax upon the sale or use of the same tangible personal property in
another state"); § 47:302(A)(2) (instructing that "there shall be
no duplication of the tax"); § 47:321(A)(2) (West Supp.1988)
(same). Holmes paid no sales tax for the catalogs where they were
designed or printed; if it had, it would have been eligible for a
credit against the use tax exacted. Similarly, Louisiana
imposed
Page 486 U. S. 32
its use tax only on the 82% of the catalogs distributed
in-state; it did not attempt to tax that portion of the catalogs
that went to out-of-state customers.
The Louisiana tax structure likewise does not discriminate
against interstate commerce. The use tax is designed to compensate
the State for revenue lost when residents purchase out-of-state
goods for use within the State. It is equal to the sales tax
applicable to the same tangible personal property purchased
in-state; in fact, both taxes are set forth in the same sections of
the Louisiana statutes.
See La.Rev.Stat.Ann. §§ 47:302 and
47:321 (West 1970 and Supp.1988).
Complete Auto requires that the tax be fairly related
to benefits provided by the State, but that condition is also met
here. Louisiana provides a number of services that facilitate
Holmes' sale of merchandise within the State: It provides fire and
police protection for Holmes' stores, runs mass transit and
maintains public roads which benefit appellant's customers, and
supplies a number of other civic services from which Holmes
profits. To be sure, many others in the State benefit from the same
services; but that does not alter the fact that the use tax paid by
Holmes, on catalogs designed to increase sales, is related to the
advantages provided by the State which aid appellant's
business.
Finally, we believe that Holmes' distribution of its catalogs
reflects a substantial nexus with Louisiana. To begin with, Holmes'
contention that it lacked sufficient control over the catalogs'
distribution in Louisiana to be subject to the use tax verges on
the nonsensical. Holmes ordered and paid for the catalogs and
supplied the list of customers to whom the catalogs were sent; any
catalogs that could not be delivered were returned to it. Holmes
admits that it initiated the distribution to improve its sales and
name recognition among Louisiana residents. Holmes also has a
significant presence in Louisiana, with 13 stores and over $100
million in annual sales in the State.
See App. 68-69, 98.
The distribution of
Page 486 U. S. 33
catalogs to approximately 400,000 Louisiana customers was
directly aimed at expanding and enhancing its Louisiana business.
There is "nexus" aplenty here.
Holmes and several
amici argue that appellant's posture
here closely resembles the predicament of the mail order business
we confronted in
National Bellas Hess, Inc. v. Department of
Revenue of Illinois, 386 U. S. 753
(1967). In
National Bellas Hess, we held that the State of
Illinois could not, consistently with the Commerce Clause, compel
an out-of-state mail order company to collect a use tax on
purchases of goods by Illinois residents when the seller's only
connection with its Illinois customers was by mail or common
carrier. Holmes apparently views its catalog distribution as
analogous to the mail order solicitation in
National Bellas
Hess. This argument ignores, however, Holmes' significant
economic presence in Louisiana, its many connections with the
State, and the direct benefits it receives from Louisiana in
conducting its business. We thus see little similarity between the
mail order shipments in
National Bellas Hess and Holmes'
activities in this case.
We find Holmes' activities much closer to those considered in
National Geographic Society v. California Board of
Equalization, 430 U. S. 551
(1977).
National Geographic involved the operation of two
California offices by a national magazine devoted solely to
soliciting advertising for the magazine. California nonetheless
applied its use tax, which required every retailer engaged in
business in the State to collect a tax from its purchasers on the
magazine's mail order activities. We determined that the imposition
of the tax did not violate the Commerce Clause, since the
magazine's
"maintenance of the two offices in California and activities
there adequately establish[ed] a relationship or 'nexus' between
the [magazine] and the State"
sufficient to support the tax.
Id. at
430 U. S. 556.
This conclusion applies
a fortiori here,
Page 486 U. S. 34
since Holmes' connection with Louisiana far exceeds that of the
magazine with California in
National Geographic.
Because Louisiana's imposition of its use tax on Holmes does not
violate the Commerce Clause, the judgment of the Louisiana Court of
Appeal is
Affirmed.
[
Footnote 1]
"§ 47:302. Imposition of tax"
"A. There is hereby levied a tax upon the sale at retail, the
use, the consumption, the distribution, and the storage for use or
consumption in this state, of each item or article of tangible
personal property, as defined herein, the levy of said tax to be as
follows:"
"
* * * *"
"(2) At the rate of two per centum (2%) of the cost price of
each item or article of tangible personal property when the same is
not sold but is used consumed, distributed, or stored for use or
consumption in this state; provided there shall be no duplication
of the tax."
"§ 47:321. Imposition of tax"
"A. In addition to the tax levied by R. S. 47:302(A) and
collected under the provisions of Chapter 2 of Subtitle II of Title
47 of the Louisiana Revised Statutes of 1950, there is hereby
levied an additional tax upon the sale at retail, the use, the
consumption, the distribution, and the storage for use or
consumption in this state, of each item or article of tangible
personal property . . . the levy of said tax to be as follows:"
"
* * * *"
"(2) At the rate of one percent of the cost price of each item
or article of tangible personal property when the same is not sold
but is used, consumed, distributed, or stored for use or
consumption in this state, provided that there shall be no
duplication of the tax."
[
Footnote 2]
As originally filed in Louisiana Civil District Court, the
State's complaint included a claim for delinquent sales taxes on
candy sold by appellant. The State apparently reached an acceptable
compromise with appellant, and the Civil District Court granted a
joint motion by the parties to dismiss without prejudice the candy
sales tax issue. That issue is thus no longer a part of this
case.
[
Footnote 3]
As then codified this section provided:
"§ 47:305. Exclusions and exemptions from the tax"
"
* * * *"
"(5) It is not the intention of this Chapter to levy a tax upon
articles of tangible personal property imported into this state, or
produced or manufactured in this state, for export; nor is it the
intention of this Chapter to levy a tax on bona fide interstate
commerce. It is, however, the intention of this Chapter to levy a
tax on the sale at retail, the use, the consumption, the
distribution, and the storage to be used or consumed in this state,
of tangible personal property after it has come to rest in this
state and has become a part of the mass of property in this
state."