Appendix — Los Angeles County v. Scandinavian Airlines System, Inc. (No. 354)

APPENDIX “A”

Opinion of the California Supreme Court

[.As filed May 29, 1961 and notified in) Bank June

21, 1961 |

SCANDINAVIAN AIRLINES SYSTEM, ING. (a

Corporation), Respondent, v. COUNTY OF LOS

ANGELES ect al.. Appellants.

[On hearing after decision by the District Court of

Appeal, Second Appellate District, Division Two, Civ.

No. 24265 (183 A.C.A. 69, 6 Cal. Rptr. 694) reversing

with directions judgment of the superior court. Judg-

ment affirmed. ]

APPEAL from a judgment of the Superior Court

of Los Angeles County. Philbrick McCoy, Judge.

Affirmed,

Action by owner of foreign owned and registered

aircraft to recover property taxes leived by both a

city and county against airplanes flown exclusevels

in foreign commerce, Judgment for plamtiff af-

firmed. 5

Harold W. Kennedy, County Counsel. and Alfred

Charles De Flon. Deputy County Counsel, for Ap-

pellants.

Musick, Peeler & Garrett. Elvon BP. Musick, Roder-

wk M. Hills, Richard I). Esbenshade and Kenneth F.

Seott for Respondent.

les

Condon & Forsyth, Darling, Shattuck & Ed-

monds, Cyril H. Condon, Hugh W. Darling, Rodol-

ley, James J. Conran, Pillsbury, Madison & Sutro.

D. Mackenzie, Foley, James & Conran, Frank J. Fo-

ley, James J. Conran, Pillsbury, Madison & Suntvro,

Turner H. McBaine, Noel Dyer, Chapman, Walsh &

O’Connell, Joseph J. O’Connell, Jr. and Arthur K.

Mason as Amici Curiae on behalf of Respondent.

PETERS, J.—Defendants, the County of Los An-

geles and the City of Los Angeles, have appealed from

1 judgment requiring them to refund to the plaintiff

certain personal property taxes which were levied

against plaintiff’s foreign owned and based aircraft

flown exclusively in foreign commerce, and which

utilized Los Angeles International Airport as their

sole United States terminus. The United States Sn-

preme Court, and the highest courts of the several

states, have spoken with apparent finality regarding

the right to tax and the method of taxation of ocean-

going vessels engaged in both foreign and interstate

commerce, and the courts have had oceasion to de-

termine similar questions involving aircraft en-

gaged solely in interstate commerce (Northwest

Atrlines v. Minnesota, 322 U.S. 292 [64 S.Ct. 950, 88

L.Ed. 1283, 153 A.L.R. 245]: Braniff Airways, Ine.

'. Nebraska State Board of Equalization, 347 US.

990 [74 S.Ct. 757, 98 L.Ed. 967]. Slick Airways Ine.

" County of Los Angeles, 140 CalLApp. 2d 311 [295

a

P.2d 46)), and domestically owned and based air

planes engaged in foreign commerce (Flying Tiger

Line, Ine. v. County of Los Augeles, OV Caled 34

[333 Pd 323]). However, the precise problemi pre

sented here, Wheretm the airplanes sought to be taxed

locally are: (1) foreign owned, (2) foreign based and

registered, and (3) flown solely in foreign commerce

with but a single Uhited States port, has not as vet,

insofar as we have been advised. been passed on by

the appellate courts.

The facts are undisputed. Defendants” general

demurrer to plaintiff's complaint was overruled, and

the parties then stipulated that the material facts of

the complaint be taken as true, that Judgment be en

tered in favor of plaintiff, without necessity of fur

ther proof, and that defendants retain their right te

appeal from: such judgment. The following is a sum-

mary of the material allegations of the complaint:

1. Plaintiff operates an air line, solely in foretn

commerce, between Copenhagen, Denmark. and Paes

Angeles, California. All of its airplanes are owned,

based and registered ino one of | three Seandina-

vian home ports.’ The service referred to is— ren-

'For the purpose of this decision, plaintiff may be considered as the operator

and owner of the mentioned airplanes. Actually. plaintiff is but the United

States representative of a consortium of Danish Airlines. Swedish Airlines and

Norwegian Airlines. The airplanes are individually owned by the respective

members of the consortium. and are registered and based in Copenhagen. Stock.

holm and Oslo. respectively. For the purpose of their United States flights

the European terminus of each is Copenhagen

ae ee

dered under a permit granted by the United States

Civil Aeronautics Board. The planes step en route

in_Canada, but touch the United States only at) Los

Angeles International Airport.

2. During the period involved herein cach of

plaintiff's airplanes averaged eight) —round-trip

flights per vear, and remained at its Los Angeles ter

minus for less than 34 hours on each flight.

3. None of the planes was physically present im

Los Angeles (or in the United States) on the first

Monday of March in the vear for which taxes were

levied.

4. Defendant County of Los Angeles assessed

each of the airplanes upon an “apportionment” basis.

by means of a formula which was intended to deter:

mine that portion of the airplane's value measured by

the period during which it was physically present in

the county. “Such formula added one hour ‘flying

time’ per trip, to the actual time spent on the sround

in Los Angeles, and divided this figure into the total

hours in the tax vear. Based upon the assessment se

‘aleulated, defendant county levied a personal property

tax on each of the airplanes on its own behalf. and

upon behalf of the defendant city.

?Although the complaint is silent in regard to the use to which each airplane

is put during the balance of the year, it may be assumed that by far the greater

rtion of such period is devoted either to maintenance at its home port. to

ocal transportation in its home country. or to international transportation in

which California is not involved

a -

5. During the period for which defendants levied

such tax, each of the airplanes was taxed, on an un

apportioned basis, in its home port.

6. No foreign country levies a property tax on air

eralt operated by any United States sar tine Fly ine

planes in foreign commerce.’

7. The taxes levied by defendants constitute double

taxation.

x. Plaintiff's eperations in making the Copenha:

en-Los Angeles flights are subjeet to extensive regula

tion by the United States coverniuent: ( 17 speenfie ree

ulaterv measures being alleged), and the United States

is party to 19 separate, and specifically alleged, mter-

sational treaties direetly or indirectly resulating and

affeeting such operations.

9, Plaintiff paid the taxes demanded by defend

ants, under protest wind subsequenth filed acelin tor

refund.

The pleadings raise he ts ste regarding the proprrety

of the procedures taken on the claim for refand, and

plamtitf does hot question the formula by which de

fendants “apportioned” the tax. Henee the sole qies

tion involved is the validity of the tas.

8Denmark. Sweden and Norwas cach taxed the “operations — of ther ore

spective nationals which operated zirplanes based in those countnes and Non

way levied a property tax on the entire value of those planes which were reeis

tered and based in Osic

*Alshough not alleeed in the complaint. ites argued by respondent. and net

denied by appellants, that seh reprisal taxation is now being threatened

several foreign countries

oe a

Because of their interest herein, most of the for-

eign airlines serving California have filed amici curiae

briefs.

Contentions of the Parties:

Insupport of the judgment, plaintiff contends that:

(1) the commerce clause of the United States Consti-

tution prohibits the levy of this tax; (2) the tax is fur-

ther prohibited by the due process clauses of both the

federal and California Constitutions; and, (3) there is

no California statutory basis for this taxation.

In stipport of its first contention—conflict with the

commerce clause—plaintiff makes a three-fold argu-

ment. First, it claims that sinee there is no relevant

distinction between aircraft flying the international

skies and ocean-going vessels plying the high seas, the

former should be subjected to the same **home-port*’

doctrine of taxation which the United States Supreme

Court has applied to the latter. Second, plaintift

claims that taxation of aircraft based and owned in a

foreign country is a matter of international concern

within the exclusive jurisdiction of the federal gover.

ment (citing various federal regulatory acts and inter-

national treaties alleged to control). Its final areu-

ment in regard to the commerce clause is that appor-

tioned taxation” by California, together with unap-

portioned taxation by the government of the aircraft's

home port, conflicts with the commerce clause in that

it imposes double taxation, and places a far heavier

.

en aa

burden upon such foreign arreralt: than exists in the

ease of aireraft owned domestically.

Plaintiff bases its second contention—repugnaney

to the die process clauses—upon the claim that its air-

planes have not acquired a taxable situs in California.

Its third contention is predicated upon the argu-

ment that California’s constitutional and general stat-

utory provisions for taxation of the various forms of

personal property do not contemplate the taxation of

aircraft owned and based in foreign countries and en-

gaged in foreign commerce, and that without specific

legislative authority these defendants are without Jur.

isdiction to levy this tax.

Defendants contend that the commerce clause is m-

applicable on several grounds. The first is that al-

though that clause vives Congress the exclusive power

to reetulate commerce, such power is not denied to the

several states until Congress has preempted the field,

which defendants claim has not been done. The see-

ond is that taxation of personal property does not fal!

within that class of subjects whieh ‘admit only of one

uniform system, or plan of regulation,” which phrase

has heen applied as the test for exclusive legislation

hy the federal Congress. Defendants also.elaim that

the decisions of the United States Supremeé Court: in-

dicate a trend away from the *thome-port” doctrine of

taxation. and that if the question were to be submit-

ted to that court today it would repudiate its former

setulae

rule. Asa final reply to the contention that the com-

merce clause prohibits the instant tax, defendants ar-

gue that instrumentalities of commerce, by their very

nature, acquire more than one taxable situs, and that

the undue burden on commerce which would otherwise

be imposed is properly avoided by a system ot appor-

tioned taxation in each such situs: that the undue bur-

den, if any, imposed on the instant aireraft is not the

result of defendants’ apportioned tax, but results from

the fact that the domiciliary situs has levied taxes on

the full value.

Replying to plaintiff's contention that the due pro-

cess clauses prohibit this tax, defendants contend that

the sole test, insofar as due process is concerned, is

whether the proposed tax has reasonable relation to

the opportunities, benefits or protection conferred or

accorded by the taxing state. Defendants then point

out that an apportioned tax, based solely upon the per-

centage of time which the property is actually within

the County of Los Angeles, satisfies this test.

In meeting plaintiff's third and last) contention

(lack of statutory basis for the tax) defendants argue

that the California Constitution fixes the liability of

the property to taxation and the standard upon which

it is hased (i.e., in proportion to its value)! and that.

®Article XIII, section i. provides: “All property in the State not

exempt under the !aws of the United States. shall be taxed in propertion to

gas

Ss os

the only further requirement is that the Legislature

provide the machinery by which to ascertain such value

(eiting MeHeary vo Downer, 116 Cal. 20 [47 P. 779, 45

L.ROA. 737). and Crocker v. Scott, 149 Cal. 075) [87 P.

102}). How, or in what manner, the Legislature has

met this further requirement is not spelled out in de-

fendant’s briefs.

The “HMome-Port’” Doctrine:

As stated above, plaintiff's main contention mn sup-

port of the judgment is that the tax imposed by de-

fendants vivlates the commerce clause of the United

States Constitution. Its first point in support ef this

contention is that the United States Supreme Court

has clearly prohibited such state taxation ina line of

decisions enunciating the “home-port™’ doctrine. By

a series of opinions, covering a period of ever a hun-

dred years, that court has developed a hody of law

dealing with the power of local authorities to levy prop-

erty taxes on instrumentalities of commerce Which are

transitory in character, and, in the course of engaging

in trade. come within the territorial limits of one or

more of the states of the Union. Tn each of the deer

sions embraced in that body of law, the United States

Supreme Court has emphasized the importance of the

true domicile, the port of registration, or home port,

of the particular instrumentality sought to be taxed.

[t should be noted that im determining the validity

or invalidity of a particular tax in light of this doe-

_~"

trine, the Supreme Court has not confined itself to a

discussion of the commerce clause, but has also predi-

cated its decision on the impact of the due process

clause on such taxation.” But if a decision in this case

is cqntrolled by principles heretofore announced by the

federal courts, it makes little difference whether those

principles were predicated upon one constitutional

ground or another. The task with which we are faced

was well stated in the Northwest Airlines opinion

(supra) as follows: ‘*The answer involves the appli-

cation of settled legal principles to the precise eireum-

stances of this case."" Thus, it is our duty to determine

what *'settled legal principles,’ if any, are applicable

to the tax here under consideration. If that determi-

nation leads to the conclusion that the ‘home-port"’

doctrine applicable herein it is our duty to so declare,

not only*heeause the United States Supreme Court has

spoken with finality in a field which is peculiarly fed-

eral in nature, but because such principles have been

definitely settled, and should not be overruled except

for most compelling reasons which do not here exist.

It should also be noted that the basic principles which

*The earlier decisions dealing with the “home-port’” doctrine appear to be

based upon the commerce clause, in that they refer to an area of commerce

subject to the “laws of the general government, to which velongs the regulation

of commerce with foreign nations and between the states.” (Hays v. Pacific

Mail Steamship Co., 17 How. (U.S.) 596 [15 L.Ed. 254].) Subsequent de-

cisions, as will be noted below. base the doctrine squarely upon the due process

clause by reason of lack of taxable situs in the taxing state. Still later, in Nerth-

west Airlines :. Minnesota, supra, 322 U.S. 292, the court held the question to

involve both the commerce and the due process clauses, and failed to indicate

clearly on which the decision was predicated. See State Taxation of Interna.

tional Air Transportation, 11 Stan.L.R. 518. at p 520) _

ie.

will determine the appheability or inappheability. of

the “Shome-port™ doctrine have been enunciated by

this court as well as by the United) States Supreme

Court.

A reading of both the federal and state cases on the

subject demonstrates that both courts have considered

the subject to embrace a federal question without ref:

erence to any theory that it becomes such onty when

Congress pre-cmpts the field by enacting legisiation.

In fact, the basie decisions (both federal and. state)

have declared the ‘thome-port’” doetrine Cand hence

the invalidity of a proposed tax) although the federal

legislature has never spoken on the subject. Inherent

in the opinions, even when unstated, Is a concept of

the dual nature of a port of entry. Thus, Los Angeles

[International Airport is. on one hand, an integral por-

tion of the city, county and state, subject to the sov-

ereign powers thereof, and on the other hand is a port

of entry to the United States. In its latter capacity

its actions must be viewed as they may affect eom-

merce with foreign nations. Such view jposes federal

questions even in the absence of Con pssional en-

actment.

As early as 18dl taxing authorities in California

attempted to levy property taxes on vehicles of com-

merce that touched temporarily in the various ports

of this state. In 1854 the United States Supreme Court

held. in [ays v. Pacific Mail Steamship Co. supra,

=

17 How. (U.S.) 596, that California could not tax an

ocean going vessel, owned and registered in New York

ond operating in interstate commeree between that

port and various ports in California and Oregon. The

decision announced the rule that such a vessel might be

taxed at its full value in its home port, and that the

other states where it engaged in commerce were not

entitled to levy a property tax of any nature, even

though the vessel made regular stops therein for the

purpose of discharging or taking on passengers and

eargo, and remained on each trip for repairs and main-

tenance, and to await announcement of the next voyage.

The decision was predicated in part upon the lack of

a taxable situs in any but the “home-port’’. and held

that such vessels enter the ports of other states, ‘‘inde-

pendently of any control over them, except as tt respects

such municipal and sanitary regulations of the local

authorities as are not tneonsistent with the constitu-

tion and laws of the general government, to which be-

longs the regulation of commerce with foreign nations

and between the states.’ (17 How. (U.S8.) at p. 598,

emphasis added.) The opinion failed to mention any

specific constittitional provision or federal law with

which the attempted tax was in conflict. The refer-

enee to the lack of taxable situs gives credence to the

claim that the doctrine was placed, in part at least.

upon the due process clause. However, the statement

to the effeet that regulation of foreign and interstate

commerce belongs to the federal government. indieates

|

that the court alse predicated the doctrine. in part,

pon the commerce clause, eren in the absence of any

federal legislative enactment on the subject. This

theory is bolstered by the fact that the OpIMion alse

stated that a vessel plying the high seas in Interstate

commerce is subject to admiralty law, even when lving

Ina domestic port other than that of her registry, and

as such differs from vessels whieh remain wholly with-

in national waters. Thus.’ the Mle appears to have

been further predicated Upon a concept that a vessel

Which sails upon international Waters must be sub-

jected to different rules than one which never leaves

national waters. This appears to be the only logiea!

explanation for holdine that an instrument of inter-

state Commerce is immune fron) state control or tax

ation in the absence of any showing that the Coneress

has entered the field.

