# Record and brief — R.J. Reynolds Tobacco Co. v. Durham County (No. 85-1022) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_1168%3A0 ## Record - **Collection:** Supreme Court brief - **Document type:** Record and brief - **Published:** January 1, 1985 ## Text EDITOR'S NOTE THE FOLLOWING PAGES WERE AT THE TIME OF FILMING, BETTER COPY CAN BE OBTAIN WILL BE ISSUED. POOR HARD COPY IF AND WHEN A ED, A NEW FICHE \\) iOe 85°1U22-ASx ‘tatus: ocketed: ecem>er 16s 1985 ide: 85-1021 ntry Date 1 Dec 16 2 Jan 15 3 Jan 17 4 Jan 22 5 Jan 31 6 Feo 24 7 Mar 18 8 Mar 20 9 Mar 20 471 Apr 8 12 Apr 10 13 Apr 10 15 Apr 18 16 Jun 12 17 Jun 12 18 Jul 16 19 Jut 25 29 Jul 28 21 Oct 6 GRANTEC Titles Re Je Reynolos Tobacco Companys Aopellant Ve Durham Countys North Carolins anc Forsyth County, Nortn Carolina and Its Affected Punicipalities Couris Court cf Apoeals of North Carolina Counsel tor appellant: Griswold-Erwin N. Counsel tor apoellee: Wolfe III-John Ge, KitchensS. Cer Price JPesr?e Eugene Note Proceecings anc Orders 1985 G 1986 1966 1986 1986 xX 1%¥ee 1986 1986 19b6 1986 1986 1986 1986 1986 1986 1986 1986 1986 1986 Statement as te jurisdiction filec. Motion of apoellee Durham NCy et al. to cistiss or attire tilec. VIDED. Moticn of appellee Forsyth Countys N.C. to Cisriss or affira tilec. VIDED. VISTRIGUTED. February 217 1986 Reply briet of appellant R. Je Reynolds Tobacco Co. tiled. vIDED. Furtner consideration of the cquestion of jurisdiction is POSTPONED to the hearing of the case on the merits. The case is consolidated with 85-1021, arc a total of one nour is allotted for oral argument. REE EAEE REE EE REET EERREREEEEREERREEREEEEREE REE REED kecord filed. kecord filed. Certified copy of record receivec from Court of Appeal of North Carolina. vroer extending time to file brief of anpellant on the merits until Aoril 15, 19864, Priet cf appellant Re. Je Reynolds Tobacco Co. tiles. VIDED. JOInt eppendix fileg. VIDED. vroer extending time to file brief of apcellee on the merits until June 12 1924. Briet amicus curiae of Nat. Assn. of Counties, et al. tiled. VIDED. Brier of appellee Durham County» NCr et al. tilec. VIDED. Reply briet of appellant R. J. Reynolds Tobacco Co. filec. VICED. CIRCULATED. SET FOR ARGUMENT. Mondays Oc*ober 6+ 1986, (2nd case) This case is consolicatec with No. 85-1021. (1 hour). ARGUED. EEE JURISDICTIONAL STATEMENT eo" 2088 |) : FILED | | DEC 16 1985 No. JOSEPH F. SPANIOL, J IN THE te Supreme Court of the United States OCTOBER TERM, 1985 R. J. REYNOLDS TOBACCO COMPANY, Appellant, V. DURHAM COUNTY, NORTH CAROLINA and FORSYTH COUNTY, NORTH CAROLINA and Its AFFECTED MUNICIPALITIES, Appellees. On Appeal from the North Carolina Court of Appeals JURISDICTIONAL STATEMENT Of Counsel ERWIN N. GRISWOLD JAMES W. McGRATH (Counsel of Record) FRANK SKINNER Bos C. GRIFFO R. J. REYNOLDS JONES, Day, REAVIs & POGUE INDUSTRIES, INC. 655 Fifteenth Street, N.W. 1100 Reynolds Boulevard Washington, D.C. 20005 Winston-Salem, NC 27102 (202) 879-3898 THOMAS L. KUMMER HUGH CALKINS JOHN A. COCKLEREECE, JR. KATHLEEN B. BURKE HorTON, HENDRICK & JOHN C. DuFry, JR. KUMMER , JONES, DAY, REAvis & POGUE 450 NCNB Plaza 1700 Huntington Building Winston-Salem, NC 27101 Cleveland, OH 44115 Counsel for Appellant WILSON - Eres PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001 QUESTIONS PRESENTED 1. Whether a state is pre-empted from levying an ad valorem property tax on goods brought in from a foreign country and stored in a customs bonded ware- house, particularly in view of the decision of this Court in Xerox Corp. v. County of Harris, 459 U.S. 145 (1982), and the legislative history surrounding the Trade and Tariff Act of 1984. 2. Whether the Due Process Clause or the Import- Export Clause prohibits a state from levying an ad valorem property tax on goods brought in from a foreign country and stored in a customs bonded warehouse. (i) ii STATEMENT UNDER RULE 15.1 Forsyth County entered an appearance in the court below on behalf of itself and “its affected municipalities.” The “affected municipalities” include the City of Win- ston-Salem, North Carolina and the Town of Kerners- ville, North Carolina. The Town of Kernersville, North Carolina also appeared as a separate party in the court below. The City of Durham, North Carolina appeared as an amicus in the court below. STATEMENT UNDER RULE 28.1 ; R. J. Reynolds Tobacco Company [“Reynolds”] is a wholly-owned, first-tier subsidiary of R. J. Reynolds Industries, Inc. [{“‘Reynolds Industries’”’], a publicly-held corporation. All domestic subsidiaries and affiliates of Reynolds, except for Combibloc, a joint venture with Jagenherg AG, are wholly-owned, directly or indirectly, by either Reynolds or Reynolds Industries. With regard to its foreign subsidiaries and affiliates, there are seventy- seven such subsidiaries or affiliates which are not wholly- owned, either directly or indirectly, by Reynolds or Reyn- olds Industries. These are set forth in Appendix M, pp. 101a-102a. STATEMENT UNDER RULE 284 This appeal raises the question of the validity of a North Carolina statute, as applied. Thus, 28 U.S.C. § 2403(b) may be applicable to this proceeding. A copy of this Jurisdictional Statement has been served on the Attorney General of North Carolina. TABLE OF CONTENTS Page QUESTIONS PRESENTED .....W..20....n......eeeee cece i STATEMENTS UNDER COURT RULES .................. ii CEP ET PIED anno ona.snscnescnscncsencenssnsseneee iv Neen i ascetcnneamiccnnonmmences 1 LETT 2 CONSTITUTIONAL PROVISIONS INVOLVED ........ 5 STATU" ES AND REGULATIONS INVOLVED .......... 5 EEE TTA A 5 GROUNDS FOP PLENARY CONSIDERATION ........ 8 I. THIS COURT DETERMINED IN THE 1982 XEROX CASE THAT CONGRESS PRE- EMPTED STATE TAXATION OF IM- PORTED PROPERTY STORED IN CUSTOMS BONDED WAREHOUSES. CONGRESS SUB- SEQUENTLY APPROVED THE XEROX DE- CISION WHEN IT ENACTED THE TRADE AND TARIFF ACT OF 1964................................. 8 Il. THE DUE PROCESS CLAUSE AND THE IMPORT-EXPORT CLAUSE PROHIBIT A STATE FROM LEVYING AN AD VALOREM PROPERTY TAX ON IMPORTED GOODS STORED IN A CUSTOMS BONDED WARE- Ce cscvemmnereeoenee 15 ESE 17 The Appendix to this Jurisdictional Statement is separately bound. (iii) iv TABLE OF AUTHORITIES Cases: Page American Smelting & Refining Co. v. County of Contra Costa, 271 Cal. App. 2d 437, 77 Cal. Rptr. 570 (1969), appeal dismissed, 396 U.S. 273, reh’g denied, 397 U.S. 958 (1970).................. 4,11, 12, 15 Ammex Warehouse Co. v. Department of Alcoholic Beverage Control, 224 F.Supp. 546 (S8.D. Cal. 1963), aff'd, 378 U.S. 124 (1964) ~..........02........ 17 District of Columbia v. International Distributing Corp., 118 U.S. App. D.C. 71, 331 F.2d 817 GID casiniicistincejetrniniicbaneseapinniubinniansewebianistbncediniiaahaies 16, 17 Doyle v. Ohio, 426 U.S. 610 (1976) ..........-............. 2,3 Fabbri v. Murphy, 95 U.S. 191 (1877) -................... 16 Hetrick v. Village of Lindsey, 265 U.S. 384 (1924).. 2 Japan Line, Ltd. ». County of Los Angeles, 441 U.S. RTE ne en 9 enemas PEE NESDIS 5 a 3,4 Kosydar v. National Cash Register Co., 417 U.S. REESE ESE RT a ier ene mer, Pie eee een 18 Matthews v. Huwe, Treasurer, 269 U.S. 262 I i isisacecel Fe -koe ERTeY NE Ee ree 2 McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940). 10, 12, 15 Michelin Tire Corp. v. Wages, 423 U.S. 276, reh’g denied, 424 U.S. 935 (1976) ...........------.eeeceeeeeeeeee 16 Tumey v. Ohio, 273 U.S. 510 (1927) ..........--.--0...-... 2 Union Refrigerator Transit Co. v. Kentucky, 199 aati IRS ee CO 16 United States v. Ehrgott, 182 F. 267 (C.C. S.D.N.Y. ip NAAR a ls alee ace eae HAY Me 17 Van Huffel v. Harkelrode, Treasurer, 284 U.S. 225 UII ninstdhbioncteusseinuedbdiassatinsadiecadadmabaslimbentnhieatiaiess 2 Xerox Corp. v. County of Harris, 459 U.S. 145 (35GB) .......... ~cbieitaiaiiiiatilataes ial teatctiintaitacte bili apeidaaaall passim Constitution of the United States: Asticie I, Section GS, Clause 8 ...............................---.--- 7,15 Article I, Section 10, Clause 2 0.0.00. 7, 15, 16,17 a cenenmeseniigeall passim Amendment XIV, Section 1 20.00.0000 7, 15,17 Vv TABLE OF AUTHORITIES—Continued United States Code: Page «19 EEE Ea a eR SN, me 12 I ail hicccaincedleeentesdateannsnenestionommaaiaial 12 19 U.S.C. §§ 1202-1677¢ ........... pc An LE ent Melee Ww 4 R TE a RS I se 9 RTA a Re cae 9 ER SD I A a a 9 28 U.S.C. § 1257(2) ........ EEN ale Ley Dee 3 EERE SA nt 18 United States Statutes at Large: Foreign Trade Zone Act, ch. 590, 48 Stat. 998 Ee ee ee eae nS ee ee 12 Tariff Act of 1930, ch. 497, 46 Stat. 590 (1930)... 8 Trade and Tariff Act of 1984, Pub. L. No. 98-573, 98 Stat. 2948 (1984)... SL Dea SESS ORE RE CN OSS 11, 12, 15 Warehousing Act of 1846, ch. 84, 9 Stat. 53 (1846) — North Carolina General Statutes: en. sssinnsmmecionnnanes eo a sa cacecenevenunensoseciotasons Code of Federal Regulations: cite tcacemsicnsicctesntotiascsiites pe 19 C.F.R. §§ 19.1-19.49............. spscheeisideininbcnnteclaansiatsicinntiin bs ndrensenetecemieseeaiinie sini TT isan ccnisinerpagiecichiteliciaisdessiagaeiciste iin tac nelittincicbinidandnsiacinnianeen | | ee ieicbsotepraipainiphalaisiecls ini i cass cdreseuicihsiesesintaperesessenntennctetineiiainnston 12 we) weowovw oe Oo Ow Miscellaneous: Certain Trade and Tariff Bills, Hearings before the Subcomm. on Trade of the House Comm. on Ways and Means, 98th Cong., Ist Sess. 330 (1983) (statement of Rep. Wright) .................. 13 129 Cong. Rec. S7748-49 (daily ed. June 6, 1983) (statement of Gen. Tower)’.............-....................... 13, 14 vi TABLE OF AUTHORITIES—Continued H.R. 717, 98th Cong., 1st Sess. (1983) -.................... 13 H. Rep. No. 267, 98th Cong., 1st Sess. 35 (1983)... 14, 15 Miscellaneous Tariff Bills, 1983-84, Hearings before the Subcomm. on Int’! Trade of the Comm. on Finance, 98th Cong., Ist Sess. 355 (1983) (state- EE TIED diniahcscicienddbbepaisiegtinttinitindntginendscctan 14 S. 1411, 98th Cong., Ist Sess. (1983) ......................... 13, 14 S. Rep. No. 308, 98th Cong., Ist Sess. 36 (1983) .... 15 IN THE Supreme Court of the United States OCTOBER TERM, 1985 No. R. J. REYNOLDS TOBACCO COMPANY, Appellant, v. DURHAM COUNTY, NORTH CAROLINA and FORSYTH COUNTY, NORTH CAROLINA and Its AFFECTED MUNICIPALITIES, Appellees. On Appeal from the North Carolina Court of Appeals JURISDICTIONAL STATEMENT DECISIONS BELOW The Judgment Dismissing Appeal and Denying Peti- tion for Discretionary Review of the Supreme Court of North Carolina (App. A, pp. la-2a) is unreported. The Opinion of the North Carolina Court of Appeals (App. C, pp. 5a-19a) is reported at 73 N.C. App. 475, 326 S.E.2d 911. The Final Decision of the North Carolina Property Tax Commission sitting as the State Board of Equaliza- tion and Review (App. D, pp. 21la-37a) is unreported. 2 JURISDICTION The judgment of the North Carolina Court of Appeals, finding that the levy of an ad valorem property tax on property stored in a customs bonded warehouse is not pro- scribed by the United States Constitution, was entered on April 8, 1985 (App. B, p. 3a). The judgment of the Supreme Court of North Carolina, dismissing an ap- peal from the judgment of the North Carolina Court of Appeals and also denying a petition for discretionary re- view of the judgment of the North Carolina Court of Appeals was entered on October 2, 1985 (App. A, pp. la-2a). A notice of appeal from the judgment of the North Carolina Court of Appeals (App. F, p. 4la) was filed in the North Carolina Court of Appeals on November 14, 1985. This appeal was docketed within 90 days from the judgment of the Supreme Court of North Carolina.’ The 1 Reynolds has also docketed an appeal from the judgment of the Supreme Court of North Carolina by concurrently filing a separate Jurisdictional Statement in support of that appeal which is identical in substance to this Jurisdictional Statement. Reynolds has taken this precaution because prior decisions of this Court would appear to render the judgment of the Supreme Court of North Carolina, dismissing an appeal of right, filed pursuant to N.C. Gen. Stat. § 7A-30 and docketed pursuant to N.C. App. R. 14(c) (2), for lack of a substantial constitutional question, a decision on the merits. Hetrick v. Village of Lindsey, 265 U.S. 384, 386 (1924); Matthews v. Huwe, Treasurer, 269 U.S. 262 (1925) ; Tumey v. Ohio, 273 U.S. 510, 515 (1927) and Van Huffel v. Harkelrode, Treasurer, 284 U.S. 225, 230-231 (1931). Reynolds has been advised, however, by the Clerk of the North Carolina Supreme Court that a judgment dismissing an appeal of right for lack of a substantial constitutionai question is not regarded by that Court as a decision on the merits. Moreover, it appears that Hetrick and its progeny may have been overruled, sub silentio, in Doyle v. Ohio, 426 U.S. 610 (1976). In Doyle, the entry of the Supreme Court of Ohio reflected essentially the same action taken by the North Carolina Supreme Court here. (See pp. 68 and 70 of the Joint Appendix in Doyle v. Ohio, No. 75-5014, October Term, 1975.) The only difference is that the Rules of Practice of the 3 jurisdiction of this Court rests on 28 U.S.C. § 1257(2). The validity of a state statute,’ as applied, has been drawn into question on the grounds of being repugnant to the United States Constitution, and the statute has been found to be valid, as applied, by the highest court of the State in which a decision could be had. In two recent cases, the Court clearly established its jurisdiction over the issues raised here. In Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979), the Court held: In this case, appellants drew in question the validity of California’s ad valorem property tax, contending that the tax, as applied to their containers, was re- pugnant to the Commerce Clause and various treaties, and the California Supreme Court sustained the va- lidity of the tax. Under these circumstances, this Court’s appellate jurisdiction would seem manifest. . . . Appellants squarely ~hallenged the constitu- tionality of the tax statute, as applied, and the Cali- fornia Supreme Court just as squarely sustained its validity, as applied. We have held consistently that a state statute is sustained within the meaning of § 1257(2) when a State court holds it applicable to a particular set of facts as against the contention that Supreme Court of Ohio state that the record shall not be transmitted by the clerk of the court of appeals “unless and until! the court has overruled the motion to dismiss [the appeal].” Section 9, Rule II, Rules of Practice of the Supreme Court of Ohio. Reynolds seeks to protect its right to a full plenary consideration by this Court of the questions presented in this appeal in the event that jurisdiction is not governed by Doyle. Accordingly, it has docketed the alternative appeal. 