Petition for Writ of Certiorari — Star-Kist Foods, Inc. v. County of Los Angeles
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ES NOV %4 \986
JOSEPH F. SPANIOL, JR.
CLERK
In the Supreme court
OF THE
United States
OCTOBER TERM, 1986
StTaR-KistT Foops, INc.,
a California corporation,
Petitioner,
VS.
COUNTY OF LOS ANGELES, CITY oF LoS ANGELES
AND CITY OF LONG BEACH,
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE SUPREME COURT OF THE
STATE OF CALIFORNIA
CHARLES R. AJALAT, ESQ.
643 SOUTH OLIVE STREET, SUITE 200
Los ANGELES, CALIFORNIA 90014
(213) 622-7400
Attorney for Petitioner.
TERRY L. POLLEY, ESQ.
RICHARD J. AYooB, ESqQ., AND
AJALAT & POLLEY, A Partnership
Including Professional Corporations
Of Counsel.
Bowne of Los Angeles, Inc., Law Printers. (213) BOWNE CO
QUESTIONS PRESENTED
1. Is the well-established rule that subordinate politi-
eal entities, as “creatures” of the state, may not challenge
state action, inapplicable to challenges by subordinate
political entities under the Commerce Clause of the
United States Constitution?
2. Did a state statute, valid when enacted, which
confirmed the immunity of certain imported goods from
state property taxation under the original package doc-
trine of Low v. Austin, 80 U.S. (13 Wall.) 29 (1872),
become unconstitutional as a regulation of foreign com-
merece immediately following this Court’s decision in
Michelin overruling Low v. Austin particularly when it is
consistent with the policies of the Import-Export and
Commerce Clauses favoring the free flow of commerce
and there.is no showing of interference with the federal
government’s ability to speak with one voice when regu-
lating commercial relations with foreign governments
under Japan Lines, Ltd. v. County of Los Angeles, 441 U.S.
434 (1979), and Container Corp. v. Franchise Tax Board,
463 U.S. 159 (1983)?
3. Unlike the situation which existed prior to Michelin
and the situation in Japan Lines, must state taxing stat-
utes subsequent to Michelin treat foreign commerce and
interstate commerce with meticulous equality?
4. Where there is no showing of an impermissible
burden on interstate commerce, there is no penalty or
disincentive on the choice to transact business in another
state, local interests are not favored, and the exemption is
available regardless of the residency of the shipper or the
out-of-state place of manufacture of the goods, is a State
prohibited from “ecompet[ing] with other States for a
share of interstate commerce” under Boston Stock Ex-
li
change v. State Tax Comm’n, 429 U.S. 318 (1977) and
Westinghouse Electric Corp. v. Tully, 466 U.S. 388 (1984)?
5. Is it sufficient to invalidate a state statute exempt-
ing certain imported goods from property taxation simply
to point out that a comparable exemption was not ac-
eorded goods brought into the state from other states
without any showing as to the extent of actual discrimina-
tion against interstate commerce, if any?
6. If the property tax exemption violates the Com-
merce Clause, particularly considering the fact that all
other California counties (57 of 58) granted the property
tax exemption, and this Court, without opinion, split 4-4,
should the doctrine be applied retroactively prior to
January 26, 1981, the time this Court issued a final
decision in Sears, affirming the doctrine of Zee Toys v.
County of Los Angeles, 85 Cal.App.3d 763 (1978)?
ili
TABLE OF CONTENTS
QUESTIONS PRESENTED ...................
ters d oan che sathasnenase es ex
PRIOR UNITED STATES SUPREME COURT
ACTION: SPLIT FOUR TO, FOUR PRECISELY
IED oes kS cb ecb eds cewssteenee
a ran 6 P66 6 in sb enecebes seuss
CONSTITUTIONAL PROVISIONS AND STAT-
ED oi SED 5 an 6 060 0 60060 ccs ee
STATEMENT OF THE CASE..................
STATEMENT OF REASONS FOR GRANTING
THE WRIT OF CERTIORARI ...............
ge ERY PE SP
There is Not an Exception, for Commerce Clause
Attacks, to the Well-Established Rule that
Subordinate Political Entities Cannot Chal-
lenge a Statute of Their Creator.............
Il.
The Statute Involved Does Not Result in an Inva-
lid Regulation of Foreign Commerce: It Was
Valid when Enacted, Michelin Did Not Invali-
date It, It Is Consistent with the Policies of the
Import-Export and Commerce Clauses, Favor-
ing the Free Flow of Commerce, and It Does
Not Interfere with the Ability of the Federal
Government to Speak with One Voice ........
Il.
State Taxing Statutes Should Not Be Required to
Treat Foreign Commerce and Interstate Com-
merece With Meticulous Equality.............
bho bk
wo Ww
14
14
18
iv
TABLE OF CONTENTS
Page
IV.
The Statute Involved Does Not Burden Interstate
Commerce Where There is no Showing of an
Impermissible Burden, no Penalty or Disincen-
tive on the Choice to Transact Business in
another State, Local Interests are not Favored
and the Exemption is Available Regardless of
the Resideney of the Shipper or the Out-of-
State Place of Manufacture of the Goods..... 22
V.
The Extent if Any of Actual Discrimination
Against Interstate Commerce Has Not Been
FO ye ee Eee POT EST TET eee 24
VI.
If States Could Not Facilitate the Free Flow of
Foreign Commerce, as the Statute Involved
Does, there Should Be a Grace Period of
Adjustment, and/or Such Doctrine Should Not
Be Applied Prior to the Affirmance by an
Equally Divided Court in Sears, January 26,
ieee Ana wee es Wis ban eae peas ea tous 25
INDEX TO APPENDICES
Appendix A. California Supreme Court Opinion.
Appendix RP. Brief for the Unitec States as Amicus
Curiae.
Appendix C. Court of Appeal Opinion.
Appendix D. List of Star-Kist Foods, Inc. Subsidiaries.
Vv
TABLE OF AUTHORITIES CITED
Cases
Page
Aldens, Inc. v. Ryan, 571 F.2d 1159 (10th Cir.
SED. bn bn eek cndrctee i trie 24
Allied Stores v. Bowers, 358 U.S. 522 (1959) ....8,11, 21
Bacon v. Illinois, 227 U.S. 504 (1913) ........... 24
Board of Education v. Allen (1968) 392 U.S. 236 17
Beston Stock Exchange v. State Tax Comm’n, 429
Ca See CEOs) accccees i, ii, 7, 9, 13, 16, 18 23, 25, 26
Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) .... 25
City of South Lake Tahoe v. California Tahoe
Regional Planning Agency, 625 F.2d 231, cert.
den., 449 U.S. 1039 (9th Cir. 1980) ........... 11,8
Complete Auto Transit v. Brady, 430 U.S. 274
(IOTE? cdc cdusewscidsaee ake eee 7, 8, 24
Container Corp. v. Franchise Tax Board, 463 U.S.
0D CORD ob eictnasceudecdacactaaaas i, 7, 8, 11, 20, 24
Japan Lines, Ltd. v. County of Los Angeles, 441 U.S.
rere PPro re ery pep st ree i, 8, 22
Low v. Austin, 80 U.S. (13 Wall.) 29 (1872) ..... i, 4,5
Michelin v. Wages, 423 U.S. 276 (1976) ......... passim
Richfield Oil Corp. v. State Board of Equalization,
Bik me Bt | Peer eer ver errr ere 24
Rogers v. Brockette, 588 F.2d 1057, cert. den., 444
US, GET Ces Ca See bcd es eeeckceevnueen 7, 15, 16
San Diego Unified Port Dist. v. Gianturco (S.D. Cal.
1978) 457 F.Supp. 283 aff’d., 651 F.2d 1306, cert.
Gen., Soe Ui Pe ae kee ckeeesusadéerdnens 7, 15, 16
vi
TABLE OF AUTHORITIES CITED
CASES
Page
Sears Roebuck & Co. v. County of Los Angeles, 85
Cal.App.3d 763 (1978) aff'd 449 U.S. 1119
CSUR) 4500005600ce0eleaeaeea 2, 6, 13, 18, 25, 26
Star-Kist Foods, Inc. v. County of Los Angeles,
CS Gin, GB Cane B CIGGSD vc cucecscsdvences 16, 20, 21
Volkswagen Pacific Inc. v. City of Los Angeles, 7
CE ee COED ho bcc cceneseerudiveceeen 4
Walter Fleisher Co., Inc. v. County of Los Angeles,
Ge Ces Ge REED 6a boa dadacatbenweaeerinle 2,6
Washington Rev. Dept. v. Stevedoring Assn., 435
Cie CO CRPTOD kaka cvdcndtssatuatacheniiee 24
Westinghouse Electric Corporation v. Tully, 466 U.S.
Saw CHOSE és ib vats vasewbeen ii, 3, 8, 9, 12, 16, 22, 23
Williams v. Mayor of Baltimore, 289 U.S. 36 (1933)
even eens s seen Ueubue ee eeneeeee 3, 7, 8, 14, 15, 17
Zee Toys v. County of Los Angeles, 85 Cal.App.3d
Van RReUO) h0006ccaccaenee ii, 6, 13, 17, 25, 26
Constitution
California Constitution, Article XIII............ 16
United States Constitution, Article 1, See. &,
CHD Sc v.c vceseewaawen cals eueeaaaeaeeeies 3
United States Constitution, Fourteenth Amend-
MOE ooccccncacctvcusabanwednensesdseensuuias 7,15
Statutes
California Revenue and Taxation Code, See. 225 passim
SS UA We. Seen os cunsaccescunvsaeanues 2
BO UDA. BOG, BSCE s6s4 car dncebacceneawass 17
In the Supreme Court
OF THE
United States
OCTOBER TERM, 1986
STarR-Kist Foops, INc.,
a California corporation,
Petitioner.
Vs.
COUNTY OF LOS ANGELES, CITY OF
Los ANGELES, City OF LONG BEACH
Respondents.
PETITION FOR WRIT OF CERTIORARI
TO THE SUPREME COURT OF THE
STATE OF CALIFORNIA
Petitioner Star-Kist Foods, Inc., a corporation’, re-
spectfully prays that a writ of certiorari issue to the
Supreme Court of the State of California, to review that
Court's decision holding (1) that Defendants County of
Los Angeles, City of Los Angeles and City of Long Beach
have standing to attack the constitutionality of a statute
of the State of California, and (2) that California Reve-
‘The parties to the proceeding in the California Supreme Court are
Petitioner, (Plaintiff and Appellant), Star-Kist Foods, Inc., a Cali-
fornia corporation, and Defendants and Respondents, County of Los
Angeles, City of Los Angeles, and City of Long Beach. Star-Kist
Foods, Inc. is a wholly-owned subsidiary of H. J. Heinz. The subsidi-
aries of Star-Kist Foods, Inc. are set forth in Appendix D.
2
nue and Taxation Code Section 225, providing for an
exemption from property taxation of imported goods
brought into the state for shipment outside the state, is
invalid on the grounds that such an exemption constitutes
a regulation of foreign commerce and a diserimination
against interstate commerce in contravention of the
United States Constitution.
OPINION BELOW
The opinion of the Supreme Court of California is
reported at 42 Cal.3d 1 (1986) and is set forth in
Appendix A, hereto.
PRIOR UNITED STATES SUPREME COURT
ACTION
The United States Supreme Court previously granted
certiorari on these two important issues, and affirmed
without opinion by an equally divided court, with
J. Stewart not participating. Sears, Roebuck and Co. v.
County of Los Angeles, 449 U.S. 1119 (1981), and Walter
Fleisher v. County of Los Angeles, 449 U.S. 608 (1981).
Contrary to the position of the Supreme Court of Califor-
nia in the instant ease, in Sears, the Solicitor Genemal
filed an amicus curiae brief recommending that the Cali-
fornia statute be held constitutional, and such brief is set
forth in Appendix B, hereto.
JURISDICTION
The decision of the Supreme Court of California to be
reviewed was entered on June 30, 1986, with a dissenting
opinion by Justice Lueas. A petition for rehearing was
denied on August 28, 1986 with Justice Lucas of the
opinion the petition should be granted.
The jurisdiction of this Court is invoked under 28
United States Code, Seetion 1257(3).
SO
3
This Court’s review by certiorari is sought on the
grounds that the California Supreme Court has deter-
mined novel and substantial questions arising under the
United States Constitution involving the application of
this Court’s decisions in Williams v. Mayor of Baltimore,
289 U.S. 36, 40 (1933), (“standing” issue), Westinghouse
Electric Corporation v. Tully, 466 U.S. 388, 406 fn. 12,
(1984), and Michelin v. Wages, 423 U.S. 276 (1976),
(“Commerce Clause” issue), to one of California’s tax
laws, and has decided them in a manner the petitioner
believes to be erroneous.
CONSTITUTIONAL PROVISIONS AND
STATUTES INVOLVED
1. Artiele I, Seetion 8, Clause 3 of the United States
Constitution: “Congress shall have the power to regulate
ecommerce with foreign nations and among the several
states.”
2. California Revenue and Taxation Code Section 225
reads in pertinent part: “Personal property manufactured
or produced, (1) outside this state and brought into this
state for transshipment out of the United States, or (2)
outside of the United States and brought into this state
for transshipment out of this state, for sale in the ordi-
nary course of trade or business shall be exempt from
taxation.”
STATEMENT OF THE CASE
Petitioner brought this suit for refund of ad valorem
personal property taxes paid under protest to the County
of Los Angeles, and the cities of Los Angeles, and Long
Beach.
Petitioner is a producer and seller of canned tuna. All
of the tuna involved herein was manufactured or pro-
4
duced outside the United States and had been imported
and held in warehouses in California on the tax lien date,
March 1, 1976, awaiting shipment out of state in the
ordinary course of petitioner’s business. All such goods
were in their original packages and would have been
Constitutionally immune from state taxation under the
original package doctrine of Low v. Austin, if that ease
had not been overruled by Michelin, decided in January,
1976.
In 1972, in Volkswagen Pacific Inc. v. City of Los
Angeles, 7 Cal.3d 48 (1972), the California Supreme
Court held that goods which were imported by a whole-
saler in sea vans and removed from the sea vans for sale.
and delivery to dealers were not immune from a city
license tax. Many county assessors erroneously inter-
preted the Volkswagen case as holding that all goods
imported in sea vans lost their immunity upon the open-
ing of the vans. The resulting assessments caused wide-
spread consternation among California importers many of
whom commenced diverting their imports from California
ports to ports in other states such as Oregon and Wash-
ington which have previously enacted “free port” laws.
Some 37 states at the time had such laws.
In an effort to prevent the diversion of imports from
California to other states having “free port’ laws, the
California legislative enacted its own free port law, Cali-
fornia Revenue and Taxation Code Section 225. Insofar
as relevant, it provides that goods produced outside the
United States and brought into California for shipment
and sale outside the state are exempt from property
taxation. The section was enacted in 1975 and became
effective January 1, 1976. Both the date of enactment and
the effective date preceded this Court’s decison in
Michelin.
)
The tax status of goods other than the imports de-
seribed in the preceding paragraph was not affected by
Section 225. Thus goods imported for sale or use in
California were, at the time the section was enacted,
either immune or taxable depending on whether or not
they met the requirements of the original package doc-
trine. Goods produced in the state and still in the state on
its tax date remained fully taxable regardless of whether
brought in for sale or use in, or for shipment and sale
outside, the state.
The Michelin case which overruled Low v. Austin,
thereby terminating the original package doctrine, was
decided in January, 1976. The state thus obtained juris-
diction for the first time in 105 years to tax imported
goods as fully as it coula tax goods produced locally or
brought in from other states. Goods imported for sale and
delivery in California thus became taxable. However,
Section 225 continued to provide an exemption for goods
imported into the state and held here temporarily for
subsequent shipment and sale outside the state. A similar
exemption was not accorded to goods brought into the
state from other states and held here temporarily for
subsequent shipment and sale outside the state.
Respondents, through the Assessor of Los Angeles
County, denied the claimed exemption. The other 57 of
California’s 58 counties followed the statute, granted its
taxpayers the exemption and such taxpayers have never
been assessed taxes as a result of the exemption having
been declared unconstitutional.
Los Angeles County asserted that Section 225 violates
the United States Constitution by regulating interstate
and foreign commerce in interfering with foreign affairs,
beeause it extended no exemption to interstate goods.
Petitioner thereupon paid the tax under protest and
6
instituted this action for refund in the Superior Court of
Los Angeles County.
The same issues were involved in three other cases in
the Los Angeles Superior Court, Zee Toys v. County of Los
Angeles, Sears, Roebuck v. County of Los Angeles, and
Walter Fleisher v. County of Los Angeles. The California
Superior Court upheld the validity of the tax exemption
in these cases but the California Court of Appeal re-
versed, holding that the county and cities had standing to
attack the state statute, but that Section 225 violated the
Commerce Clause because it regulated interstate and
foreign commerce. Zee Toys v. County of Los Angeles,
Sears Roebuck & Co. v. County of Los Angeles, 85
Cal.App.3d 763 (1978). By a four to three vote, (three
Justices dissenting), the Supreme Court of California
denied a petition for hearing.
A petition for certiorari in Sears was filed in this Court.
Upon this Court’s invitation, the Solicitor General filed an
amicus curiae brief and recommended that certiorari be
granted and that the statute be held constitutional under
the Commerce Clause. This Court granted certiorari in
the Sears and Walter Fleisher cases, but split four to four:
“The judgment is affirmed by an equally divided court.
Justice Stewart took no part in the consideration or
decision of this case.” 449 U.S. 119, 67 L.Ed.2d 106
(1981).
In the instant case, based upon Zee Toys, the Los
Angeles Superior Court held that the County and cities
had standing to attack the state statute, and that Section
225 was unconstitutional. The California Court of Appeal
reversed. (See Appendix C) While it held that the County
and cities had standing to attack the statute, it went on to
hold the statute was constitutional. The Supreme Court of
California granted a petition for hearing, holding con-
trary to the Court of Appeal and upholding the trial
7
eourt’s decision that the statute violated the Commerce
Clause.
The Supreme Court of California held that the well-
established ruie that subordinate political entities, as
“creatures” of the state, may not challenge state action,
Williams v. Mayor of Baltimore, 289 U.S. 36, 40 (1933)
applied under federal law only to challenges under the
Fourteenth Amendment or the contract clause of the
Federal Constitution and not to Commerce Clause chal-
lenges, notwithstanding the opinion of the Ninth Circuit
Court of Appeals to the contrary. City of South Lake Tahoe
v. California Tahoe Regional Planning Agency, 625 F.2d
231, cert. den., 449 U.S. 1039 (White, Marshall, JJ., dis.)
