Petitioners Reply Brief — Department of Revenue v. Ass'n of Washington Stevedoring Companies

FOR AKGUMENL

JAN 10 1976

— ny N. CLERK

IN THE 0

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

PETITIONER'S REPLY BRIEF

SLADE GORTON

Attorney General

State of Washington

RICHARD H. HOLMQUIST

Senior Assistant Attorney General

MATTHEW J. COYLE

Assistant Attorney General

Attorneys for Petitioner

Office and Post Office Address Temple of Justice

Olympia, Washington 98504. Telephone (206) 753-5528

STATE CRINTING PLANT — e „„ ne

_ 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

PETITIONER’S REPLY BRIEF

SLADE GORTON

State of Washington

RICHARD H. HOLMQUIST

Senior Assistant Attorney General

MATTHEW J. COYLE

Assistant Attorney General

Attorneys for Petitioner

Office and Post Office Address Temple of Justice

Olympia, Washington 98504. Telephone (206) 753-5528

STATE PRINTING e-

—

ä eéeccboceesenéoepassoad dnceceboséncce

/ 3

I | worm gg nh dy ey aye Clause Does Not

Require a Per Se Ban All Types of State Excise

Taxes Imposed on Carriers or of Goods

Moving in the Import-Export Process............... 3

Il. The Challenged Tax on Stevedoring Activity Does

Not Discriminate Against Interstate or Com-

merce, and Does Not Produce Effects by

the Commerce or Import-Export Clause............. 7

A. Washington's B&O Tax Does Not Single Out”

Stevedoring Activity... gg 8

B. Washington's B&O Tax on Activ-

Re 3 San

on Non-Citizens of the State 10

rere ese 000 14

rr ee eee e oc 15

CITATIONS OF AUTHORITY

Table of Cases

Canton Railroad Co. v. Rogan, 340 U.S. 511 (1951)...... 10, 11

Complete Auto Transit v. Brady, 430 U.S. 274

1 —— 6000 5, 9, 10, 11

Flint v. Stone Tracy Co., 220 U.S. 107 (191177) 4

Freeman v. Hewit, 329 U.S. 249 (1966 4

Interstate Oil Pipeline Co. v. Stone, 337 U.S. 662

er 0000000 10, 11

Michelin Tire Corp. v. Wages, 423 U.S. 276

SEP Gadsboodovesoesossbe —— 5, 10, 12

Richfield Oil v. State Board of Equalization,

Zr = 3. 5, 6

Motor Service, Inc. v. O'Connor,

Ta eee eee 11

Youngstown Sheet & Tube Co. v. Bowers,

. —— 5

111

CONSTITUTIONAL PROVISIONS

AND STATUTES

Page

US. Constitution, Art. I, § 8, el. Ill. 4

U.S. Constitution, Art. I, 58. el. 33... 2

US. Constitution, Art. I, §10, el. 22. 1

171K A 8

OTHER AUTHORITIES

W. Hellerstein, State Taxation and the Su Court:

Toward a More Unified Approach to Constitutional

Adjudication? 75 Micu. L. 1 4% aa 6, 13

1977-79 Budget Message of Governor Dixy Lee Ray

1E 8

iv

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

PETITIONER’S REPLY BRIEF

INTRODUCTION

In their brief, the respondent Stevedores really

advance only three major arguments in support of

the decision below: (1) the language of the Import-

Export Clause’ constitutes a flat prohibition against

state excise taxes on imports or exports (Resp. Br.

9-18); (2) Washington’s business and occupation

(B&O) tax on stevedoring activity amounts to a

toll or transit fee on goods moving through Wash-

1 U.S. Const., Art. I, §10, cl. 2.

ington ports, thus creating an evil which the Import-

Export Clause was designed to prevent (Resp. Br.

19-23); and (3) even fairly apportioned, non-dis-

criminatory state excise taxes on interstate carriers

should be struck down on Commerce Clause’ grounds

because such taxes are capable of being used to exact

tolls from commerce moving through a state (Resp.

Br. 23-33).

