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

Supreme Court of the United States

October Term, 1991

.

ITEL CONTAINERS INTERNATIONAL CORPORATION,

Petitioner,

JOE HUDDLESTON,

COMMISSIONER OF REVENUE OF TENNESSEE,

Respondent.

S

On Writ Of Certiorari To The

Supreme Court Of Tennessee

+

BRIEF AMICI CURIAE

OF

PACIFIC MERCHANT SHIPPING ASSOCIATION,

STEAMSHIP OPERATORS INTERMODAL COMMITTEE,

COUNCIL OF EUROPEAN AND JAPANESE

NATIONAL SHIPOWNERS’ ASSOCIATIONS

AND

AMERICAN INSTITUTE OF MERCHANT SHIPPING

IN SUPPORT OF PETITIONER

e

R. Freperic FisHer

Counsel of Record

Barry J. LONDON

Lawrence N. MINcH

Littick & CHARLES

Two Embarcadero Center

San Francisco, CA 94111

Telephone (415) 984-8200

Attorneys for Amici Curiae

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

3¢

TABLE OF CONTENTS

Page

ee ee EE cbvbbdeedesccccccvescccsees i

TABLE OF AUTHORITIES ..........cccsccccccceces iii

INTEREST OF AMICI CURIAE .................... 1

i Sciscdhsetdeehswosewkets o0eseecsecues 4

ct ittceaneholsddecacenssédscchocsdeess 4

ences csshceseccevecsesvcees 6

SUMMARY OF ARGUMENT....................... 9

EE ee 11

I. APPLICATION OF TENNESSEE’S SALES TAX

TO LEASES OF MARINE CONTAINERS

IMPERMISSIBLY BURDENS FOREIGN

EE cine Fadecencdccvapeccenn¢ncécoccs 11

A. Sales Taxes On Container Lease Hire Are

Subject to the Same Commerce Clause

Standards As Property Taxes on Carrier-

Se GID cece wcccsccccccccccess 11

B. Tennessee’s Sales Tax Fails A Critical

Threshold Test Because It is Not Geo-

graphically Apportioned................. 15

C. The Tennessee Tax Is Likely to Subject Con-

tainer Lease Hire to Multiple Taxation ..... 19

D. Permitting The Tennessee Tax To Stand

Will Provoke Adverse Foreign Reaction

and Preclude the United States From

Speaking With One Voice ............... 24

E. Lease Hire Paid by Ocean Carriers May

Not Be Subjected to Sales Tax Merely

Because the Containers Are Owned By an

American Company .............00000005 27

ii

TABLE OF CONTENTS - Continued

Page

Il. THE TENNESSEE TAX CONFLICTS WITH

THE CUSTOMS CONVENTIONS ON

CONTAINERS. .......--00eeeeeeeee ee eeeeeees 28

CORICLRIBNOIE . ........o00svcceseccccnesenseeneneeee 30

iii

TABLE OF AUTHORITIES

Page

Cases

Air France v. Saks, 470 U.S. 392 (1985)............... 29

American Trucking Ass‘ns v. Scheiner, 483 U.S. 286

TE CURSGCsER ees cessccesccaccccccccccs: 17

Choctaw Nation of Indians v. United States, 318 U.S.

PM EECESGSESSGCecesccccccsscececcccccess 29

Complete Auto Transit v. Brady, 430 U.S. 274 (1977) .12, 14

Department of Revenue v. Ass'n of Washington Steve-

doring Cos., 435 U.S. 734 (1978) ............. seen 18

Exxon Corp. v. Wisconsin Dep't of Revenue, 447 U.S.

ERG aidan daescccseccccccccsccess 21

Goldberg v. Sweet, 488 U.S. 252 (1989) ........... passim

Hays v. Pacific Mail S.S. Co., 58 U.S. (17 How.) 596

EER eea Sac encccinccccscccsecsccceces 12

].D. Adams Mfg. Co. v. Storen, 304 U.S. 307 (1938) .... 21

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

ECP CCEUER Se esesscabcacccescccccecs passim

Louisiana Land & Exploration Co. v. Pilot Petroleum

Corp., 900 F.2d 816 (5th Cir.), cert. denied, 111 S.

Tiere se esesacveseeccecccceses awe 15

McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940)..... 15

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

EL ACCERCERSasedpecvesececccccccecs 21

Richfield Oil Corp. v. State Board of Education, 329

ee E aid adecedscscessecececsce 15, 24

Sears, Roebuck & Co. v. County of Los Angeles, 449

U.S. 1119 (1981), aff’g 85 Cal. App. 3d 763 (1978) .... 27

iv

TABLE OF AUTHORITIES - Continued

Page

Seatrain Terminals of California, Inc. v. County of

Alameda, 83 Cal. App. 3d 69 (1978) ...--.-----+++ 14

Star-Kist Foods, Inc. v. County of Los Angeles, 42 Cal.