Thus, the earliest statement of the “home-port

doctrine granted the state of domicile the power to tax

In full, and denied to all other Jurisdictions any power

or right to tax except as might arise under the police

power, when a vessel engaged in either Interstate or

foreign commerce used the open seas as a highway he-

tween ports.

Since that date, the rule of the Havs case has been

extended and modified. to fit different situations. but

Insofar as we have heen able to determine, it has hevey

been overruled. In faet. the eourt has specifieally

pe * etm

stated, as will be noted below, that certain of the limita-

tions subsequently placed upon the rule were not to be

deemed as altering the doetrine as applied to ships plyv-

Ing international waters.

California thereafter accepted and applied the doc-

trine as announced in the Hays decision(City and

County of San Francisco v. Talbot, 63 Cal. 485, 488-

489; Olson v. City ond County of San Francisco, 148

Cal. 80, 82-83 [82 P. 850, 113 Am. St. Rep. 191, 7 Ann.

Cas. 443, 2 L.R.A. N.S. 197]: California ete. Co. v. City

& County of San Francisco, 150 Cal. 145 [88 P. 704];

Sayles v. County of Los Angeles, 59 Cal. App.2d 295

[138 P.2d 768], and other cases).

In 1870 the “*home-port** doctrine was extended to

vessels engaged in interstate commerce, and plying ex-

elusively inland waters (St. Louis v. Ferry Co., 11 Wall.

(U.S.) 423), but such extension was overruled in 1948.

(See Ott v. Mississippr ete. Barge Line, 336 U.S. 169

[69 S. Ct. 432, 93 L.Ed. 585]. )

At a very early date the United States Supreme

Court held that the doetrine, denying to Jurisdictions

other than that of domicile the power to impose prop-

erty taxes, was nof dependent upor actual taxation in

the “*home-port™ (Morgan v. Parham, 16 Wall. (U.S.

471, 478 [21 L.Ed. 303]). By such desision, the United

States Supreme Court inferentially held that the

home-port”’ doctrine was not based so much upon mul

tiple taxation (whieh would clearly constitute a bir

Se

den upon commeree in derogation ot the COMMETEE

clause), as it was Upon a concept of exclusive federal]

Jurisdiction onee an instrumentality of commerce left

Its hotie port for International waters, Viewed In light

of the rule Cestablished by the same court in Cool; yor.

Board of Wardens of Port of Philads Iphia, 12 How.

(UN.) 229 [13 LoKd. 996]) that the commerce Clatise

hoes net prohibit the states from regulating commerce

except in those fields wherein the federal congress has

acted or those fields which admit only of one uniform,

system. it must be assumed that the authors of the

“home-port’’ doctrine held that taxation of a vessel

Which arrived in port via international waters falls

Within one of the two stated exceptions. Since it was

het contended that Congress had acted in regard te

Such matters, it follows that taxation Cexeept in the

home ports of vessels “uling upon the high seas was

Within the latter classification. As the eourt stated in

the Cooley Opinion: : Whatever subjects of this power

[to reculate commerce} are in their nature national,

oradmit only of one uniforn, s¥stem, or plan of regu.

lation. may justly be said to be of sueh a nature as te

require exelusive legislation by Coneress." (12> How.

(US.) at p. 319.)

During the Process of mterpreting the Note port a

doctrine the courts carefully distinguished between the

home port in its tre sense Cdomicile Of owner or per

manent doniteile of vessel) and. fictitious home ports

created solely by registry OS, Lows ¢. Ferry Co,. SM pp

= oe

ra, V1 Wall. (U.S.) 423; Old Dominion Steamship Co.

v. Virginia, 198 U.S. 299 [25 S.Ct. 686, 49 L.Ed, 1059],

Ayer & Lord Tie Co. ve K entuchy, 202 U.S. 409 [26 8.

C't. 679, 50 L.Ed. 1082]; Southern Pacifie Co. v. Ken-

tucky, 222 U.S, 68, 67 [82 S.Ct. 13, 56 L.Ed. 96]; Olson

r, City and County of San Francisco, supra, 148 Cal.

80, 82 P. 850; Sayles v. County of Los A ngeles, supra,

59 Cal. App. 2d 295: Ships ete. Corp. v. County of San

Diego, 93 Cal. App. 2d 522 [209 P. 2d 148]. By such

limitation, the courts prevented the possibility of a

misuse of the doctrine by owners who would other-

wise create a fictitions home port in order to escape

taxation.

In 1890 the United States Supreme Court declared

a distinction between vessels in interstate commerce

and railroad rolling stock similarly engaged. InPull-

man’s Car Co. v. Pennslyvania, 141 U.S. 18 F118. Ct

876, 35 L. Ed 613]. it held that because rolling stock

has no fixed situs, and travels over land, traversing

and retraversing the various states, it-must be treated

differently for the purpose of taxation from ships

which travel on international waterways, have a home

port, and touch land only incidentally and temporarily.

Quoting the earlier case of Baltimore & Ohio R.R. Co.

vr. Maryland, 21 Wall. (U.S.) 456 [22 L. Ed. 678].

the court stated that interstate commerce on land is

so dissimilar from interstate commerce on water that

the two operations do not have the same aspects in

reference to constitutional powers and duties of state

a

and federal government, and that since vehicles of

commerce by water are instramentalitics of communi-

cations with other nations, the regulation of them is

fo be assumed by the national Legislatare (AAL US.

at pp. 23-24)!

The distinction thus announced between vessels

sailing the high seas and railroad stock traveling by

land ultimately led to the “apportionment doctrine”

of taxation as applied to the latter. Such doctrine.

thereafter applied by both federal and California

courts, authorizes property taxation in each jurisdic-

tion into which a vehicle of interstate commerce en-

ters (American Refrigerator Transit Co. v. Hall, 174

U.S. 70 [19 S.Ct. 599, 43 L.Ed. 899]; Union Refriger-

ator Transit Co. v. Lynch, 177 U.S. 149 [20 S.Ct. 631,

44 L.Ed. 708]; Union Transit Co. v. Kentucky, 199 U.

S. 194 [26 S. Ct. 36, 50 L. Ed. 501]). Such eases, how-

ever, did not alter the original ‘shome-port’’ doctrine

as applied to vessels, whether sailing the high seas or

exclusively inland waters. The doctrine remained ap-

plicable to all vessels which left the jurisdiction of a

single state until LY48, when the United States Supreme

Court had occasion to re-examine the rule. In the case

of Off v. Mississ(ppi ete. Barge Line, supra, 336 US.

169, the court inferentially overruled the St. Lonis de-

cision, and held that there was no distinction insofar

‘Again inferentially holding that the “huime-port” doctrine is not predicated

upon any present pre-emption of the field by the national Legislature

—|s—

as the due process and commerce clauses are concerned,

between railroad cars and vessels when ¢ ih move be-

tween the states by exclusively inland routes. In up-

holding an apportioned tax by Louisiana on tugs and

barges operating out of another state on the Mississipy!

River, it distinguished the fortner cases (which ad-

hered to the “home-port * doctrine} on the ‘ground that

they involved ships sailing the high seas. As to those

eases Which had applied to the CRs doctrine

of taxation to vessels plying only inland watees (pre-

sumably the St. Louis case ) the court stated that se

one reason or another the apportionment method «

taxation had not heen considered. Thus, the St. sed

ease was overruled by implication. The decision would

have been more precise had the court expressly over-

ruled the St. Louis decision on the ground, only implied

in the decision, that further analysis indicated that the

very basis of the home-pert’’ doctrine (.e., exclusive

federal concern in regard to instrumentalities of com

munication with other nations) does not ¢ ‘ist when the

instrumentality does not leave the national boundaries.

Of utmost importance, however, is the language of the

Ott opinion (pp. 173-174) wherein the court said, “We

do not reach the question of taxability of ocean car-

riage but confine our decision to transportation on in-

land waters.” Thus. the Hmitation placed upon the

“home-port” doctrine hy the Ott decision does not

rest upon whether the commerce is interstate or for-

eign. but upon whether the instmentalit. staved

within the continental limits of the United States or

er

travelled in international waters. Probably the court

in making this distinetion had in mind the reasoning,

originally expressed in the Hays case, that when a ves-

sel sails the international seas it becomes subjected to

the rules of admiralty law, even while at rest ina do-

mestic port. In other words, the court held (without

specifically stating) that an instrumentality of com-

merce Which leaves the nation’s shores becomes so pe-

euharly imbued with international characteristics that

it would be unwise to allow any state but that of do-

micile to exercise sovereignty bevond that necessary

under ordinary police powers.”

When the apportioned method of taxation was or-

iginally adopted (first as appheable to railroad roll-

ing stock, and subsequently to ships operating exclu-

sively on inland waters) the taxation was held to be

valid if levied under any formula which was reasonably

related to the use of the property in the taxing state, or

to the benefits or protection conferred on the property

by that state. But in Southern Pacifie Co. 0. Ken-

fuchy, supra, 222-U0.S. 63, the court appeared to re-

pudiate the doetrine of measuring the legality of the

tax by the benefits or protection received. Because

the ease involved ocean-going vessels. subject to the

“Althouvh it might have been more logial to have stated a distinction be-

tween interstate and foreign commerce if serves no real purpose to speculate on

what the court might do if presented with the same problem today. Since we

are here dealing with insthumentalities of foreign commerce. traveling inter-

national skies, the distinetion of anv between the two bases for the doctrine

is moot herein

—

‘**home-port"’ doctrine, it cannot be said to be determ-

inative of any rule or formula for taxing those instru-

mentalities which are subject to apportioned levies. .Al-

though we have found no case which requires the use

of any specific formula, it appears that any methed

which a state uses to determine an otherwise legal ap-

portioned tax must bear such relationship to time or

use within the taxing state that the sum total of all

apportioned taxes so levied by all state will not exceed

one full ad valorem assessment. This conclusion is fur-

ther strengthened by the ultimate announcement by the

Supreme Court (predicated on due process) that :** The

rule which permits taxation by two or more states on

an apportioned basis precludes taxation of all the prop-

erty by the state of domicile.” (Standard Oil Co. v.

Peek (1952), 342 U.S. 382, 384 [72 S.Ct. 309, 96 L.Ed.

27, 26 A.L.R.2d 1371].)

It was inevitable that the issue of full taxation at

the home port versus apportioned taxation at each port

of call would arise in regard to airy transportation.

Certain phases of that issue have been presented to

both the United States Supreme Court and to the var-

ious appellate courts of this state; but imsofar as we

have been able to determine, the precise question in-

volved herein has not been heretofore before any court.

The first United States Supreme Court case to con-

sider the subiect was Northwest Airlines v. Minnesota

(1944), supra, 322 US. 292. That ease involved a fleet

— ae

of airplanes owned and operated by a Minnesota cor-

poration, registered with a city of that state as their

home port, utilizing that city as their rest and overhaul

base, and operating therefrom: entirely ino interstate

commerce, “The court held that a Minnesota property

tax levied upon the entire fleet on a full ad valorem

basis did not violate either the commerce clause or the

due process clause. Even though the planes were known

to be engaged in commerce ino several other states

(which migat prestamably tax them on an apportioned

hasis) the majority opinion held that taxability by such

other states was not before the cout. Thus, although

the Northwest case authorized the full ad valorem tax

in the state of domicile, it cannot be said to have ap-

plied the “Shome-port** doctrine to interstate aircraft.

Neither can it be taken for authority that apportioned

taxes may be levied on such instrumentalities in each

state. The apparent inconsisteneyv of the language (in-

ferring that both full ad valorem tax and apportioned

tax night be possible under some circumstances) may

be explained by the feet that the ease preceded, by

eight vears, the Standard Oil case which put an end te

such possibility. At least. such was the basis on which

the court later explained the decision. (See Braniff

Airways case, 347 U.S. 560, infra.) A more substantive

question arises from the facet that the Northwest de-

cision did net give consideration to those cases wherein

it had previously held that instrumentalities of inter-

state commmeree which do not leave the continental limits

=)

of the United States will be taxed on an apportioned

basis in each state visited. (Oft v. Mississippi ete.

Barye Line, supra)! Analyzed in hght of subsequent

decisions, the Northwest case stands only for the prop-

vsition that dumestic airplanes, flying exclusively in

interstate commerce, and not leaving the continental

limits of the United States, may be taxed at their home

port on a full ad valorem basis if the parties do not

urge the possibility of taxation elsewhere. It cannot

be held to be a final determination of whether the full

ad valorem tax or an apportioned tax is proper when

all the facts are known; and it is no manner a determin-

ation of the basis for taxation of airplanes engaged

in either interstate or foreign commerce and which fly

outside the limits of the country. It is certainly not

authority of any kind regarding foreign owned and

based airplanes flying exclusively in foreign ecom-

merce.

Taxation of airplanes was next presented ten vears

later in Braniff Atrivays ve. Nebraska State Board of

Equalization (1954), supra, 347 U.S. 590. In that de-

eision the court authorized an apportioned tax by

| *The authorization of a full ad valorem tax in the jurisdiction of domicile

follows the original “home-port” doctrine as the same stood before it was modi-

fied to exclude vehicles of interstate commerce which do not leave inland routes.

The various inconsistencies inherent in the decision are not surprising when it is

noted that the court was unable to muster a majority to a single opinion, and

that the decision consisted of a majority opinion by three justices, concurred

in by two separate opinions of single justices, together with a dissenting opinion

of four (making four separate and distinct opinions). Only the dissenting opin-

ion discussed the rlation between taxation of ocean-going vessels and other

interstate vehicies as applied to airplanes.

_

Nebraska on plaintiff's airplanes which were domierler

elsewhere, but which were engaged in interstate corn

merece in Nebraska. The ease did not involve foreign

commerce, and the planes did not leave continental

United States. The court predicated the decision on

taxable situs in Nebraska (due process) and held that

since there was no demonstrable burden on interstate

conmneree, the commerce clause was no bar. [nh order

to set at rest the Inconsistencies of the Northwest de-

cision, the court said, 347 U.S. at p. 602: "When Stiid-

ard Oil Co. v. Pech... was here, the Court interpreted

the Northwest Airlines case to permit states other than

these of the corporate demicile to tax boats in inter

state commerce on the apportionment basis in accord.

ance with their use in the taxing state. We adhere te

that interpretation.“ The Northwest and Branift

cases (taken together with the intervenine Standard

Oil decision) therefore stand only for the proposition

that airplanes. flying solely in’ interstate commerce,

and not crossing international boundaries, are to be

treated (for the purpose of taxation) in the same man

ner as vessels engaged in similar commerce via exe

sively imtland waters. The language and rationale of

the decisions create the inference that. should) the

United States Supreme Court be presented with a sit-

Nation involving airplanes engaged in) foreign come

Perhaps it would have been clearer had the court frankly adnatted that

the apportioned doctrine of taxation was not urged by the parties in the North

west case. and hence the court had failed to consider its impact upon then

decision therein

/

7

Ineree, or planes engaged in interstate commerce via

International routes.” it: would apply the same doc-

trines as it has consistently applied to oceangoing ves-

sels sim arly engaged.

Two years subsequent to the Branift decision the

question of taxation of airplanes was presented in Cali-

formia, in S/rehk A micays V. County of Los Angeles,

supra, V0 Cal App.2d 311." In that case the parties

conceded that Los Angeles County was entitled to tax.

onan apportioned basis, a fleet of airplanes owned hy

a Delaware corporation and operated in interstate com-

meree between airports in various states, includine Los

Angeles, The only issue was whether Los Anveles was

entitled to tax on a full ad valorem basis a single air-

plane which plaintiff purchased in that county and

Which it kept therein for the purpose of conducting

“shakedown"™ flights prior to adding it to the fleet.

The court held that such facts did not vive the airplane

such permanent situs in Los Angeles as would preclude

taxation on an apportioned basis elsewhere, and that

defendant county was therefore without the power to

levy more than an apportioned tax. From, the point

of view of its place in this review.of the erowth of the

doctrines govemming taxation of instruments ef con-

merce, the case is important only in that it is the first

California decision in which there was an opportunity

to determine the status of airplanes. The opinion fol-

MAs between Alaska and other states of the union. with steps in Canada.

oras between Hawaii and the mainland.

Hearing by the Supreme Court was not requested

i

lowed the lead of the United States Supreme Court by

subjecting the airplane in question to the same doe

trines Which were applicable to ships similarly engaged,

The decision does not purport to deal with taxation of

airplanes cugaged in Mights outside of continental

United States.

