Williams v. Vermont

472 U.S. 14, 105 S. Ct. 2465, 86 L. Ed. 2d 11, 1985 U.S. LEXIS 90, 53 U.S.L.W. 4659

• Court: Supreme Court of the United States
• Decided: June 4, 1985
• Docket: 84-592
• Status: Published

Opinions

Justice White

delivered the opinion of the Court.

The State of Vermont collects a use tax when cars are registered with it. The tax is not imposed if the car was purchased in Vermont and a sales tax has been paid. The tax is also reduced by the amount of any sales or use tax paid to another State if that State would afford a credit for taxes paid to Vermont in similar circumstances. The credit is available, however, only if the registrant was a Vermont resident at the time he paid the taxes. Appellants, who bought cars outside of Vermont before becoming residents of that State, challenge the failure to grant them a similar credit. We agree that this failure denies them the equal protection of the laws.

I

Appellants’ complaint, which was dismissed before an answer was filed, sets out the following facts. In December 1980, appellant Norman Williams purchased a new car in Illinois, paying a five-percent sales tax. Three months later, he moved to Vermont, bringing the car with him. He subsequently attempted to register the car in Vermont without paying the required use tax. The Vermont Department of Motor Vehicles refused to register the car. Williams responded by suing in the Federal District Court for the District of Vermont, which, relying on 28 U. S. C. § 1341, dismissed his complaint. Williams then paid the tax, which came to $172, unsuccessfully sought a refund from the Department of Motor Vehicles, and filed the present suit in Vermont Superior Court.¹

The complaint alleged a number of constitutional defects in the State’s failure to afford appellants credit for the sales taxes they had paid. One of them was that the Equal Protection Clause of the Fourteenth Amendment forbade the State to deny the credit to them while providing it in the case of vehicles “acquired outside the state by a resident of Vermont.” Vt. Stat. Ann., Tit. 32, §8911(9) (1981).

The Superior Court dismissed the complaint. Acknowledging that the use tax “does not afford, on its face, equal treatment to residents and nonresidents who purchase cars out-of-state,” App. 14, the court considered the relevant inquiry to be “whether discrimination occurs within the state,” id., at 15. It saw no such discrimination, reasoning that in practice Vermont residents always pay the use tax, because reciprocal States excuse payment of the sales tax and therefore there is no out-of-state payment to credit the use tax against. The court also found no burden on the right to travel, no violation of the Privileges and Immunities Clause, and no interference with interstate commerce.

The Vermont Supreme Court affirmed, 144 Vt. 649, 478 A. 2d 993 (1984), by citation to another decision handed down the same day, Leverson v. Conway, 144 Vt. 523, 481 A. 2d 1029, appeal dism’d for want of a substantial federal question, 469 U. S. 926 (1984), pet. for rehearing pending, No. 84-315. Leverson was an essentially identical case brought by a former Wisconsin resident who, like appellants, had purchased a car in his home State and paid a sales tax, then moved to Vermont and been obliged to pay the use tax. The Vermont Supreme Court upheld the tax. First, it rejected the argument that denying a credit for a sales tax paid to another State infringed the right to travel. The use tax did not impose a penalty for moving to Vermont — the obligation was incurred only by registering one’s car there. Absent such a penalty, and given that there is no fundamental right to have or to register a car, the Equal Protection Clause required only minimal scrutiny. The statute was rationally related to the legitimate state interest in raising revenue to maintain and improve the highways, and rationally placed the burden on those who used them. The exemption for residents who purchased cars in reciprocal States encouraged purchases within Vermont by residents of those States. This goal would not be furthered by granting an exemption to new residents who have already purchased cars elsewhere. The court went on to hold that the Privileges and Immunities Clause did not come into play because no right, such as the right to travel, qualifying as a privilege or immunity was involved. It also rejected a Commerce Clause challenge, viewing this as a straightforward use tax, imposed only on goods that had come to rest in Vermont.

