Petition — American Honda Motor Co. v. City of Farmers Branch
Supreme Court brief1976
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Supreme Court, U.
JUL 29 1976
In the
Supreme Court of the
United States
OCTOBER TERM, 1976
No. . 76 i of ad
AMERICAN Honpa Motor Company, Inc.
Petitioner,
v.
Crry oF Farmers BRANCH, TEXAS AND THE Tax AssEssor-
CoLLector OF THE City OF FARMERS BRANCH, TEXAS,
Respondents.
PETITION FOR WRIT OF CERTIORARI
Marvin S. SLOMAN
PETER TIERNEY,
Counsel for Petitioner.
Of Counsel:
CARRINGTON, COLEMAN, SLOMAN, JOHNSON & BLUMENTHAL
3000 One Main Place,
Dallas, Texas.
Counsel of Record:
Marvin S. SLomMaAN,
3000 One Main Place,
Dallas, Texas.
INDEX
Page
I INI isssosisseatitielnidleicinicnodinnpeminiesiiniiateinalinie 1
BN CRE Oe tS AR LACT IEEE Oe OE RS
Se I htt caibatesticbinincciecsintiitintisbicitcsilintescbens 2
Constitutional Provision Involved ..........................:..0-0++- 2
a Oe I a sant hale eens iacdissctennin 3
Reasons for Granting the Writ .........................:ccsscceseeeeeeeee 5
OE -cstccciccnhdedeiicrcetngsittstheblenaabitlithidisasditiiidebitnniisis 10
Appendix: |
1. Opinion of the Texas Supreme Court. ................. A-l
2. Judgment of the Texas Supreme Court. ..................... A-3
3. Opinion of the Texas Supreme Court in related
case, City of Farmers Branch v. Matsushita Electric
ee AES: Ries Lies Fak EL LR TS a ee a A-5
4. Opinion of the Texas Court of Civil Appeals for
the Twelfth Supreme Judicial District ...................... A-10
5. Respondent American Honda’s Reply to Petition-
ers’ Application for Rehearing Before the Texas
Supreme Court (filed jointly with Respondent Mat-
sushita Electric Corp. in No. B-5551) —............. ae A-25
6. Respondent American Honda’s Reply to Petition-
ers’ Brief on Rehearing Before the Texas Supreme
Court (filed jointly with Respondent Matsushita
Electric Corp. in No. B-5551) —.....0.00000..00....... Sandia saOeD
ii
CITATIONS
Cases
Page
Bergstrom v. Kissinger, 387 F. Supp. 794 (D.D.C. 1974).. 6
Brown v. United States, 508 F.2d 618 (3d Cir. 1974),
cert. denied, 422 U.S. 1027 (1975) ...... , 6
Bush v. W ood Brothers Transfer, Inc., 398 F. Supp. 1030
eee 6
Chevron Oil Co. v. Huson, 404 U.S. 97 (1971)........ throughout
Dep’t of Revenue v. James B. Beam Distilling Co.
ee ee ee GD scherenneintinsintntahnttiinintiocnesiantnincs 3,7
Hampton Nat'l Bank v. Desjardins, 114 N.H. 68,
314 A.2d 654 (1974) ............... 5
Hooven & Allison Co. v. Evatt, 324 U.S. 652 (1945)........ 3
In Re Negron, 33 Ill. App. 3d 112, 337 N.E.2d
Se IED sesisiccnsuilihienniiiesiinittbbiccngshabdatauaatas 5
Jimenez v. Weinberger, 523 F.2d 689 (7th Cir. 1975) ies 6
Lemon v. Kurtzman, 411 U.S. 192 (1973) ...............--.0-00+« 7
Linkletter v. Walker, 381 U.S. 618 (1965) .....................- 5, 6
Low v. Austin, 80 U.S. (13 Wall.) 29 (1872)......... .2, 3, 4, 7,9
Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976) ..throughout
People v. Livingston, 64 Mich. App. 247,
236 N.W.2d 63 (1975) , a.
Republic Steel Corp. v. Maddox, 379 U.S. 650 (1965)...... 6
Richfield Oil Corp. v. State Board of Equalization,
ee 3
Simpson v. Union Oil Co., 396 U.S. 13 (1969) .............. 7
United States v. Estate of Donnelly,
397 U.S. 286 (1970) 7
United States v. Peltier, 422 U.S. 531 (1975) 7
Wiggins v. State, 275 Md. 689, 344 A.2d 80 (1975)........ 6
Constitutional Provision
2 eS bY SAR eEe ee nemunS 2
Statutes
Be ie TUN cedecetentnisigtiiciestbicirrnnsncnndionness iteidaaial 2
Tex. Rev. Crv. Stat. Ann. art. 1165 (1963) .................... 3
, TN Re ee eee Oe 4
Ga. Cope ANN. §92-7701 (1974) .2.0.......-ccececcecceseeeeeeeeeneeee 9
Law Review Articles
Friedland, Prospective and Retrospective Judicial
Lawmaking, 24 U. Toronto L. J. 170 (1974) .............. 10
Hasler, Retroactivity Rethought: The Hidden Costs,
ED RES ERAT ARLES ee 10
Rogers, Perspectives on Prospective Overruling,
36 U. Mo. Kansas Crry L. Rev. 35 (1968) .................. 10
Miscellanevus
B. Carpozo, THE NATURE OF THE JuDICIAL PROCESS
GRR Pee Seale ea ere LC eae a 10
In the
Supreme Court of the
United States
OCTOBER TERM, 1976
ee
AMERICAN Honpa Motor Company, INc.
Petitioner,
v.
City or Farmers Brancu, TEXAS AND THE Tax AssEssor-
CoL.Lector or Tue City or Farmers Brancu, TEXxas,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE TEXAS SUPREME COURT
Petitioner American Honda Motor Company, Inc., a Cali-
fornia corporation, respectfully prays that a writ of cer-
tiorari issue to review the judgment and opinion of the Texas
Supreme Court entered in this proceeding on May 5, 1976.
OPINIONS BELOW
The opinions of the Texas Supreme Court, in this and a com-
panion case, printed in the Appendix, infra, p. A-1 and A-5
respectively, are not yet reported. The opinion of the Texas
Court of Civil Appeals for the Twelfth Supreme Judicial District
(the Texas intermediate appellate court), printed in the Appen-
dix, infra, p. A-10, is reported in 527 S.W.2d 776.
JURISDICTION
The judgment of the Texas Supreme Court, printed in the
Appendix, infra, p. A-3, was entered on May 5, 1976, and this
petition for certiorari was filed within 90 days of that date.
The jurisdiction of this Court is invoked under 28 U.S.C.
§1257(3).
QUESTIONS PRESENTED
(1) Whether the standards announced and applied by this
Court in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) must
be applied by state courts in determining in civil cases whether
to attach only prospective effect to decisions involving substan-
tial reinterpretations or new interpretations of federal law.
(2) Whether the Chevron standards require that the inter-
pretation of the Import-f xport Clause by this Court in Michelin
Tire Corp. v. Wages, 423 U.S. 276 (1976) be applied pros-
pectively only.
CONSTITUTIONAL PROVISION INVOLVED
The Michelin case (and Low v. Austin, 80 U.S. (13 Wall.)
29 (1872), which it overruled) involved the construction of
the part of the Import-Export Clause of U. S. Const. art. I,
§ 10, cl. 2, which provides:
No State shall, without the Consent of the Congress, lay
any Imposts or Duties on Imports or Exports, except what
may be absolutely necessary for executing its Inspection
3
STATEMENT OF THE CASE
The City of Farmer: Branch and its Tax Assessor-Collector
(herein collectively “Farmers Branch”), pursuant to Tex. Rev.
Cry. Strat. Ann. art. 1165 (1963), for the year 1972 imposed
a non-discriminatory ad valorem personal property tax on
American Honda Motor Company, Inc.’s (“American Honda” )
imported goods contained in “original packages” in its Farmers
Branch warehouse. American Honda duly and regularly
claimed, by timely and appropriate procedures, that the goods
in question were exempt from taxation by virtue of the pro-
visions of the Import-Export Clause.
American Honda then filed this action in the 134th Judicial
District Court of Dallas County, Texas, asking that court to’
declare that the imposition of such taxes violated the Import-
Export Clause and to enjoin their collection. Upon stipulated
facts the trial court entered “Findings of Fact and Conclu-
sions of Law” concluding expressly that certain of the goods
in question at the time of taxation were “imports” and that a
non-discriminatory ad valorem property tax on such goods
was in violation of the Import-Export Clause.
The Texas Court of Civil Appeals affirmed concluding that:
The rational of Low and Hooven™ that all taxes,
even non-discriminatory ad valorem taxes, are unconstitu-
tional if imposed upon merchandise which retains its status
as imports has been reafhrmed in Richfield Oil Corp. v.
State Board of Equalization, 329 U.S. 69, 76, 67 S.Ct. 156,
91 L.Ed. 80 (1946) and Department of Revenue v. James
Beam Distilling Company [377 U.S. 341, 343 (1964) ].
527 S.W.2d at 781-82. Farmers Branch then applied for a
writ of error to the Texas Supreme Court. The writ was re-
'Hooven & Allison Co. v. Evatt, 324 U.S. 652 (1945).
4
fused on January 14, 1976,’ the same day that this Court
announced its decision in Michelin v. Wages, expressly over-
ruling Low v. Austin. Low had held that non-discriminatory ad
valorem taxes on im orts were prohibited by the Import-
Export Clause. Farmers Branch, on the strength of Michelin,
applied for rehearing in the Texas Supreme Court. Since
Michelin had just been decided, American Honda, opposing
the application for rehearing, raised for the first time the issue
whether Michelin should be applied prospectively only. Ameri-
can Honda argued that the applicable standards of Chevron
Oil Co. v. Huson, 404 U.S. 97 (1971), required that Michelin
be epplied prospectively only and, except to that extent the
judgment in this case should not be d ‘sturbed.*
The Texas Supreme Court nonetueless granted the applica-
tion of Farmers Branch for writ of error on motion for rehear-
ing and scheduled the case for oral argument. The sole question
on which the writ was granted was whether the Farmers Branch
non-discriminatory personal property ad valorem tax on Ameri-
can Honda’s imports was in viclation of the Import-Export
Clause. American Honda, arguing for affirmance of the prior
decisions, at oral argument and again in its post-argument
brief urged the prospective application of Michelin. The Texas
Supreme Court rejected American Honda’s argument on pros-
*The Texas Supreme Court refused the writ “no reversible error”
meaning that though the Texas Court is not satisfied that the
lower court stated the law correctly in all respects, the application pre-
sents no error which requires reversal. Tex. R. Crv. P. 483.
*See “Reply to Petitioners’ Application for ing” filed by Ameri-
can Honda with the Texas Supreme Court and in the i
infra, p. A-25.
‘See “Respondents’ Reply to Petitioners’ Brief” filed by American
ee ee Se eee Se
infra, p. A-33.
5
pectivity and, relying on Michelin, reversed the lower court
opinion and held that American Honda was “subject to the
non-discriminatory ad valorem taxes assessed by Farmers
Branch.” Appendix, infra, p. A-2.