The short answer to the Stevedores’ first argu-

ment is that neither the plain language nor the pur-

poses of the Import-Export Clause require a per se

ban on all types of state “excise” taxes imposed on

carriers or handlers of goods moving in the import-

export process. By its express terms, the Import-

Export Clause prohibits only “Imposts and Duties”,

i.e. taxes directed at imports or exports as such. An

excise tax such as Washington’s fairly apportioned,

non-discriminatory state B&O tax on stevedoring ac-

tivity is not directed at imports or exports as such

and is therefore not an “impost” or “duty” within

the meaning of those terms as used in the Import-

Export Clause.

It is apparent that the second and third argu-

ments are one and the same: if a state tax creates

a “trade barrier” impeding the free flow of goods in

interstate or foreign commerce, such a tax contra-

venes the purposes of both the Commerce and Import-

Export Clauses. The short answer to this argument

is that a fairly apportioned non-discriminatory tax

2 U.S. Const., Art. I, §8, cl. 3.

on handlers or carriers of goods moving in interstate

or foreign commerce cannot create the “trade bar-

rier” effect forbidden by the Constitution. Rather,

such a tax constitutes a permissible demand on inter-

state or foreign commerce in return for the govern-

mental services rendered to such commerce by the

taxing state. To accept the Stevedore's argument

would be to return to the discarded notion that the

Commerce and Import-Export Clauses create a “free

trade” zone of immunity and would require the states

to subsidize the conduct of interstate and foreign

commerce within their borders.

ARGUMENT

I. The Language of the Import-Export Clause Does

Not Require a Per Se Ban On All Types of State

Excise Taxes Imposed On Carriers or Handlers of

Goods Moving in the Import-Export Process.

The Stevedores argue that the language of the

Import-Export Clause constitutes a flat prohibition

against all types of state “excise” taxes on imports

or exports, citing Richfield Oil Corp. v. State Board

of Equalization, 329 U.S. 69 (1946). Resp. Br. 9-18.

However, neither the plain language of the Import-

Export Clause nor Richfield Oil supports the Steve-

dores’ expansive view of the protection afforded im-

ports and exports by the Constitution.

First, the plain language of the Import-Export

Clause contains a flat prohibition only against “Im-

posts and Duties” levied by a stave. The term “excise”

4

does not appear anywhere in the Clause. To demon-

strate that there is a difference between Imposts

and Dyities” and “excises’’, well understood by the

Framers of the Constitution, one need only cite U. S.

Const., Art. I, $8, el. 1, which provides:

“The Congress shall have Power to lay and col-

lect Taxes, Duties, Imposts and Excises, to pay

the Debts and provide for the common Defence

and general Welfare of the United States; but

all Duties, Imposts and Excises shall be uniform

throughout the United States (Em-

phasis supplied)

Thus, even the Framers recognized a distinetion

between Imposts and Duties” and “Excises”. That

distinction was explained in a 1911 case in which the

Court held that a corporate net income tax levied by

the United States was an exeise“:

“Duties and imposts are terms commonly ap-

plied to levies made by governments on the im-

portation or exportation of commodities. Excises

are ‘taxes laid upon the manufacture, sale, or

consumption of commodities within the country,

upon licenses to pursue certain occupations, and

upon corporate privileges.’ Cooley, Const. Lim.

7th Ed. 680.” Flint v. Stone Tracy Co., 220 U.S.

107, 151 (1911).

Washington’s B&O tax on the Stevedores is un-

deniably an “excise tax”. But that characterization

alone does not bring the tax within the term “Im-

posts and Duties” as used in the Import-Export

Clause. In order to be regarded as an impost or

5

duty, a tax, by whatever name it may be called, must

be directed at imports or exports as such or must

create an evil the Import-Export Clause was spe-

cifically designed to prevent. Michelin Tire Corp. v.

