D. H. Holmes Co., Ltd. v. McNamara, 486 U.S. 24 (1988)

D. H. Holmes Co., Ltd. v. McNamara

No. 87-267

Argued March 22, 1988
Decided May 16, 1988
486 U.S. 24

APPEAL FROM THE COURT OF APPEAL OF LOUISIANA, FOURTH

CIRCUIT

Syllabus

Appellant, a Louisiana corporation which operates 13 department stores realizing over $100 million in annual sales in that State, contracted with several out-of-state companies to design, print, and distribute merchandise catalogs. Appellant paid for the catalogs, which were shipped free of charge to addressees; supplied the contractors with lists of addressees, 82% of whom were Louisiana residents; instructed postal authorities to return undeliverable catalogs to its New Orleans store; and initiated the distribution to improve its sales and name recognition among Louisiana residents. Appellant did not pay any sales taxes where the catalogs were designed or printed. The Louisiana Department of Revenue and Taxation, of which appellee is Secretary, assessed taxes on the catalogs’ value under a statute imposing a 3% use tax on all tangible personal property used in Louisiana and defining "use" as the exercise of any right or power over such property incident to ownership, including distribution. When appellant refused to pay the tax, the State filed and won a collection suit in state court. The Louisiana Court of Appeal affirmed, finding that, once the catalogs landed in Louisiana mailboxes, they left the stream of interstate commerce and became part of the property mass of the State; that distribution of the catalogs constituted "use" subject to taxation under the statute; and that, under the four-pronged test for determining the validity of state taxes articulated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, the use tax did not violate the Commerce Clause of the Federal Constitution.

Held: The application of Louisiana’s use tax to appellant’s catalogs does not violate the Commerce Clause. It is largely irrelevant for Clause purposes whether the catalogs "came to rest" in the Louisiana customers’ mailboxes or whether they were still considered in the stream of interstate commerce, since Complete Auto recognized that, with certain restrictions, interstate commerce may be required to pay its fair share of state taxes. Moreover, the argument that the assessment against the catalogs was in essence a tax on the mere presence of goods within the State is without merit, since distribution constitutes use under the statute. Furthermore, the application of the tax to the catalogs satisfies each prong of the Complete Auto test. The taxing scheme is fairly apportioned, since it provides a credit against the use tax for sales taxes paid in other States, and since the use tax was imposed only on those catalogs distributed in-state, and not on those sent to out-of-state customers. The tax structure likewise does not discriminate against interstate commerce, since the use tax, which is designed to compensate the State for revenue lost on out-of-state purchases of goods used in-state, is equal to the sales tax on the same goods purchased in-state; in fact, both taxes are set forth in the same statutory sections. The use tax is also fairly related to state-provided services that facilitate appellant’s in-state sales, including fire and police protection for appellant’s stores and mass transit and public roads which benefit appellant’s customers. Finally, appellant’s activity had a substantial nexus with Louisiana, since appellant controlled the distribution of the catalogs to approximately 400,000 state residents, the distribution was directly aimed at expanding and enhancing its Louisiana business, and it has a significant presence in the State in terms of number of stores and annual sales volume. Cf. National Geographic Society v. California Bd. of Equalization, 430 U.S. 551. National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753, distinguished. Pp. 29-34.

505 So.2d 102, affirmed.

REHNQUIST, C.J., delivered the opinion for a unanimous Court.