REASONS FOR GRANTING THE WRIT
1. Tue STanparps PreviousLy ANNOUNCED BY THIS COURT
CONCERNING THE ReEtTROAcTIviTy OF Decisions INTER-
PRETING FEDERAL Law Must, as A MATTER OF FEDERAL
Law, Be Fo_towep sy State Courts.
Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), clearly estab-
lished in a civil context three factors which, if present, result
in prospective application of this Court’s decisions, namely:
(1) that clear past precedent upon which litigants may
have relied was overruled or that the decision was one of
first impression whose resolution was not clearly fore-
shadowed;
(2) that the purpose of the overruling case can be
effected without retroactive application;
(3) that retroactive application would produce sub-
stantial inequities.
The Texas Supreme Court did not apply those factors in this
instance. For that matter, for the five years since Chevron, few
state courts have treated those standards as necessary tests
for determining the nonretroactivity of civil federal deci-
sions. Compare Hampton Nat'l Bank v. Desjardins, 114 N.H.
68, 314 A.2d 654 (1974) with In Re Negron, 33 Ill. App. 3d
112, 337 N.E.2d 375 (1975). In the criminal area, on the
other hand, state courts have clearly and repeatedly recog-
nized that the standards announced in Linkletter v. Walker,
381 U.S. 618 (1965), for determining nonretroactivity of
constitutional criminal decisions are binding. See, e.g., People
v. Livingston, 64 Mich. App. 247, 236 N.W.2d 63 (1975);
6
Wiggins v. State, 275 Md. 689, 344 A.2d 80 (1975). Further-
more, Chevron, like Linkletter, has properly been regarded by
many federal courts as a decision expressing mandatory
standards to be applied in determining the prospectivity of
civil decisions involving a change from previous clear judicial
interpretations of federal law or first impression interpreta-
tions of federal law. See, e.g., Jimenez v. Weinberger, 523
F.2d 689, 702-03 (7th Cir. 1975); Bush v. Wood Brothers
Transfer, Inc., 398 F. Supp. 1030 (S.D.Tex. 1975) ; Bergstrom
v. Kissinger, 387 F. Supp. 794 (D.D.C. 1974). See also Brown
v. United States, 508 F.2d 618, 622-23 (3d Cir. 1974), cert.
denied, 422 U.S. 1027 (1975).
As it has in criminal cases this Court should pursue its
supervisory function in the administration of justice by ex-
pressly requiring that state courts apply the Chevron pros-
pectivity standards to all civil cases involving reversals of
well-established federal principles. Cf. Linkletter v. Walker,
381 U.S. 618 (1965). When these principles are changed by
any court there must be uniform standards by which all courts
determine the retroectivity of such decisions. This is particu-
larly true when, as in this case, the question concerns the
retroactivity of a decision of this Court which reverses one of
the Court’s clear and longstanding constitutional monuments. The
lack of such uniformity could result in chaos, raising the spectre
of fifty state courts applying different standards and reaching
differing results on the question of the retroactivity of this
Court’s important constitutional decision in Michelin.
The proper scope of Chevron is a question of federal law
which should be addressed by the Court in a review by certiorari.
See Republic Steel Corp. v. Maddox, 379 U.S. 650 (1965).
On several occasions this Court has granted a writ of certiorari
ee
7
to consider the prospectivity of an earlier announced rule. See
United States v. Peltier, 422 U.S. 531 (1975); United States
v. Estate of Donnelly, 397 U.S. 286 (1970); Simpson v. Union
Oil Co., 396 U.S. 13 (1969).
2. THe Decision BeELow ConFLicts wiTH DEcIsIONS OF
THIs CourRT.
The decision of the Texas Supreme Court flies directly in
the face of the three standards established by this Court ia
Chevron.
Low v. Austin’s absolute prohibition of ad valorem taxes on
imported goods was the settled law for more than a century,
having been cited with approval by this Court as recently as
1964. Dep’t of Revenue v. James B. Beam Distilling Co., 377 .
U.S. 341, 343 (1964). Certainly, the abrupt outright reversal
of Low in Michelin, without brief or argument, estab-
lished a new principle of law by overruling clear past prece-
dent. Until the reversal in Michelin, American Honda and other
American importers had a right to rely upon Low in ordering
their business affairs with respect to locating warehouses, pric-
ing goods, maintaining inventory levels, etc. In fact, American
Honda, relying on established law, instituted this suit for
declaratory and injunctive relief against the taxing authority
and was vindicated at all levels of the Texas court system until
Michelin triggered an abrupt reversal upon rehearing in the
Texas Supreme Court. Thus, the first Chevron factor mandating
prospective application is satisfied.
The Texas Supreme Court viewed American Honda’s re-
liance on Low v. Austin as unjustified simply because Farmers
Branch had levied its ad valorem tax before Low was reversed.
In Lemon v. Kurtzman, 411 U.S. 192 (1973), this Court rejected
similar arguments and applied its holding prospectively even
though the reimbursement scheme at issue was constitutionally
suspect from its inception and reimbursement for the year in
question had not occurred at the time that the questioned statute
was declared unconstitutional by this Court. The reliance dis-
cussed by this Court in Chevron concerns reliance on judicial
precedent and the development of pertinent c*se law. Reliance
on case precedent does not become unjustified simply because
a governmental official takes action in contravention of well-
settled law that is later unexpectedly changed.
The second Chevron factor has also been satisfied, since the
purpose of the Michelin decision can be effected without retro-
active application to the present case. The primary purpose of
Michelin is to allow local government agencies to impose ad
valorem taxes and to thereby require ultimate consumers to
pay for the benefits and services accorded the goods. As this
Court noted in Michelin:
ultimate consumers should pay for such services as police
and fire protection accorded the goods just as much as
they should pay transportation costs associated with those
goods.
423 U.S. at ..... 96 S.Ct. at 542 (footnote omitted). In this
case, however, the goods in question have long since been sold
to the consuming public. A retroactive application, therefore,
would reap a windfall in added revenues to taxing authorities
without a corresponding increase, as Michelin intended, in the
expenses of local services for past years nor a proper alloca-
tion of such burdens to the ultimate consumers.
Finally, since retroactive application of Michelin would pro-
duce substantial inequities, the third factor of Chevron is
satisfied. If American Honda and similarly situated American
importers are required to absorb all assessments of back taxes
9
(including presumably penalties and interest) within the ap-
plicable periods of limitation without any realistic means to
pass on the increased costs to the ultimate consumers who
benefited most from the goods, then in effect these importers
are penalized because they relied upon precedents of this Court
which had been valid for 104 years prior to the date of the
Michelin decision.
3. THE QuEsTIONS PRESENTED ARE OF SUBSTANTIAL Eco-
NOMIC IMPORTANCE TO AMERICAN TRADE AND COMMERCE
AND TO THE ADMINISTRATION OF JUSTICE.
The potential tax liability of American Honda and other
American importers in the event that Michelin is applied retro-
actively is potentially enormous although presently incapable
of definite determination. We have attempted ‘o secure data
as to the amount of tax dollars involved nation-wide if Michelin
is applied retroactively, but without success because of the
existence of a multitude of taxing entities and the resulting
absence of any over-all governmental authority or other source
of over-all information. This potential back tax liability is
limited only by state statutes of limitations which can reach
back as far as seven years. See Ga. Cope Ann. §92-7701 (1974).
There is pressing need for a decision from this Court which
will insure, beyond the four corners of this case, that the public
in general, and members of the business community in par-
ticular, may make valid judgments as to their conduct based
upon the existence of the law as stated by the highest Court
of this nation. Under the very facts pertinent here, business-
men have elected to engage in business knowing that under Low
v. Austin the purchase of goods from abroad subject only to
usual customs duties justified entry into the market. It is not
10
only patently unfair but also damaging to principles of con-
stitutional finality to make such business decisions retroactively
invalid because this Court later changed the law on so well-
settled a matter. The failure of this Court to clarify the
retroactivity issue in the civil context could result in great
confusion and inconsistency.’ Faith in Supreme Court mandates
must diminish if the standards for their present application
are not clearly delineated. See B. Carpozo, THe NaTuRE OF
THE JupiciaL Process 34 (1921). Members of the public
must know that they may confidently and justifiably make deci-
sions based upon the law announced by this Court. If such law
is later changed, future conduct must change, to be sure. But
that conduct which occurred in reliance upon existing prece-
dent should be affected only under circumstances which are
justified under the principles established in the Chevron case.
CONCLUSION
For these reasons, a writ of certiorari should issue to review
the judgment and opinion of the Texas Supreme Court.
Respectfully submitted,
Marvin S. SLOMAN
PETER TIERNEY
Attorneys for Petitioner
5Some commentators have focused on the confusion the
retroactivity issue. See, e.g., Rogers, Perspectives on Prospective .
ruling, 36 U. Mo. Kansas City L. Rev. 35 (1968). See also Hasler,
Retroactivity Rethought: The Hidden Costs, 24 Me. L. Rev. 1, 23
(1972); Friedland, Prospective and Retrospective Judicial Lawmaking,
24 U. Toronto L.J. 170 (1974). ~
11
CERTIFICATE OF SERVICE
I, Marvin S. Sloman, counsel for American Honda Motor
Company, Inc., petitioner herein, and a iwember of the Rar
of the Supreme Court of the United States, hereby certify that
on July 29, 1976, I served three copies of the foregoing
petition for writ of certiorari on the respondents herein by
hand-delivering the same to Ronald M. Mankoi?, Esq., counsel
of record for the respondents, at his office at 3900 First
National Bank Building, Dallas, Texas. I further certify that
all parties required to be served have been served.
Marvin S. SLOMAN
3000 One Main Place
Dallas, Texas 75250
Counsel for Petitioner
A-l
APPENDIX
1. Opinion of the Texas Supreme Court.
In the
Texas Supreme Court
No. B-5550
City or Farmers Brancu, TEXas,
Petitioners,
v.
AMERICAN Honpa Motor Company, INc.,
Respondents.
Appeal from the Texas Court of Civil Appeals
for the Twelfth Supreme Judicial District
May 5, 1976
This is a companion case to our Cause Number B-5551, City
of Farmers Branch v. Matsushita Electric Corp. of America.
decided this day. S.W.2d
submitted and argued together in this court.
The Honda warehouse in Farmers Branch stores parts and
accessories for Honda automobiles, motorcycles, and outboard
motors. The parts and accessories were imported from Japan
The cases were
A-2
in sealed sea vans. As in Matsushita, Farmers Branch assessed
ad valorem personal property taxes on these items for the year
1972. Honda declined to pay the tax and brought this suit for
a declaratory judgment that the merchandise was tax-exempt
under the import-export clause, Section 10 of Article I of the
United States Constitution.
The questions are the same as those presented in Matsushita,
and the disposition of those questions in Matsushita control
the disposition of this cause.
The judgments of the trial court and the Court of Civil
Appeals are reversed; the injunction entered by the trial court
against the assessment and collection of the taxes is dissolved;
and judgment is here rendered that Honda is subject to the
non-discriminatory ad valorem taxes assessed by Farmers
Branch.
