Reply Brief — Japan Line, Ltd. v. County of Los Angeles

j LEB

In THE DEC 29 I9%%

Supreme Court of the United States... nOaAK, Jn cue

October Term, 1977 —

No. 77-1378

Japan Line, Lrp.; Kawasaki Kisen Kaisua, Lrp.; Mirsvu1

O.S.K. Lives, Lrp.; Nippon Yusen KatsHa; Saowa Liyg,

Lrp.; and YamMasHiTa-SHinninon SreamsuHip Co., Lrop.,

Appellants,

v.

County or Los AncreLes; Crty or Los ANGELEs;

and Crry or Lone Bgacg,

Appellees.

ON APPEAL FROM THE SUPREME COURT

OF THE STATE OF CALIVORNIA

APPELLANTS’ REPLY BRIEF

Peter L. Briger, Esq.

Bricer & AssociaTEs

299 Park Avenue

New York, New York 10017

(212) 758-4000

Sheldon S. Cohen, Esq.,

Conen & Urerz

1775 K Street, N.W.

Washington, D.C. 20006

(202) 293-4740

Reed M. Williams, Esq.,

Ronald L. Young, Esq.,

GraHam & James

100 Oceangate, Suite 515

Long Beach, Calif. 90802

(213) 435-4435

Counsel for Appellants

TABLE OF CONTENTS

Pic, eI UE 1

II. The Tax as Imposed Constitutes an Improper

Interference with the Foreign Relations of the

I 2

ITI. Appellants’ Containers Are Foreign Owned In-

strumentalities Cuntinuously in Transit in Con-

nection with the Import and Export of Goods

and Are Exempt From Property Tax under the

Import-Export and Commerce Clauses ................ 7

IV. The “Average Presence” Test Is a Constitu-

tionally Impermissible Basis upon Which to Im-

pose Property Tax upon Foreign-Owned In-

strumentalities Used Exclusively in Foreign

I saininhih ocitchchicondbtnddnsallatianiianaettel henatiscnitiinthbite 9

V. Inthe Determination of the Validity of This Tax

in the Instant Situation, the Economic Realities

of the Tax Rather Than Formalisms or Yrictions

SE PE, cticn Banat iiciadiadiicininiinaiiisienicphnistteicaiii 14

VI. Inaccuracies or Distortions in Appellees Brief

Bg OE eae eemas Wn. ee ae eee 16

A. Japanese Tax Is Imposed upon Containers 16

B. The Assumptions of Appellees and Their

Amicus Distort the Facts of the Case ...... 17

C. The Containers Involved Herein Are Prin-

cipally Maritime Instruments ...................... 19

i CI ia ceccenntibic ee dteeabi adit Seaidinelaiad 21

ii

TABLE or AUTHORITIES

Cases: PAGE

Bass, Ratcliff & Gretton, Ltd. v. Tax Comm., 266 U.S.

DI denial ei! ae eat a Ts AE 14n

Braniff Airways, Inc. v. Nebraska State Board of

Equalization and Assessment, 347 U.S. 590 (1943)_.1-2, 11

Brown v. Maryland, 25 US. (12 Wheat.) 448 (1827)... 4

Canadian Pacific Railway Co. v. King County, 90

Wash. 38, 155 P. 416 ( EE es CAT 10,11

Cooley v. Board of Wardens of the Port of

Philadelphia, 53 U.S. (12 How.) 298 (1851) 10n

Department of Revenue v. Association of Washington

Stevedoring Companies, —— US. —, 98 S. Ct.

tana tlc, FO ESTE a 2, 3, 14

Freeman v. Hewitt, 239 U.S. 249 SN PE an 6

Fusari v, Steinberg, 419 U.S. 379 Es 18

Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824) 6

Hackfeld & Co. v. United States, 197 U.S. 442 (1905) ... 18

Harvester Co. v. Dep’t of Treasury, 322 U.S. 340 (1944) 15

License Cases, 46 U.S. (5 How.) 505 (1847) 7

Maine v. Grand Trunk Ry. of Canada, 142 U.S. 217

OUND. stilsecesnininhiilialiniieelitiainia iil Et 14n

Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976) 2, 3,

7, 8,9

Minnesota v. Blasius, 290 U.S. 1 FRR, 8

Moorman Manufacturing Co. vy. Bair, —— U.S. —,

98'S. Ct. 2340 (1978) oc ececccccccceceseeeeeeeeeeeece 5n

iii

PAGE

Pullman’s Palace Car Co. v. Pennsylvania, 141 U.S.

