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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Brief for the Respondents in Opposition
- **Published:** January 1, 1957
- **Citation:** 355 U.S. 881

## Text

- | | Pere:
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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EFL REPORT RN MARS ae TIES RE ARENT ML S3 PLO ER PE SOS CEE OL CM Sige MPA ie, PR ER a eee *
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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

is 5)

_— — ia

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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2
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.

ee

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,

ct i i

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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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12
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

E
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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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386418_0912%3A3. Public record. Not legal advice.