/s/ Joe R. GreENHILL
Chief Justice
Opinion delivered:
May 5, 1976
A-3
2. Judgment of the Texas Supreme Court.
JUDGMENT
Extract from the Minutes of May 5, 1976
No. B-5550
City or Farmers Brancnu, Texas,
v.
American Honpa Motor Company, INc.
This cause came on to be heard on writ of error to the Court
of Civil Appeals for the Twelfth Supreme Judicial District
and the original transcript and transcript showing the pro-
ceedings in the Court of Civil Appeals having been duly con-
sidered, because it is the opinion of the Court that there was
error in the judgment of the District Court and Court of Civil
Appeals, it is, therefore, adjudged, ordered and decreed that
said judgments be, and hereby are reversed and set aside.
And this Court now proceeding to render judgment as should
have been rendered below, it is considered, adjudged, ordered
and decreed that the judgment be, and hereby is, rendered
that respondent, American Honda Motor Company, Inc. be,
and hereby is, subject to the non-discriminatory ad valorem
taxes assessed by the City of Farmers Branch and accordingly
the injunction entered by the trial court against the assessment
and collection of taxes be, and hereby is, dissolved.
It is further ordered that respondent, American Honda
Motor Company, Inc., pay all costs expended and incurred
in this Court, Court of Civil Appeals and District Court; that
A4
petitioners, City of Farmers Branch et al., have and recover
of and from respondent, American Honda Motor Company,
Inc., the costs by them expended and incurred in said Courts,
and that this decision be certified to the District Court of
Dallas County, Texas, for observance.
(Opinion of the Court by Chief Justice Greenhill.)
A-S
3. Opinion of the Texas Supreme Court in related cose,
City of Farmers Branch v. Matsushita Electric Corp.
In the
Texas Supreme Court
No. B-5551
City or Farmers Brancu, TExas,
Petitioners,
v.
Matsusuita EvLectric Corp. oF AMERICA,
Respondents.
Appeal from the Texas Court of Civil Appeals
for the Twelfth Supreme Judicial District
May 5, 1976
This case involves an interpretation of Section 10 of Article
I of the Constitution of the United States, which provides in
part that,
“No State shall, without the Consent of Congress, lay any
Imposts or Duties on Imports or Exports...”
The City of Fer.ners Branch assessed a nondiscriminatory
ad valorem tax on merchandise stored in warehouses within
A-6
its limits. In 1972, it assessed such a tax on the merchandise
here in question. It had been imported from Japan and Puerto
Rico and was the property of Matsushita Electrical Corpora-
tion of America, a wholly owned subsidiary of a Japanese
corporation of a similar name.
The property had come to its destination in Farmers Branch,
but was still in its original corrugated cartons. Matsushita
declined to pay the tax. In this declaratory judgment suit, its
contention is that the tax on its property is unconstitutional
under the above provision of the Constitution of the United
States.
Because of the earlier decision of the Supreme Court of the
United States which this court is bound to respect, we at first
upheld the position of Matsushita. The Court of Civil Appeals
had held the property was not subject to taxation by the city,
and we upheld that decision by refusing a writ of error with
a notation, “no reversible error.” 527 S.W.2d 768. Upon the
same day upon which our court acted, January 14, 1976, the
United States Supreme Court announced its decision in Michelin
Tire Corporation v. Wages, US. 96 S.Ct. 535,
46 L.Ed.2d 495. We thereafter granted a writ of error upon
rehearing. It is our opinion that under Michelin, the tax of the
City of Farmers Branch is not an unconstitutional tax. In the
words of the Michelin decision, an “. . . assessment of a non-
discriminatory ad valorem property tax . . . is not within the
constitutional prohibition against laying any imposts or duties
upon imports...”
The property which is the subject of the tax consists of
Panasonic units and parts manufactured by or for Matsushita
in Japan and Puerto Rico. The items were packed in sealed
corrugated cartons and were shipped to the United States in
A-7
sea vans. After the sea vans reached their port of entry, they
were shipped by rail to Fort Worth. The seals on the sea vans
were broken at Matsushita’s warehouse in Farmers Branch,
and the individual cartons were there unloaded and stored.
No manufacturing, repairing or servicing is carried on at the
Matsushita warehouse. The warehouse is used only to store
the merchandise until needed by retail dealers. The disputed
items were all in their unopened corrugated cartons.
The “original package doctrine” had its origin in Brown v.
State of Maryland, 25 U.S. 262 (1827), in which Chief Justice
Marshall wrote:
“When the importer has so acted upon the thing imported
that it has become incorporated and mixed up with the mass
of property in the country, it has, perhaps, lost its distinc-
tive characteristic as an import, and has become subject to
the taxing power of the state; but while remaining the prop-
erty of the importer, in his warehouse, in the original form
or package in which it was imported, a tax upon it is too
plainly a duty on imports to escape the prohibition in the
constitution.” [Emphasis supplied. }
Brown v. Maryland was enlarged upon in 1871 by Low v.
Austin, 80 U.S. 29, which is characterized by the Supreme
Court in Michelin as “the leading decision of the court that
the States are prohibited by the Import-Export clause from
imposing a nondiscriminatory ad valorem property tax on
imported goods until they lose their character as imports . . .”
In Michelin, however, the Supreme Court, upon its own
initiative, carefully reviewed the Brown and the Low v. Austin
decisions; and it concluded that, “Low v. Austin was wrongly
decided. That decision therefore must be, and is overruled.”
We understand the holding of Michelin to be that where
the tax is not upon the importation or movement of imported
goods, and where the goods are no longer in transit, the goods
A8
are subject to the imposition of nondiscriminatory ad valorem
property taxation by the states and their subdivisions.
We agree with the Supreme Court that there is no reason
why an importer should not bear his share of the cost of ser-
vices such as police and fire protection along with his com-
petitors who handle only domestic goods. As the Supreme
Court said in Michelin, the Import-Export clause “ . . . cannot
be read to accord imported goods preferential treatment that
permits escape from uniform taxes imposed without regard to
foreign origin for services which the State supplies.”
The ad valorem tax imposed by Farmers Branch is clearly
nondiscriminatory and applicable to all such stored goods
whether imported or not. The property of Matsushita is there-
fore subject to the tax.
In the alternative, Matsushita contends that because the
Supreme Court changed the law in Michelin in 1976, that it
should not be liable for taxes assessed for the year 1972 and
beyond; i.e., that the Michelin decision should not be given
retroactive effect, and that it should only be liable for taxes
assessed after January 14, 1976, the date of the Michelin
decision. We disagree for the following reasons.
First, the taxes assessed by Gwinnett County, Georgia, in
the Michelin case were for the years 1972 and 1973, the same
periods involved here. The Supreme Court upheld the judg-
ment of the Supreme Court of Georgia that the taxes were valid,
and at least by inference, that they were collectible. Michelin
filed a motion for rehearing in the Supreme Court, and we
were furnished with a copy of it. In the motion, Michelin
limited its argument to the retroactive effect of the Michelin
decision, and it urged the Supreme Court to declare its opinion
to be prospective only because it had changed the law in effect
A-9
for 100 years. The Supreme Court overruled Michelin’s motion.
Second, Matsushita contends that it is inequitable to apply
the Michelin decision and our decision as applying to taxes
assessed in 1972 because under Low v. Austin and other
decisions, Matsushita and others then considered their goods
exempt from taxation. At the same time, however, Matsushita
was plainly informed and put upon notice by the City of
Farmers Branch that the city considered that the goods were
taxable, and that Low v. Austin and similar cases were wrongly
decided and should be overruled. There is no bagis for a
contention that Matsushita relied on any previous \ction or
non-action of the city because the city assessed the Matsushita
property for taxes at its first opportunity.
And thirdly, the reasons for the collectibility of the non-
discriminatory tax as to Matsushita for the years in question
are prominent in the Michelin decision. Matsushita’s property
during such period was afforded the same public services,
including police and fire protection, as were afforded to their
competitors and to others in the community; and there is no
great inequity in their having to bear their same fair and
equal share cf such expense; i.e., the nondiscriminatory taxes
assessed during such period.
The judgments of the trial court and the Court of Civil
Appeals are reversed. The injunction issued by the trial court
enjoining the assessment and collection of the taxes involved
is dissolved; and judgment is here rendered that the merchan-
dise in question was and is subject to the nondiscriminatory
ad valorem personal property taxes.
/s/ Joe R. GREENHILL
Opinion delivered: Chief Justice
May 5, 1976
A-10
4. Opinion of the Texas Court of Civil Appeals for the
Twelfth Supreme Judicial District.
In the
Texas Court of Civil Appeals
FOR THE
TWELFTH SUPREME JUDICIAL DISTRICT
No. 839
City oF FARMERS BRANCH, TEXAS,
A ppeé.unts,
v.
AMERICAN Honpa Motor Company, INc.,
Appellees.
Appeal from the 134th Judicial District Court
July 31, 1975
Plaintiff-appellee, American Honda Motor Company, Inc.
(American Honda) brought suit against appellants City of
Farmers Branch, Texas, and T. E. Waldrip, the Tax Assessor-
Collector of Farmers Branch, seeking a declaratory judgment
that certain inventory on hand at American Honda’s Farmers
Branch warehouse on January 1, 1972, is exempt from taxation
by virtue of the provisions of Article 1, Section 10, Clause 2
A-11
(the Import-Export Clause), of the United States Constitution.’
Further, American Honda sought a permanent injunction, en-
joining Farmers Branch and Waldrip from attempting to
impose, collect or enforce any taxes upon or with respect to
the disputed inventory for the year of 1972. In a non-jury
trial, the court held *;at imported merchandise in American
Honda’s surplus storage brought to Farmers Branch directly
from Japan was exempt from taxation under the Import-
Export clause, but that otherwise exempt imports in “surplus
storage” in American Honda’s Farmers Branch warehouse
brought from “surplus storage” in u.her warehouses of Amer-
ican Honda in the continental United States were not exempt.
The parties filed stipulated facts, and pursuant to appellants’
request, the trial court filed finding of fact and conclusions
of law.
We have this day decided an appeal in City of Farmers
Branch et al vs. Matsushita Electric Corporation of America,
No. 838, which appeal raised some of the same questions as
are presented here.
This cause of action arose by virtue of appellants’ imposi-
tion of an ad valorem tax on personal property located within
Farmers Branch, under the power vested in it by Article 1165
of the Texas Revised Civil Statutes.” On January 1, 1972,
American Honda rendered for taxation personal property
valued at $160,310.85 which was situated in its warehouse in
Farmers Branch. American Honda also had additional property
valued at $293,050.15 in its warehouse which it did not render
for taxation, claiming that the property was exempt under
“No State shall, without the Consent of the Congress, lay any Imposts
or Duties on Imports or Exports, except what may be absolutely neces-
sary for executing its Inspection Laws, * * *”
A-12
Article 1, Section 10, Clause 2, of the United States Constitu-
tion. It is undisputed that American Honda claimed this
exemption and pursued all administrative remedies, but was
denied the claimed exemption for the inventory in question.
