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

~ Supreme Court, U.S.

C Ve yp EK D

6 J

No. 84-902 DEC 26 1985 |

CAAT SPANIOL, JR

CLERK

3u the Supreme Court of the a ee

OCTOBER T&RM, 1985

WARDAIR CANADA INC., APPELLANT

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—" FLORIDA DEPARTMENT OF REVENUE

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j ON APPEAL FROM THE SUPREME COURT OF FLORIDA

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5 BRIEF FOR THE UNITED STATES AS

— AMICUS CURIAE IN SUPPORT OF APPELLANT

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P—

h ~" CHARLES FRIED

bade Solicitor General

oo LAWRENCE G. WALLACE

: Deputy Solicitor General

ALBERT G. LAUBER, JR.

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

ABRAHAM D. SOFAER

Legal Adviser

Department of State

Washington, D.C. 20520

JIM J. MARQUEZ

General Counsel

Department of Transportation

Washington, D.C. 20590

O° TTT CLT SINS. SATEEN BOR RETINA 8 ASS Re = RSS IE HE

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QUESTION PRESENTED

Whether a Florida sales tax on aviation fuel, as

applied to fuel purchased by foreign airlines for use

exclusively in international traffic, unconstitutionally

impairs the power of the federal government to regu-

late foreign commerce.

(1)

TABLE OF CONTENTS

Page

Interest of the United States . a een l

EE aati 2

EES ee a 12

TABLE OF AUTHORITIES

Cases:

Eastern Air Lines, Inc. v. Florida Department of

Revenue, 455 So.2d 311, appeal dismissed, No.

84-926 (Oct. 15, 1985) 9

Japan Line, Ltd. Vv. County of Los Angeles. 44]

a, Gee ...... 2, 3, 4, 6-8, 11

Michelin Tire Corp. Vv. Wages, 423 U.S. 276 3

Constitution, treaties and statutes:

U.S. Const. :

Art. 1, 8, Cl. 3:

Commerce Clause 2, 3-4, 6, 8, 11

Foreign Commerce Clause 9,11

Air Transport Services Agreement, Jan. 17, 1966,

United States-Canada, art. XI, 17 U.S.T. 201 4

Chicago Convention on International Civil Avia-

tion, opened for signature Dec. 7, 1944, 61 Stat.

1974, United States-Canada, art. XII(1), 25

U.S.T. 794 4

49 U.S.C. App. 1462 l

49 U.S.C. App. 1502 (b) 2

Miscellaneous:

U.S. Civil Aeronautics Board, FY 1976 Report te

Congress (1977) ......... rata De ae 10

Wall St. J., Dec. 19, 1985 5

(III)

Iu the Supreme Court of the United States

OCTOBER TERM, 1985

No. 84-902

WARDAIR CANADA INC., APPELLANT

Vv.

FLORIDA DEPARTMENT OF REVENUE

ON APPEAL FROM THE SUPREME COURT OF FLORIDA

BRIEF FOR THE UNITED STATES AS

AMICUS CURIAE IN SUPPORT OF APPELLANT

INTEREST OF THE UNITED STATES

The federal government has exclusive responsibility

for the conduct of commercial relations with foreign

governments, including the implementai.ion of this

Nation’s international aviation policy. Congress has

directed “[t]he Secretary of State [to] advise the

Secretary of Transportation * * * concerning the

negotiations of any agreement with foreign govern-

ments for the establishment or development of air

navigation, including air routes and services” (49

U.S.C. App. 1462). “In formulating United States

international air transportation policy,” Congress

has provided that the Secretary of State, in consulta-

tion with the Secretary of Transportation, “shall de-

(1)

2

velop a negotiating policy which emphasizes the

greatest degree of competition that is compatible with

a well-functioning international air transportation

system” (49 U.S.C. App. 1502(b) ).

