Washington enacted a 2% retail sales tax and a 2% "compensating tax" on the privilege of using tangible personal property in the state when the property had been purchased at retail. The plaintiffs, contractors and subcontractors building the Grand Coulee Dam, brought into Washington machinery, materials, and supplies bought at retail in other states, with total cost including transportation of $921,189.34. The Tax Commission assessed a 2% use tax of $18,423.78 on that property. The statute also provided credits or exemptions when a sales or use tax equal to or exceeding the Washington tax had already been paid to Washington or another state.
Issue
Does Washington's 2% use tax, as applied to property purchased at retail in another state and then used in Washington, violate the Commerce Clause because it taxes interstate commerce or discriminates against it?
Rule
A state may impose a nondiscriminatory tax on the use or enjoyment of tangible personal property after interstate commerce has ended and the property has come to rest within the state. Such a tax is valid under the Commerce Clause when, taken as a whole with the state's related sales-tax scheme and credits for taxes paid elsewhere, it places no greater burden on out-of-state purchases than on comparable in-state purchases.
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Prairie Span Builders, an Illinois contractor, bought steel cutters at retail in Indiana and shipped them to Spokane, Washington. After the equipment sat in the contractor's yard for two weeks, it was used on a bridge project for six months. Washington imposes a 2% sales tax on local retail sales and a 2% tax on the privilege of using tangible personal property bought at retail elsewhere, with a credit for any sales or use tax already paid to another state.
If Prairie Span Builders challenges the tax under the Commerce Clause, what is the strongest argument for upholding it?
Explanation. The majority upheld a nondiscriminatory use tax when applied after interstate commerce had ended and the property had come to rest in the destination state. It emphasized that the tax fell on the privilege of use, not on importation or the interstate sale, and that the complementary sales-and-use-tax structure equalized burdens between in-state and out-of-state retail purchases. (Derived from Henneford v. Silas Mason Co. (n.d.).)