JAPAN LINE, LTD., ET AL. v. COUNTY OF LOS ANGELES
441 U.S. 434; 99 S. Ct. 1813 (1979)
JUSTICE BLACKMUN delivered the opinion of the
Court.
[1A]
This case presents the question whether a
State, consistently with the Commerce Clause of the Constitution, may
impose a nondiscriminatory ad valorem property tax on foreign-owned
instrumentalities (cargo containers) of international commerce.
I
Appellants are six Japanese shipping companies; they are
incorporated under the laws of Japan, and they have their principal places of
business and commercial domiciles in that country. Appellants operate vessels
used exclusively in foreign commerce; these vessels are registered in Japan and
have their home ports there. The vessels are specifically designed and
constructed to accommodate large cargo shipping containers. The containers,
like the ships, are owned by appellants, have their home ports in Japan,
and are used exclusively for hire in the transportation of cargo in foreign
commerce. Each container is in constant transit save for time spent undergoing
repair or awaiting loading and unloading of cargo. All appellants' containers
are subject to property tax in Japan and, in fact, are taxed there.
Appellees are political subdivisions of the State of California.
Appellants' containers, in the course of their international journeys, pass
through appellees' jurisdictions intermittently. Although none of appellants'
containers stays permanently in California, some are there at any given time; a
container's average stay in the State is less than three weeks. The containers
engage in no intrastate or interstate transportation of cargo except as
continuations of international voyages. Any movements or periods of nonmovement
of containers in appellees' jurisdictions are essential to, and inseparable
from, the containers' efficient use as instrumentalities of foreign commerce.
Property present in California on March 1
(the "lien date" under California law) of any year is subject to
ad valorem property tax. A number of appellants' containers were physically
present in appellees' jurisdictions on the lien dates in 1970, 1971, and 1972;
this number was fairly representative of the containers' "average
presence" during each year. Appellees levied property taxes in excess of $
550,000 on the assessed value of the containers present on March 1 of the three
years in question. During the same period, similar containers owned or controlled by steamship companies
domiciled in the United States, that appeared from time to time in Japan during
the course of international commerce, were not subject to property taxation in
Japan, and therefore were not, in fact, taxed in that country.
Appellants paid the taxes, so levied, under protest and sued for their refund in the Superior Court for the County of Los
Angeles. That court awarded judgment in appellants' favor (Japanese firms).
The court found that appellants' containers were instrumentalities of foreign
commerce that had their home ports in Japan where they were taxed. The federal
courts, however, in the trial court's view, had "consistently held that
vessels which are instrumentalities of foreign commerce and engaged in foreign
commerce can be taxed in their home port only." This rule, said the court,
was necessary to avoid multiple taxation;
whereas apportionment of taxes can be used to prevent duplicative
taxation in interstate commerce, apportionment is "not practical" when one of the taxing entities is a foreign
sovereign. In such cases, "[there] is no tribunal that can adjudicate
[competing] rights unless it be the International Court and to invoke its
services jurisdiction must be consented to by all parties." The
application of appellees' taxes in derogation of the "home
port doctrine," the court concluded, subjected international
commerce to multiple taxation and thus was unconstitutional under the Commerce
Clause.
[2A]
The Court of Appeal reversed. …. The court likewise dismissed any
argument as to multiple taxation. "[The] possibility of international
double taxation of instrumentalities of foreign commerce," it concluded,
is "no reason to limit the local power to tax them upon a
nondiscriminatory apportioned basis.”
The California Supreme Court granted a hearing of the case and it, too,
reversed the judgment of the Superior Court, essentially adopting the opinion
of the Court of Appeal. It concluded that "the threat of double
taxation from foreign taxing authorities has no role in commerce clause
considerations of multiple burdens, since burdens in international commerce are
not attributable to discrimination by the taxing state and are matters for
international agreement. Deeming the containers' foreign ownership and use
irrelevant for purposes of constitutional analysis, , the court rejected appellants' Commerce
Clause challenge and sustained the validity of the tax as applied. n4
[6A]
The Constitution provides that "Congress shall have Power . . . To
regulate Commerce with foreign Nations, and among the several States, and with
the Indian Tribes." Art. I, § 8, cl. 3. In construing Congress' power to
"regulate Commerce . . . among the several States," the Court
recently has affirmed that the Constitution confers no immunity from state
taxation, and that "interstate commerce must bear its fair share of the
state tax burden."
