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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1993
- **Citation:** 507 U.S. 60

## Text

| M@preme Court, U.S. ix.
FILED

se Cy) JUN 25 1992
[8 CTS. SME Beal CLERK

In the Supreme Court of the United States

OCTOBER TERM, 1991

ITEL CONTAINERS INTERNATIONAL CORPORATION,
PETITIONER

VU.

JOE HUDDLESTON, COMMISSIONER OF REVENUE OF
TENNESSEE

ON WRIT OF CERTIORARI TO THE
SUPREME COURT OF TENNESSEE

BRIEF FOR THE UNITED STATES AS AMICUS
CURIAE SUPPORTING RESPONDENT

KENNETH W. STARR
Solicitor General

JAMES A. BRUTON
Acting 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. $§ 67-6-101 et seg. (1989 & Supp. 1991)) imposes
a tax, at the rate of 5.5% of the transaction amount,
upon the sale of “tangible personal property at retail in
this state” (Tenn. Code Ann. § 67-6-201 (1989)). The
statute defines a “sale” as “any transfer of title or pos-
session, or both, exchange, barter, lease or rental * ~*~ *
of tangible personal property for a consideration” (id.
§$ 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 preempted
by the Customs Convention on Containers, May 18, 1956,
20 U.S.T. 301, T.ILA.S. No. 6634, 338 U.N.T.S. 103,
acceded to by the United States effective March 3, 1969,
or the Customs Convention on Containers, Dec. 2, 1972,
S. Exec. Doe. X, 98d Cong., Ist Sess. (1973), 98 U.N.T.S.
43, acceded to by the United States effective May 12, 1985.

(1)

TABLE OF CONTENTS

Page
Interest of the United States 2.000. 1
os ksneccscenecsccoveverees 1
Neen epeuenensoenes 5
Argument:
I. The Customs Conventions on Containers do not
proscribe a tax on the lease of containers .... ..... 7
1. The Customs Conventions on Containers are
inapplicable to the domestic taxation of
domestically owned containers _...................... 8
2. The Customs Conventions do not proscribe
application of general sales taxes to the
Ne cecnsscccsencses 11
3. The “objective” of the Customs Conventions
does not forestall application of the Tennes-
Ne esasmunconacocces 18
II. The Commerce Clause does not prohibit state
taxation of container leases ............ Ue 21
III. The Import-Export Clause does not prohibit
state taxation of container leases .....0000.00... 26
Conclusion ................... a SL 28
TABLE OF AUTHORITIES
Cases:
Air France Vv. Saks, 470 U.S. 392 (1985)... 11
Brown Vv. Maryland, 25 U.S. (12 Wheat.) 419
a cnneddasvanseucceccevenes 12-13
Canton R.R. v. Rogan, 340 U.S. 511 (1951) ........ 6-7, 25,
27, 28
Commonwealth Edison Co. v. Montana, 453 U.S.
609 (1981) SEE 21
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
Tee ee emeapessecerecees 4
D.H. Holmes Co. V. McNamara, 486 U.S. 24
EE 22, 25

IV
Cases—Continued :

Empresa Siderurgica v. County of Merced, 337
Ss
Hays Vv. Pacific Mail S.S. Co., 58 U.S. (17 How. )
i
Hinson V. Lott, 75 U.S. 148 (1869) 2.000000.
Japan Line, Ltd. v. County of Los Angeles, 441

ee 4, 6, 9, 19, 20, 23,

Joy Oil Co. v. State Tax Comm’n, 337 U.S. 286
SD sich iaictan nas
Kraft General Foods, Inc. v. lowa Dep’t of Reve-
nue and Finance, No. 90-1918 (June 18, 1992)...
Louisiana Land & Exploration Co. Vv. Pilot Petro-
leum Corp., 900 F.2d 816 (5th Cir.), cert. denied,

ER REE rons Seo ee
Maximov V. United States, 373 U.S. 49 (1963)......9,
McGoldrick v. Berwind-White Coal Mining Co., 309

EES RARE En Toe
McGoldrick v. Gulf Oil Corp., 309 U.S. 414

ER ane ER SPs ars Ae, Se el? (OW eR cach ne I
Michelin Tire Corp. Vv. Wages, 423 U.S. 276

(1976) ..... LEGA yO Se ER RETRO OE 11, 18, 21,
Mobil Oil Corp. v. Commissioner of Taxes, 445

I celeb alas
Morgan v. Parham, 83 U.S. (16 Wall.) 471

AT SRI ge Co Te Se OT ee
R.J. Reynolds Tobacco Co. v. Durham County, 479

ETT i a ea OSS LORE POORER
Richfield Oil Corp. v. State Board of Equalization,

RES SSE EE eae cr
Southern Pacific Co. v. Kentucky, 222 U.S. 63

EA eee ce eRe ae met ee a ET Ba ee eee
Trinova Corp. V. Michigan Dep’t Treasury, 111

STIS Fr onto ne ys ne
Wardair Canada Inc. V. Florida Dep’t of Revenue,

I

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

Se TE QUE -eesiciniiieresisenssinnioncsiniens 12, 21, 24,

Xerox Corp. Vv. County of Harris, 459 U.S. 145
I iaiincatean aca aa eae

24, 25
26
13
26
11,19
22
19

23, 26

20, 27

25, 27

Vv

Constitution, treaties, and statutes: Page
U.S. Const. :
Art. 1:

§ 8, Cl. 3 (Commerce Clause) .............. 4, 13, 24, 25

§ 10, Cl. 2 (Import-Export Clause) ........ 5, 6, 7, 11,

13, 26, 27

Customs Convention on Containers, May 18, 1956,
20 U.S.T. 301, T.I.A.S. No. 6634, 338 U.N.T.S.

ree rane, wantea en MeRe ae tere eeet aD A ae LRT 8
TERT A eRe eae eco ae 13
Us a RC 13
Proclamation, 20 U.S.T. 388 ............................... 8

Customs Convention on Containers, Dec. 2, 1972,
S. Exec. Doc. X, 93d Cong., Ist Sess. (1973),

EERE ek Re, Se ne ee ee ie 9
Se: a 13
Shc ie 13

Convention For the Avoidance of Double Taxation,
Mar. 8, 1971 United States-Japan, 23 U.S.T. 967,
Te i 5

Para. 1 (a), 23 U.S.T. 1084-1085 0... 5

Convention for the Avoidance of Double Taxation,

Dec. 3, 1971, United States-Kingdom of Norway,

Exchange of Notes, para. 1, 23 U.S.T. 2832,

Se a ee 9
Convention for the Avoidance of Double Taxation,

Apr. 13, 1976, United States-United Kingdom-

Northern Ireland, Exchange of Notes, para. 4,

31 U.S.T. 5668, T.I.A.S. No. 9682 ............. ka ee 9
Convention for the Avoidance of Double Taxation,

Aug. 8, 1986, United States-Netherlands Antilles,

Art. 8, para. 3, 2 CCH Tax Treaties 37,011-

I ea 9
EC Sixth Directive (CCH Common Mkt. Rep.