3d 1 (1986), cert. denied, 480 U.S. 930 (1987)....... 27

Steamship Co. v. Portwardens, 73 U.S. (6 Wall.) 31 -

(DBGT) oo cccccccccccccccccsccccccccccccccsccovcees

United States Lines, Inc. v. State Board of Equaliza-

tion, 182 Cal. App. 3d 529 (1986) ......------++++: 14

United States v. Hvoslef, 237 U.S. 1 (1915)......-.---. 12

Wardair Canada, Inc. v. Florida Dep't of Revenue,

477 US. 1 (1906)... 2c cccccccccccccceess 7, 18, 19, 23

Williams v. Vermont, 472 U.S. 14 (1985) .........--+:- 21

Xerox Corp. v. County of Harris, 459 U.S. 145 (1982) .... 15

CONSTITUTION

Commerce Clause, art. I, § 8, cl. 3........+--+-- passim

Export/Import Clause, art. I, § 10, cl. 2.. 11, 12, 14, 15

Tonnage Duty Clause, art. I, § 10, cl. 3......--.-+-- 12

Supremacy Clause, art. VI, cl. 2.......--++e+eeeseeee: 3

STATUTES, TREATIES AND REGULATIONS

19 CER © 1Alale) (IMP... ... 5 6c. cecccereceeceess 4

I ag icsicssecccsssvossccdess 4

ican ceicvescesscviensencansses 4

46 C.F.R. § 580.5(d)(21) (1991)........00ceeee cere eens 6

Oe CHO I II in. onc sia ced ciinesici scons

Vv

TABLE OF AUTHORITIES - Continued

Se Re I UN an ook ck ccdvadcccccccccence 6

Cal. Rev. & Tax Code § 6006.1 (West 1987). ..18, 19, 22

Cal. Rev. & Tax Code § 6203 (West Supp. 1992)...1, 22

Cal. Rev. & Tax Code § 6406 (West 1987) ........... 22

Customs Convention on Containers, Dec. 2, 1972

[1985], 988 U.N.T.S. 43 (“1972 Convention”)... passim

Customs Convention on Containers, May 18, 1956

[1969], 20 U.S.T. 301 (“1956 Convention”) ..... passim

Tenn. Code Ann. § 67-6-203 (Supp.1991)....... 7, 20, 22

Tenn. Code Ann. § 67-6-204 (1989)................ 5, 22

Tenn. Code Ann. § 67-6-321 (1989)................... 4

Tenn. Code Ann. § 67-6-502 (1989)................... 1

Tenn. Code Ann. § 67-6-507 (Supp. 1991)............ 22

Wrane. Diet. © PFDA) CGGD. . 5... cc cccecccvcccccct 18

MIsCELLANEOUS

T. F. Barnett, Container Care and Feeding, Pacific :

Maritime Magazine, Oct. 1986, at 12............. 3, 6

R.F. Gibney, Containerization Report, Seatrade,

Re hit ewes ccdecsescnscnevevesss 3, 6

G. Muller, Intermodal Freight Transportation (2d ed.

PSD Ait eth abn gunn phiddecdetetcs<cennunnysv 13

Transpacific Westbound Rate Agreement West-

bound Local and Intermodal Rules Tariff, FMC

No. 10, Rules 32, 21-A and B, 91-C and D and

TREE ym aie ene 6

All references in this brief to “Brief for the United States”

are to the brief which was filed by the United States in

response to the petition.

7 ee

INTEREST OF AMICI CURIAE

Amici are associations of international ocean carriers!

which, as lessees of cargo containers, will be required to

pay sales tax imposed on container lease hire if the tax

here is upheld.2 The members of the associations include

most of the foreign and American containership opera-

tors engaged in North American foreign trades. These

carriers lease the foreign built cargo containers at issue

for use in international commerce, and they pay the per

diem charges thereon which are subject to the tax.

The members of the amici associations have a direct

stake in the outcome of this case. They will bear not only

the state sales tax burden but also the consequences of

1 Amici Pacific Merchant Shipping Association and Steam-

ship Operators Intermodal Committee are trade associations

whose members are foreign and American ocean carriers oper-

ating in United States and worldwide foreign trades. The

Council of European and Japanese National Shipowners’ Asso-

ciations is an international association composed of national

associations of foreign shipping companies engaged in world-

wide trades. The American Institute of Merchant Shipping is

an association of American ocean carriers whose vessels are

registered in the United States and who operate in worldwide

commerce.

2 As is the case with most sales taxes, Petitioner is

required to attempt to collect the tax from the ocean carriers.

Tenn. Code Ann. § 67-6-502 (1989); see Cal. Rev. & Tax. Code

§ 6203 (West Supp. 1992) (the retailer “shall . . . collect the tax

from the purchaser . . . ”) As the Court observed in Goldberg v.

Sweet, 488 U.S. 252 (1989): “The tax at issue has many of the

characteristics of a sales tax. It is assessed on the individual

consumer, [and] collected by the retailer... ”

any foreign retaliation or multiple tax sought to be

imposed by any of the many foreign tax jurisdictions in

which the carriers, their vessels and their containers are

found. Amici are concerned that both the tax at issue and

counterpart state use taxes are highly provocative inter-

nationally, that revenues from such transactions are

readily subjected to multiple taxation, and that the tax

likely will trigger adverse foreign tax reactions.

The ocean carriers also have a significant stake in the

manner in which the tax is calculated. The tax applies to

all per diem charges owed under a lease involving a

change in possession in Tennessee, not just to charges for

use of the containers in the state and in the United States.

The tax reaches charges for the large numbers of lease

days that the containers are aboard vessels, moving

within foreign countries or in the possession of connec-

ting carriers, cargo shippers or consignees. Ocean carriers

are affected by the absence of geographic apportionment

of the tax, both because of the substantial extra tax cost

and because absence of apportionment maximizes the

chance of foreign tax retaliation affecting American and

foreign carriers alike.

The stake that the ocean carrier members of the amici

associations have in the outcome of the case is large.

First, containers are found, stored, used and change pos-

session repeatedly in virtually every significant tax juris-

diction in the world, making the ocean carriers especially

vulnerable to multiple taxation. Second, the sheer size of

their container fleets and the frequency of container leas-

ing create substantial potential tax liability. Three to four

— ~eesee

containers are required for every container space on a

vessel because of the large amounts of time containers

spend in the possession of connecting carriers or being

loaded, discharged, stored and positioned ashore.3 In a

trade like the North American trade with Asia, the collec-

tive container fleet employed at any given time likely

exceeds 500,000.4

Amici submit this statement to urge the Court to hold

that the Commerce Clause and the Supremacy Clause,

coupled with the Customs Conventions on Containers,

preclude State taxation of containers present in the

United States only as instruments of foreign commerce.

Pursuant to Rule 37, this brief is filed with the con-

sent of all parties. Letters of consent from counsel have

been filed with the clerk.

3 See R.F. Gibney, Containerization Report, Seatrade, April

1982, at 105, 107, 129.

* By 1986 the worldwide container fleet was estimated to

number almost 5 million containers - neariy a doubling of the

size of the fleet over a five-year period. T. F. Barnett, Container

Care and Feeding, Pacific Maritime Magazine, Oct. 1986, at 12,

13. These container fleets are enormously costly to ocean car-

riers, whether the cost is experienced as a direct capital cost or

as lease-hire. A new forty-foot dry cargo container costs about

$6,800. A new forty-foot refrigerated container costs about

$35,000.

STATEMENT

1. Facts.

This case involves a retail sales tax imposed upon

gross lease hire paid by international ocean carriers for

leasing foreign built ocean cargo containers. App.

30a-32a.5 The containers enter the United States as instru-

ments of foreign commerce under Customs bond assuring

only such use. App. 30a. By treaty obligation, the United

States admits them “free of ‘all duties and taxes what-

soever chargeable by reason of. importation.’ “© Such con-

tainers must leave the country within a maximum period

of three months.” Thus, the containers can only change

possession under lease in the United States by reason of

having previously been imported and admitted to the

United States under Customs bond in import commerce

and by reason of the companion requirement that they

leave the country.