Wages, 423 U.S. 276, 293-294 (1976).°

Second, to the extent that Richfield Oil Corp.

v. State Board of Equalization, 329 U.S. 69 (1946),

can be said to stand for the proposition that the

Import-Export Clause prohibits any tax, whether or

not discriminatory, on imports or exports, it has

been impliedly limited by this Court’s decision in

Michelin, st_pra. In Richfield Oil, the Court held

that California’s sales tax, as applied to the sale

of oil to the government of New Zealand consum-

mated by delivery on board a New Zealand Navy

tanker berthed in Los Angeles violated the Import-

Export Clause because at the time the tax attached

the oil had the status of an export“, i.e., it was in

the export process. Thus, the Richfield Oil decision

is merely one of a long line of cases representing

an earlier approach taken by this Court in attempt-

ing to identify the time at which an absolute im-

munity from all forms of state taxation attached to

goods because of the status of such goods as imports

or exports. See, e.g., Youngstown Sheet & Tube Co.

v. Bowers, 358 U.S. 534 (1959), and other cases

® Of course, the above discussion is not to suggest that an “excise”

tax can never be considered an duty” within the plain

meaning of the Import-Export Clause. Rathe. 1 underscores the point

6

cited and discussed in Petitioner’s Opening Brief at

pp. 35-36.

To be sure, during the course of the Richfield

Oil opinion, Justice Douglas, speaking for the major-

ity, declined to read into the Import-Export Clause

an implied qualification limiting the scope of the

Clause’s prohibition solely to discriminatory state

taxes. Rich field Oil, supra, 329 U.S. at 75-78, quoted

in Resp. Br. at 11-12. But that view surely has been

modified by this Court’s decision in Michelin, supra,

upholding a general, non-discriminatory ad valorem

property tax on imported tires without regard to

whether the goods had lost their status as imports.

As one commentator has explained:

“In Michelin, the Court disentangled itself from

the thorny problem of locating imported goods

in time and space in the context of their intended

use to determine whether they had retained their

distinctive character as imports. Instead, the

Court’s opinion makes it clear that the central

question in such cases is whether the exaction

at issue discriminates against imported goods

on the basis of their foreign origin.”

W. Hellerstein, State Taxation and the Supreme

Court: Toward a More Unified Approach to Consti-

tutional Adjudication? 75 Mich. L. REv. 1426, 1447

(1977).

In sum, neither the plair nguage of the Im-

port-Export Clause nor the C. s construed in

Richfield Oil provides any basis tv. the rigid per

se ban on all types of state excise taxes imposed

7

on carriers or handlers of goods moving in the im-

port-export process urged upon this Court by the

Stevedores. The remaining and crucial inquiry is

whether the tax in question—whatever its label“

discriminates against imports and exports or other-

wise causes evils which the Import-Export Clause

was designed to prevent, and it is to this subject

(and its companion, discrimination under the Com-

merce Clause) we now turn.

II. The Challenged Tax on Stevedoring Activity Does

Not Discriminate Against Interstate or Foreign

Commerce, and Does Not Produce Effects Forbidden

by the Commerce or Import-Export Clause.

The Stevedores argue that Washington’s B&O

tax on stevedoring activity amounts to a toll or

“transit fee” on goods moving in interstate or for-

eign commerce, and is therefore invalid under both

the Commerce and Import-Export Clauses. Resp. Br.

19-33. Beginning with the premise that the B&O tax

on stevedoring activity “* * * has the economic

affect [sic] of ‘singling out’ water-carried imports

and exports * * *” (Resp. Br. 21), the Steve-

dores argue that even a fairly apportioned, non-

discriminatory excise tax levied on handlers of goods

moving in interstate or foreign commerce should be

struck down because such taxes cast burdens on non-

citizens of the taxing State and create the risk of

what the Stevedores term a “tollgate syndrome”,

thus causing the “trade barrier” effect which the

Commerce and Import-Export Clauses were designed

to prevent.

This argument is without merit. Washington’s

B&O tax does not “single out” Stevedoring activities ;

the tax does not cast impermissible burdens on non-

citizens of the state, or put otherwise, the tax does

not amount to a toll or “transit fee” on goods moving

through Washington ports.

A. Washington’s B&O Tax Does Not “Single Out”

Stevedoring Activity.

Washington’s B&O tax is a broad-based gross

receipts tax reaching virtually every business and

occupation carried on in the state. See, RCW 82.04-

.220 (Pet. Br. App. A). Washington has no net

income tax, and therefore must depend upon the

B&O tax as a major source of revenue for the sup-

port of state government.“

Although, as pointed out by the Stevedores, there

are differing tax rates applicable to different types

of business activity (Resp. Br. 3-4), the tax rate

which would be applied to the Stevedores (1.06 per-

source of 10.9 percent of the state's general The retail

sales and use tax (RCW 82.08 and 82.12, 3 is the

only larger single source tax revenue for the state. See

9

businesses of a service nature, e.g., barbers, account-

ants, doctors, freight consolidators, etc.