…. The premise of appellees' argument is that the Commerce Clause analysis is
identical, regardless of whether interstate or foreign commerce is involved.
This premise, we have concluded, must be rejected. When construing Congress'
power to "regulate Commerce with foreign Nations," a more extensive
constitutional inquiry is required.
[7]
When a State seeks to tax the instrumentalities of foreign commerce, two additional considerations, beyond those
articulated in Complete Auto, come into play. The
first is the enhanced risk of multiple taxation. It is a commonplace of
constitutional jurisprudence that multiple taxation may well be offensive to
the Commerce Clause. In order to prevent multiple taxation of interstate
commerce, this Court has required that taxes be apportioned among taxing
jurisdictions, so that no instrumentality of commerce is subjected to more than
one tax on its full value. The corollary of the apportionment principle, of course,
is that no jurisdiction may tax the instrumentality in full. "The rule
which permits taxation by two or more states on an apportionment basis
precludes taxation of all of the property by the state of the domicile. . . .
Otherwise there would be multiple taxation
of interstate operations."
Yet neither this Court nor this Nation can ensure full apportionment when
one of the taxing entities is a foreign sovereign. If an instrumentality of
commerce is domiciled abroad, the country of domicile may have the right,
consistently with the custom of nations, to impose a tax on its full value. n11
If a State should seek to tax the same instrumentality on an apportioned basis,
multiple taxation inevitably results. Hence, whereas the fact of apportionment
in interstate commerce means that "multiple burdens logically cannot
occur," the same conclusion, as to
foreign commerce, logically cannot be drawn. Due to the absence of an
authoritative tribunal capable of ensuring that the aggregation of taxes is
computed on no more than one full value, a state tax, even though "fairly
apportioned" to reflect an instrumentality's presence within the State,
may subject foreign commerce "'to the risk of a double tax burden to which
[domestic] commerce is not exposed, and which the commerce clause forbids.' “
Second, a state tax on the instrumentalities of foreign commerce may
impair federal uniformity in an area where federal uniformity is essential.
Foreign commerce is preeminently a matter of national
concern. "In international relations and with respect to foreign
intercourse and trade the people of the United States act through a single
government with unified and adequate national power. Although the Constitution,
Art. I, § 8, cl. 3, grants Congress power to regulate commerce "with
foreign Nations" and "among the several States" in parallel
phrases, there is evidence that the Founders intended the scope of the foreign
commerce power to be the greater. n12 Cases of this Court, stressing the need
for uniformity in treating with other nations, echo this distinction. n13 In
approving state taxes on the instrumentalities of interstate
commerce, the Court consistently has distinguished oceangoing traffic, supra,
at 442; these cases reflect an awareness that the taxation of foreign commerce
may necessitate a uniform national rule. Indeed, in Pullman's Palace, the Court wrote that the "'vehicles of
commerce by water being instruments of intercommunication with other nations,
the regulation of them is assumed by the national legislature.' … The need for
federal uniformity is no less paramount in ascertaining the negative
implications of Congress' power to "regulate Commerce with foreign
Nations" under the Commerce Clause. n14
A
state tax on instrumentalities of foreign commerce may frustrate the
achievement of federal uniformity in several ways. If the State imposes an
apportioned tax, international disputes over reconciling apportionment formulae
may arise. n15 If a novel state tax creates an asymmetry in the international
tax structure, foreign nations disadvantaged by the levy may retaliate against
American-owned instrumentalities present in their jurisdictions. Such
retaliation of necessity would be directed at American transportation equipment
in general, not just that of the taxing State, so that the Nation as a whole
would suffer. n16 If other States followed the taxing State's example, various instrumentalities of
commerce could be subjected to varying degrees of multiple taxation, a result
that would plainly prevent this Nation from "speaking with one voice"
in regulating foreign commerce.
[6B]
For these reasons, we believe that an inquiry more elaborate … a
court must also inquire, first, whether the tax, notwithstanding apportionment, creates a
substantial risk of international multiple taxation, and, second, whether the
tax prevents the Federal Government from "speaking with one voice when
regulating commercial relations with foreign governments." If a state tax
contravenes either of these precepts, it is unconstitutional under the Commerce
Clause.
C
Analysis of California's tax under these principles
dictates that the tax, as applied to appellants' containers, is impermissible.
