Petitioners Reply Brief — Limbach v. Hooven & Allison Co.

Oftice - Supreme Court, U.S.

FILED

FEB 15 1984

No. 83-96 ALEXANDER L. STEVAS

CLERK

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

REPLY 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

ARGUMENT

I.

II.

TABLE OF CONTENTS

THIS COURT’S DECISION IN MICHELIN REN—

DERS INAPPLICABLE THE DOCTRINE OF

COLLATERAL ESTOPPEL BASED ON HOO—

THE IMPOSITION OF OHIO’S NONDISCRIM—

INATORY AD VALOREM PROPERTY TAX ON

IMPORTED GOODS NO LONGER IN TRANSIT

AND HELD IN THAT STATE FOR USE IN

MANUFACTURE IS NOT PROHIBITED BY

THE IMPORT—EXPORT CLAUSE OR THE

THE COMMERCE CLAUSE OF THE UNITED

STATES CONSTITUTION .... pc cccccccccecs

A. Imposition of Ohio’s Nondiscriminatory Ad

Valorem Property Tax Would Not Result In

International Multiple Taxation ...........

B. Imposition of Ohio’s Nondiscriminatory Ad

Page

Valorem Property Tax Would Not Conflict with

Federal Regulation of Foreign Commerce... .15

C. Imposition of Ohio’s Nondiscriminatory Ad

Valorem Property Tax Would Not Create In-

terstate Commercial Conflict..............

NONE a4 Dhey ee naen eb alkeaehep ee CSN a eard

TABLE OF AUTHORITIES

Page

Boston Stock Exchange v. State Tax Com.,

MS! AA TURE REE ha hk oc eh Ree ee Cen 19

Central R. Co. of Pa. v. Pennsylvania, 370 US.

re SD ee ieo ra Sure Weare ate 6 aie een ele an tae 9,13

Commissioner v. Sunnen,

Se Cle Oe CEENN ss esi cekewey ee en was 1,2, 3,4,6

Container Corp. of America v. Franchise Tax

Board, 103.S. Ct. 2933 (1983) ............ 6,12,16,17

Curry v. McCanlass, 307 U.S. 357 (1939) ........... 13

Exxon Corp. v. Wisconsin Dept. of Revenue,

Oe: SE CR hike dwn ce Pere eure men 14

Henneford v. Silas Mason Co.,

Be AL Ee CRs Kedah wens cee eeeeeene 11,14

Hooven & Allison Co. v. Evatt,

ee Ais ME IN ok o's onde nae ei seb orn passim

International Harvester v. Evatt,

Te REE so ic oak chee eae ewonanee 13

International Harvester Co. v. Dept. of

Freemary, Goa US. SEO TIGGER) oi vc ck ccc cc tentenn 11

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

GET UB. GES CRT eee va bt kis aecaes 5,6,10,11,12

Bowe. Astin, 15 Wee. Se CeeI es 66 vk ic cane x dveas 4

Michelin Tire Corp. v. Wages,

Se AL bs. cs ea ee madd cee news passim

Minnesota v. Blasius, 290 U.S. 1 (1933) ............ 11

Montana v. United States, 440 U.S. 147 (1979) ....... 3

ii

Northwestern States Portland Cement Co. v.

Minnesota, 358 U.S. 450 (1959)... .............. 9,14

Norton Co. v. Department of Revenue,

Ee wc ee he ss ccsncsorccces 9

Sonneborn Bros. v. Keeling, 262 U.S. 506 (1923)..... 11

Standard Pressed Steel Co. v. Washington Revenue

| a 14

Washington Revenue Dept. v. Association

of Washington Stevedoring Cos.,

UR Ree Te: | 6,9,12,13, 14,16

Western Live Stock v. Bureau of Revenue,

Ne ew eee ec cee ee 13

Wheeling Steel Corp. v. Fox, 298 U.S. 193 (1935) ... .13

CONSTITUTIONAL PROVISIONS

Article I, Section 10, clause 2,

United States Constitution,

eee passim

Article I, Section 8, clause 3,

United States Constitution, Commerce Clause ... passim

TEXTBOOKS

P. Hartman, Federal Limitations on State and Local

ES 6

J. Hellerstein, State Taxation €5.1 (1983) ......... 5,6

ili

PERIODICALS

W. Hellerstein, State Taxation and the Supreme

Court: Toward a More Unified Approach to

Constitutional Adjudication?, 75 Mich. L. Rev.