3507 (1977) ):

) | | a sasvidies isniaiiaiclbsaciacetladatiioeahin eaeanicabvaed 14
I Seciiceinle ease diaesiatla nina ina Sinidiopkiddbicdaldeckiainces 14, 16
Art. 11B(3) (b) iecdarmbieasiiapiaeiserasiticeanass
Art. 14 ....... jenna diva dep tiesivialieaiincdatiibanangiineiaesiapeiibaiians 16
PU scnthcrininahvssouesicbittininiateteastaiaditiaesinaions 15, 16

Customs Simplification Act of 1953, ch. 397, § 14,
ee TINIE aenieiciseciceininnienaaisetidanalaesiianaiahctatiiciaie 8

VI
Statutes and regulations—Continued : Page

I dl 2, 5, 8, 9, 10, 11, 20, 21
Tennessee Retailers’ Sales Tax Act, Tenn. Code
Ann. §§ 67-6-101 et seq. (1989 & Supp. 1991) :

GERD cosenersscosscessonneninsniettanmensamennase 12
ince cibeienhleibadnninaneianbiltannieiion 22
SN I iss icaiteicinhibinpisiiiaiaccmsesideaitinanienmannitetinntetinti 13
SEED ciinsisntimnsorccnenesiiastnitencannatitnneuneinatnnancnnione 13

UK Value Added Tax Act of 1983 (48 Halsbury’s
Statutes of England and Wales 598 (4th ed.

1988) ):
(| MESES SERIA, SER ae snr Ca Pe 16
a cl eelaantebanatellin 16
I alee ceeeinentiaids 15, 16
ET! | ATEN i 16
19 C.F.R.:
Section 10.7 (a) .......... St a ee SENET eee 10
ETE PR ren ct ne ee comes 10
I caibeglianasinniaen 10
I ceileaenaceadl 8,10
RY IND GD cc ccecsesencccnsnnsssnnmons 2, 8,11, 20
EET SETI EANT AE EM SARE TOT 2
A ATE ear REARS 2
ELE LS a ce enero awe Tse 2
Section 113.66 ................ i a cea a 2,10
Miscellaneous:
Harmonized Tariff Schedule of the United States

ETE eee ee 18
J. Due, Sales Tawation (1967) .................................... 17
T.D. 55,078, 25 Fed. Reg. 2530 (1960) _........ 8
L. Tribe, American Constitutional Law (2d ed.

IEE as ie Seer Rerneeeers Pree moore rere 26
S. Exec. Doc. X, 93d Cong., Ist Sess. (1973) ........... 9
Tariff Schedules of the United States Annotated:

ses 18
SEER Sy ACO A ae 18

Treasury Department Report To The President:
Tax Reform For Fairness, Simplicity, And
Economic Growth, Vol. 3, Value Added Tax 8
STIITTIEED ‘sisctusiiccionssticthhnimetpeeiisd aacseiieeiediaiihaeindieiainicciiiiedtinihidinte 14,17

Iu the Supreme Court of the United States

OCTOBER TERM, 1991

No. 91-321

ITEL CONTAINERS INTERNATIONAL CORPORATION,
PETITIONER

v.

JOE HUDDLESTON, COMMISSIONER OF REVENUE OF
TEN NESSEE

ON WRIT OF CERTIORARI TO THE
SUPREME COURT OF TENNESSEF

BRIEF FOR THE UNITED STATES AS AMICUS
CURIAE SUPPORTING RESPONDENT

INTEREST OF THE UNITED STATES

The United States is implicated directly in the questions
presented in this case through petitioner’s invocation of
the Customs Conventions on Containers, to which the
United States is a party. The United States also has an
interest in matters before this Court involving foreign
commerce that implicate the Import-Export Clause and
the Commerce Clause of the Constitution. At the Court’s
invitation, the United States filed a brief amicus curiae
at the petition stage of this case.

STATEMENT

1. Petitioner is a Delaware corporation with its prin-
cipal place of business in San Francisco, California. It

(1)

2

is engaged in the business of leasing cargo containers '
for international use. Petitioner purchases these contain-
ers abroad, where they were manufactured. Pursuant to
19 U.S.C. 1322(a) and regulations thereunder (19 C.F.R.
10.4la(ai(1), (ce), (d), and (g), 113.66), the containers
enter 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 diversion or with-
drawal of the containers from international commerce.
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 leases are on a
per diem basis and restrict the use of containers to inter-
national commerce. Subject to that restriction, the lessee
determines the route of travel and, to some extent, the
period of use. Pet. App. 2a, 30a-31la, 34a.

Petitioner’s containers are ordinarily leased at depots
in Europe or the United States on an as-available basis
under the standardized terms of a Master Interchange
agreement. The written lease is normally executed after
the container is delivered to the lessee. In some instances,
petitioner permits shippers to pick up and load contain-
ers and transport them to a steamship line at an inter-
national port. In these situations, the steamship line then

1The Statement of Stipulated Facts filed by the parties in the
Chancery Court describes these containers as follows (Pet. App.
28a) (numbering of sentences omitied): “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 rolling stock while transported overland in international
commerce. Because these containers are designed to be used in a
variety of transportation modes, they are uniquely suited for use in
international commerce.”

3

enters into the lease agreement directly with petitioner.
Pet. App. 32a-34a.

Prior to July 1, 1985, petitioner had no employees or
terminals located in Tennessee. Instead, petitioner made
arrangements for its containers to be delivered and picked
up in that State at depots operated by other persons.
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 re-
ceive, store, deliver, and, in some circumstances, repair
containers.’ Petitioner continued to allow customers to
interchange containers at other depots in Tennessee, al-
though it had no employees at those points. Pet. App.
2a, 3la.

2. Petitioner was audited by the Tennessee Department
of Revenue for the period of January 1983 through No-
vember 1986. In December 1986, the Department issued
an assessment determining that petitioner owed additional
sales tax for the audit period. Petitioner paid the addi-
tional tax, penalty, and interest (in the amount of
$382,465) and then filed a request for refund. After the
refund was denied, petitioner brought this suit in state
court. Pet. App. 19a, 24a, 34a-36a.

Upon consideration of the 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 applies only to transactions in which possession
of the containers is transferred to lessees in Tennessee
and does not apply when lessees take possession outside
of the State ‘id. at 20a-2la). The court therefore con-
cluded that the state tax does not apply when the shipper

* Petitioner “collects and remits sales and use tax on fees which
it collects for repair services rendered in Tennessee” (Pet. App.
2a-3a). The State’s sales tax on repair services for containers was
not challenged in this case (see id. at 3a). Nor does it appear that
petitioner has challenged application of either federal or siate in-
come taxes that apply to the income petitioner receives from repair-
ing or leasing containers.

4

loads the container and delivers it to the lessee outside
of Tennessee at the port of exit (ibid.). Based upon that
ruling, the court reduced the assessment of tax, penalty,
and interest to $158,012 (id. at 24a-25a).

With respect to situations where transfer of possession
to the lessee takes place in Tennessee, the court held that
application of the State’s sales tax is not unconstitu-
tional (Pet. App. 21a). The court observed (ibid.) that,
under the criteria of Complete Auto Transit, Ine. V.
Brady, 430 U.S. 274 (1977), businesses are not relieved
of their just share of the State’s tax burden simply be-
cause they are engaged in interstate commerce. The
court concluded that the Commerce Clause does not re-
quire a different result in this case merely because the
containers are used for international, rather than inter-
state, shipments (Pet. App. 2la-22a).

3. The State accepted the decision of the trial court
and did not appeal. On petitioner’s appeal, the Supreme
Court of Tennessee affirmed the judgment of the trial
court (Pet. App. la-18a). The court rejected petitioner’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 is
a domestic corporation, not a foreign corporation sub-
ject to tax in its own nation: and (ii) the tax involved
in this case applies to a transaction that occurs within
one nation only, so that the Tennessee statute does not
impose multiple taxes on a single international transac-
tion (Pet. App. 12a-l4a). Because the state tax other-
wise satisfies the tests established by Coinplete Auto, the
court concluded that its imposition does not violate the
Commerce Clause (Pet. App. 12a-16a).