In 1958 this court decided Flying Tiger Line, Ine.

t. County of Los Angeles, supra, ol Cal. 2d 314, 333 2.

2d 323. Plaintiff, a Delaware corporation with its

principal place of business in Los Angeles, operated

airplanes in interstate cohmmerce, as to which there was

ho issue.” It also owned five arplanes which it oper-

ated under the control of the United States military

authorities on the Pacific arlift, in support of the war

in Korea. Ina four to three decision arrived at by a

majority opinion of three, one other Justice concurring

in the result, the court held that a full ad valorem tax

on such planes was Improper, and plaintiff was granted

the only relief which it sought, ie, refund of the dif-

ference between the tax paid on the full ad valorem

basis and a tax caleulated on an apportioned basis. Mhe

dissenting opinion expressed the view that since it Was

hot shown that the property was subject to taxation

elsewhere, it should be subjected to a full ad valorem

tax in California." None of the three opinions dis-

The interstate planes were taxed on ar: apportioned basis. and were not

involved in the action before the court.

“The dissent acknowledged that muluple taxation would be unconstituuonal

“9 a burden in violation of the commerce lause, but predicated its areument

on the lack of evidence that the planes might be taxed elsewhere: thus avoid

ing conflict with the established rule that power to tax clewhere ryther than

actual taxation. is controlling

—I5—

cussed the impact of the “Shome-port™ doctrine as it

might be applicable to airplanes flying international

skies. The authorities relied upon by the majority

(Northwest Airlines; Ott vo Mississippr cte. Barye

Line; Standard Oil v. Pech; Brauff AMirways, and

Slick Airways, all supraj were all cases involving i-

strumentalities of interstate commerce which did not

leave the continental limits of the U: ‘ted States. By

placing reliance on these a cisions, th iajerity seemed

to have been of the view that the Flying Tiger air-

planes were to be treated as if they were engaged in

interstate commerce. The case cannot be considered

authority for the proposition that airplanes flying only

in foreign commerce will be taxed on either the home-

port’’ or the apportioned basis.

From the foregoing summary of United States and

California decisions dealing with the **home-port ver-

sus apportioned doctrines of taxation of instrumentali-

ties of commerce, certain conclusions may be drawn.

These are the “settled principles” which determine the

validity or invalidity of the imstant tax, and may be

stated as follows:

1. Although movable personalty is generally held

to be taxable only at its owner’s place of residence,

it may attain tax situs different from such place by

reason of permanency of location or use within the

taxing jurisdiction:

2. The basis for such alternative tax situs must

be a reasonable one, and eannot be supplied by ar-

bitrary acts of the owner, taken for purposes of tan

avoidance :

3. Ocvean-going vessels, plying international waters,

engaged in either interstate or foreign trade, even

When owned by residents or citizens of this country,

tay not be taxed by any jurisdiction other than that

of their home-port, as such is defined above; and

the jurisdiction of domicile may tax such imstrumen-

talities on a full ad valorem basis:

+. The denial of taxing power to the nondomiciliary

states does not depend upon the actual fact of taxation

at the domicile, but is based upon the proposition that

instrumentalities of communication with other nations

comprise a field which admits of but one uniform

system of regulation, which by its very nature must In

exclusively federal:

9. Beeause of the exclusively federal nature of the

field, it makes no difference that the Congress has not

acted in the field of taxation of such instrumentalities.

» Because the proposition stated as (4, above, does

not pees to them, instrumentalities of interstate com-

merce which do not leave United States (such as rail:

road rolling stock and vessels plying inland waters.

only) may be taxed in each jurisdietion wherein they

are engaged in commerce :

In order to avoid a burden on commerce. the

various jurisdi¢tions authorized to tax under the last

i

stated principle must confine themselves to a levy on

an apportioned basis, related to the time or use with-

in the jurisdiction, rather than to the benefits con-

ferred, in order that the total taxes so assessed shall

not zmount to more than one single ad valorem: tax =

8. It follows that the right of one such jurisd te-

tion to tax on an apportioned basis precludes the right

of the jurisdiction of domicile to tax ona full ad val-

orem basis ;"°

Y, Since said pratice would do violence to the prin-

ciples stated above, the furnishing of benefit and pro-

tection, standing alone, does not confer on any juris-

diction the power to tax an instrumentality of com-

merce unless the instrumentality falls within the class

of property which may be taxed according to the stated

principles ;

10. Airplanes flying solely in interstate commerce,

and based in the United States, or owned by don.estic

concerns, and which do not leave the jurisdictional

limits of the United States, will be taxed under the

same principles which apply to other instrumental-

ities of interstate commerce.

Neither state nor federal courts have as yet been

‘alled upon to determine the application of these prin-

ciples to domestically owned and based airplanes fly-

“Obviously. this rule car only be enforced within the United States where

the Supreme Court may act @. arbiter between the several jurisdictions.

"See footnote 15, supra

—-29-

Ing on foreman cotmueree, other than im the Ply

Tiser case, whieh, for the reasons already discussed, i

hot here controlling. Nor has there been ANY OCCASION

(prior to the instant ease) to detemnine the appliea-

bility of such principles to foreign owned and based

airplanes operating solely ins foreign commerce and

touching only one port in the United States.

[t could be held that the instant case is controlled

by the “home-port’ doctrine which has been uniformly

apphed by both state and federal courts for over a

hundred vears; that under that doctrine no Jurisdic-

tion, other than that of the true domicile. Inav tax

Instrumentalities of conmiunication engaged in foreign

commerce; and that airplanes, flying the international

skies, do not differ substantially from: vesse Is sailing

the international seas. Tf these conclusions are sound,

then, under the doctrine of stare decisis, the Judgment

of the trial court should be affirmed.

But. because the precise question here invelved has

hot vet been passed upon by the federal courts. we think

we should also decide the question on principle. ‘The

question is, should the ‘home-port* doctrine, asx a mat-

ter of principle, be applied to the facts of the instant

‘ase ?

We think that that doctrine should be so applied.

The prior cases, while they have not decided the pre-

cise point here involved, have laid down a very definite

pattern of constitutional law which we think is sound

30H

and controlling. It certainly has been established that

any instrumentality of Commerce is subject to taxation

in its true domicile. But this power to tax is subject

to limitations as to the manner of taxation when a

taxable situs has been acquired in another jurisdic-

tion. The need for such limitation arises from the

necessity of protecting against double taxation. Thus

the instrumentality which, by reason of being engaged

in interstate commerce, gains taxable situs in two or

more states, is subjected to taxation on an apportioned

basis only; and that fact limits the right of the dom-

icile to impose a fuil ad valorem tax. But, by reason

of other considerations. not every instrumentality of

commerce may gain more than a single tax situs. When

such a vehicle becomes an instrument of communica-

tion with foreign nations it is apparent that the ap-

portioned basis of taxation is unworkable because the

courts of this country can exercise no control over the

foreigen taxing authorities. The matter then should

become an exclusively federal one. To this extent we

agree partially with the appellants herein who state in

their briefs on file that: “State taxation of the planes

of foreign air carriers involves international political

and economic¢ problems whieh the courts are ineapable

of satisfactorily resolving. Decision of whether the

states should have the power to tax planes of foreign

air carriers eneaged in foreign commeree should be

left exclusively with the exeeutive and legislative

branches of the federal government.”” Of course, ap-

a ee

pellants’ quoted statement was made In Support of the

argument that we are unable to act in contravention of

the tax. We cannot agree with that conclusion. We

de, however, find in their statement solid ground on

Which to hold that. the exclusively federal nature of

the field requires us to apply the “home-port* doctrine.

end thus to hold that no Jurisdiction save that of dom-

icile has any iuthority to levy a personal property tax

on these airplanes. There is no lozieal basis for hold-

ing that these airplanes differ from other instrumen-

talies of communication with foreign nations, so as to

avoid that doctrine. As the vessel which sails the

seas Is subject to admiralty law, airplanes flying in-

ternational skies are subject to all manner of inter-

national aviation law. They are in no manner the

equivalent of instrumentalities of commerce which tra-

vel exclusively between the various states of this coun:

try.’ In our opinion, the basic reasonine behind the

controlling principles is that any inst rumentality which

engages In commerce between two or more sovereign

hations must have but one taxable situs. Common sense

requires that such situs be the port where the instru-

mentality is in good faith domiciled.

"Such instrumentalities. be they terry beats. tugs, motor vehicles or rail-

road rolling stock. remain for unlimited periods of time within the taxirg state.

utilizing the wharves. port facilities. rails. roads. streets and other facilities of

the state, moving from point to point therein. loadine and unloading at various

points, and perhaps engaging in intra-state activities therein. Tiey have there-

fore been considered to have gained a taxable situs in such state fae beyond

that which mieht be applicable to that of a ship or airplane which enters the

state only ata port of entry to the United States. and which remains in such

port until it again leaves the country. There appears to be no reason why the

former should not be taxed in proportion t its semi-permanent sejourn in the

state and its use of divergert facilities unconnected with those of the Port of

entry

— I2—

It is true that this conclusion does not explain the

inclusion in the ‘thome-port’” doetrine of vessels ply-

ine international waters but engaged solely ino inter:

state commerce. Such vessels were originally included

in the doctrine on the ground that they never gamed

taxable situs in the port which they temporarily visited.

The view expressed in this opinion would exclude them

from the doctrine because, not being instruments of

communication with a foreign country, they do not pose

an exclusively federal question. This distinction, per-

haps, ean be explained on historical grounds, The fact

that the courts have not announced a change in the

home-port’? doctrine to the extent of excluding such

vessels may be attributed to the fact that no case in-

volving such an instrumentality of commerce has been

brought before them in recent times. As a matter of

principle it should be held that both seagoing vessels

and airplanes engaged solely in interstate Commerce

are subject to the apportionment theory of taxation,

regardless of utilization of inland or international

routes. But even if it were so held, such holding would

not affect the status of instrumentalities engaged in

commerce With foreign nations. Whether they be sail-

ing vessels, steamships or airplanes, they are in a dif-

ferent eategory. Tn our opinion, being inst rumentalities

of communication with foreign nations, they remain

subject to the “home-port” doctrine and are not tax-

able anywhere but in the jurisdiction of their domicile.

They enter the territory of a viven state for the sole

=. ae

PUrpose of Utihizine a port thereet asa port of entry

to the United States. Ln this respect tlre is no dis-

Nnetion between a ship oran urplane when both engage

In Commerce between nations. Both are amenable te

International law and agreement. Each nay be fully

axed in its home port in such manner as the laws of

the domicile provide, and those laws are not subject te

review by the courts of the nation in which the non-

domiciliary port is located. Otherwise double taxntion

would inevitably result. In the language of the Hays

ease, each must be considered to enter the non-domi-

ciliary port ‘independently of any contro! over them,

except as it respects such municipal and sanitary reg-

tations of the local authorities as are not inconsistent

with the constitution and Jaws of the veneral govern-

ment to which belongs the reeulation of commeree ...

A somewhat analogous situation has been discussed

in those cases involving the second and third clauses

of section 10 of article T of the United States Cousti-

tution.” Tn reviewing attempts by various ports of

entry to levy charges against ships entering their har-

hors, the federal courts have held such charges to he

valid wh a ther the ship or its owner was domiciled

within the ¢ ag authority The North Cape (ND. WM,

"The pertinent language provides

“fel. 2] No State shall. without the Consent of the Congiess. lav any

Imposts or Duties on Imports or Exports, except whac may be absolutely neces.

sary for executing its inspection laws

“fel. 3) No State shall) without the Consent of Congress lay anv Duty ot

Tonnage 7

- — *

18 F.Cas. 342), or When the charge was Imposed fer the

use of wharves or other facilities, as distinct from a

eeneral' tax (Vielksbarg v. Tobin, WO ELS. 430, 455 [25

L.Ed. 690]; Clyde Mallory Lines v. Alabama, 296 U.S.

261 [56 S.Ct. 194, 80 Led. 215]). But the federal

courts have held such charges to be invalid when they

constituted an attempt to levy a property tax on instru-

mentalities of Commerce not domiciled therein. (See

Gibbons v. Ogden, 9 Wheat. (U.S., 89 [6 L.Ed. 23):

Packet ete. Cow. Keokuk, 95 US, 80 [24 Led. 377] ;

Peete ve Morgan, 19 Wall. (U.S.) 581 [22 L.Rd. 201]:

State Tonnaye Tar Cases, 12 Wall. (U.S.) 204 [20 L.

Ed. 370].) The rationale of those cases appears to be

that: a duty of tonnage imposed upon an instrumental-

itv of commerce (i.e., the carrier as distinct from the

fargo) Which is not owned or domiciled within the

state, and which duty is not a charge for a specific

service rendered, amounts to a duty levied as a condi-

tion to being allowed to enter or leave port; such a duty

represents an interference with commerce; and, no

state is at liberty to interfere with foreign commerce.

The fact that the present case involves an ad valorem

tax rather than a tax based upon tonnage of vessel does

not alter the underlying principles. While valuation

may be used as a basis for taxing an instrumental-

ity of commerce when the owner is a resident, or when

the instrumentality has otherwise acquired a taxable

situs, the power to so tax is based upon the right to

!

tax the person upon his financial investment (Trans.

an oe

portation Conv, Wheeling, 99 UL. 26-5, 269 (25 L.Ed.

#12]). Tf the charge attempted to be imposed is one

Which, by the terms of the statute or ordinance impos-

Ing it, may become due from ath instrumentality. of

foreign commerce without any services being rendered

to it, or without the enjoyment. of special benefits,

and from the mere fact ap it has arrived in a port

of the state, it is a char¢e on tonnage, and therefore

hot collectible (48 Am. Jur, $651, p. 404, citing various

Federal cases as well as this court's opinion in Oakland

MB. K. Wood Limber Co., 201 Cal. 16, 292 P. 1076).

There is no logical reason Why the stated) principles

shottld apply only if the proposed tax is based upon

the'gross tonnage of a vessel, and be inapplicable if the

same tax is based upon the vessel's value. Those prin

eiples are equally applicable as a basis for applying

the “home-port™ doctrine to urplanes flying exehis-

ively in foreign commerce ane utilizing a port of this

state as a port of entry to the United States.

In attacking the “home-port’ doetrine as here ap

plied, defendants urge several areuments. They con-

tend that the real basis for distinguishing between ves

sels sailing the high seas and those plying only inland

Waters Is Hot a commerce concept at all and that. it

springs solely from the conmon law concepts of ad-

Miralty whieh are not necessarily appheable te air

Planes. Such an argument overlooks the fact that the

Vessels between whieh such distinetion was made we

all engaged in interstate commerce. and that here we

ine.

are dealing with instrumentalities of foreign commerce.

Another answer to the argument is that since the ad-

vent of the airplane there has developed an equally

large body of international air law, which, when sub-

stifuted for the admiralty concepts, provides equal

reason for considering international air flights on the

same basis as vesscis sailing international waters.

Defendants also urge the apparent trend of the

United States Supreme Court in declaring more and

more exceptions to the application of the rule as first

announced in the Hays decision. This, they argue, in-

dicates a definite attitude in opposition to the **home-

port” doctrine: They claim that if the higher court were

viven the opportunity today, it would repudiate the en-

tire rule as contrary to modern theories of taxation.

Crie answer to this proposition comes from the United

States Supreize Court itself. As mentioned above, in

our analysis of the growth of the doctrine, in 1948 that

court excluded vessels utilizing only inland waters from

the application of the “home-port”’ rule (Ott 1. Mussis-

sipm ete. Barge Line, supra, 336 U.S. 169). In so do-

ing, it expressly refrained from making the decision

applicable to interstate vessels traversing the open seas.

