author: Justice Marshall

text:
    HAYFIELD NORTHERN RAILROAD CO., INC., et al. v. CHICAGO & NORTH WESTERN TRANSPORTATION CO.
    No. 82-1579.
    Argued February 21, 1984
    Decided June 12, 1984

      Robert S. Abdalian argued the cause for appellants. With him on the briefs were Hubert H. Humphrey III, Attorney General of Minnesota, and Gilbert S. Buffington, Special Assistant Attorney General.

      Mark I. Levy argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Lee and Deputy Solicitor General Bator.

      Anne E. Keating argued the cause for appellee. With her on the brief was Thomas E. Glennon.

      A brief of amici curiae urging reversal was filed for the State of Arkansas et al. by Bronson C. La Follette, Attorney General of Wisconsin,
        Ckarles D. Hoomstra, Assistant Attorney General, and by the Attorneys General for their respective States as follows: Steve Clark of Arkansas, Charles M. Oberly III of Delaware, Jim Jones of Idaho, Thomas J. Miller of Iowa, Robert T. Stephan of Kansas, William J. Guste, Jr., of Louisiana, Frank J. Kelley of Michigan, Erwin I. Kimmelman of New Jersey, Robert 0. Wefald of North Dakota, Dave Frohnmayer of Oregon, LeRoy S. Zimmerman of Pennsylvania, T. Travis Medlock of South Carolina, John Eaton, Jr., of Vermont, Kenneth 0. Eikenberry of Washington, and A. G. McClintock of Wyoming.

   Justice Marshall

delivered the opinion of the Court.

The Staggers Rail Act of 1980, which amended the Interstate Commerce Act, regulates the process by which rail carriers may abandon unprofitable lines and provides a mechanism for shippers to obtain continued service by purchasing lines or subsidizing their operation. This case poses the question whether the Interstate Commerce Act, as amended, pre-empts a Minnesota eminent domain statute used to condemn rail property after it has been abandoned pursuant to the amendments. The Court of Appeals for the Eighth Circuit held that the Act, as amended, pre-empted the state statute. 693 F. 2d 819 (1982). We disagree.

I — I

On January 30, 1981, appellee filed an application with the Interstate Commerce Commission (Commission) seeking permission to abandon a 44-mile rail line between Oelwein, Iowa, and Randolph, Minn. Appellee maintained that operation of the line imposed a serious financial strain on its resources. Several shippers in Minnesota (Shippers Group) opposed the abandonment of a 19.2-mile segment of the line that passed through Hayfield, Minn. (Hayfield segment). After an Administrative Law Judge ruled that appellee was entitled to abandon the entire 44-mile line, the Shippers Group, pursuant to the Staggers Rail Act amendments, offered to subsidize operation of the Hayfield segment. See 49 U. S. C. § 10905(c). When the parties could not agree on mutually acceptable terms, the Commission, at the request of the Shippers Group, determined the appropriate price for subsidizing continued operation of the line. See 49 U. S. C. § 10905(e). Dissatisfied with the Commission’s determination, the Shippers Group withdrew its offer. See 49 U. S. C. § 10905(f)(2). Soon thereafter, the Commission granted a certificate of abandonment to appellee, ibid., thereby relieving appellee of its federal obligation to supply rail service.

During the period that the Shippers Group was attempting to prevent the issuance of a certificate of abandonment, appellee entered into contracts with the State of Iowa and various Iowa shippers. These contracts involved improvements of certain trackage in Iowa. Appellee intended to fulfill these contracts by using the track from the abandoned line.

On March 31, 1982, members of the Shippers Group formed appellant Hayfield Northern Railroad Co., Inc. (hereafter appellant). Appellant planned to use the eminent domain authority vested in it by Minn. Stat. §227.27 (1982) to condemn the Hayfield segment that appellee had abandoned. Appellant filed suit in state court and obtained a temporary restraining order preventing appellee from removing track from the Hayfield segment. Appellee immediately removed the suit to Federal District Court and moved to dissolve the restraining order on the ground that the Act, as amended, pre-empted the Minnesota condemnation statute. At this point, the State of Minnesota intervened in order to defend appellant’s application of its condemnation law.

The District Court awarded summary judgment to appel-lee and dissolved the restraining order. After granting a stay pending appeal, the Court of Appeals for the Eighth Circuit affirmed. 693 F. 2d 819 (1982). The Court of Appeals held that the Minnesota condemnation statute was pre-empted because it constituted an obstacle to the accomplishment of the congressional purpose behind the federal abandonment procedure. The Court of Appeals also dissolved its stay and remanded the case to the District Court for calculation of the damages incurred by appellee because of the delay. Following denial of rehearing by the Court of Appeals, we denied appellant’s motion to stay the issuance of the Court of Appeals’ mandate, 460 U. S. 1018 (1983), and subsequently noted probable jurisdiction, 464 U. S. 812 (1983).

II

Pre-emption doctrine stems from the Supremacy Clause of the United States Constitution and invalidates any state law that contradicts or interferes with an Act of Congress. Pre-emption arises in a wide array of contexts, from circumstances in which federal and state laws are plainly contradictory to those in which the incompatibility between state and federal laws is discernible only through inference. This case presents no issue of express pre-emption; nothing on the face of the Staggers Rail Act amendments explictly indicates whether Congress intended to pre-empt state authority over rail property after the Commission has authorized its abandonment. Therefore, in order to determine whether preemption is otherwise indicated, we must inquire more deeply into the intention of Congress and the scope of the pertinent state legislation. We turn, then, to the laws in dispute to ascertain their structure and purpose.