The Vermont Supreme Court denied rehearing, and appellants brought this appeal. We noted probable jurisdiction, 469 U. S. 1085 (1984), and we now reverse.

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The Vermont Motor Vehicle Purchase and Use Tax, Vt. Stat. Ann., Tit. 32, ch. 219 (1981), is distinct from the State’s general sales and use taxes.² It is intended to “improve and maintain the state and interstate highway systems, to pay the principal and interest on bonds issued for the improvement and maintenance of those systems and to pay the cost of administering this chapter.” § 8901. The revenue from the tax goes into a distinct “transportation fund.” §8912. The tax is of two sorts: a four-percent sales tax is imposed at the time of purchase of a motor vehicle in Vermont by a Vermont resident, § 8903(a), and a four-percent use tax is imposed upon registration of a motor vehicle in Vermont unless the Vermont sales tax was paid, § 8903(b).³ A number of vehicles are exempt, including, for example, those owned by a State, the United States, or charitable institutions, and those transferred within a family. See generally § 8911. Prior to September 1, 1980, the statute also exempted “pleasure cars, the owners of which were not residents of this State at the time of purchase and had registered and used the vehicle for at least thirty days in a state or province other than Vermont.” Vt. Stat. Ann., Tit. 32, §8911(6) (1970 and Supp. 1981) (repealed). That provision would have exempted appellants from the use tax. Since its repeal, registrants who purchased their cars out-of-state when not Vermont residents have had to pay the use tax, regardless of whether they already paid a sales tax in another jurisdiction on the same car.

One other exemption is critical to this case. Section 8911(9) provides that the tax does not apply to

“pleasure cars acquired outside the state by a resident of Vermont on which a state sales or use tax has been paid by the person applying for a registration in Vermont, providing that the state or province collecting such tax would grant the same pro-rata credit for Vermont tax paid under similar circumstances. If the tax paid in another state is less than the Vermont tax the tax due shall be the difference.”

There is some dispute as to the reach of this provision. Appellants assert that, in light of this provision, had they been residents when they purchased their cars, they would now be exempt from the use tax. The State disagrees, asserting that the exemption applies only to Vermont residents who register their cars in Vermont without first having registered them elsewhere. According to it, a resident who purchases, pays a sales or use tax on, and registers a car in another State must also pay the Vermont use tax upon his return, bearing the same obligation as appellants.

The State’s submission, if it is to be accepted, would negate any claim that appellants were treated differently than Vermont residents in similar circumstances.⁴ For several reasons, however, we do not believe that in ruling on the equal protection claim the Vermont Supreme Court construed the exemption in this manner.⁶ The exemption contained in §8911(9) refers to “pleasure cars acquired outside the state by a resident of Vermont.” That language on its face exempts Vermont residents who register in another State, and in Leverson the Vermont Supreme Court appears to have proceeded on this basis. That court set out a comprehensive list of who must pay the tax, from which the Vermont resident who first registers the car in another State is conspicuously absent. 144 Vt., at 532, 481 A. 2d, at 1034. The opinion also several times points out that residents who pay a tax in a nonreciprocal State do not enjoy the credit upon registering their cars in Vermont. Id., at 532, 533, 481 A. 2d, at 1034, 1035. Had the court believed that those purchasing and registering a car in a reciprocal State are also not exempt, one would have expected it to have said so. Similarly, the court noted that someone in appellants’ position “is treated in exactly the same manner as all nonexempt persons, including the resident who purchases his vehicle in a nonreciprocal state.” Id., at 533, 481 A. 2d, at 1035. If the court had understood the statute as do appellees, it would also have noted that appellants were treated just like any resident who had previously registered a car elsewhere, not just one who purchased in a nonreciprocal State.

