Amicus Curiae Brief — Itel Containers Int'l Corp. v. Huddleston

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In the Supreme Court of the United States

OCTOBER TERM, 1991

ITEL CONTAINERS INTERNATIONAL CORPORATION,

PETITIONER

Vv.

JOE HUDDLESTON, COMMISSIONER OF REVENUE

OF TENNESSEE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF TENNESSEE

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

KENNETH W. STARR

Solicitor General

SHIRLEY D. PETERSON

Assistant Attorney General

LAWRENCE G. WALLACE

Deputy Solicitor General

KENT L. JONES

Assistant to the Solicitor General

GARY R. ALLEN

ERNEST J. BROWN

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 514-2217

QUESTION PRESENTED

The Tennessee Retailers’ Sales Tax Act (Tenn.

Code Ann. §§ 67-6-101 et seg. (1989 & Supp. 1990) )

imposes a tax, at the rate of 5.5% of the transaction

amount, upon the sale of “‘tangible personal property

at retail in this state’ (Tenn. Code Ann. § 67-6-201

(1989)). The statute defines a “sale” as “any trans-

fer of title or possession, or both, exchange, barter,

lease, or rental * * * of tangible personal property for

a consideration” (id. § 67-6-102(23) (A)).

The question presented is whether application of

that Act to the lease of shipping containers, delivered

at points within the State for use in international

transportation of goods, is barred by the Commerce

Clause (Art. I, $8, Cl. 3) or the Import-Export

Clause (Art. I, § 10, Cl. 2) of the Constitution of the

United States or is pre-empted by the Customs Con-

vention on Containers, May 18, 1956, 20 U.S.T. 301,

T.LA.S. No. 6634, 338 U.N.T.S. 103, acceded to by

the United States effective March 3, 1969, or the Cus-

toms Convention on Containers, Dec. 2, 1972, S. Exec.

Doc. X, 93d Cong., Ist Sess. (1973), 988 U.N.T.S.

43, acceded to by the United States, effective May 12,

1985.

(1)

TABLE OF CONTENTS

Page

ST 1

LET 5

a _._eseetamenersuonsncsenens 12

TABLE OF AUTHORITIES

Cases:

Braniff Airways, Inc. Vv. Nebraska State Board,

Te x

Canton R.R. v. Rogan, 340 U.S. 511 (1951) —........ 6, 11, 12

Colonial Pipeline Co. v. Traigle, 421 U.S. 100

a. ssonasenaniunnscosonees 6

Commonwealth Edison Co. v. Montana, 453 U.S.

ee __senesareemevnensence 5, 6

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

ES 4,6,7

Employers’ Liability Cases, 207 U.S. 463 (1908)...

Empresa Siderurgica v. County of Merced, 337

a ._senttnopansences 5, 10

Exxon Corp. Vv. Wisconsin Dep't of Revenue, 447

a cceewacneers 5

Goldberg v. Sweet, 488 U.S. 252 (1989) | TS 7

Gwin, White & Prince, Inc. v. Henneford, 305 U.S.

a ensnnronnncncoonce 7

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

ES 4,5, 6,8

Joy Oil Co. v. State Tax Comm’n, 337 U.S. 286

a csteeenetensennncees 5, 10

Kosydar v. National Cash Register Co., 417 U.S.

ESTES 5

Louisiana Land & Exploration Co. Vv. Pilot Petro-

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

en 9

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

Teen cennsserwescneeee 10

Mobil Oil Corp. V. Commissioner of Taxes, 445

IED ccc ccnceenccccecoes Eee 5, 6

Cases—Continued : Page

National Paper & Type Co. Vv. Bowers, 266 U.S.

RRR GR Tesprmeenri e er nes he Ree iv Pc oT ee

Peck & Co. v. Lowe, 247 U.S. 165 (1918) .....0000.......

Richfield Oil Corp. v. State Board of Equalization,

Se Ne SI I occ ssc ceethtantccitadibeediinainninieidenes

Standard Oil Co. v. Peck, 342 U.S. 382 (1952) ......

