source: Caselaw Access Project

author: Mr. Chief Justice Burger Mr. Justice Stewart,

license: Public Domain

text:
    NOLDE BROTHERS, INC. v. LOCAL NO. 358, BAKERY & CONFECTIONERY WORKERS UNION, AFL-CIO
    No. 75-1198.
    Argued November 9, 1976
    Decided March 7, 1977

      Burger, C. J., delivered the opinion of the Court, in which Brennan, White, Marshall, Blackmun, Powell, and Stevens, JJ., joined. Stewart, J., filed a dissenting opinion, in which Rehnquist, J., joined, post, p. 255.

      Allan L. Bioff argued the cause for petitioner. With him on the brief was Leonard Singer.

      Ronald Rosenberg argued the cause for respondent. With him on the brief were Henry Kaiser, Eugene Gressman, George B. Driesen, Jerry Anker, and Gerhard P. Van Arkel.

   Mr. Chief Justice Burger

delivered the opinion of the Court.

This case raises the question of whether a party to a collective-bargaining contract may be required to arbitrate a contractual dispute over severance pay pursuant to the arbitration clause of that agreement even though the dispute, although governed by the contract, arises after its termination. Only the issue of arbitrability is before us.

(1)

In 1970, petitioner Nolde Brothers, Inc., entered into a collective-bargaining agreement with respondent Local No. 358, of the Bakery & Confectionery Workers Union, AFL-CIO, covering petitioner’s Norfolk, Va., bakery employees. Under the contract, “any grievance” arising between the parties was subject to binding arbitration. In addition, the contract contained a provision which provided for severance pay on termination of employment for all employees having three or more years of active service. Vacation rights were also granted employees by the agreement; like severance pay, these rights were geared to an employee’s length of service and the amount of his earnings. By its terms, the contract was to remain in effect until July 21, 1973, and thereafter, until such time as either a new agreement was executed between the parties, or the existing agreement was terminated upon seven days’ written notice by either party.

In May 1973, the parties resumed bargaining after the Union advised Nolde, pursuant to § 8 (d) of the National Labor Relations Act, 29 U. S. C. § 158 (d) (1970 ed., and Supp. V), of its desire to negotiate certain changes in the existing agreement. These negotiations continued without resolution up to, and beyond, the July 21 contract expiration date. On August 20, the Union served the requisite seven days’ written notice of its decision to cancel the existing contract. The Union’s termination of the contract became effective August 27, 1973.

Despite the contract’s cancellation, negotiations continued. They ended, however, on August 31, when Nolde, faced by a threatened strike after the Union had rejected its latest proposal, informed the Union of its decision to close permanently its Norfolk bakery, effective that day. Operations at the plant ceased shortly after midnight on August 31. Nolde then paid employees their accrued wages and accrued vacation pay under the canceled contract; in addition, wages were paid for work performed during the interim between the contract’s termination on August 27 and the bakery’s closing four days later. However, the company rejected the Union’s demand for the severance pay called for in the collective-bargaining agreement. It also declined to arbitrate the severance-pay claim on the ground that its contractual obligation to arbitrate disputes terminated with the collective-bargaining agreement.

The Union then instituted this action in the District Court under § 301 of the Labor Management Relations Act, 29 U. S. C. § 185, seeking to compel Nolde to arbitrate the severance-pay issue, or in the alternative, judgment for the severance pay due. The District Court granted Nolde’s motion for summary judgment on both issues. It held that the employees’ right to severance pay expired with the Union’s voluntary termination of the collective-bargaining contract and that, as a result, there was no longer any severance-pay issue to arbitrate. It went on to note that even if the dispute had been otherwise arbitrable, the duty to arbitrate terminated with the contract that had created it. 382 F. Supp. 1354 (ED Va. 1974).

On appeal, the United States Court of Appeals for the Fourth Circuit reversed. 530 F. 2d 548 (1975). It took the position that the District Court had approached the case from the wrong direction by determining that Nolde’s severance-pay obligations had expired with the collective-bargaining agreement before determining whether Nolde’s duty to arbitrate the claim survived the contract’s termination. Turning to that latter question first, the Court of Appeals concluded that the parties’ arbitration duties under the contract survived its termination with respect to claims arising by reason of the collective-bargaining agreement. Having thus determined that the severance-pay issue was one for the arbitrator, the Court of Appeals expressed no views on the merits of the dispute. We granted certiorari to review its determination that the severance-pay claim was arbitrable. 425 U. S. 970 (1976).

(2)

In arguing that Nolde’s displaced employees were entitled to severance pay upon the closing of the Norfolk bakery, the Union maintained that the severance wages provided for in the collective-bargaining agreement were in the nature of “accrued” or “vested” rights, earned by employees during the term of the contract on essentially the same basis as vacation pay, but payable only upon termination of employment. In support of this claim, the Union noted that the severance-pay clause is found in the contract under an article entitled “Wages.” The inclusion within that provision, it urged, was evidence that the parties considered severance pay as part of the employees’ compensation for services performed during the life of the agreement. In addition, the Union pointed out that the severance-pay clause itself contained nothing to suggest that the employees’ right to severance pay expired if the events triggering payment failed to occur during the life of the contract. Nolde, on the other hand, argued that since severance pay was a creation of the collective-bargaining agreement, its substantive obligation to provide such benefits terminated with the Union’s unilateral cancellation of the contract.

As the parties’ arguments demonstrate, both the Union’s claim for severance pay and Nolde’s refusal to pay the same are based on their differing perceptions of a provision of the expired collective-bargaining agreement. The parties may have intended, as Nolde maintained, that any substantive claim to severance pay must surface, if at all, during the contract’s term. However, there is also “no reason why parties could not if they so chose agree to the accrual of rights during the term of an agreement and their realization after the agreement had expired.” John Wiley & Sons v. Livingston, 376 U. S. 543, 555 (1964). Of course, in determining the arbitrability of the dispute, the merits of the underlying claim for severance pay are not before us. However, it is clear that, whatever the outcome, the resolution of that claim hinges on the interpretation ultimately given the contract clause providing for severance pay. The dispute therefore, although arising after the expiration of the collective-bargaining contract, clearly arises under that contract.

There can be no doubt that a dispute over the meaning of the severance-pay clause during the life of the agreement would have been subject to the mandatory grievance-arbitration procedures of the contract. Indeed, since the parties contracted to submit “all grievances” to arbitration, our determination that the Union was “making a claim which on its face is governed by the contract” would end the matter had the contract not been terminated prior to the closing of the plant. Steelworkers v. American Mfg. Co., 363 U. S. 564, 568 (1960). Here, however, Nolde maintains that a different rule must prevail because the event giving rise to the contractual dispute, i. e., the employees’ severance upon the bakery’s closing, did not occur until after the expiration of the collective-bargaining agreement.

(3)

Nolde contends that the duty to arbitrate, being strictly a creature of contract, must necessarily expire with the collective-bargaining contract that brought it into existence. Hence, it maintains that a court may not compel a party to submit any post-contract grievance to arbitration for the simple reason that no contractual duty to arbitrate survives the agreement’s termination. Any other conclusion, Nolde argues, runs contrary to federal labor policy which prohibits the imposition of compulsory arbitration upon parties except when they are bound by an arbitration agreement. In so arguing, Nolde relies on numerous decisions of this Court which it claims establish that “arbitration is a matter of contract and [that] a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Steelworkers v. Warrior & Gulf Nav. Co., 363 U. S. 574, 582 (1960); e. g., Gateway Coal Co. v. Mine Workers, 414 U. S. 368, 374 (1974); John Wiley & Sons v. Livingston, supra, at 547; Atkinson v. Sinclair Refining Co., 370 U. S. 238, 241 (1962).

Our prior decisions have indeed held that the arbitration duty is a creature of the collective-bargaining agreement and that a party cannot be compelled to arbitrate any matter in the absence of a contractual obligation to do so. Adherence to these principles, however, does not require us to hold that termination of a collective-bargaining agreement automatically extinguishes a party’s duty to arbitrate grievances arising under the contract. Carried to its logical conclusion that argument would preclude the entry of a post-contract arbitration order even when the dispute arose during the life of the contract but arbitration proceedings had not begun before termination. The same would be true if arbitration processes began but were not completed, during the contract’s term. Yet it could not seriously be contended in either instance that the expiration of the contract would terminate the parties’ contractual obligation to resolve such a dispute in an arbitral, rather than a judicial forum. See John Wiley & Sons, supra; Steelworkers v. Enterprise Wheel & Car Corp., 363 U. S. 593 (1960); Machine Workers v. Oxco Brush Div., 517 F. 2d 239, 242-243 (CA6 1975); Procter & Gamble Ind. Union v. Procter & Gamble Mfg. Co., 312 F. 2d 181, 186 (CA2 1962), cert. denied, 374 U. S. 830 (1963). Nolde concedes as much by limiting its claim of nonarbitrability to those disputes which clearly arise after the contract’s expiration. Brief for Petitioner 22.

