No. 86-357
Argued: April 28, 1987Decided: June 23, 1987
Held:
-
- 1. The challenged taxes are unconstitutional because the methods by which they are assessed discriminate against interstate commerce in a way that contradicts the Commerce Clause’s central purpose of guaranteeing
- a free trade area among States. The Clause prohibits a State, as here, from imposing a tax that places a much heavier burden on out-of-state businesses that compete in an interstate market than it imposes on its own residents who also engage in interstate commerce. The challenged taxes do not pass the “internal consistency” test under which a state tax must be of a kind that, if applied by every jurisdiction, there would be no impermissible interference with free trade. The challenged taxes’ inevitable effect is to threaten the free movement of commerce by placing a financial barrier around Pennsylvania. Pp. 280-287.
- 2. The challenged taxes cannot be upheld on the ground that they reflect a reasonable charge for the privilege of using Pennsylvania’s roads when considered alongside the high price that Pennsylvania-based trucks pay in registration fees. There is no merit to the contention that the axle tax does not discriminate against interstate commerce because domestic trucks, through payment of the registration fees, pay a higher price to use Pennsylvania’s highways than those registered in other States. Pp. 287-289.
- 3. Nor can the challenged taxes be upheld on the ground that they are no different from flat user fees recently upheld in other cases. Evansville-Vanderburgh Airport Authority District v. Delta Airlines, Inc., 405 U.S. 707 , and Commonwealth Edison Co. v. Montana, 453 U.S. 609 , distinguished. Pp. 289-292.
- 4. Earlier cases that support a State’s authority to impose flat use taxes can no longer suffice to uphold flat taxes with the blatantly discriminatory consequences associated with Pennsylvania’s marker fee and axle tax. More recent decisions have rejected the approach to the Commerce Clause taken in the earlier cases that focused primarily on the character of the privilege rather than the practical consequences of the tax. A flat tax may not be upheld merely because the particular formula by which its charges are reckoned extends the same nominal privilege to interstate commerce that it extends to in-state activities. Although out-of-state carriers obtain a privilege to use Pennsylvania’s highways that is nominally equivalent to that which local carriers receive, imposition of the challenged taxes for a privilege that is several times more valuable to a local business than to its out-of-state competitors is unquestionably discriminatory and thus offends the Commerce Clause. While flat taxes may be valid when administrative difficulties make collection of more finely calibrated user charges impracticable, such justification is unavailable with regard to Pennsylvania’s unapportioned marker fee and axle tax. Pp. 292-297.
510 Pa. 430, 509 A. 2d 838, reversed and remanded. [483 U.S. 266, 268]
STEVENS, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, and BLACKMUN, JJ., joined. O’CONNOR, J., filed a dissenting opinion, in which REHNQUIST, C. J., and POWELL, J., joined, post, p. 298. SCALIA, J., filed a dissenting opinion, in which REHNQUIST, C. J., joined, post, p. 303.
Stephen M. Shapiro argued the cause for appellants. With him on the briefs were Andrew L. Frey, Kenneth S. Geller, Mark I. Levy, Daniel R. Barney, Robert Digges, Jr., William S. Busker, and Walter Hellerstein.
Suellen M. Wolfe, Chief Deputy Attorney General of Pennsylvania, argued the cause for appellees. With her on the brief were LeRoy S. Zimmerman, Attorney General, Andrew S. Gordon, Chief Deputy Attorney General, Bryan E. Barbin and Michael A. Roman, Deputy Attorneys General, and Allen C. Warshaw. *
[ Footnote * ] Briefs of amici curiae urging reversal were filed for the State of North Carolina et al. by Lacy H. Thornburg, Attorney General of North Carolina, Jane P. Gray, Special Deputy Attorney General, and David L. Wilkinson, Attorney General of Utah; for the State of Oklahoma by Michael C. Turpen, Attorney General, and Richard Mildren, Assistant Attorney General; for the Canadian Trucking Association by William H. Shawn and Kim D. Mann; and for Yellow Freight System, Inc., et al. by Lester M. Bridgeman.
Briefs of amici curiae urging affirmance were filed for the State of Arkansas by Steve Clark, Attorney General, Chris Parker, and Ted Goodloe; for the State of New Jersey by W. Cary Edwards, Attorney General, and Michael R. Clancy and Mary R. Hamill, Deputy Attorneys General; for the State of Vermont by Michael H. Gottesman, Jeffrey L. Amestoy, Attorney General, and Thomas R. Viall and Robert C. Schwartz, Assistant Attorneys General; and for the Transportation Cabinet of the Commonwealth of Kentucky by David Armstrong, Attorney General of Kentucky, A. Stephen Reeder, Special Assistant Attorney General, James R. Cox, and Janet P. Jakubowicz.
JUSTICE STEVENS delivered the opinion of the Court.
Again we are “asked to decide whether state taxes as applied to an interstate motor carrier run afoul of the commerce clause, Art. I, 8, of the Federal Constitution.” Aero Mayflower Transit Co. v. Board of Railroad Comm’rs, 332 U.S. 495 , [483 U.S. 266, 269] 496 (1947). That statement of the question presented might equally well have introduced the Court’s opinion in either Spector Motor Service, Inc. v. O’Connor, 340 U.S. 602 (1951), or Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), which overruled Spector. In this case we review the Supreme Court of Pennsylvania statutes which impose lump-sum annual taxes on the operation of trucks and truck tractors. Our task is by no means easy; the uneven course of decisions in this field reflects the difficulties of reconciling unrestricted access to the national market with each State’s authority to collect its fair share of revenues from interstate commercial activity.
