Opposition Brief — Loudoun County, Virginia, Petitioner v. Dulles Duty Free, LLC
Supreme Court briefFeb 26, 2018
Ask Donna
What actually matters in this document.
Text
No. 17-904
In The
Supreme Court of the United States
COUNTY OF LOUDOUN, VIRGINIA,
Petitioner,
v.
DULLES DUTY FREE, LLC,
Respondent.
On Petition for Writ of Certiorari to
the Supreme Court of Virginia
BRIEF IN OPPOSITION
Matthew A. Fitzgerald
Counsel of Record
Craig D. Bell
Michael H. Brady
McGUIREWOODS LLP
800 East Canal Street
Richmond, Virginia 23219
(804) 775-4716
mfitzgerald@mcguirewoods.com
Counsel for Respondent Dulles Duty Free, LLC
i
QUESTION PRESENTED
The Import-Export Clause provides that “No
State shall . . . lay any Imposts or Duties on Imports
or Exports.” U.S. Const. art. I, § 10, cl. 2. Under the
plain meaning of this provision, the Supreme Court of
Virginia held that the county tax in this case cannot
be applied to tax Dulles Duty Free’s goods in export
transit. After all, in two hundred years this “Court
has never upheld a state tax assessed directly on goods
in import or export transit.” United States v. IBM, 517
U.S. 843, 862 (1996). Petitioner asks this Court to
change the law so that this case can be the first.
The question presented is whether this Court
should obliterate the longstanding bright-line rule
that the States may not directly tax goods moving in
import or export transit, and instead expand the
Michelin test—a three-prong policy test fashioned to
address taxes not on goods in transit.
ii
CORPORATE DISCLOSURE STATEMENT
Respondent Dulles Duty Free, LLC, is a
privately held company and no publicly traded
company owns any part of it.
iii
TABLE OF CONTENTS
QUESTION PRESENTED .......................................... i
CORPORATE DISCLOSURE STATEMENT ............ ii
TABLE OF AUTHORITIES ...................................... iv
INTRODUCTION ....................................................... 1
STATEMENT OF THE CASE ................................... 3
REASONS FOR DENYING THE WRIT ................... 6
I.
II.
The Virginia court handled this case
exactly right. ....................................................... 6
A.
The Import-Export Clause has always
barred state taxes that fall directly on
goods in export transit ............................... 6
B.
Richfield Oil is on point here ................... 11
There is no split of authority worthy of this
Court's attention ............................................... 13
III. The issue presented here is not important
enough to warrant review................................. 20
A.
The financial import of this issue is
small .......................................................... 20
B.
There are numerous constitutional
ways to tax export businesses .................. 22
C.
Duty Free is a unique business
model—even most airport retail goods
are not exports being taxed in transit ..... 24
CONCLUSION ......................................................... 27
iv
TABLE OF AUTHORITIES
Cases
Auto Cargo, Inc. v. Miami Dade County,
237 F.3d 1289 (11th Cir. 2001) ....................... 16–19
Brown v. Maryland,
25 U.S. 419 (1827) .................................................. 7
Canton Railroad Co. v. Rogan,
340 U.S. 511 (1951) ........................................ 15, 16
Coast Pac. Trading Inc. v. State Dep't of
Revenue, 719 P.2d 541 (Wash. 1986) .................... 13
Crew Levick Co. v. Pennsylvania,
245 U.S. 292 (1917) ................................................ 7
Dep't of Revenue v. Assoc. of Washington
Stevedoring Cos., 435 U.S. 734 (1978) ....... 9, 10, 12
Itel Containers Int'l Corp. v. Huddleston,
507 U.S. 60 (1993) ........................................ 7, 8, 10
Kosydar v. National Cash Register Co.,
417 U.S. 62 (1974) .............................................. 8, 9
La. Land & Exploration Co. v. Pilot Petroleum
Corp., 900 F.2d 816 (1990) .................................... 14
Lake Cty. v. Rollins,
130 U.S. 662 (1889) ................................................ 8
Michelin Tire Corp. v. Wages,
423 U.S. 276 (1976) ............................................ 8, 9
v
Richfield Oil Corp v. State Bd. of
Equalization, 329 U.S. 69 (1946).........1, 3, 7, 12, 25
State Dep't of Revenue v. Alaska Pulp Am.,
Inc., 674 P.2d 268 (1983) ...................................... 14
Swan & Finch Co. v. United States,
190 U.S. 143 (1903) .............................................. 25
Turner v. State of Maryland,
107 U.S. 38 (1883) ................................................ 17
United States v. IBM,
517 U.S. 843 (1996) ..... 1, 5, 8, 10–13, 18–19, 22, 24
United States Steel Mining Co. v. Helton,
631 S.E.2d 559 (W.Va. 2005) .......................... 15, 16
Va. Indonesia Co. v. Harris Cty. App. Dist.,
910 S.W.2d 905 (Tex. 1995) ...........10–11, 14, 19, 27
Constitutional Provisions
U.S. Const. art. I, § 10, cl. 2 ............................. ii, 1, 17
Statutes
19 U.S.C. § 1555 ............................................... 3, 4, 26
Va. Code § 58.1-402 .................................................. 23
Va. Code § 58.1-3702 ........................................ 2, 4, 23
Va. Code § 58.1-3703 .................................................. 4
vi
Va. Code § 58.1-3705 ................................................ 23
Other Authorities
Loudoun County Code § 840.14(o), (k) ....................... 4
Clayton County, Ga. Budget .................................... 22
Laurence H. Tribe, American Constitutional Law
§ 6-26 (3d ed. 2000) ............................................... 11
1
INTRODUCTION
The Import-Export Clause bars state and local
governments from “lay[ing] any Imposts or Duties on
Imports or Exports.” U.S. Const. art. I, § 10, cl. 2.
