Brief for the Respondents in Opposition — Flora v. United States

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NOV 1 1956

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In the Supreme Court o AN T. FEY, Clerk

United States

OcroseR TERM, 1956

No. 492

Crry anp County OF San FRANCISCO,

a municipal corporation,

Petitioner,

Vs.

NationaL DistitLers Propucts Corrora-

TION, a corporation,

Respondent. :

‘

Brief for Respondent in Opposition 4

On Petition for Writ of Certiorari to the District Court of Appeal, t

State of California

Sropparp B. Co.sy, M

15 Broad Street, %

New York 5, New York.

Treopore R. Meyer,

Hart H. Sprece,

111 Sutter Street,

San Francisco 4, California.

Attorneys for Respondent.

Breep, Abpott & MorGan

15 Broad Street,

New York 5, New York.

Bropeck, PHuEGeR & Harrison,

111 Sutter Street,

San Francisco 4, California.

Of Counsel

By aE TT AAR TUE FY

PARKER PRINTING COMPANY, 180 FIRST STREET. SAN FRANCISCO 5

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SUBJECT INDEX

Page

Questions Presented ........-.-----.--------scecese eee eeeteetee ees genineeens

Statement Of Facts.................0c.-nso--sccccscsenscccsscenesernsnsensoseconssnenenseannenns

Reasons for Denying the WYit.........-....-------.---s-e--eseseseeneeee terete

(a)

(@)

(d)

This ease presents no substantia! federal question nor

any important point of law..........-.......---.-..-------- eee

This Court’s prior decisions have been correetly applied ;

Exemption from tax may be accorded by Congress under

the Commerce Power and not, as petitioner contends,

solely under the Taxing Power...........-.-.----------------s0

The Exemption from Tax contained in the Tariff Act of

1930 represents an exercise by Congress of its commerce

POWET .onccnenecessesceceesnessseencnsnsenseesnensseessessnsnsnesnenenssnenensenseenenses

Petitioner’s restrictive interpretation of the powers of

Congress and the purposes of the Tariff Act of 1930 ancl

its exemptions is clearly crroneous...........-.----------+-1-s--

Petitioner’s attempted distinction between imports and

articles of domestic origin is Spurious..........-..-...-------e-+

Respondent's liquors were also exempt from this local

tax under the export clause of the United States Consti-

tution, and the judgment of the courts below is amply

supported by this groumd............--.-1e--ee-ese- eee

fe ei ee ape ARIES a Bat Rene RS eS eee sepbates Ar an RARE eR

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TABLE OF AUTHORITIES CITED

CASES Pages

Board of Trustees v. United States, 289 U.S. 48, 56-57, 58

DIED cscnantesssconcserenisounshnapsitiinieenitetibieheensicteanacaiaasol 2, 3, 7, 9, 10, 13, 14

Carson Petroleum Co. v. Vial, 279 U.S. 95 (1929).................... 6, 16

Coe v. Erroll, 116 UB. S17, G37 (1606)........................20sc00000.0d 6, 7, 16

J. W. Hampton, Jr. & Company v. United States, 276 U.S.

Be 6 CIE eicsersiteiianecebicnsebnteinsiseiccasiel uininrnansint-tubempnnsineetacnnmnienianandanehie 7,9

Irvine v. California, 347 U.S. 128, 129 (1954)...........000 2

Joy Oil Company v. State Tax Commission, 337 U.S. 286, 288

MIE: :schceihesacnetiescdesuialeniviaaphanuiiensiaaniantiaanionenhonsstelsammesssionncineintnebnasiote 17

Langnes v. Green, 282 U.S. 531, 535-539 (1931)..............-......... 17

McGoldrick v. Gulf Oil Corporation, 309 U.S. 414, 423, 429

IO Mecensssivctisncontieiasacptersiracasslicoabeninioaiioinibioteee 7, 8, 9, 10, 11, 12, 14, 15, 16

Richfield Oil Corporation v. State Board of Equalization, 329

Ec MII IE III Dai tceiepiiheipintcdcanidinancdeiesionicascndldeeinalnisetensaieeeonciltaies 7,17

Texas & N.O.R.R. v. Sabine Tram Co., 227 U.S. 111 (1918).... 7, 16

Walling v. General Industries Co., 330 U.S. 545, 547 (1947)... 17

CONSTITUTIONS

United States Constitution, Article I, Section 10, Clause 2........ 16

STATUTES

Tariff Act of 1930, as amended

Sections 311, 309(a) and (b), and 313(d), 19 U.S.C. Sees.

