Petition for Writ of Certiorari — Ammex, Inc. v. Department of the Treasury of Michigan

Supreme Court, U.S.

FILES

001922 jun 2 6 2001

No. ——

rr trie OE RK

IN THE

Supreme Court of the Anited States

AMMEXx, INC.,

Petitioner,

Vv.

STATE OF MICHIGAN, DEPARTMENT OF TREASURY,

Respondent.

On Petition for a Writ of Certiorari to the

Court of Appeals of Michigan

PETITION FOR A WRIT OF CERTIORARI

J. WILLIAM KOEGEL, JR.

Counsel of Record

CHARLES G. COLE

SARA E. HAUPTFUEHRER

STEPTOE & JOHNSON LLP

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-3000

Attorneys for Petitioner

RATA SNPS LIEN SARE AER URI SL PEON “SEE OER ANAM OE cE UME AS ARRAN

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 - WASHINGTON, D.C. 20001

i

QUESTIONS PRESENTED

1. Whether federal statutes and regulations that pre-

scribe comprehensive standards for duty-free stores, a class

of Customs bonded warehouse, preempt state taxes of motor

fuel sold on a duty-free basis.

2. Whether motor fuel sold on a duty-free basis under

federal law is an export for purposes of the Import-Export

Clause of the U.S. Constitution and hence protected from

taxation by the states.

!

il

LIST OF PARTIES TO THE PROCEEDING BELOW

All parties to the proceeding below are identified in the

caption of this Petition.

RULE 29.6 STATEMENT

Petitioner Ammex, Inc. has no parent, and no publicly

held company owns any of its stock.

A ol Ai ncn waa

ee

TABLE OF CONTENTS

Page

POPE EU FP URIIO NTI cacccosccsosscoscosesonssnosocescsacanse i

LIST OF PARTIES TO THE PROCEEDING

SIPUIETET ecielisnsseshsaeahcapbacnitncdesiuibscinbisnstenciueceitanendestiuaocsete ii

T_T ii

IE FUR CIE ED oases sasescensinsesnntcsasoenscsnccsnenn iv

OPINIONS AND ORDERS BELOW. ....................0000+. I

TTT eindiclincccenebadiicatsluselssosshienseunemnixecdahabhenbenen |

STATEMENT OF THE CASE ........ccccccccccsccscessessesseese 2

A. The Nature and Regulation of Duty-Free

SUPT Adeiacdliaphadbsdctnsaglesascabeduedisestieniasdnanchicetaniieabe 3

B. Petitioner’s Status and Operations.................... 5

ie a IIE III csi csen sctdindutiisalinotnecneslonsdevbeon 6

I ts 7

REASONS FOR GRANTING THE PETITION.......... 12

I. FEDERAL LAW REGULATING DUTY-FREE

STORES PREEMPTS MICHIGAN'S SALES AND

IT PEIN III cc ccccisnnncebtniionsoniunisbhiaunssiassie 14

Il. THIS COURT SHOULD DECIDE WHETHER §

1908 OF THE OMNIBUS ACT DEFINES

“EXPORT” FOR PURPOSES OF THE IMPORT-

I ah eliclaidndas an cui singahicepipaaiuaienens 17

I ii cacscai sa aalersesahaesticinaesionsonoe 22

iV

TABLE OF AUTHORITIES

Page

CASES

Ammex, Inc. v. United States, 116 F. Supp. 2d

1269 (Ct. Int'l Trade 2000) ..............:.sseee00 6, 11, 18

Ammex Warehouse Co. of San Ysidro, Inc. v.

California, 224 F. Supp. 546 (S.D. Cal.

1963), aff'd, 378 U.S. 124 (1964)............... 19

City of Tacoma v. General Metals of Tacoma,

Inc., 527 P.2d 1314 (Wash. 1974).............. 19

Collis v. Bay City Export Lumber Co., 70 So.

Bn EF Ci FD ick tknassttisnninsciiancsintitinntinin 19

Duty Free Int'l, Inc. v. United States, 16

eis See TED iidesiicinnsdacniabicabianiardianina 4, 16,17

Duty Free Int’l, Inc. v. United States, 17

Ces Ree ID seictvetahanpatieinibaiontannndanish 4

Gade v. National Solid Wastes Mgmt. Asso-

ciation, 505 U.S. 88 (1992) ..........cceeeeeeeeeee 14

Hillsborough County v. Automated Medical

Laboratories, Inc., 471 U.S. 707 (1985)..... 14

Hostetter v. Idlewild Bon Voyage Liquor

ELAS Fs | Renee 15

Japan Line Ltd. v. Los Angeles Co., 441 U.S.

Pe CI i itiacibeinhastasitendeninaicnieniaiaiatitenitinianuen 10, 14

Louisiana Land & Exploration Co. v. Pilot

Petroleum Corp., 900 F.2d 816 (Sth Cir.

McDonnell Douglas Corp. v. State Bd. of

Equalization, 13 Cal. Rptr. 2d 399 (Cal.

Ct. App. 1992), review denied (Cal. Feb.

11, 1993), cert. denied, 510 U.S. 814

CPI Tisisictinsccntnciccapiinaniteaiiiaiadiaseatiamiindaiiaiadsniaii 19

McGoldrick v. Gulf Oil Corp., 309 U.S. 414

SPIE cisccainnisnitisoiindubiincnnthngmacaiaiaaennienionhaies 14, 21

Ae ake mL ltd Sal Ws EN I

Vv

TABLE OF AUTHORITIES—Continued

Page

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

fan ME Se Mane het Seyi yo passim

Richfield Oil Corp. v. State Board of Equali-

zation, 329 U.S. 69 (1946).........ccccssssssseeee 9, 13, 18

United States v. Commodities Export Co., 733

F. Supp. 109 (Ct. Int'l Trade 1990)............. 19

United States v. IBM Corp., 517 U.S. 843

Care ssienesniethsalictasasansshdtiianhiphieandensmaas Teena e: 13, 18

United States v. Locke, 529 U.S. 89 (2000)...... 14

Virginia Indonesia Co. v. Harris County Ap-

praisal District, 910 S.W.2d 905 (Tex.

