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

Supreme Court, U. $.

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OCTOBER TERM, 1978

No. 77-1378

JAPAN LINE, LTD., et al.,

Appellants,

Vv.

CouNTY OF LOs ANGELES, et al.,

Appellees.

On Appeal from the Su»reme Court of the

State of California

BRIEF OF AMICUS CURIAE COUNCIL OF

EUROPEAN AND JAPANESE

NATIONAL SHIPOWNERS’ ASSOCIATIONS

EDWARD A. MCDERMOTT

ALLEN R. SNYDER

HOGAN & HARTSON

815 Connecticut Ave., N.W.

Washington, D.C. 20006

(202) 331-4500

Attorneys for Amicus Curiae

Council of European and

Japanese National Shipowners’

Associations

WILSON - EPES PRINTING CO., INC. - 789-0096 . WASHINGTON, D.C. 20001

TABLE OF CONTENTS

Page

INTEREST OF AMICUS CURIAE .................... 1

CONSENT OF THE PARTIES .................................... 2

PRINS Sc MEPS a Boa NR Dac RS 2

I. The Decision Below Unjustifiably Abrogates This

Court’s Home Port Doctrine, Which Has Pro-

tected International Commerce From The Bur-

dens Of Multiple Taxation And International

Juriedictional Disputes .......................................... 2

Il. If Allowed To Stand, The Decision Below Will

Have Far-Reaching And Extremely Damaging

Effects On International Commerce And On The

Economic Interests Of The United States 7

CONCLUSION .................. siedeabalatoinepieablinibcnndiiy bevaniiiilindaliiininene 13

II

TABLE OF CITATIONS

Cases:

Dep’t of Revenue Vv. Ass’n of Washington Steve-

doring Companies, 98 S. Ct. 1888 (1978) —.....

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

Hays Vv. Pacific Mail Steam-ship Co., 58 U.S. (17

SE 5 eres Maver oe eae

Michelin Tire Corp. V. Wages, Tax Comm’r, 423

Ry RE RES oe ease rce no

Morgan v. Parham, 83 U.S. (16 Wall.) 471

cl ie

Ott v. Mississippi Valley Barge Line Co., 336 U.S.

ae

Southern Pacific Co. v. Commonwealth of Ken-

CT, Tie Ce I accented rcetvensictce

Zschernig V. Miller, 389 U.S. 429 (1968) ...............

Page

IN THE

Supreme Court of the United States

OCTOBER TERM, 1978

No. 77-1378

JAPAN LINE, LTD., et al.,

Appellants,

Vv.

CouUNTY OF Los ANGELES, et al.,

Appellees.

On Appeal from the Supreme Court of the

State of California

BRIEF OF AMICUS CURIAE COUNCIL OF

EUROPEAN AND JAPANESE

NATIONAL SHIPOWNERS’ ASSOCIATIONS

INTEREST OF AMICUS CURIAE

The Council of European and Japanese National Ship-

owners’ Associations (“CENSA”) is an international

organization whose membership consists of the national

shipowners’ associations of the following countries: Bel-

gium, Denmark, Finland, France, Federal Republic of

Germany, Greece, Italy, Japan, the Netherlands, Norway,

Sweden and the United Kingdom, together with individ-

a

2

ual liner companies (including consortia) from those

countries which trade to or from the United States.

CENSA was established in 1963 in order to provide a

medium for consultation and cooperation on common prob-

lems affecting European and Japanese shipowners. The

shipowners of the CENSA countries own over 50% of the

world’s merchant fleet, including almost 60% of the con-

tainers used in international shipping.

CENSA is filing this Amicus Curiae Brief because of

its concern that the ruling below—by abrogating the home

port doctrine presently followed by every major maritime

nation in the world—will result in multiple taxation of

foreign-owned container fleets and may cause unfortu-

nate counter-measures by other nations and disruption of

international trade relations.

CONSENT OF THE PARTIES

Amicus is filing this Brief with the consent of both

parties, whose letters of consent have been filed with the

Clerk.

ARGUMENT

I. THE DECISION BELOW UNJUSTIFIABLY ABRO-

GATES THIS COURT’S HOME PORT DOCTRINE,

WHICH HAS PROTECTED INTERNATIONAL

COMMERCE FROM THE BURDENS OF MULTI-

PLE TAXATION AND INTERNATIONAL JURIS-

DICTIONAL DISPUTES.

For more than one hundred years the United States,

like every major maritime nation in the world, has fol-

lowed the doctrine that an instrumentality of interna-

tional commerce can be taxed only at its “home port.”