(9th Cir. 1980). The Court believed that a Fifth Cireuit
Court of Appeal decision and a federal district court
decision applied. Rogers v. Brockette, 588 F.2d 1057, cert.
den. 444 U.S. 827 (5th Cir. 1979); San Diego Unified Port
Dist. v. Gianturco (S.D. Cal. 1978) 457 F.Supp. 283, aff'd
651 F.2d 1306, cert. den., 455 U.S. 1000.
Having held that there was standing to attack the
statute, the Supreme Court of California held the statute
violated the Commerce Clause, implying that it may
offend Congress’ power to regulate foreign commerce
under Michelin and Container Corp., and that it diserimi-
nates unconstitutionally against interstate commerce
under Boston Stock Exchange and Complete Auto Transit v.
Brady, 430 U.S. 274 (1977).
Justice Lucas dissented on the basis that the majority
applied improper analysis and that the decision improp-
erly precludes the Legislature from future use of this
valid device to attract foreign commerce to California
ports.
Justice Lucas pointed out that although the majority
conceded nondiseriminatory taxes would have no impact
8
on the foreign commerce power, that an exemption from
tax might actually offend that power because it may
operate to nuilify the curative effect of federally imposed
tariffs. The dissent submitted that such speculation is not
sufficient to strike down an otherwise valid exercise of
state power. Citing Container Corp., Japan Line, and the
amicus curiae brief of the Solicitor General in Sears,
Justice Lucas found that the challenged exemption
neither implicates foreign policy nor violates a clear
federal directive, and does not impair federal uniformity,
preventing the federal government from “speaking with
one voice” in international trade. Rather than violate any
policy of the foreign Commerce Clause, the exemption, if
anything, facilitated the flow of foreign commerce.
Justice Lucas also pointed out the majority’s error in
using the Complete Auto analysis of whether a tax inter-
feres with interstate commerce, to determine whether the
exemption in question unduly burdens interstate com-
merce. Justice Lucas believes Westinghouse Electric is
controlling and upholds the constitutionality of the ex-
emption under the Commerce Clause. He pointed out that
there was no burden imposed on interstate commerce by
placing a penalty or disincentive on the choice to transact
business in another state, that local interests were not
favored, and that the exemption is available regardless of
the residency of the shipper, or the out-of-state place of
manufacture of the goods.
The dissent believed the respondent’s claim is really an
equal protection attack and an inappropriate one under
Allied Stores v. Bowers, 358 U.S. 522 (1959).
Petitioner believes that the Supreme Court of Califor-
nia misunderstands the rule of Williams v. Baltimore and
the Ninth Cireuit opinion in City of South Lake Tahoe, and
that local governments cannot attack a statute of their
creator, the State of California.
9
Petitioner further believes that the Supreme Court of
California misunderstands the Commerce Clause deci-
sions of this Court, particularly the proper application of
Westinghouse Electric and Boston Stock Exchange both of
which emphasize that the Commerce Clause does “not
prevent the states from structuring their tax systems to
encourage the growth and development of intrastate com-
merce and industry” and “we do not ‘hold that a state
may not compete with other states for a share of inter-
state commerce: such competition is at the heart of free
trade policy.’” Boston Stock Exchange v. State Taz
Comm’n 429 U.S. 318, 336-7 (1977); Westinghouse Electric
Corp. v. Tully, 466 U.S. 388, 406, fn. 12 (1984). If Section
225 is not constitutional, it is questionable whether any
state incentive can ever be constitutional.
The California Supreme Court should be directed to
recall its remittitur and hold that there is no standing of
the local governments to attack the statute, and if there
is, the statute is constitutional.
STATEMENT OF REASONS FOR GRANTING THE
WRIT OF CERTIORARI
The Supreme Court of California has distorted and
ignored this Court’s well-established rule, which is fol-
lowed by the Ninth Circuit, that local governments can-
not attack a statute of their creator. The question of
whether this rule has been limited by the Fifth Circuit,
and the federal district court for the southern district of
California and the resolution of the conflict between the
Ninth Cireuit and Fifth Cireuit, two federal courts of
appeal, is a question that should be appropriately decided
by this Court, and not the Supreme Court of California.
With respect to the Commerce Clause question, the
Supreme Court of California attempts to defend the
interest of the United States, and to declare its own
10
statute unconstitutional, notwithstanding the position of
the United States that the statute is constitutional. See
Brief of the United States, attached as Exhibit B.
As pointed out by the Solicitor General, there is no
constitutional prohibition against favoring imports over
domestic goods. The Import-Export Clause of the Consti-
tution itself makes such a differentiation. The decisions of
this Court involving imports, exports, and foreign com-
merce uniformly emphasize that one of the principal
purposes of the Constitution was to assure that the states
did not impede or obstruct importation, exportation or
foreign commerce. Although Michelin held a state was not
constitutionally required to exempt imports, nothing in
the decision suggested that the exemption that had previ-
ously been constitutionally required under decisions over-
ruled by Michelin was thereafter constitutionally
prohibited. Nothing in the Commerce Clause prevents a
state from favoring imports and exports, and their trans-
shipment through a state, beyond the extent required by
the Import-Export Clause.
Although it is clear that a state may, for years subse-
quent to Michelin, tax imported goods which were previ-
ously immune, must it do so? Or, may a state in order to
prevent the diversion of its import business to other
States, such as Oregon and Washington which have en-
acted free port laws, continue to exempt gvods which
previously were immune from state taxation for over 100
years without at the same time revising its laws to exempt
goods moving in interstate commerce which were histori-
cally taxable even while the immunity of imported goods
existed?
If there is to be adopted a rule that foreign and
domestic commerce must always meticulously be treated
equally, numerous important state tax policies will be
swept off the books. The rule urged by respondents and
11
upheld by the Court below that after Michelin state taxing
statutes must treat foreign commerce and interstate com-
merce with meticulous equality is contrary to the philoso-
phy of Allied Stores v. Bowers, 358 U.S. 522 (1959), which
held that a state may tax the goods of nonresidents more
favorably than the goods of residents. The adoption of a
rule requiring hard and fast equality would give rise to
serious questions as to the validity of a great many state
taxing policies.
One of the most important of these involves the dra-
matie international tension that has existed regarding
California’s so called “unitary tax.” Respecting the im-
portance of the State’s power to determine what and how
to tax (and what and how not to tax), this Court in
Container Corp. v. Franchise Tax Board, 463 U.S. 159
(1983) upheld worldwide combination. Because of the
international: furor over the “unitary tax,” after
Container, the President of the United States formed a
Working Group to deal with the problem.
Its keystone recommendation was that there be state
legislation limiting combination of income to the “water's
edge” and not including “foreign source” income as part
of the taxing base. Such legislation has finally after many
difficult years been enacted in California, under the
threat of federal government legislation. If a rule were
adopted in this ease that foreign and domestic commerce
had to be treated the same, such Sing te me would be
voided since domestic source income is ‘combined, but
foreign source income is excluded. Under the decision
below, such a distinction would violate the Commerce
Clause.
As noted above in the discussion of the dissent of
Justice Lucas in the Supreme Court of California, not
only are no policies of the foreign commerce clause
12
contravened, but the tax exemption statute at issue actu-
ally furthers the free flow of commerce.
Further, there is no violation of the interstate com-
merce clause. If a statute such as the one in question
(1) where there is no burden on interstate com-
merce by placing a penalty or disincentive on the
choice to transact business in another state,
(2) where loeal interests are not favored, and
(3) where the exemption is available regardless of
the residency of the shipper or the out-of-state place
of manufacture of the goods,
is not constitutional, it would make meaningless this
court’s emphasis on allowing states to structure their tax
systems to encourage the growth and development of
intrastate commerce and industry and to compete for a
share of interstate commerce, with such competition be-
ing at the heart of a free trade policy (Westinghouse
Electric, 466 U.S. 388 (1984)). If Seetion 225 is not
constitutional, presumably no state incentive can ever be
constitutional.
Respondents have made no effort whatsoever to estab-
lish that Section 225 results in actual discrimination
against interstate commerce. It may well be that goods
brought into the state from other states for shipment and
sale outside the state are seldom, if ever, assessed for
property taxation in California. Certainly there is nothing
in the record to support a contrary conclusion. For this
reason alone the decision of the Court below should be
reversed. It strikes down a state taxing statute solely on a
per se basis contrary to recent pronouncements of this
Court concerning the extent to which interference with
commerce is required before the Commerce Clause invali-
dates state tax provisions.
13
As a matter of proper judicial interpretation, the con-
stitutionality of the statute should have been upheld
unless it was ciear the statute is unconstitutional. The
judicial history of the attack on the statute shows no one
eould argue it is clearly unconstitutional: the California
Supreme Court denied a petition for hearing in Sears four
to three, this Court split four to four in Sears and the
Court of Appeal in this ease upheld the statute as consti-
tutional. Legislative enactments are presumed constitu-
tional and local governments have long been prohibited
from attacking statutes of their creator.
Even if it should be held that state tax laws must
hereafter deal equally with foreign and interstate com-
merece, 2 period of grace should be allowed the states in
which to revise their laws. Such grace period or nonretro-
activity is particularly appropriate in the unique cireum-
stances of the instant case:
(1) a county with dubious authority to do so,
attacked a statute of its creator,
(2) in every other county of the state, the exemp-
tion was granted, and
(3) there were superior courts holding the statute
constitutional, and others holding it uneonstitu-
tional, the Zee Toys Court of Appeal held the statute
unconstitutional, and the Star-Kist Court of Appeal
held the statute constitutional, the California Su-
preme Court denied a petition for hearing in Zee Toys
four to three, and this Court split over the issues
involved four to four. It is submitted that were there
such a doctrine holding under Michelin and Boston
Stock Exchange that the free flow of foreign com-
merce could not be facilitated as Section 225 does,
that such doctrine should not be applied to matters
arising prior to the decision in Sears, January 26,
1981.
14
ARGUMENT
1.
There is Not an Exception, for Commerce Clause At-
tacks, to the Well-Established Rule that Subordinate
Political Entities Cannot Challenge a Statute of Their
Creator
In Williams v. Baltimore, 289 U.S. 36 (1932), the
Maryland Legislature had by statute exempted certain
railroad property from all state taxation, including prop-
erty taxation. The Mayor and City Council of Baltimore
and similar officials of Annapolis attacked the constitu-
tionality of the statute on federal (Fourteenth Amend-
ment) constitutional and state constitutional grounds.
The Fourth Cireuit Court of Appeals held the statute
unconstitutional on those two sets of grounds, and the
United States Supreme Court granted writs of certiorari.
The Court held the Baltimore and Annapolis officials had
no standing to attack the statute on federal constitutional
grounds, although because it had not been objected to by
the parties, the Court heard the attack based on state
constitutional grounds.
The Court held that local governmental entities do not
have standing to attack statutes of a superior body on
federal constitutional grounds: “A municipal corporation,
created by a state for the better ordering of government
has no privileges or immunities under the federal Consti-
tution which it may invoke in opposition to the will of its
creator...” Williams v. Baltimore, supra, 289 U.S. 36, at
p. 40. The Court even questioned whether state constitu-
tional grounds could be raised by the local governmental
entities in attacking the statute, while simultaneously
emphasizing their lack of standing to argue federal con-
stitutional issues: “We have assumed, without deciding,
that the respondents, though without standing to invoke the
a ———
15
protection of the Federal Constitution, will be heard to
evmplain of a violation of the Constitution of the State . .
.” Williams v. Baltimore, supra, at pp. 47-48. (Emphasis
added)
The lack of “standing to invoke the protection of the
Federal Constitution” was certainly not limited in Wil-
liams to the Fourteenth Amendment and the contract
clause.
Rather, as the Supreme Court of California recognizes
“In City of South Lake Tahoe v. California Tahoe Regional
Planning Agency (9th Cir. 1980) 625 F.2d 231, cert. den.
449 U.S. 1039 (White, Marshall, JJ., dis.) the Ninth
Cireuit interpreted this ‘no standing’ rule as absolutely
barring political subdivisions from challenging state stat-
utes on any federal constitutional ground.” (42 Cal.3d 1,
7.)
The Supreme Court of California, ignoring the clear cut
rule, cited a Fifth Cireuit opinion and various federal
district court opinions which have held that “the rule does
not extend to supremacy clause challenges to state laws.”
The Court found the Fifth Cireuit opinion — Rogers v.
Brockette 588 F.2d 1057, cert. den., 444 U.S. 827 (5th Cir.
1979) — to imply a rule contrary to that of the Ninth
Cireuit, although the Fifth Cireuit’s opinion seems
strictly limited to the supremacy clause.
The Supreme Court of California erroneously relies on
a federal district court decision which allowed standing
for a local government to “invoke the supremacy clause
despite its lack of capacity to raise other constitutional
claims” because the supremacy clause “establishes a
structure of government which defines the relative powers
of states and the federal government.” (San Diego Unified
Port Dist. v. Gianturco (S.D. Cal. 1978) 457
16
F.Supp. 283, aff'd 651 F.2d 1036, cert. den., 455 U.S.
1000, at 457 F.Supp. 290.)
Attempting to understand the rule from Rogers-Gian-
turco, the Supreme Court of California found that “the
commerce clause resembles the supremacy clause in that
it albeit indirectly ‘defines the relative powers of states
and the federal government. (Gianturco, supra, 457 F.
Supp. at p. 290) The Court, thus, understood there to be
an exception for Commerce Clause challenges by local
governments under the doctrine of the lack of local
government’s power to attack state statutes.
The Court is incorrect in its comment that “In the
present case, for example, there is a real possibility that
the constitutionality of the Legislature’s scheme of differ-
ential taxation of business inventories would have gone
unchecked absent challenge by those entities charged
with administration of the program.” Star-Kist Foods, Inc.
v. County of Los Angeles, et al 42 Cal.3d 1, at p. 9. If, in
fact, there was a discrimination against interstate com-
merece, those involved in such commerce could well raise
the claim. See, for example, the discriminated taxpayers
in Westinghouse Electric or Boston Stock Exchange.
The people of California entrusted their legislative
representatives to determine what personal property
should be exempt. “The constitution further empowers
the Legislature ... to ‘classify such personal property for
differential taxation or for exemption.’ (Cal. Const. Art.
XIII.) By having its “creatures”, all of the forms of local
government, be able to attack the statutes the State
Legislature creates is only to spawn litigation upon litiga-
tion, with an ever-expanding role of government. It is
precisely this legislative-type role of making up new legal
rules that has made the Supreme Court of California the
subject of controversy in the California November, 1986
election.
| a "
17
If the Court determines that the County and cities have
no standing, petitioner requests that rather than dis-
missing, the ease be remanded to the California Supreme
Court for further proceedings consistent with its opinion
inasmuch as the California Court misunderstood the rule
of standing.
Were this Court for any reason to consider dismissing
for lack of standing rather than remanding, petitioner
would, in the alternative, request this court to find in the
context of this case that the County and local govern-
ments do have standing on the basis that they were not
attacking the statute of their creator, but continued to
refuse the refunds based on the exemption granted by
Section 225 simply because they felt bound by the judicial
determination in Zee Toys, 85 Cal.App.3d 763 (1978)
affirmed by a split court 449 U.S. 119 (1981) that Section
225 was unconstitutional.
It would be unfair to petitioner who for over 10 years
has sought a refund based on a state legislatively-granted
exemption, to be refused that exemption on federal con-
stitutional grounds, without the opportunity of having the
highest arbiter of federal constitutional law, the United
States Supreme Court, review the very important ques-
tion of federal law. To avoid the “eateh 22” of the
dismissal route, petitioner early in its case advised the
members of the State Board of Equalization, the Attorney
General, the individual members of the Board of Supervi-
sors, the Assessor, the Tax Collector, and the Auditor-
Controller that they may wish to intervene in the instant
ease, so that if there be no standing under Williams v.
Baltimore, there might be standing under Board of Educa-
tion v. Allen (1968) 392 U.S. 236. The state and local
officials contacted have not chosen to intervene. 28 U.S.C.
§ 2403(b) may be applicable to this case.
18
Constitutional law scholars and the bar have waited for
many, many years to have the standing question resolved.
It appeared it would be resolved in Sears but the Court
split four to four. The issue of standing involved in the
present case should now be addressed, but without
prejudice to petitioner being heard by the Court on the
important Commerce Clause substantive question dis-
cussed below.
II.
The Statute Involved Does Not Result in an Invalid
Regulation of Foreign Commerce: It Was Valid When
Enacted, Michelin Did Not Invalidate it, it is Consis-
tent with the Policies of the Import-Export and Com-
merce Clauses, Favoring the Free Flow of
Commerce, and it does not Interfere with the Ability
of the Federal Government to Speak with One Voice
The Solicitor General (see Exhibit B) distinguished
Boston Stock Exchange from the instant situation:
“Here, in contrast, the statutory property tax exemp-
tion did not favor local business at the expense of
out-of-state business. It favored imports and exports.
There is, however, no constitutional prohibition against
favoring wmports over domestic goods. The Import-
Export Clause of the Constitution itself makes such a
differentiation. Section 225... facilitates importation
and exportation... Nothing in the Commerce Clause
prevents a state from favoring imports and exports
beyond the extent required by the Import-Export
Clause.” (Page 6 of Brief of the United States,
Exhibit B, emphasis added.)
The position of the United States in the matter is that
state statutes, such as Section 225, which favors imports
over domestic goods, are not constitutionally prohibited
19
but, rather, constitutionally compatible with the Import-
Export and Commerce Clauses of the Constitution.
The federal government’s view though not dispositive,
is of great help for three important reasons:
(1) the logie of its position and its understanding
of the cases are sound, and rooted in policy;
(2) its views are independent and uninfluenced by
a stake in the litigation (its views were requested by
this Court); and
(3) its views are those of the party whom the
California Courts sought to protect, even though the
federal government not only feels Section 225 is
constitutional, but that it is in furtherance of impor-
tant federal constitutional principles behind the Im-
port-Export and Commerce Clauses.
It is important to note that the statute in question was
enacted in 1975 at a time when imported goods of the
kind involved herein were immune from state taxation At
the time, and for over 100 years prior thereto, it was
permissible for a state to tax goods coming into the state
in interstate commerce notwithstanding that goods im-
ported from foreign countries were immune from such
taxation. Thus the statute was entirely valid at the time of
its enactment.
If after Michelin the legislature had enacted a statute
imposing a substantially higher tax on imported goods
than it imposed upon other goods, one could accept the
conclusion that the statute constituted an invalid regula-
tion of foreign commerce. It is difficult to understand,
however, how the simple continuation of a pattern of
taxation which validly existed for over 100 years can
suddenly overnight be converted into an unconstitutional
regulation of foreign commerce.
a
20
It is even more difficult to understand how the continu-
ation of such a pattern in any way frustrates Congres-
sional policy in establishing tariffs, as held by the iower
court. To the best of petitioner’s knowledge, Congress has
never taken state property taxes into account in the
imposition of tariffs on imported goods. It would be
extremely difficult, if not impossible, for it to do so. There
are 50 different states with widely different tax systems
and tax rates. Even if there were any merit to the
argument, the effect of the statute in question is, in the
overall context, de minimis.
