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

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/ Supreme Court, U. & ~

FILED

No. 78-1577 NOV 15 1979

MIGHABL RODAK, JR., CLERR

Ju the Supreme Court of the Mniky Stars

OCTOBER TERM, 1979

SEARS, ROEBUCK AND CO., PETITIONER

Vv.

COUNTY OF LOS ANGELES AND CITY OF COMPTON

ON 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

RINNE TINIE ccisoniceistivstuicnnimsennccsinniencisonsanonestinne

I Bhai chcencdeesisscninecnncantabivadmdiennbisbionsioaninne

Question presented .................---..----cceseeececeeeeeceeee

Constitutional provision and statutes involved..

I sisstaissiciisacisatan atiacsicincretncanccessaincmninsii

Argument:

The California property tax exemption for

foreign goods destined for interstate com-

merce or out-of-state goods destined for

export does not violate the Commerce

UNNI sass <xsssneshliil pnictesiniecinicibieslteipcliaiie

0 a

CITATIONS

Cases:

Allied Stores of Ohio v. Bowers, 358 U.S.

___ SREP, ERE Se eer ee

Ap RS VRAS RAP ea ORR oe

Asakura v. Seattle, 265 U.S. 382 -.............

Bacon v. Illinois, 227 U.S. 504 .200222 ee...

Boston Stock Exchange v. State Tax

Comm'n, 429 U.S. $18 ......................--..

Braniff Airways v. Nebraska State Board,

SE: Sr AE x tirdgipaninicnsicimihelnnaitianpees

RL. cruiciisii Aieliveesnaniiarienaabinkas R

Brown v. Houston, 114 U.S. 622 -....0.......

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

NM cetitevcuien

I II

Cases—Continued Page Cases—Continued Page

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

Sonneborn Bros. v. Cureton, 262 U.S. 506.. 11

FI apiihpicaehernentidincniiaietipnigaianiatsinnanitisiaidbetiamiebinte 11 State Board v. Young’s Market Co., 299

Chy Lung v. Freeman, 92 U.S. 275 .......... 8 Ee IRR ME te ART eere eo 11

Crew Levick Co. v. Pennsylvania, 245 U.S. Washington Rev. Dept. v. Stevedoring

RU cae ciniicettepecn cine cianbniniinaiinninninietinenepninsen neice 11 TE, Ge a. TI een niensccenornsnmcvsting 8-9, 12

Dept. of Revenue v. James Beam Co., 377 Western Live Stock v. Bureau of Revenue,

RN I iagetnlesiirc die itcpcinaisseldesranecicesitbeenidlitons 8,11 a, Te i ihiccisiersactnniniateiaiieinabiidinas 11

Empresa Siderurgica v. Merced Co., 337 Wheeling Steel Corp. v. Glander, 337 U.S.

A I ee dee cheese Ramcencsdasiasicovessemiasciente 10 ORES trast Wy kee 2 erie MN RET 8

General Oil Co. v. Crain, 209 U.S. 211...... 11 Wiloil Corp. v. Pennsylvania, 294 US.

Henderson v. Mayor of New York, 92 U.S. FREER Seer ona TR EON OME ee 11

I iene arcinicind cima enaanpescooeinpieciesnsiees 8 Woodruff v. Parham, 75 U.S. (8 Wall.)

Hines v. Davidowitz, 312 U.S. 52 2000000... 8 ER a aera Sa tL 9 DRS NSO ne 11

Hooven & Allison Co. v. Evatt, 324 U.S. Zschernig v. Miller, 389 U.S. 429 .............. 8

pnt Se ee Se sera dae SU NCR EOE 10, 11

Hostetter v. Idlewild Liquor Corp., 377 Constitution, statutes and regulations:

ee: WENN “santa dstedlicteetamcpanctercoutancdantece oases 8,11 Staats .