oS he y Ree py SEALE Cocaigrg Anka mele tau A Perc Eiadr AON, ea. 6

OTHER AUTHORITIES

OECD Model Convention For The Avoidance of

Double Taxation With Respect To Taxes On

Income And Capital, reprinted in 1 Tax Treaties

Cee eee Ca as Cs es cee ee esa ee ws 16,17

United Nations Model Double Taxation

Convention Between Developed And

Developing Countries, reprinted in 1 Tax

Teontiog COLA), CATE CRO) 0 ioe ch hice eke cwsas 17

iv

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

REPLY BRIEF FOR THE PETITIONER

ARGUMENT

I. THIS COURT’S DECISION IN MICHELIN RENDERS

INAPPLICABLE THE DOCTRINE OF COLLATER—

AL ESTOPPEL BASED ON HOOVEN 1.

Respondent has misstated both the Tax Commissioner’s

argument and the holding of this Court in Commissioner

uv. Sunnen, 333 U.S. 591 (1948). Respondent initially states

2

that the Tax Commissioner argued only that Michelin Tire

Corp. v. Wages, 423 U.S. 276 (1976) overruled Hooven &

Allison Co. v. Evatt, 324 U.S. 652 (1945) (Hooven J) as a

matter of law. Brief for Respondent, at 10.

This statement is inaccurate in two ways. First, the Tax

Commissioner’s initial contention is that because Michelin

repudiated the “original package’’ doctrine it overruled in

principle all of the cases which were based upon that doc-

trine and that Hooven J was one of those cases. Second,

this is not the Tax Commissioner’s only contention, as

respondent recognizes by its attack on the Tax Com-

missioner’s reliance on Commisioner v. Sunnen. As a

review of the Tax Commissioner’s second argument in

her Brief for the Petitioner clearly reveals, the Tax Com-

missioner has contended that even if Michelin is not view-

ed as overruling Hooven J in principle it did effect a change

in the controlling legal principle upon which Hooven J was

based and under the limitations enunciated in Sunnen the

Ohio Supreme Court improperly applied collateral estop-

pel based upon Hooven I to the assessment at issue.

Respondent also misstates the Tax Commissioner’s

argument regarding the limitation on the doctrine of col-

lateral estoppel. Respondent states that ‘tthe Tax Com-

missioner has contended, that every change in the legal

atmosphere surrounding a prior decision of this Court

empowers an inferior tribunal to ignore the collateral

estoppel effect of that decision.” Brief for Respondent,

at 11. That is not the Tax Commissioner’s contention.

The Tax Commissioner’s argument is that collateral es-

toppel is inapplicable where an intervening decision of

this Court (Michelin) has changed the controlling legal

principles upon which the prior decision (Hooven J) was

based.

This argument is based upon this Court’s decision in

Sunnen. Respondent argues that the Tax Commissioner

3

has read Sunnen much too broadly. The invalidity of

this argument is demonstrated by the fact that the Tax

Commissioner used the exact words of Sunnen in stating

her argument:

But a subsequent modification of the significant

facts or achange or development in the control-

ling legal principles may make that determi-

nation obsolete or erroneous, at least for future

purposes. (emphasis added) 333 U.S., at 599.

It is noteworthy that this is the very portion of Sunnen

cited to by respondent in support of its statement that

“(t]he decision in Sunnen stands for the accepted pro-

position that collateral estoppel does not operate in the

event of a major change in the controlling facts or a re-

versal in the applicable legal principles. Jd.[Sunnen] at

599.” Brief for Respondent, at 11. Respondent repeats

this inaccurate and misleading statement throughout its

argument, stating that collateral estoppel applies unless

the prior decision has been reversed or overruled. As the

above-quoted language of Sunnen clearly establishes, this

is not the holding of that case. At no point in Sunnen is it

even suggested that the application of collateral estoppel

is restricted only where the controlling legal principles

have been reversed or overruled. Rather, the decision ex-

pressly holds that the doctrine is inapplicable where there

has been a “change in the legal atmosphere” or a “‘modi-

fication or growth in legal principles as enunciated in

intervening decisions of this Court.’’ 333 U.S., at 600.

