Petition for Writ of Certiorari — Walter Fleisher Co. v. County of Los Angeles

IN ‘THE

SUPREME COURT

OF ‘THE UNITED STATES

October Term, 1979

No,

WALTER FLEISHER COMPANY,

Petitioner,

vs.

COUNTY OF LOS ANGELES, etal.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

To the Court of Appeal of

the State of California,

Second Appellate District

AND

PETITION FOR CONSOLIDATION, IN THE

EVENT CERTIORARI IS GRANTED, WITH

SEARS, ROEBUCK & CO, V. COUNTY OF

LOS ANGELES

OCTOBER TERM, 1978 78-1577

GERALD T. MANPEARL

EVANS, MANPEARL & HARTER

L.A. World Trade Cenger

350 South Figueroa Street, Suite 900

Los Angeles, California 90071

(213) 488-0545

RUSSELL IUNGERICH

L.A. World Trade Center

350 South Figueroa Street, Suite 900

Los Angeles, California 90071

(213) 625-0387

Attorneys for Petitioner

TOPICAL INDEX

Table of Authorities

OPINION BELOW

JURISDICTION

QUESTION PRESENTED

CONSTITUTIONAL PROVISION

INVOLVED

HOW THE FEDERAL QUESTION

AROSE

PETITION FOR CONSOLIDATION

STATEMENT OF THE CASE

REASONS FOR GRANTING THE

WRIT

A. THE COURT OF APPEAL

HAS DECIDED A FEDERAL

CONSTITUTIONAL QUESTION

OF SUBSTANCE IN A MANNER

CONTRARY TO APPLICABLE

DECISIONS OF THIS COURT.

-~]

B. REVIEW BY THIS COURT IS

WARRANTED TO RESOLVE A

CONFLICT BETWEEN STATE

COURT DECISIONS WITH

RESPECT TO THE CONSTI-

TUTIONALITY OF ''FREE

PORT LAWS,"

SUMMARY

CONCLUSION

APPENDIX A

APPENDIX B

APPENDIX C

ll.

10

13

TABLE OF AUTHORITIES

Cases Page

Allied Stores of Ohio v. Bowers,

358 U.S. 522, 3 L.Ed. 2d 480,

79 S.Ct. 437 (1959) 12, 14

Appeal of Martin,

(S.Ct. N.C., 1974)

209 S.E.2d 766 11

Bob-Lo Excursion Co. v. Michigan,

33 U.S. 28 (1948) 14

Boston Stock Exchange v.

State Tax Comm'r.,

429 U.S. 318 (1977) 8, 9, 11

14, 15

Complete Auto Transit, Inc. v. Grady,

430 U.S. 274 (1977) 8, 15

Japan Lines Ltd. v. County of

Los Angeles,

U.S. , 99 S.Ct. 1813

(1979) 12, 14

Low v. Austin,

80 U.S. (13 Wall.) 29 (1972) 7

Michelin Tire Corp. v. Wages,

423 U.S. 276 (1976) 7, 9, 14, 15

Nash Sales v. City of Milwaukee,

(S.C. Wisc., 1929)

224 N.W. 126 11

iii.

Puget Sound Stevedoring Co. v.

Tax Commissioner,

302 U.S. 90 (1937)

Raley & Bros. v. Richardson,

264 U.S. 157 (1924)

Raley v. Ohio,

360 U.S. 423 (1959)

Sears, Roebuck & Co. v.

County of Los Angeles,

October Term, 1978,

12,

No. 78-1577 2, 4 5, 6,

Spector Motor Service v. O'Connor,

340 U.S. 602 (1951)

State Bd. of Tax Comm'rs, v.

Carrier Corp.,

(S.Ct. Ind., 1977)

365 N.E.2d 1153

Volkswagen Pacific v. City of

Los Angeles,

7 Cal. 3d 48, 496 P.2d 1237 (1972)

Washington Revenue Dept. v.