The United States has a substantial interest in en-

suring that state laws do not interfere with the

accomplishment of federal objectives in the field of

international aviation. The Florida tax at issue here,

if sustained as applied to aviation fuel used by for-

eign airlines exclusively in foreign commerce, will

impair federal aviation policy and complicate, if not

undermine, the federal government’s efforts in inter-

national negotiations. At this Court’s invitation, the

United States previously filed a brief urging that

probable jurisdiction be noted in this case.

ARGUMENT

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

441 U.S. 434, 449 (1979), this Court held that the

Commerce Clause commits to the exclusive authority

of the federal government the regulation of those

aspects of foreign commerce which by their very

nature “necessitate a uniform national rule.” In the

brief that we previously filed, we explained why we

believe that the imposition of levies and charges on

airplane equipment and supplies, including aviation

fuel, used by foreign airlines exclusively in interna-

tional traffic, is an aspect of foreign commerce that

shares this nature. The United States has long be-

lieved that our foreign commerce is best served by the

elimination, to the greatest extent possible, of obsta-

cles to the free flow of international aviation. To that

end, the United States has consistently advocated a

policy under which the instrumentalities of interna-

tional air transport are granted, on the basis of reci-

3

procity, a complete exemption from taxes levied by

any jurisdiction outside the carrier’s own country.

Due in part to our Nation’s advocacy, the policy of

reciprocal tax exemptions has become the accepted

international norm in the aviation field, a pattern

that reflects the longstanding custom of nations in

international maritime trade. This consensus is evi-

dent in the Chicago Convention on International Civil

Aviation, opened for signature Dec. 7, 1944, 61 Stat.

1180 et seq., in Resolutions adopted pursuant to that

Convention by the International Civil Aviation Organ-

ization (ICAO), and in our bilateral executive agree-

ments. Virtually all 157 nations party to the Chi-

cago Convention have substantially implemented the

ICAO Resolutions, and, accordingly, grant aviation

fuel purchased by foreign airlines for use in inter-

national traffic a complete exemption from taxes, in-

cluding sales, use, and excise taxes, levied either by

national governments or by their political subdivi-

sions. See U.S. Br. 10-22.

This Court noted in Japan ‘Line that “fa state tax

on the instrumentalities of foreign commerce may

impair federal uniformity in an area where federal

uniformity is essential” (441 U.S. at 448), and held

that such a tax is invalid if it “prevents the Federal

Government from ‘speaking with one voice when reg-

ulating commercial relations with foreign govern-

ments’” (id. at 451, quoting Michelin Tire Corp. v.

Wages, 423 U.S. 276, 285 (1976)). In the brief that

we previously filed (U.S. Br. 22-35), we explained in

detail our reasons for concluding that Florida’s sales

tax on aviation fuel, as applied to fuel purchased by

foreign airlines for use exclusively in foreign com-

merce, is inconsistent with strongly-articulated fed-

eral policy and with accepted international practice,

and hence is unconstitutional under the Commerce

4

Clause as construed in Japan Line. We have little to

add to the discussion set forth in that brief insofar

as the application of Florida’s tax to the appellants in

Lineas Aereas Costarricenses v. Florida Department

of Revenue, No. 84-922, and Air Jamaica Limited v.

Florida Department of Revenue, No. 84-1041, is con-

cerned. Those cases are being held pending disposi-

tion of the instant appeal.

The instant appellant, unlike the appellants in the

other two cases, is domiciled in Canada. As we noted

in our earlier brief (at 13), Canada appears to be

the sole possible exception to the international norm

of reciprocal tax exemptions described above. While

United States airlines, through bilateral executive

agreement,’ are exempt from taxes imposed by the

Canadian national authorities on fuel purchased in

Canada, Canada’s provincial governments also “im-

pose taxes on aviation fuel and, like Florida, [they]

generally do not grant an exemption for fuel purchased

by foreign airlines for use in foreign commerce”

(U.S. Br. 13). This case accordingly raises the ques-

tion whether the appellant here, by reason of Can-

ada’s domestic taxing practices, is “situated differ-

ently from the other appellants” (id. at 35). We be-

lieve that it is not.