Standard Pressed Steel Co. v. Washington Reve-

nue Department, 419 U.S. 560 (1975) 0.0000... 7

Union Refrigerator Transit Co. v. Kentucky, 199

a 8

United States Glue Co. v. Town of Oak Creek, 247

I a tal aia eta iainsiade 5

Wardair Canada Inc. V. Florida Dep’t of Revenue,

gt NER pene re DT NRO ene 7,8

Washington Revenue Dep’t v. Stevedoring Ass’n,

Re I eihici ial tettccaatnastabsedictonintene 6

Western Live Stock v. Bureau of Revenue, 303

Sg IRE SRC NA feielacs 6

oro

Treaties, constitution, statutes and regulations:

U.S. Const. :

Art. I, § 8, Cl. 3 (Commerce Clause) .............. ~ =

Art. I, § 10, Cl. 2 (Import-Export Clause) ..... ~~ <*

Customs Convention on Containers, May 18, 1956,

20 U.S.T. 301, T.I.A.S. No. 6634, 338 U.N.T.S.

OS ascclbechnsesicbeicai diam ta eA ice ea oe es 9

Customs Convention on Containers, Dec. 2, 1972,

S. Exec. Doc. X, 93d Cong., Ist Sess. (1973), 988

FE EE TIT Ate OS LIEN I

19 U.S.C. 1822 (a) .............. sptiiaepeelaiadiaayliit Tate et

Tennessee Retailers’ Sales Tax Act, Tenn. Code

Ann. §§ 67-6-101 et seq. (1989 & Supp. 1990) :

ae ate

§ 67-4-806 (Supp. 1990) ....................222.-ceeeeeeeee .

union

§ 67-4-811 (Supp. 1990) ................ BENS HM eet)

19 C.F.R.:

ee TED a capestnonsunasbeiegionns

es ccaeiatenndaninieaian .

Nm ©

or or or or

tS do

Regulations-—Continued :

ESSER ah Ree eT

ERE IEA RST E A so PO SA

Miscellaneous:

L. Tribe, American Constitutional Law (2d ed.

1988)

Iu the Supreme Court of the United States

OCTOBER TERM, 1991

No. 91-321

ITEL CONTAINERS INTERNATIONAL CORPORATION,

PETITIONER

JOE HUDDLESTON, COMMISSIONER OF REVENUE

OF TENNESSEE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF TENNESSEE

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is submitted in response to the Court’s

order inviting the Solicitor General to express the

views of the United States.

STATEMENT

1. Petitioner is a Delaware corporation with its

principal place of business in San Francisco, Cali-

fornia. It is engaged in the business of leasing cargo

(1)

containers’ for international use. Petitioner pur-

chases these containers abroad but, pursuant to 19

U.S.C. 1322(a) and regulations thereunder (19 C.F.R.

10.4la(a) (1), (ce), (d) and (g)), the containers en-

ter the United States duty-free, as “instruments of

international traffic,” with a continuous bond given

by petitioner guaranteeing payment of all duties,

taxes, or liquidated damages that could be assessed

for failure to comply with regulations regarding any

withdrawal of the containers from international com-

merce. Pet. App. 2a, 28a-30a.

Petitioner solicits leases for its containers through

its offices located in numerous cities in the United

States, but has no marketing office in Tennessee. The

container leases are formally accepted only at its San

Francisco office. The leases are on a per diem basis

and restrict the use of containers to international

commerce. Subject to this restriction, the lessee de-

termines the route of travel and the period of use.

The lessee is allowed to interchange containers at nu-

merous locations around the world and, with certain

restrictions, determine where the leased containers are

to be returned at the end of the lease. Pet. App. 2a,

30a-31a, 34a.

1The Statement of Stipulated Facts filed by the parties

in the Chancery Court describes these containers as fol-

lows (Pet. App. 28a) (numbering of sentences omitted) :

“Containers are specially manufactured steel boxes, 20 or 40

feet long, 8 feet wide and 8.5 or 9.5 feet tall. The containers

are uniquely designed so that they may be used to transport

goods by a variety of modes, including semi-trailer truck, rail

car or oceangoing vessel. The containers are secured to roll-

ing stock while transported overland in international com-

merce. Because these containers are designed to be used in a

variety of transportation modes, they are uniquely suited

for use in international commerce.”

