Reply Brief — Loudoun County, Virginia, Petitioner v. Dulles Duty Free, LLC

Supreme Court briefMar 8, 2018

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No. 17-904

IN THE

SUPREME COURT OF THE UNITED STATES

COUNTY OF LOUDOUN, VIRGINIA,

Petitioner,

DULLES DUTY FREE, LLC,

Respondent.

On Petition for a Writ of Certiorari to

the Supreme Court of Virginia

PETITIONER’S REPLY

TO BRIEF IN OPPOSITION

LEO P. ROGERS

County Attorney

STEVEN F. JACKSON

Assistant County Attorney

Office of the County Attorney

One Harrison Street SE

P.O. Box 7000

Leesburg, VA 20177

SCOTT E. GANT

Counsel of Record

AARON E. NATHAN

SAMUEL S. UNGAR

BOIES SCHILLER FLEXNER LLP

1401 New York Avenue, NW

Washington, DC 20005

(202) 237-2727

sgant@bsfllp.com

Counsel for Petitioner

TABLE OF CONTENTS

TABLE OF CONTENTS ............................................. i

TABLE OF AUTHORITIES........................................ii

INTRODUCTION ........................................................ 1

Respondent Concedes Lower Courts

Are Divided, and Its Efforts to

Minimize That Split Are Unavailing ............ 3

II.

Stare Decisis Provides No Basis For

Denying the Petition ...................................... 5

III. The

Questions

Presented

Are

Important ....................................................... 9

IV. This Case Is an Ideal Vehicle For

Resolving the Questions Presented............. 12

CONCLUSION .......................................................... 13

TABLE OF AUTHORITIES

Cases

Page(s)

Arizona v. Rumsey,

467 U.S. 203 (1984) ................................................8

Auto Cargo, Inc. v. Miami Dade County,

237 F.3d 1289 (11th Cir. 2001) ..............................4

Burnet v. Coronado Oil & Gas Co.,

285 U.S. 393 (1932) ................................................6

David Hazan, Inc. v. Tax Appeals Tribunal,

543 N.Y.S.2d 545 (N.Y. App. Div. 1989) ...............5

David Hazan, Inc. v. Tax Appeals Tribunal,

556 N.E.2d 1113 (N.Y. 1990) .................................5

Department of Revenue v. Alaska Pulp Am., Inc.,

674 P.2d 268 (Alaska 1983) ............................... 3, 4

Department of Revenue of Wash. v.

Association of Wash. Stevedoring Cos.,

435 U.S. 734 (1978) .................................. 5, 7, 8, 12

Hurst v. Florida,

136 S. Ct. 616 (2016) ..............................................8

Itel Containers Int’l Corp. v. Huddleston,

507 U.S. 60 (1993) ..................................................7

Kimble v. Marvel Entm’t, LLC,

135 S. Ct. 2401 (2015) .................................... 6, 7, 8

Limbach v. Hooven & Allison Co. (Hooven II),

466 U.S. 353 (1984) ................................................6

iii

Marbury v. Madison,

5 U.S. (1 Cranch) 137 (1803) .................................9

Michelin Tire Corp. v. Wages,

423 U.S. 276 (1976) ...................................... passim

P.J. Lumber Co., Inc. v. City of Prichard,

No. 2160627, 2017 WL 4214170

(Ala. Civ. App. Sept. 22, 2017)........................... 6-7

Richfield Oil Corp. v. State Bd. of Equalization,

329 U.S. 69 (1946) ........................................ passim

United States Steel Mining Co., LLC v. Helton,

631 S.E.2d 559 (W. Va. 2005) ............................ 2, 4

Virginia Indonesia Co. v. Harris County

Appraisal District,

910 S.W.2d 905 (Tex. 1995) ............................... 6-7

Western Oil & Gas Ass’n v. Cory,

726 F.2d 1340 (9th Cir. 1984) ................................5

Constitutional Provisions

U.S. Const. art. I, § 10, cl. 2 .............................. passim

Statutes & Rules

26 U.S.C. § 992(a)(1)(A) (1976) ...................................3

Sup. Ct. R. 10...............................................................9

Treatises

Walter Hellerstein & John A. Swain,

State Taxation (3d ed. 2017) ...................... 1, 6, 7, 8

Laurence H. Tribe,

American Constitutional Law (3d ed. 2000) .........6

Other Authorities

Craig D. Bell & Emily J.S. Winbigler,

Taxation, 52 U. Rich. L. Rev. 79 (2017) .... 9-10, 11

Brannon P. Denning, Bittker on the Regulation

of Interstate and Foreign Commerce § 12.07

(2d ed. 2013 & 2017 Cum. Supp.) ..........................7

INTRODUCTION

Although Respondent strains to reconcile

conflicting decisions about the proper interpretation of

the Import-Export Clause, ultimately it cannot (and

does not really try to) dispute that lower courts are

divided—especially over the status and role of

Richfield Oil Corp. v. State Board of Equalization, 329

U.S. 69 (1946).

