Amicus Brief — Sears, Roebuck & Co. v. County of Los Angeles

AUC

No. 78-1577

In the Supreme Court of the United States

OCTOBER TERM, 1978

SEARS, ROEBUCK AND CO., PETITIONER

Vv.

CouNTy OF Los ANGELES AND City Or COMPTON

ON PETITION FOR A WRIT OF CERTIORARI TO

THE COURT OF APPEAL OF THE STATE OF

CALIFORNIA, SECOND APPELLATE DISTRICT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

WADE H. McCreE, JR.

Solicitor General

M. CARR FERGUSON

Assistant Attorney General

STUART A. SMITH

Assistant to the

Solicitor General

ERNEST J. BROWN

Attorney

Department of Justice

Washington, D.C. 20530

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Constitutional provision and statutes involved ........... 2

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CITATIONS

Cases:

Allied Stores of Ohio v. Bowers,

Pe Rs TRIE + skccdisndahsatadenebagchuciuiqanacniaieecucramapanen 6

American Steel & Wire Co. v. Speed,

PE Rs I sein teh cannoticeanadaineidnbaleasnunanscessuakions 8

Asakura v. Seattle, 265 U.S. 332 .....ccccceeceeceee eee 6

Bacon Vv. Illinois, 227 U.S. S04 wn. cece ceseeeee eee y

Boston Stock Exchange v. State

Tax Commin, 429 U.S. 318 (1977) .........ce eee 6

Braniff Airways v. Nebraska State

GE: ee SI Be eens sshncetmcetccbvnsnnes 7

Brewing Co. v. Liquor Comm'n., 305

Faas I praseieeacitecachaciabdiiiau eitaniahsanndbedetiaciiennens 9

Brown v. Houston, 114 U.S. 622. ...... eee 8

Brown v. Maryland, 25 U.S. (12 Wheat).

de PSN ph AR sd BIS Pes ROME Me Res Ho 7

Page

Cases—(Continued):

Carson Petroleum Co. v. Vial, 279 U.S.

BN eaisheahdotcctiiensebnsside dank hniaudtnintssaidnleslapestinciascsnatinhetesaaties y

Chy Lung v. Freeman, 92 U.S. 275. ...cccccccceecceeees 6

Crew Levick Co. v. Pennsylvania, 245

SUSIE -IENY. woshiheonhsatesnsdbansinwecbtigledtiabearuncndsiminiccaiiad esdieslas 9 <

Dept. of Revenue v. James Beam Co..,

SOUP SENAY HUET. * hcpaisaniicdincestticcuneaiidunidinias dal-eukinutsanbaiebnas )

Empresa Siderurgica v. Merced Co..,

SE PE RIE cuteesnssassisahcdectinbussalathciscahooskisnaanasindbascuwis 8

Fairfax’s Devisee v. Hunter's Lessee,

BO: Ge FS ORNE OD cas diccwisctedodencceccsccassnvveanses 6

General Oil Co. v. Crain, 209 U.S.

Se ES EEE SORES SR AEE WS Ren bp Ne a y

Hauenstein v. Lynham, 100 U.S.

I iesietininiainincsnlinsitlseiniaisaieaiiancadtaneisecl ie saemaasbkadelons 6

Henderson v. Mayor of New York,

Bk I. I ans lis ecdibiiceccbucap tinged a daianiecogmactrcies 6

Hines v. Davidowitz, 312 U.S. 52. wccccccccceceeeeeeeee 6

Hooven & Allison Co. v. Evatt, 324

Pa GIN pica edi ddncwn adie aan ucecisehdiihienbbancadovesenaxeecans 8

Hostetter v. Idlewild Liquor Corp..,

TE TEE, SIE” Wiko ntdiecnsDlanhsdaapolguterhenagsaccdepemeniclice 6, 9

Japan Line, Lid. v. County of Los

Angeles, No. 77-1378, (April

Bey SEE Nncunivinesdcianissnlbataedacaliaedanhas nants 7,8

Joy Oil Co. v. State Tax Comm'n., 337

U.S. 286

Page

Cases—(Continued):

- Kolovrat v. Oregon, 366 U.S. 187 w....cccceeeeeeeeeeee 6

Low v. Austin, 80 U.S. (13 Wall.)

BP Wiech ee dal alas ciielsentecibbsaccheiesabsuieiewiominnesiets 9, 10

Massachusetts v. United States, 435

RE Fe I Waseca claret bacalianrcutscanseennanesensesss 13

McGoldrick v. Gulf Oil Corp., 309 U.S.