The disputed inventory consisted of parts and accessories
for motorcycles, automobiles or outboard motors which were
manufactured by Honda, Ltd., in Japan and distributed domes-
tically to American Honda’s warehouses situated throughout
the United States. The location of American Honda’s ware-
houses is determined in substantial part by the geographical
pattern of retail demand for appellee’s units and the parts
needed for repair of consumer-owned units. All goods shipped
by Honda, Ltd. to appellee, including all of the disputed inven-
tory on January 1, 1972, were subject to United States’ custom
duties which had been paid by custom brokers on behalf of
American Honda.
In its Gardena, California, offices American Honda main-
tains a perpetual inventory count of all units and parts of
“Cities having more than five thousand inhabitants may, by a
majority vote of the qualified voters of said city, at an election held for
that purpose, adopt or amend their charters, subject to such limitations
as may be prescribed by the Legislature. No charter or any ordinances
passed under said charter shall contain any provision inconsistent with
the Constitution or general laws of this State; said cities may levy,
assess and collect such taxes as may be authorized by law, or by their
charters; but no tax for any purpose shall ever be lawful for any one
year which shall exceed two and one-half per cent of the taxable property
of such city, and no debt shall ever be created by any city unless at the
same time provision be made to assess and collect annually a sufficient
sum to pay the interest thereon and create a sinking fund of at least
two per cent thereon. No city charter shall be altered, amended or
repealed oftener than every two years. The governing body of such city
may, by two-thirds votes of its members, or upon petition of ten per
cent of the qualified voters of said city, shall provide by ordinance for
the submission of the question, ‘shall a commission be chosen to frame
a new charter.’ ” .
A-13
stock in each of its warehouses in the United States by means
of its data processing system. To determine the size of its
inventories in each warehouse, American Honda considers
various factors such as demand requirements, budgetary con-
siderations, availability from source, anticipated monetary
revaluations and other special considerations such as the
possibility of future material shortages. The inventory turn-
over of parts at American Honda’s Farmers Branch warehouses
is approximately once a year or slightly more than once a year.
When parts are ordered by American Honda, employees
of Honda Ltd. at its warehouse in Japan put these parts in
corrugated cartons and seal them. These corrugated cartons
are then placed in sea vans by Honda, Ltd.’s employees and
the sea vans are transported to the steamship dock in Japan
where they are loaded onto steamships for transport to the
United States. Except for a few specialized instances, the
cartons of parts contain a relatively large number of items
per carton.
The steamship line whose vessel is to carry a specific ship-
ment supplies a sea van at the Honda, Ltd. parts warehouse
dock in Japan for use in transporting corrugated cartons of
parts to the United States. A sea van is a large metal container
which weighs 6,200 pounds and measures 40° feet long, eight
feet high and eight and one-half feet wide. The van is at all
times owned by the steamship line and is furnished by the
steamship line for the purpose of carrying the cargo of sealed
corrugated cartons overseas. When the sea vans have been
unloaded at Farmers Branch, Gardena, and elsewhere, they
are returned to the steamship line which owns them at a port
of entry in the United States.
In 1971, the sea vans from Japan were brought to American
A-14
Honda’s Gardena, California, warehouse where they were
opened and the sealed corrugated cartons were unloaded and
placed in enclosed semi-trailer trucks for shipment to American
Honda’s Farmers Branch warehouse or they were stocked in
“surplus inventory” at American Honda’s Gardena warehouse
and, at a later time, forwarded to the Farmers Branch ware-
house for “surplus storage” there.
_ There are two segregated areas for storing the inventory
at American Honda’s Farmers Branch warehouse. The area
for the storage of the sealed unopened corrugated cartons is
designated “surplus storage” and is segregated from other
parts of the warehouse. When the sealed unopened corrugated
cartons arrive at American Honda’s Farmers Branch ware-
house, employees unload these cartons at a receiving area and
they are taken to the “surplus storage” area until they are
needed in the “open stock” area.
The “open stock” area is the other area for storing inventory
at Farmers Branch. It is segregated from the “surplus storage”
area and consists of storage bins of parts which are no longer
in cartons and are for current use in filling orders. When an
open stock bin becomes low on parts, it is refilled by removing
2 carton from “surplus storage,” opening the carton and
distributing its contents into the depleted open stock bin. Some-
times. sealed and unopened cartons which normally would
be stored in the “surplus storage” area are kept on top of
the racks containing bins of open stock in the “open stock”
area although the cartons remain sealed and unopened. This
area is referred to as “above-bin surplus storage.” These car-
tons, though sealed and unopened, are not included in the
inventory-count of “surplus storage” and are not included in
the count of disputed inventory.
A-15
Transfers of stock from the American Honda Farmers Branch
warehouse to other American Honda warehouses in the United
States are made from both “open stock” and from the stock
of sealed and unopened corrugated cartons in “surplus storage”
and “above-bin surplus storage” while transfers of stock from
Gardena, California, to the Farmers Branch warehouse are
out of stock of sealed corrugated cartons in “surplus storage”
and not from “open stock.”
The main function of appellee’s warehouses, including its
warehouse in Farmers Branch, is to store merchandise which
is necessary to supply to retail dealers carrying “Honda”
brand merchandise in the southwest region. No manufacturing,
repair work, or servicing is carried on at the American Honda
warehouse in Farmers Branch. All disputed inventory on hand
at the American Honda warehouse in Farme:, Branch on
January 1, 1972, was the property of American Honda, unsold,
segregated in the “surplus storage area” of the warehouse,
and in the original unopened corrugated cartons in which it
was packed in Japan.
In their first point, appellants maintain the trial court erred
in finding that the disputed inventory in the Farmers Branch
warehouse of American Honda on January 1, 1972, had not
been incorporated into the mass of goods in the United States
and, therefore, was still “imports” for the purposes of Article
1, Section 10, Clause 2, of the United States Constitution.
Appellants rely primarily on Youngstown Sheet and Tube
Company v. Bowers, 358 U.S. 534, 541-42 (1959), 79 S.Ct.
383, and argue that (1) the disputed inventory has lost its
character as imports; (2) the disputed inventory has been
fully committed to the appellee’s operational needs and, there-
fore, should not be tax exempt; and (3) the act of importation
A-16
which is protected by Article 1, Section 10, Clause 2, may end,
and in this particular case, has ended, before the goods are
removed from the original package. We disagree.
In Brown v. State of Maryland, 25 U.S. (12 Wheat.) 419,
6 L.Ed., 678, 686 (1827), the Supreme Court interpreted the
Import-Export clause and espoused what has become known
as the “original package” doctrine. The court speaking through
Chief Justice Marshall stated that “ * * * (w)hen the importer
has so acted upon the thing imported that it has become incor-
porated and mixed up with the mass of property in the country,
it has, perhaps, lost its distinctive character as an import, and
has become subject to the taxing power of the state, but while
remaining the property of the importer, in his warehouse, in
the original form or package in which it was imported, a tax
upon it is too plainly a duty on imports to escape the prohibi-
tion in the Constitution.”
The United States Supreme Court has continued to apply
the original package doctrine in: Low v. Austin, 80 U. S. (13
Wall.) 29 (1872); Hooven & Allison Co. v. Evatt, 324 U.S.
652 (1945), 65 S.Ct. 870; and Dep’t. of Revenue v. Beam
Distilling Co., 377 U. S. 341 (1964), 84 S.Ct. 1247. Some
of the more recent state and federal court decisions which
apply the “original package” doctrine to imported goods held
for sale are: Wages v. Michelin Tire Corporation, 214 S.E.2d
349 (Georgia Sup. Ct., 1975, cert. granted); Wilson v. County
of Wake, 199 S.E.2d 665, 668 (N. C. Ct. App., 1973); Price
Paper Corporation v. Detroit, 42 Mich. App. 488, 202 N.W.2d
523, 525 (Ct. App., 1972); Sterling Liquor Distributors, Inc.
v. County of Orange, 3 Cal. App. 2d 510, 83 Cal. Rptr. 571,
(Ct. App., 1970), cert. denied, 400 U.S. 822 (1970); Tricon,
Inc. v. King County, 60 Wash-2d 392, 374 P.2d 174 (1962),
A-17
cert. denied, 372 U.S. 908 (1963); Stander:\-Triumph Motor
Company v. City of Houston, Texas, 220 *.Supp. 732, 734
(S.D. Tex. 1963), vacated on other grounds, 347 F.2d 194
(Sth Cire. 1965), cert. denied 382 U.S. 974, 86 S.Ct. 539
(1966); State ex rel H. A. Morton Company y. Board of
Review, City of Milwaukee, 15 Wis. 2d 330, 112 N.W.2d 914
(1962); Miehle Printing Press and Manufacturing Company
v. Department of Revenue, 18 Ili. 2d 445, 164 N.E.2d 1,
(Ill. 1960).
In the case at bar, the disputed inventory remained as the
property of American Honda, the importer, in a segregated
part of American Honda’s Farmers Branch warehouse, in the
original corrugated cartons in which it was imported. There-
fore, applying the “original package” doctrine, we believe
that a tax upon the disputed inventory was subject to the pro-
hibition set forth in the Import-Export clause of the Con-
stitution.
In Youngstown Sheet and Tube Company v. Bowers, supra,
the Supreme Court, relying upon Brown v. State of Maryland,
supra, reemphasized some of the acts or conduct of the impo ‘er
that would deem the importer to have “so acted upon the thing
imported” as to cause it to be “mixed up with the mass of
property in the country (and to lose) its distinctive character
as an import.” The court stated that goods lose their character
as imports when the importer (1) “sells them,” (2) “(breaks)
up his packages,” and (travels) with them as an itinerant
pedlar, or (3) when goods are brought into this country by an
importer “for his own use” and are here “used” by him.
Also, see Brown v. State of Maryland, supra.
In the case at bar, the disputed inventory owned by Amer-
ican Honda has not been (1) sold (2) it had not been broken
A-18
out of the corrugated cartons in which it was imported, nor
was it (3) brought into this country for Honda’s own use or
consumption. It was simply stored in its original packages
in a segregated place until it was needed to supply the demand
of the American market.
Appellants attempt to rationalize by analogy the facts in-
volved in the case at bar with the rationale of the court in
Youngstown in which the court stated that the iron ore, lumber,
and veneers had been irrevocably committed to use in manu-
facturing at the plants to which they were shipped and that
the iron ore, lumber and veneers were necessarily required
to be kept on hand to meet current operational needs and were
actually being used to supply those needs. To show that im-
ported goods which are held for sale should be treated similarly
to imported goods held for use in manufacturing, appellants
cite a quote from Hooven & Allison Co. v. Evatt, supra, which
is discussed in the following quotation from Youngstown Sheet
and Tube Company v. Bowers, supra, p. 542: “In Hooven &
Allison Co. v. Evatt, 324 U.S. 652, 65 S.Ct. 870, 89 L.Ed.