Initially, the Interstate Commerce Act did not subject railroad abandonments to the jurisdiction of the Commission. See Act of Feb. 4, 1887, ch. 104, 24 Stat. 379. Congress ceded authority over abandonments to the Commission in the Transportation Act of 1920, ch. 91, § 402(18) — (22), 41 Stat. 477-478. See Chicago & N. W. Transportation Co. v. Kalo Brick & Tile Co., 450 U. S. 311, 319-320 (1981). The Transportation Act prohibited a carrier from abandoning any portion of a line without first obtaining from the Commission a certificate of abandonment verifying that the future public convenience and necessity permitted the cessation of the carrier’s rail service.

The abandonment procedure proved inadequate, however, because it lacked a specific timetable for the issuance of an abandonment certificate. Railroads consequently found themselves enmeshed in lengthy proceedings before the Commission, unable to unburden themselves promptly of unprofitable lines. See Chicago & N. W. Transportation Co. v. United States, 582 F. 2d 1043, 1045-1046 (CA7), cert. denied, 439 U. S. 1039 (1978); S. Rep. No. 94-499, p. 3 (1975). Congress enacted new legislation to provide railroads with a more expeditious abandonment process that would also be attentive to the interests of shippers and others who might be dependent upon the continuation of rail service on a particular line. See the Railroad Revitalization and Regulatory Reform Act of 1976 (4-R Act), Pub. L. 94-210, § 802, 90 Stat. 127, originally codified at 49 U. S. C. § la (1976 ed.) (subsequently recodified without substantive change at 49 U. S. C. § 10903 et seq.).

To alleviate the costly delays imposed upon railroads by protracted proceedings before the Commission, the 4-R Act provided a schedule to govern the abandonment process. See 49 U. S. C. §§ la(3), (4) (1976 ed.). At the same time, to afford opponents of an abandonment an opportunity to maintain rail service, the 4-R Act allowed abandonment to be delayed for up to six months if a financially responsible person offered to subsidize or purchase the line. § la(6)(a). It soon became clear, however, that further reforms would be required in order adequately to address both the need of railroads for an even more abbreviated method of abandonment and the need of shippers and communities to avoid the dislocations caused by abandonment. As a consequence, Congress further amended the Interstate Commerce Act by enacting the Staggers Rail Act of 1980, Pub. L. 96-448, § 402, 94 Stat. 1941-1945, codified at 49 U. S. C. §§ 10903-10906.

The Staggers Rail Act amendment most pertinent to this case was the revision of § 10905. Entitled “Offers of financial assistance to avoid abandonment and discontinuance,” § 10905 governs the procedures to be followed when a person seeks to prevent an abandonment by purchasing the carrier’s lines or by subsidizing the carrier’s service. Section 10905 provides that the Commission shall publish in the Federal Register its findings that the public convenience and necessity require or permit abandonment or discontinuance of a particular railroad line and that “[wjithin 10 days following the publication, any person may offer to pay the carrier a subsidy or offer to purchase the line.” 49 U. S. C. § 10905(c). If the Commission finds within 15 days that the offeror is “a financially responsible person (including a government authority)” and that the offer of assistance meets prescribed standards, it “shall postpone the issuance of a certificate authorizing abandonment or discontinuance.” § 10905(d). If the offeror and the carrier “fail to agree on the amount or terms of the subsidy or purchase, either party may, within 30 days after the offer is made, request that the Commission establish the conditions and amount of compensation . . . within 60 days,” § 10905(e), and this decision “shall be binding on both parties, except that the person who has offered to subsidize or purchase the line may withdraw his offer within 10 days of the Commission’s decision.” § 10905(f)(2). If the offer is withdrawn, “the Commission shall immediately issue a certificate authorizing the abandonment or discontinuance.” Ibid.

The underlying rationale of § 10905 represents a continuation of Congress’ efforts to accommodate the conflicting interests of railroads that desire to unburden themselves quickly of unprofitable lines and shippers that are dependent upon continued rail service. Under the 4-R Act, carriers could negotiate with offerors in bad faith while simply waiting for the 6-month negotiating period to elapse. By pursuing this course, carriers could either extract excessive prices from desperate shippers or abandon their lines without reaching an agreement on purchase or subsidy. See Chicago & N. W. Transportation Co. v. United States, 678 F. 2d 665, 667 (CA7 1982). To counteract bad-faith negotiating on the part of carriers, § 10905(f)(2) binds a carrier to the purchase or subsidy price determined by the Commission in the event that the offeror and the carrier cannot themselves come to terms. On the other hand, to reduce the costly delays associated with shipper opposition to proposed abandonments, § 10905 further abbreviates the period required for resolving negotiations over offers. Under the 4-R Act, the period for resolving such offers was six months; under § 402(c) of the Staggers Rail Act amendments, Congress reduced the period to 110 days.