TR Gy 7 1 ie i eee ne don eer sep: 3, 4, 8, 9, 10, 11, 12, 16

Tariff Act of 1930, as amended

OS etre es NN, Bock recpccia coc vcaekecindntescavteaearccnnaciees 12

Rs ee ees, Cs Te aciindnsnencneterveancnnnsnesincinntinsinnmnntitentsinnn 13

Er ck Se iitestascarcostanevicinccinitnbins REL ES oe ees +

26 C.F.R. §§ 185.960, 185.977-981, 185.773..................... ee 5

Revenue Act of 1932, Section 601(a), (¢) (4), 47 Stat. 169,

BOO, BB BtAl. BOG ios. csscccccccssscncsecs Seale CURRED A BID ey, Goat 8

TEXTS

Cong. Ree. Vol. 75, Part 10, pp. 10529 et seq

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In the Supreme Court of the

United States

OcTober TERM, 1956

No. 492

Ciry aNp CouNTY OF SAN FRANCISCO,

a municipal corporation,

Petitioner,

vs.

NatioNAL DistitLers Propucts Corpora-

TION, a corporation,

Respondent.

Brief for Respondent in Opposition

On Petition for Writ of Certiorari to the District Court of Appeal,

State of California

The respondent above named herewith presents its brief

in opposition to the petition filed herein for writ of certiorari

to review the decision and judgment of the District Court of

Appeal, State of California, First Appellate District, re-

ported in 141 Advance California Appellate Reports 719.

QUESTIONS PRESENTED

The issue in this case is whether respondent is entitled to

a refund of $5,122.53, being the amount of unsecured per-

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sonal property taxes assessed in respect of 9,195 cases of

alcoholic liquors found by the trial court to have been in the

channels of export and of foreign commerce on tax day,

March 3, 1952.1

The trial court found as a fact that these liquors, pro-

duced, bottled and bonded in Maryland for export or for

use as ships’ stores, shipped into California for said expor-

tation or use, and thereafter so exported or used were on

that tax date in the channels of interstate and foreign com-

merce; that the liquors were irrevocably dedicated to such

export or use by government controls designed and effective,

with certainty, to insure such disposition; and that such

liquors are never diverted to domestic use or sale.

The trial court held, as a matter of law, that as of that tax

date these liquors were exempted from this local taxation hy

the exemption provisions and controls contained in the

Tariff Act of 1930 whose recited purposes are “to provide

revenue, to regulate commerce with foreign countries, to

encourage industries of the United States, to protect Ameri-

can labor, and for other purposes.” The court's decision

was in keeping with this Court’s holding in Board of Trus

tees v. United States, 289 U.S. 48 (1933), with respect toa

similar predecessor tariff act:

“The Tariff Act of 1922 is entitled—tAn Act to pro-

vide revenue, to regulate commerce with foreign coun-

tries, to encourage the industries of the United States,

and for other purposes.’ The Congress thus asserted

that it was exercising its constitutional authority ‘to

regulate commerce with foreign nations.’ Art. I, §8,

par. 3.* * * It is an essential attribute of the power that

1. Petitioner has not sought review of that portion of the judg-

ment allowing a refund of $4,708.92 of tax assessed on imported

liquor in its original packages. This issue is therefore excluded by

the petition. Irvine v. California, 347 U.S. 128, 129 (1954).

All italics and brackets in this brief have been supplied.

3

it is exclusive and plenary. As an exclusive power, its

exercise may not be limited, qualified or impeded to any

extent by state action.” (289 U.S. 48, 56-57)

The California District Court of Appeal by unanimous

decision affirmed the trial court; and the California Supreme

Court denied a hearing, no judges voting for a hearing.