Under this Clause, in two hundred years, this “Court
has never upheld a state tax assessed directly on goods
in import or export transit.” United States v. IBM, 517
U.S. 843, 862 (1996).
Here, a county government tried to tax the
value of duty free goods undisputedly moving in export
transit at Dulles Airport. A unanimous Supreme
Court of Virginia refused to allow the tax to be applied
to duty-free export sales.
In doing so, the Virginia court followed a
seventy-year-old precedent from this Court: Richfield
Oil Corp v. State Board of Equalization, 329 U.S. 69
(1946). In Richfield Oil, the Court held that California
could not levy a gross-receipts tax (exactly like the tax
here), on the sale of oil being loaded into a ship for
export. Richfield Oil was precisely on point and
correctly followed.
Petitioner, the county government, makes no
effort to distinguish Richfield Oil. Nor does Petitioner
identify any case that overrules it—and none does.
Petitioner seeks certiorari because it wants this Court
to change the law. This Court should reject that
suggestion. Import-Export Clause jurisprudence is
not broken and does not need to be fixed.
Petitioner argues that there is a circuit split.
The Petition discusses three cases it says conflict with
the decision below here. None of those cases were
2
decided within the past decade. None are widely cited.
Two of the three are distinguishable on their most key
fact—the taxes in those cases did not fall directly on
goods in import or export transit. Cf. Pet. 27
(admitting that the goods in this case “were clearly ‘in
transit’”). The last case Petitioner discusses should
have been decided on clear alternative grounds and
based its holding on a misquote of this Court. These
cases pose no jurisprudential problem.
Equally important, the financial scope of this
case (and this issue) is small. The total amount of tax
in question here is no more than $41,600 per year—in
a county with annual revenues of over a billion dollars.
Even the exact tax at issue here is constitutional in
more than 99 percent of its applications.
Nor is Petitioner obligated by State law to
measure its tax in a way that violates the ImportExport Clause. Virginia statutes already permit
localities to use “Virginia taxable income,” rather than
gross receipts, as the tax basis if they so choose. Va.
Code § 58.1-3702. Similarly, many other jurisdictions
could or already do impose business taxes in ways that
no one would contend violate the Import-Export
Clause.
At the same time, Dulles Duty Free pays
roughly $100,000 per year in undisputed state and
local taxes. This case is not about whether a certain
type of retailer should be exempt from tax. It is about
whether a specific local tax can be measured a specific
way against specific goods that qualify as exports
under a federal duty-free regime.
3
As this Court recognized seventy years ago,
taxes that fall directly on the value of goods moving in
export transit violate the Import-Export Clause.
Richfield Oil, 329 U.S. at 86. The rule was correct
generations ago and is still correct today.
This Court should deny the Petition.
STATEMENT OF THE CASE
Dulles Duty Free, LLC, is a duty free retailer
operating several shops inside Dulles International
Airport. Duty Free’s shops are all within the “sterile”
area of the airport, inside security. App. 2a. The
shops sell alcohol, tobacco, luxury gifts, fragrances,
bags, watches, and other products. App. 2a.
The entire duty-free operation is “highly
regulated with significant federal oversight primarily
through United States Customs and Border
Protection.” App. 24a. Federal law authorizes Duty
Free’s shops. 19 U.S.C. § 1555(b)(8)(A). Federal law
also defines “duty-free merchandise” as goods “sold by
a duty-free sales enterprise on which neither Federal
duty nor Federal tax has been assessed pending
exportation from the customs territory.” 19 U.S.C. §
1555(b)(8)(E). To preserve its duty-free status, Duty
Free must comply with 19 U.S.C. § 1555 and its
implementing regulations. Its goods are kept in
bonded warehouses and transported using a “highly
regulated, scrutinized, and controlled” process in
which U.S. Customs shares custody of the goods. App.
25a.
When Duty Free sells a good to a domestic
traveler, or anyone who wishes to consume their
4
purchase in the airport, it handles the sale in a normal
retail way. App. 2a. The purchaser receives his goods
immediately. He pays Virginia sales tax and any
necessary federal duty. Id. Duty Free has always
acknowledged that these sales—outside the export
process—are subject to all ordinary taxation. Id.
Export sales are handled differently. Travelers
must show their passports and boarding passes to
Duty Free’s cashier.
The cashier then accepts
payment without charging sales tax and hands the
traveler a receipt. App. 3a, 25a–26a. Later, a Duty
Free cartman meets the traveler at the departure gate,
at the jetway entrance, and hands over the goods
immediately as the traveler boards the airplane. Id.
Under this system, travelers receive their goods after
the airline clears them to board.
19 U.S.C. §
1555(b)(3)(F)(i)(II). “Duty Free ensures that the items
are in fact for export.” App. 26a. If the traveler does
not board the plane, Duty Free keeps the goods and
voids the transaction. App. 3a, 26a.
Petitioner Loudoun County charges a “business,
professional, and occupational license,” or BPOL, tax,
authorized by state law. Va. Code §§ 58.1-3702, -3703.
Localities may choose whether to impose BPOL taxes
based on gross receipts or on Virginia taxable income.
Id.
