Opposition Brief — United States v. International Business MacHines Corp. Certiorari to the United States Court of Appeals for the Federal Circuit

Supreme Court, U.S |

+ FITTED

No. 95-591 nov 7 1995

CLERK |

IN THE |

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

UNITED STATES OF AMERICA, Petitioner,

Vv.

INTERNATIONAL BUSINESS MACHINES CORPORATION ;

Respondent.

On Petition for a Writ of Certiorari to

the United States Court of Appeals

for the Federal Circuit

BRIEF FOR RESPONDENT

INTERNATIONAL BUSINESS MACHINES CORPORATION

IN OPPOSITION

Andrew W. Singer

James R. Atwood

(Counsel of Record)

Matthew Yeo

COVINGTON & BURLING

1201 Pennsylvania Ave., N.W.

P.O. Box 7566

Washington, D.C. 20044-7566

(202) 662-6000

Attorneys for Respondent

International Business

November 1995 Machines Corporation

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PARTIES TO THE PROCEEDINGS

The caption of the case contains the names of all parties.

International Business Machines Corporation has no parent

corporations and no subsidiary corporations that are not

wholly owned.

TABLE OF CONTENTS

Page

2 oe ood oe eked b haan es i

Parties to the Proceedings .................. il

PPD SSeGeocboes stb cces éée ve ili

PT I Sac co céeccesbeeteeccs iv

SD GE GO GD cccccedcccccccceccess |

Reasons for Denying the Writ ................ 5

1. The Lower Courts Correctly Applied the Export

Clause as Construed in Thames & Mersey and Other

Cases, and the Government Has Demonstrated No

Basis for Overruling this Court’s Precedents Under

PUES ORG eee e ES ee edereesee 6

2. Under the Claims Court’s Alternative Holding, the

Tax Here Is Still Invalid as Applied, Even if the

Import-Export Clause Analysis Were Relevant. ... 12

3. There Is Neither a Significant Revenue Measure Nor

a Principle of Broad Application Presented in this

TABLE OF AUTHORITIES

Cases Page

A.G. Spalding & Brothers v. Edwards, 262 U.S.

Sn” T's é & 6 wae oe ee ee he 3, 9

Armour Packing Co. v. United States, 209 U.S.

See ~~ desns os sbicade ae Gees ba x 11

Black v. Cutter Laboratories, 351 U.S. 292 (1956) .. 13

Brown v. Maryland, 25 U.S. (12 Wheat.) 419

6640646660 e HE Rees eee stueus 11

Department of Revenue v. Association of

Washington Stevedoring Cos., 435 U.S. 734

Se. bebe ehetec benceetunenect 4, 6-13

Fairbank v. United States, 181 U.S. 283 (1901)8, 9-10, 11

Head Money Cases (Edye v. Robertson), 112 U.S.

EE. 0:0 ont Wamu nedaals 660 od a’ 2

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

PE oé orteebabiscesadvrec tui 4, 6-13

Moon v. Freeman, 379 F.2d 382 (9th Cir. 1967) ..... 2

Pace v. Burgess, 92 U.S. 372 (1875) ............ 2

Thames & Mersey Marine Insurance Co. v. United

Ss ee Ws PE ceecccceccec passim

Turpin v. Burgess, 117 U.S. 504 (1886) .......... 3

United States v. Gosho Co., 23 F.2d 675 (Sth

an. evude s kt weeee hie & i665 Kluie 3

United States v. Hvoslef, 237 U.S. 1 (1915) ... 2, 8, 11

United States Shoe Corp. v. United States, No. 94-11-00668

Gu. Eae't Toate Gat. 25, 19GB) 0 cece 15

Vv

Constitution and statutes:

ee Ce as es te se le x

ee ee ee sé bee ee 12

Ff 8 §S 8 § eePrrreecrcrre passim

8 BO REO a eee re Te 6-12

Internal Revenue Code § 4371, 26 U.S.C. § 4371 . passim

Internal Revenue Code § 4372, 26 U.S.C. § 4372 ..1, 2

Internal Revenue Code §§ 4461-4462, 26 U.S.C.

SUGGES cccesocesecdieaetewece 14-15

Treaties:

Convention for the Avoidance of Double Taxation,

Aug. 31, 1994, U.S.-France, ratified, 141 Cong. Rec.

