Opinion
For Opinion on Hearing, see 227 Cal.Rptr. 391, 719 P.2d 987.
Opinions on pages 224-267 omitted.
Hearings Granted
[199 Cal.Rptr. 441]Ajalat & Polley and Charles R. Ajalat, Terry L. Polley and Richard J. Ayoob, Los Angeles, for plaintiff and appellant.
Mandel, Kavaller & Manpearl and Gerald T. Manpearl and Kent Ten Brink, Los Angeles, as amici curiae on behalf of plaintiff and appellant.
Donald K. Byrne, Chief Deputy County Counsel and Edward G. Pozorski, Deputy County Counsel, Los Angeles, for defendants and respondents.
INTRODUCTION
SPENCER, Presiding Justice.
Plaintiff Star-Kist Foods, Inc. (Star-Kist) appeals from a judgment denying its request that the court order defendants, County of Los Angeles, City of Los Angeles and City of Long Beach, to refund ad valorem taxes paid by plaintiff.
STATEMENT OF FACTS
Plaintiff seeks the refund of ad valorem taxation levied upon tangible personal property, inventories of canned tuna fish, in plaintiff's possession on March 1, 1976. The property had been produced outside the United States, brought into California for shipment out of California, stored at various locations within California for eventual shipment out of California and was for sale in the ordinary course of trade or business.
At trial, plaintiffs based their claim for refund due on Revenue and Taxation Code section 225; section 225 exempts from taxation "property manufactured or produced ... (2) outside of the United States and brought into this state for trans-shipment out of this state, for sale in the ordinary course of trade or business ...." In denying plaintiff's claim, the trial court relied on Zee Toys, Inc. v. County of Los Angeles (1978) 85 Cal.App.3d 763, 149 Cal.Rptr. 750 in which two cases were consolidated, Zee Toys, Inc. v. County of Los Angeles and Sears, Roebuck & Co. v. County of Los Angeles. In Zee Toys, this district determined the County of Los Angeles had standing to assert that section 225 violated the federal constitution and that section 225 did, in fact, violate the federal commerce clause. The Zee Toys decision nullified the exemption provided by section 225.
Los Angeles County taxpayers were required to pay the tax despite the exemption; in no other counties were taxpayers similarly taxed.
Article I, section 8, clause 3 of the United States Constitution provides Congress with the power "[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."
The California Supreme Court denied a petition for hearing on Zee Toys by a vote of 4-3; Zee Toys did not pursue the matter beyond the California Supreme Court. Sears, Roebuck and Company's petition for writ of certiorari in the United States Supreme Court, however, was granted. A per curiam decision was rendered, affirming the California appellate opinion by a 4-4 vote. (Sears, Roebuck & Co. v. County of Los Angeles (1980) 446 U.S. 915, 100 S.Ct. 1848, 64 L.Ed.2d 269.)
CONTENTION
Plaintiff contends the trial court erroneously denied its request for refund due on the basis of the decision in Zee Toys, Inc. v. County of Los Angeles, supra, 85 Cal.App.3d 763, 149 Cal.Rptr. 750.
DISCUSSION
Plaintiff asserts defendants' standing to raise the issue of the unconstitutionality of Revenue and Taxation Code section 225 is barred by the well established rule "[a] municipal corporation, created by a state for the better ordering of government, has no privileges or immunities under the federal constitution which it may invoke in opposition to the will of its creator." (Williams v. Mayor (1933) 289 U.S. 36, 40, 53 S.Ct. 431, 432, 77 L.Ed. 1015; Newark v. New Jersey (1923) 262 U.S. 192, 196, 43 S.Ct. 539, 540, 67 L.Ed. 943.) If the only ground for defendants' standing was its [199 Cal.Rptr. 442] desire to vitiate a statute purportedly unconstitutional, we would agree. On the facts of the case at bar, however, defendants are entitled to be heard, for they have demonstrated a direct economic injury.
