Petitioners Brief — Department of Revenue v. Ass'n of Washington Stevedoring Companies
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SUPREME. COURT
marks ati
K OCTOBER TERM, 1976
No, 76-1706
Tax DEPARTMENT 0 OF REVENUE OF THE
Star or WasHINGTON, Petitioner,
i. : 8 1 *.
* ON OF WASHINGTON STEVEDORING
oa 4. Respondents.
4. RARI TO THE SUPREME
„ ‘OF WASHINGTON
IN THE
SUPREME COURT
OF THE
UNITED STATES
OCTOBER TERM, 1976
No. 76-1706
THE DEPARTMENT OF REVENUE OF THE
STATE OF WASHINGTON, Petitioner,
V.
ASSOCIATION OF WASHINGTON STEVEDORING
COMPANIES, et al., Respondents.
ON WRIT OF CERTIORARI TO THE SUPREME
COURT OF THE STATE OF WASHINGTON
SLADE GORTON
Attorney General
State of Washington
RICHARD H. HOLMQUIST
Senior Assistant Attorney General,
MATTHEW J. COYLE
Assistant Attorney General
Office and Post Office Address: Temple of Justice
Olympia, Washington 95504. Telephone: (206) 753-5528
SUBJECT INDEX
r es eee 1
, ] A ¶˙ »» t. 1
QUESTION PRESENTED .............0cccccccsceeeees 2
CONSTITUTIONAL PROVISIONS, APPLICABLE
STATUTES AND ADMINISTRATIVE RULES..... 2
STATEMENT OF THE CASZEgEgEZgn. 3
SUMMARY OF ARGUME Nr.. 9
r r...... ee 11
rere sees eeseesesese eee eee eee eee 11
B. The Challen Tax on Stevedoring Activity Com-
ports with Commerce Clause
1. A state may, consistent with the Commerce Clause,
snpsee 9 Ss ee enh a ED Coes =
— — — 42 „
state or f commerce w oe ns Se a
plied to an activity with a substantial nexus to
taxing state, (b) is fairly related to the u-
nities, protections, and ts afforded ac-
tivity by the taxing state, (c) does not discrimi-
nate against interstate or foreign commerce in
favor hy — AL ~~ and (d) — —
expose terstate or foreign commerce ty
to the risk of multiple taxation burdens..........
Ww s B&O ta the privilege of en-
gaging 1 Af Fy BF -
1 r uate nexus, is non-
tory, and does not expose interstate or
C. The Challenged Tax on Stevedoring Activities Com-
ports with the Import-Export Clause................
1. A state may, consistent with the
— — —
Clause, the vilege
ing in Ae
in , Le. and
we Soy Sy et
rected at imports or exports assuch..............
iii
13
SUBJECT INDEX—Continued
Page
2. Washi B&O tax, as applied to the business
g r—— cargo in foreign commerce, is
eral, — tax not directed at 2—
or exports as such and is not a mere transit fee for
the privilege of transporting goods through the
ae ese eee eee eee eee ee eee ee 60 39
rr eee e eee en 42
II 45
IK éeddsncnctsccososceseesosees 46
CITATIONS OF AUTHORITY
TABLE OF CASES
Adams Manufacturing Co. v. Storen, 304 U.S. 307 (1938).. 20
Atlantic & Pacific Tel. Co. v. Philadelphia,
. —X—X—. 14
Alpha Portland Cement Co. v. Massachusetts,
eee cca cnegans cnmenebeseseeees 16
Boston Stock Exchange v. State Tax Commission,
US. 1 12
Brown v. Maryland, 12 Wheat. (25 U.S.) 419 (1827). .32, 34, 35
Canton Railroad Co. v. Rogan,
2. 4 fo „„ 27, 36, 38, 41, 42
Colonial Pipeline v. Traigle, 421 U.S. 100 (1975)......... 8, 15
Commonwealth Board of Finance & Revenue v.
Northern Metal Co., 416 Pa. 75, 240 A.2d 467 (1964)... 34
Com Us. 2 (1077) rex ee 12 17, 21, 24, 28, 29, 38
Cook v. Pennsylvania, 97 U.S. 566 (176 )))) 20
ony v. Board of Wardens of Port of Philadelphia,
12 How. (53 U.S.) 200 (1661) 36
Coverdale v Arkansas-Louisiana Pipeline Co ,
e tees 26
Crees US. 82 (i917). — eee 14, 20, 32, 34, 38
Crutcher v. Kentucky, 141 U.S. 47 (1691) 16
DiSanto v Pennsylvania, 273 U.S. 34 (1927)............. 19
iv
TABLE OF CASES—Continued
Page
upon ets v. County of Merced,
337 U.S. 154 (1949)........... 7 sodededobocesoede cues 35
Field Inc. v. Washington,
352 U.S. G06 (1066)... 6. ii Wos 5
Fisher's Blend Station, Inc. v. State Tax Commission,
Sy PP nnd d dns counenseetsdessesoseoeces 5
General Electric Co. v. Washington, 347 U.S. 909 (1954)... 5
General Motors V. Washington,
ey Ns oo eee eee 5, 12, 19
Gwin, White & Prince, Inc. v. Henneford,
Dreesen eee 5, 15, 20, 34
Halliburton Oil Well Co. v. Reily, 373 U.S. 64 (1963) 12. 20
108 422 2 n — 4, et seq.
Kon US es) — 1 36
Leloup v. Port of Mobile, 127 U.S. 640 (18868) 12
Low v. Austin, 13 Wall. (80 U.S.) 29 (1872).............. 37
Matson Navigation Co. v. State Board of Equalization,
e 20
Memphis Natural Gas Co. v. Stone, 335 U.S. 80 (1946). 15, 20
Michelin Tire v. Wages,
423 U.S. 276 (1976)... 6... cc ae. 9, 10, 12, 33, 37, 39, 40, 41
Nippert v Richmond, 327 U.S. 416 (1946).............. 12, 20
Northwestern States Portland Cement Co. v. Minnesota,
—— 15
Oliver Iron Mining Co. v. Lord, 262 U.S. 172 (1923) 14
Ozark Pipeline Corp. v. Monier, 266 U.S. 555 (1925)....... 14
Peck & Co. v. Lowe, 247 U.S. 165 (1919) 34
4302 US. 90 (1937). — — 1
Rainier National Park Co. v. Martin, 302 U.S. 661 (1933) 5
Richfield Oil v. State Board of Equalization,
33 a —— 33
Silas-Mason Co. v. Tax Commission,
4144 5, 24
*
TABLE OF CASES—Continued
Page
Spector Motor Service v. O Connor,
111 14, 16, 28
Standard Pressed Steel Co. v. Washington,
11 £2 Ä 5, 12, 19
Utah Power & Light Co. v. Pfost, 286 U.S. 165 (1932)...... 14
Western Live Stock v. Bureau of Revenue,
303 U.S. 250 (1938)........... 1 8, 14, 18, 19
Wisconsin v. J. C. Penney Co., 311 U.S. 435 (1940)........ 20
nee Sheet & Tube Co. v. Bowers,
eee e 35
CONSTITUTIONAL PROVISIONS, STATUTES
AND ADMINISTRATIVE RULES
U.S. Constitution, Art. I, 58, cl. 282. 2,3
US. Constitution, Art. I, $9, cl. 5... 6c 34
U.S. Constitution, Art. I, §10, el. .. 2. 3, 32
111 —— 2
44 W
44K eoeenet 3
JJ KK AA eee 3, 5, 22, 39, 45
ED GED ccccceccccccececcccceusebeccens 3, 5, 24, 39, 45
JJ eee 5
111 —K—— 5
11 — . 5
1111 5
Z ? . 8 3, 5, 46
11 0 pecccccesscosensocs 23
Washington Administrative Code 458-20-193D........ 3, 6, 46
Rules of the Supreme Court, Rule 40 ù)))) 2
vi
OTHER AUTHORITIES
Page
Barrett, State Taxation of Interstate Commerce—
“Direct Burdens”, “Multiple Burdens”, Or What
Have You, 4 Van. L. Rev. 497 (1951)................. 16
Hartman, State Taxation of Interstate Commerce
FFF ccc manus 14, 15, 16, 17, 27
W. Hellerstein, State Taxation of Interstate Business
and the Supreme Court, 1974 Term: Standard
Pressed Steel and Colonia! Pipeline,
4 n 15
Powell, More Ado About Gross Receipts Taxes,
60 Harv. ee . 27
Comment: State Taxation of Interstate Commerce:
Roadway Express, The Diminishing Privilege Tax
Immunity, and the Movement Toward Uniformity
and Apportionment, 36 U. Chi. L. Rev. 186 (1968). ....
EE OO Eee
IN THE
SUPREME COURT
OF THE
UNITED STATES
OCTOBER TERM, 1976
No, 76-1706
THE DEPARTMENT OF REVENUE OF THE
STATE OF WASHINGTON, Petitioner,
V.
