## Facts

- Illinois enacted the Telecommunications Excise Tax Act to tax interstate telecommunications amid routing methods that made tracing call paths across state lines impractical.
- The Act imposed a 5% tax on gross charges for interstate calls that were originated or terminated in Illinois and charged to an Illinois service address, regardless of where the call was billed or paid.
- The Act provided a credit upon proof that another state taxed the same call, aiming to prevent multiple taxation.
- Telecommunications retailers were required to collect the tax from consumers.
- Illinois telephone customers and a long-distance carrier challenged the tax as violating the dormant Commerce Clause.
- A trial court invalidated the tax; the Illinois Supreme Court reversed and upheld it under the Complete Auto framework; the U.S. Supreme Court reviewed whether the tax satisfied the remaining prongs beyond substantial nexus.

## Issues

1. Whether the tax was fairly apportioned under the Commerce Clause, including whether it was internally and externally consistent.
2. Whether the tax discriminated against interstate commerce.
3. Whether the tax was fairly related to services provided by Illinois.

## Decision

- The Supreme Court affirmed the Illinois Supreme Court and upheld the tax.
- The tax was fairly apportioned: it was internally consistent and externally consistent, and the credit provision reduced the risk of multiple taxation.
- The tax did not discriminate against interstate commerce because it applied evenhandedly and did not favor intrastate over interstate telecommunications.
- The tax was fairly related to state-provided services because the taxed activity and taxpayers had a reasonable relationship to Illinois’s protections, opportunities, and benefits.

## Legal Principles

- Under Complete Auto Transit, a state tax on interstate commerce is valid if it (1) has substantial nexus, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to state-provided services.
- Fair apportionment may be evaluated through:
  - Internal consistency: if every state imposed the same tax, no multiple taxation would result.
  - External consistency: the tax must be reasonably limited to the in-state activity connected to the taxable event in light of the tax’s practical or economic effects.
- A tax may be imposed on gross charges for an interstate transaction when the taxable event is the retail purchase by an in-state consumer (e.g., a tax tied to an in-state service address).
- The “fairly related” prong does not require a precise exchange of tax paid for services received; a reasonable relationship to state-provided protections and benefits suffices.

## Conclusion

The Court held that Illinois could tax interstate telephone calls charged to an Illinois service address, and that the statute’s structure—especially its service-address focus and credit for other-state taxation—satisfied the Commerce Clause requirements for fair apportionment, nondiscrimination, and fair relation to state services.


Goldberg v. Sweet, 488 U.S. 252 (1989)