Amicus Curiae Brief — Wardair Canada Inc. v. Florida Dept. of Revenue

}

BEST AVAILABLE COPY

No. 84-902

IN THE

Supreme Court of the United

OCTOBER TERM, 1985

WARDAIR CANADA, INC.,

» Appellant,

STATE OF FLORIDA, DEPARTMENT OF REVENUE,

Appellee.

On Appeal from the Supreme Court

of the State of Florida

BRIEF OF AMICUS CURIAE

AER LINGUS, AEROLINEAS ARGENTINAS,

AERONAVES DE MEXICO, S.A., AEROVIAS

NACIONALES DE COLOMBIA, S.A., ALIA-ROYAL

JORDANIAN AIRLINES, ALITALIA-LINEE

AEREE ITALIANE S.P.A., AMERICAN AIRLINES INC,

BRITISH AIRWAYS PLC., BRITISH CALEDONIAN

AIRWAYS LTD., CHINA AIRLINES LTD., COMPAGNIE

NATIONALE AIR FRANCE, COMPANIA MEXICANA

DE AVIACION S.A. dE C.V.. DEUTSCHE LUFTHANSA

AKTIENGESELLSCHAFT, EL AL ISRAEL AIRLINES

LIMITED, EMPRESA ECUATORIANA DE AVIACION,

FINNAIR OY, IBERIA AIRLINES OF SPAIN,

ICELANDAIR, JAPAN AIR LINES COMPANY LTD.

KLM ROYAL DUTCH AIRLINES, LINEAS AEREAS

COSTARRICENSES, S.A., QANTAS AIRWAYS LIMITED,

SCANDINAVIAN AIR LINES SYSTEM, SOCIETE

ANONYME BELGE @’EXPLOITATION DE LA

NAVIGATION AERIENNE, SWISS AIR TRANSPORT

COMPANY LIMITED, TAP-AIR PORTUGAL,

TRANSPORTES AEREOS NACIONALES, S.A.

TRINIDAD & TOBAGO AIRWAYS CORPORATION, AND

VIACAO AEREA RIO GRANDENSE, AMICI CURIAE

ROBERT D. PAPKIN

Counsel of Record

EDWARD W. SAUER

SQUIRE, SANDERS & DEMPSEY

1201 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 626-6601

Counsel for Amici Curiae

WILSON - Eres PRINTING Co., INC. -- 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether an excise tax imposed by the State of Florida

on aviation fuel purchased by foreign airlines for use

exclusively in foreign air commerce unconstitutionally in-

fringes upon the power of the Government of the United

States to regulate foreign commerce.

TABLE OF CONTENTS

QUESTION PRESENTED

TABLE OF AUTHORITIES \

INTEREST OF THE AMICI CURIAI 2

FACTUAL STATEMENT 5

ARGUMENT 8

1. There are Established Constitutional Standards

for Testing State Taxes Affecting Foreign Com

merce that Should be Applied in this Case 8

Il. The Florida Fuel Tax Intrudes into an Area

Where Federal Uniformity is Essential 12

Ill. The Florida Fuel Tax Directly Contradicts th

Foreign Policy of the United States 15

IV. The Florida Fuel Tax is Essentially Similar t

the Tax Disapproved in Japan Lins 19

V. The Florida Tax is Subject to Scrutiny Under

the Commerce Clause 2]

Vl. There is no Basis for Florida’s Contention that

its Tax Does Not Violate Federal Policy 25

CONCLUSION 28

APPENDIX la

(iil)

iV

TABLE OF AUTHORITIES

Cases Page

Chae Chan Ping v. United States, 130 U.S. 581

(1889) 10

Commonwe alth Edison Co. v. Montana, 453 U.S.

609 (1981) 23, 24

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274

(1977) , : detatibaicmadcs ...8, 9, 23

Container Corp. of America v. Franchise Tax

Board, 463 U.S. 159 (1983) 4,11, 12, 18, 19, 20, 21

’ ,

22, 23, 28

Eastern Air Transport, Inc. v. Tax Comm'n, 285

U.S. 147 (1932) 24

Edelman v. Boeing Air Transport, Inc., 289 U.S.

249 (1933) 24

General Trading Co. v. State Tax Comm’n of Iowa,

$22 U.S. 335 (1944) 21

Heisler v. Thomas Colliery, Co., 260 U.S. 245

(1922) 23

Helson and Randolph v. Ke ntucky, 279 U.S. 245

(1928) 24, 25

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

434 (1979) 4,9, 10, 11, 12, 14, 18, 19,

21, 22, 23, 24, 26, 27, 28

Lineas Aereas Costarricenses, S.A. v. Florida Dept.

of Revenue (No. 84-922) 25

McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940) 16

Miller Bros. Co. v. Maryland, 347 U.S. 340 (1954) 21

Nashville Chatanooga, and St. Louis Ry. v. Wal-

lace, 288 U.S. 249 (1933) 23

National Bellas Hess Inc. v. Department of Reve-

nue, 386 U.S. 753 (1967) 21

The Paquette Habana, 175 U.S. 677 (1900) 13

Scripto Inc. v. Carson, 362 U.S. 207 (1960) 21

Tropical Shipping and Construction Co., Ltd. v.

Askew, 364 So.2d 433 (Fla. 1978) »)

United Air Lines Inc. v. Mahin, 410 U.S. 623

(1973) 23, 29

United States v. Pink, 315 U.S. 208 (1942) 10

TABLE OF AUTHORITIES—Continued

’ . ,

Statutes and re guiations Page

United States:

19 U.S.C. $$ 1309 (a), (d) (1982) 7

26 U.S.C. §§ 4221(a), (d) (3) (1982 and Supp

Il 1984) 7

19 U.S.C. § 1508 (1982) 7

19 C.F.R. § 10.59 (1985) 7

Florida:

Fla. Stat. Ann 212.08(4) (W 97 5

Fla. Stat. Ann. § 212.08(4) (a) (2) (W

Supp 1985) F

Fla. Stat Ant > 212.601) (West SS

1984) ;

Fla. Stat. Ann. § IY B72 (b). (ec) (W - !

1984) 5

Fla. Stat. At 12.70(2) (a) (We Su

1984) D

Fla. Stat. Ant 212.70(2) (b) (West §&

1984)

Fla. Stat Ann. § 212.70(2)(c) (West 1]

1984) 92

Fla. Stat. Ann. § 212.70(2)(d) (West Si

1984)

Fla. Stat. Ann. § 220 189(2)(d) (West Su

1984) 5

Illinois:

Ill. Admin. Ree. § 130.2080(c) (1984)

Massachusetts:

Mass. Act of July 1, 1985, ch. 145

7 eatire (7 d Othe) ] ternational 1qreement

Air Transport Agreement, October 24, 1956, Unit

States-Colombia, 14 U.S.T. 429, T.I.A.S. 5338

Air Transport Agreement, April 3, 1957, Un

States-Netherlands, 12 U.S.T. 837, T.I.A.S. 4782 8

vi

TABLE OF AUTHORITIES—Continued

Agreement Concerning Air Services, July 23, 1977,

United States-United Kingdom. 28 U.S.T. 5367,

T.LA.S. 8641

Air Transport Agreement, June 8, 1980, United

States-Jordan, T.1.A.S. 9868

Protocol Between the United States of America

and Israel Amending the Agreement of June 13,

1950, as Amended, August 16, 1978, United

States-Israel, 29 U.S.T. 3144, T.I.A.S. 9002

Air Transport Agreement, October 23, 1980, United

States-Belgium, T.1I.A.S. 9903

Agreement Concerning Air Transport, November

23, 1983, United States-Costa Rica, T.I.A.S.

Convention on International Civil Aviation opened

for siqnature Dec. 7, 1944, 61 Stat. 1180 et seq.