ASSOCIATION OF WASHINGTON STEVEDORING
COMPANIES, et al., Respondents.
ON WRIT OF CERTIORARI TO THE SUPREME
COURT OF THE STATE OF WASHINGTON
OPINION BELOW
The opinion of the Washington State Supreme
Court is reported in 88 Wn. 2d 315, 559 P.2d 997
(1977) and is reproduced in Appendix A of the Peti-
tion for Writ of Certiorari.
JURISDICTION
The opinion of the court below was filed on
February 3, 1977 (Pet. Cert., App. A). In Washing-
ton, no separate judgment is entered. The remittitur
was entered on March 7, 1977 (Pet. Cert., App. B).
On June 1, 1977, the Petition for a Writ of Certiorari
was docketed in this Court. On October 3, 1977, this
Court granted certiorari. U.S. (1977).
The jurisdiction of this Court is invoked under
28 U.S.C. 81257 (3).
QUESTION PRESENTED
Does the Commerce or Import-Export Clause of
the United States Constitution prohibit a general,
nondiscriminatory state tax which is (a) imposed on
the privilege of engaging in the business of stevedor-
ing, and (b) measured by the gross receipts from
stevedoring activity conducted entirely within the
taxing state?’
CONSTITUTIONAL PROVISIONS,
APPLICABLE STATUTES AND
ADMINISTRATIVE RULES
United States Constitution, Article I, Section 8,
Clause 3 provides in pertinent part:
“The Con shall have power * To
regulate Commerce with foreign Nations, and
among the several States ;“
The United States Constitution, Article I, See-
tion 10, Clause 2 provides in pertinent part:
“No State shall, without the Consent of the
Con , lay any Imposts or Duties on Imports
or Exports, except what may be absolutely
necessary for executing its Inspection Laws
The relevant state statutes and administrative
The QUESTION is somewhat differently
from that set forth in the tion for but the substance of
rule are Revised Code of Washington 82.04.220, 82-
04.290 and 82.04.460(1) (Appendix A hereto), and
Washington Administrative Code 458-20-193D (Ap-
pendix E hereto).
STATEMENT OF THE CASE
A. Nature of the Case.
This is a writ of certiorari directed to the
Supreme Court of Washington to review a final judg-
ment of that court declaring a state tax repugnant
to the Commerce’ and Import-Export’ Clauses of the
United States Constitution ; Pet. Cert., App. A.
B. Identity of the Parties.
The petitioner, Department of Revenue of the
State of Washington (hereinafter the State“) is an
administrative agency of the State of Washington
charged with the duty of administering and enfore-
ing the excise tax laws of the state. As part of its
duties, the Department of Revenue is empowered to
adopt rules and regulations necessary or desirable
to the administration of the state’s tax laws. RCW
82.01.060.
The respondents, Association of Washington
Stevedoring Companies and Washington Public Ports
Association (hereinafter the Stevedores“) are as-
sociations or corporations comprised of members who
engage in the business of stevedoring in the State of
Washington. (App. p. 3).
s Const. Art. I, §8, Cl. 3.
s Const., Art. 1, §10, Cl. 2.
4
C. Business of the Stevedores.
Stevedoring consists of loading and unloading
cargo from ships. As reflected in the findings of the
trial court, the business of the Stevedores in this
case consists of activities of exactly the same nature
considered by this Court in Puget Sound Stevedor-
ing Co. v. Tax Commission, 302 U.S. 90 (1937),
and Joseph v. Carter & Weekes Stevedoring Co.,
330 U.S. 422 (1947) (App. p. 5, 17). The Stevedores
contract with ship owners to load or unload vessels
through the Stevedores’ own employees, controlling
and directing the work themselves. Puget Sound, 302
U.S. at 91. Vessels are unloaded by moving the cargo
from the ship’s hold to the “first place of rest” on the
dock; and are loaded by moving the cargo from the
place of rest on the dock to the ship’s hold. Puget
Sound, 302 U.S. at 93. More precisely put, stevedor-
ing consists of taking cargo from a place on the pier
wholly within the territorial limits of the State of
Washington ane * storing it properly for
safety and for handling in or on the outgoing vessel
along side, or of similarly unloading a vessel on its
arrival.” Joseph v. Carter & Weekes Stevedoring Co.,
supra, 530 U.S. at 425. The vessels and cargo are mov-
ing exclusively in foreign or interstate commerce.
D. Nature of the Tax.
The tax in question—Washington’s general busi-
ness and occupation tax (“B&O tax”)—is virtually
the same tax considered by this Court in Puget Sound
5
Stevedoring Co. v. Tax Comm., 302 U.S. 90 (1937).*
The tax is imposed on the act or privilege of engaging
in business activities, measured by the application of
rates to the gross sales or gross income of the busi-
ness. RCW 82.04.220 (App. A hereto). In the case of
the tax at the inception of this litigation was the
gross income of the business multiplied by the rate of
1 percent.
The tax reaches virtually every form at business
activity conducted in this state. The only major busi-
ness activities exempt from the tax are farming
(RCW 82.04.330), and insurance (RCW 82.04.320).
Gross receipts from certain types of income-produc-
ing activities are deductible from the measure of the
tax. RCW 82.04.430.
maintain places of business both within and without
the state, nor is there any allegation that they do so.
In sum, Washington’s B&O tax, as applied to the
Stevedores, is imposed upon the business of loading
and unloading cargo from ships engaged in interstate
and foreign commerce, measured by the gross re-
ceipts received by the Stevedores from this activity.
The loading and unloading activities take place en-
tirely within the territorial limits of the State of
Washington.
E. Proceedings Below.
Prior to 1974, and in response to the 1937 deci-
sion of this Court in Puget Sound Stevedoring Co. v.
Tax Commission, supra, a State regulation excluded
from the Business and Occupation tax compensation
received by a contracting stevedoring company for
loading and unloading cargo from vessels where such
cargu was moving in interstate or foreign commerce
and where the work was actually directed and con-
trolled by the stevedoring company. On May 3, 1974
the State amended its rule and adopted Rule 193-D
(App. B hereto) providing in part:
“In compu tax there may be deducted from
gross income the amount thereof derived as com-
pensation for performance of services which in
themselves constitute interstate or foreign com-
merce to the extent that a tax measured
constitutes an impermissible burden upon
commerce. A tax does not constitute an imper-
missible burden upon interstate or foreign com-
merce unless the tax discriminates against that
commerce by placing a burden thereon that is not
borne by in commerce, or unless the tax
7
subjects the activity to the risk of repeated exac-
tions of the —— from other states.
em
facilities, accommodations, ——
funds and the which they engage in
commerce is
“EXAMPLES OF TAXABLE INCOME”
“3. — 225 —— by —
stevedoring or companies for services
performed within this state is taxable.“
Subsequent to the adoption of the above rule, the
Stevedores sought a declaratory judgment on the
validity of the rule pursuant to a procedure author-
ized by RCW 34.04.070. The sole grounds advanced
by the Stevedores for the invalidity of the rule are
contained in paragraph VII of their complaint (App.
5) which, set forth in its entirety, reads as follows:
“The t’s revised Rule 193-D is invalid
because it violates the commerce clause, Art. I,
section 8, of the United States Constitution (em-
— 2 Congress to regulate commerce with
The trial eourt, although noting that if it viewed
the case as one of first impression it would uphold
the validity of the B&O tax on the Stevedores, never-
theless felt constrained by this Court's decisions in
Puget Sound Stevedoring v. Tax Commission, 302
U.S. 90 (1937) and Joseph v. Carter & Weekes Steve-
doring Co., 330 U.S. 422 (1947), and struck down
the regulation as violative of the Commerce and
Import-Export Clauses t the United States Constitu-
tion. (App. 8-14, 19). Un appeal, the Supreme Court
of Washington affirmed the decision of the trial court
with two justices dissenting. The majority found
the Puget Sound Stevedoring, supra, and Carter &
Weekes, supra, cases to be factually indistinguish-
able from the present case (Pet. Cert., App. A, p. 8:
88 Wn.2d at 316), and finding no indication that this
Court had overruled these two cases by implication
the majority felt bound to follow what it viewed as
controlling precedent. 88 Wn.2d at 319.
The minority would have upheld the State’s rule
on taxing stevedores, finding that the “Stevedoring
Cases” relied on by the trial court and the majority
have been impliedly overruled by this Court, citing
among other cases, Western Live Stock v. Bureau of
Revenue, 303 U.S. 250 (1938) and Colonial Pipeline
v. Traigle, 421 U.S. 100 (1975). The minority found
that all stevedoring activity takes place wholly
within the State and that even if stevedoring could
be said to have interstate characteristics, the activity
still may be taxed by a nondiscriminatory gross re-
ceipts tax if it is apportioned and does not reach
activities beyond the State’s borders. ( Pet. Cert. App.
A, p. 17). The minority further found that:
„At his state’s business and occupation tax is
not selectively imposed. It is a general occupa-
tion tax and does not substant ally impair or
prohibit transportation. As such it does not
9
violate the import-export clause.” (Pet. Cert.,
App. A, p. 17), 88 Wn.2d at 321.