It is fanciful for the lower court to hold that the statute
involved herein may frustrate Congress in the levying of
tariffs. Such a speculative foundation should not be per-
mitted to stand as the basis for invalidating a state tax
statute under the United States Constitution. Some 37
states have free port laws under which goods brought into
the state and held there temporarily for subsequent ship-
ment outside the state are exempt from taxation. Before a
statute can be invalidated on such grounds, there should
be required a showing that there was an actual and
substantial effect upon Congress’ ability to regulate for-
eign commerce.
The exemption of Section 225 is not “pre-empted by
federa! law or fatally inconsistent with federal policy.”
(Container Corp. v. Franchise Tax Board, 463 U.S. 159 at
p. 197, emphasis added.) “Primarily, the majority has
failed to demonstrate how the tax exemption at issue
affects any foreign policy.”’ (See Container Corp., supra)
(Dissent of Justice Lucas, Star-Kist Foods, Inc. v. County
of Los Angeles, 42 Cal.3d 1, 18 (1986)) This is also no
violation of a clear federal directive nor impairment of
“speaking with one voice.” (Star-Kist Foods, Inc. v.
County of Los Angeles, 42 Cal.3d 1, Dissent pp. 18-19
(1986) )
’ ’
21
Justice Lueas significantly notes, that ‘rather than
impeding the flow of foreign commerce, this exemption, if
anything, facilitated this channel of trade.” (Star-Kist v.
County of Los Angeles, 42 Cal.3d 1, 19 (1986) ).
Il.
State Taxing Statutes Should Not Be Required to Treat
Foreign Commerce and Interstate Commerce With
Meticulous Equality
A hard and fast rule of equality, such as that proposed
by the lower court, would not only violate the policies of
Allied Stores v. Bowers, 358 U.S. 522 (1959) but would
lead to serious doubts as to the validity of various other
state taxing policies.
For example, California, as indicated above, as a result
of intensive study by the President of the United States’
Working Group, and as a result of federal pressure, has
alleviated international tensions by enacting a water's
edge bill — limiting the combination of worldwide income
in the franchise tax area. If the Court below is correct,
there would be an unconstitutional discrimination in the
new legislation.
In the above and numerous other instances which could
be mentioned, a hard and fast rule of equality would give
rise to serious questions of validity in many state taxing
statutes.
22
IV.
The Statute Involved Does Not Burden Interstate Com-
merce Where There is no Showing of an Impermissi-
ble Burden, There is no Penalty or Disincentive on
the Choice to Transact Business in Another State,
Local Interests are not Favored and the Exemption is
Available Regardless of the Residency of the Shipper
or the Out-of-state Place of Manufacture of the Goods
Respondent County has assumed any different treat-
ment of foreign commerce vis-a-vis interstate commerce is
prohibited by the Commerce Clause. This is not true.
Clearly, foreign commerce can be favored over interstate
ecommerce. Japan Lines v. County of Los Angeles, 441 U.S.
434 (1979); Westinghouse Electric v. Tully, 466 U.S. 388,
406 fn. 12 (1984). In fact, favoring the free flow of foreign
ecommerce is totally consonant with the underlying pur-
poses of the Commerce Clause.
The Court in Westinghouse recognized “‘a State’s inter-
est in exercising its taxing powers”... that the Commerce
Clause does “not prevent the states from structuring
their tax systems to encourage the growth and develop-
ment of intrastate commerce and industry.”...and that
“As in Boston Stock Exchange, we do not ‘hold that a state
may not compete with other states for a share of inter-
state commerce: such competition is at the heart of free
trade policy.’” Westinghouse Electric v. Tully, 466 U.S.
388, 406 fn. 12 (1984).
If a statute such as the one in question where
(1) there is no burden on interstate commerce by
placing a penalty or disincentive on the choice to
transact business in another state,
(2) loeal interests are not favored, and
23
(3) tke exemption is available regardless of the
residency of the shipper or the out-of-state place of
manufacture of the goods,
is not constitutional, it would make meaningless this
Court’s emphasis on allowing states to structure their tax
systems to encourage the growth and development of
intrastate commerce and industry and to compete for a
share of interstate commerce, with such competition be-
ing at the heart of a free trade policy (Westinghouse
Electric Corp. v. Tully, 466 U.S. 388 (1984)). If Section
225 is not constitutional, presumably no state incentive
ean ever be constitutional.
The Supreme Court in Westinghouse stated clearly that
a eredit or exemption favoring exports does not violate
the Commerce Clause:
We reiterate that it is not the provision of the [export]
credit that offends the Commerce Clause, but the fact
that it is allowed on an impermissible basis.” (Ibid. at
406, fn. 12 (emphasis added) ).
As Justice Lucas correctly indicates in the dissent: “A
recent United States Supreme Court case appears con-
trolling... Westinghouse Electric Corp. v. Tully (1984)
466 U.S. 388,...”
The Westinghouse and Boston Stock Exchange taxing
schemes were not problematic because of the positive
incentives they created, but were infirm due to the taxing
state imposing automatic penalties on activities occurring
in other states. The Court struck down the laws in question
on the basis that such burdens cannot be imposed on such
activities outside the state. Section 225 does not reach or
tax or penalize activities occurring in other states. There
is no use of the power of the state to force out of state
manufacturers or producers to transship through Califor-
nia. They can avoid California property taxation by ship-
24
ping directly through California to the ultimate
destination. Goods in transit are constitutionally immune
from property tax under the Commerce Clause if the
transportation is not interrupted at the behest of the
owner. Bacon v. Illinois, 227 U.S. 504 (1913). Or the non-
importer/exporter could avoid California property taxa-
tion by shipping through to an intermediate location in
another state which does not tax inventory. Section 225
merely preserves the advantage that foreign goods have
had from property taxation. Michelin v. Wages, 423 U.S.
276 (1976) did not require the taxation of foreign goods
but only permitted such taxation.
V.
The Extent if Any of Actual Discrimination Has Not
Been Established
Without any support in the record for finding that the
statute either regulates foreign commerce or affects com-
petition, the lower Court held that the statute per se
violates the Commerce Clause. The Court ignored estab-
lished ease law which holds that state tax laws affecting
commerce are invalid only if they seriously and unreason-
abiy burden commerce in relation to benefits. Richfield
Oil Corp. v. State Board of Equalization, 329 U.S. 69
(1946); Aldens, Inc. v. Ryan, 571 F.2d 1159, 1162 (10th
Cir. 1978), citing Complete Auto Transit, Inc. v. Brady,
430 U.S. 274 (1977). The clear trend of the Supreme
Court is to not limit the states’ taxing power, e.g., Miche-
lin Tire Corp. v. Wages, supra; Washington Rev. Dept. v.
Stevedoring Assn., 435 U.S. 734 (1978). Container Corp. v.
Franchise Tax Board, supra.
25
VI.
If States Could Not Facilitate the Free Flow of Com-
merce as the Statute Involved Does, there Should Be
a Grace Period of Adjustment, and/or Such Doctrine
Should Not Be Applied Prior to the Affirmance by an
Equally Divided Court in Sears, January 26, 1981
The litigation in the instant case has been going on for
ten years. Petitioner has the only remaining cases involv-
ing Section 225 and they involve only the years 1976,
(this case) and 1977, 1978 and 1979 (pending cases).
Thus appiying Sears from the 1981 date would also grant
the taxpayer the appropriate relief. The Sears or Zee Toys
rationale should not be applied retroactively prior to 1981
in the instant case, and in all events it should not be
applied retroactively prior to 1981 in the remaining cases
that involve this issue (Plaintiff’s suits for the 1977, 1978,
1979 years). Nor in the context of this case would it be
fair to require the taxpayer to wait another ten years to
determine the beginning point of this new doctrine.
It would be extremely unfair to have the legislative
exemption granted to all taxpayers in the other 57 coun-
ties (of California’s 58 counties), and to deny taxpayers
in Los Angeles County the exemption their competitors
received, because in a case of first impression and a case
involving a very close question, the statute was ultimately
held unconstitutional. This is an issue on which the
highest courts’ have previously split 4-3, and 4-4, and on
which two different Courts of Appeal have rendered
opposite decisions. In such a ease of first impression,
under Chevron Oil Co. v. Huson, 404 U.S. 97 (1971) the
Sears, Zee Toys or Boston Stock Exchange-Michelin doc-
trine must not be applied retroactively, or a grace period
of adjustment should be allowed for the states (37 states
have freeport exemptions and other states distinguish in
their tax laws between foreign and domestic items).
26
In California Superior Court decisions related to the
instant ease, the Court found, among ten grounds, that
the retroactive application of the Sears-Zee Toys doctrine
[Boston Stock Exchange-Michelin| would be unfair and
would result in economic hardship, inequities, and injus-
tices; and/or importers relied upon and could not have
reasonabie foreseen that the exemption would be invali-
dated; and/or Publie policy will be served by preventing
the disruptive and unjust effect of applying the Zee Toys
decision retroactively; and/or the California Legislature
in passing Revenue and Taxation Code Section 225.3
provided relief from the retroactive application of the Zee
Toys decision to importers and exporters in many coun-
ties other than Los Angeles for the years 1976, 1977, and
1978; and that denying similar relief to taxpayers for
taxes which became due in these years would be
inequitable.
It is clear under the judicia! doctrine of when new case
law should not be applied retroactively, that a new Zee
Toys-Sears |Boston Stock Exchange-Michelin| doctrine
should not be applied retroactively under the facts and
circumstances of this case. Rather the new doctrine
should only be appiied prospectively from the affirmance
of Sears by this Court, 7.e., from 1981 forward.
CONCLUSION
For the foregoing reasons, the petition for a writ of
certiorari should be granted.
Respectfully submitted,
CHARLES R. AJALAT
Attorney for Petitioner
A-l
APPENDIX A
[42 Cal.3d 1]
[L.A. No. 31918. June 30, 1986.]
STAR-KIST FOODS, INC., Plaintiff and Appeilant, v.
COUNTY OF LOS ANGELES et al., Defendants and
Respondents.
OPINION
REYNOSO, J.— We consider two questions: whether
counties and municipalities may challenge the constitu-
tionality of a statute exempting from ad valorem taxation
business inventories of foreign origin or destination
which are transshipped through the state; and if so,
whether such exemption violates the commerce clause. We
conclude that counties and municipalities may raise such
a challenge, and that the statute in question offends the
commerce clause.
The parties stipulated to the relevant facts. For tax
year 1976-1977, defendants, Los Angeles County and the
Cities of Los Angeles and Long Beach, assessed and
levied ad valorem taxes on plaintiff Star-Kist Foods,
Ine.’s' inventory of canned tuna present in its California
warehouses on March 1, 1976, the lien date.” Star-Kist
paid the tax, but sought a refund.
'Star-Kist is a California corporation.
*In 1978, the Legislature enacted Revenue and Taxation Code
section 538 which requires an assessor who questions the constitu-
tionality of a particular tax provision to bring an action for declara-
tory relief against the State Board of Equalization in lieu of making
the disputed assessment. (Stats. 1978, ch. 1188, § 1, eff. Sept. 26,
A-2
[42 Cal.3d 5]
of the $44,197 assessed on that portion of Star-Kist’s
inventory that had been manufactured or produced
outside the United States and brought into California for
shipment to other states for sale in the ordinary course.’
Star-Kist based its refund claim on the exemption
contained in newly enacted Revenue and Taxation Code*
section 225, which provided an exemption from taxation
for “[p]Jersonal property manufactured or produced, (1)
outside this state and brought into this state for trans-
shipment out of the United States, or (2) outside of the
United States and brought into this state for transship-
ment out of this state, for sale in the ordinary course of
trade or business...”
After exhausting its administrative remedies, Star-Kist
brought suit in Los Angeles County Superior Court for
refund of the contested taxes. Defendants asserted that
the statutory exemption was invalid in that it violated the
commerce clause of the federal Constitution (U.S. Const.,
art. I, $8, el. 3) by interfering with Congress’ plenary
power over commerce, in that it discriminated against
interstate commerce.
1978.) As this controversy arose before section 538 was enacted,
section 538 does not apply to these proceedings.
“The inventory in question was valued at $655,140. The assessed
value of Star-Kist’s total inventory for 1976-1977 was $5,699,300
upon which Star-Kist paid ad valorem taxes in the amount of
$394,316.
*All statutory references are to the Revenue and Taxation Code
unless otherwise indicated.
*Seetion 225 was repealed in 1984, Section 219 now exempts all
business inventory from taxation. (Added by Stats. 1980, ch. 411, § 8,
p. 801, urgency, eff. July 11, 1980, operative Jan. 1, 1981.)
A-3
Relying on Zee Toys, Inc. v. County of Los Angeles
(1978) 85 Cal.App.3d 763 [149 Cal.Rptr. 750], hearing
denied, January 17, 1979, affirmed without opinion by an
equally divided court in Sears, Roebuck and Co. v. County
of Los Angeles (1981) 449 U.S. 1119 [67 L.Ed.2d 106, 101
S.Ct. 933], in which the Court of Appeal held that section
225 violated the commerce clause and was void, the trial
eourt denied plaintiff's refund claim. This appeal
followed.
I
(la) Before reaching the merits of defendants’ charge
that section 225 violates the commerce clause, we must
determine whether defendants have “standing” to raise
such a challenge to a state law. The term “standing” in
this context refers not to traditional notions of a plain-
tiff’s entitlement to seek judicial resolution of a dispute,”
but to a narrower, more specific in-
(42 Cal.3d 6]
quiry focused upon the internal political organization of
the state: whether counties and municipalities may invoke
the federal Constitution to challenge a state law which
they are otherwise duty-bound to enforce.
Counties and cities must look to the state Constitution
and the Legislature for their creation and delegated
powers. (Cal. Const., art. XI, §§ 1, 2.) (2) Counties are
*One could argue that, in practical effect, defendants’ willful
compaign to supplant section 225’s exemption by ignoring it and
forcing plaintiff to bring a refund suit makes defendants the “true”
plaintiffs in this controversy. Regardless of party designation, how-
ever, the threshold question as to whether the county and cities may
challenge the statute remains the same.
A-4
‘merely [] political subdivision[s] of state government,
exercising only the powers of the state, granted by the
state, created for the purpose of advancing ‘the policy of
the state at large....’”’ (County of Marin v. Superior
Court (1960) 53 Cal.2d 633, 638-639 [2 Cal.Rptr. 758, 349
P.2d 526].) (3) Though municipalities may enjoy a
greater degree of autonomy with regard to local affairs.
(Wilson v. Beville (1957) 47 Cal.2d 852, 858-859 [306
P.2d 789] [charter cities]), they too are subject to the
sovereign’s right to extend, withdraw or modify the pow-
ers delegated. (Trenton v. New Jersey (1923) 262 U.S. 182,
187 [67 L.Ed. 937, 941, 43 S.Ct. 534, 29 A.L.R. 1471]. See
People v. California Fish Co. (1913) 166 Cal. 576, 606
[138 P. 79].)’
(4) This legislative control over cities and counties is
reflected in the well-established rule that subordinate
political entities, as “creatures” of the state, may not
challenge state action as violating the entities’ rights
under the due process or equal protection clauses of the
Fourteenth Amendment or under the contract clause of
the federal Constitution. “A municipal corporation, cre-
ated by a state for the better ordering of government, has
no privileges or immunities under the federal] constitution
"The California Constitution provides that, with limited exception,
“Ta]ll property is taxable...’ (Cal. Const., art, XIII, § 1, subd. (a).)
The Constitution further empowers the Legislature to “provide for
property taxation of all forms of tangible personal property,” and to
“classify such personal property for differential taxation or for
exemption.” (Cal. Const., art. XIII, § 2.) The Legislature, in turn,
has delegated responsibility for assessment, levy and collection of
property taxes to local government. (Gov. Code, §§ 23004, subd. (e),
43000 et seq., 51501.) This delegated authority, however, does not
include the power to originate a tax; only those taxes expressly
authorized by statute may be assessed. (County of Los Angeles v.
Jones (1939) 13 Cal.2d 554, 561-562 [90 P.2d 802].)
which it may invoke in opposition to the will of its creator.
[Citations.]” (Williams v. Mayor of Baltimore (1933) 289
U.S. 36, 40 [77 L.Ed. 1015, 1020, 53 S.Ct. 431]. Accord
Newark v. New Jersey (1923) 262 U.S. 192, 196 [67 L.Ed.
943, 946, 43 S.Ct. 539] [equal protection clause]; Trenton,
supra, 262 U.S. at pp. 185-187 [67 L.Ed. at pp. 940-941]
[contract clause and Fourteenth Amendment]; Mallon v.
City of Long Beach (1955) 44 Cal.2d 199, 209 [282 P.2d
481] [contract clause]; City of Los Angeles v. City of
Artesia (1977) 73 Cal.App.3d 450, 457 [140 Cal.Rptr.
684] [contract clause and due process clause].) This
rule’s application beyond Fourteenth Amendment and
contract clause challenges remains unsettled.
[42 Cal.3d 7]
In City of South Lake Tahoe v. California Tahoe (9th
Cir. 1980) 625 F.2d 231, certiorari denied, 449 U.S. 1039
[66 L.Ed.2d 502, 101 S.Ct. 619] (White, Marshall, JJ.,
dis.) the Ninth Cireuit interpreted this “no standing”
rule as absolutely barring political subdivisions from
challenging state statutes on any federal constitutional
ground. Regrettably, the South Lake Tahoe decision pro-
vides little guidance as to the court’s reasoning in choos-
ing a per se rule.
The plaintiffs in South Lake Tahoe, the city and individ-
ual city council members, brought an action of declara-
tory and injunctive relief, attacking the validity of certain
land use regulations and transportation plans adopted by
a regional planning agency on four separate constitu-
tional grounds: the plans and regulations violated the
Fifth and Fourteenth Amendments in arbitrarily diserim-
inating between similarly situated landowners, violated
the right to travel, resulted in the taking of property
without just compensation and conflicted with regulations
A-6
of a congressionally approved bi-state planning agency in
violation of the supremacy clause. The court rejected the
city’s claim of standing to raise the constitutional claims
based on the regulation’s injurious effects on its munici-
pal finances. After noting that “‘[p]olitical subdivisions
may not challenge the validity of a sate statute under the
Fourteenth Amendment,’ ” and pointing out that it makes
no difference whether the challenge is to the state or to a
political subdivision thereof, the court simply concluded,
“(t]hus, the city may not challenge: [the] plans and
ordinances on constitutional grounds.” (South Lake
Tahoe, supra, 625 F.2d at p. 233.) The court also denied
the individual council members standing for lack of a
personal stake in the matter, remarking in passing:
‘“[t]the eouncilmembers do not seek here to represent the
City’s interests; if they did their claims would be barred
along with the City’s.” (Id., at p. 237.)