Our conclusion is based on the essence of the question of standing, i.e., whether a litigant is able to allege a "personal stake in the outcome." (Baker v. Carr (1962) 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663.) Standing is awarded to the party who is able to allege "injury in fact." (Schlesinger v. Reservists to Stop the War (1974) 418 U.S. 208, 218, 94 S.Ct. 2925, 2931, 41 L.Ed.2d 706.) In this state, standing is awarded to the party who alleges "facts sufficient to establish status as a 'real party in interest.' " (Mendoza v. County of Tulare (1982) 128 Cal.App.3d 403, 414, 180 Cal.Rptr. 347, quoting from Friendly Village Community Assn., Inc. v. Silva & Hill Constr. Co. (1973) 31 Cal.App.3d 220, 224, 107 Cal.Rptr. 123.)
The claim asserted by defendants here differs substantially from that of the "generalized interest of all citizens in constitutional governance." (Schlesinger v. Reservists to Stop the War, supra, 418 U.S. 208, 217, 94 S.Ct. 2925, 2930, 41 L.Ed.2d 706.) Defendants seek neither privilege nor immunity and are, therefore, not barred from standing by the Williams v. Mayor rationale cited ante.
For defendants, compliance with Revenue and Taxation Code section 225 results in the loss of significant revenue in the form of tax dollars. Defendants stand to suffer a direct economic injury, therefore, should we, for any reason, conclude plaintiff is entitled to a tax refund. Faced with the loss of revenue resulting from the operation of section 225, defendants are surely "real part[ies] in interest." (Mendoza v. County of Tulare, supra, 128 Cal.App.3d 403, 414, 180 Cal.Rptr. 347.) Such loss has been recognized as an alternate ground for standing by no less an authority than the United States Supreme Court in Board of Education v. Allen (1968) 392 U.S. 236, 241, fn. 5, 88 S.Ct. 1923, 1925, fn. 5, 20 L.Ed.2d 1060. (See City of South Lake Tahoe v. California Tahoe (1980) 449 U.S. 1039, 1040, fn. 1, 101 S.Ct. 619, 620, fn. 1, 66 L.Ed.2d 502 (dis. opn. of White, J.).)
Having recognized defendants' standing to question the constitutionality of Revenue and Taxation Code section 225, we direct our attention to the propriety of the conclusion reached in Zee Toys, Inc. v. County of Los Angeles, supra, 85 Cal.App.3d 763, 149 Cal.Rptr. 750. Primarily on the basis of United States Supreme Court decisions and the court's articulation of rationale in support thereof rendered subsequent to Zee Toys, we find cause to reach a contrary conclusion; i.e., the exemption provided by section 225 does not violate the commerce clause of the United States Constitution and is, therefore, not unconstitutional.
Initially, we note that the conclusion reached herein is not barred by the Supreme Court's affirmance in Sears, Roebuck and Co., as "an affirmance by an equally divided court [is not] entitled to precedential weight. [Citation.]" (Neil v. Biggers (1972) 409 U.S. 188, 192, 93 S.Ct. 375, 378, 34 L.Ed.2d 401.) Thus, we do not construe the decision in Sears, Roebuck and Co. as requiring a finding that section 225 is unconstitutional. Our reasons for upholding the constitutionality of the contested section are cited below.
