Complete Auto Transit, Inc. v. Brady
430 U.S. 274 (1977)
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Rule of Law:
A state tax on interstate commerce does not violate the Commerce Clause if it is applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the state.
Facts:
- Complete Auto Transit, Inc. is a Michigan corporation that transports motor vehicles for General Motors Corporation.
- General Motors assembles vehicles outside of Mississippi and ships them by rail to Jackson, Mississippi.
- In Jackson, the vehicles are loaded onto Complete Auto's trucks.
- Complete Auto then transports the vehicles from the railhead in Jackson to various General Motors dealerships located within Mississippi.
- The transportation provided by Complete Auto occurs entirely within Mississippi's borders but is one part of a continuous interstate journey for the vehicles.
- Complete Auto is paid on a contract basis for its transportation services.
- Mississippi assessed a sales tax on Complete Auto's gross proceeds from these transportation services, describing the tax as being for the 'privilege of engaging or continuing in business' within the state.
Procedural Posture:
- The Mississippi State Tax Commission assessed sales taxes against Complete Auto Transit, Inc.
- Complete Auto paid the assessments under protest.
- Complete Auto instituted a refund action in the Chancery Court of the First Judicial District of Hinds County, Mississippi (a trial court).
- The Chancery Court sustained the tax assessments, finding in favor of the state.
- Complete Auto appealed the decision to the Supreme Court of Mississippi (the state's highest court).
- The Supreme Court of Mississippi affirmed the trial court's judgment.
- The U.S. Supreme Court noted probable jurisdiction to hear Complete Auto's appeal.
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Issue:
Does a state tax on the 'privilege of doing business' within the state violate the Commerce Clause when applied to a company's gross income from transportation services that occur entirely within the state, but are part of a larger, continuous interstate movement of goods?
Opinions:
Majority - Mr. Justice Blackmun
No. A state tax on the 'privilege of doing business' does not per se violate the Commerce Clause when applied to interstate activities. The Court abandoned its prior formalistic rule from Spector Motor Service v. O'Connor, which automatically invalidated taxes on the 'privilege' of conducting interstate commerce. Instead, the Court established a four-part test focusing on the practical effect of the tax, upholding a tax if it: (1) has a substantial nexus to the taxing state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services provided by the state. Here, Complete Auto did not claim the tax failed any of these four criteria; its challenge was based solely on the now-overruled Spector precedent. The Court found no economic justification for a rule that turns on 'magic words or labels' rather than the real-world impact of the tax, concluding that interstate commerce must pay its fair share of state tax burdens.
Analysis:
This decision fundamentally reshaped Commerce Clause jurisprudence regarding state taxation. By overruling Spector Motor Service, the Court replaced a rigid, formalistic rule that focused on the language of a tax statute with a pragmatic, four-part test that examines the tax's practical economic effects. This shift made it easier for states to impose taxes on businesses engaged in interstate commerce, provided the taxes are fairly structured. The 'Complete Auto test' remains the foundational framework for analyzing the constitutionality of state taxes on interstate commerce, focusing litigation on substantive fairness rather than on legislative draftsmanship.
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