Petitioners Brief — Limbach v. Hooven & Allison Co.

No. 83-96

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

JOANNE LIMBACH,

TAX COMMISSIONER OF OHIO,

Petitioner,

THE HOOVEN & ALLISON COMPANY,

Respondent.

ON WRIT OF CERTIORARI TO

THE SUPREME COURT OF OHIO

BRIEF FOR THE PETITIONER

ANTHONY J. CELEBREZZE, JR.

Attorney General of Ohio

RICHARD C. FARRIN

Counsel of Record

Assistant Attorney General

State Office Tower, 15th Floor

30 East Broad Street

Columbus, Ohio 43215

(614) 466-3142

ATTORNEYS FOR

PETITIONER

MIDWEST LAW PRINTERS AND PUBLISHERS, INC., Columbus, Ohio 43216

QUESTIONS PRESENTED FOR REVIEW

I. WHETHER THE STATE OF OHIO CAN IMPOSE

ITS NONDISCRIMINATORY AD VALOREM PROPER-

TY TAX ON IMPORTED RAW MATERIALS NO LONG-

ER IN TRANSIT WHICH ARE RETAINED IN THEIR

ORIGINAL PACKAGES AND HELD FOR USE IN

MANUFACTURE IN OHIO WITHIN THE STRICTURES

OF THE IMPORT-EXPORT CLAUSE OF THE UNITED

STATES CONSTITUTION, ART. I, § 10, cl. 2.

II. WHETHER THE DECISION OF THIS COURT IN

MICHELIN TIRE CORP. v. WAGES, 423 US. 276 (1976),

EFFECTED A CHANGE IN THE CONTROLLING

LEGAL PRINCIPLES APPLICABLE TO A DETERMI:

NATION OF WHETHER OHIO’S ASSESSMENT OF ITS

AD VALOREM PROPERTY TAX AGAINST LMPORTED

RAW MATERIALS VIOLATES THE [MPORT-EXPORT

CLAUSE.

III. WHETHER SUBSEQUENT TO MICHELIN THE

DECISION OF THIS COURT IN HOOVEN & ALLISON

CO. v. EVATT, 324 US. 652 (1945), RETAINS ANY VI-

TALITY REGARDING THE ABILITY OF THE STATES

TO TAX IMPORTED RAW MATERIALS.

[V. WHETHER COLLATERAL ESTOPPEL MAY BE

APPLIED WHEN IT WOULD RESULT IN ONE MANU.

FACTURER BEING PERPETUALLY IMMUNE FROM

OHIO’S AD VALOREM PROPERTY TAX ON ITS IM-

PORTED RAW MATERIALS WHILE ALL OTHER

BUSINESSES’ IMPORTED GOODS, INCLUDING RAW

MATERIALS, WOULD BE SUBJECT TO THAT TAX

BECAUSE OF A SUBSEQUENT CHANGE IN THECON-

TROLLING LEGAL PRINCIPLES APPLICABLE TO

IMPORT-EXPORT CLAUSE CASES ENUNCIATED IN

AN INTERVENING DECISION OF THIS COURT.

PARTIES

The petitioner in this action is Joanne Limbach in her

capacity as Tax Commissioner of Ohio. She is the suc-

cessor to Edgar L. Lindley who in his capacity as Tax

Commissioner of Ohio was a party to the proceedings be-

low. The respondent is The Hooven & Allison Company.