Loudoun County has elected to charge its BPOL
tax based on gross receipts. County Code § 840.14(o),
§ 840.01(k). The tax assesses all retail merchants who
have sales over $200,000 per year at a rate of
seventeen cents ($0.17) per one hundred dollars of all
gross receipts. County Code § 840.14(o); App. 4a. In
5
other words, if the tax applies here, for every $100
bottle of scotch Duty Free exports, it must pay 17 cents
in tax to the County. The more it exports, the more it
pays.
Duty Free’s gross receipts from export sales at
Dulles Airport ranged from $13.8 million in 2010 to
$20.2 million in 2013. App. 3a. As a result, the County
imposed between $25,600 and $41,600 per year in
BPOL taxes on Duty Free’s export goods. Nov. 3 Order
on Remand. During the same period, Duty Free also
paid undisputed state and local taxes of around
$100,000 per year. S. Ct. of Va. JA 32.
Invoking the Import-Export Clause, Duty Free
sought a refund of the annual taxes charged based on
the value of its goods sold in export transit. After
appropriate administrative appeals, the Loudoun
County Circuit Court refused to grant a refund. App.
23a–46a.
The Supreme Court of Virginia reversed, and
ordered the refund. App. 22a. The court traced the
history of this Court’s Import-Export Clause
jurisprudence. It observed that this Court had “never
upheld a state tax assessed directly on goods in import
or export transit.” App. 15a–16a (quoting IBM, 517
U.S. at 862). Noting that the tax undisputedly fell on
exports in transit, the court ruled that the “BPOL tax
is indistinguishable from the prohibited gross receipts
tax in Richfield Oil.” App. 20a. The court concluded
“on the present facts” that “the bright line Richfield
Oil test, rather than the policy based Michelin test,
supplies the rule of decision” here. App. 16a. The
6
court held that the tax could not be applied to Duty
Free’s gross receipts from its export sales. App. 22a.
REASONS FOR DENYING THE WRIT
I.
The Virginia court handled this case
exactly right.
Petitioner says this Court should address a
“long-open” and “unsettled” question. Pet. 2–3. But it
really asks this Court to overrule the most
longstanding principle of Import-Export Clause
jurisprudence: that the Clause bars taxes directly on
goods moving in import or export transit. There is no
reason to do this.
The holding below flows from at least a hundred
years of Import-Export Clause jurisprudence. It is a
unanimous ruling that follows an on-point decision
from this Court.
A.
The Import-Export Clause has
always barred state taxes that fall
directly on goods in export transit.
Contrary to Petitioner’s assertions, the ImportExport Clause has a coherent jurisprudence. There
are two rules—one for taxes directly on goods in
transit; another for all other taxes. Thus, Richfield Oil
and Michelin each serve a proper, separate role.
Richfield Oil represents a categorical ban on taxes
that directly fall on goods in transit. Michelin created
a policy-based analysis to address other taxes that
affect imports and exports. When a case presents facts
like those in Richfield Oil, that case governs.
Otherwise, the test announced in Michelin applies.
7
The Petition wrongly suggests that these rules
cannot coexist. Contra Pet. 2, 3 (referring to “longopen” and “unsettled questions” about Richfield Oil
and Michelin). Petitioner urges that Richfield Oil is
outdated and would crumble rapidly under this
Court’s scrutiny. But as this Court has recognized
several times, Richfield Oil has its place. ImportExport Clause case law is not broken and does not
need to be fixed.
First, the Clause—as it has for two hundred
years—categorically bars state taxes that fall directly
on goods moving in import or export transit.
This rule has a long history. A hundred years
ago, in Crew Levick Co. v. Pennsylvania, the Court
recognized that “imposition of a percentage upon each
dollar of the gross transactions in foreign commerce
seems to us to be, by its necessary effect . . . an impost
or duty upon exports.” 245 U.S. 292, 295–96 (1917).
Richfield Oil later said essentially the same thing:
that a tax on the sale price of a good in transit—in that
case, oil being sold as it was pumped into the hold of a
ship to be taken overseas—was taxing the good-intransit itself and thus barred by the Clause. 329 U.S.
at 83–84 (“a tax on the sale of an article, imported only
for sale, is a tax on the article itself”) (quoting Brown
v. Maryland, 25 U.S. 419, 444 (1827) (Marshall, C.J.)).
In the 1990s, this Court referred to the
“prohibition on the direct taxation of imports and
exports ‘in transit,’” as “the rule we followed in
Richfield Oil.”
Itel Containers Int’l Corp. v.
Huddleston, 507 U.S. 60, 77 (1993) (holding that in
that case, the tax was not levied on the goods
8
themselves). In IBM, the Court stated that its
holdings “do not interpret the Import-Export Clause to
permit assessment of nondiscriminatory taxes on
imports and exports in transit.” 517 U.S. at 861.
This rule also fits the plain meaning of the
Import-Export Clause. By its plain terms, “No State
shall . . . lay any Imposts or Duties on Imports or
Exports” prevents taxation directly on goods moving
in import or export transit. See Itel Containers, 507
U.S. at 81 (Scalia, J., concurring in part and in
judgment) (noting that this Richfield Oil rule “has [a]
firm basis in a constitutional text”). As even Michelin
recognized, “the characteristic common to both
‘imposts’ and ‘duties’ was that they were exactions
directed at imports or commercial activity as such.”
Michelin Tire Corp. v. Wages, 423 U.S. 276, 291–92
(1976).
Thus, taxes directly on goods in transit fall into
the core of the constitutional text and its plain
meaning.
“[W]hen the text of a constitutional
provision is not ambiguous, the courts, in giving
construction thereto, are not at liberty to search for its
meaning beyond the instrument.” Lake Cty. v. Rollins,
130 U.S. 662, 670 (1889). There is no need for a
Michelin-type inquiry into the policy goals underlying
the Clause when its text yields a clear result.