The only questions are: (a) an undisputed factual one,

not forming the basis in any event for the granting of a

writ of certiorari, i.e., whether on tax day, Mareh 3, 1952,

these liquors were in the channels of interstate and foreign

commeree and irrevocably dedicated to exportation or use

as ships’ stores, and (b) whether the liquor was exempt from

tax on March 8, 1952 because of action taken by the Federal

(iovernment in the exercise of its commerce power under the

Tariff Act of 1930 to permit the tax-free exportation of the

liquor.

etitioner’s second question is foreign to this case and

svnewhat misleading. Petitioner suggests that the second

-<tion is whether the grant of an exemption from tax by

Congress with respect to this liquor “precludes the exercise

by a state of its taxing power over such articles from the

moment of commencement of production of said articles

***" (Petition, p. 4). But, as the facts plainly show, all the

liquer was produced and bottled in Maryland, shipped by

common carrier under bond to California, and it was only

while the liquor was temporarily in San Francisco after its

shipment from Marvand that the property tax was sought

to be assessed. Respondent’s intimation that the lower

courts held these goods were protected from taxation “from

the moment of the commencement of production [in Mary-

land]” is a question that was never passed on by the Cali-

fornia courts and obviously presents no basis for granting

the writ.

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4

STATEMENT OF FACTS

The Tariff Act of 1930 contains elaborate provisions per-

mitting the manufacture and shipment of liquor in bond for

exportation or ase as supplies of vessels engaged in foreign

trade or employed in the fisheries, free of federal duties or

taxes. The trial court found (Finding VIEL, Cl Tr. 35-6)

that, in accordance with the requirements of this Tariff Act

and federal regulations issued thereunder, 2.706 cases of

the liquor here involved had been rectified, reduced in proof

and bottled in a United States customs bonded warehouse,

Class 6, in Baltimore, Maryland; stamped, packaged, and

labeled for export; and immediately thereafter transported

by bonded common carrier toa United States customs bonded

warehouse, Class 3, in San Francisco for overseas shipment.

This liquor was 86 or S6.S proof (R. Tr. 15, 30) and could

he removed from the Baltimore warehouse only for exporta-

tion (R. Tr. 15, 80; 19 CLPLR. § 19.15). Respondent manufae-

tured and bottled this liquor solely for export and not for

domestic use (R. Tr. 13, 17; 20-26, 30; 9-10), Such liquor

‘rannot be diverted to domestic sale or use and is never so

diverted (R. Tr. 13, 26, 52: 19 C.RPLR. § 19.15).

The trial court found further (Finding VII, Cl Tr.

35-6) that 1208 cases of said liquor had been bottled

Baltimore, Maryland, under internal revenue bond:

stamped, packaged, and labeled for export: and immediately

thereafter transported by bonded common carrier to an

internal revenue bonded warehouse in San Francisco for

overseas shipment. The liquor was 86 proof (R. Tr. 10, 15).

The labels carried the legend “Bottled in Bond for Export.”

They complied with the export requirements and differed

from labels used domestically (R. Tr. 10, 15). The cases

were marked “For Export from U.S.A." (R. Tr. 11) and

contained other legends relating to exports (R. Tr. 11).

blue export strip stamp was attached over the mouth of

5

the bottles (R. Tr. 11) in accordance with regulations appli-

cable to liquor bottled in bond for export (26 C.F.R,

$$ 185.960, 185.977-981). The liquor moved to San Francisco

by bonded earrier (R. Tr. 13, 34) immediately after bottling

(R. Tr. 13). It was covered by bonds conditioned on expor-

tation. Pursuant to the applicable law and regulations, it

was checked out of the San Francisco warehouse and placed

aboard a vessel for export shipment under customs super-

vision (R. Tr, 34), and with the use of prescribed Treasury

Form 206 (26 C.F.R. § 185.773). Respondent did not divert

this liquor and has never diverted liquor bottled in bond

for export to domestic use (R. Tr. 13, 15). The manufacture

and shipment overseas complied with federal statutes and

regulations in every respect (R. Tr. 10,41).