More fundamentally, had the Vermont Supreme Court accepted the narrow construction of the exemption that the State urges, it surely would have stated that the new resident suffers no unequal treatment under the statute at all and would have found no necessity to justify any discriminatory impact of the tax. This would have been a simple and straightforward answer to the equal protection claim, and there would have been no occasion to address the level of scrutiny to be applied to the discrimination or to identify the State’s interest in imposing the differential treatment of the nonresident. Instead, the court concluded that the State need have only a rational basis for the discrimination, and proceeded to hold that there was adequate justification for not extending the exemption to nonresidents.⁶

In short, every indication is that a Vermont resident who, like appellants, bought a car in another State, paid a sales or use tax, and used the car there for a period of time before coming to Vermont, would receive the credit. Appellees offer only their own say-so to the contrary. See Tr. of Oral Arg. 39. Pointing to nothing in the statute or in the opinion below to support their narrow reading, they would have us essentially add a clause that is not there. We cannot do so without stronger authority. We therefore proceed on the understanding that a Vermonter enjoys a credit for any sales taxes paid to a reciprocating State, even if he registered and used the car there before registering the car in Vermont.

HH HH h-i

This Court has expressly reserved the question whether a State must credit a sales tax paid to another State against its own use tax. Southern Pacific Co. v. Gallagher, 306 U. S. 167, 172 (1939); Henneford v. Silas Mason Co., 300 U. S. 577, 587 (1937). The District of Columbia and all but three States with sales and use taxes do provide such a credit, although reciprocity may be required. CCH, State Tax Guide 6013 (1984). As noted above, see n. 2, swpra, Vermont provides a credit with regard to its general use tax. Such a requirement has been endorsed by at least one state court, Montgomery Ward & Co. v. State Board of Equalization, 272 Cal. App. 2d 728, 78 Cal. Rptr. 373 (1969), cert. denied, 396 U. S. 1040 (1970), was advocated 20 years ago in the much-cited Report of the Willis Subcommittee, H. R. Rep. No. 565, 89th Cong., 1st Sess., 1136, 1177-1178 (1965), is adopted in the Multistate Tax Compact, Art. V, § 1, and has significant support in the commentary, e. g., J. Hellerstein & W. Hellerstein, State and Local Taxation 637-638 (1978); Developments in the Law: Federal Limits on State Taxation of Interstate Business, 75 Harv. L. Rev. 953, 999-1000 (1962). Appellants urge us to hold that it is a constitutional requirement. Brief for Appellants 31-35. Once again, however, we find it unnecessary to reach this question. Whatever the general rule may be, to provide a credit only to those who were residents at the time they paid the sales tax to another State is an arbitrary distinction that violates the Equal Protection Clause.

This Court has many times pointed out that in structuring internal taxation schemes “the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation.” Lehnhausen v. Lake Shore Auto Parts Co., 410 U. S. 356, 359 (1973). It has been reluctant to interfere with legislative policy decisions in this area. See Regan v. Taxation with Representation of Washington, 461 U. S. 540, 547-548 (1983); San Antonio Independent School District v. Rodriguez, 411 U. S. 1, 40-41 (1973); Allied Stores of Ohio, Inc. v. Bowers, 358 U. S. 522, 526-527 (1959). An exemption such as that chai-lenged here “will be sustained if the legislature could have reasonably concluded that the challenged classification would promote a legitimate state purpose.” Exxon Corp. v. Eagerton, 462 U. S. 176, 196 (1983). See generally Schweiker v. Wilson, 450 U. S. 221, 234-235 (1981).