Why, then, should we anticipate a change in regard to

instrumentalities of foreign commeree, as to which there

is greater cause to apply the doctrine? If, as is arened.

that court is about to reverse itself, it is not for us to

anticipate such action, At this point we would not -con-

sider a request to hold that a steamship plying the high

a

seas In foreign commerce is to be exeluded from apph

cation of the “home-port’’ doctrine. We should) not

be expecicd to do so in reeard to an urplane similarh

engaged, when the controling principles Cand reason:

Ing behind thems) are equally applicable. We there

fore hold the *home-port’? doctrine to be appheable

herein, and that the power to tax urplanes cneaged

solely in commerce with foreign nations is vested ex-

clusively in the place of true domicile, which juris-

diction may impose a tax on the full value, to the ex-

clusion of property taxation elsewhere, whether upon

An apportioned basis or otherwise. —

Is the tas barred by federal regulation or inte rnational

freaty 2

This conclusion is sufficient to dispose of the case,

But because we have elected to decide this case on prin-

ciple as well as on the doctrine of share decisis there are

other considerations that should be considered — One

Ix the Impact, if any, of federal regulation and treaty

on defendants” power to impose the instant tax. Ad.

mitted|y, under the commerce clause of the United

States Constitution. the Congress is given the power

to legislate as to interstate and foreion COMMNEPCE to

the exelusion of the several states. Tf it: has done se

the tax here involved must be held to be invalid. Plain.

tiff does not ete us te any federal levislation Which,

by its nature, specifically excludes state taxation. The

reemlatory enactments whieh it) pleads indicate that

tie

Congress has pre-empted the field of regulating: air

traffie (hoch foreign and interstate) to the extent of

protecting public safety, welfare, convenience and ne-

cessity. But none of the regulatory enactments indicate

an intent to enter, or to bar the states from entermeg

the field of taxation. Insofar as they should be con-

sidered herein, the federal regulations which have been

called to our attention do not bar the tax imposed by

defendants. They do, however, indicate the peculiarly

federal nature of the entire field.

The international treaties upon which— plaintiff

relies pose a more difficult problem. They represent

executive action, and although approved by the Senate

Ch S. Const... art PP os 2) el 2) are not the Con-

eresstonal action conteniplated by the commerce clause

art dee Soeh 3). But they are equally binding on the

states. Treaties are the supreme law of the land, bind-

Ing Upon the courts of every state (art. VI. el. 2).

If the tax here under review is repugnant to the terms

of any such treaty, the tax must be declaved invalid.

OF the several treaties Alleged in the complaint

as regulating plaintiff's operations, three are of par-

ticular interest. These are: (1) “Convention and pro-

tocol between the United States of America and Sweden

respecting double taxation,” dated) March 23, 1959,

ratified August 2. 1939, proclaimed December 12, 1959,

and effective January 1, 1940 (54 Stat. 1759, TAS. No.

Qds8). (2) “Convention between the United States of

ie

America and Denmark respecting doul

dated May 6, 1945. and effective De

(62 Stat. P30, TEAL. No. TS54) 5 an

tion between the Crited States of Ame

for the avotdance of double taxation .

1d, 1949 (2 CAST. [1951] pt. 2 p. 22

25a. and 2 UST. P1951] pt. 2. p. 238

OS),

These treaties, by their langu

at the avotdance of duplication of taxa

hatory powers, or by political subdivis

eases Where nationals of one signator

or

~

aged tn business in the territorial lim

power. [tis also clear that they are in

shipping and air traffie within the 4

of business ventures. ‘The extent to

particularly with reference to the tyy

seaimst Which protection is afforded, i

reference is made to the titles, only, t]

Denmark and Norway would appear tf

taxes on income, estates and. inherita

In the tithe of the treaty with Sweden

of taxes which is intended to be covered

Of the latter states that the parties art

avoiding double taxation and of establ

reciprocal admunistrative assistance in

come and other taxes... 0° CEmphasis :

[of the treaty sets forth a list of tax

type rather Gham speetfie named as the?

too im this Convention.” Tm the

ease

le taNation oo 00

1 (3) *Conven-

cember

lea and Norway

. dated June

Oo PLAS. No.

1 Aas Ws

mt’,

re aimed

-_

Hien by the sie:

ons thereof, im

power are en-

ts of the other

ended to cover

rrotected) types

Which they eo,

of

KR not clear.

taxation

If

e treaties with

ii

rhe dinuted te

Nothing

Wnits the type

Wes,

The preamble

“desirous of

jshine rules of

the case of in-

dded.) Article

¢s (bv veneral

tases referred

tf the United

States the list includes federal income tax (including

surtax and excess profits tax) and federal capital

stock tax. In the case of Sweden income and property

taxes are mentioned. As to both powers, the list: in-

cludes “any other or additional taxes lmposed = by

either... upon substantially the same bases as the

taxes enumerated herein.” Tf we were to read no fur-

ther it might be assumed that the treaty does not

apply to property taxes Imposed by the several states

of this nation. However, article NIL, without refer-

ring to the statements made in the preamble or in

article I, provides that in regard to certain types of

property (specifically ineluding air transport under-

takings) **taxes on property or increment of property

_.. may be levied only in that contracting State which

ix entitled under the preceding Articles to tax the in-

come from such property.”” Referring to such preced-

ing articles, it is clear that neither nation may tax

the profits of enterprises of the citizens of the other

except as such profits are allocable to a permanent

establishment in the taxing nation (art. IT). Even

more specific is the provision that income of an enter-

prise derived from the operation of a ship or aireraft

shall be taxable only in the nation in whieh such ship

or aireraft is registered (art. TW). Taking the treaty

asa whole, we find that the United States and Sweden

have agreed that each will refrain from taxing either

the income of or the property belonging to the na-

Hionals of the other country except insofar as such

a e

Income Is allocable te or the Property is a portion of

to permanent establishment in the taxine nation. Pnse-

faroas ships and air lines are concerned they have

agreed te levy neither tneome mor property tax even

Where there fs a permanent establishment. if steh

Velich: of commerce is not registered im the taxing

hation. Sinee plaintiff maintains no permanent estab

lishinent in the United States. and one-third of its

wrplanes are registered and based in Norway, Sweden

and Denmark, respectively. it follows that the jistant

tax.at least insefarias it is applied to the one-third

of the planes registered in that country. bo barred dy

the provisions of the treaty with Sweden.

“Turting now to the treaties with Norway and Den

mnark, we find no stich specifie han upon property taxes

as appears mn the Swedish treaty. Towever, article

NVIoof the Danish treaty provides that citizens of

either of the contracting tations Cieluding persons,

paltnerships, corporations, associations, ete.) whale

resident in the other contracting uation shall not tbe

subjected therein to other or more burdensome taxes

than are the eitizens of such other contracting State

residing in its territory, As used in this) paragraph

. “taxes” means taxes of every kind or description

whether national. Federal, state. provineial or mame

pal.’ This article obviously expresses an intent to pre-

vent a state. such as California, or a city or a county,

suchas the defendants herein. from levying a diserin

Inatory tax agaist Danish nationals. Pt ean be arcued

~— *

that the apportioned property tas which defendants

seek to impose upon these airplanes is the same tas

which they impose upon all citizens (i.e., domestic air

lines) of California or the United States. The fact

remains. however, that such tax is a Ctimoere burden-

conn tax than imposed upon domestic lines because

the latter do not alse pay ad valorem property taxes

in Denmark.

Those Nomvegian treaties mentioned above do not

make specifie reference to personal property taxes,

but they do contain language which may be relied on

for an argument that the federal government intended

to relieve the Norwegian viv lines from taxes such as

are at issue here, The treaty dealing with income taxes

provides that imcome which enterprises of either na-

tion shall derive from the operation of ships or aire

eraft shall be exempt) from taxation in the other

contracting nation. ‘The treaty concerning taxes on

estates and inheritances, 12 providing for the taxable

situs of. movable property in veneral, makes a specific

exception of ships, aircraft and shares thereof by pre-

viding that their taxable situs shall be the place of

recistre. ion or doctumentation.

In addition to the format treaties alluded to above.

there are also in existence a series of executive agree-

ments with each of the three countries, referred to as

Air Navigation Sgreements,” Air Transportation

Agreements. Arr Worthiness Agreements.” Pilot

a. woe

License Agreements. ete. The various Air Pranspor-

tation Agreements” (Denmark-—os Stat. 1458, ELAS.

No, 430, amended 60° Stat. 1o46, PsLAS. No. Lolg;

Norway—o9 Stat. 1608, ELAS. No. 4825 Sweden—-—ds

Stat. 1466, ELAS. No. 451, amended 60> Stat. [soo

TADLALS. No. 1500) contain artieles designed to ‘pre:

vent diss rimninatery: practices, and to assure equalits

of treatment, 7 specifiealiy prohibiting unequal charges

for airport facilities, exemption from: custom duties,

ete. but none mentions taxation as such. On the one

hand this fact tends to sustain an argument that the

contracting parties did not intend to melide taxation

within the possible discriminatory practices which thes

sought to eliminate. On the other hand, it may be argued

with equal force that since there had never been a tan

of this TV pe lnposed on the dates of the respective

treaties and agreements, the parties did not have the

question of local taxes in mind, and would have inelides

them as a prohibited method of discrimination had

they existed. Certainly. itis within reason te fer

that the foreign negotiators, unfanihar with our dual

rederal-state svstem, may have assumed that once thes

had eliminated all possibility that the federal govern:

ment would levy a double or multiple tax, there was

nothing left to fear except the possibility. of unfair

discriminatory practices by airports and other non

eovermmental agencies.

[hoot opinion, the language of the various treaties

and agree nents clearly eliminates the possibility of

a * on

local property taxation oniy dnsefar as concerns those

airplanes owned and registered in Sweden, As te that

portion of the tax. the judgment of the trial court

must be affirmed on this point alone. As to the renin

ine tWo-thirds of the airplanes, there renin Colsid

: erable doubt as to the effect of the federal comunity

ments, with only a possibility. that the contracting

states intended te prevent any taxation of any nature

Clocal or otherwise! which would afford the domestic

air lines of one country any advantage over those of

the other country where such domestic and foreign

lines maay be in competition, The instant tax would

diseriminate in favor of any United States lines cot

peting with these Senndinavian lines i Commerce

between the respective nations. But the mere possi bil:

ity that the stomatery powers may have so mtended 1+

net suffietent ground on whieh to invalidate that por

tien of the tax dnipesed pen the planes revistered in

Norway aud Denmark. Because we eannot spell out

such an iitent in the treaties wath these mations. Ww

cannot invalidate the tas upom the ground that itis

repucnant to the: tents of those Treaties, However, we

have already detemuined that the tax is repuctant te

the treaty with Sweden. and must: be deemed iivalid

as te the aitplanes based and registered in that coun:

trv. Does this mean that defendants are prohibited.

from: taxing Swedish airplanes. and vet free te tar

planes operating tna similar mauner, hut owned) cane

Wased dn oother forema countries 2 We think not. Snel

Sa.

EONTT UT Wendie MMe bates ebesate cbsenrunuinatper

Pe tvvee ty fran Pot eotutie ree baaseed an sy Treat COUnTPY

Mel stmitlar commerce based an ethed hatlehs. Sued

CLseripibation: Wotihd ectstitun Phitemt: petiee wath the

Trees Plan trl CoE epee, AS std iti Netth woste ry ote

Comet Cor. Minnesota, DOS US. yn pos P79 S.Ct

ree Led. 2d 420, 7 cpotgue oth F202). and wn Bie.

mene be iti, B29. L4G ony jy met, 254, 96 3 Bal

hy, Three ceodnstypes dens ehiatise cletrpes tes {lie stiifes meat

~Hhighe-taX-worth of dipeet ited fe depiere- Wath the tre

flow of cotatmieree Pt ys eMyvietis thert ree rpedav idea!

“Tate has pewer te diseruminmiate between foreren na

Thoms, The prinenples af state SeVerednty apply te

Internal matters. omly. Ne state of this dinner as sen

erersn dn the eves cof a foremn nation. ON state enn,

et dent direetily wath ao foreron natpern DV Treaty or

eterwise, “Pins et mitist desve: tes the: feedeperl rr wie

coemt, Pf ate tfetiipiteed UeTberts~ Whe ce ved: The lel woeotgle

POST in serimiinatery peraetiens cs betwen tie for

eTete Peat beotis, Thety at past esedeen Thest fred) in ate er

trrety. This is but ainether was of saving. a weoosrd

thowe that tanatpary ct Peorerod. ow tpend cored bagesece| besten

Petits cof coterie ve Pepesetits a fteld that pe preentlncat

Pederat mn natin without regard te stich speerfte eon

STaMitienal considerations as the ecnmaeres elspa an

the due process Clatise. and whted: mast dee fet te thy

SMT Strcetieny, of the feces! OV ePbitent. even ony thre

tbserree anf TILDEN Poberne pit feats ry! leary dea Preor Pres dereay

= ae

For the reasons set forth, we are of the opinion

that the terms of the treaty with Sweden prevent

the several states from imposing any type of) prop-

erty tax upon airplanes owned, based) and registered

In avy foreign country, unless the overall operations

of the owner bring such airplanes within the area of

property to be taxed. as such is defined in that treaty.

¥

Additional issues urged by the parties:

The foregoing considerations are determinative of

the matter, We expressly refrain from any decision

upon plaintiff's contention that neither the California

Constitution nor ariv statutory provision provides a

basis for the instant tax. The balance of the arguments

have been answered above, or have become moot by

reason of the crounds upon whieh we base our decision.

It is significant that we have been cited to ne in

stance wherein any state or political subdivision has

ever attempted to levy a property tax upon an istru

mentality. of foreign commeree which was both owned

nnd based ina foreign country. And this is true even

though each of our major seaports is visited regularly

by passenger liners and freighters, opermiting on recu-

Nar schedules, in the same manner in whieh plamtiff's

airplanes visit Los Angeles International Airport. All

of the cases cited above dealt with vessels. airplanes,

and other instrimmentalities owned or based im this

country, The entire lack of any ease dealine with an

it

Instrumental y owned op based elsewhere indieates that

no state has bver attempted to tax foreign instrumen-

talities of commerce arriving within its Jurisdiction

solely in foreign trade. If, during the IS3 years of

eXistence of the United States seh property has been

asstined to be Hontarxable, it makes little difference

Whether that belief stemmed from: constitutional prohi- -

bitions or from considerations of polley, [fy sueh as

sUbnption Were tow to be overruled, we woutle Open

the doors to state taxation of eVErY ocean Vessel whieli,

for TSO vears. has been believed to be nontaxable. The

reperetsstons Would be world-wide, Retalitery taxation

wottld be Inevitable. Phe states could not Cope with

such a situation. The only escape from: such a result

would be by holding that airplanes might be taxed

Under chretmistanees wherein a ship may net. Ne low

eal basis for such a distinetion has been ndvaneced,

The judgment as affirmed,

Schauer, Jo. MeComb, he. and White. Jo. conenrred,

DOOLING, J.--T conenr in the qudgment and with

the conelusion that the eNXisting decisions of the Su

preme Court of the United States om the “hotne-port

déetrine as it relates to the right to tax vessels eneaved

in foreign commerce are binding Upon this court. This

phase of the ‘thome-port’’ doetrine has never been

modified or overruled and. if the doetrine is to be

reexamined, the nation’s highest judicial tribunal whieh

ammetneed itis the only court which can effectively

i —-

inake such reexamination. Unless that court sees fit

to do so, and this case might afford a handy vehicle

if its Justices are so minded, | feel bound to follow

the existing law in this field as declared by its carher

decisions.

TRAYNOR, Je-—l dissent.

Neither the due process clause nor the commerce

clause nor the tonnage clause of the United States

Constitution precludes state taxation on an apportioned

basis of aircraft flown in interstate commerce. (Braniff

Airways v. Nebraska State Board of Equalization, 34%

U.S. 590, 600 [74 S.Ct. 957, 98 L.Ed. 967]: see also

Flying Tiger Line, Inc. v. County of Los Angeles, 5}

Cal. 2d 314, 318 [333, P. 2d 323].) They do not preclude

_equivalent taxation of aircraft owned by foreign domi-

ciliaries flown in foreign commerce.

“So far as due process is concerned the only ques-

tion is whether the tax in practical operation has re-

lation to opportunities, benefits, or protection conferred

or afforded by the taxing State. [Citation.] Those re-

quirements are satisfied if the tax is fairly apportioned

to the commerce carried on within the State.” (Ott r.

Mississippi ete. Barge Line, supra, 336 U.S. 169, 174:

Braniff Airways v. Nebraska State Board of Equali-

cation, supra, 347 U.S. 590. 600.) Since plaintiff's

relationship to California is no different from. that

of airlines engaged solely in interstate commerce, and

since the “opportunities. benefits. or protection con-

—

ferred or afforded” ave not affected by the locations

of plaintiff's out-or-state termini, the due process

clause does not preclude the taxation of its aireraft.

Nor does the conmneree clause or the tonnave clause’

exempt the instrumentaliiies of foreign commerce from

state ad valorem: property taxes. (Gloucester Ferry

Coo. Pennsylvania, 4 US. 196, 206 [5 S.Ct. 826, 29

Led. IOS]; Old Dominion Steamship Co. v. Virginia, -

198 US. 299, 305-306 [25 S.Ct. G86, 49 LIEd. 1059]:

Pullman's Palace Car ve Pennsylvania, 141 USS.

