Reply Brief — Itel Containers Int'l Corp. v. Huddleston

@upreme Court, U.S.

FILED

— OCT e 1993

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In the Supreme Court of the United States

OCTOBER TERM, 1991

ITEL CONTAINERS INTERNATIONAL CORP., PETITIONER

Vv.

JOE HUDDLESTON, COMMISSIONER OF REVENUE,

STATE OF TENNESSEE, RESPONDENT

On Petition for a Writ of Certiorari to the

Supreme Court of Tennessee

PETITIONER’S REPLY BRIEF

PHILIP W. COLLIER ANDREW L. FREY

Counsel of Record CHARLES ROTHFELD

JAMES C. SEIFFERT Mayer, Brown & Platt

T. MORGAN WARD, JR. 2000 Pennsylvania Ave., N.W.

Stites & Harbison Washington, D.C. 20006

600 West Main Street (202) 463-2000

Louisville, KY 40202

(502) 587-3400

Counsel for Petitioner

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

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TABLE OF AUTHORITIES

CASES

Sam Carey Lumber Co. v. Sixty-One Cabinet Shop,

Inc., 773 S.W.2d 252 (Tenn. Ct. App. 1989)

Department of Revenue v. Ass’n of Washington

Stevedoring Cos., 4835 U.S. 734 (1978)

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

434 (1979)

Long Equipment Co. v. Keeton, 736 S.W.2d 611

(Tenn. Ct. App. 1987)

Louisiana Land and Exploration Co. v. Pilot Petro-

leum Corp., 900 F.2d 816 (5th Cir.) , cert. denied,

111 S. Ct. 248 (1990)

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

Michelin Tire Corp. v. Wages, 423 U.S. 276

(1976)

R.J. Reynolds Tobacco Co. v. Durham County, 479

U.S. 130 (1986)

Richfield Oil Corp. v. State Board of Equalization,

329 U.S. 69 (1946)

Trinova Corp. v. Michigan Department of Treas-

ury, 111 S. Ct. 818 (1991)

Vector Co. v. Benson, 491 S.W.2d 612 (Tenn.

ERIE SEES ishlctanaien dale poabdisaaialecbeinniieinetiiasiiavnaise

Wardair Canada, Inc. v. Dept. of Revenue, 477

U.S. 1 (1986)

Xerox Corp. v. County of Harris, 459 U.S. 145

(1982)

STATUTES AND REGULATIONS

Tenn. Code Ann. 67-5-602 (c) (1)

Tenn. Code Ann. 67-6-313 (a)

Sn ccepennimmonannonenat

In the Supreme Court of the United States

OCTOBER TERM, 1991

No. 91-321

ITEL CONTAINERS INTERNATIONAL CORP., PETITIONER

Vv.

JOE HUDDLESTON, COMMISSIONER OF REVENUE,

STATE OF TENNESSEE, RESPONDENT

On Petition for a Writ of Certiorari to the

Supreme Court of Tennessee

PETITIONER’S REPLY BRIEF

In its response, the State does not take issue with

any of the fundamental propositions that are ad-

vanced in the petition. It does not deny that the

question whether transaction taxes are inherently

immune from challenge under the Foreign Commerce

Clause is a recurring and extremely important one

that was left open in Wardair Canada, Inc. v. Dept.

of Revenue, 477 U.S. 1, 13 (1986). It does not deny

that its tax poses the risk of multiple taxation, im-

poses significant burdens on the operation of contain-

ers in international commerce, may prompt retalia-

tion by our trading partners, and will raise the costs

of imports to and exports from the United States.

It does not deny that this Court’s decisions in Xerox

Corp. v. Harris County, 459 U.S. 145 (1982), and

2

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

held state taxes preempted in circumstances that are

indistinguishable from those in this case. And it

does not deny that Itel’s containers are imports and

exports within the meaning of the Import-Export

Clause that were “in transit” at the time of taxation.

The State accordingly advances no reason for the

Court to decline review of the substantial issues pre-

sented here.