Assoc. of Washington Stevedoring

Companies,

435 1.5. 734 (1978)

Zee Toys v. County of Los Angeles,

85 Cal. App. 3d 763,

149 Cal. Rptr. 750 (1978) 1, 6,

iv.

~

vl

11

ur

Constitutions

Constitution of the United States:

Article I, Section 8, Clause 3 .

Article I, Section 10, Clause 2 7

Statutes

California Revenue and Taxation Code:

Section 225 a a. a ee

Section 225.1 3

28 U.S.C. Section 1257(3) 2

Textbook

National Tax Journal, Classification,

Site Value Taxation, 19:322, 324

(Sept. 1976) 10

IN THE

SUPREME COURT

OF THE UNITED STATES

October Term, 1979

No,

WALTER FLEISHER COMPANY,

Petitioner,

vs.

COUNTY OF LOS ANGELES, etal.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

Petitioner, Walter Fleisher Company, Inc.,

a corporation, respectfully prays that a writ of

certiorari issue to the Court of Appeal of the State

of California, Second Appellate District, to review

that court's decision holding that California Revenue

and Taxation Code Section 225 (set forth in Appendix

“A hereto), provided an unfair exemption from

property taxes for imported goods, thereby dis-

criminating against interstate commerce, in

contravention: of the Commerce Clause of the

(United States Constitution,

In holding Section 225 unconstitutional the

court relied on an earher decision of the Court of

Appeal in Zee Toys v. County of Los Angeles,

ae

85 Cal. App. 3d 763, 149 Cal. Rptr. 750 (1978).

This Court granted certiorari in the Zee Toys case,

sub. nom. Sears, Roebuck & Co. v. County of

Los Angeles, October Term, 1978, No. 78-1577,

on October 1, 1979. The Supreme Court of

California denied a timely Petition for Hearing.

OPINION BELOW

The opinion of the California Court of Appeal,

Second Appellate District, was not certified for

publication and will not be reported. A copy of

the opinion is set forth in Appendix ''B"’ hereto.

JURISDICTION

The decision of the Court of Appeal was filed

July 25, 1979. A Petition for Hearing in the California

Supreme Court was denied on September 290, 1979.

Jurisdiction of this Court is invoked under

28 U.S.C. §1257(3).

QUESTION PRESENTED

Whether California Revenue & Taxation C ode

Section 225, which grants a property tax exemption

to imported inventories no longer in transit, but

intended for transshipment out of the State of

California, violates the Commerce Clause of the

9

~e

of the United States Constitution because a similar

exemption is not provided to interstate goods.

CONSTITUTIONAL PROVISION

INVOLVED

The constitutional provision involved is the

Cominerce Clause, Article I, Section 8, Clause 3

of the Constitution of the United States, which

grants to Congress the right: ''To regulate Com-

merce with foreign nations, and among the several

States, and with the Indian Tribes. "'

The state statutes involved are California

Revenue and Taxation Code Sections 225 and 225.1,

set forth in Appendix ''A,"'

HOW THE FEDERAL QUESTION

AROSE

The question presented in this petition was

considered on the merits by the California Ccurt

of Appeal in the opinion filed by that court.

Since such claims were passed upon by the highest

court hearing this case, there is no preliminary

issue as to the proper presentation of the federal

claims. (See Raley v. Ohio, 360 U.S. 423,

436 (1959).)

The Court of Appeal opinion demonstrates

that the question raised in this petition was both

considered and decided, the court stating:

Se

"The effect of this statute is

to provide a property tax exemption for

goods in foreign commerce. No such

exemption is provided, however, for

goods in California which are part of

interstate commerce. In Zee Toys, Inc.

v. County of Los Angeles, supra, 85

Cal. App. 3d 763, the court concluded that

the tax is a discriminatory one, and as

such is forbidden by the Commerce

Clause of the United States Constitution. '

PETITION FOR CONSOLIDATION

Pending before this Court is Sears, Roebuck

& Co. v. County of Los Angeles, October Term,

1978, No. 78-1577. The petition for writ of

certiorari was granted by this Court on October 1,

1979.

The facts in the instant case are almost

identical to the facts in Sears, Roebuck & Co. v.