GND sevarsniniceinestantnititicionalisetideeielaess. teas! 1,10, 11

Quong Wing v. K irkendall, 223 U.S. 59 I ste atiiens 19

J.E. Raley & Bros. vy. Richardson, 264 U.S. 157

GEE? sevremnentansinlinistethaednbesyassccc. 19n

Sears, Roebuck & Company v. County of Los Angeles,

85 Cal. App. 3d 763 TE Rene 19n

Shapiro v. Thompson, 394 U.S. 618 IED ilioiesiceai cs 13

Southern Pacific Co. v. Arizona, 325 U.S. 761 ( 1945) ... 366

Standard Oil Co. v. Peck, 342 U.S. 382 ( a 11

Volkswagen Pacific, Inc. vy. City of Los Angeles, 496

a eT a Oa 20

Western Live Stock v. Bureau of Revenue, 303 U.S. 250

GMEUUD . <wiinsesniarcisediichsstilanhitenidsimamasisiiiaie, 19n

Wisconsin v. J. C. Penney Co., 311 U.S, 435 (1940) ... 15

Youngstown Sheet & Tube Co. v. Bowers, 358 U.S. 534

GRD <sctnipnrtsnneieesingibaindnininncniaet ce 7

Zee Toys, Inc. vy. County of Los Angeles, 85 Cal. App.3d

TE GUND siientiinimeiisneliptenstiiititinbinndteineces 19n

Statutes:

Code of Federal Regulations:

19 C.PR. §10.41 a(a)(1) oe cceecccccceecceeeeeeeeeccc 16n

edhericsiigecn’ come cis, er ee 16n

iv

PAGE

United States Code:

23 USC. (9056 Siihanstiinnniiietinistisinesiasiialaaitia lel 6

OR i oe 9

fg, CR CLO ISS, Pe 9

5 CMT SOC WAL ald 9

Other Authorities:

Guide to Japanese Taxes 1975-1976, Zaikei Sho Ho Sha,

A iit 17n

Hartman, State Taxation of Interstate Commerce, 1

i TL OPEL SN 4

Simon, The Law of Shipping Containers, 5 J. Maritime

L. and Commerce 507 TIE swisintteiteaee cine ae 19-20, 20n

Washington Department of Property Tax Bulletin, No.

eP SED oncdincngeuiie aca ty eee 13n

In THE

Supreme Court of the Wuited States

Octe sor Term, 1977

No. 77-1378

Japan Line, Lrp.; Kawasak1 Kisen Karsna, Lrp.; Mrrsv1

O.S.K. Lives, Lrp.; Nippon Yusen Katsna; SHowa Livg,

Lrp.; and YAMASHITA-SHINNIHON STeaMsHIP Co., Lrp.,

Appellants,

v.

County or Los ANGELEs; Crry or Los ANGELES;

and Crry or Lone Bracnu,

Appellees.

ON APPEAL FROM THE SUPREME COURT

OF THE STATE OF CALIFORNIA

APPELLANTS’ REPLY BRIEF

I,

Restatement of Issue

The precise issue which this case presents is wnether the

fiction of situs through average presence, relied upon by

Appellees, can, under the Constitution, be applied to Ap-

pellants’ containers (foreign-owned instrumentalities used

exclusively in foreign commerce) so as to create an actual

presence sufficient to permit the valid assessment of a gen-

eral local property tax. Regardless of the use of this test

in connection with property owned by domestic persons,

as sanctioned by this Court in Pullman’s Palace Car Co. vy.

Pennsylvania, 141 U.S. 18 (1890), and Braniff Airways,

2

Inc. v. Nebraska State Board, 347 U.S. 590 (1943), it is

not applicable in the instant situation where the United

States has clearly stated that the imposition of such tax

upon Appellants’ containers constitutes an impermissible

interference with its exclusive right to regulate foreign

commerce in an area where the Nation must speak with one

voice.

Il.

The Tax as Imposed Constitutes an Improper Inter-

ference with the Foreign Relations of the United States.

The Brief for the United States clearly sets forth its

interest to “develop and facilitate the use of containers in

international commerce”. Brief for the United States at

28. It is expressly stated therein that the imposition of

the property tax in question “would frustrate accomplish-

ment of the federal objective in allowing temporary free

admission to the containers under bond” and “flessen] the

effectiveness of the federal regulation by burdening

foreign-owned containers with a multiple tax burden that

hinders the use of such containers in our foreign com-

merce.” Brief for the United States at 28-29.

A concise summary of the current Status of the effect

of foreign policy considerations upon a related provision

of the Constitution, the Import-Export Clause, is found in

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

Department of Revenue v. Association of Washington

Stevedoring Companies, —— U.S. —, 98 S. Ct. 1388

(1978). In the concurring opinion in Washington Steve-

doring Companies, it was stated as follows:

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

this Court abandoned the traditional formalistic

3

methods of determining the validity of state levies un-

der the Import-Export Clause and applied a fune-

tional analysis based on the exaction’s relationship

to the three policies that underlie the Clause: (i)

preservation of uniform federal regulation of foreign

relations; (ii) protection of federal revenue derived

from imports; and (iii) maintenance of harmony

among the inland States and the seaboard States. The

nondiscriminatory ad valorem property tax in Miche-

lin was held not to violate any of those policies, but

the Court suggested that even a nondiscriminatory

tax on goods merely in transit through the State might

run afoul of the Import-Export Clause.” 98 S. Ct. at

1405.

This is the situation which exists in the instant case, It

can be remedied by the Court’s invalidation of the “prop-

erty tax” as applied to Appellants’ containers.

In addition, and wholly aside from considerations of

foreign policy under the Import-Export Clause referred to

by the Court in the Michelin and Washington Stevedoring

Companies cases, the adverse impact which the tax in issue

creates upon the foreign relations of the United States

clearly constitutes a violation of the Commerce and Su-

premacy Clauses of the Constitution.