SUMMARY OF ARGUMENT
This case presents the issue of the continuing
validity of the principles enunciated in Puget Sound
Stevedoring Co. v. Tax Comm., 302 U.S. 90 (1937),
and Joseph v. Carter & Weekes Stevedoring Co., 330
U.S. 422 (1947), in light of this Court’s decisions in
Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976),
and Complete Auto Transit, Inc. v. Brady, 430 U.S.
274 (1977).
The state tax in question, Washington’s B&O
tax on the act or privilege of engaging in business,
measured by gross receipts derived by Stevedores
from loading and unloading vessels engaged in for-
eign and interstate commerce, produces none of the
effects prohibited by the Commerce Clause. There is
no claim of lack of nexus; nor is there a claim that the
tax is unrelated to the opportunities, protections and
benefits afforded the Stevedores by the State; nor is
there a claim that the State’s tax discriminates
against interstate and foreign commerce in favor of
intrastate commerce. There is a claim of the possibil-
ity of “multiple burdens”, in the sense that other
states may be permitted to tax stevedoring activity
a the end of an interstate journey, but that claim is
illusory, at best.
In terms of the Commerce Clause, the tax up-
held in Complete Auto Transit is identical in opera-
tion and effect to the tax here in question. Both
10
taxes are levied on the privilege of engaging in
transporting goods moving in interstate commerce,
measured by gross receipts from that portion of
the journey entirely within the taxing state. The
Court in Complete Auto Transit upheld Missis-
sippi’s tax because it did not produce the effects on
interstate commerce forbidden by the Commerce
Clause—discrimination against interstate commerce
or the possibility of multiple tax burdens on inter-
state commerce—even though at an earlier time the
tax would have been labeled a “direct” tax on inter-
state commerce. In contrast, the “Stevedoring Cases“
struck down gross receipts taxes on the privilege
of engaging in transporting goods moving in inter-
state and foreign commerce on the grounds that such
taxes were “direct” taxes on interstate commerce,
without considering the effect of the tax. Accordingly,
the Court, on authority of Complete Auto Transit,
should uphold Washington's tax on the business of
engaging in stevedoring activities and overrule the
“Stevedoring Cases“.
Insofar as the validity of the tax in question
under the Import-Export Clause is concerned, the
case is controlled by the analysis and result in
Michelin Tire Corp. v. Wages, supra. In upholding a
general, nondiscriminatory ad valorem personal
property tax imposed on goods held by an importer in
its warehouse, this Court in Michelin focused on the
meaning of the term “imposts” and “duties” with
reference to the purposes to be served by the Import-
11
Export Clause. The Court reasoned that a nondis-
criminatory state tax, not directed toward imports
as such was not an “impost” or “duty” within the
meaning of the Import-Export Clause because such a
tax (1) would not deprive the United States of the
exclusive power to regulate foreign commerce, (2)
would not deprive the United States of the exclusive
right to all revenues from imposts and duties on ex-
ports and imports, and (3) would not prohibit the
free flow of imported goods among the states by ex-
acting “transit fees” from goods moving through
seaboard states to inland states. Washington’s B&O
tax is a general, nondiscriminatory tax not directed
at imports or exports as such and is not a mere “transit
fee” for the privilege of transporting goods through
the state. Consequently, it does not constitute an “im-
post” or “duty” within the meaning of the Import-
Export Clause, and the tax should be sustained on
authority of Michelin.
ARGUMENT
A. Introduction.
This case squarely presents the issue of the con-
tinuing validity of the principles enunciated in Puget
Sound Stevedoring Co. v. Tax Comm., 302 U.S. 90
(1937), and Joseph v. Carter & Weekes Stevedoring
Co., 330 U.S, 422 (1947), hereinafter referred to as
the “Stevedoring Cases”. The State asks nothing less
of this Court than to overrule its prior decisions in
the Stevedoring Cases on the grounds that the prin-
ciples upon which the Stevedoring Cases are based
12
are not reconcilable with the principles established in
the recent cases of Michelin Tire Corp. v. Wages, 423
U.S. 276 (1976), and Complete Auto Transit, Inc. „.
Brady, 430 U.S. 274 (1977).
Therefore, at the outset, it is important to estab-
lish what this case does not involve. First, unlike
many cases involving state taxation of interstate
commerce or activities related thereto, there is no
claim that the state tax violates due process.“ There
is no claim or showing of lack of nexus. Nor is there
a claim or showing that the tax is unrelated to the
opportunities, protections and benefits afforded the
stevedores by the state. Second, there is no claim or
showing that the State’s tax discriminates against
interstate and foreign commerce in favor of intra-
state commerce.’ Third, there is no claim or showing
that the tax is a licensing provision or otherwise
amounts to a direct regulation of commerce."
Rather, the sole claims advanced by the Steve-
dores are based upon the rationale of the Stevedor-
ing Cases,” namely: (1) the Commerce Clause, of its
own force and effect, creates a free trade zone for
interstate commerce, and (2) an unapportioned gross
receipts tax on the business of local stevedoring
creates the risk of a multiple burden on interstate
commerce because other states may tax stevedoring
activity at the end of the interstate journey.“
“See, Standard Pressed Steel v. Washington, 419 U.S. 560 (1975);
General Motors Corp. v. Washington, 377 U.S. 436 (1964).
"See, Boston Stock Exchange v. State Tax Comm., 8.
(1977); Halliburton Oil Well Co. v. Reily, 373 U.S. 64 (1963) ; Nippert
„ Richmond, 327 U.S. 416 (1946).
‘See, Leloup v. Port of Mobile, 127 U.S. 640 (1888).
"Joseph v. Carter & Weekes Stevedoring Co, „ pra, 330 U.S. at 429.
13
For purposes of analysis, the State’s argument
is divided into two categories; (1) the validity of the
State’s tax under the Commerce Clause and (2) the
validity of the State’s tax under the Import-Export
Clause. To a certain extent, the considerations help-
ful to a resolution of the issues under these two con-
stitutional provisions overlap, but because the pur-
poses of the Commerce Clause and Import-Export
Clause are in many respects different, we discuss
each separately.
B. The Challenged Tax on Stevedoring Activities Com-
ports With the Commerce Clause.
1. A state may, consistent with the Commerce
Clause, impose a tax on the act or privilege of engag-
ing in the business of transporting goods moving in
interstate or foreign commerce where the tax (a) is
applied to an activity with a substantial nexus to the
taxing state, (b) is fairly related to the opportunities,
protections, and benefits afforded the activity by the
taxing state, (c) does not discriminate against inter-
state or foreign commerce in favor of intrastate
commerce, and (d) does not expose the interstate or
foreign commerce activity to the risk of multiple
taxation burdens.
In a series of recent cases, this Court has finally
resolved more than 40 years of judicial conflict over
the scope of the restrictions imposed by the Com-
merce Clause on the power of a state to tax interstate
and foreign commerce conducted entirely within that
state’s borders. Establishing the scope of these re-
14
strictions requires the reconciliation of competing
demands, on the one hand, from the states for tax
revenue to support governmental services provided
such commerce and, on the other hand, from the
necessity that interstate and foreign commerce not
be restrained or unduly burdened by artificial bar-
riers or tariffs set up by the states through which
such commerce moves.
Over the years, this Court, as chief arbiter of
these competing demands, has adopted two seemingly
inconsistent approaches to determining the validity
of a state tax on interstate commerce: (1) the
“direct-indirect” burden on interstate commerce
approach” and (2) the cumulative or “multiple
burdens” approach.“ The “direct-indirect” approach
is based upon the view that interstate commerce
should enjoy total immunity from state taxation.“
Under this approach state taxes found to be levied
“directly” on interstate commerce, e.g., taxes im-
posed on the privilege of engaging in interstate com-
merce, measured by gross receipts, whether or not
apportioned, were struck down" while state taxes
said to be levied only “indirectly” on interstate com-
merce, e.g. taxes imposed on some local event de-
termined to be separate and apart from interstate
commerce, were upheld.'*
See, Crew Levick Co. b. Pennsylvania, 245 U.S. 292 (1917); Orark
Pipeline Corp. v. Monier, 266 US. (1925 ‘
a Western Live ‘Stock v. Bureau Revenue, 303 US. 250
( )
Hartman, State Taxation of Interstate Commerce, p. 31 (1953).
See, Atlantic 2 Pacific Tel. Co. v. Philadelphia 190 U.S. 160
Spector Motor Service v O'Connor, 340
See, fh Power & Light Co. v. Pfost, 286 U.S. 165 (1932); Oliver
Iron Mining Co. v. Lord S. 172 (1923).