County of Los Angeles. In both instances the

Petitioner held imported inventory in warehouses

located in Los Angeles County pending transship~

ment out of the State of California. The only

distinction is that Sears, Roebuck 4 Co. is a

retailer, and Petitioner herein is a wholesaier.

It is submitted that such distinction has no legal

effect on the case; however, to the extent there

is or may be claimed any distinction, consolidation

will provide a resolution of all of the questions

involved regarding a resolution of all of the

questions involved regarding the validity of

4,

SA.

California Revenue and Taxation Code Section

225.

If this Court grants this petition for certiorari,

and consolidates, Petitioner herein is willing to be

bound by the briefing schedule set forth by this

Court for Sears, Roebuck & Co. v. County of

Los Angeles. The County of Los Angeles, Respon-

dents in both cases, has consented to consolidation

in the event this Court grants the petition for

certiorari. Such consent is attached as Appendix

"C" hereto.

STATEMENT OF THE CASE

Following the California Supreme Court

decision in Volkswagen Pacific v. City of Los Angeles,

7 Cal. 3d 48, 496 P.2d 1237 (1972), assessors through-

out the State of California began denying the import-

export exemption to importers who had unloaded

merchandise from seagoing cargo containers. As

a result of such denial, importers in large numbers

began leaving the State of California and finding

warehousing opportunities in other areas of the

country.

In response to this deteriorating economic

situation, the California Legislature passed

Revenue and Taxation Code Sections 225, et seq.,

commonly known as the California Free Port Law.

Section 225 provides an exemption from ad

valorem property taxes for (1) personal property

manufactured or produced outside this State and

De

brought into the State for transshipment to points

outside the United States, and (2) personal property

manufactured or produced outside of the United

States and brought into this State for transship-

ment to points outside of this State. It is

patterned after free port or transshipment statutes

enacted in approximately 35 other states. This

and Zee Toys v. County of Los Angeles, Sears,

Roebuck & Co. v. County of Los Angeles, supra,

are the first cases in which any state statute

providing a transshipment exemption has been struck

down by a state or federal court.

Petitioner Walter Fleisher Company, Inc.,

is an importer, warehousing goods in the County

of Los Angeles for sale and subsequent transship-

ment to customers, both within and without the

State of California. For the 1976-1977 tax year,

petitioner applied for and was denied an exemption.

Petitioner filed suit secking a refund, and judgment

was entered for petitioner in the trial court on a

motion for summary judgment.

The County of Los Angeles and City of

Los Angeles took an appeal from the judgment.

Prior to decision in the instant case, the Court

of Appeal, Second Appellate Distict, Division Three,

held Revenue and Taxation Code Section 225 unconsti-

tutional in the consolidated case of Zee Toys v. County

of Los Angeles and Sears, Roebuck & Co, v. County

of Los Angeles, supra. Relying upon the Zee Toys

decision as controlling authority, the Court of Appeal

reversed the instant judgment, holding that Section

225 violated the Commerce Clause of the United

States Constitution, that the local covernment

defendants had standing to raise the constitutional

objection, and that the appropriate remedy was

to invalidate the exemption rather than to extend

the exemption to the parties against whom the

Court of Appeal felt the statute discriminated.

REASONS FOR GRANTING THE

WRIT

A. THE COURT OF APPEAL

HAS DECIDED A FEDERAL

CONSTITUTIONAL QUESTION

OF SUBSTANCE IN A MANNER

CONTRARY TO APPLICABLE

DECISIONS OF THIS COURT.

The Court of Appeal decision used a standard

which would strike down any state statute dif-

ferentiating between interstate and foreign

commerce, no matter how reasonable the distinc-

tion. Such interpretation is in contrast to the

modern trend of decisions allowing greater

latitude to the states in instituting taxing

policies.

In Michelin Tire Corp. v. Wages, 423

U.S. 276 (1976), this Court overruled Low v.