The Tennessee Supreme Court also rejected petition-
er’s reliance on the Customs Convention on Containers.
The court noted that the Convention exempts containers
only from customs duties and other taxes imposed by rea-
son of importation, and “Tennessee’s sales tax is not a
federal customs duty” (Pet. App. 13a). The Court

a

5

pointed out that bilateral tax treaties exempt only the
“income derived by a resident of a contracting state
* * * from the use, maintenance and lease of containers
{used in international traffic] * * * from tax in the other
contracting state” (Pet. App. 7a (quoting Convention
for the Avoidance Of Double Taxation, Mar. 8, 1971,
United States-Japan, 23 U.S.T. 967, 1084-1085, T.I.A.S.
No. 7365)). Those treaty provisions manifest an under-
standing that income derived by domestic corporations
from the “lease” of containers is not exempt from do-
mestic taxation (Pet. App. 7a).

Finally, the court observed that the state tax is im-
posed on the proceeds of leases of shipping containers
and “not {on| the value of the goods themselves” (Pet.
App. 18a). The court therefore concluded that the state
tax is not subject to challenge under the Import-Export
Clause of the Constitution (Pet. App. 16a-18a).

SUMMARY OF ARGUMENT

I

The containers involved in this case are owned and
leased by a corporation that is organized within, and a
resident of, the United States. The Customs Conventions
on Containers do not govern the domestic taxation of
these domestically owned containers. Instead, petitioner’s
containers enter the United States under the provisions
of 19 U.S.C. 1322(a), which protects them from the ex-
action of federal customs duties. The Tennessee Supreme
Court correctly held (Pet. App. 13a) that the State’s
general sales tax is not a customs duty. Neither the
statute nor the Conventions thus proscribe the State’s tax.

Even if the Customs Conventions did apply to peti-
tioner’s containers, the Conventions do not restrict im-
position of general sales taxes on container leases. Such
taxes are not duties or taxes “chargeable by reason of
importation” (Pet. App. 41a). They are therefore not
within the scope of the Ccnventions’ prohibitions. This

6

conclusion is manifest from the language and context of
the Conventions. It is also evidenced by the practice of

many Nations.
II

The Commerce Clause does not proscribe application
of the State’s general sales tax to container leases. There
is no uniform international custom or practice of exempt-
ing container leases from the effect of generally applica-
ble tax laws. To the contrary, the value of container
leases is commonly subjected to income taxation, as well
as value added taxation, among the Nations that are sig-
natories to the Customs Convention. The State’s tax thus
does not interfere with an accepted international practice
in a manner that impedes our Nation’s ability to speak
with one voice on matters concerning foreign commerce.

In Japan Line, Ltd. v. County of Los Angeles, 441
U.S. 434 (1979), the California property tax on foreign-
owned containers conflicted with the internationally ac-
cented “home port” rule governing property taxation of
instruments of international traffic. By contrast, the
Tennessee sales tax on leases of domestically owned con-
tainers is both consistent with the “home port” rule and
not inconsistent with any other international practice.
Any potential multiple taxation that may result when
other Nations impose similar sales or use or VAT taxes
on these same transactions—but do not follow our do-
mestic practice of providing a credit for the prior tax
paid—cannot make the Tennessee tax unconstitutional.
in this context, the neutral Tennessee tax cannot be said
to be responsible for the potential multiple tax that
could result from differing, rather than consistent, inter-
national practices. The States are not required by the
Commerce Clause to serve as the equilibrator of all world-
wide tax burdens.

Ill

The Tennessee sales tax is not prohibited by the
Import-Export Clause. A tax on container leases “is not
on the goods but on the handling of them” (Canton R.R.

7

v. Rogan, 340 U.S. 511, 514 (1951) ). The Import-Export
Clause prohibits the States from imposing customs duties
on goods; it does not apply to generally applicable taxes
imposed on “hauling them to or from distant points”
(id. at 515).

ARGUMENT

I. THE CUSTOMS CONVENTIONS ON CONTAINERS
DO NOT PROSCRIBE A TAX ON THE LEASE OF
CONTAINERS

The Customs Conventions on Containers provide for
the “temporary admission” of containers “free of import
duties and taxes and free of import prohibitions and
restrictions” (Pet. App. 39a, 42a). The phrase “import
duties and taxes” is defined by the 1972 Convention to
mean customs duties and taxes “collected on, or in con-
nexion with, the importation of goods” (id. at 39a) and
by the 1956 Convention to mean “all duties and taxes
whatsoever chargeable by reason of importation” (id.
at 4la).

The Tennessee Supreme Court correctly concluded that
the Conventions do not proscribe application of the State’s
general sales tax to the lease of containers. This conclu-
sion is supported not only by the plain and limited lan-
guage of the Conventions, but also by the practice of the
signatery parties. As we discuss at pp. 11-17, infra,
contrary to petitioner’s submission, the practice of many
signatory Nations is to apply their general tax provisions
to the vaiue of the lease of containers used in interna-
tional traffic. As we discuss first, however, the Conven-
tions do not apply at all to the domestic taxation of
domestically owned containers, and petitioner’s invocation
of the Conventions to proscribe taxation by governmental
units in its own Nation is thus entirely misplaced.

8

1. The Customs Conventions On Containers Are In-
applicable To The Domestic Taxation of Domesti-
cally Owned Containers

Petitioner misunderstands the genesis and scope of 19
U.S.C. 1822(a) and the manner in which that statute
interrelates with the Customs Conventions on Containers.
Petitioner erroneously states that, “|a]fter its ratifica-
tion, the 1956 Convention was implemented in the United
States by Treasury Department regulations designating
containers ‘instruments of international traffic’ (19 C.F.R.
10.41a(a)(1)) and by a statute excepting such instru-
ments from application of the Customs laws. 19 U.S.C.
1322(a)” (Pet. Br. 18). Petitioner’s chronology, and its
understanding of the scope of these provisions, are flawed.

The 1956 Customs Convention on Containers was not
acceded to by the United States until 1969. See 20
U.S.T. 333 (1969). 19 U.S.C. 1322(a) was adopted
years prior to, and independently of, the Convention.
The statute was enacted in 1953 to allow citizens of
all Nations (including United States citizens) to ob-
tain temporary admission of “instruments of interna-
tional traffic’ (ibid.) free “from the application of the
customs laws” of this country (ibid.).° It authorizes the
Secretary of the Treasury to adopt regulations designat-
ing the “instruments of international traffic’ for which
temporary admission is allowed. /bid. Pursuant to this
authority, the Secretary adopted 19 C.F.R. 10.4la(a) (1)
in 1960, designating various types of “cargo vans” as
“instruments of international traffic’ subject to tempo-
rary admission without “payment of [customs] duty”
(ibid.). It is pursuant to this statute and regulations—
not pursuant to the Customs Conventions on Containers
—that petitioner’s foreign-manufactured containers have

319 U.S.C. 1322(a) was enacted as Section 14 of the Customs
Simplification Act of 1953, ch. 397, 67 Stat. 516. Reciting develop-
ments in containerization practices in the shipment of merchandise,
19 C.F.R. 10.4la was adopted by T.D. 55,078, 25 Fed. Reg. 253
(1960).

9

been “temporarily” admitted duty-free into the United
States.

The Customs Conventions are designed to secure for
domestically owned containers abroad the same tempo-
rary, duty-free admission that the United States provides
for “instruments of international traffic’ under 19 U.S.C.
1322(a).* As is customary with international agree-
ments, however, the Conventions do not purport to dictate
to each Nation how it will treat its own citizens. See
Maximov v. United States, 373 U.S. 49, 52-56 (1963).
Thus, while the Conventions generally provide that “each
Contracting Party shall grant temporary admission to
containers” (Pet. App. 40a; see id. at 42a)), they fur-
ther provide that (id. at 40a; see id. at 42a):

Each Contracting Party reserves the right not to
grant temporary admission to containers which have
been the subject of purchase, hire-purchase, lease or
a contract of a similar nature, concluded by a per-
son resident or established in its territory.

