Halliburton Oil Well Cementing Company v. Reily/Dissent Clark

by Tom C. Clark

United States Supreme Court

373 U.S. 64

Halliburton Oil Well Cementing Company  v.  Reily

 Argued: Dec. 3, 1962. --- Decided: May 13, 1963

Mr. Justice CLARK, with whom Mr. Justice BLACK joins, dissenting.

The Court strikes down Louisiana's use tax on the ground that it discriminates against out-of-state assemblers of nates against out-of-state assemblers who move their products into the State for use therein. In so doing the Court permits the out-of-state assembler to move his finished product into the State at a tax lower than that exacted upon Louisiana's residents who purchase the identical product within the State. The damage that this decision will do to the tax structure of a State is clearly revealed by the amici curiae briefs filed here. Thomas Jordan, Inc., rents barges to others in Louisiana. They are built by shipyards outside of Louisiana. Jordan claims that when it brings a barge to Louisiana it can only be taxed on the items that went into the barge, not the finished product. Chicago Bridge and Iron Company fabricates steel plates outside of Louisiana and ships them into Louisiana. It claims that its tax should be on the components of the plates. Sperry Rand Corporation, through its subsidiary Remington Rand, manufactures office furniture which it brings into Louisiana and rents to customers. It claims its tax is on the wood, metal, lacquers, etc., going into the furniture. Humble Oil and Refining Co. has Chicago Bridge and Iron Co. fabricate, outside of Louisiana, certain field erected structures for Humble's oil refinery at Baton Rouge and it claims the tax should be on the components of these completed structures. American Can Co. manufactures can manufacturing machinery outside of Louisiana which it ships into Louisiana for its use and it claims the tax should be only on the components of the machines. And, finally, Rosson-Richards Processing Co. wire wraps and coats iron pipe which it transports to Louisiana where the pipe is laid into oil and gas pipelines. It claims the tax is due only on the components of the finished pipe.

These claims are predicated on the the proposition that the finished product assembled outside Louisiana pays more tax upon entering Louisiana for use than a like finished product pays when assembled from parts within that State and used by the assembler thereof. But the tax is on the privilege of use after commerce is at an end and the test is whether all persons similarly situated are treated alike. Royster Guano Co. v. Virginia, 253 U.S. 412, 415, 40 S.Ct. 560, 561, 64 L.Ed. 989 (1920). And so it cannot be said that equal protection is denied by a statute which operates alike on all persons and property similarly situated. The fallacy of the Court's holding is that it ignores the incidence of the tax in Louisiana's Tax Act. That incidence is the moment that the product becomes a part of the mass of property within the State. It matters not what happens to the property subsequently. The tax attaches to the property in its form at that specific time. This is true in both the sales and the use tax here. It follows that if the barge, steel plates, office furniture, field erected structures, can manufacturing machinery, wire wrapped pipes and oil well servicing trucks are sold in Louisiana the 2% sales tax is exacted on the completed articles just as it is when they are moved into the State without sale and the use tax of 2% is levied. all persons and like property similarly situated are thus given identical treatment Likewise if Halliburton brought in nuts and bolts and put them together within Louisiana into a truck it would pay the identical tax a resident paid in a similar transaction. Again, if a Louisiana resident bought a completed truck outside his State and brought it into the State as did Halliburton, he would pay the same tax on the property. The result of Louisiana's law is similar to that described in Henneford v. Silas Mason Co., 300 U.S. 577, 584, 57 S.Ct. 524, 527 (1937):

'When the account is made up, the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates. The one pays upon one activity or incident, and the other upon another, but the sum is the same when the reckoning is closed. Equality exists when the chattel subjected to the use tax is bought in another state and then carried into Washington. It exists when the imported chattel is shipped from the state of origin under an order received directly from the state of destination. In each situation the burden borne by the owner is balanced by an equal burden where the sale is strictly local.'

The Court, however, would look beyond the taxable event. It would require the State to trace the nuts and bolts, etc., sold to the resident and tax their ultimate form-a truck-if it wished to tax Halliburton. This, of course, is an impossible burden and from a practical standpoint would not be enforceable. In addition, the Court changes the incidence of the tax as well as the property taxed. Nuts and bolts are not trucks. The incidence of the tax on the former was when they were nuts and bolts and not when they became a truck. They became a part of the mass of property of the State on their sale as nuts and bolts, not trucks.

I believe that this decision will deprive Louisiana of millions of dollars under its sales tax. ^[1] Every sizable business concern not having Louisiana facilities to manufacture its own requirements will buy raw materials out of state and have them fabricated outside Louisiana-just as do Halliburton, Jordan, Humble, Chicago Bridge and the other amici-and then bring the finished product into Louisiana for use. Instead of paying a tax on the greater value of the finished product brought into and used in the State they will, under the Court's interpretation, pay only the lesser value of the various components that went into the finished product.

As for the isolated sales, the Act specifically provides for a credit on Louisiana use taxes of any like tax equal to or greater than the Louisiana tax which has been paid in another State. La.Rev.Stat.Ann. § 47:305. Property within Louisiana has already been subjected to a sales tax and subsequent sales are exempted. The credit allowed on the use tax for taxes paid in another State on isolated sales of property brought into Louisiana effects the same identical result. As the Supreme Court of Louisiana noted the 'property involved herein has not borne a similar tax in another state,' 241 La. at 91, 127 So.2d at 511, and the taxing authorities have unequivocally represented to this Court that such taxes would be allowed as credits if claimed and proven. I would take the promise of the State's authorities at its face value. ^[2]

For these, as well as the reasons given in the opinion of the Supreme Court of Louisiana, I would affirm.

Notes

1. For a like appraisal see Henneford v. Silas Mason Co., supra, at 581, 57 S.Ct. at 526: 'The plan embodied in these provisions is neither hidden nor uncertain. * * * The practical effect * * * is readily perceived. One of its effects must be that retail sellers in Washington will be helped to compete upon terms of equality with retail dealers in other states who are exempt from a sales tax or any corresponding burden. Another effect, or at least another tendency, must be to avoid the likelihood of a drain upon the revenues of the state, buyers being no longer tempted to place their orders in other states in the effort to escape payment of the tax on local sales.'
2. My Brother BRENNAN finds that the tax credit allowed by La.Rev.Stat.Ann. § 47:305 will not avoid inequality of treatment in all situations. I find no cases from Louisiana interpreting this section of the Act, but the appellee tax collector states in his brief that a tax credit is given 'for all similar taxes paid to another state' in order 'to insure perfect equality of the tax burden. * * *' In view of the Louisiana Supreme Court's demonstrated practice of construing the provisions of the use tax so as to avoid unreasonable and discriminatory applications, Fontenot v. S.E.W. Oil Corp., 232 La. 1011, 95 So.2d 638 (1957), I cannot agree with my Brother BRENNAN'S anticipation that unequal treatment will result in future applications of the Act. Cf. Monamotor Oil Co. v. Johnson, 292 U.S. 86, 95-96, 54 S.Ct. 575, 578, 78 L.Ed. 1141 (1934).