22-23 [11 S.Ct. 876, 35 L. Ed. 613]; see also, Trans-

portation Co. ve Wheeling, 99 U.S. 273, 279-280 [25

LL. Ed. 412].) Onee their situs is determined, a state

Inay apply its own tax rate and collection procedures,

It is idle here to discuss the pros and cons of national

uniformity. It could be achieved only if the states

were declared powerless to tax instrumentalities of

foreign commerce at all or were empowered to tax

them only pursuant to federal legislation.

The issue is whether there is discrimination against

foreign commerce, Obviously there is mo diserimina-

tion if a state taxes migratory property used in such

commerce in the same way it taxes migratory property

used in interstate commerce, Moreover, it) precludes

discrimination against interstate commerce. Plaintiff

hevertheless contends that sinee the United States

MNo State shall. without the consent of the Coneress. las ans Duty ot

Tonnage > OFS: Cent... at Sf FH

_~--

Supreme Court cannot compel foreign countries to

apportion their taxes by taking into account the ab-

sences from home of their domiciliaries’ migratory

property, taxation here even on an appo ‘tioned basis

may lead to discriminatory cumulative bu ‘dens on for-

eigen commerce, This argument errone ously attributes

to such taxation the risk of discrimination. Actually

it ix attributable to the freedom of foreign countries,

hot permitted to our own states, to adopt rules of their

ewn that can result in multiple burdens. The court

cannot prevent foreign countries from taxing instru-

mentalities of foreign commerce owned by their domi-

ciliaries even if: those instrumentalities are perman-

ently located here, just as it cannot prevent foreign

countries from taxing American aire ‘aft temporarily

abroad even thought they have been taxed at full value

at the domicile of their owners here. [t is without

power to compel independent nations to adopt a un-

form nondiscriminatory system of taxation, It does

not follow that the states must forego the power to

impose taxes that are not in themselves discriminatory.

It bears noting that Congress remains free to prohibit

altogether state taxation of instrumentalities of foreign

commerce. Alternatively, treaties could govern such

taxation to preclude the risk of discrimination.

Plaintiff also contends that for purposes of ad val-

orem taxation, aireraft flying in foreign commerce are

logically indistinguishable from: ships sailing the Ingh

seas and henee taxable only at the domicile of their

on ae

owners, When the home-port rule was formulated for

the taxation of ships in interstate as well as foreign

commerce, there had vet to be developed the concept

of taxation on an apportioned basis, (See Ott vr. Misses:

sipp cle. Bard Line, 330 US. 1o9, 17S P69 S.Ct. 452.

OSB. Ed. 585]: Ayer de Lord Co. ve. Kentiehy, 202 US,

409, 421 [26 S.Ct. 679,50 Lid. L082]; Southern Paertic

Cov. Kentucky, 222 U.S, 63, 69 [32 S.Ct. 13, o6 L.Ed.

YO]: NZ. Lous v. Ferry Co, 8 US. Wa. 450-452:

Morgan ve Parka, WG Wall CUS.) ATT, FES [21 Lede.

303]; Gloucester Perry Co. 0. Ponnsyleani, WA ES.

196, 206 [5 S.Ct. 826, 29 Led. 1o8ly Mags ov. Pacrpie

Mail Steamship Co. VW How. CUS.) 596, 597-599; Od

Dominion Steamship Co. ve Virginia, Ws Us. 299,

305 [25 S.Ct. 686, 49 L.Ed. 139].) The rule was

abandoned in faver of apportioned taxes as to vessels

plying inland waters in Olf vo Mississrppe te. Barge

Line, 336 U.S. 169 [69 S.Ct. £32. 93 LE. S85]. See

also Standard Oil Co. vo Peek, 342 US. S82. oS84 [72

S.Ct. 309, 96 L.Ed. 427, 26 ALAR. 2d Tach .y Tn tea

ing open the question of ocean carnage. the court m

ho Way suggested that the taxation of either ocean car

riage or Inland carriage would depend Npon whether

it was interstate or foreign commerce. Thereafter, im

Braniff Airways, Tne. v. Nebraska Scate Board of

Kanalization, 34 TES. 990) [TA Stet. Te, BB TFA.

O67" when the analogy between the high seas bordering

the savion and the airspace above the nation was urged

against apportioned taxation of aireraft. the cour

52

nevertheless held that aircraft flying in interstate com-

Inerce could be taxed on an apportioned basis. ‘This

court adopted the same rule with respect to aireratt

(ying in foreign commeree in Flying Tiger Line, Ine.

W. County of Los Angeles, 51 Cal. 2d 314 [333 P. 2d

325]. (See also Slick Atrways 1. County of Los An-

yeles, 140 Cal. App. 2d 311, 315, [295 P. 2d 46].)

In the Flying ‘Tiger case all members of the court

agreed that aircraft flying in foreign commerce could

not be taxed at full value at the domicile of the owner

In California if they also had attained a taxable situs

elsewhere. In contrast, the majority in the present

ease Invoke the home-port doctrine for the conclusion

that aircraft regularly flying into California from the

foreign domiciles of their owners attain no taxable

situs here and that taxation on an apportioned basis

is therefore unconstitutional, Rationally, however, the

home-port doctrine should apply to all aircraft reeu-

larly flying in foreign commerce or to none. If the

home-port doctrine is applicable to all aireraft regu-

larly flying in foreign ¢ numeree, the Flying Tiger

case Inust be overruled.

The Braniff case broke away from the home-port

doctrine when it upheld an apportioned tax on aircraft

flown in interstate commerce. There is no more reason

toinvoke th‘ ctrine for aircraft regularly flying in

foreign commeree and bearing an identical relation-

ship te the nondomiciliary state into which they ily.

Hfas plaintiff contends. aireraft cannot logically be

ie

distinguished Prom ships, It is the hhomie-port doctrine,

hot the Branifl decision. that mist vive Wah,

Plait’ contends, further, that the treaties be-

tween the Uhited States and the}Seandinayian coun

tries with respect to double taxation prechide ad

Valorem property taxation of its adreraft in California.

(See Convention and protocol thetween the United

States of America and Sweden respecting double taxa-

tion, dated) March 23, 1939, ratified Nueust 2. 1939.

proclaimed December 12, 1939, and effective January

1, 1940, 54 Stat. 1759, TuS. No. 958, 199 LINAS. 17:

Convention between the United States of America and

Denmark respecting double taxation, dated May 6,

1948, and effective December 1, 1948, 62 Stat. 1730,

TAEAAS. No. D854; Convention between the United

States of America and the Kingdom of Norway for

the avoidance of double taxation, dated June 13, 1949,

2 Use. (980i) wt. 2, poe. TLAM. No. S57: 2

U.S. {1961} pt. 2p. 2468, TLAB. Na 2368.) he

notes that cach treaty provides that income from the

operation of aireraft shall be taxed only in the home

country of such aircraft (Treaty with Denmark, art.

Vi: Treaty with Norway. art. Vie Treaty with Sweden.

at. PV). [tf contends that this pohey of reciprocity

on taxation of Income connotes a like reciprocity as to

local property taxation. There is no merit in plaimtiff's

contention. The draftsinen of the treaties were farnil-

iar with both uational and local taxation of property

as well as of income (Treaty with Sweden. art. 1;

—fi-

Treaty with Denmark, arts. 1, NVI; Treaty with Nor-

Way, art. 1), and they carefully specified the taxes to

Which the treaties applied and the limitations on the

taxing powers of the respective nations. Under these

circumstances it is uot reasonable to infer that restric.

tions on income taxation connoted restrictions on

‘property taxation; such an inference would require

reading provisions into the treaties that were knowine-

lv omitted.

It is contended, however, that article XITL of the

Swedish treaty makes the rule governing income taxa-

tion applicable to the property taxes imposed on the

Swedish-owned aircraft in this case. Article XITT pro-

vides :

“In the case of taxes on property or increment of

property the following provisions shall be applicable:

“(1) Tf the property consists of: (a) Immovable

property and accessories appertaining thereto; ())

Commereial or industrial enterprises, inechiding mari-

time shipping and air transport undertakings: the tax

may be levied only in that contracting State which is

entitled under the preceding Articles to tax the income

from such property.

(2) In the case of all other forms of property.

the tax may be levied only in that contracting State

Where the taxpayer has his residence or, in the case of

a corporation or other entity, in the contracting State

ee

Where the corporation or other entity has been created

or organized.

“Phe same principles shall apply to the United

States capital stoek tax with respeet te corporations

of Sweden having capital or other property ino the

hited States of America.”

Article NEED must be reas together with article I.

Which provides:

"The taxes referred to in this Convention are:

(a) In the case of the Urited States of America:

(1) The Federal income taxes, including surtaxes and

excess-profit taxes. (2) The Federal capital stock tan.

“(b) In the case of Sweden: (1) The National in-

come and property tax. including surtax. (2) The Na-

tional speeial property tax. (3) The communal income

tax.

“Tt is mutually agreed that the present Convention

shall also apply te any other or additional taxes im-

posed by either contracting State, subsequent to the

date of signature of this Convention,. upon substan:

tially the same bases as the taxes enumerated here-

is So

Article | thus exeludes local property taxation in

the United States from the ambit of the treaty and

nakes clear as the Senate Foreign Relations Communit:

tee stated in urging ratification of the treaty. that

——

“the United States Makes no agreement respecting

any of our State or local taxes.” (Report of the Senate

Foreign Relations Com., Exee. Rep. No. 18, 76th Cong.

Ist Ness. 1939; see alse Oittker and Ebb, Taxation of

Foreign Income [1960], p. 612.) Had it been the in-

tention to include such taxes, they would have been

specifically mentioned as were the Swedish national

property taxes and communal income tax. Ao matter

so Vital as restrictions on the taxing power of the

states and their subdivisions would hardly have been

left to implication from the provisions of article NITY,

which are directly referable to Swedish property taxes

and the United States capital stoek tax.

An interpretation of article NIPD as appheable

only to the taxes defined in article T does not render

the general language of article NITDT governing prop-

erty taxation meaningless insofar as the United States

is concerned, for that language states the principles

that shall also apply to the United States capital stock

tax or “any other or additional taxes imposed by [the

United States] subsequent te the date of signature

of this Convention, upon substantially the same bases

* (Art. [.) Such an interpretation gives effect,

to =" articles and avoids conflict between them.

(See City of Long Beach v. Vickers, 55 Cal.2d —.

(10 Cal. Rptr. 359, 358 P. 2d 687]: Hough v. MeCarthy,

54 Cal. 2d 273, 279 [353 P. 2d 276]. )

‘Advance Report Citation: 55 AC 155. 164

DI

Finally, plamtift contends that the Legislature has

hot provided for the taxation of aircraft on an appor

thoned basis. Section 404 of the Revenue and ‘Taxation

Code provides that “AL taxable property, except

State assessed property, shall be assessed hy the assess

Ing agency of the taxing ageney where the property is

situated.” (See also Rev. & Tax Code, ss 201, 405.)

The word “situated” in this scetion refers not te mere

physical presence on tax day, but to the situs of prop-

tax. (Brock & Co. v. Board of Supervisors, 8 Cal. 2d

286, 289-290 [65 P. 2d T9T, TO ALAR. T00].) Sines a

properly apportioned part of migratory property recu-

larly used in interstate or foreiga commerce in the

state has such a situs, the Legislature dias provided

for ats assessment and taxation. (See Flying Tiqer

Line, Ine. v. County of Los Angeles, 51 Cal. 2d 314

[333 DP. 2d 323]. Shrek Ntraeys 0. County of Los An-

geles, 140 Cal. App. 2d 311 [295 P. 2d 46].)

It bears einphasis that this case involves, not the

wisdom of local taxation of foreign aireraft {ving im

foreign commerce, but the question whether the Urited

States Constitution prohibits a state from: taxing such

aircraft as it taxes other property that comes into thie

state. When. as here, there is ne such constitutional

prohibition, this court has ne choice but to uphold the

state constitution and statutes. [It is not for us to de-

termine whether reciprocal exemptions away from

home ond exehisive taxation at the domicile would

=.

~~ -

iil

foster commerce, siinplify. tax administration, and

fairly divide tax revenues among the jurisdictions that

aireraft link, Such a decision involves: policies that

properly can be erystallized only ine legislation or

treaties. .A court ventures beyond its appropriate

bounds when it crystallizes its own views of tax policy

as constitutional doctrine.

Gibson, Co J.. concurred.

APPENDIX “B”

Opinion of the California District Court of Appeal

Reported 6 California Reporter 694

ee eres

IN THE DISTRICT COURT OF APPEAL.

OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION TWO

SCANDINAVIAN ATRLINES SYS

TEM, INC. a New York Corporation,

. Plarntiff and Respondent,

vs. one ee

COUNTY OF LOS ANGELES. a po ed

litical subdivision of the State of a ci

Cahiforma, and CITY OF LOS AN

GELES) a raunicipal corporation,

Defendants and Appellants.

_—-————

APPEAL from judgment of the Superior Couat

of Los Angeles County. Philbrick MeCov. Judee.

Reversed with directions.

Harold W. Kennedy, Counts Counsel Alfred

Charles De Flon, Deputy County Cotinsel for Appel

larits.

Musick, Peeler & Garrett, Roderick Mo Hills. Rieh

ard 1D). Eshenshade. for Respondent.

—_—

ox. Presiding dustiee.

a ie

Plaintiff brought this suit te recover property axes

levied by beth the City and County of Los Angeles

against certain of plaintiff's planes e miployed in foreign

commeree, Which taxes had been paid by plaintiff under

protest. Thirteen different aircraft belonging te

plaintiff( SAS) were present in this county at one

time or another during the period here in issue. The

3 aireraft made a total of 104 flights per year, or an

average of S fhehts per plane. Each of the airerait

was registered and based in one of the three Seandt-

navian countries, Denmark, Norway or Sweden. As

of the first Monday of March, 1955, the SAS service

consisted of two flights per week into Los Angeles.

Fach week one plane would arrive in Los Angeles ™

the early afternoon on Tuesday and depart a day and

one-half later on early Thursday morning, and another

plane would arrive during early Saturday afternoon

and would depart carly on the following Monday morn-

ine. The only point in the United States w ith which

said planes had physical contact was International

Airpert in Los Angeles.

.

Los Angeles City and County, as of the first Mon-

day of March, 1955, assessed and levied a personal prop-

erty tax upon these planes on an apportionment basis:

that is, only a portion of the full value of the subject

planes regularly entering Los Ange les County consti

tuted the basis for the assessed valuation. That frac

tion of the total value of the aireraft equal to the hours

spent in Los Angeles County as compared with the to-

a en

tal hours in the year, was the basis upon which the tas

was levied. Mach of the aircraft is taxed in the country

in Which it was registered on an unapportioned basis.

Dased on these facts, the trial court awarded judg

ment to SAS and the defendants County and City of

Los Angeles have appealed.

SAS advances three grounds upon which it argues

the judgment must be sustained: (1) that the tax vi-

lates due process; (2) that the tax is an unconstitu

tional regulation of foreign commerce; and (3) that

there is no statutory authority for the tax.

We first consider the validity of the challenged tax

with relation to the due proeess clause of the 14th

Amendment to the Constitution of the United States.

In this connection, the due process Inquiry is whether

the property taxed has acquired a situs in the taxing

Jurisdiction through having had sufficient contact with

the jurisdiction. A further criterion is that the *. .. tax

in practical operation has relation to opportunities,

benefits, or protection conferred or afforded by the

taxing State.” (Ott. v. Mississippi Valley Barge Line,

336 U.S. 169.) See also Braniff Airways, Ine. v. Ne-

braska State Bd. of Equalization, 347 U.S. 590, 600:

Slick Airways, Inc. v. County of Los Angeles, 140 Cal.

App. 2d 311, 314, 295 P. 2d 46; and. Flying Tiger Line

Tne, v. County of Los Angeles, 51 Cal. 2d 314, 319-320

333 P. 2d 323. In the Braniff case. supra, the Su-

preme Court said: *. 2. [T]he bare question whether

oo

an instrumentality of coumerce has a tax situs In a

state for the purpose of subjection to a property tax Is

“one of due proces: "(347 US. at 598-099. )

SAS contends that their aircraft have acquired no

tax situs in this state. Reliance is placed om the old

‘home port’’ doctrine cases to support this proposi-

tion, principally Hays v. Pacific Mail 8.8. Co., 58 U.S.