Moreover, within this heartland of ImportExport Clause cases, it is good to have a bright-line
rule. See Kosydar v. National Cash Register Co., 417
U.S. 62, 71 (1974) (observing that “simplicity has its
virtues” under the Import-Export Clause, because
9
both shippers and states need a clear rule about what
goods can be taxed and when).
Second, the Michelin test plays a different role.
It applies to taxes about which the Import-Export
Clause is ambiguous—i.e., taxes on goods no longer in
transit, or on services that relate to the export process,
such as taxes on stevedores who load ships.
In Michelin, the Court faced a challenge to a
property tax imposed on warehoused tires previously
imported. The tires “were no longer in transit.” 423
U.S. at 302. The Michelin Court expressed doubt that
a tax on goods no longer in transit was an “impost or
duty.” Id. at 291–92. The Court thus held that, in the
context of taxes on goods not in transit, “Imposts or
Duties” was “sufficiently ambiguous that we decline to
presume it was intended to embrace taxation that does
not create the evils the Clause was specifically
intended to eliminate.” Id. at 293–94.
Thus, the Michelin Court established a test
based on “three policy considerations leading to the
presence of the Clause.” Dep’t of Revenue v. Ass’n of
Washington Stevedoring Cos., 435 U.S. 734, 752 (1978).
That three-part policy test inquires whether the state
tax would undercut the federal government’s ability to
speak with one voice in international commerce;
whether the tax would divert import revenue from the
federal government to the state; and whether
“harmony among the States might be disturbed” by
the tax. Michelin, 423 U.S. at 285–86.
The Michelin policy test is useful to address
(and often uphold) taxes at the fringe of the ImportExport Clause—taxes not directly falling on goods in
10
transit, but arguably burdening them or the transit
process.
After all, it makes sense that a
nondiscriminatory tax imposed on stationary, stored,
post-import goods is not an “impost or duty” on
“imports or exports.” Likewise, taxing stevedores paid
to load and unload ships is not a tax on the goods
themselves. Washington Stevedoring, 435 U.S. at 757.
For that reason, the Court has applied Michelin
only to taxes that do not directly fall on goods in
transit. E.g., Washington Stevedoring, 435 U.S. at 755,
757 (applying Michelin after holding that “the tax does
not fall on the goods themselves” and was “distinct
from the goods and their value”); Itel Containers, 507
U.S. at 77 (applying Michelin where the tax “is not
levied on the containers themselves or on the goods
being imported in those containers”). Indeed, the
Court has suggested that a tax on “goods in transit
[might] be an ‘Impost or Duty’ even if it offended none
of the policies behind the Clause”—that is, regardless
of the Michelin test. 435 U.S. at 755.
In its most recent occasion to address the
Import-Export Clause, this Court stated that “Our
holdings in Michelin and Washington Stevedoring . . .
do not interpret the Import-Export Clause to permit
assessment of nondiscriminatory taxes on imports and
exports in transit.” 517 U.S. at 861. This Court added
that “Michelin . . . suggested that the Import-Export
Clause
would
invalidate
application
of
a
nondiscriminatory property tax to goods still in import
or export transit.”
Id. (approvingly citing Va.
Indonesia Co. v. Harris Cnty. Appraisal Dist., 910
S.W.2d 905, 915 (Tex. 1995), which had “invalidat[ed]
application of a nondiscriminatory ad valorem
11
property tax to goods in export transit”). This Court
denied that “our Import-Export Clause jurisprudence
now permits a State to impose a nondiscriminatory tax
directly on goods in import or export transit.” 517 U.S.
at 862.
Treatises also address both Richfield Oil and
Michelin, and the proper sphere for each. After
tracing the path of the jurisprudence, Professor Tribe
recognized that the Import-Export Clause still bars
states from levying “even a nondiscriminatory sales
tax that applies to sales of goods in transit.” Laurence
H. Tribe, American Constitutional Law § 6-26 at 1165
(3d ed. 2000) (citing Richfield Oil). Professor Tribe
summarized the case law as “permit[ting] facially
nondiscriminatory taxes [under Michelin]—on items
before or after their movement, but not while in
transit.” Id. at 1163.
In sum, the “peculiar definitional analysis [in]
Michelin,” 517 U.S. at 858, has not, need not, and
should not overrun the entire range of the ImportExport Clause. Richfield Oil remains sound in
rejecting taxes directly on goods in transit.
B.
Richfield Oil is on point here.
Richfield Oil is precisely on point. Petitioner
does not try to distinguish it. See Pet. 28–33.
Both Richfield Oil and this case involved a
business privilege tax measured using gross receipts.
In Richfield Oil, the oil being sold was pumped into a
tanker headed overseas. 329 U.S. at 71. Here, the
goods being sold are handed to international travelers
as they board flights overseas. App. 3a. In both cases,
12
the goods were moving in export transit. 329 U.S. at
82–83 (citing “certainty that the goods are headed to
sea” and “certainty of the foreign destination” as proof
the export had begun). And in both cases, the gross
receipts measure taxed the value of the goods
themselves, thus directly taxing those goods. 329 U.S.
at 84; Washington Stevedoring, 435 U.S. at 756 n.21
(citing Richfield Oil and noting that “the Court had
always considered a tax on the sale of goods to be a tax
on the goods themselves”). The Richfield Oil Court
struck down California’s tax as applied to the oil in
that case.