Austin, 80 U.S. (13 Wall.) 29 (1972), holding

that nondiscriminatory ad valorem property taxes

did not constitute an import or export under

Article I, Section 10, Clause 2 of the U.S.

Constitution.

In Complete Auto Transit, Inc. v. Brady,

430 U.S. 274 (1977), this Court overruled Spector

Motor Service v. O'Connor, 340 U.S. 602 (1951),

and held that a state, under appropriate conditions,

may tax directly the privilege of conducting inter-

state business.

In Washington Revenue Dept. v. Assoc. of

Washington Stevedoring Companies, 435 U.S. 734

(1978), this Court overruled Puget Sound Stevedoring

Co. v. Tax Commissioner, 302 L.S. 90(1937), and

put to rest the direct/indirect test, and reiterated

the necessity to balance the burden placed on inter-

state commerce by the benefits to the State. This

Court stated: ‘Respondents, therefore, have

demonstrate ' no impediment imposed by the tax

upon the re; ulation cf foreign trade by the United

States."' (43. U.S. 754.)

In Boston Stock Exchange v. State Tax Comm'r.,

429 U.S, 318 (1977), this Court invalidated a New

York tax scheme which was designed to provide a

commercial advantage to la al businesses (the

New York Stock i.xchange) to the detriment of out-

of-state stock exchanges. The Court, however,

cautioned:

Qn various occasions when

called upon to make the delicate adjust-

ment between the national interest and

free and open trade and the legitimate

interest of the individual States in

exercising their taxing powers, the

Court has counseled that the result turns

nthe unique characteristics of the

Statute at issue and the particular

circumstances in each case,’

(429 U.S. 329.)

The statute involved in the instant case makes

no distinction between out-of-state and in-state

residents or businesses. On the contrary, both

are given the economic advantage of utilizing the

Free Port Law if their goods qualify. There was

no evidence or finding of interference with com-

merce. The Court of Appeal assumed that any

distinction had an effect on interstate commerce,

and applied a ''per se'' standard on the grounds

that any interference or potential interference

constituted an impermissible burden under the

Commerce Clause. This case therefore raises

an important issue concerning the limitations

imposed by the Commerce Clause on the power of

a state to enact tax statutes to meet local needs.

The inventory in the case had come to rest

in California, and was not still in transit for

purposes of prohibiting taxation under the Commerce

Clause. Such goods were therefore part of the mass

of goods in the State of California, subject to ad

valorem property taxes under Michelin v. Wages,

supra, and the State may require that they participate

and bear their fair share of local services. How-

ever, unlike the issue in Michelin v. Wages, the

question now is whether the State must tax such

inventory together with all other inventory in the

State.

B. REVIEW BY THIS COURT IS

WARRANTED TO RESOLVE A

CONFLICT BETWEEN STATE

COURT DECISIONS WITH

RESPECT TO THE CONSTI-

TUTIONALITY OF "FREE

PORT LAWS,"

It is common practice for states to encourage

local industry by providing tax exemptions.

Examples are domestic wines while aging in

California, dairy products in Wisconsin, certain

fish products in Louisiana, and wheat products

in the Midwestern states. With increasing frequencies

states have been providing exemptions to inventories,

and especially inventories stored for transshipment.

"Not only are inventories exempt in the few but

very important states that exempt all personal

property... but they are wholly or partially

exempt in numerous other states and are almost

universally exempt if they have been brought into

a state for storage or other limited activities before

being shipped out of the state.’ (National Tax

Journal, Property Tax Developments: Moderniza-

tion, Classification, Site Value Taxation, 19:322,

324 (Sept. 1976). )

Such classificatior statutes are tested under

:qual Protection principles.

Over 35 states have some type of free port

exemption. <A substantial number of these statutes

grant out-of-state or foreign products an exemption

which is denied to similar products manufactured

or grewn in the United States or in the state in

10,

question. These distinctions are based on the

origin of the goods, the same distinction struck

down in the instant case.

In Appeal of Martin (S.Ct. N.C., 1974)

209 S.E.2d 766, the court upheld a statute providing

an exemption based on the origin of the goods and

based on the residence of the owner of the goods.