(17 How.) 596; Old Dominion S.S. Co. v. Virginia, 198

U.S. 299; Southern Pac. Co. v. Kentucky, 222 U.S.

63; and Morgan v. Parham, 83 U.S. (16 Wall.) 471.

These cases dealt with the tax situs of ocean going ves-

sels engaged in commerce between states. The Hays

case held a vessel taxable only by New York, its state

of registry. This rule found support by way of dicta

in the Old Dominion case, but the court nevertheless

allowed Virginia to tax vessels which had a permanent

situs in the state even though registered in another

state. The Southern Pac. Co., and Morgan eases al-

lowed taxation only by the state of domicile of the own-

er on the rationale that no permanent situs had been

developed in any other state and thus the vessels would ,

escape taxation entirely unless taxed by the domiciliary

state. This rule was also applied to vessels moving

solely in inland waters. (St. Louts v. Wiggins Ferry

Co.,78 U.S. (11 Wall.) 423; Ayer & Lord Tie Co. v.

Kentucky, 202 U.S. 409.)

Clearly, the early rule was that permanent presence

in the taxing jurisdiction was essential to the develop-

one < See

nent of a tax situs im a jurisdiction other than the

state of domicile or registry, in so far as vessels en-

gaged in interstate commerce were concered. LHow-

ever, Contemporancously, a different rule developed

with regard to the taxation of railroad rolling: stock.

(Pullman's Palace Car Co. v. Pennslyvania, 141 U.S.

18; Union Refrigerator Transit Co. v. Kentuchy, 199

U.S. 194.) In these cases it was held that rolling stock

engaged continuously in commerce between states could

acquire a taxable situs in more than one state and that

the taxable value of the property must be apportioned

unone the states in which the property had thus ac-

quired a situs.

This rule of apportionment was later expanded te

Include vessels employed on inland waters in interstate

commerce. In Off ¢. Miessisstpp Valley Barge Line.

supra, the court allowed Louisiana to levy an appor-

tioned tax on tugs and barges whieh were domiciled

in Ohio. The taxable situs in Louisiana developed

through regular and substantial! emridvment of the

vessels in the waters of that state. Later, In Standard

Ol Co. vr. Peek, 342 U.S. 382, the Suprenie Court

adopted the rule that a domiciliary state could not tax

the full value of property which was chiployed In in.

terstate commerce and which was not physically pres-

ent in the state of domicile during the entire tax vear.

The court said: The rule which permits taxation

by two or mote states om an Apportionment basis pre

cludes taxation of all of the property hy the state of

ee

domicile.’” Thus, the early cases mnvelving vessels en-

vaged in interstate Commerce upon Inland waters and

allowing taxation only by the state of domicile have

been, in effect, overruled.

Two Supreme Court cases in the field of air trans-

portation have resulted in the application of the ap-

portionment doctrine to interstate alreraft traffic. In

Northwest Airlines, Ine. v. Minnesota, 322 U.S. 292,

the court allowed an unapportioned tax on aircraft

by the state of domicile even though the planes had

substantial contacts with other states. However, in

Braniff Atrways, Inc. v. Nebraska Staie Bd. of Equal-

ization, supra, 347 U.S. 590, an apportioned tax levied

by Nebraska, a non-domiciliary state, on aircraft

flown in interstate commerce was upheld. The North-

west case Was distinguished on the ground that no proof

of taxable situs elsewhere had been mad -y the airline

in that case. The court said at page 600 of 347 U.S.:

“We perceive no logical basis for distinguishing the

Constitutional power to impose a tax on such aircraft

from the power to impose taxes on river boats."* The

test of taxable situs, said the court, is the “sufficiency

of contact” of the non-domiciliary state-with property

it seeks to tax. The ‘‘sufficienev of contact’’ criterion

was held to be satisfied by the fact that Braniff aircraft

made an average of 18 stops per day in Nebraska. The

court concluded: °**The basis of the jurisdiction [to

tax] is the habitual employment of the property within

the State.” * (347 U.S. at 600.)

-

—(---

The appheation of the Braniff doctrine of “sut-

ficiency of contact” to establish situs has been applied

and expanded by the courts of this state. In Flying

Tiger Line, Ine. 0. County of Los Angeles, 51 Cal. 2d

314, 333 DP. Ld 323, the taxpayer's aireraft operated in

Interstate and foreign commerce. Assuming that the

planes had acquired a taxable situs elsewhere, merely

from the fact that they were flown in interstate and in

foreign Commerce, after a review of the authorities. the

Court held: A taxpayer resisting an ad valorum tax on

persona property based on an unapportioned assess-

ment does not have the burden of showine that other

states have actially Iuposed a tax on such property.

Te is entitled to an assessment on an. apportionment

hasis if the record shows that he was, during a tax

year, receiving substantial benefits and protection in

more than onc state.” (51 Cal. 2d at 319, 333 P22 at B26.)

(Emphasis added.)

Thus, the modern situs rule, as approved by the

courts of this state, is that substantial benefits and pro

tection have been accorded the property by the taxing

state. The same result is reached by requiring a ‘suf

Meieney of Contact’ in line with the Braniff case since

contact with a state results in the conferring of bene

fits and protection by the state contacted.

It is thus too clear for argument that the airerat'

of SAS have established a taxable situs in the County

of Los Aneveles. It would seem therefore, that due pre

yale

cess has been satisfied with respect to the tax in ques-

tion, Yet this is not the whole answer. SAS argues

that the imposition of any tax, whether fairly appor-

tioned or not, is in reality a double tax and thus a de-

nial of due process. Although the courts have con-

sistently purported to limit the due process considera-

tion to the “situs” and "fair apportionment based on

benefits and protection’ issues, there is language in

both the Standard Oil Co. v. Peck and Braniff Air-

mays cases Which indicates that double taxation would

constitute a denial of due process as well as an undue

burden on commerce.'

We may not, however, consider the problem of mul-

tiply taxation with respect to any possible violation

of due process in the taxation of property used in for-

eign commerce. It has lone been settled in this state

that the due process requirements of the 14th Amend-

ment (with the exception of situs or power to tax) do

not apply to taxes levied on the property of a resident

‘In the Standard Oil Co. i. Peck case. the court stated that in the case of

“multiple taxation of interstate operations . . . [such] tax would have no re-

lation ‘o the opportunities, benefits, or protection which the taxing state gives

thove operations.” (342 U.S. at 385.) Furthermore, the court in Braniff pur-

ported to decide the constitutionality of the tax on due process grounds. Yet

the majority said, quoting Curry ». McCanless, 307 U.S. 357, 364: “ ‘When we

speak of the jurisdiction to tax... we mean no more than that the benefit

and protection of laws enabling the owner to enjoy the fruits of his ownership

and the power to reach effectively the interests protected, for the purpose of

subjectiny them to payment of a tax, are so narrowly restricted to the state in

whose territory the physical property is located as to set practical limits to the

taxation of others.’ ” (347 U.S. 600.) ( Emphasis added.) While the “benefit

and protection of laws’ is a due process concept, it would seem that the setting

of “practical limits to taxation by others” involved a commerce clause concept

of prevention of undue burdens on commerce.

It thus appears that multiple taxation as a constitutional concept overlaps

both the due process and commerce fields of inquirs

—

of a forelen country. On this pomnt, Estate of Me

Creery, 220 Cal. 26, 29 P. 2d 186, 187. is oppostte. In

that case, MeCreery had died testate, a resident and

citizen of Great Britain. He died Possessed of stock

certificates representing shares ina California cor-

poration, all of the shares being present in the State

of California on the date of his death. Inheritance

tax based on the value of these shares was assessed hy

court order, which order was later reversed by the

same court, On appeal by the controller, the Supreme

Court posed the following question to respective Coun.

sel: Does the due process elause of the 14th Amend.

ment to the Constitution of the United States prevent

the State of California from collecting an inheritance

tax on the transfer of stock ina California corporation

In the estate of a non-resident of the United States.

the certificates representing the stock being physically

In the State of California?"

In answer to this question the court held that the

l4th Amendment did not apply as between a state and

a non-resident of the United States. The only requisite

to the power to tax was the ‘factual or constructive

sitas”’ within the jurisdiction of the state. The possi-

bility of taxation by Great Britain of the same Prop:

erty was thus no bar to taxation by California, even

though, as between this state and residents of other

states, the tax wonld be unconstitutional under the due

process clause,

=

The court relied principally upon the case of Bur-

nett v. Brooks, 288 U.S. 378, wherein the decedent was

a British citizen domiciled in Cuba and died owning

bonds and stocks, the physical evidences of which were

all situated in New York State. The Supreme Court

allowed a Federal estate tax on the property located im

New York and held that the imposition of the tax was

not precluded by the due process provisions of the 5th

Amendment to the Constitution of the United States.

The court in MceCreery reasoned that likewise, the due

process requirements of the 14th Amendment would

not bar state taxation under similar cireumstanees. In

accord is Estate of Lloyd, 185 Wash. 61, 52 P. 2d 1269.

Therefore, sinee the aircraft of SAS acquired ia

taxable situs in California, thereby establishing, for

due process purposes, the power of California to levy

a tax, the fact that the aircraft are subjected to a double

tax becomes immaterial as a due process concept.

The naked power exercised by the County is not dis-

turbed by a necessity to avoid multiple taxation, in so

faras it may constitute a denial of due process, since

the owners are non-residents of the United States and

are not protected by the 14th amendment.

We turn now to a consideration of the subject tax

in the light of the prohibitions of the commerce clause

of the Federal Constitution. The eases are in accord

that (at least In inferstate taxation) the threat of dou.

ble taxation of the instrumentalities of commerce and

a

the undue burden thereby imposed, constitutes the rel-

evant Inquiry under the commerce clause. (Branift

Airways, Inc. v. Nebraska State Ba. of Equalization,

347 U.S. 590, 598.) SAS advances a further argument,

however, contending that the Federal sovernment las

-retamed, under the commerce clause. exelusive juris.

diction and power in the field of taxation of foreign.

flag carricts. In the absence of congressional action

empowering the states to levy such taxes, the states

may not act, they argue. Relying on the time-honored

rule of Cooley v. Board of Port Wardens, 53° US.

(12 How.) 299, that *[w]hatever subjects of this pow.

er are in their nature national, or admit only of one

uniform system, or plan of regulation, may justly be

said to be of such a nature as to require exclusive leg.

islation by Congress’ (53 U.S. at 319). SAS) con-

tends that the taxation of foreign commerce is by **na-

ture national” admitting “only of one uniform svsten,

or plan of regulation” and thus requires ‘exclusive

legislation by Congress.”

The commerce clause of the Constitution of) the

United States (Art. T. See. 8. Cl 3) provides that:

The congress shall have Power... te reeulate com:

merece with foreign Nations, and among the several

States, and with the Indian Tribes." SAS points out,

and correctly so, that even though interstate and foreion

commerce are mentioned in the same elause. and in the

same breath, yet the courts have recognized essential

and basie differences between the twe concepts and

a

~ 2

have ascribed a larger share of exclusive jurisdiction to

the Congress in the case of foreign as opposed to inter-

state commerce. (See, ag. Bowman vc. Chicago & N.

Iey., 125 U.S. 465, 482-83; Brolan ve United States, 236

U.S. 216, 222; Gibbous v«. Ogden, 22 U.S. (9 Wheat.)

1, 228, 229, Mr. Justice Johnson concurring: Board

of Trustecs of Univ, of lov. United States, 289 US.

48, 56-57.)* These cases deny the power of a state to

regulate foreign commerce or to have official rela-

?The Supreme Court of the United States has consistently held that states

may not take action which affects the relations of this country with foreign

governments. In Bozeman 1. Chicago @ N. Ry., 125 U.S. 465 at 482-483 the

Court said: “Laws which concern the exterior relations of theUnited States

with other Nations and governments are general in their nature. and should

proceed exclusively from the legislative authority of the Nation. The organiza-

tion of our state and federal system of government is such that the people of

the several states can have no relations with foreign powers mn respect to com-

merce or any other subject. except through the Government of the United

States, and its laws and treaties . . . The same necessity perhaps does not exist

equally in reference to commerce among the States.’”’ (Emphasis added.)

In Brolan v. United States, 236 U.S. 216, the Court reaffirmed the sweep-

ing distinction between the power of Congress over forcign commerce as op-

posed to interstate commerce. At page 222 of 236 U.S., the Court stated: “. .

but the very postulate upon which the action of Congress to absolutely prohibit

foreign importation . . . rests in the broad distinction which exists between the

two powers . . . .

Mr. Chief Justice Hughes speaking for the Court in Board of Trustees of

Univ. of Ill. rv. United States, 289 C.S. 48 said at pages 56-57, said: “It is an

essential attribute of the power [over foreign commerce] that it is exclusive and

plenary. As an exclusive power, its exercise may not be limited, qualifed or

impeded to any extent by state action . . . The principle of duality in our sys-

tem of government does not touch the authority of the Congress in the regu-

lation of foreign commerce.”

Perhaps the most cogent discussion of the essential distinction between Con-

gress’ power over foreign as opposed to interstate commerce is to be found in

the concurring opinion of Mr. Justice Johnson in Gibbons v. Ogden, 22 U.S

(9 Wheat) 1, appearing at pages 228-229. He said: ‘Power to regulate for-

eign commerce is given in the same words, and in the same breath . . . with

that over the ccmmerce of the state .. . But the power to regulate foreign

commerce is necessarily exclusive. The states ar unknown to foregin nations:

their sovereignty exists only with relation to each other and the general gov-

ernment. Whatever regulations foreign commerce should be subjected to in

the ports of the Union, the general government would be held as responsible

for them; and all other regulations, but those which Congress had imposed.

would be regarded by foreign nations as tveypasses and violations of national

fatth and comity.’ (Emphasis added.) See also Buttfield ». Stranahan, 192

U.S. 470, 492, Chy Lung v. Freeman. 92 U.S. 275, 279-80. and Atlantic

Cleaners @ Dyers, Inc. «. United States, 286 U.S. 427, 434.

=

tons with foreign governments. Llowever, nowhere in

the cases is there a prohibition of the taxation of the

Instrumentalities of foreign commerce by a state be

cause of any exclusive power to levy such a tax residing

In congress, On the contrary, three decided cases have

expressly recognized that power exists in the several

states tv tax such instrumentalities. In Old Dominion

SS. Co. uv. Virginia, supra, 198 U.S. 299 at p. 305, the

Court held: “It is equally well settled that there is

nothing in the Constitution or laws of the United

States which prevents a state from taxing personal

property, employed in interstate or foreign commerce,

like other personal property within its jurisdiction.”’

(Emphasis added.) See, e.g, Western Union Tele

graph Co. v. Taggart, 163 U.S. 1, 14. The Old Domin-

’on case Was quoted with approval by the Washington

Supreme Court in Canadian Pacifie Ry. Co. v. King

County, 90 Wash. 38, 155 P. 416, wherein the court

held valid property taxes levied by King County of the

State of Washington on rolling stock owned by the

Canadian Pacifie Railway Company, a foreign cor-

poration and engaged in foreign commerce. It seems

clear, therefore, that the tax levied in this State was

not prohibited by the commerce clause because of any

actual exelusive control over the taxing power residing

in the Congress.

There remains for our consideration the question

as to Whether or not the tax in question violates the

commerce clause by imposing a multiple tax on the in-

. sie

strumentalities of foreign commerce. The Los .An

geles Counts tax does m fact constitute a multiple tax

since the aireraft are admittedly taxed at their full

value in their home countries. The speeifie problem

before us is to determine whether the local tax consti-

tutes a regulation of foreign commerce by imposing

an undue burden thereon.

A direet burden-by taxation laid by a state upon the

transactions of foreign commerce is in effect a reeu-

lation of commerce. (Crew Levick Co. v. Pennsyl-

vania, 245 U.S, 292, 297.) Thus, when a court speaks

of burdens on commerce, it also speaks of an unconsti-

tutional regulation of commeree. The test of such

regulation’? was announced in Postal Tcleg. Cable Co.

vu. Adams, 155 U.S. 688. Mr. Chief Justice Fuller,

speaking for the Court, said: ‘It is settled that where,

by way of duties laid on the transportation of the sub-

jects of interstate commeree, or on the reecipts derived

therefrom, or on the vecupation or business of earry-

ing it on, a tax is levied by a state on interstate com-

merce, such taxation amounts to a regulation of such

eommeree and eannot be sustained."" (Emphasis ad-

ded.) It should be clear, that the above rule does not

include taxes levied on the instrumentalities of eom-

meree. Nor is it material that the rule as announced

was specifically directed toward interstate commerce.