The Supremacy Clause of the United States Constitution provides "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof ... shall be the Supreme Law of the Land...." (U.S. Const., art. VI, cl. 2.) The laws of California, therefore, must not conflict with either the commerce clause or the import-export clause. However, "the Constitution imposes no single formula on the States." (Container Corp. v. Franchise Tax Bd. (1983) --- U.S. ----, ----, 103 S.Ct. 2933, 2939, 77 L.Ed.2d 545.) Regardless [199 Cal.Rptr. 443] of whether the validity of a state regulation is measured by the commerce clause or the import-export clause, the need for uniformity in commercial relations with foreign governments is well established. (Japan Line, Ltd. v. County of Los Angeles (1979) 441 U.S. 434, 449, 99 S.Ct. 1813, 1822, 60 L.Ed.2d 336; Michelin Tire Corp. v. Wages (1976) 423 U.S. 276, 285, 96 S.Ct. 535, 540, 46 L.Ed.2d 495.) When dealing with tax measures, however, the state is to be afforded great latitude. (Haman v. County of Humboldt (1973) 8 Cal.3d 922, 925, 106 Cal.Rptr. 617, 506 P.2d 993.) In certain instances, the state may favor a given class. (Stebbins v. Riley (1925) 268 U.S. 137, 142, 45 S.Ct. 424, 426, 69 L.Ed. 884; Haman v. County of Humboldt, supra, 8 Cal.3d 922, 925, 106 Cal.Rptr. 617, 506 P.2d 993.)
Article I, section 10, clause 2 of the United States Constitution precludes any state from laying "Imports or Duties on Imports or Exports...."
Were we to vitiate the exemption provided by section 225, "property manufactured or produced ... outside of the United States and brought into this state for trans-shipment out of this state," during the tax years in question would be subject to ad valorem taxation. However, "a state tax on the instrumentalities of foreign commerce may impair federal uniformity in an area where federal uniformity is essential." (Japan Line, Ltd. v. County of Los Angeles, supra, (1979) 441 U.S. 434, 446-448, 99 S.Ct. 1813, 1820-1821, 60 L.Ed.2d 336.) Were such taxation permissible, one could well expect a proliferation of similar taxation structures in each seaboard state. As a result, that uniformity of policy which is essential to foreign commerce would be disturbed by multiple taxation. In the interests of the uniformity in commercial relations with foreign nations required by both the import-export clause and the commerce clause, seaboard states must either be prohibited from taxing imports and exports on the basis of their place of origin or destination (Michelin Tire Corp. v. Wages, supra, 423 U.S. 276, 285-286, 96 S.Ct. 535, 540-541, 46 L.Ed.2d 495) or be required to provide an exemption from taxes which would threaten that uniformity. The propriety of providing an exemption from state taxation for goods arriving from or destined for a port outside the United States is, therefore, consistent with both the import-export clause and the commerce clause unless a finer basis for invalidation exists.
The opinion expressed herein addresses only the propriety of the exemption provided by section 225; we do not address the propriety of the ad valorem tax itself.
In order to determine whether section 225 conflicts with the commerce clause, we must consider whether section 225 applies "to an activity with a substantial nexus with [California], is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State." (Complete Auto Transit, Inc. v. Brady (1977) 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed.2d 326.) In addition, because section 225 entails commerce with foreign nations, we must assess the risk of international multiple taxation and the extent to which the Federal Government is precluded from "speaking with one voice." (Japan Line, Ltd., supra, 441 U.S. 434, 451, 99 S.Ct. 1813, 1823, 60 L.Ed.2d 336.)
There can be no doubt, the exemption provided by section 225 is tied "to an activity with a substantial nexus with" California. Absent the exemption, California ports stand to lose a large share of import and warehousing business to other Pacific Northwest or inland ports of entry where the cost of labor, warehousing and taxation may be lower. For the same reasons, the exemption is clearly "related to [those] services provided by the State" which pertain to the efficient operation of local ports of entry, services which support the state's legitimate interest of encouraging commerce by levying taxes and creating exemptions thereto. (See Boston Stock Exchange v. State Tax Comm'n (1977) 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514.) Such interests may justify taxation measures and exemptions thereto, for "a statute which encourages the location within the State of needed and useful industries by exempting them, though not also others, [199 Cal.Rptr. 444] from its taxes is not arbitrary ...." (Allied Stores of Ohio v. Bowers (1959) 358 U.S. 522, 528, 79 S.Ct. 437, 441, 3 L.Ed.2d 480.)
