Record and brief — Xerox Corp. v. County of Harris

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FILED

FEB 9 1982

L. STEVAS,

IN THE

Supreme Court of the United States

OCTOBER TERM, 1981

XEROX CORPORATION,

Appellant,

—Y,.—

COUNTY OF HARRIS, TEXAS, and

CITY OF HOUSTON, TEXAS,

Appellees.

ON APPEAL FROM THE TEXAS COURT OF CIVIL APPEALS

JURISDICTIONAL STATEMENT

ALFRED H. HODDINOTT, JR.

800 Long Ridge Road

Stamford, Connecticut 06904

(203) 329-8700

Counsel for Appellant

February 9, 1982

QUESTION PRESENTED

Appellant Xerox Corporation (“Xerox”),* through subsidi-

aries, assembled copying machines abroad, shipped them to a

customs bonded warehouse in Texas, stored them temporarily

and then reshipped them abroad, at all times under customs

bond.

May a state assess an ad valorem tax on goods that

a) were continuously in the flow of foreign commerce;

b) never entered domestic commerce or became part of the

common mass of property within the state;

c) paused only temporarily within the state; and

d) were continuously under the supervision, custody and

control of the United States Customs Service.

* The parties to this proceeding are as listed in the caption, except that

pursuant to Supreme Court Rule 28.4(c), a copy of the notices of appeal and

this statement were served upon the Attorney General of the State of Texas,

since 28 U.S.C. § 2403(b) may be applicable. Pursuant to Supreme Court

Rule 28.1, Xerox, a New York corporation, states that it has no parent or

affiliates. Xerox has one United States subsidiary which is not wholly

owned—Rank Xerox Business Equipment, Inc., a Delaware corporation.

Xerox also has other subsidiaries, as defined by the Securities and Exchange

Commission, in a number of foreign countries: Xerox do Brasil, S.A.; Xerox

de Mexico, S.A. de C.V.; Xerox del Peru, S.A.; Xerox de Venezuela, C.A.;

Xerox de Colombia, S.A.; Rank Xerox Limited; Rank Xerox Holding B.V.;

Rank Xerox Manufacturing (Nederland) B.V.; Rank Xerox Fabrikations

G.m.b.H.; Societe Industrielle Rank Xerox S.A.; Fuji Xerox Co., Ltd.;

Office de Transformation Papetiere S.A.; Rank Xerox Espanola S.A.; Rank

Xerox (N.Z.) Ltd.; and Rank Xerox (Australia) Pty. Ltd.

iii

TABLE OF CONTENTS

PAGE

QUESTION PRESENTED ......ccccccccccccccccees i

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CONSTITUTIONAL PROVISIONS AND STATUTES. 3

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THE QUESTION PRESENTED REQUIRES PLE-

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TABLE OF AUTHORITIES

Cases PAGE

American Smelting and Refining Co. v. County of

Contra Costa, 271 Cal. App. 2d 437, 77 Cal. Rptr.

570, appeal dismissed, 396 U.S. 273 (1969) ......... 13, 17

Bacon v. Illinois, 227 U.S. 504 (1913). ............... 16

Brown v. Maryland, 25 U.S. (12 Wheat.) 419 (1827)... 14

Calvert v. Zanes-Ewalt Warehouse, Inc., 502 S.W.2d 689

i, Ch i ciecd beled tis et daeehe 6d demace 16

Department of Revenue of the State of Washington v.

Association of Washington re Companies,

er PED ok bbe cicceddsedecssucdeves 9, 15, 17

Hooven & Allison Co. v. Evatt, 324 U.S. 652 (1945). . 14

Independent Warehouses, Inc. v. Scheele, 331 U.S. 70

Di ci stecedaues tussautansunestaadiaesuabakin 16

Japan Line, Ltd. v. County of Los Angeles, 441 U.S.

PET SET OLE ToT Tre tre TrtTere 2,17

Kosydar v. National Cash Register Co., 417 U.S. 62

DE 6 cthesudéaunteusdecadwedeubbeesunesenees 16, 18

Low v. Austin, 80 U.S. (13 Wall.) 29 (1872) .......... 14

McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940) . 9, 10-13

Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976) . 9, 13-15,

National Distillers Products Corp. v. City and County

of San Francisco, 141 Cal. App. 2d 651, 297 P.2d 61,

cart. Ganted, 352 U.S. GAB (IDSG).... vecccccccccccces 12

Susquehanna Coal Co. v. City of South Amboy, 228

Dds bccdhagesuaedeeetaks bescneueie 16

Youngstown Sheet & Tube Co. v. Bowers, 358 U.S. 534

ST 15 «uddertedudees.bebensdheddeneuns oeekeus 14

PAGE

Constitutions

UNITED STATES

Article I, Section 8, Clause 3 .............ce000. 3, 8, 10

Article I, Section 10, Clause 2 .................. 3, 8, 13

TEXAS

ES EE cddoccctcdsccebascecesoosese 4

Statutes and Rules

UNITED STATES CODE

EE a i aaa kine niedenteedeuns 3, 10

a he de ene cndeenbeee 3, 11, 12

tt. 1 i cctonneéwedbeeseuenee 3, 9, 11, 12, 17

i ee es be ae a ae 2

EERE a en i

VERNON’S TEXAS CIVIL STATUTES

Pat Ucdewdieuncan seks isekeedieadeo ace 4

CODE OF FEDERAL REGULATION

Oe rer 11

ENE I a Re eR 16

i ee ccc baie Geebaneeeb bee Chews 11

Other Materials

Securities anc Exchange Commission, 1977 Form 10K

Annual Report, Xerox Corporation, Notes to Consol-

idated Financial Statements, pp. 6, 19 ............. 7

IN THE

Supreme Court of the United States

OCTOBER TERM, 1981

XEROX CORPORATION,

Appellant,

—V.—

COUNTY OF HARRIS, TEXAS, and

CITY OF HOUSTON, TEXAS,

Appellees.

ON APPEAL FROM THE TEXAS COURT OF CIVIL APPEALS

JURISDICTIONAL STATEMENT

OPINIONS BELOW

The Supreme Court of Texas did not issue an opinion; its

refusal of an Application for a Writ of Error appears in the

appendix (“App.”) hereto, p. 20a infra.

The opinion of the Texas Court of Civil Appeals, dated

April 30, 1981, is reported at 619 S.W.2d 402. It is reprinted in

the appendix, p. la infra.

The opinion and the amended findings of fact and conclu-

sions of law of the trial court, the District Court for the 165th

District, Houston, Texas, dated July 14 and October 24, 1980,

are not reported. They are reprinted in the appendix, pp.

lla-19a infra.

JURISDICTION

This is an appeal drawing in question the validity of state

statutes which were challenged as being repugnant to the

Constitution and were held to be valid. It is an appeal from the

decision of the Texas Court of Civil Appeals that the ad

valorem taxes of appellees as applied to Xerox are valid and

not prohibited by the Constitution of the United States. An

Application for a Writ of Error to the Supreme Court of Texas

was refused, on a finding of “no reversible error”; its judg-

ment was entered on October 14, 1981. It overruled a motion

for rehearing on November 25, 1981. See App. p. 21a infra.

Notices of appeal to this Court were filed on January 29 and

February 1, 1982 in the Supreme Court of Texas and the Texas

Court of Civil Appeals respectively, App. pp. 22a-27a infra.

This appeal is being docketed within 90 days from the denial of

rehearing below. The jurisdiction of this Court is invoked

under 28 U.S.C. § 1257(2).

The Court has clearly established its jurisdiction over the

issues raised here. In Japan Line, Ltd. v. County of Los

Angeles, 441 U.S. 434, 440-41 (1979), it held

In this case, appellants drew in question the validity of

California’s ad valorem property tax, contending that the

tax, as applied to their containers, was repugnant to the

Commerce Clause and various treaties, and the California

Supreme Court sustained the validity of the tax. Under

these circumstances, this Court’s appellate jur‘sdiction

would seem manifest.

* * * Appellants squarely challenged the constitu-

tionality of the tax statute, as applied, and the California

Supreme Court just as squarely sustained its validity, as

applied. We have held consistently that a state statute is

sustained within the meaning of § 1257(2) when a state

court holds it applicable to a particular set of facts as

against the contention that such application is invalid on

federal grounds. [citations] We conclude that we have

appellate jurisdiction of this case.

CONSTITUTIONAL PROVISIONS AND STATUTES

United States Constitution, Article I, Section 8, Clause 3

The Congress shall have power . . . To regulate Com-

merce with foreign Nations, and among the several States,

and with the Indian Tribes. . . .

United States Constitution, Article I, Section 10, Clause 2

No state shall, without the Consent of the Congress, lay

any Imposts or Duties on Imports or Exports, except

what may be absolutely necessary for executing its inspec-

tion Laws... .

Title 19, United States Code

§ 1555. Buildings or parts of buildings and other inclo-

sures may be designated by the Secretary of the Treasury

as bonded warehouses for the storage of imported mer-

chandise entered for warehousing.... Except as

otherwise provided in this chapter, bonded warehouses

shall be used solely for the storage of imported merchan-

dise and shall be placed in charge of a proper officer of

the customs, who, together with the proprietor thereof,

shall have joint custody of all merchandise stored in the

warehouse. .. .

§ 1556. The Secretary of the Treasury shall from time to

time establish such rules and regulations as may be neces-

sary for the establishment of bonded warehouses and to

protect the ‘nterests of the Government in the conduct,

management, and operation of such warehouses and in

the withdrawal of and accounting for merchandise depos-

ited therein.

§ 1557.' (a) Any merchandise subject to duty. . . may

be entered for warehousing and be deposited in a bonded

As effective prior to October 3, 1978, the relevant time period.

warehouse at the expense and risk of the owner, importer,

or consignee. Such merchandise may be withdrawn, at

any time within 3 years from the date of importation, for

consumption upon payment of the duties and charges

accruing thereon at the rate of duty imposed by law upon

such merchandise at the date of withdrawal; or may be

withdrawn for exportation or for transportation and ex-

portation to a foreign country, or for shipment or for

transportation and shipment to the Virgin Islands, Ameri-

can Samoa, Wake Island, Midway Islands, Kingman

Reef, Johnston Island, or the island of Guam, without

the payment of duties thereon, or for transportation and

rewarehousing at another port or elsewhere, or for trans-

fer to another bonded warehouse at the same port. . . .

Texas Constitution, Article VIII, Section 1

Taxation shall be equal and uniform. All real property

and tangible personal property in this State, whether

owned by natural persons or corporations, other than

municipal, shall be taxed in proportion to its value, which

shall be ascertained as may be provided by law. . . .

Vernon’s Texas Civil Statutes, Article 7145

All property, real, personal or mixed, except such as may

be hereinafter expressly exempted, is subject to taxation,

and the same shall be rendered and listed as herein

prescribed.

STATEMENT OF THE CASE

The facts surrounding this case are simple and, as noted by

the court below, basically undisputed. This statement is based

essentially on the facts as set forth in the amended findings of

fact and the lower court opinion. See App. pp. 15a-19a; la-10a

infra.

Xerox manufactures copying machines domestically and,

through subsidiary corporations, also assembles them abroad.

For reasons of good will and to more effectively compete in the

sale of copiers in Latin America, Xerox set up an assembly

plant in Mexico City, Mexico. The governments of Mexico,

Brazil and other members of the Latin America Free Trade

Association (“LAFTA”) give import and tariff concessions to

companies that have a plant facility in a member country and,

indeed, some countries deny import rights to manufacturers of

copiers who do not have such a plant. Xerox had previously

used the Panama Free Trade Zone to store copiers pending

shipment to Latin America, but abandoned it due to anti-

American feeling over the Panama Canal. Houston was chosen

as the alternative location due, in part, to its excellent trans-

portation facilities.

Most of the component parts of the copiers assembled at the

Xerox plant in Mexico City were manufactured in the United

States and shipped to Mexico for assembling. The parts were

shipped from Rochester, New York, to Nuevo Laredo, Mexico,

placed in Mexican customs bond and shipped to Xerox’ plant.

After being assembled for use in Latin America, the copiers

were packaged individually and trucked to Nuevo Laredo,

where they cleared Mexican customs. The copiers entered the

United States at Laredo, Texas, and were placed in the custody

and control of the United States Customs Service (“U.S.

Customs”). They were shipped via a customs bonded trucking

company to the Houston Terminal Warehouse in Houston,

Harris County, Texas, a Class 3 customs bonded warehouse.

The copiers were placed in the warehouse, under U.S. Customs

control and supervision, pending orders from affiliated Xerox

corporations in Latin America. In the warehouse they were

kept segregated from domestic goods. When an order was

received, the goods were removed and transported by customs

bonded trucks to either the Port of Houston or the Port of

Miami, continuously under U.S. Customs control and supervi-

sion, where they were exported after first having cleared

United States customs.

The goods in question were in the warehouse for varying

periods of time, ranging from several days to twenty-five

months. All were in the warehouse for less than the period

provided for by the customs statute then in force. No United

States customs duty was ever paid on any of the machines. It is

conceded by the appellees that the goods never left the supervi-

sion, custody and control of U.S. Customs.

None of the copiers assembled in Mexico, including those in

question, has ever entered the United States for domestic

consumption, and in reality, they could not. That is because

1. All printing and instructions were in Spanish and

Portuguese;

2. Many of the machines required 50 cycle electricity,

which is not readily available in the United States;

3. Some of the machines did not have Underwriters

Laboratory or Canadian Standards Association (UL/

SSA) approval;

4. The copiers and their component parts were such that

they could not participate in the Xerox “Retrofit”

program in the United States, a program Xerox uses to

continuously update copiers in service with improve-

ments as they are developed; and

5. Import would require paying customs duties of 5% of

the value of the copiers and 5% of the value of

technical assistance given to the Mexican operation,

which assistance was worth in excess of $7 million.

Accordingly, Xerox contends the machines were constantly in

the flow of foreign commerce, and never entered the domestic

commerce of the United States or became a part of the

common mass of goods within the State of Texas.

Contrary to inferences made by the Texas Court of Civil

Appeals, Xerox pays its own way with respect to the services it

receives from state and local governments.’ Indeed, in the City

of Houston and County of Harris, Texas, Xerox paid ad

valorem taxes of approximately $881,000 and $936,000 in 1976

and 1977, respectively, or a total of $1,817,000, on copiers

(other than those in question) which were located there for

domestic use. In addition, Xerox has, of course, paid for the

services of the common carriers who transported the goods and

for the use of the warehouse. All of those payments obviously

included a portion used by those entities to pay state and local

taxes. Xerox also paid fees for the use of the Port of Houston.

Appellees did not assess ad valorem taxes on the machines

stored under customs bond for the years 1974 or 1975. In 1977,

the City of Houston (on behalf of itself and the Houston

Independent School District) and Harris County (on behalf of

itself, the State of Texas and several other local taxing authori-

ties) assessed ad valorem taxes for that year. Harris County

also back assessed for the year 1976. Harris County assessed

taxes of $104,395.45 for the two years, while the City of

Houston assessed $156,728.90 for 1977.’

Xerox commenced this action for declaratory judgment on

September 30, 1977. !n the earliest pleading filed, the original

2 In the years in question (1976 and 1977), Xerox paid $215,651,000

and 4196,233,000 or a total of $411,884,000 in state and local income,

payroll and personal property taxes. See Securities and Exchange

Commission, 1977 Form 10K Annual Report, Xerox Corporation,

Notes to Consolidated Financial Statements, pp. 6, 19.

3 Xerox’ contention that Harris County was estopped from assessing

taxes for 1976 because it had been given a letter of exemption by a

Deputy County Tax Assessor-Collector was rejected by the court

below. Without conceding that the decision below was correct, Xerox

abandons that claim here because it does not raise a federal question.

petition (App. p. 28a infra), Xerox sought declaratory judg-

ment that the State and local ad valorem taxes in question were

“unconstitutional, illegal and void” because they were in con-

travention of the Import-Export Clause and the Commerce

Clause of the United States Constitution, Article 1, Section 10,

Clause 2 and Article I, Section 8, Clause 3. The trial court, the

165th District Court for Harris County, Texas, upheld that

claim and ruled that these taxes were unconstitutional, as

applied to the foreign commerce in question (App. p. Ila

infra).

On appeal to the Texas Court of Civil Appeals, the same

constitutional issues were raised when the appellees contended

that the taxes were valid despite Xerox’ constitutional chal-

lenge. That court reversed the trial court, holding that the taxes

were valid and not prohibited by the Import-Export Clause

(619 S.W.2d at 405-6, App. p. 6a infra) and that they were not

“repugnant to nor violative of the Commerce Clause of the

United States Constitution” (619 S.W.2d at 407, App. p. 8a

infra).

In its Application for Writ of Error to the Supreme Court of

Texas, appellant raised as points of error, inter alia, that the

Court of Civil Appeals had erred in holding that Xerox’

copiers, while stored under customs bond, were subject to

State and local ad valorem taxes and that those taxes were

valid under the Import-Export and Commerce Clauses of the

United States Constitution. The Texas Supreme Court consid-

ered that claim and the constitutional ruling of the Court of

Appeals in denying the Writ, finding “no reversible error”

(App. p.20a infra).

THE QUESTION PRESENTED REQUIRES

PLENARY CONSIDERATION

The question presented is so substantial as to require plenary

consideration with briefs on the merits and oral argument

because

1. The only holding of this Court with respect to the

applicability of state taxes to goods in customs bonded

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

414 (1940) (“McGoldrick”), where state sales taxes

were held unconstitutional as an impingement on the

federal regulation of commerce. The court below re-

jected the applicability of McGoldrick. 1f McGoldrick

is no longer the law, it should be overruled only after

plenary consideration, and not inferentially by a sum-

mary affirmance here.

2. Xerox contends that these taxes also are invalid under

the Import-Export Clause because its copiers were in

transit, never entered domestic commerce and never

became part of the common mass of goods within the

State. This Court has stated in Michelin Tire Corp. v.