This Court has never overruled Richfield Oil.
Even Petitioner’s amici admit this. See Br. of IMLA
Amicus at 4; Br. of Tax Professors Amicus at 3 (both
admitting that Richfield Oil has never been overruled).
During the forty years since Michelin and
Washington Stevedoring, this Court has hardly had
occasion to revisit the issue (despite Petitioner’s
assertions that this is a major and recurring problem).
In 1996, the Court rejected an argument premised on
expanding Michelin to goods in transit. The Court
reminded the parties that its “Import-Export Clause
cases have not upheld the validity of generally
applicable, nondiscriminatory taxes that fall on
imports or exports in transit.” IBM, 517 U.S. at 862.
The Supreme Court of Virginia recognized both
that Richfield Oil had not been overruled and that it
was on point. App. 19a (“the Supreme Court has not
overruled Richfield Oil”); App. 20a (“The County
attempts to distinguish the BPOL tax from the tax the
Court invalidated in Richfield Oil. We find the
13
County’s arguments unpersuasive.”). Therefore, the
court followed Richfield Oil and struck down the
application of the BPOL tax to the fraction of Dulles
Duty Free’s sales that occur in export transit.
Stare decisis looms large here. “Even in
constitutional cases, the doctrine carries such
persuasive force that we have always required a
departure from precedent to be supported by some
special justification.” IBM, 517 U.S. at 856 (refusing
to overrule an 80-year-old Export Clause precedent).
Likewise, Richfield Oil dates back more than seventy
years, and follows a line of precedent that goes back
much further. Richfield Oil stands undisputedly on
point here, and a unanimous state supreme court
properly followed it.
II.
There is no split of authority worthy of
this Court’s attention.
Forty years have passed since Michelin and
Washington Stevedoring. During that time, a stream
of cases have recognized that the Import-Export
Clause still bars States from directly taxing goods in
import or export transit. Coast Pac. Trading, Inc. v.
State Dep’t of Revenue, 719 P.2d 541, 544 (Wash. 1986)
(“The parties . . . correctly point out that Michelin and
Washington Stevedoring have not overruled decisions
that struck down taxes levied directly on goods that
had reached the export stream. These decisions
include Richfield.”); La. Land & Expl. Co. v. Pilot
Petroleum Corp., 900 F.2d 816, 819 (5th Cir. 1990),
cert. denied, 498 U.S. 897 (1990) (“Richfield has never
been overruled”); Va. Indonesia Co., 910 S.W.2d at 912,
14
cert. denied, 518 U.S. 1004 (1996) (“the United States
Supreme Court has not overruled” the goods-inexport-transit cases).
Petitioner discusses three cases it claims
conflict with the opinion below here. Pet. 16–19. None
is from this decade. None is widely cited. Two of them
hold that the taxes in question were not imposed
directly on goods in export transit, precisely the
opposite of the tax here. See Pet. 27 (admitting that
the “goods at issue here were clearly ‘in transit’”). A
third case analyzed the wrong part of the ImportExport Clause and premised its ruling on an
embarrassing misquote of this Court. None of these
cases show a split of authority that merits this Court’s
attention.
First, Petitioner unearths a 35-year old case
from Alaska. State Dep’t of Revenue v. Alaska Pulp
Am., Inc., 674 P.2d 268 (Alaska 1983). There is no
conflict between this case and Alaska Pulp because
Alaska Pulp did not address a tax on goods in transit.
In Alaska Pulp, the Alaska court applied
Michelin and upheld a state tax on dividends and
commissions flowing between related corporate
entities. The Alaska court did not say or even imply
that Richfield was bad law. On the contrary, the court
ruled that the tax in question was not imposed on
goods in export transit. Id. at 280 (“the [state] has not
assessed a tax on goods moving in foreign trade”). The
court then cited Canton Railroad Co. v. Rogan, 340
U.S. 511 (1951), which embraced the rule that direct
taxes on exports in transit cannot stand. Canton
Railroad, 340 U.S. at 513 (“If this were a tax on the
15
articles of import and export, we would have the kind
of problem presented in . . . Richfield”). But in Alaska
Pulp, foreign trade transactions were not taxed, “only
the intrastate transactions between [export
companies] and their parent corporations.” Id. at 279.
Applying
Michelin
to
dividends
and
commissions flowing between Alaska business entities
has nothing to do with the decision in this case.
Alaska Pulp is an unremarkable application of the
Import-Export Clause—as evidenced by the fact that
in the last 35 years it has never once been cited by any
court for any constitutional principle or holding.
Similarly, the Supreme Court of Appeals of
West Virginia applied Michelin and upheld a state
coal severance tax in United States Steel Mining Co. v.
Helton, 631 S.E.2d 559 (W.Va. 2005), cert. denied, 547
U.S. 1179 (2006). There is no conflict between Helton
and this case, as the opinion below recognized.
As the Supreme Court of Virginia observed, the
“West Virginia [court] accepted Richfield Oil as
binding, but held that the goods were not placed in
export at the time a coal severance tax applied (when
the coal was extracted . . .).” App. 17a.; see also Helton,
631 S.E.2d at 562 n.4 (distinguishing Richfield
because “the coal severance taxes at issue in the
instant case are not imposed on goods after they have
been loaded, nor after they have clearly been started
on their journey”).
West Virginia imposed its severance tax on the
value of the coal as it was being processed and loaded
into rail cars. The court held that “the initial process
of loading of coal by the mining and processing
16
company at a coal preparation facility is properly
viewed as part of the coal production/mining and
processing process,” and not as part of export transit.