PAWN caissAihansdicsicnsidesheiauunienaien teams 21

Wardair Canada, Inc. v. Florida Dep’t of

Revenue, 447 U.S. 1 (1986)... eceeeeeeeees 17

Xerox Corp. v. County of Harris, 459 U.S.

OF Ce iis snroininitiidaisceasetatcathiamasiaaieiian en 3, 14, 21

CONSTITUTIONAL PROVISIONS

Import-Export Clause, U.S. Const. art. 1, § 10,

CET sninniitnsosteanionspadeaaagliegucicasdauamianadiatias passim

Commerce Clause, U.S. Const. art. I, § 8,

IG: a siisininiiniasdei lanes easmiodsaien oauamate passim

Supremacy Clause, U.S. Const. art. VI, cl. 2.... 2

STATUTES AND REGULATIONS

yy BID fo & >. : eeeeermr eee aI RTO e oe ]

Omnibus Trade and Competitiveness Act of

1988 (the "Omnibus Act") § 1908, Pub. L.

No. 100-418, 102 Stat. 1107, 1315 (codi-

fied at 19 U.S.C. §1555(D)) ...........0.cccecvees passim

Mich. Comp. Laws § 7.203(A)(1) .........::ceeeee- 9

Mich. Comp. Laws § 205.22(1)-(2).........0:.000 8

vi

TABLE OF AUTHORITIES—Continued

Page

Sales Tax Act, Mich. Comp. Laws §§ 205.51,

G8 BOG. cercerererecesnssevensseeencensseeosensnenssoosseseseeses 2,6

Motor Fuel Tax Act, Mich. Compl. Laws

BE 207.101, 68 BOG, ccccrerecerscccccssececesecesesseceese 2,7

19 CPR. § 19. 1(G)ED)..cccccccccsecsscsscrercccccscccesssess 3

1D CIR © ID TG ccceccarssscsccecccresvscosessccscsssevecesens Dy BOGUT

1D CAPR. § 29.SG.cccccocccsceccceseccocsscsnsscsesesensesesses 15

PETITION FOR A WRIT OF CERTIORARI

Petitioner Ammex, Inc. (“Ammex”) respectfully prays

that a writ of certiorari issue to review the judgment and

opinion of the Court of Appeals of Michigan entered on Sep-

tember 14, 1999.

OPINIONS AND ORDERS BELOW

The opinion of the Court of Appeals of Michigan is re-

ported at 237 Mich. App. 455 and 603 N.W.2d 308 and is

reproduced in the Appendix (“App.”) at la to 12a. The un-

published order of Supreme Court of Michigan denying Peti-

tioner’s application for leave to appeal is reproduced at 13a.

The unpublished order of the Supreme Court of Michigan

denying Petitioner’s motion for reconsideration is reproduced

at 14a. The unpublished opinion of the Michigan Court of

Claims is reproduced at 15a to 20a.

JURISDICTION

The decision of the Michigan Court of Appeals was en-

tered on September 14, 1999, and that court denied Ammex’s

motion for rehearing on November 23, 1999. On September

27, 2000, the Supreme Court of Michigan denied Ammex’s

timely application for leave to appeal and, on February 26,

2001, denied Ammex’s motion for reconsideration. On May

9, 2001, Justice Stevens entered an order granting Ammex an

extension of time within which to file this petition to and in-

cluding June 26, 2001. This Court’s jurisdiction lies under

28 U.S.C. § 1257.

CGNSTITUTIONAL PROVISIONS

AND STATUTES INVOLVED

This case involves the Commerce Clause, the Import-

Export Clause, and the Supremacy Clause of the Constitu-

tion, which provide in relevant part:

2

eer: tl SN Sl

The Congress shall have power...[t]o regulate Com- |

merce with foreign Nations ....

U.S. Const. art. I, § 8, cl. 3 (Commerce Clause).

No State shall, without the Consent of the Congress,

lay any Imposts or Duties on Imports or Exports, ex-

cept what may be absolutely necessary for executing

it’s inspection Laws ....

U.S. Const. art. I, § 10, cl. 2 (Import-Export Clause).

This Constitution, and the Laws of the United States

which shall be made in Pursuance thereof; and all

Treaties made, or which shall be made, under the Au-

thority of the United States, shall be the supreme Law

of the Land ....

U.S. Const. art. VI, cl. 2 (Supremacy Clause). In addition,

this case involves the following statutes, relevant portions of

which are set out verbatim in the Appendix:

Omnibus Trade and Competitiveness Act of 1988 § 1908,

Pub. L. No. 100-418, 102 Stat. 1107, 1315 (codified at 19

U.S.C. § 1555(b)). App. at 21a to 28a.

Michigan Sales Tax Act, Mich. Comp. Laws §§ 205.51, )

et seq. App. at 29a to 37a. ;

Michigan Motor Fuel Tax Act, Mich. Compl. Laws

§§ 207.101, et seg. App. at 38a to 48a.

STATEMENT OF THE CASE

This case presents the question of whether a state may

impose motor fuel and sales taxes on gasoline and diesel fuel

sold for export on a duty-free basis from a U.S. Customs

Class 9 bonded warehouse and duty-free store. The state

courts below concluded that such taxes were not barred by

the preemptive force of the federal duty-free regulatory

scheme, the Import-Export Clause, U.S. Const. art. 1, § 10,

3

cl. 2, or the Commerce Clause, id. art. 1, § 8, cl. 3. Because

the decision below conflicts with federal law governing the

operations of duty-free establishments and the handling of

goods exported from the United States, the Court should

grant the petition and reverse the judgment below.