15
The “multiple burdens” approach is based upon
the view that interstate commerce should contribute
to the cost of local governmental services it receives
80 long as it is not unreasonably restrained by being
subjected to the risk of multiple tax burdens not
borne by local business. Under this approach, state
taxes on interstate commerce found to be capable of
being repeated by each state through which the com-
merce moved were struck down“ while state taxes on
interstate commerce not capable of being repeated
by each state were upheld.“
Permitting a state to impose a tax on the priv-
ilege of engaging in a component part of interstate
commerce wholly within the taxing state, e.g., the
privilege of exercising corporate powers,“ so long as
the tax is imposed on and measured by activities
wholly within the taxing state on the grounds that it
is an “indirect” type tax accomplishes the same result
as would the “multiple burdens” test ; interstate com-
merce pays its way in the taxing state while at the
same time there is no possibility that other states can
tax the same activity. Thus, as a practical matter, the
Court has in recent years permitted a variety of state
taxes on interstate commerce which do not produce
the “trade barrier” effect forbidden by the Commerce
Clause, even though arguably the taxes could be said
to be of a “direct nature“. See, generally, W. Heller-
Hartman, State Taxation T Nn
See, e.g., Gwin, White & v. N 1999) .
480 ngrenewentern States Portland Cement Co. v. 1
1*Memphis Natural Gas Co. v. Stone, 335 U.S. 80 (1948); Colonial
Pipeline v. Traigle, 421 US. 100 (1975). 1
—
16
stein, State Taxation of Interstate Business and the
Supreme Court, 1974 Term: Standard Pressed Steel
and Colonial Pipeline, 62 Va. L. Rev. 149, 177-180
(1976).
Nevertheless, until 1977, there remained one
form of state taxation of interstate commerce—a tax
on the privilege of engaging in interstate commerce
—which was forbidden by this Court’s decisions even
though the tax did not in practical operation and
effect discriminate against interstate commer-e or
expose it to the risk of multiple tax burdens. Alpha
_ Portland Cement Co. v. Massachusetts, 268 U.S. 203
(1925) ; Spector Motor Service, Inc. v. O’Connor, 340
U.S. 602 (1951). The rationale for these decisions
was twofold: (1) states had no power to tax the
privilege of engaging in interstate commerce because
it was a privilege given by the federal government
(Crutcher v. Kentucky, 141 U.S. 47 [1891]), and
(2) a privilege tax is a “direct” tax on interstate
commerce forbidden by the Commerce Clause of its
own force and effect. Spector, supra.
The “Spector Rule” as it was known, ignored the
practical economic consequences of a state tax on in-
terstate commerce and instead substituted an inquiry
into the phraseology of the tx. ir veason, the
rule was severely criticized \»"' vw © entators. See,
e.g.. Barret, State Taxation of .ntersiave Commerce
— Direct Burdens”, “Multiple Burdens” Or What
Have You?, 4 Van. L. Rev. 497, 505 (1951); Hart-
man, State Taxation of Interstate Commerce, p. 45
17
(1953) ; Comment : State Taxation of Interstate Com-
merce: Roadway Express, The Diminishing Privilege
Tax Immunity, and the Movement Toward Uniform-
ity and Apportionment, 36 U. Chi. L. Rev. 186, 203.
As stated in Hartman, supra, at p. 31-43:
“The view that interstate commerce is immune
from taxation, with its concomitant expressions
of ‘direct’ and —— Aa and bu . —
many years remai leged test by whic
the court struck down a wide variety of state
taxes. This conceptual and unrealistic mode of
judicial thought gave very little consideration to
the practical ion of economic burden of the
tax. What ned the tax was not any actual
or probable hampering effect of the exaction on
the commerce; vice of an invalid tax was
simply the ‘direct’ bearing of the tax on inter-
. SET hs terme
a mply imp m
state power; it described a result reached, not
the reasons for that result. The Court was more
concerned with captions than with conse-
quences.
Finally, in 1977, the Court in Complete Auto
Transit, Inc. v. Brady, 430 U.S. 274 (1977), was pre-
sented with a case directly calling into question the
continued validity of the “Spector Rule”. Complete
Auto Transit involved a Mississippi tax which was
imposed on the “privilege of doing business” within
the state as applied to the activity of a motor
carrier transporting manufacturer’s automobiles
between points in the state, and was measured by the
gross receipts from that transportation. The automo-
biles concededly were moving in interstate commerce
18
from the manufacturer to the ultimate retailer. The
taxpayer transported the vehicles in its own trucks
from a railhead in Mississippi to dealers throughout
the state.
The taxpayer contended that the legal incidence
of the Mississippi tax was upon the “privilege” of
engaging in interstate commerce and was thereby
prohibited under the “Spector Rule”. No claim was
made that Mississippi lacked sufficient nexus with
the taxpayer or that the tax discriminated against
interstate commerce or was unfairly apportioned or
was unrelated to the services provided the taxpayer
by the state. Furthermore, although the taxpayer
claimed that the Mississippi tax created an unaccept-
able risk of undue burdens, no showing was made
that undue burdens existed in fact.
In a unanimous decision, this Court upheld
Mississippi’s tax on the unapportioned gross receipts
derived from wholly intrastate transportation in
interstate commerce.
In its analysis of the case, the Court first noted
that the “Spector Rule” ignores any consideration of
the practical effect of a state tax on interstate com-
merce and reflects a philosophy that interstate com-
merce should enjoy a type of “free trade” immunity
from state taxation. 430 U.S. at 278. The “Spector
Rule” thus differs sharply from the “multiple bur-
dens” approach taken by the Court beginning with
Western Live Stock v. Bureau of Revenue, 303 U.S.
250 (1938), which concentrated on the practical
19
effects of the tax on interstate commerce. In describ-
ing the “multiple burdens” line of cases, this Court
stated:
These decisions have considered not the formal
1 i e
and have sustained a tax nst
Commerce Clause when the is
to an activity substantial nexus
with the taxing State, is f apportioned, does
tnd js fairly related tothe services provided
the State.” (footnotes omitted) 430 rer
These decisions reconcile the competing demands
on interstate commerce by requiring that interstate
commerce pay its way in the taxing state, while at the
same time insuring that no state can erect artificial
barriers or tariffs to the conduct of interstate com-
merce.
In rejecting the “Spector Rule” this Court is now
firmly and clearly committed to the “discrimination-
multiple burdens” approach advanced by Mr. Justice
Stone in his dissent in DiSanto v. Pennsylvania, 273
U.S. 34 (1927), and in his opinion for the majority in
Western Live Stock, supra. Under this approach, a
state may, consistent with the Commerce Clause, im-
pose a tax on the privilege of engaging in the busi-
ness of transporting goods moving in interstate or
foreign commerce where the tax (a) is applied to an
activity with a substantial nexus to the taxing state,
(b) is fairly related to the opportunities, protections,
General Motors v. Washington, 377 U.S. 436 (1964);
pe} --f 4 of Revenue, 419 US. $60 (12333.
and benefits afforded the activity by the taxing state,”
(c) does not discriminate against interstate or for-
eign commerce in favor of intrastate commerce,” and
(d) does not expose the interstate or foreign com-
merce activity to the risk of multiple burdens.”
None of the above cited cases involve “foreign
commerce”. However, in this context, it has long been
assumed that the Foreign Commerce and Interstate
Commerce Clauses of the United States Constitution
are indistinguishable. For example, in Cook v. Penn-
sylvania, 97 U.S. 566, 574 (1878), a case striking
down a discriminatory tax on auctioneers of imported
goods, the Court drew freely upon cases striking down
discriminatory taxes on interstate commerce, stating :
“If a tax assessed by a State injuriously dis-
criminati 14 = roducts of a State of
A the = ay a
sim tax against goods mported rom a for-
eign state is — forbidden.“
See, also Crew Levick Co. v. Pennsylvania, 245 U.S.
292 at 296 (1917).
Also instructive is Matson Navigation Co. v.
State Board of Equalization, 297 U.S. 441 (1936).
Matson involved the imposition of California’s tax on
corporations exercising their corporate franchise
within the state, measured by apportioned net income
derived from intrastate, interstate, or foreign com-
merce. The taxpayer was a corporation which, in
See, Memphis Gas Co. v. Stone, 335 US. 80 (1948); Wisconsin v.
42 Romney SS. 311 U.S. 435 (1940).
Halliburton Oil Well C v. Reily, 373 US. 64
G ippert v. Richmond, 327 US. 41 Capes).
age, Adams Manufacturing Co. v. Storen, 304 U.S. 307 (1938);
Gwin, White & Prince, . 305 US. 434 (1939).
21
addition to doing a substantial intrastate business in
California, was engaged in the transportation of
cargo by sea between the west coast of the United
States and ports in Hawaii, the South Sea Islands,
Australia and New Zealand. California included in
its taxable income base an apportioned segment of
the net income derived from interstate and foreign
commerce operations. In upholding the tax, the Court
did not distinguish between income derived from in-
terstate operations as opposed to income derived from
foreign commerce operations. Both types of income
were held to be includable in the tax base.