Moreover, contrary to respondent’s assertion, this is

the exact interpretation of the limitation on the doctrine

followed by this Court in Montana v. United States, 440

US., 147 (1979). As stated by the Montana Court, the

relevant inquiry is “whether controlling facts or legal

principle have changed significantly .. .”’ 440 US., at

4

155. The Court clearly adopted the holding of Sunnen

regarding the application of the doctrine. Jd, at 161. Just

as clearly, the Court did not hold or even imply, as re-

spondent suggests, that only a reversal or overruling of the

controlling legal principles would preclude application of

the doctrine.

Respondent argues that Michelin did not effect a change

in the controlling legal principles under which Hooven J

was decided. Respondent bases this argument upon the

fact that Michelin concerned the applicability of a non-

discriminatory state ad valorem tax to imported inventory

held for resale while Hooven J concerned the applicability

of such a tax to imported raw materials held for intended

use in manufacturing. Taxpayer’s argument is simply un-

founded. Hooven IJ did not depend on the fact that raw

material inventory was involved as opposed to inventory

held for resale. The basis of Hooven J was that the tax

challenged was attempted to be imposed upon imported

inventory held in its original package.

Hooven I expressly recognized that whether the import-

ed goods were held for resale or for use in manufacture

was not relevant to a determination of its immunity from

taxation under the Import-Export Clause:

We do not perceive upon what grounds it can

be thought that imports for manufacture lose

their character as imports any sooner or more

readily than imports for sale. 324 U.S., at 667.

Following the century-old “original package”’ test applied

to imported goods held for sale in Low v. Austin, 13 Wall.

29 (1872), Hooven I held that the same test prohibited

the imposition of a nondiscriminatory state ad valorem

5

property tax on imported raw materials held for use in

manufacturing.’

Michelin repudiated the “original package” doctrine

upon which Hooven | was based, thereby effecting a change

in the controlling legal principle of that decision and ren-

dering the rule of collateral estoppel based on Hooven J

inapplicable. Under the “original package”’ doctrine, the

Import-Export Clause was viewed as a broad prohibition

against all taxes on imported goods, including nondiscrimi-

natory state ad valorem property taxes. Michelin held that

the prohibition was only against the imposition of ‘‘im-

posts” and ‘“‘duties’’ and that a nondiscriminatory state

ad valorem property tax was neither an ‘‘impost’’ nor a

“duty” and was therefore not prohibited by the Import-

Export Clause.

While it is true, as respondent states, that Michelin did

not hold that all forms of nondiscriminatory state personal

property taxation are permitted, it did hold that all such

taxes applied to imported goods no longer in transit are

permitted under the Import-Export Clause. Respondent’s

reliance on Japan Line, Ltd. v. County of Los Angeles, 441

U.S. 434 (1979) as limiting the holding in Michelin is mis-

placed. Japan Line, Ltd, was not an Import-Export Clause

case; it struck down the imposition of California’s non-

discriminatory ad valorem property tax on Commerce

Clause grounds. Furthermore, the personal property in-

volved in Japan Line, Ltd., were foreign-owned and domi-

ciled instrumentalities of foreign commerce (cargo con-

tainers) which were only temporarily located in various

‘The Tax Commissioner’s argument that Hooven I was

based upon the “original package’’ doctrine formalized

in Low v. Austin is fully set forth in the Brief for the

Petitioner, at 16-20. J. Hellerstein, STATE TAXATION,

€5.2[1] at 179 (1983), further supports this argument.

6

California ports and were used exclusively in international

commerce. By their very nature, the cargo containers were

still in transit. This Court noted the narrow scope of the

question before it in Japan Line, Ltd., 441 US. at 444;

Container Corp. of America v. Franchise Tax Board, 103

S. Ct. 2933, 2952 n. 24 (1983).

Respondent’s statement that Hooven J and Michelin

reached different conclusions based on the divergent im-

pact of the taxes (Brief for Respondent, at 14) is spurious.

The result of Michelin differed from that in Hooven I be-

cause Michelin repudiated the legal principle upon which

Hooven I was based and applied a fundamentally different

legal analysis which focused on the nature of the tax rather

than on whether the goods upon which the tax was levied

had lost their status as imports. Washington Revenue Dept.

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

734, 752 and 758-760; P. Hartman, Federal Limitations

on State and Local Taxation § 5:4 at 198-199 (1981); J..

Hellerstein, State Taxation ©5.4 at 176-177 (1983); W.

Hellerstein, State Taxation and the Supreme Court: To-

ward a More Unified Approach to Constitutional Adjudi-

cation?, 75 Mich. L. Rev. 1426 (1977).