Wages, 423 U.S. 276 (1976) (“Michelin”), that goods

in transit are immune from state taxation, but has

since indicated that the question of the approach to be

taken on goods in transit is one it would prefer to

decide with full argument in a case with pertinent facts

presented. Department of Revenue of the State of

Washington v. Association of Washington Stevedoring

Companies, 435 U.S. 734, 757, n.23 (1978). This case

presents those facts.

3. Having stated in Michelin, supra at 290, that the

Import-Export Clause prohibits the assessment of

property taxes on goods in transit, the Court should

decide whether goods held in a customs bonded ware-

house for the period of time mandated by Congress, 15

U.S.C. § 1557(a), are “in transit” for these purposes.

4. In light of the enormous value of goods stored and

passing through customs bonded warehouses through-

out the United States, affirmance would create a new

class of taxes which would have a substantial impact

on the foreign commerce of the United States, and

would seriously impair or destroy the usefulness of the

federally mandated system of customs bonded ware-

houses.

Discussion

1. The McGoldrick Case

Although these copiers remained constanily under the rigid

supervision of U.S. Customs, were clearly “in transit” and

never entered the domestic commerce of the United States or

the common mass of property within the State of Texas, the

court below held local ad valorem taxes applicable to them. As

might be expected, this is not the first time that a local taxing

authority has attempted to tax a customs bonded import-ex-

port operation such as that of Xerox. On the only other

occasion this Court considered the question it held such a local

tax unconstitutional. McGoldrick v. Gulf Oil Corp., supra.

In reviewing McGoldrick, it is important to recall the role of

a customs bonded warehouse in the foreign commerce of the

United States. The Commerce Clause of the Constitution (art.

I, § 8, cl. 3) gives Congress the “power ... To regulate

commerce with foreign Nations. . . .” The regulation of for-

eign commerce, therefore, was reserved exclusively for the

federal government. In exercising that right, Congress has

promulgated, inter alia, extensive tariff schedules, levied duties

on imported goods, and issued various regulations which are

administered by U.S. Customs. For example, Congress has

authorized eight different classes of customs bonded ware-

houses, 19 U.S.C. § 1555, and provided that merchandise can

be imported to the borders of the United States and delivered

to the supervision and control of U.S. Customs for storage in a

customs bonded warehouse. The merchandise can then be

imported into the United States or exported. If exported, it is

not subject to customs duties. 19 U.S.C. § 1557(a). During the

relevant time period, merchandise could remain in a customs

bonded warehouse for three years (now five). 19 U.S.C.

§ 1557(a). In short, Congress has created a comprehensive

system to regulate the flow of foreign commerce through

customs bonded warehouses, and its restrictions are stringent.‘

Pursuant to 19 U.S.C. § 1556, regulations have been formula-

ted by the Secretary of the Treasury, including one that

adopted the McGoldrick decision, stating that “imported

goods in bonded warehouses are exempt from taxation or

judicial process of any state or subdivision thereof.” 19 C.F.R.

§ 19.6, n.11. This is substantially the same as language that has

appeared in customs regulations since 1915. See McGoldrick,

supra at 426.

In McGoldrick, the City of New York was attempting to

impose a sales tax on crude petroleum imported from Vene-

zuela, processed into fuel oil in New York, and then sold for

export, usually to ships bound for other countries. The opera-

tion was in a customs bonded warehouse, and the bonds were

conditioned, among other things, upon compliance with vari-

ous customs laws and regulations. As here, the goods were

always segregated from the common goods in the State, and

never destined for domestic commerce. /d. at 429. The Su-

preme Court reviewed the federal government’s refusal to

permit taxation of products under customs bond and struck —

down the attempted local taxation as repugnant to the Com-

merce Clause of the Constitution.

4 _ For example, the warehouse must first be bonded; it must meet

certain physical specifications; it cannot be physically altered or

discontinued without the permission of U.S. Customs; the warehouse

is obligated to give U.S. Customs a written list of all employees

handling imported merchandise and to advise U.S. Customs of their

termination; it is under the constant supervision of a U.S. Customs

warehouse officer; and when any merchandise in bond is to be

shipped, it shall be done only upon receipt of a permit signed by the

U.S. Customs officer. 19 C.F.R. §§ 19.1-19.6.

The situation here is exactly that posited in McGoldrick. In

19 U.S.C. § 1557(a), Congress mandated that goods which are

imported and held in customs bonded warehouses “may be

withdrawn for exportation or for transportation and importa-

tion to a foreign country. . . without the payment of duties

thereon. . . .” That statute is but part of a comprehensive set

of statutes and regulations, including those promulgated by the

Secretary of the Treasury pursuant to 15 U.S.C. § 1556. The

conclusion here, we submit, should be as in McGoldrick.

The Congressional regulation, read in the light of its

purpose, is tantamount to a declaration that in order to

accomplish constitutionally permissible ends, the im-

ported merchandise shaii not become a part of the com-

mon mass of taxable property within the state . . . and

shall not become subject to the state taxing power. Jd. 309

U.S. at 429.

Appellees and the court below cite no valid reasons in law or

fact to distinguish the instant case from McGoldrick, which

has expressed this Court’s position on the applicability of state

taxes to customs bonded merchandise. Many of the facts in

this case which appellees claim distinguish it from McGoldrick

were present in National Distillers Products Corp. v. City and

County of San Francisco, 141 Cal. App. 2d 651, 297 P.2d 61,

cert. denied, 352 U.S. 928 (1956). There, as here, the State

sought to enforce ad valorem taxes on goods other than

petroleum (liquor) stored in a customs bonded warehouse. The

court held the taxes unconstitutional in light of McGoldrick,

and in rejecting claims that the goods in question were subject

to such taxation, succinctly stated that the goods

. . .derive their immunity from local taxation under the

commerce clause by reason of the fact that the federal

government has regulated their manufacture, transporta-

tion, storage, and exportation in furtherance of com-

merce, and that such taxes would constitute an

interference with that regulation. Jd. 297 P.2d at 61.°

5 The distinctions drawn by the appellees and the Texas Court of Civil

Appeals do not create a difference. Clearly while this is an ad valorem

Finally, even in the case relied on by appellees, American

Smelting & Refining Co. v. County of Contra Costa, 271 Cal.

App. 2d 437, 77 Cal. Rptr. 570, appeal dismissed, 396 U.S. 273

(1969), State ad valorem taxes were rejected when, as here, the

merchandise in question (ore) was destined for foreign com-

merce. 77 Cal. Rptr. at 601. It is clear that whether the product

involved is the oil in McGoldrick, Natural Distillers’ liquor,

American Smelting’s ore or Xcrox’ copiers, Congress’ regula-

tion of foreign commerce with respect to them is no less

complete. The state taxes on these goods, while in customs

bonded warehouses, are unconstitutional.

Summary affirmance here would reject McGoldrick and

create a clear conflict in the Court’s holdings as to the state

taxation of customs bonded goods. Xerox submits that

McGoldrick is alive, viable and controliing. If the Court

decides McGoldrick is no longer the law, so be it; but if so, we

submit that it should be overruled only after full plenary

consideration. Otherwise its existence side by side with an

affirmance of this case would create an anomaly in the Court’s

holdings.

2. The Michelin Case

Xerox contends that these taxes, as applied, are unconstitu-

tional and in violation of the Import-Export Clause, because

no state may “levy any Imposts or Duties on imports or

Exports. . . .” U.S. Const. art. I, § 10, cl. 2. The court below

sought to validate these taxes as not being repugnant to that

clause of the Constitution through a reading of Michelin Tire

Corp. v. Wages, 423 U.S. 276 (1976). Michelin had imported

tires and tubes from abroad, cleared United States customs

tax rather than a sales tax, it still places an unconstitutional burden on

federally regulated foreign commerce. And while McGoldrick focused

on the regulation of petroleum imports and exports, and their use as

ships stores, those regulations were part of the same overall regulation

of foreign commerce at issue here. The language of customs regula-

tions may have evolved over the years, but it is no less pervasive today

than it was in 1940, and is designed to protect ai/ goods located in

customs bonded warehouses, including Xerox’ copiers.

and paid duty. It then trucked them to its warehouse in

Georgia, where they were unloaded, sorted and stored, await-

ing orders from dealers. They were not in a customs bonded

warehouse and were destined for domestic sale. This Court

reviewed the history of the Import-Export Clause, starting with

its reasons for being included in the Constitution and tracing

its subsequent history. Before Michelin the cases almost uni-

formiy followed the “original package” test, holding that as

long as the imported product remained in its original package,

it was still in foreign commerce and not subject to local

taxation. The Court concluded that the “original package”

test was not alone determinative, but held that imports were

not subject to local taxation as long as they were in transit. It

went on to suggest, in determining whether state taxes were

prohibited “Imposts or Duties”, that an analysis be made to

determine if they offended any of three policy considerations;

namely, that 1) the federal government must speak with one

voice in regulating foreign commercial relations; 2) import

revenue of the federal government cannot be diverted to the

states; and 3) harmony among the states might be disturbed

unless states with ports of entry were prohibited from taxing

goods merely fiowing through their ports. Jd. at 285-86.

Whatever the result of an application of the Michelin criteria

to these copiers (and Xerox believes that even under an analysis

using the Michelin criteria, the taxes violated at least the first

and third criteria and are invalid), the fact is that the Michelin

test does not apply, for as the Court said at three separate

places in the opinion, the Constitution prohibits “the assess-

ment of even non-discriminatory property taxes on goods

which are merely in transit through the State when the tax is

assessed”. Jd. at 290. See also 423 U.S. at 286 and 302. As is

demonstrated infra, Xerox’ goods were in transit, and there-

6 Brown v. Maryland, 25 U.S. (12 Wheat.) 419 (1827); Low v. Austin,

80 U.S. (13 Wall.) 29 (1872); Hooven & Allison Co. v. Evatt, 324 U.S.

652 (1945); and Youngstown Sheet & Tube Co. v. Bowers, 358 U.S. 534

(1959).

fore never became part of the common mass of goods within

the State which would be subject to taxation.

We submit that since Xerox’ goods were in transit, the

purported Michelin analysis is not valid and the goods are

exempt from State taxation. However, the Court itself subse-

quently has raised the issue of the applicability of that analysis

to goods in transit, and invited a plenary hearing of that

question. In Department of Revenue of the State cf Washing-

ton v. Association of Washington Stevedoring Companies, 435

U.S. 734 (1978), the Court extended the Michelin test, and

approved State taxation of interstate stevedoring activitics,

noting, however, that the tax was on an activity and not the

goods themselves. The Court concluded “that the Michelin

policy analysis should not be discarded merely because the

goods are in transit, at least where the taxation falls upon a

service distinct from the goods and their value.” Jd. at 757. It

said, however, that it was not deciding the issue raised here:

We do not reach the question of the applicability of the

Michelin approach when a State directly taxes imports or

exports in transit.

Our brother Powell, as his concurring opinion indi-

cates, obviously would prefer to reach the issue today,

even though the facts of the present case, as he agrees, do

not present a case of a tax on goods in transit. As in

Michelin, decided less than three years ago, we prefer to

defer decision until a case with pertinent facts is pre-

sented. At that time, with full argument, the issue with all

its ramifications may be decided. Jd. at 757, n.23.

Xerox submits that this case presents the pertinent facts

upon which the Court may decide the question.

3. “In transit”

Grounding the error below is the lower court’s decision

concerning the status of the goods when taxed. It extended

constitutional criteria beyond their intended limits. In one

place, the criteria cited as to whether the goods were “in

transit” were: a) was there stoppage; b) was the final destina-

tion determinable; and c) was it for the business purpose of the

shipper; citing Independent Warehouses, Inc. v. Scheele, 331

U.S. 70 (1947); Michelin Tire Corp. v. Wages, supra; and

Calvert v. Zanes-Ewalt Warehouse, Inc., 502 S.W.2d 689 (Tex.

1973).

At another point in the decision, the court reasoned that

under Kosydar v. National Cash Register Co., 417 U.S. 62

(1974), the goods were not immune from taxation because

export had not started. Finally, the court claimed that State

taxes could be applied where the goods were imported and

warehoused at the owner’s convenience until a sale was ob-

tained and the goods were exported, citing Bacon (Wabash

Elevator) v. Illinois, 227 U.S. 504 (1913); Susquehanna Coal

Co. v. City of South Amboy, 228 U.S. 665 (1913); and

Michelin Tire Corp. v. Wages, supra.

The significant feature absent in ai// of those cases is the

customs bonded warehouse. Appellees have conceded that

Xerox’ goods never left the supervision, custody and control of

U.S. Customs. They were always kept in facilities where,

pursuant to federal regulation, 19 C.F.R. § 19.2(c), they were

carefully segregated from domestic commerce. And it is con-

ceded that they never entered domestic commerce, but were

shipped abroad. It is only if, as, and when Xerox paid the

required customs duties that these goods would leave the

federal enclave created by the customs bonded warehouse and

enter the common mass of goods within the State. Until then,

they were as surely in foreign commerce and beyond the reach

of State taxation as if they had remained on the loading dock

in Mexico City. In all of the cases cited by the court below,

however, the import or interstate journey had ceased or the

export journey had not yet begun. Thus, in each case, the

goods had settled into the common mass of goods within the

State, and therefore had some connection with the State for

taxation purposes. Here, however, they were under federal

custody, and had not become part of the State’s common mass

of property. In short, they had no nexus with the State of

Texas.

The length of time these goods may remain in the customs

bonded warehouse has been mandated by Congress, which

stated that they may remain for three years (now five) without

the imposition of duty, and if transshipped within that time, as

happened here, no duty applies. 19 U.S.C. § 1557(a). What-

ever period of time it chose, Congress has stated the permissi-

ble period that these goods may remain in foreign commerce,

and, as this Court has consistently held, it is for Congress, and

not local taxing authorities, to determine the indicia of foreign

commerce. Japan Line, Ltd. v. County of Los Angeles, 441

U.S. 434 (1979); Department of Revenue of the State of

Washington v. Association of Washington Stevedoring Compa-

nies, supra. However long they stayed, they were always in

federal custody, bound for foreign destinations.

The only case cited as being contrary to Xerox’ position is

American Smelting & Refining Co. v. County of Contra

Costa, supra, 271 Cal. App. 2d 437, 77 Cal. Rptr. 570, appeal

dismissed, 396 U.S. 273 (1969). No federal court has addressed

the issue. But there, while the California court permitted State

taxation of goods that were held in bond and ultimately

entered domestic commerce, it held that where, as here, the

goods were for re-export, Congress had preempted the field,

the goods did not have a nexus to the State and the State tax

could not be applied.

This Court, we submit, should not, by summary affirmance

of the opinion below, put new limits on the definition of “in

transit”, and permit decisions applicable to goods that either

are, or are destined to be, part of the common mass of goods

within the State to be extended to embrace goods in the

custody of the federal government and which never leave

foreign commerce.

4. Nationai Significance

Summary affirmance would substantially alter the relation-

ship between the states and the federal government, and would

open the door to the imposition by state and local governments

of substantial burdens on the foreign commerce of the United

States. The $9 million worth of copiers that Xerox stored in a

customs bonded warehouse is but a microcosm of what is

undoubtedly hundreds of millions of dollars worth of goods

similarly stored throughout the country. With the advent of

modern air transportation, customs bonded warehouses may

exist in every state. The merchandise stored in them could be

subjected to a myriad of new state taxes as a result of

affirmance. Moreover, affirmance here would, without more.

substantially change the vaiue of customs bonded warehouses,

limiting and perhaps destroying their usefulness in foreign

commerce. This case merits plenary treatment, as it presents an

important question touching on the accommodation of state

and federal interests under the Constitution. Kosydar v. Na-

tional Cash Register Co., 417 U.S. 62, 65 (1974).

We submit that where, as here, summary affirmance would

substantially conflict with existing law, change the existing

federal-state relationship and impact the businesses of

thousands of citizens of the United States, as well as our

relationships with foreign governments and business entities,

the case merits full plenary consideration, on a full record,

with briefs and oral argument.

CONCLUSION

For the reasons set forth above, it is submitted that this

Court has jurisdiction, and that the question presented is one

requiring plenary consideration.

Respecifu!ly submitted,

ALFRED H. HODDINOTT, JR.

800 Long Ridge Road .

Stamford, Connecticut 06904

(203) 329-8700

Counsel for Appellant

February 9, 1982

— xIpueddy

ee ee Se ——— ee

Opinion of Texas Court of Civil Appeals, 619 S.W.2d 402

COUNTY OF HARRIS, Texas et al.,

Appellants,

—VvV.—

XEROX CORPORATION,

Appellee.

No. 17862

Court of Civil Appeals of Texas,

Houston (Ist Dist.)

April 30, 1981

Rehearing Denied May 21, 1981

Joe Resweber, Paul Bibler, Edward Cazares, Cheryl Heiena

Chapman, Houston, for appellants.

Larry D. Thompson, William K. Luyties, Houston, for

appellee.

Before COLEMAN, C.J., and SMITH and REDEN, JJ.

SMITH, Justice.

This is a declaratory judgment suit filed by Xerox Corpora-

tion requesting the court to declare unconstitutional certain ad

valorem taxes assessed against it by the City of Houston, the

Houston Independent School District, Harris County, and the

State of Texas, and seeking injunctive relief. The trial court

entered judgment declaring the taxes unconstitutional and

enjoined the collection of the taxes.

The question presented in this case is whether nondis-

criminatory ad valorem taxes assessed by state and local taxing

authorities are violative of the commerce clause and the im-

port-export clause of the United States Constitution where

assessed against imported property stored in local customs

bonded warehouses awaiting sale and shipment to a foreign

country.

Xerox is incorporated under the laws of the State of New

York and is authorized to transact business in the State of

Texas. It is a manufacturer and seller of copier machines,

engaging in both domestic and international commerce. It has

affiliate companies in several foreign countries for the purpose

of meeting certain governmental requirements of the respective

countries as well as gaining certain benefits.