Customs Convention on Containers, May 18, 1956,

20 U.S.T. 301 et seq.

Legislative Materials

S.B. 8A 1983 Regular Sess., 1983 Fla. Laws c. 83

Adm inistrative Materials

Aer Lingus, Foreign Air Carrier Permit, Order

74-3-34 (1974)

Aerolineas Argentinas, Foreign Air Carrier Per-

mit, Order 77-12-53 (1977) 7

Aeronaves de Mexico, S.A., Foreign Air Carrier

Permit, Order 78-5-184 (1978)

Aerovias Nacionales de Colombia, S.A., Foreign

Air Carrier Permit, Order 78-10-135 (1978)

Alia-Royal Jordanian Airlines, Foreign Air Car-

rier Permit, Order 79-10-15 (1979)

Alitalia-Linee Aeree Italiane S P.A., Foreign Air

Carrier Permit, Order 71-4-1 (1971)

British Airways PLC, Foreign Air Carrier Permit,

Order 84-3-121 (1984)

3ritish Calendonian Airways, Ltd., Foreign Air

Carrier Permit, Order 82-12-118 (1982)

Page

17, 2a

20

6

6

6

6

vii

TABLE OF AUTHORITIES—Continued

Page

China Airlines Ltd., Foreign Air Carrier Permit.

Order 85-2-73 (1985)

Compagnie Nationale Air Francs, Foreign Air

Carrier Permit, Order 81-8-135 : 1981)

Compania Mexicana de Aviacion, S.A. de C.V..

Foreign Air Carrier Permit, Order 78-6-127

(1978)

Deutsche Lufthansa Aktiengesellschaft, Foreien

Air Carrier Permit, Order 81-8-135 (1981)

El Al Israel Airlines Limited, Foreign Air Carrier

Permit, Order 84-6-44 (1984)

Empresa Ecuatoriana de Aviacion, Foreign Air

Carrier Permit, Order 84-5-32 (1984)

Finnair Oy, Foreign Air Carrier Permit, Order

81-4-91 (1981)

[beria Airlines of Spain, Foreign Air Carrier Per

mit, Order 73-6-21 (1973)

Icelandair/Flugleidir, H.F., Foreign Air Carrier

Permit, Order 80-1-2 (1980)

Japan Airlines Company Ltd., Foreign Air Carrie)

Permit, Order 81-8-1235 (1981)

KLM Royal Dutch Airlines, Foreign Air |

Permit, Order 81-8-135 (1981)

Lineas Aereas Costarricenses, S.A.. Foreign A

Carrier Permit, Order 80-4-148 (1980)

Qantas Airways Limited, Foreign Air Carrier Pe

mit, Order 81-4-92 (1981)

Scandinavian Air Lines System, Foreign Air (

rier Permit, Order 81-8-135

Societe Anonyme Belge d’Exploitation de la Nav

gation Aerienne, Foreign Air Carrier Permit

Order 81-8-135 (1981)

Swiss Air Transport Company Limited. Fore

Air Carrier Permit, Order 71

TAP-Air Portugal, Foreign Air Carrier Permit.

Order 79-8-47 (1979)

Transportes Aereos Nacionales, S.A. (TAN).

Foreign Air Carrier Permit, Order 82-6-98

(1982) 7.

6

6

viii

TABLE OF AUTHORITIES—Continued

Page

Trinidad & Tobago Airways Corporation (BWIA),

Foreign Air Carrier Permit, Order 82-1-7

REIT Pree = : . 7

Viacao Aerea Rio-Grandense, S.A. (VARIG), Ex-

emption, Order 85-12-16 (1985) 7,8

ge 7

M ISCeé lla neous

ICAO’s Policies on Taxation in the Field of Inter-

national Air Transport, ICAO Doc. 8632-C/968

(Nov. 1966) fnDoreroN . li

Letter dated March 7, 1982 [1983] to Executive

Director of State of Florida Department of Reve-

nue from Deputy Assistant Secretary of State

for Transportation and Telecommunications,

(J.S. App. A-87) 18

Letter dated September 29, 1982 to Executive

Director of State of Florida Department of Rev-

enue from Deputy Assistant Secretary of State

for Transportation and Telecommunications

(J.S. App. A-82) 17

Letter dated October 25, 1982 to Deputy Assistant

Secretary of State for Transportation and Tele-

communications from Executive Director of

State of Florida Department of Revenue (J.5.

we

14

App. A-85) . 18

Assembly Bill 2419, Calif. Leg., 1985-1986 Reg.

Sess . 6

Restatement of Foreign Relations Law of the

United States § 102(1) (a) (Tent. Draft No. 1,

1980) | _ 13

Substitute Ordinance, December 1, 1985, Chicago

City Council (Alderman Vrdolyak) 6

Tribe. L.. American Constitutional Law, 172

(1978 10

n, M., I D t of International Law, 75-

In THE

Supreme Court of the United States

OCTOBER TERM, 1985

No. 84-902

WARDAIR CANADA, INC.,

A Jpe Ha it.

V. PP '

STATE OF FLORIDA, DEPARTMENT OF REVENUE,

ee A ppe if &.

On Appeal from the Supreme Court

of the State of Florida

BRIEF OF AMICUS CURIAE

AER LINGUS, AEROLINEAS ARGENTINAS,

AERONAVES DE MEXICO,S.A., AEROVIAS

NACIONALES DE COLOMBIA, S.A., ALIA-ROY AL

JORDANIAN AIRLINES, ALITALIA-LINEE

AEREE ITALIANE S.P.A., AMERICAN AIRLINES INC.,

BRITISH AIRWAYS PLC., BRITISH CALEDONIAN

AIRWAYS LTD., CHINA AIRLINES LTD. COMPAGNIE

NATIONALE AIR FRANCE, COMPANIA MEXICANA

DE AVIACION S.A. dE C.V.. DEUTSCHE LUFTHANSA

AKTIENGESELLSCHAFT, EL AL ISRAEL AIRLINES

LIMITED, EMPRESA SCUATORIANA DE AVIACION,

FINNAIR OY, IBERIA AIRLINES OF SPAIN,

ICELANDAIR, JAPAN AIR LINES COMPANY LTD.

KLM ROYAL DUTCH AIRLINES, LINEAS AEREAS

COSTARRICENSES, S.A., QANTAS AIRWAYS LIMITED,

SCANDINAVIAN AIR LINES SYSTEM, SOCIETE

ANONYME BELGE d@’EXPLOITATION DE LA

NAVIGATION AERIENNE, SWISS AIR TRANSPORT

COMPANY LIMITED, TAP-AIR PORTUGAL,

TRANSPORTES AEREOS NACIONALES, S.A,,

TRINIDAD & TOBAGO AIRWAYS CORPORATION, AND

VIACAO AEREA RIO GRANDENSE, AMICI CURIAE

)

This brief is filed pursuant to written consent of all

parties to this case in accordance with Supreme Court

Rule 36.2.

INTEREST OF THE AMICI CURIAE

This case requires the Court to decide an issue of

great importance to the international aviation industry

whether individual states (or, by extension, local govern-

ments) can impose excise taxes on aviation fuel used

solely to power aircraft operated by foreign airlines in

in international commerce when such taxes: (1) intrude

into an area that must be governed solely by a single

uniform policy established by the Federal Government,

and (2) are contrary to well-settled Federal Government

policies and accepted international standards. The Amici

Curiae are a group of 29 international airlines whose

operations will be directly affected by the decision of the

Court in this case. Twenty-eight of them are foreign air-

lines representing 28 nations in Latin America, Europe,

Asia, and the Middle East. Included in this group are

carriers of virtualiy all of the major international trad-

ing partners of the United States. A number of these

foreign carriers serve the State of Florida and thus will

be directly affected by the decision of this Court r2gard-

ing the Florida fuel tax. The remaining foreign car-

riers serve other points in the United States, and face

the likelihood of state and local sales taxes on aviation

fuel purchased in this country if this Court upholds the

constitutionality of the Florida tax.

The Amici Curiae also include American Airlines, a

United States carrier having substantial international

operations. American currently is exempted from taxes

on aviation fuel that might otherwise be imposed by

iocal jurisdictions in foreign countries due to the recipro-

cal treatment that has traditionally been accorded for-

elgn carriers in the United States.

A decision of this Court sustaining the Florida fuel

tax would have significant adverse consequences to the

Amici:

3

(1) It would permit other states and localities to

impose similar taxes on purchases of aviation

fuel used exclusively in international air trans-

portation.

(2) It would create an atmosphere in which foreign

nations are likely to take retaliatory action either

by permitting their local governments to impose

similar taxes or by imposing such taxes them-

selves in the belief that the reciprocity pro-

vided by the Federal Government on this issue

is inadequate.