Japan Line, Ltd. v. County of Los An- 8

geles, No. 77-1378 (April 30, 1979)...... 9 Internal Revenue Code of 1954 (26

Joy Oil Co. v. State Tax Comm’n, 337 U.S. U.S.C.):

IE et ccssabih niceciddietaniaancteh cater clataacisantninldonde 10, 11

Low v. Austin, 80 U.S. (13 Wall.) 29.10, 11, 12 Section 4271 ----sn-seseecneeeeeceeceee 13

Massachusetts v. United States, 485 U.S. Section 4272 -.....------ceeeeeseeeeseeecnseesnneee 18

te 14 Section 4272 (a) -...----------s-----seeeee 13

McGoldrick v. Gulf Oil Corp., 309 U.S. Section 4272 (b) —..----------------see--nseees 13

SEO fonienicurshlconsinivaadentmnienmnniiensianpntaiaibesneienes 8 1975 Cal. Stats., ch. 1126, §§ 1 and 2 ...... 2-3

Michelin Tire Corp. v. Wages, 423 U.S. 1977 Cal. Stats., ch. 246, § 4 0002... 3

SE Silgsbindictndotiesssceioniniuenaicnsannounes 9,10, 11, 12, 13 1977. Cal. Stats., ch. 246, §7 .................... 3

Minnesota v. Blasius, 290 U.S. 1 .............- 11 Cal. Rev. & Tax. Code § 225 (West).......... 2,5, 7,

Ott v. Mississippi Barge Line, 336 U.S. 12,15

A Te STD CS RE AT ETT 9 Cal. Rev. & Tax. Code § 225.1 (West)...... 2, 3,5

People v. Compagnie Gen. Transatlanti- Cal. Rev. & Tax. Code § 253.10 (West)... 8

i Bh O_O ae 8

Richfield Oil Corp. v. State Board, 329

EE aan nicids Sikicdacecctesaestinindioedintauiea 9

Constitution, statutes and

regulations—Continued Page

Treasury Temporary Regulations in Con-

nection with the Airport and Airway

Revenue Act of 1970 (26 C.F.R.):

Section 154.2-1(¢) (1) 22... 13

Section 154.2-1(¢) (2) 2. 13

Section 154.2-1(d) (1) 2.2... 14

Section 154.2-1(d) (8) oe. 14

Iu the Supreme Court of the United States

OCTOBER TERM, 1979

No. 78-1577

SEARS, ROEBUCK AND CO., PETITIONER

Vv.

CouUNTY OF LoS ANGELES AND CITY OF COMPTON

ON 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 hear-

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

(1)

JURISDICTION

The decision of the Court of Appeal was entered

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

Court of California denied a petition for hearing on

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

of certiorari was filed on April 16, 1979 and was

granted on October 1, 1979. The jurisdiction of this

Court rests on 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

California and brought into the State for transship-

ment out of the United States; or (2) outside of the

United States, and brought into California for trans-

shipment 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 Na-

tions, 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, §§ 1 and 2, during the period here involved,’

provided as follows:

§ 225. Personalty brougit into state for trans-

shipment outside state or United States; exemp-

tion

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 transshipment out of this

state, for sale in the ordinary course of trade or

business shall be exempt from taxation. The ex-

emption under this section shall not apply to

personal property in manufacturing process or

production. Such process or production shall not

include the breaking in bulk, labeling, packag-

ing, relabeling, or repackaging of such property.

§ 225.1. Method of claiming transshipment ex-

emption

A person claiming the transshipment exemp-

tion under Section 225 may either claim this

exemption by (1) a percentage method of deter-

mining property held for transshipment on hand

at a particular location by allocating a portion

of the total inventory, using the percentage de-

termined by dividing the total out-of-state ship-

ments 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

1 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.

actual method as evidenced by contracts of 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 destina-

tion thereof.

STATEMENT

Petitioner brought this suit in the Superior Court

of Los Angeles County 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 en-

gaged 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 pro-

duced outside the United States, and had been im-

ported 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 (Pet. App. 1-2).