NN iaictcsiit vices nae eledbenaniciialhs ialletdlidpndeiaiecnnyiniens 6

Michelin Tire Corp. v. Wages, 423

Sic: Se cckecspcemtbnnesuctelenesboindadeamduniaencieiabinda 7, 10

Minnesota v. Blasius, 290 U.S. 1 ccccccccessepeeseeseees )

Nielsen v. Johnson, 279 U.S. 47 coccccccecccceseeeeeeees 6

Ou v. Mississippi Barge Line, 336

Eee. EE snscciaiaaansedhaneherehaondnediOadbinnceanaterennts 7

People v. Compagnie Gen.

Transatlantique, 107 U.S. 59) ....ccccccccecceeeseeeeenees 6

Richfield Oil Corp. v. State Board,

ee es I aradire teeters clneldcuetedtheknceatantiapeneceniens 7

Sonneborn Bros. v. Cureton, 262 U.S.

UN cescah dlp hE cts codecbibilaa tia abakakdathtaadcovenevertindcaes 8

State Board v. Young's Market Co.,

EES EP wicdecbinaisbiaakbenccaepaditendsbhivntsibicewicesseese 9

Ware & Hylton, 3 U.S. (3 Dall.)

TIPU ccdicabtesnutiabuddntbahtadadaccisianeranithanvcitiackisteinintes 6

Washington Rev. Dept. v.

Stevedoring Assn., 435 U.S. 734 c.ccccccecceeeeees 9

Western Live Stock v. Bureau of

POOWRN, SD TE. BID tencsssdnseccicesnssessscnsicssosess 9

IV

Page

Cases -(Continued):

Wiloil Corp. v. Pennsylvania, 294

BM GRP ate OS aera eon Oe SO AR PO 8

Woodruff v. Parham, 75 U.S. (8 Wall.)

WO en nikccsichae ii bnti seth deh an haath sida dubilpawideatecdaxeuls 8

Zaschernig v. Miller, 389 U.S. 429 wo... 6

Constitution, statutes and regulations:

United States Constitution, Article 1,

SD Fai Te acces ceirsencasnnnsdshscsncse te

Internal Revenue Code of 1954 (26

U.S.C.):

I i aes nes 10

5 IE ERCRER! Sipe genet PPAR TRAE eR 10

RS I i es 10

Be I a ccacwsnconkincwins 10

1975 Cal. Stats., ch. 1126, §§1 and 2. ...........00... 2

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Cal. Rev. & Tax. Code §225 (West

TINS | HIPUUIE ssl Sccusanantadoening tees tenianiaenethoiee 2, 4, 5

Cal. Rev. & Tax. Code §225.1 (West Supp.

eg, Be ETRE Tayo nD rc Pere Re ee ie 2.3.4

Cal. Rev. & Tax. Code §253.10 (West

SA TB TED ccccccccssecccspes Lidrcar suns ebudiaaichivicctainaidsons 2

Page

Constitution, statutes and regulations—(Continued):

Treasury Temporary Regulations in

Connection with the Airport and

Airway Revenue Act of 1970:

26 C.F.R. 154.2-1(C)1) .......cccreeeeeeeeererssseeeees 10

26 C.F.R. 194.2-1(C)(2) ........ccccceeeseseseseeeeeeeee 10

26 C.F.R. 194.2-1(A)( 1) .......cccccsccccccressseceees II

26 C.F.R. 154.2-1(d (3) .......ccccccrrsssssesceeeenees |

In the Supreme Court of the Hnited States

OCTOBER TERM, 1978

No. 78-1577

SEARS, ROEBUCK AND CoO., PETITIONER

Vv.

COUNTY OF Los ANGELES AND CiTy OF COMPTON

ON PETITION FOR A WRIT OF CERTIORARI TO

THE COURT OF APPEAL OF THE STATE OF

CALIFORNIA, SECOND APPELLATE DISTRICT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is submitted in response to the Court's

invitation of June 4, 1979.

OPINIONS BELOW

The order of the trial court is not officially reported.

The opinion of the Court of Appeal (Pet. App. 1-29) is

reported at 85 Cal. App. 3d 763. The denial by the

Supreme Court of California of a petition for hearing

(Pet. 2) is reported at 149 Cal. Rptr. 764.