In contrast to the complicated structure of the Interstate Commerce Act, the Minnesota statute at issue is a straightforward application of a State’s familiar power of eminent domain. The statute, originally enacted in 1879, provides:

“Every foreign and domestic railroad corporation shall have power to acquire, by purchase or condemnation, all necessary roadways, spur and side tracks, rights of way, depot grounds, yards, grounds for gravel pits, machine shops, warehouses, elevators, depots, station houses, and all other structures necessary or convenient for the use, operation, or enjoyment of the road, and may make with any other railroad company, such arrangements for the use of any portion of its tracks and roadbeds as it may deem necessary.” Minn. Stat. §222.27 (1982).

Ill

The argument that the Staggers Rail Act amendments pre-empt the State’s power of eminent domain over the abandoned Hayfield segment rests upon two contentions: first, that the federal regulation of railroad abandonments is so pervasive as to make reasonable the inference that Congress left no room for state action on this subject; and, second, that application of the Minnesota statute in the circumstances of this case would pose an obstacle to the accomplishment of the purposes of § 10905.

A

The first contention attempts to bring this case within the narrow ambit of decisions in which this Court has indicated that congressional legislation so occupied the field of a particular subject area that state regulation within that field would be improper no matter how well state law comported with the federal policies involved. Cf. Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Dev. Comm’n, 461 U. S. 190, 203-204 (1983). This Court has repeatedly affirmed, however, that “federal regulation of a field of commerce should not be deemed preemptive of state regulatory power in the absence of persuasive reasons— either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.” Florida Lime & Avocado Growers, Inc. v. Paul, 373 U. S. 132, 142 (1963). In this case, Congress has not “unmistakably ordained” that the States may not exercise their traditional power of eminent domain over railroad property that has been abandoned; nothing in the Act expressly refers to federal pre-emption with respect to the disposition of abandoned railroad property. Nor is there any indication that the subject matter at issue here— abandoned railroad property — is of the sort that “permits no other conclusion” but that it is governed by federal and not state regulation. After all, state law normally governs the condemnation of ordinary real property.

Appellee insists that the line it abandoned cannot properly be viewed as ordinary real property because, even after abandonment has occurred, the line remains under the jurisdiction of the Commission. According to appellee, the elaborate procedural detail of the Act indicates that in addition to granting the Commission exclusive and plenary authority to regulate abandonment, the Act also “granted the Commission exclusive and plenary authority to provide for continuation of rail service via forced sale or subsidy following its authorization of abandonment.” Brief for Appellee 21-22. This claim reflects a misunderstanding of the Act. With exceptions irrelevant to this case, the provisions of the Act relate to requirements that must be met before the Commission will authorize an abandonment. Therefore, unless the Commission attaches postabandonment conditions to a certificate of abandonment, the Commission’s authorization of an abandonment brings its regulatory mission to an end.

The proposition that, as a general matter, issuing a certificate of abandonment terminates the Commission’s jurisdiction is strongly buttressed by the Commission’s own interpretation of its regulatory authority. According to the Commission, “the disposition of rail property after an effective certificate of abandonment has been exercised is a matter beyond the scope of the Commission’s jurisdiction, and within a State’s reserved jurisdiction. Questions of title to, and disposition of, the property are the matters subject to State law.” Abandonment of Railroad Lines and Discontinuance of Service, 365 I. C. C. 249, 261 (1981); see also Chicago & N. W. Transportation Co. — Abandonment—in Waukesha, Jefferson and Dane Counties, WI, I. C. C. Docket No. AB-1 (Sub-No. 144) (May 5, 1983) (set forth in App. to Joint Supplemental Memorandum of Appellant and Appellant-Intervenor A-l, A-5); Common Carrier Status of States, State Agencies and Instrumentalities, and Political Subdivisions, 363 I. C. C. 132, 135 (1980) (“When a rail line has been fully abandoned, it is no longer [a] rail line and the transfer of the line is not subject to our jurisdiction” (footnote omitted)), aff’d sub nom. Simmons v. ICC, 225 U. S. App. D. C. 84, 697 F. 2d 326 (1982); Modern Handcraft, Inc.— Abandonment in Jackson County, Mo., 363 I. C. C. 969, 972 (1981). The Commission’s position, of course, is entitled to considerable deference since it represents the construction of a regulatory statute by the agency charged with the statute’s enforcement. See, e. g., Bureau of Alcohol, Tobacco and Firearms v. Federal Labor Relations Authority, 464 U. S. 89, 97 (1983).

B

The second contention in support of a finding of preemption is that the Minnesota condemnation statute, applied in the manner which appellant proposes, would obstruct the accomplishment of the objectives for which Congress enacted §10905. Cf. Hines v. Davidowitz, 312 U. S. 52, 67 (1941) (pre-emption arises when state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress”). More specifically, appellee maintains that if shippers are allowed to institute potentially lengthy condemnation proceedings against abandoned rail lines, the benefits of the 110-day time limit established by § 10905 will be lost.

We are unpersuaded. The expedited process provided by § 10905 was intended to abbreviate the period during which a carrier is obligated to furnish financially burdensome service it seeks to escape through abandonment. State condemnation proceedings do not interfere with that purpose insofar as such proceedings follow abandonment. After the Commission has authorized a carrier to abandon its lines, that carrier is relieved of its obligation to furnish rail service. Nothing in §10905 indicates a federal interest in affording special protection to a carrier after the point at which the carrier’s federal obligation ends.