We perceive no legitimate purpose, however, that is furthered by this discriminatory exemption. As we said in holding that the use tax base cannot be broader than the sales tax base, “equal treatment for in-state and out-of-state taxpayers similarly situated is the condition precedent for a valid use tax on goods imported from out-of-state.” Halliburton Oil Well Co. v. Reily, 373 U. S. 64, 70 (1963).⁷ A State may not treat those within its borders unequally solely on the basis of their different residences or States of incorporation. WHYY v. Glassboro, 393 U. S. 117, 119 (1968); Wheeling Steel Corp. v. Glander, 337 U. S. 562, 571-572 (1949). In the present case, residence at the time of purchase is a wholly arbitrary basis on which to distinguish among present Vermont registrants — at least among those who used their cars elsewhere before coming to Vermont.⁸ Having registered a car in Vermont they are similarly situated for all relevant purposes. Each is a Vermont resident, using a car in Vermont, with an equal obligation to pay for the maintenance and improvement of Vermont’s roads. The purposes of the statute would be identically served, and with an identical burden, by taxing each. The distinction between them bears no relation to the statutory purpose. See Zobel v. Williams, 457 U. S. 55, 61 (1982); cf. Texaco, Inc. v. Short, 454 U. S. 516, 540 (1982). As the Court said in Wheeling, appellants have not been “accorded equal treatment, and the inequality is not because of the slightest difference in [Vermont’s] relation to the decisive transaction, but solely because of the[ir] different residence.” 337 U. S., at 572.

In some ways, this is not a typical sales and use tax scheme. The proceeds go to a transportation fund rather than to general revenue. Perhaps as a result, the sales tax is narrower than most, in that it applies not to all sales within the jurisdiction, but only to those to residents. Conversely, the use tax is broader than most, in that it applies to items purchased by nonresidents and taxed by other States. As noted, the general sales and use tax provisions of Vermont, for example, have neither of these features. See n. 2, supra.

Applied to those such as appellants, the use tax exceeds the usual justifications for such a tax. A use tax is generally perceived as a necessary complement to the sales tax, designed to “ ‘protect a state’s revenues by taking away the advantages to residents of traveling out of state to make untaxed purchases, and to protect local merchants from out-of-state competition which, because of its lower or nonexistent tax burdens, can offer lower prices.’” Leverson, 144 Vt., at 527, 481 A. 2d, at 1032, quoting Rowe-Genereux, Inc. v. Department of Taxes, 138 Vt. 130, 133-134, 411 A. 2d 1345, 1347 (1980); see Henneford v. Silas Mason Co., supra, at 581. This customary rationale for the use tax has no application to purchases made out-of-state by those who were not residents of the taxing State at the time of purchase. These home-state transactions cannot be seen as lost Vermont sales, and are certainly not ones lost as a result of Vermont’s sales tax. Imposing a use tax on them in no way protects local business. In short, in its structure, this sales and use tax combination is exactly the opposite of the customary provisions: there is no disincentive to the Vermont resident’s purchasing outside the State, and there is a penalty on those who bought out-of-state but could not have been expected to do otherwise. The first provision limits local commerce, the second does not help it.

Despite Leverson’s passing reference to the standard rationale for use taxes, then, the only plausible justification for imposing the tax on those in appellants’ position in the first place — apart from the simple desire to raise funds — is the principle that those using the roads should pay for them. In Leverson, the Vermont Supreme Court supported the tax by reference to “Vermont’s basic policy” of making those who use the highways contribute to their maintenance and improvement. 144 Vt., at 532, 481 A. 2d, at 1034.⁹ Yet this does not explain the exemption for a resident who bought a car elsewhere and paid a tax to another State, which, as the dissent points out, post, at 32-33, is “directly contrary” to the user-pays principle. This “basic policy” arguably supports imposition of the use tax on appellants, and the denial of a credit to them; but it provides no rational reason to spare Vermont residents an equal burden. The same response applies to the Vermont court’s statement that to allow an exemption for people in appellants’ position, or for Vermonters who purchase in nonreciprocal States, “would run counter to the state’s present policies of requiring user contributions and encouraging purchases within the state, and would result in the loss of tax revenues to the state.” 144 Vt., at 533, 481 A. 2d, at 1035. This is no less true with regard to the Vermonter who purchases a car in a reciprocal State. Granting the resident a credit for sales tax paid to the other State is similarly “counter to the state’s policies of requiring user contributions and encouraging purchases within the state.” Ibid.