2 The state statute in issue is North Carolina’s statute imposing an ad valorem personal property tax. N.C. Gen. Stat. § 105-274. The tax has been levied here on imported goods stored in customs bonded warehouses situated in North Carolina, notwithstanding a claim by the owner that such goods are constitutionally immune from the tax. d such application is invalid on federal grounds. [cita- tions omitted] We conclude that we have appellate jurisdiction of this case. Id. at 440-441. The Court in Xerox Corp. v. County of Harris, 459 U.S. 145 (1982), found jurisdiction under circumstances almost identical to those in this case. In Xerox, the Court accepted jurisdiction to review a Texas court decision reversing an injunction against the assess- ment of ad valorem personal property taxes on goods stored under bond in a customs warehouse. The Court found jurisdiction, noting that “an indispensable predi- cate” to the Texas court decision “was a determination that the taxes at issue were permissible under the United States Constitution.” Jd. at 149.* % American Smelting & Refining Co. v. County of Contra Costa, 271 Cal. App. 2d 437, 77 Cal. Rptr. 570 (1969), appeal dismissed, 396 U.S. 273, reh’g denied, 397 U.S. 958 (1970), was not involved in Japan Line. It was cited in appellee’s motion to dismiss in Xerox, but was not referred to by this Court. It does not appear to have continuing validity after this Court’s decisions in Japan Line and Xeroz. 5 CONSTITUTIONAL PROVISIONS INVOLVED United States Constitution, Article I, Section 8, Clause 1 The Congress shall have Power To lay and collect Taxes, Duties, Imposts, and Excises. .. . United States Constitution, Article I, Section 8, Clause 3 [The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes... . United States Constitution, Article I, Section 10, Clause 2 No State shall, without the Consent of the Con- gress, lay any Imposts or Duties on Imports or Ex- ports, except what may be absolutely necessary for executing it’s inspection Laws... . United States Constitution, Article VI, Clause 2 This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; . . . Shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding. United States Constitution, Amendment XIV, Section 1 No State shall . . . deprive any person of life, lib- erty, or property, without due process of law... . STATUTES AND REGULATIONS INVOLVED The statutes involved are set forth in Appendix L, pp. 6la-72a; the regulations involved are set forth in Appen- dix L, pp. 73a-100a. STATEMENT This is an appeal by Reynolds challenging the consti- tutionality of North Carolina’s ad valorem personal prop- 6 erty tax levied for the 1983 tax year on imported tobacco stored in customs bonded warehouses. The North Caro- lina courts rejected Reynolds’ argument that its claim of immunity from taxation is squarely governed by this Court’s recent decision in Xerox Corp. v. County of Harris, 459 U.S. 145 (1982), which held that Congress has pre-empted the right of states to levy property taxes on goods stored in customs bonded warehouses. Reynolds is a New Jersey corporation authorized to do business in North Carolina. It is engaged in the busi- ness of manufacturing finished tobacco products, which it sells to wholesale distributors and other authorized purchasers in the United States. In addition, a portion of its finished tobacco products are exported to purchasers in foreign countries. Reynolds uses tobacco grown both in the United States and in foreign countries in manufacturing its finished tobacco products. The foreign tobacco used in this process is placed under customs bond at the various ports of entry. Thereafter, it is shipped either to Durham County or Forsyth County, North Carolina, by customs bonded carriers, and is placed in customs bonded warehouses owned by Reynolds.‘ The imported tobacco is usually held in the customs bonded warehouses for about two years before being withdrawn by Reynolds for use in its manu- facturing operations. At the time of withdrawal, Reyn- olds pays the applicable duty. On the tax lien date for the 1983 tax year, Reynolds owned imported tobacco which was stored in the customs bonded warehouses located in both Durham and Forsyth Counties. In listing its taxable personal property, Reyn- olds claimed that the imported tobacco situated in the customs bonded warehouses in both counties was immune *The warehouses and the land on which they are situated are subject to ad valorem taxes levied on real property in North Caro- lina. These taxes have been paid and are not in issue here. 7 from taxation on federal constitutional grounds in ac- cordance with the decision of this Court in Xerox Corp. v. County of Harris, 459 U.S. 145 (1982). The separate claims of immunity were denied by the respective tax supervisors (assessors) of Durham County and Forsyth County. The denials were subsequently affirmed by the board of equalization and review for each county. Reynolds, thereafter, filed separate appeals (which were consolidated for hearing) with the North Carolina Property Tax Commission claiming that the imported to- bacco stored under bond in the customs warehouses in each county was immune, under several clauses of the Constitution of the United States, from the North Caro- lina property tax. Reynolds’ claims of immunity from ad valorem personal property taxes were denied by the North Carolina Property. Tax Commission (App. D, pp. 34a-37a). Reynolds then appealed to the North Carolina Court of Appeals. In affirming the decision of the North Carolina Property Tax Commission, the Court of Ap- peals concluded that a nondiscriminatory ad valorem per- sonal property tax levied on “imported goods” stored urder bond in a customs warehouse, which goods are “not destined for foreign markets,” is not proscribed by the Supremacy Clause, the Import-Export Clause, the For- eign Commerce Clause or the Due Process Clause of the United States Constitution (App. C, p. 16a). Reynolds next appealed to the Supreme Court of North Carolina, claiming that the denial of immunity from taxation violated the Supremacy Clause, the Foreign Commerce Clause, the Import-Export Clause and the Due Process Clause of the United States Constitution. The appeal was dismissed without opinion for lack of a sub- stantial constitutional question and a petition for dis- cretionary review of the decision of the North Carolina Court of Appeals was concurrently denied (App. A, pp. la-2a). 8 GROUNDS FOR PLENARY CONSIDERATION The questions presented are substantial. I. THIS COURT DETERMINED IN THE 1982 XEROX CASE THAT CONGRESS PRE-EMPTED STATE TAXATION OF IMPORTED PROPERTY STORED IN CUSTOMS BONDED WAREHOUSES. CON- GRESS SUBSEQUENTLY APPROVED THE XEROX DECISION WHEN IT ENACTED THE TRADE AND TARIFF ACT OF 1984. In Xerox Corp. v. County of Harris, 459 U.S. 145 (1982), this Court was asked to decide whether it was constitutionally permissible for a state to impose an ad valorem property tax on personal property stored under bond in a customs warehouse. In deciding the question, the Court noted that Congress had, in the exercise of “its powers under the Commerce Clause, . . . established a comprehensive customs system which includes provi- sions for Government-supervised bonded warehouses where imports may be stored duty free for prescribed periods.” * Jd. at 150. This Court specifically held in its opinion that: 5 The Tariff Act of 1930, and the Regulations promulgated there- under, set forth a comprehensive scheme regulating goods brought into the United States. Ch. 497, 46 Stat. 590 (1930), codified as amended at 19 U.S.C. §§ 1202-1677g (1982); 19 C.F.R. §§ 4-355.50 (1983). As part of the regulation of the importation process, the statutes and regulations specify the process whereby goods are maintained in customs custody before customs entry into the United States. The role of customs warehouses in this comprehensive scheme dates to the Warehousing Act of 1846, ch. 84, 9 Stat. 53. Xerox, 459 U.S. at 150. The regulation of the process whereby goods are unloaded from vessels, placed in customs bond, transported to the bonded ware- house, and stored therein is extensive. Control by customs officials is assured by elaborate documentation and audit procedures. All goods under customs bond are required by law to be segregated from other property and, unless specifically authorized by law, the goods are neither commingled with other goods, domestic or im- 9 [S]tate property taxes on goods stored under bond in a customs warehouse are pre-empted by Con- gress’ comprehensive regulation of customs duties. Id. at 154. Although the specific property in issue in Xerox was finished goods imported and stored under bond in a Class 3 customs warehouse * with reexport expected, though not required, this Court did not limit the scope of its holding to property stored under bond while awaiting reexport. Nonetheless, the North Carolina Court of Appeals con- cluded that the decision in the Xerox case does not con- trol the taxability of imported goods stored under bond ported, nor manipulated while in bond. See, e.g., 19 U.S.C. §§ 1555- 1565 (1982), 19 C.F.R. §§ 19.1-19.49 (1983). There are eight classes of customs warehouses. Involved in this case are Class 2 and Class 8 customs warehouses. Class 2 ware- houses are private bonded warehouses used exclusively for the storage of merchandise belonging or consigned to the proprietor thereof. 19 C.F.R. §19.1(a)(2) (1983). Class 8 warehouses are bonded warehouses established for the purpose of cleaning, sorting, repacking or otherwise changing in condition, but not manufactur- ing, merchandise, under customs supervision and at the expense of the proprietor. 19 C.F.R. §19.1(a) (8) (1983). Goods in Class 8 customs bonded warehouses may be manipulated only to the extent permitted by law with the prior approval of customs. 19 C.F.R. §19.11(d) (1983). At the request of the owner, however, goods may be destroyed in bond and no duty is payable thereon. 19 U.S.C. § 1557(c) (1982). Merchandise may be withdrawn for either consumption or export within five years. 19 U.S.C. §1557(a) (1982). Withdrawal for consumption within the customs territory of the United States, or withdrawal for export, if desired, have always been equally available options for the owner of goods stored in Class 2 and Class 8 cus- toms warehouses. No duty is payable if goods are withdrawn for export. ® A Class 3 customs warehouse is a privately-owned public bonded warehouse used exclusively for the storage of merchandise of foreign origin held under bond until removed for domestic con- sumption or export. 19 C.F.R. §19.1(a) (3) (1983). 10 in a customs warehouse pending withdrawal for ex- pected, though not required, domestic use or sale. This is clearly an incorrect reading of the Xerox decision. The opinion in Xerox specifically states that the “question” considered by the Court included “goods [stored under bond] destined for American consumption.” * In its Xerox opinion, this Court examined the legisla- tive history of the Warehousing Act of 1846 and stated that: Congress was willing to waive all duty on goods that were reexported from the warehouse, and to defer, for a prescribed period, the duty on goods destined for American consumption. .. . . . . The question is whether it would be compati- ble with the comprehensive scheme Congress enacted to effect these goals if the states were free to tax such goods (referring, in part, to “goods destined for American consumption”] while they were lodged temporarily in Government-regulated bonded storage in this country. Id. at 151; emphasis and bracketed matter added. The Court, in deciding the “question,” also noted that it had previously considered the issue of pre-emption from state taxation in McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940). The Court stated in Xerox that its “anal- ysis in McGoldrick applies with full force here.” 459 U.S. at 153. The Court then concluded that: Although there are factual distinctions between this case and McGoldrick, they are distinctions with- out a legal difference. We can discern no relevance to the issue of congressional intent in the fact that the fuel oil in McGoldrick could be sold only as ships’ stores whereas Xerox had the option to pay the duty and withdraw the copiers for domestic sale. . 459 U.S. at 153. T Xeroz, 459 U.S. at 151. 11 The questioning of both counsel during oral argument in the Xerox case also clearly indicates that the ultimate destination of the stored goods was of no consequence to the issue presented to the Court. The following question was posed by the Court to counsel for the taxing authori- ties: Question: So it really doesn’t make any difference in this case as to whether they were destined for a foreign market. Ms. Chapman: Absolutely not.* A similar question to counsel for Xerox followed: Question: Well, is an importer who says, yes, these are going to be sold in the United States, and he puts them in a bonded warehouse, and holds them for two years, may Texas levy a tax while they are in the warehouse? Mr. Hoddinott: No, sir, that is directly opposed to the legislative purpose of the Warehousing Act.° Clearly, it was the pervasive and comprehensive scheme enacted by Congress governing property in customs warehouses, and not the ultimate destination of such property, that led this Court to conclude in Xerox that states are pre-empted from imposing ad valorem property taxes on goods stored under bond in a customs ware- house.*® Ratification of Xerox by Congress Congress expressed its approval of this Court’s holding in the Xerox case when it adopted the Trade and Tariff 8 Transcript of Oral Argument in Xerox case at p. 36 (App. G, p. 46a). ® Transcript of Oral Argument in Xerox case at pp. 48-49 (App. G, p. 47a). ©The North Carolina Court of Appeals relied upon American Smelting & Refining Co. v. County of Contra Costa, 271 Cal. App. 12 Act of 1984," which, inter alia, amended the Foreign Trade Zone Act’ to provide a statutory exemption ™ from state and local ad valorem property taxes. This amendment was prompted, in part, by Congressional awareness that the State of Texas had forced Xerox Cor- poration to undertake protracted litigation in order to obtain immunity from state taxation for its property 2d 437, 77 Cal. Rptr. 570 (1969), appeal dismissed, 396 U.S. 273, reh’g denied, 397 U.S. 958 (1970). American Smelting involved a Class 7 customs bonded warehouse where ore was smelted under bond for either domestic consumption or shipment abroad. The California Court of Appeals in American Smelting, unlike this Court in Xeroz, did not examine the legislative history of the customs bonded warehouse provisions, and interpreted McGoldrick to apply only to situations where goods are required by law or regulation to be shipped abroad. 11 Pub. L. No. 98-573, 98 Stat. 2948 (1984). 