TABLE OF CONTENTS

PAGE

QUESTIONS PRESENTED FOR REVIEW........... i

PUNE FUN-8 Ficeck enw caw Chea ES 0 U5 sw hes eee es ii

DECISIONS BELOW........ TTUL ER SUERTE EET ee 1

POGUE CS cn bbebstcr...s Su poeuekscusese 2

CONSTITUTIONAL AND STATUTORY

te - | T 3

RMU ENTE COE BEM GAD 5 oc cc ccc cesievecece 6

SUMMARY OF ARGUMENT ............00ecee8: 10

ARGUMENT

I OQOhio’s Assessment of its Nondiscriminatory Ad

Valorem Property Tax against Imported Goods

No Longer in Transit and Held in Ohio for Use in

Manufacture Is Not Within the Prohibition of the

Import-Export Clause Against the Laying by

States of ‘“‘any Imposts or Duties on Imports.” . .13

II Michelin Tire Corp. v. Wages, Repudiated the Le-

gal Principle upon which Hooven J was Based,

Thereby Rendering the Doctrine of Collateral

Estoppel Inapplicable to the Tax Assessment at

PA a Set i APR Ge be REL IU es wd Rr WAT a het Nae 22

eee

TABLE OF AUTHORITIES

Cases

Page

Brown v. Maryland, 12 Wheat. 419 (1827).......... 17

Commissioner v. Sunnen,

EE MED, owe vtcvsewsecsedses passim

Hooven & Allison Co. v. Evatt,

Se MH A EMNIIEs nc oss scccnssccceecve passim

License Cases, 5 How. 504 (1847). ............505. 17

Low v. Austin, 13 Wall. 29 (1872) ............ passim

Michelin Tire Corp. v. Wages,

RR, OUTRO ovo 6 ova yevaveuneds’s passim

Montana v. United States, 440 U.S. 147 (1979) ...... 24

Washington Revenue Dept. v. Association of

Washington Stevedoring Cos., 435 U.S. 734

ey gale ie SIRS Rs Pi aa Aaa 10, 13, 14, 19-21

Youngstown Sheet & Tube Co. v. Bowers and

United States Plywood Corp. v. Algoma,

I OR hve phe danveeseecedeaawe 18

Constitutional Provisions

Article I, Section 10, clause 2,

United States Constitution,

REINS GEEEIND Fess ces ccenveccnces passim

Statutes

Ohio Revised Code (R.C.) Chapter 5711............. 6

iv

Textbooks

P. Hartman, Federal Limitations on State

and Local Taxation § 5:2, § 5:4

1B Moore’s Federal Practice §0.422,§0.422[5] ....24

Periodicals

W. Hellerstein, State Taxation and the

Supreme Court: Toward a More Unified

Approach to Constitutional Adjudication?,

75 Mich. L. Rev. 1426 (1977)........... 13, 14, 20

1

No. 83-96

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

JOANNE LIMBACH,

TAX COMMISSIONER OF OHIO,

Petitioner,

THE HOOVEN & ALLISON COMPANY,

Respondent.

ON WRIT OF CERTIORARI TO

THE SUPREME COURT OF OHIO

BRIEF FOR THE PETITIONER

DECISIONS BELOW

The Decision of the Ohio Supreme Court is reported at

Hooven & Allison Company v. Lindley, 4 Ohio St. 3d

169, 447 N.E. 2d 1295 (1983). (Pet. App. A—2). The

Decision and Order of the Ohio Board of Tax Appeals is

unreported. (Pet. App. A—10).

2

JURISDICTION

The Decision of the Ohio Supreme Court was entered

as its judgment on April 20, 1983. (Pet. App. A—2). The

Petition for Certiorari was filed on July 15, 1983, and

was granted on October 3, 1983. The jurisdiction of this

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

3

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

This case involves Article I, § 10, cl. 2 of the United

States Constitution, and Ohio Revised Code (R.C.)

sections 5709.01, 5711.01 (A) and 5711.16

Article I, § 10, cl.2 of the United States Constitution:

No State shall, without the Consent of the Con-

gress, lay any Imposts or Duties on Imports or

Exports, except what may be absolutely neces-

sary 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 Controul of the Congress.

R.C. § 5709.01:

All real property in this state is subject to tax-

ation, except only such as is expressly exempted

therefrom. All personal property located and

used in business in this state, and all domestic

animals kept in this state and not used in agri-

culture, except unmanufactured tobacco which

shall be exempt from taxation for state purposes

to the extent of the value, or amounts, of any

unpaid nonrecourse loan or loans thereon grant-

ed by the United States government or any agency

thereof, are subject to taxation, regardless of the

residence of the owners thereof. All ships, vessels,

and boats, and all shares and interests therein, de-

fined in section 5701.03 of the Revised Code as

R.C,

4

personal property and belonging to persons re-

siding in this state and not used in in business

wholly in another state, other than aircraft

licensed in accordance with sections 4561.17 to

4561.21, inclusive, are subject to taxation. All

property mentioned as taxable in this section

shall be entered on the general tax list and

duplicate of taxable property.

§ 5711.01 (A):

(A) “Taxable property” includes all the kinds

of property, except real property mentioned in

section 5709.01 and 5709.02 of the Revised Code,

and also the amount or value as of the date of

conversion of all taxable property converted into

bonds or other securities not taxed on or after

the first day of November in the year preceding

deposits after the date of which deposits are re-

quired to be listed in such year, except in the

usual course of the taxpayer’s business, to the

extent he may hold or control such bonds, se-

curities, or deposits on such day, without de-

duction for indebtedness created in the purchase

of such bonds or securities from his credits; but

taxable property does not include such invest-

ments and deposits as are taxable at the source

as provided in sections 5725.01 to 5725.26 of

the Revised Code, nor surrender values under

policies of insurance.

R.C. § 5711.16:

A person who purchases, receives, or holds

personal property for purpose of adding to its

value by manufacturing, refining, rectifying, or

combining different materials with a view of

making a gain or profit by so doing is a manu-

facturer. When such person is required to return

a statement of the amount of his personal pro-

perty used in business, he shall include the aver-

age value, estimated as provided in this section,

of all articles purchased, received, or other-

wise held for the purpose of being used, in

whole or in part, in manufacturing, combining,

rectifying, or refining, and of all articles which

were at any time by him manufactured or changed

in any way, either by combining, rectifying, re-

fining or adding thereto, which he has on hand

during the year ending on the day such property

is listed for taxation annually, or on the part of

the year during which he was engaged in business.

He shall separately list finished products not kept

or stored at the place of manufacture or at a

warehouse in the same county.

The average value of such property shall be

ascertained by taking the value of all property

subject to be listed on the average basis, owned

by such manufacturer on the last business day of

each month the manufacturer was engaged in

business during the year. The result shall be the

average value to be listed. A manufacturer shall

also list all engines and machinery, and tools and

implements, of every kind used, or designed to be

used, in refining and manufacturing, and owned

or used by such manufacturer.

6

STATEMENT OF THE CASE

Petitioner, the Tax Commissioner of Ohio, assessed ad

valorem personal property taxes under R.C.Chapter 5711

against certain raw materials imported by respondent, The

Hooven & Allison Co., from various foreign countries and

retained in their original packages by respondent in its

warehouse in Ohio for their intended use by respondent

in the manufacture of cordage.

