Transcript is available here. I will update this page as I make my way through the transcript

The crux of this case boils down to the power of Arizona to enact certain laws using the “through licensing” provision in the federal law. Justice Scalia recognized this at the outset, and remarked that the “through licensing” provision is really the only avenue the federal government left open for the states to deal with immigration

JUSTICE SCALIA: Well, I think what Arizona would answer to that is: Well, that’s the only option the Federal Government left us.
MR. PHILLIPS: Well, I’m quite sure that that’s what Arizona will say.
JUSTICE SCALIA: They excluded everything else. We might have used reticulated penalties or, you know, enforced the Federal law ourselves, but they forbade that. But they did allow us to enforce the law, immigration laws, through licensing, right? So it all essentially comes down to — to the licensing issue, doesn’t it?

Justice Kennedy remarked that defining “licensing” is not so simple, and cannot be resolved by simple recourse to a Dictionary (Scalia sheds a tear)

JUSTICE KENNEDY: When I picked up this -this brief and looked at this case, I thought: Oh, well, licensing, that is a defined term; I will look in Corpus Juris Secundum or ALR or something. But it really isn’t. Your brief indicates you start with dictionaries, fair enough. You indicate what Federal licensing laws are. But I see no limitation on what the State can decide is a license in any jurisprudential principle that you cited.

Carter Phillips for Petitioner argued that Congress did not intend the “licensing” provision to enact the states to enact “entire alternative shadow enforcement mechanism, non-administrative decision-making process.” Justice Scalia tends to agree, but notes that nobody would have thought that the Federal Government would fail to enforce their own immigration laws. As a result, Arizona was left with no other alternatives.

JUSTICE SCALIA: That would be remarkable
only because nobody would think that with this scheme in place, the Federal Government would not enforce it. Of course no one would have expected that. But what Arizona says has occurred here is that the scheme in place has not been enforced, and Arizona and other States are in serious trouble financially and for other reasons because of — of unrestrained immigration. And therefore, they had to take this very massive — I agree this step is massive, and one wouldn’t have expected it to occur under this statute, but expectations change when the Federal Government has — has simply not enforced the immigration restrictions.

Justice Alito asked a series of questions to get at the meaning of “licensing.”

JUSTICE ALITO: “Licensing” is not an unknown term. States and municipalities issue all sorts of licenses. For example, I think here in the District of Columbia every business has to have a general business license, isn’t that right?
MR. PHILLIPS: That is true, Justice Alito.
JUSTICE ALITO: Now, if the District of Columbia were, after having enacted this requirement some years ago, were to pass a new ordinance saying and “if you knowingly hire an illegal alien, your general business license can be forfeited,” would that not -would that cease to be a licensing law?

Phillips answered no, contending that the additional requirement, tying it to federal law, takes it out of licensing. Justice Kennedy is puzzled by this reply.

JUSTICE KENNEDY: Why is it — this is the same question you are answering. Why is it suddenly not a license because the — because the State imposes an additional condition, where it was a license before?

Justice Breyer looks to the Administrative Procedures Act to define “license”

JUSTICE BREYER: Actually, there is. I mean, I — it seemed to me when I read this, it sounded a little familiar, and I think whoever wrote it in Arizona copied it out of the Administrative Procedure Act. I mean, you read the definition of “license” in the Administrative Procedure Act and this is awfully close.

Unsurprisingly, Justice Scalia interjected, and noted that contrary to the assertions of the SEIU brief, Congress labeled it a general licensing scheme, and not focusing on Agricultural Workers Protection Act.

JUSTICE SCALIA: It could have named that, that particular licensing scheme, if that’s what it

meant. But it didn’t name it. It said licensing generally.
What did it intend to add to that? Barbers’ licenses, beauticians’ licenses? How would any of this have anything to do with the immigration laws?

Scalia seemed convinced that this is in fact a licensing law.

JUSTICE SCALIA: I think it’s very common to talk about authority to do business within a State as -as a license. You say “licensed to do business in” so many States. It’s a common expression.
Now, I have — maybe you will persuade me
otherwise, but I have no doubt that insofar as this law limits the authority to do business within the State, it is a — it is a licensing law.b

Curiously Justice Sotomayor, who famously used the term “undocumented immigrant,” rather than illegal alien in Mohawk Industries v. Carpenter, used the term “illegal alien” during arguments today, and quickly corrected herself and said “undocumented aliens.”