The statute specifically described its purposes:

"It is hereby declared to be the

policy of this state to use its system

of property taxation in such manner,

through the classification of the afore-

mentioned property, as to encourage

the development of the ports of North

Carolina. . . [and] to encourage the

development of the State of North Carolina

as a distribution center.'’ (Emphasis

added. )

Under the North Carolina statute a distribu-

tor, such as Petitioner, who warehouses in non-

public facilities would: (a) be taxed on goods

purchased domestically; but, (b) given an exemp-

tion on imported goods. This is the same distinction

struck down in the instant case. (See, State Bd. of

Tax Comm'rs. v. Carrier Corp. (S.Ct. Ind., 1977)

365 N.E.2d 1153, 1385.)

If Boston Stock Exchange and Michelin Tire

Corp. have been cerrectly interpreted in the instant

case and in Zee Toys, then both the North Carolina

and Indiana taxing schemes would also have to fail

for violating the Commerce Clause. (See also,

Nash Sales v. City of Milwaukee (S.Ct. Wisc.,

11,

1929) 224 N.W. 126.)

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

522, 3 L.Ed. 2d 480, 79 S.Ct. 437 (1959), an Ohio

statute exempted merchandise belonging to non-

residents held in storage but taxed similar property

belonging to residents. This Court upheld the

statute against Equal Protection arguments.

In Raley & Bros. v. Richardson, 264 U.S.

157 (1924), this Court upheld a Georgia tax upon

brokers or commission merchants dealing in intra-

state goods, which tax was not imposed upon

similar brokers dealing in goods in interstate

commerce. This Court rejected arguments that

such distinction violated the Commerce Clause.

According to the Japan Lines Ltd. v. County

of Los Angeles, _U.S. _,-:99 S.Ct. 1813 (1979),

the policies aniinating the Import-Export Clause

and the Commerce Clause (with regard to foreign

commerce) are much the same: (1) to permit the

federal government to speak with a single voice

in regulating commercial relations with foreign

governments, (2) to prevent the States from

diverting import revenues to their treasuries

rather than the federal treasury, and (3) to prevent

States with ports of entry from exacting tolls

which raise the price of goods to the rest of the

Nation. 99 S.Ct. at 1822, n. 14. It is readily

apparent that none of these policies can be

violated by an exemption, as opposed to a tax.

The section 225 transshipment exemption does

not frustrate the attainment of federal uniformity

of tax treatment of imports and does not involve

any risk of retaliation from abroad. Cf. 99 S.Ct.

12,

at 1823-24, The transshipment exemption invites

reciprocity of tax relief for our expoerts rather

than inviting the retaliation that a tax would

encourage in similar circumstances. Manifestly,

there is no violation of the second policy behind

the Import-Export Clause and the foreign Commerce

Clause for the simple reason that a tax exemption

cannot divert federal import revenues to state

coffers. As to the third policy, the transshipment

exemption invites reciprocity of tax relief for

United States exports rather than inviting the

retaliation that a tax on foreign commerce might

encourage.

In short, the principal! purpose of the federal

constitutional provisions respecting foreign commerce

is to assure that the States do not impede or obstruct

imports and exports. While a tax can burden foreign

commerce and obstruct commercial intercourse

between nations, a tax exemption has no such effect.

The Court of Appeal in Zee Toys missed this

fundamental distinction entirely and plain mis-

understood the policy behind the federal consti-

tutional provisions applicable to foreign commerce.

The Court of Appeal in the instant case followed

Zee Toys in deference to the principle of stare

decisis. Nevertheless, the error in both Court

of Appeal decisions is clear.

SUMMARY

The shield of the Commerce Clause is generally

sought by taxpavers attempting to prevent state

local taxation. Rarely if ever has such shield been

13,

successfully invoked by a taxing subdivision of the

state to attack the state's own taxing scheme.

In Boston Stock Exchange, supra, this Court

struck down, on Commerce Clause grounds, a

New York taxing scheme providing benefits to

residents, to the detriment of non-residents.