In the instant case Xerox manufactured its parts in Colorado

and New York and transported these parts to a warehousing

facility in Rochester, New York. To meet the requirements of

the ‘atin American Free Trade Association (LAFTA),' Xerox

established an affiliate company in Mexico City to assemble

copiers which would be functional in countries whose national

language was either Spanish or Portugese.

7; get parts to its Mexican affiliate, Xerox shipped its

unessembled parts from Rochester to Laredo, Texas, and

thence, by truck, to Mexico City, where the machines were set

up and adjusted by Mexican labor trained for this purpose.

Mexican tax laws made the warehousing of the copiers in

Mexico economically unfeasible; therefore, Xerox, up to the

year of 1974, shipped its assembled copiers to the Free Trade

Zone of Panama, where it had to pay no taxes on its ware-

housed merchandise.

In 1974, the Panamanian government and its people became

hostile to American companies. Xerox made the decision not

to jeopardize its merchandise in Panama and, after a search

for another warehousing facility, decided to ship its products to

Houston, [cxas, because of its excellent port facilities.

1 LAFTA is a group of Latin American countries who associated

themselves for the purpose of regulating imports into their respective

countries and adopting certain policies to implement the purpose of the

association.

Xerox shipped the assembled copiers under bond from

Mexico City by truck to Nuevo Laredo. The copiers were

brought across the border under bond and placed in customs

bonded warehouses. The machines were then transported by

bonded trucking companies from Laredo to Houston, where

they were placed in customs bonded warehouses. The uncrated

machines remained in the warehouses, segregated from other

merchandise, until Xerox obtained a sale. When a sale was

obtained, the packaged machines were removed from the

warehouse under bond and remained under bond until placed

aboard a deep-water shipping vessel at Houston or Miami, to

be transported to a Latin American company. No import taxes

were ever assessed against these imported copiers by the United

States.

Xerox maintained other warehouses in Houston for copiers

that were to enter domestic commerce, and ad valorem taxes

were paid on these. None of the imported copiers from the

customs bonded warehouses were ever sold to customers for

domestic use. No taxes were assessed on the imported ma-

chines by the local taxing authorities against Xerox in 1974 and

1975. In 1976, upon request from Xerox, Harris County,

Texas, through an authorized deputy of the Tax Assessor-Col-

lector, issued an exemption on the imported warehoused mer-

chandise located in Houston. In 1977 the City of Houston’

assessed taxes on the imported warehoused copiers and Harris

County’ followed by assessing taxes for 1977 and back assess-

ing for the year of 1976.

In this suit we are concerned about the taxes for years 1976

and 1977 only, for the reason that as soon as Xerox was

apprized that it was being assessed taxes on its imported

copiers, it shipped all such merchandise to Buffalo, New York,

a free trade zone location.

On assessment dates, January 1, 1976 and 1977, virtually

none of the copiers in the warehouse had been sold or

2 The City of Houston assesses and collects taxes for itself and the

Houston independent School District.

3 Harris County assesses and collects taxes for itself, the State of

Texas and several other loca! axing authorities.

otherwise committed and none had been consigned to a com-

mon carrier. The length of time in storage varied from a few

days to three years. The two model lines most numerously

stored averaged seven and one-half months for one and

twenty-five months for the other.

The parties agree that the ad valorem taxes levied were

uniform non-discriminatory taxes on property, not based on

origin or destination of goods. There is no claim by Xerox that

the taxes were, in any manner, not properly assessed, except

that they were unconstitutional as applied to the copiers in

question.

The appellants assert as their first point of error that the trial

court erred in finding that the copiers were not subject to state

and local ad valorem taxation under the import-export clause

of the United States. We agree.

Article I, Section 10, clause 2 of the United States Constitu-

tion, commonly referred to as the “import-export” clause,

states as follows:

No state shall, without the consent of congress, lay any

imposts or duties on imports or exports, except what may

be absolutely necessary for executing its inspection

law...

Section 8 of Article i of the United States Constitution com-

mences by stating: “The Congress shall have the power to lay

and collect taxes, duties, imposts and excises ... .” It is

manifest that the framers of the United States Constitution

were addressing specific problems in limiting Section 10, clause

2 of Article I to “imposts and duties.” The words “taxes” and

“excises” are conspicuous by their absence from this section.

The position of Xerox in this suit was the law of the land,

prior to 1976. Brown v. Maryland, 12 Wheat. 419, 6 L.Ed. 678

and Low v. Austin, 13 Wall. 29, 20 L.Ed. 517. However, in

that year the United States Supreme Court in Michelin Tire

Corporation v. Wages, 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d

495, overruled Low v. Austin and held that a nondiscrimina-

tory ad valorem tax did not infringe upon the import-export

clause where the imported goods were no longer in transit.

Immediately thereafter, the Texas Supreme Court, relying on

Michelin, reversed its holdings in City of Farmers Branch, et

al. v. Matsushita Electric Corporation of America, 537 S.W.2d

452, 454 (1976) and in City of Farmers Branch, et al. v.

American Honda Motor Company, Inc., 537 S.W.2d 454

(1976) and held that “The ad valorem tax imposed by Farmers

Branch is clearly nondiscriminatory and applicable to all such

stored goods whether imported or not.”

The question then arises, were the copiers involved in our

suit still in transit? We think they were not.

The courts have established criteria to determine whether

goods are in transit, i.e. (1) was there a stoppage in transporta-

tion, and, if so, what was the purpose of the stoppage? (2) at

the time of taxation was the final destination of the goods

determinable? and (3) was the stoppage a necessary delay or

accommodation to the means of transportation, or for busi-

ness purposes and profits of the company? See Independent

Warehouses v. Scheele, 331 U.S. 76, 67 S.Ct. 1062, 91 L.Ed.

1346 (i947); Michelin Tire Corperation v. Wages, supra;

Calvert v. Zanes-Ewait Warehouse, Inc., 502 S.W.2d 689

(Tex. 1973).

Applying these criteria, we find that there was a transporta-

tion stoppage of the warehoused copiers and that such stop-

page was occasioned for business purposes of Xerox; that on

taxation day the final destination of the goods was not deter-

minable, as the property had not been sold or committed to

further transportation; and that the business purpose in stop-

page was profits for Xerox. We hold the warehoused Xerox

copiers were no longer in transit.

The appellee also urges that the copiers were in the custody

of customs officials stored in customs bonded warehouses, and

that under such circumstances the federal government has

preempted local taxing authorities by taking sole control. We

cannot concur in this view. The California courts in American

Smelting and Refining Company v. The County of Contra

Costa, 271 Cal.App.2d 437, 77 Cal.Rptr. 570 (1969) held

contrary to Xerox’s position and the Federal courts have not

set aside or overruled that opinion. We are of the opinion and

so hold that the storing of imported goods in a customs

bonded warehouse in and of itself does not preclude local

authorities from assessing and levying a nondiscriminatory ad

valorem tax under the import-export clause of the United

States Constitution absent Federal legislation or regulation to

the contrary.

Appellee further asserts that its inventory of copiers is

exempt because they are exports. This contention was rejected

in Kosydar v. National Cash Register Company, 417 U.S. 62,

94 S.Ct. 2108, 40 L.Ed.2d 660 (1974), wherein the Supreme

Court set forth the test that the mevement to foreign shores

must be started or committed to be moved for an export to be

exempt from taxation. There being no sale or commitment to

sell and no movement or commitment to move, the export

exemption does not apply in this case.

Appellants’ first point of error is sustained.

The appellants’ second point of error asserts that the trial

court erred in concluding that the property was not subject to

nondiscriminatory ad valorem taxes under the Commerce

Clause of the United States Constitution.

Article I, Section 8, clause 3 of The United States Constitu-

tion, commonly referred to as the Commerce Clause, states as

follows:

Congress shall have the power “To regulate Commerce

with Foreign Nations, and among the several states, and

with Indian Tribes.”

The commerce clause confers specific authority upon the

United States Congress, however it should be noted that the

conferral of authority and the exercising of that authority are

distinct and separate matters.

Xerox asserts that McGoldrick v. Gulf Oil Corporation, 309

U.S. 414, 60 S.Ct. 664, 84 L.Ed. 840 (1940), is dispositive of

the appellants’ second point of error. We believe the cases are

distinguishable. In McGoldrick the Supreme Court concluded

that a New York sales ‘+x upon oil imported to be refined and

sold to foreign bound vessels was preempted by congressional

legislation and invalid. Congress has not exercised its preroga-

tive in such a manner as to preclude ad valorem taxes on goods

such as the copiers involved in this case, -ven though it has

authority to do so. It should be noted, however, that as a result

of Low v. Austin, 13 Wall. 29, 80 U.S. 29, 20 L.Ed. 517

(1871), there is a footnote in the Code of Federal Regulations,

19 C.F.R. § 19.6(c), which states that “Imported goods in

bonded warehouses are exempt from taxation or judicial

process of any state or subdivision thereof.” This footnote is

not a regulation and as pointed out in American Smeltering,

supra, Michelin overruled Low and the footnote has no more

weight than the precedent upon which it rests. Suffice it to say,

the McGoldrick decision was based on specific congressional

legislation and, as noted above, no comparable legislation has

been enacted that would prohibit taxation in this case.

Xerox takes the position that the most important purpose of

the Commerce Clause and the Import-Export Clause is to

prohibit state taxation from having any impact on the federal

government’s regulation of foreign commerce. We have no

quarrel with this statement, in fact we agree that the federal

government should speak with one voice in its reguiation of

foreign commerce. We are aware that local taxation will

increase the cost of the product in the market place, be it a

domestic or foreign market. The ability to compete in price is

essential in the market place. Xerox has dropped from 95% of

the Latin American copier market in 1976 to 74% in 1979, and

in some countries its share has dropped to 40%. The bulk of

the lost business has gone to Japanese competitors. We are not

unaware that this same problem has occurred in automotive,

television, radio, steel and many other industries. But the fact

remains that the United States Congress has chosen not to

enact legislation to protect the copier industry as it did for the

oil industry in the McGoldrick case. The courts cannot enlarge

legislation, nor can they legislate.

In this case the taxing authorities have furnished Xerox with

port facilities, police and fire protection, streets for ingress and

egress, and may other services, and the taxes represent the quid

pro quo. Such taxes do not hamper, impede, nor deprive the

federal government of its exclusive regulation of fore'gn com-

merce. Michelin Tire Corporation v. Wages, supra. Too, we

find no fact findings that the taxes would impair Xerox’s

bility to compete in the foreign market, and the question of

multiple taxation is not raised. See Japan Line, Ltd. v. County

of Los Angeles, 441 U.S. 434, 99 S.Ct. 1813, 60 L.Ed.2d 336

(1979).

Absent Federal Legislation or regulation to the contrary, we

hold that a nondiscriminatory ad valorem property tax is not

repugnant to nor violative of the commerce clause of the

United States Constitution, where the domestic owner of

property imports such property and warehouses it for the

owner’s convenience until such time as a sale may be obtained

and the property exported. Wabash Elevator v. People Of The

State of Illinois, 227 U.S. 504, 33 S.Ct. 299, 57 L.Ed. 615

(1913), Susquehanna Coai Co. v. City of South Amboy, 228

U.S. 665, 33 S.Ct. 712, 57 L.Ed. 1015 (1913), Michelin v.

Wages, supra.

Xerox in its only cross-point alleges Harris County is es-

topped, as a matter of law, from making claim for taxes on the

imported copiers stored in bonded warehouses in Harris

County on January 1, 1976. The basis for such assertion is that

Xerox requested and received from Harris County a letter* of

4. August 9, 1976

Xerox Corporation

Xerox Square

Rochester, N.Y. 14644

Attention: Mr. Ricardo S. Perez

International Traffic Manager

Building 822

Dear Mr. Perez:

Thank you for your affidavit dated July 27, 1976. Please be advised

that this inventory will be carried as Exempt, in as much as it was

stored in Bond on January 1, 1976.

Sincerely,

Carl S. Smith

Tax Assessor-Collector

By:H. F. Bruce

Deputy

HFB:bwe

exemption for that year. H.F. Bruce was an appointed deputy

for the duly elected Tax Assessor-Collector for Harris Courty,

Texas and was the deputy who ordinarily handled matters of

exemption in that office. Carl S. Smith, the Tax Assessor-Col-

lector, stated that Mr. Bruce handled these matters, but in

questionable matters such as this Mr. Bruce ordinarily con-

ferred with him. Mr. Smith further stated that he had no

recollection of Mr. Bruce’s discussing the matter with him and

that the letter was sent out erroneously.

The general rule has been in this state that when a unit of

government is exercising its governmental powers, it is not

subject to estoppel. City of Hutchins v. Prasifka, Tex., 450

S.W.2d 829 (1970). Chief Justice Greenhill in his opinion in

Prasifka noted, “. . . That a municipality may be estopped in

those cases where justice requires its application and there is no

interference with the exercise of this governmental function.

But such doctrine is applied with caution and only in excep-

tional cases where the circumstances clearly demand its appli-

cation to prevent manifest injustice.”

in this case the taxing date was January 1, 1976. Xerox filed

its inventory and evaluations as of that date. Xerox filed its

request for exemption July 27, 1976 and the date of Mr.

Bruce’s exemption letter was August 9, 1976. We are of the

opinion that no manifest injustice has occurred in this case.

Xerox did not move its copiers into Harris County in reliance

on such letter and there is no allegation of fraud or deceit by

Xerox against Harris County officials.

Appellees cross-point is overruled.

Appellants by their third, fourth and fifth points of error

complain that the injunctive relief granted by the trial court

fails to comply with Ru'e 683, Tex.R.Civ.Proc., in that it (1)

does not identify the parties enjoined (2) does not state the

reason for the issuance of the injunction (3) does not identify

the property involved, and (4) could be construed as operating

for future taxes. Our disposition of previous points of error

makes these objections irrelevant; but, we agree with these

contentions, and, in the event we are held on appeal to have

erred in our holdings, we suggest that the Judgment be re-

10a

manded to the trial court to reform the injunctive portions of

the judgment to comply with the requirements of Rule 683,

T.R.C.P.

The judgment of the trial court is reversed and rendered that

Xerox take nothing, that Harris County have judgment against

Xerox in the sum of $131,311.97 plus nenalties and interest for

the tax years of 1976 and 1977, that the City of Houston have

judgment for itself and the Houston Independent School

District in the sum of $156,728.90 plus penalties and interest

for the tax year of 1977, and that the injunction issued by the

trial court is dissolved and set aside. Costs of appeal are

charged to the appellee, Xerox.

COLEMAN, C.J., and PEDEN, J., sitting.

Opinion of the District Court for the

165th District, Houston, Texas

[SEAL]

LYNN N. HUGHES

Judge, 165th District Court

Houston Texas, 77002

July 14, 1980

Mr. Larry D. Thompson

Thompson, Lorance & Wittig

303 Jackson Hill, Suite 300

Houston, Texas 77007

RE: Xerox Corp. v. Harris

County, et al.

Cause No. 1,146,343

Dear Mr. Thompson:

I have determined that the plaintiff is entitled to judgment in

this case.

The copiers began as components manufactured by Xerox

and others in this country and by others in Mexico. The

American-made components were exported to Mexico where

they were assembled into copiers, also incorporating Mexican-

made parts. The assembled copiers were exported from Mexico

and held in Houston awaiting importation for consumption in

an importing Latin America country by a marketing operation

of Xerox. On the tax dates, the copiers were present in

Houston in a bonded warehouse in the joint possession of the

warehouseman and the U.S. Customs Service under federal

law. At the time, they were destined for Latin America; they

were being neither imported to the U.S. nor exported from the

U.S. Although it apparently was legally and practically possi-

12a

ble to import the copiers, domestic consumption was not

indicated by Xerox’s corporate intent as verifiable by all the

objective indications nor by the eventual disposition of these

copiers.

The copiers occupied a place both in the federal regulatory

scheme and in foreign commerce similar to the ore-cum-metal

that was “committed to reexport” in American Smelting &

Refining Co. v. County of Contra Costa, 271 Cal. App.2d 437,

77 Cal. Rptr. 570 (1969), appeal dismissed, 396 U.S. 273

(1970), and to the fuel oil that was cotumitted to consumption

as ship’s stores in McGoldrich v. Gulf Oil Corp., 309 U.S. 414

(1940).

Good stored under a Customs bond may be subject to state

taxation if in the process of importation they become func-

tionally indistinguishable from the common property in the

state, with the operative fact not being the warehouse bond but

the termination of the process of foreign commerce and the

entry of the good into domestic commerce. State v. Harper,

188 S.W.2d 400, (Tex.Civ.App.—San Antonio 1945, no writ),

cert. denied, 327 U.S. 805 (1945); City of Farmers Branch v.

Matsushita Electric Corporation of America, 537 S.W.2d 452

(Tex. 1976). Given the peculiar status of the copiers in the

factual context of foreign commerce, they are not taxable

because they do not have a substantial nexus with Houston and

have not left the palpable flow of foreign trade.

This case may also raise this question: If under the federal

law governing the copiers’ presence in Houston they are

immune from the possessory process of the Texas courts, are

they not also outside the power of Texas to subject them to

possessory taxes since their legal situs (as opposed to their

physical presence) determines they incidence of the ad valorem

tax? 19 U.S.C., § 1484 j; 19 C.F.R., § 19.6 fns. 10, 11;

Guaranty Life Insurance Co. of Houston v. City of Austin,

108 Tex. 209, 190 S.W. 189 (1916); Greyhound Lines, Inc. v.

Board of Equalization, 419 S.W.2d 345 (Tex. Civ. App.—

Amarillo 1965, writ ref’d n.r.e.). [The effectiveness of the

13a

federal exemption of goods in bond from state court process

was litigated in J. Henry Schroder Banking Corp. v. Schultz,

373 F.Supp. 1283 (S.D. Tex. 1974), remanded as moot, 560

F.2d 1192 (Sth Cir. 1977), with the issue not being addressed in

the appellate decision and being unclearly presented in the trial

court.]