Appellants claim that these Pennsylvania statutes violate the principle that no State may discriminate against interstate commerce by enacting a tax which provides a competitive advantage to local business. 1 The Pennsylvania Supreme Court upheld the taxes, interpreting them as facially neutral and in accord with a line of our decisions in the pre-Spector era approving flat taxes imposed on interstate truckers for the privilege of using a State’s highway system. Before turning to the judgment of the State Supreme Court, we first describe the challenged taxes in some detail in the context of the State’s revenue-gathering system and explain why we find persuasive appellants’ claims of discrimination. Despite appellees’ defense of the revenue provisions as valid compensatory, user-fee, or flat taxes, the judgment of the State Supreme Court must be reversed. [483 U.S. 266, 270]
I
The Commonwealth of Pennsylvania spends large sums of money to improve and maintain its highways and bridges. 2 Passenger and cargo vehicles travel billions of miles on these highways every year. 3 Operators of large trucks and tractor trailers engaged in interstate commerce make particularly heavy use of the State’s highways. Their vehicles, which may be classified by the number of their axles or by their gross weight – ranging from less than 5,000 pounds for the smallest class to 79,001-80,000 pounds for the 25th class – not only transport cargo between Pennsylvania and out-of-state locations, but also use Pennsylvania’s highways extensively as corridors connecting the States of the Northeast, the Southeast, and the Midwest. 4 Because of their weight and size, trucks using the State’s roads require the State to make higher road-related expenditures than would use of the roads by smaller vehicles alone. App. 30. The State’s hilly terrain and frequently severe weather conditions enhance the [483 U.S. 266, 271] costs of highway maintenance. 510 Pa. 430, 433, 509 A. 2d 838, 840 (1986).
These expenditures are financed, in substantial part, by three types of levies on users of Pennsylvania’s highways: vehicle registration fees, fuel consumption taxes, and lump-sum annual fees which we will describe as “flat taxes.” Although the two taxes at issue in this litigation are both flat taxes – a $25 “marker fee” assessed from August 18, 1980, through March 31, 1983, and an “axle tax” imposed thereafter – registration fees and fuel taxes are principal sources of revenue for road-related purposes and therefore the mechanics of their collection provide necessary background for our analysis of the economic significance and constitutional validity of the challenged flat taxes.
Registration Fees
Owners of motor vehicles that are based in Pennsylvania must register them with the Department of Transportation and pay an annual registration fee. The weight of a truck or truck tractor 5 determines the amount of the annual fee. Prior to 1980, there were 20 weight classifications, and the corresponding fees ranged from $39 to $606 per vehicle. App. 260. In 1980, the registration fees were increased and five new weight classes for heavier vehicles were added to the statutory schedule; from 1980 to 1982 the maximum registration fee was $1,125, for a vehicle weighing 79,001 to 80,000 pounds. Ibid. In 1982, the registration fees for vehicles weighing more than 26,000 pounds (classes 9-25) were reduced by multiples of $36 ranging up to a $180 reduction; thereafter, the maximum fee was $945. Ibid.
Pennsylvania, many other States, and Provinces of Canada participate in an apportioned registration scheme called the “International Registration Plan” (IRP). Participants in this plan share the registration fees for vehicles based in [483 U.S. 266, 272] their States with other IRP States in which the vehicles travel. The percentage of each vehicle’s total registration fee that is allocated to each IRP State other than the State in which the vehicle is based is determined by dividing the total number of miles the vehicle traveled within the IRP State during the preceding year by its total mileage. The total fee payable to each State is the product of each State’s total fee for full registration of each vehicle and that State’s percentage share of the vehicle’s mileage. Thus, if 30% of the mileage of a Pennsylvania-based vehicle was accrued in other States, Pennsylvania’s share of the registration fee would be 70% of the full amount specified in its statutory schedule. On the other hand, if a vehicle based in another IRP State logged 40% of its mileage in Pennsylvania, its owner would be required to pay that portion of the Pennsylvania fee schedule to Pennsylvania. 6 Pennsylvania collects no registration fees from motor carriers based in non-IRP States and, conversely, Pennsylvania-based vehicles pay no registration fees to non-IRP States. 7 [483 U.S. 266, 273]
In sum, the amount of each truck’s registration fee is determined by the weight of the vehicle and, if the truck travels in other IRP States, in part by its in-state mileage. No vehicle is required to pay more than one full registration fee.
Fuel Consumption Taxes
Pennsylvania collects a fuel consumption tax in two ways. It imposes a per-gallon fuel tax on fuel purchased within the State. The State also requires trucks that travel less than 90% of their miles in Pennsylvania to pay a tax based on their miles traveled in Pennsylvania, reduced by the amount of the tax actually paid through fuel purchased at Pennsylvania pumps. See Pa. Stat. Ann., Tit. 72, 2611d, 2614.4, and 2617.1-2617.26 (Purdon 1964 and Supp. 1987). The amount of these taxes does not depend on the vehicle’s State of registration.
The Flat Taxes
Pennsylvania requires an identification marker issued by the Department of Revenue to be affixed to every motor carrier vehicle. A motor carrier vehicle is a “truck, truck tractor or combination having a gross weight or registered gross weight in excess of 17,000 pounds.” 75 Pa. Cons. Stat. 102 (1984). Until 1980, the fee for the issuance of this marker was $2. In that year the fee was increased to $25, but vehicles registered in Pennsylvania were exempted from the fee. The statute effected this exemption by providing that for each vehicle registered in Pennsylvania the “marker fee shall [483 U.S. 266, 274] be deemed a part of and included in the vehicle registration fee.” 2102(b).