Appellees argue that the fear of multiple tax burdens

may not, in itself, constitute a proper constitutional con-

cern. However, in the highly sensitive field of international

transportation of goods and persons (traditionally sub-

ject to regulation and taxation upon a national govern-

mental level, rather than a local governmental] level), when

the imposition of any such regulation, including the instant

tax, directly and adversely affects the reliance interests

of foreign governments, such a tax produces a serious and

adverse effect upon the foreign relations of the United

| , a

|

4

States. This point has been confirmed by the Brief for the

United States.

Moreover, angry and unreasoned polemics to the con-

trary notwithstanding, there must be reasonable limits

upon the taxing powers of the States, under the Commerce,

Supremacy, Treaty and Import-Export Clauses of the

Constitution, when such taxing powers are exercised in a

manner that produces adverse effects upon the foreign

relations of the Nation. See, Brown v. Maryland, 25 U.S.

(12 Wheat.) 448 (1827). It is not the role or function of

state or local governments to determine what actions on

the part of state and local governments may adversely im-

pact upon the foreign relations of the United States.! The

* See, Hartman, State Taxation of Interstate Commerce 1 (1953),

wherein the author commenced his treatise as follows:

“That great jurist and pragmatist, Oliver Wendell Holmes,

Jr., once wrote that while he did ‘not think the United States

would come to an end if we lost our power to declare an Act

of Congress void,’ he did ‘think the Union would be imperiled

if we could not make that declaration as to the laws of the

several states.’! The reason Justice Holmes gave was that ‘one

in my place sees how often a local policy prevails with those

who are not trained to national views and how often action is

taken that embodies what the commerce clause was meant to

end.’ He was thus expressing in vigorous and dramatie form

the need for harmonious coordination of power between the

national and state governments as a prerequisite for the func-

tioning of our federal system. Implicit in Justice Holmes’ idea

that judicial review of state action is indispensable for the

preservation of the federal system is the judicially recognized

danger that encroachments by a State upon interests outside

its borders are not likely to be eurbed through political re-

straints.”

* Holmes, Collected Legal Papers 295-96 (1920),

* Mar-hall recognized this danger in MeCulloch vy. Mary-

land, 4 Vheat. 316, 435-36 (U.S. 1819). Justice Stone’s

thinking also embraced this idea. See Helvering vy. Gerhardt,

304 U.S. 405, 412 (1938): South Carolina State Highway

Dep’t v. Barnwell Brothers, Ine., 303 U.S. 177, 185 n. 2

(1938). See Dowling, The Methods of Mr. Justice Stone in

Constitutional Cases, 41 Col. [,. Rev. 1160, 1171 (1941),”

5

Court has requested the Solicitor General to express the

views of the United States on this question and he has done

so. Apparently dissatisfied with the one voice with which

the Nation has spoken on this question, Appellees and their

Amici would arrogate to themselves the final Say in what

is to be considered a matter affecting the foreign relations

of the Nation, within the meaning of that term from the

standpoint of the Commerce, Supremacy, Treaty and

Import-Export Clauses.

Appellees would have the Court believe that the pattern

of Federal action and Federal interest in the area of reg-

ulation of international transport, as described in Appel-

lants’ Brief and the Brief of the United States, is not

sufficient to pre-empt the area, and thus prohibit the impo-

sition of a personal property tax on foreign-owned instru-

mentalities used exclusively in foreign commerce, based

upon the fiction of average presence. Appellees argue that

the only means by which such a result could be achieved

is through the enactment of specific legislation by the

Congress.’

There are numerous areas of exclusive Federal interest,

particularly in the field of foreign relations, where the

Executive Branch of the government may choose to oper-

ate pursuant to diplomatic channels, rather than on the

* For this proposition, they cite Moorman Manufacturing Co.

v. Bair, U.S. —~—, 98 S. Ct. 2340 (1978). The Moorman case

did not involve any foreign policy matter, such as that involved

here, in which the Federal government maintains overriding eon-

of a domestic taxpayer among states. Moreover, the issue in that

case had been considered by the Congress on a number of occasions

without enactment of any specific legislative solution on this ques-

tion. See, H.R. 11798, 89th Cong., 2d Sess. (1965); H.R. 16491.

89th Cong., 2d Sess. (1966) ; S. 317 92¢ Cong., Ist Sess. (1971) ;

H.R. 1538, 92d Cong., 1st Sess. (1971); S. 1245, 934 Cong., 1st

Sess. (1973) ; H.R. 977, 93d Cong., Ist Sess. (1973) ; S. 2080, 94th

Cong., 1st Sess. (1975) ; and H.R. 9, 94th Cong., Ist Sess. (1975).

6

basis of a specific legislative scheme. See, e.g., 22 U.S.C.

§2656, which authorizes the Department of State to per-

form such duties respecting foreign affairs as the Pres-

ident of the United States shall direct without further

action by Congress.

More particularly, Appellees’ argument that the lack of

specific legislative action precludes any Federal pre-

emption is patently insupportable in that it disregards the

established law on this question. The Court answered this

point simply in Southern Pacific Co. v. Arizona, 325 U.S.