A. The Nature and Regulation of Duty-Free

Stores

Duty-free stores, which can be found at all airports with

direct flights outside the U.S. and at most border crossings,

are created, authorized and regulated by the federal govern-

ment. More specifically, these federal enclaves are a class of

U.S. Customs Service bonded warehouse (Class 9). 19

C.F.R. § 19.1(a)(9).

In general, Customs bonded warehouses are authorized to

receive imported merchandise upon which no duties have

been paid and hold such merchandise for up to five years

pending re-export. As this Court explained:

Pursuant to its powers under the Commerce

Clause, Congress established a comprehensive cus-

toms system which includes provisions for govern-

ment supervised bonded warehouses where imports

may be stored duty-free for prescribed periods. At

any time during that period the goods may be with-

drawn and reexported without payment of duty. Only

if the goods are withdrawn for domestic sale or stored

beyond the prescribed period does any duty become

due.

Xerox Corp. v. County of Harris, 459 U.S. 145, 151 (1982)

(citations omitted). Similarly, this Court recognized Customs

bonded warehouses as “federal enclaves free of state taxa-

tion” with respect to goods destined for export. Id., 459 U.S.

at 154 (citation omitted).

4

“Government regulated, bonded warehouses have been a

link in the chain of foreign commerce since ‘a very early pe-

riod in our history.”” /d. (quoting Fabbri v. Murphy, 95 U.S.

191, 197 (1877)). As early as 1846, when customs duties

represented approximately 90 percent of all federal revenues,

Congress determined to waive or defer collection of duties on

imports destined for re-exportation in order to encourage the

use of American ports. /d. at 151 & n.7. Congress has con-

tinued the historical role of Customs bonded warehouses ever

since, and for many years they have been regulated under

Part IV of the Tariff Act of 1930, as amended, 19 U.S.C. §§

1551-1565.

Prior to 1988, however, no federal statute specifically

regulated duty-free stores, as opposed to bonded warehouses

in general; instead, the Customs Service regulated the estab-

lishment and operation of duty-free stores through adminis-

trative directives. Duty Free Int’l, Inc. v. United States, 17

C.LT. 1425, 1426 (1993). In 1984 Congress, sensing the

need for a comprehensive statutory framework, prohibited

appropriation of funds for the regulation of duty-free stores

until it had enacted a statutory scheme. See Duty Free Int'l,

Inc. v. United States, 16 C.1.T. 163, 165 (1992) (citing Con-

tinuing Appropriations for Fiscal Year 1985, Pub. L. No. 98-

473, 98 Stat. 1837, 1967 (1984)).

As part of the of the Omnibus Trade and Competitiveness

Act of 1988, Congress created the first federal statute explic-

itly regulating duty-free stores.' That statute prescribes the

conditions under which “[d]uty-free sales enterprises may

sell and deliver for export from the customs territory duty-

free merchandise.” 19 U.S.C. § 1555(b)(1). It also granted

' Omnibus Trade and Competitiveness Act of 1988 (the “Omni-

bus Act”) § 1908, Pub. L. No. 100-418, 102 Stat. 1107, 1315 (codified

at 19 U.S.C. § 1555(b)).

5

the Secretary of the Treasury authority to promulgate regula-

tions governing the operation of duty-free sales enterprises.

Id. These regulations appear at 19 C.F.R. §§ 19.35 to 19.40.

B. Petitioner’s Status and Operations

Pursuant to federal authorization, Ammex operates a U.S.

Customs Class 9 bonded warehouse and duty-free store adja-

cent to the Ambassador Bridge connecting the United States

and Canada. Ammex’s facility is located within the U.S.

Port Authority’s area at the Ambassador Bridge. This facility

is gated, fenced, guarded and regulated by the Customs Ser-

vice, and beyond the point of no return to the United States.

As a “duty-free sales enterprise,” Ammex is permitted to

sell all legal products “duty-free” to customers who transport

those goods directly to Canada after leaving Ammex’s store.

See 19 U.S.C. § 1555(b)(6)(B)(8)(D). Ammex conducts

“sterile” sales operations, i.e., all goods sold by Ammex must

be exported to Canada. The roads leading to and from Am-

mex’s duty-free store are privately owned. Customers leav-

ing Ammex’s duty-free store are required to drive over pri-

vately-owned roads to the Ambassador Bridge (which is also

privately owned) and into Canada; customers leaving Am-

mex’s duty-free store are not permitted to remain in the

United States.

Accordingly, no duty-free goods sold by Ammex may

pass from the Ammex store to the United States for domestic

consumption unless they are first exported to Canada and

then, only if their owner chooses to return to the United

States with them, and is permitted to do so by Canadian law,

and U.S. Customs law. Such goods must be declared by their

owners as imported goods upon any return to the U.S. Duty-

free goods sold at the Ammex store include, for example:

(a) Tobacco products that are stamped with clear

indicia that they are sold for export only and are not

6

subject to any state regulations or taxes including

Cigarette taxes;

(b) Alcohol products that are purchased duty and

tax free from manufacturers and are not purchased

from the Michigan Liquor Control Board or under the

regulation or tax domain of any Michigan law or

agency;

(c) Durable and nondurable goods, such as per-

fume and watches, that are sold solely for export and

accounted for, inventoried and sold pursuant to U.S.

Customs regulations.

Ammex also sells gasoline and diesel motor fuel for

automobiles and to commercial tractors and trailers whose

operators have fuel accounts with Ammex. Those automo-

biles, tractors and trailers are required to cross the border into

Canada after making such a purchase. Ammex sells this fuel

on a duty-free basis as a result of the decision of the Court of

International Trade (“CIT’’) in Ammex, Inc. v. United States,

116 F. Supp. 2d 1269, 1275-76 (Ct. Int’! Trade 2000), which

held that the fuel has all the necessary characteristics of a

product that may be sold from a duty-free store for export

from the United States.