Other courts have declined to read the “no stainding”
rule as an absolute bar to federal constitutional chal-
lenges by political subdivisions. These courts have held
that the rule does not extend to supremacy clause chal-
lenges to state laws. (Rogers v. Brockette (5th Cir. 1979)
588 F.2d 1057, cert. den., 444 U.S. 827 [62 L.Ed.2d 35,
100 S.Ct. 52]; San Diego Unified Port Dist. v. Gianturco
(S.D.Cal. 1978) 457 F.Supp. 283, affd. 651 F.2d 1306,
eert den., 455 U.S. 1000 [71 L.Ed.2d 866, 102 S.Ct. 1631};
Triplett v. Tiemann (D.Neb. 1969) 302 F.Supp. 1239;
Carlsbad Union School District of San Diego Country v.
Rafferty (S.D.Cal. 1969) 300 F.Supp. 434 affd. (9th Cir.
1970) 429 F.2d 337; Douglas Independent School District
No. 3 v. Jorgenson (D.S.D. 1968) 293 F.Supp. 849;
Hergenreter v. Hayden (D.Kan. 1968) 295 F.Supp. 251.) —
Rogers and Gianturco provide meaningful insight into the
purpose of the “no standing” rule and its one established
exception.
A-7
[42 Cal.3d 8]
The Rogers court recognized a school district’s stand-
ing to raise a supremacy clause challenge to a state law
requiring a district with a substantial number of low
income students to participate in a federally subsidized
school breakfast program. The court also upheld the
statute against the school district’s challenge.
In resolving the standing question, the Rogers court
studied the historic basis of the “no standing” rule and
concluded that the rule has generally been applied in two
types of cases: those in which the state has altered
political subdivisions’ boundaries (e.g., Hunter v. Pitts-
burgh (1907) 207 U.S. 161 [52 L.Ed. 151, 28 S.Ct. 40]),
and those involving state modification of a benefit previ-
ously granted to a subdivision (e.g., Trenton, supra, 262
U.S. 182). (Rogers, supra, 588 F.2d at p. 1067.) The court
then went on to suggest that “... these cases are substan-
tive interpretations of the constitutional provisions in-
volved” (id., at p. 1068), and, as such, simply “adhere to
the substantive principle that the Constitution does not
interfere with a state’s internal political organization.”
(Id., at p. 1070.) Because there is no comparable limit on
Congress’ power to “interfere” in a state’s internal politi-
eal organization, the court concluded, a subdivision of the
state may raise a claim that state law conflicts with
federal law and is therefore void. (/d., at pp. 1070-1071.)
The Gianturco court took a related, but somewhat
different approach in reaching the conclusion that a politi-
eal subdivision may invoke the supremacy clause despite
its lack of capacity to raise other constitutional claims. In
Gianturco, a port district operating an airport challenged
a flight curfew imposed by the California Department of
Transportation as violative of the supremacy clause in
that the field was preempted by federal law.
allie, |
A-8
BAA rialaeaeans aes
Discussing the standing issue, the Gianturco court
noted that a distinction between the supremacy clause
and other constitutional provisions lies in the purpose
served by each. Provisions like the Fourteenth Amend-
ment and the contract clause “confer fundamental rights
on individual citizens’; the supremacy clause, in contrast,
“establishes a structure of government which defines the
relative powers of states and the federal government.”
(Id., 457 F.Supp. at p. 290.) Political subdivisions cannot
assert “constitutional rights which are intended to limit
governmental action vis-a-vis individual citizens” but may
invoke the supremacy clause to challenge preempted state
law. (Jbid.) Otherwise “such legislation and regulation
often would go unchecked even though expressly prohib-
ited by the Constitution.” (Ibid.)
(1b) Accepting the Rogers-Gianturco rationale for ex-
empting supremacy clause claims from the rule that
political subdivisions cannot challenge state law on the
basis of the federal Constitution, the question remains
whether
[42 Cal.3d 9]
this type of commerce clause claim also falls outside the
confines of the rule. Based on the similarity between the
commerce clause and the supremacy clause, we conclude
that it does.
The commerce clause empowers Congress “[t]o regu-
late commerce with foreign nations, and among the sev-
eral states, and with Indian tribes.” (U.S. Const., art. I,
§ 8, el. 3.) (5) As the United States Supreme Court has
long emphasized, “ ‘[t]he Commerce Clause, even without
implementing legislation by Congress is a limitation upon
the power of the States.’ ”’ (Boston Stock Exchange v. State
Tax Comm’n (1977) 429 U.S. 318, 328 [50 L.Ed.2d 514,
4
4
A-9
523, $7 S.Ct. 599], quoting Freeman v. Hewit (1946) 329
U.S. 249, 252 [91 L.Ed. 265, 271, 67 S.Ct. 274].) In this
respect, the commerce clause resembles the supremacy
clause in that it, albeit indirectly, ‘defines the relative
powers of states and the federal government.” (Gian-
turco, supra, 457 F.Supp. at p. 290.)
(le) The defendants’ claim in the instant case accents
this definitional framework. Defendants assert that the
foreign commerce tax exemption interferes with Con-
gress’ exclusive control over commerce by potentially
nullifying the value of protective tariffs and by discrimi-
nating against domestic commerce. The discrimination is
merely a side effect of the institutional intrusion. As
noted in Zee Toys, supra, 85 Cal.App.3d 763, which in-
volved an identical challenge to section 225, “[t]he only
function of the discriminatory nature of the tax is to
demonstrate its capacity to interfere with the authority of
Congress over commerce. The interest herein sought to be
protected is not personal to dealers in nonexempt inter-
state goods; it relates more to the national interest in
observing the boundaries of state and federal power.”’ (Id.,
at p. 778.) (Italies added.)
Viewing the commerce clause challenge in this light
leads to the conclusion that political subdivisions might
legitimately raise such claims. State action cannot be so
insulated from serutiny that encroachments on the fed-
eral government’s constitutional powers go unredressed.
In the present case, for example, there is a real possibility
that the constitutionality of the Legislature’s scheme of
differential taxation of business inventories would have
gone unchecked absent challenge by those entities
charged with administration of the program. Moreover,
because the foreign commerce exception precluded the
local taxing agencies from taxing business inventories
A-10
they otherwise would have been authorized to tax, the
agencies experienced significant revenue loss.® Thus, their
interest in testing the constitutionality of the statute is
unmistakable.
[42 Cal.3d 10]
We therefore conclude that defendants have standing
to raise this commerce clause challenge. This result com-
ports with the Legislature’s implicit recognition of the
right to raise federal constitutionai claims in section 538,
enacted in 1978. (Ante, fn. 2.) Section 538, the Legisla-
ture’s direct response to Los Angeles County’s refusal to
implement section 225’s exemption (Stats. 1978, ch. 1188,
§ 4, p. 3840), requires an assessor who believes a tax
measure to be unconstitutional or otherwise invalid to
seek declaratory relief to that effect, instead of simply
imposing an assessment contrary to the questioned law.
Because the statutory language speaks to unconstitution-
ality generally, without differentiating between the fed-
eral and state Constitutions, and the legislative history
reflects a concern with the commerce clause challenge to
section 225, it is reasonably likely that the Legislature
did anticipate claims based upon the federal Constitution.
*When section 225 was enacted, federal law precluded taxation of
imports in their original containers. That restriction was abandoned
in Michelin Tire Corp. v. Wages (1976) 423 U.S. 276 [46 L.Ed.2d 495,
96 S.Ct. 535]. Thus, the Legislature’s assumption that under section
225 “the net loss of revenues to any local agency is not significant”
(Stats. 1976, ch. 1126, § 4, p. 2746) did not prove to be correct. (See
Zee Toys, supra, 85 Cal.App.3d at p. 783.)
se ace ae
A-11
et
(6a) We turn to the question whether section 225, in
exempting only certain business inventories from ad
valorem taxation, violates the commerce clause.
(7) The commerce clause reserves to Congress exclu-
sive power “[t]o regulate commerce with foreign nations
and among the several states...” (U.S. Const., art. I, § 8,
el. 3.) The clause does not, however, abrogate the “ ‘power
of the states to tax for the support of their own govern-
ments.” (Boston Stock Exchange, supra, 429 U.S. at p.
328 [50 L.Ed.2d at pp. 523-524], quoting Gibbons v.
Ogden (1824) 22 U.S. (9 Wheat.) 1, 199 [6 L.Ed. 23,
71].) Determining whether a state tax exceeds the
bounds of permissible state action under the clause is
often a difficult task. As the United States Supreme Court
noted in Boston Stock Exchange, “... when ealled upon to
make the delicate adjustment between the national inter-
est in free and open trade and the legitimate interest of
the individual States in exercising their taxing powers,
the Court has counseled that the result turns on the
unique characteristics of the statute at issue and the
particular circumstances in each ease.” (/d., 429 U.S. at
p. 329 [50 L.Ed.2d at p. 524].)
(6b) As enacted, section 225 provided: “Personal
property manufactured or produced, (1) outside this
state and brought into this state for transshipment out of
the United States or (2) outside of the United States and
brougyt into this state for transshipment out of this state,
for sale in the ordinary course of trade or business shall
be exempt from taxation. The exemption under this sec-
tion shall not apply to personal property in manufactur-
ing process or production. Such process or production
shall not include the breaking in bulk, labeling, packag-
ing, relabeling, or repackaging.
|
A-12
(42 Cal.3d 11]
of such property.” As all other business inventories were
subject to ad valorem taxation (§ 201; former § 219 re-
pealed by Stats. 1980, ch. 411, § 7), goods manufactured
*The history of this exemption deserves mention. For over a
century, states were prohibited from imposing even nondiscrimina-
tory ad valorem taxes on imported goods while they retained their
character as imports. (Low v. Austin (1872) 80 U.S. (13 Wall.) 29
[20 L.Ed. 517].) In 1972, this court held that imports could be taxed
onee removed from their original containers. (Volkswagen Pacific v.
City of Los Angeles (1972) 7 Cal.3d 48 [101 Cal.Rptr. 869, 496 P.2d
1237].) The Legislature subsequently enacted section 225, presuma-
bly to countermand Volkswagen Pacific. Over 35 states have adopted
similar “free port” laws, many of which extend tax-exempt status to
stored imports. (Japan Line, Ltd. v. County of Los Angeles, The
Foreign Commerce Clause: An Economic Approach to the Negative
Effects of State Taxation (1980) 13 J. Mar. L.Rev. 793, 812.)
In 1976, the United States Supreme Court overruled Low and
lifted the ban on state imposition of taxation on imported goods. In
1978, in Zee Toys, supra, 85 Cal.App.3d 763, section 225 was held to
be unconstitutional. After this court denied hearing, the United
States Supreme Court granted certiorari, ultimately affirming with-
out opinion based on a four-to-four split. (Sears, Roebuck & Co. v.
County of Los Angeles (1981) 449 U.S. 1119 [67 L.Ed.2d 106, 101
S.Ct. 933].)
In the meantime, Los Angeles County was the only county to
disregard section 225 and assess taxes on imported goods in tax
years 1976-1978. In 1978, on the basis of Zee Toys, the State Board of
Equalization instructed the remaining counties to levy “escaped
assessments” for the years in question. Once again the Legislature
stepped in, and passed a protective measure prohibiting such escaped
assessments for tax years prior to 1979-1980. (§ 225.3. Added by
Stats. 1979, ch. 902, § 2, eff. Sept. 22, 1979; repealed by Stats. 1984,
ch. 678, § 12.)
Finally, in 1981, the Legislature enacted section 219, prohibiting
taxation of all business inventories. Thus, only a limited number of
importers were assessed ad valorem taxes during section 225’s
limited lifespan. 5,
A-13
in another state and transshipped through California to a
third state were not entitled to the exemption. Thus, those
domestic companies exclusively engaged in interstate
commerce would be taxed, while those involved in export-
ing or importing would not be.
At first glance this distinction may not appear particu-
larly troubling.’° Taxation of foreign commerce has tradi-
tionally been off limits to the states. “Although [the
commerce clause] grants Congress power to regulate
commerce ‘with foreign Nations’ and ‘among the several
Sates’ in parallel phrases, there is evidence that the
Founders intended the scope of the foreign commerce
power to be the greater.” (Japan Line, Lid. v. County of
Los Angeles (1979) 441 U.S. 434, 448 [60 L.Ed.2d 336,
347-348, 99 S.Ct. 1813]. See also Michelin, supra, 423 U.S.
at p. 286 [46 L.Ed.2d at p. 503].) “Laws which concern
the exterior relations of the United States with other
nations and governments are general in their nature, and
should proceed exclusively from the legislative authority
of the nation.” (Bowman v. Chicago & N. R. Co. (1888)
125 U.S. 465 482 [31 L.Ed. 700, 706, 8.
[42 Cal.3d 12]
S.Ct. 689].) (8) Thus, a state tax scheme may not inter-
fere with Congress’ plenary power to regulate commerce
with other nations.
See e.g., Westinghouse Electric Corp. v. Tully (1984) 466 U.S. 388,
406, footnote 12 [80 L.Ed.2d 388, 403, 104 S.Ct. 1856] (“We
reiterate that it is not the provision of the [franchise tax] credit [for
export income] that offends the Commerce Clause, but the fact that it
is allowed on an impermissible basis, i.e., the percentage of a specific
segment of the corporation’s business that is conducted in New
York.”’)
A-14
The United States Supreme Court’s decision in Japan
Lines reinforces this basic constitutional restriction. In
Japan Lines the court struck down California’s imposition
of ad valorem tax on cargo containers owned by a foreign
entity, used exclusively in international commerce and
fully taxed in the domiciliary country. After emphasizing
that “[w]hen construing Congress’ power to ‘regulate
commerce with foreign Nations,’ a more extensive consti-
tutional inquiry is required” than that ordinarily em-
ployed in determining whether a tax unduly burdens
interstate commerce (441 U.S. at p. 446 [60 L.Ed.2d at p.
346]), the court proceeded to identify two additional
factors to be considered: the risk of multiple taxation and
potential impairment of the nation’s ability to “speak with
one voice” in foreign affairs. (Jd., at pp. 446-449 [60
L.Ed.2d at pp. 346-348].) The court then held that appli-
cation of the tax to instrumentalities of foreign commerce
resulted in multiple taxation and interfered with federal
uniformity in regulation of foreign trade, and, thus, vio-
lated the commerce clause. (/d., at pp. 451-454 [60
L.Ed.2d at pp. 349-351].) The court acknowledged that
this foreign commerce exemption might result in diserimi-
nation against domestic commerce, but concluded that
Congress would have to resolve such “problems that
admit only of a federal remedy.” (/d., at p. 457 [60
L.Ed.2d at p. 353].)
Japan Lines, however, does not support the proposition
that any state tax on foreign commerce is per se invalid.
In faet, in Container Corp. v. Franchise Tar Bd. (1983)
463 U.S. 159 [77 L.Ed.2d 545, 103 S.Ct. 2933] in which
the court upheld California’s “three-factor” formula for
unitary tax assessments against a commerce clause chal-
lenge, the court stressed that the Japan Lines holding was
limited to the narrow issue presented in the case:
“*(W)hether instrumentalities of commerce that are
A-15
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.’ ”
(Container Corp., supra, 463 U.S. at pp. 187-188, fn. 24
[77 L.Ed.2d at p. 568].) The court further implied that
Japan Lines had gone too far in suggesting that the risk
of multiple taxation alone would necessarily invalidate a
state tax. The tax must be considered in context, inelud-
ing the feasibility of alternative modes of taxation, even if
it actually results in multiple taxation. (/d., at pp. 190-
194 [77 L.Ed.2d at pp. 569-571].)
In addition, and of particular importance to our diseus-
sion, the Container Corp. court also refined the second
prong of the Japan Lines test: whether
[42 Cal.3d 13]
the tax interfered with the federal government’s ability to
“speak with one voice” in foreign affairs. The court
instructed: “In conducting this inquiry, ... we must keep
in mind that if a state tax merely has foreign resonances,
but does not implicate foreign affairs, we cannot infer,
‘[a]bsent some explicit directive from Congress, .. . that
treatment of foriegn income at the federal level mandates
identical treatment by the States.’ [Citations.] Thus, a
state tax at variance with federal policy will violate the
‘one voice’ standard if it either implicates foreign policy
issues which must be left to the Federal Government or
violates a clear federal directive.” (Container Corp.,
supra, 463 U.S. at p. 194 [77 L.Ed.2d at pp. 571-572].)
Absent interference with such a directive," nondiserim-
inatory ad valorem taxation of business inventories does
"For example, imported goods stored in customs bonded ware-
houses [19 U.S.C. §1557(a)) are immune from state taxation.
A-16
not intrude upon the federal government’s foreign com-
merce power. In Michelin, supra, 423 U.S. 276 the court
upheld, against an imvort-export clause challenge, Geor-
gia’s assessment of a nondiscriminatory ad valorem tax
on imported goods stored as business inventory.’ The
court reasoned that because the purpose of such a prop-
erty tax is to recover the costs, on an apportioned basis,
of locally profided services such as police and fire protec-
tion, and the tax is imposed on all property regardless of
origin, the tax could not be characterized as an “impos: or
duty” levied on imported goods. The tax was therefore
valid.
In reaching the conclusion that a nondiscriminatory ad
valorem tax could be imposed on all goods including
imports, the court dismissed the concern that the tax
somehow interfered with the federal government’s com-
merce power. The court stressed: “It is obvious that such
nondiseriminatory property taxation can have no impact
whatsoever on the Federal Government's exclusive regu-
lation of foreign commerce, probably the most improtant
purpose of the Clause’s prohibition. By definition, such a
tax does not fall on imports as such because of their place
of origin. It cannot be used to create special protective
tariffs or particular preferences for certain domestic
goods, and it cannot be applied selectively to encourage
or discourage any importation in a manner inconsistent
with federal regulation.” (Michelin, supra, 323 U.S. at p.
(Xerox Corp. v. County of Harris (1982) 495 U.S. 145 [74 L.Ed.2d
323, 103 S.Ct. 523].)
Although Michelin involved the import-export clause (U.S.
Const., art. I, § 10, el. 2) the court noted in Japan Lines that the
import-export clause and the commerce clause reflect virtually inden-
tical policies with regard to regulation ov commerce with foreign
nations. (/d., 441 U.S. at pp. 449-450, fn. 14 [60 L.Ed.2d at pp. 348-
349].)
To ae
“ Me,
eee ee Se
——_
A-17
286 [46 L.Ed.2d at pp. 503-504].) The court further
explained, “(t]he Import-Export Clause clearly prohibits
stats taxation based on the foreign origin of the imported
goods, but it cannot be read to accord imported goods
preferential treatment that permits escape from uni-
[42 Cal.3d 14]
form taxes imposed without regard to foreign origin for
services which the State supplies. [Citation.]” (Jd., at p.
287 [46 L.Ed.2d at p. 504].)
