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

IN THE

Supreme Court of the iacalioms sen cm

October Term, 1977

No. 77-1378

JAPAN Line, LTp.; KAWASAKI KISEN KaisHa, LTD.;

Mitsui O.S.K. Lines, Ltp.; NipPON YUSEN KAISHA;

SHOWA Linge, LTpD.; and YAMASHITA-SHINNIHON

STEAMSHIP Co. LTD.,

Appellants,

VS.

CouNTY OF Los ANGELES; City oF Los ANGELES; and

City oF LonG BEACH,

Appellees.

Brief of Amicus Curiae State of California

in Support of Appellees.

EVELLE J. YOUNGER, Attorney General,

ERNEST P. GOODMAN, Assistant Attorney General,

PHILIP C. GRIFFIN,

PATTI S. KITCHING,

Deputy Attorneys General,

3580 Wilshire Boulevard,

Los Angeles, Calif. 90010,

(213) 736-2104,

Attorneys for Amicus Curiae People of the State

of California in Support of Appellees.

Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622

SUBJECT INDEX

Page

ER RESIN Fe NASIR PET 1

I tr, PIII * 0. strsctcncitestaisshdonbanesidtionamniédal 3

FET A A Ao ED ee a 4

I

Foreign Commerce Should Bear General Tax

SII. ‘ccccsuseesciacamidelé~ odlnaiiieimiasnleatdiaidedeaderioapamentatundanns 4

II

The Tax at Issue Here Does Not Interfere With

the Federal Government’s Regulation of For-

Sy SEIT: snidistrinsciiceinsrncneniniseaitiahseetinarecinitiiens

Ill

Taxpayers Must Pay for Indirect as Well as Direct

Benefits Which They Receive From Local Gov-

IIE ichstlitinapeccrnetaticheoniisipticcheniontsicintniesldeidibdetepeesensestition

AE I ES Aes Se eG

TABLE OF AUTHORITIES CITED

Cases Page

Colonial Pipeline Co. v. Agerton (1975) 421 U.S.

REE eS Aah ns SRL ele EN ee SAS LE SSIOR

a RRNA acta re Rant arene 4, 6, 7,

Illinois Central Railroad v. Decatur (1893) 147

ca 9,

Michelin Tire Corp. v. Wages (1976) 423 U.S.

REE spsisuidelaamiacaslechaiadabiiaiaaddactitniensdaccdindaceumadie 5, 6,

Western Live Stock v. Bureau of Revenue (1938)

gt ERATE WOE Regt a SNE Biever ee

435

Statute

United States Constitution, Fourteenth Amendment

i eee ee ee ee

ttt td he ee ee ee

Textbooks

Cooley on Taxation, Chap. 20, Sec. 1, p. 416 ........

Cooley, Thomas M., L.L.D., The Law of Taxation

(4th Ed., 1924), Sec. 20, pp. 83-84 ...... 11, 12,

Cooley, Thomas M., L.L.D., The Law of Taxation

(4th Ed., 1924), Sec. 89, pp. 213-216

Cooley, Thomas M., L.L.D., The Law of Taxation

(4th Ed., 1924), Sec. 198, pp. 420-421

Cooley, Thomas M., L.L.D., The Law of Taxation

(4th Ed., 1924), Sec. 261, pp. 564-565

eee eee

11

10

IN THE

Supreme Court of the United States

October Term, 1977

No. 77-1378

JAPAN Line, LtTp.; KAWASAKI KISEN KAISHA, LTD.;

Mitsui O.S.K. Lines, Ltp.; NIPPON YUSEN KAISHA;

SHowA Ling, LTD.; and YAMASHITA-SHINNIHON

STEAMSHIP Co. LTD.,

Appellants,

VS.

CouNTY OF Los ANGELES; CiTy oF Los ANGELES; and

City oF LonG BEACH,

Appellees.

Brief of Amicus Curiae State of California

in Support of Appellees.

Statement of Interest.