Appellee also maintains that allowing appellant to bring condemnation proceedings after abandonment would contravene the overall purpose of the Act: to make the railroad industry more efficient and productive. It is true that the exercise of state condemnation authority would prevent appellee from removing property subject to that authority from the Hayfield segment and shifting such property to higher-value uses elsewhere. It is also true that the existence of opportunity costs has been recognized by the Commission as one factor to be taken into account in deciding whether to authorize an abandonment. See, e. g., State of Maine Dept. of Transportation v. ICC, 587 F. 2d 541, 543-544 (CA1 1978). It does not follow however, that state condemnation authority thereby frustrates the federal abandonment scheme. What appellee overlooks is that § 10905 is expressly designed to allow an offeror to force a carrier to forgo abandonment in favor of continued operation through subsidization or purchase, regardless of the opportunity costs entailed by the inability to shift its assets to higher-value uses. See § 10905(f)(2). Offerors must be willing, of course, to subsidize or purchase the line so that the costs of continued operation are lifted from the carrier. § 10905(d). But alleviating the carrier’s burden does not alter the economic reality that opportunity costs continue to be incurred; it merely shifts the incidence of those costs. In light of Congress’ imposition of solutions that subordinate opportunity costs to other considerations, state condemnation authority is not pre-empted merely because it may frustrate the economically optimal use of rail assets.

Finally, appellee maintains that appellant’s proposed application of Minnesota law would interfere with the valuation procedure established by §10905 by allowing appellant to relitigate the price the Commission established for the purchase or subsidizing of appellee’s lines. Although it may seem unfair to allow a shipper a “second bite at the apple” in state condemnation proceedings after it has participated in, and then withdrawn from, negotiations under § 10905, that second opportunity does not frustrate the purpose of the federal valuation scheme. That purpose was to prevent carriers from frustrating bona fide offers of subsidy or purchase through bad-faith negotiations, see supra, at 630-631, not to impose a blanket prohibition covering all postabandonment efforts to obtain abandoned property.

H <1

We hold that appellant s proposed application of Minnesota condemnation law is not pre-empted by the Staggers Act amendments to the Interstate Commerce Act. Accordingly, we reverse the judgment of the Court of Appeals and remand the case for further proceedings consistent with this opinion.

It is so ordered.

       Pub. L. 96-448, §402, 94 Stat. 1941-1945, 49 U. S. C. §§ 10903-10906.

       Minn. Stat. §222.27 (1982); infra, at 631 (quoting the text of the law). Many States have enacted similar statutes. See Brief for Appellants 5, n. 2 (citing statutes in 33 States).

       At the same time that the Shippers Group offered to subsidize continued rail service, it also appealed the decision authorizing abandonment. The Commission denied the appeal whereupon the Shippers Group filed a petition for review in the Court of Appeals. After unsuccessfully seeking a stay of the order permitting abandonment, the Shippers Group withdrew its petition for review. See 693 F. 2d. 819, 820 (1982).

         See U. S. Const., Art. VI, cl. 2 (“This Constitution, and the Laws of the United States which shall be made in Pursuance therof. . . shall be the supreme Law of the Land . . . , any Thing in the Constitution or Laws of any State to the Contrary notwithstanding”); Gibbons v. Ogden, 9 Wheat. 1, 211 (1824).

       Compare McDermott v. Wisconsin, 228 U. S. 115 (1913) (invalidating state law directly conflicting with federal regulations), with Motor Coach Employees v. Lockridge, 403 U. S. 274 (1971) (holding wrongful discharge action brought in state court precluded by pervasiveness of federal regulation in the area). See generally L. Tribe, American Constitutional Law 376-391 (1978).

       See generally Railroad Transportation Policy Act of 1979: Hearings on S. 1946 before the Senate Committee on Commerce, Science, and Transportation, 96th Cong., 1st Sess. (1979); Railroad Deregulation Act of 1979: Hearings on H. R. 4570 before the Subcommittee on Transportation and Commerce of the House Committee on Interstate and Foreign Commerce, 96th Cong., 1st Sess (1979); Railroad Deregulation Act of 1979: Hearings on S. 796 before the Subcommittee on Surface Transportation of the Senate Committee on Commerce, Science, and Transportation, 96th Cong., 1st Sess., pts. 1, 3 (1979).

       To enable potential offerors to determine the feasibility of subsidizing or purchasing a line, the Act mandates that a rail carrier applying for an abandonment certificate must provide current financial data, including an estimate of the annual subsidy and minimum purchase price needed to keep the line in operation. 49 U. S. C. § 10905(b).

       See S. Rep. No. 96-470, pp. 39-41 (1979) (“The abandonment provisions of this bill are designed to accomplish two major objectives: significantly reducing the time spent processing [abandonment] cases at the Commission and improving the process by which abandoned lines can be subsidized”); H. R. Conf. Rep. No. 96-1430, p. 125 (1980) (§ 10905 as amended will “assist shippers who are sincerely interested in improving rail service, while at the same time protecting carriers from protracted legal proceedings which are calculated merely to tediously extend the abandonment process”).

       Compare 49 U. S. C. § la(6)(a) (1976 ed.) with 49 TT §§ 10905(c)-(f).