(3) It would shatter the international consensus

carefully established over many years which

provides for exemption of international] airlines

from such taxes on the basis of reciprocity.

The prospects of a proliferation of other state taxes

and widespread retaliation by other countries are real.

A number of other states and local jurisdictions have

either adopted, or are contemplating adoption of taxes

similar to the Florida tax.' Twenty-five foreign govern-

ments, including many of the most important interna-

tional aviation trading partners of the United States,

have submitted strongly worded diplomatic protests over

the Florida tax, and a number of these notes have sug-

gested the possibility of retaliatory actions.*

Perhaps the most pernicious effect of a decision sus-

taining the Florida tax would be its impact on the care-

fully crafted consensus of international reciprocity as a

tool for dealing with the issue of the taxability of certain

aspects of international air transportation. It has taken

more than forty years for this international consensus to

evolve, but the accepted—and almost universal—practice

at the preesnt time is one of reciprocal tax exemptions

| See p. 6 infra.

- See, e.g., Note No. 1679/E-375 of the Embassy of Colombia,

Brief for the United States at 9a; Note of the Embassy of the

Federal Republic of Germany, /d. at 2la; Note No. 106 84 of the

Royal Norwegian Embassy, /d. at 43a.

4

for aircraft, equipment, and supplies, including aviation

fuel. It is paradoxical in a sense that the case this Court

has selected for review involves the appeal of an airline

from the only country in the world that appears to allow

aviation fuel taxes at other than the national level simi-

lar to the Florida tax whose validity is being challenged.

However, the Amici firmly believe that the paradox is

only an apparent one, and that the Canadian failure to

accord American carriers reciprocal exemptions from

provincial taxes on aviation fuel purchases underscores

the basic point that it is the Federal Government—and

the Federal Government alone—-that must be charged

with the task of resolving the problem posed by the

Canadian tax and the breach it has created in the solid

wall of international reciprocal exemptions.

This case raises delicate questions of international

trade and international relations that can only be ad-

dressed and resolved by the Federal Government. The

Amici believe that the invalidation of the Florida tax

is an essential step to enable the Federal Government to

deal with the problem of Canada’s local taxes on avia-

tion fuel purchased by foreign airlines in that country.

Such a step by this Court would reaffirm the primacy

of the Federal Government’s policy of reciprocal tax ex-

emptions for fuel and other consumable supplies pur-

chased by foreign airlines for use in foreign commerce,

and would make it clear that no State can impose a tax

that would subvert that policy.

This Court has recognized that the United States must

speak with one unified voice in conducting its interna-

tional relations, Japan Line, Ltd. v. County of Los An-

geles, 441 U.S. 434 (1979), and that State taxes which

either implicate foreign policy issues that must be left

to the Federal Government or violate a clear federal di-

rective are unconstitutional, Container Corp. of America

v. Franchise Tax Board, 463 U.S. 159 (1983). The

Florida fuel tax presents a specific instance where these

principles must govern, and where the need and preroga-

)

tive of the Federal Government to deal with the inter-

national aspects of these taxes unhampered by unilate

State action must be recognized.

FACTUAL STATEMENT

The essential facts in this litigation are not in disput

For a number of years the State of Florida imposed

excise taxes on fuel purchased by airline within

borders. Until April 1983, however, this tax had n

nificant effect on foreign airlines largely because it wi:

prorated on a mileage basis so that only fuel consumed

within the State of Florida was taxed.’ Since foreign air-

‘vine Miami Florida’ a a 2 ae

lines serving Miami oridas principal international

gateway—enter Florida airspace only briefly, foreign air

lines paid virtually no fuel tax during this period. The

rational of this proration provision was explained by thx

Fiorida Supreme Court in Tropical Shipping & Construc-

tion Co. Ltd. v. Askew, 364 So. 2d 433, 435 (Fla. 1978

1

r

he following terms:

in 7

Lil

The purpose of the partial tax exemption is to pre-

vent the State from exceeding its powers to tax

interstate and foreign commerce. The _ proration

formula was designed so that Florida would only

tax that portion of commerce activity that occurred

within the State.

This system was drastically revised, effective April 1,

1983. Under Senate Bill 8A‘ proration was eliminated

for airlines, although maintained for other carriers.’ The

rate of tax was increased to 5.7 cents per gallon.” A

special credit against income taxes, designed to favor

large U.S. carriers based in Florida, was also added.’

Fla. Stat. Ann. § 212.08(4 West 197]

*S.B. 8A, 1983 Regular Sess., 1983 Fla. Laws ec. 82

Fla. Stat. Ann. § 212.08(4) (a) (2 West Supp 1985

* Technically the rate is five percent of a hypothet p

14

nn

$1.148 per gallon. /d. at §§ 212.62(b), (

‘Id. at § 220.189

b

The Florida fuel tax is at the vanguard of an effort

by a number of State and local governments to tax

purchases of international aviation fuel. Since this tax

was adopted, the State of Illinois has established new

tax burdens on aviation fuel purchased by foreign air-

lines through the reversal of a long standing administra-

tive ruling.* Under color of enabling legislation passed

by the Massachusetts legislature, the City of Boston

has imposed taxes on fuel purchases at Logan Interna-

tional Airpori.” The State of California and the City

of Chicago" also are currently considering taxes on

aviation jet fuel. While this litigation concerns only the

Florida fuel tax, the decision in this case clearly will

have repercussions throughout the nation.

Except for American Airlines, Amici are all companies

established under the laws of their foreign home coun-

tries, and are designated and licensed by those countries

to serve the United States. All have been concurrently

authorized by the Federal Government (first the Civil

Aeronautics Board, more recently the Department of

Transportation! .to serve the United States.’* None of

8 Ill. Admin. Reg. §$ 130.2080(c) (1984).

’ Mass. Act of July 1, 1985, ch. 145.

10 A.B. No. 2419, 1985-86 Sess. (1985).

1! Substitute Ordinance, December 1, 1985 (Alderman Vrdolyak

12 The foreign carrier Amici, and the orders of the Civil Aero-

nautics Board or Department of Transportation issuing their cur-

rent permits are listed below: Aer Lingus Order 74-3-34 (1974

Aerolineas Argentinas, Order 77-12-53 (1977); Aeronaves de

Mexico, 8.A., Order 78-5-184 (1978); Aerovias Nacionales de

Colombia, S.A., Order 78-10-1385 (1978); Alia-Royal Jordanian

Airlines, Order 79-10-15 (1979); Alitalia-Linee Aeree Italiane

S.P.A., Order 71-4-1 (1971); British Airways PLC, Order &4-

3-121 (1984); British Caledonian Airways Ltd., Order 82-12-118

(1982); China Airlines Ltd., Order 85-2-73 (1985); Companie

Nationale Air France, Order 81-8-135 (1981) ; Compania Mexicana de

Aviacion, S.A. de C.V., Order 78-6-127 (1978); Deutsche Lufthansa

Aktiengesellschaft, Order 81-8-135 (1981); El Al Israel Airlines

Limited, Order 84-6-44 (1984); Empresa Ecuatoriana de Aviacion,

Order 84-5-32 (1984); Finnair Oy, Order 81-4-91 (1981): Iberia

the foreign carriers can operate domestic services within

the United States, except under highly unusual circum-

stances.'* Each of the foreign carriers is headquartered

in its respective foreign country and is substantially

owned and effectively controlled by the government or

by nationals of that country." Each purchases substan-

tial amounts of aviation fuel in the United States. Those

earriers that serve Miami International Airport are sub-

ject to the Florida fuel tax. The other Amici face the

likelihood of similar taxes elsewhere in the United States.

All of the foreign carrier Amici are exempt from federal

taxes on fuel, and from customs duty on fuel and lubri-

ecants due to the existence of reciprocal arrangements be-

tween the United States and their home countries.’

Each of the Amici operates internationally under the

general framework established by the Convention on In-

ternational Civil Aviation, opened for signature Dec. 7,

1944, 61 Stat. 1180 et seg. (“the Chicago Convention”’).