In Allied Stores of Ohio, supra, this Court upheld

an Ohio statute providing a tax benefit to nonresidents

to the exclusion of residents, attacked on the basis

of Equal Protection.

In the instant case no distinction is made

between residents and nonresidents; each are

afforded the benefits of the transshipment exemption.

The statute in question merely provides an exemp-

tion to one type of goods, to wit, goods which had

been imported from abroad.

In Japan Line, Ltd. v. County of Los Angeles,

supra, this Court held that California property tax

applied to foreign owned instrumentalities of inter-

national commerce prevented the Federal Government

from speaking with one voice in international trade.

In contrast, in the instant case the goods which are

exempted have come to rest in California, are

part of the mass of goods locuted in the state, and

are fully subject to the power of the state.

(Michelin Tire v. Wages, supra.) The risk that

foreign commerce will be burdened by the instant

exemption is so remcte that it can be said to be

nonexistent. (Bob-Lo Excursion Co. v. Michigan,

33 U.S. 28 (1948). )

To allow the California Court of Appeal

decision to stand would place in jeopardy fre¢

i4.

port or transshipment statutes throughout the

nation, it would question every local statute

attempting to encourage public policy or local

economic goals by providing benefits to one type

of activity or product while denying them to other

activities or products. The decision is in conflict

with the results and reasoning of Michelin v.

Wages, Complete Auto Transit, Inc. v. Brady,

Washington Rev. Dept. v. Stevedoring Ass'n.,

Boston Stock Exchange v. State Tax Comm'r.,

and Raley & Bros. v. Richardson,

CONCLUSION

For the foregoing reasons the Petition for

a Writ of Certiorari should be granted, and this

case consolidated with Sears, Roebuck & Co,

v. County of Los Angeles, October Term, 1978,

No. 78-1577, and the parties directed to comply

with the same briefing schedule.

Respectfully submitted,

GERALD T. MANPEARL

RUSSELL IUNGERICH

Attorneys for Petitioner

APPENDIX A

"Section 225. 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 transhippment 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

manufacturing process or production. Such process

or production shall not include the breaking in bulk,

labeling, packaging, relabeling, or repackaging of

such property.

"Section 225.1. A person claiming an

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

inventory, using the percentage determined by

dividing the total out-of-state shipments by the tax-

payer from that location auring the preceding year

by the total of such shipments from that location.

during such year, or (2) an 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 destination thereof.

“Section 225.2. Any property exempted under

Section 225 which 1s reconsigned to a final destination

in this state shall be subject to excape assessment

procedures,

\-1

=

APPENDIX B

IN THE COURT OF APPEAL

OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

2d Civil No.

53651

WALTER FLEISHER CO., INC., )

Plaintiff and )

Respondent, )

VS. ) (Super. Ct. No.

COUNTY OF LOS ANGELES and ) (C195366)

CITY OF LOS ANGELES, )

Defendants and )

Appellants. )

)

Court of Appeal-

Second Dist.

FILED

Jul 25 1979

Clay Robbins, Jr., Clerk

Deputy Clerk

APPEAL from a judgment of the Superior Court

of Los Angeles County. George M. Dell, Judge.

Reversed.

John H. Larson, County Counsel, and James

Dexter Clark, Deputy County Counsel, for Defen-

dants and Appellants.

Baker, Ancel, Redmond & Hall; Evans,

Manpearl & Harter and Gerald T. Manpearl, for

Plaintiff and Respondent.

Defendants have appealed from a judgment

entered in favor of plaintiff following the granting

of plaintiff's motion for summary judgment.

Plaintiff's motion for summary judgment

was premised on its claimed right to tax exemption

under California Revenue and Taxation Code section

225. That statute having been declared unconsti-

tutional in Zee Toys, Inc. v. County of Los Angeles

(1978) 85 Cal. App. 3d 763, (hrg. den. Cal.S.Ct.

1/17/79), we reverse the judgment.