2 Ch. 590, 48 Stat. 998 (1934), codified as amended 19 U.S.C. § 81 a-u (1982). Goods imported into foreign trade zones, as in the case of customs bonded warehouses, are not subject to import duties until withdrawn for domestic consumption. 19 U.S.C. § 81c (1982). Unlike customs bonded warehouses, however, there are no separate classes of foreign trade zones, and manipulation, manu- facturing and exhibition are generally permitted subject to customs supervision. 19 C.F.R. § 146.32 (1983). 18 Pub. L. No. 98-573, Sec. 231(b), 98 Stat. 2948, 2991 (1984) provides: (1) Section 15 of such Act of June 18, 1934 (19 U.S.C. 81o) is amended by adding at the end thereof the following new subsection : “(e) Tangible personal property imported from outside the United States and held in a zone for the purpose of storage, sale, exhibition, repackaging, assembly, distribution, sorting, grading, cleaning, mixing, display, manufacturing, or process- ing, and tangible personal property produced in the United States and held in a zone for exportation, either in its original form or as altered by any of the above processes, shall be ex- einpt from State and local ad valorem taxation.” (2) The amendment made by paragraph (1) shall take effect on January 1, 1983. 13 stored in a customs bonded warehouse. The legislative history surrounding this amendment clearly indicates that Congress was not making a substantive change in the law governing the state taxation of property in foreign trade zones. Rather, Congress made it clear that prop- erty situated in a foreign trade zone was to be afforded the same constitutional immunity from state ad valorem property taxes which the Court, in Xerox, had afforded property in a customs bonded warehouse. Congressman Wright, sponsor of H.R. 717 explained the rationale for the bill in testimony (App. H, 49a-51a) before the Subcommittee on Trade: Now, there is only one case that I am aware of anywhere in the whole United States where a local taxing authority, a local city has presumed a right to levy local ad valorem taxes on goods in foreign commerce, the inventories in the foreign trade zone, and that, as luck would have it, occurred in my dis- trict, at the Dallas-Fort Worth Foreign Trade Zone, where the city of Irving, composed of some very fine Texas citizens, simply misunderstood the nature of a foreign trade zone and undertook to levy local ad valorem taxes on all the inventories that are there in the foreign trade zones. Well, it occurs that a recent Supreme Court deci- sion in the case of Xerox versus the County of Har- ris already has ruled that you cannot do that with respect to a bonded warehouse, and I should think that the very same identical provision would apply here."* Senator Tower, cosponsor of S. 1411, a companion bill to H.R. 717, in a statement (App. I, pp. 53a-54a) for the record explained the rationale for the bill as follows: 14 Certain Trade and Tariff Biils, Hearings before the Subcomm. on Trade of the House Comm. on Ways and Means, 98th Cong., Ist Sess. 330 (1983) (statement of Rep. Wright). 14 Congress created foreign trade zones to make our country competitive in the international market- place. Local taxation of goods located in a foreign trade zone would, of course, frustrate the Congres- sional purpose. The Federal preemption of this type of taxation has been uniformly recognized outside of Texas. However, because of restrictions in the Texas constitution, the formal recognition by the State of Texas is not possible. The lack of a definitive statute in Texas has cre- ated a hesitation among businesses that might other- wise use Texas foreign trade zones. A State statute is, of course, not necessary to restate a Federal preemption. A State statute would be merely gratui- tous, to insure that local authorities comply with Federal law. Without such a statute to show local assessors, however, businesses are concerned that they will be forced to go to court in order to secure an ad valorem tax exemption to which they are en- titled. Although the recent U.S. Supreme Court case of Xerox Corporation against Harris County seems to make the state of the law clear, businesses do not like to operate based on how case law would help them if they are forced to go to court. By simply restating the existing Federal preemp- tion of ad valorem taxation, the Bentsen-Tower bill will be able to facilitate the development of foreign trade zones.” Further evidence that Congress intended to approve the pre-emption recognized in Xerox is found in H. Rep. No. 267, 98th Cong., Ist Sess. 35 (App. J, pp. 55a-56a) stating that “[t]he goal of this legislation is . . . to confirm that Congress intended not to permit the imposition of [state and local ad valorem] taxes” on imported property in a 15 129 Cong. Rec. S7748-49 (daily ed. June 6, 1983) (statement of Sen. Tower) ; see also Miscellaneous Tariff Bills, 1983-84, Hearings before the Subcomm. on Int’! Trade of the Comm. on Finance, 98th Cong., 1st Sess. 355 (1983) (statement of Sen. Tower). 15 foreign trade zone, and S. Rep. No. 308, 98th Cong., 1st Sess. 36 (App. K, pp. 57a-59a) stating that “the Supreme Court of the United States has ruled that Congress’ com- prehensive regulation of customs duties preempts state property taxes on goods stored under bond in a customs warehouse (Xerox Corp. v. County of Harris, Texas, and City of Houston, Texas, No. 81-1489, December 13, 1982) .” It is clear that Congress has pre-empted the states’ right to tax imported property stored under bond in a customs warehouse. This Court so stated in Xeroz. Moreover, Congress reaffirmed this fact in the exercise of its authority under the Commerce Clause, by con- firming the Xerox decision when enacting the Trade and Tariff Act of 1984. II. THE DUE PROCESS CLAUSE AND THE IMPORT- EXPORT CLAUSE PROHIBIT A STATE FROM LEVYING AN AD VALOREM PROPERTY TAX ON IMPORTED GOODS STORED IN A CUSTOMS BONDED WAREHOUSE. Reynolds separately argued in its appeals to the courts below that the ad valorem property taxes levied on its imported goods stored in customs bonded warehouses vio- lated both the Due Process Clause and the Import-Export Clause of the United States Constitution. The North Carolina Court of Appeals denied both claims. This Court has never considered either question in a written opinion.** 16 This Court was not asked to consider a Due Process argument in Xerox Corp. v. County of Harris, 459 U.S. 145 (1982). Nor was a Due Process argument raised in American Smelting & Refining Co. v. County of Contra Costa, 271 Cal. App. 2d 437, 77 Cal. Rptr. 570 (1969), appeal dismissed, 396 U.S. 273, reh’g denied, 397 U.S. 958 (1970). This Court found it “unnecessary .. . to consider” whether the Texas property tax ..volved in Xerox would “pass muster” under the Import-Export Clause. 459 U.S. at 154. An identical conclusion was stated with regard to the excise tax in- volved in McGoldrick v. Gulf Oil Corp., 809 U.S. 414, 429 (1940). 16 In Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194 (1905), this Court stated that “[iJt is... es- sential to the validity . . . [of an ad valorem property] tax that the property [sought to be taxed] . . . be within the territorial jurisdiction of the taxing power.” Jd. at 204. Later, in Michelin Tire Corp. v. Wages, 423 U.S. 276, reh’g denied, 424 U.S. 935 (1976), where no cus- toms bonded warehouse was involved, the Court held that a “nondiscriminatory property tax” levied on goods “no longer in transit” was not proscribed by the Import- Export Clause of the United States Constitution. Jd. at 302. Clearly, a state is without authority to levy an otherwise valid ad valorem property tax if the property sought to be taxed is not legally within the taxing juris- diction. This Court has consistently recognized in prior cases that as long as imported property is stored under bond in a customs warehouse, it is outside the taxing jurisdic- tion of the individual states and the District of Colum- bia. In Fabbri v. Murphy, 95 U.S. 191 (1877), the Court stated that “Congress did not regard the importation as complete while the goods remained in the custody of the proper officers of the customs.” Jd. at 197-198. More recently, in Xerox Corp. v. County of Harris, 459 U.S. 145, 153-154 (1982), this Court cited with approval the decision in District of Columbia v. International Dis- tributing Corp., 118 U.S. App. D.C. 71, 331 F.2d 817 (1964). The Court of Appeals there held that an excise tax could not be levied on the sale of alcoholic beverages stored in a customs bonded warehouse when the sale was consummated while the goods were in the bonded ware- house. In reaching this conclusion, the court approved the rationale, stated by the D.C. Tax Court in its opinion, that: “The idea of bonded warehouses and their use by the United States custom authorities negatives the proposition that at the time of sale the alcoholic bev- 17 erages were in the possession of the petitioner [the corporation}. True it is that the private bonded warehouse was physically in the District of Colum- bia; and the liquors were stored therein; and in that sense they were in the District. In law, however, they were still without that jurisdiction, and did not become subject thereto until] they had been with- drawn from the private bonded warehouse and re- moved from the control of the customs official.” 118 U.S. App. D.C. at 73-74, 331 F.2d at 819-820. See also Ammex Warehouse Co. v. Department of Alcoholic Beverage Control, 224 F. Supp. 546, 555 (S.D. Cal. 1963), affd, 378 U.S. 124 (1964), holding that goods in cus- toms bonded warehouses “never become part of the com- mon mass of goods in the State” and United States v. Ehrgott, 182 F. 267, 273 (C.C. S.D.N.Y. 1910), holding that placing imported goods under customs bond is as if they were “detained at the borders.” The conclusion of these cases that imported goods brought to a customs bonded warehouse are not within the taxing jurisdiction of the states reflects the recogni- tion that “Congress intended to make customs bonded warehouses federal enclaves free of state taxation .. . [where] imported goods . . . [are] not subject to [the] taxing jurisdiction until they [are] removed from the warehouse.” Xerox, 459 U.S. at 154. Accordingly, the court below erred in failing to find that imported to- bacco stored under bond in customs bonded warehouses was immune from taxation under the Due Process Clause and the Import-Export Clause of the United States Con- stitution. CONCLUSION Dismissal of this appéal would (1) open the door to the imposition by state and local governments of sub- stantial burdens on the foreign commerce of the United States, and (2) create a rule of taxation based on intent, which oftentimes may not be known, thereby generating 18 a multiplicity of suits. Moreover, dismissal would sub- stantially change the effectiveness and utility of customs bonded warehouses, limiting and perhaps destroying their usefulness in foreign commerce. This case presents a substantial federal question since it directly deals with an issue “touching the accommodation of state and fed- eral interests under the Constitution.” Kosydar v. Na- tional Cash Register Co., 417 U.S. 62, 65 (1974). Probable jurisdiction should be noted. Indeed, in view of the clear failure of the court below to follow this Court’s decision in Xerox, it would be appropriate for the Court to reverse the decision below summarily. If, how- ever, the Court should feel that it lacks jurisdiction either to hear the case on appeal or to reverse summarily, the questions are nevertheless important, and certiorari should be granted under 28 U.S.C. § 2103. Respectfully submitted, Of Counsel: JAMES W. McGRATH FRANK SKINNER R. J. REYNOLDS INDUSTRIES, INC. 1100 Reynolds Boulevard Winston-Salem, NC 27102 THOMAS L. KUMMER JOHN A. COCKLEREECE, JR. HorRTON, HENDRICK & KUMMER 450 NCNB Plaza Winston-Salem, NC 27101 December, 1985 ERWIN N. GRISWOLD (Counsel of Record) Bos C. GRIFFO JONES, Day, REAvis & PoGUE 655 Fifteenth Street, N.W. Washington, D.C. 20005 (202) 879-3898 HuGH CALKINS KATHLEEN B. BuRKE JOHN C. DuFFY, JR. JONES, Day, REAvVis & PoGcusE 1700 Huntington Building Cleveland, OH 44115 Counsel for Appeliant APPENDIX ‘} Hes. _ | JOSEPH F. SPANOL, JR. IN THE Reeicncs aemannnes Supreme Court of the United States OCTOBER TERM, 1985 R. J. REYNOLDS TOBACCO COMPANY, Appellant, Vv. DURHAM COUNTY, NORTH CAROLINA and FORSYTH COUNTY, NORTH CAROLINA and ITS AFFECTED MUNICIPALIT &S, .. ppellees. APPENDIX TO JURISDICTIONAL STATEMENTS ON APPEALS FROM THE SUPREME COURT OF NORTH CAROLINA AND THE NORTH CAROLINA COURT OF APPEALS Of Counsel: ERWIN N. GRISWOLD JAMES W. McGRATH (Counsel of Record) FRANK SKINNER Bos C. GRIFFO R. J. REYNOLDs JONES, DAy, REAVis & POGUE INDUSTRIES, INC. 655 Fifteenth Street, N.W. 1100 Reynolds Boulevard Washington, D.C. 20005 Winston-Salem, NC 27102 (202) 879-3898 THOMAS L. KUMMER HUGH CALKINS JOHN A. COCKLEREECE, JR. KATHLEEN B. BURKE HorTON, HENDRICK & JOHN C. DUFFY, JR. KUMMER JONES, DAY, REAVIS & POGUE 450 NCNB Plaza 1700 Huntington Building Winston-Salem, NC 27101 Cleveland, OH 44115 Counsel for Appellant WILSON - Eres PrintinGc Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001 APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX APPENDIX M— TABLE OF CONTENTS Page Judgment Dismissing Appeal and Denying Petition for Discretionary Review of the Supreme Court of a Fa Judgment of the North Carolina Court of Appeals Opinion of the North Carolina Court of Appeals eee Final Decision of the North Caro- lina Property Tax Commission sit- ting as the State Board of Equaliza- tion and Review 2la Notice of Appeal to the Supreme Court of the United States from the Judgment of the Supreme Court of North Carolina 39a Notice of Appeal to the Supreme Court of the United States from the Judgment of the North Carolina Court of Appeals 4la Portions of the Transcript of the Oral Argument in Xerox Corp. v. County of Harris, 459 U.S. 145 (1982) 49a 53a Statement of Congressman Wright.. Statement of Senator Tower... House Report No. 267 Senate Report No. 308 Statutes and Regulations Involved. Supplement to Statement Under UUIEIPIIIIET 2 cs cksnandttndnabeemianieenienisimadenaasan APPENDIX A Judgment Dismissing Appeal and Denying Petition for Discretionary Review of the Supreme Court of North Carolina, October 2, 1985 SS. eee ES la SUPREME COURT OF NORTH CAROLINA TENTH DISTRICT No. 222P85 IN THE MATTER OF: THE APPEAL OF R. J. REYNOLDS TOBACCO COMPANY FROM THE DENIALS OF ITS CLAIMS FOR EXEMPTION BY DURHAM COUNTY AND FORSYTH COUNTY FOR 1983 (8410PTC481) | October 2, 1985] JUDGMENT DISMISSING APPEAL ON MOTION OF FORSYTH & DURHAM COUNTIES AND DENYING PETITION FOR DISCRETONARY REVIEW Upon consideration of the R. J. Reynalds Tobacco Com- pany’s notice of appeal from the North Carolina Court of Appeals, filed in this matter pursuant to G.S. 7A-30, and