Michelin teaches that nondiscriminatory ad valorem
taxation of business inventories, including inventories
linked to foreign commerce, is constitutional and has no
impact on the federal government’s foreign commerce
power. Though we deal, in the instant case, not with
imposition of the tax, but with an exemption, the Michelin
rule is fully applicable. Because the tax itself has no
bearing on the foreign commerce power, an exemption
from that tax cannot look to the foreign commerce power
for its legitimacy. Stated differently, the exemption can-
not be necessary to preserve Congress’ power to regulate
foreign commerce if the tax itself does not interfere with
the power to so regulate. The business inventories tax
poses no threat to the federal government's ability to
“speak with one voice” when regulating commerce with
other nations. (6c) The exemption, then, which leaves in
place a tax scheme that appears to discriminate against
domestic commerce, cannot be sustained on the tradi-
tional ground that the states may not interfere with
congressional power “to regulate commerce with foreign
nations.” (U.S. Const., art. I, $8, el. 3.)
Though the exemption cannot be justified as an attempt
to protect the foreign commerce power, it can be chal-
lenged as interfering with that power. “Only the federal
A-18
government can fix the rules of fair competition when
such competition is on an international basis.” (Bethlehem
Steel Corp. v. Board of Commissioners (1969) 276
Cal.App.2d 221, 226 [80 Cal.Rptr. 800}.) As the Zee Toys
court noted, “[t]he principal mode through which Con-
gress has exercised [this] power...is by the imposition
of import tariffs, designed for the most part to afford
protection to United States manufactured goods
threatened by foreign competition.” (Jd., 85 Cal.App.3d
at 774.) Taxation exemptions extended only to foreign
goods may operate to nullify the curative effect of feder-
ally imposed tariffs. Conversely, when all goods located
within a state are taxed on a nondiscriminatory basis for
provided services, federal regulation of competition be-
tween interstate and foreign commerce is unimpeded by
state policy. The nondiscriminatory tax “cannot be ap-
plied selectively to encourage or discourage any importa-
tion in a manner inconsistent with federal regulation.”
(Michelin, supra, 423 U.S. at p. 286 [46 L.2d.2d at p.
504].) (Italics added.] Thus, the exemption may actually
offend rather than preserve Congress’ exclusive power to
regulate foreign commerce.
Because Congress’ foreign commerce power may not be
invoked to curtail serious examination of the tax scheme
in question, we must consider whether section 225’s ex-
emption results in discrimination against interstate com-
merece. “A tailored tax, however accomplished, must
receive the careful
[42 Cal.3d 15]
scrutiny of the courts to determine whether it produces a
forbidden effect on interstate commerce.” (Complete Auto
Transit, Inc. v. Brady (1977) 430 U.S. 274, 289, fn. 15 [51
L.Ed.2d 326, 337, 97 S.Ct. 1076].)
A-19
Typically, cuestions involving discrimination against
interstate commerce arise in the context of favored treat-
ment of intrastate commerce over interstate commerce.”
(E.g., Maryland v. Lowisiana (1981) 451 U.S. 725 [68
L.Ed.2d 576, 101 S.Ct. 2114]; Lewis v. BT Investment
Managers, Inc. (1980) 447 U.S. 27 [64 L.Ed.2d 702, 100
S.Ct. 2009]; Hughes v. Oklahoma (1979) 441 U.S. 322 [60
L.Ed.2d 250, °9 S.Ct. 1727].) This juxtaposition is not
exclusive however. For example, in Boston Stock Exz-
change, supra, 429 U.S. 318 the court concluded that a
state tax statute that discriminated between two classes
of interstate commerce (securities sales) was unconstitu-
tional. Despite the rather unique nature of the instant
case, the same analysis should apply.
(9) In Complete Auto Transit, supra, 430 U.S. 274, the
court adopted a four-part test for determining whether a
state tax imposed on interstate commerce will survive a
commerce clause challenge. Such a tax is constitutional if
it “...is applied to an activity with a substantial nexus
with the taxing State, is fairly apportioned, does not
discriminate against interstate commerce, and is fairly
related to the services provided.” (Id., at p. 279 [5]
L.Ed.2d at p. 331].) Because a nondiscriminatory ad
valorem personal property tax on business inventories
would satisfy each of these requirements (see Michelin,
supra, 423 U.S. 276) we need foeus our inquiry only on
the third prong of the test.
(6d) The exemption at issue not only removes the
inventory of foreign companies transshipping through
California from within the seope of the property tax, it
‘8 “The very purpose of the Commerce Clause was to create an area
of free trade among the several States.’” (Boston Stock Exchange,
supra, 429 U.S. at p. 328 [50 L.Ed.2d at 523].)
A-20
exempts domestic companies involved in importing or
exporting as well. Star-Kist is a California corporation
which transships goods manufactured outside the country
through California for sale in other states. To the extent
that domestic companies, like Star-Kist, can take advan-
tage of section 225’s tax exemption and thereby gain a
competitive edge over domestic competitors operating
exclusively within the United States, discrimination
against a distinct class of interstate commerce is ocecur-
ring. Thus the tax fails the Complete Auto Transit test of
constitutionality.
As the Michelin court noted, “there is no reason why an
importer should not bear his share of [the] costs [of state
services] along with his competitors handling only domes-
tie goods.” (Jd., 423 U.S. 276, 287 [46 L.Ed.2d 495,
[42 Cal.3d 16]
504].) Viewing the exemption, as we must, “‘... in light
of its actual effect considered in conjunction with other
provisions of the State’s tax scheme’” (Maryland v.
Louisiana, supra, 451 U.S. 725, 756 [68 L.Ed.2d 576,
601]), we conelude that the exemption constitutes an
undue burden on interstate commerce in violation of the
commerce clause.
owe
The judgement is affirmed.
Bird, C. J., Mosk, J., Broussard, J., Grodin, J., and
Uchiyama (Mikio), J.,* coneurred.
LUCAS, J. — I respectfully dissent. Applying improper
analysis, the majority incorrectly strikes down as viola-
*Judge, Justice Court for the Fowler-Caruthers Judicial District
of Fresno County, assigned by the Chairperson of the Judicial
Council.
see ee ee iieiantina =
A-21
tive of the federal ecommerce clause (U.S. Const., art. I,
§ 8, el. 3) former Revenue and Taxation Code section 225
which provided a tax exemption for business inventory of
foreign origin or destination transshipped through Cali-
fornia.’ Although presently all business inventory is ex-
empt from taxation (Rev. & Tax. Code, § 219) and former
section 225 has been repealed (Stats. 1984, ch. 678, § 10,
p. 188), I write separately because today’s decision im-
properly precludes the Legislature from future use of this
valid device to attract foreign commerce to California
ports.
The commerce clause, investing in Congress the power
“[t]o regulate commerce with foreign nations, and among
the several States...” (U.S. Const., art. I, $8, el. 3) also
acts, by its own force, as a limitation on state power.
(Boston Stock Exchange v. State Tax Comm’n (1977) 429
U.S. 318, 328-329 (50 L.Ed. 2d 514, 523-524, 97 S.Ct.
599].) This limitation applies to laws implicating both the
foreign and interstate components of the commerce
clause, but has never been read as an absolute ban on the
states’ authority to enact legislation touching upon either
the foreign or interstate commerce powers. (Ibid.; Cooley
v. Board of Wardens (1852) 53 U.S. (12 How.) 299, 319
[13 L.Ed. 996, 1004].) As I will demonstrate, the statute
at issue here, extending a business inventory exemption
to importers and exporters transshipping through Cali-
fornia while denying the exemption to interstate shippers,
does not violate either of these implicit limitations on
state power.
‘All further statutory references are to the Revenue and Taxation
Code.
A-22
[42 Cal.3d 17]
I. Foreign Commerce Clause
Conceding that nondiscriminatory ad valorem taxes on
foreign business inventories would have no impact on the
federal government’s foreign commerce power (ante,
p. 13), the majority concludes that the section 225 exemp-
tion from this otherwise valid tax may actually offend that
power, as it “may operate to nullify the curative effect of
federally imposed tariffs.” (Ante, p. 14.) I submit that
such speculation is not sufficient to strike down an other-
wise valid exercise of state power.
In Japan Line, Ltd. v. County of Los Angeles (1979) 441
U.S. 434, 449-450, footnote 14 [60 L.Ed.2d 336, 348-349,
99 S.Ct. 1813], the high court reiterated the three main
policies used in federal commerce clause analysis:
“(T]he Federal Government must speak with one voice
when regulating commercial relations with foreign gov-
ernments...; import revenues were to be the major
suuree of revenue of the Federal Government and should
not be diverted to the States; and harmony among the
States might be distrubed unless seabord States... were
prohibited from levying taxes on [goods in transit].’”
The exemption provided by former section 225 does not
conflict with any of these concerns.
In Container Corp. v. Franchise Tax Bd. (1983) 463
U.S. 159, 193-194 [77 L.Ed.2d 545, 571, 103 S.Ct. 2933],
the Supreme Court amplified upon the first policy concern
identified in Jpana Line, inquiring whether the state
legislation “impair[s] federal uniformity in an area where
federal uniformity is essential” (Japan Line, supra, 441
U.S. at p. 448 [60 L.Ed.2d at p. 347]), preventing ‘the
Federal Government from ‘speaking with one voice’ in
international trade...” (id., at p. 453 [60 L.Ed.2d at p.
5 Seyret an pe lc .
A-23
351]). The Container Corp. court stated that merely
because a state tax has “foreign resonances,” it does not
necessarily implicate foreign affairs; rather, violation of
the ‘one voice” standard occurs if the state tax “either
implicates foreign policy issues which must be left to the
‘Federal Government or violates a clear federal directive.”
(Container Corp., supra, 463 U.S. at p. 194 [77 L.Ed.2d at
pp. 571-572], italics in originel.)
Container Corp. concerned, in part, whether application
of California’s “unitary business” principle to tax foreign
subsidiaries violated the federal commerce clause. In
concluding that the state’s tax did not violate the “one
voice” standard, the court found that the state tax did not
implicate foreign policy by creating a threat of economic
retaliation by other nations. Although recognizing foreign
policy issues, other than economic retaliation could be
implicated, the court noted that the absence of an amicus
euriae brief by the Solicitor General raising such con-
cerns, primarily the province
[42 Cal.3d 18]
of the executive branch and Congress, was some indica-
tion that no such other considerations were involved. (Jd.,
at pp. 195-196 [77 L.Ed.2d at p. 571].)
Analyzing whether the tax violated a “clear federal
directive,” termed “essentially a species of pre-emption
a. alysis,” the court observed that the existing tax treaties
did not address state taxing powers, the regulation of
which Congress had debated but chosen not to regulate.
(Id., at pp. 196-197 [77 L.Ed.2d at pp. 573-574].) The
eovrt concluded the California tax was thus not “pre-
empted by federal law or fatally inconsistent with federal
policy.” (Id., at p. 197 [77 L.Ed.2d at p. 573], italies
A-24
added.) The same conclusion should be reached regard-
ing the exemption in the present case.
Primarily, the majority has failed to demonstrate how
the tax exemption at issue affects any foreign policy.
Clearly, the effect of this legislation would not offend our
foreign trading partners. Rather, any equivalent ‘retalia-
tion” by other nations, in the form of tax exemption for
United States exports would be welcome. Additionally, we
find the views of the Solicitor General as stated in Sears
Roebuck and Co. v. County of Los Angeles et al. (1981) 449
U.S. 1119 [67 L.Ed.2d 106, 101 S.Ct. 933], persuasive
evidence that former section 225 has not implicated any
other foreign policy matters. In Sears Roebuck and Co. v.
County of Los Angeles et al., supra 449 U.S. 1119, the
Supreme Court reviewed a California Court of Appeal
opinion finding former section 225 unconstitutional, and
requested the Solicitor General to submit a brief on the
matter. Responding to this request, the Solicitor General
stated his view that the exemption did not violate the
commerce clause. Though ultimately the Court of Appeal
opinion was summarily affirmed by an equally divided
court, the Solicitor General’s opinion remains significant
to the extent that it serves as an indication that the
Executive Branch itself did not perceive former section
225 as interfering with foreign policy. (See Container
Corp., supra, 463 U.S. at pp. 195-196 [77 L.Ed.2d at pp.
572-573 ].)
Neither does the challenged exemption violate a clear
federal directive. Unlike Japan Line, where the court cited
the Customs Convention on Containers (441 U.S. at p.
452 [60 L.Ed.2d at p. 350] ), a specific directive in conflict
with the state’s taxing policy, the majority herein
presents only the possibility that some hypothetical tariff
may be impeded by the inventory exemption. Instead, like
heal we hedinaann ‘Stendaciitiend
A-25
the situation in Container Corp., there is no indication
either that by imposing a tariff, Congress has intended to
occupy the field, precluding taxation or exemption, or that
allowing the exemption would defeat the purposes of
congressional action. Neither the Supreme Court nor
Congress has ever required states to impose ad valorem
taxes. Absent some concrete showing that the exemption
is preempted by federal
[42 Cal.3d 19]
law, or “fatally inconsistent with federal policy.” I would
hold that this seemingly harmless exemption does not
impair federal uniformity, preventing the federal govern-
ment from “speaking with one voice” in international
trade.
The exemption also cannot be found to conflict with the
other major federal commerce clause concerns. Obviously,
providing an exemption does not divert import revenues
to the states. Moreover, unlike a tax imposed by a sea-
board state which could adversely affect inland states,
leading to disharmony, this tax exemption would not lead
to interstate rivalry.” The tax exemption provided by
former section 225 did not violate any of the policies
forming the basis of the foreign commerce clause. Rather
than impeding the flow of foreign commerce, this exemp-
tion, if anything, facilitated this channel of trade.
"As the court noted in Japan Line, the concern of preserving
harmony among the states requires essentially the same inquiry as
whether a state tax interferes with interstate commerce (441 U.S. at
p. 449, fn. 14 [60 L.Ed.2d at pp. 348-349]), a matter which we treat
more fully post. (See post, pp. 7-9.)
A-26
II. Interstate Commerce Clause
Former section 225’s exemption also may not be invali-
dated as interfering with interstate commerce. The major-
ity applies the test of Complete Auto Transit, Inc. v. Brady
(1977) 430 U.S. 274, 279 [51 L.Ed.2d 326, 331, 97 S.Ct.
1076], which is used to determine whether a state taz
interferes with interstate commerce, to analyze whether
this exemption unduly burdens interstate commerce. I
submit that the application of Complete Auto in this
wholly different context is erroneous.
The majority cites no case where Complete Auto is used
to analyze whether a state tax exemption or eredit vio-
lates the commerce clause. Moreover, the inappropriate-
ness of applying Complete Auto in this context is further
demonstrated when one attempts to apply the three parts
of its four-part analysis which the majority does not
discuss.” For example, it seems absurd to say that a
state’s choice not to impose a tax somehow violates the
commerce clause unless the activity not taxed has a
substantial nexus to that state. Likewise, it is difficult to
imagine what commerce clause policy concerns are pro-
moted by requiring that the exemption be “fairly appor-
tioned” or “fairly related” to the services for which the
state has chosen not to tax.
"In Complete Auto, the high court stated that a state tax may be
sustained “against a Commerce Clause challenge when [1] the tax is
applied to an activity with a substantial nexus with the taxing State,
[2] is fairly apportioned, [3] does not discriminate against interstate
commerce, and [4] is fairly related to the services provided by the
State.” (430 U.S. at p. 279 [51 L.Ed.2d at p. 331].) The majority
diseusses only the third prong.
A-27
[42 Cal.3d 20]
(See ante, p. 15.) These various factors relate to the
propriety of taxing the in-state activity, assuring that the
taxes are properly exacted for the services rendered by
the state; the test was not designed to determine whether
it is proper to exempt such property from tax.
The proper inquiry is whether the exemption statute,
protecting only imports and exports, burdens the free
flow of commerce among the several states. A recent
United States Supreme Court case appears controlling. In
Westinghouse Electric Corp. v. Tully (1984) 466 U.S. 388
[80 L.Ed.2d 388, 104 S.Ct. 1856], the State of New York,
responding to federal tax legislation affecting “Domestic
International Sales Corporations” (DISC), restructured
its procedures for taxing distributions received by a
parent corporation from its subsidiary. It also provided in
part for a “partially offsetting tax credit,” applied to
DISC ineome from export products “shipped from a
regular place of business of the taxpayer within [New
York].” (/d., at p. 393 [80 L.Ed.2d at p. 394].) The
amount of the eredit, applied to the parent corporation’s
tax obligation for business activity conducted in New
York, was dependent not only on the amount of goods the
DISC shipped from New York, but also upon the percent-
age of the DISC’s shipping activity conducted in New
York vis-a-vis other states.* Parent corporations with
*Though computed according to a five-step formula (id., at pp. 393-
394 [80 L.Ed.2d at pp. 394-395]), the amount of the credit was, in
essence, dependent upon the DISC’s “export ratio.” In other words,
the eredit otherwise applied to the New York DISC revenues attribu-
table to the parent was further multiplied by the quotient derived
from dividing DISC’s New York gross receipts by the DISC’s total
gross receipts.
A-28
identical business allocation percentages (the percentage
of its total business activity conducted in New York), and
identical New York DISC income were taxed differently
depending upon the amount of DISC income derived from
shipping activities in other states. (/d., at pp. 400-402, fn.
9 [80 L.Ed.2d at pp. 398-400].)
In analyzing whether “the method of allowing the
credit is discriminatory in a manner that violates the
Commerce Clause...” (id., at p. 399 [80 L.Ed.2d at p.
398], italics added), the court foeused on the fact that
“not only does the New York tax scheme ‘provide a
positive incentive for increased business activity in New
York State’... it [also] penalizes increases in the DISC’s
shipping activities in other States.” (Jd., at pp. 400-401
{80 L.Ed.2d at p. 398].) The court also reiterated the
settled principles that “‘“[t]he very purpose of the
Commerce Clause was to create an area of free trade
among the several States”’” (id., at p. 402 [80 L.Ed.2d
at p. 400]), and that “‘[n]o State, consistent with the
Commerce Clause, may “impose a tax which discriminates
against interstate commerce... by pro-
[42 Cal.3d 21]
viding a direct commercial advantage to local busi-
ness.” ’” (Id., at p. 403 [80 L.Ed.2d at p. 400].)
Acknowledging that in each case the court must bal-
ance the national interest in free trade with the state’s
interest in exercising its taxing powers (id., at p. 403),
the court found the prii.. ples enunciated in Boston Stock
Exchange, supra, and Maryland v. Lousiana (1981) 451
U.S. 725 [68 L.Ed.2d 576, 101 S.Ct. 2114], controlling.”