Our holding in John Wiley & Sons is instructive on this matter. There we held that a dispute over employees’ rights to severance pay under an expired collective-bargaining agreement was arbitrable even though there was no longer any contract between the parties. In their expired agreement, the parties had agreed to submit to arbitration:

“ ‘any differences, grievance or dispute between the Employer and the Union arising out of or relating to this agreement, or its interpretation or application or enforcement.’ ” 376 U. S., at 553.

The Court had little difficulty interpreting that language to require the arbitration of the Union’s post-termination severance-pay claim since that claim was

“based solely on the Union’s construction of the . . . agreement in such a way that. . . [the Employer] would have been required to discharge certain obligations notwithstanding the expiration of the agreement.” Id., at 555.

We thus determined that the parties’ obligations under their arbitration clause survived contract termination when the dispute was over an obligation arguably created by the expired agreement. It is true that the Union there first sought to arbitrate the question of post-contract severance pay while the agreement under which it claimed such benefits was still in effect. But that factor was not dispositive in our determination of arbitrability. Indeed, that very distinction was implicitly rejected shortly thereafter in Piano Workers v. W. W. Kimball Co., 379 U. S. 357 (1964), rev’g 333 F. 2d 761 (CA7), on the basis of John Wiley & Sons, supra, and Steelworkers v. American Mfg. Co., supra. We decline to depart from that course in the instant case, for, on the record before us, the fact that the Union asserted its claim to severance pay shortly after, rather than before, contract termination does not control the arbitrability of that claim.

The parties agreed to resolve all disputes by resort to the mandatory grievance-arbitration machinery established by their collective-bargaining agreement. The severance-pay dispute, as we have noted, would have been subject to resolution under those procedures had it arisen during the contract’s term. However, even though the parties could have so provided, there is nothing in the arbitration clause that expressly excludes from its operation a dispute which arises under the contract, but which is based on events that occur after its termination. The contract’s silence, of course, does not establish the parties’ intent to resolve post-termination grievances by arbitration. But in the absence of some contrary indication, there are strong reasons to conclude that the parties did not intend their arbitration duties to terminate automatically with the contract. Any other holding would permit the employer to cut off all arbitration of severance-pay claims by terminating an existing contract simultaneously with closing business operations.

By their contract the parties clearly expressed their preference for an arbitral, rather than a judicial, interpretation of their obligations under the collective-bargaining agreement. Their reasons for doing so, as well as the special role of arbitration in the employer-employee relationship, have long been recognized by this Court:

“The labor arbitrator is usually chosen because of the parties’ confidence in his knowledge of the common law of the shop and their trust in his personal judgment to bring to bear considerations which are not expressed in the contract as criteria for judgment. . . . The ablest judge cannot be expected to bring the same experience and competence to bear upon the determination of a grievance, because he cannot be similarly informed.” Warrior & Gulf Nav. Co., 363 U. S., at 582.

Indeed, it is because of his special experience, expertise, and selection by the parties that courts generally defer to an arbitrator’s interpretation of the collective-bargaining agreement:

“[T]he question of interpretation of the collective bargaining agreement is a question for the arbitrator. It is the arbitrator’s construction which was bargained for; and so far as the arbitrator’s decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his.” Enterprise Wheel & Car Corp., 363 U. S., at 599.

While the termination of the collective-bargaining agreement works an obvious change in the relationship between employer and union, it would have little impact on many of the considerations behind their decision to resolve their contractual differences through arbitration. The contracting parties’ confidence in the arbitration process and an arbitrator’s presumed special competence in matters concerning bargaining agreements does not terminate with the contract. Nor would their interest in obtaining a prompt and inexpensive resolution of their disputes by an expert tribunal. Hence, there is little reason to construe this contract to mean that the parties intended their contractual duty to submit grievances and claims arising under the contract to terminate immediately on the termination of the contract; the alternative remedy of a lawsuit is the very remedy the arbitration clause was designed to avoid.

It is also noteworthy that the parties drafted their broad arbitration clause against a backdrop of well-established federal labor policy favoring arbitration as the means of resolving disputes over the meaning and effect of collective-bargaining agreements. Congress has expressly stated:

“Final adjustment by a method agreed upon by the parties is hereby declared to be the desirable method for settlement of grievance disputes arising over the application or interpretation of an existing collective-bargaining agreement.” 29 U. S. C. § 173 (d).

In order to effectuate this policy, this Court has established a strong presumption favoring arbitrability:

“[T]o be consistent with congressional policy in favor of settlement of disputes by the parties through the machinery of arbitration. . . . [a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.” Warrior & Gulf Nav. Co., supra, at 582-583.

The parties must be deemed to have been conscious of this policy when they agree to resolve their contractual differences through arbitration. Consequently, the parties’ failure to exclude from arbitrability contract disputes arising after termination, far from manifesting an intent to have arbitration obligations cease with the agreement, affords a basis for concluding that they intended to arbitrate all grievances arising out of the contractual relationship. In short, where the dispute is over a provision of the expired agreement, the presumptions favoring arbitrability must be negated expressly or by clear implication.

We therefore agree with the conclusion of the Court of Appeals that, on this record, the Union’s claim for severance pay under the expired collective-bargaining agreement is subject to resolution under the arbitration provisions of that contract.

Affirmed.

Mr. Justice Stewart,

with whom Mr. Justice Rehnquist joins, dissenting.

When a dispute arises between two parties, that dispute is to be settled by the process of arbitration only if there is an agreement between the parties that the dispute will be settled by that means. Yet the Court today says that a union-employer dispute must be settled by arbitration even though the dispute did not even arise until after the contract containing an agreement to arbitrate had been terminated by action of the Union, and the employer had closed its business. I think this conclusion is neither required by existing precedent nor based upon any realistic appraisal of the contracting parties’ intent.

Our cases, to be sure, have established the importance of arbitration in resolving disputes arising under collective-bargaining agreements and in thereby maintaining peaceful labor relations. A collective-bargaining agreement erects a system of industrial self-government; grievance and arbitration provisions in such an agreement make that collective-bargaining process continuous: “Arbitration is the means of solving the unforeseeable by molding a system of private law for all the problems which may arise and to provide for their solution in a way which will generally accord with the variant needs and desires of the parties.” Steelworkers v. Warrior & Gulf Nav. Co., 363 U. S. 574, 581.

But the duty to arbitrate can arise only upon the parties’ agreement to resolve their contractual differences in the arbitral forum. And the presumptive continuation of that duty even after the formal expiration of such an agreement can be justified only in terms of a web of assumptions about the continuing nature of the labor-management relationship and the importance of having available a method harmoniously to resolve differences arising in that relationship. See generally id., at 578.

Those assumptions are wholly inapplicable to this case. The closing of the bakery by the employer-petitioner necessarily meant that there was no continuing relationship to protect or preserve. Cf. John Wiley & Sons v. Livingston, 376 U. S. 543; Howard Johnson Co. v. Hotel Employees, 417 U. S. 249. And the Union’s termination of the contract, thereby releasing it from its obligation not to strike, foreclosed any reason for implying a continuing duty on the part of the employer to arbitrate as a quid pro quo for the Union’s offsetting, enforceable duty to negotiate rather than strike. See Boys Markets, Inc. v. Retail Clerks, 398 U. S. 235.

Although for these reasons no continuing duty to arbitrate can be presumed in this case in the interest of maintaining industrial peace, it might nevertheless rationally be argued that the arbitration agreement was a term or condition of employment that the employer could not unilaterally change without first bargaining to impasse. See 29 U. S. C. § 158 (a)(5). The trouble with that argument is that the National Labor Relations Board has rejected the notion that arbitration is a term or condition of employment that by operation of statute continues even after the contract embodying it has terminated. The Board, instead, has viewed arbitration as an obligation that arises solely out of contract, and is favored but not statutorily required as a dispute-resolving mechanism. See Hilton-Davis Chemical Co., 185 N. L. R. B. 241 (1970). See also Gateway Coal Co. v. Mine Workers, 414 U. S. 368.

It is clear, therefore, that neither federal labor law nor the interest of maintaining industrial peace can serve to explain the Court’s conclusion that the presumption of arbitrability extends to the facts of this case.

I realize that our decisions have broadly held that doubts as to arbitrability under an arbitration clause are to be resolved in favor of arbitrability. See Warrior & Gulf Nav. Co., supra. But those cases involved arbitration clauses that were undoubtedly in force at the time the dispute first arose, and arbitration was invoked to resolve issues arising during the continuing course of the employer-employee relationship. (See, e. g., Piano Workers v. W. W. Kimball Co., 379 U. S. 357, where a dispute over the rights of employees to preferential hiring at a new plant commenced before the contract at the old plant had expired.) The question here, by contrast, is whether the presumption of arbitrability survived even when the contract providing for arbitration had terminated and the rights in dispute, though claimed to arise under the contract, ripened only after the contract had expired and the employment relationship had terminated.