1252, it was held that goods imported for ‘use’ share the
same immunity as goods imported for ‘sale,’ and that goods
imported ‘for manufacture (do not) lose their character as
imports any sooner or more readily than imports for sale’ * * * ;
but ‘when (the imported goods are) used for the purpose for
which they are imported, they cease to be imports and their
tax exemption is at an end.’ ”
Nevertheless, we believe that the facts involved in the case
at bar are distinguishable from Youngstown for at least three
reasons. First, notwithstanding the previously mentioned quote
from Youngstown, we have not been cited nor have we been
able to find any factually similar cases which hold that goods
— + =r
ad
A-19
which were imported for sale and stored in their original con-
tainers (as opposed to goods imported for use in manufacturing)
were irrevocably committed to the purpose for which they were
imported and were necessarily required to be kept on hand to
meet current operational needs and were actually being used
to supply those needs. In this regard, we quote from Tricon,
Inc. v. King Country, supra, p. 176, where certiorari was
denied: “We do not think the Supreme Court has indicated by
implication that goods imported for resale, and which remain
in their original containers, lose their character as imports
immune from state taxation when they become a part of the
importer’s current inventory of goods held for sale.”
Second, there is no finding as to what portion, if any, of the
disputed inventory was necessarily required to meet current
operational needs. Certainly, the most current operational needs
were filled from inventory taken from the “opeu stock” bins.
Third, the disputed inventory is not necessarily at its final
destination when it reaches American Honda’s warehouse in
Farmers Branch. The stipulated facts, as well as the trial
court’s findings of facts, reveal that sometimes transfers of
stock from the American Honda Farmers Branch warehouse
were made to other American Honda warehouses in the United
States even though the transfers are made from both “open
stock” and from the stock of sealed corrugated cartons in
“surplus storage.” Appellants’ first point is overruled.
In their second point, appellants maintain the trial court
erred in finding that the general property tax imposed on the
disputed inventory is an “impost” or “duty” contrary to the
import clause of the United States Constitution. Appellants
argue that Youngstown established that a non-discriminatory
property tax does not violate the Import-Export clause, and
A-20
that the language of the Import-Export clause indicates that a
general property tax was not within its intended prohibition.
We disagree.
The Supreme Court of the United States has rejected appel-
lants’ argument in Low v. Austin, supra, by holding that while
goods retain their character as imports, a tax upon them in any
shape, is within the constitutional prohibition. The court stated
that: “The question is not as to the extent of the tax or its
equality with respect to taxes on other property, but as to the
power of the state to levy any tax.” If, in fact, any discrimi-
nation against domestic and in favor of foreign producers of
goods does result because of the tax immunity of imports,
such discrimination is implicit in the constitutional provision
and in its purpose to protect imports from state taxation.
Hooven & Allison Co. v. Evatt, supra. Moreover, the disputed
inventory was subject to substantial custom duties while domes-
tic goods are not.
The rationale of Low and Hooven that all taxes, even non-
discriminatory ad valorem taxes, are unconstitutional if imposed
upon merchandise which retains its status as imports has been
reafirmed in Richfield Oil Corp. v. State Board of Equalization,
329 U.S. 69, 76, 67 S.Ct. 156 (1946), and Department of
Revenue v. James Beam Distilling Company, supra, p. 343.
Appellant also argues that the rationale employed in inter-
state commerce cases should be applied to the disputed inven-
tory so that a non-discriminatory tax will not violate the
Import-Export clause.
The Import-Export clause and the Commerce clause, while
related, are not coterminous. There are two important differences
between the two clauses. First, the Import-Export clause pro-
hibits taxation by the states on the import or export, while the
a ee te
A-21
application of the Commerce clause has no relationship to
whether an article was or ever has been, an import or export.
Second, the Commerce clause is not cast in terms of a prohi-
bition against taxes but in terms of power of the Congress to
regulate commerce. The Import-Export clause does not pro-
hibit every state from laying “any discriminatory” tax on
imports or exports, but rather prohibits the state from laying
“any tax” except what may *« absolutely necessary for execut-
ing its inspection laws.” Richfield Oil Corp. v. State Board of
Equalization, 67 S.Ct., pp. 159-160. Consequently, we certainly
cannot write any qualifications into the Import-Export clause.
Appellants’ second point is overruled.
In their third point, appellants maintain the trial court erred
in finding that the goods stored in the Farmers Branch ware-
house of American Honda had not been removed from the
containers in which they had been transported into this country
and, therefore, were not subject to local taxation under the
“original package” doctrine.
The facts reveal that the sea van is furnished by the steam-
ship line for the purpose of carrying the sealed corrugated
cartons overseas and that when the sea vans are unloaded at
Farmers Branch, Gardena, or elsewhere, they are returned to
the steamship line. The mere use of new technology in shipping
should not destroy the tax immunity of the property shipped.
Michigan State Tax Commission v. Garment Cotporation, 32
Mich.App. 715, 189 N.W.2d 72, 74 (Mich.Civ.App.), cert.
denied 404 U.S. 992 (1971); Wages v. Michelin Tire Cor-
poration, 214 S.E.2d 349, 355 (Georgia Sup. Ct., 1975), cert.
granted. Therefore, we do not believe that the opening of the
sea vans constitutes the breaking of the original packages.
Appellants rely primarily on Volkswagen Pacific, Inc. v.
A-22
City of Los Angeles, 496 P.2d 1237 (Calif. 1972). However,
in Volkswagen Pacific, Inc., the court recognized that “* * * it
would not necessarily follow, as a matter of law, that merely
because an importing agent removed the parts from the vans,
they then lost the constitutional protection of imported
articles.” Also, the court recognized that “* * * the opening
of such a container by an importer may not necessarily be
effected ‘for the sale or delivery of the separate parcels con-
tained in it’ * * * but may instead be accomplished so that
the importer can by other means of transportation divert his
imports to his outlets in different interior states.” The facts in
the instant case fit squarely within the exception recognized by
the court in Volkswagen Pacific, Inc. The sea vans containing
the disputed inventory were brought to American Honda’s ware-
house in Gardena where the seal on the sea van would be broken
and the sealed corrugated cartons would be unloaded into
enclosed semi-trailer trucks and shipped to Farmers Branch.
There was no breaking of the original package. Appellants’
third point is overruled.
By way of a crosspoint of error, appellee attacks the judgment
and maintains that the trial court erred in finding that a part of
the disputed inventory received in sea vans from Japan in Gar-
dena, California, stocked in “surplus inventory” at the Gardena
warehouse of American Honda, and later shipped to American
Honda’s “surplus inventory” in Farmers Branch is not exempt
from taxation under the provisions of Article 1, Section 10,
Clause 2, of the United States Constitution. We sustain this
contention.
We are unable to distinguish between the situation in which
the disputed inventory is shipped directly from the Gardena
port of entry upon its arrival from Japan, and the situation in
A-23
which the disputed inventory is temporarily stored in the
“surplus storage” area of the Gardena warehouse before it is
shipped to Farmers Branch. In both situations, the disputed
inventory was segregated and stored in the “surplus storage”
area in its original packages. The Import-Export clause was
intended to immunize imports from taxation by the importing
states, and all other states through or into which they may
pass, so long as they retain their distinctive character as
imports. Youngstown Sheet and Tube Company v. Bowers,
supra, p. 545. The immunity attaches “where the imported
merchandise is stored in the original package at the importers
warehouse at the port of entry or in an interior state.” Hooven
& Allison Co. v. Evatt, supra, p. 664. Wilson v. County of
Wake, supra.
We believe, therefore, that the trial court erred in holding
that the disputed inventory, which was temporarily stored in the
“surplus storage” area of the Gardena warehouse before it was
shipped to the Farmers Branch warehouse was subject to tax-
ation by Farmers Branch. This portion of the judgment is
reversed and judgment rendered for appellee. In all other
respects, the trial court’s judgment is affirmed.
Since we have affirmed the judgment in part and reversed in
part, we tax the costs on appeal and in the court below equally
against appellants and appellee. Coca Cola Bottling Company
of Houston v. Hobart, 423 S.W.2d 118, 126 (Tex.Civ.App.,
Houston, 14th Dist., 1967, writ ref., n.r.e.); Combined Amer-
ican Insurance Company v. The City of Hillsboro, 421 S.W.2d
488, 491 (Tex.Civ.App., Waco, 1967, writ ref., n.r.e.);
Wichita National Bank v. United States Fidelity & Guaranty
Co., 147 S.W.2d 295, 298 (Tex.Civ.App., Fort Worth, 1941,
n.w.h.); Rule 448, T.R.C.P.
A-24
Affirmed in part and reversed
Opinion delivered July 31, 1975.
and rendered in part.
/s/ Onis T. DunacAN
Chief Justice
—Qpe— ~~ +
A-25
5. Respondent American Honda’s Reply to Petitioners’
Application for Rehearing Before the Texas Supreme
Court (filed jointly with Respondent Matsushita Elec-
tric Corp. in No. B-5551).
In the
Texas Supreme Court
No. B-5550
City oF Farmers Brancu, Texas arid T. E. Wacprip,
. ctitioners,
v.
AmeERIcAN Honpa Moror Company, INc.,
Respondent.
Appeal from the Texas Court of Civil Appeals
for the Twelfth Supreme Judicial District
REPLY TO PETITIONERS’
APPLICATION FOR REHEARING
Marvin S. Si OMAN
PETER TIERNEY
CaRRINGTON, COLEMAN, SLOMAN
Jounson & BLUMENTHAL
3000 One Main Place
Dallas, Texas 75250
Attorneys for Respondent
A-26
TO THE SUPREME COURT OF TEXAS:
Respondents in the above causes respectfully submit this
reply to the “Petitioner’s Application for Rehearing of Its
Application for Writ of Error.” The nature of each case and
its result are correctly stated in the opinions below and in the
respective Replies to Application for Writ of Error previously
filed by respondents Matsushita and Honda.
The Application for Rehearing is based upon the January 14,
1976 decision of the United States Supreme Court in Michelin
Tire Corp. v. Wages, USS. , 44 U.S.L.W. 4070 (Jan.
14, 1976).
Michelin overruled Low v. Austin, 80 U.S. (13 Wall.) 29
(1871), and over 100 years of unbroken federal and state
authorities following that case (see Matsushita Reply to Appli-
cation, pp. 38-42) — and held that the assessment of a non-
discriminatory ad valorem property tax upon imported personal
property is not prohibited by the “Import-Export Clause” of
the United States Constitution (Article I, Section 10, Clause 2)
even if those imports are stored in their original packages in
the importer’s warehouse.’
Nevertheless, despite the Michelin decision, the Application
for Rehearing should be overruled. The decision in Michelin
Tire Corp. v. Wages, supra, should not be applied retroactively
to the Matsushita and Honda cases before this Court.
"The Michelin case concerns only this issue, which was raised by
Petitioners as their Point of Error Number Two in both of the present
cases (see, e.g., Matsushita’s Reply to Application, pp. 3842). It has
no effect whatever upon of the other Points of Error — upon which
this Court correctly pw | Petitioners’ Application for Writ of Error
(see Matsushita’s Reply to Application, pp. 10-37, 43-81).