The trial court found further (Finding VIII, Cl. Tr. 35-6)

that 5.281 cases of said liquor had been bottled, stamped,

packaged, and labeled especially for export in Baltimore,

Maryland; and immediately thereafter transported by

bonded common earrier to the export storage room of a

public warehouse in San Francisco, subject to a drawback

or refund of previouly paid internal revenue taxes upon

proof of export in accordance with appropriate federal

regulations. These bottles were labeled “For Export,” and

the eases carried the legend “Bottled for Export from the

U.S.A.” (R. Tr. 38) The liquor moved to San Francisco by

bonded common carrier (R. Tr. 18, 38) immediately aftet

bottling (R. Tr. 13); and was in the export storage room at

the South End Warehouse in San Francisco on tax day. The

final movement aboard ship and to sea was under customs

supervision (R. Tr, 38-39). The liquor was 86 or 86.8 proof

(R. Tr. 15, 88). It was economically unfeasible to divert it to

domestic use or sale (R. Tr. 15); and respondent did not so

divert this liquor and has never so diverted such liquor in

the past (R. Tr. 18).

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The trial court also found that, pursuant to the Tariff Act

of 1930 and regulations issued thereunder, all of the liquor,

while in bond and under the supervision and control of

appropriate federal government agencies, was placed at

various times after March 38, 1952 (tax day) aboard ship for

transportation to destinations in foveler countries or for

use as supplies of vessels engaged in foreign trade or in the

fisheries (Finding VIII, Cl. Tr. 36-7).

Finally, and significantly, the trial court found that the

transportation of all said liquor to and through San Fran-

cisco and the movement aboard vessels, all under federal

bond, for delivery to customers in foreign countries or for

consumption on the high seas, constituted integrated steps

ina movement of goods in interstate and foreign commerce

in accordance with plaintiff’s plan and intent (Finding NI,

Cl. Tr. 39).

REASONS FOR DENYING THE WRIT

(a) This case presents no substantial federal question nor any

important point of law.

The first issue in this case is a simple issue of fact found

in respondent’s favor by the trial court, namely, that the

liquors here involved were committed to exportation and

were in the channels of interstate and foreign commerce

when sought to be taxed by the City and County of San

Francisco. This Court has already clearly delineated the

principles which govern in this area. Carson Petroleum Co.

vr Vial, 279 U.S. 95 (1929); Coe v. Errol, 116 U.S. 517

2. Petitioner states that ‘‘Some of this liquor had been in Cali-

fornia since 1947.’ The word ‘‘some’’ refers to a part of one broken

ease (3/1000 of 1% of the liquor here involved) ! And petitioner's

wel nee to liquor in San Francisco from June 28, 1948 ap plies

only to a few odd eases (less than 1% of the total). The trial court’s

finding is amply supported by the evidence, as the California appel-

late courts fully realized.

7

(1886) ; Richfield OW Corporation v. State Board of Equalt-

sation, 329 U.S. 69 (1946); Texas & N. O. R. R. v. Sabine

Tram Co., 227 U.S. 111 (1918). Petitioner seeks merely to

secure a review of the application of undisputed legal eri-

teria to the facts of this case. Such a foundation for the

petition presents no oceasion for granting the writ.

The second question, whether certain exemption provi-

sions contained in the Tariff Act of 1930 represent an exer-

cise by Congress of its commerce power or an exercise solely

of its taxing power, is of limited significance. To begin

with, this Court has already laid down the controlling prin-

ciples in such cases as McGoldrick v. Gulf Oil Corporation,

999 US. 414, 423 (1940); Board of Trustees v. United

States, 289 U.S. 48 (1933) ; J. W. Hampton, Jr. € Company

». United States, 276 U.S, 394 (1928). The principles having

been established, petitioner seeks to have this Court review

the decision of the lower courts as to the application of

these principles to this case.

Petitioner cites no pending litigation, no other states

which have even contemplated much less attempted what

the City and County of San Francisco recently sought to do,

and no cirewmstance which lifts this case out of the general

line of cases where ambitious county assessors have at-

tempted to find a loophole in this Court’s previous deci-

sions. The California courts, acting without a single dissent

at any stage of the proceedings, have provided adequate

answer to the assessor in this case.