The State of California is vitally concerned with

the outcome of the case at bar and strongly supports

Appellees’ position that the ad valorem tax at issue

here was properly levied. California has a strong interest

in preserving the integrity of the Appellees’ tax base

and power to tax. With the passage of Proposition

XIII, the Appellees’ ability to raise revenue has been

greatly curtailed. It would indeed be a devastating

and unfair situation to require Appellees in the case

at bar to give special tax advantages to foreign com-

merce while requiring Appellees to provide govern-

mental services to foreign commerce. It is the position

cides

of the State of California that foreign commerce must

pay its fair share of local governmental services pro-

vided to it. Appellants argue that they shouldn’t be

required to support the general municipal functions

which Appellees provide, but should only be liable

for taxes which directly pay for services Appellants

request, such as police and fire protection. The position

taken by Appellants and their supporting Amici wouid

threaten the power of Appellees to levy nondiscrimina-

tory, fairly apportioned ad valorem taxes against foreign

commerce in return for the direct and indirect services

and benefits which Appellees provide to it. There is

ample authority from this Court that interstate com-

merce must pay its fair share of the cost of the services

it receives from a county or other governmental entity.

Foreign commerce should be treated no differently or

else Appellees and domestic taxpayers will be required

to subsidize this foreign commerce. Appellants’ posi-

tion woul’ give Appellees the impossible burden of

levying a tax based only on what direct service each

taxpayer received. This burden would be impossible

because there are many intangible and indirect services

which Appellees provide to taxpayers, which services

must be borne by all taxpayers equally.

Appellants’ position neglects the important fact that

local government in California provides general, non-

specific services to all persons and businesses within

the taxing jurisdictions, including, but not limited to

a stable economic climate in which to conduct business,

an orderly society, and an excellent educational system

to train workers available for employment by foreign

commerce.

=

Summary of Argument.

The California Supreme Court’s decision in the case

at bar correctly applies both the spirit and letter of

California property tax law and the decisions of this

Court.

A proper analysis of current law reveals that foreign

and interstate commerce must pay their fair share of

government costs where they conduct their business

and that local government is not obliged to subsidize

their activities.

A nondiscriminatory, fairly apportioned ad valorem

tax levied on Appellants’ containers does not interfere

with the Federal Government’s power to regulate foreign

commerce because the ad valorem tax at issue here

is levied against ail property located in California,

not just that property owned by foreign corporations.

Finally, all property located in California must pay

for all of the direct and indirect benefits provided

by government. A taxpayer should not be able to

select only those direct benefits it believes it needs,

because government provides many indirect benefits

to taxpayers in its jurisdiction and the cost of these

benefits must be shared equally by all.

—

ARGUMENT.

I

Foreign Commerce Sinculd Bear Generai Tax Burdens.

Appellants have correctly pointed out this Court’s

interpretation of the Commerce Clause that interstate

commerce may be required to “pay its own way.”

As this Court said in Western Live Stock v. Bureau

of Revenue (1938) 303 U.S. 250, 254, “i]t was

not the purpose of the Commerce Clause to relieve

those engaged iX interstate commerce from their just

share of state tax burden even though it increases

the cost of doing the business.” 303 U.S. at 254.

This Court discussed at length in Complete Auto

Transit, Inc. v. Brady (1977) 430 U.S. 274, the Com-

merce Clause considerations of imposing a state tax

on “the privilege of doing business” within a state

to the taxpayer’s activity in interstate commerce. That

case found that a state tax statute does not violate

the Commerce Clause “when the tax is applied to

an activity with a substantial nexus with the taxing

State, is fairly apportioned, does not discriminate against

interstate comm.-rce, and is fairly related to the services

provided by the State.” 430 U.S. 279. It is the position

of the State of California that the nondiscriminatory,

fairly apportioned ad valorem tax assessed by Appellees

meets the tests set out in Complete Auto Transit and

does not violate the Commerce Clause with regard to

foreign commerce.

The reasoning behind requiring interstate commerce

to pay its own way is equally applicable to foreign

commerce. This Court recently discussed this principle

in the context of imported foreign goods and the Im-

=

ported-Export Clause. In Michelin Tire Corp. v. Wages

(1976) 423 U.S. 276, this Court said:

“Unlike imposts and duties which are essential-

ly taxes on the commercia) civilege of bringing

goods into a country, such property taxes are

taxes by which a State apportions the cost of

such services as police and fire protection among

the beneficiaries according to their respective

wealth; there is no reason why an importer should

not bear his share of these costs along with his

competitors handling only domestic goods. The

Import-Export Clause clearly prohibits state taxa-

tion based on the foreign origin of the imported

goods, but it cannot be read to accord imported

goods preferential treatment that permits escape

from uniform taxes imposed without regard to

foreign origin for services which the State supplies.”