Prior to August 1, 1985, petitioner had no em-

ployees or terminals located in Tennessee. Instead,

petitioner made arrangements for its containers to be

delivered and picked up in that State at depots op-

erated by other parties. Effective August 1, 1985,

petitioner leased a tract of land and buildings in

Memphis, Tennessee, where it thereafter maintained

a terminal building and work station to receive, store,

deliver, and, in some circumstances, repair containers.

Petitioner continued to allow customers to interchange

containers at other depots in Tennessee, although it

had no employees at those points. Pet. App. 2a, 31a.

2. Petitioner was audited by the Tennessee Depart-

ment of Revenue for the period of January 1983

through November 1986. In December 1986, the De-

partment of Revenue issued an assessment determin-

ing that petitioner owed additional sales tax for the

period of the audit. Petitioner paid the additional

tax, penalty, and interest (in the amount of $382,465)

and then filed a request for refund. After this request

was denied, petitioner brought this suit for refund.

Pet. App. 19a, 24a, 34a-35a.

Upon consideration of testimony and stipulated

facts (Pet. App. 27a-37a), the trial court held, as a

matter of state law, that the Tennessee Retailers’

Sales Tax Act applied only to transactions in which

possession of the containers was transferred to lessees

in Tennessee and did not apply where lessees took pos-

session outside of the State (id. at 20a-21la). Because

the tax did not apply to leases where possession of the

containers was transferred to lessees outside of Ten-

nessee, the court reduced the assessment of tax, pen-

alty and interest to $158,012 (id. at 24a-25a).

With respect to leases where transfer of possession

occurred in Tennessee, the court held that application

of the State’s sales tax was not unconstitutional ( Pet.

App. 21a). The court observed (ibid.) that, under the

criteria of Complete Auto Transit, Inc. vy. Brady, 430

U.S. 274 (1977), businesses are not relieved of their

just share of the State’s tax burden simply because

they are engaged in interstate commerce. The court

concluded that the Commerce Clause does not require

a different result for leases of the containers involved

in this case simply because they were to be used for

international, rather than interstate, shipments ( Pet.

App. 21a-22a).

3. The State accepted the decision of the trial court

and did not appeal. On petitioner’s appeal, the Su-

preme Court of Tennessee affirmed the lower court’s

judgment (Pet. App. la-18a). The court rejected pe-

titioner’s invocation of Japan Line, Ltd. v. County of

Los Angeles, 441 U.S. 434 (1979), pointing out that

(i) in this case the owner and transferor of the leased

containers was a domestic corporation, not a foreign

corporation subject to taxation, and taxed, by its own

government, and (ii) the taxed transaction in this

ease took place in Tennessee, and was not taxed

abroad, so that the Tennessee statute did not effect a

multiple tax of a single international transaction

(Pet. App. 5a-12a). Because the Tennessee tax other-

wise satisfies the tests established by Complete Auto,

the court concluded that its imposition did not vio-

late the Commerce Clause (Pet. App. 12a-l6a). Fi-

nally, the court held that the state tax is imposed on

the leases of shipping containers, and “not [on] the

value of the goods themselves” (id. at 18a), and is

therefore not subject to challenge under the Import-

Export Clause of the Constitution (Pet. App. 16a-

18a).

DISCUSSION

l. a. Tennessee provides for petitioner and its con-

tainers “‘police and fire protection, the benefit of a

trained work force, and ‘the advantage of a civilized

society’.”” Commonwealth Edison Co. v. Montana, 453

U.S. 609, 627 (1981), quoting Exxon Corp. v. Wis-

consin Dep’t of Revenue, 447 U.S. 207, 228 (1980),

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

441 U.S. 434, 445 (1979). Petitioner nonetheless

seeks immunity from the Tennessee sales tax on the

stated ground that imposition of the tax will increase

the cost of American exports and thus impose an

“unwarranted” burden on those exports (Pet. 2, 8).