Although Tennessee exempts from sales and use tax

the transfer of railroad rolling stock or vessels for use in

interstate commerce,* no exemption is accorded to ocean

cargo containers admitted under treaty and Customs

bond and used exclusively in foreign commerce.

5 The Appendix to the Petition is cited throughout this

brief as “App.” sini

° n Line Ltd. v. County of Los Angeles, 441 U.S. 434,

omen ae Customs peer A on Containers, May 18, 1956

[1969] art. 2, 20 U.S.T. 301, 304 (“1956 Convention”), App. 42a;

19 U.S.C. § 1322(a), App. 43a; 19 C.F.R. §§ 10.41a(a), 115.1

(1991), App. 43a-44a.

7 Customs Convention on Containers, Dec. 2, 1972 [1985]

art. 4, 988 U.N.T.S. 43 (“1972 Convention”), App. 40a.

8 Tenn. Code Ann. § 67-6-321 (1989).

The lease hire that is subject to the Tennessee sales tax is

calculated on a per diem basis. App. 30a. Consequently,

the tax varies in direct proportion to days that containers

are under lease. App. 36a.

The sales tax applies whenever possession of leased

containers is transferred to a lessee in Tennessee, regard-

less of where the lease is entered into, where payments

are made, or what the nationalities of the parties are.? The

tax is not limited to revenues generated only by lease

days in which the containers are used in Tennessee or in

the United States. Consequently, the tax which ocean

carriers will bear applies to use of leased containers

aboard vessels and in foreign countries and their use by

connecting carriers in other jurisdictions. The tax applies

even to periods that the containers are sub-leased by

ocean carriers to other carriers outside Tennessee.

The ocean carriers use the containers as ship’s equip-

ment to transport cargoes in international commerce. See

Japan Line, supra, 441 U.S. at 442-43; App. 34a-35a.

Because of the length of ocean voyages and the time

required for inter-carrier transfers, terminal handling and

inland deliveries, containers are normally outside the

United States as well as outside Tennessee during most of

the lease term. Leases covering containers changing pos-

session in the United States are frequently entered into

and paid for abroad and are frequently transactions to

which the only parties are foreign entities. Most

® Tenn Code Ann. § 67-6-204 (1989); App. 27a, 36a. About

80 percent of Petitioner’s lessees are foreign companies, pri-

marily ocean carriers. See Tr. 31-33; App. 30a. Petitioner has no

leasing or marketing employees located in Tennessee, and none

of the leases at issue were entered into in Tennessee. App.

30a-34a.

containership operators are foreign.!° In this case the

leases subjected to tax were entered into in California,

involved an American leasing company and included

both short term individual leases and master interchange

agreements covering multiple containers, supplied at dif-

ferent times on demand. App. 27a, 30a, 32a.

In addition to the charges paid to lessors, ocean

carriers themselves levy charges for container use which

are potentially subject to tax. Ocean carriers commonly

have interchange agreements with connecting motor car-

riers under which per diem charges are assessed if the

containers are not timely returned. Similarly, cargo inter-

ests are assessed per diem charges by ocean carriers if

containers are detained beyond the time permitted in the

ocean freight tariffs or if they are not picked up from

carrier terminals in a timely manner."!

2. State Court Ruling.

This case arose when Tennessee audited container

leasing companies having container depots in the state

10 American carriers owned as of 1982 only about 16 per-

cent of world container vessels. R.F. Gibney, Containerization

Report, Seatrade, April 1982, at 105, 107. The same containers

used in United States/foreign trades are used in foreign-to-

trades. Moreover, it is leased containers which circulate

most. T.F. Barnett, Container Care and Feeding, Pacific Maritime

Magazine, Oct. 1986, at 12, 15.

11 See, e.g., Transpacific Westbound Rate Agreement West-

bound Local and Intermodal Rules Tariff, FMC No. 10, Rules

32, 21-A and B, 91-C and D and 92-A - 92-L (filed with the

Federal Maritime Commission); 46 C.F.R. §§ 580.5(d)(21) &

580.17 (1991); 55 Fed. Reg. 10242 (1990).

—-

7

and imposed back taxes and penalties on Petitioner for

failing to pay tax under Tennessee’s Retailers’ Sales Tax

Act. The Tennessee Chancery Court interpreted the stat-

ute as applicable only to containers changing possession

in the state by going on lease to ocean carriers, and it

held that the tax was not applicable to containers deliv-

ered to cargo shippers for loading in Tennessee but going

on lease to ocean carriers only when the container arrived

at the ocean port. App. 20a-21a.!2 The Chancery Court

ruled that the Constitution permits Tennessee to levy

sales tax on the worldwide lease hire paid by the ocean

carriers if possession of the containers passes to the ocean

carrier in Tennessee. Id.

In affirming the Chancery Court, the Tennessee

Supreme Court concluded that a sales tax imposed on

container lease hire “is more analogous to a sales tax on

fuel,” sold from domestic supplies to foreign aircraft for

consumption in flight, than to property taxes on the

assessed value of cargo containers. App. 12a.!3 The court

thus found that the case was governed by Wardair Canada,

2 The state where the port is located could levy a sales

tax. Tennessee, like most States with sales taxes, also has a use

tax, which provides: “A tax is levied at the rate of five and one-

half percent (5.5%) of the cost price of each item or article of

tangible personal property when the same is not sold but is

used, consumed, distributed, or stored for use or consumption

in this state.” Tenn. Code. Ann. § 67-6-203 (Supp. 1991). This

use tax could apply to international lease hire when containers

change possession between foreign nationals abroad or in

other States.

3 The court rejected a possible argument that the tax

could be sustained against constitutional challenge if limited

only to leases in which an American leasing company is the

lessor.

Inc. v. Florida Dep't of Revenue, 477 U.S. 1 (1986), in which

the parties had stipulated that the fuel tax was appro-

priately apportioned and that there was no prospect of

double foreign taxation. The court distinguished Japan

Line Ltd. v. County of Los Angeles, 441 U.S. 434 (1979),

which had struck down an apportioned property tax on

foreign containers because of the risk of multiple taxation

and foreign retaliation. App. 12a, 14a-15a.

The court found dispositive that the Tennessee tax

applied only if there were a change of possession of the

containers in Tennessee, because foreign countries could.

not invoke the same taxable event to tax the same lease

hire. App. 14a. Although the court noted that “[o]ther

nations very well may adopt similar taxes on the transfer

of possession of leased containers within their taxing

jurisdictions,” the court concluded that the Tennessee tax

“creates no risk of multiple international taxation.” Id.