PG, Os PE Rete neneceeueees 14

Convention for the Avoidance of Double Taxation,

Aug. 29, 1989, U.S.-Germany............. 14

Third Protocol Further Amending the Convention for

the Avoidance of Double Taxation, Mar. 15, 1979,

U.S.-U.K., 31 U.S.T. 5709, T.1.A.S. 9682 .... 14

Miscellaneous:

S. Exec. Rep. No. 7, 104th Cong., Ist

DD scateneeeeds beseocteaens 14

Rev. Rul. 57-256, 1957-1C.B. 416 ............. 2

1 J. Ross Macdonald, Annotated Topical Guide to U.S.

Income Tax Treaties (1990-2 Supp.) ......... 14

The Records of the Federal Convention of 1787 (Max

Farrand ed., revised ed. 1937) ............. 10

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1995

No. 95-591

UNITED STATES OF AMERICA, Petitioner,

Vv.

INTERNATIONAL BUSINESS MACHINES CORPORATION,

Respondent.

BRIEF FOR RESPONDENT

INTERNATIONAL BUSINESS MACHINES CORPORATION

IN OPPOSITION

STATEMENT

Respondent International Business Machines Corporation

(IBM) brought this suit in the United States Court of Federal

Claims to obtain a refund of $826,054.55 in taxes assessed

under § 4371 of the Internal Revenue Code. (App. 33a)’

Section 4371 (26 U.S.C. § 4371) imposes a tax of four cents

per dollar on insurance premiums paid to a foreign insurer for

risks or losses wholly or partly within the United States. See

26 U.S.C. §§ 4371 & 4372. As an exporter of computers and

other business products, IBM purchased — either directly or

through its foreign subsidiaries — casualty insurance to

protect against the risk of loss or damage to its products

' The amount of $1.5 million referenced in the Government's petition

(Pet. 4) includes both taxes and interest covering a ten-year period. (See

App. 33a) Thus, even for a major exporter such as IBM, the taxes

claimed by the Government amounted to only about $82,000 per year.

2

during the export process. The insurance was “point to

point"; that is, it applied to each shipment from the time it left

IBM's facility in the United States until arrival at the foreign

destination.’ When the insurance was purchased by a foreign

subsidiary, a foreign insurance company would typically issue

the policy, and thus the statutory language of § 4371 was

triggered.’

Eighty years ago, this Court held in Thames & Mersey

Marine Ins. Co. v. United States, 237 U.S. 19 (1915). that a

very similar federal tax levied against premiums paid for

marine casualty insurance was unconstitutional as applied to

export shipments. The reason was the Export Clause of the

Constitution: "No Tax or Duty shall be laid on Articles

exported from any State.” U.S. Const. art. I, § 9, cl. 5. The

Court in Thames & Mersey concluded that a tax upon

insurance policies covering export shipments was "so directly

and closely related to the ‘process of exporting’ that the tax is

in substance a tax upon the exportation and hence within the

constitutional prohibition . . . ." 237 U.S. at 25, quoting

United States v. Hvoslef, 237 U.S. 1, 13 (1915). Based on

the authority of Thames & Mersey, IBM took the position that

Germany, Haiti, India, Japan, Kuwait, Malaysia, Norway, Peru,

Africa, Switzerland, Thailand, the former U.S.S.R., Vietnam,

Zambia. The insurance applied during the inland leg in the United States,

the overseas portion of the journey, and the inland segment within the

foreign country, but in all cases insurance coverage did not commence until

the shipment had been tendered in the United States to a common carrier

for direct shipment abroad. App. 36a-39a.

> The tax applies where the insured risk is “wholly or partly” within the

United States. 26 U.S.C. § 4372(d). The Government has construed this

to mean that the tax thus applies to the entirety of an international shipment

so long as there is more than a “trifling” portion of the risk within the

United States. See Rev. Rul. 57-256, 1957-1 C.B. 416.

3

§ 4371 could not constitutionally be applied to casualty

insurance premiums for its export shipments.