(b) This Court's prior decisions have been correctly applied:

Exemption from tax may be accorded by Congress under

the Commerce Power and not, as petitioner contends, solely

under the Taxing Power.

Petitioner urges this Court to grant the writ in order to

hold that if Congress levies a tax “pursuant to the taxing

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power” and thereafter “provides for specifie exemption

under which articles shall be free from tax, both the levying

of the tax and the exemption therefrom are an exercise of

the taxing power and of no other power.” (Petition, p. 16)

Petitioner argues that:

“Where, as in the case of articles of domestic manu-

facture, there is no commerce involved* and the matter

is one of exemption from internal revenue taxes levied

pursuant to the taxing power of Congress, the only con-

clusion that can be reached is that the granting of such

exemption is an exercise of the taxing power and no

other power.” (Petition, p. 13)

Petitioner's theory that if a tax is levied under the taxing

power, any exemption from the tax is necessarily and solely

an exercise of the taxing power (although Congress may

have intended the exemption as an exercise of its commerce

power) is a novel proposition which this Court has already

rejected. For example, the contention is completely incon-

sistent with this Court’s decision in WceGoldrick v. Gulf Oil

Corporation, 309 U.S. 414 (1940). In that case, as this

Court was careful to point out, the tax had been imposed by

“Section GO1(a), (e)(4) of the Revenue Act of 1982," 4

Stat. 169, 260"; exemption from the tax for certain articles

sold for use as ships’ stores, ete. was provided by an amend-

ment to the Revenue Act of 1932, 48 Stat. 256. This Court

observed, however, that all of these revenue and exemption

provisions were “in effect a part” of the Tariff Act of 1950;

3. Most of petitioner’s argument is based on this curious premise

that in the ease of domestic articles there is no commerce involved.

The non-sequitur is apparent when it is considered that practically

all our ercport commerce consists of domestic products.

4. Entitled ‘“‘An Aet to provide revenue, equalize taxation and

for other purposes.’’ The Congressional debates are eloquent testi-

mony that the measure was purely a revenue bill. Cong. Ree. Vol.

75, Part 10, pp. 10529 et seq.

9

that the Tariff Act of 1930 clearly represented an exercise

by Congress of its power to regulate foreign commerce ; that

“the purpose of the Congressional regulation of the com-

merce [i.e. exemption from the tax] would fail if the state

were free at any stage of the transaction to impose a tax

which would lessen the competitive advantage conferred”

by Congress; and that “The state tax in the circumstances

must fail as an infringement of the Congressional regulation

of the ecommerce.” Id. at 429. Thus, the exemption from tax

was clearly considered an exercise of the commerce power.

Petitioner argues that duties under some tariff acts have

been imposed under the power to regulate foreign com-

merce, Board of Trustees v. United States, 289 U.S. 48

(1933) (Petition, p. 11); but in other tariff acts this Court

“was forced to rely on the constitutional power to levy

taxes,” to sustain the imposition, citing J. W. Hampton, Jr.

& Company v. United States, 276 U.S. 394 (1928) (Petition,

p. 12). It is very questionable whether petitioner’s inter-

pretation of the Hampton case is correct, but entirely apart

from this flaw, petitioner’s arguent misses the point. We

are not here dealing with inferences to be drawn from the

imposition of a tax by Congress, we are here concerned

with inferences to be drawn from an exemption from tax.

Whether or not Congress has imposed the taxes on liquor

under the taxing power is immaterial. The question in this

ease is whether Congress has relieved liquor manufactured

in bond and committed to export or use as ships’ stores

from taxes by reason of its exercise of the commerce power

or solely by reason of its exercise of the taxing power. We

respectfully submit that the answer is to be obtained not by

a consideration of eases dealing in general terms with the

imposition of taxes or duties by the Federal Government

but by examination of the specifie eremption provisions

contained in the Tariff Act of 1930,

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10

(c) The Exemption from Tax contained in the Tariff Act of 1930

represents an exercise by Congress of its commerce power.