The parties have stipulated that the administrative costs associated with the issuance of the identification markers total approximately $5 per vehicle. App. 22. In 1982, when it enacted the axle tax, Pennsylvania reduced the annual marker fee from $25 to $5 per vehicle. 2102(b). Since 1982, then, the marker fee is sufficient only to meet the specific cost of issuing the marker, but the effect of the $25 marker fee from 1980 to 1982 was to impose a flat tax on vehicles registered in other States. This tax was, at least nominally, not imposed on Pennsylvania-registered vehicles. It should be noted, however, that the same statute that increased the marker fee in 1980 to $25 for out-of-state vehicles weighing more than 17,000 pounds also increased Pennsylvania’s registration fees for such vehicles by amounts substantially larger than $25.
In 1982, Pennsylvania enacted its axle tax and, as noted, reduced the marker fee to $5 per vehicle. The axle tax applies to all trucks, truck tractors, and combinations weighing more than 26,000 pounds, whether registered in Pennsylvania or elsewhere; it requires an annual payment of $36 per vehicle axle. 75 Pa. Cons. Stat. 9902 (1984). For example, the tax is $72 for a two-axle vehicle and $180 for a five-axle vehicle. If a truck travels less than 2,000 miles in Pennsylvania, however, it is entitled to a rebate: the axle tax paid multiplied by the ratio of the amount by which the vehicle’s in-state mileage was short of 2,000 miles to 2,000 determines the rebate amount. 9905. Moreover, the axle tax is excused when a trucker pays $25 for a trip permit for a period not exceeding five days. 2102(d).
The same statute that enacted the axle tax in 1982 also reduced the registration fees for all weight classes of vehicles of more than 26,000 pounds. In classes 9-12, which generally include two-axle vehicles required to pay a $72 axle tax, the reduction amounted to $72; in classes 13-17, which usually [483 U.S. 266, 275] include three-axle vehicles subject to a $108 axle tax, it amounted to $108; in classes 18, 19, and 20, usually four-axle vehicles subject to a $144 axle tax, it amounted to $144, and in the five heaviest classes – vehicle weights exceeding the permissible weight for four-axle vehicles – it amounted to $180. 8 In brief, the amounts of the reductions in all classes were a multiple of the $36 per axle which is used as the measure for the axle tax. App. 260.
II
Appellants represent a class of interstate motor carriers whose vehicles are registered outside of Pennsylvania and who paid the $25 marker fee while it was in effect and who have thereafter been subject to the axle tax. They brought separate actions in the Commonwealth Court of Pennsylvania challenging the constitutionality of the $25 marker fee and of the axle tax. In each case, appellants made two separate arguments based on the Commerce Clause of the Federal Constitution.
First, they argued that the entire economic burden of each tax fell on out-of-state vehicles because the 1980 statute “deemed” the marker fee for Pennsylvania vehicles to be a part of the registration fee, and the 1982 legislation granted Pennsylvania vehicles a reduction in registration fees that [483 U.S. 266, 276] neatly offset the newly imposed axle tax. Second, they argued that even if owners of vehicles registered in Pennsylvania, though payment of registration fees, shared the burden of the two flat taxes with owners of vehicles based elsewhere, the taxes were nevertheless discriminatory because both taxes imposed a much heavier charge per mile of highway usage by out-of-state vehicles. On the average, the Pennsylvania-based vehicles subject to the flat taxes travel about five times as many miles on Pennsylvania roads as do the out-of-state vehicles; correspondingly, the cost per mile of each of the flat taxes is approximately five times as high for out-of-state vehicles as for local vehicles. 9 Although out-of-state and in-state vehicles subject to the axle tax traveled approximately the same number of miles on Pennsylvania’s highways, less than one-sixth of the State’s total axle tax revenues were generated by Pennsylvania-based vehicles in fiscal years 1982-1983 and 1983-1984. 10
In both the marker fee case and the axle tax case the Commonwealth Court accepted appellants’ first argument and did not consider the second. In the first case, the court reasoned: [483 U.S. 266, 277]
- “A state tax on interstate commerce does not offend the Commerce Clause . . . if that tax 1. is applied to an activity with a substantial nexus with 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. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 [, 279] (1977). . . . Section 2102(b) facially fails the third prong of the Complete Auto standard which prohibits discrimination against interstate commerce. Notwithstanding legislative legerdemain in the insertion of the obfuscating term `deemed,’ Pennsylvania-registered vehicles were exempted from, and foreign-registered vehicles were subject to, the marker decal fee. `The commerce clause forbids discrimination, whether forthright or ingenious.’ Best & Co. v. Maxwell, 311 U.S. 454, 455 (1940) (footnote omitted).” American Trucking Assns., Inc. v. Bloom, 77 Pa. Commw. 575, 581, 466 A. 2d 755, 757 (1983).
The Commonwealth Court ordered a refund of marker fee payments made after April 1, 1982. Id., at 581-582, 466 A. 2d, at 758. Sitting en banc, the Commonwealth Court overruled defendant’s exceptions to the trial judge’s order. American Trucking Assns., Inc. v. Bloom, 87 Pa. Commw. 345, 487 A. 2d 468 (1985). The en banc court inferred from the legislature’s nonenactment of increased registration fees to keep pace with the marker levy imposed on vehicles based outside of Pennsylvania “a legislative intent to exempt Pennsylvania-registered motor carriers from payment of the $25.00 marker fee.” Id., at 350, 487 A. 2d, at 471.