2. Ten Canadian provincial governments currently

impose taxes on the sale of aviation fuel. In thén—

‘See Nonscheduled Air Service Agreement, May 8, 1974,

United States-Canada, art. XII(1), 25 U.S.T. 794, reprinted at

84-902 J.S. App. A5&; Air Transport Services Agreement,

Jan. 17, 1966, United States-Canada, art. XI, 17 U.S.T. 201,

205

“The statistical information set forth in the succeeding

paragraphs was provided to us by the Canadian Embassy, or

was compiled at our request by the U.S. Department of En-

ergy, based on data furnished to it by Canadian authorities.

ol

structure and incidence, these taxes are similar to the

challenged Florida tax. As in effect in April 1983,

when Florida enacted its levy, the tax rates varied

considerably from province to province, ranging from

a low of $0.007 (Canadian) per liter (e.g., in New-

fuundland and Prince Edward Island), to a high of

$0.050 (Canadian) per liter (in British Columbia).

Expressed in U.S. dollars per gallon at current ex-

change rates,® the Newfoundland tax in 1983 was

about 1.9 cents a gallon, and the British Columbia

tax was about 13.55 cents a gallon, representing ap-

proximately 2% and 15% respectively of the total

purchase price paid by a United States carrier. Gen-

erally speaking, Canadian provincial tax rates on

aviation fuel were higher in the country’s western,

energy-producing provinces than in its Atlantic sea-

board provinces. Two provinces—Quebec and Alberta

—exempted foreign airlines from tax in 1983, and

those exemptions continue to the present day. The

other eight provinces continue to tax aviation fuel

purchased by foreign airlines, although the tax rates

have changed somewhat since 1983.

Before this litigation began, the State Department

had not had occasion to approach Canadian author-

ities formally concerning the provincial fuel taxes

described above. In many instances, protests by fed-

eral aviation officials to foreign governments are

prompted by complaints from United States carriers.

Although the Canadian provinces have levied sales

taxes on aviation fuel for a number of years, United

States carriers had not previously lodgéd formal

complaints with United States officials about that

3 See Wall St. J., Dec. 19, 1985, at 34, col. 2.

6

practice. In view of the absence of formal com-

plaints, as well as the questions that the Government

of Canada (pointing to actions like Florida's here )

could have been expected to raise concerning the abil-

ity of the United States itself to guarantee full reci-

procity at the local level, the federal government did

not believe itself in a position to pursue relief vigor-

ously from the Canadian provincial taxes.

Following the commencement of this lawsuit, how-

ever, federal officials have notified the Canadian Gov-

ernment of the United States’ concern as to whether

the Canadian provincial taxes constitute a failure of

reciprocity and of the United States’ intention to pur-

sue this issue. The Department of Transportation has

conferred with United States carriers, through the

medium#of the Air Transport Association, about the

implications of this case. The Department has been

informed that the domestic airlines fully support a

diplomatic initiative with Canada.

23. In our view, the existence of the Canadian pro-

vincial taxes described above makes no difference to

the assessment of the constitutionality of Florida’s

tax as applied to the Canadian appellant. If Flori-

da’s tax violates the Commerce Clause, as we believe

it does, it is because “the taxation of foreign-owned

[instrumentalities of air commerce] is an area where

a uniform federal rule is essential” (Japan Line,

‘ The reasons for this absence of complaint are not entirely

clear. Several of the principal Canadian destinations for U.S.

carriers (such as Montreal, Calgary, and Edmonton) lie in the

two provinces (Quebec and Alberta) that exempt foreign car-

riers from fuel tax. Toronto, probably the chief destination,

lies in Ontario, which imposes a fuel tax, but whose refinery

price for jet fuel (between April 1983 and January 1984, the

most recent period for which figures are available) was almost

invariably lower than that prevailing elsewhere in Canada.

ee ee ee

7

441 U.S. at 455). The “uniform federal rule” in-

volved here is the United States’ longstanding policy

of granting foreign airlines, and of encouraging other

countries to grant our airlines, exemption from all

applicable taxes on the basis of reciprocity. It is the

federal policy, not the particular taxing practice of a

particular foreign state, on which the validity of

Florida’s tax depends.