       See, e. g., 49 U. S. C. §10906:
      “If the Commission finds that the rail properties proposed to be abandoned are suitable for public purposes, the properties may be sold, leased, exchanged, or otherwise disposed of only under conditions provided in the order of the Commission. The conditions may include a prohibition on any such disposal for a period of not more than 180 days after the effective date of the order, unless the properties have first been offered, on reasonable terms, for sale for public purposes.”
      See also 49 U. S. C. § 10905(f)(4) (no purchaser of an abandoned line “may transfer or discontinue service on such line prior to the end of the second year after consummation of the sale, nor may such purchaser transfer such line, except to the carrier from whom it was purchased, prior to the end of the fifth year after consummation of the sale”).

       This does not mean that in the postabandonment period, States are free to undo the very purposes for which the Commission authorized an abandonment. For example, if the Commission authorized an abandonment on the ground that relocation of the track was essential to enable the carrier to provide adequate service elsewhere, pre-emption would almost certainly invalidate a subsequent order by a state court barring such a transfer. Cf. In re Boston & Maine Corp., 596 F. 2d 2, 5-7 (CA1 1979); Texas & Pac. R. Co. Abandonment between San Martine and Rock House in Culberson, Texas, 363 I. C. C. 666, 678-679 (1980). This problem is absent from the case at bar.

       According to the Court of Appeals “the benefits of the 110 day time schedule would be lost, since the state proceedings, once commenced, could take years.” 693 F. 2d, at 822-823 (citation omitted).

       As the Conference Report on the Staggers Rail Act explained, one of the central aims of § 10905 was to “protec[t] carriers from protracted legal proceedings which are calculated merely to tediously extend the abandonment process.” H. R. Conf. Rep. No. 96-1430, p. 125 (1980) (emphasis added).

       The Court of Appeals accepted this argument and concluded that allowing appellant to use Minnesota law to condemn the Hayfield segment “would circumvent the Commission’s determination of value.” 693 F. 2d, at 823.

       The question whether appellant should be allowed to litigate the value of appellee’s abandoned rail property is an issue more appropriately analyzed in terms of res judicata rather than pre-emption. If an offeror participates in a § 10905 proceeding and obtains an unfavorable valuation, the Commission’s administrative determination may well have preclusive effect in state condemnation proceedings. See, e. g., United States v. Utah Constr. & Mining Co., 384 U. S. 394, 422 (1966) (administrative determinations usually have res judicata effect “[w]hen an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate”). On the other hand, the 60-day limit within which the Commission must fix a price for purchase or subsidy, see 49 U. S. C. § 10905(f)(1)(A), may deprive the parties of the “adequate opportunity to litigate” required for the imposition of res judicata. We intimate no position on the issue inasmuch as it is not now before us.
      Similarly, we leave open the issue whether state condemnation proceedings could, consistent with the purposes of the federal abandonment scheme, fix a lower valuation upon abandoned property than the valuation arrived at in prior § 10905 proceedings.


source: Caselaw Access Project

author: Justice Powell Justice Rehnquist,

license: Public Domain

text:
    ARMCO INC. v. HARDESTY, TAX COMMISSIONER OF WEST VIRGINIA
    No. 83-297.
    Argued April 17, 1984
    Decided June 12, 1984

      Richard R. Dailey argued the cause for appellant. With him on the briefs were Edward H. Hein and Michael J. Rufkahr.

      Robert Digges, Jr., Assistant Attorney General of West Virginia, argued the cause for appellee. With him on the brief were Chauncey H. Browning, Attorney General, and Jack C. McClung, Deputy Attorney General.

      Briefs of amici curiae urging affirmance were filed for the State of Washington by Kenneth 0. Eikenberry, Attorney General, and Leland T. Johnson and Timothy R. Malone, Assistant Attorneys General; and for the National Conference of State Legislatures et al. by Lawrence R. Velvet, Elaine D. Kaplan, and Stefan F. Tucker.

   Justice Powell

delivered the opinion of the Court.

In this appeal an Ohio corporation claims that West Virginia’s wholesale gross receipts tax, from which local manufacturers are exempt, unconstitutionally discriminates against interstate commerce. We agree and reverse the state court’s judgment upholding the tax.

I

Appellant Armco Inc. is an Ohio corporation qualified to do business in West Virginia. Its primary business is manufacturing and selling steel products. From 1970 through 1975, the time at issue here, Armco conducted business in West Virginia through five divisions or subdivisions. Two of these had facilities and employees in the State, while the other three sold various products to customers in the State only through franchisees or nonresident traveling salesmen.

West Virginia imposes a gross receipts tax on persons engaged in the business of selling tangible property at wholesale. W. Va. Code § ll-13-2c (1983). For the years 1970 through 1975 Armco took the position that the gross receipts tax could not be imposed on the sales it made through franchisees and nonresident salesmen. In addition, because local manufacturers were exempt from the tax, see § 11-13-2, Armco argued that the tax discriminated against interstate commerce. After a hearing, the State Tax Commissioner, who is appellee here, determined that the tax was properly-assessed on the sales at issue, and that Armco had not shown the tax was discriminatory. The Circuit Court of Kanawha County reversed, holding that the nexus between the sales and the State was insufficient to support imposition of the tax.

The West Virginia Supreme Court of Appeals reversed the Circuit Court and upheld the tax. -W. Va.-, 303 S. E. 2d 706 (1983). Viewing all of Armco’s activities in the State as a “unitary business,” the court held that the taxpayer had a substantial nexus with the State and that the taxpayer’s total tax was fairly related to the services and benefits provided to Armco by the State. Id., at-,-, 303 S. E. 2d, at 714, 716. It also held that the tax did not discriminate against interstate commerce; while local manufacturers making sales in the State were exempt from the gross receipts tax, they paid a much higher manufacturing tax. Id., at-,-, 303 S. E. 2d, at 716-717.