Appellants in the case challenging the axle tax represent a class of all interstate motor carriers who own vehicles registered outside of Pennsylvania who are or will be subject to the tax, and a subclass consisting of such interstate motor carriers who are registered in any of the States or the Provinces of Canada that are not members of the IRP. Appellants contended that the axle tax, together with the simultaneous [483 U.S. 266, 278] reduction in registration fees substantially offsetting the axle tax for Pennsylvania-registered vehicles, is facially discriminatory and in practice imposes the axle tax only on interstate motor carriers registered outside of Pennsylvania. Appellants also argued that the axle tax is an invalid flat tax wholly unrelated to the benefits received by interstate motor carriers. Sitting en banc, the Commonwealth Court declared that the axle tax violated the Commerce Clause and ordered a refund of axle tax payments made by affected class members after April 1, 1983. 87 Pa. Commw. 379, 487 A. 2d 465 (1985). The court found that operators of foreign-registered vehicles bore the “full brunt of the tax” and concluded that the axle tax therefore “constitutes economic protectionism and is facially invalid.” Id., at 383, 487 A. 2d, at 467.
The Supreme Court of Pennsylvania considered the two cases together and reversed. 510 Pa. 430, 509 A. 2d 838 (1986). 11 The Court began its analysis by noting that the prohibition against discrimination was included in the fourpart test stated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), and that it was essential to focus on the “effect or economic consequences of the state tax upon interstate commerce.” 510 Pa., at 449, 509 A. 2d, at 848.
Pursuing this inquiry, the State Supreme Court rejected the trial court’s conclusion that the full burden of both taxes was imposed on foreign-registered vehicles. With respect to the marker fee, the Court considered irrelevant the legislative history supporting a contrary inference, because the plain language of the statute “deemed” a portion of the registration [483 U.S. 266, 279] fee to constitute payment of the marker fee for Pennsylvania vehicles. The Court thus found no discrimination in the operation of the marker fee because the statute “imposed a $25.00 marker fee on all motor carriers in the class represented by appellees and deemed a like amount of the simultaneous increase in Pennsylvania registration fees as the marker fee for Pennsylvania registered vehicles.” Id., at 453, 509 A. 2d, at 850. Moreover, even if the statute had not explicitly provided that Pennsylvania-registered vehicles are regarded as having paid a marker fee, the simultaneous increase in the registration fee when the $25 marker fee was enacted made it “apparent that the marker fee does not work any discrimination against interstate commerce in practical operation.” Ibid.
The court thus viewed the marker fee as a flat tax applied equally on all vehicles using the State’s highways. The court offered two reasons why this flat tax was not discriminatory despite its imposition of a greater cost per mile on non-Pennsylvania registered vehicles. First, relying on our opinions in Evansville-Vanderburgh Airport Authority District v. Delta Airlines, Inc., 405 U.S. 707 (1972), and Commonwealth Edison Co. v. Montana, 453 U.S. 609 (1981), the Court reasoned that a State may impose a tax for the privilege of using its highways “so long as the flat fee charged is not manifestly disproportionate to the services rendered.” 510 Pa., at 457, 509 A. 2d, at 852. Second, the Court found that interstate motor carriers could not protest that the burden of the flat fee fell too heavily upon them, for they “are free to use the Commonwealth’s highways as often and for whatever distances they wish.” Ibid.
In the axle tax case, the Court found that the tax was collected from Pennsylvania and non-Pennsylvania-registered vehicles alike and thus presented no question of discrimination “[o]n its face and in actual operation.” Id., at 459, 509 A. 2d, at 853. The Court acknowledged that a difficulty arose when it considered the tax together with the statutory [483 U.S. 266, 280] reduction in 1982 of registration fees paid by Pennsylvania-based vehicles subject to the axle tax, but concluded that even though the reduction in registration fees offset the axle taxes for Pennsylvania-based vehicles, this reduction had to be viewed against the earlier increase in 1980 of registration fees. According to the State Supreme Court, the net effect of the restructuring of the tax system over the 2-year period was “to enact a compensatory tax to neutralize or partially offset an economic advantage previously enjoyed by interstate commerce to the disadvantage of local commerce that was caused by operation of that state’s taxing scheme.” Id., at 462, 509 A. 2d, at 855. Taking all provisions of the State’s highway user-fee system into account, the court reasoned that members of appellants’ class bore less of the tax burden than Pennsylvania-registered motor vehicles. Id., at 460-463, 509 A. 2d, at 854-855. The Court concluded that “in easing the burden on Pennsylvania registered vehicles, the Commonwealth has neither disadvantaged interstate commerce nor favored local commerce, and the axle tax does not, therefore, discriminate against interstate commerce.” Id., at 462, 509 A. 2d, at 855.