* The 1972 Convention seeks to “insure United States-owned con-
tainers the same treatment in the territories of States parties to
this Convention as that afforded in the United States to foreign-
owned containers.” S. Exec. Doc. X, 93d Cong., Ist Sess. iii (1973).

5In Japan Line, Ltd. v. County of Los Angeles, 441 U.S. at 446
n.10, this Court noted that, in a bilateral tax convention between
Japan and the United States, it was agreed that income derived by
a resident of a Contracting State from the use and lease of con-
tainers and related equipment is exempt from tax in the other
Contracting State. Similar agreements are set forth in, or in con-
nection with, conventions for the avoidance of double taxation with
the Netherlands Antilles (Art. 8, para. 3, 2 CCH Tax Treaties at
37,011-37,012), with Norway (Dec. 3, 1971, United States-Kingdom
of Norway, Exchange of Notes, para. 1, 23 U.S.T. 2832, T.I.A.S. No.
7474), and with the United Kingdom (Apr. 13, 1976, United States-
United Kingdom-Northern Ireland, Exchange of Notes, para. 4, 31
U.S.T. 5668, T.I.A.S. No. 9682). Neither the Customs Conventions
on Containers, nor the conventions for avoidance of double taxation,
impose an obligation upon a contracting party to refrain from
imposing taxes with respect to its own residents. See Maximov V.
United States, 373 U.S. at 52-56.

10

Since petitioner is “established” within, and a “resident”
of, the territory of the United States, the status of its
containers within the United States is determined inde-
pendently of the Customs Conventions—under 19 U.S.C.
1322(a). The Conventions impose no obligation upon the
United States, or on any State of the United States, with
respect to domestically owned containers. See also note 5,
supra.

This express limitation on the scope of the Customs
Conventions is reflected in other regulatory provisions.
If petitioner had purchased containers of domestic manu-
facture, there would have been, of course, no restriction
on their use in domestic commerce. Pursuant to 19
C.F.R. 10.7(a), their movements in and out of the coun-
try would have been governed by “the general regulations
governing the free entry of domestic products exported
and returned” (ibid.). Having purchased containers “of
foreign production,” if petitioner had “imported |them|
duty paid,” they would thereafter be available for domes-
tic commerce and would also be exempt from duty for
exit and re-entry upon compliance with the formalities
set forth in 19 C.F.R. 10.7(b) through (f)/

As permitted by 19 U.S.C. 1322(a) and 19 C.F.R.
10.41a, however, petitioner chose to avoid paying duty on
its containers of foreign origin by applying for release of
those containers and filing the bond conditioned upon
devoting the containers solely to international traffic pur-
suant to 19 C.F.R. 113.66. It is these statutory and regu-
latory provisions, not the Customs Conventions on Con-
tainers, that govern the treatment of domestically owned
containers by the United States.

The command of Congress in 19 U.S.C. 1322(a) is
quite specific and limited. It is to except designated
instruments of international traffic

from the application of the customs laws to such
extent and subject to such terms and conditions as
may be prescribed in regulations or instructions of
the Secretary.

11

Ibid. In designating containers as instruments of inter-
national traffic, the Secretary provided only that they
may be temporarily admitted without “the payment of
[customs} duty” (19 C.F.R. 10.4la(a)‘1)). No other
state or federal taxes are proscribed by the Secretary’s
regulations or by 19 U.S.C. 1322(a).

The Tennessee Supreme Court correctly observed that
the State’s general “sales tax is not a federal customs
duty” (Pet. App. 13a). See Michelin Tire Corp. v.
Wages, 423 U.S. 276, 290-294 (1976). If it were a cus-
toms duty, it would violate the Import-Export Clause of
the Constitution (see ibid.), as well as 19 U.S.C. 1322(a).
Not being a customs duty, however, the state tax violates
neither.*®

2. The Customs Conventions Do Not Proscribe Appli-
cation Of General Sales Taxes To The Leasing Of
Containers

Failing to recognize that the Customs Conventions do
not apply to the taxation of domestically owned contain-
ers, petitioner asserts ‘Pet. Br. 12-21) that the Conven-
tions should be interpreted to proscribe application of
general sales taxes to the leasing of containers. That
contention is also incorrect.

a. To determine the scope of the Conventions, it is,
of course, appropriate first to look to their language. See
Air France Vv. Saks, 470 U.S. 392, 397 (1985); Maximov
v. United States, 373 U.S. at 52. The limitations of the
Conventions’ undertakings are expressed in plain and
simple terms. When applicable, the Conventions pro-
seribe assessment of customs duties and all other taxes

6 Petitioner appears to acknowledge that “19 U.S.C. 1222(a) ex-
cepts instrumentalities of foreign commerce only from the Customs
laws” (Pet. Br. 26 n.19). Petitioner’s reliance on the notion that a
statute preempting customs “duties” also preempts general state
sales taxes (ibid.) is discussed at pages 17-21, infra. We note here
only the significant overbreadth of such a contention, for many
goods are admitted duty-free and are unquestionably not thereby
made immune from general sales tax.

12

“collected on, or in connexion with, the importation of
goods” (Pet. App. 39a) or “chargeable by reason of
importation” (Pet. App. 4la). Petitioner contends (Pet.
Br. 12-13) that a state sales tax on container leases is
“chargeable by reason of importation” because the con-
tainer is present, and available for lease, in the United
States due to its importation. That contention is funda-
mentally misconceived.

It is not the presence of the container, but the duty or
tax that must be “chargeable by reason of importation.”
The State’s general sales tax on container leases is indif-
ferent as to whether the containers are in Tennessee “by
reason of importation” or otherwise. The tax is imposed
upon the proceeds of “any transfer of title or possession,
or both, exchange, barter, lease or rental * * * of tangible
personal property for a consideration.” Tenn. Code Ann.
§ 67-6-102(23) (A) (1989). Whether the property sub-
ject to the State’s tax is of domestic or foreign origin has
no bearing on imposition of the tax. See ibid.; Washing-
ton Revenue Dep’t v. Stevedoring Ass’n, 435 U.S. 734
(1978) (upholding application of the State’s gross re-
ceipts tax to the loading and unloading of cargo ships
engaged in foreign and domestic commerce) ; Hinson V.
Lott, 75 U.S. 148, 153 (1869).

The proscription in the Conventions of duties and other
taxes “chargeable by reason of importation” is designed
to capture customs or importation charges travelling
under any name, but “chargeable by reason of importa-
tion.” What is known as a “customs duty” in English
may be described by some entirely different name or con-
cept in the usage of other Nations: the Convention thus
identifies its subject as “not only Customs duties but also
all duties and taxes whatsover chargeable by reason of
importation” (Pet. App. 4la).’ By thus broadly identify-

7 Another example of a tax “chargeable by reason of importation”
that departs from the ordinary mold of a “customs duty” was con-
sidered by this Court in Brown v. Maryland, 25 U.S. (12 Wheat.)
419 (1827). That case concerned a state license tax that applied only

13

ing the particular subject of the Conventions, the lan-
guage does not alter the subject of the Conventions.’

b. Petitioner states (Pet. Br. 12) that, so far as it has
been able to determine, no signatory of the Conventions
nor any political subdivision of any signatory (other than
Tennessee) has imposed a sales tax, or other similar tax,
on the lease of containers. That petitioner found its
inquiry to be fruitless does not establish that there are
no fruits.