A-27
The Supreme Court did not decide if the Michelin decision
would operate prospectively or if it would be given retroactive
effect. This issue, respondents understand, will be presented to
the Supreme Court in the motion for rehearing to be filed in
Michelin.* When this issue of retroactivity is considered by the
Supreme Court— or by a lower federal court or a state court’
— the principles to be applied are established. They are stated
in Chevron Oil Co. v. Huson, 404 U.S. 97 (1971):
“In our cases dealing with the ity question,
we have generally considered three separate factors. First,
the decision to be applied nonretroactively must establish
a new principle of law, either by overruling clear past
precedent on which litigants may have relied, see, e.g.,
Hanover Shoe v United Shoe Machinery Corp., supra, at
496, 20 L Ed 2d at 1243, .... Second, it has been stressed
that ‘we must . _ weigh the merits and demerits in each
case by looking to the prior history of the rule in question,
its purpose and effect, and whether retrospective opera-
tion will further or retard its operation.” Linkletter v
Walker, supra, at 629, 14 L Ed 2d at 608. Finally, we
have weighted the inequity imposed by retroactive appli-
*This motion for yy UF on February 8, 1976 (Sup. Ct.
Rule 58). The counsel for Tire Corporation has advised the
undersigned attorneys that this motion for rehearing will be limited to
the issue of retroactivity.
‘It is clear that federal or state courts have the power to decide the
inne of setecastne aigluetion of o Suguane Sous Seiten te 0 ox
sequent case if the Supreme Court has not
Bendix Corp. v. Balax, Inc., 471 F.2d 149 (7th “(nh Ga ye - Senying
~—_ oy effect to Lear, Inc. v. Adkins, 395 U.S. 653 (1900) Bask
Wood Bros. Transfer, Inc., 398 ey 1030 (S.D. Tex. 1975)
[deny re retroactive effect to Johnson v. Railway Express Agency, Inc.,
—__— U.S. ___, & L.Ed2d 295 (1975)]; and Deary v. State, 510
S.W.2d 956 (Tex. Crim. oot 1974) [denying retroactive application of
United States v. Wade, S. 218 (1967)
A-28
cation, for ‘[w]here a decision of this Court could produce
substantial inequitable results if applied retroactively,
there is ample basis in our cases for avoiding the “injus-
tice or hardship” by a holding of nonretroactivity.’ Cip-
riano v City of Houma, supra, at 706, 23 L Ed 2d at 652.”
(404 U.S. at 106-07) (emphasis added).
These same basic principles have been applied in many other
cases. See generally 1B Moore, Federal Practice § 0.402 [3.-2]
(1965 Ed. and 1974 Supp.). See also Felderhoff v. Felderhoff,
473 S.W.2d 928 (Tex. 1970); Whittenburg v. Whittington,
523 S.W.2d 441 (Tex. Civ. App. — Houston 1975) ; Williams
v. Estelle, 500 F.2d 206, 210 (Sth Cir. 1974); and Bourns,
Inc. v. Allen-Bradley Co., 480 F.2d 123, 130 (7th Cir. 1973).
Under this three-point test, it is obvious that the Michelin
decision should not be applied retroactively. First, Michelin
certainly establishes a new principle of law “by overruling
clear past precedent on which litigants may have relied” for
over 100 years following Low v. Austin. Second, the purpose
of the Michelin decision — the “prohibition of nondiscrimina-
tory ad valorem property taxes” by the Low v. Austin interpre-
tation of the Import-Export Clause — would not be furthered
by retroactive application, nor would it be retarded by applying
the decision only prospectively.
Finally, giving retroactive effect to Michelin would produce
substantial inequities: The imported goods have been sold and
if taxing authorities are now permitted to tax these goods under
Michelin — despite the reliance by Matsushita, Honda and other
importers on the long-standing principles of Low v. Austin —
there would be no way for these increased costs to be recovered
by the importers. The taxing authorities would reap a windfall.
The consumers who purchased the imported goods would not
share any part of the increased cost. This would be contrary
A-29
to the Michelin opinion itself, which makes it clear that the
Supreme Court expected that the burden of nondiscriminatory
ad valorem taxation of imports should fall on the ultimate con-
sumers, just as such nondiscriminatory taxation fells upon
consumers who purchase domestic goods:
“ .. To be sure, allowance of nondiscriminatory ad
valorem property taxation may increase the cost of goods
purchased by ‘inland’ consumers. But as already noted,
such taxation is the quid pro quo for benefits actually
conferred by the taxing State. There is no reason why local
taxpayers should subsidize the services used by the im-
porter; ultimate consumers should pay for such services
as police and fire protection acco the goods just as
much as they should pay transportation costs associated
with those goods. . . .” Michelin Tire Corp. v. Wages,
____ US. ___, 4 U.S.L.W. 4073-74 (Jan. 13, 1976)
(footnote omitted).
A significant change in the law — such as the overruling of
over 100 years of authority by Michelin — should not be
applied retroactively in any case involving ad valorem taxation.
To do so if the change subjects property to taxation would be
inequitable and cause unjust hardship by subjecting taxpayers
to retroactive assessments and often sizable or crippling pen-
alties and interest. To do so if the change exempts property
from taxation would permit taxpayers to obtain refunds for past
years and perhaps threaten the financial solvency of taxing
authorities.
Therefore, in cases involving ad valorem taxation, it has
been held that decisions like Michelin will not be given retro-
active effect. For example, Oklahoma County v. Queen City
Lodge No. 197, 1.0.0.F., 195 Okla. 131, 156 P.2d 340 (1945),
held that a decision which significantly reversed the law in an
ad valorem tax case would be effective only for those properties
A-30
first assessed and taxed in the year following the decision:
“The pronouncement of this rule and the overruling of
the three decisions above referred to constitutes a definite
change in the construction of an important provision of our
Constitution. The result is that under this decision property
will be taxable which under the former construction was
not taxable. We are aware that such change in construction
of our constitutional provision would visit great hardship
in many instances unless protection is given property
owners as against taxes for back years which might nat-
urally be thought now to have accrued during the past
thirty-seven years since statehood.
“Though property owners are likely not possessed of
vested property or contract rights in tax exemptions as
allowed by our Constitution it is of course obvious that
many property owners have omitted to pay taxes for many
years in reliance upon our former opinions. To require
payment now with the heavy interest and penalties attached
would work extraordinary hardship in a great number of
cases, and in many cases would result in financial ruin.
“Such resulting hardship constitutes one of the most
powerful reasons for the general rule, and the inclination
of the courts, to abide by former decisions though wrong.”
(156 P.2d at 354) (emphasis added).
Accord: Southern Pacific Co. v. Cochise County, 92 Ariz.
395, 377 P.2d 770, 778 (1363) (holding that a decision
exempting property from taxation, and overruling long-estab-
lished law to the contrary, would be applied only prospectively
because the taxing authorities had “long predicated their fiscal
affairs” upon the prior law and because the taxpayer refunds
which would be sought if the decision were applied retroactively
“threatens the financial solvency of many taxing units of the
state. . . .”); Board of Equalization v. Tulsa Pythian Benev.
Ass'n of Tulsa, 195 Okla. 458, 158 P.2d 904 (1945) ; German
Gymnastic Ass’n of Louisville v. City of Louisville, 306 Ky.
A-31
810, 209 S.W.2d 75, 76 (1948) ; Button v. Drake, 302 Ky. 577,
195 S.W.2d 66, 7 (1946).
The decision in Michelin Tire Corp. v. Wages should not be
given retroactive effect. It should be applied prospectively only
to those ad valorem taxes which are first assessable after the
date of the final decision in Michelin. It should have no appli-
cation to the Matsushita and Honda cases before this Court.
Therefore, “Petitioner’s Application for Rehearing of its
Application for Writ of Error” should be overruled. In the
alternative, this Court should reserve decision on the issue of
retroactivity until the Supreme Court has acted upon the motion
for rehearing in Michelin Tire Corp. v. Vages.
Respectfully submitted,
CARRINGTON, COLEMAN, SLOMAN,
Jounson & BLUMENTHAL
3000 One Main Place
Dallas, Texas 75250
By MARVIN S. SLOMAN
Marvin S. Sloman
Peter Tierney
Attorneys for Respondent,
American Honda Motor Co., Inc.
THompson, KnicuT, Simmons & BULLION
2300 Republic Bank Bldg.
Dallas, Texas 75201
By JERRY BUCHMEYER
Jerry Buchmeyer
Attorneys for Respondent,
Matsushita Electric Corporation
of America
A-32
CERTIFICATE OF SERVICE
Copies of this Reply to Petitioner’s Application for Rehearing
were, on this 2nd day of February, 1976, served by mail upon
Ronald M. Mankoff, Durant, Mankoff, Davis & Wolens, 3900
First Nationa) Bank Bldg., Dallas, Texas 75202, attorneys for
petitioners, the City of Farmers Branch, Texas and T. E.
Waldrip.
Jerry L. BuCHMEYER
A-33
American Honda’s Reply to Petitioners’
In the
Texas Supreme Court
No. B-5550
City oF Farmers Branca, Texas and T. E. Wacprip,
Petitioners,
v.
American Honpa Motor Company, INc.,
Respondent.
RESPONDENTS’ REPLY TO PETITIONERS’ BRIEF
A-34
SUBJECT INDEX
Preliminary statement; question presented ............ l
The Michelin Decision Should be Accorded Prospective
Application Only [in response to Petitioners’
PE GUE bcc cn cdduccnnetdadeddedetidesscun< 2
(i) The Michelin case established a new principle
of law “by overruling clear past precedent on
which litigants may have relied” .............. 4
(1i) The purpose of the Michelin decision can be
effected without retroactive application to the
BUGREEE GRED oc cccccccccssccccesecoccccceees 7
(iii) Allowing retroactive effect to Michelin
would produce substantial inequities .......... li
Conclusion and Prayer for relief ................005- 16
ST EE ve 6énedeudandsancesedebscaee 18
AUTHORITIES
Cases Page
Arizona Tax Comm’n v. Ensign, 75 Ariz. 376,
ee es CUED ns Sb Kd dek cde eedadessocece 15
Board of Equalization v. Tulsa Pythian Benev. Ass’n
of Tulsa, 195 Okla. 458, 158 P.2d 904 (1945) ...... 14
Buti on v. Drake, 302 Ky. 577, 195 S.W.2d 66, (1946) .. 14
Chevron Oil Co. v. Huson,
Se es OE CHORD ccbevccccvcscctoue 3-4, 7, 11, 15, 16
Chicot County Drainage Dist. v. Baxter State Bank,
I a i 9
City of Tempe v. Dell E. Webb, 14 Ariz. App. 228,
Ge ET GUPUED Udvdddcdecadesavéinedacsds 15
A-35
Department of Revenue v. James B. Beam Distilling Co.,
SOP Gee Cae io ce des Secs S ie Tei Ce eeei 5
Duhame v. State Tax Comm’n, 65 Ariz. 268,
PER EP eTT TTT Tree 15
Felderhoff v. Felderhoff, 473 S.W.2d 928 (Tex. 1971) ... 9-10
Fisher v. Sears Roebuck & Co.,
SRG TEA Ge Gn BPE “oe ci ccc ccdccdecccces 10
German Gymnastic Ass’n of Louisville v. City of Louisville,
306 Ky. 810, 209 S.W.2d 75 (1948) .............. 14
Great Northern Railway Co. v. Sunburst Oil &
Refining Co., 287 U.S. 358 (1932) .............45- 2
Hooven & Allison Co. v. Evatt, 324 U.S. 652 (1945) .... 5
Johnson v. New Jersey, 384 U.S. 719 (1966) .......... 10
Lemon v. Kurtzman, 411 U.S. 192 (1973) ....... 2, 3, 6-7, 16
Low v. Austin, 80 U.S.