In construing the Customs Conventions on Con-

tainers, which this Court has cited as evidencing “[t)he

desirability of uniform treatment of containers used

exclusively in foreign commerce” (Japan Line, supra, 441

U.S. at 452), the state court distinguished between a prop-

erty tax apportioned to local container use, which con-

flicts with the uniform treatment contemplated by the

Conventions, and sales taxes falling on worldwide con-

tainer use, which the court held does not create such a

conflict. App. 15a-16a. The court rejected the claim that

the tax was inconsistent with the Customs Conventions

and rejected the argument that the Conventions set forth

national policy guiding the proper interpretation of the

Commerce Clause. Id.

SUMMARY OF ARGUMENT

A sales tax upon lease hire for the use of marine

containers in international commerce will be paid by the

lessee ocean carriers. That tax should be evaluated under

the same constitutional standards applicable to personal

property taxes on containers that are owned by ocean

carriers and used for the same purpose. The Tennessee

court’s distinction between a property tax on instruments

of foreign commerce and a sales tax upon leases of such

property conflicts with this Court’s decisions and has no

rational basis.

A sales tax, when applied to per diem charges for use

of cargo containers confined to foreign commerce, must,

as a threshold matter, be apportioned geographically so

as to tax only revenues reflecting use of containers in the

taxing jurisdiction. A sales tax levied on lease hire from a

carrier’s use of equipment over time is a tax upon that

use wherever it occurs. Absent geographic apportion-

ment, state taxation based on use of containers employed

by foreign carriers on the high seas and in foreign coun-

tries is highly provocative and the likelihood of adverse

foreign tax reactions is much greater than in the case of

an apportioned personal property tax. Tennessee made

no attempt to apportion its tax to exclude from taxation

per diem lease hire from days the containers are used

outside the jurisdiction, although such apportionment is

possible. Other States have provided for apportionment

of sales and use tax levied upon lease hire of such equip-

ment used in interstate commerce so as to tax only lease

hire applicable to the period the property is used in the

state.

10

The state court’s decision hinges on the erroneous

assumption that multiple taxation of the same revenue is

not relevant under the Commerce Clause unless both

taxes are triggered by the identical event. Foreign coun-

tries can tax per diem charges on containers by levying

use taxes similar to Tennessee’s, based on the containers’

storage or use abroad or on whatever other taxable event

is chosen. Similarly, Tennessee can impose its use tax on

foreign leases between foreign nationals where the con-

tainers change possession abroad, if the containers are

used or stored in the state.

A tax which applies to revenue from foreign lease

transactions between foreign nationals based on foreign

use of containers, even if geographically apportioned,

would be at least as likely to provoke multiple and retal-

iatory taxation as an apportioned property tax on the

same containers. When a state breaks ranks with interna-

tional norms by commencing taxation of instruments of

foreign commerce and the tax is borne largely by foreign

carriers it creates consequences for the United States and

foreign countries alike. Foreign countries cannot negoti-

ate with Tennessee concerning Tennessee’s tax or retaliate

against Tennessee alone. Tennessee’s tax position

becomes an American tax position. It effectively ties the

diplomatic hands of the United States in protecting its

own nationals, whether by resisting foreign measures or

by mutual compromise concerning the application of both

taxes.

11

The United States is a signatory to treaties whose

purpose is to remove impediments to the use of con-

tainers as instruments of international commerce. These

treaties reflect international custom and practice protect-

ing containers from local taxation by establishing pro-

cedures through which containers enter and exit

signatory nations free of duties or taxes by reason of

importation. The containers at issue here can go on lease

in the United States and incur the Tennessee tax only by

reason of prior importation, and that importation is

under terms that render them tax and duty free under the

Customs Conventions on Containers. The narrow inter-

pretation which Respondent has given these treaty obli-

gations defeats their basic purpose.'4

ARGUMENT

I. APPLICATION OF TENNESSEE’S SALES TAX TO

LEASES OF MARINE CONTAINERS IMPERMISSI-

BLY BURDENS FOREIGN COMMERCE.

A. Sales Taxes On Container Lease

Hire Are Subject to the Same Commerce

Clause Standards As Property Taxes on

Carrier-Owned Containers.

The Commerce Clause of the Constitution, as con-

| Strued by the Court, permits states to tax instruments of

foreign commerce only under limited circumstances. The

4 Amici have reviewed in draft Petitioner’s argument

concerning application of the Export-Import Clause to the Ten-

nessee tax and adopt it.

12

Court has on varying grounds invalidated state taxes

imposed on vessels from outside the taxing jurisdiction,

federal taxes on charter hire and state taxes imposed on

containers as ship’s equipment. Hays v. Pacific Mail S.S.

Co., 58 U.S. (17 How.) 596, 598-99 (1855); United States v.

Hvoslef, 237 U.S. 1, 17 (1915); Japan Line, supra, 441 U.S. at

442, 448-49.15

In approving state taxes on the instrumentalities

of interstate commerce the Court consistently

has distinguished oceangoing traffic, supra, at

442; these cases reflect an awareness that the

taxation of foreign commerce may necessitate a

uniform national rule. Indeed in Pullman’s Pal-

ace, the Court wrote that the “vehicles of com-

merce by water being instruments of

intercommunication with other nations, the reg-

ulation of them is assumed by the national legis-

lature.” [Japan Line, supra, 441 U.S. at 449

(citations omitted).]}

A tax on instruments of foreign commerce such as

cargo containers must meet both the tests of Complete

Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), which

require a substantial nexus with the taxing State and fair

apportionment of the tax, and the tests of Japan Line, i.e.:

whether the tax, notwithstanding apportion-

ment, creates a substantial risk of international

15 The Tonnage Duty Clause of the Constitution (art. |,

§ 10, cl. 3) prohibits state taxes or fees imposed as a privilege

of a vessel call at a port in a state. It is a companion clause to

the Export/Import Clause, and it reflects the same fundamen-

tal national policy. See Steamship Co. v. Portwardens, 73 U.S. (6

Wall.) 31 (1867).

13

multiple taxation and, second, whether the tax

prevents the Federal Government from “speak-

ing with one voice when regulating commercial

relations with foreign governments”. If a state

tax contravenes either of these precepts, it is

unconstitutional under the Commerce Clause.

[441 U.S. at 451.]