1. The State’s principal argument sidesteps the

point of the petition. The State maintains (Br. in

Op. 4-5, 6, 7) that its tax is not measured by the

value of the property that is sold or leased, and that

the levy accordingly cannot be analogized to a prop-

erty tax. But even if that statement is correct—and

it demonstrably is not, as we explain below—it sim-

ply is not responsive to the petition. Our Foreign

Commerce Clause argument is not grounded on the

proposition that Tennessee’s levy is a property tax; to

the contrary, the first question presented is whether,

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

441 U.S. 434 (1979), there is a necessary constitu-

tional distinction between sales and property taxes,

as the court below held. See Pet. 10-16.

We think it plain that transaction taxes should not

be immune from challenge under the Clause. As we

explained in the petition, the Court’s reasons for in-

validating the property tax at issue in Japan Line—

concerns about multiple international taxation and

interference with federal policy—have nothing to do

with the distinction between property and sales taxes.

See Wardair, 477 U.S. at 18 (Blackmun, J., dissent-

ing). Cf. Xerox, 459 U.S. at 153 (for preemption

purposes, no “legal difference’ between sales and

3

property taxes); R.J. Reynolds Tobacco Co. v. Dur-

ham County, 479 U.S. 180, 142-143 n.10 (1986) (dis-

tinction “of no importance”). The State’s conclusory

assertion (Br. in Op. 8-9) that the court below “fol-

lowed the guidelines” announced in Japan Line misses

the mark; the state court set down a legal rule gov-

erning challenges to transaction taxes that is incon-

sistent with the Japan Line analysis. And most fun-

damentally for present purposes, the State has not

offered any reason to doubt that the issue is a sig-

nificant and recurring one that warrants this Court’s

attention.

In any event, the State’s claim (see Br. in Op.

4-5) that sales and lease taxes are largely unrelated

to the value of the underlying property is a non-

sensical one that has been flatly rejected by the Court.

“TT ]}he Court ha[s] always considered a tax on the

sale of goods to be a tax on the goods themselves.

* * * The sale ha[s]} no value or significance apart

from the goods.” Department of Revenue v, Ass’n

of Washington Stevedoring Cos., 435 U.S. 734, 756

n.21 (1978).’ And labeling the tax one on “privilege”

or “business activity” (see Br. in Op. 4) “does not

permit [the Court] to forgo examination of the ac-

tual tax base * * *. ‘A tax on sleeping measured by

the number of pairs of shoes you have in your closet

is a tax on shoes.’” Trinova Corp. v. Michigan De-

(citation omitted). Accord Richfield Oil Corp. v.

State Board of Equalization, 329 U.S. 69, 84 (1946).

‘If the State means to distinguish taxes on sales from

taxes on leases, its contention is belied by one of Tennessee’s

own methods of valuing personal property for property tax

purposes—capitalization of rental income over the life of the

property. Tenn. Code Ann. 67-5-602(c) (1).

4

The State makes no attempt to distinguish these au-

thorities.

2. The State also contends that the Container Con-

ventions are inapplicable here because “(t]he Ten-

nessee tax simply is not levied on imports, but is a

generally applicable sales tax.” Br. in Op. 7. The

assertion that such a distinction is relevant, how-

ever, is irreconcilable with this Court’s decisions.

Japan Line, of course, invalidated a generally ap-

plicable state tax as inconsistent with the 1956 Con-

vention. See 441 U.S. at 452-453. And as we ex-

plain in the petition (at 20-23), the Court in Mc-

Goldrick and Xerox struck down generally applicable

state sales and property taxes because they” frus-

trated the federal policies effectuated by the Customs-

bonded warehouse statutes—policies that are directly

analogous to those advanced by the Container Con-

ventions. Again, the State wholly fails to address

these rulings. By the same token, the State does not

(and plainly could not) deny either that its tax bur-

dens the use of containers or that our trading part-

ners refrain from imposing equivalent taxes on the

lease of containers abroad.’