The details of operations in particular markets are gov-

erned by a series of bilateral executive agreements, except

in the cases of Brazil and Honduras where aviation rela-

tionships with the United States are based on interna-

Airlines of Spain, Order 73-6-21 (1973); Iceland-air Flugleider,

H.F., Order 80-1-2 (1980); Japan Air Lines Company, Ltd., Order

81-8-135 (1981); KLM Royal Dutch Airlines, Order 81-8-135

(1981); Lineas Aereas Costarricenses, S.A., Order 80-4-148 (1980

Qantas Airways Limited, Order 81-4-92 (1981); Scandinavian

Air Lines System, Order 81-8-135 (1981); Societe Anonyrie Belge

d’Exploitation de la Navigation Aerienne, Order 81-8-135 (1981) ;

Swiss Air Transport Company Limited, Order 71-5-21 (1971

Tranportes Aereos Nacionales, 8.A., Order 82-6-98 (1982); TAP-

Air Portugal, Order 79-8-47 (1979); Trinidad & Tobago Airways

Corporation, Order 82-1-7 (1982). Viacao Aerea Rio Grandense,

S.A. currently operates pursuant to an exemption issued by the

Department of Transportation, Order 85-12-16 (1985

1349 U.S.C. § 1508 (1982).

14 See orders cited in n.12 supra.

15 De

> U.S.C. §$§ 4221(a), (d) (3 982 and Supp II 1984); 19

U.S.C. §§ 1809(a), (d) (1980), 19 C.F.R. § 10.59 (1985

Ona ‘omilty and reciprocity. Witn minor variations 1n

. “1% , . ix + ] ‘ ‘ | PP ‘ oo | 4 . ’

inm@uage no presently reievant, ne Dliaterai agreements

applicab e in each of the rorelgn carrier Amici’s markets

provide for exemptions from national duties and charges

?

on aviation fuel for the foreign carriers on the Dasis ol

reciprocal treatment for United States carriers.

best efforts to seek exemption for foreign air carriers

| . ion 4 ot ) » x Y R 47 } .

from state and local fuel taxes. None of the home coun-

tries of the foreign carrier Amici tax aviation fuel pur-

] - y $ } ito 4 > is on 4 e — ] . ] L \ .

nited states a ines a iny ievel or gover!

' . °

seu wy a alr a aiiy if

‘

ARGUMENT

Il. There are Established Constitutional Standards for

Testing State Taxes Affecting Foreign Commerce that

Should be Applied in this Case

The point of departure for the analysis of state tax

legislation under the Commerce Clause is this Court’s de-

~ nin ( Mp a j ta Tyra? 77 / ( / Bras “i. j >) LS

274 (1977). Reversing a line of previous cases that invali-

dated state taxes “fon the privilege” of doing interstate

business, and consolidating rulings in a number of more

recent decisions, the Court laid down two general rules

regarding the taxation of interstate commerce. The first

was that state taxes will be judged not by their formal

language, but rather by their practical effect on

‘commerce. Those taxes which have the effects that the

(’ . - ionat f saan 1] } swmauralerl 3 +4 ye

Commerce Clause forbids will be held invalid no matte

See Civil Aeronautics Board Order 82-6-98 (1982); and De-

nen ’ ‘Transportation Order 85-12-16 (1985

port Agreement, October 24, 1956, United

States-Colombia, 14 U.S.T. 429, T.1.A.S. 5338; Air Trans

T

r

ment, April 3, 1957, United States-Netherlands, 12 U.S.T. 837,

what technical formulation is used. 430 U.S. at 288-89

Secondly, Complete Auto laid down the four basic tests

applicable to taxes affecting interstate commerce. Th

are whether the tax is applied to an activity with a sub

stantial nexus to the taxing state, whether there is fan

apportionment of the tax, whether the tax discriminat

against interstate commerce, and whether th

fairly related to services provided D\ ne tale.

The Complete Auto decision involved interstate com

Japan Line Ltd. v. County of Los Angeles, 441 U.S. 434

(1979) that this Court began articulating the modern

merce only. It was not until some two years later i

test under the Commerce Clause for taxes affecting for-

eign commerce. At issue in Japan Line was an ad

valorem property tax imposed by the State of California

upon shipping containers owned by foreign companies,

based and registered abroad, and used exclusively in in-

ternational commerce. The Court assumed that the four

part test of Compl te Auto Transit was satisfied. It went

on to conclude that:

When construing Congress’ power to “regulate Com-

merce with foreign Nations,” a more extensive con-

stitutional inquiry is required.

141 U.S. at 446.

The Court outlined two additional tests that must be

met when state taxation of international commerce is at

issue. One was the enhanced risk of international multi

ple taxation. The Court recognized the established con-

stitutional principle ,that multiple taxation offends the

Commerce Clause,*® and pointed additionally to the sensi-

tive international concerns that overlapping international

taxes can raise.“' While domestic problems of multipl

state taxation can be dealt with through apportionment

19 430 U.S. at 287 (1977).

“" 441 U.S. at 451, 454.

“1 441 U.S. at 456.

y

requirements, the Court pointed out that there was no

authority in a position to require international apportion-

ment.** It therefore held that state taxes which create a

substantial risk of international multiple taxation are

themselves invalid under the Commerce Clause.

The second Japan Line consideration was whether the

te tax impairs federal uniformity in an area where

such uniformity is essential. The preeminent role of the

Federal Government in foreign affairs has long been

}

nized in judicial decisions.** The Court pointed ou

reco:

hat the Commerce Clause, in particular, has been in-

terpreted to give broader authority to the Federal Gov-

ernment with regard to foreign commerce than to inter-

tate commerce.*” The Court also noted that state taxes

can have implications for the country’s international

“A state tax on instrumentalities of foreign com-

merce may frustrate the achievement of federal uni-

formity in several ways. If the State imposes an

apportioned tax, international disputes over reconcil-

ing apportionment formulae may arise. If a novel

state tax creates an asymmetry in the international

tax structure, foreign nations disadvantaged by the

levy may retaliate against American-owned instru-

mentalities present in their jurisdictions. Such re-

taliation of necessity would be directed at American

transportation equipment in general, not just that of

the taxing State, so that the Nation as a whole would

suffer. If other States followed the taxing State’s

example, various instrumentalities of commerce could

be subjected to varying degrees of multiple taxation,

141 U.S. at 451.

“4 See, e.g., United States Pink, 315 U.S. 203, 233 1942

Chae Chan Ping v. United States, 130 U.S. 581, 606 (1889); L

Tribe, American Constitutional Law 172 (1978

141 U.S. at 454.

1]

a result that would plainly prevent this Nation from

‘sneaking with one volce in reguiating itoreign com-

I

Although the Court stated in Japan Line that a state

tax that violated either of these precepts was unconstitu-

l under the Commerce Clause, it found that the

specific tax at issue in that case violated both tests. First

it found that actual multiple taxation existed, because the

containers in question were fully taxed in Japan in a

manner which accorded with established international

practice.*’ Secondly, the Court found that the ability of

the United States to speak with one unified voice in its

international commercial relations was impaired. In mak-

ing this determination, the Court pointed to the Customs

Convention on Containers ** which, while not applicable

by its terms to the tax in question, evidenced a national

policy favoring the removal of impediments to the use of

cargo containers in international trade.** The Court also

noted the risk of retaliation by Japan in response to this

tax, and the possibility of inconsistent levies in other

states as further demonstrations of the impairment of

federal uniformity.*® The Court therefore held the Cali-

fornia property tax unconstitutional as applied.

The Japan Line tests received further amplification

barely two years ago by this Court in Container Corpora-

tion of America Vv. Franchise Tax Board, 163 U.S. 159

(1983), in which the Court upheld the application of

California’s unitary business income tax to a United

States corporation with operations in foreign countries.

“6 441 U.S. at 454.

27 Customs Convention on Constainers, May 18, 1956, 20 U.S.1

S01, et seq.

“8 441 U.S. at 453.

29 Jd.

12

Most significant to the present case is Container Cor-

poration’s refinement of the federal uniformity analysis.

This aspect of the Japan Line criteria was divided into

two subtests. The first is “whether the tax in question

implicates foreign policy issues which must be left to the

kederal Government” and the second is whether the tax

“violates a clear federal directive.’”’ 463 U.S. at 194. The

Court found that the California unitary income tax met

both of these requirements.

