Amicus Curiae Brief — United States v. United States Shoe Corp.

No. 97-372

IN THE

Supreme Court of the Gnited

OCTOBER TERM, 1997

UNITED STATES OF AMERICA,

Petitioner,

v.

UNITED STATES SHOE CORPORATION,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE FEDERAL CIRCUIT

BRIEF OF AMICUS CURIAE

AMOCO CHEMICAL COMPANY

IN SUPPORT OF RESPONDENT

UNITED STATES SHOE CORPORATION

Robert E. Burke

Counsel of Record

Christopher E. Pey

BARNES, RICHARDSON & COLBURN

200 East Randolph Dr.

Chicago, IL 60601

(312) 565-2000

Counsel for Amicus Curiae

Amoco Chemical Company

January 14, 1998

TABLE OF CONTENTS

TABLE OF AUTHORITIES

CONSTITUTION:

Article 1, Section 9, Clause 5 .. 2... 6.6... 005. passim

CASES:

Fairbank v. United States,

EE Nat an, po ccceeceecctbiccs 7

Michelin Tire Corp. v. Wages,

ole ie acc codbcctcecscce 6

Pace v. Burgess, 92 U.S. 372 (1876) ............. 12

STATUTES:

P.L. 99-662, Water Resources Development Act of 1986

(Nov. 17, 1986), 100 Stat. 4082 .............. 10, 11

P.L.101-508, Omnibus Budget Reconciliation Act of 1990,

es ae ES PI, OED... co ccccccdccecece 11

LEGISLATIVE MATERIALS:

H.R. Rep. No. 881, 101st Cong., 2d Sess. (1990),

reprinted in, 1990 U.S.C.C.A.N. 2017 ........... 1

H.R. Conf. Rep. No. 964, 101st Cong., 2d Sess. (1990),

reprinted in, 1990 U.S.C.C_AN. 2374 ............. T

iii

OTHER:

Annual Report to Congress on the Status of the Harbor

Maintenance Trust Fund for Fiscal Years 1995 and 1996

(Dally 16, 1DDT) 2. cccccccccccccccccccces 5, 12-19

141 Cong. Rec. E519 (extension of remarks, March 6,

1995\Rep. McDermott) ........ 6.66 e eee eeeee 10

“Ports Try Tax Breaks To Reel In Business,” Journal of

Commerce, April 6, 1995, at 1A, 8A. ............ 10

Part One, The Debate on the Constitution (Library of

America, New York, 1993) ..........600 cee eeees 7)

The Federalist Papers, (B. Wright, ed. 1961) ....... 6

The Federalist Papers, Penguin Books,

IED gn gb Eco meee cece. 6

Records of the Federal Convention

(M. Farrand, ed. 1934) .... 6.6... cc cece eee 7-9

L. Abramson, State Taxation of Exports: The Stream of

Constitutionality, 54 N.C.L.Rev. 59 (1976) ....... 6

No. 97-372

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1997

UNITED STATES OF AMERICA,

Petitioner,

Vv.

UNITED STATES SHOE CORPORATION,

Respondent.

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE FEDERAL CIRCUIT

BRIEF OF AMICUS CURIAE

AMOCO CHEMICAL COMPANY

IN SUPPORT OF RESPONDENT

UNITED STATES SHOE CORPORATION

STATEMENT OF INTEREST

OF AMICUS CURIAE '

The Amoco Corporation, having its principal place of

business in Chicago, Illinois, is a manufacturer of a wide

This brief was drafted entirely by counsel for amicus

curiae Amoco Chemical Company without assistance, monetary or

2

variety of hydrocarbon based products including motor

fuel and other fuels, refined petrochemical and natural gas

products and semi-finished chemical products. Among its

activities, Amoco Corporation, including its subsidiary

Amoco Chemical Company (hereinafter “Amoco”),

(plaintiff in a related refund case currently stayed before

the United States Court of International Trade), exports,

imports and ships in coastal traffic substantial quantities of

materials subject to the Harbor Maintenance Tax

(“HMT”). Amoco exports large quantities of such

products as styrene, which is a basic building block

chemical for the production of polystyrene plastic resins,

and purified terephtalic acid “PTA”, a major raw material

for the production of polyester resins. Amoco utilizes

intercoastal shipping in the United States for shipping

intermediate and finished goods to and from its various

refineries and distribution points located throughout the

country. In addition, Amoco imports substantial quantities

of crude oil which is subject to the HMT. To date, Amoco

has paid millions of dollars in HMT on exports, imports

and coastwise traffic.