The copiers may have a status that prevents them from

having any situs; “they may acquire no tax situs in any of the

states at which they touch port, and are taxable by the domicle

or not at all.” Northwest Airlines, Inc. v. Minnesota, 322 U.S.

292, 314 (1944) J. Jackson dissenting in an instrumentalities

case.

The copiers’ presence in Houston was solely and deliberately

the result of a federal foreign trade legal fiction. Even if the

regulatory provisions of the national government was not

clearly directed to the precise present-but-not-imported situa-

tion in this case there is an effect on the Commerce Clause’s

interest in foreign trade; the tax is not “valid so long as it

interfers with no Act of Congress or treaty of the United

States” because “it may properly be called ‘international.’ ”

Henderson v. Mayor of New York, 92 U.S. 259, 274 (1875). In

any event, the Congress and the Treasury have spoken with

sufficie =t pertinence (no matter how opaquely) to place these

copievs iato the stream of federal preemptive foreign com-

merce reguiation to eliminate the power of domestic local

governments to tax them. See the alternative holding in Japan

Line Ltd. v. County of Los Angeles, 441 U.S. 434 (1979) and,

of course, Gibbons v. Ogden, 22 U.S. 1 (1824).

l4a

Please prepare a proposed judgment, circulate it for en-

dorsement by counsel, and send it to me for signing. If counsel

do not agree, each shall file a proposed judgment immediately.

Yours very truly,

Lynn N. Hughes

District Judge

LNH/sb

Copies: Mr. Paul Bibler, Jr.

Assistant County Attorney

Office of the County Attorney

1001 Preston, Suite 634

Houston, Texas 77002

Ms. Cheryl Helena Chapman

Assistant City Attorney

Office of the City Attorney

Post Office Box 1562

Houston, Texas 77001

lSa

Amended Findings of Fact and Conclusions of Law of the

District Court for the 165th District, Houston, Texas

IN THE DISTRICT COURT

OF HARRIS COUNTY, TEXAS

165th Judicial District

NO. 1,146,343

_>—

XEROX CORPORATION

—Vi.—

COUNTY OF HARRIS, TEXAS, ef al.,

AMENDED FINDINGS OF FACT AND

CONCLUSIONS OF LAW

Pursuant to the requests by the CITY OF HOUSTON and

HARRIS COUNTY, the Court hereby states its amended findings

of fact and conclusions of law in the above referenced matter.

FINDINGS OF FACT

1. XEROX CORPORATION (hereinafter referred to as

XEROX) is incorporated under the laws of New York, is doing

business in Houston, Harris County, Texas and is a manufac-

turer, seller and lessor of copier machines in both domestic and

international commerce.

2. The CITY OF HOUSTON is a duly authorized tax authority

in the State of Texas and is authorized by statute to collect

taxes in its own behalf and on behalf of the Houston Indepen-

dent School District.

16a

3. HARRIS COUNTY is a duly authorized taxis» authority in

the State of Texas and is authorized by statute to collect taxes

in its own behalf and on behalf of the State of Texas, the

Harris Courty Flood Control District, the Port of Houston

Authority, the Harris County Board of School Trustees, and

the Harris County Hospital District.

4. At all relevant times, XEROX had copier machines in

Houston, Harris County, Texas for its domestic business. The

ad valorem taxes on these copiers are not in dispute.

5. Pursuant to its international business and in particular to

its trade and commerce with Latin America and the Caribbean,

XEROX, on tax day, January 1, of the years 1976 and 1977,

leased Customs bonded storage space in the Houston Terminal

Warehouse in Houston, Texas, for temporary warehousing of

its copiers which were destined for eventual use in Latin

America and the Caribbean.

6. The copiers in question were all stored under customs

bond in the Houston Terminal Warehouse, a privately owned

public warehouse, which at all material times was a Class III

Customs bonded warehouse.

7. The fair market value of said copiers located in the

Houston Terminal Warehouse on January 1, 1977 was

$9,015,685.00, and on January 1, 1976 was $9,051,586.00.

8. On January 1, 1977 XEROX had 4,248 copiers stored in

Customs bond at Houston Terminal Warehouse; the number is

fairly representative of the average number of copiers in the

Houston Terminal Warehouse during 1976 and 1977.

9. The Houston Terminal Warehouse was, at all material

times, a Class III Customs bonded warehouse, pursuant to 19

USCA 1555 and 19 USCA 1557(a) as well as the rules and

regulations promulgated by the Secretary of the Treasury, Title

19 C.F.R. 19.01, et seq. The copiers were in the Houston

Terminal Warehouse pursuant to these laws and regulations.

10. The copiers were assembled in Mexico of component

parts largely manufactured in the United States and which

17a

were shipped from the United States to the Mexican corporate

affiliates of XEROX in Mexico City.

11. Each individual copier was individually packaged and

remained in its original Mexican export packaging while in

Houston.

12. The copiers were shipped from Mexico City to the

United States border where, after the appropriate documents

were executed, the copiers were surrendered to the supervision

and control of the United States Customs Service and were

transferred by a customs bonded trucking company to the

Houston Terminal Warehouse.

13. At all times while in the United States, including while in

the Houston Terminal Warehouse, the copiers remained in

Customs bond and continuously under the control, supervi-

sion, and custody of the United States Customs Service.

14. The copiers were held in Houston pending orders from

XEROX affiliates in Latin America and the Caribbean to meet

sales demands in these areas.

15. The copiers were then transferred, under customs bond

and customs supervision and control, to transportation facili-

ties such as Port of Houston or Miami where they were, in

every case, shipped to Latin America or the Caribbean.

16. The copiers were free from United States custom duties

and tariffs during their presence in Houston, pursuant to 19

USCA 1555 and 19 USCA 1557(a), and no customs duty has

ever been paid by XEROX on said copiers.

17. None of the copiers stored at the Houston Terminal

Warehouse by XEROX have ever been consumed domestically

and had never entered the United States market. All copiers

have been used exclusively in Latin America and the Carib-

bean, and none of the copiers have ever returned to the United

States.

18. If the copiers were used in the United States, XEROX

would have to pay United States customs duties amounting to

five percent of the value of the copiers.

18a

19. The copiers could have been modifed for domestic

consumption but other aspects of marketing, including servic-

ing, would have made domestic sales economically impractical.

20. XEROX, at all material times, was facing aggressive

competition in the Latin American and Caribbean market.

21. XEROX used the Houston Terminal Warehouse facility

and the laws of the United States which allowed for duty free

importation and re-exportation pursuant to 19 USCA 1555 and

19 USCA 1557(a) to take advantage of the competitive advan-

tage allowed by such laws so that it could more effectively

compete in the Latin American and Caribbean market.

22. XEROX, during the year 1976, filed a request with the

county for exemption from ad valorem taxes on the copiers

stored in the Houston Terminal Warehouse on January 1,

1976.

23. HARRIS COUNTY, in a letter dated August 9, 1976 and

written by H. F. Bruce, Deputy Tax Assessor-Collector of

Harris County, who had the authority to write the letter,

advised XEROX that the copiers would be exempt for the tax

year 1976.

24. The taxes assessed and levied on the copiers by the CITY

OF HOUSTON, for its own use and for the use and benefit of

the Houston Independent School District, for the year 1977

was $156,728.90.

25. The taxes assessed and levied on the copiers by HARRIS

COUNTY, for its own use and for the use and benefit of the

State of Texas, the Harris County Flood Control District, the

Port of Houston Authority, the Harris County Board of

School Trustees, and the Harris County Hospital District, were

as follows:

(a) $55,969.39 for the year 1977;

(b) $48,426.06 for the year 1976.

26. The ad valorem tax on personal property levied by the

CTY OF HOUSTON and HARRIS COUNTY is a uniform tax on

19a

property that does not discriminate on the origin or destination

of goods.

27. On January 1, 1976 and 1977 the copiers stored at the

Houston Terminal Warehouse had not been consigned to a

common carrier.

Il.

CONCLUSIONS OF LAW

1. The copiers owned by XEROX and located at the Houston

Terminal Warehouse on January 1, 1976 and on January 1,

1977 were not subject to state or local ad valorem taxation on

personal property under the United States Constitution, Article

I, Section 8, Clause 3, and Article I, Section 10, Clause 2.

2. With the exception of the negligible number of copiers

previously committed to sale, XEROX was not bound by any

laws, either State or Federal, to export the copiers to Latin

America.

SIGNED this 27th day of October, 1980.

/s/ LYNN N. HUGHES

Judge Presiding

CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy was mailed,

certified mail, return receipt requested, postage prepaid, on

this 24th day of October, 1980, to Mr. Larry D. Thompson,

Attorney for the Plaintiff, 303 Jackson Hill, Suite 200, Hous-

ton, Texas 77007 and to Mr. Paul Bibler, Jr., Assistant County

Attorney, 1001 Preston, Suite 637, Houston, Texas 77002.

/s/ CHERYL HELENA CHAPMAN

Cheryl Helena Chapman

20a

Order of the Supreme Court of Texas

CLERK’S OFFICE—SUPREME COURT

Austin, Texas

Oct. 14, 1981

Dear Sir:

You are hereby notified that the Application for Writ of

Error in the case of C-481, XEROX CORPORATION vs. COUNTY

OF HARRIS, TEXAS ET AL. was this day refused. No reversible

error.

(Motion to dismiss overruled)

Very truly yours,

GARSON R. JACKSON, Clerk

2la

Denial of Rehearing by the

Supreme Court of Texas

CLERK’S OFFICE—SUPREME COURT

Austin, Texas

Nov. 25, 1981

Dear Sir:

You are hereby notified that the Motion for Rehearing in the

case of XEROX CORPN. v. COUNTY OF HARRIS No. C-481 was

this day overruled.

Very truly yours,

GARSON R. JACKSON, Clerk

22a

Notice of Appeal and Acknowledgment of Filing

IN THE SUPREME COURT

OF THE STATE OF TEXAS

No. C-481

XEROX CORPORATION,

Petitioner-Appellant,

—V.—

COUNTY OF HARRIS, TEXAS and

CITY OF HOUSTON, TEXAS,

Respondents-Appellees.

NOTICE OF APPEAL TO THE

SUPREME COURT OF THE UNITED STATES

Notice is hereby given that Xerox Corporation, Petitioner-

Appellant above named, hereby appeals to the Supreme Court

of the United States from the final judgment of the Supreme

Court of the State of Texas finding no reversible error entered

on October 14, 1981, and the denial of rehearing on November

25, 1981.

This Appeal is taken pursuant to 28 U.S.C. § 1257(2).

Notice is hereby given that 28 U.S.C. § 2403(b) may be

applicable.

/s/ ALFRED H. HODDINOTT, JR.

Alfred H. Hoddinott, Jr., Esquire

800 Long Ridge Road

Stamford, Connecticut 06904

(203) 329-8700

Counsel for Petitioner-Appellant.

23a

CERTIFICATE OF SERVICE

I do hereby certify that a true and correct copy of the above

and foregoing Notice of Appeal to the Supreme Court of the

United States was served on the counsel listed below by mail on

this 22nd day of January, 1982 by depositing it in a United

States post office wiih first class postage prepaid to each of

those counsel at his post office address.

/s/ ALFRED H. HODDINOTT, JR.

Alfred H. Hoddinott, Jr.

Copies to:

Ms. Cheryl Helena Chapman

Assistant City Attorney

P.O. Box 1562

Houston, Texas 77001

Mr. Larry W. Hays

Assistant County Attorney

1001 Preston, Suite 634

Houston, Texas 77002

Mr. Mark W. White

Attorney General, State of Texas

PO. Box 12548

Austin, Texas 78711

24a

CLERK’S OFFICE—SUPREME COURT

Austin, Texas

Jan. 29, 1982

Dear Sir:

In the case of Xerox Corp. v. County of Harris, C-481, your

Notice of Appeal was filed today.

Very truly yours,

GARSON R. JACKSON, Clerk

25a

Amended Notice of Appeal and

Acknowledgment of Filing

IN THE

COURT OF CIVIL APPEALS

FIRST SUPREME JUDICIAL DISTRICT

AT HOUSTON, TEXAS

No. C-481

COUNTY OF HARRIS, TEXAS and

CITY OF HOUSTON, TEXAS,

—vs.—

XEROX CORPORATION

AMENDED NOTICE OF APPEAL TO

THE SUPREME COURT OF THE UNITED STATES

Notice is hereby given that Xerox Corporation, Petitioner-

Appellant above named, hereby appeals to the Supreme Court

of the United States from the final judgment of the Court of

Civil Appeals for the First Supreme Judicial District at Hous-

ton, Texas, and from the final judgment of the Supreme Court

of the State of Texas finding no reversible error entered on

October 14, 1981, and the denial of rehearing on November 25,

This Appeal is taken pursuant to 28 U.S.C. § 1257(2).

Notice is hereby given that 28 U.S.C. § 2403(b) may be

applicable.

/s/ ALFRED H. HODDINOTT, JR.,

Alfred H. Hoddinott, Jr., Esquire

800 Long Ridge Road

Stamford, Connecticut 06904

(203) 329-8700

Counsel for Petitioner-Appellant.

26a

CERTIFICATE OF SERVICE

I do hereby certify that a true and correct copy of the above

and foregoing Amended Notice of Appeal to the Supreme

Court of the United States was served on the counsel listed

below, by mail, on this the Ist day of February, 1982, by

depositing it in a United States post office with first class

postage, prepaid, to each of those counsel at his address.

/s/ ALFRED H. HODDINOTT, JR.

Alfred H. Hoddinott, Jr.

Copies to:

Ms. Cheryl Helena Chapman

Assistant City Attorney

Post Office Box 1562

Houston, Texas 77001

Mr. Larry W. Hays

Assistant County Attorney

1001 Preston

Suite 634

Houston, Texas 77002

Mr. Mark W. White

Attorney General,

STATE OF TEXAS

Post Office Box 12548

Austin, Texas 78711

27a

COURT OF APPEALS

FIRST SUPREME JUDICIAL DISTRICT

Harris County Civil Courts Building

Houston, Texas 77002

February 1, 1982

Lorance & Thompson

Hon. Larry Thompson

303 Jackson Hill at Memorial

Houston, Texas 77007

Dear Sir:

Re: 17862, County of Harris, Texas and City of Houston,

Texas vs. Xerox Corporation, from Harris County

Please be advised amended Notice of Appeal to the Supreme

Court of the United States, on behalf of Xerox Corporation,

was filed today in the above cause.

Respectfully,

MARIBELLE REICH, Clerk

/s/ MARGIE THOMPSON, Deputy

cc: Ms. Cheryl Helena Chapman

P. O. Box 1562

Houston, Texas 77001

Mr. Larry W. Hays

1001 Preston, Suite 634

Houston, Texas 77002

Mr. Mark W. White, Attorney General

P. O. Box 12548

Austin, Texas 78711

28a

Plaintiff’s Original Petition

IN THE DISTRICT COURT OF

HARRIS COUNTY, TEXAS

—__— Judicial District

No.

XEROX CORPORATION

—vs.—

COUNTY OF HARRIS, TEXAS and

CARL S. SMITH

PLAINTIFF’S ORIGINAL PETITION

TO THE HONORABLE JUDGE OF SAID COURT:

COMES NOW XEROX CORPORATION (hereinafter “Xerox”)

complaining of the County of Harris, Texas (hereinafter

“Harris County”) and Carl S. Smith (hereinafter “Smith”),

Defendants, and for cause of action would show:

Xerox is incorporated under the laws of New York and is

duly authorized to transact business in the State of Texas.

Harris County is a duly authorized taxing authority in the State

of Texas and may be served, pursuant to Article 2027 V.A.T.S.,

by serving its County Judge, Jon Lindsay, at his office at 1115

Congress, Houston, Texas, 77002. Smith is the Tax Assessor

and Collector of Harris County, is a resident of Harris County,

and may be served at his offices at 301 San Jacinto, Houston,

Texas 77002.

29a

Xerox is a manufacturer and seller of copier machines,

engaging in both domestic and international commerce. Pur-

suant to its internationai trade, Xerox stores copiers (Models

3100, 3103 and 660) under United States Customs Bond in the

Houston Terminal Warehouse located at 701 North San

Jacinto, Houston, Texas, awaiting shipment to Latin American

countries.

Xerox manufactures the parts for these copiers at its main

manufacturing facility in New York. These parts are shipped to

the Mexico affiliate of Xerox, in Mexico City, and are as-

sembled into the final product. After manufacturirg, the

copiers are separately packaged and shipped to Nuevo Laredo,

Mexico, and, at this point, are placed in Customs Bond. The

copiers are then shipped, by truck, in Customs Bond, to the

Houston Terminal Warehouse where they remain in Customs

Bond and under continuous Customs control and supervision

until shipped to Latin America, pursuant to orders placed with

Xerox by its various Latin American affiliates. From the time

these copiers enter the United Siates until they leave the United

States, either through the Houston International Trade facili-

ties or via Miami, Florida, the copiers are under the strict,

constant control and regulation of the United States Customs

Service.

In the three year period in which Xerox has used the

Houston Terminal Warehouse facilities, over ten thousand

copiers passed through said warehouse; none of them have

entered the comme ve of the United States, and virtually all

have entered Latin American countries. Houston Terminal

Warehouse stores Xerox copiers that are destined exclusively

for foreign trade.

By statute, Harris County may impose and Smith may assess

and collect ad valorem taxes on personal property which is

within the boundaries of Harris County and which is subject to

such taxes. Ad valorem taxes were imposed by Harris County

30a

for the year 1977 at the rate of $1.25 per $100.00 of assessed

valuation on certain personal property within the county, upon

an assessed valuation of property equal to 32% of the actual

valuation. Ad valorem taxes for the year 1977, are due on

October 1, 1977, and as of February 1, 1978, taxes become

delinquent if not paid. If taxes are not paid by February 1,

1978, Harris County and Smith may enforce collection thereof.

IV.