Id. at 564–65. As a result, “severance taxes like West
Virginia’s are based upon and imposed upon activity
that occurs prior to the mined and processed coal’s
entry into export transit.” Id. at 567.1
Two dissenters in Helton thought that the coal
was in export transit and thus could not be taxed
under Richfield Oil. 631 S.E.2d at 570 (Maynard, J.,
dissenting); id. at 583 (Benjamin, J., dissenting in
part). But the debate over whether coal being loaded
at a mine had reached export transit only shows the
difference between Helton and this case.
Here, export transit status is undisputed and
mandated by federal law governing duty-free
enterprises. See App. 20a (“There is no dispute that
the merchandise Duty Free sells to international
travelers constitutes export goods in transit.”); App. 3a
(describing the process in which Duty Free finalizes
its sales and delivers its goods to passengers on the
jetway as they board flights overseas); Pet. 27
(admitting that the “goods at issue here were clearly
‘in transit’”).
Lastly, Petitioners cite Auto Cargo, Inc. v.
Miami Dade County, 237 F.3d 1289 (11th Cir. 2001).
1 The Helton majority also noted several times that the coal was
not “merely” in transit through West Virginia, but was mined
there, id. at 568 & n.7, and that the tax was imposed at the mine,
not an international port. See Canton Railroad Co., 340 U.S. at
515 (observing that export “begin[s] . . . at water’s edge” and does
not “lead back to every forest, mine, and factory in the land”).
17
Auto Cargo upholds a $7.50 “inspection fee” imposed
by the port of Miami on each used car being exported
through the port. The inspection fees paid for vehicle
inspections done to ensure stolen vehicles are not
exported, and to pay for related anti-theft efforts by
local and federal law enforcement. 237 F.3d at 1291.
Auto Cargo applied Michelin and upheld the
inspection fee.
Auto Cargo is a head-scratcher in several ways.
Perhaps for that reason, case law over the past 17
years has ignored its Import-Export Clause analysis.
The certiorari filings here examine Auto Cargo far
more deeply than any judicial opinion ever has.
First, the “inspection fee” challenged in that
case was constitutional regardless of the issue
presented here. The Import-Export Clause permits a
state to impose charges “absolutely necessary for
executing its inspection laws.” U.S. Const. art. I § 10
cl. 2. Accordingly, this Court has long allowed fees
spent on inspecting goods (as opposed to creating
general revenue for the state or local government).
See, e.g., Turner v. State of Maryland, 107 U.S. 38
(1883) (upholding an inspection fee imposed by
Maryland on hogsheads of tobacco being exported).
The Auto Cargo district court made all
necessary findings to support such a holding. It ruled
that the inspection fee was “not instituted to generate
revenue to maintain governmental services offered to
the general public. Instead, it is a specific charge . . .
to defray the costs relative to Customs’ vehicle
inspections.” Order, No. 1:96-cv-2138, Dkt. 83 at 11
(S.D. Fla. June 11, 1999). The court added that the fee
18
is charged “for a service distinct from the goods and
their value,” id. at 13, and that the charges are “used
solely to defray the County’s costs for providing and
maintaining the inspection facility.” Id. at 18. In
short, the Auto Cargo court never needed to, and
should not have, even considered the sole issue
presented in this case. The Port of Miami “inspection
fee” is an obvious inspection fee.
Second, Auto Cargo based its decision to apply
Michelin on two glaring mistakes.
At the outset, Auto Cargo badly misquoted IBM.
According to Auto Cargo, the “Supreme Court has
interpreted the Import-Export Clause to permit states
to impose ‘generally applicable, nondiscriminatory
taxes even if those taxes fall on imports or exports.’”
237 F.3d at 1292 (quoting 517 U.S. at 852). The quote
is a bad splice. What this Court actually said is that
“The Government argues . . . that States may impose
generally applicable, nondiscriminatory taxes even if
those taxes fall on imports or exports.” 517 U.S. at 852
(emphasis added). This Court then promptly shot that
argument down. “Contrary to the Government’s
contention, this Court’s Import-Export Clause cases
have not upheld the validity of generally applicable,
nondiscriminatory taxes that fall on imports or
exports in transit.” 517 U.S. at 862; id. at 861 (“Our
holdings . . . do not interpret the Import-Export Clause
to permit assessment of nondiscriminatory taxes on
imports and exports in transit.”) (emphasis added).
Next, Auto Cargo stated that “since Michelin,
courts . . . have relied exclusively on Michelin’s
analysis.” 237 F.3d at 1293. That was false, even at
19
the time. See, e.g., Va. Indonesia Co., 910 S.W.2d at
912 (discussing at length whether the Richfield Oil
rule survived Michelin, concluding it did, and applying
it to strike down a tax).
In short, Auto Cargo focused on the wrong part
of the Import-Export Clause, mistook a rejected
argument for governing law, and misstated what
other courts had done with Michelin. Despite all of
that, it probably reached the correct result, given a set
of facts that have almost nothing in common with
those here. Auto Cargo is a curio, not a reason to grant
certiorari.
Across forty years of precedent, these are the
three “split” cases Petitioner identifies as warranting
certiorari. Two of them are distinguishable on their
most central fact—whether the tax in question fell
directly on goods in import or export transit—and thus
applied Michelin without posing any conflict with the
Virginia court here. A third should have been decided
on a different ground so obvious that the case has gone
largely uncited over the past 17 years. It seems
unlikely that any court facing a future Import-Export
Clause issue will consult any of these three opinions,
conclude that it hopelessly conflicts with the Virginia
Supreme Court’s opinion here, and suffer confusion
about which to follow.