For the reasons I have expressed, I think there was no agreement to arbitrate this dispute. The Union had, of course, a clear cause of action under § 301 of the Labor Management Relations Act to seek judicial redress against the employer for its failure to meet its severance-pay obligations to the employees. The Union did, in fact, bring just such a lawsuit in this case. If the Court of Appeals had addressed the merits of the litigation, as I believe it should have done, this controversy would have been settled long ago.

I respectfully dissent from the opinion and judgment of the Court.

       ARTICLE XII GRIEVANCES AND ARBITRATION
      “Section 1. All grievances shall be first taken up between the Plant Management and the Shop Steward. If these parties shall be unable to settle the grievance, then the Business Agent of the Union shall be called in, in an attempt to arrive at a settlement of the grievance. If these parties are unable to settle the grievance, the dispute will be settled as called for in Sections 2 and 3 of this Article.
      “Section 2. In the event that any grievance cannot be satisfactorily adjusted by the procedure outlined above, either of the parties hereto may demand arbitration and shall give written notice to the other party of its desire to arbitrate. No individual employee shall have the right to invoke arbitration without the written consent of the Union. The Arbitration Board shall consist of three (3) persons, one selected by the Company and one selected by the Union. The two persons selected shall agree upon a third person who shall act as Chairman of the Arbitration Board.
      “Section 3. The decision or award of the Arbitration Board, or a majority thereof, shall be final and binding on both parties. If the third party to arbitration is not selected in ten (10) days from receipt of notice, the Director of the U. S. Conciliation Service shall be requested to make the appointment. The expense of the neutral arbitrator shall be borne equally by the parties.
      “Section 4. Pending negotiations or during arbitration there shall be no strikes, lock-outs, boycotts, or any stoppages of work.”

       ARTICLE IX WAGES

      “Section 5. Each full-time employee who is permanently displaced from his employment with the Company by reason of the introduction of labor saving equipment, the closing of a department, the closing of an entire plant, or by lay off, shall be compensated for such displacement providing he has been actively employed by the Company for a period of at least three (3) years. An eligible employee’s compensation for his displacement shall be on the basis of thirty (30) hours of severance pay, at his straight time hourly rate, for each full year or major portion of a year of active employment commencing with the fourth (4th) year following his most recent date of hire. Payment under this formula shall be limited to a maximum of nine hundred (900) hours of severance pay.
      “Section 6. No severance pay will be paid to an eligible employee if he:
      “(a) accepts employment in another plant of the Company; or
      “(b) is voluntarily or involuntarily separated from his employment prior to the date he would otherwise be displaced for one of the reasons stated in Section 5 above.”

       ARTICLE IV VACATIONS
      “Section 1. Each full time employee is entitled to one week’s vacation after one year’s service, two (2) weeks’ vacation after two (2) years’ service, three (3) weeks’ vacation after nine (9) years’ service, and four (4) weeks’ vacation after eighteen (18) years’ service. . . .

      “Effective January 1, 1972, the service requirement for the fourth (4th) week of vacation shall be reduced to seventeen (17) years.
      “Effective January 1, 1972, each employee with twenty-five (25) or more years of service shall be entitled to a vacation benefit of five (5) weeks.
      “Section 2. The anniversary date of employment shall be adjusted by periods of lay-offs or leaves of absence for the purpose of computation of vacation benefits only.
      “Section 3. Vacation pay shall be based on straight time at the employee’s regular hourly rate for the average number of hours worked by the employee in the thirteen (13) weeks preceding the vacation period, not including holiday weeks or weeks in which time is lost on account of sickness, with a minimum of forty (40) hours’ pay and a maximum of forty-eight (48) hours’ pay for each week of the vacation allowance.”

       The fact that the amount of severance pay to which an employee is entitled under the collective-bargaining agreement varies according to the length of his employment and the amount of his salary also supports the Union’s position that severance pay was nothing more than deferred compensation.

       The parties apparently viewed the vacation rights provided by Art. IV of the contract as vested in nature since after the bakery’s closing, Nolde, upon the Union’s request, paid its former employees all vacation pay which had accrued under the collective-bargaining agreement.

       The parties also disagreed over such matters as seniority rights, welfare security benefits, discharges and layoffs, and vacations. 376 U. S., at 554 n. 7.

       In W. W. Kimball Co., the Seventh Circuit found that a dispute over seniority rights under an expired collective-bargaining agreement was nonarbitrable. There the dispute did not arise, nor were arbitration proceedings or an action to compel the same instituted, during the life of the agreement. 333 F. 2d, at 762-763.

       Certiorari was neither sought, nor granted, on the question of the arbitrator’s authority to consider arbitrability following referral, and we express no view on that matter. Similarly, we need not speculate as to the arbitrability of post-termination contractual claims which, unlike the one presently before us, are not asserted within a reasonable time after the contract’s expiration.


author: Mr. Justice Stewart

text:
    TOWN OF LOCKPORT, NEW YORK, et al. v. CITIZENS FOR COMMUNITY ACTION AT THE LOCAL LEVEL, INC., et al.
    No. 75-1157.
    Argued November 30-December 1, 1976
    Decided March 7, 1977

      Stewart, J., delivered the opinion of the Court, in which Brennan, White, Marshall, Blackmun, Powell, Rehnquist, and Stevens, JJ., joined. Burger, C J., concurred in the judgment.

      Victor T. Fuzak argued the cause and filed briefs for appellants.

      John J. Phelan argued the cause and filed a brief for appellees Citizens for Community Action at the Local Level, Inc., et al. Miles A. Lance argued the cause for appellees Graf et al. With him on the brief was John V. Simon.

   Mr. Justice Stewart

delivered the opinion of the Court.

New York law provides that a new county charter will go into effect only if it is approved in a referendum election by separate majorities of the voters who live in the cities within the county, and of those who live outside the cities. A three-judge Federal District Court held that these requirements violate the Equal Protection Clause of the Fourteenth Amendment. We noted probable jurisdiction of this direct appeal from the District Court’s judgment under 28 U. S. C. § 1253. 426 U. S. 918.

I

County government in New York has traditionally taken the form of a single-branch legislature, exercising general governmental powers. General governmental powers are also exercised by the county’s constituent cities, villages, and towns. The allocation of powers among these subdivisions can be changed, and a new form of county government adopted, pursuant to referendum procedures specified in Art. IX of the New York Constitution and implemented by § 33 of the Municipal Home Rule Law. Under those procedures a county board of supervisors may submit a proposed charter to the voters for approval. If a majority of the voting city dwellers and a majority of the voting noncity dwellers both approve, the charter is adopted.

In November 1972, a proposed charter for the county of Niagara was put to referendum. The charter created the new offices of County Executive and County Comptroller, and continued the county’s existing power to establish tax rates, equalize assessments, issue bonds, maintain roads, and administer health and public welfare services. No explicit provision for redistribution of governmental powers from the cities or towns to the county government was made. The city voters approved the charter by a vote of 18,220 to 14,914. The noncity voters disapproved the charter by a vote of 11,594 to 10,665. A majority of those voting in the entire county thus favored the charter.

The appellees, a group of Niagara County voters, filed suit pursuant to 42 U. S. C. § 1983 in the United States District Court for the Western District of New York, seeking a declaration that the New York constitutional and statutory provisions governing adoption of the charter form of county government are unconstitutional, and an order directing the appropriate New York officials to file the Niagara County charter as a duly enacted local law. A three-judge court was convened. Before its decision was announced, however, another new charter was put to referendum in Niagara County in November 1974. Again a majority of the city dwellers who voted approved the charter, a majority of the noncity voters disapproved it, and an aggregate majority of all those in the county who voted approved it. The District Court subsequently found the concurrent-majority requirements of the New York Constitution and the New York Municipal Home Rule Law violative of the Equal Protection Clause of the Fourteenth Amendment, and ordered implementation of the 1972 Charter. 386 F. Supp. 1. On appeal this Court vacated that judgment and remanded the cause “for reconsideration in light of the provisions of [the] new charter adopted by Niagara County in 1974.” 423 U. S. 808. In subsequent proceedings on remand, the District Court found that there was “no substantial difference between the two Charters” and that the 1974 County Charter had superseded the 1972 Charter. Pursuant to its previous constitutional adjudication, the court decreed that the 1974 Charter “is in full force and effect as the instrument defining the form of local government for Niagara County.”

II

The impact of the Equal Protection Clause on the exercise of the electoral franchise under state law is hardly a novel concern of the federal judiciary. It was made clear more than 15 years ago in Baker v. Carr, 369 U. S. 186, that the subject is a justiciable one, and ever since the seminal case of Reynolds v. Sims, 377 U. S. 533, it has been established that the Equal Protection Clause cannot tolerate the disparity in individual voting strength that results when elected officials represent districts of unequal population, since “the fundamental principle of representative government in this country is one of equal representation for equal numbers of people, without regard to race, sex, economic status, or place of residence within a State.” Id., at 560-561.

