Tax Type
BPOL Tax
Local Taxes
Description
Interstate Trucking Company; U.S. Constitution Commerce Clause
Topic
Constitutional Provisions
Exemptions
Local Power to Tax
Local Taxes Discussion
Date Issued
08-09-1989
[Opinion - Virginia Attorney General: 1989 at 313]
REQUEST BY: Honorable John G. Dicks, III Member, House of Delegates P.O. Box 247 Chesterfield, Virginia 23832
Honorable Franklin P. Hall Member, House of Delegates Seven Hundred Building, Suite One 7th and Main Streets Richmond, Virginia 23219
OPINION BY: Mary Sue Terry, Attorney General
OPINION:
You ask whether a violation of the Commerce Clause of the Constitution of the United States exists when an "exclusively interstate trucking company" is "subject to local business license taxes, while its competitors, who hold both Virginia certificates of convenience and necessity and Interstate Commerce Commission authority, are not subject to the same such taxes." You state that the company has terminal facilities in 42 states, four of which are located in four separate Virginia localities, and is in "direct competition for [ interstate] shipping business" with trucking companies holding both State Corporation Commission ("S.C.C.") intrastate certificates of public convenience and necessity and Interstate Commerce Commission ("I.C.C.") interstate authority.
I. Applicable Statutes
Section 58.1-3703(A) of the Code of Virginia authorizes a locality to levy and collect license taxes on businesses within a locality, subject to the limitations in § 58.1-3703(B). § 58.1-3703(B)(1) prohibits the imposition of local license taxes on "public service corporations," subject to certain exceptions not applicable to the facts you present.
Sections 56-1 through 56-522 are statutes governing public service companies. § 56-1 defines the phrase "public service corporation" to include "all persons authorized to transport passengers or property as a common carrier." § 56-35 vests the S.C.C. with the power and duty of "supervising, regulating and controlling all public service companies doing business in this State, in all matters relating to the performance of their public duties and their charges therefor, and of correcting abuses therein by such companies."
Section 56-278 generally provides that common carriers engaged in intrastate operation on any highway within the Commonwealth shall first obtain from the S.C.C. a certificate of public convenience and necessity authorizing such operation. § 56-281 further provides that no certificate shall be issued to an applicant proposing to operate over the route of a current certificate holder until it has proven to the S.C.C. that the service rendered by the current holder over such route is inadequate to serve the public necessity and convenience.
II. Prior Opinion Concludes that Carrier Regulated Exclusively by I.C.C. Is Not Exempt from Local Business License Taxation; Subsequent Supreme Court Decisions Define Antidiscrimination Standard for Such Taxation
An Opinion of this Office rendered on July 31, 1986, concludes that the exemption from local license taxes in § 58.1-3703(B)(1) for public service corporations does not extend to a motor vehicle common carrier regulated exclusively by the I.C.C. See 1986-1987 Att'y Gen. Ann. Rep. 287 (the "Cheatham Opinion"). The Cheatham Opinion examines the exemption in § 58.1-3703(B)(1) in light of the Commerce Clause of the Constitution of the United States and the decision of the Supreme Court of the United States in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), and concludes that the exemption statute in question meets constitutional standards.1
2 Although Complete Auto Transit, Inc. v. Brady concerned a state tax statute, localities as well as states are prohibited by the Commerce Clause from adopting tax ordinances that discriminate against interstate commerce. See, e.g., Nippert v. Richmond, 327 U.S. 416 (1946).
Although the facts you present differ from the facts in the Cheatham Opinion in that your inquiry concerns a trucking company holding both I.C.C. interstate authority and an S.C.C. intrastate certificate of public convenience and necessity, two decisions of the United States Supreme Court rendered subsequent to the Cheatham Opinion specifically define the third "antidiscrimination" standard in Complete Auto Transit, Inc. and raise questions concerning the imposition of a license tax against the company you describe. See Goldberg v. Sweet, 488 U.S. , 102 L. Ed. 2d 607, 109 S. Ct. 582 (1989); American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266 (1987).
III. Tax May Not Discriminate in Favor of Intrastate Commerce; Local Business License Tax in Facts Presented Invalid
In Scheiner, the Supreme Court held that Pennsylvania's flat taxes on the operation of all trucks on Pennsylvania highways imposed a disproportionate burden on out-of-state businesses competing in an interstate market as compared to the burden it imposed on its own resident carriers engaging in interstate commerce. 483 U.S. at 286. The Court reviewed whether the methods by which the Pennsylvania flat taxes were assessed discriminated against some participants in interstate commerce and concluded that the "'free trade purpose [of the Commerce Clause] is not confined to the freedom to trade with only one State; it is a freedom to trade with any State, to engage in commerce across all state boundaries.'" Id. at 282 n.13 (quoting Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 335 (1977)).
In Goldberg, however, the Court upheld an Illinois excise tax on a person's act or privilege of originating or receiving interstate or intrastate telecommunications in Illinois and provided a credit for taxpayers who had paid a tax in another state on the same telecommunication which triggered the Illinois tax. The Court in Goldberg noted:
The Illinois tax differs from the flat taxes found discriminatory in Scheiner in two important ways. First, whereas Pennsylvania's flat taxes burdened out-of-state truckers who would have difficulty effecting legislative change, the economic burden of the Illinois telecommunications tax falls on the Illinois telecommunications consumer, the insider who presumably is able to complain about and change the tax through the Illinois political process. It is not a purpose of the Commerce Clause to protect state residents from their own state taxes.
Second, whereas with Pennsylvania's flat taxes it was possible to measure the activities within the State because truck mileage on state highways could be tallied, reported, and apportioned, the exact path of thousands of electronic signals can neither be traced nor recorded. We therefore conclude that the [Illinois] Tax Act does not discriminate in favor of intrastate commerce at the expense of interstate commerce.
488 U.S. at , 102 L. Ed. 2d at 620, 109 S. Ct. at 591. Based on the above, it is my opinion that a local license tax that exempts a trucking company holding both an S.C.C. certificate of convenience and necessity and an I.C.C. interstate authority, while taxing a competing, "exclusively interstate trucking company," cannot satisfy the standard that the tax "not discriminate in favor of intrastate commerce at the expense of interstate commerce." Id. This tax has the effect of directly benefiting one competing interstate company over another merely because the company benefited also has an S.C.C. intrastate certificate of convenience and necessity. It is further my opinion, therefore, that such a local business license tax discriminates against interstate commerce in favor of intrastate commerce and, as a result, violates the Commerce Clause of the Constitution of the United States.
With kindest regards, I am
1 See also 1987-1988 Att'y Gen. Ann. Rep. 511 (citing the Cheatham Opinion for the rule that the § 58.1-3703(B)(1) exemption for public service corporations does not extend to a common carrier regulated exclusively by the I.C.C.; Commerce Clause argument not raised or independently discussed).
As discussed in the Cheatham Opinion, the Supreme Court has established four standards that a state tax statute must meet to withstand a challenge on Commerce Clause grounds: (1) there must be a substantial nexus between the taxpayer and the taxing state2; (2) the tax must be fairly apportioned; (3) there must be no discrimination against interstate commerce; and (4) the tax must be fairly related to the services provided by the state imposing the tax. Complete Auto Transit, Inc., 430 U.S. at 279; Cheatham Opinion, supra. If a taxing statute or ordinance fails to satisfy one of these four standards, it violates the Commerce Clause. Maryland v. Louisiana, 451 U.S. 725, 754 (1981).
Attorney General's Opinion