In its Inter-CCounty Corporation Returns of Taxable

Property for return years 1976 and 1977, respondent had

deducted imported raw materials retained in their original

packages from its manufacturing inventory, giving the fol-

lowing explanation:

The inventories represent fibres imported by

the taxpayer from foreign countries, held in the

original packages in its warehouse in Xenia prior

to being used in manufacturing cordage, and

when they are removed therefrom or placed in

the production line in the factory, such imported

fibres so used, or removed from the original

package, are thereupon transferred to the Goods

in Process, and are included in the taxable in-

ventories in Xenia City.

Subsequent to the assessment, respondent filed an appli-

cation for review and redetermination of the assessment,

arguing that the Import-Export Clause of the United States

Constitution precludes, and the decision of this Court in

Hooven & Allison Co. v. Evatt, 324 US. 652 (1945)

(hereinafter Hooven J) collaterally estops, the Tax Com-

missioner from levying Ohio’s ad valorem personal proper-

ty taxes upon the subject imported raw materials. In the

7

Certificate of Determination affirming the assessment,

the Tax Commissioner rejected respondent’s arguments

on the basis of this Court’s decision in Michelin Tire Corp.

v. Wages, 423 US. 276 (1976). The Certification of De-

termination is set forth in full in the Decision and Order

of the Board of Tax Appeals (Pet. App.A-11.)

Respondent appealed to the Ohio Board of Tax Appeals

from the Tax Commissioner’s Certificate of Determination

specifying the following errors, inter alia, in its notice of

appeal:

2. The Commissioner erroneously determined

that the State of Ohio was not collaterally estop-

ped by the United States Supreme Court decision

in The Hooven & Allison Co. v. Evatt, 324 US.

652 (1945) from assessing the Appellant’s im-

ported raw materials inventory retained in its

original packages on tax-listing date.

3. The Commissioner erroneously determined

that the levying of Ohio’s personal property tax

upon Appellant’s imported raw materials inven-

tory retained in its original packages on tax-listing

date does not impair the federal government’s

regulation of foreign trade in contravention of

the “‘Import-Export” clause, or of the Commerce

clause of the United States Constitution.

The Board of Tax Appeals held that the Tax Commis-

sioner was collaterally estopped by the decision of this

Court in Hooven I. Although the Tax Commissioner,

relying on this Court’s decision in Commissioner v. Sun-

nen, 333 U.S. 591 (1948), argued before the Board of

Tax Appeals that collateral estoppel was inapplicable

because the legal principles upon which Hooven I was

based had been abandoned by the decision of this Court

in Michelin Tire Corp. v. Wages, supra, the Board’s de-

8

cision contained no reference to that decision or its effect

on the application of collateral estoppel based on Hooven

I. The Board of Tax Appeals did not consider the consti-

tutional issues raised by respondent, stating that it lacked

i isdiction to determine those issues. (Pet. App. A-10).

-espondent filed a notice of appeal from this decision

to the Ohio Supreme Court to secure a determination on

its constitutional claims. The Tax Commissioner filed a

notice of appeal from the decision to the Ohio Supreme

Court, specifying the following error:

The Board erred in holding that the Tax

Commissioner is collaterally estopped by the

decision of the United States Supreme Court in

Hooven & Allison Co. v. Evatt, 324 US. 652

(1945), from assessing the personal property tax

for the tax years 1976 and 1977 on taxpayer’s

imported raw materials inventory retained in its

original packages on tax listing day and, based

on such holdings, deciding that the final deter-

mination of the Tax Commissioner in issue in

BTA Case Nos. 79-C-637 and 79-C-638 should

be reversed.

The Tax Commissioner argued before the Ohio Supreme

Court that this Court’s decision in Michelin so changed the

legal principles controlling in Import-Export Clause cases

as to render the doctrine of collateral estoppel inapplicable,

relying on this Court’s decision in Commissioner v. Sunnen,

supra.

The Ohio Supreme Court rejected the Tax Commission-

er'’s argument that collateral estoppel was inapplicable

because Michelin had repudiated the “original package”

doctrine upon which Hooven | was based and affirmed

the decision of the Board of Tax Appeals that the Tax

9

Commissioner was collaterally estopped from assessing

respondent’s imported raw materials. Having held that

the Tax Commissioner was barred by the doctrine of

collateral estoppel from levying Ohio’s ad valorem personal

property tax on respondent’s imported raw materials, the

Ohio Supreme Court declined to address the constitution-

al issues raised by respondent in its appeal. (Pet. App. A-2).

10

SUMMARY OF ARGUMENT

I. In Michelin Tire Corp. v. Wages, 423U.S. 276 (1976),

this Court held that a state nondiscriminatory ad valorem

personal property tax was not the type of exaction which

the Framers of the Constitution considered as being an “‘im-

post’’ or ‘‘duty”’’ and that such a tax was therefore not

within the prohibition of Article I, section 10, clause 2 of

the Constitution of the United States, the Import-Export

Clause, against the laying of ‘‘any Imposts or Duties on

Imports.” This holding was based upon this Court’s ex-

haustive historical analysis of the Import-Export Clause

and its conclusion that the imposition of a nondiscrimi-

natory ad valorem property tax on imported goods would

not offend any of the three objectives of the Import-Ex-

port Clause.