‘In Maryland v. Louisiana, supra, the court struck down Louisi-
ana’s “First-Use” tax statute, imposing a tax on natural gas brought
into the state, while providing exemptions and credits to local users,
as “unquestionably discriminating against interstate commerce in
A-29
In both cases, the court struck down state statutes impos-
ing greater economic burdens on similar activities occur-
ring out-of-state than occurring in-state. The court
eoneluded that the New York tax credit violated the
commerce clause because it “‘foreclose[d] tax-neutral
decisions and ...create([d]...an advantage’ for firms
operating in New York by placing ‘a discriminatory bur-
den on commerce to its sister States.’ [Citation.]”’ (Westing-
house Electric, supra, 466 U.S. at p. 406 [80 L.Ed.2d at p.
402], italics added.)*®
Nonetheless, the Westinghouse Electric court hastened
to add that not all schemes to attract a particular seg-
ment of industry into a state are unconstitutional. The
court stated: “We reiterate that it is not the provision of
the credit that offends the Credit Clause, but the fact that
it is allowed on an impermissible basis, i.e., the percent-
age of a specific segment of the corporation’s business
that is conducted in New York. As in Boston Stock Ex-
change, we do not ‘hold that a State 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
favor of local interests.” (Jd., at p. 756 [68 L.Ed.2d at p. 602].)
Likewise in Boston Stock Exchange, supra, the court found violative of
the commerce clause a stock transfer tax reducing the tax burden on
nonresidents engaged in in-state (but not out-of-state) sales of stock,
and creating a maximum tax limit for all stock buyers for purchases
made in-state (but not out-of-state). The court found the tax uncon-
stitutional because it “discriminates between two types of interstate
transactions in order to favor local commercial interests over out-of-
state businesses. . .” (id., at p. 335 [50 L.Ed.2d at p. 528], italies
added), concluding that a state may not build up its own commerce
by burdening businesses in other states. (Jbid.)
Significantly, the court did not cite or apply Complete Auto in
either Westinghouse Electric or Maryland v. Louisiana, supra.
A-30
discriminatorily tax the products manufactured or the
business operations performed in any other State.’ (Id., at
pp. 406-407, fn. 12 [80 L.Ed.2d at p. 403], italies added.)
The tax exemption granted by former section 225 to
attract commerce to California ports was not grounded on
an “impermissible basis.”’ There was
[42 Cal.3d 22]
no penalty imposed on activity conducted outside of
California. Shippers not wishing to pay the inventory tax,
levied as a quid pro quo for the services rendered by
California, simply may have chosen to transship through
another state. Unlike Boston Stock Exchange, Westing-
house Electric, and Maryland v. Louisiana, supra, no
burden was imposed on interstate commerce by placing a
penalty or disincentive on the choice to transact business
in another state. Moreover, unlike the paradigm com-
merece clause case, local interests are not favored. (See
Westinghouse Electric, supra, 466 U.S. at p. 403 [80
L.Ed.2d at p. 400].) The exemption is available regard-
less of the residency of the shipper or the place of
manufacture of the goods, with the exception of those
goods whose point of origin is California which do not
qualify for the exemption because they are not being
“transshipped” through California.
In my view, respondents’ claim at bottom is really an
equal protection attack. They are complaining in essence
that the state’s differential treatment of import and ex-
port business inventories from that of domestie goods
lacks a rational basis. Assuming respondents would have
standing to raise this issue, an unlikely conclusion under
the majority’s analysis (see ante, p. 6), I submit that
former section 225 would by upheld against such a chal-
lenge because the distinction it draws “ ‘is neither capri-
cious nor arbitrary, and rests upon some reasonable
A-31
consideration of difference or policy ....’” (Allied Stores
of Ohio v. Bowers (1959) 358 U.S. 522, 527 [3 L.Ed.2d
480, 485, 79 S.Ct. 437] [upholding against an equal
protection clause challenge an Ohio statute providing
only nonresidents an exemption for merchandise held in
storage, from a tax otherwise imposed on “[a]l] personal
property located and used in business in the state’’].)
One such reasonable policy consideration may be the
greater threat of business flight from California posed by
importers and exporters rather than by those dealing in
interstate commerce, which justifies a greater incentive
for the former group. (See Zee Toys, Inc. v. County of Los
Angeles (1978) 85 Cal.App.3d 763, 776 [149 Cal.Rptr.
750].) In any event, the Legislature was not required to
expressly state these policy considerations. The statute
would not violate the equal protection clause “if any state
_ of facts reasonably can be conceived that would sustain it.
[Citations.]”” (Allied Stores, supra, 358 U.S. at p. 528 [3
L.Ed.2d at p. 486].)
The exemption provided by former section 225 does not
run contrary to the limitations on state power implicit in
either the foreign or interstaate components of the com-
meree clause. The exemption neither interferes with the
federal government’s ability to speak with one voice when
reguiating commercial relations with foreign govern-
ments, nor does it burden the free flow of interstate
commerce by imposing a penalty on business activity con-
{42 Cal.3d 23]
dueted outside of California. I would find the tax exemp-
tion constitutional and would reverse the trial court’s
ruling denying plaintiff's claim for a refund of the im-
properly levied inventory tax.
B-1
APPENDIX B
No. 78-1577
IN THE SUPREME COURT OF THE
JINITED STATES
OCTOBER TERM, 1978
SEARS, ROEBUCK AND CoO., PETITIONER
v.
CouNTY OFr LOS ANGELES AND CITY OF COMPTON
ON PETITION FOR A WRIT OF CERTIORARI TO
THE COURT OF APLEAL OF THE STATE OF
CALIFORNIA, SECOND APPELLATE DISTRICT
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE
WADE H. McCREE, JR.
Solicitor General
M. CARR FERGUSON
Assistant Attorney General
STUART A. SMITH
Assistant to the
Solicitor General
ERNEST J. BROWN
Attorney
Department of Justice
Washington, D.C. 20530
INDEX
Page
PN OD os ck can dna decent een 1
GIs 6.5 6.5 00k bcc0 6a taensas ee 1
Qmentiom Presented . oo .ccc ccc ccuccocstdecccn. 2
Constitutional provision and statutes involved..... 2
EPO ET EP EET CPE Rm? 3
IIE Ts 0.53 6.0.0 0c35a0500ais bene 5
IIS 6.0'0. 5.60 09k 45-000 bNe eae 12
CITATIONS
Cases:
Allied Stores of Ohio v. Bowers, 358 U.S. 522 .. 6
American Steel & Wire Co. v. Speed, 192 U.S.
nah CECE C ET TORE ETT ETO ny 8
Asakura v. Seattle, 265 U.S. 332 ............. 6
Bacon v. Illinois, 227 U.S. 504............... i)
Boston Stock Exchange v. State Tax Comm'n,
ee Te ND CATED 6. oon ave ccdewovenstann. oe
Braniff Airways v. Nebraska State Board, 347
PM ono ba0ks 6bknd hed sek 7
Brewing Co. v. Liquor Comm’n., 305 U.S. 391.. 9
Brown v. Houston, 114 U.S. 622.............. 8
Brown v. Maryland, 25 U.S. (12 Wheat). 419.. 7
Carson Petroleum Co. v. Vial, 279 U.S. 95..... 9
Chy Lung v. Freeman, 92 U.S. 275 ........... 6
Crew Levick Co. v. Pennsylvania, 245 U.S. 292 9
Dept. of Revenue v. James Beam Co., 377 U.S.
UPN AS weak 00.806 sd shuns oew ee ese 9
Empresa Siderurgica v. Merced Co., 337 U.S.
DN esd k een videncecdcudedece 8
B-3
Cases — (Continued):
Page
Fairfax’s Devisee v. Hunter’s Lessee, 11 U.S. 7
ne ses eee 8 ee
General Oil Co. v. Crain, 209 U.S. 211........
Hauenstein v. Lynham, 100 U.S. 4838..........
Henderson v. Mayor of New York, 92 U.S. 259
Hines v. Davidowitz, 312 U.S. 52.............
Hooven & Allison Co. v. Evatt, 324 U.S. 652 ...
Hostetter v. Idlewild Liquor Corp., 377 U.S.
DmaHDBDHA OO NH
Re OW ana ssn ccc ccs e eee 6,9
Japan Line, Ltd. v. County of Los Angeles, No.
77-1876, (April 30, 1979) ................. 7,8
Joy Oil Co. v. State Tax Comm’n., 337 U.S.
eC ylawinvscasscsees 8,9
Kolovrat v. Oregon, 366 U.S. 187............. 6
Low v. Autin, 80 U.S. (13 Wall.) 29.......... 9,10
Massachusetts v. United States, 4385 U.S. 444
RES = 13
McGoldrick v. Gulf Oil Corp., 309 U.S. 414 ... 6
Michelin Tire Corp. v. Wages, 423 U.S. 276.... 7,10
Minnesota v. Blasius, 290 U.S. 1 ............. 9
Nielsen v. Johnson, 279 U.S. 47 ..........45-. 6
Ott v. Mississippi Barge Line, 336 U.S. 169.... 7
People v. Compagnie Gen. Transatlantique, 107
I 6
Richfield Oil Corp. v. State Board, 329 U.S. 69 7
Sonneborn Brosl v. Cureton, 262 U.S. 506 ..... 8
State Board v. Young’s Market Co., 299 U.S. 59 9
Ware & Hylton, 3 U.S. (3 Dall.) 199 ......... 6
Cases — (Continued):
Page
Washington Rev. Dept. v. Stevedoring Assn., 435
ok | Serer re es errr sere ee 9
Si 0k ROO ECOL Ce ers 9
Wilow Corp. v. Pennsylvania, 294 U.S. 169 .... 8
Woodruff v. Parham, 75 U.S. (8 Wall.) 123 ... 8
Zaschernig v. Miller, 389 U.S. 429............ 6
Constitution, statutes and regulations:
United States Constitution, Article I, Section 8,
onan kare ck dc hs ot 0 ae a il 2, 5, 6, 8
Internal Revenue Code of 1954 (26 U.S.C.):
ks, RP a range ae wn are eae 19
RO ee ree ree 10
I NS gy awiak cou dan daceees 10
re er ee err re 10
1975 Cal. Stats., ch. 1126, $§ 1 and 2......... 2
Ree Ss I, Hs I oko op heb eke 2
ROrt Rs es WE a Es hike ns a ds cca ys 2
Cal. Rev. & Tax. Code § 225 (West Supp.
BPE 6 5.65 ke ee CAR RR CLM ERE Se Ce 2, 4, 5
Cal. Rev. & Tax. Code § 225.1 (West Supp.
RR ish ok aoe edhe ae REN Co Re eS 2, 3,4
Cal. Rev. & Tax. Code § 253.10 (West Supp.
i) Ee ee ee Ne trie mir ahi arin I ae 2
)
B-5
Constitution, statues and regulations — (Continued):
Treasury Temporary Regulations in
Connection with the Airport and Airway
Revenue Act of 1970:
soe Be & OS | errr 10
gee A M&O: } rere 10
ae ee Oe) errr rere 11
ke Me 8 err 11
B-6
IN THE SUPREME COURT OF THE
UNITED STATES
OCTOBER TERM, 1978
No. 78-1577
SEARS, ROEBUCK AND CO., PETITIONER
Vv.
CouNnTYy OF Los ANGELES AND CITY OF COMPTON
ON PETITION FOR A WRIT OF CERTIORARI TO
THE COURT OF APPEAL OF THE STATE OF
CALIFORNIA, SECOND APELLATE DISTRICT
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE
This brief is submitted in response to the Court's
invitation of June 4, 1979.
OPINIONS BELOW
The order of the trial court is not officially reported.
The opinion of the Court of Appeal (Pet. App. 1-29) is
reported at 85 Cal.App. 3d 763. The denial by the Su-
preme Court of California of a petition for hearing (Pet.
2) is reported at 149 Cal. Rptr. 764.
B-7
JURISDICTION
The decision of the Court of Appeal was entered on
October 25, 1978 (Pet. 2; Pet. App. 1). The Supreme
Court of California denied petition for hearing on Janu-
ary 17, 1979 (Pet. 2). The petition for a writ of certiorari
was filed on April 16, 1979. The jurisdiction of this Court
is invoked under 28 U.S.C. 1257(3).
J
QUESTION PRESENTED
The United States will discuss the following question:
Whether the California property tax exemption for per-
sonalty manufactured or produced (1) outside California
and brought into the State for transshipment out of the
United States; or (2) outside of the United States, and
brought into California for transshipment out of the
State, for sale in the ordinary course of trade or business,
is invalid under the Commerce Clause of the United
States Constitution.
CONSTITUTIONAL PROVISION AND STATUTES
INVOLVED
Article I. Section 8, Clause 3 of the United States
Constitution provides: “The Congress shall have Power
*** To regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes”.
Sections 225 and 225.1 of the Cal. Rev. & Tax. Code
(West), enacted by 1975 Cal. Stats., ch. 1126, at 2746,
§§ 1 and 2, during the period here involved’ provided as
follows:
‘Although Section 225.1 of the Cal. Rev. & Tax. Code (West) was
repealed by 1977 Cal. Stats., ch. 246, § 4, its provisions were simulta-
neously reenacted as Section 253.10 of the Rev. & Tax. Code, ny 1977
Cal. Stats., ch. 246, § 7.
B-8
§ 225. Personalty brought into state for transship-
ment outside state or United States; exemption
Personal property manufactured or produced, (1)
outside this state and brought into this state for
transshipment out of the United States, or (2)
outside of the United States and brought into this
state for transshipment out of this state, for sale in
the ordinary course of trade or business shall be
exempt from taxation. The exemption under this
section shall not apply to personal property in manu-
facturing process or production. Such process or
production shall not include the breaking in bulk,
labeling, packaging, relabeling, or repackaging of
such property.
§ 225.1. Method of Claiming _ transshipment
exemption
A person claiming the transshipment exemption
under Section 225 may either claim this exemption
by (1) a percentage method of determining property
held for transshipment on hand at a particular loca-
tion by allocating a portion of the total inventory,
using the percentage determined by dividing the
total out-of-state shipments by the taxpayer from
that location during the preceding year by the total
of such shipments from that location during such
year, or (2) an actual method as evidenced by con-
tracts of sale on the tax lien date, and a full, true and
correct inventory of ail property held for transship-
ment together with the date of receipt of the same,
the date of withdrawal of the same, the point of
origin thereof, and the point of ultimate destination
thereof.
B-9
STATEMENT
Petitioner brought this suit for refund of ad valorem
personal property taxes paid under protest to the County
of Los Angeles and the City of Compton.
The facts were stipulated (Pet. App. 1-2, 4) and may be
summarized as follows: Petitioner is engaged in the busi-
ness of selling goods at retail, both in California and
elsewhere. On March 1, 1976, the tax lien date for pur-
poses of the annual California ad valorem tax on personal
property, petitioner held tangible personal property in
warehouses in the County of Los Angeles and City of
Compton. The property in question had been manufac-
tured or produced outside the United States, and had
been imported by petitioner and placed in warehouses for
distribution both within and without California for pur-
poses of sale in the ordinary course of petitioner’s busi-
ness. Petitioner’s distribution warehouses in the County
of Los Angeles were devoted almost entirely to goods
imported from foreign countries, particularly from loca-
tions in the Pacific area. The rate of turnover at the
warehouses averaged approximately three times per year.
Petitioner intended to ship the goods as quickly as its
distribution operations permitted. Pursuant to Sections
225 and 225.1 of the California Revenue and Taxation
Code, petitioner applied to the total amount of goods
manufactured or produced outside the United States and
held in its warehouses in Los Angeles County on March 1,
1976, the fraction represented by the out-of-state ship-
ments from those locations during the preceding year
divided by the total shipments from those locations dur-
ing that year. Petitioner accordingly claimed a transship-
ment property tax exemption for property having a value
of $19,373,089 (Pet. App. 1-3, 4-5).
B-10
Respondents denied the claimed exemption. They as-
serted (1) that properly construed, Section 225 exempted
only goods in transit through the State, and (2) that even
if Section 225 were construed to exempt imported goods
held in the State by the owner for disposal or use, it
would violate the United States Constitution by regulat-
ing interstate and foreign commerce in interfering with
foreign affairs, because it extended no exemption to inter-
state goods. Petitioner thereupon paid the tax under
protest and instituted this action for refund in the Supe-
rior Court of Los Angeles County. The Superior Court
upheld petitioner’s claimed exemption (Pet. App. 1-2, 5-
6).
The Court of Appeal reversed (Pet. App. 29). Although
it rejected respondents’ statutory argument that Section
225 applied only to goods “in transit” (Pet. App. 7-10), it
held that the statutory exemption of foreign goods regu-
lated interstate and foreign commerce and was therefore
invalid under the Commerce Clause of the United States
Constitution (Pet. App. 6, 10-18). It also suggested that
the exemption interfered with the power of the Congress
to impose tariffs (Pet. App. 15-16). In the Court of
Appeal’s view, the statutory exemption gave goods of
foreign origin a competitive advantage over goods manu-
factured in other states and brought to California for
transshipment in interstate commerce. It concluded that
“state taxes which discriminate between classes of inter-
state and foreign goods on the basis of their origin are not
permitted” (Pet. App. 14). With three Justices dissent-
ing, the Supreme Court of California denied a petition for
hear (Pet. 2).
B-11
ARGUMENT
In holding that the California property tax exemption
for foreign goods destined for interstate commerce or
out-of-state goods destined for export violates the Com-
) merece Clause of the Constitution and interferes with
Congress’ power to impose tariffs, the Court of Appeal
misinterpreted the decisions of this Court.
1. Seetion 225 of the California Revenue and Taxation
Code exempts from taxation while held in California,
imported goods destined for other states and goods from
other states destined for export. It does not, however,
exempt domestic goods destined for interstate commerce.
On the authority of this Court’s decision in Boston Stock
Exchange v. State Tax Comm'n, 429 U.S. 318 (1977), the
Court of Appeal held that the statute unconstitutionally
discriminated against interstate commerce and therefore
violated the Commerce Clause. But Boston Stock Ex-
change has no bearing on the question presented in this
ease. The prohibited discrimination in that case was one
that provided “a direct commercial advantage to local
business” by virtue of “laws that favor local enterprise at
the expense of out-of-state business” (429 U.S. at 329) by
taxation “in a manner that discriminates between two
types of interstate transactions in order to favor local
commercial interests over out-of-state business” (id. at
335).
Here, in contrast, the statutory property tax exemption
did not favor local business at the expense of out-of-state
business. It favored imports and exports.” There is, how-
ever, no constitutional prohibition against favoring im-
*Cf. Allied Stores of Ohio v. Bowers, 358 U.S. 522 (1959). There, the
issue was addressed under the Equal Protection Clause of the
Fourteenth Amendment rather than under the Commerce Clause.
——7E
B-12
ports over domestic goods. The Import-Export Clause of
the Constitution itself makes such a differentiation. The
decisions of this Court have therefore consistently held
-ovalid state statutes that have had an adverse impact
upon foreign nationals or upon foreign commerce.’ Nor
does the Commerce Clause require a different result. As
this Court reaffirmed in Washington Rev. Dept. v. Steve-
doring Assn., 435 U.S. 734, 751 (1978), “[T]he Import-
Export Clause states an absolute ban, whereas the Com-
merce Clause merely grants power to Congress.” See also
Richfield Oil Corp. v. State Board, 329 U.S. 69, 75 (1946).