In the case before us the District Court, though recognizing that “the precise issue here presented appears to be one of first impression,” concluded that the rule of Reynolds v. Sims, controlled its resolution. “Reasoning by analogy,” the court held, in short, that the dual-majority requirement of New York law “is unconstitutional because it violates the one man, one vote principle.” 386 F. Supp., at 7. In assessing the correctness of the District Court’s judgment it is thus appropriate to begin by recalling the basic rationale of the decisions of this Court in which that principle was first developed and applied.

The rationale is, at bottom, so simple as to be almost self-evident. Beginning with Reynolds v. Sims, supra, cases in which the principle emerged involved challenges to state legislative apportionment systems that gave “the same number of representatives to unequal numbers of constituents.” 377 U. S., at 563. The Court concluded that in voting for their legislators, all citizens have an equal interest in representative democracy, and that the concept of equal protection therefore requires that their votes be given equal weight. See, e. g., Lucas v. Colorado Gen. Assembly, 377 U. S. 713; Fortson v. Dorsey, 379 U. S. 433; Burns v. Richardson, 384 U. S. 73; Swann v. Adams, 385 U. S. 440; Kilgarlin v. Hill, 386 U. S. 120; Whitcomb v. Chavis, 403 U. S. 124; Gaffney v. Cummings, 412 U. S. 735.

The equal protection principles applicable in gauging the fairness of an election involving the choice of legislative representatives are of limited relevance, however, in analyzing the propriety of recognizing distinctive voter interests in a “single-shot” referendum. In a referendum, the expression of voter will is direct, and there is no need to assure that the voters’ views will be adequately represented through their representatives in the legislature. The policy impact of a referendum is also different in kind from the impact of choosing representatives—instead of sending legislators off to the state capitol to vote on a multitude of issues, the referendum puts one discrete issue to the voters. That issue is capable, at least, of being analyzed to determine whether its adoption or rejection will have a disproportionate impact on an identifiable group of voters. If it is found to have such a disproportionate impact, the question then is whether a State can recognize that impact either by limiting the franchise to those voters specially affected or by giving their votes a special weight. This question has been confronted by the Court in two types of cases: those dealing with elections involving “special-interest” governmental bodies of limited jurisdiction, and those dealing with bond referenda.

The Court has held that the electorate of a special-purpose unit of government, such as a water storage district, may be apportioned to give greater influence to the constituent groups found to be most affected by the governmental unit’s functions. Salyer Land Co. v. Tulare Water Dist., 410 U. S. 719. But the classification of voters into “interested” and “noninterested” groups must still be reasonably precise, as Kramer v. Union School Dist., 395 U. S. 621, demonstrates. The Court assumed in that case that the voting constituency in school district elections could be limited to those “primarily interested in school affairs,” id., at 632, but concluded that the State’s classification of voters on the asserted basis of that interest was so imprecise that the exclusion of otherwise qualified voters was impermissible.

In the bond referenda cases, the local government had either limited the electoral franchise to property owners, or weighted property owners’ votes more heavily than those of nonproperty owners by using a “dual box” separate-majority approval system quite similar to the one at issue in the present case. Cipriano v. City of Houma, 395 U. S. 701; Phoenix v. Kolodziejski, 399 U. S. 204; Hill v. Stone, 421 U. S. 289.

In the Cipriano case, involving revenue bonds, it was apparent that all voters had an identity of interest in passage of the bond issue, and limitation of the electoral franchise to “property taxpayers” was, plainly, invidiously discriminatory. The other two cases, however, involved general obligation bonds. There, as in Salyer and Kramer, the validity of the classification depended upon whether the group interests were sufficiently different to justify total or partial withholding of the electoral franchise from one of them. In support of the classifications, it was argued that property owners have a more substantial stake in the adoption of obligation bonds than do nonproperty owners, because the taxes of the former directly and substantially fund the bond obligation. The Court rejected that argument for limiting the electoral franchise, however, noting that nonproperty owners also share in the tax burden when the tax on rental property or commercial businesses is passed on in the form of higher prices. Although the interests of the two groups are concededly not identical, the Court held that they are sufficiently similar to prevent a state government from distinguishing between them by artificially narrowing or weighting the electoral franchise in favor of the property taxpayers.

These decisions do not resolve the issues in the present case. Taken together, however, they can be said to focus attention on two inquiries: whether there is a genuine difference in the relevant interests of the groups that the state electoral classification has created; and, if so, whether any resulting enhancement of minority voting strength nonetheless amounts to invidious discrimination in violation of the Equal Protection Clause.

III

The argument that the provisions of New York law in question here are unconstitutional rests primarily on the premise that all voters in a New York county have identical interests in the adoption or rejection of a new charter, and that any distinction, therefore, between voters drawn on the basis of residence and working to the detriment of an identifiable class is an invidious discrimination. If the major premise were demonstrably correct—if it were clear that all voters in Niagara County have substantially identical interests in the adoption of a new county charter, regardless of where they reside within the county—the District Court’s judgment would have to be affirmed under our prior cases. Cipriano v. City of Houma, supra. That major premise, however, simply cannot be accepted. To the contrary, it appears that the challenged provisions of New York law rest on the State’s identification of the distinctive interests of the residents of the cities and towns within a county rather than their interests as residents of the county as a homogeneous unit. This identification is based in the realities of the distribution of governmental powers in New York, and is consistent with our cases that recognize both the wide discretion the States have in forming and allocating governmental tasks to local subdivisions, and the discrete interests that such local governmental units may have qua units. Reynolds v. Sims, 377 U. S., at 580; Abate v. Mundt, 403 U. S. 182; Mahan v. Howell, 410 U. S. 315.

General-purpose local government in New York is entrusted to four different units: counties, cities, towns, and villages. The State is divided into 62 counties; each of the 57 counties outside of New York City is divided into towns, or towns and one or more cities. Villages, once formed, are still part of the towns in which they are located. The New York Legislature has conferred home rule and general governmental powers on all of these subdivisions, and their governmental activities may on occasion substantially overlap. The cities often perform functions within their jurisdiction that the county may perform for noncity residents; similarly villages perform some functions for their residents that the town provides for the rest of the town’s inhabitants. Historically towns provided their areas with major social services that more recently have been transferred to counties; towns exercise more regulatory power than counties; and both towns and counties can create special taxing and improvement districts to administer services. See 13 New York Temporary State Commission on the Constitutional Convention, Local Government 20 (1967).

Acting within a fairly loose state apportionment of political power, the relative energy and organization of these various subdivisions will often determine which one of them in a given area carries out the major tasks of local government. Since the cities have the greatest autonomy within this scheme, changes serving to strengthen the county structure may have the most immediate impact on the functions of the towns as deliverers of government services. Id., at 19.

The provisions of New York law here in question clearly contemplate that a new or amended county charter will frequently operate to transfer “functions or duties” from the towns or cities to the county, or even to “abolish one or more offices, departments, agencies or units of government.” Although the 1974 Charter does not explicitly transfer governmental functions or duties from the towns to Niagara County, the executive-legislative form of government it provides would significantly enhance the county’s organizational and service delivery capacity, for the purpose of “greater efficiency and responsibility in county government.” Niagara County Charter, 1972. The creation of the offices of County Executive and Commissioner of Finance clearly reflects this purpose. Such anticipated organizational changes, no less than explicit transfers of functions, could effectively shift any pre-existing balance of power between town and county governments toward county predominance. In terms of efficient delivery of government services, such a shift might be all to the good, but it may still be viewed as carrying a cost quite different for town voters and their existing town governments from that incurred by city voters and their existing city governments.

The ultimate question then is whether, given the differing interests of city and noncity voters in the adoption of a new county charter in New York, those differences are sufficient under the Equal Protection Clause to justify the classifications made by New York law. Phoenix v. Kolodziejski, 399 U. S. 204; Salyer Land Co. v. Tulare Water Dist., 410 U. S. 719; Hill v. Stone, 421 U. S. 289. If that question were posed in the context of annexation proceedings, the fact that the residents of the annexing city and the residents of the area to be annexed formed sufficiently different constituencies with sufficiently different interests could be readily perceived. The fact of impending union alone would not so merge them into one community of interest as constitutionally to require that their votes be aggregated in any referendum to approve annexation. Cf. Hunter v. Pittsburgh, 207 U. S. 161. Similarly a proposal that several school districts join to form a consolidated unit could surely be subject to voter approval in each constituent school district.

Yet in terms of recognizing constituencies with separate and potentially opposing interests, the structural decision to annex or consolidate is similar in impact to the decision to restructure county government in New York. In each case, separate voter approval requirements are based on the perception that the real and long-term impact of a restructuring of local government is felt quite differently by the different county constituent units that in a sense compete to provide similar governmental services. Voters in these constituent units are directly and differentially affected by the restructuring of county government, which may make the provider of public services more remote and less subject to the voters’ individual influence.