On January 1, 1977, Xerox was the owner of the aforemen-

tioned copiers at the Houston Terminal Warehouse. Within the

time and in the manner prescribed by law, Xerox filed an

application requesting an exemption with respect to these

copiers. At all times material hereto, Xerox had a warehouse in

Houston for storage of copiers it owns, leases, and maintains

for domestic use in the Harris County area; Xerox does not

now, and never has, claimed an exemption for these domestic-

use copiers.

Subsequent to filing the request for an exemption, Xerox

received notice from Smith advising Xerox that its request for

an exemption with respect to the copiers at Houston Terminal

warehouse was denied, and that the copiers at said warehouse

on January 1, 1977, were placed on the tax rolls of Harris

County at a value of Nine Million Fifteen Thousand Six

Hundred Eighty-Five Dollars ($9,015,685.00), with taxes as-

sessed at approximately Fifty-Six Thousand Dollars

($56,000.00).

Article 1, Section 8, Clause 3, of the United States Constitu-

tion provides:

“The Congress shall have the power ... to regulate

commerce with foreign nations, and among the several

states and with the Indian Tribes.”

Pursuant to the Commerce Clause, Congress has promul-

gated statutes (19 USC § 1551 et seq.) and, pursuant to these

3la

statutes, the Secretary of Transportation has promulgated

regulations (19 C.F.R. § 19.1 et seq.) which frees goods stored

in Customs bonded warehouses of any import duties, and if

such goods are exported and not used for domestic consump-

tion, no duty on the importation can be levied. The purpose

and effect of the statutes and regulations is to free American

enterprises from extra financial burdens so that these en-

terprises can effectively compete in foreign commerce. The

federal purpose, through its statutes and regulations, of grant-

ing American businesses this competitive advantage in their

international commerce and trade, pre-empts any attempt by

local governments to place taxes on the merchandise of such

businesses. To allow local taxes, e.g., ad valorem taxes on

merchandise having a foreign destination, would effectively

abrogate the federal pian and purpose of granting this com-

petitive advantage. Thus, the local tax must yield, under the

supremacy clause of the federal constitution, to the dictates of

the federal statutes and regulations.

VI.

Article 1, Section 10, Clause 2, of the United States Consti-

tution provides:

“No state shall, without the consent of the Congress, lay

any imposts or duties on imports or exports, except what

may be absolutely necessary for executing its inspection

laws; and the net produce of all duties and imposts, laid

by any State on imports or exports, shall be for the use of

the Treasury of the United States; and all such laws shall

be subject to the revision and control of congress.”

Congress has not consented to the imposition of ad valorem

taxes on goods in a Customs Bonded warehouse, and the

Harris County ad valorem taxes are not necessary for the

execution of any inspection laws of Texas or any political

sub-division thereof, including Harris County.

The Xerox copiers are protected by the import-export clause

as the only time the copiers are ever “at rest” and not

32a

physically being transported, while in Texas, is when the

copiers are under customs bond in the Houston Terminal

Warehouse. As indicated, goods in a Customs bonded ware-

house are exempt from local taxation. In addition, federal

statutes allow goods in a Customs bonded warehouse to

remain for a period of three years (with routine extensions of

at least one year) before any Cuty can be imposed on such

goods. Effectiveiy, this is a congressional determination that

the goods have not entered the domestic marketplace and are

still “in transit.” Thus, the Xerox copiers are continually in

import-export transit and are constitutionally exempt from

local taxation.

Vil.

Xerox has consistently claimed the exemptions for its copiers

from the ad valorem taxes, based on the decisions, statutes and

regulations pursuant to the Commerce Clause and based on the

Import-Export Clause; and has at all times made same known

to Harris County and Smith.

VIII.

Harris County, Smith and the Harris County Board of

Equalization have each and all refused and denied Xerox’s

claim of a tax exemption for the copiers located at the Houston

Terminal Warehouse. Smith has assessed such tax and the

Board of Equalization has affirmed Smith’s decision.

Defendants are insistii.g that Xerox pay the tax and are

threatening to assess and collect and to continue to assess and

collect such illegal and unconstitutional taxes.

IX.

There exists an actuai, substantial, immediate and bone fide

controversy between Xerox and Defendants as to the legality

and constitutionality of the imposition of the Harris County ad

valorem taxes on Xerox’s copiers located at the Houston

Terminal Warehouse, and Xerox seeks herein and is entitled to

have a declaration that said tax is improper, illegal and uncon-

stitutional and may not be imposed or collected.

33a

As of February 1, 1978, Xerox will have no adequate remedy

at law and will be irreparably damaged, unless Defendants are

enjoined from collecting said tax. Article 7266, V.A.T.S.,

allows the Tax Assessor-Collector to summarily seize and sell,

without Court process, any and all personal property of Xerox

located in Harris County and apply same to reduce the amount

of the illegal tax assessed against Xerox. Accordingly, prior to

February 1, 1978, upon hearing hereof, Defendants should be

temporarily enjoined from the enforcement or collection of

said illegal tax, and from seizure of, levy upon, or sale of any

of Xerox’s property, and from any other means of enforcement

or attempted enforcement by said Defendants of the illegal tax

on Xerox’s copiers. Upon final hearing, said injunction should

be made permanent.

WHEREFORE, PREMISES CONSIDERED, Xerox prays that

Defendants be cited to appear and answer herein, and that

(1) Pursuant to Article 2524-1, V.A.T.S., this court declare

and adjudge that the Harris County ad valorem tax on Xerox’s

copiers located at the Houston Terminal Warehouse is uncon-

stitutional, illegal and void;

(2) Prior to February 1, 1978, Defendants be temporarily

enjoined from any collection, enforcement or attempted en-

forcement of the unlawful tax on Xerox’s copiers, in question

pending a final determination hereof;

(3) Defendants be permanently enjoined from assessing,

collecting and enforcing said unconstitutional, illegal and void

tax against Xerox or any of its property, whether real, per-

sonal, mixed, intangible or tangibie;

34a

(4) And for general relief, both legal and equitable, to which

Xerox is justly entitled.

Respectfully submitted,

LORANCE, THOMPSON & WITTIG

By /s/ LARRY D. THOMPSON

Larry D. Thompson

Attorney for Plaintiff

609 Fannin, Suite 2121

Houston, Texas 77002

222-1304

xinuaddy JuIOr

Office -Supreme oo US

FILFEDN

No. 81-1489 APR 28 1982

STEVAS,

CLERK

IN THE x

Supreme Court of the United States

OCTOBER TERM, 1981

XEROX CORPORATION,

Appellant,

—VvV.—

COUNTY OF HARRIS, TEXAS, and

CITY OF HOUSTON, TEXAS,

Appellees.

APPEAL FROM THE TEXAS COURT OF CIVIL APPEALS

—_——— —_ -—

—— - ——__- —---

JOINT APPENDIX

—- ——_—_ —-

——_— ——_—_—_-—

ALFRED H. HODDINOTT, JR. MICHAEL H. DRISCOLL

800 Long Ridge Road County Attorney

(203) 329-8700 JOHN J. GREENE

Counsel for Appellant Assistant County Attorneys

1001 Preston, Suite 634

Houston, Texas 77002

(713) 221-5101

Counsel for Appellee

County of Harris, Texas

(Attorneys names continued on inside cover)

APPEAL DOCKETED FEBRUARY 9, 1982

PROBABLE JURISDICTION NOTED APRIL 5, 1982

F. J. COLEMAN, JR.

City Attorney

JAY D. HOWELL, Jr.

Senior Assistant City Attorney

CHERYL HELENA CHAPMAN

Senior Assistant City Attorney

Counsel of Record

BELINDA TURNER SAULSBERRY

Assistant City Attorney

P.O. Box 1562

Houston, Texas 77251

(713) 222-5151

Counsel for Appellee

City of Houston

TABLE OF CONTENTS

SD. < . cccccteeseseeeesoosocese

Original Answer and Counter Claim of Defendant City

of Houston—Filed February 3, 1978, District Court,

i Ms 3 <n cecnenguteséeentsceseess

Counter-Defendant’s Original Answer—Filed February

17, 1978, District Court, Harris County, Texas ......

Plaintiff's Supplemental Petition—Filed January 29,

1979, District Court, Harris County, Texas .........

Plaintiff’s Request for Admissions of Facts—Filed July

17, 1979, District Court, Harris County, Texas ......

Defendant City of Houston’s Response to Request for

Admissions of Facts—Filed July 27, 1979, District

Ses MP GEL, HEEEDe ccccccccccesccecccess

Defendant City of Houston’s Request for Admissions—

Filed August 23, 1979, District Court, Harris County,

interrogatories Propounded by Defendant City of Hous-

ton—Filed August 23, 1979, District Court, Harris

DSc cecddécesscecccecsoccesccccesece

Plaintiff's Answer to Request for Admissions—Filed

September 14, 1979, District Court, Harris County,

Defendant County of Harris’ Response to Request for

Admissions of Facts—Filed September 28, 1979, Dis-

trict Court, Harris County, Texas .................

Plaintiff’s Answers to Interrogatories—Filed December

6, 1979, District Court, Harris County, Texas .......

Defendant City of Houston’s Request for Admission—

Filed March 19, 1980, District Court, Harris County,

10a

l4a

16a

18a

27a

PAGE

Defendant County of Harris’ First Amended Answer

and Counterclaim—Filed March 26, 1980, District

Cee, TER GI, PEs ca dcccccsccccoccccess 35a

Plaintiff’s Answer to Defendant’s Counterclaim—Filed

April 22, 1980, District Court, Harris County, Texas. 38a

Plaintiff's Answer to Request for Admission—Filed

May 2, 1980, District Court, Harris County, Texas .. 39a

Plaintiff's Amended Answers to Interrogatories—Filed

May 8, 1980, District Court, Harris County, Texas .. 40a

Revised Judgment—Entered September 9, 1980, District

COU, TERI GI, Dain c ccccocccccecccccoses 44a

Order Directing Inclusion of Original Exhibits in the

Statement of Facts and Forwarding of Deposition—

Filed October 22, 1980, District Court, Harris

Se, Ts cd ccnbcécdeubondtodebesassannnane 46a

Appendix to Brief of County of Harris—Filed December

9, 1980, Texas Court of Civil Appeals ............. 49a

Judgment of Texas Court of Civil Appeals—Filed De-

GEE Bh GUND adndncsvedeanessepudcceecestietadas 108a

NOTE: The following materials have been reprinted in previous

submissions to the Court, and are therefore not included in

this Appendix:

A. Plaintiff’s Original Petition. Filed September 30, 1977,

District Court, Harris County, Texas. [Reprinted in Juris-

dictional Statement Appendix at 28a-34a]

B. Pilaintiff’s First Amended Original Petition. Filed January

13, 1978, District Court, Harris County, Texas. [Reprinted

in Appendix A, Motion to Dismiss or Affirm of Appellee

City of Houston at A-1-A-8]

. Opinion of Lynn N. Hughes, Judge. Filed July 14, 1980,

District Court, Harris County, Texas. [Reprinted in Juris-

dictional Statement Appendix at | 1la-14a]

. Amended Findings of Fact and Conclusions of Law. Filed

October 24, 1980, District Court, Harris County, Texas.

{Reprinted in Jurisdictional Statement Appendix at 15Sa-

19a]

. Opinion of Texas Court of Civil Appeals. Filed April 30,

1981. [Reprinted in Jurisdictional Statement Appendix at

la-10a]

Order of Supreme Court of Texas Refusing Application

for Writ of Error. Filed October 14, 1981. [Reprinted in

Jurisdictional Statement Appendix at 20a]

. Order of Supreme Court of Texas Overruling Motion for

Rehearing. Filed November 25, 1981. [Reprinted in Juris-

dictional Statement Appendix 21a]

. Notice of Appeal to the United States Supreme Court, and

Acknowledgment of Filing. Filed January 29, 1981, Su-

preme Court of Texas. [Reprinted in Jurisdictional State-

ment Appendix at 22a-24a]

. Amended Notice of Appeai to the United States Supreme

Court and Acknowledgment of Filing. Filed February 1,

1982, Texas Court of Civil Appeals. [Reprinted in Jurisdic-

tional Statement Appendix at 25a-27a]

Relevant Docket Entries

DISTRICT COURT FOR THE 165TH DISTRICT, HOUSTON, TEXAS

12.

13.

September 30, 1977

January 13, 1978

Fevruary 3, 1978

February 17, 1978

January 29, 1979

July 17, 1979

July 27, 1979

August 23, 1979

September 14, 1979

. September 28, 1979

December 6, 1979

March 19, 1980

Plaintiff’s Original Petition filed.

Plaintiff's First Amended Original

Petition filed.

Original Answer & Counterclaim of

Defendant City of Houston filed.

Counter-Defendant’s Original

Answer filed.

Plaintiff’s Supplemental Petition

filed.

Plaintiff’s Request for Admissions of

Facts filed.

Defendant City of Houston’s Re-

sponse to Request for Admissions of

Facts filed.

Defendant City of Houston’s Request

for Admissions filed.

Defendant City of Houston’s Interro-

gatories filed.

Plaintiff's Response to Request for

Admissions filed.

Defendant County of Harris’ Re-

sponse to Request for Admissions

filed.

Plaintiff’s Answers to Interrogatories

filed.

Defendant City of Houston’s Request

for Admission filed.

14.

15.

March 26, 1980

April 22, 1980

May 2, 1980

May 8, 1980

July 7, 1980

July 14, 1980

September 9, 1980

. September 11, 1980

October 22, 1980

Defendant County of Harris’ First

Amended Answer & Counterclaim

filed.

Plaintiff’s Answer to Defendant’s

Counterclaim filed.

Plaintiff’s Answer to Request for Ad-

mission filed.

Plaintiff’s Amended Answers to In-

terrogatories filed.

Trial commenced and concluded.

Opinion of Lynn N. Hughes, Judge,

165th District Court, filed.

Revised Judgment filed.

Notice of Appeal filed.

Order Directing Inclusion of Original

Exhibits in the Statement of Facts

and Forwarding of Depositions filed.

Il. COURT OF CIVIL APPEALS OF TEXAS, HOUSTON (1ST DiSTRICT)

III. SUPREME COURT OF TEXAS

April 30, 1981

May 21, 1981

June 18, 1981

July 6, 1981

July 15, 1981

Opinion and Order filed.

Petition for Rehearing denied.

Application for Writ of Error filed.

Motion to Dismiss of Defendant

County of Harris filed.

Answer of Defendant City of Hous-

ton to Application for Writ of Error

filed.

4. October 14, 1981

Application for Writ of Error

refused.

5. November 25, 1981

Motion for Rehearing overruled.

IV. COURT OF CIVIL APPEALS OF TEXAS, HOUSTON (IST DISTRICT)

1. December 3, i981

2. February 1, 1982

Judgment entered.

Notice of Appeal to United States

Supreme Court filed.

Original Answer and Counter Claim of Defendant City of

Houston—Filed February 3, 1978, District Court,

Harris County, Texas.

[Title omitted in printing]

DEFENDANTS’ ORIGINAL ANSWER AND

COUNTERCLAIM OF THE CITY OF HOUSTON

TO THE HONORABLE JUDGE OF SAID COourRT:

Now COME the CITY OF HOUSTON and the HOUSTON

INDEPENDENT SCHOOL DISTRICT, Defendants in the above

numbered and entitled cause, and file this their answer and

counterclaim answering the Plaintiff’s First Amended Original

Petition and all subsequent amendments thereto and also

presenting a counterclaim, and in connection therewith, would

respectfully show this Honorable Court as follows:

I. GENERAL DENIAL

The Defendants deny each and every, all and singular, the

allegations contained in the Plaintiff’s Petition, and demand

strict proof thereof.

II. COUNTERCLAIM

The CITY OF HOUSTON, a municipal corporation, princi-

pally situated in Harris County, Texas, a Defendant and

Counter-Plaintiff herein brings this its Counterclaim for delin-

quent ad valorem taxes in behalf of itself and for the use and

benefit of the HOUSTON INDEPENDENT SCHOOL DISTRICT,

also a municipal corporation situated in Harris County, Texas,

whose taxes are collected by the Assessor and collector of

Taxes for the CITY OF HOUSTON against XEROX CORPORA-

TION, herein referred to as Counter-Defendant.

1. XEROX CORPORATION, the Counter-Defendant, a New

York corporation, licensed to do business in the State of

Texas, may be served by delivering citation to its Registered

Agent, C. T. Corp., Republic National Bank Building, Dallas,

Texas.

2. Counter-Defendant owns or owned or claims or claimed

some interest in personal property situated in the City of

Houston and the Houston Independent School District, and

described as follows, to-wit:

MERCHANDISE STORED AT HOUSTON

TERMINAL WAREHOUSE AND

COLD STORAGE CoO.

Located at 701 N. San Jacinto, Houston,

Harris County, Texas

3. That as to such above described personal property there

are delinquent taxes justly due, owing and unpaid for the

following year and in the following amount, to-wit:

Years To Whom

Delinquent Assessed Amounts

1977 Xerox Corp. $156,728.90

together with penalties, interest, costs and attorney’s fees

provided by law or legally accruing thereon in the amount of

$172,859.45 as more particularly set out in the attached exhibit

page, w’ich exhibit is made a part hereof as fully as if set out

word for word herein; and that the penalties, interest and

attorney’s fees are provided by law and increase monthly as

provided by law.

4. That all said taxes were authorized by law and each

political subdivision on whose behalf this suit is brought was

legally constituted and authorized to assess and collect the

same, and all of said taxes were duly and legally levied and

assessed against the above described personal property and the

owners thereof, and all things required by law to be done have

been duly and legally performed by the proper officials, and all

conditions precedent have been performed or have occurred.

<. That all of the above described personal preperty was, at

the time that the said taxes were assessed, situated for tax

purposes within the City of Houston and the Houston Inde-

pendent School District.

6. That the above described personal property has a value of

more than Five Hundred Dollars ($500.00).