Because Michelin clearly repudiated the legal principle

upon which Hooven J was decided, the Ohio Supreme

Court erroneously applied the doctrine of collateral estop-

pel and failed to follow this Court’s decision in Sunnen.

7

II.THE IMPOSITION OF OHIO’S NONDISCRIMINA—

TORY AD VALOREM PROPERTY TAX ON IMPORT—

ED GOODS NO LONGER IN TRANSIT AND HELD

IN THAT STATE FOR USE IN MANUFACTURE IS

NOT PROHIBITED BY THE IMPORT—EXPORT

CLAUSE OF THE UNITED STATES CONSTITUTION.

Respondent begins its argument by correctly noting

that the only issue properly before this Court is whether

the Ohio Supreme Court correctly held that this Court’s

decision in Michelin did not preclude the application of

collateral estoppel based upon Hooven/ to the assessment

at issue.’ The only facts necessary to determine this issue

are that the taxes at issue in both Hooven J and Michelin

are of the exact type as that at issue in the present case -

a nondiscriminatory state ad valorem property tax - and

that the imported goods against which the assessment at

issue was attempted were no longer in transit.

While it may be necessary to consider the Import-Ex-

port Clause in determining the collateral estoppel issue,

the Commerce Clause has no relevance to the collateral

estoppel issue. Neither Hooven J nor Michelin even re-

motely involved the Commerce Clause. Similarly, in its

decision below, the Ohio Supreme Court placed no re-

? Repondent’s assertion that the collateral estoppel issue

is a state law question is unfounded. The decision upon

which collateral estoppel was applied by the Ohio Su-

preme Court was not a state court decision, but a decision

of this Court, Hooven IJ, dealing solely with a federal

constitutional issue, the Import-Export Clause. The de-

cision upon which the Tax Commissioner relied was also

a decision of this Court, Michelin, which also dealt solely

with the Import-Export Clause.

8

liance whatsoever on the Commerce Clause. That court

specifically refrained fron deciding the Commerce Clause

issue raised by respondent.

Although respondent had filed an appeal to the Ohio

Supreme Court from the Ohio Board of Tax Appeals

claiming that the Board had failed to determine the con-

stitutional issues it had raised at the Board, it did not file

a cross-petition with this Court from the Ohio Supreme

Court’s failure to determine those issues. It now seeks to

raise those issues in its brief.

The Tax Commissioner submits that those constitutional

issues, particularly the Commerce Clause issue, are not pro-

perly before this Court and urges the Court to so hold.’

The fact that these issues were not decided below and

that respondent did not cross-petition this Court to con-

sider them answers to respondent’s suggestion that the Tax

Commissioner was remiss in not addressing those issues.

Furthermore, respondent's statement that the Tax Com-

missioner has completely ignored the policies underlying

the Import-Export Clause enunciated in Michelin is un-

true. The Tax Commissioner specifically addressed these

policies in her discussion of the holding in Michelin. Brief

for the Petitioner, at 15-16.

With respect to the Commerce Clause issue the Tax Com-

missioner agrees with respondent’s statement that the re-

cord is barren of facts (Brief for Respondent, at 16), with

the exception of the following: the imported goods assess-

ed were no longer in transit; the imported goods were raw

* The Tax Commissioner would note to the Court that

the only Commerce Clause or Import-Export Clause issue

raised by the respondent in its appeal to the Board of Tax

Appeals was that imposition of the tax would impair the

federal government’s regulation of foreign trade. Pet.

App. A-17.

9

materials intended for use in manufacturing; and the tax

at issue is a nondiscriminatory state ad valorem property

tax which is imposed on all property used in business in

Ohio. However, the Tax Commissioner strongly contests

respondent's suggestion that the absence of evidence is

due to the Tax Commissioner’s failure.

Any lack of evidence is due solely to the failure of re-

spondent to present such evidence before the Ohio Board

of Tax Appeals. Respondent was the party contending

that its property was constitutionally immune from the

tax and therefore had the burden of establishing its im-

munity. Norton Co. v. Department of Rev., 340 US.

534, 537 (1951); Central R. Co. of Pa. v. Pennsylvania,

370 U.S. 607, 613 (1961); Northwestern States Portland

Cement Co. v. Minnesota, 358 U.S. 450, 463 (1959);

Washington Revenue Dept. v. Association of Washington

Stevedoring Cos., 435 U.S. 734, 750-751 (1978), Appar-

ently relying on its collateral estoppel attack, respondent

failed to make a factual record before the Board of Tax

Appeals on which to base its constitutional claims on

appeal. In fact, respondent waived its right to evidentiary

hearing before the Board. Pet. App. A-19.