761, 769 (1945) in the following terms:

“For a hundred years it has been accepted constitu-

tional doctrine that the Commerce Clause, without the

aid of Congressional legislation, thus affords some

protection from state legislation inimical to the na-

tional commerce, and that in such cases, where Con-

gress has not acted, this Court, and not the state leg-

islature, is under the Commerce Clause the final arbiter

of the competing demands of state and national in-

terests.”

See, also, Gibbons v. Ogden, 22 U.S. (9 Wheat) 1, 187-

198 (1824), where the Court stated: “(t]he power to reg-

ulate commerce with foreign nations is an express grant

by the people to the Federal government”; and Freeman

v. Hewitt, 239 U.S, 249, 252 (1946), where the Court stated:

“(t]he Commerce Clause even without implementing legis-

lation by Congress is a limitation upon the power of the

States.”

Th.

Appellants’ Containers Are Foreign Owned Instru-

mentalities Continuously in Transit in Connection with

the Import and Export of Goods and Are Exempt from

Property Tax under the Import-Export and Commerce

Clauses.

The record clearly establishes that Appellants’ con-

tainers, which are foreign owned instrumentalities of com-

merce, are continuously in transit and are used exclusively

in the import or export of cargo in foreign commerce. It is

settled law that the imposition of state or local tax upon

property in transit in connection with the import or ex-

port of goods is invalid under both the 'mport-Export and

Commerce Clauses, The following statement of Chief

Justice Taney in the License Cases, 46 U.S. (5 How.) 505,

575-576 (1847), was cited with approval by the Court in

both the Youngstown Sheet & Tube Co. +. Bowers, 358 U.S.

534, 540, n.6 (1959), and Michelin, 423 U.S. at 290, cases:

“The immense amount of foreign products used and

consumed in this country are imported, landed, and

offered for sale in a few commercial cities, and a very

small portion of them are intended or expected to be

used in the State in which they are imported. A great

(perhaps the greater) part imported, in some of the

cities, is not owned or brought in by citizens of the

State, but by citizens of other States, or foreigners.

And while they are in the hands of the importer for

sale, in the form and shape in which they were intro-

duced, and in which they are intended to be sold, they

may be regarded as merely in transitu, and on their

way to the distant cities, villages, and country for

which they are destined, and where they are expected

to be used and consumed, and for the supply of which

“~ Ce

8

they were in truth imported. And a tax upon them

while in this condition, for State purposes, whether by

direct assessment, or indirectly, by requiring a license

to sell, would be hardly more justifiable in principle

than a transit duty upon the merchandise when pass-

ing through a State.”

As regards the invalidity of such a tax under the Com-

merce Clause, the Court in Minnesota v. Blasius, 290 U.S.

1 (1933), set forth the governing principles as follows:

“. .. [t]he States may not tax property in transit in

interstate commerce. But, by reason of a break in the

transit, the property may come to rest within a State

and become subject to the power of the State to im-

pose a non-discriminatory property tax. Such an exer-

tion of state power belongs to that class of cases in

which, by virtue of the nature and importance of local

concerns, the State may act until Congress, if it has

paramount authority over the subject, substitutes its

own regulation. The ‘crucial question,’ in determining

whether the State’s taxing power may thus be exerted,

is that of ‘continuity of transit’... .

Where property has come to rest within a State,

being held there at the pleasure of the owner, for dis-

posal or use, so that he may dispose of it either within

the State, or for shipment elsewhere, as his interest

dictates, it is deemed to be a part of the general mass

of property within the State and is thus subject to

its taxing power.” 290 U.S. at 9-10.

The Court in Michelin specifically recognized that even

where a state non-discriminatory ad valorem property tax

operated as no more than a transit fee upon property in

9

transit through the state, such tax would be invalid under

both the Import-Export Clause and under traditional Com-

merce Clause analysis. See, Michelin, 423 U.S. at 290.

The tax imposed by Appellees in the instant situation

operates as a tax on property in transit and is, therefore,

invalid. ,

IV.

The “Average Presence” Test Is a Constitutionally

Impermissible Basis upon Which to Impose Property

Tax upon Foreign-Owned Instrumentalities Used Ex-

clusively in Foreign Commerce.

The instant case is one of first impression for this Court

in that it is the first time the Court has directly considered

the constitutionality of the imposition of a general prop-

erty tax upon foreign-owned instrumentalities, which pass

through the relevant taxing jurisdictions only upon an “in

transit” basis, as part of an international shipment. The

taxation of such foreign-owned instruments of interna-

tional traffic has traditionally been dealt with by the United

States and its trading partners on the basis of reciprocal

exemption, whether ly means of the “Home Port” doc-

trine or any other applicable basis, such as pure reciprocity,

as in the case of the Federal Republie of Germany. See

also, 46 U.S.C. §§ 121, 141 and 142.

