Substantive Law Study Support

Assignments and Projects

1. Using the format shown in previous chapters, brief the case of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).
Judicial History: Appeal from the Supreme Court of Mississippi.

Facts: This case involves the assessment of back taxes on sales against Complete Auto Transit, Inc., a transportation corporation that transported motor vehicles from train stops in Mississippi to Mississippi car dealers. The taxes were issued pursuant to a Mississippi statute (Miss. Code Ann. § 10105) as a “privilege of doing business” tax for engaging in activity in Mississippi. Complete Auto Transit, Inc. challenged the tax, claiming it was counter to the Commerce Clause. The Mississippi Supreme Court concluded that the tax was constitutional.
Issue: Is the Mississippi statute unconstitutional when applied to interstate commerce?

Holding: No, the Court affirmed the judgment of the Mississippi Supreme Court. Rationale: The Court ruled that the tax imposed by the state upon a corporation that engaged in interstate commerce for the “privilege of doing business” in Mississippi was not unconstitutional. “A Mississippi tax on the privilege of doing business in the State held not to violate the Commerce Clause when it is applied to an interstate activity (here the transportation by motor carrier in Mississippi to Mississippi dealers of cars manufactured outside the State) 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. Spector Motor Service v. O’Connor, 340 U.S. 602, overruled.”

2. In Rice v. Santa Fe Elevator Corp., the Court set forth several criteria, given earlier in this chapter, for determining if field preemption exists. Using these criteria and following the format in Exhibit 6–2, show how the Court came to the conclusion in the Hillsborough case that field preemption did not exist.
Student answers will vary, but should be similar to the response below:

DETERMINING IF FIELD PREEMPTION EXISTS

In the case of Rice v. Santa Fe Elevator Corp., the Court acknowledged that the state and federal law governing grain warehouses did not necessarily conflict, but stated it had to consider whether the federal law governing grain warehouses (United States Warehouse Act) was intended to preempt the area. The Court set out various criteria to be used in making this determination:
a. Is the scheme of federal regulation so pervasive as to make reasonable the inference that Congress left no room for the states to supplement it?
No, in the absence of any actual conflict with the federal act, states are able to regulate matters that do not fall under the federal act, such as contracts with employees, wages, and issuance of securities.
b. Does the Act of Congress touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject?
No, the Act reads that the Secretary of Agriculture “is authorized to cooperate with State officials charged with the enforcement of State laws relating to warehouses, warehousemen,” and their personnel.
a. What is the object sought to be obtained by the federal law and the character of obligations imposed by it?
The federal law sought to establish just and reasonable rates and the elimination of rate fixing by the Illinois Commission; and it also sought to eliminate the practice of mixing high quality public grain with inferior grain; proper licensing for grain dealers and warehouses; and to improve the safety of working conditions for employees, among other practices, all for the purpose of establishing “fair and uniform business practices.”
b. Does the state policy produce a result inconsistent with the objective of the federal statute?
Yes, the state policy allows the Illinois Commission to fix rates, which conflicts with the federal act.

Putting It Into Practice

1. Assume that your law office represents Rhonda Berk (see Living with the Constitution), who sells individually made handcrafted items on an “auction”-type Web site. Berk, who is a resident of Idaho, received a letter from a neighboring state (State A) demanding that she pay sales tax on all the sales she made for the past year. Berk had sold some items to residents of the neighboring state, but they constituted only about 15 percent of her total sales. All her sales are shipped by ground, and all the shippers travel through State A to reach their destination. Draft a letter to be sent to the tax board of State A refuting its claim for taxes.

Student responses will vary, but they may include an argument that the Due Process Clause requires minimum contacts with a state. The attorney may argue that Berk’s sales to residents of the neighboring state only constitute 15 percent of her total sales, her product is shipped through a third party, and this does not constitute minimum contacts (although courts can recognize this as minimum contacts).