WASHINGTON -- The Supreme Court agreed yesterday to decide the degree to which states may tax out-of-state firms and said it would review the constitutionality of California's property tax system.
Opening its 1991-92 term, the justices announced they would hear arguments in the closely watched case of Quill v. North Dakota, a suit challenging the ability of state governments to force out-of-state, mail-order firms to collect and remit sales taxes on catalog and telephone sales made within their states.
The court also agreed to decide whether California's property tax system, ushered in by the passage of Proposition 13 in 1978, villates the U.S. Constitution's equal protection clause. The disposition of the Los Angeles County case, Nordlinger v. Hahn, could have an enormous financial impact on local governments in the state and on other states contemplating adoption of a similar system.
The high court's decision to hear arguments in the mail-order case drew immediate praise from the National Governors' Association.
Speaking for the group, Gov. George A. Sinner of North Dakota said in a statement, "This is exactly the move the states have been seeking." He said that if the court upholds the state ruling, "The out-of-state firms will no longer be able to undercut the prices of in-state retailers and continue to enjoy an unfair competitive advantage they've had for so long."
In 1967, the Supreme Court ruled in the National Bellas Hess v. Department of Revenue case that states cannot impose such tax collections on out-of-state, mail-order firms. Nevertheless, a number of states in recent years have adopted such levies, resulting in a spate of legal challenges.
Ruling earlier this year in the Quill case, the North Dakota Supreme Court upheld a state tax on mail-order firms and said technological advances had rendered the Bellas Hess ruling obsolete. In Bellas Hess, the court said the requirements are unconstitutional and ruled they may be imposed only if the mail-order firms have a physical presence in the state.
The governors' group said the Bellas Hess ruling costs states an estimated $3 billion in uncollected revenues annually.
Because the Supreme Court justices do not explain why they decide to consider certain cases, it is unclear whether the court took the Quill case to set out a new rule on mail-order taxes, as being requested by a phalanx of state and local officials, or to reprimand the North Dakota Supreme Court for overturning the 1967 precedent. The justices generally guard their decisions and defer to themselves the ability to overturn previous decisions.
But the court also agreed yesterday to review a Wisconsin Supreme Court ruling in Department of Revenue v. William Wrigley Jr. Co., a case testing whether federal law prohibits states from imposing franchise taxes on representatives of out-of-state firms, and set the case for oral argument in tandem with the Quill case.
The court's action appears to underscore the justices' interest in determining the allowable bounds of state taxation on out-of-state firms. In the Wisconsin case, the state supreme court ruled the state was barred from imposing a franchise tax on representatives of Illinois-based Wrigley, the chewing gum manufacturer.
The Supreme Court's consideration of California's tax system will focus on the method used to reassess property.
Under Proposition 13, property tax increases are capped at the lesser of 2% or the rate of inflation. But in what is known as the "welcome stranger" policy, the assessment rises to the actual value of the property when the property is sold.
For example, a long-time home owner may pay taxes on an assessed value of $100,000, while a new neighbor with a similar home may have to pay taxes on an assessed value of $150,000. Detractors claim that discrepancy violates the Constitution.
The Supreme Court in 1989 struck down a similar system in Webster County. W. Va., and earlier this year agreed to review the California tax in the context of commercial property. But the California challenge was later dropped when retailer R.H. Macy & Co. decided not to pursue the matter.
In other action, the Supreme Court yesterday:
* Declined to review a Vermont Supreme Court ruling upholding the right of the state to impose on new residents a 4% purchase and use tax on cars without granting a credit for taxes paid to other states; and
* Declined to review a federal appeals court ruling upholding the right of Gov. Tommy G. Thompson of Wisconsin to use his veto power to excise portions of appropriations bills, thereby creating laws the state Legislature never considered.
On the first day of its term, the court's eight sitting justices issued orders in 1,400 pending cases. The court is short by one justice following Thurgood Marshall's retirement, which became effective Oct. 1.
The prospects for Judge Clarence Thomas to succeed Justice Marshall, which appeared assured last week, came into doubt yesterday amid allegations that Judge Thomas sexually harassed a former assistant.
At a press conference yesterday in Norman, Okla., Anital Hill, now a law professor at the University of Oklahoma, said her allegations were not politically timed and she merely wants "an official resolution of this." The Senate is scheduled to vote on confirmation tonight.