The same might be said of the state property taxes *

on the terminals that petitioner occupies and uses

in its business and of the federal * and state * income

taxes on taxable income that includes the rent paid to

petitioner by the lessees of its containers. But, as

this Court has observed on more than one occasion

* Cf. Kosydar v. National Cash Register Co., 417 U.S. 62

(1974); Joy Oil Co. v. State Tax Comm’n, 337 U.S. 286

(1949); Empresa Siderurgica v. County of Merced, 337

U.S. 154 (1949).

*See National Paper & Type Co. Vv. Bowers, 266 U.S. 373

(1924); Peck & Co. v. Lowe, 247 U.S. 165 (1918).

*See Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S.

425 (1980); United States Glue Co. v. Town of Oak Creek,

247 U.S. 321 (1918). Tenn. Code Ann. § 67-4-806 (1989 &

Supp. 1990) imposes an annual tax upon the net earnings of

corporations doing business in the State. “Net earnings” is

defined in Section 67-4-805 in terms of federal taxable income,

with adjustments. For corporations doing business within

and outside the State, Sections 67-4-809 and 67-4-811 provide

for apportionment, and an apportionment formula.

(Western Live Stock v. Bureau of Revenue, 303 U.S.

250, 254 (1938) )°:

It was not the purpose of the commerce clause

to relieve those engaged in interstate commerce

from their just share of state tax burden even

though it increases the cost of doing business.

“Even interstate business must pay its way”,

* * * and the bare fact that one is carrying

on interstate commerce does not relieve him from

many forms of state taxation which add to the

cost of his business.

The decisions of this Court demonstrate that the

same considerations apply to foreign commerce,’ al-

though special factors such as the inability of the

courts to prescribe apportionment where other nations

are involved may increase the risk of multiple taxa-

tion and thus affect the determination of the “just

share of state tax burden.” Japan Line, Ltd. v.

County of Los Angeles, 441 U.S. at 444-454. We be-

lieve it clear that petitioner’s terminals and an ap-

portioned share of petitioner’s taxable income from

the leases of its containers enjoy no exemption from

state taxation. We see no reason why petitioner’s

deliver’ of possession of its containers in Tennessee

under leases with the carriers who use them should

be immune from Tennessee’s generally applicable tax

on the sale or lease of tangible personal property.

* See, e.g., Commonwealth Edison Co. Vv. Montana, 453

U.S. 609, 616 (1981); Complete Auto Transit Vv. Brady, 430

U.S. 274, 288 (1977); Colonial Pipeline Co. Vv. Traigle, 421

U.S. 100, 108 (1975).

“See, e.g., Mobil Oil Corp. Vv. Commissioner of Tares,

supra; Washington Revenue Dep’t Vv. Stevedoring Ass'n, 435

U.S. 734 (1978) ; Canton R.R. v. Rogan, 340 U.S. 511 (1951).

This case is, in all of its fundamentals, a replica

of Wardair Canada Inc. vy. Florida Dep’t of Revenue,

477 U.S. 1 (1986), where the Court upheld the appli-

cation of Florida’s tax on the sale of fuel to common

carriers, as applied to “fuel used by foreign airlines

exclusively in foreign commerce” (id. at 4). As in

Wardair, the tax imposed by Tennessee is upon the

transfer, within the taxing State,’ of an article used

in the transportation of goods in foreign commerce.

As in Wardair (477 U.S. at 8), there can be no doubt

that the Tennessee tax satisfies the four-part test

set out in Complete Auto Transit, Inc. v. Brady, 430

U.S. 274, 279 (1977). And, as in Wardair, “there

is no threat of multiple international taxation in this

case, since the tax is imposed only upon * * * a

7 The suggestion (Br. 12) that the Tennessee tax might be

duplicated at the site of the execution of the lease— stipu-

lated to be in San Francisco (Pet. App. 30a)—is groundless

under the decisions of this Court in Standard Pressed Steel

Co. V. Washington Revenue Department, 419 U.S. 560 (1975),

and in Gwin, White & Prince, Inc. Vv. Henneford, 305 U.S.