Amoco has reviewed in depth and fully supports the

basic arguments on constitutionality offered to this

Honorable Court in the brief filed by Respondent, United

States Shoe Corporation. In the interests of judicial

economy, Amoco will not repeat those arguments in this

brief. At the same time, Amoco believes that this brief

may offer an insight to the Court relative to how the

economic concerns of the Framers supporting the

prohibition of a tax on exports are as dynamic and

significant in international commerce today, as they were

at the time the Constitution was being drafted.

3

As a major United States exporter, Amoco is sensitive

to the importance of maintaining a strong industrial base

in this country. Amoco also understands the nature of

competitive conditions in world markets. It is

fundamentally inconsistent with the economic interests of

the United States for any tax to be assessed on exported

merchandise. This, we believe, was fully recognized in

1789 when the Founding Fathers debated, and finally

approved, a Constitution that expressly prohibits the

establishment of such a pernicious tax.

In practical terms, Amoco is competitively

disadvantaged by the harbor maintenance tax. The present

amount of the tax, when aggregated, is a significant

factor affecting the profitability of many export

businesses. Indeed, the tax could easily affect whether a

company would enter into an export transaction, given the

extremely competitive world wide market conditions

under which commodity chemical products are sold at

historically low profit margins. In the case of Amoco, the

assessment of the HMT is another factor facing Amoco in

fulfilling its export marketing strategies. No exporter

should have to contend with government-established

disincentives to export business.

Amoco is convinced that the Drafters of the

Constitution envisioned that a tax, such as the Harbor

Maintenance Tax, should not be instituted by the Federal

Government. Clearly, the assessment is by its own

definition and character a tax, and not merely a fee, as

argued by the Government. The history of the Framers’

debates on the Export Clause demonstrate that they

intended to enact the Clause because of its sound

economic underpinnings. Because the tax impinges

4

directly on Amoco’s ability to compete in the critical

export markets of the world, the constitutionality of the tax

is of great importance to it.

STATEMENT OF CONSENT

Amicus Curiae Amoco Chemical Company has

obtained the consent of both parties to the filing of this

brief in support of respondent United States Shoe

Corporation, as indicated in the enclosed letters.

SUMMARY OF ARGUMENT

A primary intent of the Framers in enacting the Export

Clause was clearly to avoid a factional conflict between

the exporting Southern states and the majority Northern

states. Concerns were also expressed in the

Constitutional Convention that the power to tax exports

would be exercised improperly if granted to the national

government. In addition to those primary concerns, the

Framers clearly considered and understood the advanced

(for the day) economic rationale that eliminating taxes on

exports would operate to the greater benefit of the country

as a whole. Those concerns remain valid today, especially

in view of the highly integrated nature of the international

and domestic economies.

As one of the few restraints on the Congressional

power to tax, the Export Clause should be staunchly

defended against surreptitious incursions such as the tax

before the Court. The Harbor Maintenance Tax (“HMT”)

is an ad valorem tax laid upon the value of exported cargo.

A more clear example of a tax on exports is difficult to

5

envision. Congress should not be permitted to make such

an obvious encroachment upon the clear terms of the

Constitution.

Practically speaking, if the HMT is allowed to stand as

written, atid if the Government’s arguments are taken to

their necessary conclusions, Congress would be essentially

unimpeded from taxing exports for any other purpose it

can devise, either by inventing a “connection” between

exports and the “service” being provided, or by increasing

the tax rate to a level even more disproportionate in

relation to the service provided than is currently the case.

If the Court should approve the HMT in its current form as

the Government argues, there would be essentially no

upper limit on how high Congress could tax exports,

because the current rate of taxation bears no relation to the

costs of the purported benefits being provided. Indeed, the

tax each year raises approximately 133% of the cost of the

purported benefits, and that ratio is growing each year.