After audit of IBM’s tax returns for the years 1975

through 1984, however, the Internal Revenue Service main-

tained that IBM was liable for the § 4371 tax insofar as the

policies purchased from foreign insurers applied to IBM’s

exports from the United States. (App. 17a) As part of the

audit process, IBM requested the IRS District Director to seek

technical advice from the Service’s National Office on IBM’s

position that the § 4371 tax as so applied was in violation of

the Export Clause. The National Office rejected IBM’s posi-

tion, maintaining that Thames & Mersey was distinguishable

for two reasons: first, that § 4371 was a regulatory measure

rather than a "tax" within the meaning of the Export Clause,‘

and, second, that the Export Clause did not apply on the facts

here because the insured risks included the intra-U.S. trans-

portation leg of the export journey.*

Once IBM filed suit for refund, the Government aban-

doned the IRS position that Thames & Mersey was distinguish-

able. In both the Court of Federal Claims and the Federal

Circuit, the Government conceded that — if the Export Clause

* App. 17a. This argument was based on holdings that the Export

Clause does not prohibit user fees or other charges that are designed to

of the products in question. E.g., Head Money Cases (Edye v. Robertson),

112 U.S. 580, 595-96 (1884); Pace v. Burgess, 92 U.S. 372, 375 (1875);

Moon v. Freeman, 379 F.2d 382, 391-92 (9th Cir. 1967). Here, however,

§ 4371 is clearly a general revenue provision -- not a user fee -- a view

that the Government ultimately accepted. See pp. 3-4 infra.

* App. 17a. This position was squarely at odds with this Court’s

holdings that the protection of the Export Clause attaches as soon as goods

have started their export journey, even if still within the United States.

E.g., A.G. Spalding & Bros. v. Edwards, 262 U.S. 66, 69-70 (1923);

Turpin v. Burgess, 117 U.S. 504, 507 (1886). See alsu United States v.

Gosho Co., 23 F.2d 675 (Sth Cir. 1928).

4

had been correctly interpreted and applied in Thames &

Mersey — then the tax here was also unconstitutional as

applied and that IBM was entitled to a full refund. (App. la

& 22a)

On stipulated facts, the Court of Federal Claims (Senior

Judge Thomas J. Lydon) granted IBM’s motion for summary

judgment and denied the Government’s cross-motion. The

court held that, on the facts presented, "the tax imposed by

§ 4371 is a tax that amounts to a tax on exports” (App. 26a);

that Thames & Mersey was controlling (App. 27a); and that

recent Court decisions under the Import-Export Clause® could

not be read as rejecting this Court’s established rulings under

the Export Clause (App. 27a). As an alternative ground,

Judge Lydon also ruled that the federal tax here and in

Thames & Mersey were distinguishable from the state taxes

upheld in the recent Import-Export Clause rulings:

"Thus, even if the government is correct in its

assertion that all taxes that involve exports, whether

considered in light of the Export Clause or the

Import-Export Clause, should be examined to see if

they discriminate against exports qua exports, it

appears that in the Court’s view a tax such as that

imposed by § 4371 could indeed be considered a tax

on exports in their capacity as exports"

and thus be unconstitutional as applied. (App. 29a) This was

because § 4371 amounted to an ad valorem tax on export

goods in transit,’ a type of tax that this Court’s recent Import-

Export Clause rulings indicated was distinguishable from the

° Principally Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976), and

Department of Revenue v . Association of Washington Stevedoring Cos., 435

U.S. 734 (1978).

’ ‘The tax imposed by § 4371 varies directly with the declared value of

the export shipment. App. 39a.

5

State taxes that were there upheld. (App. 29a)

The Federal Circuit Court of Appeals affirmed in a

unanimous decision by Judge William C. Bryson (Chief Judge

Archer and Judge Plager joining). After reviewing the history

of the Export Clause, the court of appeals observed:

"Acknowledging the importance of the Export Clause and its

flat prohibitory language, the Supreme Court has consistently

given the Clause a broad construction." (App. 5a) While this

Court has in recent years narrowed its construction of the

Import-Export Clause applicable to state taxation,

"[sJupport for the continuing vitality of Thames &

Mersey can be found both in the Court’s Import-

Export Clause decisions and in the distinctions in

language and policy between the Import-Export

Clause and the Export Clause." (App. 9a)

Hence, “[w]hile the Supreme Court may at some point

reconsider Thames & Mersey" (App. 8a), on the basis of

current law and the “undisputed applicability of Thames &

Mersey" (App. lla) the § 4371 tax as applied to the facts of

IBM’s export shipments was unconstitutional.

REASONS FOR DENYING THE WRIT

The Government has failed to justify granting the writ of

certiorari. The decisions of both lower courts are correct, for

they correctly applied the rulings of this Court in Thames &

Mersey and in other cases decided under the Export Clause.