We noted probable jurisdiction, 464 U. S. 1016 (1983), and now reverse. Since we hold that West Virginia’s tax does discriminate unconstitutionally against interstate commerce, we do not reach Armco’s argument that there was not a sufficient nexus between the State and the sales at issue here to permit taxation of them.

It long has been established that the Commerce Clause of its own force protects free trade among the States. Boston Stock Exchange v. State-Tax Comm’n, 429 U. S. 318, 328 (1977); Freeman v. Hewit, 329 U. S. 249, 252 (1946). One aspect of this protection is that a State “may not discriminate between transactions on the basis of some interstate element.” Boston Stock Exchange, supra, at 332, n. 12. That is, a State may not tax a transaction or incident more heavily when it crosses state lines than when it occurs entirely within the State.

On its face, the gross receipts tax at issue here appears to have just this effect. The tax provides that two companies selling tangible property at wholesale in West Virginia will be treated differently depending on whether the taxpayer conducts manufacturing in the State or out of it. Thus, if the property was manufactured in the State, no tax on the sale is imposed. If the property was manufactured out of the State and imported for sale, a tax of 0.27% is imposed on the sale price. See General Motors Corp. v. Washington, 377 U. S. 436, 459 (1964) (Goldberg, J., dissenting) (similar provision in Washington, “on its face, discriminated against interstate wholesale sales to Washington purchasers for it exempted the intrastate sales of locally made products while taxing the competing sales of interstate sellers”); Columbia Steel Co. v. State, 30 Wash. 2d 658, 664, 192 P. 2d 976, 979 (1948) (invalidating Washington tax).

The court below was of the view that no such discrimination in favor of local, intrastate commerce occurred because taxpayers manufacturing in the State were subject to a far higher tax of 0.88% of the sale price. This view is mistaken. The gross sales tax imposed on Armco cannot be deemed a “compensating tax” for the manufacturing tax imposed on its West Virginia competitors. In Maryland v. Louisiana, 451 U. S. 725, 758-759 (1981), the Court refused to consider a tax on the first use in Louisiana of gas brought in from out of State to be a complement of a severance tax in the same amount imposed on gas produced in the State. Severance and first use or processing were not “substantially equivalent event[s]” on which compensating taxes might be imposed. Id., at 759. Here, too, manufacturing and wholesaling are not “substantially equivalent events” such that the heavy tax on in-state manufacturers can be said to compensate for the admittedly lighter burden placed on wholesalers from out of State. Manufacturing frequently entails selling in the State, but we cannot say which portion of the manufacturing tax is attributable to manufacturing, and which portion to sales. The fact that the manufacturing tax is not reduced when a West Virginia manufacturer sells its goods out of State, and that it is reduced when part of the manufacturing takes place out of State, makes clear that the manufacturing tax is just that, and not in part a proxy for the gross receipts tax imposed on Armco and other sellers from other States.

Moreover, when the two taxes are considered together, discrimination against interstate commerce persists. If Ohio or any of the other 48 States imposes a like tax on its manufacturers — which they have every right to do — then Armco and others from out of State will pay both a manufacturing tax and a wholesale tax while sellers resident in West Virginia will pay only the manufacturing tax. For example, if Ohio were to adopt the precise scheme here, then an interstate seller would pay the manufacturing tax of 0.88% and the gross receipts tax of 0.27%; a purely intrastate seller would pay only the manufacturing tax of 0.88% and would be exempt from the gross receipts tax.

Appellee suggests that we should require Armco to prove actual discriminatory impact on it by pointing to a State that imposes a manufacturing tax that results in a total burden higher than that imposed on Armco’s competitors in West Virginia. This is not the test. In Container Corp. of America v. Franchise Tax Board, 463 U. S. 159, 169 (1983), the Court noted that a tax must have “what might be called internal consistency — that is the [tax] must be such that, if applied by every jurisdiction,” there would be no impermissible interference with free trade. In that case, the Court was discussing the requirement that a tax be fairly apportioned to reflect the business conducted in the State. A similar rule applies where the allegation is that a tax on its face discriminates against interstate commerce. A tax that unfairly apportions income from other States is a form of discrimination against interstate commerce. See also id., at 170-171. Any other rule would mean that the constitutionality of West Virginia’s tax laws would depend on the shifting complexities of the tax codes of 49 other States, and that the validity of the taxes imposed on each taxpayer would depend on the particular other States in which it operated.

It is true, as the State of Washington appearing as amicus curiae points out, that Armco would be faced with the same situation that it complains of here if Ohio (or some other State) imposed a tax only upon manufacturing, while West Virginia imposed a tax only upon wholesaling. In that situation, Armco would bear two taxes, while West Virginia sellers would bear only one. But such a result would not arise from impermissible discrimination against interstate commerce but from fair encouragement of in-state business. What we said in Boston Stock Exchange, 429 U. S., at 336-337, is relevant here as well:

“Our decision today does not prevent the States from structuring their tax systems to encourage the growth and development of intrastate commerce and industry. Nor do we hold that a State may not compete with other States for a share of interstate commerce; such competition lies at the heart of a free trade policy. We hold only that in the process of competition no State may discriminatorily tax the products manufactured or the business operations performed in any other State.”