Respondent therefore opposes the Petition by

proclaiming that Import-Export Clause jurisprudence

“is not broken and does not need to be fixed.”

Respondent’s Brief in Opposition (“Opp.”) 1, 7. It

seems that under Respondent’s view of the world,

Richfield Oil remains as vital today as the day it was

decided.

Respondent, however, appears to be alone in

believing Import-Export Clause jurisprudence is

settled and clear, and should be left alone by this

Court.

The leading legal treatise on state taxation reports

that “State courts have generally treated Richfield

with considerable skepticism,” and has concluded “the

weight of reason and authority support the view . . .

that Richfield is no longer good law.” Walter

Hellerstein & John A. Swain, State Taxation

¶ 5.05[2][a] (3d ed. 2017).

Nineteen tax law scholars filed an amicus brief in

support of the Petition, observing: “Courts in eight

States as well as one federal court of appeals no longer

adhere to Richfield Oil. . . . Courts in five other States

as well as another federal court of appeals have said

that Richfield Oil remains binding until this Court

expressly overrules it.”1 They believe “[t]his split

generates uncertainty for market actors” and

“interferes with the ability of state and local

governments to craft durable tax regimes.”2

The International Municipal Lawyers Association

also filed an amicus brief in support of the Petition,

explaining: “[t]he prevailing confusion and uncertainty

about the relationship of Richfield Oil and Michelin

prevent state and local government attorneys from

effectively advising their clients on the limits and the

restrictions of the Import-Export Clause.”3

Judges too have invited this Court to clarify

Import-Export Clause jurisprudence. E.g. United

States Steel Mining Co., LLC v. Helton, 631 S.E.2d 559,

580 (W. Va. 2005) (Benjamin, J., dissenting in part)

(encouraging this Court “to bring a new clarity to this

area of constitutional law in the near future”). In fact,

in this case the Supreme Court of Virginia recognized

“courts have struggled to determine which test to apply

when it comes to assessing the constitutionality of

Brief of Tax Law Professors as Amici Curiae in Support of

Petitioner (“Tax Law Professors’ Br.”) 3; see also id. at 10-12 &

nn.6, 7 (citing cases).

Id. at 3.

Brief of International Municipal Lawyers Association as Amici

Curiae in Support of Petitioner (“IMLA Br.”) 1-2.

taxes that fall on export goods in transit,”4 and

observed: “[i]t may be that the Supreme Court will

provide additional guidance concerning the

applicability of the Import-Export Clause to nondiscriminatory taxes” like the one at issue, which this

Court has “carefully carved out for future disposition.”

App. 16a, 19a, 22a.

Respondent Concedes Lower Courts Are

Divided, and Its Efforts to Minimize That

Split Are Unavailing

Respondent contends there is no split of authority

“worthy of this Court’s attention.” Opp. 13. Leaving

aside the concession that there is a “split” of authority,

Respondent’s portrayal of the case law is unavailing.

Respondent suggests Department of Revenue v.

Alaska Pulp America, Inc., 674 P.2d 268 (Alaska 1983),

should be disregarded because it concerned “dividends

and commissions flowing between Alaska business

entities.” Opp. 15. That misses the forest for a tree.

The taxpayers in Alaska Pulp were domestic

international sales corporations (“DISCs”) eligible for

special federal tax treatment precisely because they

derived at least 95 percent of their revenue from export

sales. See 26 U.S.C. § 992(a)(1)(A) (1976). Respondent

ignores the Supreme Court of Alaska’s clear view that

“[w]hen a tax is challenged under the import-export

clause, the court must . . . determine whether the tax

The trial court in this case observed: “It is challenging to try to

reconcile the Import Export Clause jurisprudence.” App. 33a.

offends any of the three purposes of that clause, as

delineated in Michelin.” 674 P.2d at 279 (citing

Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976)).

Employing that approach, the Supreme Court of

Alaska held the assessment on gross receipts covering

exports does not conflict with the Clause. Id. at 280.

Respondent similarly tries to distinguish Helton,

where the Supreme Court of Appeals of West Virginia

upheld a tax on coal mined in West Virginia and

exported abroad. After noting Michelin marked a

“sharp turn” in the focus of Import-Export Clause

analysis, 631 S.E.2d at 562, the court relied on

Michelin to uphold the tax without deciding whether

the goods were “in transit,” as Richfield Oil’s stream of

export test would require.