7. That the attorney whose name is signed hereto is legally

authorized and empowered to institute and prosecute this

action on behalf of each political subdivision or municipal

corporation named in paragraph (°. above.

8. That this counterclaim is also brought for such taxes

(together with penalties, interest, costs and attorney’s fees) as

may become delinquent against said property, owing to each

subdivision or corporation aforementioned for the year 1978

and for any other years which may become delinquent before

judgment is entered herein; such taxes become delinquent on

the first day of January of the year following the year in which

and for which they were levied and assessed.

WHEREFORE, PREMISES CONSIDERED, the Defendants re-

spectfully pray that the Plaintiff, XEROX CORPORATION, take

nothing by its suit, that the Defendants be awarded costs of

litigation, that Plaintiff’s cause in all things be dismissed, and

FURTHERMORE, the CITY OF HOUSTON also prays judgment

against XEROX CORPORATION for the amount of said taxes,

together with all penalties, interest, costs, attorney’s fees, and

other charges or expenses that may be or become legally due

and owing, together with foreclosure of the tax liens against

the above described property, and for personal judgment

against said XEROX CORPORATION owning said property at

the time same was assessed for taxation for the amount shown

to be due on it, and for general relief.

Respectfully submitted,

ROBERT M. COLLIE, JR.

City Attorney

/s/ CHERYL HELENA CHAPMAN

Assistant City Attorney

P. O. Box 1562

Houston, Texas 77001

222-5151

Counter-Defendant’s Original Answer—Filed February

17, 1978, District Court, Harris County, Texas.

[Title omitted in printing]

COUNTER-DEFENDANT’S ORIGINAL ANSWER

TO THE HONORABLE JUDGE OF SAID COURT:

COMES NOW XEROX CORPORATION, Plaintiff in the above

numbered and entitled cause and Counter-Defendant herein,

and files this its Answer to the Counterclaim of Counter-Plain-

tiff, CITY OF HOUSTON, and in connection therewith would

show the Court as follows:

Counter-Defendants, pursuant to Rule 92, Texas Rules of

Civil Procedure, deny each and every, all and singular, the

allegations contained in the Original Answer and Counterclaim

of the Defendant, CITY OF HOUSTON, and demand strict proof

thereof.

Il.

Affirmatively pleading, Counter-Defendant would show that

the taxes, penalties, and attorney’s fees sought to be imposed

are illegal in that they violate the United States Constitution,

United States Statutes and Agency Regulations pursuant

thereto, as more fully set out in Plaintiff’s First Amended

Original Petition heretofore filed with this Court, which is

hereby incorporated herein by reference for all purposes.

WHEREFORE, PREMISES CONSIDERED, Counter-Defendant,

XEROX CORPORATION, prays that Counter-Plaintiffs take

nothing by their Counterclaim, that Counter-Defendants be

awarded costs of litigation, and for such other relief, both in

law and in equity, to which Counter-Defendant may be en-

titled.

Respectfully submitted,

[Signature of counsel and certificate of service

omitted in printing]

Plaintiff’s Supplemental Petition—Filed January 29, 1979,

District Court, Harris County, Texas.

[Title omitted in printing]

PLAINTIFF’S SUPPLEMENTAL PETITION

TO THE HONORABLE JUDGE OF SAID COURT:

COMES NOW XEROX CORPORATION, Plaintiff in the above

referenced matter, and files this its Supplemental Petition to

Plaintiff’s First Amended Original Petition which has been

heretofore filed with this Court, and for same would show the

Court the following:

Subsequent to the filing of Plaintiff’s First Amended Origi-

nal Petition, the Plaintiff, XEROX CORPORATION, received a

tax statement from the State of Texas, County of Harris,

assessing taxes on inventory stored at the Houston Terminal

Warehouse, 701 North San Jacinto, for the year 1976. This

inventory is of the same nature and stored for the same

purposes as that inventory referenced in the Plaintiff’s First

Amended Original Petition.

The COUNTY OF HARRIS is now presenting a claim to

XEROX CORPORATION assessing a tax on said inventory—

copiers in the amount of $48,428.06.

Your Plaintiff would show that said tax and any penalty and

attorney’s fees attendant thereto are illegal, void and unconsti-

tutional in that they violate the United States Constitution,

United States Statutes and Agency Regulations pursuant

thereto. Plaintiff adopts by reference and for all purposes the

Paragraphs numbered V and VI of Plaintiff’s First Amended

Original Petition in support of its position.

IV.

Further pleading, your Plaintiff would show that it filed an

Affidavit or Certificate rendering the value of said inventory as

it existed in the Houston Terminal Warehouse as of January 1,

1976. Said Certificate sought an exemption from the adva-

lorem taxes based on the commerce clause and the import-ex-

port clause of the United States Constitution, and the

appropriate Federal Statutes and Agency Regulations.

The COUNTY OF HARRIS, through its Deputy Tax Assessor,

H. F. Bruce, granted the exemption from taxes since the goods

were stored “‘in bond on January 1, 1976.’’ A copy of the

Certificate requesting the exemption and the Exemption

granted by the County are attached hereto and incorporated

herein by reference for all purposes.

By virtue of said exemption granted by the County, the

County is estopped to seek to impose and collect any taxes on

said inventory for the year 1976.

WHEREFORE, PREMISES CONSIDERED, Plaintiff prays for

relief as requested in its First Amended Original Petition; that

this Court declare that the advalorem taxes sought to be

imposed by the County are unconstitutional, illegal and void;

that Defendant be permanently enjoined from assessing, col-

lecting and enforcing said unconstitutional, illegal and void

taxes; and for general relief, both legal and equitable, to which

XEROX CORPORATION is justly entitled.

Respectfully submitted,

{Signature of counsel and certificate of service

omitted in printing]

10a

Plaintiff’s Request for Admissions of Facts—

Filed July 17, 1979,

District Court, Harris County, Texas.

[Title omitted in printing]

REQUEST FOR ADMISSIONS OF FACTS

TO: CiTY OF HOUSTON, by and through its attorney of rec-

ord, Ms. Cheryl Helera Chapman, Assistant City Attor-

ney, P. O. Box 1562, Houston, Texas, 77001.

COMES NOW XEROX CORPORATION, Plaintiff in the above

captioned cause and pursuant to Rule 169, Texas Rules of Civil

Procedure, hereby requests and demands of you to make

admissions of the following statements of fact which are

materially pertinent to pleadings and answer hereto in accord-

ance with Rule 169, Texas Rules of Civil Procedure, under

which rule of procedure this Request for Admissions is made,

thereby answering the following facts in the above entitled and

numbered cause, and that such answers be sworn to and filed

promptly in the office of the Harris County District Clerk

where this cause is pending and a copy delivered to the writer

within ten (10) days from the serving of this request upon you;

otherwise, each of the matters of which an admission is

requested and demanded shall be deemed adinitted by you in

accordance with Rule 169, Texas Rules of Civil Procedure.

{Signature of counsel and certificate of service

omitted in printing]

ADMIT OR DENY THAT:

1. Xerox Corporation (Xerox) is a corporation incorporated

under the laws of the State of New York.

2. Xerox is duly authorized to transact business in the State

of Texas.

3. The County of Harris, Texas, is a duly authorized taxing

authority in the State of Texas and is authorized by statute to

collect taxes in its own behalf and on behalf of the State of

Texas.

4. The City of Houston and Houston Independent School

District (H.I.S.D.) are duly authorized taxing authorities in the

State of Texas. The City of Houston is authorized by law to

collect taxes on its own behalf and on behalf of the Houston

Independent School District.

5. Xerox is a manufacturer, a seller, and lessor of copier

machines in both domestic and international commerce.

6. Pursuant to its domestic business, Xerox maintained

separate facilities for storage in Harris County, Texas, for its

copiers and accessories that it owns, sells, leases and maintains

for local use in the Harris County area. These copiers and their

taxes are not in dispute in this action.

7. The copiers in question in this litigation were not a part

of Xerox’s inventory used for the local leasing and selling of

copiers in and around Harris County.

8. The copiers in question in this litigation were destined for

eventual use in the Caribbean and Latin America.

9. The copiers in question in this litigation were those

copiers stored in the Houston Terminal Warehouse, 701 North

San Jacinto, Houston, Harris County, Texas.

10. The copiers in question in this litigation were all stored

under customs bond in the Houston Terminal Warehouse.

11. Houston Terminal Warehouse was at all times relevant

to this litigation a Customs bonded warehouse.

12. Houston Terminal Warehouse is a class II] Customs

bonded warehouse, bonded pursuant to rules and regulations

promulgated by the Secretary of the Treasury, Title 19 of the

Code of Federal Regulations, Section 19.01 et seq.

13. A bond was given by Xerox for the purpose of enabling

Xerox, under statutes of the United States and Treasury regula-

12a

tions, to bring the copiers into the United States and then to

withdraw them for export or other lawful purpose free of the

import duty which would otherwise be payable. The bonds

were conditioned, among other things, upon compliance with

the laws and regulations relating to the custody and safe

keeping of the imported merchandise and to which lawful

withdrawal from the warehouse under permit of the customs

service within the time permitted by law.

14. At Houston Terminal Warehouse, the copiers remained

in Customs bond under the control and supervision of the

United States Customs Service.

15. From the time the copiers entered the United States until

they left the United States, the copiers were under the super-

vision and control of the United States Customs Service, and

were under Customs bond.

16. If these copiers were imported to the United States,

Xerox would have to pay U.S. Customs duties amounting to

6% of the value of the copiers (about $540,000.00 based on the

value of the copiers in Houston Terminal Warehouse as of

January !, 1977) plus 6% of the value of the technical assists.

17. The fair market value of said copiers located in the

Houston Terminal Warehouse on January 1, 1977 was

$9,015,690.00.

18. The Defendant-taxing authority for the year 1977, had

the following ad valorem tax schedules in effect:

(1) City of Houston—$1.58 per one hundred dollar

valuation upon an assessed valuation equal to 53% of

actual valuation;

(2) H.1.S.D.—$1.70 per one hundred dollar valuation

upon an assessed valuation equal to 53% of actual valua-

tion.

19. Based upon these tax schedules, the copiers located at

the Houston Terminal Warehouse on January 1, 1977, had

taxes assessed as follows:

13a

(1) City of Houston—$75,497.46;

(2) H.1.S.D.—$81,231.44.

20. The valuation of the copiers, the computation of the

taxes and the amount of the taxes assessed are not in dispute.

21. Xerox has claimed and continues to claim that said

copiers located in the Houston Terminal Warehouse are exempt

from state and local taxation.

22. At all material times, Xerox filed a request seeking an

exemption of said copiers from state and county taxes.

23. The regulations promulgated by the Secretary of Trans-

portation concerning Customs bonded warehouses are con-

tained in Title 19, Code of Federal Regulations, Sections 19.1

through 19.12.

24. The pages attached hereto are true and correct copies of

pages 5 through 8 of the 1978 Annual Budget of Houston.

[Exhibit omitted in printing]

l4a

Defendant City of Houston’s Response to Request for

Admissions of Facts—Filed July 27, 1979,

District Court, Harris County, Texas.

[Title and signature of counsel omitted in printing]

Admits

6. Admits

7. Defendant cen neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

yee ye

8. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

9. Admits

10. Admits

11. Admits

12. Admits

13. Admits

14. Admits

15. Admits

16. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

1Sa

would enable it to admit or deny the matter. Additionally, the ,

request calls for an opinion or conclusion of law.

17. Admits

18. Admits

19. Admits

20. Admits

21. Admits as to the City of Houston and Houston Indepen-

dent School District only.

22. Defendant can neither admit nor deny the truth of the

matter because it is not in possession of sufficient facts and

because it calls for a response to a matter in which it has no

interest.

23. Admits

24. Admits

[Signature of counsel, certificate of service

and exhibits omitted in printing]

16a

Defendant City of Houston’s Request for

Admissions—Filed August 23, 1979,

District Court, Harris County, Texas.

[Title omitted in printing]

REQUEST FOR ADMISSIONS

TO: Xerox Corporation, Plaintiff

c/o Larry D. Thompson

Lorance, Thompson & Wittig

Attorney for Plaintiffs

303 Jackson Hill at Memorial Drive

Suite 300

Houston, Texas 77007

PURSUANT TO THE PROVISIONS of Rule 169 of the Texas

Rules of Civil Procedure, you are hereby requested to admit

the truth of the facts stated below within ten days after delivery

of this request to Mr. Larry D. Thompson, your Attorney of

Record. You are advised that, as provided in Rule 169, each of

the matters stated below, of which admission is requested, will

be deemed admitted unless a sworn statement is delivered to

Cheryl Helena Chapman, Assistant City Attorney, City of

Houston, P. O. Box 1562, Houston, Texas 77001, on or before

the date above specified, or within such further time as the

court may allow on motion and notice, either denying specifi-

cally the matters of which admission is requested herein, or

setting forth in detail the reasons why said matters cannot

truthfully be either admitted or denied.

Respectfully submitted,

{Signature of counsel and certificate

of service omitted in printing]

PLEASE ADMIT OR DENY THAT:

1. Houston Terminal Warehouse and Cold Storage Com-

pany (hereafter referred to as the “Warehouse”) has storage

17a

facilities at 701 San Jacinto at which the copiers in question

were stored on January 1, 1977.

2. The Warehouse is a privately owned public warehouse. It

is not a federal enclave or a Free Trade Zone.

3. At the 701 San Jacinto location, the Warehouse stores

both customs bonded property and non-customs bonded prop-

erty. The difference between the two kinds of storage is that

the property stored under customs bond is physically segre-

gated from the other stored property and is maintained under

the supervision of the U.S. Customs Service.

4. On January 1, 1977 Xerox owned 4,248 copiers which

were stored at the Warehouse under customs bond.

5. Copiers arrived at the Warehouse at various times during

the years 1976 and 1977.

6. The number of copiers assessed on January 1, 1977 is

fairly representative of the number of copiers stored at the

Warehouse daily during the years 1976 and 1977.

7. Xerox began storing copiers at the Warehouse in the

manner described in its petition beginning in 1974.

8. The copiers in question were not consigned to a common

carrier on January 1, 1977.

9. The copiers are stored at the Warehouse for various

periods awaiting distribution and sale to Latin American affiii-

ates or customers.

10. Had the facts of this case been the same except that the

copiers were not stored under import customs bond the copiers

would be subject to State and local ad valorem taxes.

11. The tax imposed by the City of Houston and Houston

Independent School District is a non-discriminatory ad va-

lorem tax.

18a

Interrogatories Propounded by Defendant

City of Houston—Filed August 23, 1979,

District Court, Harris County, Texas.

[Title omitted in printing]

INTERROGATORIES PROPOUNDED BY DEFENDANT,

CITY OF HOUSTON

TO: Xerox Corporation, Plaintiff

c/o Larry D. Thompson

Lorance, Thompson & Wittig

Attorney for Plaintiff

303 Jackson Hill at Memorial Drive

Suite 300

Houston, Texas 77007

PURSUANT TO RULE 168 of the Texas Rules of Civil Proce-

dure, the following Interrogatories are submitted to be

answered by any of your officers or agents who are able to,

and shall, furnish all such information called for by said

interrogatories, as is available to you. The said answers shall be

signed, and sworn to, by each such officer or agent answering

the same, with respect to such answers as he or she shall make,

and shall be served upon the undersigned within thirty days

from the date of service of these interrogatories on your

attorney of record.

The term “foreign copiers” refers to the Xerox copiers which

were destined for Latin American and Caribbean countries.

The term “Warehouse” refers to the Houston Terminal

Warehouse and Cold Storage Company.

1. What is the principal place of business in Texas of Xerox

Corporation.

2. Plaintiff alleges in its petition that the component parts

of the copiers were manufactured in Rochester, New York,

assembled in Mexico, and stored in Houston while awaiting

ultimate delivery to various Latin American countries. Please

19a

describe in detail the journey of these foreign destined copiers

from the time of manufacture to their delivery and sale. Please

also describe the process of manufacture, assembly, distribu-

tion and sale, and include in your answer information regard-

ing the following factors:

a. The difference, if any, between the manufacture and

assembly of foreign and domestic copiers.

b. The reasons for utilizing the Mexican corporate affiliate

for assembly of the component parts.

c. The reasons for returning the copiers to the United States

and for their storage in Houston and in other domestic cities.

d. The events which lead to their ultimate export to Latin

American countries.

3. a. When copiers firsi arrive in Houston, have identifi-

able copiers customarily been committed to or sold to Latin

American customers?

b. If yes, please indicate what percentage of copiers are

previously committed.

4. a. Please describe the difference between the design,

feature and structure of a domestic copier and a foreign copier.

b. Are the component parts of the foreign copiers different

from those of domestic copiers? If so, please explain.

c. Can copiers manufactured for domestic commerce be

converted for sale to Latin American customers, and vice

versa. If so, what is the cost of such conversion.

d. Please attach diagrams of a foreign copier of a model

stored in the Warehouse and a comparable model domestic

copier which would illusirate the difference between their

design, feature and structure, if you will do so without a

motion and order to produce.

5. In the accompanying Request for Admissions, the City of

Houston hws requested the admission to the following fact:

20a

“The number of copiers assessed on January 1, 1977 is fairly

representative of the number of copiers stored at the Ware-

house daily during the years 1976 and 1977.” If the Plaintiff

does not admit this fact, please summarize by month the

number of copiers stored at the Warehouse between January 1,

1976 and December 31, 1977.

6. a. What is the median length of time that copiers were

stored at the Warehouse between January 1, 1976 and the time

that Plaintiff discontinued use of the storage facilities in 1977.

b. Since initial use of the storage facilities in 1974, what is

the longest period copiers have been stored in the Warehouse.

c. What is the shortest period of time.

d. When did Plaintiff discontinue using the Warehouse for

storage of its foreign designated copiers?