The judgment below is reversed.

It is so ordered.

Justice Rehnquist,

dissenting.

The Court today strikes down West Virginia’s wholesale gross receipts tax, finding that the wholesale tax unconstitutionally discriminates against interstate commerce, because local manufacturers are granted an exemption from the wholesale tax if they pay a manufacturing tax on their gross manufacturing receipts. Appellant’s arguments, however, effectively rest on the hypothetical burden it might face if another State levied a corresponding tax on its manufacturers. Because appellant has not shown that the taxes paid by out-of-state wholesalers on the same goods are higher than the taxes paid by in-state manufacturer-wholesalers, I would affirm the decision below. It is plain that West Virginia’s tax would be unconstitutionally discriminatory if it levied no tax on manufacturing or taxed manufacturing at a lower rate than wholesaling, for then the out-of-state wholesaler would be paying a higher tax than the in-state manufacturer-wholesaler. But that is not the case here. Instead, a manufacturer selling his products at wholesale in West Virginia pays a much higher overall tax rate than the out-of-state wholesaler. The Court dismisses that fact, asserting that because in-state manufacturers formally pay no wholesale tax, the taxing scheme is facially discriminatory. The Court also rejects the possibility that West Virginia’s manufacturing tax incorporates the tax otherwise levied on wholesale sales.

Neither of these reasons, in my view, supports invalidating the State’s wholesale tax scheme. Our prior decisions indicate that when considering whether a tax is discriminatory, “equality for the purposes of competition and the flow of commerce is measured in dollars and cents, not legal abstractions.” Halliburton Oil Well Co. v. Reily, 373 U. S. 64, 70 (1963) (footnote omitted). See also Maryland v. Louisiana, 451 U. S. 725, 756 (1981) (state tax must be examined for practical effect). Examining the State’s tax structure as a whole, see Washington v. United States, 460 U. S. 536, 545-546 (1983), it is plain that West Virginia has not created a tax granting a direct commercial advantage to local businesses. See Boston Stock Exchange v. State Tax Comm’n, 429 U. S. 318, 329 (1977) (transfer tax on local stock sales one-half the rate imposed on out-of-state sales). Under West Virginia’s taxing scheme, in-state manufacturer-wholesalers pay a tax rate of 0.88% on the value of the manufactured product, while out-of-state wholesalers pay only a 0.27% tax on the wholesale value. Thus, at the wholesale level at which appellant competes with in-state manufactured goods, it is quite likely that appellant pays much less in state taxes than any in-state manufacturer-wholesaler. This fact, in my view, suffices to rebut appellant’s argument that the State’s wholesale tax discriminates against interstate trade. Cf. Washington v. United States, supra, at 541-542 (Federal Government and federal contractors pay less tax than local contractors); Alaska v. Arctic Maid, 366 U. S. 199, 204 (1961) (local fish processors paid higher tax).

The Court also justifies its decision on the ground that if Ohio, or any State where appellant may manufacture products sold in West Virginia, imposed a manufacturing tax, appellant might possibly pay more taxes on its goods sold in West Virginia than a local manufacturer. But appellant has not demonstrated that it in fact has a higher tax burden in West Virginia solely by reason of interstate commerce. The Court sidesteps that fact, however, by borrowing a concept employed in our net income tax cases. Under that line of cases a state tax must have an internal consistency that takes into consideration the impact on interstate commerce if other jurisdictions employed the same tax. See Container Corp. of America v. Franchise Tax Board, 463 U. S. 159, 169 (1983). It is perfectly proper to examine a State’s net income tax system for hypothethical burdens on interstate commerce. Nevertheless, that form of analysis is irrelevant to examining the validity of a gross receipts tax system based on manufacturing or wholesale transactions. Where a State’s taxes are linked exactly to the activities taxed, it should be unnecessary to examine a hypothetical taxing scheme to see if interstate commerce would be unduly burdened. See Standard Pressed Steel Co. v. Washington Revenue Dept., 419 U. S. 560, 564 (1975); cf. Commonwealth Edison Co. v. Montana, 453 U. S. 609, 617 (1981).

The Court’s analysis also employs a formalism I thought we had generally abandoned in Complete Auto Transit, Inc. v. Brady, 430 U. S. 274, 288-289, n. 15 (1977), where we rejected the per se rule and the administrative convenience that attended our former holding in Spector Motor Service, Inc. v. O’Connor, 340 U. S. 602 (1951). I would apply a similarly realistic approach to this case and uphold West Virginia’s wholesale tax scheme.

       The company’s Mining Division mined, cleaned, and sold coal in the State, and part of the Metal Products Division sold various construction and drainage products through an office in the State staffed by three employees. The Metal Products Division’s metal buildings were sold in the State exclusively by two franchised dealers resident in the State. The Steel Group and the Union Wire Rope Group had no office in West Virginia but sold steel and wire rope through nonresident traveling salesmen who solicited sales from customers in the State.

       For the years 1971 through 1975, § ll-13-2c provided, in relevant part:
      “Upon every person engaging or continuing within this state in the business of selling any tangible property whatsoever, real or personal, . . . there is . . . hereby levied, and shall be collected, a tax equivalent to fifty-five one-hundredths of one percent of the gross income of the business, except that in the business of selling at wholesale the tax shall be equal to twenty-seven one-hundredths of one percent of the gross income of the business.” 1971 W. Va. Acts, ch. 169.
      The tax on wholesale gross receipts was 0.25% prior to 1971. 1959 W. Va. Acts, ch. 167.