See Petition 18.

Respondent inaccurately suggests Helton turned on

whether the coal at issue was “in transit.” Opp. 15-16.

And, contrary to Respondent’s characterization, the

two Helton dissenters understood the court’s decision

was inconsistent with Richfield Oil, protesting that

“the majority opinion’s wholesale rejection of Richfield

Oil in favor of the Michelin Tire/Washington

Stevedoring line of cases is improper.” 631 S.E.2d at

569 (Maynard, J., dissenting); id. at 581 (Benjamin, J.,

dissenting in part).

Unable to deny the conflict between Auto Cargo,

Inc. v. Miami Dade County, 237 F.3d 1289 (11th Cir.

2001), and the decision below here, Respondent resorts

to dismissing Auto Cargo as a “head-scratcher.” Opp.

17. But Respondent’s merits critique of Auto Cargo

does not change the fact there is a conflict.

Nor does Respondent’s discussion of these three

decisions5 change the fact they heeded Michelin’s

lesson that the Import-Export Clause should be

interpreted in light of the Framers’ “objectives” in

enacting it. Michelin, 423 U.S. at 293; see also

Department of Revenue of Wash. v. Ass’n of Wash.

Stevedoring Cos., 435 U.S. 734, 758 (1978) (“[T]he

Michelin approach should apply to taxation involving

exports as well as imports.”). The Supreme Court of

Virginia, in contrast, mechanically adhered to its

reading of Richfield Oil, without regard for whether

Loudoun’s BPOL tax may be sustained in light of the

Clause’s purposes in our constitutional scheme—and

without analyzing whether the tax is an “impost” or

“duty” within the meaning of the Clause. See Petition

28-29.

II. Stare Decisis Provides No Basis For Denying

the Petition

Respondent boldly claims that “[s]tare decisis

looms large here.” Opp. 13. It does not.

As an initial matter, stare decisis is not itself an

argument against granting the Petition. Even when

Respondent ignores other cases cited in the Petition evidencing

disagreement relevant to the Questions Presented: Western Oil &

Gas Association v. Cory, 726 F.2d 1340 (9th Cir. 1984); and David

Hazan, Inc. v. Tax Appeals Tribunal, 556 N.E.2d 1113 (N.Y.

1990), affirming David Hazan, Inc. v. Tax Appeals Tribunal, 543

N.Y.S.2d 545, 547 (N.Y. App. Div. 1989) (Mikoll, J., dissenting).

the law is settled, the Court grants petitions for review

under appropriate circumstances.

Moreover, this Court has previously granted

review with the express purpose of clarifying the

impact of Michelin. See Limbach v. Hooven & Allison

Co. (Hooven II), 466 U.S. 353 (1984).

Stare decisis principles also apply particularly

weakly here, given the doctrine’s premise that “it is

usually ‘more important that the applicable rule be

settled than that it be settled right,’” Kimble v. Marvel

Entm’t, LLC, 135 S. Ct. 2401, 2409 (2015) (quoting

Burnet v. Coronado Oil & Gas Co., 285 U.S. 393, 406

(1932) (Brandeis, J., dissenting)), contrasted with the

widespread doubt about Richfield Oil’s viability. While

Richfield Oil has not been overturned by this Court, it

can hardly be called “settled law.” Many judges

already treat Richfield Oil with “considerable

skepticism,” and legal scholars have concluded “the

weight of reason and authority support the view . . .

that Richfield is no longer good law.” Hellerstein &

Swain, supra, ¶ 5.05[2][a]6; see, e.g., P.J. Lumber Co.,

6 Despite its being cited several times in the Petition, Respondent

ignores the Hellerstein & Swain treatise, instead citing Professor

Tribe’s commentary about the Clause, written nearly two decades

ago. Opp. 11 (citing Laurence H. Tribe, American Constitutional

Law § 6-26 (3d ed. 2000)). Yet even Professor’s Tribe’s

descriptions of this Court’s cases failed to provide clarity to the

Supreme Court of Texas in Virginia Indonesia Co. v. Harris

County Appraisal District, 910 S.W.2d 905 (Tex. 1995), where the

majority cited an earlier edition of Professor Tribe’s treatise, while

the dissenting Justices rejected the majority’s approach,

Inc. v. City of Prichard, No. 2160627, 2017 WL

4214170, at *3 (Ala. Civ. App. Sept. 22, 2017)

(Richfield Oil is “no longer valid”). This perspective is

surely informed by the view that this Court has

previously “cast doubt on Richfield Oil’s continuing

validity.” Tax Law Professors’ Br. 2 (citing Washington

Stevedoring, 435 U.S. at 757 n.23 and Itel Containers

Int’l Corp. v. Huddleston, 507 U.S. 60, 77 (1993)); see

also Hellerstein & Swain, supra, ¶ 5.05[2][a] (noting

that in Itel the Court “itself cast doubt on the

continuing validity of Richfield.”); Brannon P. Denning,

Bittker on the Regulation of Interstate and Foreign

Commerce § 12.07 (2d ed. 2013 & 2017 Cum. Supp.)