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 was 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 out-

side 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 prop-

erty 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 ex-

empt 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 and 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 peti-

tioner’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 regulated interstate and foreign

commerce and was therefore invalid under the Com-

merce 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 exemp-

tion gave goods of foreign origin a competitive ad-

vantage over goods manufactured in other states and

brought to California for transshipment in interstate

commerce. It concluded that “state taxes which dis-

criminate between classes of interstate and foreign

goods on the basis of their origin are not permitted”

(Pet. App. 14). In further support of its conclusion,

the Court of Appeal relied upon this Court’s decision

in Boston Stock Exchange v. State Tax Comm’n, 429

U.S. 318 (1977). The Court of Appeal observed

that “[d]Jiscrimination between (1) interstate trans-

actions and foreign transactions cannot be distin-

guished from (2) discrimination between two types of

interstate transactions. Both interstate and foreign

transactions are brought within the control of Con-

gress by the same clause of the United States Consti-

tution” (Pet. App. 15). With three Justices dissent-

ing, the Supreme Court of California denied a peti-

tion for hearing (Pet. 2).

ARGUMENT

THE CALIFORNIA PROPERTY TAX EXEMPTION

FOR FOREIGN GOODS DESTINED FOR INTER-

STATE COMMERCE OR OUT-OF-STATE GOODS

DESTINED FOR EXPORT DOES NOT VIOLATE

THE COMMERCE CLAUSE

In holding that the California property tax exemp-

tion for foreign goods destined for interstate com-

merce or out-of-state goods destined for export vio-

lates the Commerce Clause of the Constitution and

interferes with Congress’ power to impose tariffs, the

Court of Appeal misinterpreted 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 dis-

criminated against interstate commerce and there-

fore violated the Commerce Clause.

But Boston Stock Exchange has no bearing on the

question presented in this case. The prohibited dis-

crimination at issue in that case was a New York

transfer tax on the sale of securities that taxed

transactions involving an out-of-state sale more

heavily than most transactions involving a sale with-

in the state. As this Gout held, that statute pro-

vided for taxation “in a manner that discriminates

between two types of interstate transactions in order

to favor local commercial interests over out-of-state

business” (429 U.S. at 335).

Here, in contrast, the statutory property tax ex-

emption did not favor local business at the expense

of out-of state business. It favored imports and ex-

ports.? There is, however, no constitutional prohibi-

tion against favoring imports over domestic goods.

The Import-Export Clause of the Constitution itself

makes such a differentiation. And the decisions of this

Court have in various contexts held invalid state

statutes that have had an adverse impact upon for-

eign nationals or upon foreign commerce.’ Nor does

the Commerce Clause require a different result. As

this Court reaffirmed in Washington Rev. Dept. v.

2 See also 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. Compare Wheeling Steel Corp.

v. Glander, 337 U.S. 562 (1949).

3 See, e.g., Brown V. Maryland, 25 U.S. (12 Wheat.) 419

(1827); Henderson v. Mayor of New York, 92 U.S. 259

(1875); Chy Lung v. Freeman, 92 U.S. 275 (1875) ; People

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

Asakura v. Seattle, 265 U.S. 382 (1924) ; McGoldrick v. Gulf

Oil Corp., 309 U.S. 414 (1940); Hines v. Davidowitz, 312

U.S. 52 (1941) ; 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).

Stevedoring Ass’n, 485 U.S. 734, 751 (1978), “the

Import-Export Clause states an absolute ban, where-

as the Commerce Clause merely grants power to Con-

gress.” 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, Ltd. v. County

of Los Angeles, No. 77-1878, (April 30, 1979),

explicitly rejected the premise that “Commerce Clause

analysis is identical, regardless of whether irter-

state or foreign commerce is involved. * * * When

construing Congress’ power to ‘regulate Commerce

with foreign Nations,’ a more extensive constitu-

tional 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.‘ Al-

though this Court in Michelin Tire Corp. v. Wages,

423 U.S. 276 (1976), held that a state was not con-

stitutionally 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

* See Ott v. Mississippi Barge Line, 336 U.S. 169 (1949) ;

Braniff Airways v. Nebraska State Board, 347 U.S. 590

(1959).