A sales or use tax falls on buyers, who here are the

international ocean carrier lessees of the containers — the

same persons who would pay property tax on owned

containers, absent the Court’s ruling in Japan Line.'© Sales

or use tax on container leases has the same economic

impact on ocean carriers as property taxes imposed on

containers they own.!7 Sales or use taxes may have a

larger impact than property taxes, especially if the mix of

a carrier’s container fleet includes a large portion of

leased containers. Both taxes are imposed because ocean

carriers must use containers within the taxing jurisdiction

to move foreign cargoes in foreign commerce. Moreover,

container lease hire largely reflects the lessor’s own capi-

tal cost. A property tax on assessed value and a sales tax

on lease hire each reflect the on-going value of the prop-

erty to the ocean carrier. Unlike a one-time sales tax on

the sale of property, Tennessee’s sales tax based on total

16 See note 2, supra.

17 “Approximately 50 percent of the world’s international

container fleet is owned by container leasing companies. The

rest of the containers are owned by carriers (46 percent) with

small numbers belonging to shippers.” G. Muller, Intermodal

Freight Transportation 138 (2d ed. 1989). The leased containers

constitute an equipment fleet whose use is shared by ocean

carriers worldwide.

14

lease hire from recurring transactions operates much like

a property tax.

The constitutional standard applicable to a sales tax

imposed on container lease hire paid by ocean carriers

should be the same as the standard that applies to prop-

erty taxes paid by ocean carriers on containers they own

and use for the identical purpose. The decisions of this

Court do not suggest that the constitutional standard

differs, or produces different results, because of the label

affixed to the tax or because the events selected by the

state as the rationale for taxing differ.!9 What matters is

whether a container or container lease hire is likely to be

taxed more than once.

In applying the Export/Import Clause and exemp-

tions from tax under the Customs laws to invalidate state

taxes upon foreign commerce, the Court has not distin-

guished between sales and property taxes. The Court and

a Court of Appeals treated property taxes and sales

18 Property taxes can be and are levied on possessory

interests in leasehold property just as sales taxes can be

applied to the same property. Compare Seatrain Terminals of

California, Inc. v. County of Alameda, 83 Cal. App. 3d 69 (1978)

(possessory interest property tax), with United States Lines, Inc.

v. State Board of Equalization, 182 Cal. App. 3d 529 (1986) (sales

tax). Use taxes, imposed on storage or use of property, are

based on presence of the property in the jurisdiction much like

a property tax.

19 The state court’s formalistic distinction between a sales

tax and a property tax contravenes the Court’s commitment to

testing a state tax “based upon its actual effect rather than its

legal terminology.” Complete Auto Transit, Inc. v. Brady, supra,

430 U.S. at 281.

—— seen

15

taxes similarly in invalidating both types of taxes. Com-

pare Richfield Oil Corp. v. State Board of Education, 329 U.S.

69 (1946) (sales tax invalid under Export/Import Clause),

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

taxes invalid under Customs statute), with Xerox Corp. v.

County of Harris, 459 U.S. 145 (1982) (property tax on

bonded goods preempted), and Louisiana Land & Explora-

tion Co. v. Pilot Petroleum Corp., 900 F.2d 816 (5th Cir.),

cert. denied, 111 S. Ct. 248 (1990) (invalidating excise tax

under Export/Import Clause). The state court erred in

distinguishing the above cases simply because they were

rulings under the Export/Import Clause or Customs stat-

utes, rather than under the Commerce Clause. See App.

10a.2° These cases demonstrate that, in determining

whether state taxes burdening foreign commerce pass

constitutional muster, no distinction should be made

between property and sales taxes because in both cases

the burdens on foreign commerce are the same.

B. Tennessee’s Sales Tax Fails A Critical

Threshold Test Because It is Not

Geographically Apportioned.

Tennessee’s tax, as applied to lease hire for carrier

use of instruments of foreign commerce, fails a basic test

that Japan Line treated as a threshold requirement. The

20 The state court also found it significant that, under the

statute addressed in McGoldrick and Xerox, the goods were in

bonded warehouses “in the joint custody and continuous con-

trol and supervision of customs officers and the warehouse

proprietor.” App. 9a. However, in the case of bonded ware-

houses, custody, continuous control and supervision by cus-

toms officers are largely legal fictions.

16

test rejects taxes that, because unapportioned, intrinsically

have such a high probability of provoking multiple or retal-

iatory foreign taxes that it is unnecessary to analyze sep-

arately the probability of adverse foreign reaction. Although

Japan Line makes clear that apportionment of a tax imposed

on instruments of foreign commerce is not enough to save

the tax, it also makes clear that proper apportionment is

essential if such a tax is to have any prospect of being

upheld. 441 U.S. at 447, 450-51.

In Japan Line, the apportionment that met the Court's

threshold test was based on “average presence” of marine

containers in the jurisdiction over the course of a year. Id.

at 437. The apportionment requirement was explained in

Goldberg v. Sweet, 488 U.S. 252 (1989), in the context of an

excise tax on interstate commerce treated by the Court as

a sales tax. A state may tax:

only that portion of the revenues from the inter-

state activity which reasonably reflects the in-

state component of the activity being taxed. [Id.

at 262.}

Only if the state tax meets the apportionment test is it

necessary for a court to determine whether the tax “not-

withstanding apportionment” is likely to create double or

retaliatory taxation or prevents the United States from

speaking effectively with one voice. Japan Line, supra, 441

U.S. at 451.

Goldberg involved interstate telephone calls in domes-

tic commerce and a proposal for geographic apportion-

ment of millions of electronic impulses not capable of

being apportioned by the traditional geographic alloca-

tion used in the case of large, tangible instruments of

commerce like trucks or containers. Hence the tax there

17

was allocated by permitting each state to tax calls billed

to an address in the state, regardless of where the call was

initiated or received. Goldberg approved an apportion-

ment of sales tax based on practical considerations con-

cerning the matter taxed. It also made clear that the

appropriate apportionment for “the movement of large

physical objects over identifiable routes, where it was

practicable to keep track of the distance actually traveled

within the taxing State” is geographical apportionment

reflecting use of the equipment in the jurisdiction. Id. at

264. Indeed, that is the basis on which other taxes on

motor carrier equipment are required to be apportioned.

See American Trucking Ass‘ns v. Scheiner, 483 U.S. 266,

291-92 (1987).?1

Application of Japan Line’s geographic apportionment

requirement to sales or use tax imposed on lease hire paid by

carriers for the use of instruments of foreign commerce is not

novel. Nor does it affect the generality of sales and use taxes

applied outside this specialized context. It is already the

basis on which some states, undoubtedly in recognition of

Commerce Clause constraints, have apportioned their sales

and use tax as applied to leases of such equipment. Califor-

nia and Wisconsin provide for apportionment of sales or use

tax applicable to leases of personal property which are

treated as

21 Ocean cargo containers are physically similar to motor

vehicle trailers with the minor exception that ocean containers

are removable from the underlying wheeled chassis to permit

movement more readily on vessels and rail cars as well as by

highway. Geographic apportionment is a minimal requirement

for both types of equipment, but particularly so as to con-

tainers dedicated to foreign commerce because their taxation

raises all the problems outlined in Japan Line.