In a ease involving taxation of the gross volume of bus-

iness of an exporter, the Supreme Court considered the

tax asa burden on foreign commerce and thus as an un,

-} --

constitutional regulation. (Crew Levieh Cov. De nusyl

rani, supra.) In reaching this result, the Court ap

plied the principles enuneiated in the interstate cases,

holdine at pave 296 of 245 CoS. 2° Most of these eases re

lated to Unterstate commetee, nat there is to cit Perentes

between this and foreten commerce, se Taras the pres

ent question is concerned. See eg. Brehtild Oil Corp.

re State Bd. of Byaulization, 329 US. 69. The Court

then distinguished the tax before it from a property

tax’. implying that the latter would not constitute a

regulation of commerce. Tt thus seems elear that a

tax on property engaged in foreign commerce is not,

per se, a regulation or burden on sueh commerce.

but this is, of course. not the complete answer te

the problem posed by this case. Double taxation has

been held to constitute an undue burden on iiterstate

commerce, CF. 1. Adams Moy. Conv. Stoven, SOE ULS,

307, 311.) In faet the whole apportionment doctrine

discussed SH pra seems designed to aveid suelo a result

(Braniff Artrways, Ineo ov. Nebraska State Ba. of

Equalization, supra, 347 US. 590, 801: Bl ying Teger

Line, Inew vr. County of Los Angeles, sapra, ol Cal. 2d

314, 333 PL 2d 323.) Vet apportioned taxes laised upon

suffiereney of contact and fairly relating te ‘bene

fits and protections conferred” have been held valid

even though such taxes were in fae. double taxation of

the chattels invelved. (Ott 0. Mississipyy Barus Line

('o., supra, 336 U.S. 169; Standard O' Co. Peek.

supra, 342 US, 382.) TMhe rationale of these cases iw not

ae

based on the necessity. to avoid double taxation but,

rather, on the recognition of the non-domuciliary state's

right to fair compensation for the benefits and protec-

tions afforded the taxpayer. The power to tax flows

from the presence of the property in the taxing state

and the concomitant privileges enjoved by its owners

while thus emploved within the jurisdiction. It is the

unfairness of the original ‘domicile’ or ‘permanent

presense™” doctrines as applied to transient carriers

which prompted the present rule of apportionment.

Surely, the older rules insured that no double. tax

would result, for only one jurisdiction could tax. Just

as surely, the apportionment theory leads to the dis-

tinct possibility of double taxation through the utili-

zation of different apportionment formulas. Thus, the

onus of double taxation falls, not on the jurisdiction

levying a fairly ‘apportioned tax, but upon the dom-

icilary jurisdiction ‘which refuses to apportion its taxes

on the basis of benefits and protections actually con-

ferred’ The conclusion appears to be clear that any

burdens imposed upon SAS in its foreign commerce

operations by the incidence.of double taxation of its

aircraft, flows from the full ad valorum tax assessed’

hy the countries of registry which does not correspond

*Apportioned taxation by a non-domiciliary state was allowed in Ott :. Mic-

assippt Valley Barge Line Co., 336 U.S. 169 and Pullman’s Palace Car Co. 1

Pennsylzania, 141 US. 18.

When the burden on taxpavers caused by unapportioned taxes in domiciliars

states has been before the courts, those jurisdictions have been required to ap-

portion their taxes. See. eg. Union Refrigerator Transit Co. +. Kentucky, 199

U.S 194: Flying Tiger Line: County of LA. 51 Cal. 2d 314, 333 P. 2d 323

ae, Se

to the benefits and protections atforded such aireratt

In these countries, Since the root of the evil is te. be

found in forcien soil, the sovereign power of this state

Is not poisoned by che fruit.

We agree with our Supreme Court in Astate of Me

Creary, supra, that 0. it seems peculiarly proper

at this juncture to follow our own decisions until the

Federal courts rule that such taxation is without the

power of the state.” (220 Cal. at 31, 29 BP. 2d 188.)

ATL of the constitutionally essential requisites are

present in this tax. The property taxed was physically

present in this state on a regular schedule ereatine a

“sufficiency of contract’ which establishes situs. The

tax as levied is fairly apportioned te correspond te

the benefits and protections afforded. The Counts

has the power to tax the instrumentalities of foreign

commerce, and the tax as imposed does not violate

due process nor constitute an undue burden on foreign

commerce. “Thus, the language of Mr. Justice Stone,

dissenting in Vorthacest Airlines, Tne. ve. Mina sola, B22

CLS. BOP, at 326 seems particularly pertinent: ** The

extent to which one state may constitutionally tax the

Instruments of interstate transportation does not de-

pend on what other states may happen te do. but on

What the taxing state has constitutional power to do.”

*This language takes on grester significance because ot the Supreme Court's

decision in the Braniff Atreays case which strongly modified the holding in the

Northwest case and because of the California rule as announced in the Flying

Tiger and Slick cases. approving and following the Brantff rule. The minorits

in Morthwest enunciated what has become the majority rule today

-

nite

See also Standard Oil ve Peck, supra, and Central

Greyhound Lines, Inc. ve Mealey, 334 U.S. 653... Like-

wise, the power of a state to tax the instrumentalities

of foreign commerce should not depend upon what

the home country has chosen to do, but upon what the

state, under the Constitution of the United States, and

its own laws has the power to do.

SAS makes one further contention with relation

to the commerce clause: Le., that the Federal govern-

ment has so completely oecupied the field of regula-

tion of foreign air traffic that the present tax con-

flicts with such Federal regulation and is therefore

void under the supremacy clause of the United States

Constitution. In this connection, suffice it to say that

we have examined the applicable statutes, rules, treat-

ies, regulations, protocols and executive agreements

which constitute the Federal governments controls over

foreign commerce and in particular, over SAS, and that

we find no mention of tax on personal property nor

evidence of any intention of the Federal Government

to regulate in the area of such taxation. There simply

is no Federal occupancy of this field. The argument

is therefore Jacking in foundation.

The final argument made by SAS is that there is

no statutory authority in this State providing for tax-

ation of the instrumentalities of foreign commerce.

However, California Constitution, Article NIT. See.

1 provides; AIL property in fhe State... not exempt

_—

under the laws of the United States shall be taxed in

proportion to its value..." Further, Article NIT,

Sec. 10, provides that: * All property... shall be as-

sessed in the County, City and County, town or town

ship or district in which it is situated.” (See alse See

tions 201 and 405 of the Rev. and Tax. Code.) Thus,

the Constitution of this State requircs that all prop-

erty not exempt be taxed and the tax to be levied in

the jurisdiction wherein the property acquires a situs.

The legislature provides the machinery for taxation

or may, by statute, exempt certain property (Art.

NITI; See. 14. par. 4. California Constitution.). but

the power to tax all property resides in each jurisdic-

tion by virtue of the Constitution. No statutory au-

thority is therefore necessary to establish this power.

See, e.g. Crocker Ir Scott, 149 Cal. 575, 584: Welloury

rm Downer, 16 Cal. 20, 24. Moreover, the provisions

of the Revenue & Taxation Code, particularly os 201,

404 and 405, provide adequate machinery for the ex-

ereise of the Constitutional power that has heen

granted.

Murthermore, in the Shrek and Flianng Tiger cases,

supra, apportioned taxation Ceven ai the absence of

specific enabling legislation) was appled by the courts

as the correct rude of assessment for property engaged

in interstate and foreign conmereer The value of the

aireraft for tax purposes is thus determined on the

basis of the aetual pliysical presence of the aireraft

inthe County. This is the rule announeed in the Flying

=< oe

Tiyer case and we see no valid reason to question the

County's power to levy an apportioned tax in the face

of the Sipreme Court’s assumption that such power

exists.

The tax is not invalid under the Constitution of

the United States or this State, nor does the City or

County lack legal authority to levy it. The judgment

must therefore be reversed,

The judgment is reversed with directions to enter

judgement for the defendants. ;

FOX, P. J.

We concur:

ASHBURN. J.

RICHARDS, J. Pro tempore. —

APPENDIX “C”

Convention and Protocol

Between the United States of America and Sweden

[ot Stat. 1709, US. Treaty Series No. 9ds|

(Ratification advised by the Senate of the United

States August 2, 1939; ratified by President of the

United States September 8, 1939: ratified by Sweden

Aucust 21, 1939; effective January 1. 1940.)

By rue PRESIDENT oF THE UNITED STATES OF AMERICA

A PROCLAMATION

Whereas a convention between the United States

of America and Sweden for the avoidance of double

taxation and the establishment of rules of reeiprocal

administrative assistance in the case of income and

other taxes, and a protocol fortuing an integral part of

the said convention, were concluded and signed by ther

respective Plenipotentiaries at Washington on the

twenty-third day of March, one thousand nine hundred

and thirty-nine, the original of which convention ane

protocol being in the Knelish and Swedish languaves,

are word for word as follows [the Swedish version is

omitted herefrom ] :

The President of the United States of American and

His Majesty the King of Sweden, being desirous of

avoiding double taxation and of establishime rules of

ee, Oem

reciprocal administrative assistance in the case of in-

come and other taxes, have decided to eonclude a Con-

vention and for that purpose have appointed as their

respective Plenipotentiaries :—

The President of the United States of America:

Sumner Welles, Acting Secretary of State of the

United States of America: and

His Majesty the King of Sweden:

W. Bostrém, Envoy Extraordinary and Minister

Plenipotentiary at Washington:

who, having communicated to one another their full

powers found in good and due form, have agreed upon

the following Articles:

Article ]

The taxes referred to in this Convention are:

(a) In the case of the United States of America:

(1) The Federal income taxes, including sur-

taxes and excess-profits taxes.

(2) The Federal capital stock tax.

(b) In the case of Sweden:

(1) The Natienal income and property tax.

ineluding surtax.

(2) The National special property. tax.

(3) The communal income tax.

a.

[t is mutually agreed that the present Convention

shall also apply to any other or additional taxes. im.

posed by either contracting State. subsequent to the

date of signature of this Convention. Upon substantially

the same bases as the taxes enumerated herein.

The benefits of this Convention shall acerne only

to citizens and residents of the United States of Amer-

lea, to Citizens and residents of Sweden and te Cited

States or Swedish corporations and other entities.

Article IT]

An enterprise of one of the contracting States is

hot subject to taxation by the other contracting State

In respect of its industrial and commercial profits ex-

cept in respect of such profits allocable to its permanent

establishment in the latter State. The Income thus

taxed in the latter State shall be exempt frome taxation

In the former State.

No account shall be taken. in determining the tax

In one of the contracting States, of the mere purchase

of merchandise effected therem by an enterprise of

the other State.

The competent authorities of the two contractine

States may lay down rules by agreement for the ap-

portionment of industrial and commercial profits,

pai.

Article Il

When an enterprise of one of the contracting States,

by reason of its participation in the management or

‘apital of an enterprise of the other contracting State,

inakes or imposes on the latter in their commercial or

financial relations conditions different from those

which would be made with an independent enterprise,

any profits which should normally have appeared in

the balance sheet of the latter enterprise but which have

been in this manner diverted to the former enterprise

may, subject to applicable measures of appeal, be in-

corporated in the taxable profits of the latter enter-

prise. In such case consequent rectifications may be

made in the accounts of the former enterprise.

Article IV

Income which an enterprise of one of the contract-

ing States derives from the operation of ships or air-

craft registered in that State is taxable only in the

State in which registered. Income derived by such an

enterprise from the operation of ships or aircraft not

so registered shall be subject to the provisions of Ar-

ticle If. |

Article V

Income of whatever nature derived from real prop-

erty, including gains derived from the sale of such prop-

ity. but not including interest from mortgages or

—j}—

bonds secured by real property, shall be taxable ons

In the contracting State in which the real property is

situated.

Article VJ

Royalties from real property or in respeet of the

operation of mines, quarries, or other natural resources

shall be taxable only in the contracting State in whieh

such property, mines, quarries, or other natural re-

sources are situated.

Other royalties and amounts derived from within

one of the contracting States by a resident or by a cor-

poration or other entity of the other contracting State

as consideration for the right te use copyrights, pat-

ents, seeret processes and formulas. trade-marks and

other analogous rights, shall be exempt from taxation

In the former State.

Article VII

I. Paividends shall be taxable only In the contract-

ing State in which the shareholder is resident or. if the

shareholder is a corporation or other entity. in the con.

tracting State in which said corporation or other en-

tity is created or organized: provided. however, that

each contracting State reserves the right to collect and

retain (subject te applicable provisions of its revenue

laws) the taxes whieh. under its revenue laws, are de-

ductible at the seures. but not im exeess of 10 per

eentum of the amount of sueh dividends, Por the por.

alien

poses of this Article the National income and prop-

erty tax imposed by Sweden shall be deemed to be a

tax deducted at the source.

2. Notwithstanding the provisions of Article XN NII

of this Convention, the provisions of thi. \rticle may

be terminated by cither of the contracting States at

the end of two years from the date upon which this

Convention enters tito force or at any time thereafter,

provided at least six months® prior notice of termina-

tion is given, such termination to become effeetive

on the first day of January following the expiration

of such six-month period. In the event the provisions

of this Article are terminated, the provision of—

(1) Article NITT (2), in so far as they relate

to the special property tax imposed by Sweden

upon shares in a corporation ;

(2) Article NTV (b) (2), relating to the al-

lowance of an additional deduction from taxes on

dividends; and

(3) <Article NVI, in so far as they relate to

exchange of information with respect to dividends,

will likewise terminate.

Article VIII

Interest on bonds, notes, or loans shall be taxable

only in the contracting State in which the recipient

of such interest is a resident or, in the case of a cor-

poration or other entity, in the State in which the cor

poration or other entity is created or organized; pro-

¥

cine i

Vided, however, that each contracting State reserves

the right to collect and retain (subject to applicable

provisions of its revenue laws) the taxes which, under

its reventie laws, are deductible at the source.

Article LN

Gains derived mi one of the contracting States from

the sale or exchange of capital assets by a resident or

a corporation or other entity of the other contracting

State shall be exempt from taxation in the former State,

provided such resident or corporation or other entits

has no pertuanent establishment in the former State.

é

Article NX

Waves, salaries and similar compensation and pen-

sions pauld by one of the contracting States or by the

political subdivisions or territories oF possessions there:

of to individuals residing in the other State shall be

exempt from taxation in the latter State.

Private pensions and life annuities derived) from

Within one of the contracting States and paid to midi.

viduals residine in the other contracting State shall be

exempt from taxation in the former State.

Artiele Al

(a) Compensation for labor or personal services,

Including the practice of the liberal professions, shall

be taxable only in the contracting State in which such

serviees are rendered.

ies

(b) ‘The provisions of paragraph (a) are, however,

subject to the following exceptions :

A resident of Sweden shall be exenwt from United

States tax upon compensation for labor or personal

services performed within the United States-of Amer-

lea if he falls within either of the following ¢lassifica-

tions:

lL. He is temporarily present within the United

States of America for a peried or periods not ex-

ceeding a total of one hundred eighty days during

the taxable year and his compensation is received

for labor or personal services performed as an

employee of, or under contract with, a resident or

corporation or other entity of Sweden; or

2. He is temporarily present in the United

States of America for a period or periods not ex-

ceeding a total of ninety days during the taxable

year and the compensation received for such ser-

vices does hot exceed $3,000.00 in the aggregate.

In such cases Sweden reserves the right to the taxation

of such income.

(¢) The provisions of paragraph (b) of this Ar-

ticle shall apply, mutatis mutandis, to a resident of

the United States of America deriving compensation

for personal services performed within Sweden.

(d) The provisions of paragraphs (b) and (Ce) of

this Article shall have no application to the professional

earings of such individuals as actors, artists. musi-

elans and professional athletes,

seal

(e) ‘The provisions of this Article shail have ne

application to the income to which Article X relates.

Article XII

Students or business apprentices from: one contract-

Ing State residing in the other contracting State ex-

elusively for purposes of study or for acquiring busi-

ness experience shall not be taxable by the latter State

In respect of remittances received by them from within

the former State for the purposes of their maintenance

or studies.