423 US. at 287.

In Michelin this Court further said:

“There is no reason why local taxpayers should

subsidize the services used by the importer; ulti-

mate consumers should pay for such services as

police and fire protection accorded the goods just

as much as they should pay transportation costs

associated with those goods.” 423 U.S. at 289.

It follows then that the Commerce Clause should

not be interpreted to accord foreign corporations prefer-

ential treatment that permits them to escape nondiscrim-

inatory, fairly apportioned ad valorem taxes which are

imposed by the Appellees without regard to foreign or

domestic ownership of the property for general and

specific services rendered by Appellees. It also follows

that local taxpayers should not have to subsidize services

used by Appellants.

_

Thus, pursuant to Michelin and Complete Auto Tran-

sit, the foreign taxpayers in this case must pay their

fair share of taxes in return for the direct and indirect

benefits they receive from the Appellees.

II

The Tax at Issue Here Does Not Interfere With the

Federal Government’s Regulation of Foreign Com-

merce.

It is the position of the State of California that

the ad valorem tax at issue here does not interfere

with the Federal Government’s regulation of foreign

commerce just as the ad valorem tax in Michelin

did not so interfere.

Michelin discussed at length the reasons behind the

Import-Export Clause and found the three main reasons

to be as follows:

1. The Federal Government must speak with

one voice when regulating commercial relations

with foreign governments, and tariffs, which might

affect foreign relations, could not be implemented

by the States consistently with that exclusive

power.

2. Import revenues were to be the major

source of revenue of the Federal Government and

should not be diverted to the States.

3. Harmony among the States might be dis-

turbed unless seaboard States, with their crucial

ports of entry, were prohibited from levying taxes

on citizens of other States by taxing goods merely

flowing through their ports to the other States

not situated as favorably geographically. 423 U.S.

at 285-286.

a

This court in Michelin found that the Federa! Govern-

ment’s exclusive regulation of foreign commerce was

the most important justification for the Import-Export

Clause, but that the nondiscriminatory ad valorem tax

in Michelin had “no impact whatsoever on the Federal

Government’s exclusive regulation of foreign com-

merce.” 423 U.S. at 286.

This court said, “{B]y definition, such a tax does

not fall on imports as such because of their place of

origin. It cannot be used to create special protective

tariffs or particular preferences for certain domestic

goods, and it cannot be applied selectively to encourage

or discourage any importation in a manner inconsistent

with federal regulation.” 423 U.S. at 286.

Appellees have not levied this ad valorem tax on

Appellant’s property merely because the property is

owned by a foreign corporation. This ad valorem tax is

levied against all general property in the taxing jurisdic-

tions, whether owned by United States citizens or corpo-

rations or citizens and corporations of foreign countries.

Using the Michelin rationale, the tax in question does

not violate the Commerce Clause and does not interfere

with the Federal Government’s exclusive regulation of

foreign commerce because the tax does not fall on

property owned by a foreign corporation merely because

it is owned by that foreign corporation.

IT]

Taxpayers Must Pay for Indirect as Well as Direct Bene-

fits Which They Receive From Local Government.

AppeNants have argued that Complete Auto Transit

requires that foreign commerce need only pay for those

direct benefits which it requests such as police and

fire protection. As stated above, Complete Auto Transit

—_

concluded that a tax must be fairly related to the

services provided by the State. To interpret Complete

Auto Transit in conformity with Appellants’ argument

would mean that Appellants would receive all of the

indirect services which local government provides but

not be required to pay for these services.

As stated above, Appellees provide all taxpayers

with many specific, direct services such as police and

fire protection, schools, flood control, mosquito abate-

ment, etc. Appellees also provide many general, indirect

services to taxpayers such as a stable economic climate,

and a pool of potential employees. Appellants have

taken the position that they should pay only for services

which they feel directly benefit them such as police

and fire protection. They argue they shouldn't pay

their fair share of other services, although the flood

control district protects against floods so their goods

can be delivered, the schools train a pool of employable

workers, the mosquito abatement district allows all

taxpayers to work in the area without the public health

hazard of malaria, and the general economic climate

of the area allows their business to prosper.

Appellants argue that they pay specific fees (e.g.,

wharfage fees) for their harbor activities and thus are

paying their own way. However, it should be noted that

U.S. corporations would pay the same wharfage fees

plus general ad valorem taxes if operating under the

same circumstances as Appellants.