the Forsyth & Durham Counties’ motion to dismiss the appeal for lack of a substantial constitutional ques- tion and upon consideration of the R. J. Reynolds To- bacco Company’s petition for discretionary review of the decision of the North Carolina Court of Appeals, pur- suant to G.S. 7A-31, the following order was entered and is hereby certified to the North Carolina Court of Ap- peals: Forsyth & Durham Counties’ motion to dismiss the appeal is “Allowed by order of the Court in conference, this the 19th day of September 1985. s/ Billings, J. For the Court” 2a R. J. Reynolds Tobacco Company’s petition for discre- tionary review is “Denied by order of the Court in conference, this the 19th day of September 1985. s/ Billings, J. For the Court” Therefore, it is considered and adjudged further that R. J. Reynolds Tobacco Company do pay the sum of Nine and no/100 Dollars ($9.00) and that execution is- sue therefor. WITNESS my hand and the seal of the Supreme Court of North Carolina, this the 2nd day of October 1985. /s/ J. Gregory Wallace J. GREGORY WALLACE Clerk of the Supreme Court Copy to: North Carolina Court of Appeals Horton, Hendrick & Kummer, Attorneys at Law Mr. P. Eugene Price, Jr., Attorney at Law Mr. Jonathan V. Maxwell, Attorney at Law Mr. John G. Wolfe, III, Attorney at Law Mr. S. C. Kitchen, Attorney at Law APPENDIX B Judgment of the North Carolina Court of Appeals, April 8, 1985 - j 4 . : -_ —_— "eT ty ee . J County of Contra Costa, 271 Cal. App. 2d 437, 77 a Rptr. 570 (1969), appeal dismissed for want of hen stantial federal question, 396 U.S. 273, 90 S. Ct. 553, L. Ed. 2d 462 (1970). A. The first ground asserted by Reynolds as a basis for holding unconstitutional the imposition of ad a taxes on its imported tobacco in Durham and Fonyt Counties is the Import-Export clause. Article I, : 10, clause 2 of the United States Constitution provides in part that “[nJo state shall, without the consent of con- gress, lay any imposts or duties on imports or wey * Reynolds maintains that the tobacco involved in ‘this case is still in the import stream of commerce. It argues that because Congress has decided that goods can remain in customs bonded warehouses duty-free for five vears, Congress has thereby defined the period during which goods remain in foreign commerce. This argument is without merit. In Michelin Tire Corp. v. Wages, supra, county tax officials assessed Georgia ad valorem property taxes against imported tires and tubes which were included in the corporation's in- ventory maintained at its wholesale distribution ware- house located in the county. The US. Supreme Court held that Georgia’s assessment of a nondiscriminatory ad valorem property tax against imported goods that were no longer in import transit did not violate the Import-Export clause, regardless of whether the goods had lost their status as imports by being mingled with other goods of the importer. Id. at 279, 96 S. Ct. at 10a 538, 46 L. Ed. 2d at 499-500. This decision expressly overruled Low v. Austin, 13 Wall 29, 20 L. Ed. 517 (1872), which had held that the states were prohibited by the Import-Export clause from imposing a nondis- criminatory ad valorem property tax on imported goods until they have lost their character as imports and have become incorporated into the mass of property in the state. Id. at 279, 282, 96 S. Ct. at 538, 539, 46 L. Ed. 2d at 500, 501. The Michelin decision indicates that “a state or local tax on imported goods is permissible if the goods have lost their status as imports, and that such a tax is also permissible, even if the goods have not lost their status as imports, if the tax is nondiscrim- inatory.” Annot., 46 L. Ed. 2d 955, 967 (1977). The focus of Import-Export clause cases has therefore been changed “from the nature of the goods as imports to the nature of the tax at issue.” Limbach v. Hooven & Allison Co., —— U.S. ——, 104 S. Ct. 1837, 1842, 80 L. Ed. 2d 356, 363 (1984). It is unnecessary for this Court to determine whether the imported tobacco in- volved in this case was “still in the impert stream of commerce.” Neither party disputes the fact that the property taxes levied by Durham and Forsyth Counties are nondiscriminatory. We hold that the imposition of a nondiscriminatory ad valorem property tax on Rey- nolds’ imported tobacco located in customs bonded ware- houses in Durham and Forsyth Counties is not prohib- a by the Import-Export clause of the U.S. Constitu- ion. Two companion cases, Youngstown Sheet & Tube Co. v. Bowers and United States Plywood Corp. v. City of Algoma, 358 U.S. 534, 79 S. Ct. 383, 3 L. Ed. 2d 490 (1959), which did not have the benefit of the Michelin rule, saw no justification in allowing imported goods to escape a nondiscriminatory property tax. In Youngs- town, iron ores were imported from five countries for use along with domestic ores in manufacturing at lla Youngstown’s Ohio plant. Unisied States Plywood im- ported lumber and veneers for use as needed along with domestic wood in its manufacturing processes. The im- ported lumber was “green” when received and therefore had to be dried before it could be used. These facts are similar to the undisputed facts in the case sub judice. Some of the tobacco imported by Reynolds must be held in storage for aging purposes before it can be used in manufacturing. The remaining imported tobacco has already been aged and is ready to be blended with domestically-grown tobacco in the manufacturing opera- tions of Reynolds in Winston-Salem. The Supreme Court concluded with regard to both Youngstown and United States Plywood as follows: The materials here in question were imported to supply, and were essential to supply, the manu- facturer’s current operating needs. When. . . they were put to that use and indiscriminate portions of the whole were actually being used to supply daily operating needs, they stood in the same relation to the State as like piles of domestic materials . . . that were kept for use and used in the same way. The one was then as fully subject to taxation as the other. In those circumstances, the tax was not on the materials because they had been imported, but because at the time of the assessment they were being used, in every practical sense, for the pur- poses for which they had been imported. They were therefore subject to taxation just like domestic prop- erty that was kept . . . in the same way for the same use. We cannot impute to the Framers of the Constitution a purpose to make such a discrimina- tion in favor of materials imported from other countries as would result if we approved the views pressed upon us by the manufacturers. Id. at 549-50, 79 S. Ct. at 362, 3 L. Ed. 2d at 500-01. 12a Furthermore, in In re Publishing Co., 281 N.C. 210, 188 S.E.2d 310 (1972), the North Carolina Supreme Court similarly held that imported newsprint which was kept on hand for use in connection with the taxpayer’s printing operation was subject to property taxation by Buncombe County in the same manner as the domestic newsprint which was kept at the same place, in the same manner, and for the same use. Our Supreme Court concluded that the Import-Export cluuse did not prohibit the assessment of a nondiscriminatory ad valorem tax on imported newsprint held for use in the taxpayer’s manufacturing process. We likewise hold that even though the imported tobacco involved in this ease is held in customs bonded warehouses the Import-Export clause confers no immunity to it from nondiscrimina- tory ad valorem property taxes. B. A second argument proposed by Reynolds is that its imported tobacco is exempt from ad valorem property taxation under the Foreign Commerce clause and the Supremacy clause of the United States Constitution. Article I, § 8, clause 3 of the United States Constitu- tion states that Congress shall have the power “[t]o reg- ulate commerce with foreign nations.” Before a state tax can be declared unconstitutional, it must be shown to burden the interstate or foreign commerce involved. See Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 83 S. Ct. 1201, 10 L.Ed. 2d 202, rehearing de- nied, 374 U.S. 858, 83 S. Ct. 1861, 10 L. Ed. 2d 1082 (1963). Not every burden is prohibited however, only those which discriminate against the commerce. Mc- Goldrick v. Berwind-White Coal Mining Co., 309 U:S. 33, 60 S. Ct. 388, 84 L. Ed. 565 (1940). See generally, Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S. Ct. 1076, 51 L. Ed 2d 326, rehearing denied, 430 U.S. 976, 97 S. Ct. 1669, 52 L. Ed. 2d 3711 (1977). As will be seen, because Reynolds’ imported tobacco is not a ae 13a forced to bear a heavier tax burden than its domestic tobacco, local ad valorem property taxation is not a discriminatory or an undue burden on foreign commerce. The Supremacy clause, Article VI, clause 2 provides that the “[Clonstitution, and the laws of the United States which . . . shall be the supreme law of the land ... any thing in the [C]onstitution or laws of any state to the contrary notwithstanding.” Essentially, Reynolds’ argument with regard to these two clauses is that federal regulation has been so per- vasive in this field that it has preempted state action. In Silkwood v. Kerr-McGee Corp., —— U.S. ——, 104 S. Ct. 615, 78 L. Ed. 2d 443, rehearing denied, —— U.S. ——, 104 S. Ct. 1430, 79 L. Ed. 2d 754 (1984), the U.S. Supreme Court explained that state law can be pre- empted in two ways. First, if Congress evidences an intent to occupy a field, any state law falling within that field is preempted. Secondly, if Congress has not entirely displaced state regulation over the matter, state law is still preempted to the extent it actually conflicts with federal law or hinders the accomplishment of the objectives of Congress. Jd. at ——, 104 S. Ct. at 621, 78 L. Ed. 2d at 452. In Xerox Corp. v. County of Harris, supra, the United States Supreme Court was confronted with the question of whether a state may impose nondiscriminatory ad valorem property taxes on imported goods destined for foreign markets stored under bond in a customs ware- house. Xerox imported and stored copiers previously assembled in Mexico in customs bonded warehouses in Texas. The copiers were not designed or intended for domestic use. All of the copiers were ultimately sold abroad, allowing Xerox to avoid paying any import duties pursuant to 19 U.S.C. § 1557(a). In determining whether Congress hae evidenced an intent to preempt state action in this area, the Supreme l4a Court examined the legislative history and congressional purpose behind the bonded warehousing system. A fore- runner of the present statute, 19 U.S.C. § 1557(a). was the Warehousing Act of 1846, 9 Stat. 53. Its objective was to help establish the United States as a center of world commerce. According to the Supreme Court [t}he Act stimulated foreign commerce by allowing goods in transit in foreign commerce to remain in secure storage, duty free, until they resumed their journey in export.” Id. at 150, 108 S. Ct. at 526, 74 L. Ed. 2d at 328. (Emphasis added.) Accordingly, the Supreme Court held that state property taxes on goods awaiting export stored under bond in a customs warehouse are preempted by Congress’s comprehensive regulation of customs duties. The Court reasoned that it would be incompatible with the comprehensive scheme Congress enacted if the states were free to tax such goods while they were lodged tem- porarily in government-regulated bonde i i msc g d storage in this . However, Xerox is distinguishable from the case sub judice In one crucial respect. It is undisputed by the parties on appeal that virtually all the imported tobacco involved in this case is destined for domestic, rather than foreign, manufacture and consumption. Thus, we are faced with a different question than the U.S. Supreme Court faced in Xerox. While the imposition of ad va- lorem taxes on imported goods stored temporarily in this country prior to reexportation would make the United States a less attractive storage center and i turn con- travene congressional objectives, we fail to see how the Imposition of property taxes on goods not intended to be reexported would be inconsistent with the central pur- poses behind the establishment of customs bonded ware- houses. A case which addressed the preemption question in relation to facts similar to the present case was Ameri- can Smelting and Refining Co. v. County of Contra Costa a ag Pe A I, At, 15a supra. In American Smelting, a California county levied nondiscriminatory property taxes on imported metals stored in customs bonded warehouses for eventual do- mestic use. The California Court of Appeals sustained the validity of the property tax on the metals held for future domestic use. In a very thorough opinion, the American Smelting court reasoned that the “mere inci- dent of the time of payment of the federal duty, as con- trolled by the taxpayer, does not appear to be a rational criteria upon which to predicate the determination of the local government’s right to tax.” Id. at 469, 77 Cal. Rptr. at 593-94. It further stated that the law and regulations governing customs bonded warehouses do not compel the conclusion that Congress in the exercise of its power to regulate foreign commerce meant to create a warehouse enclave for foreign goods subsequently sold and consumed in domestic commerce. “All that appears is an intent to relieve the processor of the obligation to pay the duty until the refined product is actually con- sumed or sold in domestic commerce, and the intent to relieve him of the obligation to pay any duty if the refined product is exported.” Jd. at 470, 77 Cal. Rptr. at 594. We agree and, like the American Smelting court, can find no “congressional intent [in the customs bonded warehouse scheme of legislation] to interfere with the right of the state to tax goods which have been imported for, and have been appropriated to, processing for domes- tic consumption, and that such right is not foreclosed be- cause the importer-processor has withheld payment of the duty and has given a bond to secure such payment.” Id. at 481, 77 Cal. Rptr. at 601. Moreover, both imported and domestic tobacco gener- ally require aging before manufacture. To exempt im- ported tobacco aging in customs bonded warehouses from property taxation while imposing these taxes on domes- tically-grown tobacco aging in ordinary warehouses would be unfair. As the American Smelting court observed: l6a [I]t would amount to a bounty to the operator of the tideland smelter processing metal-bearing mate- rials of foreign origin which are destined for domes- tic consumption, and a discrimination against oper- ators of domestic smelters refining domestic ores which are subject to local taxation. Id. at 474, 77 Cal. Rptr. at 596-97. Also, since this im- ported tobacco receives the same local governmental