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 govern-

ment speak with one voice in regulating commercial

regulations with foreign governments, that import

revenues not be diverted to the states, and that sea-

board states with ports of entry not be permitted to

be toll-takers at the expense of states not as favorably

geographically situated. 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 vio-

lates the Commerce Clause.

During the more than 100 years prior to the

Michelin Tire decision, while the rule of Low v. Aus-

tin, 80 U.S. (18 Wall.) 29 (1871) and Hooven &

Allison Co. v. Evatt, 324 U.S. 652 (1945), required

exemption of imported goods in original packages

5 Even 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 per-

mitted 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.

from generally imposed state property taxes, this

Court consistently held that goods that had moved in

interstate commerce in their original packages en-

joyed no comparable exemption.* When the Court

overruled Low and Hooven in Michelin Tire, it was

not on the basis of any discrimination favoring im-

ports over goods in interstate commerce, but only

because the considerations that gave rise to the

Import-Export Clause did not require exemption.

Nothing in Michelin Tire suggested that the pre-

existing exemption was now to be constitutionally

prohibited.”

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

Brown v. Houston, 114 U.S. 622 (1885); American Steel &

Wire Co. v. Speed, 192 U.S. 500 (1904) ; Sonneborn Bros. v.

Cureton, 262 U.S. 506, 509, 510-513 (1923); Wiloil Corp. Vv.

Pennsylvania, 294 U.S. 169 (1935).

7 Indeed 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. 824 (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 Reve-

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

U.S. 95 (1929) 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 (19383).

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 de-

cisions principally by the fact that the oil involved was

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

In sum, the decisions of this Court involving im-

ports, exports, and foreign commerce uniformly em-

phasize that one of the principal purposes of the

Constitution was to assure that the states did not

impede or obstruct importation, exportation, or for-

eign commerce. The Court in Michelin Tire over-

ruled Low v. Austin only when it was demonstrated

that application of a generally imposed property tax

to imports in the original package did not substan-

tially impede importation or foreign commerce. Wash-

ington Rev. Dept. v. Stevedoring Ass’n, 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 gener-

ally applicable property tax. While such action may

not be constitutionally required, it is not, as the deci-

sion below erroneously held, constitutionally prohib-

ited. Nothing in the Commerce Clause prevents a

state from favoring imports and exports beyond the

extent required by the Import-Export Clause.

2. 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.”

3. Furthermore, Sections 4271 and 4272 of the

Internal Revenue Code of 1954 show that the Cali-

fornia 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 from 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 Con-

nection 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 writ-

ten evidence showing the beginning point and ending

point of air transportation. And Section 154.2-1(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 con-

sidered broken “even though there may be stopovers

in the United States (such as, for example, to con-

solidate 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 transportation in ex-

port is other than by air. Section 154.2-1(d) (1) of

the Regulations provides:

For example, the tax does not apply to air trans-

portation from Chicago to New York if the prop-

erty is in the course of exportation, by continu-

ous 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 disas-

ters) will not interrupt continuous movement.

Property arriving at a gateway city by air may

be repacked or consolidated with other property

without interrupting continuous movement.

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

ment of the tax may be deferred for six months to

establish the fact of export “in due course” within

that period. Proof of export received after six months

will establish a ground for refund of the tax paid.

The foregoing provisions show that even when the

facilities of the airways of the United States are

employed,* Congress has exempted from the air trans-

portation excise tax goods that are in fact imports

and exports, and has provided flexible rules permitting

8 Cf. Massachusetts v. United States, 485 U.S. 444 (1978).

stopovers, repackaging, and consolidation of cargo in

the course of movement without loss of exemption.

California’s removal of property tax burdens upon

imports and exports in Section 225 is therefore en-

tirely consistent with congressional policy.

CONCLUSION

The judgment of the Court of Appeal should be

reversed.

Respectfully submitted.