Petitioner’s claim that container leases are not subject
to tax in other jurisdictions is incorrect. The-income that
petitioner derives from the lease or sale of its containers
is subject to the federal income tax (26 U.S.C. 11, 61)
and to state income taxes (see Mobil Oil Corp. v. Com-
missioner of Taxes, 445 U.S. 425, 448 (1980) (“{c]on-
current federal and state taxation of income, of course,
is a well-established norm’). The income derived by
foreign owners of containers is also subject to tax abroad.

“to persons selling “foreign articles or commodities.” Jd. at 436.

The state tax did not also apply to persons selling domestic articles.
The Court thus concluded that the tax was imposed solely by reason
of importation and was proscribed by the Import-Export Clause. Jd.
at 439-443. See Michelin Tire Corp. v. Wages, 423 U.S. at 294-298.
The general sales tax applied by Tennessee does not differ in its
treatment of domestic and foreign goods. It thus cannot be said to
be “chargeable by reason of” or “in connection with” importation.
The present case is similar, in this regard, to Hinson v. Lott, 75
U.S. at 153, where the Court held that a state sales tax on imported
liquors did not violate the Commerce Clause because an equivalent
state tax was imposed on the manufacture of liquors within the
State. See also Kraft General Foods, Inc. v. lowa Department of
Revenue and Finance, No. 90-1918 (June 18, 1992), slip. op. 7.

§ That the focus of the Conventions is on customs duties, and not
upon internal taxes imposed without reference to the origin of the
goods involved, is indicated not only by the narrow language em-
ployed by the Conventions but also by their Protocol of Signature.
Each convention provides that the Protocol of Signature is an in-
tegral part of the convention. Para. 22, 20 U.S.T. 312; Para. 17, 988
U.N.T.S. 47. The Protocol of Signature provides: “The terms of
the present Convention shall not preclude the application of national
provisions or of internal agreements not of a Customs nature, regu-
lating the use of containers.” Para. 2, 988 U.N.T.S. 74. See Para. 2,
20 U.S.T. 326.

14

See note 5, supra. Petitioner offers no explanation why
income taxation applied to such containers is permitted
but revenue taxation is not.

Petitioner instead contends (Pet. Br. 15 & n.13) that
Tennessee should not be allowed to impose its sales tax
because various foreign nations have exempted transac-
actions involving containers engaged in international
commerce from their value added tax (VAT), which is
their domestic analogue to the State’s sales tax.’ Peti-
tioner and its amicus (United Kingdom Amicus Br. 9)
suggest that the United Kingdom (UK) and other Euro-
pean Community (EC) Nations “refrain from imposing
* * * VAT or similar taxes on international container
leases” (ibid.). That contention is inaccurate and mate-
rially incomplete.

Under the EC Sixth Directive, and under the UK
Value Added Tax Act of 1983 (on which petitioner and
amicus rely), a VAT is applied in two basic situations:
(i) when goods or services are supplied within the taxing
jurisdiction, a VAT on the value of those goods or serv-
ices is paid by the supplier; (ii) when goods are imported,
a VAT on the value of imported goods is imposed on the
importer."® The value of imported goods is defined for

® The basic characteristics of value added taxes are discussed in
Trinova Corp. Vv. Michigan Dep’t of Treasury, 111 S. Ct. 818, 823-
824 (1991). The United Kingdom and other EC Nations apply the
“credit” method of value added taxation. See Treasury Department
Report To The President: Tax Reform For Fairness, Simplicity,
And Economic Growth, Vol. 3, Value Added Tax 8 (1984):

The credit, or invoice, method is used by all of the member
countries in the European Economic Community (EEC) and by
most other countries that have a value-added tax. Under the
credit method, a firm’s tax liability is determined by allowing
the firm to subtract value-added tax paid on purchases from tax
due on its sales.

* * * [A)ny value added tax evaded by firms prior to the
retail level would result in higher taxes at the retail level; lower
tax rates at pre-retail stages would be offset by full collection of
the tax at the retail level. ‘

10 See EC Sixth Directive, Art. 2(1) and (2); UK Value Added
Tax of 1983, Art. 1. The EC Sixth Directive is reproduced at CCH

15

purposes of the VAT—under both the EC Sixth Directive
(Art. 11B(3)(b)) and the UK Value Added Tax Act of
1983 (Art. 11(2) (b))—to include the price of the im-
ported goods plus the cost of transport of those goods to
the importing destination.

For example, if a London importer purchases goods at
a price of $100,000 in Tennessee, leases containers in Ten-
nessee from ITEL for $2,000 for the purpose of shipping
those goods to London, and also pays a freighter $1,000 to
load the containers in Tennessee and transport them to
London, the UK VAT will be applied at its ordinary rate
(15°) to the total sum of $103,000. It is thus incorrect
to say—as petitioner and amicus have said (Pet. Br. 15
& n.13; UK Amicus Br. 8, 9)—that the UK and other
IC Nations do not impose a VAT on the value of “in-
ter1.ational container leases,” for the value of such leases
is included in the cost of transport to which the VAT
on imported goods applies."

{n support of the contention that the UK has “relieved
|invernational containers] from the VAT” (UK Amicus
Br. 8), the UK Brief cites various provisions of the EC
Sixth Directive and of the UK Value Added Tax Act of
1983 that concern the separate VAT applicable to the
“supply of goods and services” within the taxing juris-
diction. The provisions that the UK Brief cites do not
restrict, but rather complement, the VAT on imported
goods,

In particular, Art. 14(1) (i) of the EC Sixth Directive,
on which petitioner and amicus rely, contains a telling
Common Mkt. Rep. 3507. The UK Value Added Tax Act of 1983 is
reproduced at 48 Halsbury’s Statutes of England and Wales 598
(4th ed. 1988).

11 Alternatively, if the importer purchases $100,000 of goods in
Tennessee and engages a shipping company to arrange the transport
of the goods to London, and the cost of the shipment (including the
allocated cost of the container lease) is $3,000, the VAT will apply
to the same total of $103,000. The container lease is indirectly sub-
jected to the VAT in this situation, but the effect of the tax is the
same. See note 13, infra.

16

cross-reference (which petitioner and amicus fail to men-
tion or address) to the tax on imported goods.” Article
14(1) (i) provides that “the supply of services, in con-
nection with the importation of goods” shall not be sub-
ject to the VAT, but only “where the value of such serv-
ices is included in the taxable amount in accordance with
Article 11B(3)(b)” (ibid.) (emphasis added). Article
11B(3) (b), which is cross-referenced in Article 14(1) (i),
is the provision that specifies that the VAT on imported
goods “shall include” not only the price of the imported
goods but also “incidental expenses, such as * * * trans-
port * * * incurred up to the first place of destination.”
Thus, the effect of Article 14 is not to exempt interna-
tional transport services from the VAT, as petitioner and
its amicus erroneously state, but is to provide that, when
such services are captured in the VAT on imported goods,

12 The other provisions of the EC Sixth Directive that are cited
in the UK brief are simply off the point, for they relate to the fact
that goods supplied for export, and services provided to such goods,
are not subject to the VAT because, once exported, any VAT paid
will be credited back to the supplier. Such goods and services do not
escape VAT taxation; the VAT on such goods and services is col-
lected by the importing Nation. See EC Sixth Directive, Arts. 2(2),
11B(3)(b); UK Value Added Tax Act of 1983, Arts. 1, 11(2)(b).