The courts below held that the relevant sections of the

Tariff Act of 1930 and the regulations issued thereunder

which chart an intricate and detailed procedure for the tax-

free exportation of certain liquor operate as an exercise of

the commerce power by the Federal Government to the end

that this particular phase of commerce (which normally is

subjected to heavy domestic taxation) may be exported free

of the burdens of domestic taxation. The specific immunity

from federal taxes contained in the Tariff Act of 1930 car-

ries with it an inferred immunity from state taxes, just as

the Supreme Court held the act did in the Gulf Oil case,

supra. The purposes of the congressional regulation appli-

cable to this phase of foreign commerce would fail if the

state were free at any stage of the commerce to impose a tax

which would lessen the competitive advantage conferred by

Congress upon the said spirits or infringe on the congres-

sional regulation of this class of foreign commerce.

The Tariff Act of 1930 is entitled “An Act to provide

revenue, to regulate commerce with foreign countries, to

encourage industries of the United States, to protect Ameri-

ean labor, and for other purposes.” A clearer expression of

congressional purpose to regulate foreign commerce could

not be written; and this Court has held that where Congress

asserts, as it has in the Tariff Act of 1930, it is exercising

its power to regulate commerce, that assertion will be recog-

nized by the judiciary and the Act will be construed as an

exercise of the commerce power. Board of Trustees v.

United States, supra.

In the Tariff Act of 1930, as amended, Congress extended

protection from taxation (1) to certain imports manufac-

tured in bond for export or for use as ships’ stores. Jn the

11

same Act and as part of the same sections, i.e., Sections 309,

311, and 313, Congress provided protection from taxation,

») to certain domestic liquor prepared in bond for exporta-

tion or sale for use as ships’ stores.

In the Gulf Oil case this Court concluded that the provi-

sions incorporated in this specific Tariff Act of 1930. re-

ferred to in clause (1) above amounted to congressional

regulation of the commerce and that local taxation of the

goods while within the commerce regulated by the Federal

Government (i.e., While within the process of export in

bond) would nullify the congressional design. In the face of

these facts, what possible basis is there for coming to a dif-

ferent conclusion with respect to the provisions of clause

(2) above? Why should one half of the congressional

scheme (applied to imported goods prepared for export)

be given any greater effect than the other half of the con-

gressional scheme (applied to domestic liquor prepared for

export)? As the lower courts concluded, there is every rea-

son to give equal effect to the provisions of the Tariff Act of

1930 whether they relate to imported goods or to domestic

goods, where such provisions are placed side by side in the

same sections of the Act, and had as their uniform purpose

protection of a seqment of commerce from the burdens of

heavy taxation in order that such commerce (i.e., exporta-

tion to foreiqn countries or use as ships’ stores) might be

stimulated. This is particularly true where this Court has

already held that the Tariff Act in which both of these pro-

visions oceurred operated as a congressional regulation of

the commerce. In summary: Congress was well aware that

some goods are subjected to heavy unport duties and other

coods are subjected to extremely burdensome domestic taxa-

tion: that in either ease such taxation could effectively pre-

clude exportation of the goods, or their sale for use as ships’

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stores; and Congress, in the exercise of its power over for-

eign commerce, sought to insure the tax-free exportation of

both types of commodities.

(d) Petitioner's restrictive interpretation of the powers of Con-

gress and the purposes of the Tariff Act of 1930 and its

exemptions is clearly erroneous.

Petitioner concedes that certain exemption provisions in

the Tariff Act of 1930 represent an exercise of the commerce

power (Gulf Oil case); but petitioner is forced to contend

that adjacent clauses dealing with the same subject are an

exercise solely of the taxing power. The inherent unreason-

ableness of this position is illustrated by the following

excerpts from relevant sections of the Act, as amended. The

words which, under petitioner’s theory, are an exercise of

the commerce power are printed in italics, the words which,

according to petitioner’s theory, are an exercise solely of

the taxing power are printed in boldface type, and the

words which presumably are an exercise of both powers are

printed in standard type.