C. The Taxes at Issue

The Michigan Sales Tax Act, Mich. Comp. Laws

§§ 205.51, et seq., imposes a tax upon retail sales equai to 6

percent of the gross proceeds of such sales.’ With respect to

gasoline, the Sales Tax Act mandates pre-payment of the tax

by the purchaser of gasoline at the time of purchase or ship-

ment from a supplier.

: Excerpts from the Michigan Sales Tax are reproduced in the

Appendix at 29a to 37a.

7

The gasoline and diesel motor fuel taxes are imposed

pursuant to the Motor Fuel Tax Act, Mich. Compl. Laws

§§ 207.101, et seg.’ In general, this tax is imposed upon all

gasoline and diesel fuel sold or used in propelling motor ve-

hicles upon the public roads and highways in Michigan. /d.

§ 207.102. Suppliers who sell or distribute motor fuel are

required to collect the tax from the purchaser for payment to

the state.

During the period January 1, 1994 to December 31, 1996,

Ammex paid under protest both motor fuel and sales taxes on

its gasoline and diesel sales. Since at least 1986, no attempt

was made by the state of Michigan to assess state taxes on

any of Ammex’s other duty-free sales. Subsequent to issu-

ance of the decision below, however, Michigan’s Treasury

Department notified Ammex of its intent to issue a general

sales tax assessment on the sale of all duty-free goods sold by

Ammex for the period January 1997 through December

2000, as well as a tobacco products tax assessment on the

sale of duty-free tobacco products for that same period.

Similarly, Michigan has informed other duty-free stores op-

erating in the state of an intent to impose the general sales tax

and tobacco products taxes on their duty-free sales.

D. Proceedings Below

This case originated as a Series of administrative proceed-

ings before the Michigan Treasury Department, in which

Ammex sought and was denied refunds of previously paid

sales, gasoline, and diesel taxes. In July 1996, Ammex

sought review of the Treasury Department’s action in the

Michigan Court of Claims pursuant to Mich. Comp. Laws

§ 205.22(1)-(2).

e Excerpts from the Motor Fuel Tax Act are reproduced in the

Appendix at 38a to 48a.

8

Ammex challenged the Department’s rulings on a num-

ber of grounds, including the following:

By assessing taxes on _ Plaintiff-Appellant

AMMExX as specified [above], the Michigan Depart-

ment of Treasury has without the consent of Congress

laid an impost or duty on exports and has accordingly

violated the Import-Export Clause of the United

States Constitution.

By assessing taxes on _ Plaintiff-Appellant

AMMEx< as specified [above] on the motor fuels in

the stream of exportation, the Michigan Department

of Treasury has violated the Foreign Commerce

Clause, in that it is regulating commerce with foreign

nations.

By assessing the taxes specified [above] on Plain-

tiff-Appellant AMMEX, the Michigan Department of

Treasury has violated the Supremacy Clause, in that

the operations of Plaintiff-Appellant AMMEX, in op-

erating a duty-free enterprise, are subject to the regu-

lation of the federal government and the United States

Customs Service, which has fully filled the regulatory

field and made the imposition of state taxes unlawful.

First Supp. Compl. ¥¥ 49, 53, 57.

The case was submitted to the Michigan Court of Claims

on stipulated facts. On August 20, 1997, the Court of Claims

issued its opinion rejecting all of Ammex’s arguments, in-

cluding its constitutional challenges, and upholding the rul-

ings of the Michigan Department of Treasury. See App. at

15a to 20a. Following a round of unsuccessful post-trial mo-

tions, Ammex appealed as of right to the Court of Appeals of

Michigan. See Mich. Comp. Laws § 7.203(A)(1).

9

In its appeal, Ammex again pressed its arguments that the

taxes at issue were preempted by federal Customs regulations

and improper under both the Import-Export Clause and the

Commerce Clause of the U.S. Constitution. See Brief of Ap-

pellant, Ammex, Inc. at 19-35. The Court of Appeals’ deci-

sion affirming the judgment of the Court of Clams was is-

sued on September 14, 1999. The appellate court failed to

address the preemption issue and agreed with the lower court

that Michigan’s sales and motor fuel taxes did not violate

either the Import-Export Clause or the Commerce Clause.

See App. at 3a-10a.

The court’s analysis. under the Import-Export Clause

turned on whether the fuel was an “export.” The Court ac-

knowledged that in Richfield Oil Corp. v. State Board of

Equalization, 329 U.S. 69 (1946), this Court had held that

“the imposition of a nondiscriminatory sales tax on the sale

of oil intended for exportation ... ran afoul of the Import-

Export Clause.” App. at 4a. Although Michelin Tire Corp.

v. Wages, 423 U.S. 276 (1976), had introduced a policy-

based analysis, Richfield Oil had never been overruled, and

“we must conclude that Richfield Oil, has precedential

value.” Id. at Sa.

The court concluded that Michigan’s taxes passed muster

under Richfield Oil because they were not direct taxes on ex-

ports for purposes of the Import-Export Clause. App. at 7a.

Ignoring both the export status of the goods as a matter of

federal law and the certainty of export resulting from the cus-

tomers’ mandatory route of travel, the court based its conclu-

sion on the assumption that a portion of the motor fuel pur-

chased at Ammex’s duty-free facility would be consumed in

Michigan — in propelling motor vehicles over less than two

miles of private road and across the Ambassador Bridge into

Canada. Id. The court arrived at its conclusion in the face of

the parties’ stipulation that “All goods sold by AMMEX to

10

its customers must be exported from the United States.”

Stip. ¥ 17; Ammex, App. 7a n.2.