Because any lack of factual support for respondent's

contention that its property is immune from the tax at

issue under the Commerce Clause or as violating three

policies of the Import-Export Clause, as enunciated in

Michelin, is due to respondent’s failure to present any

such evidence, its argument that this Court should not

decide this case because of the absence of such facts is

disingenious.

Assuming, arguendo, that this Court determines that

the constitutional issues raised by respondent, in addition

to the constitutional issue inherent in the collateral estop-

pel issue, are properly before it, the Tax Commissioner

will address those issues.

10

Respondent argues that the imposition of Ohio’s non-

discriminatory ad valorem property tax on its imported

raw material inventory would violate the Import-Export

Clause and the Commerce Clause of the United States

Constitution in three ways. The first violation alleged is

that imposition of such tax would subject respondent to

international multiple taxation. In support of this argu-

ment, respondent relies on Japan Lines, Ltd v. County of

Los Angeles, 441 U.S. 434 (1979). The other two grounds

on which respondent relies are identical to the three con-

cerns which the Framers of the Constitution sought to

alleviate by the inclusion of the Import-Export Clause in

the United States Constitution. Michelin Tire Corp. v.

Wages, 423 U.S. 276, 285-286 (1976).‘

A. Imposition of Ohio’sNondiscriminatory Ad Valorem

Property Tax Would Not Result In International

Multiple Taxation.

Respondent’s argument ignores a crucial fact which is

fatal to its argument. The property at issue herein has

clearly come to rest in Ohio. The tax was assessed only

on the imported raw material inventory stored by respond-

ent in a warehouse in its Xenia, Ohio plant. Pet. App. A-2,

A-12. This property remains in the warehouse until it is

used by respondent in the manufacture of cordage.

This Court reaffirmed a basic limitation on the scope

of the immunity provided by the Commerce Clause in

‘ Respondent's second ground apparently combines the

first and second concerns noted in Michelin. The only

argument advanced by respondent regarding the reduction

of tariff revenues is in a footnote to its argument that im-

position of the tax would conflict with federal regulation

of foreign commerce. Brief for Respondent, at 35 n. 19.

Respondent’s third ground does have some Commerce

Clause overlap.

11

Minnesota v. Blasius, 290 U.S. 1, 8 (1933):

But because there is a flow of interstate

commerce which is subject to the regulating

power of the Congress, it does not necessarily

follow that, in the absence of of a conflict with

the exercise of that power, a State may not lay

a nondiscriminatory tax upon property which,

although connected with that flow as a general

course of business, has come to rest and ac-

quired a situs within the State.

The Court noted that “[t]he ‘crucial question,’ in de-

termining whether the State’s taxing power may thus be

exerted, is that of ‘continuity of transport’ ”’. Jd., at 9.

Thus, over Commerce Clause objections, the Court held

as follows with respect to property no longer in transit:

Where property has come to rest within a

State, being held there at the pleasure of the

owner, for disposal or use, so that he may dis-

pose of it either within the state, or for shipment

elsewhere, as his interest dictates, it is deemed

to be a part of the general massof property with-

in the State and is thus subject to its taxing

power. /d., at 10.

Accord, Sonneborn Bros. v. Keeling, 262 U.S. 506, 508-

509 (1923); Henneford v. Silas Mason Co., 300 U.S. 577,

582 (1937); International Harvester Co. v. Dept. of Trea-

sury, 322 US. 340, 348 (1944) The instant case fits

squarely within the above holdings.

Furthermore, even assuming, arguendo, that the tax was

subject to the Commerce Clause strictures, respondent's

reliance on Japan Line Ltd. reveais a basic misconception

of the holding in that case. This Court specifically recog-

nized that the issue before it in Japan Line Ltd. was a

12

“narrow one, that is, whether instrumentalities of com-

merce that are owned, based and registered abroad and

that are used exclusively in international commerce, may

_ be subjected to apportioned ad valorem property taxation

by a State.’ 441 US., at 444 (footnote omitted).

This Court recognized that the two additional consider-

ations it applied in Japan Line Ltd. - the enhanced risk of

multiple taxation and the possibility that a state tax will

impair federal uniformity in an essential area - come into

play only “‘when a state seeks to tax the instrumentalities

of foreign commerce.” J/d., at 446. The Court recognized

that these considerations would not be applicable where

“No foreign business or vessel is taxed.” /d., at 449, n. 14,

quoting from Washington Revenue Dept., 435 US., at

754.