There is no conflict in the circuits, and indeed no court (or,

to our knowledge, any commentator) has suggested that

Thames & Mersey should be overruled or that this Court’s

recent decisions under the Import-Export Clause — which has

a different text and serves different purposes — should be

read as undermining decades of established precedents under

the Export Clause. Moreover, as the Court of Federal Claims

observed, the result in this case would be unaffected even if

6

the Import-Export Clause analysis were found applicable to

challenges to federal taxes under the Export Clause. Finally,

no important revenue measure is at stake in this case, and no

broad principle applicable to other revenue measures has been

established.

1. The Lower Courts Correctly Applied the Export

Clause as Construed in Thames & Mersey and Other

Cases, and the Government Has Demonstrated No

Basis for Overruling this Court’s Precedents Under

the Export Clause.

The Government has conceded throughout this litigation

that, if Thames & Mersey is good law, IBM is entitled to

prevail in its demand for refund.* Thus, this is not a case in

which a lower court has embraced a novel or questionable

principle of constitutional law to invalidate a federal statute.

To the contrary, the lower courts correctly applied binding

precedents of this Court to find, on the particular facts of this

case, that a statute was unconstitutional as applied (but not

generally).

The Government argues that Thames & Mersey should

now be overruled, not because of any new case law under the

Export Clause (applicable to federal taxes) but because of

recent cases under the Import-Export Clause (applicable to the

States),’ in particular Michelin Tire Corp. v. Wages, 423

U.S. 276 (1976), and Department of Revenue v. Association

of Washington Stevedoring Cos., 435 U.S. 734 (1978).

Michelin and Washington Stevedoring held that the Import-

Export Clause did not prohibit the States from applying non-

discriminatory taxes to imports and exports, and the

* The position of the IRS that Thames & Mersey was distinguishable

was abandoned by the Government once IBM filed suit. See pp. 34

supra.

% U.S. Const. art. I, § 10, cl. 2.

7

Government now argues that the same principle should govern

the Export Clause. But Michelin and Washington Stevedoring

provide no support for that view.

In Michelin, the Court held that Georgia’s ad valorem

property tax could be applied to imported goods no longer in

transit in the same manner that the tax applied to domestic

goods. The Court reasoned that the Import-Export Clause was

intended by the Framers to serve three purposes: (1) that the

federal government speak with one voice in regulating foreign

commerce; (2) that federal import revenues not be diverted to

the States; and (3) that state imposts and duties not disrupt

harmony among the States, particular!y between seaboard and

inland states. 423 U.S. at 285-86. A non-discriminatory state

property tax, applied equally to domestic and imported goods,

did not appear to clash with those objectives.

The Michelin Court then observed that, consistent with its

limited objectives, the Import-Export Clause was phrased in

terms of a prohibition of only state “imposts" and "duties,"

and "just as clearly, the Clause is not written in terms of a

broad prohibition of every ‘tax.’" Jd. at 290 (emphasis

added). Relying on historical sources, the Court found the

omission from the Import-Export Clause of the term "tax" to

be important and to signify that the clause should apply only

to revenue measures that were targeted at goods produced

abroad. Jd. at 287, 291-93. Thus, the Court held that the

Import-Export Clause did not prohibit uniform state taxes on

imported goods no longer in transit, so long as such taxes

applied without regard to the foreign origin of the goods; such

nondiscriminatory state taxes were not “imposts or duties"

within the meaning of the Import-Export Clause.

This line of reasoning was extended to state taxation of

exports in Washington Stevedoring. That case involved Wash-

ington’s business and occupation tax as applied to stevedoring

activities conducted within the state. The Court reviewed the

limited purposes of the Import-Export Clause that had been

identified in Michelin and found here too that the state tax did

8

not offend those objectives. As the tax did not discriminate

between export and domestic commucrce and applied only to

services conducted within the state, the tax caused neither

disharmony among the States nor disruption of federal foreign

affairs. Moreover, a state tax impacting exports would not

interfere with federal tax revenues because the federal

government was itself precluded by the Export Clause from

taxing exports.'? The Court then reiterated the "central

holding" of Michelin: that the Import-Export Clause by its

terms was a prohibition "only of ‘Imposts or Duties’ and not

of all taxes." 435 U.S. at 759. A non-discriminatory state

levy on services performed within the taxing state was thus

held not to be an impost or duty within the meaning of the

Import-Export Clause. Jd. at 761.