Article NTI]

In the case of taxes on property or merement of

property the following provisions shall be applicable:

(1) If the property consists of :

(a) Immovable property and accessories ap-

pertaining thereto:

(b) Commereial or industrial enterprises, m-

cluding maritime shipping and air transport un-

dertakings:

the tax may be levied only in that contracting State

which is entitled under the preceding Articles to tax

the Income from such property.

(2) In the case of all other forms of property, the

tax may be levied only mi that contracting State where

the taxpayer has his residenes or, in the case of a cor.

poration or other entity. in the contracting State where

the corporation or other entity has Keen created or or-

vanized.

The same principles shall apply to the United States

capital stock tax with respect to corporations of Sweden

having capital or other property in the United States

of America.

Article NIV

It is agreed that double taxation shall be avuided

in the following manner:

(a) Notwithstanding any other provision of this

Convention, the United States of America in determin-

ing the income and excess-profits taxes, including all

surtaxes, of its citizens or residents or corporations,

may include in the basis upon which such taxes are

imposed all items of Income taxable under the revenue

laws of the United States of America as though this

Convention had not come into effect. The United States

of America shall, however, deduct the amount of the

taxes specified in Article I (b)(1) and (3) of this Con-

vention or other like taxes from the income tax thus

computed but not in excess of that portion of the in-

come tax hability which the taxpayer's net income tax-

able in Sweden bears to his entire net ineome.

(b)(1) Notwithstanding any other provision of

this Convention, Sweden, in determining the graduated

fax on income and property of its residents or corpor-

ations or other cnatities, may include in the basis Upon

Which such tax is imposed all items of income and prop-

meee ae

erty subject to such tax under the taxation laws of

Sweden. Sweden shall, however, deduct from the tax

so calculated that portion of such tax liability. which

the taxpayer's income and property exempt from: tax.

ation in Sweden under the provisions of this Conven

tion bears to his entire income and property.

(2) There shall also be allowed by Sweden from

Its National income and property tax a deduction of f-

setting the tax deducted at the source in the United

States of America, amounting to not less than 5 per

eentum of the dividends from within the United States

of America and subject to such tax in Sweden. It is

agreed that the United States of America sha! allow

a similar credit against the United States imeccse tay

liability of citizens of Sweden residing in the United

States of America.

Artielo XV

With a view to the more effective tmiposition of the

taxes to Which the present Convention relates, each of

the contracting States undertakes. subject to reciproc-

itv. to furnish such information in the matter of tax-

ation, Which the authorities of the State conceermed

have at their disposal er are in a posttion to obtain

under their own law, as may be of use to the authorities

of the other State in the assessment of the taxes in

question and to lend assistanee in the serviee of doeu-

ments i connection therewith. Sueh information and

correspondence relating te the subjeet matter of this

oe en

Article shall be exchanged between the competent au-

thorities of the contracting States in the ordinary

course or on demand.

Article XV]

lL. In accordance with the preceding Article. th)

competent authorities of the United States of Amey

lca shall forward to. the competent authorities of

Sweden as soon as practicable after the close of each

calendar vear the following information relating td

such calendar year:

(a) The names and addresses of all addressees

Within Sweden deriving from sources Within the

United States of America dividends, interest, roval-

ties, pensions, annuities, or other fixed or deter-

minable annual or periodical income, showing the

amount of such income with respect to each ad-

dressee ;

(b) Any particulars which the competent

United States authorities may obtain from banks.

savings banks or other similar institutions eon-

cerning assets belonging to individuals resident in

Sweden or to Swedish corp .ations or other en-

tities;

(ec) Any particulars which the competent

United States authorities may obtain from inyen-

tories in the case of property passing on death

concerning debts contracted With individuals res-

ident in Sweden or Swedish corporations or other

entities,

~—-]5-

2. The competent authorities of Sweden shall ter

ward to the competent authorities of the United States

of America as soon as practicable after the close uf

each calendar year the following information relatine

to such calendar vear:

(a) The particulars contamed on the ferns

delivered to the Swedish authorities im conneetion

With the payment to individuals or corporations

or other entities whose addresses are within the

United States of America of dividends on shares i,

a corporation or participation cemtifientes in ee

operative societies, and interest on bonds or other

snilar securities :

(by) The particulars contained im pertiits ae

corded to individuals resident in the United States

of America or to United States corporations oF

other entities te enable them to acquire for busi

Ness purposes innnevable property situated in

Sweden ; :

(CO) Any partieulers whieh the central Swed

ish authorities may obtain frome banks. savines

banks or other similar institutions coneeming as:

sets belonging to dividuals resident in the United

States of America or to Cited States corporations

or other entities:

(d) Ans particulars whieh the central Swed

ish authorities may obtain from inventories in the

case of property passing on death, concerning debts

contracted with individuals resident im the United

States of America.cor United States corporations

or other entities;

(e) AN List of the mames and addresses of all

Cinted States citizens resident inthe United States

am

of America whe have made declerations to the

Central Committee in Steekholm in charge of the

taxation of taxpayers not resident in Sweden for

purposes of the Swedish tax on ineome and }Prop-

eIty;

(f) Particulars conceruing annuities and pen-

slons, publie or private, paid to individuals resi.

dent in the United States of America,

Article XVJ]

Fach contracting State undertakes, in the case of

citizens oF cerporations or other entities of the other

contracting State, to lend assistance and support in the

collection of the taxes to which the present Convention

relates, together with interest. costs and additions to

the taxes and fines not being of a penal character. The

contracting State making such collection shall be re-

sponsible to the other contracting State for the sums

thus collected.

In the case of applications tor enforcement of taxes,

revenue Claims of each of the contracting States which

have been finally determined shall be accepted for en-

forcement by the other contracting State and collected

In that State in accordance with the laws applicable to

the enforcement and collection of its own taxes. The

State to which application is made shall not be required

fo enforce executory measures for Which there is ie

Provision in the law of the State making the appliea-

hori.

ee

The applreations shall be gecompauied by stieti dew

Uinehts as are required b\ the laws of the State niaking

the application te establish that the taxes have been

Minally determined,

?

Lf the/revenue chum has net been tincdly detertuiiied

the State to whieh application is quade May. at the

request of the other contracting State, take sueh me:

ures of COMSErVAey as are authorized by the revenue

laws of the fortier State.

Article NVall

‘Phe colupetent authority of each of the contracting

States shall be entitled to obtain, through diplomatic

channels, froni the competent authority of the other

contracting State. particulars in concrete cases relative

to the appheation to citizens oF to Corporations of other

entities of the former State, of the taxes to wlich the

present Convention relates. Wath respect to partieu

lars in other cases, the competent authority of cach of

the contracting States will give consideration to re-

quests from the competent authearity of the other con

tracting State.

Articles NIX

~~ +

In ne case shall the provisions of Article NVI ren

lating to mutual assistance in the colleetion of taxes.

orof Article NVIET. relating to particulars in conerete

eases, be construed so as to Tapese Upon either of the

contracting States the obligation

ee.

(1) to carry out administrative measures at vari-

ance with the regulations and practice of either con-

tracting State, or

(2) tosupply particulars which are not procurable

under its own legislation or that of the State making

application.

The State to which application is made for infor-

mation or assistance shall comply as soon as possible

with the request addressed to it. Nevertheless, sueh

State may refuse to comply with the reque: ~ for rea-

sons of public policy or if compliance would involve

violation of a business, industrial or trade secret or

practice. In such case it shall inform, as soon as pos-

sible, the State mking the application.

Article XX

Where a taxpayer shows proof that the action of

the revenue authorities of the cont ‘acting States has

resulted in double taxation in his case in respect of

any of the taxes to which the present Convention re-

lates, he shall be entitled to lodge a claim with the State

of which he is-a-citizen or, if he is not a citizen of either

of the contracting States, with the State of which he

isa resident, or, if the taxpayer is a corporation or

other entity, with the State in which it is created or

organized. Should the elaim be upheld, the competent

authority of such State may come to an agreement with

the competent authority of the other State with a view

— , ae

to equitalle avoidance of the double taxation im ques-

tion.

Article NX]

The colnpetoeit authorities of the two contracting

States tay preserive resulatious ueeessary to interpret

and carry out the provisions ot this Convention, With

respect to the provisions of this Convention relating

to exchaie of information, service of documents and

mutual assistance in the collection of taxes. sueh au.

thorities may, by common agreement. preseribe rules

concerning matters of procedure, fora. of applention

and replies thereto, conversion of cucieney, disposition

of amounts collected, minimis amounts subject to col-

lection and related matters. |

Article NNJ/

The present Convention shall be ratifies. in the

case of the United States of America, by the Peosident,

by and with the advice and consent of the Senate. and

In the case of Sweden. by This Mojesiv che Kone. with

the consent of the Riksdag. The ratifications shall be

exchanged at Stockholm.

This Convention shall become offeetive on the first

|

day of January following the exchanwe of the tnstimar

ments of ratification and shalbappls to fice ie peslizged

and property held on or after that date. The Consens

tion shall remam in foree for a period of fee cenps

and indefinitely thereafter but may he terminated by

—18—

either contracting State at the end of the five-vear

period or at any time thereatier, provided at least six

months* priv? notice of termination has Leen een, the

termination to become eifective on the first day of

January following the expiration of the six-month

period. -

In witness whereof the respective Plenipotentiaries

have signed this Convention and have affixed their

seals hereto.

Done in duplicate, in the English and Swedish lan-

guages, both authentic, at Washington, this twenty-

third day o? March, nineteen hundred and thirty-nine.

For the President of the United States of America:

SUMNER WELLES [SEAL]

For His Majesty the King of Sweden:

W. Bostréim — [seat]

a ee

PROTOCOL,

At the moment of signing the Convention for the

avoidance of double taxation, and the establishment of

rules of reetprocal adiiinistrative assistance in the case

of income and other taxes, this day concluded between

the United States of America and Sweden, the under:

signed Plenipotentiaries have agreed that the following

provisions shall forme an integral part of the Conven-

tion:

(1) As used in this Convention:

(a) The term “permanent establishment” in

eludes branches, mines and oil wells. plantations,

factories, workshops, warchouses, of flees, agencies,

iInstallacions, and other fixed places of business of

an enterprise but does not melude the casual or

temporary use of merely storage facilities. A per-

manent establishment of a subsidiary corporation

shall not be deemed to be a permanent establish-

ment of the parent corporation, When an enter

prise of one of the contracting States carries on

business in the other Stete through an emplovee

oragent, established there, who has general author

itv to contract for his employer or primeipal. it

shall be deemed to have a permanent establishment

in the latter State. But the fact that an enterprise

of one of the contracting States has business deal-

ines in the other State through .a bona fide com-

mission agent, broker or custodian shall not be

held to mean that such enterprise has a permanent

establishment in the latter State.

—20—

(b) The term “enterprise” includes every

form of undertaking whether corried on by an in-

dividual, partnership, corporation, or any other

entity.

(c) The term ‘enterprise of one of the con-

tracting States" means, as the case may be," United

States enterprise”’ or “Swedish enterprise.”

' (d) The term “United States enterprise”

means an enterprise carried on in the United

States of America by a resident of the United

States of America or by a United States corpor-

ation or other entity; the term ‘* United States cor-

poration or other entity’’ means a partnership,

corporation or other entity created or organized

in the United States of America or under the law

of the United States of America or of any State

or Territory of the United States of America.

(e) The term “Swedish enterprise” is defined

in the same manner, mutatis mutandis, as the term

— States enterprise.”

2. The term ‘‘corporation’’ includes associations.

joint-stock companies, and insurance companies.

3. <A citizen of one of the contracting States not

residing in either shall be deemed, for the purpose of

this Convention, to be a resident of the contracting

State of which hes a citizen.

When doubt arises with respect to residence or with

respect to the taxable status of corporations or other

entities, the competent authorities of the two contract-

ing States may settle the question by mutual agreement,

—?}—

4. The Provisions of Swedish law concerning the

taxation of the undivided estates of deceased persons

shall not apply where the benefierries are directly

liable te taxation in the United States of America.

>. The term lite annuities” referred to an Article

\ of this Convention means a stated stim payable per

odically at stated times during life, or durtag a spect

fied number of vears, under an obligation to make

the payvinents in consideration of a gross sim paid for

such obligation.

6. The Swedish so-called ‘fees tax” Chevillmings-

aveift for vissa offentlga forestallningar) based on

gross income in ose far as it affeets such individuals

as actors, artists, musicians and professional athletes

shall be deemed to be an income tax for the purposes

of Article NIV (a).

The credit for taxes provided in Article NTV shall

have no application to taxes deducted at the source

from dividends and interest except to the extent pro-

vided in paragraph (b) (2) of that Article.

In the application of the provisions of this Conven-

tion the benefits of section I3t of the United States

Revenue Act of 1938, relating to eredits for foreign

taxes, shall be accorded. but the credit provided for ii

Article XTV (a) shall not extend to United States

exeess-profits taxes nor te the sur-tax imposed on per-

sonal holding companies.

—

st eee

Citizens of each of the contracting States re-

siding within the other contracting State shall not be

subjected, in the latter State to other or higher taxes

than are imposed upon the citizens of such latter State.

8. The provisions of this Convention shall not be

construed to deny or affect in any manner the right

of diplomatic and consular officers to other or addi-

tional exemptions now enjoyed or which may hereafter

be granted to such officers, nor to deny to either of

the contracting States the right to subject to taxation

its own diplomatic and consular officers.

9. The provisions of the present Convention shall

not be construed to restrict in any manner any exemp-

tion, deduction, credit or other allowance accorded by

the laws of one of the contracting States in the deter-

mination of the tax imposed by such State.

10. In the administration of the provisions of this

Convention relating to exchange of information, service

of documents, and mutual assistance in collection of

taxes, fees and costs incurred in the ordinary course

shall he borne by the State to which application is made

but extraordinary costs incident. to special forms of

procedure shall be home by the applying State.

It. Documents and other communications or in-

formation contained therein, transmitted under the pro-

Visions of this Convention by one of the eontracting

States to the other contracting State shall not be pub-

lished, revealed or disclosed to any person except. to

”

an | oie

the extent permitted under the laws of the latter State

with respect to similar documents, communications of

information.

1. As used with respect te revenne claims my Ar

ticle XVIL of this Convention the term ‘finally de-

termined” shall be deemed to mean:

(a) In the case of Sweden, claims which have

been finally established, even though still open te

revision by exceptional procedure ;

(b) Inthe case of the United States of Auner-

ica, Claims Which are no longer appealable, or which

have bee determined by decision of a competent

tribunal, which decision has become final.

13. As used in this Convention the term: “con

petent authority” or ‘competent authorities © Mieans,

in the case of the United States of America, the Seere-

tary of the Treasury and in the case of Sweden, the

Finance Ministry.

14. The term United States of America” as used

in this Convention in a geographical sense includes

only the States, the Territories of Alaska and Hawai,

and the District of Columbia.

15. Should any difficulty or doubt arise as to the

interpretation or application of the present Convention,

or its relationship to Conventions between one of the

contracting States and any other State, the competent

authorities of the contracting States may settle the

question by mutual agreement,

—

16. The present Convention and Protoco! shall not

he deemed to affect the exchange of notes between the

United States of America and Sweden providing relief

from double income taxation on shipping profits,

signed, March 31, 1938.

Done at Washington. this twenty-third day of

March, nineteen hundred and thirty-nine.

SUMNER WELLES [SEAL |

W. Bostkém = [ SEAL ]

AND WHEREAS the said convention and the said protocol

have been duly ratified on both Parts and the ratifications

of the two Governments were exchanged at Stockholm on

the fourteenth day of November, one thousand nine hundred

and thirty-nine;

AND WHEREAS, as is provided in Article XXII, the said

convention shall become effective on the first day of Jan-

uary following the exchange of the instruments of ratifica-

tion;

Now, THEREFORE, be it known that I, Franklin D. Roose-

velt, President of the United States of America, have Caused

the said convention and the said protocol to be made public

to the end that the same and every article, clause and part

thereof may be observed and fulfilled with good faith by

the United States of America and the citizens thereof on

and from the first day of January, one thousand nine hun-

dred and forty.

i

IN TESTIMONY WHEREOF, I have hereunder set my hand

and caused the Seal of the United States of America to be

affixed.

Done at the Cit, of Washington this twelfth day of

December, in the vear of our Lord one thousand

(seaL] nine hundred and thirty-nine, and of the Inde-

pendence of the United States of America the one

hundred and sixty-fourth.

FRANKLIN D. ROOSEVELT

By the President:

CorveLt HuLi

Secretary of State.