SP PEED von deynondenracess 4, 5, 6, 8,9, 11
Michelin Tire Corp. v. Wages, 473 U.S.
SE GEE 46> wax chodeuseecsccenas throughout
Oklahoma County v. Queen City Lodge No. 197, 1.0.0.F.,
195 Okla. 131, 156 P.2d 340 (1945) .......... 13-14, 15
Oklahoma Tax Commission v. Texas Co.,
bod hohe ann cies eeeneenesee 2
Richfield Oil Corp. v. State Board of Equalization,
Fe ee BP BD Knmondovibesocdiccocsccceses 5
Southern Pacific Co. v. Cochise County,
92 Ariz. 395, 377 P.2d 770 (1963) .............. 14, 15
State ex rel. Ward v. Anderson,
491 P.2d 868 (Mont. 1971) ...........ceeeeeeees 10
Swank v. Tyndall, 226 Ind. 204, 78 N.E.2d 535 (1948) .. 10
United States v. Carver, 260 U.S. 482 (1923) ......... 1
A-36
Washington State Finance Comm’n v. Martin,
384 P.2d 833 (Wash..1963) ......ccccccccccceces 10
Welsh v. Sells, 192 N.E.2d 765 (Ind. 1963) .......... 15
Whittenburg v. Whittington,
523 S.W.2d 441 (Tex.Civ.App.—Houston
[14th Dist.] 1975, writ ref'd n.r.e.) ...........000- 10
Wiseman v. Phillips, 84 S.W.2d 91 (Ark. 1935) ........ 15
Texas Rules of Civil Procedure
SE TU 6 n6ue'c bb eked seme ods Visas ceed eeeas cede 16
Other Authorities
Cardozo, The Nature of the Judicial Process 34 (1921) .. 6
1B Moore, Federal Practice,
§0.402[3.2-5] (Supp. 1975) .............eeceeee 2-3
TO THE SUPREME COURT OF TEXAS:
Pursuant to leave granted at the argument on March 10, 1976,
this memorandum is submitted in opposition to the brief of peti-
tioners received by respondents the day before the hearing. The
nature of each case and its results are correctly stated in the
opinions below and in the respective Replies to Application for
Writ of Error previously filed by respondents.
The correctness of the Michelin decision is not challenged
here. For purposes of the present question before this court the
applicability generally of the Farmers Branch tax to each re-
spondent for the tax year in question is not in issue. The sole
question for decision by this court is whether the rule of the
Michelin case should be applied only prospectively, in which
case the judgments below should be affirmed as to the tax year
in question but modified so as to provide that the rule of the
Michelin case be applied only to the ad valorem taxes which are
A-37
first assessable after the date of the Supreme Court’s Michelin
decision.*
Emphasis is ours throughout.
THE MICHELIN DECISION SHOULD BE
ACCORDED PROSPECTIVE APPLICATION ONLY
At the outset, it should be recognized that the Michelin deci-
sion does not itself create or command any substantive right of
any party to this case. That decision merely removed a long-
standing constitutional prohibition against taxes of the kind
involved here. The question now before this court only involves
the judicial policy of the United States and of this state as to
whether to permit only prospective application of the decision.
Insofar as such state policy is concerned, retroactive application
of the Michelin case is neither constitutionally required nor
prohibited, and it is this court’s prerogative and its responsibility
to declare that state policy. Oklahoma Tax Commission v. Texas
Co., 336 U.S. 958 (1949) [opinion denying rehearing]; Great
Northern Railway Co. v. Sunburst Oil & Refining Co., 287 U.S.
358 (1932). Respondents ask this court to apply the rule of
nonretroactivity as a matter of state and federal law.
In cases where the question here has been before the United
States Supreme Court, there has developed a modern doctrine
of “nonretroactivity”, leading finally to a recent tendency of
the Supreme Court to deny retroactive effect of many major
retroactivity
the Michelin case. See the Michelin ion for rehearing at page 2
(“Question to be Presented on ing”) where Michelin asks
“to brief and argue whether such overruling should be retro-
imports no expression of opinion on the merits. United States v. Carver,
260 U.S. 482, 490 (1923).
A-38
constitutional decisions. See Lemon v. Kurtzman, 411 U.S. 192,
199 (1973); 1B Moore, Federal Practice, §0.402 [3.2-5]
(Supp. 1975). Recognizing that nonretroactive relief is fre-
quently accorded by both state and federal courts in civil litiga-
tion, the Supreme Court in Lemon v. Kurtzman, suggested the
considerations which led to the adoption of such a policy (411
U.S. at 199):
[S]tatutory or even judge-made rules of law are hard
facts upon which people must rely in making decisions
and in shaping their conduct. This fact of legal life under-
pins our modern decisions recognizing a doctrine of non-
retroactivity.
The courts have developed well-defined principles for deter-
mining whether a decision should be denied retroactive effect.
These were most articulately stated by the Supreme Court in a
civil case, Chevron Oil Co. v. Huson, 404 U.S. 97 (1971), as
follows (404 U.S. at 106-107):
In our cases dealing with the nonretroactivity question, we
have generally «ensidered three separate factors. First,
the decision to be applied nonretroactively must establish
a new principle of law, either by overruling clear past
precedent on which litigants may have relied,* or by
deciding an issue of first impression whose resolution was
not clearly foreshadowed.* Second, it has been stressed
that “ ‘we must . . . weigh the merits and demerits in each
case by looking to the prior history of the rule in question,
its purpose and effect, and whether retrospective opera-
tion will further or retard its operation”* Finally, we
have weighed the inequity imposed by retroactive appli-
cation, for “[w]here a decision of this Court could pro-
duce substantial inequitable results if applied retroactively,
there is ample basis in our cases for avoiding the injustice
or hardship by a holding of nonretroactivity.”’*
*Citations omitted.
A-39
In its oral argument and its brief Farmers Branch has studiously
ignored the principles discussed in Chevron and the other
Supreme Court cases which concern the “doctrine of nonretro-
activity” (411 U.S. at 199). The Amicus brief does likewise.
Respondents’ claim of retroactivity, on the other hand, is founded
directly on the modern decisions of the United States Supreme
Court and state supreme courts which address the very question
of nonretroactivity in terms of judicial policy. Applying the
principles of those cases to the present case it is clear that the
Michelin decision should not be applied retroactively.
(i) The Michelin case established
a new principle of law “by
overruling clear past precedent
on which litigants may have relied”
Low v. Austin held in 1871 that the Import-Export Clause
prohibited ad valorem taxes on personal property under the
circumstances of these cases. Challenges to this holding were
swept aside again and again by the Supreme Court over the 105
years until Michelin decided in 1976 to abolish its rule.* On
the authority of Low v. Austin respondents commenced this suit
and were granted an injunction by the trial court, and the Court
of Civil Appeals affirmed in a strong opinion grounded on the
very holding of that case. Both in a broad historical sense of
stare decisis, and in the microcosm of the present cases as well,
the conclusion is obvious: Low v. Austin was the settled law for
more than a century until the Michelin case overruled it with-
out briefing or argument.
Manifestly respondents, like so many other importers of
merchandise from abroad, right up to the time of the Michelin
"See, e.g., Department of Revenue v. James B. Beam Distilling Co.,
377 US. 341 (1964); Richfield Oil Corp. v. State Board of Equali.
tion, 329 U.S. 69 (1946); Hooven & Allison Co. v. Evatt, 324 US.
652 (1945).
A-40
decision relied on the rule of Low v. Austin which had remained
for so long an established rule of constitutional law. Farmers
Branch argues that respondents were not entitled to rely on
Low v. Austin because Farmers Branch was insisting on impos-
ing the tax, as though “reliance” was based on some kind of
individual estoppel as between the importers and the taxing
authority. But that is not the nature of the reliance which is
involved here: here the question is whether the partics and
others similarly situated had in carrying on their business a
reasonable, intelligent belief in the viability of the rule that
had remained a part of the established fabric of constitutional
law for a hundred years. That reliance on which respondents
depended in locating and establishing their warehouses, pricing
their goods, maintaining their inventories seasonally, and mak-
ing other business decisions, has nothing to do with classic
concepts of individual estoppel. The question of reliance here
turns on the relationship of the individual to the body of estab-
lished law in society, not the relationship between him and the
taxing authority.
To say that respondents’ reliance on Low v. Austin could be
defeated by the unilateral contention of Farmers Branch that it
was entitled to tax respondents in violation of a century-old
precedent would be to deny the very benefit of precedent in the
reality of modern commercial society. As stated by Justice
Cardozo, “[a]dherence to precedent must . . . be the rule
rather than the execption if litigants are to have faith in the
even-handed administration of justice in the courts.” Cardozo,
The Nature of the Judicial Process, 34 (1921). This very same
issue was posed to the Supreme Court in Lemon v. Kurtzman,
411 U.S. 192 (1973) where the argument was raised that the
private schools in question were “foolhardy” to rely upon the
A-41
statutory reimbursement plan in view of the “constitutional
cloud” over the program from the very outset. The Court re-
jected this argument and refused retroactive application of its
holding even though the reimbursement scheme was constitu-
tionally suspect from its inception. 411 U.S. at 206, 207. The
threat and existence of litigation was not enough to defeat the
school’s reliance on the reimbursement plan.
The first Chevron test is clearly met in the present cases.
Ce rein een be elected without
retroactive application to the
present case
The Court in Michelin held that the “prohibition of non-
discriminatory ad valorem property taxation would not further
the objectives of the Import-Export Clause . . . .” Opinion, p. 16.
Such objectives were the regulation of foreign commerce, pre-
venting discrimination on imports because of their place of
origin, and the raising of revenue. The imposition of a non-
discriminatory ad valorem tax had no effect on these objectives
and therefore, the Court said, Low v. Austin which prohibited
such a tax was wrongfully decided.
As expressed by the Court, an important reason why imported
goods should not be exempt from local non-discriminatory ad
valorem taxes was that they benefited from local services pro-
vided by governmental agencies normally funded by the ad
valorem tax. The Court held that imported goods should bear
their fair share of such local services and thereby be put on an
equal basis with domestic competition. Although ad valorem
taxation may have the effect of an increase in the cost of con-
sumer goods, the Court stated (Opinion, p. 12):
There is no reason why local taxpayers should subsidize
A-42
the services used by the importer; ultimate consumers
should pay for such services as police and fire protection
accorded the goods just as much as they should pay trans-
portation costs associated with these goods.