Plainly, Michelin and Washington Stevedoring cannot be

read as supporting the Government’s proposed reinterpretation

of the Export Clause. Both rulings were based on a textual

examination of the Import-Export Clause (dealing with imposts

and duties but "not written in terms of a broad prohibition of

every ‘tax’"; Michelin, 423 U.S. at 290) and on the limited

purposes which the Framers intended that clause to serve.

Both decisions stressed the omission of the word "tax" from

the Import-Export Clause prohibition and both contrasted that

language with the Article I, § 8, cl. 1 grant to Congress of the

"Power To lay and collect Taxes, Duties, Imposts and

Excises." Michelin, 423 U.S. at 290; Washington Stevedor-

ing, 435 U.S. at 759 (emphasis added). The language of the

Export Clause similarly contrasts with the Import-Export

Clause, for the Export Clause provides: "No Tax or Duty

shall be laid on Articles exported from any State." Art. I,

‘0 The Import-Export Clause as applied to exports “does not serve to

protect federal revenues . . ., because the Constitution forbids federal

taxation of exports. U.S. Const., Art. I, § 9, cl. 5; see United States v.

Hvoslef, 237 U.S. 1 (1915)." 435 U.S. at 758 (emphasis added).

9

§ 9, cl. 5 (emphasis added). The absence of a prohibition on

"taxes" in the Import-Export Clause was central to the

Michelin and Washington Stevedoring holdings, and belies the

notion that those decisions are guidance to interpreting the

Export Clause, which explicitly does prohibit any federal

"tax."

But the defect in the Government’s position is far deeper

than linguistic. Michelin and Washington Stevedoring conclud-

ed that the objectives of the Import-Export Clause were to

ensure that the states not intrude on specified federal

prerogatives (foreign affairs and import revenues) and that

border states not exploit their geographic position against

inland states. Michelin, 423 U.S. at 285-86; Washington

Stevedoring, 435 U.S. at 752-53. Quite obviously, these were

not the objectives of the Export Clause, which imposes

restrictions on the federal government (not the States) and in

no way deals with the relations between the States. The

Export Clause has always been understood as imposing a

broad and unqualified prohibition of federal taxation of

exports and as not limited simply to the prevention of

discrimination. E.g., Fairbank v. United States, 181 U.S.

283 (1901)."" The Framers intended that exports "not be

'' Fairbank explicitly rejected the Government’s argument that the

Export Clause prohibits “mere discrimination.” 181 U.S. at 292:

"This argument [by the Government] does not commend itself

to our judgment. Its implication is that the sole purpose of this

constitutional restriction was to prevent discrimination between the

States by imposing an export tax on certain articles which might be

a product of only a few of the States, and which should be enforced

only so far as necessary to prevent such discrimination. If mere dis-

crimination between the States was all that was contemplated it would

seem to follow that an ad valorem tax upon all exports would not be

limitation Congress can impose an export tax neither on one article

(continued...)

10

made a source of revenue to the National Government" and,

indeed, that the federal government "should put nothing in the

way of burden upon such exports." Jd. at 292-93. This

exemption from taxation "was one of the compromises which

entered into and made possible the adoption of the Constitu-

tion." Jd. at 290. The clause prohibits all federal taxation of

exports, not just taxes that were "discriminatory" or directed

at exports as such. Exports were to have a “liberal

protection” from federal taxation (A.G. Spalding & Bros. v.

Edwards, 262 U.S. 66, 70 (1923)), and the Court’s more

narrow interpretation of the Import-Export Clause simply does

not carry over.”

The fallacy in the Government’s position is illustrated

most strikingly by one passage in Washington Stevedoring

where this Court relied on the prohibition of federal taxes in

the Export Clause to conclude that the States enjoyed greater

taxing freedom under the Import-Export Clause. The Court

noted that one objective of the Import-Export Clause was to

"(,. continued)

of export, nor on all articles of export. In other words, the purpose

of the restriction is that exportation, all exportation, shall be free

from national burden."

2 At the Constitutional Convention, both supporters and critics of the

Export Clause recognized its broad and unqualified scope. See 2 The

Records of the Federal Convention of 1787 220 (Max Farrand ed., revised

ed. 1937) ("[Tjise hands of the Legislature were absolutely tied. . . .

exports could not be taxed.") (remarks of Mr. King); id. at 361 ("It is best

to prohibit the National Legislature in all cases.) (remarks of Mr.