In the case at bar, the California Supreme Court

discussed the many services provided to the taxpayers

by Appellees. These services included harbor facilities,

roads, bridges, water suppply, as well as fire and police

protection. There are many services, however, which

wellinn

are more indirect but are nevertheless provided by

Appellees and for which all taxpayers, whether foreign

or domestic, should pay their fair share.

It would be unreasonable and impossible for Appel-

lees to indicate on all ad valorem tax bills that portion

of the tax that was used to fund general economic

stability in the taxing jurisdiction. This Court should

not adopt a rule that each dollar of tax collected

by a governmental entity must be solely correlated

to a direct service requested by the taxpayer.

Appellants’ position regarding the benefits received

by a taxpayer would jeopardize the general tax base

of local government. Local government in California

presently relies on various taxes to support its general

governmental functions. This Court has not in the

past required the governmental entity to show what

direct service each tax dollar buys. This Court has

instead required only that: “the tax is related to a

corporation’s local activities and the State has provided

benefits and protections for those activities for which it

is justified in asking a fair and reasonable return.”

Colonial Pipeline Co. v. Agerton (1975) 421 USS.

101, 108.

This Court explained in IJllinois Central Railroad

v. Decatur (1893) 147 U.S. 190 that:

“|T]axes proper, or general taxes, proceed upon

the theory that the existence of government is

a necessity; that it cannot continue without means

to pay its expenses; that for those means it has

the right to compel all citizens and property within

its limits to contribute; and that for such contribu-

tion it renders no return or special benefit to

any property; but only secures to the citizen that

general benefit which results from protection to

aniivn

his person and property, and the promotion of

those various schemes which have for their object

the welfare of all.”

The Court went on to cite Cooley on Taxation

and said:

“{I]n Cooley on Taxation (page 416, c. 20,

§ 1) the matter is thus discussed by the author:

“Special assessments are a peculiar species of taxa-

tion, standing apart from the general burdens im-

posed for state and municipal purposes, and gov-

erned by principles that do not apply generally.

The general levy of taxes is understood to exact ©

contributions in return for the general benefits

of government, it promises nothing to the persons

taxed beyond what may be anticipated from an

administration of the laws for individual protection

and the general public good.” 147 U.S. at 198-

199.

This Court in Wisconsin v. J. C. Penney Co. (1940)

311 U.S. 435 discussed the benefits conferred upon

foreign corporations within the context of the Four-

teenth Amendment, but the analysis is equally compel-

ling in the area of the Commerce Clause. In that

case, this Court said:

“{T|he Constitution is not a formulary. It does

not demand of states strict observance of rigid

categories nor precision of technical phrasing in

their exercise of the most basic power of govern-

ment, that of taxation. For constitutional purposes

the decisive issue turns on the operating incidence

of a challenged tax. A state is free to pursue

its own fiscal policies, unembarrassed by the Con-

stitution, if by the practical operation of a tax the

— } j—_.

state has exerted its power in relation to oppor-

tunities which it has given, to protection which

it has afforded, to benefits which it has conferred

by the fact of being an orderly, civilized society

... + Here, .. . the incidence of the tax as

well as its measure is tied to the earnings which

the State of Wisconsin has made possible, insofar

as government is the prerequisite for the fruits

of civilization for which as Mr. Justice Holmes

was fond of saying, we pay tax.” 311 U.S. at

444-446.