Michelin adopted a fundamentally different approach

to Import-Export Clause cases. Washington Revenue Dept.

v. Association of Washington Stevedoring Cos., 435 US.

734, 752. Specifically abandoned was the concept that the

Import-Export Clause constituted a broad prohibition

against all forms of state taxation which fell on imports.

Michelin Tire Corp. v. Wages, supra, at 290-291. Until

Michelin, this concept had been applied to prohibit any

state tax on goods imported until those goods had lost

their status as imports. The primary doctrine that was for-

malized to determine when goods had lost their status was

the “original package” doctrine. For over a century after

the enunciation of this doctrine in Low v. Austin, 13 Wall.

29 (1872), it was the basic legal principle applied in Import-

Export Clause cases to determine whether state exactions

on imported goods were constitutionally permitted.

‘Michelin expressly overruled Low v. Austin, supra, and

rejected the controlling lega! principle upon which Low

was based, the “original package”’ doctrine. This rejection

11

of the controlling legal principle of Low also overruled in

principle all of the cases decided subsequent to Low v.

Austin which were based on that controlling legal princi-

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

(Hooven I) was among those cases which were decided on

the basis of the “original package” doctrine formalized in

Low v. Austin, and therefore retains no vitality subse-

quent to Michelin.

The narrow reading and application of Michelin by the

Ohio Supreme Court in the decision below ignored the

historic nature of the Michelin Court’s abandonment of the

century-old ‘‘original package”’ doctrine. Michelin changed

the entire focus of Import-Export Clause cases from the

nature of the goods as imports to the nature of the tax at

issue. Subsequent to Michelin, the determinative question

in Import-Export Clause cases is no longer whether the

goods have lost their status as imports but rather whether

the tax sought to be imposed was an “impost”’ or “‘duty.”’

Hooven I held that a nondiscriminatory state ad valorem

personal property tax could not be imposed within the

strictures of the Import-Export Clause until such goods

lost their status as imports by being removed from their

original packages. Clearly, this holding is in direct con-

flict with Michelin’s holding that such a tax was not an

‘“‘impost” or “duty” and was therefore not prohibited by

the Import-Export Clause regardless of whether the goods

upon which such tax was levied had lost their status as

imports. Because of this direct conflict between Michelin

and Hooven I, the latter case has unquestionably been

overruled in principle by Michelin and the Ohio Supreme

Court’s finding that Hooven J remains currently valid was

clearly erroneous.

Affirmance of the decision below would effect a resur-

rection of the “original package” doctrine and would result

in preferential treatment being accorded to manufacturers

12

who use imported rather than domestic raw materials. It

will allow such manufacturers to avoid paying their fair

share for the services provided by the state and require

local taxpayers to subsidize those services provided to

those manufacturers. Michelin expressly stated that the

Import-Export Clause could not be read in such a manner

as to allow such preferential treatment.

Il. At the very least, Michelin effected a change in the

controlling legal principle upon which Hooven J was based,

the “original package” doctrine, and under this Court’s

decision in Commissioner v. Sunnen, 333 U.S.591(1948),

Hooven I was no longer conclusive and the doctrine of

collateral estoppel was rendered inapplicable. In Sunnen,

this Court held that collateral estoppel is not applicable

where there has been a modification or change in the con-

trolling lega’ principles effected by an intervening decision

of this Court. This limitation on the applicability of col-

lateral estoppel is particularly compelling in the instant

case because Michelin did more than modify or change

the “original package”’ doctrine, it specifically repudiated

that doctrine.

In its decision below, the Ohio Supreme Court failed

to properly apply this Court’s decision in Sunnen, even

though it apparently recognized that Michelin had repudi-

ated the “original package”’ doctrine. This failure to follow

the dictates of Sunnen will lead to the very tax inequality

which Sunnen’s admonitions were designed to avoid. Hoo-

ven & Allison Company will be forever immune from tax-

ation on its imported goods because of a decision based

upon a now repudiated legal doctrine while all other tax-

payers’ liability will be determined upon the basis of the

fundamentally different approach adopted by Michelin.

Such a result should not be countenanced by this Court.

13

ARGUMENT

I. Ohio’s Assessment of its Nondiscriminatory Ad Valo-

rem Property Tax Against Imported Goods No Longer

in Transit and Held in Ohio for Use in Manufacture Is

Not Within the Prohibition of the Import-Export

Clause Against the Laying by States of ‘‘any Imposts

or Duties on Imports.”

In 1976, this Court issued an historic decision, Michelin

Tire Corp. v. Wages, 423 US. 276, which repudiated a

century-old doctrine, the “original package” doctrine, and

completely changed the legal analysis to be applied in Im-

port-Export Clause cases. Michelin held that the Import-

Export Clause prohibited only the imposition of “Imposts

and Duties on Imports” and that a state nondiscriminatory

ad valorem property tax was not such an exaction and was

not therefore prohibited by the Import-Export Clause.