The California Supreme Court’s decision under review

here improperly abrogates this home port doctrine, in

violation of federal constitutional principles and in dis-

3

regard of the fundamental policy reasons for the estab-

lishment and continuation of the doctrine.

Appellants’ Brief filed with this Court sets forth in

detail the numerous constitutional infirmities of the deci-

sion below. Amicus CENSA adopts those legal arguments

presented by Appellants and will not repeat them here.

CENSA does wish, however, to add or emphasize a few

key points which it believes are essential to an under-

standing of the continued necessity for the home port

doctrine and the severe consequences that might follow

from its repudiation.

The home port doctrine was first enunciated by this

Court in Hays v. Pacific Mail Steam-ship Co., 58 US.

(17 How.) 596 (1854), striking down a property tax

levied by the State of California on ocean-going steam-

ships whose home port was outside that state. In Hays

and its progeny the Court held that such a tax by a state

on a vessel with a home port outside the state “is an

interference with the commerce of the country not per-

mitted to the States.” Morgan v. Parham, 83 U.S. (16

Wall.) 471, 479 (1872). See also Southern Pacific Co. v.

Commonwealth of Kentucky, 222 U.S. 63, 69 (1911)

(“this court has declared and enforced the rule of taxabil-

ity at the domicile of the owner of vessel property, when

it did not appear that the vessels had an actual situs

elsewhere”).

The home port doctrine set forth in Hays serves several

extremely important functions. First, it allows for taxa-

tion by the jurisdiction likely to have the most significant

_ contacts with the vessel involved. Moreover, the doctrine

provides an easily applied rule, with the beneficial result

of minimizing international disputes over each country’s

taxing jurisdiction or the fairness of its taxing formula.

Finally, adoption of the doctrine by all the major mari-

time nations has served to eliminate the dangers of multi-

1

ple taxation of the same property by different countries

using inconsistent taxing systems.

The court below, however, has ruled that a state or

municipality no longer must apply this salutary rule to

international commerce, simply because a different rule

is now used for American interstate commerce. The Cali-

fornia court’s application of interstate commerce princi-

ples to international trade is unsupportable as a matter

both of constitutional law and of logic.

In Ott v. Mississippi Valley Barge Line Co., 336 U.S.

169 (1949), this Court ruled the home port doctrine in-

applicable to interstate commerce, upholding the validity

of an allocation, or apportionment, system for ad valorem

property taxes on vessels serving inland waters. The Ott

Court expressly refused to reach the question of whether

a state constitutionally can apply such a system to “‘ocean

carriage,” or international commerce, as Appellees seek

to do here. See id. at 173-74.

Similarly, in Dep’t of Revenue v. Ass’n of Washington

Stevedoring Companies, 98 S. Ct. 1388 (1978), this Court

upheld application of a business and occupation tax on

stevedoring, but only after emphasizing that “[n]o for-

eign business or vessel is taxed. [The taxpayers], there-

fore, have demonstrated no impediment posed by the tax

upon the regulation of foreign trade by the United

States.” Jd. at 1401. Moreover, in Michelin Tire Corp. v.

Wages, Tax Comm’r, 423 U.S. 276 (1976), the Court up-

held a state property tax “on imported goods that are no

longer in import transit,” id. at 286, while noting that

such a tax would not reach imports destined for inland

states and using “transportation methods such as air

freight and containerized packaging.” Id. at 288 (em-

phasis added).

The distinction clearly emerges from these cases be-

tween interstate commerce—as to which an apportioned

5

tax is permissible—and international commerce—as to

which the home port doctrine remains viable and thus

no tax, apportioned or otherwise, can be levied on

the vessel except at its home port. This distinction

is a sound one that responds to practical realities as

well as to constitutional principles. An apportioned

tax is workable in the interstate commerce area be-

cause this Court is available to review any disputes

between states or any contentions that different state

apportionment formulas are inconsistent and would result

in multiple taxation. However, as was recognized by the

Superior Court judge in the decision reversed by the

California appellate courts below, no such system for

arbitration of apportionment disputes is available for

international commerce (Jurisd. Statement, at 28a) :

To consider proration of taxes with foreign entities

is not practical. There is no tribunal that can adju-

dicate these rights unless it be the International

Court and to invoke its services jurisdiction must be

consented to by all parties. For this reason, our

Federal Courts have consistently held that vessels

which are instrumentalities of foreign commerce and

engaged in foreign commerce can be taxed in their

home port only.