7. a. With respect to Plaintiff’s allegation that the copiers

were imported from Mexico for ultimate exportatioii to vari-

ous Latin American countries, please attach copies of customs

documentation if you will do so without a motion and order to

produce. If you will not do so without a motion and order to

produce, please give the name of Plaintiff’s agent who has

knowledge of, or custody and control over the requested

information.

b. Did any of the copiers remain in the U.S. If so, please

explain.

c. Were any copiers exported to other than Latin American

or Caribbean countries. If so, please explain.

8. Please list the names (not exceeding 5) of the Xerox’s

Latin American competitors whose copiers are manufactured

and assembled in the United States.

2la

9. a. Of the copiers stored in the Warel ouse on January 1,

1979, had any identifiable copiers been committed to sale prior

to January 1? If so, how many.

b. Please briefly describe in general the terms of such sale

arrangements.

{Signature of counsel and certificate of service

omitted in printing]

22a

Plaintiff’s Answer to Request for Admissions—

Filed September 14, 1979,

District Court, Harris County, Texas.

[Title omitted in printing]

ANSWER TO REQUEST FOR ADMISSIONS

COMES Now the Plaintiff, XEROX CORPORATION, and for

answer to Request for Admissions would say as follows:

_- ©

Admitted

Admit the first sentence, deny the second sentence.

Admitted

Denied

. Admitted

Respectfully submitted,

{Signature of counsel and certificate of service

omitted in printing]

23a

Defendant County of Harris’ Response to Request for

Admissions of Fact—Filed September 28, 1979,

District Court, Harris County, Texas

[Title Omitted in Printing}

RESPONSE TO REQUEST FOR ADMISSIONS OF FACTS

To: Lorance, Thompson & Wittig,

Attorneys for Plaintiff Xerox Corporation,

303 Jackson Hill at Memorial, Sui. 300,

Houston, Texas 77007.

In accordance with Rule 169, Texas Rules of Civil Proce-

dure, Defendant Harris County makes the following response

to the Request for Admissions of Facts propounded by Plain-

tiff Xerox Corporation on or about July 16, 1979:

1. Admitted

2. Admitted

3. Admitted

4. Admitted

5. Admitted

6. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

7. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enabie it to admit or deny the matter.

8. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

9. Admitted

10. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

11. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

12. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

13. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

14. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts anv

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

15. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

16. Defendant can neither truthfully admit nor deny such

matter because it is not in possession of sufficient facts and

information and has not presently obtained such facts as

would enable it to admit or deny the matter.

17. Denied, the correct figure is $9,015,685.00.

18. (1) Admitted

(2) Admitted with the following qualification:

The $1.8400 “County of Harris” tax rate for 1977 includes the

County of Harris and certain other political subdivisions for

25a

which its Assessor and Collector of Taxes is charged by law or

contract to assess and collect as follows:

Harris County General Fund: $1.1095

Harris County Flood Control District: 0.1410

Port of Houston Authority: 0.0545

Harris County School Equalization: 0.0100

Harris County Hospital District: 0.5250

Total $1.8400

19. (1) Denied, the correct State of Texas tax for 1977 is

$2,885.02 (2) Admitted with the following qualification: The

$53,084.37 “County of Harris” tax includes the County of

Harris and certain other political subdivisions for which its

Assessor and Collector of Taxes is charged by law or contract

to assess and collect as follows:

Harris County General Fund: $32,009.30

Harris County Flood Control District: 4,067.88

Port of Houston Authority: 1,572.34

Harris County School Equalization: 288.50

Harris County Hospital District: 15,146.35

Total $53,384.37

20. Admitted

21. Admitted

22. Admitted

23. Harris County admits that certain regulations promul-

gated by the Secretary of Transportation concerning Customs

Bonded warehouses are contained in Title 19, C.F.R. § 19.1-

19.12, however it has no knowledge as to whether these are the

only such regulations.

24. Admitted

25. Admitted

26. (1) Admitted

(2) Admitted with the following qualification: The $2.02

“County of Harris” tax rate for 1976 includes the County of

26a

Harris and certain other political subdivisions for which its

Assessor and Collector of Taxes is charged by law or contract

to assess and collect as follows:

Harris County General Fund: $1.1571

Harris County Flood Control District: 0.1478

Port of Houston Authority: 0.0644

Harris County School Equalization: 0.0100

Harris County Hospital District: 0.6407

Total $2.0200

27. (1) Admitted

(2) Admitted with the following qualification: The $45,710.58

“County of Harris” tax includes the County of Harris and

certain other political subdivisions for which its Assessor and

Collector is charged by law or contract to assess and collect as

follows:

Harris County General Fund: $26,184.02

Harris County Flood Control District: 3,344.57

Port of Houston Authority: 1,457.30

Harris County School Equalization: 226.29

Harris County Hospital District: 14,498.40

Total $45,710.58

28. Admitted

29. Admitted, but such letter was issued erroneously by a

deputy of the Assessor and Collector of Taxes of Harris

County and not by Harris County, per se.

31. Admitted, but the name is H. F. Bruce.

32. Admitted, but such letter was issued erroneously by

H. F. Bruce.

{Signature of counsel and certificate of service

Omitted in printing]

27a

Plaintiff’s Answers to Interrogatories—Filed December 6,

1979, District Court, Harris County, Texas.

[Title, signature of counsel and certificate of service

omitted in printing]

ANSWERS TO INTERROGATORIES PROPOUNDED

BY DEFENDANT, CITY OF HOUSTON

Question #1

What is the principal place of business in Texas of Xerox

Corporation?

Answer

There is no one principal place of business in Texas for

Xerox Corporation. Major business operations take place in

Dallas, Arlington, Carrollton, Houston, Austin and San

Antonio.

Question #2

Plaintiff alleges in its petition that the component parts of

the copiers were manufactured in Rochester, New York,

assembled in Mexico, and stored in Houston while awaiting

ultimate delivery to various Latin American countries. Please

describe in detail the journey of these foreign destined copiers

from the time of manufacture to their delivery and sale. Please

also describe the process of manufacture, assembly,

distribution and sale, and include in your answer information

regarding the following factors:

Answer

Parts and sub-assemblies are manufactured by Xerox

Corporation or procured from United States suppliers and

either warehoused in the Xerox facility in Webster, New York

or other Xerox facilities in the United States. They are then

shipped by common carrier to a warehouse in Laredo, Texas.

Transfer is made to a Mexican common carrier which

transports them under Mexican customs bond, to the

Industrias Xerograficas Sociedad Anonimas (hereinafter

28a

IXSA) manufacturing facility in Mexico City, D.F. The

copying machines are assembled at this facility utilizing the

same methods, tooling and gauging techniques as in the Xerox

U.S. assembly facility. A substantial portion of the finished

copiers are shipped by Mexican common carrier, under

customs bond, to Nuevo Laredo, where the original Mexican

bond is cleared on a part-by-part basis. Some are retained for

Mexican consumption. They are transferred to a U.S. bonded

common carrier, under U.S. customs bond, to the Houston

Terminal Warehouse and Cold Storage Company (hereinafter

HTWCSC). A warehouse entry is obtained from U.S. Customs

in Houston to permit storage of goods under customs bond.

Orders are filled from this inventory of machines as they are

received from Xerox Latin American marketing subsidiaries.

Machines are designated for shipment on a first-in first-out

basis. Maher and Company, Xerox’ customs broker in

Houston, makes a bonded warehouse withdrawal through the

U.S. customs office for shipment to the appropriate port

(Miami or Houston) for exportation. Shipment from

HTWCSC to the airplane or steamer at the appropriate port is

made by U.S. common carrier under customs bond. The

customs bond is removed at the point of exportation.

Process of Manufacture

No manufacturing process takes place in Mexico.

Process of Assembly

Consists of definite, precise sequence of assembling parts

and components to achieve end product within Xerox

worldwide quality specifications.

Process of Distribution

As described above.

Process of Sale

Copiers assembled by IXSA are transferred to the Xerox

Latin American Group of Xerox Corporation at the point of

exportation from Mexico. Xerox retains title during the period

of storage at HTWCSC and until the point of exportation to a

Latin American marketing subsidiary.

29a

Question 2.a.

The difference, if any, between the manufacture and

assembly of foreign and domestic copiers.

_ Answer

The differences between the assembly of foreign and

domestic copiers are:

1. Domestic copiers must be UL and CSA (Canadian

Standards Association) approved. Foreign copiers

need not be.

2. Domestic copiers have 60 cycle HZ electrical

requirements. Some copiers manufactured for the

Latin American markets have 50 cycle HZ electrical

requirements.

Question 2.b.

The reasons for utilizing the Mexican corporate affiliate for

assembly of the component parts.

Answer

The reason for utilizing IXSA for assembly of component

parts was to transfer technology to Mexico as well as to satisfy

the Mexiean government’s request to rectify their negative

balance of payments problem.

Question 2.c.

The reasons for returning the copiers to the United States

and for their storage in Houston and in other domestic cities.

Answer

Houston was selected as a distribution point because of its

good distribution facilities to the Latin American markets.

Question 2.d.

The events which lead to their ultimate export to Latin

American countries.

Answer

The event which led to the ultimate export of copiers to

Latin American Countries was the receipt of orders from Latin

American subsidiaries.

30a

Question 3.a.

When copiers first arrive in Houston, have identifiable

copiers customarily been committed to or sold to Latin

American customers?

Answer

A very minor percentage of identifiable copiers have been

committed or sold as of arrival at HTWCSC.

Question 3.b.

If yes, please indicate what percentage of copiers are

previously committed.

Answer

This has been estimated to be approximately one percent.

Question 4.a.

Please. describe the difference between the design, feature

and structure of a domestic copier and a foreign copier.

Answer

Electrical requirements differ; those to be used in the United

States require UL/CSA approval; the labelling in Latin

America will generally be in Spanish or Portuguese.

Question 4.b.

Are the component parts of the foreign copiers different

from those of domestic copiers? If so, please explain.

Answer

There are some differences, primarily with electrical

components and external cosmetics.

Question 4.c.

Can copiers manufactured for domestic commerce be

converted for sale to Latin American customers, and vice

versa. If so, what is the cost of such conversion.

Answer

Yes. Cost of conversion would be up to approximately $100.

3la

Question 4.d.

Please attach diagrams of a foreign copier of a model stored

in the Warehouse and a comparable model domestic copier

which would illustrate the difference between their design,

feature and structure, if you will do so without a motion and

order to produce.

Answer

Xerox Corporation considers all diagrams or drawings with

respect to both foreign and domestic copiers to be proprietary

information.

Question 5.

In the accompanying Request for Admissions, the City of

Houston has requested the admission to the following fact:

“The number of copiers assessed on January 1, 1977 is fairly

representative of the number of copiers siored at the

Warehouse daily during the years 1976 and 1977.” If the

Plaintiff does not admit this fact, please summarize by month

the number of copiers stored at the Warehouse between

January 1, 1976 and December 31, 1977.

Answer

The plaintiff has admitted this fact.

Question 6.a.

What is the median length of time that copiezs were stored at

the Warehouse between January 1, 1976 and the time that

Plaintiff discontinued use of the storage facilities in 1977.

Answer

It is not possible, without substantial and arduous record

research and mathematical computations, to determine the

median length of time.

Question 6.b.

Since initial use of the storage facilities in 1974, what is the

longest period copiers uave been stored in the Warehouse.

Answer

Over three years.

32a

Question 6.c.

What is the shortest period of time.

Answer

Eight days.

Question 6.d.

When did Plaintiff discontinue using the Warehouse for

storage of its foreign designated copiers?

Answer

December 22, 1977.

Question 7.a.

With respect to Plaintiff’s allegation that the copiers were

imported from Mexico for ultimate exportation to various

Latin American countries, please attach copies of customs

documentation if you will do so without a motion and order to

produce. If you will not do so without a motion and order to

produce, please give the name of Plaintiff’s agent who has

knowledge of, or custody and control over the requested

information.

Answer

See attached “ocumentation.

Question 7.b.

Did any of the copiers remain in the U.S. If so, please

explain.

Answer

No. Even those which were transferred from the HTWCSC

to Buffalo, New York when Xerox abandoned its Houston

operation have been exported.

Question 7.c.

Were any copiers exported to other than Latin American or

Caribbean countries. If so, please explain.

33a

Answer

Yes. Several copiers were sold to an agency of the United

States government. It was represented by that agency that these

copiers were for use overseas. In addition, they were 50 cycle

machines and did not have UL/CSA approval.

Question 8.

Please list the names (not exceeding 5) of the Xerox’ Latin

American competitors whose copiers are manufactured and

assembled in the United Staies.

Answer

International Business Machines, Eastman Kodak Co., 3M

Company.

Question 9.a.

Of the copiers stored in the Warehouse on January 1, 1979,

had any identifiable copiers been committed to sale prior to

January 1? If so, how many.

Answer

Of the copiers stored at the HTWCSC on January 1, 1976

and January 1, 1977 some, but at most a very minor

percentage, may have been committed to sale. It is not possible

to determine the exact answer from the records available to us.

Question 9.b.

Please briefly describe in general the terms of such sale

arrangements.

Answer

All sale arrangements are the same, regardless of whether

prior commitments have been made.

XEROX CORPORATION

/s/ RICARDO PEREZ

Ricardo Perez

{Jurat omitted in printing]

34a

Defendant City of Houston’s Request for

Admission—Filed March 19, 1980,

District Court, Harris County, Texas

{Title Omitted in Printing]

REQUEST FOR ADMISSION

TO: Xerox Corporation, Plaintiff

c/o Larry D. Tompson

Lorance, Thompson, & Wittig

Attorney for Plaintiffs

303 Jackson Hill at Memorial Drive

Suite 300

Houston, Texas 77007

PURSUANT TO THE PROVISIONS of Rule 169 of the Texas

Rules of Civil Procedure, you are hereby requested to admit

the truth of the fact stated below ten days after delivery of this

request to Mr. Larry D. Thompson, your Attorney of Record.

You are advised that, as provided in Rule 169, the matter stated

below, of which admission is requested, will be deemed admit-

ted unless a sworn statement is delivered to Cheryl Helena

Chapman, Assistant City Attorney, City of Houston, P. O. Box

1562, Houston, Texas 77001, on or before the date above

specified, or within such further time as the court may allow

on motion and notice, either denying specifically the matter of

which admission is requested herein, or setting forth in detail

the reasons why said matter cannot truthfully be either admit-

ted or denied.

During the years 1976 and 1977, the cost of assembling

copier component parts in Mexico was less that the cost of

assemblying the same component parts in the United States.

Respectfully submitted,

{Signature of counsel and certificate

of service omitted in printing]

35a

Defendant County of Harris’ First Amended

Answer and Countercilaim—Filed March 26, 1980,

District Court, Harris County, Texas.

[Title omitted in printing]

TO THE HONORABLE JUDGE OF SAID COurRT:

COMES Now Harris County, Texas, a political subdivision of

the State of Texas, one of the Defendants in the above entitled

and numbered cause and for its First Amended Answer would

respectfully show the Court as follows:

Pursuant to Rule 92 of the Texas Rules of Civil Procedure,

this Defendant asserts a general denial of the material allega-

tions contained in the Plaintiff's First Amended Original

Petition, and respectfully requests that Plaintiff be required to

prove such allegations by a preponderance of the evidence as is

required by the laws of the State of Texas.

a) Now comes Harris County, Texas, as Counter-Plaintiff

and brings this complaint for itself and the State of Texas, and

for the use and benefit of all political subdivisions whose taxes

are collected by the Assessor and Collector of Taxes for said

Counter-Plaintiff.

b) The Counter-Defendant is Xerox Corporation, a New

York Corporation licensed to do business in the State of Texas,

which may be served by delivering citation to its Registered

Agent, C.T. Corporation, Republic National Bank Building,

Dallas, Texas, and who owns or owned or claims or claimed or

has or had some interest in the property described as follows,

to-wit:

Personal property consisting of merchandise stored at the

Houston Terminal Warehouse and Cold Storage in Hous-

ton, Harris County, Texas

36a

c) That as to such personal property, there are delinquent

taxes justly due, owing and upaid against the said property for

the following years and amounts:

Years To Whom

Delinquent Assessed Amounts

1976 Xerox Corporation $48,426.06

1977 Xerox Corporation $55,969.39

together with penalties, interest and costs provided by law or

legally accruing thereon in the total amount of $125,349.97 as

more particularly set forth in the Delinquent Tax Statements

attached hereto and made a part hereof as Exhibits “A” and

“B”. This suit is also brought for such additional penalties,

interest, and costs provided by law or legally accruing thereon

as may become due and delinquent before judgment is ren-

dered.

d) All of said taxes were authorized by law and have been

duly and legally levied and assessed against said personal

property and the owners thereof and Counter-Plaintiff now has

and asserts a claim against said Counter-Defendant for the

payment of all taxes, penalties, interest and costs due thereon;

and ail things required by law to be done have been duly and

legally performed by the proper officials.

e) That all of said personal property was, at the time said

taxes were assessed, located within the boundaries of Harris

County, Texas.

f) The attorneys whose names are signed hereto are legally

authorized and empowered to file this answer and counter-

claim on behalf of the State of Texas and Harris County and

each political subdivision of the State of Texas in whose behalf

this Counterclaim is brought.

WHEREFORE, PREMISES CONSIDERED, Defendant and

Counter-Plaintiff Harris County prays that Plaintiff and

Counter-Defendant Xerox Corporation take nothing by its

suit, and that this Defendant and Counter-Plaintiff have per-

sonal judgment against the Counter-Defendant Xerox Corpo-

37a

ration for the total amount of said taxes together with all

penalties, interest, costs and other charges or expenses that

may be or become legally due and owing against said Counter-

Defendant on account of said personal property, that this

Counter-Plaintiff recover its costs of suit herein, and for such

other and further relief as it may show itself to be entitled at

law or in equity.

Respectfully submitted,

[Signature of counsel and exhibits

omitted in printing]

38a

Plaintiff’s Answer to Defendant’s Counterclaim—

Filed April 22, 1980,

District Court, Harris County, Texas.