In Container Corp. of America v. Franchise Tax Board,

103 S. Ct. 2933 (1983), this Court reemphasized the nar-

rowness of its holding inJapan Line Ltd. and distinguished

that decision on a ground that is equally applicable in the

instant case:

The third difference between this case and Japan

Line is that the tax here falls, not on the foreign

owners of an instrumentality of foreign com-

merce, but on a corporation domiciled and head-

quartered in the United States. 103 S. Ct., at

2952.

The risk of multiple taxation was inherent in Japan

Line Ltd. because a foreign-owned and domiciled instru-

mentality of commerce was involved. The Court explained

the reason for the inherent risk:

Ii an instrumentality of commerce is domiciled

abroad, the country of domicile may have the

right, consistent with the custom of nations, to

13

impose a tax on its full value. If a State should

seek to tax the same instrumentality on an ap-

portioned basis, multiple taxation inevitably

results. 441 U.S., at 447.

Such a risk is not inherent or even possible in the in-

stant case. The property against which the tax was assessed

was imported raw material inventory which was no longer

in transit and had come to rest permanently in Ohio. The

only taxable situs of the property was Ohio. Because no

other state or country has the right or authority to impose

the same or a similar tax upon the property, no risk of

multiple taxation exists. Wheeling Steel Corp. v. Fox,

298 U.S. 193, 208-209 (1935): Curry v. McCanlass, 307

U.S. 357, 364 (1939).

In Western Live Stock v. Bureau of Revenue, 303 US.

250, 260 (1938), this Court recognized that a multiple

burden cannot occur when “[T ]he tax is not one which

in form or substance can be repeated by other states. . .”’

Accord, Washinton Revenue Dept., supra, at 746-747; Jn-

ternational Harvester Co. v. Evatt, 329 US. 416, 423

(1947).

Assuming, arguendo, that some of the exporting coun-

tries imposed levies on the exporting of property upon

which Ohio sought to impose its nondiscriminatory ad

valorem tax after it had come to rest in Ohio, such fact

would not result in multiple taxation. Multiple taxation

occurs only when more than one state or country levies

the same or similar tax on the same segment of the inter-

state transaction. As held by this Court in Central R. Co.

of Pa. v. Pennsylvania, 370 U.S. 607, 612 (1962):

It is only “multiple taxation of interstate oper-

ations,’ Standard Oil Co. v. Peck,342 US 382,

385, 96 L ed 427,430, 72S.Ct. 309, 26 ALR2d

1371, that offends the Commerce Clause. And

14

obviously multiple taxation is possible only if

there exists some jurisdiction, in addition to

the domicile of the taxpayer, which may con-

stitutionally impose an ad valorem tax.

Accord, Exxon Corp. v. Wisconsin Dept. of Revenue, 447

U.S. 207, 228, n. 12 (1980).

An export levy on the privilege of exporting goods out

of a country is vastly different from a nondiscriminatory

personal property tax imposed upon all property held for

use in business within a state after it has come to rest in

that state. The very basis of the Michelin decision was that

a state nondiscriminatory ad valorem property tax was

clearly not like a duty on imports or exports:

Unlike imposts and duties, which are essenti-

ally taxes on the commercial privilege of bring-

ing goods into a country, such property taxes

are taxes by which a State apportions the cost

of such services as police and fire protection

among the beneficiaries according to their re-

spective wealth;. ...423 U.S., at 287.

Respondent’s reliance on Henneford v. Silas Mason

Co., 300 U.S. 577 (1937) to support its assertion that

Ohio’s ad valorem tax is the practical equivalent of an

export levy is misplaced. In fact, Henneford directly

rejects such a contention. In that decision, this Court

explicitly held that a tariff and a tax on property after

importation had ended are two different and distinct

types of exactions. 300 US., at 586.

It was respondent’s burden to demonstrate that imposi-

tion of Ohio’s nondiscriminatory ad valorem property tax

will result in multiple taxation. Northwestern States Port-

land Cement Co. v. Minnesota, 358 U.S. 450, 463 (1959);

Standard Pressed Steel Co. v. Washington Revenue Dept.,

419 U.S. 560, 563 (1975); Washingtin Revenue Depart-

15

ment v. Association of Washington Stevedoring Cos., 435

U.S. 734, 750-751 (1978). Respondent has failed to meet

that burden. Respondent has failed to present any specific

evidence that its imported goods were subjected to the

same or similar taxes by any other taxing jurisdiction.’