When only the Commerce Clause is involved, this Court
only last Term in Japan Line, Ltd. v. County of Los
Angeles, decided April 30, 1979 (No. 77-1378), explicitly
rejected the premise that “Commerce Clause analysis is
identical, regardless of whether interstate or foreign com-
merce is involved. *** When Construing Congress’
power to ‘regulate Commerce with foreign Nations,’ a
more extrensive constitutional inquiry is required.” (Slip
op. 11-12). Japan Line held that shipping containers
employed in foreign commerce, based and owned in Ja-
pan, were not subject to the apportioned property taxa-
tion to which domestic shipping containers engaged i:
See, e.g., Ware v. Hylton, 3 U.S. (3 Dall.) 199 (1796); Fairfaz’s
Devisee v. Hunter’s Lessee, 11 U.S. (7 Cranech) 603 (1813); Brown v.
Maryland, 25 U.S. (12 Wheat.) 419 (1827); Henderson v. Mayor of
New York, 92 U.S. 259 (1875); Chy Lung v. Freeman, 92 U.S. 275
(1875); Hawenstein v. Lynham, 100 U.S. 483 (1879); People v. Compa-
gnie Gen. Transatlantique, 107 U.S. 59 (1882); Asakura v. Seattle, 265
U.S. 332 (1924); Nielsen v. Johnson, 279 U.S. 47 (1929); McGoldrick v.
Gulf Oil Corp., 309 U.S. 414 (1940); Hines. v. Davidowitz, 312 U.S. 52
(1941); Kolovrat v. Oregon, 366 U.S. 187 (1961); Hostetter v. Idlewild
Liquor Corp., 377 U.S. 324 (1964); Dept. of Revenue v. James Beam
Co., 377 U.S. 341 (1964); Zschernig v. Miller, 389 U.S. 429 (1968).
B-13
interstate commerce would have been subject.’ Although
this Court in Michelin Tire Corp. v. Wages, 423 U.S. 276
(1976), held that a state was not constitutionally required
to exempt imports held in the original package from
generally imposed property taxation, nothing in the deci-
sion suggested that the exemption that had previously
deen constitutionally required under decisions overruled
by Michelin Tire was thereafter constitutionally
prohibited.
As the Court in Michelin Tire pointed out (423 U.S. at
283-294), the considerations underlying the Import-Ex-
port Clause were that the federal government speak with
one voice in regulating commercial regulations with for-
eign governments, that import revenues not be diverted to
the states, and that seaboard states with ports of entry
not be permitted to be toll-takers at the expense of states
not situated as favorably geographically. The California
statute serves all of these purposes. The fact that it serves
and advances constitutional policy somewhat more fully
than the minimum required of the state” does not justify
the Court of Appeal’s ruling that it violates the Commerce
Clause.
‘See Ott v. Mississippi Barge Line, 336 U.S. 169 (1949); Braniff
Airways v. Nebraska State Board, 347 U.S. 590 (1959).
*Even before the Michelin Tire decision, the California exemption
was somewhat broader than the minimum then constitutionally re-
quired. By its terms, the exemption for imports persisted beyond the
original package, for it permitted breaking bulk, repackaging, ete.
With regard to goods held for export, it granted exemption prior to
movement in the stream of exportation, as defined by this Court's
decisions in Empresa Siderurgica v. Merced Co., 337 U.S. 154 (1949)
and Joy Oil Co. v. State Tax Comm’n., 337 U.S. 286 (1949). It is not
questioned, however, that the goods exempted from tax were goods
that had been imported and goods that were subsequently exported.
B-14
During the more than 100 years prior to the Michelin
Tire decision, while the rule of Low v. Austin, 80 U.S. (13
Wall.) 29 (1871), and Hooven & Allison Co. v. Evatt, 324
U.S. €52 (1945), required exemption of imported goods in
original packages from generally imposed state property
taxes, the Court consistently held that goods that had
moved in interstate commerce in their original packages
enjoyed no comparable exemption.® When the Court over-
ruled Low and Hooven, it was not on the basis of any
discrimination favoring imports over goods in interstate
commerce, but only because the considerations that gave
rise to the Import-Export Clause did not require exemp-
tion. Nothing in Michelin Tire suggested that the pre-
existing exemption was now to be constitutionally
prohibited.’
*Woodruff v. Parham, 75 U.S. (8 Wall.) 123 (1868); Brown v.
Houston, 114 U.S. 622 (1885); American Steel & Wire Co. v. Speed, 192
U.S. 500 (1904); Sonneborn Bros. v. Cureton, 262 U.S. 506, 509, 510-
513 (1923); Wilow Corp. v. Pennsylvania, 294 U.S. 169 (1935).
"Indeed, in contexts other than property taxes on goods in the
original package, the Court has treated imports or exports markedly
differently from goods shipped in interstate commerce. Compare
Dept. of Revenue v. James Beam Co., 377 U.S. 341 (1964) and Hostetter
v. Idlewild Liquor Corp., 377 U.S. 324 (1964) with State Board vy.
Young’s Market Co., 299 U.S. 59 (1936) and Brewing Co. v. Liquor
Comm'n, 305 U.S. 391 (1939); Crew Levick Co. v. Pennsylvania, 245
U.S. 292 (1917) with Western Live Stock v. Bureau of Revenue, 303
U.S. 250 (1938); Carson Petroleum Co. v. Vial, 279 U.S. 95 (1929)
with General Oil Co. v. Crain, 209 U.S. 211 (1908), Bacon v. Illinois,
227 U.S. 504 (1913), and Minnesota v. Blasius, 290 U.S. 1 (1933).
Carson Petroleum Co. v. Vial, supra, may have been heavily qualified
by the decision in Joy Oil Co. v. State Tax Comm'n. 337 U.S. 286
(1949), as the dissent in the latter case asserted (337 U.S. at 291-
292). But the result in Carson Petroleum was distinguished from
other contemporary decisions principally by the fact that the oil
involved was destined for export (see 279 U.S. at 106-109).
B-15
In sum, the decisions of this Court involving imports,
exports, and foreign commerce uniformly emphasize that
one of the principal purposes of the Constitution was to
assure that the states did not impede or obstruct importa-
tion, exportation, or foreign commerce. The Court in
Michelin Tire overruled Low v. Austin only when it was
demonstrated that application of a generally imposed
property tax to imports in the original package did not
substantially impede importation or foreign commerce.
Washington Rev. Dept. v. Stevedoring Assn., 435 U.S. 734,
751-755 (1978). By favoring imports and exports, Section
225 of the California Revenue and Taxation Code facili-
tates importation and exportation and assures that im-
ports and exports passing through the state will not be
impeded even to the extent of the impact of a generally
applicable property tax. While such action may not be
constitutionally required, it is not, as the decision below
erroneously held, constitutionally prohibited. Nothing in
the Commerce Clause prevents a state from favoring
imports and exports beyond the extent required by the
Import-Export Clause.
2. a. In further support for its invalidation of the
statutory exemption for imported goods, the Court of
Appeal suggested (Pet. App. 15-16) that Section 225
impedes the power of the Congress to determine the
effective tariff applicable to imported goods. But this
reasoning is contrary to this Court’s analysis in Michelin
Tire. In considering the effect of removing the exemption
for imported goods required by earlier decisions, the
Court pointed out (423 U.S. at 287): “It may be that such
taxation could diminish federal impost revenues to the
extent its economic burden may discourage purchase or
importation of foreign goods. The prevention or avoidance
of this incidental effect was not, however, even remotely
an objective of the Framers in enacting the prohibition.”
B-16
b. Furthermore, Sections 4271 and 4272 of the Inter-
nal Revenue Code of 1954 show that the California exemp-
tion for imports and exports is entirely consistent with
congressional policy. Section 4271 imposes a tax of 5
pereent upon the amount paid for transportation of prop-
erty by air, but Section 4272(a) limits this to “transporta-
tion by air which begins and ends in the United States.”
Section 4272(b) excludes from tax, under regulations
prescribed by the Secretary, “transportation of property
in the course of exportation * * * by continuous move-
ment, and in due course so exported.”
Under Treasury Temporary Regulations in Connection
with the Airport and Airway Revenue Act of 1970 (26
C.F.R.), Seetion 154.2-1(e) (1) and (2), transportation
will be considered to begin and end at the points of origin
and destination as shown by a through airwaybill, or, if no
such airwaybill has been issued, then the export or import
character of the shipment may be shown by a contract or
other written evidence showing the beginning point and
ending point of air transportation. And Section 154.2-
1(e)(1) of the Regulations is explicit in providing that
transportation from a point outside the United States to a
point inside the United States will not be considered
broken “even though there may be stopovers in the United
States (such as, for example, to consolidate cargo at a
‘gateway’ city).”
With regard to exports, the tax is not applicable to the
segment of air transportation in the United Siates even
though the mode of transportation in export is other than
by air. Section 154.2-1(d) (1) of the Regulations provides:
For example, the tax does not apply to air transpor-
tation from Chicago to New York if the property is in
the course of exportation, by continuous movement,
by boat from New York to Europe and in due course
B-17
is so exported. Delays caused by circumstances be-
yond the control of the shipper (such as labor dis-
putes or natural disasters) will not interrupt
continuous movement. Property arriving at a gate-
way city by air may be repacked or consolidated with
other property without interrupting continuous
movement.
Under Section 154.2-1(d) (3) of the Regulations, payment
of the tax may be deferred for six months to establish the
fact of export “in due course” within that period. Proof of
export received after six months will establish a ground
for refund of the tax paid.
The foregoing provisions show that even when the
facilities of the airways of the United States are em-
ployed," Congress has exempted from the air transporta-
tion excise tax goods that are in fact imports and exports,
and has provided flexible rules permitting stopovers,
repackaging, and consolidation of cargo in the course of
movement without loss of exemption. California's removal
of property tax burdens upon imports and exports is
therefore entirely consistent with congressional policy.
"Cf. Massachusetts v. United States, 435 U.S. 444 (1978).
B-18
CONCLUSION
The petition for a writ of certiorari should be granted.
Respectfully submitted.
WaDE H. McCREE, JR.
Solicitor General
M. CARR FERGUSON
Assistant Attorney General
STUART A. SMITH
Assistant to the Solicitor
General
ERNEST J. BROWN
Attorney
August 1979
C-1
APPENDIX C
[152 Cal.App.3d 258]
[Civ. Ne. 69023. Second Dist., Div. One. Feb. 23, 1984. ]
STAR-KIST FOODS, INC., Plaintiff and Appellant, v.
COUNTY OF LOS ANGELES et al., Defendants and
Respondents.
OPINION
SPENCER, P. J. —
INTRODUCTION
Plaintiff Star-Kist Foods, Ine. (Star-Kist) appeals
from a judgment denying its request that the court order
defendants, County of Los Angeles, City of Los Angeles
and City of Long Beach, to refund ad valorem taxes paid
by plaintiff. |
STATEMENT OF FACTS
Plaintiff seeks the refund of ad valorem taxation levied
upon tangible personal property, inventories of canned
tuna fish, in plaintiff's possession on March 1, 1976. The
property had been produced outside the United States,
brought into California for shipment out of California,
stored at various locations within California for eventual
shipment out of California and was for sale in the ordi-
nary course of trade or business.
At trial, plaintiffs based their claim for refund due on
Revenue and Taxation Code section 225; section 225
exempts from taxation “property manufactured or pro-
duced... (2) outside of the United States and brought
into this state for trans-shipment out of this state, for sale
C-2
in the ordinary course of trade or business....”’ In
denying plaintiff's claim, the trial court relied on Zee
Toys, Inc. v. County of Los Angeles (1978) 85 Cal.App.3d
763 [149 Cal.Rptr. 750] in which two cases were
consolidated,
[152 Cal.App.3d 262]
Zee Toys, Inc. v. County of Los Angeles and Sears, Roebuck
& Co. v. County of Los Angeles. In Zee Toys, this district
determined the County of Los Angeles had standing to
assert that section 225 violated the federal constitution
and that section 225 did, in fact, violate the federal
commerce clause.” The Zee Toys decision nullified the
exemption provided by section 225.
The California Supreme Court denied a petition for
hearing on Zee Toys by a vote of four to three; Zee Toys
did not pursue the matter beyond the California Supreme
Court. Sears, Roebuck and Company’s petition for writ of
certiorari in the United States Supreme Court, however,
was granted. A per curiam decision was rendered, af-
firming the California appellate opinion by a four-to-four
vote. (Sears, Roebuck & Co. v. County of Los Angeles
(1980) 446 U.S. 915 [64 L.Ed.2d 269, 100 S.Ct. 1848].)
‘Los Angeles County taxpayers were required to pay the tax
despite the exemption; in no other counties were taxpayers similarly
taxed.
“Article I, section 8, clause 3 of the United States Constitution
provides Congress with the power “[t]o regulate Commerce with
foreign Nations and among the several States, and with the Indian
Tribes.”
C-3
CONTENTION.
Plaintiff contends the trial court erroneously denied its
request for refund due on the basis of the decision in Zee
Toys, Inc. v. County of Los Angeles, supra, 85 Cal.App.3d
763.
DISCUSSION
(la) Plaintiff asserts defendants’ standing to raise the
issue of the unconstitutionality of Revenue and Taxation
Code section 225 is barred by the well established rule
fa] municipal corporation, created by a state for the
better ordering of government, has no privileges or immu-
nities under the federal constitution which it may invoke
in opposition to the will of its creator.” (Williams v.
Mayor (1933) 289 U.S. 36, 40 [77 L.Ed. 1015, 1020, 53
S.Ct. 431]; Newark v. New Jersey (1923) 262 U.S. 192, 196
[67 L.Ed. 948, 946, 43 S.Ct. 539].) If the only ground for
defendants’ standing was its desire to vitiate a statute
purportedly unconstitutional, we would agree. On the
facts of the case at bar, however, defendants are entitled
to be heard, for they have demonstrated a direct economie
injury.
(2) Our conelusion is based on the essence of the
question of standing, i.e., whether a litigant is able to
allege a “personal stake in the outcome.” (Baker v. Carr
(1962) 369 U.S. 186, 204 [7 L.Ed.2d 663, 678, 82 S.Ct.
691].) Standing is awarded to the party who is able to
allege “injury in fact.” (Schlesinger v. Reservists to Stop
the War (1974) 418 U.S. 208, 218 [41 L.Ed.2d 706, 717, 94
S.Ct. 2925].) In this state, standing is awarded
C-4
[152 Cal.App.3d 263]
to the party who alleges “facts sufficient to establish
status as a ‘real party in interest.’ ” (Mendoza v. County of
Tulare (1982) 128 Cal.App.3d 403, 414 [180 Cal. Rptr.
347], quoting from Friendly Village Community Assn.,
Inc. v. Silva & Hill Constr. Co. (1973) 31 Cal.App.3d 220,
224 [107 Cal.Rptr. 123].)
(1b) The claim asserted by defendants here differs
substantially from that of the “generalized interest of all
citizens in constitutional governance.” (Schlesinger v.
Reservists to Stop the War, supra, 418 U.S. 208, 217 [41
L.Ed.2d 706, 716].) Defendants seek neither privilege
nor immunity and are, therefore, not barred from stand-
ing by the Williams v. Mayor rationale cited ante.
For defendants, compliance with Revenue and Taxation
Code section 225 results in the loss of significant revenue
in the form of tax dollars. Defendants stand to suffer a
direct economic injury, therefore, should we, for any
reason, conclude plaintiff is entitled to a tax refund.
Faced with the loss of revenue resulting from the opera-
tion of section 225, defendants are surely “real part [ies]
in interest.” (Mendoza v. County of Tulare, supra, 128
Cal.App.3d 403, 414.) Such loss has been recognized as
an alternate ground for standing by no less an authority
than the United States Supreme Court in Board of Educa-
tion v. Allen (1968) 392 U.S. 236, 241, footnote 5 [20
L.Ed.2d 1060, 1064, 88 S.Ct. 1923]. (See City of South
Lake Tahoe v. California Tahoe (1980) 449 U.S. 1039.
1040, fn. 1 (66 L.Ed.2d 502, 508, 101 S.Ct. 619] (dis. opn.
of White, J.).)
(3a) Having recognized defendants’ standing to ques-
tion the constitutionality of Revenue and Taxation Code
section 225, we direct our attention to the propriety of the
C-5
conclusion reached in Zee Toys, Inc. v. County of Los
Angeles, supra, 85 Cal.App.3d 763. Primarily on the basis
of United States Supreme Court decisions and the court's
articulation of rationale in support thereof rendered sub-
sequent to Zee Toys, we find cause to reach a contrary
conclusion; i.e., the exemption provided by section 225
does not violate the commerce clause of the United States
Constitution and is, therefore, not unconstitutional.
(4) Initially, we note that the conclusion reached
herein is not barred by the Supreme Court’s affirmance in
Sears, Roebuck and Co., as “an affirmance by an equally
divided court [is not] entitled to precedential weight.
[Citation.]" (Neil v. Biggers (1972) 409 U.S. 188, 192 [34
L.Ed.2d 401, 407, 93 S.Ct. 375].) Thus, we do not con-
strue the decision in Sears, Roebuck and Co. as requiring a
finding that section 225 is unconstitutional. Our reasons
for upholding the constitutionality of the contested see-
tion are cited beiow.
[152 Cal.App.3d 264]
(5) The Supremacy clause of the United States Consti-
tution provides “This Constitution, and the Laws of the
United States which shall be made in Pursuance thereof
_.. Shall be the Supreme Law of the Land....” (U.S.
Const., art. VI, el. 2.) The laws of California, therefore,
must not conflict with either the commerce clause or the
import-export elause. However, “the constitution im-
poses no single formula on the States.” (Container Corp.
vy. Franchise Tax Bd. (1983) — U.S. —, —. [77 L.Ed.2d
545, 552, 193 S.Ct. 2933]) Regardless of whether the
3article I, section 10, clause 2 of the United States Constitution
precludes any state from laying “Imposts or Duties on Imports or
Exports... .”
C-6
validity of a state regulation is measured by the com-
merce clause or the import-export clause, the need for
uniformity in commercial relations with foreign goveri-
ments is well established. (Japan Line, Ltd. v. County of
Los Angeles (1979) 441 U.S. 434, 449 [60 L.Ed.2d 336,
348, 99 S.Ct. 1813]; Michelin Tire Corp. v. Wages (1976)
423 U.S. 276, 285 [46 L.Ed.2d 495, 503, 96 S.Ct. 535 ].)
When dealing with tax measures, however, the state is to
be afforded great latitude. (Haman v. County of Humboldt
(1973) 8 Cal.3d 922, 925 [106 Cal.Rptr. 617, 506 P.2d
993].) In certain instances, the state may favor a given
class. (Stebbins v. Riley (1925) 268 U.S. 137, 142 [69
L.Ed. 884, 888, 45 S.Ct. 424, 44 A.L.R. 1454] Haman v.