That the decision below represents the first time since

the founding of the Nation in which the imposition of state

or local property taxes have been sustained upon foreign-

owned instrumentalities used exclusively in foreign com-

merce, strongly suggests that state and local governments

have for nearly two hundred years recognized and accepted

the applicability of the “Home Port” doctrine in regard to

10

foreign-owned instrumentalities. Appellees and their Ami-

cus, the Multistate Tax Commission (the “MSTC”), ques-

tion the existence of any such doctrine on the part of the

United States. The Brief for the United States confirms,

in the clearest of terms, the perception on the part of the

United States and its trading partners regarding the adher-

ence to such custom.’ The failure on the part of state or

local governments in the United States to levy any such tax

fot nearly two centuries eloquently testifies to the existence

of such accepted custom on the part of state and local gov-

ernments,

Appellees have relied heavily upon two decisions, Pull-

man’s Palace Car Co. v. Pennsylvania, 141 U.S. 18 (1890),

and Canadian Pacific Railway Co. v. King County, 90

Wash. 38, 155 P. 416 (1916), which they cite in support

of the argument that foreign-owned containers, used ex-

clusively in foreign comr*rce and passing through their

jurisdictions only upon an “in transit” basis, are to be

subject to the same treatment as foreign-owned rolling

stock. The argument of Appellees on this point is insup-

portable for at least two reasons.

First, Appellees’ analysis of the above two decisions is

faulty in that neither case appears to have involved

foreign-owned instrumentalities used exclusively in for-

eign commerce. In the Pullman's Palace Car Co. case, the

entity subject to the capital stock tax was an Illinois cor-

poration, rather than a foreign or non-U.S, person. Ap-

pellants recognize that the property of any domestic

entity can be subject to an apportioned property tax by

state or local governments on the basis of an assumed

* See, Cooley v. Board of Wardens of the Port of Philadelphia,

53 U.S. (12 How.) 298. 311 (1851), in which the Court determined

the imposition of pilotage fees by the Port of Philadelphia to be

reasonable in view of the fact that commercial states and other

countries imposed similar requirements.

11

average presence. Pullman’s Palace Car Co. v. Pennsyl-

vania, 141 U.S, 18 (1890); Braniff Airways, Inc. v. Ne-

braska State Board, 347 U.S. 590 (1943); and, Standard

Oil Co. v. Peck, 342 U.S. 382 (1952). Under the circum-

stances present in this case, however, where there is an

established international practice of exempting foreign-

owned instrumentalities used exclusively in international

commerce, the imposition of the tax would, in the view of

the United States, interfere with foreign policy and for-

eign relations of the Nation. See, Brief for the United

States at 7, 14-32.

The Canadian Pacific Railway Co. case (which in any

event does not constitute binding precedent upon this

Court) would appear, on the basis of the scant facts re-

flected in the record, to have involved the imposition of

property tax by the State of Washington upon property

used in an intrastate activity. The rolling stock of the

foreign railroad considered in that case appears to have

been used between two points within the State of Wash-

ington.

The second major area in which Appellees’ analogy of

foreign-owned containers to foreign-owned rolling stock is

invalid is that the supposition advanced by Appellees as

to the treatment by state and local governments of for-

eign-owned rolling stock, appears to be totally incorrect.

Appellants understand, on the basis of discussions with

legal counsel and representatives of both domestic and

foreign-owned railroads, that foreign-owned rolling stock,

which enters the United States, is not, and has not been,

subject to local property taxation. On the contrary, it

is understood that the rolling stock of foreign railroads

or car companies, which are made available to domestic

railroads, upon a per diem or lease basis, are subject to

property taxation, the incidence of which falls entirely

———-

12

upon the domestic carrier, rather than upon the foreign

owner.* Any such exemption afforded by the State of

California with respect to domestic motor carriers which

transport Appellants’ containers, either from any motor

vehicle registration tax (See, Appellees’ Brief at 20) or

from any ad valorem property tax, such as that which

state and local governments (apparently including the

State of California) impose on domestic railroads trans-

porting foreign-owned rolling stock, can in no way be

regarded as dispositive of this issue, imbued as it is with

important foreign policy ramifications. Any such exemp-

tion that may be afforded must be considered a purely

voluntary and gratuitous act on the part of the State of

California.

It is submitted, moreover, that the application of the

“Home Port” doctrine in the limited manner advocated by

the Appellants and their Amici (other than the Amicus

International Container Lessors Institute), i.e., only in

the ease of unquestionably foreign-owned and foreign-

domiciled instrumentalities, used exclusively in foreign

commerce, would not deprive state and local governments

of revenues designed to recoup the cost of any services

reasonably allocable to the property in question.’ There

is no constitutional or other prohibition that would pre-

vent Appellees from levying specific charges or taxes to

* It should be noted, moreover, that as regards Appellants’ con-

tainers, no practice of interchangeability of the containers with

other shipping companies exists or has been alleged to exist by

Appellees. This situation is contrary to the practice which pre-

vails im connection with railroad rolling stock.

°In this respect, Appellants note that the stipulation of facts

between the parties to this litigation referred only to containers

owned by Appellants. See, Appendix, p, 29-33. Appellants are

contending exemption from the property taxes levied by Appellees

only with respect to such containers owned by Appellants or leased

from other residents of Japan.

13

enable them to recover the cost of services, which directly

or indirectly in any reasonabie manner, support the limited

activities of Appellants in the Appellees’ jurisdictions.*

Moreover, the imposition of the tax upon this basis would

not appear to present undue administrative problems for

state and local governments.’ In any event, the Court has

held that administrative convenience cannot cure a consti-

tutionally invalid regulation or requirement. Shapiro v.

Thompson, 394 U.S. 618 (1969).