services, such as police and fire protection, as domestic tobacco, local taxpayers would be forced to provide a subsidy in excess of a million dollars to Reynolds for its imported tobacco if exempted from property taxation. The U. S. Supreme Court in Michelin, supra, at 289, 96 S. Ct. at 542, 46 L. Ed. 2d at 505, recognized this problem and determined that local property “taxaticn is the guid pro quo for benefits actually conferred by the taxing State. There is no reason why local taxpayers should subsidize the services used by the importer.” Therefore, we must affirm the Property Tax Commis- sion’s conclusion that nondiscriminatory ad valorem per- sonal property taxes on imported goods stored under bond in a customs warehouse but not destined for foreign markets are not prohibited. Since such taxation is not inconsistent with Xerox or with the purposes behind Congress’s comprehensive legislative scheme involving customs bonded warehouses, we hold State property tax- ation of this tobacco has not been preempted by federal regulation. Also, because this taxation is not a discrim- inatory burden on commerce, we hold it is similarly not prohibited by the Commerce clause. C. As its final constitutional argument against the impo- sition of ad valorem property taxes on its imported to- bacco, Reynolds asserts that due process prohibits state taxation of property which is not within the State’s jurisdiction. Reynolds contends that even though its 17a imported tobacco may be physically located in ns and Forsyth Counties, this tobacco is not ange = State’s jurisdiction until it is withdrawn _— e — toms bonded warehouse and removed from the con of customs officials. Ad valorem property taxation is governed by The Machinery Act, G.S. 105-271, et seq. G.S. oe _ vides that all property—real and personal—wit in x jurisdiction of this State, whether owned by a rice domestic corporation is subject to taxation unless nga cally excluded or exempted. Under Xerox, = a ported goods destined for foreign markets wg 4 porarily in customs bonded warehouses have n }- cluded from local property taxation. As the above “ cussion reveals, imported goods destined for domes . consumption are not exempt from local property oe tion. Also, our research has revealed no North oo ‘ina law excluding the tobacco now in question from taxa oe As stated in Transfer Corp. v. County of Davidson, N.C. 19, 24-25, 170 S.E. 2d 873, 878 (1969) : The test of whether a tax law violates due process is “whether the taxing power exerted by the per bears fiscal relation to protection, opportunities an benefits given by the state. The simple but controlling question is whether the state has given anything for which it can ask return.” Wisconsin v. J. C. yen | Co., 311 U.S. 435, 85 L. Ed. 267, 61 S. Ct. 246, 13 A.L.R. 1229 (1940). i isputed in this case that the imported tobacco ane "Reynolds? customs bonded warehouses a fire and police protection and other services by _ am and Forsyth Counties. Therefore, under a Due re clause analysis, Reynolds’ imported tobacco is subject property taxation just like its domestic tobacco receiving the same services. 18a Also, even though Reynolds is technically a New Jersey corporation, its tobacco physically located in this State is subject to North Carolina taxation. In In re Plushbottom and Peabody, 51 N.C. App. 285, 289, 276 S.E.2d 505, 508, disc. rev. denied, 303 N.C. 314, 281 S.E.2d 653 (1981), this Court noted that although the situs of personal prop- erty for purpeses of taxation is ordinarily the domicile of the owner, when the owner maintains said property in a jurisdiction other than that of his domicile, in the conduct of his business within such jurisdiction, the situs of said property for purposes of taxation is its actual situs, and not that of its domicile. [Citation omitted. ] The “actual situs” of the imported tobacco in question in this case is its physical location in Durham and Forsyth Counties. It is clear that a local government may tax goods, not otherwise exempted, which are receiving local services and which are physically present within the State. We hold that the imposition of ad valorem prop- erty taxes on Reynolds’ imported tobacco does not violate the Due Process clause of the U. S. Constitution. In conclusion, we hold, as reflected by the above dis- cussions, that the imposition of ad valorem property taxes on Reynolds’ imported tobacco stored in its Durham and Forsyth Counties customs bonded warehouses is consti- tutional under the Import-Export clause, Commerce clause, Supremacy clause, and Due Process clause of the U. S. Constitution. Il. We also note that Durham County cross-assigned as error the Property Tax Commission’s denial of its mo- tion to dismiss Reynolds’ appeal on the ground that Reynolds failed to comply with G.S. 105-324. This statute species that to perfeet its appeal, the appellant must file « notice of appeal with the Clerk of the Board of County Commissioners and with the Property Tax Com- 19a i i tice mission. In the present case, Reynolds mailed its no to S. Bruce Mangum as Clerk of the Board of County Commissioners instead of Edmund Slade Swindell, J I who was in fact the Board of County Commissioners Clerk. We hold the Property Tax Commission properly denied Durham County’s motion to dismiss. The record reveals that Reynolds properly filed its notice with the Commis- sion. It also mailed the notice to the Durham County at- torney, the Durham County Tax Supervisor, and to Mr. S. Bruce Mangum, Clerk to the Durham County Board of Commissioners, Room 206, County Judicial Building, Durham, North Carolina 27701. This notice was received by Durham County. The failure to name the proper per- son as Clerk of the Board of County Commissioners was a misnomer and did not preclude the Property Tax Com- mission from exercising jurisdiction over the matter. Also, according to the Commission, Durham County conceded that it had not been prejudiced by Reynolds’ failure to directly mail a copy to Edmund Slade Swindell, Jr. We likewise fail to see how Durham County might have been prejudiced. For these reasons and those given by the Commission in its final decision, we affirm the denial of Durham County’s motion to dismiss. The decision of the Property Tax Commission in all respects is Affirmed. Judges ARNOLD and EAGLES concur. a a ee APPENDIX D Final Decision of North Carolina Property Tax Commission sitting as the State Board of Equalization and Review, December 14, 1983 ye oe ee, ee oon 2la BEFORE THE PROPERTY TAX COMMISSION SITTING AS STATE BOARD OF EQUALIZATION AND REVIEW STATE OF NORTH CAROLINA COUNTY OF WAKE IN THE MATTER OF: THE APPEAL OF R. J. REYNOLDS TOBACCO COMPANY FROM THE DENIALS OF ITS CLAIMS FOR EXEMPTION BY DURHAM COUNTY AND FORSYTH COUNTY FOR 1983 | December 14, 1983} FINAL DECISION This matter coming on to be heard, and being heard, before the Property Tax Commission, sitting as the State Board of Equalization and Review in the City of Raleigh, Wake County, North Carolina, on October 27, 1983, pur- suant to the appeal of the above taxpayer from the de- nials of its claims for exemption by the Durham County Board of Equalization and Review and the Forsyth County Board of Equalization and Review for 1983. STATEMENT OF CASE Appellant R. J. Reynolds Tobacco Company (herein- after Reynolds) timely applied for exemption from prop- erty taxation for leaf tobacco stored in Durham and Forsyth Counties as of January 1, 1983. Each county’s tax supervisor denied the application, and each county’s board of equalization and review upheld the denial. Ap- pellant timely appealed the adverse decisions of the boards to the Property Tax Commission. The appeals were consolidated for hearing before the Commission. 22a Prior to the hearing Durham County filed a Motion to Dismiss the appeal from that county on the ground that Reynolds failed to perfect its appeal to the Com- mission. After hearing arguments on that motion at the outset of the hearing, the Commission took the motion to dismiss under advisement, and the parties proceeded to present evidence in the matter. Reynolds contended to the Commission that imported tobacco owned by Reynolds and stored in United States customs bonded warehouses located in Durham and Forsyth Counties is excluded from ad valorem taxation by the decision of the Supreme Court of the United States in Xerox Corporation v. County of Harris, Texas, and City of Houston, Texas, U.S. , 103 S.Ct. 523, 74 L.Ed. 2d 323 (1982). Durham and Forsyth Counties contended that the imported tobacco is not excluded from ad valorem taxation by that decision. A Motion to Admit Francis H. Skinner to limited prac- tice before the Commission in this case was allowed. Reynolds was represented at the hearing by Mr. Skinner and Thomas L. Kummer. Durham County was represented by S. C. Kitchen, as- sistant county attorney. Forsyth County was represented by P. Eugene Price, Jr., county attorney, and Jonathan V. Maxwell, assistant county attorney. Kernersville was represented by John G. Wolfe, III, town attorney. ISSUE Is the imported tobacco owned by Reynolds and stored in United States customs bonded warehouses located in Durham and Forsyth Counties excluded from ad valorem taxation by those counties in accordance with the deci- sion of the Supreme Court of the United States in Xerox Corporation v. County of Harris, Texas, and City of A Ol lt 23a Houston, Texas, —— U.S. ——, 103 S.Ct. 523, 74 L.Ed. 2d 323 (1982)? EVIDENCE The evidence presented by Reynolds and considered by the Commission consists of the following: llant’s Exhibit No. 1—1983 Durham a ria North Carolina, Business Property Statement with attached schedule; Letter dated March 31, 1983, from James T. Barg to Bruce Mangum; Application for Property Tax Exemp- tion, dated March 30, 1983. (2) Appellant’s Exhibit No. 2—Letter dated April 15, 1983, from S. Bruce Mangum to James T. Barg. F ibi Personal (3) Appellant’s Exhibit No. 3—Real or Saas Complaint, Durham County, dated April 29, 1983, with attachment. (4) Appellant’s Exhibit No. 4—Letter dated June 3, 1983, from S. Bruce Mangum to James » Bary; Minutes, Durham County Board of Equaliza- tion and Review, May 23, 1983. (5) Appellant’s Exhibit No. 5A—1983 Forsyth County Business Personal Property Listing with attached schedule, Kernersville, , ibi —- Forsyth (6) Appellant’s Exhibit No. 5B 1983 an Business Personal Property Listing with attached schedule, Winston-Salem. (7) Appellant’s Exhibit No. 6—Letter dated June 2, 1983, from W. Harvey Pardue to James T. Barg. i ibi — June (8) Appellant’s Exhibit No. 7—Letter dated 13, 1983, from James W. McGrath to W. Harvey Pardue. 24a (9) Appellant’s Exhibit No. 8—Letter dated June 29, 1983, from W. Harvey Pardue to James W. McGrath. (10) Appellant’s Exhibit No. 9—Permit Warehouse Entry, U. S. Customs Service form 7502-A; Warehouse Permit, Continuation Sheet, Bureau of Customs form 7502-C. (11) Appellant’s Exhibit No. 10—Permit, Duty Paid, Warehouse Withdrawal for Consumption, United States Customs Service form 7505-A. (12) Oral testimony of James T. Barg. (13) Oral testimony of Harry L. Sapp. The evidence presented by Durham County and con- sidered by the Commission consists of the following: (1) Oral testimony of S. Bruce Mangum. The evidence presented by Forsyth County and consid- ered by the Commission consists of the following: (1) Forsyth County Exhibit No. 4—Letter dated June 3, 1983, from W. Harvey Pardue to James T. Barg. (2) Forsyth County Exhibit No. 5—Letter dated June 21, 1983, from James T. Barg to W. Har- vey Pardue. (3) Oral testimony of W. Harvey Pardue. Reynolds, Durham County and Forsyth County sub- mitted briefs to the Commission. In addition to the evidence presented by the parties, the Commission also considered the following exhibits: Appeal from Durham County C-1 Notice of Appeal and Application for Hearing, dated June 14, 1983. 25a C-2 Commission’s acknowledgement of Notice of Ap- peal, dated June 16, 1983. C-8 County’s Motion to Dismiss, dated July 6, 1983. C-4 Commission’s acknowledgement of C-3, dated July 7, 1983. C-5 Notice to parties of date and time of hearing, dated August 31, 1983. C-6 Order on Final Pre-Hearing Conference, ap- proved October 27, 1983. C-7 Motion to Admit Francis H. Skinner to Limites Practice. Appeal from Forsyth County C-1 Notice of Appeal and Application for Hearing, dated July 7, 1983. C-2 Commission’s acknowledgement of Notice of Ap- peal, dated July 11, 1983. C-3 Letter dated July 22, 1983, from P. Eugene Price, Jr., to Commission, transinitting County’s Response to Notice of Appeal. C-4 County’s Response to Notice of Appeal, dated July 22, 1983. C-5 Commission’s acknowledgement of C-3 and C-4, dated July 25, 1983. C-6 Notices to parties of date and time of hearing, dated August 31, 1983. C-7 Letter, dated September 2, 1983, from P. Eugene Price, Jr., to Commission, transmitting County’s Amended Response. C-8 County’s Amended Response, dated September 2, 1983. 26a C-9 Commission’s acknowledgement of C-7 and C-8, dated September 8, 1983. C-10 Letter, dated October 13, 1983, to Commission from Jonathan V. Maxwell. C-11 Order on Final Pre-Hearing Conference, ap- proved October 27, 1983. C-12 Motion to Admit Francis H. Skinner to Limited Practice. FINDINGS OF FACT Durham County and Reynolds stipulated to the follow- ing facts, which are hereby adopted by the Commission as its findings of fact: (1) R. J. Reynolds Tobacco Company is a New Jer- sey corporation qualified to do business in the State of North Carolina, with its principal of- fices and manufacturing facilities in Winston- Salem, Forsyth County, North Carolina. (2) Reynolds is engaged in Forsyth County, North Carolina, in the business of manufacturing fin- ished tobacco products. (3) Reynolds sells such products to wholesale dis- tributors and other authorized purchasers in the United States and other countries. (4) Durham County is a duly authorized taxing unit of the State of North Carolina. Durham County, through its tax supervisor, is duly au- thorized by law to administer tax assessment matters. (5) Reynolds uses tobacco grown both in the United States and in foreign countries in manufactur- ing its finished tobacco products in Forsyth County. (6) (7) (8) (9) (10) 27a Reynolds made an application with the County of Durham for exemption or immunity of im- ported leaf tobacco stored in customs bonded warehouses in the County of Durham. The Board of Equalization and Review of Dur- ham County denied the application of Reynolds and notified Reynolds of this denial on June 3, 1983. Reynolds filed a Notice of Hearing and Appli- cation for Hearing with the following parties which was received on June 15, 1983: Mr. S. Bruce Mangum Clerk of the Durham County Board of Commis- sioners Room 206 County Judicial Building Durham, North Carolina 27701 Lester W. Owen, Esquire Durham County Attorney Post Office Box 810 Durham, North Carolina 27702 Mr. S. Bruce Mangum County Supervisor of Taxation Room 206 County Judicial Building Durham, North Carolina 27701 Eds» Slade Swindell, Jr., is the Clerk of the Board vf County Commissioners of Durham County during the time of the Application for Exemption and continuing to the present. Customs duties are paid on the imported tobacco stored in Durham County when the tobacco leaves the gate of the Durham facility, not when it arrives in Forsyth County. 