Thus, a primary purpose of the change in law is to allow
local government agencies to impose ad valorem taxes and to
thereby require ultimate consumers to pay for the benefits and
services accorded the goods.
The “purpose” of Michelin would neither be furthered by
retroactive application, nor would it be retarded by applying
the decision prospectively. For the years in which Low v. Austin
was the controlling decision, business decisions were made in
reliance upon the ban against ad valorem taxes on imported
goods retaining their character as imports. Local municipalities
based projections of tax revenues partly on their inability to tax
imported goods, for ad valorem taxes on imported goods which
retained their character as imports had never been upheld. To
reach back and disturb past legal relationships would not further
the Michelin purpose and would result in what amounts to a
penalty for those who justifiably relied on Low v. Austin, while
the taxing authorities would reap a windfall in added revenues
without a concomitant increase in the expenses of local services
nor a proper allocation of such burdens to the ultimate con-
sumer.
The actual existence of the law prior to the determination of
unconstitutionality “is an operative fact and may have conse-
quences which cannot be justly ignored. The past cannot always
be erased by a new judicial declaration.’ ” Chicot County Drain-
age Dist. v. Baxter State Bank, 308 U.S. 371, 374 (1940). The
Court in Michelin overruled what heretofore has been the law, —
law upon which the whole community, taxpayers and the city
A-43
alike, have acted; and at this point in time it is impossible to
further the purpose of the new rule by retrospective application.
In Felderhoff v. Felderhoff, 473 S.W.2d 928 (Tex. 1971)
this court overruled prior decisions which prohibited a child
from suing its parent when the child was working for a parent.
This court recognized that tortfeasors and insurors alike could
have relied upon prior decisions to the contrary and therefore
refused full retroactive effect of the decision. In Whittenburg v.
Whittington, 523 S.W.2d 441 (Tex. Civ. App. — Houston [14th
Dist. ] 1975, writ ref’d n.r.e.) the court refused to apply its prior
decision holding a garnishment procedure unconstitutional to a
writ which was obtained in good faith prior to the decision. In
both of these, the purposes of the new rules were not served by
applying the rules retroactively.*
Such is the case here. Allowing retroactive application of
Michelin would not further the purpose of Michelin, to allow
imported goods to reflect the true costs of services and benefits
conferred by local governments. That result can only be achieved
by changed business practices in tax years following the change
decreed in the Michelin case. And this is necessarily true with
respect to all taxpayers — those with cases pending in the
courts,** those who claims of exemption have been denied but
who are not in the courts, and those against whom the tax
authority may now direct collection efforts for past years.
*See also, Swank v. Tyndall, 226 Ind. 204, 78 N.E.2d 535, 542-543
(1948) (court refused to FA og 0 pmannmrye amore
hen Alps pose ge tor hy ursuant to an uncon-
stitutional amendment) . tanto "Veckingen Finance —s
v. Martin, 384 P.2d 833 (Wash. 1963) (unconstitutionall =
limited ion revenue bonds); State ex rel Ward v. Anderson,
491 P.2d (Mont. 1971) (unconstitutionally issued limited obliga-
tion revenue bonds) ; Fisher v. Sears Roebuck "¢ Co., 214 N.W.2d 85
(S.D. 1974) (usury).
**See Johnson v. New Jersey, 384 U.S. 719, 733 (1966).
A-44
Under the second factor by which Chevron tests the time of
application of a new rule, this Court should hold Michelin to
be nonretroactive in its application.
(iii) Allowing retroactive effect to
M ichelin would produce substantial
inequities
Michelin held that local taxpayers should not be forced to
subsidize the services used by the importer. The “cost” of such
services should be internalized in the final price of goods just
as much as transportation costs are internalized in that price.
Opinion, pp. 11-12. The imported goods of American Honda
and Matsushita in issue here have been sold to the ultimate
consumer, with the price of those goods reflecting their cost,
including taxes, as they then existed under the long established
rule of Low v. Austin. If petitioner is now permitted to tax these
goods, there would be no way for these increased costs to be
recovered by respondents. Petitioner’s apparent response ignores
the realities of the competitive market, implying that respon-
dents would merely have to reduce profit expectations rather
than passing any incremental cost on to the consumer. However,
petitioner has oversimplified the realities of modern business
practices and consumer buying habits. Price is only one of
many factors which dictate whether imported goods are “com-
petitive” with domestic goods in a given market, and hence
influence the choice of the ultimate consumer. Petitioner is ask-
ing, in effect, that respondents should not even have the oppor-
tunity to make this basic business decision because it apparently
only involves “profits.”
Petitioner’s own argument illustrates the inequitable results
of a retroactive application of Michelin. Respondents would
have to absorb all reassessments of back taxes within the appli-
A-45
cable period of limitations, without any means to pass those
increased costs on to those who benefited most from the sale of
the imported goods — the ultimate consumer. Such a result has
all the earmarks of a penalty, assessed merely because re-
spondents relied upon Supreme Court precedent which was
valid for one hundred and five years.
The use of prospective overruling is particularly appropriate
in the field of ad valorem taxation. Allowing retroactive effect
to decisions changing the character and existence of exemptions
produces inequitable results by subjecting both taxpayers and
local governments to extraordinary one-time charges, whether
for reassessments for taxpayers, or to allow taxpayers to obtain
refunds from local taxing authorities who may have “wrong-
fully” denied exemptions. Both results, whether in favor of the
loca] taxing authority or the taxpayer, could impose serious and
unfair hardships on the entity which happened to “lose” because
of an intervening change in the law.
Therefore in cases involving significant changes in the law
of ad valorem taxation, it has been held that a decision such
as Michelin would be denied retroactive effect.
In Oklahoma County v. Queen City Lodge No. 197, 1.0.0.F..,
195 Okla. 131, 156 P.2d 340 (1945) the Oklahoma Supreme
Court held that a decision which significantly reversed the law
in an ad valorem tax case would be effective only for those
properties first assessed and taxed in the year following the
decision (156 P.2d at 354):
The pronouncement of this rule and the overruling of
the three decisions above referred to constitute a definite
change in the construction of an important provision of
our Constitution. The result is that under this decision
property will be taxable which under the former construc-
tion was not taxable. We are aware that such change in
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construction of our constitutional provision would visit
great hardship in many instances unless protection is given
property owners as against taxes for back years which
might naturally be thought now to have accrued during
the past thirty-seven years since statehood.
Though property owners are likely not possessed of vested
property or contract rights in tax exemptions as allowed
by our Constitution it is of course obvious that many
property owners have omitted to pay taxes for many years
in reliance upon our former opinions. To require pay-
ment now with the heavy interest and penalties attached
would work extraordinary hardship in a great number of
cases, and in many cases would result in financial ruin.
Such resulting hardship constitutes one of the most power-
ful reasons for the general rule, and the inclination of
the courts. to abide by former decisions though wrong.
Other state court decisions are in accord with the decision in
the Queen City Lodge case.*
In Southern Pacific Co. v. Cochise County, 92 Ariz. 395,
377 P.2d 770 (1963) the Arizona Supreme Court treated the
corollary of the issue discussed in Queen City Lodge by hold-
ing that a decision exempting property from taxation which
overruled long standing authority to the contrary would not
be retroactively applied (377 P.2d at 778):
We take judicial notice that the taxing subdivisions of
the state have long predicated their fiscal affairs upon
the practice alleged in appellant’s complaint . . . . The
refund which appellant seeks together with other similar
claims threatens the financial solvency of many taxing
units of the state, particularly those in rural and undevel-
oped areas.
Because of the peculiar financial hardships possible by retro-
*Board of Equalization v. Tulsa Pythian Benev. Ass’n of Tulsa, 195
Okla. 458, 158 P.2d 904 (1945); German Gymnastic Ass’n of Louis-
ville v. City of Louisville, 306 Ky. 810, 209 S.W.2d 75, 76 (1948);
Button v. Drake, 302 Ky. 577, 195 S.W.2d. 66, 70 (1946).
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actively applying a significant change in tax law, other courts
have denied retroactive effect of tax decisions.* |
These state cases — Queen City Lodge, Cochise, and the
others cited in the footnotes — illustrate the kinds of hardship
which have led state courts to make their tax decisions non-
retroactive under considerations like the third factor in the
Chevron analysis. Those cases read directly on the facts here.
The common thread in all of these decisions is that allowing
retroactive effect would cause substantial iardship on the
parties affected. Because the overruling decision in each case
changed a “clear past precedent on which litigants may have
relied”, and since the purpose of the overruling decision in
each case could be achieved without retroactivity, the courts
recognized the operative facts of the prior law and refused to
apply the decisions retroactively so as to avoid the substantial
hardship which would otherwise result.
The third test of the Chevron decision requires a like hold-
ing of nonretroactivity in the present case.
CONCLUSION
Chief Justice Burger recently observed that, “The process
of reconciling the constitutional interests reflected in a new
rule of law with reliance interests founded upon the old is
‘among the most difficult of those which have engaged the
attention of courts, state and federal.’” Lemon v. Kurtzman,
411 U.S. 192, 198 (1973). The salutory process by which
*Cii T. . Dell E. Webb, 14 Ariz. App. 228, 482 P.2d 477,
ent os be ete ts
‘ot, 7S
a TS ee one’ Comm'n, 65 Ariz, 268, 179 P.2d 252, 259-60
(1947) (excise taxes, limited retroactive effect to parties before the
court); Welsh v. Sells, 192 N.E.2d 753, 765 (Ind. 1963) (excise
taxes); Wiseman v. Phillips, 84 S.W.2d 91 (Ark. 1935) (sales tax).
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those difficulties are overcome is reflected in the three tests
articulated by the Supreme Court in the Chevron case. The
facts of the present cases, analyzed in the light of those tests,
overwhelmingly require that the Michelin decision be applied
only prospectively, to those ad valorem taxes which are first
assessable after the date of that decision.
Wherefore, respondents pray that the judgments below be
modified so as to declare applicable in Texas after January
14, 1976, the decision in Michelin Tire Corp. v. Wages, and
that in all other respects the judgments below be affirmed.
Respondents should be awarded costs in the proceedings herein
through the Court of Civil Appeals, and an appropriate order
should be entered with respect to costs in this court. Rule 139,
Texas Rules of Civil Procedure.
Respectfully submitted,
CARRING7ON, COLEMAN, SLOMAN,
Jounson & BLUMENTHAL
3000 One Main Place
Dallas, Texas, 75250
By MARVIN S. SLOMAN
Marvin S. Sloman
Peter Tierney
Attorneys for Respondent,
American Honda Motor Co., Inc.
THompson, Knicut, Simmons & BULLION
2300 Republic Bank Bldg.
Dallas, Texas, 75201
A-49
By JERRY BUCHMEYER
Jerry Buchmeyer
Attorneys for Respondent
Matsushita Electric Corporation
of America
CERTIFICATE OF SER.ICE
I hereby certify that the foregoing instrument was this day
delivered to the adverse party in each of the causes to which
it relates in accordance with Rule 492, Texas Rules of Civil
Procedure.
Dated: March 17, 1976
By MARVIN S. SLOMAN
Marvin S. S!oman
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.