(in Itel the Court “[h]int[ed] that this prohibition [on

the ‘direct’ taxation of imports and exports ‘in transit’],

which had been applied in the Richfield Oil case, had

been ‘altered’ (repudiated?) by the approach adopted in

Michelin.”).

Richfield Oil is the kind of “doctrinal dinosaur . . .

for which [the Court] sometimes depart[s] from stare

decisis.” Kimble, 135 S. Ct. at 2411. Over time, the

Court has displaced its jurisprudential underpinnings.

See Petition 4-12; Tax Law Professors’ Br. 4 (“[I]f stare

decisis was not enough to save Richfield Oil’s dormant

Commerce Clause cousin or the analogous ‘original

package’ rule for imports, it cannot carry the day

contending that “adherence to an in-transit rule is at odds with

the Supreme Court’s modern jurisprudence.” Id. at 916.

here.”).7 Stare decisis is no impediment to overruling a

case where “[t]ime and subsequent cases have washed

away [its] logic.” Hurst v. Florida, 136 S. Ct. 616, 624

(2016).8 This is especially true with constitutional

cases where “adherence to precedent is not rigidly

required.” Arizona v. Rumsey, 467 U.S. 203, 212

(1984).

According to Respondent, “[t]he holding below flows from at

least a hundred years of Import-Export jurisprudence.” Opp. 6.

But that is part of the problem with Respondent’s arguments. In

Michelin, this Court “initiated a different approach to ImportExport Clause cases,” Washington Stevedoring, 435 U.S. at 752,

“abandon[ing] a century of precedent.” Hellerstein & Swain,

supra, ¶ 5.02[2]; see also Petition 4-8 (discussing precedent

displaced by Michelin). Richfield Oil thus stands for the “most

longstanding principle of Import-Export Clause jurisprudence”

(Opp. 6) only because happenstance has left it the “legal last-manstanding” in Michelin’s path. Kimble, 135 S. Ct. at 2411.

Under Respondent’s view, Import-Export Clause jurisprudence

is governed by a cleavage: one rule “[w]hen a case presents facts

like those in Richfield Oil,” and “another [Michelin] for all other

taxes.” Opp. 6. As a descriptive matter decisional law does not

adhere to this dichotomy.

As a normative justification,

Respondent sees virtue in Richfield Oil’s supposed “bright-line

rule” (Opp. i, 8), but in reality its “test has proven to be devilishly

difficult for lower courts to administer.” Tax Law Professors’ Br.

13. This difficulty is evident from statements by numerous courts

trying to apply it (and the conflicting results they have reached),

including the two courts below in this case—which reached

opposite conclusions while agreeing about the confused state of

Import-Export Clause jurisprudence. The tax law professor amici

are correct: “this Court should relegate Richfield Oil to the

dustbin.” Id. at 3.

III.

The Questions Presented Are Important

Respondent opposes the Petition on the ground the

issues are not “important enough” to warrant review.

Opp. 20 (emphasis added). Respondent is mistaken.

If there is disagreement or uncertainty about the

meaning of a constitutional provision, this Court has

the ultimate responsibility to settle those issues. See

Marbury v. Madison, 5 U.S. (1 Cranch) 137, 177 (1803);

Sup. Ct. R. 10. This is no less true of the ImportExport Clause than other constitutional provisions.

Respondent nevertheless claims the Petition

should be denied because there is not enough money at

stake. Opp. 2, 20-22. This assertion—made without

supporting legal authority—is belied by the parties’

actual conduct. Respondent initiated legal proceedings

to contest its tax bill, and then pressed on with

litigation when it lost before the trial court.

Meanwhile, Petitioner has dedicated its resources to

seeking review by this Court after an adverse decision

by the Supreme Court of Virginia.

Respondent is also wrong in suggesting that only

duty-free commerce is at stake. While the goods at

issue here were clearly “in transit” when conveyed to

customers upon departure from the United States,

Loudoun’s BPOL tax was assessed on an annual basis

and calculated based on the prior year’s gross sales.