Amici believe that the uniformity test laid down by

Japa Line and develo} ed further in Containe) Corpora-

tion is the key to the proper disposition of this case. The

florida fuel tax clearly intrudes into an area where

federal uniformity is essential, implicates foreign policy

Issues that must be left to the Federal] Government, and

is flatly inconsistent with well established federal policy

F'or these reasons it must be invalidated.

Il. The Florida Fuel Tax Intrudes into an Area Where

Federal Uniformity is Essential

Since international aviation began to play a major role

in world commerce about forty years ago, a consensus

and uniform practice among nations has developed that

international airlines should be exempt from taxation at

all levels of government with respect to fuel, lubricants,

aircraft stores, and other consumable technical supplies

for their aircraft. This consensus has found expression

in a number of differing ways.

Perhaps the most striking is the virtually uniform

practice of nations in exempting fuel from tax at all

levels of government. In the series of diplomatic notes

appended to the Amicus Curiae brief of the United States

virtually all of the major aviation trading partners of the

United States, and all of the home countries of the for-

eign carriers presenting this brief state their acceptanec

of this policy.” This practice is invariably followed at all

See, e.g., Note of the Embassy of France, Brief for the United

States, Appendix, at 18a; Note of the Embassy of Trinidad &

13

levels of government by countries having federal systems

'€.9., Notes of Mexico and the Federal Re public of

Germany) or which otherwise allow the imposition of taxes

at local levels (e.g., India, Brief for the United States

is Amicus Curiae at 13, n.6). The established custom of

nations has long been recognized as a source of interna-

i ial |; . | yl} ‘ the established j Ipnatinnal laga!

lONnal iaw, int p nly une eslabdlisned International llega

rule favors exemption from tax on the basis of reciprocity

This policy has also found more formal expressi:

the Chicago Convention and the actions of the

International Civil Aviation Organization. Article 24

of the Convention provides that “fuel, lubricating oils,

through

pare parts, cer equipment and aircraft stores on-

board an aircraft” of one of the contracting parti

engaged in international operations must “be exemp

from customs duty, inspection fees, or similar national or

local duties and charges.” 61 Stat. 1186.

The International Civil Aviation Organization (“ICAO”)

was established by the Chicago Convention. The United

States 1s an active member of this organization. More

than thirty years ago, the Air Transport Committee of

ICAO determined that the Convention did not deal com-

pletely with the area of international taxation, and under-

took a thorough study of this question. JCAO’s Policies

on Taxation in the Field of International Air Transport,

CAO Doc. 8632-C/968, at 1 (Nov. 1966). This docu-

ment, in turn, served as the basis for a resolution adopted

by the ICAO Council on November 14, 1976 which stated

“Fuel, lubricants and other consumable technical

supplies taken onboard for consumption during flight

shall be further exempt from all customs and other

Tobago, Jd. at 58a; Note No. 190 of thé Embassy of the United

Kingdom, /d., at 57a

I Ne . Cin T he Paque aa Habana. 175 U Ss. 677. 700 1900

Restatement of Foreign Relations Law of the United States & 102

l)(a Tent. Draft No. 1, 1980); M. Whiteman. I Digest of

International Law, 75-90 (1963

14

duties or, alternatively, all such duties levied shall

be refunded ¥s

Id. at 4.

The term “customs and other duties” was specifically

defined to include excise, sales, consumption and other in-

ternal taxes levied upon fuel, lubricants, and other con-

sumable technical supplies by any taxing authority within

a state. Id.

The United States has benefited from being part of

this international consensus because it has eliminated po-

tential taxes on all U.S. international carriers. If the

United States is to continue as part of this established

system, it must have a uniform national policy that

aviation fuel used or purchased by foreign airlines in the

United States is not subject to state or local taxation

where reciprocal privileges are granted to U.S. carriers.

To permit states to intrude into this area unilaterally is

to make United States’ participation in such a system of

reciprocal exemptions impossibie. As the Court noted in

Japan Line, this type of tax inevitably will lead to re-

taliatory taxes from other nations with federal systems,

and from countries that are dissatisfied with the degree

of reciprocity offered by the United States. That retalia-

tion will, of necessity, be against all United States car-

riers, and not simply those based in Florida.** The series

of diplomatic notes appended to the Brief of the United

States leaves no doubt that the United States carriers

would face retaliation in many countries if the Florida

fuel tax is allowed to stand.

The only exception to this general system known to

Amici is Canada, where apparently some taxes are im-

posed by provincial governments on aviation fuel. The

ease of Canada is a forthright demonstration of the im-

portance of federal uniformity in this area. Although

Canada’s allowance of local taxes on international avia-

32441 U.S. at 453

33 See, n.2, supra.

15

tion fuel may be an international anomaly, only the

Federal Government is in a position to deal with this

departure from the international norm of reciprocity.

There is no w iy the State of Florida, or any other state,

can deal with the imposition of fuel taxes at the pro-

vincial level in Canada. Obviously, only the United States

federal Government can conduct diplomatic negotiations

and seek clarification of Canada’s policy and assurances

that U.S. carriers will not be so taxed. It is equally

obvious that the fact that Florida and, potentially, other

local jurisdictions within the United States purport to

impose taxes on aviation fuel purchased by international

airlines severely undercuts the position of the United

States in dealing with the Canadian authorities.

In particular, the existence of state taxes in this coun-

try would make it impossible for the United States to

offer exemption from taxes in this country for Canadian

carriers as a quid pro quo for analogous treatment for

United States carriers in Canada. It is exactly this type

of exchange which has been the foundation of the exist-

ing international policy of reciprocal exemption. Because

the existing international consensus rests on the rock of

reciprocity, the Federal Government must be in a posi-

tion to approach other nations that deviate from this

consensus with a single-minded policy that only it can

express. A state tax that frustrates such an effort clearly

implicates foreign policy issues that must be left to the

Federal Government.

Ill. The Florida Fuel Tax Directly Contradicts the Foreign

Policy of the United States

The Florida fuel tax also fails the second portion of the

uniformity test in that it expressly contradicts firmly

established United States policy.

As the Amicus Curiae brief submitted on behalf of the

United States clearly points out, it is, and has been for

many years, the policy of the United States that inter-

national airlines should be exempt on the basis of reci-

procity from any taxes on fuel, lubricants, and consum-

16

able technical supplies. (See Brief for the United States

at 10-22.) The manifestations of this policy are nu-

merous. First is the Chicago Convention and the policies

adopted by the International Civil Aviation Organization,

described above. The United States is a party to the Con-

vention, and a member of the ICAO.

Next is the uniform and extensive network of bilateral!

agreements into which the United States has entered.

As discussed in more detail in the Brief for the United

States, bilateral agreements entered into by this country

since the end of the Second World War have uniformly

contained language committing each party to exempt air-

lines of the other from taxes on fuel, lubricants, and

consumable technical supplies, on a basis of reciprocity.

By their terms most of these provisions apply only to

national duties and charges. However, as the Brief for

the United States observes, in this respect the bilateral

igreements do not reflect the full scope of the United

States aviation policy. Jd. at 17. The reasons for this

are mostly historical. In the earlier days of aviation.

most international airlines used bonded fuel exclusively,

which is clearly exempt from all state taxation.** When

bonded fuel became unavailable, carriers found that the

limited number of jurisdictions which had direct interna-

tional services typically either impose no tax at all on fuel

used in international services, or proportioned the tax on

the basis of mileage (as did Florida) so that the economic

burden became insignificant. It is only in recent years,

when the number of destinations within the United States

served by foreign carriers has increased and the volume

of non-taxable bonded fuel has decreased, that states have

made more determined efforts to tax aviation fuel. Thus

it is only recently that state fuel taxes have become

matters of serious concern for foreign airlines.