The decision of the Ohio Supreme Court that the Tax

Commissioner of Ohio was collaterally estopped from as-

sessing Ohio’s ad valorem property tax against respondent’s

imported raw materials was apparently based upon its hold-

ing that the decision of this Court in Hooven & Allison Co.

v. Evatt, 324 U.S. 652 (1945)(Hooven I), in which such

goods were held to be immune from that tax under the

“original package” doctrine, was of continued vitality

subsequent to this Court’s decision in Michelin. That

holding is in direct conflict with the Michelin decision.

For over a century following this Court’s decision in

Low v. Austin, 13 Wall. 29 (1872), wherein the “origi-

nal package "doctrine was spawned, the Import-Export

Clause was viewed as a broad prohibition against all taxes

on imports. Washington Revenue Dept. v. Association of

Washington Stevedoring Cos., 435 U.S. 734, 752 (1978);

P. Hartman, Federal Limitations on State and Local Tax-

ation § 5:2, at 192-193, § 5:4, at 199; W. Hellerstein, State

14

Taxation and the Supreme Court: Toward a More Unified

Approach to Constitutional Adjudication?, 75 Mich. L.

Rev. 1426 (1977). The primary consideration in such cases

was whether the challenged tax reached imports; the ques-

tion to be decided was whether the goods had lost their

status as imports. Washington Revenue Dept v. Association

of Washington Stevedoring Cos., supra, at 752, 760. Until

Michelin, imported goods retained their status as imports

so long as they remained in their original packages, and as

imports they were considered to be immune from all forms

of state taxation under the Import-Export Clause.

In Michelin, this Court expressly overruled Low v. Aus-

tin, supra, and abandoned the century-old “original pack-

age” doctrine along with the concept that the Import-Ex-

port Clause constituted a broad prohibition against all

forms of state taxation which fall upon imports. 423 US.,

at 279, 290 and 301; Washington Revenue Dept. v. Associ-

ation of Washington Stevedoring Cos., supra, at 760; P.

Hartman, supra, § 5:4 at 198-199; W. Hellerstein, supra,

at 1429-1430.

This abandonment constituted an historic break from

the controlling legal principles upon which the determina-

tions regarding the application of the Import-Export Clause

had been based. Michelin adopted a fundamentally differ-

ent approach to Import-Export Clause cases. Rather than

looking at whether the goods had lost their status as im-

ports, the Court focused upon the nature of the tax being

challenged to ascertain whether it was an “‘Impost or Duty”

forbidden by the Import-Export Clause. Washington Reve-

nue Dept. v. Association of Washington Stevedoring Cos.,

supra, at 752; P. Hartman, supra, at § 5:4, at 198-199;

W. Hellerstein, sre, at 1429-1430.

The Michelin Court looked to the purposes behind the

inclusion of the Import-Export Clause in the Constitution

15

and determined that nondiscriminatory state ad valorem

property taxes were not the type of exactions the Framers

of the Constitution considered as creating the three main

concerns or evils the clause was intended to eliminate:

Our independent study persuades us that a non-

discriminatory ad valorem property tax is not the

type of state exaction which the Framers of the Con-

stitution or the Court in Brown had in mind as being

an “‘impost” or “duty” and that Low v. Austin’s reli-

ance upon the Brown dictum to reach the contrary

conclusion was misplaced.

423 US.., at 283.

The Michelin Court’s overruling of Low v. Austin, supra,

was based upon a cogent historical analysis of the original

purpose and scope of the Import-Export Clause. This analy-

sis focused on whether a nondiscriminatory ad valorem

property tax would impair any of the three main objectives

of the Framers:

[T]he Federal Government must speak with one voice

when regulating commercial relations with foreign

governments, and tariffs, which might affect foreign

relations, could not be implemented by the States

consistently with that exclusive power; import reve-

nues were to be the major source of revenue of the

Federal Government and should not be diverted to

the States; and harmony among the States might be

disturbed unless seaboard States, with their crucial

ports of entry, were prohibited from levying taxes on

citizens of other States by taxing goods merely flow-

ing through their ports to the inland States not situ-

ated as favorably geographically.

423 US.., at 285-286.

(footnotes omitted)

16

Determining that such a tax would offend none of these

objectives, the Court concluded that ‘‘[n]othing in the his-

tory of the Import-Export Clause even remotely suggests

that a nondiscriminatory ad valorem property tax which

is also imposed on imported goods that are no longer in

import transit was the type of exaction that was regarded

as objectionable by the Framers of the Constitution.” Jd.,

at 286. Having held that the prohibition of the Import-

Export Clause was only against the laying of ‘‘Imposts or

Duties,” and that a nondiscriminatory state ad valorem

property tax was not such an exaction, the Court held

that irrespective of whether the tires had lost their status

as imports, Georgia’s assessment of its nondiscriminatory

ad valorem property tax against the imported tires was

not prohibited by the Import-Export Clause.