28a Forsyth County and Reynolds stipulated to the follow- ing facts, which are hereby adopted by the Commission as its findings of fact: (11) R. J. Reynolds Tobacco Company is a New Jer- (12) (13) (14) sey corporation qualified to do business in the State of North Carolina, with its principal of- fices and manufacturing facilities in Winston- Salem, Forsyth County, North Carolina. Reynolds is engaged in Forsyth County, North Carolina, in the business of manufacturing fin- ished tobacco products. Forsyth County, the City of Winston-Salem, and the Town of Kernersville are duly authorized taxing units of the State of North Carolina. Forsyth County, through its tax supervisor, is duly authorized by law to administer tax as- sessment matters on its own behalf and on be- half of the City of Winston-Salem and Town of Kernersville. Reynolds uses tobacco grown both in the United States and in foreign countries in manufactur- ing its finished tobacco products in Forsyth County. Based on the evidence of record, the Commission makes the following additional findings of fact: (15) (16) Reynolds, in a schedule attached to its 1983 Durham County Business Property Statement, informed the county that in addition to leaf tobacco which it had listed as raw materials, it also had “exempt” leaf tobacco in storage in the city and county of Durham, as of December 31, 1982, at a cost of $86,610,659. Reynolds, in a schedule attached to its 1983 Forsyth County Business Personal Property (17) (18) (19) (20) (21) (22) (23) 29a Listing, informed the county that in addition to leaf tobacco which it had listed as raw mate- rials, it had “exempt and or immune” leaf to- bacco in storage in Kernersville, Forsyth County, as of December 31, 1982, at a cost of $247,675,428, and in Winston-Salem, Forsyth County, as of December 31, 1982, at a cost of $184,773,440. All of this purportedly “exempt” tobacco in storage in Durham and Forsyth Counties had been imported by Reynolds from foreign coun- tries, including Bulgaria, Syria, Lebanon and Brazil. After the tobacco had been shipped by bonded carrier to the United States, it was unloaded from the carrier at a port of entry. It was then transported by rail or truck to a storage facility. The imported tobacco is placed under customs bond when it is unloaded at the port of entry, and it remains under customs bond at all times thereafter, until it is withdrawn from storage. Appropriate United States customs documents are prepared for each shipment of imported tobacco. The completed customs forms are maintained by Reynolds; copies of the forms are submitted to the United States customs office when each shipment of the stored tobacco has been con- sumed. Until December, 1982, the United States cus- toms office kept the bonded warehouse records. The storage facilities in which Reynolds holds the imported tobacco are United States customs bonded warehouses, categorized as either Class 2 or Class 8 warehouses. 30a (24) Reynolds has 26 customs bonded warehouses in Durham County and 62 customs bonded ware- houses in Forsyth County. (25) The Class 8 bonded areas are storage sheds located in both Durham and Forsyth Counties. (26) The Class 2 bonded areas are located within the manufacturing plants owned by Reynolds in the area of Winston-Salem, Forsyth County, known as Whitaker Park. (27) The normal progress of the imported tobacco is from a Class 8 area to a Class 2 area to the manufacturing process. (28) The United States customs bonded warehouses and the land on which they are situated, in both Durham and Forsyth Counties, are owned by Reynolds. (29) All the property within the bonded warehouses is owned by Reynolds, and Reynolds is the sole user of the warehouses. (30) Reynolds pays all expenses of maintaining and Supervising the warehouses and the imported tobacco which is stored therein. (31) Employees of Reynolds or private security guards hired by Reynolds guard the storage facilities. (32) There are no federal customs Officials on the bonded premises on a regular basis, although federal customs officials appear “periodically” to review the books and records maintained by Reynolds. (33) The United States customs office exerts control over the bonded warehouses through auditors and unannounced spot checks. 3la (34) Customs officials have access to the warehouse facilities 24 hours a day. (35) As of October 27, 1983, at least three times since January 1, 1983, a customs official has appeared on the premises of the bonded ware- houses. (36) The imported tobacco may be moved or turned over by Reynolds while it is in bonded storage. The tobacco can also be repacked if it has in- curred damage. (37) Some of the imported tobacco is already aged when it arrives in the United States. Ordi- narily, the remaining tobacco requires an aging process before it can be used in manufacturing. (38) Tobacco imported by Reynolds is normally held in storage for two years before it is used in the manufacturing process. (39) Virtually all the stored imported tobacco in Durham County is or will be used for the do- mestic manufacture by Reynolds of finished to- bacco products in Forsyth County. (40) Reynolds’s purpose for bringing imported to- bacco into Forsyth County is to blend it with domestically-grown tobacco in the manufactur- ing operations in Winston-Salem. (41) Any tobacco withdrawn from storage is nor- mally manufactured into finished products within two weeks. (42) The manufactured tobacco products are trans- ported to Reynolds’s wholesale and retail dealers and distributors within 30 days. (43) Virtually all the tobacco products manufactured by Reynolds from imported tobacco are sold and consumed in the United States. (44) (45) (46) (47) (48) (49) (50) (51) (52) (53) 32a None of the imported tobacco in bonded storage was being held for export by Reynolds. The imported tobacco can be removed from bonded storage whenever Reynolds has a need for it or desires to remove it, upon payment of the appropriate customs duties. Customs duties are paid by Reynolds to the fed- eral government when the imported tobacco is withdrawn from bonded storage for manufac- turing. A customs form 7505-A is required for each withdrawal. As of January 1, 1983, customs duties paid or to be paid by Reynolds on the imported tobacco totalled 35-40 million dollars in Forsyth County and 7-8 million dollars in Durham County. The reason Reynolds stores the tobacco in cus- toms bonded warehouse is to defer payments of federal import duties. All tobacco owned and stored by Reynolds in non-bonded warehouses is taxed by Durham and Forsyth Counties. The customs bonded warehouses and the land underlying them are subject to property taxa- tion by both counties at their full tax rates. The imported tobacco in storage receives fire and police protection and other services pro- vided by the city and county of Durham and by Winston-Salem, Kernersville and Forsyth County. The property taxes levied on the imported to- bacco are nondiscriminatory. The applicable city and county tax rates are the same for the imported tobacco as for all other stored tobacco. 33a CONCLUSIONS, DECISION AND ORDER The Commission first addresses Durham County’s mo- tion to dismiss the appeal. Reynolds filed a written notice of appeal and a written statement of the grounds of appeal with the Property Tax Commission within the 30-day period prescribed by N.C.G.S. 105.324(c). In its certificate of service at- tached to the notice of appeal, Reynolds certified that it mailed copies of the notice to the following parties: Mr. S. Bruce Mangum Clerk to the Durham County Board of Commissioners Room 206 County Judicial Building Durham, North Carolina 27701 Lester W. Owen, Esquire Durham County Attorney P.O. Box 810 Durham, North Carolina 27702 Mr. S. Bruce Mangum County Supervisor of Taxation Room 206 County Judicial Building Durham, North Carolina 27701 Durham County’s motion to dismiss the appeal is based on the fact that Edmund Slade Swindell, Jr., and not S. Bruce Mangum, was clerk of the board of county com- missioners of Durham County during the relevant time period. The Commission denies Durham County’s motion to dismiss the appeal. Reynolds certified that it had mailed a copy of its notice of appeal! to the “Clerk to the Durham County Board of Commissiemers,” although Reynolds in- correctly named Mr. S. Bruee Mangum as the clerk. The Commission notes that under N.C.G.S. 105-322(d), it is 34a the tax supervisor who is named to serve as clerk to the board of equalization and review, and it is the decision of the Durham County Board of Equalization and Review from which Reynolds appealed in this case. Furthermore Reynolds mailed copies of its notice of appeal to the Durham County attorney and to the county tax super- visor, and Durham County concedes that it was not prejudiced by the failure of Reynolds to mail Edmund Slade Swindell, Jr. rita Durham County cites Walter Corporation v. Gilli 260 N.C. 211, 182 S.E. 2d 313 (1963), as authority for the Commission’s dismissal of this appeal. In that case there was “an utter disregard for the statutes, rules and procedures governing appeals.” 260 N.C. at 212. Among irregularities cited by the Court, there was never an appeal entered on the judgment docket within 10 days from the entry of the judgment, and “no notice as con- templated by the statute was ever given to the adverse party.” 260 N.C. at 213. The Commission cannot agree with Durham County that such a situati ists j situation case before it. exists in the The Commission now turns t . : o the substantive j presented in this appeal. i In Xerox Corporation v. County of Harris, Texas, and City of Houston, Texas, Chief Justice Burger formulated the question for review by the Supreme Court as follows: [T]o decide whether a state may impose nondiserimi- natory ad valorem personal property taxes on imported goods stored under bond in a customs warehouse and destined for foreign markets.” 103 S. Ct. at 524, 74 L. Ed. 2d at 326. In that case the importe? yoods were copying machines which had been assembled by Xerox’s affiliate in Mexico and then transported to Houston Texas, where the copiers were stored in a customs bonded warehouse. For the duration of the storage period the copiers were “awaiting sale and shipment to Xerox af- 35a filiates in Latin America.” 103 S. Ct. at 524, 74 L. Ed. 2d at 326. The copiers were designed for sale in Latin America, and, as the Court pointed out, “None of the copiers assembled in Mexico and stored in Houston were ever sold to customers for domestic use; all were ulti- mately sold abroad. Consequently, Xerox paid no import duties on them.” 103 S. Ct. at 525, 74 L. Ed. 2d at 327. Under these factual circumstances, the Supreme Court answered the question for its review in the negative. The Property Tax Commission is of the opinion that the question answered by the Supreme Court in Xerox is significantly different from the essential question pre- sented for the Commission’s review. Based on the Com- mission’s findings of fact numbered 39, 44 and 48, the Commission concludes that the imported tobacco at issue in this case, although stored under bond in customs warehouses in Durham and Forsyth Counties, was clearly not “destined for foreign markets” as were the imported copiers in Xerox. One of the criteria enunciated in Xerox, therefore, is not met in the case before the Commission. In its discussion in Xerox of the role of government regulated, bonded warehouses in the history of foreign commerce, the Court summarized as follows: In short, Congress created secure and duty free enclaves under federal control in order to encourage merchants here and abroad to make use of American ports. The question is whether it would be compati- ble with the comprehensive scheme Congress enacted to effect these goals if the states were free to tax such goods while they were lodged temporarily in government regulated bonded storage in this country. 103 S. Ct. at 526-27, 74 L. Ed. 2d at 329. |Em- phasis supplied. ] The Commission concludes that the imported tobacco in this case is not “lodged temporarily in government regu- lated bonded storage in this country.” Because none of 36a the imported tobacco is being held for export by Reynolds, there is nothing temporary about its existence in this country. The Xerox opinion cites two cases involving attempts by the state to tax imported goods stored in customs bonded warehouses. In McGoldrick v. Gulf Oil Co., 309 U.S. 414, 60 S. Ct. 664, 84 L. Ed. 840, (1939) it was held that the City of New York could not impose a sales tax on imported petroleum which, after being refined, was sold as ships’ stores to vessels bound abroad. The petroleum was free from all duties and the refined prod- ucts were noi sold in domestic commerce. In District of Columbia v. International Distributing Corp., 331 F. 2d 817 (CADC 1964), it was held that the District of Co- lumbia could not impose an excise tax on the sale of im- ported alcoholic beverages to foreign embassies while the beverages were stored in a customs bonded warehouse. The facts in the case before the Commission are clearly distinguishable from the facts in the Xerox case and the cases cited therein. The facts in the case before the Commission are more nearly like the facts in American Smelting and Refining Co. v. County of Contra Costa, 271 Cal. App. 2d 437, 77 Cal. Rptr. 570 (1969), appeal dismissed, 396 U.S. 273, 90 S. Ct. 553, rehearing denied, 397 U.S. 958, 90 S. Ct. 940 (1970), in which it was held that a state can impose a nondiscriminatory tax on im- ported goods stored in bonded warehouses when the goods have been imported for domestic consumption, and not destined for foreign consumption. Finding of fact 53 sup- ports the Commission’s conclusion that the property tax imposed by Durham and Forsyth Counties on the im- ported tobacco is not discriminatory. Finally, the Commission notes that while the holding in Xerox, read without reference to the remaining por- tions of the opinion, and in particular the question for review by the Court, might on its face appear to apply 37a i toms ware .ouse, oods stored under bond in a cus : an clear to the Commission that the holding does not preclude nondiscriminatory ad valorem personal prop- i bond in a on imported goods stored under