JURISDICTION

The decision of the Court of Appeal was entered on

October 25, 1978 (Pet. 2; Pet. App. 1). The Supreme

Court of California denied petition for hearing on

(1)

to

January 17, 1979 (Pet. 2). The petition tor a writ of

certiorari was filed on April 16, 1979. The jurisdiction of

this Court is invoked under 28 U.S.C. 1257(3).

QUESTION PRESENTED

The United States will discuss the following question:

Whether the California property tax exemption for

personalty manufactured or produced (1) outside Califor-

J

nia and brought into the State for transshipment out of

the United States: or (2) outside of the United States, and

brought into California for transshipment out of the

State, for sale in the ordinary course of trade or business,

is invalid under the Commerce Clause of the United

States Constitution.

CONSTITUTIONAL PROVISION AND STATUTES INVOLVED

Article I, Section 8, Clause 3 of the United States

Constitution provides: “The Congress shall have Power

*** To regulate Commerce with foreign Nations, and

among the several States, and with the Indian Tribes”.

Sections 225 and 225.1 of the Cal. Rev. & Tax. Code

(West), enacted by 1975 Cal. Stats., ch. 1126, at 2746, §§ |

and 2, during the period here involved,' provided as

follows:

§225. Personalty brought into state for transship-

ment outside state or United States; exemption

Personal property manufactured or produced, (1)

outside this state and brought into this state for

transshipment out of the United States, or (2) outside

of the United States and brought into this state for

‘Although Section 225.1 of the Cal. Rev. & Tax. Code (West) was

repealed by 1977 Cal. Stats.. ch. 246, §4. its provisions were

simultaneously reenacted as Section 253.10 of the Rev. & Tax. Code.

by 1977 Cal. Stats., ch. 246, §7.

transshipment out of this state, for sale in the

ordinary course of trade or business shall be exempt

from taxation. The exemption under this section

shall not apply to personal property in manutac-

turing process or production. Such process or

production shall not include the breaking in bulk,

labeling, packaging, relabeling, or repackaging ot

such property.

§225.1. Method of claiming transshipment exemp-

tion

A person claiming the transshipment exemption

under Section 225 may either claim this exemption

by (1) a percentage method of determining property

held for transshipment on hand at a particular

location by allocating a portion of the total in-

ventory, using the percentage determined by

dividing the total out-of-state shipments by the

taxpayer from that location during the preceding

year by the total of such shipments from that

location during such year, or (2) an actual method as

evidenced by contracts #f sale on the tax lien date,

and a full, true and correct inventory of all property

held for transshipment together with the date of

receipt of the same, the date of withdrawal of the

same, the point of origin thereof, and the point of

ultimate destination thereof.

STATEMENT

Petitioner brought this suit for refund of ad valorem

personal property taxes paid under protest to the County

of Los Angeles and the City of Compton.

The facts were stipulated (Pet. App. 1-2, 4) and may be

summarized as follows: Petitioner is engaged in the

business of selling goods at retail, both in California and

elsewhere. On March 1, 1976, the tax lien date for

purposes of the annual California ad valorem tax on

personal property, petitioner held tangible personal

property in warehouses in the County of Los Angeles and

City of Compton. The property in question had been

manufactured or produced outside the United States, and

had been imported by petitioner and placed in warehouses

for distribution both within and without California for

purposes of sale in the ordinary course of petitioner's

business. Petitioner’s distribution warehouses in the

County of Los Angeles were devoted almost entirely to

goods imported from foreign countries, particularly from

locations in the Pacific area. The rate of turnover at the

warehouses averaged approximately three times per year.

Petitioner intended to ship the goods as quickly as its

distribution operations permitted. Pursuant to Sections

225 and 225.1 of the California Revenue and Taxation

Code, petitioner applied to the total amount of goods

manufactured or produced outside the United States and

held in its warehouses in Los Angeles County on March

1, 1976, the fraction represented by the out-of-state

shipments from those locations during the preceding year

divided by the total shipments from those locations

during that year. Petitioner accordingly claimed a

transshipment property tax exemption for property

having a value of $19,373,089 (Pet. App. 1-3, 4-5).

Respondents denied the claimed exemption. They

asserted (1) that properly construed, Section 225 ex-

empted only goods in transit through the State, and (2)

that even if Section 225 were construed to exempt

imported goods held in the State by the owner for

disposal or use, it would violate the United. States

Constitution by regulating interstate and foreign com-

merce in interfering with foreign affairs, because it

extended no exemption to interstate goods. Petitioner

thereupon paid the tax under protest and instituted this

action for refund in the Superior Court of Los Angeles

County. The Superior Court upheld petitioner's claimed

exemption (Pet. App. 1-2, 5-6).