20
III.
The issue presented here is not important
enough to warrant review.
The Import-Export Clause issue here poses no
real threat to state sovereignty or local coffers. Contra
Pet. 25–27.
The Petition suggests that not being permitted
to directly tax goods in import or export transit
jeopardizes state sovereignty. Pet. 25. The theory is
that not being able to exact a precise variety of
taxation (a variety that this Court has never upheld)
“may prevent” state and local governments “from
collecting much-needed revenue.” Pet. 25. But
Petitioner never asserts that either its own
sovereignty or its coffers are in any sort of jeopardy.
In fact, to Petitioner here and in general, the financial
effect of the decision below is negligible. And even if
it were not, many alternative paths stand open to
taxing businesses like Dulles Duty Free.
A.
The financial import of this issue is
small.
The Petition outlines the scope of the duty free
industry and the fact that Dulles Duty Free sold
between $13 million and $20 million per year in export
goods during the tax years in question. App. 3a.; Pet.
26–27. It omits that the annual amount of tax at issue
in this case is less than $42,000. Nov. 3 Order on
Remand (outlining annual tax amounts attributable
to exports as between $25,600 and $41,600). Five
21
years’ worth of Dulles Duty Free’s export-based BPOL
taxes add up to less than $174,000. Id.2
By comparison, during the tax year 2013 alone,
the Loudoun County BPOL tax collected $28.4
million.3 Combined with other local taxes, the County
raked in $1.05 billion.4 What the County has lost in
this case is less than 1/600 of its BPOL revenue, and
less than 1/25,000 of its annual revenue. The tax
money here is a tiny drop in a vast bucket to the
County.
Nor does the Petition identify a single other
business in Loudoun County positioned like Dulles
Duty Free (which sells its goods at an international
terminal under a precise system of federal regulations
that ensures export, and delivers them in the jetway).
The County’s BPOL tax is undisputedly constitutional
in well above 99% of its applications.
More broadly, Petitioner identifies no other
locality or State where this issue controls a
meaningful revenue stream. Even its amicus, the
largest municipal lawyers’ organization in the United
States, fails to identify any such place. Instead, it
vaguely suggests that “the decision below creates a
potential loss in tax revenue.” IMLA Br. 3. Its best
2 IMLA states this number as “over $270,000,” apparently by a
math error. IMLA Br. 11. The Nov. 3 Order specifies the amount
of tax in question as $35,912.73 for 2009, $25,650.42 for 2010,
$28,955.51 for 2011, $40,932.05 for 2012, and $41,537.53 for 2013.
Loudoun County, Va. Budget, at R-12. Available at:
https://www.loudoun.gov/DocumentCenter/View/104238.
3
4 Id. at R-5.
22
example appears to be Clayton County, Georgia—
home to the busiest airport in the world by passenger
traffic. IMLA Br. 13. Consistent with the ruling in
this case, Clayton County does not levy its business
license tax on gross receipts from duty free export
sales. Consistent with the financial impact in this
case, public records show that Clayton County
receives a tiny fraction of its revenue from its business
license tax analogous to the one here.5 Only 3.5% of
Clayton County’s revenue flows from all licenses
combined—fourteen items in all, including marriage
licenses, building permits, and pistol licenses, as well
as its business license tax. In short, even the places
with the largest airports are not losing meaningful
revenue.
Petitioner and its amici fail to identify any
severe financial impact from the decision below. This
makes sense, given that the Virginia court simply
applied seventy-year-old precedent and struck down a
tax of a sort this Court has “never upheld.” IBM, 517
U.S. at 862. If the Richfield Oil rule created severe
financial impacts, they happened decades ago.
B.
There are numerous constitutional
ways to tax export businesses.
Meanwhile, Dulles Duty Free pays more than
$100,000 per year in undisputed state and local taxes.
S. Ct. of Va. JA32 (listing “local sales and use tax,
business tangible personal property tax, consumer
5 Clayton County, Ga. Budget, at 47. Available at: https://
www.claytoncountyga.gov/pdfs/finance/ Budget%20Book%20
2017%20Final.pdf.
23
utility tax, and electric consumption tax.”). Recently
the County has sought payment of a six-figure real
estate tax. The ruling below provides exporters no
broad exemption from tax.
Moreover, Virginia law gives Petitioner and
every other locality a choice about how to impose its
BPOL tax. The tax can be based on either gross
receipts or on “Virginia taxable income.” Va. Code §
58.1-3702 (“the governing body of every county, city
and town that levies such license tax may impose the
tax on the gross receipts or the Virginia taxable
income of the business”). Whichever basis the County
chooses must apply to all local retail businesses. Va.
Code § 58.1-3705. If the County chose to tax on
“Virginia taxable income,” its tax basis would consider
deductions, exemptions, exclusions, and subtractions.
See Va. Code § 58.1-402. Such a tax would be distant
enough from the value of the export goods that it likely
would not be a direct tax on goods moving in export
transit. Accordingly, it would fall under the Michelin
test and presumably survive it.
So the County had (and still has) two paths
available. It has decided to use gross receipts. That
choice is constitutional in more than 99% of its
applications. But it cannot be applied to Duty Free’s
sales in export transit. Having made its choice, the
County cannot now plausibly maintain that a
longstanding constitutional rule harms its tax
sovereignty. The County could increase its BPOL tax
revenue from Dulles Duty Free right away if it
changed to a “Virginia taxable income” model for all
its retail businesses. Preferring not to do this is not
losing control over tax decisions.