The provisions of New York law here in question no more than recognize the realities of these substantially differing electoral interests. Granting to these provisions the presumption of constitutionality to which every duly enacted state and federal law is entitled, we are unable to conclude that they violate the Equal Protection Clause of the Fourteenth Amendment.

For the reasons stated in this opinion the judgment is reversed.

It is so ordered.

The Chief Justice concurs in the judgment.

       Article IX, § 1 (h)(1), of the New York Constitution (McKinney 1969) provides in pertinent part:
      “§ 1. Bill of rights for local governments
      “Effective local self-government and intergovernmental cooperation are purposes of the people of the state. In furtherance thereof, local governments shall have the following rights, powers, privileges and immunities in addition to those granted by other provisions of this constitution:

      “(h)(1) Counties, other than those wholly included within a city, shall be empowered . . . to adopt, amend or repeal alternative forms of county government . . . . Any such form of government or any amendment thereof . . . may transfer one or more functions or duties of the county or of the cities, towns, villages, districts or other units of government wholly contained in such county to each other . . . or may abolish one or more offices, departments, agencies or units of government provided, however, that no such form or amendment . . . shall become effective unless approved on a referendum by a majority of the votes cast thereon in the area of the county outside of cities, and in the cities of the county, if any, considered as one unit. Where an alternative form of county government or any amendment thereof . . . provides for the transfer of any function or duty to or from any village or the abolition of any office, department, agency or unit of government of a village wholly contained in such county, such form or amendment shall not become effective unless it shall also be approved on the referendum by a majority of the votes cast thereon in all the villages so affected considered as one unit.”

       Section 33 (7) of the Municipal Home Rule Law of New York (McKinney Supp. 1976-1977) provides:
      “§ 33. Power to adopt, amend and repeal county charters

      “7. A charter law
      “(a) providing a county charter, or
      “(b) proposing an amendment or repeal of one or more provisions thereof which would have the effect of transferring a function or duty of the county, or of a city, town, village, district or other unit of local government wholly contained in the county, shall conform to and be subject to consideration by the board of supervisors in accordance with the provisions of this chapter generally applicable to the form of and action on proposed local laws by the board of supervisors. If a county charter, or a charter law as described in this subdivision, is adopted by the board of supervisors, it shall not become operative unless and until it is approved at a general election or at a special election, held in the county by receiving a majority of the total votes cast thereon (a) in the area of the county outside of cities and (b) in the area of the cities of the county, if any, considered as one unit, and if it provides for the transfer of any function or duty to or from any village or for the abolition of any office, department, agency or unit of government of a village wholly contained in the county, it shall not take effect unless it shall also receive a majority of all the votes cast thereon in all the villages so affected considered as one unit. Such a county charter or charter law shall provide for its submission to the electors of the county at the next general election or at a special election, occurring not less than sixty days after the adoption thereof by the board of supervisors. Such a county charter or charter law may provide for the separate submission to the electors at such election of one or more variations of the provisions of such county charter. Any such variation may include, but shall not be limited to, proposed transfers of functions of local government to other units of local government or a class or classes thereof.”

       When the proposed charter provides for the transfer of duties or functions of villages within the county, the voters residing in the villages must also approve it by a separate majority. See nn. 1 and 2, supra. That requirement is not directly involved in the present litigation.

       Village residents are also residents of the towns in which they are located, are subject to their governments, and are included in the noncity vote.

       A total of 55,393 votes was cast; in the aggregate 28,885 voters favored the charter and 26,508 opposed it. The population of Niagara County was approximately 236,000.

       A total of 36,808 votes was cast in the referendum election. The city dwellers who voted favored the charter by a margin of 11,305 to 9,222; the noncity dwellers voted 8,222 to 8,059 against it. In the county as a whole, 19,364 voted for the charter, and 17,444 against it.

       Niagara County itself had earlier brought an action in the same court to enforce the 1972 Charter as the law of Niagara County. County of Niagara v. New York, Civ. No. 1972-656 (WDNY, Apr. 13, 1973). The District Court had dismissed the complaint on the ground that it presented no substantial federal question, and no appeal had been taken. The appellants interposed a res judicata defense based upon that judgment. The District Court properly rejected that defense upon the ground that the plaintiffs had not been parties to the earlier suit and were not in privity with the county of Niagara, which had brought it. 386 F. Supp., at 5.

       The District Court also enjoined pending state proceedings brought by the appellants to challenge the certification and enforcement of the 1974 Charter. The appellants now argue that the District Court should have deferred to the jurisdiction of the state court. Even assuming that Younger v. Harris, 401 U. S. 37, principles are fully applicable in the civil context, however, the original action challenging the dual-majority provisions of New York law had been brought in the federal court well before the appellants filed their state-court suit, and principles of comity and federalism do not require that a federal court abandon jurisdiction it has properly acquired simply because a similar suit is later filed in a state court.

       The District Court’s opinion on remand is unreported. The appellants argue that the relief originally sought in this suit was limited to the 1972 Charter, and that the case is now moot because the 1974 Charter has superseded it. Pursuant to our mandate on remand, however, the District. Court gave full consideration to the 1974 Charter, concluded that it was substantially the same as the 1972 Charter, and amended its judgment to recognize the validity of the 1974 Charter. Although the better practice might have been to require amendment of the complaint so as formally to seek the relief ultimately granted, the appellants were not prejudiced by the procedure adopted by the District Court, and we consider the validity of the 1974 Charter as the issue before us.

       In the application of this settled rule, the Court has, of course, frequently been divided with respect to what deviations from numerical exactitude are constitutionally permissible. See, e. g., Abate v. Mundt, 403 U. S. 182; Mahan v. Howell, 410 U. S. 315; Gaffney v. Cummings, 412 U. S. 735; White v. Regester, 412 U. S. 755.

       The Court has applied the principle of “one person, one vote” to representative elections at the local as well as state level. See, e. g., Avery v. Midland County, 390 U. S. 474; Hadley v. Junior College Dist., 397 U. S. 50.

       See also Carrington v. Rash, 380 U. S. 89, holding that although the requirement that a citizen be a resident of Texas was clearly an acceptable means of defining relevant constituencies, Texas could not exclude all servicemen from voting on the conclusive presumption that their necessarily transient status precluded them from being bona fide residents.

       We have held, however, that a referendum voting scheme that can be characterized in mathematical terms as giving disproportionate power to a minority does not violate the Equal Protection Clause, there being no discrimination against an identifiable class. Gordon v. Lance, 403 U. S. 1. Cf. Hunter v. Erickson, 393 U. S. 385.

       See generally N. Y. Mun. Home Rule Law (McKinney 1969 and Supp. 1976-1977); 13 New York Temporary State Commission on the Constitutional Convention, Local Government (1967); Moore, Early History of Town Government in New York State, in N. Y. Town Law vii (McKinney 1965).

       The Court has previously had occasion to recognize the historic functional interdependence of county and town subdivisions in New York, and has allowed considerable deviation from the basic rule of Reynolds v. Sims, 377 U. S. 533, on that ground. Abate v. Mundt, 403 U. S. 182.

       See nn. 1 and 2, supra.

       Appellee Citizens for Community Action at the Local Level argue that appellee Niagara County’s failure to controvert the allegation in the original complaint that “no specific group of voters, residents or other persons were primarily affected or interested as compared to another group” establishes that the city and town voters here had identical interests in the charter’s adoption. As a factual matter, this assertion appears contradicted by the later intervention of the town of Lockport to protect its voters’ special interests in the issue. In any case, the question of the constitutionality of Art. IX of the New York Constitution and § 33 of the New York Municipal Home Rule Law turns, not on the perceptions of voters in a particular county, but on whether the State might legitimately view their interests as sufficiently different to justify a distinction between city and town voters.

       There is no indication that the classifications created by New York law work to favor city voter over town voter, or town voter over city voter. In some New York counties, city voters outnumber town voters; in other counties, the reverse is true. We are advised that of charters proposed in 14 counties, one failed to obtain majority approval of the city voters; two (including Niagara County) failed to obtain majority approval of noncity voters; eight failed to obtain a majority vote in either the towns or the cities; and three were approved by both city and town voters.
      The constitutional and statutory provisions in this case also do not appear to be the sustained product of either an entrenched minority or a willful majority. Instead they have been subject historically to fairly frequent revision. The constitutional amendment requiring city and town voter approval for changes in county government was first adopted by referendum in 1935. N. Y. Const., Art. III, § 26 (1935). In 1938, the Constitution was amended to provide for approval by the voters in the county as a whole, unless the proposal provided for transfers of functions to or from cities, towns, or villages in the county. N. Y. Const., Art. IX (1938). In 1958, Art. IX was again amended to provide that any change in county government had to be approved by a majority of the noncity voters, voting as a group, and by a majority of the city voters, voting as a group. The existing Art. IX, adopted in 1963, contains the same general provision as the 1958 amendment.

