Goldberg v. Sweet - 488 U.S. 252, 109 S. Ct. 582 (1989)

Rule:

The telecommunications tax imposed by the Illinois Telecommunications Excise Tax Act, Ill. Rev. Stat., ch. 120, paras. 2001-2021 (1987), is consistent with the Commerce Clause. It is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to services which the State of Illinois provides to the taxpayer.

Facts:

In light of recent technological changes creating billions of possible electronic paths that an interstate telephone call can take from one point to another, which paths are often indirect, typically bear no relation to state boundaries, and are virtually impossible to trace and record, Illinois passed its Telecommunications Excise Tax Act (Tax Act), which, inter alia, imposes a 5% tax on the gross charges of interstate telecommunications originated or terminated in the State and charged to an Illinois service address, regardless of where a particular call is billed or paid; provides a credit to any taxpayer upon proof that another State has taxed the same call; and requires telecommunications retailers, like appellant GTE Sprint Communications Corporation (Sprint), to collect the tax from consumers. The Illinois trial court held that the tax violates the Commerce Clause of the Federal Constitution in a class action brought by appellant Illinois residents, who were subject to and paid the tax, against appellee Director of the State's Department of Revenue and various long-distance telephone carriers, including Sprint, which cross-claimed against the Director. However, the State Supreme Court reversed, ruling that the tax satisfies the four-pronged test set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, and its progeny, for determining compliance with the Commerce Clause. All parties concede in this Court that the tax satisfies the first prong of the Complete Auto test; i.e., it is applied to an activity having a substantial nexus with Illinois.

Issue:

Was the Illinois statute imposing 5% tax on gross charge of interstate telecommunications originating or terminating in state violative of Federal Constitution's commerce clause?

Answer:

No.

Conclusion:

The court held that the Act did not violate the Commerce Clause. The method of taxation was a realistic legislative solution to the technology of the present-day telecommunications industry and fairly apportioned. The Act did not discriminate in favor of intrastate commerce at the expense of interstate commerce. The Act was fairly related to the benefits received by Illinois telephone consumers. The benefits that Illinois provided could not be limited to those exact services provided to the equipment used during each interstate telephone call.