18

... a continuing sale . . . as respects any period

of time the leased property is situated in this

state, irrespective of the time or place of deliv-

ery of the property to the lessee or such other

person. [Cal. Rev. & Tax. Code § 6006.1 (West

1987); see Wisc. Stat. § 77.51(j) (1990).]

Wardair Canada, Inc. v. Florida Dep't of Revenue, 477

U.S. 1 (1986), did not eliminate Japan Line’s threshold

apportionment requirement as applied to sales taxes

imposed on leasing instruments of commerce.” The case

involved a tax on domestic fuel supplies sold to aircraft.

The airline claimed that, where fuel sales were made to

foreign aircraft to be consumed in flight, the sale could

not be subject to local fuel taxes. It was conceded in

Wardair that the tax was appropriately apportioned and

that there was no prospect of multiple taxation by foreign

countries when the aircraft arrived there. Id. at 8. The

Court upheld the tax. No other country was likely to tax

fuel largely consumed in the international flight, and

each country could tax its own domestic fuel sales to the

aircraft for the next flight. Wardair has no relevance to the

apportionment which Japan Line and Goldberg require

here.

Even if a state unilaterally apportions its tax, a sales

or use tax on container lease hire creates the same inter-

national problems that were fatal to the apportioned

property tax at issue in Japan Line, because there is no

% Department of Revenue v. Ass'n of Washington Stevedoring

Cos., 435 U.S. 734 (1978), is an example of a tax (there a

business gross receipts tax) that did not require apportionment

because the sole activity taxed was confined to the taxing state,

and neither the taxpayer nor the gross revenue could be taxed

elsewhere. The Court was careful to note that “[njo foreign

business or vessel is taxed.” Id. at 754. ‘

“

a

19

international agreement on apportionment and no iaiter-

national referee. An unapportioned sales or use tax a forti-

ori violates the Commerce Clause because it taxes per

diem container lease hire for lease days when the con-

tainers are used abroad or on the high seas. An unappor-

tioned tax like the one at issue here is a far blunter

instrument and is much more provocative than an appor-

tioned property tax.

Clearly, the Tennessee tax, which is not apportioned

to reflect use of the containers in the state, violates the

Constitution. Unlike the taxes on electronic impulses in

Goldberg or taxes on sale to foreign aircraft of domestic

fuel to be consumed in flight in Wardair, the lease hire

days to which the tax here applies are readily appor-

tioned geographically based on traditional methods.?? No

effort was made by Tennessee to apportion the tax geo-

graphically, and such failure in this context is fatal to the

tax.

C. The Tennessee Tax Is Likely to

Subject Container Lease Hire to

Multiple Taxation.

The lease hire involved in this case could clearly be

taxed by foreign countries. Indeed, the state court con-

ceded that

2 Allocation methods include use of a ratio of days in the

jurisdiction as compared to total lease days, as under Califor-

nia’s tax (Cal. Rev. & Tax. Code § 6006.1 (West 1987)), mileage

ratios reflecting distance traveled, or less costly formulae

approximating the same.

20

Other nations very well may adopt similar taxes on

the transfer of possession of leased containers

within their taxing jurisdictions. [App. 14a.]

Tennessee’s own use tax, like most state use taxes, would

subject lease hire revenues to use tax when containers go

on lease outside the state but are used or stored for use in

the state. See Tenn. Code Ann. § 67-6-203 (Supp. 1991).

Foreign countries could do the same based on container

use there. |

The state court erroneously assumed that its-inquiry

into potential multiple taxation ended under Japan Line if

foreign governments taxing the same lease hire could not

do so by basing their tax solely upon the identical “discrete

transaction” selected by Tennessee. This approach confuses

the question whether multiple taxation or retaliation by

foreign governments can or will occur with the question

whether taxation of the same revenue could be based on

the identical event selected by Tennessee.

Japan Line requires rejection of this extremely narrow

approach. The state court’s analysis nearly defines multi-

ple taxation out of existence as a constitutional concern

and makes the entire analysis of potential adverse foreign

reaction required by Japan Line largely irrelevant. In Japan

Line, Los Angeles sought to tax containers based on their

presence in the jurisdiction, while Japan apparently taxed

the containers based upon ownership by Japanese car-

riers and their use on Japanese vessels. 441 U.S. at 436.

That the duplicative taxes were triggered by different

premises did not save the apportioned California tax.

Tennessee’s attempt to distinguish its unapportioned

sales tax on the ground that any multiple taxation of the

same lease hire would be triggered by slightly different

taxable events improperly displaces the practical analysis

PO. ee a

21

required by Japan Line with conceptual labels. The proper

test is whether the same container lease hire is likely to

be taxed more than once, not whether the particular

taxable event chosen by a state can occur only in one

place.

State sales and use taxes, common in American

states, both apply to the same interstate sales revenues.

Clearly there would be duplicate taxation if both taxes

were assessed on the same revenue. Yet sales tax is based

on a change in possession of the property while use tax

on the same revenue is based on use or storage of the

same property in another state. What saves these duplica-

tive taxes under the Constitution is that domestic use

taxes generally provide credit for sales tax paid in other

states,74 not that both taxes could permissibly apply

because based on different taxable events.

Duplicative state sales and use taxes illustrate the

serious multiple international taxation problem that

ocean carriers face. Since their containers are used, are

stored, and change possession all over the world, multi-

ple taxation is both possible and likely once one major

nation commences to tax these lease revenues.”

24 It would appear that such a credit is required by the

Commerce Clause, although the Court has not expressly ruled

on this issue. See Williams v. Vermont, 472 U.S. 14, 21-22 (1985);

Japan Line, supra, 441 U.S. at 446; J.D. Adams Mfg. Co. v. Storen,

304 U.S. 307, 311-12 (1938).

25 Although Japan Line involved actual taxation of the

containers in another country, it is clear that the constitutional

standard relates to the risk of multiple taxation and does not

require awaiting the actual event. See Exxon Corp. v. Wisconsin

Dep't of Revenue, 447 U.S. 207, 228-29 (1980); Mobil Oil Corp. v.

