Oklahoma Tax Commission v. Jefferson Lines, Inc.
514 U.S. 175, 131 L. Ed. 2d 261, 1995 U.S. LEXIS 2418 (1995)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A state does not violate the Commerce Clause by imposing a sales tax on the full purchase price of a ticket for interstate travel that originates in the taxing state, as the sale itself constitutes a discrete, local taxable event.
Facts:
- Oklahoma imposes a sales tax on various services, including transportation for hire, which is paid by the buyer.
- Jefferson Lines, Inc., a Minnesota corporation, provided bus services as a common carrier in Oklahoma.
- Jefferson Lines sold tickets in Oklahoma for bus travel that originated in Oklahoma and terminated in other states.
- While Jefferson Lines collected and remitted sales tax for tickets sold for purely intrastate travel, it did not do so for tickets involving interstate travel.
- The Oklahoma Tax Commission sought to collect the unpaid sales taxes for the full value of the interstate tickets sold by Jefferson Lines.
Procedural Posture:
- Jefferson Lines, Inc. filed for bankruptcy protection in federal Bankruptcy Court.
- The Oklahoma Tax Commission filed a proof of claim in the Bankruptcy Court for unpaid sales taxes on tickets for interstate travel.
- Jefferson Lines objected to the claim, and the Bankruptcy Court ruled in its favor, finding the tax unconstitutional.
- The Oklahoma Tax Commission appealed to the U.S. District Court, which affirmed the Bankruptcy Court's decision.
- The Commission then appealed to the U.S. Court of Appeals for the Eighth Circuit, which also affirmed, holding the tax was not fairly apportioned.
- The U.S. Supreme Court granted certiorari to review the decision of the Court of Appeals.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does Oklahoma's sales tax, when applied to the full price of a bus ticket for travel originating in Oklahoma and terminating in another state, violate the dormant Commerce Clause?
Opinions:
Majority - Justice Souter
No, Oklahoma's sales tax does not violate the dormant Commerce Clause. The Court analyzed the tax under the four-part test from Complete Auto Transit, Inc. v. Brady. The tax has a substantial nexus with Oklahoma because the sale occurs there and the service originates there. It is fairly apportioned because the taxable event is the sale of the service, a single, local event that cannot be taxed by another state. The Court distinguished this sales tax on the buyer from the unapportioned gross receipts tax on the seller in Central Greyhound Lines, Inc. v. Mealey, arguing that the risk of multiple taxation is different. The tax is internally consistent, as no sale would be taxed more than once if all states adopted an identical tax. It is also externally consistent because the tax is on the value of the sale, an activity occurring entirely within Oklahoma. Finally, the tax does not discriminate against interstate commerce and is fairly related to the benefits Oklahoma provides, such as police, fire protection, and the maintenance of a civil society that facilitates the transaction.
Dissenting - Justice Breyer
Yes, Oklahoma's sales tax violates the dormant Commerce Clause. The tax at issue is, for all relevant purposes, identical to the unapportioned gross receipts tax on interstate transportation struck down in Central Greyhound Lines, Inc. v. Mealey. The distinction between a 'sales tax' on the buyer and a 'gross receipts tax' on the seller is a formal, not a practical, one, as the economic burden is ultimately passed to the customer in both scenarios. The tax is an unapportioned levy on interstate travel itself, and Oklahoma is taxing revenue generated from miles traveled in other states, failing the external consistency test. The majority's reliance on the local 'sale' as the taxable event ignores the economic reality that the service being taxed is interstate transportation.
Concurring - Justice Scalia
No, the tax is constitutional, but the majority's reasoning is flawed. The only relevant inquiry under the negative Commerce Clause should be whether a state law facially discriminates against interstate commerce, which this tax does not. The remaining three prongs of the Complete Auto test are 'eminently unhelpful' and represent an improper judicial invention. Judgments about fair apportionment and the relation of a tax to state benefits are policy questions that should be made by Congress under its explicit Commerce Clause power, not by the courts.
Analysis:
This decision reinforces the distinction between sales taxes and gross receipts taxes for Commerce Clause apportionment purposes. By characterizing the sale of an interstate service as a discrete, local event, the Court aligned its taxation with that of tangible goods, allowing the state of sale to tax the full value. This ruling simplifies the application of sales taxes to services but leaves open the possibility of other states imposing different, successive taxes (like use taxes or apportioned gross receipts taxes) on other aspects of the same transaction, potentially increasing the cumulative tax burden on interstate commerce.