“For much the same reason,” the court also concluded

that Michigan’s taxes were not “imposts” or “duties” under

Michelin Tire. Id. at 7a. In Michelin Tire, the Court held

that state exactions which prevent the federal government

from speaking with one voice in regulating commercial rela-

tions with foreign governments are “imposts” or “duties” for

purposes of the Import-Export Clause. 423 U.S. at 285. In

this case, however, the court below reasoned that “because

the economic burden of the challenged taxes fell directly on

end-use consumers purchasing fuel in the United States for

immediate consumption, the taxes cannot be said to have af-

fected the foreign policy of the United States.” Jd. Accord-

ingly, the court of appeals held that Ammex “‘is not entitled

to relief under the Import-Export Clause.” /d. at 8a.

The state court believed that Michigan’s taxes did not

violate the Commerce Clause for the same reason. Like the

Import-Export Clause under Michelin analysis, the Com-

merce Clause prohibits state taxes that undercut the federal

government’s ability to “speak with one voice” in matters of

foreign commerce. Japan Line Ltd. v. Los Angeles Co., 441

U.S. 434, 451 (1979). “[T]he taxes at issue here,” the court

explained, “‘cannot be said to have affected the foreign policy

of the United States because the economic burden of the

taxes fell directly on end-use consumers purchasing fuel for

immediate consumption in discrete transactions occurring

entirely within the United States.” App. at 9a-10a.

Ammex applied to the Supreme Court of Michigan for

leave to appeal. In its submissions in support of its applica-

tion, Ammex once again argued that Michigan’s taxes are

preempted by federal law and are invalid under the Import-

Export and Commerce Clauses as taxes on exports. See ;

Plaintiff-Appellant Ammex, Inc.’s Brief in Support of its i

Application for Leave to Appeal at 3-7, 11-12 (filed Dec. 14,

—=—M— iets

1999); Plaintiff-Appellant Ammex, Inc.’s Reply in Support

of its Application for Leave to Appeal at 3-16 (filed Aug. 8,

2000).

On August 25, 2000, after briefing on Ammex’s appeal

application had been completed, the Court of International

Trade issued its decision in Ammex y. United States, 116 F.

Supp. 2d 1269. That decision was the culmination of litiga-

tion instigated in January 1999 by Ammex against the U.S.

Customs Service challenging Customs’s denial of duty-free

Status to Ammex’s sales of motor fuel. The Court of Interna-

tional Trade expressly held that Customs’s ruling on this

matter was contrary to law, since Ammex’s motor fuel was

eligible for duty-free sale because it statutorily qualifies as

merchandise that can be “entered and withdrawn (for expor-

tation) from bonded warehouses, such as duty-free stores.”

Ammex, 116 F. Supp. 2d at 1272. The CIT decision neces-

sarily reflected a conclusion that as a matter of law these

goods cannot be subjected to federal duties because they are

being sold for export from the United States, and, accord-

ingly, the Customs Service subsequently authorized Ammex

to sell motor fuel on a duty-free basis.

Ammex brought this decision to the attention of the

Michigan Supreme Court in a supplemental submission filed

on August 30, 2000. The Supreme Court denied Ammex’s

application for leave to appeal on September 27, 2000. In

seeking reconsideration of that ruling, Ammex again stressed

the conflict between state and federal law represented by the

decision of the Michigan Court of Appeals and that of the

federal Court of International Trade. The Michigan Supreme

Court, with one justice dissenting, denied Ammex’s motion

for reconsideration on February 26, 2001.

12

REASONS FOR GRANTING THE PETITION

This petition presents a significant issue of constitutional

dimensions: can a state impose a tax on a duty-free product

sold by a federally authorized duty-free sales enterprise

where the product, as a matter of federal law, is an export.

This broad issue implicates the Supremacy Clause, the Im-

port-Export Clause, and the Commerce Clause.

Constitutional history and text, as well as this Court’s

precedent, affirm that foreign commerce has been long re-

garded as an area of exclusive federal concern. Customs

bonded warehouses, especially duty-free sales enterprises,

are federal enclaves created, authorized and regulated by fed-

eral law. Every aspect of Ammex’s operations as a duty-free

sales enterprise is regulated by the federal government in the

exercise of its exclusive power to regulate foreign commerce.

This comprehensive federal regulatory scheme occupies the

field of duty-free stores, leaving no room for state imposition

of taxes such as those at issue in this case. Any other con-

struction will undermine the uniformity of federal standards

and risk the balkanization and subversion of the federal

scheme of regulation of intrinsically federal enclaves. Given

the important and competing state and federal interests at

stake here, consideration of the issue by this Court is appro-

priate. Indeed, the preemptive force of the federal duty-free

scheme on state taxes is an issue with broad implications for

the many duty-free stores located throughout the nation.

This case provides a particularly good vehicle for exam-

ining that question because the Court of International Trade

has squarely held that sales of motor fuel from Petitioner’s

store qualify as duty-free exports for purposes of federal law.

As the Michigan courts have refused to give any weight to

that decision, to the paramount federal regulation of duty-free

stores, or to the comprehensive framework of federal statutes

and regulations, this petition presents an irreconcilable con-

pumnneennarnementamacencas la tii ak

13

flict that only this Court can resolve. By definition under

federal law, Ammex’s sales of motor fuel occur in export

transit. Yet the courts below labeled such sales as ordinary

domestic transactions. The supremacy of federal law and the

need for uniformity in matters of foreign commerce mandate

consistent adherence to the federal concept of “export” for

purposes of constitutional analysis. To this extent, at the

very least, federal law defining sales from a duty-free store as

“exports” must supersede the views of the states.

The constitutional prohibition on state taxation of goods

in export transit was recognized long ago in Richfield Oil v.