(Continued on following page)

22

Moreover, nothing requires foreign countries imposing

use, sales or similar taxes on container lease hire to give

credit for sales or use tax paid to American states.

Duplicative taxation will also occur in the case of

leased containers changing possession abroad. Under the

state court’s constitutional rationale, in which double

taxation is not prohibited if based on a different taxable

event, American states would be free to apply use taxes

to transactions in which the change in container posses-

sion occurs in foreign countries. See Tenn. Code Ann.

§§ 67-6-203, 67-6-204 (1989 & Supp. 1991); Cal. Rev. & Tax

Code §§ 6006.1, 6203 (West 1987 & Supp. 1992). American

states provide no credit against their sales taxes for a use,

sales or similar tax paid abroad. See, e.g., Tenn. Code Ann.

67-6-507 (Supp. 1991); Cal. Rev. & Tax Code §§ 6006.1,

6406 (West 1987). Thus even California’s apportioned use

tax on lease hire would involve doubie taxation if a

foreign tax applied.

The state court erred by relying exclusively upon an

internal consistency test which asks whether, if all other

jurisdictions applied the identical tax, double taxation

would result. See Goldberg v. Sweet, supra, 488 U.S. at 261.

Such a test assumes a common referee to determine

which jurisdiction has tax primacy; it is inappropriate in

evaluating taxation of international transactions which

each country can tax on any basis it wishes. The state

(Continued from previous page)

Commissioner of Taxes, 445 U.S. 425, 444 (1980). To require the

actuality of double taxation before the Court acts would be

especially inappropriate in foreign commerce because the

United States cannot undo foreign reactions once they occur.

23

court’s reliance solely on the fact that other countries

could not tax the lease hire here if their tax were also to

depend upon a change of possession in the taxing juris-

diction defeats the test required by Japan Line in the

context of foreign commerce. That test, assuming appor-

tionment, requires an analysis of whether foreign double

taxation is likely and whether the “asymmetry” resulting

when states break ranks with international norms is

likely to provoke foreign response. Japan Line, supra, 441

U.S. at 449-50.

Wardair does not suggest that there could be no

duplicative foreign taxation here. In Wardair the discrete

event causing the Florida tax to apply was a sale of

domestic fuel to be consumed in flight making it highly

unlikely that foreign countries would tax either the fuel

or its sale. Indeed, the parties there conceded that there

was no threat of multiple international taxation, as there

is here. The tax in Wardair was not provocative because it

did not tax an instrument of foreign commerce, governed

by international conventions designed to preclude duty

or tax, but rather taxed the severance of fuel from a

fungible domestic supply when purchased for use in

foreign and domestic commerce alike. Had Florida

instead sought to tax foreign aircraft or to tax charter hire

on foreign aircraft paid by the Canadian air carrier for

international aircraft use, based on a change in posses-

sion in Florida while still in foreign commerce, an entirely

different question would have been presented.

Finally, the likelihood of multiple taxation here

extends beyond multi-national taxation of the identical

lease hire paid by ocean carriers. Possession of containers

under lease to ocean carriers changes frequently through

sub-leases and interchange of containers with connecting

24

carriers. These subsidiary changes in possession, which

occur both domestically and abroad, are themselves often

accompanied by an ocean carrier per diem charge.?¢

Thus, even if foreign countries did not tax the basic lease

hire taxed by Tennessee, other states or foreign countries

in which the leased containers change possession and

incur additional charges could impose sales or use tax for

the same days that Tennessee is taxing under the basic

lease.

D. Permitting The Tennessee Tax To Stand

Will Provoke Adverse Foreign Reaction

and Preclude the United States From

Speaking With One Voice.

For the reasons that the Court.emphasized in Japan

Line, amici suggest that foreign objections and retaliation

are likely if American states are permitted to tax interna-

tional container lease hire.?7

*° A sales tax imposed upon a charge made by the ocean

carrier for use of the container by a cargo shipper or consignee

would fall on an export or import and would be invalid for

that reason. See Richfield Oil Corp. v. State Board of Equalization,

329 U.S. 69, 80 (1946), and cases cited therein invalidating

federal taxes on charter parties and bills of lading as taxes on

exports. A tax on charges to connecting carriers and the tax

here should similarly be invalid.

27 Since this Court has not yet spoken and knowledge of

the Tennessee tax is not widespread, no inference can be drawn

from the fact that, as yet, foreign countries have not protested

or commenced double or retaliatory taxation. See Brief for the

United States at 7, n.8. So far as is known, Tennessee is the only

jurisdiction anyw*ere to have imposed such a tax. Further, this

(Continued on following page)

25

If a novel state tax creates an asymmetry in the

international tax structure, foreign nations dis-

advantaged by the levy may retaliate against

American-owned instrumentalities present in

their jurisdictions. [441 U.S. at 450.]

This is such a case. As Petitioner points out, foreign built

containers, admitted to a country as instruments of com-

merce under the Customs Convention on Containers, are

not subject to comparable taxes elsewhere. If this Court

should uphold the tax, other states needing revenues will

apply their sales taxes to similar transactions and their

use taxes to transactions in which possession does not

change in the state but the containers are used or stored

in the state. By such piecemeal actions, the United States

will have departed from international practice.

Such unilateral actions will cause international reac-

tion affecting the entire country and its national, carriers.

Foreign nations whose carriers are adversely affected

cannot deal diplomatically with Tennessee or retaliate

solely against Tennessee. See Japan Line, supra, 441 U.S. at

450, n.16. If foreign nations object through diplomatic

channels to the United States or retaliate against Ameri-

cans, there is no effective way for the United States to

negotiate concerning such state taxes and no credible way

to oppose similar taxes imposed by other countries. If

foreign nations impose similar taxes — for example, taxing

lease hire between American leasing companies and

American carriers entered into in the United States but

(Continued from previous page)

case arose on audit, and the tax was imposed on Petitioner

after the transaction was complete so that the impact of such

taxes have not yet been felt by foreign ocean carriers.

26

involving containers whose possession changes abroad -

Tennessee's action here will have made it virtually impos-

sible for the United States to defend its citizens’ interests.

Japan Line recognized this problem with considerable per-

ception:

A State tax on instrumentalities of foreign com-

merce may frustrate the achievement of federal

uniformity in several ways. If the state imposes

an apportioned tax, international disputes over

reconciling apportionment formulae may arise.