This Court held in Japan Line (441 U.S at 453)

that “[a state], by its unilateral act, cannot be per-

mitted to place * * * impediments before this Nation’s

conduct of its foreign relations and its foreign trade.”

By undertaking to tax aviation fuel purchased by a

foreign airline for use in foreign commerce, a state

impedes the United States’ international aviation pol-

icy regardless of the actual taxing practice of the

foreign airline’s domicile. If the foreign domicile

grants reciprocity, the state’s action will invite retal-

iatory taxation, or other retaliatory measures, against

United States carriers abroad, retaliation that “of

necessity would be felt by the Nation as a whole”

(ibid. (footnote omitted)). If the foreign domicile

does not grant reciprocity, the state’s action would

undercut the United States’ position in negotiations

designed to rectify that problem, since the United

States would then be disabled from offering the for-

eign government true reciprocity in return. In either

event, the state’s action would frustrate the federal

objectives of maintaining and extending the practice

of reciprocal tax exemptions in the field of interna-

tional aviation.

The Canadian provincial taxes to which we have

referred may cause international difficulties. Any

problems they create, however, “are problems that

admit only of a federal] remedy [and] do not admit of a

8

unilateral solution by a State” (Japan Line, 441 U.S.

at 457). If those taxes are said to breach reciprocity,

it is the federal government, not the individual states,

that must make the appropriate inquiry. And if

those taxes are determined to breach reciprocity, it

is the federal government, not the individual states,

that is alone capable of taking the diplomatic steps

(including the adoption of any appropriate sanctions )

necessary to effect a resolution.*

4. In its motion to dismiss (Mot. to Dis. 13-14,

29-30), Florida has argued that the effect of our posi-

tion, in the case of appellants generally, is to discrim-

inate in favor of foreign airlines and against domes-

tic airlines that compete with them on the same

routes. The Florida Supreme Court has sustained

the constitutionality of Florida’s tax as applied to

*> Any other conclusion would produce an extremely awk-

ward result, both from a doctrinal and a practical point of

view. It would be conceptually odd if the Commerce Clause

made the constitutionality of a state tax hinge on the individ-

ual taxing practice of a particular foreign country. Practically

speaking, moreover, the states are very poorly situated to

determine whether a foreign nation (or one of its political

subdivisions) has committed a breach of reciprocity sufficient

to justify the state’s imposition of a tax. Particularly is this

so since the internationally-favered reciprocal exemption pol-

icy covers not only aviation fuel, but a long list of aviation

equipment, lubricants, and supplies (including such items as

food and alcoholic beverages) incidental to transnational

flights, And even if a state were capable of tracking the per-

formance of the 156 foreign signatories to the Chicago Con-

vention on these matters, it would clearly be in no position to

decide what mode and degree of “retaliation” might be de-

sirable or correct. Of course, should efforts of the executive

branch ultimately prove unsuccessful in resolving the prob-

lem, Congress under the Commerce Clause could authorize the

imposition of appropriately responsive taxation by the states.

)

fuel purchased by domestic airlines, and the domestic

carriers’ appeals were dismissed by this Court. F.g.,

Eastern Airlines, Inc. v. Florida Department of Reve-

nue, 455 So. 2d 311 (1984), appeal dismissed, No.

84-926 (Oct. 15, 1985).° In view of that decision,

Florida contends, our position in effect “destroys com-

petitive equality” between domestic and foreign car-

riers by requiring Florida to grant the latter a tax

subsidy that their domestic competitors do not enjoy

(Mot. to Dis. 13).

This assertion is incorrect. The construction of the

Foreign Commerce Clause that we urge does indeed

grant foreign airlines a “tax holiday” in the United

States with respect to certain items—aviation fuel,

equipment, and supplies—on which their domestic

competitors may have to pay tax. In view of the

almost universal acceptance of the reciprocal exemp-

tion policy, however, United States airlines will have

a tax holiday abroad with respect to those same items,

items on which any applicable taxes will have to be

paid by foreign competitors domiciled in those na-

tions. Because of the symmetrical nature of the re-

ciprocal exemption policy, in other words, there is

no discrimination between domestic and foreign car-

riers when the situation is viewed, as it must be

viewed, from a worldwide rather than from a water’s-

edge perspective.