Sherman); id. at 362 (Col. Mason stating his opposition to “subjecting [the

states’] exports as well as imports to a power of general taxation"). See

also the decision of the court of appeals below at App. 10a ("While the

Import-Export Clause was intended to prohibit States from imposing a

‘transit fee’ on goods moving in foreign commerce, the Export Clause

served the broader purpose of ‘forbid{ding] federal taxation of exports.’”)

(citations omitted).

11

ensure that the States did not impair federal taxation of

imports, which were expected to be a major source of revenue

for the national government. See Michelin, 423 U.S. at 285.

In addressing the relevance of this objective in the export

context, the Court in Washington Stevedoring observed that

giving the States greater taxing leeway would not impair

federal revenues because the federal government itself could

not tax exports. 435 U.S. at 758, citing the Export Clause

and United States v. Hvoslef.”’ \t utterly defies logic for the

Government now to argue that Washington Stevedoring

supports new, broader taxing authority for the federal govern-

ment, when the Court’s holding that the States could tax

exports relied directly on the proposition that the federal

government could not.

Finally, the Government stresses that for many years this

Court read the Export Clause and the Import-Export Clause in

parallel. (Pet. 15-16) While that was once true,” that

approach was necessarily abandoned in Michelin and

Washington Stevedoring. There, in reaching a new and

narrower interpretation of the Import-Export Clause, the Court

placed clear and decisive weight on that clause’s specific

objectives and its application only to "imposts and duties” and

not more broadly to “taxes.” See pages 7-9 supra. The

Export Clause, by contrast, serves different purposes and does

say "No Tax.” Given the different language and objectives of

the two clauses, the Government’s proposed reinterpretation

of the Export Clause to fit the new Import-Export Clause

mold is not viable. The lower courts were thus correct to

adhere to Thames & Mersey, Fairbank, and Hvoslef, and to

% See note 10 supra.

* E.g., Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 445 (1827)

(“[t}here is some diversity in language, but none is perceived in the act

which is prohibited").

12

hold the § 4371 tax to be unconstitutional as applied.”

2. Under the Claims Court’s Alternative Holding, the

Tax Here Is Still Invalid as Applied, Even if the

Import-Export Clause Analysis Were Relevant.

For the reasons just discussed, the Export Clause analysis

should be unaffected by recent decisions under the Import-

Export Clause. But even if that were not so, the result in this

case is unchanged. As the Claims Court ruled in its

alternative holding, Thames & Mersey and the present case are

readily distinguishable from Michelin and Washington

Stevedoring. Michelin involved a state tax on imported goods

that were no longer in transit (423 U.S. at 302), and the

stevedoring levy in Washington Stevedoring involved a tax

"upon a service distinct from the goods and their value." 435

U.S. at 757 (emphasis added). On this point in Washington

Stevedoring, the Court noted Thames & Mersey and observed:

"In distinguishing that case from the taxation of stevedoring

activities . . ., one might note that the value of goods bears a

much closer relation to the value of insurance policies on them

than to the value of loading and unloading ships." Jd. at 756

n.21.

The § 4371 tax in question here, like the tax in Thames

‘Ss The Government's reliance on Commerce Clause cases as justifying

federal taxation of exports is also inappropriate. The fact that the

Commerce Clause has played only a limited role in restricting state taxes

(Pet. 24-25) is hardly instructive on how one should interpret the express

preclusion in the Export Clause of federal taxes on exports. See, ¢.g., Pet.

21 n.8 ("These decisions concerning the negative implications of the Com-

merce Clause are not logically relevant to analysis under the Export

Clause.”). Similarly, while the Commerce Clause authorizes federal

regulation of export commerce, that authorization is still subject to the

Export Clause’s prohibition of taxation of exports. E.g., Armour Packing

Co. v. United States, 209 U.S. 56, 79 (1908). Here, the Government has

conceded that § 4371 is a “tax” and not a regulation. See pp. 3-4 supra.

13

& Mersey, applies to the goods while in transit and bears a

direct relation to the value of the goods. The tax is a

ee eee ae oe

Thus, as the lower court held:

significantly related to the exportation process.