There is no good reason why foreign commerce
should be treated any differently from interstate
commerce. When carried on within the boundaries
of a state, foreign commerce should pay its own way,
so long as such commerce is not discriminated against
or subjected to the risk of multiple burdens. As ap-
plied to the activities of handling or transporting
goods moving in foreign commerce a state tax stands
on the same footing under the Foreign Commerce
Clause as it does under the Interstate Commerce
Clause. Both clauses are worded the same way, i.e. as
a restriction upon state regulation. If a nondiscrim-
inatory state tax, fairly apportioned, is not con-
sidered a forbidden “regulation” of interstate
commerce, a nondiscriminatory state tax, fairly
apportioned should not be considered a forbidden
“regulation” of foreign commerce.
In sum, after Complete Auto Transit v. Brady,
supra, it is settled that a state may impose a tax on
the privilege of engaging in the business of transport-
ing goods moving in interstate or foreign commerce
measured by gross receipts so long as the tax (a) is
applied to an activity with a substantial nexus to
the taxing state, (b) is fairly related to the oppor-
tunities, protections and benefits afforded the activity
by the taxing state, (c) does not discriminate against
interstate or foreign commerce in favor of intrastate
commerce, and (d) does not expose the interstate or
foreign commerce activity to the risk of multiple bur-
dens.
2. Washington’s B&O tax on the privilege of
engaging in local stevedoring activity, measured by
gross receipts, exhibits adequate nexus, is nondis-
criminatory, and does not expose interstate or foreign
commerce to the risk of multiple burdens.
Washington’s B&O tax, as applied to the Steve-
dores, is imposed upon the act or privilege of engag-
ing in the business of loading and unloading cargo
from ships engaged in interstate and foreign com-
merce, and is measured by the gross receipts received
by the Stevedores from this activity. RCW 82.04.220
(App. A hereto). The tax is unapportioned, in the
sense that it is measured by the entire gross receipts
of the Stevedores from loading and unloading activ-
ities; but the tax is, as a practical matter, self ap-
portioning because the loading and unloading activi-
ties of the Stevedores take place entirely within the
territorial limits of the State of Washington and no-
where else. ;
The tax here in question is virtually indistin-
guishable from the Mississippi tax considered in
Complete Auto Transit. Mississippi's tax was im-
posed on the privilege of engaging in the business of
transporting persons or property for hire between
points within the state, measured by gross receipts
from that transportation. The only difference be-
tween Washington’s tax and the Mississippi tax
(other than the rate) was the requirement that the
Mississippi tax be added to the gross sales price
and collected from the purchaser. Miss. Code Ann.
510117 (1942) ; 430 U.S. at 275. Washington’s B&O
tax, unlike the Mississippi tax, is clearly imposed
upon the Stevedores, and not the steamship companies
the Stevedores service. RCW 82.04.500 provides:
“It is not the intention of this chapter that the
taxes herein levied u persons e ng in
business be cons as taxes * ur-
chasers or customers, but that such taxes shall
be levied upon, and collectible from, the person
engaging in the business activities herein desig-
nated and that such taxes shall constitute a part
of the operating overhead of such persons.“
Thus, unlike Mississippi’s tax, which may, and
probably would, be passed on directly to the owner
of the goods moving in interstate commerce, Wash-
ington’s tax is not required to be passed on to the
owner of the goods moving in interstate or foreign
commerce, and it is not at all clear as a matter of
economics that the tax, or any substantial part of it
is or will be passed on.”
2°Thus, if one were still to subscribe to the “direct-indirect” theory
24
In the courts below, the Stevedores did not argue
that Washington had insufficient nexus to impose its
tax, nor did they argue that the tax was unrelated to
the opportunities, protections and benefits afforded
the Stevedores by the State of Washington. This is
not surprising, given that the Stevedores conduct
business exclusively within the State of Washington
and are the recipients of numerous opportunities,
protections and benefits, ranging from police and
fire protection for their property to access to the state
court system to enforce payment of stevedoring con-
tracts.
Similarly, the Stevedores did not argue in the
courts below that Washington’s B&O tax discrim-
inates against interstate or foreign commerce in
favor of local commerce. This too, would be an empty
exercise, because the tax rate on the stevedoring
business is the same as the tax rate on most other per-
sons who render services in the state, e.g. doctors,
lawyers, accountants, etc. RCW 82.04.290 (App. A
hereto). To be sure, the Washington State Legisla-
ture could manipulate the B&O tax in such a way as
would be discriminatory against stevedoring activity.
But as noted by the Court in Complete Auto Transit,
supra, property taxes, income taxes, and “privilege”
taxes are susceptible to being imposed with discrim-
inatory results. Complete Auto Transit, supra, n. 15,
of state taxation of interstate commerce Washington's tax would be
UViyt..§ ~--tI A AA t-., -h-— ,
than would have Mississippi upheld in Complete Transit
Ct., Silas-Mason Co. v. Tax Comm., 302 U.S. 190 (1937), which
tractors is not an “un-
constitutional burden” on the Federal Government. 302 U.S. at 190.
430 U.S. at 288. The mere possibility, however, of
imposing a tax with discriminatory effects or other
effects forbidden by the Commerce Clause is not
grounds for striking down a state tax without those
effects.
Finally, the Stevedores in the courts below did
not argue that Washington’s B&O tax on stevedoring
exposed interstate or foreign commerce to the risk
of multiple burdens. See, Brief of Respondents be-
fore the Washington Supreme Court, pp. 36-37. Thus,
no effort was made to establish that Washington's
B&O tax created a risk, actual or theoretical, that
interstate commerce would be subject to multiple tax
burdens. Nor could any such effort be successful.
The case for a theoretical possibility of multiple
tax burdens created by the tax in question is set forth
in Joseph v. Carter & Weekes Stevedoring Co., 330
U.S. 422 (1946). That case involved a New York
City gross receipts tax on the business of stevedoring
in the City as applied to gross receipts from loading
and unloading ships engaged in foreign and inter-
state commerce. Although primarily basing its de-
cision to invalidate the tax as a “privilege” tax on
the business of engaging in interstate and foreign
commerce, citing Puget Sound Stevedoring Co., 302
U.S. 90 (1937), the majority also noted that New
York City’s tax exposed interstate commerce to the
risk of multiple tax burdens, finding that if New York
City were able to tax the loading of ships, some other
state could tax the unloading of ships, or vice versa.
Carter & Weekes, supra, 330 U.S. at 429. Justices
Douglas and Rutledge, dissenting in part, found that
no multiple burdens, actual or theoretical, could exist.
The dissenters noted:
“But in the Puget Sound Case any risk of mul-
tiple taxation was absent. The same is true of the
present case. For in each the activity of loading
and unloading was confined exclusively to the
State that imposed the tax. No other state could
tax the same activity."
“The tax therefore is in its application nothing
more than a gross receipts tax apportioned to
reach only income derived from activities within
the taxing state.” Carter & Weekes, supra, 330
U.S., 437-438 (footnote in the original).
fn. 3— The court s that the fact that
similar stevedoring activity will be required at
the destination creates a risk of multiple taxa-
tion, since the state of destination would be as
free to tax the unloading as New York to tax the
loading. This is only multiple in the sense that
each state taxes what occurs within its borders;
the two taxes would not be on the same activity.
It is no more relevant that stevedoring is in-
volved in both cases, than is the fact that two
states may impose property taxes on terminals
or trackage within thelr respective borders.”
Clearly, Justices Douglas and Rutledge were cor-
rect. The multiple burden found by the Court to be
present in the Carter & Weekes case is multiple only
in the sense that the elements of interstate trans-
portation are multiple. But the “multiple burdens”
test is directed to the risk of taxation of the same ac-
tivity. For example, in Coverdale v. Arkansas-Loui-
siana Pipe Line Co., 303 U.S. 604 (1937), the Court
found no risk of multiple burdens resulting from
27
state excise taxes on the various mechanical processes
used to transport gas through interstate pipelines.
Similarly, in Canton Ry. Co. v. Rogan, 340 U.S, 511
(1951), the Court sustained a Maryland gross re-
ceipts tax on the business of transporting by rail
goods moving in interstate and foreign commerce
where the tax was apportioned on the basis of mile-
age within the state and did not reach any activities
carried on beyond the borders of the state.
Finaliy, the commentators have criticized the
Carter & Weekes majority on their view of “multiple
burdens” effect. See, Powell, More Ado About Gross
Receipts Taxes, 60 Harv. L. Rev. 710, at 744-46
(1947) ; Hartman, State Taxation of Interstate Com-
merce, pp. 204-207. It is thus apparent that under
the proper view of the “multiple burdens” test, Wash-
ington’s B&O tax on the business of engaging in
stevedoring activity does not create the risk of a
multiple burden on interstate commerce. Although
nominally unapportioned, it is in fact apportioned ex-
actly to the activities: of the Stevedores within the
State. It does not reach out beyond the state’s borders
to tax activities occurring elsewhere. No other state
can impose a tax on the same stevedoring activity.