24
Further, there are numerous other ways that
even the exact type of tax here—a business license
tax—can constitutionally be measured. Some locales
charge a retail license tax based on head count—the
number of employees who work there. Clayton County,
Georgia, for instance, has taxed Duty Free based on
its 67 employees there. Hollywood, Florida, does the
same. Other locales tax businesses based on “point of
sale”—the number of cash registers. Imperial County,
California does this. Still other places charge a simple
flat annual fee for a business license, including the
cities of Nogales and Douglas, Arizona. None of these
tax measures fall directly on goods moving in export
transit, and all are undisputedly proper under the
Import-Export Clause.
C.
Duty Free is a unique business
model—even most airport retail
goods are not exports being taxed in
transit.
To begin with, the claim that the opinion below
breaks new ground is far-fetched on its face. The
Virginia Supreme Court applied an on-point, seventyyear-old precedent from this Court. The Virginia court
refused to uphold a type of tax this Court has also
“never upheld.” IBM, 517 U.S. at 862. The outcome
here is that Petitioner cannot collect a fraction of one
of its taxes from the one business that can prove its
goods are exports and that they are in transit at the
moment the sale is finalized.
Petitioner and its amici vastly overstate the
economic impact of this holding (and current doctrine
in general).
25
The tax professors suggest that Duty Free
“contorts” its operations to avoid local taxation, or that
other businesses may do so “in order to secure
exemption.” Tax Prof. Br. 17. Similarly, IMLA
theorizes that maybe duty free is no different than any
airport restaurant or souvenir shop, and so now all
should be free of the gross receipts tax here. IMLA Br.
15–17. These ideas are wrong, for several reasons.
First, most goods sold in Dulles Airport are
neither “exports” nor are they “in transit” at the time
of the sale. Purchasers buy these goods and walk
away with them in the terminal. The purchasers may
be incoming or outgoing, domestic or international, or
planning to consume their purchases in or around the
airport.
There is no “certainty of the foreign
destination,” as in Richfield Oil. 329 U.S. at 83. See
also Swan & Finch Co. v. United States, 190 U.S. 143,
145 (1903) (holding that “[a]nother country or state as
the intended destination of the goods is essential to
the idea of exportation.”).
Second, duty free retailers are a unique
business model. The shops exist inside security in
airports, where only passengers may go, and beyond
the point of no return at other border crossings. Duty
free retailers share custody of many of their goods
with the U.S. Customs and Border Protection Service,
and keep them in bonded warehouses. Many of the
goods never even enter the United States as a legal
matter—they come in solely for export.
Federal law demands that duty free businesses
ensure export, and federal statutes and regulations
explain how to do so in some detail. Far different than
26
any other airport store, Duty Free hands over the
goods and finalizes the sale only after the gate agent
checks the traveler onto an international flight. See
19 U.S.C. § 1555(b)(3)(F)(i)(II) (requiring duty-free
merchandise to be delivered “to the purchaser . . . at
the exit point of a specific departing flight”). If the
traveler does not appear or does not board the plane,
there is no sale and Duty Free keeps the goods.
Similarly, those with further layovers inside this
country cannot purchase duty free goods except at the
“last point leaving the United States.” S.Ct. of Va.
JA161.
The Virginia court thus was satisfied that Duty
Free can be certain of export and that its transactions
occur as part of the export process. These operations
are not contortions to avoid local tax—they are
federally mandated for a unique type of retail business.
Duty Free is not aware of any other industry
that uses a similar system for selling export goods.
Even within its own industry, Duty Free holds an
exclusive franchise to be the sole duty-free retailer at
the Washington, D.C. area airports.6
Nor does it make sense that others would copy
duty free solely to avoid county business license taxes.
Contra Tax. Profs. Br. 17.
Meeting departing
travelers at their gate and completing sales
transactions as planes board poses a tremendous
6 Charlotte Turner, “Duty Free Americas wins bid to operate duty
free concessions at Washington airports,” TR Business (Aug. 14,
2014), available at: https://www.trbusiness.com/regionalnews/the-americas/duty-free-americas-wins-bid-to-operate-dutyfree-concessions-at-washington-airports/64708.
27
logistical challenge, far beyond the economics of
avoiding 17 cents in tax per hundred dollars in sales.
Trial testimony from this case addresses the
numerous Customs-licensed cartmen who meet the
travelers at the gate and the travails of handling
delayed or cancelled flights (Duty Free stays partly
open every night until it can make its last deliveries).
S.Ct. of Va. JA163–64, JA260. It would be grossly
uneconomic for other airport shops to copy duty free.
Moreover, if other businesses were going to copy
duty free, they would have done this long ago—
Richfield Oil has existed for seventy years. In 1995,
Texas struck down a tax under Richfield Oil in
Virginia Indonesia Company. 910 S.W.2d at 912. Yet
there is no sign of mass business restructuring
(certainly nothing new) under either of these decisions.
Duty free is a unique business, created and
regulated closely by federal law. Moreover, Duty Free
is the sole duty free retailer at Dulles Airport. Efforts
to show that the holding below here will ripple
through all retail (even all airport retail) are
unfounded.
CONCLUSION
This Court should deny the Petition.
28
Respectfully submitted,
Matthew A. Fitzgerald
Counsel of Record
Craig D. Bell
Michael H. Brady
McGUIREWOODS LLP
800 East Canal Street
Richmond, Virginia 23219
(804) 775-4716
mfitzgerald@mcguirewoods.com
Counsel for Respondent
Dulles Duty Free, LLC
February 26, 2018
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.