Although the Michelin Court expressly overruled only

Low v. Austin, which it considered to be the leading

decision applying the “original package” doctrine (423

U.S. at 282), its decision implicitly overruled all of the

cases decided subsequent to Low v. Austin which applied

the rationale of that case and unquestionably changed the

controlling legal principles applicable in Import-Export

Clause cases. Among such cases applying the “original

package” analysis of Low v. Austin was Hooven IJ. This is

clearly evidenced by a review of the following statement

in Hooven I.:

Although one Justice dissented in Brown v. Mary-

land, supra, from that day to this, this Court has

held, without a dissenting voice, that things imported

are imports entitled to the immunity conferred by the

Constitution; that that immunity survives their arrival

in this country and continues until they are sold, re-

moved from the original package, or put to the use

for which they are imported. Waring v. The Mayor,

17

supra, 122-123; Low v. Austin, 13 Wall. 29, 32-33;

Cook v. Pennsylvania, 97 U.S. 566, 573; May v. New

Orleans, 178 U.S. 496, 501,507-508; Burke v. Wells,

208 U.S. 14, 21-22, 24; Gulf Fisheries Co. v. McIn-

erney, 276 US. 124, 126-127; McGoldrick v. Gulf

Oil Corp., 309 U.S. 414, 423.

324 US., at 657.

While it is true that Hooven I relied on language in

Brown v. Maryland, 12 Wheat. 419 (1827), a review of

Low and Hooven I reveals that both decisions relied on

the same language of Brown>The following language from

Brown was relied on by Low (13 Wall., at 33) and by

Hooven I (324 US., at 657 and 665):

[B]jut while remaining the |property of the importer,

in his warehouse, in the a form or package in

which it was imported, a fax upon it is too plainly a

duty on imports, to éScape the prohibition in the

constitution.

12 Wheat., at 442.

Both Low (13 Wall.,at 34) and Hooven J (324 US.., at

666) also quoted and relied on the following language

from The License Cases, 5 How. 504, 575 (1847):

Indeed, goods imported, while they remain in the

hands of the importer, in the form and shape in which

they were brought into the country, can in no just

sense be regarded as a part of that mass of property

in the state usually taxed for the support of the

state government.

Low and Hooven I both read the above language from

Brown and The License Cases as prohibiting a tax in any

form on imported goods held in their original package.

Therefore, if Low had misread the opinions in Brown and

The License Cases, as the Michelin Court expressly found

18

(423 US., at 282-283 and 299-301) so did Hooven IJ, and

its holding based thereon is no more currently valid than

the expressly overruled decision in Low.

However, in its decision below, the Ohio Supreme Court

held that Michelin had neither implicitly overruled Hoo-

ven I nor altered the legal principles upon which that de-

cision was based. The Court expressly found that Hooven J

retained its vitality even subsequent to Michelin and, based

on that finding, rejected the Tax Commissioner’s argument

based on Commissioner v. Sunnen, 333 U.S. 591 (1948),

that Michelin eviscerated the collateral estoppel effect of

Hooven J. The Ohio Supreme Court’s reasoning in its at-

tempt to distinguish Michelin and Hooven I reveals the

Court’s basic misunderstanding of this Court’s decision

in Michelin. The Ohio Supreme Court distinguished the

two cases based on the factual distinctiveness of the goods

involved and their status as imports and the language re-

garding Hooven I contained in this Court’s decision in

Youngstown Sheet & Tube Co. v. Bowers, and United

States Plywood Corp. v. Algoma, 358 US. 534 (1959), a

decision which was rendered prior to Michelin and which

was based upon the “current operational needs ’’ doctrine

which was merely another test formalized to determine

whether the goods at issue had lost their status as imports.

This attempt to distinguish Michelin because it involved

imported goods held for resale is inconsistent with the

holding in Hooven I that whether the imported goods

were held for resale or for use in manufacturing was not

relevant to a determination of their immunity from taxa-

tion under the Import-Export Clause. 324 US., at 667-668.

The reasoning of the Ohio Supreme Court in its decision

below is particularly curious when viewed from the per-

spective of the history of Hooven I. In its consideration

of the applicability of the Import-Export Clause in Hoo-

ven I (142 Ohio St. 235, 51 N.E. 2d 723 (1943) ), that

19

Court held that the “original package” rule applied only

to imports held for resale and not to imported goods held

for use in manufacturing and upheld the imposition of

Ohio’s ad valorem property tax on such goods.

This Court rejected this distinction, stating that “we

see no practical reason for abandoning the test [ original

package] which has been applied for more than acentury,

or why, if we are to retain it in the case of imports for sale,

we should reject it in the case of imports for manufacture.”

324 US., at 668.

More importantly, the Ohio Supreme Court’s attempt to

distinguish the two cases ignores the fundamentally dif-

ferent approach to Import-Export Clause cases initiated

by this Court in Michelin.Whether the goods had lost their

status as imports was the specific inquiry abandoned by

Michelin; the Court expressly refrained from addressing

that question because the relevant inquiry was no longer

the nature of the goods but the nature of the tax at issue.

Washington Revenue Dept. v. Association of Washington

Stevedoring Cos., supra, at 752, 760.

Professor Walter Hellerstein, author of numerous articles

concerning constitutional limitations on state taxation,

also recognized the significance of Michelin:

[B}ut its opinion in Michelin marks a fundamental re-

examination of the purpose and scope of the import-

export clause’s prohibition against state taxation of

imports. In contrast to its past decisions in this area,

which were often characterized by a mechanistic ap-

plication of Marshall’s “original package”’ language in

Brown v. Maryland to determine whether the goods

under consideration had ceased to be “imports”?!

the Court’s opinion explicitly refrained from address-

ing the question whether Michelin’s tires had lost their

status as imports. Rather, the court focused upon

20

the nature of the exaction at issue, to ascertain wheth-

er it constituted a forbidden “impost” or “duty.”