Moreover, it must be emphasized that so long as other

nations continue to follow the internationally accepted

home port doctrine, ships from those nations—which in-

clude all the CENSA members’ countries—will auto-

matically be subject to multiple taxation insofar as they

utilize ports in a state, like California, following the

apportioned tax system. The reason for this is that

foreign-owned ships are taxed on their full value by their

home port nations. If states are free to levy a tax based

on the differing apportionment approach, neither the Cali-

fornia courts nor even this Court would have the power

to eliminate the resulting multiple taxation, which un-

6

fairly and illegally * would discriminate against ships and

containers from foreign nations.*

It is important to note that international treaties and

trade relationships also suggest the need for a different

rule regarding states’ tax powers over foreign, as opposed

~~~" to interstate, commerce. It simply makes no sense for the

/ United States government to be entering into solemn

treaty obligations and agreements with foreign nations,

while at the same time fifty individual states and all their

municipalities would be free to tax foreign commerce

from those nations in ways that might be (or be per-

ceived as) inconsistent with the national government’s

obligations and agreements. Indeed, the Framers of the

Constitution intended that “the Federal Government must

speak with one voice when regulating commercial rela-

tions with foreign governments, and tariffs, which might

affect foreign relations, could not be implemented by the

States consistently with that exclusive power... .”

Michelin Tire Corp. v. Wages, Tax Comm’r, 423 U.S. 276,

285 (1976).

1 As is set forth in Appellants’ Brief, such multiple taxation on

foreign ships and containers, but not on U.S. vessels, would violate

this country’s treaty obligations, including those to CENSA mem-

ber nations.

2If an apportionment system were utilized by al! American

states, U.S.-owned vessels logically could not be taxed on more than

100% of their assessed value; however, vessels serving the U.S.,

but based in countries continuing to follow the home port doctrine,

would be taxed on more than 100% of value.

* See Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 228-29 (1824)

(Johnson, J. concurring) (emphasis in the original) :

Power to regulate foreign commerce, is given in the same

words and in the same breath .. . with that over the commerce

of the States. .. . But the power to regulate foreign commerce

is necessarily exclusive... . Whatever regulations foreign com-

merce should be subjected to, in the ports of the Union, the

general government would be held responsible for them; and

all other regulations, but those which Congress had imposed, -

would be regarded by foreign nations as trespasses and viola-

tions of national faith and comity.

Se

7

7

Even when acting within an area of traditional state

jurisdiction, such as probate law, states are constitution-

ally required to avoid any interference with international

relations. See Zschernig v. Miller, 389 U.S. 429, 440-41

(1968) :

It seems inescapable that the type of probate law

that Oregon enforces affects international relations

in a persistent and subtle way. . . . The several

States, of course, have traditionally regulated the

descent and distribution cf estates. But those regula-

tions must give way if they impair the effective

exercise of the Nation’s foreign policy. . . . Where

[state] laws conflict with a treaty, they must bow to

the superior federal policy. . . . The present Oregon

law is not as gross an intrusion in the federal do-

main as those others might be. Yet, as we have said,

it has a direct impact upon foreign relations and

may well adversely affect the power of the central

government to deal with those problems.

Thus, without regard to the rules that may be appro-

priate for the very different circumstances of interstate

commerce, practical realities and constitutional principles

demand continued application of the home port doctrine

for international commerce.

Il. IF ALLOWED TO STAND, THE DECISION BELOW

WILL HAVE FAR-REACHING AND EXTREMELY

DAMAGING EFFECTS ON INTERNATIONAL COM-

MERCE AND ON THE ECONOMIC INTERESTS OF

THE UNITED STATES.

In ruling that a state or municipality is free to tax

vessels or other instrumentalities of international com-

merce, the court below totally ignored the dangerous con-

sequences of its unprecedented decision. This Court should

reassert the applicability of the home port doctrine to

such commerce in order to avoid the unfortunate possi-

bility of foreign counter-measures and the disruption of

8

international trade which would flow from the decision

below.

In assessing the impact of the lower court’s ruling, it

must be noted that far more is at stake than the few

hundred thousand dollars of tax now being levied an-

nually by these particular municipalities against these

six Appellants in the instant case. The containerized ship-

ping business, although relatively new, is an extremely

large and growing form of worldwide trade. Amicus

CENSA estimates that there currently are almost

2,000,000 twenty-foot equivalent units (“TEU”’’)* of ship-

ping containers used in world trade, with a current fair

market value of approximately two billion dollars. In

1977, approximately 900,000 TEU’s of foreign-owned con-

tainers were used in United States international com-