The Court of Appeal reversed (Pet. App. 29). Although

it rejected respondents’ statutory argument that Section

225 applied only to goods “in transit” (Pet. App. 7-10), it

held that the statutory exemption of foreign goods

cegulated interstate and foreign commerce and was

therefore invalid under the Commerce Clause of the

United States Constitution (Pet. App. 6, 10-18). It also

suggested that the exemption interfered with the power of

the Congress to impose tariffs (Pet. App. 15-16). In the

Court of Appeal’s view, the statutory exemption gave

goods of foreign origin a competitive advantage over

goods manufactured in other states and brought to

California for transshipment in interstate commerce. It

concluded that “state taxes which discriminate between

classes of interstate and foreign goods on the basis of their

Origin are not permitted” (Pet. App. 14). With three

Justices dissenting, the Supreme Court of California

denied a petition for hearing (Pet. 2).

ARGUMENT

In holding that the California property tax exemption

for foreign goods destined for interstate commerce or out-

of-state goods destined for export violates the Commerce

Clause of the Constitution and interferes with Congress’

power to impose tariffs, the Court of Appeal misinter-

preted the decisions of this Court.

1. Section 225 of the California Revenue and Taxation

Code exempts from taxation while held in California,

imported goods destined for other states and goods from

other states destined for export. It does not, however,

exempt domestic goods destined for interstate commerce.

On the authority of this Court's decision in Boston Stock

Exchange v. State Tax Comm'n, 429 U.S. 318 (1977), the

Court of Appeal held that the statute unconstitutionally

discriminated against interstate commerce and therefore

violated the Commerce Clause. But Boston Stock

Exchange has no bearing on the question presented in this

case. The prohibited discrimination in that case was one

that provided “a direct commercial advantage to local

business” by virtue of “laws that favor local enterprise at

the expense of out-of-state business” (429 U.S. at 329) by

taxation “in a manner that discriminates between two

types of interstate transactions in order to favor local

commercial interests over out-of-state business” (id. at

335).

Here, in contrast, the statutory property tax exemption

did not favor local business at the expense of out-of-state

business. It favored imports and exports.? There 1s,

however, no constitutional prohibition against favoring

imports over domestic goods. The Import-Export Clause

of the Constitution itself makes such a differentiation.

The decisions of this Court have therefore consistently

held invalid state statutes that have had an adverse impact

upon foreign nationals or upon foreign commerce.’ Nor

2Cf. Allied Stores of Ohio v. Bowers, 358 U.S. 522 (1959). There,

the issue was addressed under the Equal Protection Clause of the

Fourteenth Amendment rather than under the Commerce Clause.

3See, e.g., Ware v. Hylton, 3 U.S. (3 Dall.) 199 (1796); Fairfax's

Devisee v. Hunter's Lessee, 11 U.S. (7 Cranch) 603 (1813); Brown v.

Maryland 25 U.S. (12 Wheat 419 (1827); Henderson v. Mavor of

New York, 92 U.S. 259 (1875); Chy Lung v. Freeman, 92 U.S. 275

(1875); Hauenstein v. Lynham, 100 U.S. 483 (1879); People v.

Compagnie Gen. Transatlantique, 107 U.S. 59 (1882); Asakura v.

Seattle, 265 U.S. 332 (1924); Nielsen v. Johnson, 279 U.S. 47 (1929);

McGoldrick vy. Gulf Oil Corp., 309 U.S. 414 (1940); Hines v.

Davidowitz, 312 U.S. 52 (1941); Kolovrat v. Oregon, 366 U.S. 187

(1961); Hostetter v. Idlewild Liquor Corp., 377 U.S. 324 (1964); Dept.

of Revenue v. James Beam Co., 377 U.S. 341 (1964); Zschernig v.

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

does the Commerce Clause require a different result. As

this Court reaffirmed in Washington Rev. Dept. v.

Stevedoring Assn, 435 U.S. 734, 751 (1978), “[T]he

Import-Export Clause states an absolute ban, whereas the

Commerce Clause merely grants power to Congress.” See

also Richfield Oil Corp. v. State Board, 329 U.S. 69, 75

(1946).