“All articles manufactured in whole or in part of

imported materials, or of materials subject to internal-

revenue tax, and intended for exportation without being

charged with duty, and without having an internal-

revenue stamp affixed thereto, shall, under such regula-

tions as the Secretary of the Treasury may prescribe,

in order to be so manufactured and exported, be made

and manufactured in bonded warehouses similar to

those known and designated in Treasury Regulations

as honded warehouses, class six * * *.

“Distilled spirits and wines which are rectified in

bonded manufacturing warehouses, class six, and dis-

tilled spirits which are reduced in proof and bottled in

such warehouses, shall be deemed to have been manu-

factured within the meaning of this section * * *.” Tariff

Act of 1930, as amended, See. 311, 19 U.S.C. See. 1311.

13

“(a) Articles of foreiqn or domestic origin may be

withdrawn, under such regulations as the Secretary

of the Treasury may prescribe, from any customs bond-

ed warehouse, from continuous customs custody else-

where than in a bonded warehouse, or from a foreign-

trade zone free of duty and internal-revenue tax, or

from any internal-revenue bonded warehouse, from any

brewery, or from any winery premises or bonded prem-

ises for the storage of wine, free of internal-revenue tax

—(for supplies of vessels employed in the fisheries, or

engaged in foreign trade, ete.)” Tariff Act of 1930, as

amended, See. 309, 19 U.S.C. See. 1309.

Petitioner’s theory that the courts must unravel the pro-

visions of the Tariff Act of 1930 to separate the phrases

bearing on foreign commerce in imported goods from the

phrases bearing on foreign commerce in domestic goods,

civing effect to the former as an exercise of the commerce

power, and treating the latter as solely an exercise of the

taxing power does not commend itself to reason. This is

particularly true where, as the District Court of Appeal

pointed out, “the purpose to regulate and encourage com-

merce permeates the entire congressional plan.” The lower

courts were certainly justified in refusing to adopt peti-

tioner’s vivisection theory in view of the clear warning of

this Court expressed in Board of Trustees v. United States,

supra, with reference to a related problem in a similar tariff

act.

“* * * if the Congress * * * asserts * * * that it is

exercising it [the commerce power], fhe judicial de-

partment may not attempt in its own conception of

policy to distribute the duties thus fixed by allocating

some of them to the exercise of the admitted power to

requlate commerce and others to an independent cver-

cise of the taxing power. The purpose to regulate for-

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eign commerce permeates the entire congressional

plan.” (289 U.S. at 58)

Moreover, petitioner’s claim that the commerce power of

Congress extends only to the exemption from local taxation

of imported articles designed for export and does not extend

to the exemption from local taxation of domestic articles

designed for export would effectively stultify legitimate

congressional action. Petitioner’s restrictive interpretation

would necessarily result in encouraging the importation and

use of foreign products for export in preference to domestic

products, in order to secure the tax exemption benefits of

the Act. It would frustrate one of the major purposes of the

Tariff Act, ie. “to encourage industries of the United

States” and encourage exportation of domestic goods. In

short, petitioner asks this Court to deny to the Congress

power to exempt domestic products destined for export

from local taxation. This request, if granted, would state a

principle and constitute a general precedent which would

leave Congress impotent to effectuate its avowed purpose

to aid and encourage the growth and development of domes-

tic industry and the exportation of domestic goods.

(e) Petitioner's attempted distinction between imports and articles

of domestic origin is spurious.

Petitioner also relies on the theory that imports processed

in bond for exportation were exempted from tax in the Gulf

Oil case, whereas in this case, articles of domestic origin

processed in bond for exportation are involved. Petitioner

says a distinction exists because the crude oil in the Gulf Oil

case “retained its status as an import and as a consequence

was immune as an import from local taxation” (Petition,

p. 16).

15

Based on this premise that the oil in the Gulf Oil case

“retained its status. as an import,” petitioner attempts to

distinguish the Gulf Ou case on the theory that Congress

would appropriately apply the commerce power to imports

but would use only the faxing power in granting an exemp-

tion from tax to domestic products.