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

sound under the “modern approach” to Import-Export Clause

analysis prescribed in Michelin Tire Corp. v. Wages, 423

U.S. 276 (1976). This Court has “never upheld a tax as-

sessed directly on goods in import or export transit” under

the Import-Export Clause. United States v. IBM Corp., 517

U.S. 843, 862 (1996). The Michigan Court of Appeals, how-

ever, did just that.

Because Michigan’s sales and motor fuel taxes as applied

to sales from Ammex’s duty-free store fall directly on ex-

ports in transit, they are invalid under the Import-Export

Clause. Indeed, there is no precedent to support the state

taxation of duty-free goods sold by a duty-free sales enter-

prise. If this Court allows Michigan to succeed in its ap-

proach under the guise of the rationale employed by the state

court — that the duty-free motor fuel sold at Ammex’s Cus-

toms Class 9 bonded warehouse to customers bound for Can-

ada is not an export — the states are likely to attempt whole-

sale taxation of duty-free sales — a result squarely prohibited

by the Import-Export Clause.

14

I. FEDERAL LAW REGULATING DUTY-FREE

STORES PREEMPTS MICHIGAN’S SALES

AND MOTOR FUEL TAXES

The Michigan courts failed to recognize the primacy of

federal law with respect to Ammex’s operation as a duty-free

sales enterprise. The Congress of the United States, acting

pursuant to clearly enumerated powers placed ii its charge

by the Constitution, has actively asserted its authority to

promulgate standards for duty-free stores engaged in foreign

commerce. The federal scheme of regulation of such Cus-

toms bonded warehouses is intended to address and encom-

pass all such regulation and to be exclusive.

A scheme of federal regulation may be so pervasive as to

make reasonable the inference that Congress left no room for

supplemental state regulation. Gade v. Nat'l Solid Wastes

Mgmt. Ass'n, 505 U.S. 88, 98 (1992). This “field preemp-

tion” occurs where the “federal interest is so dominant that

the federal system will be assumed to preclude enforcement

of state laws on the same subject.” Hillsborough County v.

Automated Medical Lab., Inc., 471 U.S. 707, 713 (1985).

This is particularly so when a state regulates in an area where

there has been a history of significant federal presence. See,

e.g., United States v. Locke, 529 U.S. 89, 108 (2000). More-

over, the Commerce Clause, even when dormant, restricts the

States’ authority to regulate matters of foreign commerce.

See Japan Line, 441 U.S. at 449. When the federal govern-

ment has exercised its power to regulate foreign commerce,

the states must abstain altogether.

Thus, long before passage of the Omnibus Act, which

specifically regulates duty-free stores, this Court held that the

Tariff Act of 1930 was an exercise of the federal govern-

ment’s power to regulate foreign commerce and that it pre-

empted state taxes on imported oil held in a bonded ware-

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

see also Xerox Corp., 459 U.S. 154 (imposition of nondis-

1S

criminatory ad valorem personal property taxes on imported

goods stored under bond in customs warehouse and destined

for foreign markets was preempted by the Tariff Act of

1930); Hostetter v. Idlewild Bon Voyage Liquor Corp., 377

U.S. 324 (1964) (New York may not, in the face of the

Commerce Clause and the Tariff Act of 1930, regulate sales

of liquor at a duty-free facility operating at Kennedy Air-

port).

The states’ authority in this area can only have been fur-

ther diminished upon passage of the Omnibus Act. In that

Statute, after a congressionally directed moratorium on regu-

latory changes lasting for some three years, Congress

adopted a comprehensive scheme of regulation for stores

Selling on a duty-free basis to the public. The federal gov-

ernment regulates every aspect of the operation of Ammex’s

duty-free sales enterprise. The federal government regulates:

(1) the establishment of duty-free sales enterprises; (2) per-

missible locations of duty-free sales enterprises; (3) proce-

dures that a duty-free store must establish “to provide rea-

sonable assurance that duty-free merchandise sold by the en-

terprise will be exported from the customs territory”; (4)

quantities of merchandise that may be sold by a duty-free

store; (5) circumstances under which the operator of a duty-

free store may unpack merchandise into saleable units: (6)

procedures that a duty-free store must adopt in delivering

duty-free merchandise to its customers; (7) notice that a duty-

free store must provide to customers; (8) the extent to which

a duty-free store may also sell merchandise other than duty-

free goods; and (9) inventory and recordkeeping require-

ments for duty-free sales enterprises. Indeed, the United

* See 19 U.S.C. § 1S55(b); 19 C.F.R. §§ 19.35, 19.36. In addi-

tion, Congress has explicitly regulated the notices that must be posted

by duty-free stores concerning (1) the duty- and tax-free character of

its goods, (2) the declaration obligations of any person bringing duty-

(Continued ...)

16

States Court of International Trade has recognized that Con-

gress has enacted a “comprehensive statutory framework” for

duty-free sales enterprises. Duty Free Int'l, 16 C.1.T. at 165.

The Omibus Act allows participation of local govern-

ments only in connection with the potential “concession or

other form of approval” that might be required as an incident

of operation of a duty-free sales enterprise. 19 U.S.C.

§ 1555(b)(4).° Because such participation is specifically au-

thorized, this provision indicates that Congress intended to

preclude other forms of state regulation. Thus, in the Omni-

bus Act Congress expressly — and severely — limited the

scope of state jurisdiction over duty-free sales enterprises,

and did so in a way that proscribes the imposition of Michi-

gan’s taxes on motor fuels sold by Ammex.

The comprehensive nature of federal regulation is under-

scored by congressional findings set forth in the Omnibus

Act. Congress identified four reasons underlying its regula-

tion of duty-free stores, two of which are particularly ger-

mane here. First, Congress determined that “duty-free sales

enterprises play a significant role in attracting international

passengers to the United States and thereby their operations

favorably affect our balance of payments.”® Second, Con-

gress determined that “there is a need to encourage uniform-

ity and consistency of regulation of duty-free sales enter-

prises.”’ The Court of International Trade has held that by

free goods back into the customs territory, and (3) the applicability of

the customs laws of the foreign country into which the goods are

transported. See 19 U.S.C. § 1555(b)(3)(C).