Additionally, many of the most recent United States

bilateral agreements deal specifically with the subject of

state and local fuel taxes. Starting with the so-called

34 McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940).

17

Bermuda II Agreement between the United States and

the United Kingdom in 1977,*° recent agreements have

commonly included provisions requiring the United States

to use its best efforts to obtain exemptions for foreign

carriers from state and local taxes.** As the Solicitor

General observes, this is a strong indication of United

States policy in this area. (Brief at 20.) That foreign

nations have interpreted these provisions as demonstrat-

ing a clear policy commitment is reflected in the terms

of the numerous diplomatic notes appended to the Solici-

tor General’s brief.*

A third manifestation of this policy is found in state-

ments made by federal officials directly to the State of

Florida. Prior to the enactment of the 1983 tax legisla-

tion, the State Department wrote to the State of Florida

noting concerns expressed by foreign governments re-

garding the appropriateness of imposing certain taxes

on foreign air carriers “in view of the generally-accepted

and long standing international practice of reciprocally

exempting such items from taxes.” “ The State Depart-

ment also noted that some nations have raised the pos-

sibility of retaliatory taxation which would frustrate the

reciprocal system of international tax exemptions. The

Florida Department of Revenue responded to the State

Department in reassuring terms, noting the generous

Air Services Agreement Between the Government of the

United States of America and the Government of the United

Kingdom of Great Britain and Northern Ireland, July 23, 1977,

28 U.S.T. 5367, T.1.A.S. 8641, Art. 8(5).

36 See, e.g., Air Transport Agreement, October 23, 1980, United

States-Belgium, T.I.A.S. 9903; Air Transport Agreement, Novem-

ber 23, 1983, United States-Costa Rica, T.1.A.S. ———; Protocol to

Air Transport Agreement, United States-Israel, August 16, 1978,

29 U.S.T. 3144, T.1.A.S. 9002.

37 See, notes 2 and 30, supra.

‘S Letter dated September 29, 1982 to Executive Director of

State of Florida Department of Revenue from Deputy Assistant

Secretary of State for Transportation and Telecommunications

(J.S. App. A-82).

13

treatment: that Florida accorded to foreign carriers, and

stating that Florida recognized the importance of inter-

national aviation.*” When the tax was proposed early in

1983, the State Department again wrote to the Depart-

ment of Revenue expressing its surprise at the proposal

and proposing that the legislation incorporate the con-

cept of reciprocal exemption from tax. Failing this, the

Department of State expressed concern about “serious

foreign relations problems,” if the tax were imposed.*

It is not often that a party contemplating actions which

raise constitutional questions receives a direct and un-

ambiguous indication of the policy of the United States.

Yet this is exactly what happened here. Unfortunately,

the State of Florida disregarded that statement of policy

in enacting the fuel tax, and has studiously ignored

Federal policy throughout all of the litigation regarding

the Florida fuel tax.

A final demonstration, if one is needed, lies in the

actions that the United States has regularly taken in

foreign countries to protest possible taxation of avia-

tion fuel, and to secure exemptions based on reciprocity

for United States carriers. (See Brief for the United

States at 20.) Protests by the United States of fuel

taxes in foreign countries can only have a very hollow

ring if state taxes on aviation fuel, such as that imposed

by Florida, are allowed to stand in this country.

In summary, the Florida fuel tax is clearly uncon-

stitutional under the federal uniformity standards estab-

lished by Japan Line and Container Corporation. Taxa-

tion of international airline fuel is inherently an area

Letter dated October 25, 1982 to Deputy Assistant Secretary

vf State for Transportation and Telecommunications from Execu-

tive Director of S of Florida Department of Revenue (J.S.

App. A-85).

“” Letter dated March 7, 1982 [1983] to Executive Director of

State of Florida Department of Revenue from Deputy Assistant

Secretary of State for Transportation and Telecommunications,

(J.S. App. A-87

19

where a uniform federal policy is required in order to

secure for United States carriers the benefit of reciprocal

exemptions from tax in foreign countries. The Florida

tax intrudes impermissibly into this sensitive area of

international relations. At the same time, Florida di-

rectly and knowingly has contradicted the express policy

of the United States in the international area. If the

Florida tax is not held unconstitutional, the conduct of

the foreign relations of the United States by the United

States Government in this area will be seriously impaired.

IV. The Florida Fuel Tax is Essentially Similar to the

Tax Disapproved in Japan Line

While this Court applied the Japan Line precepts to

the California unitary income tax in Container Corpora-

tion, it concluded that California’s tax was constitutional.

The reasons for the Court’s holding on that specific point

do not, however, apply to the present case.

In Container Corporation, the Court found no auto-

matic asymmetry between the California unitary tax,

and the “arms’ length” approach to international tax ac-

counting questions advocated by the Federal Government.

It noted that any conflict between taxing regimes was

not inevitable and depended on specific rulings regarding

the application of allocation formulae to particular cases.

Similarly, the Court found that there was no acceptable

“bright line” rule that would avoid this conflict.

Those considerations do not apply to this case. The

symmetry that has been established through years of in-

ternational practice and negotiations is that of reciprocal

exemption from tax. The very existence of the Florida

tax undercuts that structure and creates an asymmetry

that operates to the disadvantage of foreign countries.

This is precisely the type of problem that the Court had

in mind when it established the federal uniformity re-

quirement under Japan Line. 441 U.S. at 453. The

Florida tax is a flagrant disruption of a balanced system

of reciprocal exemptions. The “bright line rule” to rem-

20

.

;

edy this problem is, of course, to forbid states from any

taxation of foreign airline fuel purchased for use in In-

ternational air transportation. The reciprocal exchang¢

of exemptions on which this approach is based make this

rule fair for the United States, and for the State of

Florida.

A second major consideration in upholding the Calli-

fornia unitary business tax in Container Corporation was

the fact that the tax burden fell on United States do-

mestic corporations. This is clearly not the case here.

The actual taxpayers in this and the companion cases

as not vet decided to review are all

companies established under the laws of foreign nations

with their principal base of operations in foreign coun-

tries. They are uniformly owned and controlled by na-

tionals of their home countries. Indeed, a substantial

number of them are owned and controlled directly by

foreign governments.*' The point of this portion of the

Container Corporation analysis was, of course, that for-

eign nations have little or no reason to be concerned

over the tax treatment given by the United States to its

own domiciliary companies. However, where the compa-

nies are owned by foreign nationals or their governments,

the reasons for concern are particularly strong. The

substantial number of diplomatic notes sent to the United

States concerning the Florida fuel tax show that this

concern is real.

The Court also noted that Container Corporation was

clearly subject to income tax in California and that the

amount of that tax depended as much or more on tax

rates as on the technical definition of the income base.

Again, this argument does not apply to the present case.

The point here is that any tax on aviation fuel raises

serious reciprocity issues. The issue is not what portions

41 For example, Aerolineas Argentinas, Aeronaves de Mexico,

S.A., Compania Mexicana de Aviacion, S.A. de C.V., Empresa

Ecuatoriana de Aviacion, Trinidad & Tobago Airways Corporation

and Viacao Aerea Rio-Grandense, S.A. are all either majority or

wholly-owned by their respective governments.

21

of such fuel should be taxed. The established interna-

tional rule is that none of it should be.

Lastly, the Court pointed to the distinctions between

the property tax involved in Japan Line and the income

tax at issue in Container Corporation. In particular, the

Court focused on the fact that situs-based rules tradi-

tionally play a much larger role in the property tax area

than with respect to income taxes, particularly in view of

the difficulties that governments often face in allocating

income among the component parts of a single multi-

national enterprise.

Once again, this distinction does not apply here. Excise

taxes such as that imposed by Florida have always been

strongly situs-based since they typically focus on a single

transaction and the location of that transaction. Thus

this Court has held that a state may not tax a sale that

takes place outside of its borders.** Similarly, the Court

has recognized that compensating use taxes must be

limited to taxable uses within the confines of the state.**

Indeed the arguments advanced by the State of Florida

and the Solicitor General that true multiple taxation can-

not take place in this case because the taxable transaction

—the sale of the fuel—takes place only in Florida under-

score this very point.** Situs factors are of much greater

relevance to Florida’s excise tax than to the income tax

at issue in Container Corporation.

V. The Florida Tax is Subject to Scrutiny Under the

Commerce Clause

During the course of litigation regarding the fuel tax,

Florida has argued that its tax is not really a tax on

42 See, e.g., National Bellas Hess Inc. v. Department of Revenue,

386 U.S. 753, 756-58 (1967) ; Miller Bros. Co. v. Maryland, 347 U.S.

340, 344-45 (1954).