Such a demonstration could not be made with respect to

the tax at issue because the property was permanently

sitused in Ohio and no other state or country had the

authority to impose an ad valorem tax on the goods.

B.Imposition of Ohio’s Nondiscriminatory Ad

Valorem Property Tax Would Not Conflict With

Federal Regulation of Foreign Commerce.

This Court’s decision in Michelin is controlling on this

question.’ This Court specifically held that nondiscrimina-

tory property taxation can have no effect whatsoever on

federal regulation of foreign commerce because such a tax

© The affidavit of John P. Buck fails to support respond-

ent’s multiple taxation assertion. Furthermore, it is not

a part of the record before this Court. The affidavit was

not presented into evidence at any stage of the proceed-

ings below - it was simply appended to respondent’s brief

filed with the Ohio Supreme Court. Respondent’s reliance

on Rule VIII, Section 7 of the Rules of Practice of the

Ohio Supreme Court ignores the fact that Rule VIII ap-

plies only to original actions and that it sets forth a pro-

cedure for the presentation of evidence. This case was

before that Court on appeal, not as an original action.

Additionally, the record will reveal no motion or pleading

by the respondent seeking the introduction of any addi-

tional evidence before that Court.

§ In Japan Line Ltd., this Court noted that the inquiry re-

garding the effect of a state tax on the federal government’s

regulation of foreign commerce is the same whether the

Import-Export Clause or the Foreign Commerce Clause

is involved. 441 U.S., at 449 n.14.

16

does not fall on imports by reason of their origin. This

Court noted that such a tax could not be used to create

special tariffs or to favor certain domestic goods or to

encourage or discourage importation of goods. 423 US.,

at 286. Accord, Washington Revenue Dept. v. Association

of Washington Stevedoring Cos., supra, at 753-754. The

reason that the tax cannot be used in such a manner is that

it applies to all property used in business in the state, re-

gardless of origin.

Respondent’s argument ignores the fact that the tax at

issue is imposed on the domestic manufacturer, not on the

foreign supplier.’ The price charged by the exporter will

not be affected by the tax because the exporter does not

pay the tax nor is it passed on to him by the buyer. The

tax is imposed on all imported goods and domestic goods

regardless of the source. Therefore, it cannot even con-

ceivably confer an advantage upon certain foreign or

domestic suppliers.

Because the tax is imposed on all property used in

business in Ohio regardless of its source, it cannot have

any effect on where a manufacturer chooses to obtain its

goods. This demonstrates the utter lack of foundation for

respondent’s argument that imposition of the tax could

nullify the effect of federal trade and tax concessions and

tariff preferences.

Respondent’s reliance on the Model Conventions? as an

indication of the need for federal uniformity is misplaced.

’ This Court found this factor to weigh against the possi-

bility of any retaliation by foreign trading partners. Con-

tainer Corp. of America v. Franchise Tax Board,103S.Ct.

2933, 2955-2956 (1983).

§ OECD Model Convention For The Avoidance of Double

Taxation With Respect To Taxes On Income And Capital,

Chapter II, Article 2, reprinted in 1 Tax Treaties (CCH),

17

Initially, the conventions are model ones, not ones entered

into by the United States. Second, even if the Model Con-

ventions indicated a federal policy, a review of each of

the Model Conventions reveals that property is taxed in

the state whereir © * property is sitused. Chapter IV, Art.

22 of each Modei‘ avention,1 Tax Treaties (CCH), € 151,

at 215, € 171, at 291. This is wholly consistent with Ohio’s

taxation of property held for business use within its bor-

ders.

This Court made it clear in Container Corp. of America

v. Franchise Tax Board, 103 S. Ct. 2933, 2955 (1983)

that absent an explicit directive from Congress it would

not infer that impositcn of a tax would violate the ‘‘one-

voice”’ standard unless the Court could determine that the

tax would directly implicate foreign policy issues which

must be left to the federal government. The three factors

relied on by this Court in Container Corp. in determining

whether retaliation was likely to result if the tax at issue

therein was imposed, 103 S. Ct., at 2955, 2956, weigh

even more heavily against such a possibility in the instant

case.