County of Humboldt, supra, 8 Cal.3d 922, 925.)
(3d) Were we to vitiate the exemption* provided by
section 225, “property manufactured or produced...
outside of the United States and brought into this state
for trans-shipment out of this state,” during the tax years
in question would be subject to ad valorem taxation.
However, “a state tax on the instrumentalities of foreign
commerce may impair federal uniformity in an area where
federal uniformity is essential.” (Japan Line, Ltd. v.
County of Los Angeles (1979) supra, 441 U.S. 434, 446-448
[60 L.Ed.2d 336, 347].) Were such taxation permissible,
one could well expect a proliferation of similar taxation
structures in each seaboard state. As a result, that uni-
formity of policy which is essential to foreign commerce
would be disturbed by multiple taxation. In the interests
of the uniformity in commercial relations with foreign
nations required by both the import-export clause and the
commerce clause, seaboard states must either be prohib-
‘The opinion expressed herein addresses only the propriety of the
exemption provided by section 225; we do not address the propriety
of the ad valorem tax itself.
C-7
ited from taxing imports and exports on the basis of their
place of origin or destination (Michelin Tire Corp. v.
Wages, supra, 423 U.S. 276, 285-286 [46 L.Ed.2d 495,
503]) or be required to provide an exemption from taxes
which would threaten that uniformity. The propriety of
providing an exemption from state taxation for goods
arriving from or destined for a port outside the United
States is, therefore, consistent with both the import-
export clause and the commerce ciause unless a finer
basis for invalidation exists.
(152 Cai.App.3d 265]
(6) In order to determine whether section 225 conflicts
with the commerce clause, we must consider whether
section 225 applies “to an activity with a susbstantial
nexus with [California], is fairly apportioned, does not
discriminate against interstate commerce, and is fairly
related to the services provided by the State.” (Complete
Auto Transit, Inc. v. Brady (1977) 430 U.S. 274, 279 [51
L.Ed. 2d 326, 331, 97 S.Ct. 1076].) In addition, because
section 225 entails commerce with foreign nations, we
must assess the risk of international multiple taxation
and the extent to which the Federal Government is
precluded from “speaking with one voice.” (Japan Line,
Ltd., supra, 441 U.S. 434, 451 [60 L.Ed.2d 336, 349].)
(3e) There can be no doubt, the exemption provided by
section 225 is tied “‘to an activity with a substantial nexus
with” California. Absent the exemption, California ports
stand to lose a large share of import and warehousing
business to other Pacifie Northwest or inland ports of
entry where the cost of labor, warehousing and taxation
may be lower. For the same reasons, the exemption is
clearly “related to [those] services provided by the
State” which pertain to the efficient operation of local
C-8
ports of entry, services which support the state’s legiti-
mate interest of encouraging commerce by levying taxes
and creating exemptions thereto. (See Boston Stock Ex-
change v. State Tax Comm’n (1977) 429 U.S. 318 [50
L.Ed.2d 514, 97 S.Ct. 599].) (7) Such interests may
justify taxation measures and exemptions thereto, for “a
statute which encourages the location within the State of
needed and useful industries by exempting them, though
not also others, from its taxes is not arbitrary....”
(Allied Stores of Ohio v. Bowers (1959) 358 U.S. 522, 528
[3 L.Ed.2d 480, 485, 79 S.Ct. 437].)
(3d) Moreover, the validity of section 225 does not
entail an issue of questionable apportionment, i.e., an
inquiry into whether the effect of a tax is reasonably and
fairly related to the presence of a commercial activity
within the state. (Memphis Gas Co. v. Stone (1948) 335
U.S. 80 (92 L.Ed. 1832, S.Ct. 1475].) As we are not
assessing whether the extent of a commercial burden is
reasonably related to the presence of a business interest
in California, we need inquire no further into apportion-
ment of a burden.
In addition, we find no evidence that section 225 dis-
eriminates against interstate commerce. (8) It is well
established that the commerce clause does not preclude
all state regulation; areas of commercial regulation not
preempted by the federal government may be amenable to
regulation by the state. (Cooley v. Board of Wardens
(1852) 53 U.S. (12 How.) 299, 319 [13 L.Ed. 996, 1004].)
(5b) In order to determine whether a tax is diserimi-
natory, it is necessary to examine the entire tax structure
of the state. (Washington v. United
C-9
[152 Cal.App.3d 266]
States (1983) — U.S. [75 L.Ed.2d 264, 103 S.Ct.
1344]; Phillips Co. v. Dumas School Dist. (1960) 361 U.S.
376, 383 [4 L.Ed.2d 384, 389, 80 S.Ct. 474].) In the
absence of congressional action, only the “clearest consti-
tutional mandate justifies the denial of a state’s taxing
power. (Washington v. United States, supra, U.S.
____, quoting from Michelin Tire Corp. v. Wages, supra,
423 U.S. 276, 293 [46 L.Ed.2d 495, 507-508].) Whether a
tax is impermissibly discriminatory depends upon the
economic burden which results therefrom. (Washington v.
United States, supra, U.S. .)
(3e) The practical effect of the contested section is to
encourage the use of California’s ports by California and
non-California based manufacturers and producers who
import foreign goods through California ports for trans-
shipment to other states or who export goods manufac-
tured or produced in other states through California to
ports outside the United States. It is essential to note
that the ineligibility applies equally to California and non-
California business entities. Thus, the only producer or
manufacturer who is ineligible for the exemption is a
producer or manufacturer using California ports for ship-
ment of goods produced or manufactured in California to
foreign countries or for receipt of goods from foreign
countries for use in California operations. The California
business, however, which imports goods from foreign
countries for trans-shipment to other states or who ex-
ports goods manufactured in other states through Califor-
nia ports is entitled to the exemption just as is an out-of-
state business engaged in the same trade.
Thus, section 225 clearly does not “prohibit the flow in
interstate goods, place added costs upon them, or distin-
C-10
guish between in-state and out-of-state companies in the
retail market.” (Ezzon Corp. v. Governor of Maryland
(1978) 437 U.S. 117, 126 (57 L.Ed.2d 91, 100, 98 S.Ct.
2207].) In the absence of any of these factors, we find
section 225 provides no advantage to local business; thus,
we do not find the discriminatory effect which would
constitute a violation\ of the commerce clause. (Jbid.;
Maryland v. Louisiana (1981) 451 U.S. 725 [68 L.Ed.2d
576, 101 S.Ct. 2114].) This is not an instance where “‘the
effect of a state regulation is to cause local goods to
constitute a larger share, and goods with an out-of-state
source to constitute a smaller share, of the total sales in
the market....” (Exxon Corp. v. Governor of Maryland,
supra, 437 U.S. 117, 126, fn. 16 [57 L.Ed.2d 91, 100].)
As section 225 provides an exemption from tax rather
than the imposition of such a burden, the risk of interna-
tional multiple taxation is nonexistent. Moreover, as
noted ante, the exemption does not interfere with the
federal government’s “one voice” regulating our nation’s
foreign affairs. (Japan
[152 Cal.App.3d 267]
Line, Ltd, supra, 441 U.S. 484, 451 [60 L.Ed.2d 336,
349].) Federal uniformity is not impaired.
In view of the above, we hold section 225 is both
consistent with the federal import-export clause and
nonviolative of the federal commerce clause. Plaintiff is
entitled to the relief sought.
The judgment is reversed.
Lillie, J., and Hubbell, J.,* coneurred.
*Assigned by the Chairperson of the Judicial Council.
D-1
APPENDIX D
STAR-KIST FOODS, INC.
CORPORATE ORGANIZATION
June 30, 1986
(Revised July 15, 1986)
H. J. Heinz Company
(Pennsylvania)
Star-Kist Foods, Inc.
(California — 100%)
Star-Kist Caribe, Ine.
(Delaware — 100% — Sec. 936)
Canning tuna; investments; holding eempany
Alpha Fishing Company, Ine.
(Puerto Rico — 51%)
Tuna fishing company M/V “Mary S” adjudicated
to bank; subsequently sold May, 1985
Gamma Fishing Company, ince.
{Puerto Rico — 50%)
Tuna fishing company M/V “Venturous”,
declared bankruptcy April, 1985
Livno Fishing Company, Inc.
(Cayman Islands — 100%)
Tuna fishing company owns 20%
M/V “Adriatie Sea” (See Zadar below)
Mayaguez Water Treatment Co., Ine.
(Puerto Rico — 50%)
Receiving, treating and discharging
waste water
Productos Alimenticios Del Mar,
S. A. (Mexico — 15%) PALMAR
Tuna fishing company, M/V “Azteca I”,
M/V “Azteca II’, M/V “Azteea III”
Star-Kist Reunion, Ine.
(Delaware — 100%)
Fish buying station and cold storage
operation in Indian Ocean
Zadar Fishing Company Ltd.
(Cayman Islands — 22.81%)
Tuna fishing company. Owns 80%
M/V “Adriatie Sea” (See Livno above}
Zagreb Fishing Company Ltd.
(Cayman Islands — 38.25%)
Tuna fishing company M/V “Don Juan Zee”
Star-Kist International, S. A.
(Panama — 100%)
Ghana freezer base; joint venture shipping
China Marine Overseas, S. A.
(Panama — 33%%) CMO
Liquidation/ Dissolution in Process
Inactive company
Compania Pesquera Estrella del Peru, S. A.
(Peru — 2.10%) COPES
Cannery freezer plant; fishing vessels (see
page 3 for percent owned directly by SKF)
Ghana Tuna Fishing Development Co. Ltd
(Ghana — 33%%)
Tuna fishing; vessels “Mary Radine”, “Nick T”,
“Fernanda Marisa”, “Big John’, ““Kawamina Nortey”
“Nii Anumla”
International Tuna Sales Company, S. A.
(Panama — 100%) ITSACO
Fish broker (inactive)
Pioneer Food Cannery Limited
(Ghana — 50%)
Tuna cannery in Ghana
Pioneer Tuna Fishing Co. Ltd.
(Ghana — 50%)
Tuna fishing company, including sale and export
of raw fish M/V’s “Baeg du San” #6, #7, #8, #9
D-3
Refrigerated Express Service Ltd.
(Bahamas — 51%)
Formerly owned refrigerated reefer vessels “Fortuna
Reefer” and “Reefer Carrier’. Now enters into time
charters.
Calafia Shipping Company Ltd.
(Bahamas — 50%)
Owns stock interests in United Reefers Inc. and two Duteh
reefer vessel owning companies.
United Reefers, Inc.
(Netherlands Antilles — 124%)
Charters Dutch reefers vessels.
Zeerederij Holland Brabant B.V.
(Netherlands — 50%)
M/V “Maya”
Zeerederij Holland Zeeland B.V.
(Netherlands — 50%)
M/V “Calafia”
Tri-Arrow Transportation Company, Ltd.
(Bahamas — 16.7%)
Inactive; formerly owned refrigerated reefer vessel
“Fortuna Carrier” Sold for serap.
Star-Kist Asia, Ltd.
(Delaware — 100%)
Trading in raw sea food products out of Tokyo office
Star-Kist Overseas, Inc.
(Delaware — 100%)
Foreign branch operations of Star-Kist Foods, Ine.,
primarily in Peru and New Zealand
Estremar del Peru, S.A.
(Peru — 100%)
Sale and distribution of fish products. Enter into
trademark licensing agreements
Star-Kist Overseas:
Peru Branch
Joint operation with Government of Peru
D-4
Star-Kist Samoa, Ince.
(California — 100% — See. 936)
Tuna Cannery; can manufacturer
Fishermans Club of Samoa, Inc.
(Delaware — 50%)
Recreational facility for Oriental fishermen in Samoa
Marine Containerships Limited
(Liberia — 50%)
Joint shipping venture; owns 51% of M/V “Polynesia”
Ace Fisheries Company Inc.
(Puerto Rico — 100%)
Cash assets from sale of M/V “Royal Pacific’ and M/V
“Michelangelo”
Albacora Sociedad Anonima
(Costa Rica — 100%)
Inactive company
Aleta Amarilla Sociedad Anonima
(Costa Rica — 100%)
Inactive company
Anthony-Christina, Ine.
(Delaware — 100%)
Tuna fishing company. Formerly held 20% limited partner-
ship interests in M/V “Christina C” and M/V “Conqueror”
both of which have been sold at foreclosure
,
Brighton Fishing Company, Ine.
(Delaware — 100%)
Holds 20% general partnership interest in M/V “Capt. M. J.
Souza” and 49% stock interest in La Estrella Atunera del
Orinoco, S. A. (LEDOSA)
La Estrella del Orinoeo, S.A. (LEDOSA)
(Venezuela — 49%)
Charters vessels to fish under Venezula laws (M/V
“Caroni” ex. Capt. Frank Medina, M/V “Apure”, ex Carolyn
M., M/V “Manzanares”, ex. Seawolf.)
Canner’s Steam Company Incorporated
(California — 20% voting stock; 33.5% non-voting)
Provides steam for cannery operations at T. I.
D-5
C & F Fishing Ltd.
(California — 25%)
Tuna fishing company M/V “Jeanette Diana”
Compania Pesquera Estrella del Peru, S.A.
(Peru — 46.90%) COPES
Cannery freezer plant; fishing vessels (see page 1 for addi-
tional percentage owned directly by SKI)
Compagnie Bretonne de Cargos Frigorifiques
(Franee — 21.5%) COBRECAF
Diversified tuna fishing and refrigerated freight company
Connie Jean, Inc.
(Washington —- 100%)
Tuna fishing company. M/V “Connie Jean” sold in 1984
Delta Fishing Company, Ince.
(Puerto Rico — 38.25%)
Tuna fishing company. M/V “Priscilla M”
Don Juan Fishing Company, Ine.
Puertc Rico (Puerto Rico — 38.25%)
Tuna fishing company. Formerly owned M/V “Don Juan”
(see page 1 — Zagreb)
Eastern Pacific Fishing Company, Inc.
(Delaware — 100%)
Tuna fishing company. M/V “Eastern Pacific” sold in 1985
Under installment sale
Eastern Pacifie Ltd.
(Cayman Islands — 100%)
Tuna fishing company. Formerly owned M/V “Eastern
t Pacific’ (see above)
Entrepots et Transports
Figorifiques Polynesiens
(Tahiti — .8%)
Liquidation/Dissolution in Process. Cold storage plant in
Tahiti
Epsilon Fishing Company, Ine.
(Puerto Rico — 38.25%)
Tuna fishing company. M/V “Danica”
D-6
Eta Fishing Company, Inc.
(Puerto Rico — 38.25%)
Tuna fishing company. M/V “Kali”
Claudia B Fishing Company. Ine.
(Delaware — 50%)
Tuna fishing company M/V “Claudia B”
Fast Overseas Services, Ine.
(Delaware — 100%)
Domestic purchasing agent; overseas packer/exporter,;
agent — Canadian pet food sales
Frances Ann-Liberator, Ine.
(Delaware — 100%)
Tuna fishing company. Holds 19% limited partnership in
Sea Wolf Partnership, Ltd.
Frontier Fishing Corporation
(California — 20%)
Tuna fishing company. M/V “Neveri” (ex-M/V “Frontier”)
Holdinmex, S. A. de C. V.
(Mexico — % equal to 4 shs. stock)
Holding company in Mexico for H. J. Heinz Company
Interamericana de Alimentos Ltda.
(Brazil — 100%) INTERAL
Industrialize, market, import and export food products in
Brazil
Interocean Equipment Corporation
(California — 50%)
Owns and leases dry cargo and refrigerated shipping
containers to M/V “Polynesia” (See: SKI-Marine
Containerships Limited)
Koram Fisheries, S. A.
(Panama — 30%)
Owns and operates fishing vessels in the Pacific and
Atlantic Oceans
L. A. Fishing Company, Ine.
(Nevada — 100%)
Tuna fishing company. Owns 51% general partnership inter-
est in M/V “Laura Ann™
D-7
Las Perlas Fishing Corporation
(Panama — 20%)
Inactive tuna fishing company
Liberty King, Ine.
(Delaware — 50%)
Tuna fishing company. M/V “Chery! Marie”
Liberty Prince, Ine.
(Delaware — 100%)
Owns 20% shareholder interests in
Nicole K Ltd. and Pacifico Fishing Ltd.
Mary Lyn Fishing Company, Ine.
(Puerto Rico — 100%)
Inactive tuna fishing company.
M/V “Mary Lyn” sold at auction.
Nicole K Fishing, Inc.
(Puerto Rico — 20%)
Inactive fishing company. Formerly
owned M/V “Nicole K”™ sold at auction
Manko Star International Trading
Company, 8S. A. (Panama — 50%)
Inactive company
Marine Trading Pacific, Ine.
(Delaware — 100%)
Fishing activities and vessel support in the Orient
Marven, Inc.
(Puerto Rico — 100%)
Fuel Supplier. (SKF v.Viguie —
court adjudicated 100% stock and assets
to SKF)
May Queen, Ine.
(Delaware — 100%)
Tuna fishing company. Owns 17.5/25ths
undivided interest in M/V “Sea Hawk”;
20% limited partnership interest in M/V
“Captain Frank Medina”; 19% in
M/V “Carolyn M”
D-8
Mermaid-Southern, Ine.
(Deiaware — 100%)
Tuna fishing company. Owns 20% limited
partnership interest in M/V “Conquistador”
which is now under Chapter 11 proceedings.
Michelangelo Fishing Company, Inc.
(Delaware — 100%)
Tuna fishing company. Holds 20%
interest in M/V “Tifaimoana”™ which is tied-up
in foreclosure proceedings
Montana Fishing Corporation
(California — 100%)
Tuna fishing company.
M/V “Arauea”™ (ex-M/V “Montana” )
New Era, Ine.
(Delaware — 100%)
Tuna fishing company. Owns 40%
limited partnership interest in
M/V “Pacifie Princess”
Pacific Forwarding Enterprises S.A.
(Panama — 100%) PACFORE
Joint shipping venture; freight wharfage.
Pacific King, Ine.
(Delaware -— 50%)
Tuna fishing company.
M/V “Mary Antoinette”
Pacific Prince, Ine.
(Delaware — 100%)
Tuna fishing company. Formerly owned
M/V “Guanipa”™ (ex-M/V “Kerri M”)
Pantry Pride, Ine.
(Delaware — % equal to 2452 Shs. Stock)
Supermarket chain; stock received in Chapter 11
proceedings. Stock being sold.
Pisces Fishing Company, Inc.
(Delaware — 51%)
Tuna fishing company. M/V “Pisces”
D-9
Proyectos Empresariales Submarinos
Centro America Sociedad Anonima
(Costa Rica — 100%)
Inactive company
Raffaello Fishing Company, Inc.
(Delaware — 50%)
Tuna fishing company. M/V “Raffaello”
Royal F
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