III
Although we have described our own decisions in this area as a “quagmire” of judicial responses to specific state tax measures, Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 457 -458 (1959), we have steadfastly adhered to the central tenet that the Commerce Clause “by its own force created an area of trade free from interference by the States.” Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318, 328 (1977). See also Armco Inc. v. Hardesty, 467 U.S. 638, 642 (1984). One primary consequence of this constitutional restriction on state taxing powers, frequently asserted in litigation, is that “a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.” Ibid.; see also Westinghouse Electric Corp. v. Tully, [483 U.S. 266, 281] 466 U.S. 388, 403 (1984). In its guarantee of a free trade area among States, however, the Commerce Clause has a deeper meaning that may be implicated even though state provisions, such as the ones reviewed here, do not allocate tax burdens between insiders and outsiders in a manner that is facially discriminatory. 12
The parties broadly state the constitutional question in this appeal as whether Pennsylvania’s flat taxes result in a blanket discrimination against interstate commerce. The operator of a Pennsylvania-based vehicle that engages in interstate commerce, however, has no apparent quarrel with the challenged flat taxes; he is “deemed” to pay the $25 marker fee through his registration fee, and the axle taxes he paid beginning in 1982 were generally offset by the statutory reduction [483 U.S. 266, 282] in vehicle registration fees. But some operators of vehicles based in other States or Provinces have neither consolation, for they have paid registration fees to their own jurisdictions and still face Pennsylvania’s axle taxes. The precise issue is therefore more subtle: do the methods by which the flat taxes are assessed discriminate against some participants in interstate commerce in a way that contradicts the central purpose of the Commerce Clause? We find dispositive those of our precedents which make it clear that the Commerce Clause prohibits a State from imposing a heavier tax burden on out-of-state businesses that compete in an interstate market than it imposes on its own residents who also engage in commerce among States. 13
The way in which a tax levied on participants in interstate commerce is measured and assessed bears directly on whether it implicates central Commerce Clause values. The method of assessing the marker and axle taxes in this case on Pennsylvania-based vehicles and on other vehicles establishes that the State is not treating the two types of vehicles with an even hand. There are important and obvious differences of a constitutional magnitude between the State’s registration fees and fuel taxes, on the one hand, and its flat taxes, on the other.
The State’s vehicle registration fee has its counterpart in every other State and the District of Columbia. See 2 CCH State Tax Guide §§ 50-200 – 50-940 (2d ed. 1986). It is a tax that readily satisfies the test of “internal consistency” that [483 U.S. 266, 283] we have applied in other contexts. 14 Under this test, even though the registration fee is assessed, as indeed it has been, by every jurisdiction, it causes no impermissible interference with free trade because every State respects the registration of every other State. Payment of one registration fee enables a carrier to operate a vehicle either locally or in the interstate market. Having paid one registration fee, a vehicle may pass among the States as freely as it may roam the State in which it is based; the Commerce Clause is not offended when state boundaries are economically irrelevant.
Yet even if more than one jurisdiction applies a charge to participants in interstate commerce, the Commerce Clause may be satisfied if the revenue measures maintain state boundaries as a neutral factor in economic decisionmaking. Pennsylvania’s fuel consumption taxes, for example, do not hinder the maintenance of a free trade area among States. The fuel consumption taxes are directly apportioned to the mileage traveled in Pennsylvania; they are therefore simply payments for traveling a certain distance that happens to be within Pennsylvania. When a vehicle uses other States’ roads, it may be subject to their fuel taxes, but the free trade area is unimpaired; if one sovereign controlled the entire free trade area, it would have the equivalent authority to impose a charge for the use of all of its roads. 15 [483 U.S. 266, 284]
The unapportioned flat taxes, however, penalize some travel within the free trade area. Whether the full brunt, or only a major portion, of their burden is imposed on the out-of-state carriers, their inevitable effect is to threaten the free movement of commerce by placing a financial barrier around the State of Pennsylvania. To pass the “internal consistency” test, a state tax must be of a kind that, “if applied by every jurisdiction, there would be no impermissible interference with free trade.” Armco Inc. v. Hardesty, 467 U.S., at 644 . If each State imposed flat taxes for the privilege of making commercial entrances into its territory, there is no conceivable doubt that commerce among the States would be deterred. 16 [483 U.S. 266, 285]
Although the actual imposition of flat taxes by other jurisdictions is not necessary to sustain the Commerce Clause challenge to Pennsylvania’s flat taxes under the “internal consistency” test, the adoption of these flat taxes by other jurisdictions even before the Pennsylvania suits were resolved surely suggests that acquiescence in these flat taxes would occasion manifold threats to the national free trade area. Since 1980 when Pennsylvania authorized the $25 marker fee, six other States have also adopted flat taxes 17 and seven States have adopted retaliatory levies that are assessed on motor carrier vehicles that are based in Pennsylvania or another flat-tax State. 18 Such taxes 19 can obviously divide and disrupt the market for interstate transportation services. 20 [483 U.S. 266, 286] In practical effect, since they impose a cost per mile on appellants’ trucks that is approximately five times as heavy as the cost per mile borne by local trucks, the taxes are plainly discriminatory. 21 Under our consistent course of decisions in recent years a state tax that favors in-state business over out-of-state business for no other reason than the location of its business is prohibited by the Commerce Clause. Tyler Pipe Industries, Inc. v. Washington Dept. of Revenue, ante, p. 232; Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984); Armco Inc. v. Hardesty, 467 U.S. 638 (1984); Westinghouse Electric Corp. v. Tully, 466 U.S. 388 (1984); Maryland v. Louisiana, 451 U.S. 725 (1981); Boston Stock Exchange v. State Tax Comm’n, 429 U.S. 318 (1977). Nor is the axle tax saved because some out-of-state carriers which accrue high mileage in Pennsylvania pay the axle tax at a lower per-mile rate than some Pennsylvania-based carriers; it makes no difference that the axle tax, on its face, does not exact a lower per-mile charge from Pennsylvania-based carriers than from out-of-state carriers. Like the exemption from wholesaling tax for goods manufactured in Washington that we struck down in Tyler Pipe Industries, Inc., the axle tax has a forbidden impact on interstate commerce because it exerts an inexorable hydraulic pressure on interstate businesses to ply their trade within the State that enacted the measure rather [483 U.S. 266, 287] than “among the several States.” U.S. Const., Art. I, 8, cl. 3.