Consequently, no multiple burden, actual or theoret-
ical, exists.
For the foregoing reasons, it is clear that the
tax in question, as applied to local stevedoring activ- °
ity, meets the criteria for validity established by a
long line of decisions of this Court culminating in
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
(1977). The tax is applied to an activity with ade-
quate nexus to Washington, it is fairly related to
the services provided by the state, it does not discrim-
inate against interstate or foreign commerce, and it
does not expose interstate or foreign commerce to the
risk of multiple burdens. In sum, there exists no rea-
son to strike down this tax as violative of the Com-
merce Clause except upon the now discarded theory
that a tax upon the privilege of engaging in inter-
state commerce is a direct tax on interstate commerce.
See, Spector Motor Service, Inc. v. O'Connor, 340
U.S. 602 (1951).
3. The“Stevedoring Cases” represent outmoded
concepts, were wrongly decided, and should be over-
ruled.
Finally, we come to the issue of whether the
“Stevedoring Cases”, Puget Sound Stevedoring,
supra, and Joseph v. Carter & Weekes Stevedoring
Co., supra, should be overruled. First, it is clear that
if the tax in the instant case is to be upheld, the “Ste-
vedoring Cases” must be overruled. Puget Sound
Stevedoring involved the same facts and virtually the
same tax as is involved in the instant case. Carter &
Weekes, supra, also involved the same type of tax—
a city gross receipts tax on the privilege of engaging
in business—as applied to the same type of stevedor-
ing activity as is involved in the instant case. In-
deed, both the trial court below and the Supreme
Court of Washington found the “Stevedoring Cases”
to be indistinguishable from the instant case. See,
Oral Decision of the Trial Court, App. 8; Opinion
of the Washington Supreme Court, Pet. Cert. App. A,
p. 10, 88 Wn.2d at 316.
The only question to be answered with respect
to the continuing validity of the Stevedoring Cases“
under the Commerce Clause is whether they can
stand, consistent with this Court’s decision in Com-
plete Auto Transit. The State has already demon-
strated that Washington’s B&O tax on the privilege
of engaging in local stevedoring activity is indis-
tinguishable in operation and effect from the Mis-
sissippi tax upheld in Complete Auto Transit, supra.
See p. 23 supra. The state taxes involved in the
“Stevedoring Cases” are equally indistinguishable
in operation and effect from the Mississippi tax
involved in Complete Auto Transit. In all cases, the
tax is an unapportioned gross receipts tax imposed
upon the privilege of engaging in the business of
transporting goods moving in interstate commerce.
The fact that Complete Auto Transit involved land
transportation as opposed to water shipborne trans-
portation involved in the “Stevedoring Cases“ is ir-
relevant to a determination of the effects of the tax
upon interstate or foreign commerce.
The only significant difference between the
“Stevedoring Cases” and Complete Auto Transit is
this Court’s view of the nature and effect of a tax on
the privilege of engaging in business in interstate
commerce, measured by gross receipts fairly appor-
tioned to the activities within the taxing state. In the
30
“Stevedoring Cases,” the privilege tax was viewed
to be a “direct” tax on interstate commerce and there-
fore a per se burden on that commerce. It was the
“label” attached to the tax which offended the Com-
merce Clause, and not the effect in practical terms on
interstate commerce. In Complete Auto Transit it
was the effect of the tax in practical terms on inter-
state commerce which provided the touchstone for
determining the validity of the tax under the Com-
merce Clause, regardless of the label“ attached to
the tax by a state.
Complete Auto Transit clearly represents the
better approach. By rejecting the view that inter-
state commerce should enjoy a “free trade zone of
immunity from state taxation, the Court has required
interstate comerce to “pay its way.” At the same
time, by focusing on the practical effect of a state
tax on interstate commerce, the Court has instituted
a realistic, pragmatic approach to legal analysis of
the constitutional issues, and abandoned the formal-
istic search for the correct label“ on the state tax.
This approach gives intellectual legitimacy to the
Court’s Commerce Clause decisions and also goes a
;
.
,
1
unity of the activity in question to te commerce is perhaps
best’! = Pp Ay yt pe Ty LY In that case,
ee tax on receipts
~— RA, C —B,- AE, W2,,
stevedores themselves. On the other hand, the Court saw no problem
with the state imposing its tax on gross receipts received by the
stevedoring when the companies furnished stevedores to
the vessels, but not control or direct the stevedore’s work. In the
former II fe ty ty te
and in the case the companies were viewed some-
0 classic case of
31
long way toward insuring the predictability of court
decisions involving state taxation of interstate and
foreign commerce.
Not only do the “Stevedoring Cases” represent
the outmoded concepts of the “direct-indirect” ap-
proach to state taxation of interstate and foreign
commerce, but the cases, to the extent they were de-
cided on the basis that a gross receipts tax on local
stevedoring activity created a risk of multiple bur-
dens on interstate and foreign commerce (Carter &
Wvekes, supra), were wrongly decided. As noted
supra, p. 26, the “multiple burdens” test is directed
to the risk of multiple taxation on the same activity,
and the loading and unloading of ships at the begin-
ning and end of an interstate or foreign journey
are two separate activities. Carter & Weekes, supra,
330 U.S. at 437 (Douglas, J., dissenting). So long as
each state taxes only those activities occurring en-
tirely within its borders, no risk of multiple burdens
exists.
The “Stevedoring Cases” should be overruled.
The cases are irreconcilable with Complete Auto
Transit, tney represent outmoded concepts of Com-
merce Clause analysis, they were wrongly decided,
and they provide an exemption from state taxation,
judicially created, which is unnecessary to the accom-
plishment of the purposes for which the Commerce
Clause was adopted. No reason exists for continued
adherence to the principles and philosophy underly-
ing the “Stevedoring Cases.”
32
C. Fhe Challenged Tax on Stevedoring Activities Com-
ports With the Import-Export Clause.
I. A state may, consistent with the Import-
Export Clause, impose a tax on the act or provilege
of engaging in the business of transporting goods
moving in foreign commerce, i.e., imports and ex-
ports, where the tax is nondiscriminatory and not
directed at imports or exports as such.
The Import-Export Clause, Art. I, sect. 10, cl.
2 of the United States Constitution, provides in per-
tinent part:
“No state shall, without the Consent of the
The Import-Export Clause is related to the
Commerce Clause in that both deal with state taxa-
tion of trade between the United States and foreign
nations. In several cases, a state tax has been held
to be unconstitutional under both the Import-Export
and the Commerce Clauses. See e.g., Brown v. Mary-
land, 12 Wheat. (25 U.S.) 419 (1827) ; Crew Levick
Co. v. Pennslyvania, 245 U.S. 292 (1917) ; Joseph v.
Carter & Weekes Stevedoring Co., 330 U.S. 422
(1947) (Douglas, J., dissenting). There are, how-
ever, significant differences in the two clauses. The
Commerce Clause is cast in terms of a grant of power
to Congress to regulate foreign commerce. The Im-
port-Export Clause, on the other hand, contains a flat
prohibition forbidding the states to impose imposts or
33
duties on imports or exports. See Rich field Oil Corp. v.
State Board of Equalization, 329 U.S. 69 (1946).
Not only is the wording of these two constitu-
tional provisions different, but the purposes, although
related in some respects, are different. Recently, the
purposes of the Import-Export Clause were summa-
rized by this Court in Michelin Tire Corp. v. Wages,
423 U.S. 276 (1976):
“The Framers of the Constitution thus t
state power: the Federal Government must
0
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285
tna
18
f 8
7
i
i
i
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.
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HE
fir
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ip
34
and tariffs upon commerce moving through a state
and going to or coming from a foreign nation. See,
Brown v. Maryland, supra.
Over the years this Court has taken several
approaches to analyzing the validity of state taxes
alleged to violate the Import-Export Clause. One ap-
proach was to classify the tax as a “direct” or “in-
direct” tax on imports or on the business of import-
ing or exporting. In Crew Levick Co. v. Pennsylvania,
245 U.S. 292 (1917), a tax on the privilege of selling
goods in foreign commerce, measured by gross re-
ceipts, was held violative of the Import-Export Clause
because it was a “direct” burden on exports.” In Peck
& Co. v. Lowe, 247 U.S. 165 (1918), a federal net
income tax on income derived from the business of ex-
porting goods was upheld against a challenge under
U. S. Const., Art. I, see 9, el. 5.“ on the ground that
a net income tax was an “indirect” burden on ex-
porting.
Similarly, in Commonwealth Board of Finance
& Revenue v. Northern Metal Co., 416 Pa. 75, 204
A.2d 467 (1964), cert. denied, 380 U.S. 944 (1965),
_, cute tax was also held to be a “regulation” of commerce
in violation of the Commerce Clause in Crew would
also have been invalidated in interstate commerce
35
intrastate commerce, where all activities of the com-
pany took place within the taxing state. The Penn-
sylvania court held that the tax did not violate the
Import-Export Clause and distinguished Joseph v.