In passing, the Stevedores’ apparent argument

that the multiplicity of B&O tax rates makes it sus-

ceptible to discriminatory use against stevedoring

activity (Resp. Br. 31-33) can have no relevance to

the present case. First, as this Court observed in

Complete Auto Transit, supra, the mere risk of such

discrimination is not sufficient to require a per se

rule of unconstitutionality ; 430 U.S. 274 at 288-289,

fn. 15. Second, this argument really goes only to the

measure of the tax, and not to its subject, yet this

present case concerns the Stevedores’ claim that it

is the character of the subject of the tax (that is,

stevedoring activity) which somehow renders it

unconstitutional.

Given the broad-based application of the B&O

tax and its non-discriminatory imposition on the

Stevedores, it is sheer nonsense to argue that the

tax “singles out” water-carried imports and exports.

The Stevedores are not being asked to bear a special

tax burden not borne by other businesses similarly

situated, nor are they being asked to pay a tax on

business act. ity conducted in other states. Thus,

even if it could be said that a tax on the carrier is

equivalent to a tax on the goods (Resp. Br. 22), there

is nothing in the application of Washington’s B&O

tax to stevedoring activity which “singles out” im-

ports and exports for special tax treatment. All that

Washington has done is to require the Stevedores to

10

bear their fair share of the cost of governmental

services rendered to them by the State. See, Michelin,

supra, 423 U.S. 276 at 287; Complete Auto Transit,

supra, 430 U.S. 274 at 288.

B. Washington’s B&O Tax on Stevedoring Activ-

ities Does Not Cast Impermissible Tax Burdens

on Non-Citizens of the State.

In the course of their arguments regarding both

the Commerce and Import-Export Clauses, the Ste ve-

dores make much of what they perceive to be a dis-

tinction in this Court’s decisions involving “move-

ment” and “non-movement” cases. Resp. Br. 18,

23-28. According to the Stevedores, this Court’s

decisions in Interstate Oil Pipeline Co. v. Stone, 337

U.S. 662 (1949), Canton Railroad Co. v. Rogan, 340

U.S. 511 (1951), and Complete Auto Transit v.

Brady, 430 U.S. 274 (1977), can be distinguished

from the present case because, say the Stevedores,

they all involved an excise tax on intrastate carriers

who linked up with interstate carriers. Because, in

the Stevedores’ view, local consumers and producers

bear the tax burden in such local transit, these de-

cisions do not operate to cause the “tollgate syn-

drome” claimed to result from Washington’s tax.

Resp. Br. 26-27. Not only is this argument logically

inconsistent, but it also misses the point.

If one accepts the Stevedores’ premise that a

tax on the mover of goods is equivalent to a tax

on the goods themselves, then surely the Stevedores

would have to contend that a tax on the intrastate

11

portion of carriage of goods moving in interstate

commerce operates to create the very sort of imper-

missible “toll” on the entry or departure of such

goods into or from the taxing state as they complain

of in the present case, and presumably, such a tax

should be struck down. Yet, in both Interstate Oil

Pipeline, supra, and Complete Auto Transit, supra,

the Court upheld the challenged Mississippi taxes

even though it expressly assumed that the local in-

state movement of goods was a part of interstate

commerce. Interstate Oil Pipeline, 337 U.S. at 666:

Complete Auto Transit, 430 U.S. at 276, fn. 4.

Furthermore, the third of these cases, Canton

Railroad, supra, cannot be so easily dismissed as the

Stevedores have attempted, given that it involved a

gross receipts tax on an intrastate railroad carry-

ing goods moving in interstate and foreign com-

merce to and from inland states. Local consumers

and producers were not asked to bear the economic

burden of the tax, but the tax was nevertheless sus-

tained against a challenge under the Import-Expo:t

Clause.