43 See, e.g., Scripto, Inc. v. Carson, 362 U.S. 207, 210-11 (1960);

General Trading Co. v. State Tax Comm'n of Iowa, 322 U.S. 335,

337-38 (1944).

4 Brief for the United States at 30; Appellee’s Reply Brief to

Amicus Curiae at 3-4.

gj

aviation fuel, and that even if it is viewed as a fuel tax,

fuel is not an instrumentality of commerce subject to the

rule of Japan Line. Florida first contends that the Florida

tax is not imposed upon aviation fuel, and that airlines

do not pay it. Instead, in the view of the State of

Florida, this tax is strictly an excise on the withdrawal

of fuel from storage by fuel vendors located in that state.

Factually this contention is completely wrong. Legally,

it is irrelevant.

For one thing, the terms of the Florida fuel tax com-

letely undercut the State’s argument. The Florida legis-

iture stated its intention in enacting the fuel tax in the

J

following terms:

It is the intent of the Legislature that sales of motor

fuel and special fuel shall be subject to the tax im-

posed by this chapter. However, in recognition of the

unique business practices which characterize the sale

of such fuel at the retail level, and of the existing

public and private sector administrative structures

which exist pursuant to Chapter 206 for the collec-

tion of motor fuel and special fuel excise tax, the

Legislature hereby provides a method for imposing

and collecting the sales tax on such fuel in a manner

least likely to increase public and private costs of

tax collection and administration.

Section 212.60(1) Laws of Florida.

In other words, the legislature’s goal is to tax fuel. The

existing administrative structure, involving collection of

the tax by fuel retailers, was kept intact, however, as a

matter of administrative convenience. As stated more

specifically in Section 212.70(2) (a) of the law:

This levy of tax is upon the ultimate retail con-

sumer. It is hereby provided as a matter of adminis-

trative convenience and necessity that the tax shall

be paid upon the first sale or transfer of title within

this State whether by a distributor, dealer, or retail

dealer. who shall act as age nt for the State in the

collection of said tax whether such distributor, dealer,

or retail dealer is the ultimate seller or not.

23

The statutory role of dealers as agents for the state col-

lecting this tax from the ultimate consumer (i.e., the

carriers) is reaffirmed by provisions of Florida law re-

quiring this tax to be passed on to the consumer, and

separately identified in billings (Florida Statutes § 212.70

(2) (b)), forbidding retailers from claiming that they

will absorb the tax (§ 212.70(2)(c)) and providing for

misdemeanor penalties if either of these requirements is

not met (§ 212.70(2)(d)). The law that the State of

Florida is attempting to defend belies its central argu-

ment. There is no question that what is being taxed

here is aviation fuel, and that the taxpayer is the foreign

air carrier.

Even if this Court were to accept the State of Florida’s

construction of the tax, the Commerce Clause precepts of

Japan Line and Container Corporation would still apply

fully. The central holding of Complete Auto Transit was

that rigid formalistic approaches will no longer be used

in evaluating state taxes under the Commerce Clause.

Instead, the Court will examine the practical effects of

those taxes, and determine if those effects are incon-

sistent with Commerce Clause requirements.*

The court elaborated on this holding in Commonwealth

Edison Co. v. Montana, 453 U.S. 609 (1981). At is-

sue in that case was the constitutionality of a severance

tax imposed by the State of Montana on the removal of

coal from that state’s mines. The Montana Supreme

Court, relying on Heisler v. Thomas Colliery Co., 260

U.S. 245 (1922) held that the tax was imposed on the

severance of coal, a purely intrastate activity preceding

entry of the coal into interstate commerce,

This Court refused to accept the Montana Court’s anal-

ysis. Instead it noted that Heisler, like the cases relied

upon by the State of Florida ** were based on an out-

45 430 U.S. at 249.

46 Nashville, Chatanooga, and St. Louis Ry. v. Wallace, 288 U.S.

249 (1933); Eastern Air Transport, Inc. v. Tax Comm’n, 285 U.S.

24

moded view of the law, dating from a time when inter-

state commerce was held completely immune from taxa-

tion, and not liable to “pay its own way”. 453 U.S. at

616. As a result the Court held:

. . . that a state severance tax is not immunized

from Commerce Clause scrutiny by a claim that the

tax is imposed on goods prior to their entry into

the stream of interstate commerce. Any contrary

statements in Heisler and its progeny are disap-

proved. We agree with appellants that the Montana

tax must be evaluated under Complete Auto Transit’s

four part test.

153 U.S. at 616 (footnote deleted).

The similarity of the Montana statute’s language taxing

the “severance” of coal to the language of the Florida

statute taxing the “withdrawal from storage” of aviation

fuel is obvious. So is the similarity of the practical

effects of these two taxes. Both have a clear practical

effect on federally regulated commerce. Both are there-

fore subject to scrutiny under the Commerce Clause.

A second argument advanced by the State of Florida

is that fuel is not an instrumentality of commerce. Pre-

sumably, as a result, the Japan Line rule would not

apply to taxation of aviation fuel.

Again this argument lacks factual basis. This Court

has long recognized the common sense proposition that

fuel is vital to interstate and foreign commerce and. most

particularly, to transportation. For example, in Helson

and Randolph u. Ke ntucky, 279 U.S. 245 (1928) the

Court considered the validity of a use tax imposed by

Kentucky on fuel purchased out of state and consumed

by ferry boats operating within that state in interstate

commerce. The court held this tax unconstitutional rea-

soning in part that:

147 (1932); Edelman v. Boeing Air Transport, Inc., 289 U.S. 249

(1933) ; United Aid Lines, Inc. v. Mahin, 410 U.S. 623 (1973

=

yA3)

“The tax is exacted as the price of the privilege of

using an instrumentality of interstate commerce. It

reasonably cannot be distinguished from a tax for

using a locomotive or a car employed in such com-

merce. A tax laid on the use of the ferry boat would

present an exact parallel. And is not the fuel con-

sumed in propelling the boat an instrumentality of

commerce no less than the boat itself? A tax which

falls directly upon the use of one of the means by

which commerce is carried on directly burdens said

commerce. If a tax cannot be laid by a state upon

the interstate transportation of the subjects of com-

merce, as this Court definitely has held, it is little

more than repetition to say that such a tax cannot

be laid upon the use of a medium by which such

transaction is effected.” 279 U.S. at 252.

The fuel used in propelling the airplanes of Amici curiae

is every bit as much an instrumentality or means of in-

ternational commerce as the fuel that powered the ferry

boats at issue in Helson.** As the Florida Trial Court

quite properly concluded in a companion case to the pres-

ent litigation, fuel is the “‘sine gua non” of international

aviation.**

VI. There is no Basis for Florida’s “ontention that its Tax

Does Not Violate Federal Policy

Florida also argues persistently that there is no federal

policy which this fuel tax violates. Presumably Florida

would have this Court believe that the Solicitor General

of the United States in an Amicus Curiae brief prepared

in cooperation with the Legal Adviser of the Department

of State and the General Counsel of the Department of

Transportation misstates this country’s foreign policy.

Obviously, the Amicus Curiae Brief for the United States

reflects the official position of the United States as articu-

lated by those who are responsible for establishing that

47 See also United Air Lines v. Mahin, 410 U.S. 623, 636 (1973,

Douglas J., dissenting).

#8 Lineas Aereas Costarricenses, S.A. v. State of Florida, Dept.

of Revenue (No. 84-922) (J.S. App. A-25, 33).

26

position and who deal with these issues in the interna-

tional arena on a day-to-day basis.*

The State of Florida and a bare majority of the Florida

Supreme Court have seized upon the one portion of the

record that, when viewed superficially, favors their point

of view. The foeus of this myopic analysis has been the

fact that the standard bilateral aviation agreements ex-

pressly prohibit only national duties and charges on fuel.

Florida uses this as evidence that the Federal Govern-

ment has already taken the position that state taxes of

the type at issue in this case are constitutionally per-

missible. That conclusion cannot stand against the over-

whelming evidence of an express federal policy that the

Florida approach ignores. Moreover, the conclusion that

the Florida Supreme Court draws from its analysis of the

bilateral agreements is without validity even when con-

sidered on its own merits. Amici believe there is no basis

for the presumption that the absence from an older

bilateral of a specific exemption from state taxes gives

Florida, or any other state, carte blanche to impose such

taxes.