Whether the § 4371 tax would be impermissible even

without the support of Thames & Mersey is, we real-

ize, not stated dispositively by the Court [in

Washington Stevedoring), but there is nothing in

Washington Stevedoring that indicates that Thames &

Mersey and the connection drawn in that case

between insurance policies and the value of goods

have been banished into irrelevance." (App. 29a)

On this alternative ground, then, the § 4371 tax as applied

to IBM’s exports is still invalid under the Export Clause, even

assuming that Michelin and Washington Stevedoring are

relevant precedents for the Export Clause. This Court

“reviews judgments, not statements in opinions” (Black v.

Cutter Labs., 351 U.S. 292, 297 (1956)), and this is an

additional reason why certiorari is not warranted here.

3. There Is Neither a Significant Revenue Measure

Nor a Principle of Broad Application Presented in

this Case.

The lower courts did not strike down § 4371 in its

entirety but only as applied to the export shipments involved

in this case. Even for a very large exporter such as IBM, the

amount of revenue at stake is modest. See page | n.1 supra.

Moreover, the United States has been increasingly willing to

waive enforcement of § 4371 in bilateral tax treaties in order

14

to avoid double taxation of foreign insurance carriers.'° This

is because one of the original purposes of § 4371 — to

eliminate unfairness to insurance carriers subject to U.S.

income tax — has become increasingly obsolete as foreign

governments have themselves taxed their resident insurers.

Where this occurs, § 4371 imposes double taxation rather than

eliminating a tax imbalance."’

The Government also references some 700 pending cases

in the Court of International Trade that challenge the

constitutionality of the federal Harbor Maintenance Fee, 26

U.S.C. §§ 4461-4462. (See Pet. 13-14) However, whether

the Export Clause is applicable in those cases is in dispute.

The Government’s position in the Court of International Trade

is that "the harbor maintenance fee is a user fee based upon

Congress’s plenary authority to regulate commerce, not a tax

subject to the export clause,""* and that “consequently the

analysis employed in Thames & Mersey and [by the Federal

‘° See, e.g., Convention for the Avoidance of Double Taxation, Aug.

31, 1994, U.S.-Prance, art. 2(1)(a)ii), ratified, 141 Cong. Rec. $12523

(daily ed. Aug. 11, 1995); Convention for the Avoidance of Double

Taxation, Aug. 29, 1989, U.S.-Germany, art. 2(1)(a)(bb); Third Protocol

Further Amending the Convention for the Avoidance of Double Taxation,

Mar. 15, 1979, U.S.-U.K., art. Il, 31 U.S.T. 5709, 5710, T.1.A.S. 9682;

1 J. Ross Macdonald, Annotated Topical Guide to U.S. Income Tax

Treaties 432 (1990-2 Supp.).

" See, e.g., S. Exec. Rep. No. 7, 104th Cong., Ist Sess. 3, 30-31

(1995) (explaining the § 4371 waiver contained in the new U.S.-France

treaty against double taxation).

‘* Memorandum of the United States in Support of its Motion for

Summary Judgment, United States Shoe Corp. v. United States, pp. 27-39

(Ct. Int'l Trade No. 94-11-00668) (Apr. 14, 1995) (emphasis added).

Here, the Government can make no such argument. See note 3 supra.

Circuit. At the very least, it is too early to know what

significance the Export Clause and Thames & Mersey will

ultimately have on the harbor mainienance fee litigation. If

the Export Clause does prove important, the Government will

have ample opportunity in the context of that litigation to urge

this Court to adopt its new, proposed construction of the

Export Clause. A grant of the petition in this case is neither

necessary nor appropriate for that purpose.

CONCLUSION

The petition of a writ of certiorari should be denied.

Respectfully submitted,

Andrew W. Singer

James R. Atwood

Matthew Yeo

COVINGTON & BURLING

1201 Pennsylvania Ave., N.W.

P.O. Box 7566

Washington, D.C. 20044-7566

(202) 662-6000

Attorneys for Respondent

International Business

November 1995 Machines Corporation

'* Proposed Defendant's Supplemental Memorandum, United States Shoe

Corp. v. United States, supra, p. 4 (Aug. 9, 1995).

* United States Shoe Corp. v. United States, Slip Op. 95-173 (Ct. Int’!

Trade Oct. 25, 1995) (granting summary judgment for plaintiff and ruling

that the harbor maintanence fee violates the Export Clause).