*It should be noted that Appellants, in their petition for re-

hearing to the California Supreme Court, Jurisdictional State-

ment and Brief made reference to the benefits of police and fire

protection purportedly provided by Appellees because those were

the only services alleged by Appellees in their briefs before the

courts below to have been provided to Appellants. Appellees in

their brief filed with this Court attempt to insert into the record

a host of other services, through innuendo, speculation or over-

statement, which they now suggest were provided to the Appel-

lants. It should be noted that Appellants maintained virtually no

business or commercial presence within the jurisdictions of Ap-

pellees. In fact, the activities of four of the Appellants were

conducted almost in their entirety through unrelated shipping

agents. One of the Appellants, Japan Line, maintained a separate

wholly-owned subsidiary to perform administrative services on its

behalf. Three of the Appellants established a wholly-owned sub-

sidiary, which as a separate entity was fully subjected to California

property taxation upon its own property. Appellees in their brief

improperly suggest that Appellants themselves maintained a large

and highly trained work force that was benefitted by the variety

of services provided by the Appellees. In this respect, Appellants

actually maintained a minimal number of persons within the

jurisdiction of Appellees. Crane operators and others alluded to

by Appellees in their brief are employed by independent com-

panies, which presumably are subjected to property taxation upon

their own pro .

"It is understood that the Washington State Department of

Revenue has already adopted procedures of this type in that it

has instructed its county assessors that the determination whether

goods are moving in foreign commerce should now be made under

the same “physical movement” test used to determine the tax-

ability of goods moving in interstate commerce. Washington De-

partment of Property Tax Bulletin, No. 76-2 (25 March 1976).

Bewogel

14

V.

In the Determination of the Validity of This Tax in

the Instant Situation, the Economic Realities of the Tax

Rather Than Formalisms or Fictions Are Controlling.

In the concurring opinion in the Washington Stevedoring

Companies case, it was suggested that the Court, in con-

sidering the validity of a tax under the Import-Export

Clause, should be guided by an analysis of the economic

realities underlying the imposition of the tax, rather than

by artificial distinctions or pure formalisms.’ In this re-

spect, the fact that the California legislature has enacted

the tax in question as a general ad valorem property tax

in no way validates the application of the tax in the instant

case to foreign-owned instrumentalities used solely in the

import and export of goods.

Appellees, in their brief, candidly concede that:

“The property tax, based upon the value of the property

continuously or regularly in the jurisdiction and ap-

portioned so as not to fall on a use outside the juris-

diction, rests upon an entirely different basis. It is not

imposed, and cannot be imposed upon property having

only a temporary presence. The continuity of the pres-

® None of the cases cited by Appellees or their Amici deal with

the imposition of state or local property taxes upon instruments

used exclusively in foreign commerce. Appellees assert that Maine

v. Grand Trunk Ry. of Canada, 142 U.S. 217 (1891) and Bass,

Ratcliff & Gretton, Ltd. v. Tax Comm., 266 U.S. 271 (1924) grant

loeal governments the authority to impose a tax such as that in-

volved herein. However, each of the foregoing cases involved the

imposition of a franchise or privilege tax upon a foreign entity,

which was admittedly conducting intrastate business within the

taxing jurisdiction. The cases cited by Appellees imposing prop-

erty taxes on rolling stock, as discussed supra at pages 10 and 11

hereof, do not appear to have involved foreign-owned instruments

of commerce engaged exclusively in foreign commerce.

15

ence and its duration must be substantial, creating by

themselves the assurance that the property is receiving

benefits of more general nature than those reimbursed

by fee.”

[Emphasis Added. ]

Appellees’ Brief at 17.

It is Appellants’ position that, since their containers do

not have an actual presence in Appellees’ jurisdiction,

except through the fiction of an assumed average presence,

the incidence of the tax levied by Appellants can be found

to exist only as a result of the repeated importation of

different containers, which Appellees have stipulated are

“in constant transit”. Since the containers lack an actual

situs or fixed presence in Appellees’ respective jurisdic-

tions, it is the act of importation, upon a continuing basis, .

which is the basis of the imposition of the California prop-

erty tax. Although such tax is denominated by the State

of California as an ad valorem property tax, it is submitted

that, under the particular circumstances present herein,

involving foreign-owned containers, used exclusively in

foreign commerce, the incidence of such tax occurs because

of the repeated entry or import of such containers and the

tax must be regarded as an improper impediment upon

international transportation activities. In the determina-

tion of the constitutionality of a state tax, the Court will be

governed by the practical effect of the tax, rather than the

descriptive label applied by the state legislature. Harvester

Co. v. Dep’t. of Treasury, 322 U.S. 340, 346 (1944); and,

Wisconsin v, J. C. Penney Co., 311 U.S. 435, 444 (1940).

Despite the denomination of the tax as a general prop-

erty tax, in practical effect in the instant case, it operates

as a tax on imports and exports. As such, the tax is con-

trary to the established policy of reciprocal exemption fol-

lowed by the United States and its trading partners in the

a ee we

Sa

16

regulation of such activities and violates the Supremacy,

Treaty, Commerce and Import-Export Clauses of the

Constitution.

VI.

Inaccuracies or Distortions in Appellees’ Brief Must

Be Corrected.

Appellants do not wish to dignify the speculation and

attempts to create confusion by Appellees and their Amicus,

MSTC. However, these inaccuracies should not remain un-

corrected before this Court.