When only the Commerce Clause is involved, this

Court only last Term in Japan Line, Lid. v. County of

Los Angeles, decided April 30, 1979 (No. 77-1378),

explicitly rejected the premise that “Commerce Clause

analysis is identical, regardless of whether interstate or

foreign commerce is involved. * * * When construing

Congress’ power to ‘regulate Commerce with foreign

Nations, a more extensive constitutional inquiry is

required.” (Slip op. 11-12). Japan Line held that shipping

containers employed in foreign commerce, based and

owned in Japan, were not subject to the apportioned

property taxation to which domestic shipping containers

engaged in interstate commerce would have been subject.4

Although this Court in Michelin Tire Corp. v. Wages, 423

U.S. 276 (1976), held that a state was not constitutionally

required to exempt imports held in the original package

from generally imposed property taxation, nothing in the

decision suggested that the exemption that had previously

been constitutionally required under decisions overruled

by Michelin Tire was thereafter constitutionally

prohibited.

As the Court in Michelin Tire pointed out (423 U.S. at

283-294), the considerations underlying the Import-

Export Clause were that the federal government speak

with one voice in regulating commercial regulations with

‘See Ou v. Mississippi Barge Line, 336 U.S. 169 (1949); Braniff

Airways v. Nebraska State Board, 347 U.S. 590 (1959).

foreign governments, that import revenues not be diverted

to the states, and that seaboard states with ports of entry

not be permitted to be toll-takers at the expense of states

not situated as favorably geographically, The California

statute serves all of these purposes. The fact that it serves

and advances constitutional policy somewhat more fully

than the minimum required of the state does not justify

the Court of Appeal’s ruling that it violates the

Commerce Clause.

During the more than 100 years prior to the Michelin

Tire decision, while the rule of Low v. Austin, 80 U.S. (13

Wall.) 29 (1871) and Hooven & Allison Co. v. Evatt, 324

U.S. 652 (1945), required exemption of imported goods in

original packages from generally imposed state property

taxes, the Court consistently held that goods that had

moved in interstate commerce in their original packages

enjoyed no comparable exemption. When the Court

overruled Low and Hooven, it was not on the basis of any

discrimination favoring imports over goods in interstate

commerce, but only because the considerations that gave

rise to the Import-Export Clause did not require

SEven before the Michelin Tire decision, the California exemption

was somewhat broader than the minimum then constitutionally

required. By its terms, the exemption for imports persisted beyond

the original package, for it permitted breaking bulk, repackaging, etc.

With regard to goods held for export, it granted exemption prior to

movement in the stream of exportation, as defined by this Court's

decisions in Empresa Siderurgica v. Merced Co., 337 U.S. 154 (1949)

and Joy Oil Co. v. State Tax Comm'n., 337 U.S. 286 (1949). It is not

questioned, however, that the goods exempted from tax were goods

that had been imported and goods that were subsequently exported.

*Woodruff v. Parham, 75 U.S. (8 Wall.) 123 (1868); Brown v.

Houston, 114 U.S. 622 (1885); American Sieel & Wire Co. v. Speed,

192 U.S. 500 (1904); Sonneborn Bros. v. Cureton, 262 U.S. 506, 509,

510-513 (1923); Wiloil Corp. v. Pennsylvania, 294 U.S. 169 (1935).

exemption. Nothing in Michelin Tire suggested that the

pre-existing exemption was now to be constitutionally

prohibited.’

In sum, the decisions of this Court involving imports,

exports, and foreign commerce uniformly emphasize that

one of the principal purposes of the Constitution was to

assure that the states did not impede or obstruct

importation, exportation, or foreign commerce. The

Court in Michelin Tire overruled Low v. Austin only

when it was demonstrated that application of a generally

imposed property tax to imports in the original package

did not substantially impede importation or foreign

commerce. Washington Rev. Dept. v. Stevedoring Assn.,

435 U.S. 734, 751-755 (1978). By favoring imports and

exports, Section 225 of the California Revenue and

Taxation Code facilitates importation and exportation

and assures that imports and exports passing through the

state will not be impeded even to the extent of the impact

of a generally applicable property tax. While such action

7Indeed, in contexts other than property taxes on goods in the

original package, the Court has treated imports or exports markedly

differently from goods shipped in interstate commerce. Compare

Dept. of Revenue v. James Beam Co.; 377 U.S. 341 (1964) and

Hostetter v. Idlewild Liquor Corp., 377 U.S. 324 (1964) with State

Board v. Young's Market Co., 299 U.S. 59 (1936) and Brewing Co. v.

Liquor Comm'n., 305 U.S. 391 (1939); Crew Levick Co. v.