If a novel state tax creates an asymmetry in the

international tax structure, foreign nations dis-

advantaged by the levy may retaliate against

American-owned instrumentalities present in

their jurisdictions. Such retaliation of necessity

would be directed at American transportation

equipment in general, not just that of the taxing

State, so that the Nation as a whole would suf-

fer. If other States followed the taxing State’s

example, various instrumentalities of commerce

could be subjected to varying degrees of multi-

ple taxation, a result that would plainly prevent

this Nation from “speaking with one voice” in

regulating foreign commerce. [Japan Line, supra,

451 U.S. at 450-51.]

State sales and use taxes create a range of interna-

tional conflict problems that go well beyond those fore-

seen in Japan Line. American states, applying existing use

taxes, could tax revenue from container leases entered

into abroad between foreign concerns even where posses-

sion changes abroad. Under the rationale used by the

state court, such taxes would be constitutional since, if

the foreign country imposed a tax based on change of

possession or some other event there the state would be

taxing a different event. If the foreign country did not tax

ee

27

because it believed the Customs Conventions on Containers

prohibited tax, Tennessee would cite an absence of any

conflict. Yet it is hard to imagine a state tax that intruded

more on foreign jurisdiction, rights and tax policies or that

would more certainly and rightly provoke reaction.

E. Lease Hire Paid by Ocean Carriers May

Not Be Subjected to Sales Tax Merely

Because the Containers Are Owned By an

American Company. .

The state court rejected as discriminatory a distinc-

tion that would limit sales taxes to those imposed when

the lessor is an American concern. App. 8a. The Tennes-

see court was correct in observing that such a distinction

itself raises serious constitutional questions.2® The Solici-

tor General, however, has urged adoption of a rule that

would limit any constitutional constraints on state taxa-

tion of foreign containers to taxes imposed on containers

owned by foreign entities or where foreign entities were

the lessors stating: “For the same reasons that foreign

nations possess a prior right to tax foreign-owned instru-

mentalities of foreign commerce, so too does this Nation

and its States possess the right to tax the domestically

owned instruments of commerce.” Brief For the United

States at 8-9. Under this proposal Petitioner’s containers

on lease to ocean carriers would be taxed, but those

leased by Petitioner’s foreign competitors would not.

28 See Sears, Roebuck & Co. v. County of Los Angeles, 449 U.S.

1119 (1981) aff’g 85 Cal. App. 3d 763 (1978); Star-Kist Foods, Inc.

v. County of Los Angeles, 42 Cal. 3d 1, 14 (1986), cert. denied, 480

U.S. 930 (1987).

28

It is unusual for a government to propose tax dis-

crimination against its own nationals. The only apparent

justification for such a proposal, especially in context of

fierce and continuing competition in international mar-

kets, would appear to be an overriding concern that if

Tennessee’s tax were imposed on transactions involving

foreign lessors adverse foreign reac‘ion contemplated in

Japan Line would be probable. Discriminating against

American lessors by imposing tax burdens only on ocean

carriers dealing with American companies probably

would eliminate the risk of international conflict and

double taxation. However, that is because, in the case of

price sensitive container leasing, such a ruling would

discourage ocean carriers from dealing with American

leasing companies. To avoid the tax, foreign lessees need

only deal with foreign lessors. That solution to interna-

tional conflict appears extreme and inequitable. Amici —

suggest that the correct rule is that co1‘uiners subject to

the Customs Conventions on Containers, and whose use

is restricted to foreign commerce, should not be subject to

such taxes at all.

Il. THE TENNESSEE TAX CONFLICTS WITH THE

CUSTOMS CONVENTIONS ON CONTAINERS.

The Customs Conventions on Containers reflect both

a national policy and an international commitment by all

signatory nations “to remove impediments to the use of

containers as ‘instruments of international traffic.’ ” Japan

Line, supra, 441 U.S. at 453. The Conventions are impor-

tant here not only as federal law superseding conflicting

state law, but also as an important part of the analysis

required under the Commerce Clause. Both as written

and as uniformly understood and applied in practice, the

29

Conventions reflect an international consensus that con-

tainers admitted to a country as instruments of commerce

not be subject to tax.

The Conventions are not properly interpreted simply

by reading them as if they were tax regulations or the fine

print of insurance policies. Rather they should be “con-

strued more liberally” as an international charter in

accordance with their history and “the practical construc-

tion adopted by the parties”. See Air France v. Saks, 470

U.S. 392, 396 (1985); quoting Choctaw Nation of Indians v.

United States; 318 U.S. 423, 431-32 (1943).

The Conventions preclude both “duties” which are

assessed ad valorem on imported articles and “taxes”

collected by reason of importation. The construction

given to the Conventions by the state court and the

Solicitor General is unduly restrictive, because they read

“all duties and taxes whatsoever chargeable by reason of

importation”?9 and “free of import duties and taxes and

free ‘of import prohibitions and restrictions” as nar-

rowly confined to “duties” imposed as of the moment of

clearing customs. Clearly, taxes otherwise prohibited by

the Conventions are not saved because they happen to be

imposed by a state rather than the federal government or

because they are imposed at an inland point or at the

point of departure from the country. The Conventions

could be evaded at will by such an approach. Any gov-

ernment, by assigning the right label to its tax and impos-

ing it after initial import, could defy the Conventions by

asserting that its subjective intent was not to tax the

container “by reason of importation”. This is not an

29 1956 Convention, art. 1(a).

% 1972 Convention, art. 1(b).

30

interpretation that the United States would be likely to

countenance if foreign countries so taxed American con-

tainers.

The foreign-built containers in question are available

for lease in Tennessee only because they have been admit-

ted under the Conventions and Customs regulations

implementing them. The Conventions contemplate that

the containers leave the country not later than three

months after being admitted. 1972 Convention, art. 4. The

proper and the only workable construction of the Con-

ventions is that they prohibit any tax imposed on these

instruments of foreign commerce, when admitted under

Customs bond and in accordance with Customs regula-

tions governing their use. That construction reflects a

clear, enforceable line and an unambiguous standard that

is free of subjective controversies over the intent of a

particular tax. The construction proposed is a workable

one which other nations observe. States of the United

States should do so as well.

>

CONCLUSION

Amici respectfully urge the Court to hold the Tennessee

tax to be contrary to the Constitution of the United States.

Respectively submitted,

R. Freperic FisHer

Counsel of Record

Barry J. LONDON

LawReNce N. MINCcH

Lituck & CHARLES

Two Embarcadero Center

San Francisco, CA 94111

Telephone (415) 984-8200

Attorneys for Amici Curiae

NT an [Oe ae ee ee eR PS ae ee ee ee ee ’

Pe Pe he ee