merce.°

If the California ruling were al!owed to stand, it is

reasonable to assume that most other states and munici-

palities would follow in seeking to increase their always-

insufficient revenues through the politically attractive and

lucrative means of taxing foreign-owned containers pass-

ing through their territory. One state, Oregon, has al-

ready announced it intends to join California in assess-

ing such a tax; other states are sure to follow. Indeed,

‘The “TEU,” or twenty-foot equivalent unit, measure converts

container volume into the equivalent number of standard, twenty-

foot containers. Most shipping containers are either twenty feet or

forty feet in length, approximately nine feet in height, and eight

feet in width.

*CENSA estimates that the current fair market value, after

depreciation, of these foreign-owned containers is $900,000,000.

Applying the industry rule-of-thumb that such containers spend

approximately one third of each year in their home port country

or other overseas location, one third on the seas, and one third at

some coastal or inland location in the United States, the application

by all states of California’s allocation system would result in a pro-

rated fair market value of $300,000,000 worth of containers which

U.S. States and municipalities would be free to tax.

-

+t g

under California’s allocation system virtually any state

or municipality in the Union could gain some advantage

from such a tax, since containers are unloaded and

shipped via truck and rail through and to almost all

inland locations in this country. Thus, affirmance of the

decision below would lead to a total state tax burden on

containers amounting to many, many millions of dollars.

Moreover, the necessary implications of the decision

below by no means are limited to containers. In rejecting

the home port doctrine of Hays and its progeny, the Cali-

fornia court has cleared the way for a similar allocated

tax on every foreign-based ship and international pas-

senger or freight airplane that arrives on its shores. The

assessed value of all such vessels arriving in California

alone is of staggering proportions. Moreover, as noted

above, such a vast new source of tax revenue is unlikely

to escape the attention of other states and municipalities.

Affirmance here would allow every locality with an ocean

port or an international airport to begin assessing and

taxing on a pro rata basis every ocean vessel, each jumbo

jet or freight airplane landing even briefly in its area,

even though these ships and planes are owned, registered,

based, and taxed in their home port countries. Since

CENSA is aware of no maritime nation whose law pro-

vides a “credit” against home port property taxes for

such taxes paid to another nation, the result would be

multiple taxation of foreign-owned vessels. This would

create an unfair advantage for U.S.-owned vessels in

international commerce, in violation of the non-discrimi-

nation provisions of various international agreements

entered into by the United States.

Even more significantly, CENSA believes that the deci-

sion below is likely to lead to counter-measures being

taken against U.S.-owned vessels by this country’s trad-

ing partners. It is simply unrealistic to assume that all

the other nations which follow the home port doctrine will

10

sit by idly and watch their containers, ships and planes

being subjected to multiple taxation by states or munici-

palities here, without taking any action in response—such

as imposing their own taxes on United States vessels that

land in their countries.*

As is indicated in Appellants’ Brief, numerous foreign

countries—including many of the CENSA members’ na-

tions—already have lodged formal protests with the

United States Department of State against what they

reasonably view as an unjust and discriminatory tax

in violation of international law and agreements. The

potential danger of “retaliation” by other countries and

possible disruption of international trade was summarized

well by the Federal Republic of Germany in its June 23,

1978, filing with the State Department, which focused

especially on the effects on air transportation of Califor-

nia’s allocation system:

|A]part from the distortion of cost structures be-

tween airports the California tax example might

induce other States to levy comparable taxes. on for-

eign aircraft and eventually on other modes of inter-

national transportation as well. Retaliation by other

countries might then subject international carriers to

multiple taxation which would be clearly in contra-

diction to efforts to facilitate international Com-

merce.

* Government figures indicate that there currently are 797,690

TEU’s of containers owned by United States steamship and leasing

companies and used in international commerce. CENSA estimates

that the fair market value of these containers is approximately

$798,000,000. Thus, other nations would be free to levy taxes on a

pro-rated value of $266,000,000 worth of U.S. containers, see note 5,

supra, and possibly even more if those nations do not limit them-

selves to the allocation formula adopted by California.

It is interesting to note, also, that worldwide abandonment of the

kome port doctrine would enable those U.S. trading partners who

have no substantial merchant marine of their own to tax United

States vessels without any reciprocal tax being recovered by this

country.

11