31 See, e.g., Hooven & Allison Co. v. Evatt, 324 US.

652, 664-665 (1945).

W. Hellerstein, State Taxation and the Supreme

Court: Toward a More Unified Approach to Con-

stitutional Adjudication?, 75 Mich. L. Rev. 1426

at 1429-1430 (1977).

Under “the central holding of Michelin that the absolute

ban is only of ‘Imposts or Duties’ and not of all taxes,”

Washington Revenue Dept. v. Association of Washington

Stevedoring Cos., supra, at 759, the relevant inquiry is

whether the tax at issue constitutes a prohibited “Impost”

or “Duty.” If the challenged tax is determined notto be an

‘“Impost”’ or ““Duty,”’ it will not offend the Import-Export

Clause even if the goods have not lost their status as im-

ports.

Therefore, Hooven I may properly be distinguished from

Michelin only if the nature of the taxes at issue in the two

cases differed. In Michelin, this Court held that a nondis-

crim -atory state ad valorem property tax was not an

“Impost” or ‘‘Duty” and therefore was not barred by the

Import-Export Clause. 423 U.S., at 283. In Hooven I, the

Court held that a nondiscriminatory state ad valorem pro-

perty tax could not be assessed against imported goods so

long as those goods retained their status as imports. It can-

not be disputed that the taxes at issue in Michelin and

Hooven I were of the very same type. The only relevant

distinction between the two cases is the fact that Hooven I

invoked the “‘original package’’ doctrine of Low v. Austin

in holding that Ohio could not levy its nondiscriminatory

ad valorem property tax upon imported goods until they

lost theif status as imports and that this Court repudiated

21

the “‘original package’’ doctrine in Michelin. However,

rather than supporting the Ohio Supreme Court’s finding

that Hooven I is of continued vitality, this distinction

conclusively establishes that Hooven J retains no more

validity than did the decision formalizing the “original

package” doctrine, Low v. Austin, which was expressly

overruled in Michelin.

The Ohio Supreme Court’s holding below that petitioner

was collaterally estopped by Hooven J from assessing Ohio’s

nondiscriminatory ad valorem personal property tax against

respondent’s imported raw materials held for use in manu-

facture necessarily adopted the legal principle upon which

Hooven I was based, the “original package”’ doctrine. Be-

cause the opinion below resurrects the “original package”

doctrine expressly repudiated in Michelin, it is in direct

conflict with Michelin. This attempt to resurrect the “origi-

nal package”’ doctrine after its burial in Michelin must be

rejected, just as this Court rejected such an attempt in

Washington Revenue Dept. v. Association of Washington

Stevedoring Cos., supra, at 760.

There is no logical or legal justification which would

support a retention of the “‘original package” doctrine in

cases involving imported manufacturing inventory while

applying the fundamentally different analysis of Michelin

in cases involving imported goods held for resale. The rea-

soning underlying Michelin’s abandoment of the “‘original

package” doctrine is just as compelling with respect to im-

ported manufacturing inventory as it is to imported goods

held for resale. If anondiscriminatory ad valorem property

tax is not an “impost”’ or “duty,” as Michelin specifically

held, it is not within the strictures of the Import-Export

Clause regardless of the type of imported goods upon

which it is sought to be imposed.

Furthermore, to allow manufacturers who use imported

raw materials to retain their immunity under the “original

22

package”’ doctrine and thus avoid contributing their share

of the state’s cost of providing its various services to all

those within its borders would accord such manufacturers

preferential treatment resulting in an unfair competitive

advantage over manufacturers who use domestic raw mate-

rials. The Michelin Court held that the Import-Export

Clause could not be read to allow such an unjust result:

The Import-Export Clause clearly prohibits state

taxation based on the foreign origin of the im-

ported goods, but it cannot be read to accord

imported goods preferential treatment that per-

mits escape from uniform taxes imposed without

regard to foreign origin for services which the

State supplies.

423 US., at 287.

Simply stated, the Import-Export Clause prohibits state

exactions discriminating against imports by reason of their

origin, but it was not intended to provide a commercial

advantage to those using imported goods by immunizing

those goods from a state nondiscriminatory ad valorem

property tax.

II Michelin Tire Corp. v. Wages Repudiated the Legal

Principle upon Which Hooven I was Based, Thereby

Rendering the Doctrine of Collateral Estoppel In-

applicable to the Tax Assessment at Issue.

In its decision holding that the Tax Commissioner of

Ohio was collaterally estopped by Hooven I from assessing

respondent’s imported raw materials held for use in

manufacture, the Ohio Supreme Court failed to properly

apply this Court’s decision in Commissioner v. Sunnen,

333 U.S. 591 (1948).

In Sunnen, this Court detailed at length the limitations

on the applicability of the doctrine of collateral estoppel

23

in tax litigation and the rationale for such limitations.

But collateral estoppel is a doctrine capable of be-

ing applied so as to avoid an undue disparity in the

impact of income tax liability. A taxpayer may secure

a judicial determination of a particular tax matter,

a matter which may recur without substantial vari-

ation for some years thereafter. But a subsequent

modification of the significant facts or a change or

development in the controlling legal principles may

make that determination obsolete or erroneous, at

least for future purposes. If such a determination is

then perpetuated each succeeding year as to the tax-

payer involved in the original litigation, he is accorded

a tax treatment different from that given to other

taxpayers of the same class. As a result, there are in-

equalities in the administration of the revenue laws,

discriminatory distinctions in tax liability, and a fer-

tile basis for litigious confusion. (citation omitted)

Such consequences, however, are neither necessitated

nor justified by the principle of collateral estoppel.