The various sources cited in footnote 14 of the UK Brief also are
irrelevant, both for this reason and also because they are designed
to limit the broad statement in Article 6(5) of the 1983 Act that
any supply of services is treated as supplied in the UK, and is thus
subject to the UK VAT, “if the supplier belongs in the United
Kingdom”. Schedule 5, Group 10, Item 11 of the Value Added Tax
narrows this broad proposition by providing that such services will
not be treated as supplied in the UK, even when provided by a UK
supplier, if they involve the “supply of services performed outside
the United Kingdom, which are ancillary to the transport of goods.”
These provisions relate specifically to calculating the VAT on the
supply of goods and services (see UK Value Added Tax Act of 1983,
Art. 16) ; they do not affect calculation of the separate VAT imposed
on the importation of goods. As discussed above, the VAT on im-
ported goods specifically includes the cost of transport of the goods,
including the cost of container leases in connection with such trans-

port.

17

they are not subjected to an additional VAT as a “supply
of goods and services.” Far from exempting international
transport services, the EC Sixth Directive and the UK
Value Added Tax Act of 1983 are designed to insure that
they are subject to the VAT at least once. See also note
9, supra,

To the extent that the practice of Nations informs in-
terpretation of the Customs Conventions, as petitioner
contends (Pet. Br. 15-17), it is evident that the practice
of the UK and other EC Nations is to tax the value of
transportation services provided by contaimers, including
the leasing of such containers. The UK and EC prac-
tice, if relevant, thus supports the conclusion that the
Tennessee tax on container leases is not precluded by the
Conventions. If the Tennessee tax is precluded by the
Conventions, then so too would be the UK VAT applied
to similar leasing charges in connection with its VAT on
imported goods.'*

The UK tax is not distinguishable from the Tennessee tax on
the grounds that, while the VAT system of taxation allows the
provider of goods and services and the importer a credit against the
VAT owed for prior VAT taxes paid, the VAT does not allow such
a credit for non-VAT taxes (such as the Tennessee sales tax) (see
note 9, supra). It is purely a matter of domestic policy for the UK
not to give such a credit for the Tennessee tax. Whether or not the
UK or other EC Nations wish to give a credit for this tax has
nothing to do with the Customs Conventions on Containers, which
hardly can be regarded as adopting and imposing on all signatories
an international VAT system of taxation.

Nor does the UK tax differ from the Tennessee tax in terms of
its ultimate burden. The Tennessee tax, like the UK VAT, may be
assessed on intermediaries, but the burden of the tax in both
instances is generally passed on to the final consumer as a part of
the cost of the final good. See Treasury Department Report To The
President: Tax Reform For Fairness, Simplicity, And Economic
Growth, Vol. 3, Value Added Tax 5, 13 (1984): J. Due, Sales Tara-
tion 5, 12-25, 365-366 (1957). The Tennessee tax and the UK VAT
are also similar in that certain commodities and services are ex-
empted from their coverage. The Tennessee general sales tax differs
from the VAT in that it applies at a lower rate, and with a different
credit mechanism, than the UK VAT. None of these similarities and

18

3. The “Objective” Of The Customs Conventions Does
Not Forestall Application Of The Tennessee Tax

Passing beyond the narrow and specific language of the
Conventions, petitioner argues (Pet. Br. 17-27) that the
Tennessee tax is inconsistent with the “objective” of the
Conventions. Recognizing that the literal scope of the
Conventions goes no farther than proscribing application
of customs duties, petitioner claims that the Tennessee tax
“would substantially reduce the very benefit that Con-
gress intended to confer by exempting containers from
federal Customs duties” (Pet. Br. 20)."

differences, however, has any bearing on whether either tax is
chargeable “by reason of importation.” Indeed, since the UK applies
its tax to the value of container leases at the time of importation
of the goods, it would appear that the UK tax—rather than Ten-
nessee’s generally applicable sales tax—-more closely proximates a
tax “chargeable by reason of importation” (Pet. App. 41a) within
the language of the Customs Conventions.

14 Petitioner states (Pet. Br. 20-21 & n.15) that the duty rate
generally applicable to foreign-manufactured containers (not entered
into the United States under customs bond) fell from 2.5% in 1983
to 0.6% in 1986. The duty rate to which petitioner refers became
zoro in 1987. See Tariff Schedules of the United States Annotated
(TSUS) para. 640.50 (1987).

The duty rate provided by the schedule to which petitioner refers,
however, was not applicable to modern freight containers used for
intermodal traffic and, therefore, presumably was not applicable to
petitioner's containers (see note 1, supra). Beginning in 1983 (the
first year of relevance to this case), and continuing to the present
date, no duty is assessed on “[f]reight containers specially designed
and equipped to facilitate the carriage of goods by one or more
modes of transport without intermediate reloading, each having a
gross mass rating of at least 40,000 pounds (provided for in 640.30)
* * *” TSUS 911.80 (1983). See also TSUS 911.80 (1987);
Harmonized Tariff Schedule of the United States 8609.00 (1992)
(no duty for containers “specially designed and equipped for car-
riage by one or more modes of transport’’).

Petitioner thus errs in its speculations (Pet. Br. 20-21) concerning
the amount of duties that it saved by entering its containers under
bond during 1983-1986. No customs duties were owed during those
years for intermodal cargo containers, even for foreign-manufactured

19

Of course, the Tennessee tax does nothing of the sort.
The exemption “from federal Customs duties” is wholly
unaffected by the Tennessee tax. The benefit conferred by
exemption “from federal Customs duties” exists independ-
ently of the Tennessee tax and is not altered or reduced
by that tax. As this Court stated in rejecting a simiiar
claim that the “objective of [a tax] treaty” extended be-
yond the confines of its language, “[t]he immediate and
compelling answer to this contention is that * * * the
language of the Convention itself not only fails to sup-
port the petitioner’s view, but is contrary to it” (Mazx-
imov V. United States, 373 U.S. at 53, 54).

Nor does Japan Line Ltd. v. County of Los Angeles,
441 U.S. 434 (1981), support petitioner’s argument in
this regard. In Japan Line, the Court relied on the Com-
merce Clause, not the “objective” of the Customs Conven-
tions, ‘o preempt the State’s property tax on foreign-
owned containers. See id. at 451-457. In the context of
its Commerce Clause analysis, the Court made reference
to the Customs Conventions only as indicating “[t]he
desirability of uniform treatment of containers used ex-
ciusively in foreign commerce” (id. at 452). The Court
did not adept or rely upon the argument—advanced by
petitioner in this case—that this “objective” of the Cus-
toms Conventions, by its own force, preempts the States
from imposing general taxes.

Petitioner also errs in suggesting (Pet. Br. 21) that
containers that have been temporarily admitted under
customs hond are, by virtue of that fact, shielded from
all forms of state taxation. Neither in Japan Line nor
elsewhere has this Court adopted the broad proposition
that the temporary admittance of an article under cus-
toms bond immunizes the article from all forms of fed-
eral or state taxation. In particular, McGoldrick v. Gulf
Oil Corp., 309 U.S. 414 (1940), and Xerox Corp. v. County

containers entered without customs bond. That is not, of course,
to say that duties on such articles could not be imposed in the
future.

20

of Harris, 459 U.S. 145 (1982)—-which interpreted the
preemptive force of the statutory scheme involving bonded
Customs Warehouses—do not support this broad submis-
sion. Instead, as this Court has stated, the scope of the
preemption resulting from a customs bond must be deter-
mined by analysis of the “congressional intent” in pro-
viding bonded admission (Xerox Corp. v. County of
Harris, 459 U.S. at 153).”