Projections from the Annual Report to Congress on the

Status of the Harbor Maintenance Trust Fund for Fiscal

Years 1995 and 1996 (“Annual Report”) show that, at

average levels of increase, the HMTF will have an

accumulated surplus of $6.5 billion in 2005, $14.5 billion

in 2010, and over $57 billion in 2020. This shows that the

Framers were correct to be wary of taxes on exports,

however small. Once a tax has been established, it

inevitably grows, as will the progressively accumulating

surplus in the HMTF.

6

ARGUMENT

I. The Framers Intended That The Federal

Government Be Prohibited From Establishing

Taxes or Similar Burdens on Export for Sound

Economic Reasons that Remain Valid Today

Article 1, Section 9, Clause 5 of the Constitution

provides that “No Tax or Duty shall be laid on Articles

exported from any State.” This clause formed an

essential part of the political compromise necessary for

ratification of the Constitution. After the Declaration of

Independence, the states joined together under the

Articles of Confederation. But because the Articles

lacked a strong central authority, states with seaports

discriminated against other non-port states by charging

duties on goods shipped out of state.? Many states

passed tariff laws to benefit themselves at the expense of

neighboring states.’

The Export C).:..e compromise was essential to the

adoption of the Constitution, for it removed a power

from the states which they had abused, and prevented

the Federal Government from exercising a power that

had a great danger of abuse. See, L. Abramson, State

Taxation of Exports: The Stream of Constitutionality, 54

N.C.L.Rev. 59, 60-63 (1976). The Southern states

. See, The Federalist Papers, Federalist No. 42, at 305

(B. Wright, ed. 1961) (A. Hamilton); see also, Michelin Tire Corp.

v. Wages, 423 U.S. 276, 283-5 (1976).

, Editor’s Introduction to The Federalist Papers,

Penguin Books, (I. Kramnick, ed 1987), at 20.

7

were concerned that if the Northern states had control

over the Federal Government they would tax exported

products, which were the South’s main source of

revenue. In addition, concerns were expressed that the

power to tax exports would be exercised improperly if

granted to the national government. Both policies must

be vindicated in any review under the Export Clause.

Fairbank v. United States, 181 U.S. 283, 292 (1901)

(prohibition applies not only to prevent discrimination

among the states, but also to prevent the Federal

Government from imposing an ad valorem tax on all

exports).

A principal concern was that the Northern states

would impose duties on exported goods, which were a

major source of income for the Southern states. This

concern was equal in importance for the Southern states

to their fears that the new Constitution would outlaw

slavery. At the Constitutional Convention, Gen.

Pickney, delegate of South Carolina, issued a warning

just before the convention delegates were to turn over

their agreed-upon resolutions to the Committee of Detail

that “If the committee should fail to insert some security

to the Southern states against an emancipation of slaves

and taxes on exports, I shall be bound by my duty to my

State to vote against their report.” 2 Records of the

Federal Convention 95 (M. Farrand ed. 1934). The

Committee on Detail returned a draft text that included

a prohibition on taxes on exports, which was approved

after extended debate. /d., at 183.

Several attempts to change the text of the Clause

demonstrate the true intent of the Framers. During the

debate of the clause one delegate attempted to insert the

words “for purposes of revenue,” after the word “duty”

in the text of the Export Clause, but his motion was

voted down. 2 Records of the Federal Convention at

363. By rejecting that restriction the Framers showed

that export taxes or duties were intended to be

prohibited for whatever reason, whether for purposes of

revenue or not. The Framers did not care if the tax was

a “fee for service” or an ad valorem duty: both were

prohibited.

The restriction on taxing exports was arguably even

meant to avoid paying for expenses associated with

exports. James Madison noted that the exporting states

wished to retain the power to lay duties on exports “to

enable them to pay the expenses incurred.” 3 Records

of the Federal Convention at 328-29. This proposal was

rejected following agreement to the Import-Export

Clause, which, as discussed in Respondent’s Brief,

allows duties or taxes in very limited circumstances.

Therefore, taxes on exports, even to pay for expenses

incurred by states on behalf of exporters were intended

to be prohibited by the Framers, except as provided in

the Import-Export Clause.