434 (1939). Indeed, as the Court remarked in the latter

case (305 U.S. at 440), the tax is “apportioned exactly to

the activities taxed.” Cf. Goldberg v. Sweet, 488 U.S. 252

(1989).

Petitioner suggests (Pet. 12) that foreign nations (un-

restrained by due process or commerce clauses) might du-

plicate the tax. But if that possibility is to govern decision,

the result would be a complete immunity from all domestic

taxation awarded to all participants in foreign commerce.

No decision of this Court has been based upon such reason-

ing. Moreover, we have been advised by the Department of

State that no foreign government has protested, or threat-

ened retaliation against, application of Tennessee’s sales tax

to transactions involving containers used exclusively in inter-

national commerce. Petitioner’s speculation that duplicative,

retaliatory taxes could be imposed thus lacks any support.

discrete transaction which occurs within one national

jurisdiction only” (477 U.S. at 9).

The Court in Wardair held specifically that nothing

in Japan Line, Ltd. v. County of Los Angeles, 441

U.S. 434 (1979)—on which petitioner principally

relies (Pet. 9-16)—served to invalidate the State’s

tax on the sale of aircraft fuel to foreign airlines.

See 477 U.S. at 13. For the same reasons identified

by this Court in Wardair, Japan Line also has no

bearing on the present case. In particular, in con-

trast to the present case, which involves a sales tax

on a transfer occurring within a single State, Japan

Line involved an annual property tax on equipment

having no fixed location. As the Court held in Japan

Line, when that occurs within our borders, no juris-

diction may tax the instrumentality in full; appor-

tionment is the rule. 441 U.S. at 447. See also

Braniff Atrways, Inc. v. Nebraska State Board, 347

U.S. 590 (1954); Standard Oil Co. v. Peck, 342 U.S.

382 (1952); Union Refrigerator Transit Co. v. Ken-

tucky, 199 U.S. 194 (1905). But apportionment can-

not be assured when foreign nations are involved. In

Japan Line, the containers were owned, based, and

fully taxed in Japan. 441 U.S. at 451-452. It was

under those circumstances that Los Angeles County

was required to yield to avoid multiple taxation—the

decision acknowledged a prior right to tax by Japan.

But nothing in Japan Line suggests that if contain-

ers were owned and based in the United States, the

State (or States, on an apportioned basis) that sought

to impose a property tax would be required to yield

to some other country that sought to tax on the basis

of temporary presence. For the same reasons that

foreign nations possess a prior right to tax foreign-

owned instrumentalities of foreign commerce, so too

does this Nation and its States possess the right

to tax the domestically owned instrumentalities of

commerce.

b. Petitioner contends (Pet. 17-23) that a national

rule proscribing state taxation of containers has been

established under the 1972 Customs Convention on

Containers, S. Exec. Doc. X, 93d Cong., 1st Sess.

(1973), 988 U.N.T.S. 43 (Pet. App. 38a-41a), ad-

hered to by the United States in 1985, and its pred-

ecessor, the 1956 Customs Convention on Containers,

20 U.S.T. 301, T.LA.S. No. 6634, 338 U.N.T.S. 103

(Pet. App. 4l1a-43a), adhered to by the United States

in 1969 (Pet. App. 13a-23a). As both the title of the

Conventions and their definition of “import duties

and taxes” (id. at 39a, 4la) indicate, however, the

Conventions relate only to customs duties on contain-

ers, and provide for temporary admission duty-free.

The States, of course, do not, and can not, impose

customs duties, either on the containers or on the

goods they may contain. There is no reason why a

convention on the subject of customs duties should be

thought to relate to generally applicable sales taxes—

a now almost universal form of domestic taxation by

the States. As discussed above, domestically owned

containers are properly the subject of domestic taxa-

tion, and nothing in the Customs Convention on Con-

tainers alters or vitiates that principle.

2. Petitioner invokes not only the Commerce

Clause, but also the Import-Export Clause (Art. I,

§ 10, Cl. 2) of the Constitution, and asserts that

the decision below conflicts with Richfield Oil Corp.