       See Thayer, The Origin and Scope of the American Doctrine of Constitutional Law, 7 Harv. L. Rev. 129 (1893).


author: Mr. Justice Blackmun

text:
    COMPLETE AUTO TRANSIT, INC. v. BRADY, CHAIRMAN, MISSISSIPPI TAX COMMISSION
    No. 76-29.
    Argued January 19, 1977
    Decided March 7, 1977
    Blackmun, J., delivered the opinion for a unanimous Court.

      Alan W. Perry argued the cause for appellant. With him on the briefs were Robert C. Cannada, George H. Butler, D. Carl Black, and Rhesa H. Barksdale.

      James H. Haddock argued the cause and filed a brief for appellee.
   Mr. Justice Blackmun

delivered the opinion of the Court.

Once again we are presented with “ 'the perennial problem of the validity of a state tax for the privilege of carrying on, within a state, certain activities’ related to a corporation’s operation of an interstate business.” Colonial Pipeline Co. v. Traigle, 421 U. S. 100, 101 (1975), quoting Memphis Gas Co. v. Stone, 335 U. S. 80, 85 (1948). The issue in this case is whether Mississippi runs afoul of the Commerce Clause, U. S. Const., Art. I, § 8, cl. 3, when it applies the tax it imposes on “the privilege of . . . doing business” within the State to appellant’s activity in interstate commerce. The Supreme Court of Mississippi unanimously sustained the tax against appellant’s constitutional challenge. 330 So. 2d 268 (1976). We noted probable jurisdiction in order to consider anew the applicable principles in this troublesome area. 429 U. S. 813 (1976).

I

The taxes in question are sales taxes assessed by the Mississippi State Tax Commission against the appellant, Complete Auto Transit, Inc., for the period from August 1, 1968, through July 31, 1972. The assessments were made pursuant to the following Mississippi statutes:

“There is hereby levied and assessed and shall be collected, privilege taxes for the privilege of engaging or continuing in business or doing business within this state to be determined by the application of rates against gross proceeds of sales or gross income or values, as the case may be, as provided in the following sections.” Miss. Code Ann., 1942, § 10105 (1972 Supp.), as amended.
“Upon every person operating a pipeline, railroad, airplane, bus, truck, or any other transportation business for the transportation of persons or property for compensation or hire between points within this State, there is hereby levied, assessed, and shall be collected, a tax equal to five per cent of the gross income of such business . . . .” § 10109 (2), as amended.

Any person liable for the tax is required to add it to the gross sales price and, “insofar as practicable,” to collect it at the time the sales price is collected. § 10117, as amended.

Appellant is a Michigan corporation engaged in the business of transporting motor vehicles by motor carrier for General Motors Corporation. General Motors assembles outside Mississippi vehicles that are destined for dealers within the State. The vehicles are then shipped by rail to Jackson, Miss., where, usually within 48 hours, they are loaded onto appellant’s trucks and transported by appellant to the Mississippi dealers. App. 47-48, 78-79, 86-87. Appellant is paid on a contract basis for the transportation from the railhead to the dealers. Id., at 50-51, 68.

By letter dated October 5, 1971, the Mississippi Tax Commission informed appellant that it was being assessed taxes and interest totaling $122,160.59 for the sales of transportation services during the three-year period from August 1, 1968, through July 31, 1971. Remittance within 10 days was requested. Id., at 9-10. By similar letter dated December 28, 1972, the Commission advised appellant of an assessment of $42,990.89 for the period from August 1, 1971, through July 31, 1972. Id., at 11-12. Appellant paid the assessments under protest and, in April 1973, pursuant to § 10121.1, as amended, of the 1942 Code (now § 27-65-47 of the 1972 Code), instituted the present refund action in the Chancery Court of the First Judicial District of Hinds County.

Appellant claimed that its transportation was but one part of an interstate movement, and that the taxes assessed and paid were unconstitutional as applied to operations in interstate commerce. App. 4, 6-7. The Chancery Court, in an unreported opinion, sustained the assessments. Id., at 99-102.

The Mississippi Supreme Court affirmed. It concluded:

“It will be noted that Taxpayer has a large operation in this State. It is dependent upon the State for police protection and other State services the same as other citizens. It should pay its fair share of taxes so long, but only so long, as the tax does not discriminate against interstate commerce, and there is no danger of interstate commerce being smothered by cumulative taxes of several states. There is no possibility of any other state duplicating the tax involved in this case.” 330 So. 2d, at 272.

Appellant, in its complaint in Chancery Court, did not allege that its activity which Mississippi taxes does not have a sufficient nexus with the State; or that the tax discriminates against interstate commerce; or that the tax is unfairly apportioned; or that it is unrelated to services provided by the State. No such claims were made before the Mississippi Supreme Court, and although appellant argues here that a tax on “the privilege of engaging in interstate commerce” creates an unacceptable risk of discrimination and undue burdens, Brief for Appellant 20-27, it does not claim that discrimination or undue burdens exist in fact.

Appellant's attack is based solely on decisions of this Court holding that a tax on the “privilege” of engaging in an activity in the State may not be applied to an activity that is part of interstate commerce. See, e. g., Spector Motor Service v. O’Connor, 340 U. S. 602 (1951); Freeman v. Hewit, 329 U. S. 249 (1946). This rule looks only to the fact that the incidence of the tax is the “privilege of doing business”; it deems irrelevant any consideration of the practical effect of the tax. The rule reflects an underlying philosophy that interstate commerce should enjoy a sort of “free trade” immunity from state taxation.

Appellee, in its turn, relies on decisions of this Court stating that “ [i]t was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business,” Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 254 (1938). 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.

Over the years, the Court has applied this practical analysis in approving many types of tax that avoided running afoul of the prohibition against taxing the “privilege of doing business,” but in each instance it has refused to overrule the prohibition. Under the present state of the law, the Spector rule, as it has come to be known, has no relationship to economic realities. Rather it stands only as a trap for the unwary draftsman.

II

The modern origin of the Spector rule may be found in Freeman v. Hewit, supra. At issue in Freeman was the application of an Indiana tax upon “the receipt of the entire gross income” of residents and domiciliaries. 329 U. S., at 250. Indiana sought to impose this tax on income generated when a trustee of an Indiana estate instructed his local stockbroker to sell certain securities. The broker arranged with correspondents in New York to sell the securities on the New York Stock Exchange. The securities were sold, and the New York brokers, after deducting expenses and commission, transmitted the proceeds to the Indiana broker who in turn delivered them, less his commission, to the trustee. The Indiana Supreme Court sustained the tax, but this Court reversed.

Mr. Justice Frankfurter, speaking for five Members of the Court, announced a blanket prohibition against any state taxation imposed directly on an interstate transaction. He explicitly deemed unnecessary to the decision of the case any showing of discrimination against interstate commerce or error in apportionment of the tax. Id., at 254, 256-257. He recognized that a State could constitutionally tax local manufacture, impose license taxes on corporations doing business in the State, tax property within the State, and tax the privilege of residence in the State and measure the privilege by net income, including that derived from interstate commerce. Id., at 255. Nevertheless, a direct tax on interstate sales, even if fairly apportioned and nondiscriminatory, was held to be unconstitutional per se.

Mr. Justice Rutledge, in a lengthy concurring opinion, argued that the tax should be judged by its economic effects rather than by its formal phrasing. After reviewing the Court’s prior decisions, he concluded: “The fact is that 'direct incidence’ of a state tax or regulation . . . has long since been discarded as being in itself sufficient to outlaw state legislation.” Id., at 265-266. In his view, a state tax is unconstitutional only if the activity lacks the necessary connection with the taxing state to give “jurisdiction to tax,” id., at 271, or if the tax discriminates against interstate commerce, or if the activity is subject to multiple taxation. Id., at 276-277.

The rule announced in Freeman was viewed in the commentary as a triumph of formalism over substance, providing little guidance even as to formal requirements. See P. Hartman, State Taxation of Interstate Commerce 200-204 (1953); Dunham, Gross Receipts Taxes on Interstate Transactions, 47 Colum. L. Rev. 211 (1947). Although the rule might have been utilized as the keystone of a movement toward absolute immunity of interstate commerce from state taxation, the Court consistently has indicated that “interstate commerce may be made to pay its way,” and has moved toward a standard of permissibility of state taxation based upon its actual effect rather than its legal terminology.

The narrowing of the rule to one of draftsmanship and phraseology began with another Mississippi case, Memphis Gas Co. v. Stone, 335 U. S. 80 (1948). Memphis Natural Gas Company owned and operated a pipeline running from Louisiana to Memphis. Approximately 135 miles of the line were in Mississippi. Mississippi imposed a “franchise or excise” tax measured by “the value of the capital used, invested or employed in the exercise of any power, privilege or right enjoyed by [a corporation] within this state.” Miss. Code Ann., 1942, § 9313. The Mississippi Supreme Court upheld the tax, and this Court affirmed.