Similarly, the Government of Japan in an Aide-

Memoire to the State Department has cautioned that

California’s property tax on containers owned by foreign

shipping lines constitutes double taxation and “impedes

the smooth development of trade between the two coun-

tries.” Jurisd. Statement, at 50a.

Another indication of the possibility of foreign counter-

measures against such a discriminatory United States tax

arose at the June 12, 1978, meeting of the Council of

European Communities. At that meeting, the Council

adopted a resolution proposed by the European Economic

Community (the “Common Market”), calling for con-

certed action by the Common Market countries “to decide

suitable counter-measures against offending countries”

that engaged in discrimination against “the maritime in-

terests of Member States.” *

* Other countries that have lodged similar protests against Cali-

fornia’s action are: Canada, Denmark, Finland, France, Federal

Republic of Germany, Japan, Mexico, the Netherlands, New Zealand.

Norway, Sweden and the United Kingdom.

* See Minutes of 521st Council Meeting—Transport—Council of

the European Communities, at 20-21 (June 12, 1978):

ACTIVITIES OF CERTAIN NON-MEMBER COUNTRIES IN THE FIELD

OF MARITIME TRADE

In the light of difficulties observed as a result of the activity

of certain third countries in the field of maritime trade the

Council examined measures to be taken by the Community to

counteract this trend. It recorded its agreement on a frame-

work decision binding each Member State to take steps to set

up a system by which to gather information on the activities

of the fleets of countries whose practices are detrimental to the

maritime interests of Member States, in particular insofar as

these activities undermine the competitivity of Member States’

fleets engaged in international maritime trade.

To attain these goals each Member State must be able to

obtain information on the level of services offered, the nature,

volume, value, origin and destination of goods loaded and

unloaded and on the rates charged for these services.

[ Footnote continued on page 12)

12

A recent letter from the Office of the United States

Special Representative for Trade Negotiations attests to

the fact that CENSA’s concern regarding possible counter-

measures against United States ships and potential dis-

ruption of international trace is not mere speculation. As

stated by the General Counsel of that Office, the Califor-

nia tax “may well constitute a non-tariff trade barrier”

that will complicate current international negotiations,

and “significant problems may arise on the part of the

trading partners of the United States, not only with

respect to containers, but also in other areas through re-

taliation and the imposition of similar types of levies.”

Jurisd. Statement, at 48a-49a.°

The Framers of the United States Constitution wisely

prohibited individual states from levying tariffs or other-

wise interfering in the regulation of foreign policy and

trade. Fifty separate states, with their countless munici-

* [Continued]

The Council will decide on the countries to whose fleets the

all-round Community system of information will apply.

On this point the Council instructed the Permanent Repre-

sentatives Committee to work out in conjunction with the Com-

mission measures for implementing these provisions, for adop-

tion by the Council at its next transport meeting in November,

bearing in mind the wishes expressed by delegations as regards

the activities of State-trading countries and flag of convenience

countries.

On the basis of the information gathered, the Council will be

able to decide suitable counter-measures against offending coun-

tries. These will form part of national legislation, be applied

in concert, and might include restrictions, depending on the

circumstances.

One delegation gave its agreement subject to confirmation,

and will make known its firm position at the earliest opportunity.

* Similarly, in a letter to Governor Jerry Brown, dated April 17,

1978, The Honorable Julius L. Katz, Assistant Secretary of State

for Economic and Business Affairs, warned of “the likelihood of

retaliatory taxation measures against U.S. citizens engaged in ocean

commerce abroad” if California fails to change its current combiner

tax policy.

13

palities, cannot participate in international trade negotia-

tions or develop appropriate reciprocal tax structures.

Yet, under the ruling below, each would be able to levy

taxes on a portion of this nation’s foreign trade, raising

the spectre of unfortunate responses and _ counter-

measures by this country’s foreign trading partners.

Amicus CENSA respectfully submits that this Court

should retain the home port doctrine—which has been so

long and universally applied by the world’s major mari-

time nations—so that individual states and localities will

not become hopelessly and dangerously enmeshed in in-

ternational trade and taxing disputes that surely would

result in damage to the economic interests of the United

States and all its trading partners.

CONCLUSION

For the foregoing reasons, Amicus CENSA urges this

Court to adhere to the home port doctrine and to reverse

the decision below.

Respectfully submitted,

EDWARD A. MCDERMOT?T

ALLEN R. SNYDER

HOGAN & HARTSON

815 Connecticut Ave., N.W.

Washington, D.C. 20006

(202) 331-4500

Attorneys for Amicus Curiae

Council of European and

Japanese National Shipowners’

Associations