In addition to the political reasons for the Export

Clause, the Framers understood that taxing exports was

a dangerous though attractive power that should be

curbed, because many states had imposed such taxes

under the Articles of Confederation. Some delegates

were concerned that the power to tax exports would be

exercised improperly if granted to the national

government. 2 Records of the Federal Convention at

9

308 (Statement of Mr. Sherman). Oliver Ellsworth,

delegate from Connecticut, argued that,

There are solid reasons agst. Congs taxing

exports. 1. it will discourage industry, as taxes

on imports discourage luxury. 2. The produce

of different States is such as to prevent

uniformity in such taxes. there are indeed but a

few articles that could be taxed at all; as

[tobacco] rice & indigo, and a tax on these alone

would be partial & unjust. 3. The taxing of

exports would engender incurable jealousies.

2 Records of the Federal Convention, at 360. In

broadsheets covering and discussing the Constitutional

Convention, taxing exports was condemned as “the

acme of impolicy.”*

We believe that if the Framers had been presented with

the HMT, they would have condemned it as vehemently as

they condemned state taxes on exports while drafting the

Constitution. It has all the pernicious aspects of those

earlier taxes on exports. The Framers inserted the

Export Clause in the Constitution to prevent the types of

rivalries that are now developing due to a loss of business

by certain U.S. ports to Canadian and Mexican ports, in

? “Reply to Mason’s ‘Objections’: Civis Rusticus,”

Virginia Indep. Chronicle, Jan. 30, 1788, reprinted in, Part One, The

Debate on the Constitution, (Library of America, New York, 1993)

at 361; see also, “Answers to Mr. Mason’s Objections to the New

Constitution,” “Marcus” (James Iredell), Norfolk and Portsmouth

Journal, March 19, 1788, reprinted in, Part One, The Debate on the

Constitution, at 394-95.

10

order to pay for improvements made in ports farther away

from our neighbors. See, 141 Cong. Rec. E519 (extension

of remarks, March 6, 1995)(Rep. McDermott); “Ports Try

Tax Breaks To Reel In Business,” Journal of Commerce,

April 6, 1995, at 1A, 8A. Because the HMT so closely

matches the Framers’ concerns, the Court must reject the

Government’s arguments and find that the HMT, as

applied to exports, is an unlawful “tax or duty”.

II. Establishment of the HMT and Increasing the

HMT Rate, was Precisely What the Framers

Intended to Prevent With the Export Clause

Congress passed the bill containing the Harbor

Maintenance Tax as part of a larger political compromise

on one of the largest water project authorization bills ever:

the Water Resources Development Act of 1986

(“WRDA”), P.L. 99-662, 100 Stat. 4082 (November 17,

1986). The WRDA authorized funds for hundreds of

water projects that had been bottled up in Congress for

almost ten years, including mostly non-harbor dredging

projects. See, P.L. 99-662, Titles II-VI, 100 Stat. at 4089-

4149, for a list of over two hundred water projects

authorized by the WRDA. But aside from imposing the

HMT on shippers, the WRDA imposed no new regulations

on vessels or shippers.

When no one objected strenuously to the new tax

(because it was very low and the Government did not

enforce the tax on exports), the Administration and

Congress took the opportunity to more than triple the tax,

while at the same time assuring a tidy surplus, which could

be counted as an effort toward reducing the federal budget

deficit. The HMT was increased from 0.04 percent of

11

cargo value to 0.125 percent by the Revenue

Reconciliation Act of 1990, which was included in the

Omnibus Budget Reconciliation Act of 1990 (“OBRA”),

P.L.101-508, 104 Stat. 1388 (Nov. 5, 1990). Unlike the

original HMT in the WRDA, the three-fold increase in the

tax rate was not necessary in order to obtain agreement of

the Administration for authorizing new water projects; the

increase was a simple money grab. Like the WRDA, the

Revenue Reconciliation Act and OBRA included no

regulation of shippers. None of the congressional reports

give any substantive reason for the need to increase the

tax, other than increasing revenues or lowering the deficit.

See, H.R. Rep. No. 881, 101st Cong., 2d Sess., at 288

(1990), reprinted in, 1990 U.S.C.C.A.N. 2017, 2290; H.R.