Here, as in R.J. Reynolds Tobacco Co. v. Durham
County, 479 U.S. 130 (1986), imposition of the State’s
sales tax on container leases is “nothing more than an
expected cost of doing business” (id. at 145). A tax on
the value of such services is assessed not only by Ten-
nessee, but abroad. There is nothing in the history of
the Conventions or of 19 U.S.C. 13822(a) to suggest that
Congress intended “[d]omestic producers and local tax-
payers [to] ‘subsidize’’’ (479 U.S. at 145) the use of
instruments of international traffic. To the contrary,
both the Conventions and the regulations under 19 U.S.C.
1322(a) go no farther than allowing temporary impor-
tion of containers without “payment of duty” (19 C.F.R.
10.4la(a)(1)). There is no suggestion in the language

15 To the extent that the brief filed by the United States in Japan
Line suggested that McGoldrick could have application in interpret-
ing the effect of the Container Conventions (see Pet. Br. 26-27),
that suggestion was not adopted by this Court in Japan Line and
is inconsistent with the Court’s subsequent analysis in R.J. Reynolds.
Moreover, Japan Line concerned the treatment of foreign-owned
containers under the Container Conventions. The Conventions have
no application to the domestically owned containers involved in this
case. See pages 7-11, supra. Furthermore, Japan Line involved
application of a local property tax in a manner that was inconsistent
with the customary practice of Nations (441 U.S. at 447). It was in
that context that the local tax was said to conflict with the general
“desirability of uniform treatment of containers involved in foreign
commerce” (id. at 452). By contrast, there is no customary (and
certainly no uniform) practice for Nations not to apply their general
taxes to container leases. The unanchored goal of “uniformity” on
which petitioner seeks to rely is thus not offended by the State’s
tax in this case. =

21

or history of the Conventions or of 19 U.S.C. 1322(a)
that petitioner’s imported containers should not share
the cost of government that protects them, along with
domestically produced containers used in international
traffic and similar instruments of domestic traffic. Cf.
Michelin Tire Corp. v. Wages, 423 U.S. at 286, 288-289,
293-294; Washington Revenue Dep’t v. Stevedoring Ass’n,
435 U.S. at 745, 748, 751-755.

In any event, as we have shown, nothing in the Con-
ventions addresses the treatment afforded by any Nation
to its own residents. Nothing in the Conventions or the
statute proscribes duties or taxes other than those charged
“by reason of importation.” And, the common practice
of signatory Nations is to permit general sales taxes—
or value added taxes—to be applied, either directly or
indirectly (see note 11, supra), to the value of container
leases. To the extent the Conventions and the statute
speak at all to domestic taxation of domestically owned
containers, they do not proscribe sales taxes on container
leases.

II. THE COMMERCE CLAUSE DOES NOT PROHIBIT
STATE TAXATION OF CONTAINER LEASES

The Tennessee sales tax applies to container leases
only when delivery to the lessee occurs within the borders
of the State (Pet. App. 20a-2la). Petitioner nonetheless
claims that, because this sales tax is not apportioned
among the jurisdictions where the leased container is
used (Pet. Br. 32-33), and because other Nations may
also apply a sales tax to such leases (id. at 29-31), the
State’s tax offends the Commerce Clause.

Apportionment is not ordinarily required for sales
taxes, precisely because “the tax is imposed only upon
* * * a discrete transaction which occurs within one * * *
jurisdiction only.” Wardair Canada Inc. v. Florida Dep’t
of Revenue, 477 U.S. 1, 9 (1986). See also Common-
wealth Edison Co. v. Montana, 453 U.S. 609, 617 (1981)
(upholding state severance tax as to coal shipped out of

22

state, for “the severance can occur in no other state’) ;
McGoldrick v. Berwind-White Coal Mining Co., 309 U.S.
33, 58 (1940) (upholding state sales tax “conditioned
upon a local activity, delivery of goods within the state
upon their purchase’’).'" For example in Wardair, the
Court upheld Florida’s tax on the sale of fuel to common
carriers for use in international travel. 477 U.S. at 9."
Here, as in Wardair, “there is no threat of multiple in-
ternational taxation” (ibid.) because the State’s tax is
limited to leases of containers delivered to lessees in
Tennessee, “a discrete transaction which occurs within
one #seernational jurisdiction only” (ibid.).

It is true that the United Kingdom and other Euro-
pean Community Nations may also apply their sales tax
equivalent—or VAT—to the lease of the same contain-
ers. See pages 14-17, supra. It also appears that those
Nations would not provide a credit in calculating their
VAT for sales taxes paid in non-VAT jurisdictions. See

16 When an article is moved from one State to another, it is not
uncommon for the second State to apply a “use” tax on the article
and to give a credit, in the calculation of that tax, for the sales tax
paid in the first State. See D.H. Holmes Co. v. McNamara, 486 U.S.
24, 31 (1988). In calculating its use tax—which is not involved in
this case—Tennessee follows the practice of providing a credit for
prior sales taxes “paid * * * in another state.” Tenn. Code Ann.
§ 67-6-313(f).

Petitioner claims, without citation of authority, that the State
would interpret its use tax credit provision not to apply to foreign
sales taxes (Pet. Br. 36). Even if it did, that would have no hearing
on the constitutionality of the State’s sales tax as applied in this
case.

17 [In Wardair, the Court noted that the taxpayer’s only challenge
to the State’s tax was based upon the claim that the tax “threat-
enfed] the ability of the Federal Government to ‘speak with one
voice’’”’ on matters affecting foreign commerce. 477 U.S. at 9. The
Court observed that the other wing of the Japan Line analysis—the
“threat of multiple international taxation”—was not present in that
case because the tax was “imposed only upon the sale of fuel, a
discrete transaction which occurs within one national jurisdiction
only.” Ibid.

23

note 13, supra. Unlike the situation that existed in Japan
Line, however, the risk of multiple taxation that may
occur in this situation is not proscribed by the Commerce
Clause.

In Japan Line, there was an international custom
(endorsed by this Court in a long line of decisions) that
an ocean-going vessel (and any other instrument of inter-
national traffic) was subject to property taxes only at its
“home port.” See Hays v. Pacific Mail S.S. Co., 58 U.S.
(17 How.) 596, 599 (1855); Morgan v. Parham, 83 U.S.
(16 Wall.) 471, 472 (1873); Southern Pacific Co. V.
Kentucky, 222 U.S. 63 (1911). Recognizing that those
decisions “expressing the mandate of the Constitution,
express as well the custom of nations,” the United States
argued in its brief in Japan Line that positive law over-
riding the accepted practice of Nations “can be enacted
only at the national level if the nation is to speak with
one voice in matters of foreign commerce” (77-1378 U.S.
Amicus Br. at 15 (Sept. 1978) ). Since the uniform prac-
tice of Nations had been “to exempt foreign-owned” ves-
sels and containers from property taxes, and to allow the
“home port” Nation to tax the full value of such prop-
erty, the United States submitted in Japan Line that the
California tax was responsible for the resulting double
taxation of the property and that it should therefore
yield under the Commerce Clause (id. at 28-29 & n.22).

While the Court found no fixed, constitutional require-
ment for the “home port” rule in Japan Line (441 U.S.
at 441-444), the Court agreed that the California prop-
erty tax on foreign-owned containers conflicted with
established international practice (id. at 447) and there-
by interfered with our government’s ability to “speak
with one voice when regulating commercial relations with
foreign governments” (id. at 449 (quoting Michelin Tire
Corp. Vv. Wages, 423 U.S. at 285)). The Court also noted
that, since “the country of domicile” has the “right, con-
sistently with the custom of nations, to impose a tax on
{the} full value” of “instruments of international traffic”

T AVAILABLE COPY

24

(id. at 447), a double tax on the property “inevitably
results” when the State taxed the foreign-owned instru-
ments of international traffic. /bid.