The Leverson court’s primary explanation of the exemption was that it

“appears to be based upon a policy of encouraging out-of-staters from reciprocal states to purchase their vehicles in Vermont and pay a sales tax to Vermont, secure in the knowledge that they will not be subject to a duplicate tax in their home states, and upon a legislative assumption that few, if any, tax dollars will be lost through this exercise in comity.” Id., at 532, 481 A. 2d, at 1034-1035.

However, the exemption cannot be justified as an indirect means of encouraging out-of-staters to purchase in. Vermont and pay Vermont sales tax, for the straightforward reason that Vermont does not impose its sales tax on nonresidents. § 8903(a).

Appellees take a different tack, suggesting that the exemption is designed to encourage interstate commerce by enabling Vermont residents, faced with limited automobile offerings at home, Tr. of Oral Arg. 35-36, to shop outside the State without penalty. Brief for Appellees 7. This justification may sound plausible, but it fails to support the classification at issue. Those in appellants’ position pay exactly the penalty for purchasing out-of-state that Vermont spares its own residents. The credit may rationally further Vermont’s legitimate interest in facilitating Vermonters’ out-of-state purchases, but this interest does not extend to the facilitation of Vermonters’ out-of-state use. Vermont may choose not to penalize old residents who used their cars in other States, but it cannot extend that benefit to old residents and deny it to new ones. The fact that it may be rational or beneficent to spare some the burden of double taxation does not mean that the beneficence can be distributed arbitrarily.

Finally, the Vermont court pointed out that Leverson was “treated in exactly the same manner as all nonexempt persons, including the resident who purchases his vehicle in a nonreciprocal state.” 144 Vt., at 533, 481 A. 2d, at 1035. Yet the fact that all those not benefited by the challenged exemption are treated equally has no bearing on the legitimacy of that classification in the first place. A State cannot deflect an equal protection challenge by observing that in light of the statutory classification all those within the burdened class are similarly situated. The classification must reflect pre-existing differences; it cannot create new ones that are supported by only their own bootstraps. “The Equal Protection Clause requires more of a state law than nondiscriminatory application within the class it establishes.” Rinaldi v. Yeager, 384 U. S. 305, 308 (1966).

In sum, we can see no relevant difference between motor vehicle registrants who purchased their cars out-of-state while they were Vermont residents and those who only came to Vermont after buying a car elsewhere. To free one group and not the other from the otherwise applicable tax burden violates the Equal Protection Clause.

> I — (

Our holding is quite narrow, and we conclude by emphasizing what we do not decide. We need not consider appellants’ various arguments based on the right to travel, the Privileges and Immunities Clause, and the Commerce Clause. We again put to one side the question whether a State must in all circumstances credit sales or use taxes paid to another State against its own use tax. In addition, we note that this action was dismissed for failure to state a claim before an answer was filed. The “dominant theme running through all state taxation cases” is the “concern with the actuality of operation.” Halliburton, 373 U. S., at 69. It is conceivable that, were a full record developed, it would turn out that in practice the statute does not operate in a discriminatory fashion. Finally, in light of the fact that the action was dismissed on the pleadings, and given the possible relevance of state law, see Bacchus Imports, Ltd. v. Dias, 468 U. S. 263, 277 (1984), we express no opinion as to the appropriate remedy.

We hold only that, when the statute is viewed on its face, appellants have stated a claim of unconstitutional discrimination. The decision below is accordingly reversed, and the case is remanded for further proceedings not inconsistent with this opinion.

It is so ordered.

Justice Powell took no part in the decision of this case.

1 Appellant Susan Levine moved to Vermont in 1979. She brought with her a car she had purchased in New York a year before on which she had paid a seven-percent state sales tax. Upon registering her car in Vermont in 1982, she paid a use tax of $110. She then successfully moved to intervene in Williams’ suit.