Plaintiff is an importer of goods imported

and manufactured in foreign countries. The goods

are shipped to plaintiff in California where they

are unloaded into his warehouses, awaiting sale

and delivery to his customers located throughout

the United States. The goods are stored for

indefinite periods of time awaiting such sale and

delivery. Ad valorem property taxes were assessed

by the County Assessor of Los Angeles for the

fiscal year July 1976 through June 1977. Those

taxes were imposed on all of the merchandise

stored in plaintiff's warehouses on the lien date,

March 1, 1976. Plaintiff paid the assessed taxes

under protest, claiming an exemption under

Revenue and Taxation Code section 225. After

exhausting his administrative remedies, plaintiff

filed the within action against the County of

Los Angeles, seeking refund of the taxes paid

pursuant to said exemption. Summary judgment

in the sum of $3, 861.40 was awarded to plaintiff

on that complaint.

Appellants challenge the validity of the court's

ruling contending, inter alia, that the statute is

B-2

unconstitutional. Revenue and Taxation Code

section 225 provides as follows:

"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 exemption 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, packaging, relabeling,

or repackaging of such property."

The effect of this statute is to provide a

property tax exemption for goods in foreign

commerce. No such exemption is provided,

however, for goods in California which are part

of interstate commerce. In Zee Toys, Inc. v.

County of Los Angeles, supra, 85 Cal. App. 3d

763, the court concluded that the tax is a dis-

criminatory one, and as such is forbidden by

the commerce clause of the United States Consti-

tution. The court cited and quoted from numerous

United States Supreme Court decisions which

have established, explained, and expanded the

commerce power of the United States government

and defined the limits of the power of states to

interfere therewith. Those cases establish that

both foreign commerce and interstate commerce

are subject to the exclusive control of the federal

government and that ‘the very purpose of the

B-3

commerce clause was to create an area of free trade

among the several states.'' (McLeod v. J. E.

Dilworth Co. (1944) 322 U.S. 327, 350.)

Respondent argues here, as did respondents

in Zee Toys, that the effect of the exemption in

question is to encourage foreign commerce;

respondent argues that this is distinguishable from

a tax, duty, or impost which interferes with and

thus discourages foreign trade. The response

of the court in Zee Toys is apposite here:

"In any event, there is no merit to the

argument that only the imposition of dis-

criminatory burdens upon foreign commerce

interferes with Congress' power to regulate

in that field. As pointed out in Michelin,

supra, 423 U.S. at p. 286 [46 L.Ed. 2d at

p. 504], discriminatory taxes, if ‘applied

selectively to encourage or discourage...

importation in a manner inconsistent with

federal regulation' are invalid. (Italics

added.) (Id. at p. 775.)

Respondent has cited numerous cases in

which state taxing schemes have been found not

violative of the United States Constitution and

argues that thus Zee Toys was wrongly decided.

Respondent also contends it has been unable to

find any other case which invalidates an exemption

from tax, aS opposed to 2 tux. If ven if no such

cases exist, the distinction between an invalid tax

and ‘an invalid exemption is one of form rather

than substance. The evil sought to be prevented

is the result--the taxation of some forms of

commerce to the exclusion of others. We see no

significance in the fact that California chose to

tax interstate commerce by enacting an express

exemption for foreign commerce. The dis-

criminatory effect as between interstate and

foreign commerce is the same.

Respondent contends that a recent decision

of the United States Supreme Court, Japan Line,

Ltd. v. County of Los Angeles, U.S.

(47 U.S. Law Wk. 4477), “has in fact placed grave

doubt upon the validity of the holding of Zee Toys

v. County of Los Angeles.'' We disagree. In

Japan Line, the California Supreme Court had

upheld a property tax imposed on appellant's

containers temporarily present in California.

The containers were based, registered, and subjected

to property tax in Japan, and were used exclusively

in foreign commerce. The U.S. Supreme Court

addressed the issue of whether instrumentalities

of commerce used ''exclusively in international

commerce, may be subjected to apportioned ad

valorem property taxation by a state.'' (Id. at

p. 4480.) The court observed: "'If the state tax

‘is applied to an activity with e substantial nexus

with the taxing State, is fairly apportioned, does

not discriminate against interstate commerce, and

is fairly related to the services provided by the

State, ' no impermissible burden on interstate

commerce will be found. [Citations.]' (Emphasis

added.) (Id. at p. 4480.)