JUSTICE SOTOMAYOR: — just — just focus the question? Because we keep talking about whether the APA-type definition of licensing is what Congress intended or not, but you don’t disagree that Congress at least intended that if someone violated the Federal law and hired illegal aliens of Hispanic — undocumented aliens and was found to have violated it, that the State can revoke their license, correct, to do business?

Sotomayor was not really concerned with the meaning of “license,” but instead focused on the preemption issue.

JUSTICE SOTOMAYOR: So I’m — you know, how they define “license” or not is irrelevant to me. Walk me through whether — what expressly preempts that adjudication right — or what implicitly preempts that adjudication right.
Because that is, for me, what the center of this question is.

General Katyal was asked a series of questions about licensing, and Justice Sotomayor moved onto what seems to be the important issue to her—preemption

JUSTICE SOTOMAYOR: At the time the statute was passed there were many, many State laws that adjudicated revocation of licenses. Perhaps not many have addressed the issue of hiring undocumented aliens, but many State laws existed that independently adjudicated revocations. What in the legislative history or in the words of the statute show that Congress intended in any way to limit those adjudications?

Ms. O’Grady, Solicitor General of Arizona, was hit right out of the gate with a sharp question from Justice Ginsbug.

JUSTICE GINSBURG: Have you answered the anomaly that Arizona cannot impose a fine even in a modest amount, but it can revoke someone’s license to do business?

Justice Kennedy followed up, and asked “But underlying Justice Ginsburg’s question is why would Congress want to do that?”

Justice Scalia, continuing his refrain from before, argues that Congress never expected the States to have to revoke licenses, because they would have enforced their own immigration laws.

JUSTICE SCALIA: Perhaps Congress never expected that the States would have to resort to such massive measures, and they probably wouldn’t have if -if the law had been uniformly enforced and vigorously enforced; right?
You — you didn’t — didn’t have any notion of doing this sort of thing in 1986, did you?
MS. O’GRADY: Your Honor, certainly we waited until 2007.
JUSTICE SCALIA: So maybe Congress wasn’t worried about it because it seemed very unlikely that anything like that would occur.

Justice Breyer cuts to one of the issue of racial profiling, and questions whether this law encourages employers to discriminate based on race.

JUSTICE
BREYER: The main — the main anomaly it seemed to me to be this, that in the Federal Act, as — that was the first point that the Chamber made, that it’s a fairly careful balance. There are a group of people in Arizona, they may look as if they come from Mexico or speak with an Hispanic accent, and you are not certain whether they in fact are illegals or that they are legal. Now, think of that category.
Congress has passed a statute that gives the employer just as much incentive to verify, so there is no discrimination, as to dismiss, so there is no illegal hiring. It’s absolutely balanced. A $1,000 fine for the one, a $1,000 fine for the other.
So Arizona comes along and says: I’ll tell you what, if you discriminate, you know what happens to you, nothing? But if you hire an illegal immigrant, your business is dead. That’s just one thing they do. Now, how can you reconcile that intent to prevent discrimination against people because of their appearance or accent — how do you reconcile that with Arizona’s law?

If you are a businessman, every incentive under that law is to call close questions against hiring
this person. Under the Federal law every incentive is to look at it carefully.

Justice Ginsburg moved onto the issue of Arizona forcing employers to use E-Verify, a federal resource, where the Federal Government does not.

JUSTICE GINSBURG: Can you explain that, E-Verify, because this is a Federal resource, and the Federal Government has said we want this to be voluntary. How can Arizona take a Federal resource, which the Federal government says is voluntary except in certain circumstances, and turn it into something that is mandatory?
…
JUSTICE SCALIA: Do — do you make it mandatory?
MS. O’GRADY: Well, our statute says you shall use E-Verify. We don’t impose a penalty against employers who fail to use it. The consequences are the same as they are under Federal law.
JUSTICE SCALIA: You just — you just don’t get the safe harbor. Isn’t that the only consequence?

Justice Kennedy seemed to think the program was mandatory.

JUSTICE KENNEDY: But you are taking the mechanism that Congress said will be a pilot program that is optional and you are making it mandatory. It seems to me that’s almost a classic example of a State doing something that is inconsistent with a Federal requirement.

During Phillip’s rebuttal time, Justice Scalia took another dig at federal immigration policy, noting that there are not enough prosecutions for violations.

JUSTICE SCALIA: Convicted by — by a Federal Government that hasn’t gone after many convictions.
MR. PHILLIPS: Justice Scalia -JUSTICE
SCALIA: That’s the whole problem.