In Japan Line, for example, the Court noted that a

multilateral convention concerning shipping containers

did not provide exemption from state taxes." This did

not prevent the Court from invalidating the California

State tax on Commerce Clause grounds. Indeed, it relied

upon the Convention as evidence of a federal policy.”

If the reasoning of the Florida Supreme Court were to

be followed to its logical conclusion, the states would be

free to impose any kind of tax on the fuel, provisions, or

aircraft of foreign airlines as long as such taxes were

not specifically exempt from taxation by a bilateral air

transportation agreement. This is clearly not the law as

** The difference between this case and Container Corporation,

where no brief was filed by the United States, is also manifest.

” 441 US. at 446, n.10.

°! 441 U.S. at 452-53.

Or

at

set forth in Japan Line. The court below failed to recog-

nize that it is the Commerce Clause of the Constitution,

and not simply the implications that might be drawn

from the terms of the bilateral aviation agreements, that

precludes Florida from applying its fuel tax to the pur-

chase of fuel by foreign-owned and foreign-based airlines.

Even if there were some merit in the analysis of the

court below regarding the reach of the tax clauses of

some of the bilateral agreements, the Florida Supreme

Court and the State of Florida have failed totally to

recognize that the cited tax clauses of the bilaterals are

only one source of United States international aviation

policy. The historical reasons for the scope of the tax

provisions of some bilateral agreements are clearly ex-

plained in the Solicitor General’s brief. It is manifest

that these provisions by themselves do not reflect the full

ambit of United States policy and the international con-

sensus of which it is a part. Rather that policy and

consensus are entwined in the pervasive web of inter-

national arrangements in the aviation area such as the

best efforts language of many bilaterals, the correspond-

ence between the Department of Revenue and the De-

partment of State, the Chicago Convention, the ICAO

Resolutions, the efforts by the United States to negotiate

tax reductions for U.S. carriers, and the diplomatic notes

submitted by twenty-five foreign countries. This over-

whelming evidence of a federal policy and an interna-

tional consensus simply cannot be wished away.

A related argument is that the bilateral provisions and

the ICAO Resolutions address discrimination in taxation,

and that the Florida fuel tax does not discriminate since

it treats all carriers equally.** Similarly, the state con-

tends that the fuel tax creates no international asym-

metry.

52 This, of course, was not true of the original Florida fuel tax.

Only when the Florida Supreme Court struck down the invidious

income tax credit favoring United States carriers could this argu-

ment be seriously made.

28

This argument is easily answered. First of all, the

bilateral provisions and the ICAO Resolutions do discuss

the subject of discrimination, but deal with this problem

by requiring reciprocal exemptions from tax. Thus the

fact that the Florida tax, after the decision by that state’s

Supreme Court, may not be facially discriminatory is not

relevant.

Secondly, the symmetry that Japan Line and Container

Corporation are addressing, is not limited to equality be-

tween the treatment in the United States of U.S. and non-

U.S. companies. In Japan Line, the California property

tax treated U.S. and Japanese cargo containers identi-

cally. The court nonethless had no trouble concluding that

the tax creates an aysmmetry to Japan’s disadvantage

because of a practice of reciprocal exemption from tax

similar to that at issue here. 441 U.S. at 453. Florida’s

argument simply does not address the issues in this case.

CONCLUSION

The decision of the Florida Supreme Court should be

reversed. In sustaining a state tax on fuel purchased by

foreign air carriers for exclusive use in international

commerce, the Florida Court has ignored the teachings of

this Court in Japan Line and permitted the State of

Florida to intrude into a well-settled area of exclusive

federal jurisdiction. The simple fact is that the invalida-

tion of the Florida tax in this case would permit the

Federal Government to deal openly and unambiguously

with the Canadian deviation from the international norm

unhampered by the existence of state taxes at variance

with a-elear federal policy. On the other hand, the sus-

taining of the Florida tax would open the floodgates to

other similar state taxes, to foreign retaliation, and to

the crumbling of what has become the custom of nations

with respect to this issue.

The threat of foreign retaliation and the undermining

of a Federal Government policy painstakingly worked out

with many nations over the past forty years are the clear

29

foreign policy implications of a decision upholding the

Florida tax. The Federal Government has been at the

forefront of developing the policy of reciprocal exemption

from taxation of the instrumentalities of international

aviation. If the states are allowed to impose taxes at

variance with that policy, the policy itself becomes a

mockery, and no other nation could agree to grant exemp-

tions to the United States with any confidence that such

exemptions would be fully reciprocated. Where a state

law would have such an impact, it clearly implicates f

eign policy issues that must be left to the Federal Govern-

ment.

The fact that this case involves a country—indeed the

only country—that does not follow the international con-

sensus on reciprocal exemption makes it all the more

essential that the Federal Government be left free to

persuade that country to change its policy. Such efforts

at persuasion would have little hope of success if the

various states could tax what the Federal Government is

urging other countries not to tax. In short this is a case

where federal uniformity is essential and where state

taxation is fatally inconsistent with the requirement of

such uniformity.

Respectfully submitted,

ROBERT D. PAPKIN

Counsel of Recor”

EDWARD W. SAUER

SQUIRE, SANDERS & DEMPSEY

1201 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

(202) 626-6601

Counsel for Amici Curiae

la

APPENDIX

BELGIUM

Air Transport Agreement, October 23, 1980, United

States-Belgium, TIAS 9903, Article 9(5).

Kach party shall use its best efforts to secure for

the designated airlines of the other Party, on the

basis of reciprocity, an exemption from taxes. duti¢

charges and fees imposed by State, regional and local

authorities on the items specified in paragraphs (1)

and (2) of this Article [fuel and other items]. as

well as from fuel through-put charges, in the circum-

stances described in this Article. except to the extent

that the charges are based on the actual cost of pro-

viding the service.

COSTA RICA

Agreement Concerning Air Transport, November 23.

1983, United States-Costa Rica. TIAS — , Article 9(5)

(9) Each Party shall use its best efforts to secure

for the designated airlines of the other Party, on

basis of reciprocity, an exemption from taxes, dutie

charges and fees imposed by State, regional and local

authorities on the items specified in ati (1)

and (2) of this Article [fuel and other items , as

well as from fuel through-put charges, in the cir-

cumstances described in this Article. except to the

extent tnat the charges are based

i providing the service.

ISRAEL

Protocol Between the United States of America and

Israel Amending the Agreement of June 13. 1950, as

Amended, August 16. 1978, United States-Israe]. 29 UST

3144, TIAS 9002 Article 10.

Party shall use its best efforts to secure for the

designated airlines of the other Party on a reciprocal

9)

“aa

basis an exemption from taxes, charges and fees im-

posed by state, regional and local authorities on the

aircraft and regular equipment of such airlines and

on the items listed in paragraphs (b) and (c) of

Article IV of the Agreement [fuel and other items],

as well as from fuel through-put charges, in the cir-

cumstances described in those paragraphs, except to

the extent that the charges are based on the actual

cost of providing the service.

JORDAN

Air Transport Agreement, June 8, 1980, United States-

Jordan, TIAS 9868, Article 9(5).

Each party shall use its best efforts to secure for the

designated airlines of the other Party, on the basis

of reciprocity, an exemption from taxes, duties,

charges and fees imposed by State, regional and

local authorities on the items specified in paragraphs

(1) and (2) of this Article [fuel and other items],

as well as from fuel through-put charges, in the cir-

cumstances described in this Article, except to the

extent that the charges are based on the actual cost

of providing the service.

UNITED KINGDOM

Agreement Concerning Air Services, July 23, 1977,

United States-United Kingdom, 28 UST 5367, TIAS 8641.

Article 8(5).

(5) Each Contracting Party shall use its best ef-

forts to secure for the designated airlines of the

other Contracting Party on a reciprocal basis an

exemption from taxes, charges and fees imposed by

State, regional and local authorities on the items

listed in paragraphs (1) and (2) of Article 9 (Cus-

toms Duties), as well as from fuel through-put

charges, in the circumstances described under those

paragraphs, except to the extent that the charges are

based on the actual cost ot providing the service.