IV
Notwithstanding our recent precedents invalidating various state taxation measures that failed the “internal consistency” test, Pennsylvania advances three arguments in defense of its flat taxes. They are said to reflect a reasonable charge for the privilege of using its roads when considered alongside the high price that Pennsylvania-based trucks pay in registration fees. Appellees also argue that the flat taxes are no different from the flat user fees this Court has recently upheld. Finally, talismanically invoking decisions in which we upheld flat taxes for the privilege of doing business within a State, appellees contend that a mere disparity in per-mile costs between interstate and intrastate truckers provides no basis upon which to strike down a tax. We are persuaded, however, that none of the cases relied upon by appellees controls our disposition.
The “Rational Restructuring” Defense
Appellees expressly acknowledge that the axle tax cannot be defended as a compensatory tax that equalizes previously unequal tax burdens by offsetting “a specific tax imposed only on intrastate commerce for a substantially equivalent event.” Brief for Appellees 18. See Tyler Pipe Industries, Inc. v. Washington Dept. of Revenue, ante, at 242-244; Armco Inc. v. Hardesty, 467 U.S., at 642 -643; Henneford v. Silas Mason Co., 300 U.S. 577, 584 (1937). Instead, they argue that the axle tax does not discriminate against interstate commerce because “it is but a small part of Pennsylvania’s multi-tiered scheme of taxes and fees designed to finance an extensive highway system.” Brief for Appellees 17. Appellees contend that domestic trucks pay a higher price to use Pennsylvania’s highways than those registered in other States, and specifically, that the totality of the tax and fee changes since 1980 has resulted in higher relative taxes [483 U.S. 266, 288] on trucks registered in Pennsylvania. The registration fee reductions in 1982 only partially offset these increases. We find this argument unavailing.
Appellees’ reasoning is based on the erroneous premise that relief for Pennsylvania-based trucks is constitutionally permissible because they are subject to a higher financial burden for their use of Pennsylvania’s roads than trucks based in other States must pay for use of the same roads. This premise is flawed for three reasons. Pennsylvania-based trucks are allowed to travel throughout the United States without paying more than one registration fee; the registration fees they pay are not solely for the use of Pennsylvania’s highways. In addition, while it is true that registration fees are lower in some States, they are also higher in some other States. See, e. g., App. 178. Most importantly, even if the relative amounts of the States’ registration fees confer a competitive advantage on trucks based in other States, the Commerce Clause does not permit compensatory measures for the disparities that result from each State’s choice of tax levels. To the extent that a competitive disadvantage is conferred on Pennsylvania carriers by the relative amounts of the States’ registration fees, the remedy lies in a change in their level, the enlargement of participation in the IRP, 22 or the collection of revenues through valid taxes. The axle tax cannot be vindicated as a “rational restructuring of burdens” simply because it arguably benefits a class of [483 U.S. 266, 289] truckers that pays more to use the State’s highways than does another class of highway users. As one commentator has observed, “[i]mplementation of a rule of law that a tax is nondiscriminatory because other taxes of at least the same magnitude are imposed by the taxing State on other taxpayers engaging in different transactions would plunge the Court into the morass of weighing comparative tax burdens.” J. Hellerstein, 1 State Taxation: Corporate Income and Franchise Taxes § 4.125., p. 150 (1983). The flat taxes must stand or fall on their own.
The User-Fee Defense
Taken on their own, the marker fee and axle tax are wholly unlike the user fees we upheld in Evansville-Vanderburgh Airport Authority District v. Delta Airlines, Inc., 405 U.S. 707 (1972), a case relied upon by the Pennsylvania Supreme Court. Evansville-Vanderburgh involved the question whether a municipal airport authority could collect a flat service fee of $1 for each passenger boarding a commercial aircraft operating from the airport. 23 After reviewing our decisions concerning highway tolls, as well as the cases holding that a State may impose a flat fee for the privilege of using its roads without regard to the actual use by particular vehicles, so long as the fee is not excessive, we stated:
-
- “At least so long as the toll is based on some fair approximation of use of privilege for use, as was that before us in Capitol Greyhound [Lines v. Brice, 339 U.S. 542 (1950)], and is neither discriminatory against interstate commerce nor excessive in comparison with the governmental benefit conferred, it will pass constitutional muster, even though some other formula might reflect more
- exactly the relative use of the state facilities by individual users.” Id., at 716-717.
We then explained why the $1 fee satisfied the two essential conditions that it be neither discriminatory nor excessive:
- “The Indiana and New Hampshire charges meet those standards. First, neither fee discriminates against interstate commerce and travel. While the vast majority of passengers who board flights at the airports involved are traveling interstate, both interstate and intrastate flights are subject to the same charges. Furthermore, there is no showing of any inherent difference between these two classes of flights, such that the application of the same fee to both would amount to discrimination against one or the other. See Nippert v. Richmond, 327 U.S. 416 (1946).
- “Second, these charges reflect a fair, if imperfect, approximation of the use of facilities for whose benefit they are imposed.” Id., at 717.
Pennsylvania’s flat taxes satisfy neither of these conditions: They discriminate against out-of-state vehicles by subjecting them to a much higher charge per mile traveled in the State, and they do not even purport to approximate fairly the cost or value of the use of Pennsylvania’s roads.