Conf. Rep. No. 964, 101st Cong., 2d Sess., at 1055 (1990),

reprinted in, 1990 U.S.C.C.A.N. 2374, 2760. Note that in

the OBRA, the clause providing for the increase in the

HMT was included in Title XI, “Revenue Provisions,” and

not in Title X, “Miscellaneous User Fees and Other

Provisions.” P.L. 101-508, 104 Stat. 1388-385, -400,

-436. The HMT rate increase was passed along with other

deficit reduction items, an indication of the effect that

Congress intended the rate increase to have.

The increase in the HMT tax rate validates the

Framers’ suspicions of government taxation of exports.

Once such taxes are allowed, they will inevitably increase.

The Export Clause is meant to protect against such taxes,

no matter how small. Despite the Government’s

arguments and some of the statements in the legislative

history to the WRDA, the HMT was meant as a “revenue

enhancer” from the very beginning. The legislative

history of the OBRA shows that the trebling of the HMT

rate was clearly intended to provide “revenue

12

reconciliation” as a “user-related tax”, thereby providing

meaningful deficit reduction. However, while deficit

reduction is a laudable goal, the Export Clause prohibits

revenue-raising taxes from being placed on exported

goods.

That the HMT is a revenue measure, and not a fee-for-

service, can also be seen by review of the collections and

expenditures made from the Harbor Maintenance Trust

Fund (“HMTF”). As shown in the following charts, the

trust fund operates at a significant annual surplus.

Revenues increased (or are projected to increase)° in the

years 1991-2001 at the rate of 11 percent, while

expenditures will increase by only 4.05 percent. The

Annual Report information is found on the charts entitled

“HMTF Balance Sheet 1991-2001” and “HMTF Annual

Accumulated Surplus 1991-2001”. Following those charts

are two similar charts showing projected increases in the

trust fund at the historical (11% and 4.05%) rates of

, In Pace v. Burgess, 181 U.S. 372, 375-76 (1876), the

Court stated:

. . . We cannot say that the charge imposed is

excessive, or that it amounts to an infringement of

the constitutional provision referred to.

The HMT should be differentiated from the Pace charge

because that charge was not imposed on an ad valorem basis. It

should also be clear from the points raised by Respondent as well as

the information portrayed in the charts found infra, that the HMT is

in fact an excessive revenue-raising charge, and does amount to an

infringement of the Export Clause.

e All 1991-2001 HMTF information is taken from the

Annual Report, at 7-8.

13

increase. These charts demonstrate that the trust fund is

seriously out of balance, and is heavily skewed toward

increasing revenues, in the absence of any anticipated

increases in future harbor maintenance expenditures.

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HMTF Annual Accumulated Surplus 1991-2020 (in thousands)

Source: Annual Report to Congress on the Status of the HMTF for

Fiscal Years 1995 and 1996, at 7-8, plus projections based upon average revenue increases

from 1991-2001 (11%), and expenditures (4.05%).

Harbor Maintenance Trust Fund Balance Sheet 2001-2020 (in thousands)

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Source: Projections from average increases for revenues (11%) and expenditures (4.05%)

for period 1991-2001, as reported in the Annual Report to Congress

of the Status of the HMTF for Fiscal Years 1995 and 1996, at 7-8.

20

CONCLUSION

Because the HMT is an ad valorem tax imposed upon

exported cargo, it falls squarely within the prohibition of

the Export Clause. The Framers understood that

imposition of any such tax would lead to inevitable

pressure for an increase in the tax rate. They also

understood that exports should be promoted by

government, not discouraged by taxation. We believe that

the Framers would reject the HMT as soundly as they

rejected the then-current export taxes imposed by many

states before the enactment of the Constitution, and that

this Honorable Court should do the same.

Respectfully submitted,

BARNES, RICHARDSON & COLBURN

200 East Randolph Drive

Suite 7920

Chicago, Illinois 60601

Tel. (312) 565-2000

Robert E. Burke

Counsel of Record

Christopher E. Pey

Counsel for Amicus Curiae

Amoco Chemical Company

Dated: January 14, 1998