A. Japanese Tax Is Imposed upon Containers.

It saould be noted that both the Appellees and their

Amicus, MSTC, in an effort to obfuscate the nature, effect

and, indeed, the existence of the Japanese property tax,

cite a certain treatise on Japanese taxation for the years

1975-1976 and state that it makes no reference to the Jap-

anese property tax to which the containers involved herein

were subjected. See, Appellees Brief at 11 and Brief of

Amicus MSTC at 32.

The conclusion of the Appellees and their Amicus is in-

correct.’ The text relied upon by Appellees and their Amicus

makes it clear that Japan imposes a full ad valorem tax

upon personal property the registered owner of which

is listed in the fixed assets tax ledger maintained by the

appropriate municipality in Japan. The tax is imposed

*It should also be noted that the Amicus MSTC in its brief as-

serts that containers are admitted without entry under 19 C.F.R.

§10.41b(a). The proper provision which permits admission of con.

tainers into the United States without entry is 19 C.F.R. §10.41a

(a) (1).

17

upon the full value of the property without any reduction

or credit for any foreign taxes imposed.’°

B. The Assumptions of Appellees and Its Amicus

Distort the Facts of This Case

The attempts of Appellees and their Amicus to distort

the meaning of stipulated facts in the record are equally

ineffective, Appellees and their Amicus MSTC at various

points in their briefs attempt to introduce speculation that

Appellants’ containers may have engaged in purely intra-

state or interstate, rather than foreign commerce. On this

point the stipulation of the parties is clear and provides

as follows:

“9. Said containers are used exclusively for the trans-

portation of cargo for hire in foreign commerce.

6. Said containers are never used for intrastate or

interstate transportation of cargo except as continua-

tions of international voyages,

7. Interstate or intrastate movement of empty con-

tainers is solely for the purpose of picking up cargo

to be carried in foreign commerce, or returning the

containers to ports ( principally Los Angeles), all con-

tainers thereafter moving by Plaintiffs’ vessels to for-

eign countries,

8. All of the loaded containers physically present

within Los Angeles County on the lien dates were

loaded with cargo either inbound from or outbound

to foreign ports,

9. All empty containers physically present within Los

Angeles County on the lien dates were awaiting load-

ing ©.” cargo to be carried on Plaintiffs’ vessels in for-

1° See, Guide to Japanese Taxes 1975-1976, Zaikei ShoHo Sha,

Tokyo, Japan, 130, which is reprinted at Appendix A.

leet ee ee eee

a ee wre

18

eign commerce, or carriage to other ports (principally

in Japan) by Plaintiils’ vessels.” Appendix at 30.

Appellees have in this respect ignored the clearly stated

stipulation which leaves no doubt that: (i) the containers

herein were used solely in international commerce ; and (ii)

the containers were never used in interstate or intrastate

commerce. As this Court has held, the parties to a lawsuit

are entitled to litigate a case upon the assumption that

stipulated facts will be taken as proved, Hackfeld & Co.

v. United States, 197 U.S. 442, 447 (1905), and that such

a stipulation will preclude inquiry into those facts. Mumma

v. The Potomac Co., 33 U.S. (8 Pet.) 281, 285-86 (1835)

(Story, J.). The stipulated facts recited above are the facts

upon which the lower court decided this case and upon

which the parties have agreed to test the merits of their

respective positions. They should not, and cannot, be

altered at this point in the litigation either by Appellees,

which agreed to the stipulation of those facts or by any

Amicus, which was not a party to the stipulation.

it is clear from the foregoing that the Appellees and

their Amici MSTC have attempted to distort the stip-

ulated facts, notwithstanding their claims that Appellants

have introduced into the record additional data and infor-

mation. Any data or information submitted by Appellants

involving subsequent developments, such as the imposition

of Oregon property taxes on foreign-owned containers or

the subsequent letters of protest filed by foreign govern-

ments, are not only admissible, but Appellants are, in fact,

under a duty to present such information, pursuant to the

admonition of Mr. Chief Justice Burger in his concurring

opinion in Fusari v. Steinberg, 419 U.S. 379, 390 (1974).

Other data introduced by Appellants in their Brief to this

Court fall within the scope of published data permitted to

19

be introduced in Quong Wing vy. Kirkendali, 223 U.8. 59,

64 (1912).™

C. The Containers Involved Herein Are Princi

Maritime Instruments _

Although it is apparent that the subject co.uainers are

multi-modal, it is submitted that the containers are funda-

mentally instruments of commerce that are an extension of

the ships which carry them. Containers were invented and

designed essentially as a means of maritime transporta-

tion, which could be transported overland as a continua-

tion and integral part of such maritime transport. In fact,

the authorities cited by Amicus MSTC clearly evidence

the advent of containerization as a maritime and shipping

development. See, Simon, The Law of Shipping Contain-

™ Appellees have raised a question in their supplemen

brief concerning the purported benefit derived by fevcign chippina

concerns by virtue of the ‘ome Port doctrine. Appellees contend,

on the basis of a decision . endered by an intermediate state appel-

late court, Zee Toys, Inc. y. County of Los Angeles and its com-

panion case Sears, Roebuck Company v. County of Los Angeles,

85 Cal.App.3d 763 (Cal. App. 1978), that the Commerce Clause

power reserved to the Federal Government. The Appellate Court’s

decision is based upon an incorrect Jegal premise which this Court

has ‘isa rejected in J.E. Raley & Bros. v. Richardson, 264 U.S.