Carter & Weekes Stevedoring Co., 330 U.S. 422
(1947) on the grounds that Carter & Weekes in-
volved a gross receipts tax. As stated by the court:
gross recei 4 Rhy be od ——
a factor removed from the im port
rocess. Accord, Peck & Co., Inc. v. e, cita-
tion omitted.” 204 A.2d at 473.
Another approach taken by this Court was in
attempting to identify the time at which an absolute
immunity from state taxation attached to goods or
activities because of the status of such goods as im-
ports or exports or the status of such activities as
importing or exporting. In Brown v. Maryland, 12
Wheat. (25 U.S.) 419 (1827), the Court struck down
a state license tax required of sellers of imported
goods on the grounds that, among other things, the
tax reached the imported goods while they were still
imports. 12 Wheat. at 443. In Youngstown Sheet &
Tube Co. v. Bowers, 358 U.S. 534 (1959), the Court
upheld a state property tax on iron ore imported
from foreign countries which had been committed to
the manufacturing process. The Court found that the
iron ore, once committed to the manufacturing proc-
ess, had lost its status as an “import” and thus was
taxable by the state. See also, Empresa Siderurgica
S.A. v. County of Merced, 337 U.S. 154 (1949)
(state property tax on a manufacturing plant being
dismantled and shipped to a foreign country) ; Kosy-
dar v. National Cash Register Co., 417 U.S. 62
(1974) (state property tax on business machines
stored in a warehouse awaiting shipment to a foreign
country). In Canton Ry. Co. v. Rogan, 340 U.S. 511
(1951), a state franchise tax upon a railroad com-
pany measured by gross receipts apportioned to the
mileage of track within the state was held not to vio-
late the Import-Export Clause even though the rail-
road transported goods which were themselves im-
ports or exports. The Court fixed the zone of immu-
nity for transporting imports and exports at the wa-
ter’s edge.” As stated by the Court:
“So far as taxes on activities connected with
bringing exports to or imports from the ship
are concerned, we think the line must be drawn
at the water’s edge. Whether loading and un-
loading would be exempt is a question we re-
serve.” 304 U.S. at 521).
A third approach taken by the Court was to de-
termine whether the state tax in question was an
“impost” or “duty” within the meaning of the Im-
port-Export Clause. The answer to this question was
determined by reference to the purposes of the Im-
port-Export Clause. If a state tax, whatever its nom-
enclature, did not cause the evils which the Import-
Export Clause was designed to prevent, the tax was
upheld. In Cooley v. Board of Wardens of Port of
Philadelphia, 12 How. (53 U.S.) 299 (1851), the
Court upheld pilotage fees imposed by the City of
Philadelphia against the argument that these fees
37
were prohibited “imposts or duties.“ The Court noted
that pilotage fees did not come within the ordinarily
understood meaning of the term imposts or duties“
and did not contravene one of the purposes of the
Import-Export Clause, uniformity of taxation of im-
ports and exports throughout the United States. In
Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976),
the Court upheld a state’s general, nondiscriminatory
ad valorem property tax imposed on an inventory
of imported tires located at the importer’s ware-
house. Without addressing the question of whether
the tires had lost their status as “imports”, the Court
held that a nondiscriminatory ad valorem property
tax was not a prohibited “impost or duty” on imports.
Michelin, 423 U.S. at 279.
For our purposes the significance of the Michelin
decision lies not in its overruling of the “original
package doctrine” (Low v. Austin, 13 Wall. [80 U.S.]
29 [1872]), but rather in the analysis employed by
the Court. Noting that by its terms the Import-Ex-
port Clause does not prohibit every state tax on im-
ports, the Court focused on the meaning of the term
“imposts” and “duties” with reference to the purposes
of the Import-Export Clause. As stated by the Court:
“The characteristic common to both ‘imposts’
and ‘duties’ was that they were exactions di-
rected at imports or commercial activity as such
and, as imposed by the seaboard States under
the Articles of Confederation, were
purpose-
fully employed to regulate interstate and for-
eign commerce to tax States situated less favor-
y
geographically.
38
In any event, since prohibition of nondiscrim-
inatory ad valorem property taxation would not
further the objectives of the Import-Export
Clause, only the clearest constitutional mandate
should us to condemn such taxation. The
terminology employed in the clause—‘Imposts
or Duties —is sufficiently ambiguous that we
decline to presume it was intended to embrace
taxation that does not create the evils the clause
was 1 intended to eliminate.” 423 U.S.
at 291-294. (footnotes omitted)
Stated otherwise, restrictions on state taxing
power imposed by the Import-Export Clause can-
not be determined in a vacuum, nor should such
restrictions be determined by resort to the use of
“labels.” In this respect, the Court is employing ex-
actly the same analysis as that in Complete Auto
Transit v. Brady, 430 U.S. 274 (1977) - determining
whether a state tax produces effects forbidden by the
constitution without regard to the particular label
attached to the tax. Surely, this pragmatic approach
to Import-Export Clause analysis is vastly preferable
to an inquiry into the “direct-indirect” nature of the
tax, Crew Levick Co. v. Pennsylvania, 245 U.S. 292
(1917), or a search for the point in time when goods
or activities obtain the status of “imports” or “ex-
ports“, Canton Ry. Co. v. Rogan, 340 U.S. 511
(1951).
The purposes of the Import-Export Clause, as
viewed by this Court in Michelin, may be stated as
follows: (1) to commit to the United States the ex-
clusive power to regulate foreign commerce, (2) to
commit to the United States the exclusive right to
all revenues from imposts and duties, and (3) to as-
sure the free flow of imported goods among the
states by prohibiting taxation of goods merely flow-
ing through seaboard states to inland states. 423
U.S. at 285-290. As applied to a state tax on the act or
privilege of engaging in the business of transporting
goods moving in foreign commerce, i.e. imports and
exports, the purposes of the Import-Export Clause
are not undermined where the state tax (1) is a gen-
eral, nondiscriminatory tax not directed at imports
or exports as such, and (2) does not constitute a mere
“transit fee” for the privilege of moving goods
through a state. Michelin Tire Corp., supra.
2. Washington’s B&O tax, as applied to the
business of stevedoring cargo in foreign commerce,
is a general, nondiscriminatory tax not directed at
imports or exports as such and is not a mere transit
fee for the privilege of transporting goods through
the state.
We have previously discussed in detail the na-
ture and operation of Washington’s B&O tax as ap-
plied to the Stevedores. See, pp. 4-6, supra. To sum-
marize, the tax is imposed on the act or privilege of
engaging in business, measured by gross recipts.
RCW 82.04.220 (App. A hereto). The tax reaches
virtually every business activity in the state, and the
tax rate as applied to the business of engaging in
stevedoring activity is the same as most other busi-
nesses of a “service” nature, e.g., doctors, lawyers
and accountants. RCW 82.04.290 (App. A hereto).
40
As applied to the Stevedores, the tax reaches only
those activities performed entirely within the state.
Does Washington’s B&O tax, as applied to steve-
dores, have any impact on the exclusive right of the
United States to regulate foreign commerce? We
think not. The tax is a general tax on business. Inso-
far as stevedoring is concerned, the tax is not directed
to imports or exports as such, and does not amount to
a tariff en imported goods. To be sure, stevedoring ac-
tivity, or for that matter any other activity connected
with the importation or exportation of goods, could be
singled out for special tax treatment amounting to a
tariff or preference, but that is simply not the case
with Washington’s B&O tax under consideration by
this Court. In short, Washington’s B&O tax as ap-
plied to Stevedores does not amount to state regula-
tion of foreign commerce.
Does Washington’s B&O tax as applied to steve-
doring activity deprive the United States of the ex-
clusive right to all revenues from imposts and duties
on imports and exports? Again, we think not. There
is no question but that Washington’s B&O tax on ste-
vedoring activities may increase the cost of importing
and exporting goods. But a general, nondiscrimina-
tory state tax imposed to support the governmental
services rendered to importers and their contractors
has never been thought to be within the prohibition
of the Import-Export Clause. As stated by the Court
in Michelin, supra:
“The Import-Export Clause clearly prohibits
state taxation based on the foreign origin of the
41
imported goods, but it cannot be read to accord
imported goods preferential treatment that per-
mits escape from uniform taxes imposed with-
out regard to foreign origin for services which
the State supplies. e.g., May v. New Orleans,
178 U. S. 496, 502-504, 507 (1900). It may
be that such taxation could diminish federal im-
post revenues to the extent its economic burden
may disco purchase or importation of for-
eign goods. The prevention or avoidance of this
incidental effect was not, however, even remotely
an objective of the Framers in enacting the pro-
hibition.” 403 U.S. at 276.
Does Washington’s B&O tax interfere with the
free flow of goods among the states? Stated other-
wise, is Washington’s B&O tax a mere transit fee“?
