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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1980
- **Citation:** 446 U.S. 917

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1177%3A2. Public record. Not legal advice.