The facts in the Gulf Oil case are precisely the converse

of what petitioner’s argument assumes them to be. The

“imports” in the Gulf Oil case had lost their status as im-

ports. That was the whole point of this Court's decision.

Some of the oil imported into New York had been there for

a period of seven months. During this period the oil was

subjected to elaborate treatment processes which changed

its character and converted it to Bunker “C” fuel oil. Tran-

script of Record on Appeal to the United States Supreme

Court, pp. 100-102, 116-124, and Brief for Petitioner on Writ

of Certiorari, pp. 11-12, MeGoldrick v. Gulf Oil Corp., supra.

And this Court went out of its way to point out that the

exemption afforded the oil in the Gulf Oil case did not arise

by reason of its status as an import but rather by reason

of its status as an item segregated in bond for export—an

item of commerce which had been singled out for protection

from tax by Congress and segregated from the mass of

goods in this country by the bonding provisions to achieve

that protection. In the Gulf Oil case this Court specifically

noted :

“For present purposes we may assume, without de-

ciding, that had the crude oil not been imported in bond

it would, upon its manufacture, have become a part of

the common mass of property in the state and so would

have Jost its distinctive character as an import and its

constitutional immunity as such from state taxation.”

(309 U.S. at 423)

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In other words, contrary to petitioner’s assumption that

the oil in the Gulf Oil case “retained its status as an import,”

this Court decided the case on the assumption that the

goods had Jost their status as imports. This Court took the

oil out of the import class, stripped it of its “original pack-

age” protection, and decided the issue solely on the effect

of the congressional scheme of regulation and control

exemplified in the bonding provisions, as if the oil was a

domestic product held in bond for export. Since the oil lost

its distinctive character as an import by reason of its proc-

essing and manufacture, it was in the same category as a

domestic product, and the lower courts were perfectly cor-

rect in applying the holding of the Gulf Oil case to the do-

mestic liquor processed and shipped in bond for export in

this case.

(f) Respondent's liquors were also exempt from this local tax

under the export clause (Art. I, Sec. 10, Clause 2) of the

United States Constitution, and the judgment of the courts

below is amply supported by this ground.

The courts below held this liquor was exempt from tax

because of action taken by the Federal Government in the

exercise of its commerce power under the Tariff Act of 1930

to permit the tax-free exportation of the liquor. But as the

facts plainly show, the liquor was also exempt from tax

under the export clause of the United States Constitution,

and this alternative ground also supports the judgment.

Carson Petroleum Co. v. Vial, 279 U.S. 95 (1929), Texas &

N.O.R.R. v. Sabine Tram Co., 227 U.S. 111 (1913).

Clearly, the liquor had been “shipped, or entered with a

common carrier for transportation to another state”, Coe v.

Errol, 116 U.S. 517, 527 (1886); and “there was nothing

equivocal in the transaction which created even a probability

that the oil [liquor in this instance] would be diverted to

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17

domestic use.” Richfield Oil Corporation v. State Board of

Equalization, 329 U.S. 69, 83 (1946). This was not like the

gasoline in Joy Ou Company v. State Tax Commission, 337

U.S. 286 (1949) which “might have been diverted to domestic

markets” because in this case “the character of the property

[i.e. liquor under bond for export] * * * made export certain

for all practical purposes.” (337 U.S. at 288)

This issue is largely one of facet and the findings of the

trial court clearly support the judgment. There is no occa-

sion for this Court to grant certiorari to review a question

which is largely one of fact, without general significance.

Respondent therefore also urges this alternative conten-

tion in support of the judgment, a procedure which this

Court has said is proper. Langnes +. Green, 282 U.S. 531,

0-999 (1931); Walling v. General Industries Co., 330 U.S.

45, 547 (1947).

CONCLUSION

For the foregoing reasons it is respectfully submitted

that this petition for writ of certiorari should be denied.

Respectfully submitted,

Sropparp B. Cotsy,

Turopore R. Meyer,

Hart H. Sprrcer,

Attorneys for Respondent.

sreED, Abpotr & MorGANn

Bropeck, PHLEGER & Harrison,

Of Counsel

San Francisco, California, October 31, 1956

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