In an opinion for himself and two others, Mr. Justice Reed noted that the tax was not discriminatory, that there was no possibility of multiple taxation, that the amount of the tax was reasonable, and that the tax was properly apportioned to the investment in Mississippi. 335 U. S., at 87-88. He then went on to consider whether the tax was “upon the privilege of doing interstate business within the state.” Id., at 88. He drew a distinction between a tax on “the privilege of doing interstate business” and a tax on “the privilege of exercising corporate functions within the State,” and held that while the former is unconstitutional, the latter is not barred by the Commerce Clause. Id., at 88-93. He then approved the tax there at issue because

“there is no attempt to tax the privilege of doing an interstate business or to secure anything from the corporation by this statute except compensation for the protection of the enumerated local activities of 'maintaining, keeping in repair, and otherwise in manning the facilities.’ ” Id., at 93.

Mr. Justice Black concurred in the judgment without opinion. Id., at 96. Mr. Justice Rutledge provided the fifth vote, stating in his concurrence:

“[I]t is enough for me to sustain the tax imposed in this case that it is one clearly within the state’s power to lay insofar as any limitation of due process or 'jurisdiction to tax’ in that sense is concerned; it is nondiscriminatory, that is, places no greater burden upon interstate commerce than the state places upon competing intrastate commerce of like character; is duly apportioned, that is, does not undertake to tax any interstate activities carried on outside the state’s borders; and cannot be repeated by any other state.” Id., at 96-97 (footnotes omitted).

Four Justices dissented, id., at 99, on the grounds that it had not been shown that the State afforded any protection in return for the tax, and that, therefore, the tax must be viewed as one on the “privilege” of engaging in interstate commerce. The dissenters recognized that an identical effect could be achieved by an increase in the ad valorem property tax, id., at 104, but would have held, notwithstanding, that a tax on the “privilege” is unconstitutional.

The prohibition against state taxation of the “privilege” of engaging in commerce that is interstate was reaffirmed in Spector Motor Service v. O’Connor, 340 U. S. 602 (1951), a case similar on its facts to the instant case. The taxpayer there was a Missouri corporation engaged exclusively in interstate trucking. Some of its shipments originated or terminated in Connecticut. Connecticut imposed on a corporation a “tax or excise upon its franchise for the privilege of carrying on or doing business within the state,” measured by apportioned net income. Id., at 603-604, n. 1. Spector brought suit in federal court to enjoin collection of the tax as applied to its activities. The District Court issued the injunction. The Second Circuit reversed. This Court, with three Justices in dissent, in turn reversed the Court of Appeals and held the tax unconstitutional as applied.

The Court recognized that “where a taxpayer is engaged both in intrastate and interstate commerce, a state may tax the privilege of carrying on intrastate business and, within reasonable limits, may compute the amount of the charge by applying the tax rate to a fair proportion of the taxpayer’s business done within the state, including both interstate and intrastate.” Id., at 609-610 (footnote omitted). It held, nevertheless, that a tax on the “privilege” of doing business is unconstitutional if applied against what is exclusively interstate commerce. The dissenters argued, on the other hand, id., at 610, that there is no constitutional difference between an “exclusively interstate” business and a “mixed” business, and that a fairly apportioned and nondiscriminatory tax on either type is not prohibited by the Commerce Clause.

The Spector rule was applied in Railway Express Agency v. Virginia, 347 U. S. 359 (1954) (Railway Express I), to declare unconstitutional a State’s “annual license tax” levied on gross receipts for the “privilege of doing business in this State.” The Court, by a 5-to-4 vote, held that the tax on gross receipts was a tax on the privilege of doing business rather than a tax on property in the State, as Virginia contended.

Virginia thereupon revised the wording of its statute to impose a “franchise tax” on “intangible property” in the form of “going concern” value as measured by gross receipts. The tax was again asserted against the Agency which in Virginia was engaged exclusively in interstate commerce. This Court’s opinion, buttressed by two concurring opinions and one concurrence in the result, upheld the reworded statute as not violative of the Spector rule. Railway Express Agency v. Virginia, 358 U. S. 434 (1959) (Railway Express II). In upholding the statute, the Court’s opinion recognized that the rule against taxing the “privilege” of doing interstate business had created a situation where “the use of magic words or labels” could “disable an otherwise constitutional levy.” Id., at 441.

There was no real economic difference between the statutes in Railway Express I and Railway Express II. The Court long since had recognized that interstate commerce may be made to pay its way. Yet under the Spector rule, the economic realities in Railway Express I became irrelevant. The Spector rule had come to operate only as a rule of draftsmanship, and served only to distract the courts and parties from their inquiry into whether the challenged tax produced results forbidden by the Commerce Clause.

On the day it announced Railway Express II, the Court further confirmed that a State, with proper drafting, may tax exclusively interstate commerce so long as the tax does not create any effect forbidden by the Commerce Clause. In Northwestern Cement Co. v. Minnesota, 358 U. S. 450 (1959), the Court held that net income from the interstate operations of a foreign corporation may be subjected to state taxation, provided the levy is not discriminatory and is properly apportioned to local activities within the taxing State forming sufficient nexus to support the tax. Limited in that way, the tax could be levied even though the income was generated exclusively by interstate sales. Spector was distinguished, briefly and in passing, as a case in which “the incidence” of the tax “was the privilege of doing business.” 358 U. S., at 464.

Thus, applying the rule of Northwestern Cement to the facts of Spector, it is clear that Connecticut could have taxed the apportioned net income derived from the exclusively interstate commerce. It could not, however, tax the “privilege” of doing business as measured by the apportioned net income. The reason for attaching constitutional significance to a semantic difference is difficult to discern.

The unsatisfactory operation of the Spector rule is well demonstrated by our recent case of Colonial Pipeline Co. v. Traigle, 421 U. S. 100 (1975). Colonial was a Delaware corporation with an interstate pipeline running through Louisiana for approximately 258 miles. It maintained a work force and pumping stations in Louisiana to keep the pipeline flowing, but it did no intrastate business in that State. Id., at 101-102. In 1962, Louisiana imposed on Colonial a franchise tax for “the privilege of carrying on or doing business” in the State. The Louisiana Court of Appeal invalidated the tax as violative of the rule of Spector. Colonial Pipeline Co. v. Mouton, 228 So. 2d 718 (1969). The Supreme Court of Louisiana refused review. 255 La. 474, 231 So. 2d 393 (1970). The Louisiana Legislature, perhaps recognizing that it had run afoul of a rule of words rather than a rule of substance, then redrafted the statute to levy the tax, as an alternative incident, on the “qualification to carry on or do business in this state or the actual doing of business within this state in a corporate form.” Again, the Court of Appeal held the tax unconstitutional as applied to the appellant. Colonial Pipeline Co. v. Agerton, 275 So. 2d 834 (1973). But this time the Louisiana Supreme Court upheld the new tax. 289 So. 2d 93 (1974)

By a 7-to-1 vote, this Court affirmed. No question had been raised as to the propriety of the apportionment of the tax, and no claim was made that the tax was discriminatory. 421 U. S., at 101. The Court noted that the tax was imposed on that aspect of interstate commerce to which the State bore a special relation, and that the State bestowed powers, privileges, and benefits sufficient to support a tax on doing business in the corporate form in Louisiana. Id., at 109. Accordingly, on the authority of Memphis Gas, the tax was held to be constitutional. The Court distinguished Spector on the familiar ground that it involved a tax on the privilege of carrying on interstate commerce, while the Louisiana Legislature, in contrast, had worded the statute at issue “narrowly to confine the impost to one related to appellant’s activities within the State in the corporate form.” 421 U. S., at 113-114.

While refraining from overruling Spector, the Court noted:

“[D]ecisions of this Court, particularly during recent decades, have sustained nondiscriminatory, properly apportioned state corporate taxes upon foreign corporations doing an exclusively interstate business when the tax is related to a corporation’s local activities and the State has provided benefits and protections for those activities for which it is justified in asking a fair and reasonable return.” Id., at 108.

One commentator concluded: “After reading Colonial, only the most sanguine taxpayer would conclude that the Court maintains a serious belief in the doctrine that the privilege of doing interstate business is immune from state taxation.” Hellerstein, State Taxation of Interstate Business and the Supreme Court, 1974 Term: Standard Pressed Steel and Colonial Pipeline, 62 Va. L. Rev. 149, 188 (1976).