Still again, we think not. The tax in question is nondis-
criminatory and is not directed at imports or exports
as such. It is apportioned exactly to those activities
which take place in the State of Washington and does
not reach activities taking place elsewhere. Indeed,
Washington’s B&O tax has exactly the same effect on
the process of importing and exporting as Maryland’s
gross receipts tax on the transportation of goods
moving in the import-export stream upheld by this
Court in Canton Ry. Co. v. Rogan, 340 U.S. 511
(1951).
As stated by this Court in Michelin:
“There is no reason why local yers should
subsidize the services used by importer ;
ultimate consumers should pay for such services
fpr and fire protection accorded the goods
just as much as they should pay transportation
42
—_ associated with those goods.” 423 U.S. at
In short, Washington’s B&O tax on stevedoring
activity does not, and cannot, interfere with the free
flow of goods among the states. It is a tax on a wholly
local activity; the funds derived therefrom are used
to provide governmental services to the Stevedores;
and there is not a scintilla of evidence that the tax
is designed as a “transit fee” for goods moving
through Washington.
Thus, notwithstanding the fact that Justices
Douglas and Rutledge in their dissent in Joseph v.
Carter & Weekes Stevedoring Co., supra, would
have held New York’s tax on stevedores to be in
violation of the Import-Export Clause“ it is ap-
parent Washington’s B&O tax on stevedoring ac-
tivity does not viclate the Import-Export Clause. The
tax is not an “impost” or “duty” within the meaning
of the Import-Export Clause; it does not produce any
of the effects on importing and exporting forbidden
by the Import-Export Clause; and accordingly should
be sustained.
CONCLUSION
The issue before the Court is whether the Com-
merce or Import-Export Clause prohibits a general,
nondiscriminatory state tax on the privilege of en-
gaging in the business of stevedoring cargo moving
lt appears that Justice Douglas may have reconsidered his position
only five years later. In his majority opinion in Canton Ry. Co., supra,
he reserved the question of whether stevedoring activities
are immune from 11 reason Import-
LILA
43
in interstate and foreign commerce. The Court has
clearly indicated in Michelin and Complete Auto
Transit that the proper analysis of questions posed by
state taxation of interstate and foreign commerce
turns on whether the state tax produces an effect
forbidden by these two constitutional provisions,
without regard to the type of “label” attached .
tax.
Washington’s B&O tax produces none of the
effects on interstate or foreign commerce forbidden
by these two constitutional provisions, and conse-
quently should be sustained. The “Stevedoring
Cases,“ to the extent that they would invalidate the
tax in question, should be overruled inasmuch as the
cases represent outmoded methods of analysis and
produce results never intended by the Framers of the
Constitution.
In sum, interstate and foreign commerce should
pay their way, and there is no reason why the states
through which such commerce passes should be re-
quired to subsidize that commerce except insofar as
necessary to prevent states from exacting an unfair
tribute from goods and services passing through the
state
Accordingly, the petitioner State of Washing-
ton Department of Revenue respectfully requests
this Court to reverse the decision of the court below;
uphold the constitutional validity of the challenged
administrative rule; and thereby uphold the power of
14
the State of Washington to apply its Business and Oc-
cupation Tax to the wholly in-state activities of the
Stevedores.
Respectfully submitted,
SLADE GORTON
— of Washington
RICHARD H. HOLMQUIST
Senior Assistant Attorney General
MATTHEW J. COYLE
Assistant Attorney General
Attorneys for Petitioner.
45
APPENDIX A
82.04.220 Business and occupation tax imposed.
There is levied and shall be collected from every per-
son a tax for the act or privilege of engaging in
business activities. Such tax shall be measured by the
application of rates against value of products, gross
proceeds of sales, or gross income of the business, as
the case may be.
82.04. 290 Tax on other business or service ac-
tivities. Upon every person engaging within this state
in any business activity other than or in addition to
those enumerated in RCW 82.04.2230, 82.04.240,
82.04.250, 82.04.255, 82.04.260, 82.04.270, 82.04.275
and 82.04.280; as to such persons the amount of tax
on account of such activities shall be equal to the
gross income of the business multiplied by the rate of
one percent. This section includes, among others,
and without limiting the scope hereof (whether or
not title to materials used in the performance of such
business passes to another by accession, confusion,
or other than by outright sale), persons engaged in
the business of rendering any type of service which
does not constitute a “sale at retail” or a “sale at
wholesale.” The value of advertising, demonstration,
and promotional supplies and materials furnished
to an agent by his principal or supplier to be used for
informational, educational and promotional purposes
shall not be considered a part of the agent’s remu-
neration or commission and shall not be subject to
taxation under this section.
46
82.04.460 Business within and without state——
Apportionment. Any person rendering services and
maintaining places of business both within and with-
out this state shall, for the purpose of computing tax
liability under this chapter, apportion to this state
that portion of his gross income which is derived
from services rendered within this state. Where such
apportionment cannot be accurately made by sepa-
rate accounting methods, the taxpayer shall appor-
tion to this state that proportion of his total income
which the cost of doing business within the state
bears to the total cost of doing business both within
and without the state.
STATE OF WASHINGTON
DEPARTMENT OF REVENUE
Olympia, Washington
WAC 458-20-193D (Rule 193—Part D)
TRANSPORTATION, COMMUNICATION,
PUBLIC UTILITY ACTIVITIES, OR
OTHER SERVICES IN INTERSTATE
OR FOREIGN COMMERCE
Rule 193 deals with interstate and foreign com-
merce and is published in four separate parts:
Part A. Sales of Goods Originating in Other
States to Persons in Washington.
Part B. Sales of Goods Originating in Other
States to Persons in Washington.
47
Part C. Imports and Exports: Sales of Goods
from or to Persons in Foreign Countries.
Part D. Transportation, Communication, Public
Utility Activities, or Other Services in Interstate or
Foreign Commerce.
PART D.
BUSINESS AND OCCUPATION TAX,
PUBLIC UTILITY TAX
In computing tax there may be deducted from
gross income the amount thereof derived as com-
pensation for performance of services which in them-
selves constitute interstate or foreign commerce w
the extent that a tax measured thereby constitutes
an impermissible burden upon such commerce. A tax
does not constitute an impermissible burden upon
interstate or foreign commerce unless the tax dis-
criminates against that commerce by placing a
burden thereon that is not borne by intrastate com-
merce, or unless the tax subjects the activity to the
risk of repeated exactions of the same nature from
other states. Transporting across the state’s bound-
aries is exempt, whereas supplying such transporters
with facili*ies, arranging accommodations, providing
funds and the like, by which they engage in such
commerce is taxable.
EXAMPLES OF EXEMPT INCOME:
1. Income from those activities which consist
of actual transportation of persons or
48
property across the state’s boundaries is
exempt.
2. That portion of commissions received by
local brokers or commission merchants for
interstate or foreign sales which was paid
to out-of-state independent agents is exempt.
3. Income from services rendered by an out-of-
state branch or office of the taxpayer regu-
larly maintained outside the state is exempt.
(See Rule 194.)
EXAMPLES OF TAXABLE INCOME:
1. Compensation received by persons engaged
in business within this state for performance
of business activities which are only ancil-
lary to transportation across the state’s
boundaries is taxable.
2. Compensation received by merchandise
brokers or commission merchants for serv-
ices rendered within this state to principals
engaged in interstate or foreign commerce
is taxable.
3. Compensation received by contracting, steve-
doring or loading companies for services
performed within this state is taxable.
In computing public utility tax, there may be
deducted from gross income so much thereof as is
derived from actually transporting persons or prop-
erty or transmitting communications or electrical
energy, from this state to another state or territory
or to a foreign country and vice versa.
49
Persons, including dock companies or wharfage
companies, are permitted no deduction of gross in-
come from services performed in this state consisting
of the handling of cargo or freight even though such
cargo or freight has moved or will move across the
state’s boundaries.
No deduction is permitted with respect to gross
income derived from activities which are ancillary to
transportation across the state’s boundaries, such as
income received by a wharf company or warehouse
company for the storage of goods. The mere owner-
ship or operation of facilities by means of which
others engage in foreign or interstate commerce is
an activity ancillary to such commerce and any in-
come received therefrom is taxable.
Insofar as the transportation of goods is con-
cerned, the interstate movement of cargo or freight
ceases when the goods have arrived at the destination
to which it was billed by the out-of-state shipper, and
no deduction is permitted of the gross income derived
from transporting the same from such point of
destination in this state to another point within this
state. Thus, freight is billed from San Francicso, or
a foreign point, to Seattle. After arrival in Seattle it
is transported to Spokane. No deduction is permitted
of the gross income received for the transportion
from Seattle to Spokane. Again, freight is billed
from San Francisco, or a foreign point, to a line
carrier’s terminal, or a public warehouse in Seattle.
After arrival in Seattle it is transported from the
line carrier’s terminal or public warehouse to the
50
buyer’s place of business in Seattle. No deduction is
permitted of the gross income received as transporta-
tion charges from the line carrier’s terminal or
public warehouse to the buyer’s place of business in
Seattle.
Revised May 3, 1974.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.