The issue of what direct benefit a taxpayer is entitled

to in return for his tax payment was discussed at

length in The Law of Taxation by Thomas M. Cooley,

L.L.D. Fourth Edition, 1924. There Cooley said that

“a person taxed cannot object to the tax on the ground

that he receives no direct benefit from the application

of the proceeds of the tax or that the benefit he

receives is small in comparison with the benefits re-

ceive’ by other taxpayers.” Jd. at Section 20, pp. 83-

84. He goes on to say:

“[I]f it were practicable to do so, the taxes

levied by any government ought to be apportioned

among the people according to the benefit which

each receives from the protection the government

affords him; but this is manifestly impossible. The

value of life and liberty, and of the social and

family rights and privileges, cannot be measured

by any pecuniary standard; and by the general

consent of civilized nations, income or the sources

of income are almost universally made the basis

upon which the ordinary taxes are estimated. This

is upon the assumption, never wholly true in point

of fact, but sufficiently near the truth for the

— =

practical operations of government, that the benefit

received from the government bears some propor-

tion to the property held, or the revenue enjoyed

under its protection; and though this can never

be arrived at with accuracy, through the operation

of any general rule, and would not be wholly

just if it could be, experience has given us no

better standard, and it is applied in a great variety

of forms, and with more or less approximation to

justice and equality. But other considerations are

always admissible; what is aimed at is, not taxes

strictly just, but such taxes as will best subserve

the general welfare of the political society. (Foot-

note omitted.) Taxes proper, or general taxes,

it has been said, ‘proceed upon the theory that

the existence of government is a necessity; that

it cannot continue without means to pay its ex-

penses; that for those means it has the right to

compel all citizens and property within its limits

to contribute; and that for such contribution it

renders no return of special benefit to any prop-

erty, but only secures to the citizen that general

benefit which results from protection to his person

and property, and the promotion of those various

schemes which have for their object the welfare

of all’. (Footnote omitted.) That this is the correct

theory is beyond doubt, but nevertheless the con-

tention has often been presented that property

receiving no direct benefit from a tax for particular

purpose should not be taxed for such purpose.

However, it is almost unanimously held that it

is no defense to the collection of a tax for a

special purpose that a person liable for the tax

is not benefited by the expenditure of the proceeds

—

of the tax or not as much benefited as others.

(Footnote omitted.) For instance, every citizen

is bound to pay his proportion of a school tax

although he has no children (Footnote omitted),

or is not a resident (Footnote omitted), and this

also applies to corporations (Footnote omitted);

of a police or fire tax, although he has no build-

ings or personal property (Footnote omitted); or

of a road tax although he never used the road.

(Footnote omitted.) In other words, a general

tax cannot be dissected to show that, as to certain

constituent parts, the taxpayer receives no bene-

fits. (Footnote omitted.) So property within the

limits of a municipality is subject to local taxation

although it derives little or no benefit from the

municipal government. (Footnote omitted.). . . .

“Even in case of taxes imposed on a particular

district supposed to be especially benefited, the

fact that it is extremely doubtful whether a partic-

ular piece of land can receive any benefit from

the improvement does not invalidate the tax with

respect to such land. (Footnote omitted. )

“No system of taxation has yet been devised

which will return precisely the same measure of

benefit to each taxpayer or class of taxpayers

in proportion to payment made, as will be returned

to every other individual or class paying a given

tax...” Id. at Section 89, pp. 213-216.

Cooley further discusses the public purposes which

justify taxation and states that these include preserving

the public order, providing for the enforcement of

civil rights and the punishment of crime, compensating

public officers and others who perform services for

the public, protecting public property, building and

antiien

repairing public buildings, and paying the expenses

of legislation and of administering the laws, Jd. at

Section 198, pp. 420-421.

Finally, Cooley says taxpayers should not expect

to receive equal benefits. He says:

“(T]he uniformity and equality required in no

way depends upon the benefits received. (Footnote

omitted.) In order that taxation may be equal

and uniform it is not necessary that the benefits

arising therefrom should be enjoyed by all the

people in like degree, nor that each one of the

people should participate in each particular bene-

fit. (Footnote omitted.) Equality does not mean

that the pecuniary benefit to be derived by every

person who pays taxes shall be equal. (Footnote

omitted.) For instance, a school tax based on

the same rate and the same valuation is equal

and uniform although the owner of certain prop-

erty taxed may have several children attending

the schools while the owner of other property

may have no children.” Jd. at Section 261, pp.

564-565.

Appellants receive many more benefits from Appel-

lees than police and fire protection. Appellants and

all other taxpayers receive indirect benefits such as

an orderly society, and a stable economic community,

and these indirect benefits must be borne by all tax-

payers within the jurisdiction.

— =

Conclusion.

The foregoing arguments demonstrate the soundness

of the decision of the California Supreme Court to

reject Appellants’ contentions that foreign commerce

should not be liable for nondiscriminatory, fairly appor-

tioned ad valorem taxes levied by Appellees. Conse-

quently, the State of California respectfully requests that

this Court affirm the decision of the California Supreme

Court.

Respectfully submitted,

EVELLE J, YOUNGER,

Attorney General,

ERNEST P. GooDMAN,

Assistant Attorney General,

PHILIP C. GRIFFIN,

PaTTI S. KITCHING,

Deputy Attorneys General,

By Patt! S. KITCHING,

Attorneys for Amicus Curiae People

of the State of California in Sup-

port of Appellees.

Service of the within and receipt of a copy

thereof is hereby admitted this .................... day

of October, A.D. 1978.