[Title omitted in printing]

ANSWER TO DEFENDANT’S COUNTERCLAIM

TO THE HONORABLE JUDGE OF SAID COURT:

COMES Now the Plaintiff and Counter-Defendant, XEROX

CORPORATION, and for answer to Defendant’s, HARRIS

COUNTY, TEXAS, Counterclaim would respectfully show the

Court the following:

As provided in Rule 92 of the Texas Rules of Civil Proce-

dure, Plaintiff and Counter-Defendant enters its general denial

of matters pleaded by Defendant and Counter-Plaintiff and

asks that these matters be properly decided by this Honorable

Court and Jury.

WHEREFORE, Plaintiff and Counter-Defendant prays that

Defendant and Counter-Plaintiff take nothing by its suit

against it, and for such other and further relief, both general

and special, at law and in equity to which it may show itself

justly entitled.

Respectfully submitted,

[Signature of counsel and certificate

of service omitted in printing]

39a

Plaintiff's Answer to Request for

Admission—Filed May 2, 1980,

District Court, Harris County, Texas.

[Title omitted in printing]

ANSWER TO REQUEST FOR ADMISSION

COMES Now the Plaintiff, XEROX CORPORATION, and for

answer to Request for Admission submitted by Defendant,

CITY OF HOUSTON, would respectfully say as follows:

It is admitted that the cost of assembly of copier compo-

nent parts in Mexico was less than the cost of assembly of

the same component parts in the United States.

Respectfully submitted,

[Signature of counsel and certificate

of service omitted in printing]

40a

Plaintiffs’ Amended Answers to Interrogatories—Filed May 8,

1980, District Court, Harris County, Texas.

[Title omitted in printing]

PLAINTIFF’S AMENDED ANSWERS

TO INTERROGATORIES

TO THE HONORABLE JUDGE OF SAID CourRT:

COMES Now Plaintiff, XEROX CORPORATION, and submits

amended answers to interrogatories previously propounded by

the Defendant City of Houston.

Question No. 2:

Plaintiff alleges in its petition that the component parts of

the copiers were manufactured in Rochester, New York, as-

sembled in Mexico, and stored in Houston while awaiting

ultimate delivery to various Latin American countries. Please

describe in detail the journey of these foreign destined copiers

from the time of manufacture to their delivery and sale. Please

also describe the process of manufacture, assembly, distribu-

tion and sale, and include in your answer information regard-

ing the following factors:

Answer:

Parts and sub-assemblies are manufactured by Xerox Corpo-

ration or procured from United States suppliers and either

warehoused in the Xerox facility in Webster, New York or other

Xerox facilities in the United States. They are then shipped by

common carrier to a warehouse in Laredo, Texas. Transfer is

made to a Mexican common carrier which transports them

under Mexican customs bond, to the Industrias Xerograficas

Sociedad Anonimas (hereinafter IXSA) manufacturing facility

in Mexico City, D.F. The copying machines are assembled at

this facility utilizing the same methods, tooling and gauging

techniques as in the Xerox U.S. assembly facility. A substantial

portion of the finished copiers are shipped by Mexican com-

4la

mon carrier, under customs bond, to Nuevo Laredo, where the

original Mexican bond is cleared on a part-by-part basis. Some

are retained for Mexican consumption. They are transferred to

a U.S. bonded common carrier, under U.S. customs bond, to

the Houston Terminal Warehouse and Cold Storage Company

(hereinafter HTWCSC). A warehouse entry is obtained from

U.S. Customs in Houston to permit storage of goods under

customs bond. Orders are filled from this inventory of ma-

chines as they are received from Xerox Latin American

marketing subsidiaries. Machines are designated for shipment

on a first-in first-out basis. Maher and Company, Xerox’

customs broker in Houston, makes a bonded warehouse with-

drawal through the U.S. customs office for shipment to the

appropriate port (Miami or Houston) for exportation. Ship-

ment from HTWCSC to the airplane or steamer at the appro-

priate port is made by U.S. common carrier under customs

bond. The customs bond is removed at the point of exporta-

tion.

Process of Manufacture

Xerox does not manufacture but instead assembles copiers in

Mexico City. However, approximately ten percent of the com-

ponent parts were manufactured by third party vendors in

Mexico.

Process of Assembly

Consists of definite, precise sequence of assembling parts

and components to achieve end product within Xerox world-

wide quality specifications.

Process of Distribution

As described above.

Process of Sale

Copiers assembled by IXSA are transferred to the Xerox

Latin American Group of Xerox Corporation at the point of

exportation from Mexico. Xerox retains title during the period

of storage at HTWCSC and until the point of exportation to a

Latin American marketing subsidiary.

42a

Question 2.a.

The difference, if any, between the manufacture and as-

sembly of foreign and domestic copiers.

Answer

The differences between the assembly of foreign and domes-

tic copiers are:

1. Domestic copiers must be UL and CSA (Canadian

Standards Association) approved. Foreign copiers need

not be.

2. Domestic copiers are 60 cycle HZ electrical require-

ments. Some copiers manufactured for the Latin Ameri-

can markets have 50 cycle HZ electrical requirements.

Question 2.b.

The reasons for utilizing the Mexican corporate affiliate for

assembly of the component parts.

Answer

The reason for utilizing IXSA for assembly of component

parts was to transfer technology to Mexico as well as to satisfy

the Mexican government’s request to rectify their negative

balance of payments problem.

Question 2.c.

The reasons for returning the copiers to the United States

and for their storage in Houston and in other domestic cities.

Answer

Houston was selected as a distribution point because of its

good distribution facilities to the Latin American markets.

Question 2.d.

The events which lead to their ultimate export to Latin

American countries.

Answer

The event which led to the ultimate export of copiers to

Latin American countries was the receipt of orders from Latin

American subsidiaries.

43a

Question 8.

Please list the names (not exceeding 5) of the Xerox’ Latin

American competitors whose copiers are manufactured and

assembled in the United States.

Answer:

No major competitor of Xerox in Latin America manufac-

tures and assembles copiers in the United States. The major

competitors include IBM and 3M.

IBM’s copiers in Latin America are manufactured in Ger-

many.

Of the copiers sold by 3M in Latin America, the great

majority of such copiers are manufactured by Toshiba in

Japan. One very small line is manufactured in the United

States.

There are some very minor companies in Latin America such

as Saxon and Apeco whose copiers are manufactured or

assembled in the United States. However, their tota! business in

Latin America would account for perhaps one to one and a

half percent of the market.

Eastman Kodak does not sell copiers in Latin America.

XEROX CORPORATION

/s/ RICARDO PEREZ

Ricardo Perez

{[Jurat and certificate of service omitted in printing]

44a

Revised Judgment—Entered, September 9, 1980,

District Court, Harris County, Texas.

IN THE

DISTRICT COURT OF HARRIS COUNTY, TEXAS

165th JUDICIAL DISTRICT

No. 1,146,343

XEROX CORPORATION,

Plaintiff,

—_—V.—

HARRIS COUNTY, TEXAS, and THE CITY OF HOUSTON,

Defendants.

JUDGMENT

On the 7th day of July, 1980, this cause was heard, in the

absence of application for a jury, by the Court. The plaintiff

appeared through its attorney of record. The defendant in

behalf of itself and for the use and benefit of the Houston

Independent School District, appeared through its attorney of

record. The defendant in behalf of itself and for the use and

benefit of the State of Texas, the Harris County Flood Control

District, the Port of Houston Authority, the Harris County

Board of School Trustees, and the Harris County Hospital

District, appeared through its attorney of record.

After presentation of evidence and argument of counsel, the

Court considered that judgment should be rendered in favor of

the plaintiff.

It is, therefore:

1. Adjudged that the ad valorem taxes sought to be

imposed on the photocopiers by the defendants for the

years 1976 and 1977 are illegal;

45a

2. Decreed that the defendants are permanently enjoined

from assessing, collecting, and enforcing the ad valorem

taxes against Xerox Corporation for any of its personal

property situated similarly to the phctocopiers;

3. Adjudged that all relief sought by the defendants in

their counter-claims is denied, and that all other relief

prayed for by the plaintiff is denied; and

4. Ordered that the plaintiff's costs of court shall be

borne by the plaintiff, and the defendant's costs shall go

untaxed.

Signed this 9th day of September, 1980.

/s/ LYNN N. HUGHES

Lynn N. Hughes

District Judge

46a

Order Directing Inclusion of Original Exhibits in the

Statement of Facts and Forwarding of Depositions—

Filed, October 22, 1980, District Court, Harris County, Texas.

[Title Omitted in Printing]

THE CourRT, having considered Defendant Harris County’s

Motion For Inclusion Of Original Exhibits In The Statement

Of Facts and Forwarding of Depositions and noting that

Counsel for Xerox Corporation and the City of Houston

(being the other parties in the above entitled and numbered

cause) have approved said Motion and have waived hearing

thereon, is of the opinion that said Motion should be granted.

IT Is THEREFORE ORDERED that all of the original exhibits

introduced upon the trial of the above entitled and numbered

cause on July 7, 1980, be delivered by the Clerk of the Court to

the Official! Reporter of the Court for inclusion in the State-

ment of Facts in this cause pursuant to Rules 75b and 379

T.R.C.P., to wit:

E-nibit No. Description

Plaintiff - 1 U. S. Customs Warning Label.

Plaintiff - 3 D. I. S. C. - A Handbook for Ex-

porters.

Defendant City - 1 City of Houston and/or Houston In-

dependent School District Tax State-

ment.

Defendant City - 2 Excerpt from City of Houston and

Houston Independent School District

Tax Rolls.

County - 1 Harris County, Texas and Harris

County Flood Control District Annual

Financial Statements and Supplemen-

tary Information for the Year Ended

December 31, 1976.

County - 2

County - 3

County - 4

County - 5

County - 6

County - 7

County - 8

County - 9

County - 10

47a

Harris Courty, Texas and Harris

County Flood Control District Finan-

cial Statements and Supplementary In-

formation for the Year Ended

December 31, 1977.

Harris County, Texas and Harris

County Flood Control District Com-

prehensive Annual Financial Reports

for the Year Ended December 31,

1978.

Port of Houston Authority of Harris

County, Texas Annual Financial State-

ments and Supplementary Information

for the Year Ended December 31,

1976.

Port of Houston Authority of Harris

County, Texas Financial Statements

and Supplementary Information for

the Year Ended December 31, 1977.

Port of Houston Authority of Harris

County, Texas Comprehensive Annual

Financial Report for the Year Ended

December 31, 1978.

Harris County Hospital District-

Budget-Fiscal Year Ending March 31,

1977.

Harris County Hospital District-

Budget-Fiscal Year Ending March 31,

1978.

Report of Examination, Harris County

Department of Education for the Fis-

cal Years Ended in 1977.

Report of Examination, Harris County

Department of Education for the Fis-

cal Years and the Periods Ended in

1978.

48a

County - 11 Carl S. Smith, Tax Statement.

County - 12 Certificate of Imported Merchandise

Exemption by J.S. Vangellow of

Xerox.

County - 13 Certificate of Imported Merchandise

Exemption by Bruce Anderson of

Xerox with attached letter by Ricardo

S. Perez of Xerox.

County - 14 Letter to Xerox from Carl S. Smith

Tax Assessor-Collector by H. F. Bruce

dated August 9, 1976.

IT IS FURTHER ORDERED that upon the conclusion of all

appeals of the Court’s Judgment in the above entitled and

numbered cause, the hereinabove listed exhibits shall be re-

turned to the Clerk of the Court for safekeeping pending

disposition in accordance with the law and further orders of

the Court.

IT IS FURTHER ORDERED that the Clerk of the Court is

directed to transmit the depositions and exhibits attached

thereto taken in the hereinabove entitled and numbered cause

of Ralph E. Benzaquen dated May 9, 1980, and Mario Augusta

Blanca dated June 11, 1980, to the Court of Civil Appeals as a

part of the record herein.

Signed this 22nd day of October, 1980.

/s/ LYNN N. HUGHES

Lynn N. Hughes

District Judge

{Signature of counsel omitted in printing]

49a

Appendix To Brief of Defendant County of H »rris—

Filed December 9, 1980, Texas Court of Civil Appeals.

APPENDIX “A”

For the convenience of the Court, the County of Harris

submits the following authorities which are cited in its brief

and/or in McGoldrick vs. Gulf Oil Corp., 60 S.Ct. 664 (1940):

Excerpts from the Customs Regulations of 1915.

2. Excerpts from the Customs Regulations of 1923.

Excerpts from the Customs Regulations of 1931.

. Excerpts from the Customs Regulations of 1937.

. The excerpts from the Senate Report and Congres-

sional Record as cited at 60 S.Ct., page 669 in

McGoldrick.

All other authorities cited in Appellants Brief are believed to be

available in the Harris County Law Library.

TREASURY DEPARTMENT

DIVISION OF CUSTOMS

CUSTOMS REGULATIONS

OF THE

UNITED STATES

Prescribed for the Instruction and Guidance

of Customs Officers

EDITION OF 1915

[SEAL]

WASHINGTON

GOVERNMENT PRINTING OFFICE

1915

Sla

ORDER OF PUBLICATION.

TREASURY DEPARTMENT, August /3, 1915.

The following regulations are published for the instruction

and guidance of all officers and employees of the customs.

This volume is to be known and cited as the ‘‘Customs

Regulations of 1915.’ References thereto in official correspon-

dence are to be made to the article number and not to the

chapter or page.

Collectors and other chief officers of the customs are in-

structed to require all officers and employees under their

jurisdiction to familiarize themselves with these regulations,

and particularly with those portions thereof pertaining to the

specific duties to which such officers or employees are as-

signed.

These regulations are to be strictly observed and followed by

all officers and employees of the customs unless comp. ance be

expressly waived in writing by the department.

W.G. MCADOO,

Secretary of the Treasury.

S2a

[217] oe ¢

WITHDRAWAL OF SUPPLIES FOR MERCHANT

VESSELS OF THE UNITED STATES.

Art. 410. Form of withdrawal.—When articles of foreign

or domestic production are withdrawn from a bonded ware-

house or a bonded manufacturing warehouse for supplies of

a vessel of the United States engaged in [218] foreign trade,

or in trade between the Atlantic and Pacific ports of the

United States, free of duty or of internal-revenue tax, the

owner of the articles or his agent must file with the collector

a withdrawal in the following form:

Withdrawal of supplies for vessels.

Articles to be withdrawn from warehouse by _._-__-_

, and to be used for supplies of _...__.,

, master, a vessel of the United States

engaged in the foreign trade (or in the trade between the

Atlantic and Pacific ports of the United States), now in

port.

Dates of importation or re-

warehousing and names of

Marks importers or dates of with Amount

Description of and drawal from bonded manu of duty

articles. numbers facturing warehouses or tax

I do solemnly swear that the articles described within are

intended to be used on board the above-described vessel and

not to be relanded at any place or port within the United

States.

PORT OF ‘

day of ; , before me.

Sworn to this

Collector.

Act June 26,

1884, sec. 16;

act July 24,

1897, sec. 14.

T. Ds. 9976.

9787, 18379.

18922, 23237.

53a

Art. 411. Bond.—If the vessel named in the withdrawal is

clearing coastwise, or goes from port to port in the United

States to complete lading or unlading of cargo to and from

foreign ports, or to and from Atlantic and Pacific ports of

the United States, a bond must be taken on Customs Form

3879 and in a penal sum equal to double the duties on the

articles withdrawn.

Art. 412. Delivery permit—Lading.—Upon the filing of

the withdrawal and executing a bond, when required, the

collector, if satisifed that the quantities mentioned im the

withdrawal are not excessive for the purpose intended, shall

issue a permit on Customs Form 3881, directing the store-

keeper to deliver the supplies to the surveyor.

A copy of the withdrawal will be transmitted to the

surveyor or inspector acting as such, with directions in-

dorsed thereon in the following form:

[219] PORT OF

ein , 19

TO THE SURVEYOR:

_ You will direct an inspector to examine the goods

described in this withdrawal, and if found to agree exactly

therewith to superintend the lading thereof on board the

, and make return thereof.

Collector.

Art. 413. Intermediate ports.—The articles withdrawn

and taken on board as supplies shall be noted on the

manifest, and if the vessel touches at an intermediate port in

the United States the collector at such port shall see that no

portion of the supplie so noted is landed except upon entry

and payment of duties.

Art. 414. Cancellation of bond.—The bond given on

withdrawal of supplies shall be canceled upon the produc-

tion of an affidavit of the master and mate, showing that

S4a

such supplies have been used on board the vessel, and no

portion thereof landed within the limits of the United States

without the payment of duty thereon.

WITHDRAWAL OF SUPPLIES FOR FOREIGN

VESSELS OF WAR.

Art. 415. Countries accorded privilege.--The privilege of

purchasing supplies from the public or bonded warehouses

and from bonded manufacturing warehouses, free «f duty

or of internal-revenue tax, shall be extended to the vessels of

war of any nation in ports of the United States which may

reciprocate such privilege toward the vessels of war of the

United States in its ports.

The privilege of purchasing supplies from such ware-

houses, duty free, is accorded to the vessels of war of the

following countries: Argentina, Austria, Brazil, Chile, Den-

mark, England, France, Germany, Greece, Holland, Italy,

Japan, Korea, Norway, Roumania, Russia, Salvador, Siam,

Sweden, and Venezuela.

[352] > oe. =

Art. 709. Classes | to 7.—Warehouses for the storage of

bonded merchandise shail be used exclusively for that pur-

pose, and for the storage of unclaimed goods under Govern-

ment control, and shail be divided into the following classes:

CLASS 1. Warehouses which are owned or leased by the

Government and used for the storage of merchandise under-

going examination by the appraiser; for the storage of seized

and unclaimed goods and for other purposes, shall be

known as “public stores.” Such warehouses or parts thereof

used exclusively for the storage of seized and unclaimed

goods shall be known as “general-order stores.” Where such

stores are not sufficient or available for the st

This text is long and has been trimmed here. Open the source document for the complete record.

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