That principle is designed to prevent repetitious law-

suits over matters which have once been decided and

which have remained substantially static, factually

and legally. It is not meant to create vested rights in

decisions that have become obsolete or erroneous

with time, thereby causing inequities among tax-

payers.

And so where two cases involve income taxes in

different taxable years, collateral estoppel must be

used with its limitations carefully in mind so as to

avoid injustice. Jt must be confined to situations

where the matter raised in the second suit is identical

in all respects with that decided in the first proceeding

and where the controlling facts and applicable legal

rules remain unchanged.

24

333 US., at 599-600.

(Emphasis supplied)

The Court noted that a decision of this Court intervening

between the two proceedings ‘“‘may so change the legal

atmosphere as to render the rule of collateral estoppel

inapplicable.” Jd., at 600.

The rationale for such a limitation on the application of

collateral estoppel is obvious and compelling. The effect

of applying the doctrine where there has been a change in

the controlling legal principles would be to petrify the law

as to taxpayers who won or lost on the basis of antiquated

and rejected legal principles while the liability of taxpayers

who had not sought legal redress would be determined on

the basis of the current legal principles. Jd.,at 599; Mon-

tana v. United States, 440 US. 147, 161(1979);1B Moore’s

Federal Practice § 0.422 at 3402, §0.422[5] at 3451. Such

disparate treatment of taxpayers in the same class would

result in basic tax inequality, a result which cannot justly

be allowed by blind reliance on the doctrine of collateral

estoppel.

The limitation on the doctrine of collateral estoppel

espoused in Sunnen is particularly applicable in this case.

Although the opinion below does not clearly and defini-

tively articulate the precise reason for not limiting the

application of collateral estoppel', the effect of the deci-

1 As an example, while the Ohio Supreme Court apparent-

ly acknowledged that Michelin repudiated the “original

package”’ doctrine, at n.1 of its Opinion (Pet. App. A-6),

which indicates that it recognized that Michelin had

changed the controlling legal principles in Import-Export

Clause cases, its finding that Hooven I was of continued

vitality subsequent to Michelin runs counter to that in-

dication.

25

sion is clear. It will result in “inequalities in the adminis-

tration of the revenue laws, discriminatory distinctions in

tax liability, and a fertile basis for litigious confusion,’ the

avoidance of which was the fundamental reason for the

limitation on the doctrine of collateral estoppel enunci-

ated in Sunnen, 333 US. at 599.

If left standing, the Ohio Supreme Court’s decision bar-

ring the Tax Commissioner from assessing Ohio’s nondis-

criminatory ad valorem property tax against respondent’s

imported raw materials will result in respondent avoiding

forever the tax on its imported raw materials inventory

because of a prior decision, Hooven J, which was based on

a now repudiated legal principle, the “original package”

doctrine, while all other taxpayers would be subject to

that tax on their imported raw materials inventory under

the fundamentally different legal principles enunciated in

Michelin?. Respondent alone would be perpetually im-

mune from such taxation, while all other taxpayers would

subsidize the services and benefits provided by Ohio to

this one taxpayer. Respondent would be accorded a dis-

tinct competitive advantage over other manufacturers, a

result directly contrary to the admonition in Sunnen that

collateral estoppel is not to be blindly applied where, be-

cause of an intervening change in the controlling legal

principles, to do so would cause tax inequality.

Because application of the doctrine of collateral estop-

pel based on Hooven I would result ina discriminatory ap-

plication of the tax laws, the Ohio Supreme Court should

have followed this Court’s decision in Sunnen and held that

? Petitioner’s argument that Michelin changed the control-

ling legal principle upon which Hooven I was decided,

the ‘‘original package”’ doctrine, is fully addressed in the

immediately preceding part of this Brief.

26

Hooven I was no longer conclusive as a result of Michelin’s

repudiation of the “‘original package”’ doctrine, the legal

principle upon which Hooven I was based.

27

CONCLUSION

For the reasons set forth in the foregoing brief, the

judgment of the Supreme Court of Ohio should be re-

versed.

Respectfully submitted,

ANTHONY J. CELEBREZZE, JR.

Attorney General of Ohio

RICHARD C. FARRIN

Counsel of Record

Assistant Attorney General

State Office Tower, 16th Floor

30 East Broad Street

Columbus, Ohio 43215

(614) 466-3142

ATTORNEYS FOR PETITIONER

28

CERTIFICATE OF SERVICE

I hereby certify that the requisite number of copies of

the foregoing Brief for the Petitioner have been served on

the respondent by forwarding such copies to Michael A.

Nims, Kenneth E. Updegraft, Jr., and Charles H.Mollenberg,

Jr., Jones, Day, Reavis & Pogue, 1700 Union Commerce

Building, Cleveland, Ohio 44115, counsel for respondent,

by United States mail, postpaid, this 16th day of No-

vember, 1983. I further certify that all parties required to

be served have been served.

RICHARD C. FARRIN

Assistant Attorney General