There is no international custom exempting the owners
of containers from tax in their own Nation. See notes
5, 13, supra. The rationale for the “home port” rule
requires precisely the opposite conclusion: international
custom permits governments to tax containers owned do-
mestically. Moreover, as the EC and UK practice reflects,
there is also no international custom exempting the value
of container leases or other international transport serv-
ices from general sales tax or VAT taxation. See pages
14-17, supra.

Far from conflicting with international custom, the
Tennessee tax appears to promote it. The Tennessee tax
thus does not interfere with our ability “to speak with
one voice” on this issue involving foreign commerce. If
the United States desires, through future multilateral
negotiations, to seek an international custom or practice
proscribing such taxation, there will be time enough for
appropriate conventions or treaties to be adopted. Until
then, we see no deviation from international custom in
the Tennessee tax sufficient to require constitutional pro-
scription under the Commerce Clause.

Nor, in this context, can it be said that Tennessee is
responsible for any dup'ication in the taxes that the UK
or other EC Nations may impose as the result of those
Nations’ refusal to provide a credit for the Tennessee tax
in their VAT calculations. See note 13, supra. While the
States of the United States customarily provide such a

18 Petitioner’s argument would suggest that a state retail sales tax
could not constitutionally be applied to the sale or lease of an air-
plane for use in transporting passengers internationally if the for-
eign nation elected to impose a “use” tax on the airplane and gave
no credit for prior sales tax payments. The Commerce Clause, how-
ever, does not deprive the States of all taxing authority with respect
to instruments employed, or services provided, in connection with
international trade. See, e.g., Washington Revenue Dep't v. Steve-
doring Ass’n, 435 U.S. at 743-751.

25

credit in imposing use taxes on goods already subjected
to sales tax in another State (e.g., D.H. Holmes Co. Vv.
McNamara, 486 U.S. at 31; note 15, supra), Tennessee
can not be faulted for the failure of other Nations to
provide such a credit in application of their conceptually
different tax systems. Any double tax on container leases
that results in these circumstances is the product of
differing national tax practices, not international custom.
The Commerce Clause has never been held to require the
States to serve as the equilibrator of world-wide tax
burdens.

- It bears emphasis that the “multiple taxation” argu-
ment that petitioner advances under the Commerce Clause
with respect to container leases is equally applicable, and
equally unavailing, with respect to any other product
sold or service provided in connection with export com-
merce. Foreign nations that apply a VAT system of
taxation—and that do not give a credit in the calculation
of their VAT for sales taxes collected in the United
States—impose a tax on all goods (including the cost of
transporting those goods) imported in their borders; in
this respect, these foreign taxes could be said to create a
“multiple” burden on export traffic. Under petitioner’s
view of the Commerce Clause, the States would be de-
prived of their ability to apply neutral sales and gross
receipts taxes not only to all such export activities, but
also to the initial and intermediate economic activities
that precede the export stage. There is no basis for such
an intrusive and expansive interpretation of the Com-
merce Clause. See Washington Revenue Dep’t v. Steve-
doring Ass’n, 435 U.S. at 757: Canton R.R. v. Rogan,
340 U.S. 511 (1951).

For the same reasons that led this Court in Japan Line
to conclude that foreign nations possess a prior right to
tax foreign-owned instrumentalities of commerce, so too
does this Nation—and the States—possess the power to
tax domestically owned instrumentalities of commerce.

20

Ill. THE IMPORT-EXPORT CLAUSE DOES NOT
PROHIBIT STATE TAXATION OF CONTAINER
LEASES

Petitioner also asserts (Pet. Br. 40-47) that the Ten-
nessee sales tax on container leases is barred by the
Import-Export Clause of the Constitution and claims that
the decisions upholding the state tax in this case “un-
deniabl[y]” conflict with Richfield Oil Corp. v. State
Board of Equalization, 329 U.S. 69 (1946). Richfield Oil
concerned application of a state sales tax to oil sold
and delivered into a tanker waiting in the Los Angeles
harbor for shipment to Auckland, New Zealand. The
Court held that the State could not impose its sales tax
on this export sale of goods.'” By contrast, in Michelin
Tire Corp. v. Wages, this Court upheld application of a
general state tax to imported goods awaiting shipment
in inland warehouses. 423 U.S. at 302. Petitioner ex-
plores at some length (Pet. Br. 42-47) whether the
Court’s reasoning in Michelin Tire undercuts the rationale
of Richfield Oil and deprives it of further validity. See
also Joy Oil Co. v. State Tax Comm'n, 337 U.S. 286
(1949); Empresa Siderurgica v. County of Merced, 337
U.S. 154 (1949); L. Tribe, American Constitutional Law
472-473 (2d ed. 1988).

However interesting that question might be, it has no
bearing on the disposition of this case. Neither Michelin
Tire nor Richfield Oil applies here because the leasing
of containers does not concern either “exports” or “im-
ports.” 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

19 In Louisiana Land & Exploration Co. v. Pilot Petroleum Corp.,
900 F.2d 816 (5th Cir.), cert. denied, 111 S. Ct. 248 (1990), the
court similarly concluded that the Import-Export Clause proscribed
application of the state sales tax to an export sale of oil into a
tanker waiting in the Mobile harbor for shipment to Halifax, Nova
Scotia.

27

airplanes carrying goods to more remote consignees. The
goods will be left at their foreign destinations while the
instrument of international traffic, 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 the United States. The containers will be
returned to petitioner for further leases and further
voyages. The goods the containers carry are exports, but
the containers are not.

This distinction 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. Invoking the Richfield case,
the railroad claimed that the portion of its gross receipts
that represented the proceeds of handling imports and
exports was exempt from Maryland’s gross receipts tax.
In rejecting that claim, the Court stated (id. at 513-514):

If this were a tax on the articles of import and ex-
port, we would have the kind of problem presented
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 import and ex-
port |.] * * * The difference is that in the present
case the tax is not on the goods but on the handling
of them at the port.

See also Washington Revenue Dep’t v. Stevedoring Ass’n,
435 U.S. at 757 ‘upholding a gross receipts tax that fell
“upon a service distinct from the goods and their
value”).

20In R.J. Reynolds Tobacco Co. v. Durham County, 479 U.S. at
153, the Court rejected the claim that a state ad valorem property
tax interfered with federal regulation of foreign commerce or con-
stituted a “duty” proscribed by the Import-Export Clause. The
Court noted that the State’s generally applicable tax “falls on im-
ported and domestic goods alike and does not single out imported
goods for unfavorable treatment.” Jbid. That same conclusion ap-
plies to this case.

28

As the Court concluded in Canton R.R. v. Rogan, “if
the handling of the goods at the port were part of the
export process, so would hauling them to or from distant
points or perhaps mining them or manufacturing them.”
340 U.S. at 515 (emphasis added). The Tennessee Su-
preme Court was thus correct in concluding (Pet. App.
18a) that application to container leases of a generally
applicable tax on the sale or lease of tangible personal
property is not a tax on exports even though the leased
containers may be used in “hauling [imports and ex-
ports] to or from distant points” (340 U.S. at 515).

CONCLUSION

The judgment of the Supreme Court of Tennessee
should be affirmed.

Respectfully submitted.

KENNETH W. STARR
Solicitor General

JAMES A. BRUTON
Acting Assistant Attorney General

LAWRENCE G. WALLACE
Deputy Solicitor General
KENT L. JONES
Assistant to the Solicitor General

GARY R. ALLEN
ERNEST J. BROWN
Attorneys

JUNE 1992

W ov. S. GOVERNMENT PRINTING OFFICE, 1992 312324 45476

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0180%3A10. Public record. Not legal advice.