III

In this case, of course, we are confronted with a situation like that presented in Spector. The tax is labeled a privilege tax “for the privilege of . . . doing business” in Mississippi, § 10105 of the State’s 1942 Code, as amended, and the activity taxed is, or has been assumed to be, interstate commerce. We note again that no claim is made that the activity is not sufficiently connected to the State to justify a tax, or that the tax is not fairly related to benefits provided the taxpayer, or that the tax discriminates against interstate commerce, or that the tax is not fairly apportioned.

The view of the Commerce Clause that gave rise to the rule of Spector perhaps was not without some substance. Nonetheless, the possibility of defending it in the abstract does not alter the fact that the Court has rejected the proposition that interstate commerce is immune from state taxation:

“It is a truism that the mere act of carrying on business in interstate commerce does not exempt a corporation from state taxation. 'It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing business.’ Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 254 (1938).” Colonial Pipeline Co. v. Traigle, 421 U. S., at 108.

Not only has the philosophy underlying the rule been rejected, but the rule itself has been stripped of any practical significance. If Mississippi had called its tax one on “net income” or on the “going concern value” of appellant’s business, the Spector rule could not invalidate it. There is no economic consequence that follows necessarily from the use of the particular words, “privilege of doing business,” and a focus on that formalism merely obscures the question whether the tax produces a forbidden effect. Simply put, the Spector rule does not address the problems with which the Commerce Clause is concerned. Accordingly, we now reject the rule of Spector Motor Service, Inc. v. O’Connor, that a state tax on the “privilege of doing business” is per se unconstitutional when it is applied to interstate commerce, and that case is overruled.

There being no objection to Mississippi’s tax on appellant except that it was imposed on nothing other than the “privilege of doing business” that is interstate, the judgment of the Supreme Court of Mississippi is affirmed.

It is so ordered.

       The statute is now § 27-65-13 of the State’s 1972 Code.

       This statute is now § 27-65-19 (2) of the 1972 Code. It was amended, effective August 1, 1972, to exclude the transportation of property. 1972 Miss. Laws, c. 506, § 2.
      Section 10109, as codified in 1942, imposed a tax on gross income from all transportation, with gross income defined to exclude “so much thereof as is derived from business conducted in commerce between this State and other States of the United States . . . which the State of Mississippi is prohibited from taxing under the Constitution of the United States of America.” In 1955, this exclusionary language was eliminated and the statute was amended to cover only transportation “between points within this state.” 1955 Miss. Laws, c. 109, § 10. The amendment gave the statute essentially the form it possessed during the period relevant here.
      It might be argued that the statute as so amended evinces an intent to reach only intrastate commerce, and that it should be so construed. Appellant, however, does not make that argument, and the Supreme Court of Mississippi clearly viewed that statute as applying to both intrastate commerce and interstate commerce.
      We are advised by the appellee that the tax has been applied only to commercial transactions in which a distinct service is performed and payment made for transportation from one point within the State to another point within the State. Tr. of Oral Arg. 34-35, 38.

       This statute is now § 27-65-31 of the 1972 Code. Violation of the requirements of the section is a misdemeanor. Ibid.

       The parties understandably go to great pains to describe the details of the bills of lading, and the responsibility of various entities for the vehicles as they travel from the assembly plant to the dealers. Appellant seeks to demonstrate that the transportation it provides from the railhead to the dealers is part of a movement in interstate commerce. Appellee argues that appellant’s transportation is intrastate business, but further argues that even if the activity is part of interstate commerce, the tax is not unconstitutional. Brief for Appellant 11-14; Brief for Appellee 12-24; Reply Brief for Appellant 44-16. The Mississippi courts, in upholding the tax, assumed that the transportation is in interstate commerce. For present purposes, we make the same assumption.

       Although appellant had been operating in Mississippi since 1960, App. 77, the state audit and assessment covered only the period beginning August 1, 1968. Id., at 37-38. No effort had been made to apply the tax to appellant for any period prior to that date.

       See Boston Stock Exchange v. State Tax Comm’n, 429 U. S. 318 (1977); General Motors Corp. v. Washington, 377 U. S. 436 (1964); Illinois Cent. R. Co. v. Minnesota, 309 U. S. 157 (1940); Ingels v. Morf, 300 U. S. 290 (1937). See also Standard Steel Co. v. Washington Rev. Dept., 419 U. S. 560 (1975), and Clark v. Paul Gray, Inc., 306 U. S. 583 (1939).

       The Court summarized the “free trade” view in Freeman v. Hewit, 329 U. S., at 252:
      “[T]he Commerce Clause was not merely an authorization to Congress to enact laws for the protection and encouragement of commerce among the States, but by its own force created an area of trade free from interference by the States. In short, the Commerce Clause even without implementing legislation by Congress is a limitation upon the power of the States. . . . This limitation on State power . . . does not merely forbid a State to single out interstate commerce for hostile action. A State is also precluded from taking any action which may fairly be deemed to have the effect of impeding the free flow of trade between States. It is immaterial that local commerce is subjected to a similar encumbrance.”

       See, e. g., General Motors Corp. v. Washington, supra; Northwestern Cement Co. v. Minnesota, 358 U. S. 450 (1959); Memphis Gas Co. v. Stone, 335 U. S. 80 (1948); Wisconsin v. J. C. Penney Co., 311 U. S. 435, 444 (1940).

       Although we mention Freeman as the starting point, elements of the views expressed therein, and the positions that underlie that debate, were evident in prior opinions. Compare State Tax on Railway Gross Receipts, 15 Wall. 284 (1873), with Fargo v. Michigan, 121 U. S. 230 (1887); and compare Di Santo v. Pennsylvania, 273 U. S. 34 (1927), and Cooney v. Mountain States Tel. Co., 294 U. S. 384 (1935), with Western Live Stock v. Bureau of Revenue, 303 U. S. 250 (1938). See generally P. Hartman, State Taxation of Interstate Commerce (1953); Barrett, State Taxation of Interstate Commerce—“Direct Burdens,” “Multiple Burdens,” or What Have You?, 4 Vand. L. Rev. 496 (1951), and writings cited therein at 496 n. 1; Dunham, Gross Receipts Taxes on Interstate Transactions, 47 Colum. L. Rev. 211 (1947).

       Mr. Justice Rutledge agreed with the result the Court reached in Freeman because of his belief that the apportionment problem was best solved if States other than the market State were forbidden to impose unapportioned gross receipts taxes of the kind Indiana sought to exact.

       A consistent application of the doctrine of immunity for interstate commerce, of course, would have necessitated overruling the cases approved by the Freeman Court that upheld taxes whose burden, although indirect, fell on interstate commerce.

       In arriving at this conclusion, the dissent relied upon a construction of a stipulation entered into by the parties, 335 U. S., at 100-101, and upon an independent review of the record. The plurality rejected the dissent’s reading of the stipulation and noted, in addition, that the question presented in the petition for certiorari did not raise a claim that the State was providing no service for which it could ask recompense. Id., at 83-84. The plurality then relied on the Supreme Court of Mississippi’s holding that the State did provide protection that could properly be the subject of a tax.

       Five Members of the Court joined in the opinion distinguishing Spector. Two concurred in the judgment, but viewed Spector as indistinguishable and would have overruled it. 421 U. S., at 114-116. One also viewed Spector as indistinguishable, but felt that it was an established precedent until forthrightly overruled. Id., at 116. Mr. Justice Douglas took no part.

       Less charitably put: “In light of the expanding scope of the state taxing power over interstate commerce, Spector is an anachronism. . . . Continued adherence to Spector, especially after Northwestern States Portland Cement, cannot be justified.” Comment, Pipelines, Privileges and Labels: Colonial Pipeline Co. v. Traigle, 70 Nw. U. L. Rev. 835, 854 (1975).

       It might be argued that "privilege” taxes, by focusing on the doing of business, are easily tailored to single out interstate businesses and subject them to effects forbidden by the Commerce Clause, and that, therefore, “privilege” taxes should be subjected to a per se rule against their imposition on interstate business. Yet property taxes also may be tailored to differentiate between property used in transportation and other types of property, see Railway Express II, 358 U. S. 434 (1959); an income tax could use different rates for different types of business; and a tax on the “privilege of doing business in corporate form” could be made to change with the nature of the corporate activity involved. Any tailored tax of this sort creates an increased danger of error in apportionment, of discrimination against interstate commerce, and of a lack of relationship to the services provided by the State. See Freeman v. Hewit, 329 U. S., at 265-266, n. 13 (concurring opinion). A tailored tax, however accomplished, must receive the careful scrutiny of the courts to determine whether it produces a forbidden effect on interstate commerce. We perceive no reason, however, why a tax on the “privilege of doing business” should be viewed as creating a qualitatively different danger so as to require a per se rule of unconstitutionality.
      It might also be argued that adoption of a rule of absolute immunity for interstate commerce (a rule that would, of course, go beyond Spector) would relieve this Court of difficult judgments that on occasion will have to be made. We believe, however, that administrative convenience, in this instance, is insufficient justification for abandoning the principle that “interstate commerce may be made to pay its way.”