       West Virginia Code § 11-13-2 (1983) provides an exemption for persons engaged in the State in manufacturing or in extracting natural resources, and selling their products. For the years at issue here, it read as follows, in relevant part:
      “[A]ny person exercising any privilege taxable under sections two-a [extracting and producing natural resources for sale] or two-b [manufacturing] of this article and engaging in the business of selling his natural resources or manufactured products ... to producers of natural resources, manufacturers, wholesalers, jobbers, retailers or commercial consumers for use or consumption in the purchaser’s business shall not be required to pay the tax imposed in section two-c [§ ll-13-2c] of this article.” 1955 W. Va. Acts, ch. 165, §2; 1971 W. Va. Acts, ch. 169.

       The Commissioner waived statutory penalties on the disputed amount because he found that Armco’s objections were a “good faith effort to interpret a substantial question of law.” App. to Juris. Statement 49a.

       West Virginia Code § ll-13-2b (1983) imposes a manufacturing tax of 0.88% on the value of products manufactured in the State. The value of the product is measured by the gross proceeds derived from its sale. If the product is manufactured in part out of State, the sale price is multiplied by that portion of the manufacturer’s payroll costs or total costs attributable to West Virginia. As relevant here, the tax is imposed on “every person engaging or continuing within this state in the business of manufacturing, compounding or preparing for sale, profit, or commercial use, . . . any article . . . substance or . . . commodity.” Prior to 1971, the tax rate was 0.8%. 1967 W. Va. Acts, ch. 188; see 1971 W. Va. Acts, ch. 169.

       One would expect that a manufacturing tax might be larger than a gross receipts tax since an in-state manufacturer normally benefits to a greater extent from services provided by the State than does a transient wholesaler. Cf. Complete Auto Transit, Inc. v. Brady, 430 U. S. 274, 279 (1977) (state tax will be upheld if it is “fairly related to the services provided by the State”).

       The court below relied upon Alaska v. Arctic Maid, 366 U. S. 199 (1961). That case does not control because the statute there merely laid a nondiseriminatory tax on a particular kind of business, operating freezer ships in Alaska. This was deemed a different business from operating a cannery in Alaska, on which a different (in fact, higher) tax was imposed. See id., at 205. There is no dispute that Armco and the exempt West Virginia manufacturers operate in precisely the same business of wholesaling in that State. That an exemption is required to ensure that the gross receipts tax will not apply to the latter makes this clear. The same is true of Caskey Baking Co. v. Virginia, 313 U. S. 117, 119-120, 121 (1941)., The latter ease in any event was decided under the now rejected notion that only “direct” burdens on interstate commerce were disapproved, while “indirect” burdens that were the result of taxation of intrastate commerce were constitutional. See id., at 120, and n. 4; Department of Revenue of Washington v. Association of Washington Stevedoring Cos., 435 U. S. 734, 750 (1978). This distinction also appears to have governed the definition of the business in which the taxpayer was engaged.
      We acknowledge our recent dismissal for want of a substantial federal question of a case raising, inter alia, a nearly identical challenge to the West Virginia gross receipts tax. Columbia Gas Transmission Corp. v. Rose, 459 U. S. 807 (1982). We may find it necessary not to follow such a precedent when the issue is given plenary consideration. See, e. g., Caban v. Mohammed, 441 U. S. 380, 390, n. 9 (1979).

       What was said in a related context is relevant:
      “It is suggested, however, that the validity of a gross sales tax should depend on whether another State has also sought to impose its burden on the transactions. If another State has taxed the same interstate transaction, the burdensome consequences to interstate trade are undeniable. But that, for the time being, only one State has taxed is irrelevant to the kind of freedom of trade which the Commerce Clause generated. The immunities implicit in the Commerce Clause and the potential taxing power of a State can hardly be made to depend, in the world of practical affairs, on the shifting incidence of the varying tax laws of the various States at a particular moment. Courts are not possessed of instruments of determination so delicate as to enable them to weigh the various factors in a complicated economic setting which, as to an isolated application of a State tax, might mitigate the obvious burden generally created by a direct tax on commerce.” Freeman v. Hewit, 329 U. S. 249, 256 (1946).
      The court in Columbia Steel Co. v. State, 30 Wash. 2d 658, 662-664, 192 P. 2d 976, 978-979 (1948), found this language dispositive in invalidating a Washington tax scheme identical to that here. See also Halliburton Oil Well Co. v. Reily, 373 U. S. 64, 72 (1963) (deleterious effects on free commerce of Louisiana’s tax would be exacerbated “[i]f similar unequal tax structures were adopted in other States”).

      Admittedly, because the tax paid by manufacturers is imposed on the manufactured value, while wholesalers pay a tax on the wholesale value, it is theoretically possible for appellant to pay a higher amount of tax than an in-state manufacturer. For this to happen, however, the wholesale value would have to be more than three and one-quarter times the manufactured value. In normal practice this price differential would seem unlikely. In any event, appellant has failed to show that it in fact pays a higher tax than an in-state manufacturer. Cf. General Motors Corp. v. Washington, 377 U. S. 436, 448-449 (1964).