2 The general sales and use tax provisions are found in Vt. Stat. Ann., Tit. 32, ch. 233 (1981). The present controversy could not have arisen under these provisions. Vermont’s ordinary use tax applies neither to “property purchased by the user while a nonresident of this State,” § 9744(a)(2), nor to any property to the extent the user has already paid a sales or use tax to a State with a reciprocal agreement, § 9744(a)(3). Appellants would be exempt under both these subsections.

3 Both taxes have a ceiling of $600. The sales tax is paid on the purchase price. §§ 8902(4), (5) (1981), § 8903(a) (Supp. 1984). The use tax is paid on the car’s low book value at the time of registration. App. 16; § 8907.

4 If the statute operated as the State says it does, it might still be discriminatory, at least in theory. A nonresident who buys his car in another State, pays a sales tax, but does not register it there, and brings it right to Vermont, would pay two taxes, whereas a Vermont resident doing the same thing would pay only one. But this is not a distinction that appellants could challenge. Since they registered their cars out-of-state, they would not qualify for the exemption, but neither would a resident who had done the same.

6 The State put forward this reading of the statute in its briefs in this ease and in Leverson. See Brief for Appellees in No. 83-139 (Vt. Sup. Ct.), pp. 18-19, and n. 2; Brief for Appellee in No. 83-157 (Vt. Sup. Ct.), pp. 17-18, and n. 3.

6 The dissent suggests that this reading is not consistent with the statutory language. Post, at 32-33, and n. 3. While it is not our business to interpret state statutes, there is no necessary inconsistency. The literal language applies whenever a Vermonter buys a car in another State, regardless of how quickly he returns to Vermont. Significantly, the tax from which § 8911(9) exempts Vermont residents is imposed “at the time of first registering or transferring a registration.” § 8903(b) (emphasis added); see also § 8905(b). In addition, the credit applies when a “state sales or use tax has been paid.” § 8911(9) (emphasis added). If it extended only to the Vermont resident who bought a car elsewhere and brought it straight to Vermont, the reference to a use tax would be meaningless. Finally, as the dissent itself notes, post, at 36, n. 5, if the credit only applied in these circumstances, the provision would be essentially superfluous. We should not assume the legislature passed a statute without effect.

7 Halliburton was decided under the Commerce Clause and is not dis-positive. We do not consider in what way, if any, the failure to give appellants a credit might burden interstate commerce. The critical point is the Court’s emphasis on the need for equal treatment of taxpayers who can be distinguished only on the basis of residence. See also Henneford v. Silas Mason Co., 300 U. S. 577, 583-584 (1937).

8 The dissent does not disagree that such people are similarly situated, nor does it identify any justification for preferential treatment of the resident. Post, at 32-34. It merely argues that the inequity is the acceptable result of the imprecision of a generally rational classification. Post, at 33-35. Under rational-basis scrutiny, legislative classifications are of course allowed some play in the joints. But the choice of a proxy criterion — here, residence for State of use — cannot be so casual as this, particularly when a more precise and direct classification is easily drawn.

9 A nonrecurring use tax pegged to the value of the car is an exceedingly loosely tailored means to this end. The amount of such a payment has no relation to the extent of use, includes the irrelevant variable of the luxury value of the ear, and fails to account for the possibility of the owner moving out of the State or selling the car during its useful life. Reliance on annual registration fees would provide a more accurate measure of current use and would seem to be more closely related to the stated purpose. However, appellants do not challenge the tax itself as an equal protection violation. And despite the looseness of the fit, we would be hard pressed to say that this manner of funding highway maintenance and construction is irrational. “If the classification has some ‘reasonable basis,’ it does not offend the Constitution simply because the classification ‘is not made with mathematical nicety or because in practice it results in some inequality.’ ” Dandridge v. Williams, 397 U. S. 471, 485 (1970), quoting Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61, 78 (1911).