More generally, United States carriers do business

abroad at the suffrance of their host governments,

and they depend to a large degree on those govern-

6 Although the domestic airlines involved in those appeals

engaged in foreign as well as interstate commerce, they did

not argue that Florida’s tax as applied to them violated the

Foreign Commerce Clause. See 84-921, 84-926 & 84-929 U.S.

Br. 7 n.2.

10

ments’ goodwill. Because foreign nations correctly

regard Florida’s tax on aviation fuel as a failure of

reciprocity, and because they have evidenced by their

diplomatic notes (see U.S. Br. 21-22) serious con-

cern about Florida’s action, those governments can be

expected to take retaliatory measures against United

States carriers if Florida’s tax is sustained. Besides

imposing taxes at the national or local level, foreign

nations could retaliate by discriminating against

United States airlines in various ways. In the past,

United States carriers have encountered a variety of

discriminatory measures abroad, including the levy

of artificially-inflated “user fees,” the imposition of

obstacles to repatriation of foreign earnings, the rout-

ing of airlines to less desirable airports, the refusal

to let carriers use baggage handlers of choice, the

award to local airlines of preference in carrying air

cargo, the imposition of restrictions on United States

airlines’ local advertising, and the infliction of ex-

cessively complicated customs procedures and bureau-

cratic red tape. See U.S. Civil Aeronautics Board,

FY 1976 Report to Congress 103-108 (1977).

For most United States airlines, the competitive

disadvantage they risk suffering abroad if Florida’s

tax is sustained dwarts any disadvantage they suffer

here by virtue of foreign airlines’ enjoyment of a

state tax exemption that domestic carriers do not

share. As noted in our earlier brief (at 16-17), this

Nation’s recent bilateral aviation agreements obligate

the United States to use its best efforts to secure for

foreign airlines an exemption from state and local

taxes on aviation fuel and supplies; these agreements

were developed and negotiated with the concurrence

of United States carriers. Domestic carriers have

expressed no opposition to the position that we have

KK

11

taken in this case. Indeed, American Airlines, a

United States carrier with extensive international op-

erations, has joined in a brief amicus curiae urging

that the decision below be reversed. See Brief of

Amicus Curiae Aer Lingus et al., No. 84-902.’

7 Even if the construction that we urge were thought to pro-

duce some kind of net discrimination in favor of foreign air-

lines, that fact would not be dispositive of the Commerce

Clause outcome. The effect of this Court’s decision in Japan

Line was to grant foreign-owned shipping containers an ex-

emption from state property taxes that domestically-owned

shipping containers did not enjoy. But the Court explicitly

rejected California’s “policy argument[]” that “by exempting

[the Japanese] containers from tax, the State in effect will be

forced to discriminate against domestic, in favor of foreign,

commerce” (441 U.S. at 456, 457). Even if Florida’s argu-

ment concerning alleged “discrimination” were correct, there-

fore, it would have no greater weight here in assessing the

constitutionality of the challenged tax than California’s vir-

tually identical argument had in Japan Line. Of course, if

domestic carriers believed themselves disadvantaged by the

constitutional outcome which, in the absence of congressional

legislation, we submit to be proper under the Foreign Com-

merce Clause, they could seek appropriate relief from Con-

gress. When such “policy arguments” are directed to this

Court, however, they “are directed to the wrong forum”

(Japan Line, 441 U.S. at 456, 457).

CONCLUSION

HARLES FRIED

Sol CUOr (re ve ral

LAWRENCE G. WALLACE

Deputy Solicitor General

ALBERT G. LAUBER, JR.

issistant to thre Solu tor Gene ral

ABRAHAM D. SOFAER

Lt rl idvise r

De partme nt of Stat

JIM J. MARQUEZ

General Counsel

Devartme rot 7

DECEMBER 1985