Pennsylvania, 245 U.S. 292 (1917) with Western Live Stock v. Bureau

of Revenue, 303 U.S. 250 (1938); Carson Petroleum Co. v. Vial, 279

U.S. 95 (1925) with General Oil Co. v. Crain, 209 U.S. 211 (1908),

Bacon Vv. Illinois, 227 U.S. 504 (1913), and Minnesota v. Blasius, 290

U.S. 1 (1933).

Carson Petroleum Co. v. Vial, supra, may have been heavily

qualified by the decision in Joy Oil Co. v. State Tax Comm'n, 337

U.S. 286 (1949), as the dissent in the latter case asserted (337 U.S. at

291-292). But the result in Carson Petroleum was distinguished from

other contemporary decisions principally by the fact that the oil

involved was destined for export (see 279 U.S. at 106-109).

10

may not be constitutionally required, it is not, as the

decision below’ erroneously held, constitutionally

prohibited. Nothing in the Commerce Clause prevents a

state from favoring imports and exports beyond the

extent required by the Import-Export Clause.

2. a. In further support for its invalidation of the

statutory exemption for imported goods, the Court of

Appeal suggested (Pet. App. 15-16) that Section 225

impedes the power of the Congress to determine the

effective tariff applicable to imported goods. But this

reasoning is contrary to this Court's analysis in Michelin

Tire. In considering the effect of removing the exemption

for imported goods required by earlier decisions, the

Court pointed out (423 U.S. at 287): “It may be that such

taxation could diminish federal impost revenues to the

extent its economic burden may discourage purchase or

importation of foreign goods. The prevention § or

avoidance of this incidental effect was not. however, even

remotely an objective of the Framers in enacting the

prohibition.”

b. Furthermore, Sections 4271 and 4272 of the Internal

Revenue Code of 1954 show that the California

exemption for imports and exports is entirely consistent

with congressional policy. Section 4271 imposes a tax of 5

percent upon the amount paid for transportation of

property by air, but Section 4272(a) limits this to

“transportation by air which begins and ends in the

United States.” Section 4272(b) excludes trom tax, under

regulations prescribed by the Secretary, “transportation of

property in the course of exportation * * * by continuous

movement, and in due course so exported.”

Under Treasury Temporary Regulations in Connection

with the Airport and Airway Revenue Act of 1970 (26

C.F.R.), Section 154.2-1(c)(1) and (2), transportation will

be considered to begin and end at the points of origin and

destination as shown by a through airwaybill, or, if no

such airwaybill has been issued, then the export or import

character of the shipment may be shown by a contract or

other written evidence showing the beginning point and

ending point of air transportation. And Section 154.2-

l(c 1) of the Regulations is explicit in providing that

transportation from a point outside the United States to a

point inside the United States will not be considered

broken “even though there may be stopovers in the

United States (such as, for example, to consolidate cargo

at a ‘gateway’ city).”

With regard to exports, the tax is not applicable to the

segment of air transportation in the United States even

though the mode of tr’ nsportation in export is other than

by air. Section 154.2-i(d)(1) of the Regulations provides:

For example, the tax does not apply to air

transportation from Chicago to New York if the

property is in the course of exportation, by

continuous movement, by boat from New York to

Europe and in due course is so exported. Delays

caused by circumstances beyond the control of the

shipper (such as labor disputes or natural disasters)

will not interrupt continuous movement. Property

arriving at a gateway city by air may be repacked or

consolidated with other property without interrupt-

ing continuous movement.

Under Section 154.2-1(d)(3) of the Regulations, payment

of the tax may be deferred for six months to establish the

fact of export “in due course” within that period. Proot of

export received after six months will establish a ground

for refund of the tax paid.

12

The foregoing provisions show that even when the

facilities of the airways of the United States are

employed,* Congress has exempted trom the air transpor-

tation excise tax goods that are in fact imports and

exports, and has provided flexible rules permitting

stopovers, repackaging, and consolidation of cargo in the

course of movement without loss of exemption. Califor-

nia’s removal of property tax burdens upon imports and

exports is therefore entirely consistent with congressional

policy.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

WADE H. McCrekr, JR.

Solicitor General

M. CARR FERGUSON

Assistant Attorney General

STUART A. SMITH

Assistant to the Solicitor

General

ERNEST J. BROWN

Altorney

AuGust 1979

“Cf. Massachusetts v. United States, 435 U.S. 444 (1978).

DOJ-1979-08