More generally, the Stevedores are really argu-

ing for a return to the discarded notion that inter-

state and foreign commerce should enjoy a “free

trade” immunity from state taxation. See, e.g., Free-

man v. Hewit, 329 U.S. 249, 252 (1946); Spector

Motor Service, Inc. v. O Connor, 340 U.S. 602

(1951).

The point to be made—which the Stevedores

miss—is that if the states can require interstate

or foreign commerce to “pay its way”, the economic

burden of one state’s tax must necessarily be borne

to some extent by citizens of other states. Contrary

to the argument of the Stevedores, the mere fact that

a state’s tax causes the cost of transporting goods to

be somewhat higher than might otherwise be the

case does not in and of itself create the “trade bar-

rier” effect forbidden by the Constitution. There is

no good reason why consumers and producers in

other states or foreign countries should not bear

some of the costs incurred by Washington in render-

ing governmental services to transporters of goods

entering into or departing from Washington any

more than such persons should not be required to

bear other costs incurred by the transporter of goods.

While it is possible, if not even likely, that allowance

of Washington’s tax may increase somewhat the cost

of goods purchased either by “inland” or foreign cus-

tomers, surely, as in Michelin. such taxa-

tion is the quid pro quo for benefits actually conferred

by the taxing State.” Michelin, supra, 423 U.S. 276,

at 289.

The crucial question, which the Stevedores al-

ternately ignore and dismiss, is whether the tax in

question in practical operation and effect discrimi-

nates against or imposes multiple burdens upon

goods moving through Washington. If it does not,

the tax—however it be termed—does not create the

evils forbidden by the Commerce and Import-Export

13

Clauses, and should be regarded as exacting a con-

stitutionally permissible demand on interstate and

foreign commerce in return for the governmental

services rendered by Washington.

One final argument must be stated. As already

discussed, the Stevedores in their brief have at-

tempted to draw as an important distinction a line

between decisions of this Court involving movement

and those involving non-movement; Resp. Br. 23,

et seq. Several shortcomings of this analysis have

already been discussed throughout this brief but

one additional consideration deserves attention.

In a real sense, both Michelin and Complete

Auto Transit constitute victories of substance over

mere formalism, and of economic reality over purely

mechanistic labeling.’ Having demonstrated that

Washington’s B&O tax on stevedoring activities does

not contravene any of the purposes of the Commerce

or Import-Export Clauses, Washington submits that

no useful or functional object would be served were

this Court to resolve this case by adopting still an-

other rigid formalism to determine the validity of

the challenged tax, namely that offered by the Steve-

dores of attempting to distinguish between move-

ment and non-movement. Were such a distinction to

be raised to the exalted station of a constitutional

standard for the Commerce and Import-Export

Clauses, the law concerning the powers of states to

* See W. Hellerstein, State Taxation and the Supreme

Court: a to

tion? 19 Maem Le Rev 1408 ST

APPENDIX A

14 1977-79 GENERAL FUND BUDGET

tax would be set back to a rule of “draftsmanship

and phraseology”, a rule which this Court so clearly REVENUE BY SOURCE

has rejected in its two recent Commerce and Import-

Export Clause cases.

CONCLUSION

For all the reasons set forth in this brief and

Petitioner’s Opening Brief, Washington’s business

and occupation tax upon stevedoring activities does

not abridge any of the purposes of either the Com-

merce or Import-Export Clauses of the Constitu- — sees sovcessceennestanesee —

tion; nor does it produce any constitutionally pro-

scribed effects on interstate or foreign commerce.

In order to complete the orderly revision of this

Court’s interpretations of the Commerce and Import-

Export Clauses reflected in Complete Auto Transit

and Michelin, supra, the decision of the court below

should be reversed and the constitutional validity of 3 — 22

the challenged administrative rule should be upheld.

DATED this 10th day of January, 1978.

Respectfully submitted, =

SLADE GORTON —

Attorney General

State of Washington THE BUDGET DOLLAR — WHERE IT GoEs

RICHARD H. HOLMQUIST — cocstiecasncendectnteesenseanas Me

Sentor Assistant Attorney General . 11 13

MATTHEW J. COYLE

Assistant Attorney General

Attorneys for Petitioner.

11