# Petition — American Honda Motor Co. v. City of Farmers Branch > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0320%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1976 - **Citation:** 429 U.S. 860 ## Text ar 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 A-46 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). A-47 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). A-48 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0320%3A1. Public record. Not legal advice.