But, the Court added, when construing the

power to regulate commerce with foreign nations,

''a more extensive constitutional inquiry is required."

The court held that, in addition to answering

the nexus, apportionment, and nondiscrimination

issues, a court must also inquire whether the tax

creates a substantial risk of international multiple

taxation and whether the tax prevents the federal

government from speaking ''with one voice when

regulating commercial regulations with foreign

governments.'' (Id. at p. 4481.)

Respondent's contention that the exemption

in the instant case must be upheld because of the

ruling in Japan Line is not well taken. In this case,

we do not validate the imposition of a tax on foreign

commerce. Rather, we invalidate a discriminatory

exemption which favors foreign cornmerce over

interstate commerce. As the language quoted from

Japan Line clearly reflects, a tax which discriminates

against interstate commerce is violative of the

United States Constitution. Inferentially, of

course, an exemption which has similar dis-

criminatory effect is equally invalid.

We believe that Zee Toys, supra, is well

reasoned and rightly decided. We agree that,

"by granting an exemption to foreign goods which

is withheld from interstate goods, Revenue and

Taxation Code section 225 violates the commerce

clause of the United States Constitution.’ Zee

Toys, Inc. v. County of Los Angeles, supra, 85

Cal. App. 3d at p. 777.)

Standing to Raise the Constitutional

Issue

Respondent contends that appellants do not

have standing to contest the constitutionality of

B-6

section 225, citing Community Television of

So. Cal. v. County of Los Angeles (1975) 44 Cal.

App. 3d 990, and Appeal of Martin (1974) 286 N.C.

66, 209 SE 2d 766. Those cases held that

government entities did not have standing to challenge

the validity of state statutes under the equal protection

clause of the federal Constitution, since the plaintiffs

were not members of the ''class allegedly discriminated

against.'' This same contention was rejected in

Zee Toys, the court there noting that the challenge

in this case is not one of equal protection. There-

fore, the class-membership requirement does not

apply. Appellants have standing because they

have ''a personal stake in the outcome" of this

litigation. (Baker v. Carr (1962) 369 U.S. 186,

204.)

The judgment granting appellant exemption

from county ad valcrem property taxes under

Revenue and Taxation Code section 225 is in error.

The judgment is reversed; each party to

bear its own costs.

NOT FOR PUBLICATION,

ALARCON, J.

We concur:

KINGSLEY, Acting P. J.

JEFFERSON (Bernard), J.

B-7

APPENDIX C

John H. Larson

County Counsel

Donald K. Byrne

Chief Deputy

OFFICE OF THE COUNTY COUNSEL

648 Hall of Administration

Los Angeles, California 90012

October 16, 1979 (213) 974-1833

Mr. Gerald T. Manpearl

Evans, Manpear! & Harter

Attorneys at Law

350 So. Figueroa Street

Suite 900

Los Angeles, CA 90071

Re: Sears, Roebuck & Co. v. County

of Los Angeles; No. 78-1577

and

Walter Fleisher & Co. v. County.

of Los Angeles; No. C 195366

Dear Mr. Manpearl:

This will confirm that in the event the

United States Supreme Court grants your Petition

for Writ of Certiorari in Walter Fleisher & Co. v.

County of Los Angeles, we have no objection to

such case being consolidated with Sears, Roebuck

& Co. v. County of Los Angeles No. 78-1577, as

long as the issues you raise are the same as those

in the Sears matter. Because the Court Clerk has

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indicated that no time extensions will be allowed,

we cannot stipulate to the consolidation if any

other matter than the problem of the constitutionality

of §225 is raised.

Very trul yours,

JOHN H. LARSON

County Counsel

/s/ James Dexter Clark

By

JAMES DEXTER CLARK

Deputy County Counsel

JDC:lvw