The Pennsylvania Supreme Court also relied on Common-wealth Edison Co. v. Montana, 453 U.S. 609 (1981). The State of Montana imposed a severance tax on coal at the same rate whether the final destination of the coal was local or interstate. We rejected the taxpayer’s discrimination claim, which was premised on the fact that 90% of Montana coal was shipped to other States under contracts that shifted the tax burden principally to utility companies outside of Montana and that therefore imposed the bulk of the tax burden on out-of-state consumers of Montana coal. We held that “there is no real discrimination in this case; the tax burden is borne according to the amount of coal consumed and not according to [483 U.S. 266, 291] any distinction between in-state and out-of-state consumers.” Id., at 619. Because the tax was a percentage of the value of the contract, and because only Montana could impose the tax, every holder of an equivalently valued contract paid the same tax; whether the shipment crossed a state border was irrelevant to the magnitude of the tax burden imposed by Montana. The flat taxes in this case are distinguishable in two ways. First, the amount of Pennsylvania’s marker and axle taxes owed by a trucker does not vary directly with miles traveled or with some other proxy for value obtained from the State. “[W]hen the measure of a tax bears no relationship to the taxpayers’ presence or activities in a State, a court may properly conclude under the fourth prong of the Complete Auto Transit test that the State is imposing an undue burden on interstate commerce.” Id., at 629. As Justice Frankfurter argued in his dissent in Capitol Greyhound Lines v. Brice, 339 U.S. 542, 557 (1950):
- “So long as a State bases its tax on a relevant measure of actual road use, obviously both interstate and intrastate carriers pay according to the facilities in fact provided by the State. But a tax levied for the privilege of using roads, and not their actual use, may, in the normal course of operations and not as a fanciful hypothesis, involve an undue burden on interstate carriers. While the privilege extended by a State is unlimited in form, and thus theoretically the same for all vehicles, whether interstate or intrastate, the intrastate vehicle can and will exercise the privilege whenever it is in operation, while the interstate vehicle must necessarily forego the privilege some of the time simply because of its interstate character, i. e., because it operates in other States as well. In the general average of instances, the privilege is not as valuable to the interstate as to the intrastate carrier.”
Second, unlike the Montana coal tax, highway use taxes can be imposed by other States. [483 U.S. 266, 292]
- “And because it operates in other States there is danger – and not a fanciful danger – that the interstate carrier will be subject to the privilege taxes of several States, even though his entire use of the highways is not significantly greater than that of intrastate operators who are subject to only one privilege tax.” Ibid. (footnote omitted).
Justice Frankfurter thus illuminated the reason that a State’s imposition of an unapportioned flat tax, unlike the neutral user fee in Evansville-Vanderburgh and the neutral severance tax in Commonwealth Edison Co., discriminates against interstate commerce.
The Flat-Tax Defense
Third, the cases in support of the State’s authority to impose flat use taxes, while lending support to appellees’ argument, can no longer suffice to uphold flat taxes with the blatantly discriminatory consequences associated with the marker fee and axle tax.
In Clark v. Poor, 274 U.S. 544 (1927), the Court held that users of a State’s highways, “although engaged exclusively in interstate commerce, may be required to contribute to their cost and upkeep. . . . There is no suggestion that the tax discriminates against interstate commerce.” Id., at 557. A few years later in Aero Mayflower Transit Co. v. Georgia Public Service Comm’n, 295 U.S. 285 (1935), the Court sustained an annual license fee of $25 imposed on both out-of-state and domestic vehicles, concluding that the case was so similar to Clark v. Poor, supra, “as to apply a closure to debate.” 295 U.S., at 289 . Unlike the Clark case, however, the Court considered and rejected an argument that it was unfair to impose the same charge upon an interstate carrier as upon a local carrier that used the roads more. The Court reasoned that the fee covered the same privilege for both carriers: [483 U.S. 266, 293]
- “The appellant urges the objection that its use of roads in Georgia is less than that by other carriers engaged in local business, yet they pay the same charge. The fee is not for the mileage covered by a vehicle. There would be administrative difficulties in collecting on that basis. The fee is for the privilege of a use as extensive as the carrier wills that it shall be. There is nothing unreasonable or oppressive in a burden so imposed. Cf. Clark v. Poor, supra; Hicklin v. Coney, [290 U.S. 169 (1933)]. One who receives a privilege without limit is not wronged by his own refusal to enjoy it as freely as he may.” 295 U.S., at 289 .
In a second case brought by the same interstate carrier, the Court again relied on the principle of Clark v. Poor to support the proposition that “a state, consistently with the commerce clause, may lay upon motor vehicles engaged exclusively in interstate commerce, or upon those who own and so operate them, a fair and reasonable nondiscriminatory tax as compensation for the use of its highways.” Aero Mayflower Transit Co. v. Board of Railroad Comm’rs, 332 U.S., at 503 . Aero Mayflower held that two flat taxes imposed by Montana on each commercial vehicle operated on its highways did not discriminate against interstate commerce; “[b]oth levies apply exclusively to operations wholly within the state or the proceeds of such operations, although those operations are interstate in character.” Id., at 502. The Court was careful to identify the consideration for the taxes as the privilege of using the State’s highways, 24 and to point out that the appellant had erred by failing to distinguish between a tax on that privilege and a tax on the privilege of engaging in interstate commerce: [483 U.S. 266, 294]
- “Appellant therefore confuses a tax `assessed for a proper purpose and . . . not objectionable in amount,’ Clark v. Poor, supra, at 557, that is, a tax affirmatively laid for the privilege of using the state’s highways, with a tax not imposed on that privilege but upon some other such as the privilege of doing the interstate business. Though necessarily related, in view of the nature of interstate motor traffic, the two privileges are not identical, and it is useless to confuse them . . . .” Id., at 504.