8. Finally, the State’s assertion that the decision

below does not conflict with Louisiana Land and Ex-

2 The State similarly asserts that the Container Conven-

tions “do not even address, much less forbid, Tennessee’s

sales tax.” Br. in Op. 7. That is not true; by their plain terms,

both Conventions set aside “all” taxes imposed by reason of

importation. In any event, the State’s observation distin-

guishes neither Japan Line (which concerned a tax that was

no more “addressed” by the 1956 Convention than is the

Tennessee levy) nor McGoldrick and Xerox, which held gen-

eral state taxes preempted by federal laws that in terms for-

bade the imposition only of Customs duties. See Pet. 20-21.

5

ploration Co. v. Pilot Petroleum Corp., 900 F.2d 816

(5th Cir.), cert. denied, 111 S. Ct. 248 (1990), rests

on distinctions that are immaterial—and that al-

ready have been dismissed as irrelevant by this Court.

First, the State notes that the tax at issue in Lou-

wsiana Land was levied specifically on sales of fuel

rather than on all sales. But the Court never has

held that a tax must be directed at a specific good

to constitute an impost upon imports or exports

within the meaning of the Import-Export Clause. To

the contrary, in Richfield Oil Corp. v. State Board

of Equalization, 329 U.S. 69, 83 (1946), the Court

invalidated a state sales tax directed at all trans-

fers of “tangible personal property at retail.” The

crucial question thus is whether the levy, as applied,

constitutes a tax on imports or exports that are in

transit when the tax is assessed. See Michelin Tire

Corp. v. Wages, 423 U.S. 276, 290 (1976).

Second, the State observes that the incidence of the

Alabama tax at issue in Louisiana Land fell on the

purchaser and suggests that the incidence here falls

on the seller or lessor. In their practical operation,

however, the taxes at issue here and in Louisiana

Land operate in precisely the same way: Tennessee

law requires that the sales tax be separately stated

on the consumer’s bill and that it “be collected by the

retailer from the consumer insofar as it can be done.”

Tenn. Code Ann. 67-6-502.* In any event, the State’s

argument, even if factually grounded, would not dis-

tinguish Richfield, where the Court invalidated a

’ “(T]he burden for the payment of the [sales] tax is meant

to be that of the buyer” (Sam Carey Lumber Co. v. Sixty-One

Cabinet Shop, Inc., 773 S.W.2d 252, 255 (Tenn. Ct. App.

1989) ) ; if the tax is not collected at the time of sale, either

6

state tax “levied on retailers” who in turn were “au-

thorized to collect the tax from the consumers.” 329

U.S. at 83. Because the State does not (and could

not) deny that the goods subject to tax here are in

transit and qualify as imports or exports, this case,

like Louisiana Land, squarely presents the question

reserved in Michelin and Washington Stevedoring:

whether such a tax violates the Import-Export

Clause. See Pet. 24-25.*

For the foregoing reasons and the reasons stated

in the petition, the petition for a writ of certiorari

should be granted.

Respectfully submitted,

PHILIP W. COLLIER ANDREW L. FREY

Counsel of Record CHARLES ROTHFELD

JAMES C. SEIFFERT Mayer, Brown & Platt

T. MORGAN WARD, JR. 2000 Pennsylvania Ave., N.W.

Stites & Harbison Washington, D.C. 20006

600 West Main Street (202) 463-2000

Louisville, KY 40202

(502) 587-3400

Counsel for Petitioner

the State or the seller may later collect the tax from the buyer.

See ibid.; Long Equipment Co. v. Keeton, 736 S.W.2d 611,

613 (Tenn. Ct. App. 1987).

* The State asserts that, under its “import-for-export” ex-

emption, Tenn. Code Ann. 67-6-313(a), it would not tax

containers that Itel itself brought into and then (without an

intervening transfer to a lessee) exported from the State.

Br. in Op. 6. In fact, that statute provides no greater pro-

tection to interstate and foreign commerce than does the

United States Constitution. See Vector Co. v. Benson, 491

S.W.2d 612 (Tenn. 1973). In any event, the State’s repeated

assertion that certain containers escape taxation (Br. in Op.

6, 7) is beside the point; that cannot justify unconstitutional

levies on the transfer of containers in Tennessee.

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