*E.g..a building permit or a food handler’s license.

© See Omnibus Act § 1908(a), Pub. L. No. 100-418, 102 Stat.

1107, 1315.

"Id. (emphasis added).

17

initially prohibiting Customs’s regulation of duty-free stores,

and by then enacting a comprehensive regulatory framework

for those enterprises, Congress’s dominant purpose was to

“foster the prosperous growth of duty-free sales enterprises

by encourag[ing] uniformity and consistency of regulation of

duty-free sales enterprises.” Duty Free Int'l, 16 C.LT. at 165

(internal quotation omitted) (alteration in original). These

congressional objectives are inconsistent with state taxation.

When it comes to foreign commerce, this Court has ac-

knowledged “the special need for federal uniformity.” War-

dair Canada, Inc. v. Florida Dep’t of Revenue, 447 U.S. 1,8

(1986). That uniformity has been established here by federal

statute. Allowing individual states to disrupt this uniform

regulatory scheme carries the risk that a conflicting patch-

work of state laws will impede the free flow of foreign com-

merce. This case presents the Court with the opportunity to

ensure that states do not encroach on the federal uniformity

inherent in Congress’s creation and regulation of duty-free

stores.

Congress’s determination to establish a comprehensive

regulatory scheme governing duty-free stores is understand-

able in light of their prevalence in this country. The U.S.

Customs Service regulates hundreds of duty-free facilities at

every international airport and major land border crossing in

the United States and its territories. Thus, congressional

concern for uniformity in this area was well-placed, and

Congress’s decision to occupy the field must be repected.

II. THIS COURT SHOULD DECIDE WHETHER

§ 1908 OF THE OMNIBUS ACT DEFINES

“EXPORT” FOR PURPOSES OF THE

IMPORT-EXPORT CLAUSE

The court below, without even discussing the federal

regulatory scheme governing duty-free operations, held that

the motor fuel sold at Ammex’s duty-free facility was not an

18

export. That conclusion was central to the court’s rulings

upholding those taxes under both the Import-Export Clause

and the Commerce Clause. See App. at 7a, 9a-10a. Under

the Tariff Act of 1930, however, merchandise sold from a

duty free store is necessarily immediately transferred out of

the U.S. and is therefore, by definition, an export. See 19

U.S.C. § 1555(b). Indeed, the CIT expressly held that the

motor fuel sold by Ammex qualifies for duty free status be-

cause such goods are “entered and withdrawn (for exporta-

tion) from bonded warehouses, such as duty-free stores.”

Ammex, 116 F. Supp. 2d at 1272 (emphasis added). This

case, therefore, provides an opportunity for this Court to de-

cide whether an item that qualifies as an export under a fed-

eral statute must be treated as an export for purposes of the

Import-Export Clause.

The Import-Export Clause provides: “No State shall ...

lay any Imposts or Duties on Imports or Exports except what

may be absolutely necessary for executing it’s inspection

Laws ....””» U.S. Const. art. I, § 10, cl.2. Whatever the outer

boundaries on the protections afforded by this command may

be, state taxes on exports are forbidden: “The Court has

never upheld a state tax assessed directly on goods in import

or export transit.” United States v. IBM, 517 U.S. 843, 862

(1996). Indeed, this Court’s precedents establish that the Im-

port-Export Clause absolutely bans state taxes on imports

and exports, whether or not they are discriminatory.

In Richfield Oil, the Court explained that the language

and history of the Import-Export Clause compelled the con-

clusion that state taxes imposed directly on exports are inva-

lid per se. See 329 U.S. at 76-77. In this respect, the Court

noted, the Import-Export Clause was more restrictive than

the dormant Commerce Clause, which tolerates some nondis-

criminatory state taxes on instrumentalities of interstate or

foreign commerce. Id. at 75-76; see also Japan Line, 441

U.S. at 451. The Richfield Oil Court concluded that oil that

19

had been delivered into a ship’s hold for immediate trans-

shipment abroad was an export because it had entered the

stream of export commerce and thus could not be taxed by

the state of California. 329 U‘S. at 82-83; accord Collis vy.

Bay City Export Lumber Co., 70 So. 2d 273 (Ala. 1954);

McDonnell Douglas Corp. v. State Bd. of Equalization, 13

Cal. Rptr. 2d 399 (Cal. Ct. App. 1992), review denied (Cal.

Feb. 11, 1993), cert. denied, 510 U.S. 814 (1993); City of

Tacoma v. General Metals of Tacoma, Inc., 527 P.2d 1314

(Wash. 1974) (en banc).

The motor fuel sold duty-free at Ammex’s Ambassador

Bridge facility is an export in transit under federal law. The

Customs laws require all Ammex sales, including its sales of

motor fuel, to occur in the stream of exportation from the

United States. Ammex is authorized by the United States

Customs Service to operate a duty-free sales enterprise,

which by definition involves the sale of merchandise, in ex-

port commerce, free of duties and taxes. See 19 U.S.C.

§ 1555(b)(1); 19 C_E.R. §§ 19.35 et seg. Indeed, Congress

has mandated that duty-free sales enterprises must establish

procedures to ensure that merchandise sold by the enterprises

“will be exported” and that duty-free merchandise must be

delivered to customers “for exportation.” 19 U.S.C.

§ 1555(b)(3)(A) and (F). Moreover, merchandise purchased

at a duty-free store by a United States resident is treated,

upon the resident’s return to the United States, as “an article

acquired abroad as an incident of the journey from which the

resident is returning” for purposes of determining eligibility

for a exemption from duty. 19 U.S.C. § 1555(b)(5)(B).® As

* See also United States v. Commodities Export Co., 733 F. Supp.