pir Monge tw Moony but which, and this is the crucial fact, are not destined for foreign markets. The Commission holds, therefore, that the ag County Board of Equalization and Review and t e Fo syth County Board of Equalization and Review were correct in denying Reynolds’ claims for ae — taxation for imported tobacco stored in cus wh ee aac in Durham and Forsyth Counties as of January 1, 1983. WHEREFORE, IT IS ORDERED, ADJUDGED roe DECREED that the taxation of Reynolds import 4 0- bacco by Durham and Forsyth Counties be, and it is hereby, affirmed. | : Commission Member James E. Long did not participate in this decision. Entered this 14th day of December, 1983. — NORTH CAROLINA PROPERTY TAX COMMISSION /s/ Clarence E. Leatherman CLARENCE E. LEATHERMAN Vice Chairman Attest: /s/ D. R. Holbrook D. R. HOLBROOK Secretary APPENDIX E Notice of Appeal to the Supreme Court of the United States from the Judgment of the Supreme Court of North Carolina, November 14, 1985 39a IN THE SUPREME COURT OF NORTH CAROLINA No. 222P85 IN THE MATTER OF: THE APPEAL OF R. J. REYNOLDS TOBACCO COMPANY FROM THE DENIALS OF ITS CLAIMS FOR EXEMPTION By DuR- HAM COUNTY AND FORSYTH COUNTY FOR 1983. [Filed Nov. 14, 1985] NOTICE OF APPEAL TO THE SUPREME COURT OF THE UNITED STATES R. J. Reynolds Tobacco Company hereby gives notice of appeal to the Supreme Court of the United States from the final judgment of the Supreme Court of North Caro- lina, dismissing an appeal and denying a petition for dis- cretionary review, entered on October 2, 1985. This appeal is taken pursuant to 28 U.S.C. § 1257(2). /s/ Thomas L. Kummer THOMAS L. KUMMER /s/ John A. Cocklereece, Jr. JOHN A. COCKLEREECE, JR. Horton, Hendrick & Kummer 450 NCNB Filaza Winston-Salem, NC 27101 (912) 723-1826 Counsel for Appellant R. J. Reynolds Tobacco Company APPENDIX F Notice of Appeal to the Supreme Court of the United States from the Judgment of the North Carolina Court of Appeals, November 14, 1985 oe ae. EF 4la IN THE NORTH CAROLINA COURT OF APPEALS No. 8410PTC481 IN THE MATTER OF: THE APPEAL OF R. J. REYNOLDS TOBACCO COMPANY FROM THE DENIALS OF ITS CLAIMS FOR EXEMPTION By DuR- HAM COUNTY AND FORSYTH COUNTY FOR 1983. [Filed Nov. 14, 1985] NOTICE OF APPEAL TO THE SUPREME COURT OF THE UNITED STATES R. J. Reynolds Tobacco Company hereby gives notice of appeal to the Supreme Court of the United States from the final judgment of the North Carolina Court of Ap- peals, finding that the levy of an ad valorem property tax on property stored in a customs bonded warehouse is not proscribed by the United States Constitution, entered on April 8, 1985. This appeal is taken pursuant to 28 U.S.C. § 1257/2). /s/ Thomas L. Kummer THOMAS L. KUMMER /s/ John A. Cocklereece, Jr. JOHN A. COCKLEREECE, JR. Horton, Hendrick & Kummer 450 NCNB Plaza Winston-Salem, NC 27101 (919) 723-1826 Counsel for Appellant R. J. Reynolds Tobacco Company APPENDIX G Portions of the Transcript of the Oral Argument in Xerox Corp. v. County of Harris, 459 U.S. 145 (1982) 43a IN THE SUPREME COURT OF THE UNITED STATES No. 81-1489 XEROX CORPORATION, Appellant Vv. COUNTY OF HARRIS, TEXAS and CiTy OF HOUSTON, TEXAS Washington, D.C. Wednesday, November 10, 1982 The above-entitled matter came on for oral argument before the Supreme Court of the United States at 11:02 o’clock a.m. APPEARANCES: ALFRED H. HODDINOTT, JR., ESQ., Stamford, Con- necticut; on behalf of the Appellant. CHERYL HELENA CHAPMAN, ESQ., Senior Assist- ant, City Attorney, Houston, Texas; on behalf of the Appellee ORAL ARGUMENT OF ALFRED H. HODDINOTT, JR., ESQ. ON BEHALF OF THE APPELLANT * + * + [10] QUESTION: But you say that this is different even though Xerox’s stuff, if it had been destined for 44a domestic use, you have paid taxes on it and it would be taxable. MR. HODDINOTT: I am sorry, I didn’t follow the question, Your Honor. QUESTION: If the same amount of Xerox computers had been stored in exactly the same warehouse but destined for domestic use, you, of course, have paid taxes on them. MR. HODDINOTT: When you say destined, Your Honor, if they had already passed the Customs barrier, and the duties had been paid, then I would agree, but until the Customs duties are paid, I submit they are not taxable. QUESTION: But it makes no difference to your case even if they were in the Houston warehouse for 20 [11] years, I take it. MR. HODDINOTT: No. But it—the Customs stat- utes permit storage for three years, and it makes a difference as long as they were there for the three years permitted by Congress. * * & * [21] MR. HODDINOTT: We believe that Xerox’s copiers were in transit. The courts have consistently held that when they are in a Customs bonded warehouse, it is as if they were detained at the border. The cases [22] cited by appellees and by the court below all related to interstate commerce, where the goods fell into some state when the journey ended or where it was—or it was there before the journey stated. | Those cases would be applicable to Xerox only if the goods cleared Customs and entered interstate commerce. The state can stand at the warehouse door, and the moment the goods pass through, it can assert its tax, but those cases involving interstate commerce are not applicable until then, and our goods were still passing in foreign commerce, 45a ORAL ARGUMENT OF CHERYL HELENA CHAPMAN, ESQ. ON BEHALF OF THE APPELLEE * * * ad ESTION: Well, suppose you had automobiles po in the same setting as this, destined for England or Sweden or some other country where y= have the righthand drive. They could be sold in - e United [35] States, too, because a great many ogre or at least some people use a righthand drive car in this country, but because it was adaptable, if they had been in bonded warehouses, would that adaptability have any impact on the legal issues in this case? . MS. CHAPMAN: Yes. The adaptability has no im- pact on the legal issues. Our position is that as long as those goods are stored in Houston for the business a4 venience of Xerox, and there is no question about that, and the State of Texas has acquired a taxable situs, then we are entitled to tax those copiers. QUESTION: But that would be independent of whether they could be modified for domestic use or not, i r view. 2 “8. CHAPMAN: Yes, and this Court has addressed that issue in the case of Kosydar versus—National — Register versus Kosydar, where the goods were only designed for foreign use. a . QUESTION: Well, a bonded warehouse isn’t avail- able, is it, for an importer who simply wants to store his goods in a bonded warehouse pending domestic dis- tribution? MS. CHAPMAN: Yes, it is. QUESTION: So you can bring your goods in and [36] delay the payment of duty until you get a market for it in the United States? Sed MS. CHAPMAN: And that was the original purpose of the Customs bonded warehousing scheme. — 46a QUESTION: Does that have any other consequence than deferring the payment of the duty? MS. CHAPMAN: No. QUESTION: When it enters the country, instead of paying the duty immediately on entry if it goes into a bonded warehouse, the duty is deferred until it is taken out of the bonded warehouse for sale in the United States. Is that not so? MS. CHAPMAN: That’s correct. QUESTION: So a company can just get cheaper warehousing by using a bonded warehouse. It just de- pends on what the cost of the bond is as compared to the domestic taxes. MS. CHAPMAN: That’s correct, and that is the likely result if Xerox obtains immunity under the Customs bond theory. ~ QUESTION: So it really doesn’t make any difference in this case as to whether they were destined for a foreign market. MS. CHAPMAN: Absolutely not. & * 2 & ORAL ARGUMENT OF ALFRED H. HODDINOTT, J., ESQ., ON BEHALF OF THE APPELLANT—REBUTTAL [47] MR. HODDINOTT: I would be happy to try and answer Justice Blackmun’s question. The copiers could be worked over at a cost of over $100. It is not im- possible for them to be used domestically, but it would be somewhat like Justice Berger’s (sic) automobile. Presum- ably there is some way to switch the steering wheel from the right hand to the left hand. QUESTION: Or you can use it just the way it is. MR. HODDINOTT: You couldn’t use the Xerox copier just the way it was— [48] QUESTION: No, but the automobile. MR. HODDINOTT :—because of the electricity. 47a t i i that the UESTION: Isn’t it true that—Is it true wali warehouse can be used by an importer who wants to distribute domestically? Can he use the bonding ware- house just to postpone the payment of his duties until he domestic market? a HODDINOTT: Goods that come from abroad coming into the United States may be held for up to three years and then brought in. Indeed, that — QUESTION: No matter where they are destined. MR. HODDINOTT: No matter where they are des- tined. That is indeed the legislative purpose that is set forth in the Warehousing Act, Your Honor. QUESTION: Now, would you say that Texas could levy its tax on the importer who is—who intends to take oods into the United States? “a HODDINOTT: The minute it passes through the warehouse door, Your Honor. Once they are into— ass through the warehouse door— . QUESTION: You mean to be stored? MR. HODDINOTT: No. While they are stored— QUESTION: Well, is an importer who says, yes, these are going to be sold in the United States, and he [49] puts them in a bonded warehouse, and holds them for two years, may Texas levy a tax while they are in rehouse? ay HODDINOTT: No, sir, that is directly opposed to the legislative purpose of the Warehousing Act. APPENDIX H Statement of Congressman Wright, Certain Trade and Tariff Bills, Hearings before the Subcomm. on Trade of the House Comm. on Ways and Means, 98th Cong., Ist Sess., pp. 330-31, May 10, 1983 49a STATEMENT OF HON. JIM WRIGHT, A REPRESENATIVE IN CONGRESS FROM THE STATE OF TEXAS Mr. WRIGHT. This is Ernie Dean, the executive di- rector of the Dallas-Fort Worth Airport Board, and Bill Methenitis is an attorney for the Dallas-Fort Worth Foreign Trade Zone. He practices law with the firm of Strasburger & Price, one of our leading law firms. This is a very simple proposition which we propose in H.R. 717, which, incidentally, is cosponsored by our col- league, Jack Brooks. The bill, quite simply stated, would exempt from local ad valorem taxation any goods in foreign commerce that are in a foreign trade zone. That is what it does, and that is all it does. It is what you might call a general bill with a local application. That is what we have here, Mr. Chairman. So far as I know, in all the United States, there are about 74 active foreign trade zones employing a total of some 29,000 people, and dealing in literally billions of dollars worth of goods in foreign trade every year. They assist mightily in our attempting to cope with the foreign trade deficits that have beset us. They create employment for people in the United States, not just in the zones, but in the companies affected by the zones. I think all of us agree that it is a good thing to have foreign trade zones permitting the freest flow of trade in and out of the United States through them. Now, there is only one case that I am aware of any- where in the whole United States where a local taxing authority, a local city has presumed a right to levy local ad valorem taxes on goods in foreign commerce, the in- ventories in the foreign trade zone, and that, as luck would have it, occurred in my district, at the Dallas-Fort Worth Foreign Trade Zone, where the city of Irving, eemposed of some very fine Texas citizens, simply mis- 50a understood the nature of a foreign trade zone and under- took to levy local ad valorem taxes on all the inventories that are there in the foreign trade zones. Well, it occurs that a recent Supreme Court decision in the case of Xerox versus the County of Harris already has ruled that you cannot do that with respect to a bonded warehouse, and I should think that the very same ideuti- cal provision would apply here. Some States, including Kentucky, I happen to know, have acted legislatively within their State legislatures to exempt goods in foreign trade zones. We do not think that is necessary that that be done, but they have undertaken nonetheless to do so, and make it abundantly clear that none of their local communities or counties are expected to levy taxes against goods in transit in a foreign trade zone. Now, the problem in Texas is compounded by the fact that we could not just simply get a State legislative enact- ment in our State legislature expressly exempting these goods because of a peculiarity in the Texas constitution. Were we to try to handle it at the local level, we would have to amend the State constitution. That, as you may be aware, is a matter of some diffi- culty, though it has been done several hundred times in the State of Texas. The legislature has to submit an amendment on a referendum, and all the voters have to vote for it, and it is always very confusing, because they wait until they have about 7 or 8 or 10 such amendments and then run them en bloc by the voters, and the legisla- ture is just about to adjourn for the biennium. Meanwhile, all of these goods out here that are in inventory in the companies that are engaging in foreign trade through our foreign trade zone are in jeopardy. It is very difficult to consummate transactions when the airport board and the foreign trade zone itself has to tell additional companies attempting to come in, when 5la they lie in jeopardy of their — ay — ws i ing to work on them there 0 x one goods for sale locally or goods they her with ot ares to export, that they might be subject to local taxation by the city of Irving. a i i oreign trade and in the refore, in the interest of )oreign Bn of all of the 74 foreign ~~ “~: go untry, but primariiy in the interest 0 Pare | Worth zone, where the problem peculiarly oy would like to suggest and request that you pass this and incorporate it in your legislation. I am told that on the Senate side it is contemplated that the two Texas Senators probably will join me in co- sponsoring such legislation. * * bad ° ee APPENDIX I Statement of Senator Tower, 129 Cong. Rec. S7748-49 (daily ed. June 6, 1983) 53a STATEMENT OF SENATOR TOWER © Mr. TOWER. Mr. President, I am pleased to join my distinguished colleague from Texas, Senator BENTSEN, in introducing the Bentsen-Tower bill. The Bentsen- Tower bill is very simply a clarification of existing law that will remedy a gap in the national uniformity of treatment of international trade. Congress created foreign trade zones to make our country competitive in the international marketplace. Local taxation of goods located in a foreign trade zone would, of course, frustrate the congressional purpose. The Federal preemption of this type of taxation has been uniformly recognized outside of Texas. However, because of restrictions in the Texas constitution, the formal recognition by the State of Texas is not possible. The lack of a definitive statute in Texas has created a hesitation among businesses that might otherwise use Texas foreign trade zones. A State statute is, of course, not necessary to restate a Federal preemption. A State statute would be merely gratuitous, to insure that local authorities comply with Federal law. Without such a statute to show local assessors, however, businesses are concerned that they will be forced to go to court in order to secure an ad valorem tax exemption to which they are entitled. Although the recent U.S. Supreme Court case of Xerox Corporation against Harris County seems to make the state of the law clear, businesses do not like to op- erate based on how case law would help them if they are forced to go to court. By simply restating the existing Federal preemption of ad valorem taxation, the Bentsen-Tower bill will be able to facilitate the development of foreign trade zones. In the past 15 years, the number of jobs in foreign trade zones have increased by 20 times, and the value of ship- ments through foreign trade zones has increased to over 54a $7 billion. This bill will further enhance the growth of foreign trade zones, and by adding American value to goods manufactured or assembled in foreign countries, the deficit in the balance of trade is reduced. I firmly believe that the enactment of the Bentsen- Tower bill, by merely clarifying the existing Federal pre- emption of ad valorem taxation of Federal trade zone inventory, will enhance the development of all foreign trade zones and fulfill the congressional intent in estab- lishing foreign trade zones, the creation of new jobs, and encouragement of capital investment.