Moreover, the discrimination which Appellees allege to exist in

favor of foreign-owned containers is nonexistent uso Aoediienae

containers are subject to property taxation at a higher effective rate

than are domestic owned containers. The approach advocated by

Appellees would subject Appellants’ containers to cumulative bur.

dens not Imposed upon local business, a “ ‘vice’ characteristic of

those taxes which have been held ‘invalid’” by this Court. See,

Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 255

(1938). In the stant case, cumulative tax burdens are bound to

occur — } United States a mechanism to enforce the

acceptance governments € apportionment approac

whieh the State of California is now unging toon them. “ ‘

Dt a in emi si TiS

20

ers, 5 J. Maritime L. and Commerce 507 (1974). Further-

more, the stipulation of facts expressly states that all of

Appellants’ vessels, on which the subject containers are

carried, are specifically designed and constructed to accom-

modate the subject containers and earry only cargo in such

containers. That containers are a development of maritime

technology was recognized by the California Supreme

Court in Volkswagen Pacific, Inc. v. City of Los Angeles,

496 P.2d 1237 (1972), where that court stated as follows:

“Because the size of modern sea vans or ‘containers’

is dictated both by modern shipping technology and by

the necessity of reducing the costs of shipping, the

opening of such a container by an importer may not

necessarily be ‘for the sale or delivery of the separate

parcels contained in it’ (F. May & Co. v. New Orleans,

supra, 178 U.S. at p. 508, 20 S. Ct. at p. 980), but may

instead be accomplished so that the importer can by

other means of transportation divert his imports to

his outlets in different interior states.”

496 P.2d at 1242.

Finally, the fact that the decision of the California Su-

preme Court in this case prompted the State of California

to propose the extension of the property tax to foreign-

** The Authority relied upon by Appellees with respect to the

nature of containers states as follows:

“One of the most important technological developments in the

transportation of goods by sea since steam replaced sail is

the recent advent of the ‘container revolution.’” Simon, The

Law of Shipping Containers, 5 J. Maritime L. and Commerce

507 (1974).

Moreover, this source of authority further states that containers

“[funetion] as ship’s gear for cargo handling, and is usually pro-

vided by the carrier.” Jd. at 513. In this respect, it is interesting

to note that much of the tratise authority cited by Appellees and

Amicus MSTC regarding the nature of containers is found in the

Journal of Maritime Law and Commerce.

iii

21

owned aircraft used exclusively in foreign commerce is a

further indication that the State of California regards the

containers as equivalent to, or a part of, the vessel itself.

VII.

CONCLUSION

For the reasons stated herein, Appellants respectfully

urge this Court to reverse the decision of the Court below

and conclude that Appellants’ containers are not subject

to the imposition of personal property taxes levied by

Appellees.

Respectfully submitted,

Peter L. Briger, Esq.

Bricer & Associates

299 Park Avenue

New York, New York 10017

(212) 758-4000

Sheldon S. Cohen, Esq.,

Conen & Unerz

1775 K Street, N.W.

Washington, D.C. 20006

(202) 293-4740

Reed M. Williams, Esq.,

Ronald L. Young, Esq.,

Granam & James

100 Oceangate, Suite 515

Long Beach, Calif, 90802

(213) 435-4435

Counsel for A ppellants

APPENDIX A

APPENDIX A

30. Fiwed Assets Tax. Fixed assets tax is paid by the reg-

istered owner of land, buildings, ships or any other kinds

of depreciable assets as of January 1 of each year to a

municipality (in exceptional cases, to a municipality and

to a prefecture). “Registered owner” means the person

registered as an owner of such property in a fixed assets

tax ledger maintained by a municipality. This is not to

be confused with the person who is registered as an owner

in a real estate registration book maintained by a national

juridical office for civil law purposes.

No fixed assets tax is levied on automobiles or other

vehicles.

Land and buildings are taxed based on their value

assessed by municipalities, Municipalities appraise the

market value of land and buildings every three years. 1970

was the year of this appraisal. The basis for fixed assets

tax used to be the same as the municipalities’ appraised

value. However, the increase in land price was so remark-

ably [sic] that taxpayer [sic] would be difficult to pay fixed

assets tax based on market value of land. As the result,

municipalities have adopted the assessment value which

is different from the appraised value since 1964, .. .

With respect to the land for residential use, however,

the assessment value is determined to be one-half of the

appraised value for avoiding the heavy tax burden on the

residential lands, and moreover the tax burden adjustment

measures are maintained for 1973 and 1974. On the other

hand, depreciable assets other than buildings are taxed

based on the taxpayer’s reported book value after de-

preciation deduction.

la

2a

Appendiz

The annual tax rate is 1.4%. In some relatively poor

municipalities the tax rate is higher than 1.4%, but it

may not be higher than 2.1% in any case.

Fixed assets tax is collected in April, July, December

of the taxation year and February of the following year

in four equal installments.

Some special concessions are granted in national law

and in municipal statutes with regard to fixed assets tax.

a

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