109, 114 (Ct. Int’l Trade 1990) (“The unique nature of a duty-free

Store is that it sells goods for immediate export from the United States

so that its customers need not pay Federal duties and taxes on the

goods.”); Ammex Warehouse Co. of San Ysidro, Inc. v. California,

(Continued ...)

20

a matter of federal law, then, merchandise sold at a duty-free

store must be exported and treated as export commerce.

Because a product may be sold from a duty-free store

only if it is immediately exported from the customs territory,

a product that is sold from a duty-free store, such as Am-

mex’s motor fuel, is necessarily an export as a matter of fed-

eral law. 19 U.S.C. § 1555(b). In evaluating the validity of

Michigan’s taxes under the Import-Export and Commerce

Clauses of the U.S. Constitution, however, the Michigan

Court of Appeals substituted its own view of export status for

that compelled by federal law. That approach is intolerable,

as it subjects the law of exports, which is quintessentially

federal in nature, to varying and perhaps, as in this case, con-

flicting state law rules.

This case presents a particularly dramatic example of a

clash between federal and state law with respect to export

status. The Court of International Trade has squarely held

that the fuel at issue here may be sold as duty-free merchan-

dise from a duty-free store, which necessarily requires expor-

tation. Yet the Michigan Court of Appeals held that the same

product is not an export for purposes of a state tax. Where

Congress has identified a class of goods that it has deter-

224 F. Supp. 546 (S.D. Cal. 1963) (holding that with respect to liquor

to be sold under bond at a border crossing, “the purchaser has only the

physical custody of the liquor and ... the legal possession of the liquor

remains in the Customs agent until the moment the purchaser crosses

the border”), aff'd, 378 U.S. 124 (1964).

” Nor is there any question in this case that the motor fuel sold by

Ammex was in fact immediately exported to Canada. The parties’

stipulations establish that “[i]t is not possible for the vehicles into

which gasoline and diesel fuel is dispensed at ... AMMEX ... to then

travel over any public roads or highways of the State of Michigan ...

because such vehicles must exit the US into Canada.” (Stip. 20).

FE ee ee ee a Le ee ee ae ee ee en

21

mined to exempt from duties, it surely intended that those

goods be protected from state taxation as well.

The state court’s application of the policy-based analyti-

cal framework established in Michelin Tire, 423 US. 276, is

erroneous for the same reason. As noted above, the court

upheld the state taxes under Michelin Tire on the ground that

the motor fuel at issue is not an export. See App. at 7a-8a.

Congress’s “one voice,” however, has stated otherwise. State

taxes on such motor fuel therefore are invalid under Michelin

Tire. See 423 U.S. at 451: see Virginia Indonesia Co. v.

Harris County Appraisal District, 910 S.W.2d 905 (Tex.

1995) (under Michelin, as under Richfield Oil, a state tax im-

posed directly on exports in transit violates Import-Export

Clause), cert. denied, 518 U.S. 1004 (1996); Louisiana Land

& Exploration Co. v. Pilot Petroleum Corp., 900 F.2d 816,

821 (Sth Cir.) (“To permit each and every state to impose a

direct tax on goods in the export stream would circumvent”

the objective of ensuring that the federal government

“speak[s] with one voice when regulating commercial rela-

tions with foreign governments.”), cert. denied, 498 U.S. 897

(1990).

For much the same reason, the court’s Commerce Clause

analysis was fundamentally flawed. The court failed to rec-

ognize the preemptive effect of federal customs laws, which

represent an exercise by the federal government of its com-

merce power. Xerox Corp., 459 U.S. at 150; McGoldrick,

309 U.S. at 428-29. It follows that, on the issue before the

court, the Commerce Clause is not dormant, and resort to

principles applicable in the face of congressional silence is

inappropriate. See Xerox Corp., 459 U.S. at 154 (“It is un-

necessary for us to consider whether, absent Congressional

regulation, the taxes here would pass muster under the Im-

port-Export Clause or the Commerce Clause.”’).

The impact of applying state law — rather than federal

Statutory directives — to determine export status for purpose

22

of constitutional analysis extends far beyond the parties in

this case. If, as the Michigan courts ruled, motor fuel sold

duty free is not an export, states may seek to use that ruling

to assert that sales of all duty-free merchandise are domestic

transactions subject to state regulation. The state of Michi-

gan, and in all likelihood other states, can be expected to

seize on this decision in seeking to impose their taxes on

duty-free merchandise sold within their boundaries.'° This

Court should act now to preempt those efforts.

This case raises an important issue for this Court’s re-

view: whether a federal statute that expressly characterizes a

product as an export for purposes of federal duties must also

control its status for purposes of state taxes. In essence,

where Congress has spoken with “one voice” on the charac-

ter of goods in transit, can the state courts speak with a mul-

tiplicity of voices on the same subject? By clarifying the in-

teraction of the Tariff Act of 1930 with the Constitution’s

foreign trade clauses, this Court can avoid continuing and

increasing conflict between state and federal courts.

CONCLUSION

For the reasons stated above, this Court should grant

Ammex’s petition for a writ of certiorari and reverse the

’° In fact, Michigan already has issued notices of intent to assess

sales and tobacco products taxes on other duty-free stores operating in

Michigan.

23

decision of the Court of Appeals of Michigan or, in the alter-

native, remand with instructions to reconsider the constitu-

tional issues under the appropriate federal standards.

Respectfully submitted,

J. WILLIAM KOEGEL, JR.

Counsel of Record

CHARLES G. COLE

SARA E. HAUPTFUEHRER

STEPTOE & JOHNSON LLP

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-3000

June 26, 2001