The tax “does not target imports or exports; it applies

across the board to all sales” (App. 4a), and “is not on a

particular transaction, but only uses sales as the

measure of business activity upon which to base its

tax.” Craig D. Bell & Emily J.S. Winbigler, Taxation,

52 U. Rich. L. Rev. 79, 106 (2017).

If Richfield Oil requires striking down a tax with

these characteristics—as Respondent contends, and

the Supreme Court of Virginia held—then it is difficult

to see how a state or local government may lawfully

impose any tax for which the calculation depends in

part on sales of actually-exported goods (goods which

were necessarily “in transit” at the point of export).

The tax law professor amici recognize the Petition

presents issues with implications well-beyond the duty

free context. See Tax Law Professors’ Br. 1, 14-15.9

But even under the implausible assumption that

the legal issues here impact only duty-free commerce,

nearly 100 communities in the United States host duty

free stores, with estimated aggregate annual sales of

$4 billion. See Petition 26-27. Respondent does not

deny its counsel has asserted the decision below “will

affect the entire U.S. duty-free industry.” See Petition

27.

Respondent also ignores the federalism concerns

implicated here.

See Petition 32-33; Tax Law

Professors’ Br. 18 (“Richfield Oil needlessly constrains

the fiscal autonomy of state and local government”

without “vindicat[ing] the clause’s core objectives”); id.

Respondent’s claim that “duty free retailers are a unique

business model” is irrelevant. Opp. 24-27. There is no special

branch of Import-Export Clause law for duty free retailers. Nor

are courts’ holdings about the Clause confined to that industry.

at 1 (“The Court’s resolution of this case will determine

whether state and local governments can apply their

sales and personal property taxes to exports in a

balanced and nondiscriminatory fashion.”); IMLA Br.

10 (the decision below “improperly interferes with

states and local governments’ taxation power as well as

their sovereignty”).10

And Respondent ignores the plea for this Court’s

guidance from local government attorneys responsible

10 In an effort to stave off this Court’s review, Respondent says

“[t]here are numerous constitutional ways to tax export

businesses.” Opp. 22. But Respondents’ speculative musings

about alternatives “distant enough from the value of the export

goods that [they] likely would not be a direct tax on goods moving

in export transit” (Opp. 23) (emphasis added) only highlight the

need for this Court’s guidance. This claim also appears to

contradict Respondent’s core merits argument: “taxes that fall

directly on the value of goods moving in export transit violate the

Import-Export Clause.” Opp. 3. After all, the BPOL tax the

Supreme Court of Virginia invalidated on the basis of Richfield

Oil “does not target imports or exports; it applies across the board

to all sales.” App. 4a. As Respondent’s counsel put it, “the BPOL

tax is not on a particular transaction, but only uses sales as the

measure of business activity upon which to base its tax.” Bell &

Winbigler, Taxation, 52 U. Rich. L. Rev. at 106. Yet under the

logic of the decision below almost any tax for which the calculation

depends in part on sales of actually-exported goods would violate

the Import-Export Clause. Moreover, Respondent fails to address

the point that state and local governments face significant

administrative burdens if constitutionally proscribed from

calculating non-discriminatory taxes based on gross receipts. See

Petition 33; see also IMLA Br. 12-14.

for providing advice about the Import-Export Clause.

See IMLA Br. 2-3.

IV.

This Case Is an Ideal Vehicle For Resolving

the Questions Presented

This Court has repeatedly deferred “the question of

the applicability of the Michelin approach when a State

directly taxes imports or exports in transit,” preferring

to wait “until a case with pertinent facts is presented.”

Washington Stevedoring, 435 U.S. at 757 n.23.

The Petition presents the opportunity to answer

this question, and resolve disagreement among lower

courts about the role (if any) Richfield Oil should play

in Import-Export Clause jurisprudence. See Tax Law

Professors’ Br. 9 (Richfield Oil “remains on the books

only because the Court has not yet heard a case in

which its status was directly at stake. The petition

here presents such a case.”).

Respondent does not dispute the decision below

turned entirely on the Questions Presented.11

Respondent also does not dispute there are

relatively few appropriate vehicles for this Court to

review and resolve these questions—itself making the

point that “[d]uring the forty years since Michelin and

Washington Stevedoring, this Court has hardly had

11 The decision below did not turn in any respect on the fact that

Respondent is a duty free retailer. The regulations governing

duty-free commerce cited by Respondent (Opp. 3-4) are irrelevant

to the Petition.

occasion to revisit the issue.” Opp. 12.12 The Court

therefore should seize the opportunity, and grant the

Petition.

CONCLUSION

The Petition for a Writ of Certiorari should be

granted.

Respectfully submitted,