Respondent has failed to demonstrate how the tax

would implicate foreign policy or to cite a single federal

directive prohibiting imposition of the tax. It is sugges-

tive of the lack of any federal foreign policy implications

that the Executive Branch has chosen not to file an amicus

curiae brief in opposition to the tax. Jd., at 2956. Certainly,

if the federal government believed that its regulation of

foreign commerce was threatened by the imposition of

state ad valorem taxes on imported goods no longer in

€ 151, at 208 (1980); United Nations Model Double Tax-

ation Convention Between Developed and Developing

Countries, Chapter I, Article 2, reprinted in 1 Tax Treaties

(CCH), © 171, at 282 (1980).

18

transit, it would have taken some form of action to re-

move that threat in the now more than seven years since

this Court’s decision in Michelin.

In a footnote, respondent argues that imposition of

the tax would violate the second concern of the Import-

Export Clause recognized in Michelin, the federal govern-

ment’s exclusive right to all revenues from imposts and

duties. Brief for Respondent, at 35 n. 19. This argument

is directly refuted by this Court’s decision in Michelin.

This Court held that because a nondiscriminatory ad valo-

rem property tax is not an impost or duty on imports, the

federal government is deprived of nothing to which it is

entitled. 423 U.S., at 286-287. Respondent’s argument

that imposition of the tax on its imported goods would

indirectly reduce federal tariff revenues was speeifically

addressed in Michelin:

It may be that such taxation could diminish

federal impost revenues to the extent its eco-

nomic burden may discourage purchase or im-

portation of foreign goods. The prevention or

avoidance of this incidental effect was not, how-

ever, even remotely an objective of the Framers

in enacting the prohibition. /d., at 287.

C.Imposition of Ohio’s Nondiscriminatory Ad

Valorem Property Tax Would Not Create In-

terstate Commercial Conflict.

Respondent’s argument reveals a basic misconception

of the free flow of trade among the states aspects of the

Commerce Clause and the Import-Export Clause. As Mich-

elin noted, the Import-Export Clause was intended to pro-

hibit the seaboard states from imposing exactions which

were no more than transit fees on property passing through

those states. 423 U.S., at 285, 288-290. The Court held

that a nondiscriminatory ad valorem property tax stood

19

on a different footing and did not therefore violate the

Import-Export Clause, at least as imposed upon imported

goods no longer in transit. Jd., at 288-290.

The Commerce Clause prohibits a state from imposing

a taxing scheme which discriminates against interstate

commerce by providing a direct commercial advantage to

local business. Boston Stock Exchange v. State Tax Com.,

429 U.S. 318, 329 (1977). Clearly, Ohio’s personal pro-

perty tax provides no such advantage. It does not apply

only to goods held for use in business in Ohio which were

acquired from another state or country. It is imposed upon

all goods regardless of their source and is therefore non-

discriminatory.

Respondent argues that imposition of the tax will cause

interstate conflict because a manufacturer’s decision on

where to locate will be affected by whether a state im-

poses a property tax on raw materials and that states may

use this fact to lure manufacturers by structuring their tax

laws to alleviate this burden. This argument is directly re-

futed by this Court’s decision in Boston Stock Exchange:

Our decision today does not prevent the states

from structuring their tax systems to encourage

the growth and development of interstate com-

merce and industry. Nor do we hold that aState

may not compete with other states for a share

of interstate commerce; such competition lies

at the heart of a free trade policy. We hold only

that in the process of competition, no State may

discriminatorily tax a product manufactured or

the business operations performed in any other

State. (emphasis added). 429 U.S., at 336-337.

Because Ohio's personal property tax is imposed upon

all property held for use in business whether :it was ac-

quired in Ohio or elsewhere, it is not NNNRY and

cannot affect the free flow of trade.

20

CONCLUSION

For the reasons set forth in the foregoing brief, the

judgment of the Supreme Court of Ohio should be

reversed.

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

21

CERTIFICATE OF SERVICE

I hereby certify that the required number of copies of

the foregoing Reply Brief have been served on the respond-

ent by forwarding such copies to Michael A. Nims, Ken-

neth E. Updegraft, Jr., and Charles H. Mollenberg, Jr.,

Jones, Day, Reavis & Pogue, 1700 Union Commerce Build-

ing Cleveland, Ohio 44115, counsel for respondent, by

United States mail, postpaid, this day of February,

1984. I further certify that all parties required to be served

have been served.

RICHARD C. FARRIN

Assistant Attorney General

ans