… it cannot withstand scrutiny under either of the additional tests that a tax
on foreign commerce must satisfy.
First, California's tax results in multiple taxation of the instrumentalities of foreign
commerce. By stipulation, appellants' containers are owned, based,
and registered in Japan; they are used exclusively in international commerce;
and they remain outside Japan only so
long as needed to complete their international missions. Under these
circumstances, Japan has the right and the power to tax the containers in full.
California's tax, however, creates more than the risk of multiple
taxation; it produces multiple taxation
in fact. Appellants' containers not only "are subject to property tax . .
. in Japan," App. 32, but, as the trial court found, "are, in fact,
taxed in Japan." Thus, if appellees' levies were sustained, appellants
"would be paying a double tax." Id., at 23. n17
Second, California's tax prevents this Nation from
"speaking with one voice" in regulating foreign trade.
The desirability of uniform treatment of containers used exclusively in foreign
commerce is evidenced by the Customs Convention on Containers, which the United
States and Japan have signed. Under this Convention, containers temporarily
imported are admitted free of "all duties and taxes whatsoever chargeable
by reason of importation." The Convention reflects a national policy to
remove impediments to the use of containers as "instruments of
international traffic California's tax, however, will frustrate attainment of
federal uniformity. It is stipulated that American-owned containers are not
taxed in Japan. App. 35. California's tax thus creates an asymmetry in
international maritime taxation operating to Japan's disadvantage. The risk of
retaliation by Japan, under these circumstances, is acute, and such retaliation
of necessity would be felt by the Nation as a whole. n18 If other States follow
California's example (Oregon already has done so n19), foreign-owned containers
will be subjected to various degrees of multiple taxation, depending on
which American ports they enter. This result, obviously, would make
"speaking with one voice" impossible. California, by its unilateral
act, cannot be permitted to place these impediments before this Nation's
conduct of its foreign relations and its foreign trade.
Because California's ad valorem tax, as applied to appellants' containers,
results in multiple taxation of the instrumentalities of foreign commerce, and
because it prevents the Federal Government from "speaking with one
voice" in international trade, the tax is inconsistent with Congress'
power to "regulate Commerce with foreign Nations." We hold the tax, as applied, unconstitutional under the
Commerce Clause.
D
Appellees proffer several objections to this holding. They contend, first, that
any multiple taxation in this case is attributable, not to California, but to
Japan. California, they say, is just trying to take its share; it should not be
foreclosed by Japan's election to tax the containers in full. California's tax,
however, must be evaluated in the realistic framework of the custom of nations.
Japan has the right and the power to tax appellants' containers at their full
value; nothing could prevent it from doing so. Appellees' argument may have
force in the interstate commerce context. ………
Appellees contend, secondly, that any multiple taxation
created by California's tax can be cured by congressional action or by
international agreement. We find no merit in this contention. The premise of
appellees' argument is that a State is free to impose demonstrable burdens on
commerce, so long as Congress has not pre-empted the field by affirmative
regulation. But it long has been "accepted constitutional doctrine that
the commerce clause, without the aid of Congressional legislation . . . affords
some protection from state legislation inimical to the national commerce, and that in such cases, where
Congress has not acted, this Court, and not the state legislature, is under the
commerce clause the final arbiter of the competing demands of state and
national interests. Appellees' argument, moreover, defeats, rather than
supports, the cause it aims to promote. For to say that California has created
a problem susceptible only of congressional -- indeed, only of international --
solution is to concede that the taxation of foreign-owned containers is an area
where a uniform federal rule is essential. California may not tell this Nation
or Japan how to run their foreign policies.
[9]
Finally, appellees present policy arguments. If California cannot tax
appellants' containers, they complain, the State will lose revenue, even though
the containers plainly have a nexus with California; the State will go
uncompensated for the services it undeniably renders the containers; and, by
exempting appellants' containers from tax, the State in effect will be forced
to discriminate against domestic, in favor of foreign, commerce. These
arguments are not without weight, and, to the extent appellees cannot recoup
the value of their services through user fees, they may indeed be disadvantaged
by our decision today. These arguments, however, are directed to the wrong
forum. "Whatever subjects of this [the commercial] power 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 legislation
by Congress. The problems to which appellees refer are problems that admit
only of a federal remedy. They do not admit of a unilateral solution by a
State.
The judgment of the Supreme Court of California is reversed (for Japanese
firms). .
It is so ordered.