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*fn* decided: January 10, 1989.



Marshall, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Brennan, White, Blackmun, and Kennedy, JJ., joined, in all but Part II-C of which Stevens, J., joined, and in Parts I, II-A, II-D, and III of which O'connor, J., joined. Stevens, J., post, p. 268, and O'connor, J., post, p. 270, filed opinions concurring in part and concurring in the judgment. Scalia, J., filed an opinion concurring in the judgment, post, p. 271.

Author: Marshall

[ 488 U.S. Page 254]

 JUSTICE MARSHALL delivered the opinion of the Court.

In this appeal, we must decide whether a tax on interstate telecommunications imposed by the State of Illinois violates the Commerce Clause. We hold that it does not.



These cases come to us against a backdrop of massive technological and legal changes in the telecommunications industry.*fn1 Years ago, all interstate telephone calls were relayed through electric wires and transferred by human operators working switchboards. Those days are past. Today, a computerized network of electronic paths transmits thousands of electronic signals per minute through a complex system of microwave radios, fiber optics, satellites, and cables. DOJ

[ 488 U.S. Page 255]

     Report 1.2-1.6, 1.8; Brief for MCI Telecommunications Corporation as Amicus Curiae 2. When fully connected, this network offers billions of paths from one point to another. DOJ Report 1.18. When a direct path is full or not working efficiently, the computer system instantly activates another path. Signals may even change paths in the middle of a telephone call without perceptible interruption. Brief for National Conference of State Legislatures et al. as Amici Curiae 6. Thus, the path taken by the electronic signals is often indirect and typically bears no relation to state boundaries.*fn2 The number of possible paths, the nature of the electronic signals, and the system of computerized switching make it virtually impossible to trace and record the actual paths taken by the electronic signals which create an individual telephone call.

The explosion in new telecommunications technologies and the breakup of the AT&T monopoly*fn3 has led a number of States to revise the taxes they impose on the telecommunications industry.*fn4 In 1985, Illinois passed the Illinois

[ 488 U.S. Page 256]

     Telecommunications Excise Tax Act (Tax Act), Ill. Rev. Stat., ch. 120, paras. 2001-2021 (1987). The Tax Act imposes a 5% tax on the gross charge of interstate telecommunications (1) originated or terminated in Illinois, para. 2004, § 4 (hereinafter § 4)*fn5 and (2) charged to an Illinois service address, regardless of where the telephone call is billed or paid. para. 2002, §§ 2(a) and (b).*fn6 The Tax Act imposes an identical 5% tax on intrastate telecommunications. para. 2003, § 3. In order to prevent "actual multi-state taxation," the Tax Act provides a credit to any taxpayer upon proof that the taxpayer has paid a tax in another State on the same telephone call which triggered the Illinois tax. para. 2004, § 4. To facilitate collection, the Tax Act

[ 488 U.S. Page 257]

     requires telecommunications retailers, like appellant GTE Sprint Communications Corporation (Sprint), to collect the tax from the consumer who charged the call to his service address. para. 2005, § 5.


Eight months after the Tax Act was passed, Jerome Goldberg and Robert McTigue, Illinois residents who are subject to and have paid telecommunications taxes through their retailers, filed a class action complaint in the Circuit Court of Cook County, Illinois. They named as defendants J. Thomas Johnson, Director of the Department of Revenue for the State of Illinois, (Director),*fn7 and various long-distance telephone carriers, including Sprint. The complaint alleged that § 4 of the Tax Act violates the Commerce Clause of the United States Constitution.*fn8 Sprint cross-claimed against the Director, seeking a declaration that the Tax Act is unconstitutional under the Commerce Clause. The Director then filed a motion for summary judgment against Sprint and the other long-distance carriers. Sprint responded with a motion for summary judgment against the Director; Goldberg and McTigue, in turn, filed their own motion for summary judgment against both the Director and Sprint.

After briefing and a hearing, the trial court declared § 4 unconstitutional. It found that Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), and its progeny control this litigation. Under the four-pronged test originated in Complete Auto, a state tax will withstand scrutiny under the Commerce Clause if "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."

[ 488 U.S. Page 258]

     telecommunications. Turning to the fourth prong, the court held that the tax is fairly related to services provided by Illinois. The court explained that Illinois provided services and other benefits with respect to that portion of an interstate call occurring within the State, and that "the benefits afforded by other States in facilitating the same interstate telecommunication are too speculative to override the substantial benefits extended by Illinois." Id., at 504, 512 N. E. 2d, at 1267.

Having found that the Tax Act satisfied the requirements of Complete Auto, the Illinois Supreme Court concluded that it did not violate the Commerce Clause. Sprint, Goldberg, and McTigue appealed to this Court. We noted probable jurisdiction, 484 U.S. 1057 (1988), and now affirm.



This Court has frequently had occasion to consider whether state taxes violate the Commerce Clause. The wavering doctrinal lines of our pre- Complete Auto cases reflect the tension between two competing concepts: the view that interstate commerce enjoys a "free trade" immunity from state taxation; and the view that businesses engaged in interstate commerce may be required to pay their own way. Complete Auto, supra, at 278-279; see also American Trucking Assns., Inc. v. Scheiner, 483 U.S. 266, 281, 282, nn. 12, 13 (1987); Commonwealth Edison Co. v. Montana, 453 U.S. 609, 645 (1981) (BLACKMUN, J., dissenting). Complete Auto sought to resolve this tension by specifically rejecting the view that the States cannot tax interstate commerce, while ...

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