® * * * # APPENDIX J House Report No. 267, 98th Cong., Ist Sess., pp. 35-36, June 24, 1983 eto. ee ee =~ ee ee =e or. a 55a HOUSE REPORT NO. 267 PARAGRAPH (b)—EXEMPTION FROM STATE AND LOCAL AD VALOREM TAXES (Originally introduced as H.R. 717 by Mr. Wright) Section 211, paragraph (b), would amend section 15 of the Foreign Trade Zones Act of 1934, to exempt from State and locai ad valorem taxation tangible personal property imported from outside the United States and tangible personal property produced in the United States and held in a zone for exportation. The goal of this legislation is to affirm the original purpose of FTZs (to expedite and encourage foreign com- merce) and to confirm that Congress intended not to permit the imposition of such taxes. The new subsection is designed to insure that FTZs would be uniformly treated by non-Federal taxing authorities. In addition, the amendment would eliminate such tax concerns from among the factors to be considered by potential FTZ operators or users when deciding where an operation of ¥TZ is to be located. Further, the bill was introduced due to a unique prob- lem in the State of Texas in which local taxing jurisdic- tion does not have the authority to exempt tangible personal property in a FTZ from taxation due to the State constitution. The State of Texas’ constitution spe- cifically provides for certain articles to be exempt from taxation. No other items can be exempted without a change in the Constitution. It is expected that Federal law would preempt State law in this case. It is the intention of this legislation that the following considerations would be applied when implementing this legislation : (1) Bona fide customs use of Foreign Trade Zone.— Based upon the practice followed in states already grant- ing this exemption, by interpretation, the benefits would at 56a apply only to goods in the zone for bona fide customs reasons. (2) Machinery and Equipment.—Since the Foreign Trade Zone Act of 1934 does not apply to machinery and equipment within a zone for use therein the benefits of the bill would not extend to such items. The FTZs were intended by Congress to be special instrumentalities which would stimulate and facilitate foreign commerce and which would not be considered as part of the United States for customs purposes. The zones are unique and limited federally-created entities; while the States provide services to the zones, State tax- ing authority should be viewed in the context of Federal statutes and regulations and of the Constitution, as well as the overall framework of State-Federal relations. It would appear that the principal type of tax which would be proscribed by the legislation is a personal prop- erty tax, one levied on goods held by the potential tax- payer on a given date, especially articles used in com- merce or inventoried for future sale. Absent this legisla- tion, such a tax could be arguably assessed on merchan- dise or materials located or being stored in a FTZ, even if the materials or articles were intended for export to countries other than the United States. This form of tax is generally aimed at raising revenue for the taxing au- thority, rather than at controlling the use of the prop- erty; however, the cost of paying a property tax might be passed along to consumers, raising the price of the merchandise. Thus, the tax might have the effect of a duty when imposed on FTZ property, which might be im- ported into this country, and impinge upon the Congress’ exercise of its Article I authority. While not every State tax will be found on review to be a prohibited impost or duty, and while a State may not be discriminating in assessing the tax on all articles in its geographical terri- tory regardless of origin, such a tax may constitute a burden on foreign and interstate commerce, in light of the subject of the tax. APPENDIX K Senate Report No. 308, 98th Cong., Ist Sess., pp. 35-37, November 10, 1983 je e * 7) lS eee 57a SENATE REPORT NO. 308 SECTION 214—PRECLUSION OF STATE AND LOCAL TAXATION OF PERSONAL PROPERTY IN FOREIGN TRADE ZONES Current law.—In general, merchandise may be brought into a foreign trade zone without being subject to the customs laws of the United States (the Foreign Trade Zones Act of 1934, 19 U.S. Code sec. 8la et seq.). Merchandise may generally be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchan- dise or otherwise manipulated in a foreign trade zone, or be manufactured in a foreign trade zone, without being subject to U.S. customs laws, and it may then be ex- ported or destroyed without being subject to U.S. customs laws. This exemption does not apply to machinery and equipment that is imported for use (for manufacturing or the like) within a foreign trade zone. When foreign merchandise moves from a foreign trade zone into customs territory of the United States it is subject to the laws and regulations of the United States affecting imported merchandise. At the point, U.S. im- port duties apply. A similar deferral of U.S. import duties applies to goods stored in government supervised bonded customs warehouses, which are generally treated as being outside U.S. customs territory. Only if goods are withdrawn for domestic sale or stored beyond a prescribed period does any duty become due. The Supreme Court of the United States has ruled that Congress’s comprehensive regula- tion of customs duties preempts state property taxes on goods stored under bond in a customs warehouse (Xerox Corp. v. County of Harris, Texas, and City of Houston, Texas, No. 81-1489, December 13, 1982). The bill.—Section 214 would amend section 15 of the Foreign Trade Zones Act of 1934 to make it clear that 58a tangible personal property imported from outside the United States and held in a foreign trade zone for the purpose of storage, sale, exhibition, repackaging, as- sembly, distribution, sorting, grading, cleaning, mixing, display, manufacturing, or processing, and tangible per- sonal property produced in the United States and held in a zone for exportation, either in its original form or as altered by any of the above processes, would be exempt from State and local ad valorem taxation . . . The bill would preempt State law of local law imposing ad valorem taxation on such property. As for imported goods, the benefits of the bill would apply only to goods in a foreign trade zone for bona fide customs reasons. That is, it would not apply to property imported into the United States for use in manufactur- ing within a foreign trade zone (rather than for sale). Moreover, the Foreign Trade Zone Act of 1934 does not apply to machinery and equipment within a zone for use therein, so the benefits of the bill would not extend to those items whatever their origin. As for U.S.-produced property, the benefits of the bill would apply only if the property were held in the zone for exportation. The benefits would not apply to U.S.- produced property that was present in the zone for com- bination with imported property or for other processing if the U.S.-produced property were destined for later use in or sale into the United States. By contract, the bene- fits would apply to U.S.-produced property that was pres- ent in the zone for combination with imported property or for other processing if the U.S.-produced property were destined for later use or sale outside the United States. Reason for provision.—Local taxing jurisdictions in Texas may seek to declare exemptions for property taxes on some tangible personal property stored in foreign trade zones, but are precluded from doing so by the Texas Constitution. The local foreign trade zones thus are dis- 59a advantaged in promoting the benefits of zones in their localities. The committee is unaware of any states or localities outside the State of Texas that seek to impose property taxes on tangible personal property located in foreign trade zones for bona fide customs reasons, or have a bar similar to that in Texas that would preclude locali- ties from declaring an exemption to such a tax. : : APPENDIX L Statutes and Regulations Involved 1. Title 19, United States Code (1982) -............. 2. Article 12, North Carolina Genera! Statutes. 3. Title 19, Code of Federal Regulations (1983) eee ewww nnne 6la TITLE 19, UNITED STATES CODE (1982) § 1555. Bonded warehouses Buildings or parts of buildings and other enclosures may be designated by the Secretary of the Treasury as bonded warehouses for the storage of imported merchan- dise entered for warehousing, or taken possession of by the appropriate customs officer, or under seizure, or for the manufacture of merchandise in bond, or for the re- packing, sorting, or cleaning of imported merchandise. Such warehouses may be bonded for the storing of such merchandise only as shall belong or be consigned to the owners or proprietors thereof and be known as private bonded warehouses, or for the storage of imported mer- chandise generally and be known as public bonded ware- houses. Before any imported merchandise not finally re- leased from customs custody shall be stored in any such premises, the owner or lessee thereof shall give a bond in such sum and with such sureties as may be approved by the Secretary of the Treasury to secure the Government against any loss or expense connected with or arising from the deposit, storage, or manipulation of merchan- dise in such warehouse. Except as otherwise provided in this chapter, bonded warehouses shall be used solely for the storage of imported merchandise and shall be placed in charge of a proper officer of the customs, who, to- gether with the proprietor thereof, shall have joint custody of all merchandise stored in the warehouse; and all labor on the merchandise so stored shall be performed by the owner or proprietor of the warehouse, under supervision of the officer of the customs in charge of the same, at the expense of the owner or proprietor. The compensation of such officer of the customs and other customs employees appointed to supervise the receipt of merchandise into any such warehouse and deliveries therefrom shall be 62a reimbursed to the Government by the proprietor of such warehouse. (June 17, 1930, ch. 497, title IV, § 555, 46 Stat. 743; June 2, 1970, Pub. L. 91-271, title III, § 301(b), 84 Stat. 287.) § 1556. Bonded warehouses; regulations for establishing The Secretary of the Treasury shall from time to time establish such rules and regulations as may be necessary for the establishment of bonded warehouses and to pro- tect the interests of the Government in tne conduct, man- agement, and operation of such warehouses and in the withdrawal of and accounting for merchandise deposited therein. (June 17, 1930, ch. 497, title IV, § 566, 46 Stat. 743.) § 1557. Entry for warehouse (a) Withdrawal of merchandise; time; payment of charges Any merchandise subject to duty, with the exception of perishable articies and explosive substances other than firecrackers, may be entered for warehousing and be de- posited in a bonded warehouse at the expense and risk of the owner’ purchaser, importer, or consignee. Such mer- chandise may be withdrawn, at any time within 5 years from the date of importation, for consumption upon pay- ment of the duties and charges accruing thereon at the rate of duty imposed by law upon such merchandise at the date of withdrawal; or may be withdrawn for ex- portation or for transportation and exportation to a for- eign country, or for shipment or for transportation and shipment to the Virgin Islands, American Samoa, Wake Island, Midway Islands, Kingman Reef, Johnston Island, or the island of Guam, without the payment of duties 1 So in original. Probably should be followed by a comma. 63a thereon, or for transportation and rewarehousing at an- other port or elsewhere, or for transfer to another bonded warehouse at the same port: Provided, That the total period of time for which such merchandise may remain in bonded warehouse shall not exceed 5 years from the date of importation. Merchandise upon which the duties have been paid and which shall have remained continu- ously in bonded warehouse or otherwise in the custody and under the control of customs officers, may be entered or withdrawn at any time within 5 years after the date of importation for exportation or for transportation and exportation to a foreign country, or for shipment or for transportation and shipment to the Virgin Islands, Ameri- can Samoa, Wake Island, Midway Islands, Kingman Reef, Johnston Island, or the island of Guam, under such regu- lations as the Secretary of the Treasury shall prescribe, and upon such entry or withdrawal, and exportation or shipment, the duties thereon shall be refunded. (b) Transferral of right of withdrawal The right to withdraw any merchandise entered in ac- cordance with subsection (a) of this section for the pur- poses specified in such subsection may be transferred upon compliance with regulations prescribed by the Sec- retary of the Treasury and upon the filing by the trans- feree of a bond i [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_1168%3A0. Public record. Not legal advice.