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

and with Louisiana Land & Exploration Co. v. Pilot

Petroleum Corp., 900 F.2d 816 (5th Cir.), cert. de-

nied, 111 S. Ct. 248 (1990) (Pet. 9, 23-27). There is

no conflict and no violation of the Import-Export

clause.

In both the Richfield and the Louisiana Land cases,

a seller of oil delivered, as agreed, a large quantity

of oil f.o.b. into a waiting tanker—in Richfield, a

tanker in the Los Angeles harbor owned by the New

Zealand Navy and destined for Auckland, New Zea-

land; in Louisiana Land, a tanker situated in the

Mobile, Alabama, harbor and destined for Halifax,

Nova Scotia. This Court in Richfield and the Fifth

Circuit in Louisiana Land held that the Import-Ex-

port Clause barred the local government from col-

lecting its generally applicable tax on those export

sales of oil.

It is instructive to compare those two cases with

Joy Oil Co. v. State Tax Comm’n, 337 U.S. 286

(1949), and Empresa Siderurgica v. County of Mer-

ced, 337 U.S. 154 (1949), where, in each case, a

foreign purchaser purchased in this country prop-

erty for export to its country—in Joy Oil, 1,500,000

gallons of gasoline purchased at a Grand Rapids re-

finery for export to Canada; in County of Merced, a

cement plant in Merced County, California, to be

disassembled, packaged, and shipped to South Amer-

ica. In each case, tax day for the assessment of local

property taxes arrived after much of the purchased

property had started its journey but was being held

temporarily before crossing the water’s edge. In

each case, this Court upheld application of the local

property tax to that part of the property within the

geographic limits of this country.

It has been suggested * that this Court’s decision

in Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976),

abandoning the “original package” doctrine with re-

spect to imports in favor of enforcement of generally

applicable state and local taxes, should lead the Court

* See, e.g., L. Tribe, American Constitutional Law 472-473

(2d ed. 1988).

to abandon the perhaps analogous line—sometimes

styled the “final journey” line—drawn in the cases

relating to exportation. If the “final journey” test

were applied in this case, it would be clear that the

transfer of possession of empty containers in inland

Tennessee did not mark the beginning of the final

journey of loaded containers on ships in international

trade. It is not, however, necessary to deal with

that question in this case.

This case involves no exports. The American-owned

truck or railroad car that carries goods from points

in this country to consignees in Canada or Mexico

carries exports, but is not itself an export. The same

is true of American-owned ships or airplanes carry-

ing goods to more remote consignees. The goods will

be left at their foreign destinations while the car-

rier, not itself an export, returns for further voyages.

The same is true, of course, of the containers that

petitioner leases for the carriage of goods out of

United States—containers that will be returned to

petitioner for further leases and further voyages. The

goods are exports, but the containers are not.

This difference was recognized by this Court in

Canton R.R. v. Rogan, 340 U.S. 511 (1951). The

railroad in that case operated solely within Baltimore,

moving freight between its marine terminal at the

port of Baltimore and connecting railroads. It

claimed, invoking the Richfield case, that some $700,-

000 of its gross receipts of $1,588,744 were exempt

from Maryiand’s tax on the gross receipts of steam

railroads on the ground that that figure represented

the proceeds of handling imports and exports. This

Court rejected that claim, stating (id. at 513-514):

If this were a tax on the articles of import and

export, we would have the kind of problem pre-

sented in * * * Richfield Oil Corp. v. State Board

** * and Joy Oil Co. v. State Tax Comm'n * * *.

But the present tax is not on the articles of im-

port and export[.] * * * The difference is that in

the present case the tax is not on the goods but

on the handling of them at the port.

As the Court concluded (id. at 515), “if the handling

of the goods at the port were part of the export proc-

ess so would hauling them to or from distant points

or perhaps mining them or manufacturing them.”

The Tennessee Supreme Court was thus correct in

concluding (Pet. App. 18a) that application to cargo

containers of a generally applicable tax on the sale

or leasing of tangible personal property is not a tax

on exports simply because the leased containers may

be used in handling goods that are to be exported.

CONCLUSION

The petition for a writ of certiorari should be

denied.

tespectfully submitted.