Later in the opinion, the Court again emphasized the fact that the gross revenue fee was exacted in consideration for the privilege of using the State’s highways, not for the privilege of doing interstate business. Id., at 506.
The distinction between a tax on the privilege of using a State’s highways and a tax on the privilege of engaging in interstate commerce was also dispositive in Spector Motor Service, Inc. v. O’Connor, 340 U.S. 602 (1951), decided just four years later. Again addressing a tax on an interstate motor carrier, the Court this time invalidated it, distinguishing Aero Mayflower Transit Co. v. Board of Railroad Comm’rs because the Spector tax was “not levied as compensation for the use of highways,” 340 U.S., at 607 , and was not a tax on sales or use. “It is a `tax or excise’ placed unequivocally upon the corporation’s franchise for the privilege of carrying on exclusively interstate transportation in the State.” We explained:
- “Even though the financial burden on interstate commerce might be the same, the question whether a state may validly make interstate commerce pay its way depends first of all upon the constitutional channel through which it attempts to do so. Freeman v. Hewit, 329 U.S. 249 1946.; McLeod v. Dilworth Co., 322 U.S. 327 1944..” Id., at 608.
In our more recent decisions we have rejected this somewhat metaphysical approach to the Commerce Clause that focused [483 U.S. 266, 295] primarily on the character of the privilege rather than the practical consequences of the tax. 25 In 1977, while we recognized that we had invalidated privilege taxes on instate activity deemed to be part of interstate commerce, we also noted that we had “moved toward a standard of permissibility of state taxation based upon its actual effect rather than its legal terminology.” Complete Auto Transit, Inc. v. Brady, 430 U.S., at 281 . “These decisions have considered not the formal language of the tax statute but rather its practical effect, and have sustained a tax against Commerce Clause challenge when the tax 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.” Id., at 279. In Complete Auto Transit, Inc., we not only observed that the Spector rule against a tax on the privilege of interstate commerce “has no relationship to economic realities,” 430 U.S., at 279 , and expressly overruled the Spector case itself, 430 U.S., at 289 , but also concluded that “the philosophy underlying the rule [that interstate commerce is immune from state taxation has] been rejected.” Id., at 288. In ruling that the theoretical underpinnings of this rule had been eroded, we necessarily called into question the future vitality of earlier cases that had upheld facially neutral flat taxes against challenges premised on the rule of immunity for interstate commerce. Unsuccessful challenges had then been turned away on the theory that the State was not taxing the conduct of interstate commerce, but instead was taxing a unitary, formally defined privilege that was sometimes part of intrastate commerce and sometimes part of interstate commerce. Now [483 U.S. 266, 296] that it has been firmly established that interstate commerce as such has no immunity from state taxation, it is no longer appropriate to uphold a flat tax merely because the particular formula by which its charges are reckoned extends the same nominal privilege to interstate commerce that it extends to in-state activities. Such formalism “merely obscures the question whether the tax produces a forbidden effect.” Ibid.
Thus, the precedents upholding flat taxes can no longer support the broad proposition, advanced by appellees, that every flat tax for the privilege of using a State’s highways must be upheld even if it has a clearly discriminatory effect on commerce by reason of that commerce’s interstate character. Although out-of-state carriers obtain a privilege to use Pennsylvania’s highways that is nominally equivalent to that which local carriers receive, imposition of the flat taxes for a privilege that is several times more valuable to a local business than to its out-of-state competitors is unquestionably discriminatory and thus offends the Commerce Clause. The great constitutional purpose of the Fathers cannot be defeated by using an apparently neutral “guise of taxation which produces the excluding or discriminatory effect.” Nippert v. Richmond, 327 U.S. 416, 426 (1946). Those precedents are still valid, however, in their recognition that the Commerce Clause does not require the States to avoid flat taxes when they are the only practicable means of collecting revenues from users and the use of a more finely gradated userfee schedule would pose genuine administrative burdens. 26 [483 U.S. 266, 297]
The administrative machinery of revenue collection for highways is now obviously capable of taking into account at least the gross variations in cost per unit of highway usage between Pennsylvania-based and out-of-state carriers that are presented by these facts. Pennsylvania, as noted, uses mileage figures to apportion motor carriers’ registration fees among IRP jurisdictions, to collect fuel taxes from trucks that travel less than 90% of their miles in Pennsylvania, and to calculate axle tax rebates. Pennsylvania also apportions the corporate income tax it imposes on interstate carriers by the carrier’s total miles traveled in the State. Pa. Stat. Ann., Tit. 72, 7401(3)2(b) (Purdon Supp. 1987). 27 While flat taxes may be perfectly valid when administrative difficulties make collection of more finely calibrated user charges impracticable, we conclude that this justification is unavailable in the case of Pennsylvania’s unapportioned marker fee and axle tax.
V
Appellees request that in the event of an adverse decision, the Court remand the case to the Pennsylvania Supreme Court to consider whether our ruling should be applied retroactively and to decide other remedial issues. We agree that having [483 U.S. 266, 298] decided the constitutional issue presented to us, we should remand for further proceedings in the marker fee, axle tax, and marker fee refund suits. See Tyler Pipe Industries, Inc. v. Washington Dept. of Revenue, ante, at 251-253.
The judgment of the Pennsylvania Supreme Court is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.