Moreover, the validity of section 225 does not entail an issue of questionable apportionment, i.e., an inquiry into whether the effect of a tax is reasonably and fairly related to the presence of a commercial activity within the state. (Memphis Gas Co. v. Stone (1948) 335 U.S. 80, 68 S.Ct. 1475, 92 L.Ed. 1832.) As we are not assessing whether the extent of a commercial burden is reasonably related to the presence of a business interest in California, we need inquire no further into apportionment of a burden.
In addition, we find no evidence that section 225 discriminates against interstate commerce. It is well established that the commerce clause does not preclude all state regulation; areas of commercial regulation not preempted by the federal government may be amenable to regulation by the state. (Cooley v. Board of Wardens of Port of Philadelphia et al. (1851) 12 How. 299, 319, 13 L.Ed. 996.)
In order to determine whether a tax is discriminatory, it is necessary to examine the entire tax structure of the state. (Washington v. United States (1983) 460 U.S. 536, 103 S.Ct. 1344, 75 L.Ed.2d 264; Phillips Co. v. Dumas School Dist. (1960) 361 U.S. 376, 383, 80 S.Ct. 474, 479, 4 L.Ed.2d 384.) In the absence of congressional action, only the "clearest constitutional mandate" justifies the denial of a state's taxing power. (Washington v. United States (1983) 460 U.S. 536, 103 S.Ct. 1344, 75 L.Ed.2d 264, quoting from Michelin Tire Corp. v. Wages, supra, 423 U.S. 276, 293, 96 S.Ct. 535, 544, 46 L.Ed.2d 495.) Whether a tax is impermissibly discriminatory depends upon the economic burden which results therefrom. (Washington v. United States, supra, 460 U.S. 536, 103 S.Ct. 1344, 75 L.Ed.2d 264.)
The practical effect of the contested section is to encourage the use of California's ports by California and non-California based manufacturers and producers who import foreign goods through California ports for trans-shipment to other states or who export goods manufactured or produced in other states through California to ports outside the United States. It is essential to note that the ineligibility applies equally to California and non-California business entities. Thus, the only producer or manufacturer who is ineligible for the exemption is a producer or manufacturer using California ports for shipment of goods produced or manufactured in California to foreign countries or for receipt of goods from foreign countries for use in California operations. The California business, however, which imports goods from foreign countries for trans-shipment to other states or who exports goods manufactured in other states through California ports is entitled to the exemption just as is an out-of-state business engaged in the same trade.
Thus, section 225 clearly does not "prohibit the flow of interstate goods, place added costs upon them, or distinguish between in-state and out-of-state companies in the retail market." (Exxon Corp. v. Governor of Maryland (1978) 437 U.S. 117, 125, 98 S.Ct. 2207, 2213, 57 L.Ed.2d 91.) In the absence of any of these factors, we find section 225 provides no advantage to local business; thus, we do not find the discriminatory effect which would constitute a violation of the commerce clause. (Ibid; Maryland v. Louisiana (1981) 451 U.S. 725, 101 S.Ct. 2114, 68 L.Ed.2d 576.) This is not an instance where "the effect of a state regulation is to cause local goods to constitute a larger share, and goods with an out-of-state source to constitute a smaller share, of the total sales in the market ...." (Exxon Corp. v. Governor of Maryland, supra, 437 U.S. 117, 126, fn. 16, 98 S.Ct. 2207, 2214, fn. 16, 57 L.Ed.2d 91.)
As section 225 provides an exemption from tax rather than the imposition of such a burden, the risk of international multiple taxation is non-existent. Moreover, as noted ante, the exemption does not interfere with the federal government's "one voice" [199 Cal.Rptr. 445] regulating our nation's foreign affairs. (Japan Line, Ltd., supra, 441 U.S. 434, 451, 99 S.Ct. 1813, 1823, 60 L.Ed.2d 336.) Federal uniformity is not impaired.
In view of the above, we hold section 225 is both consistent with the federal import-export clause and non-violative of the federal commerce clause. Plaintiff is entitled to the relief sought.
The judgment is reversed.
LILLIE and HUBBELL , JJ., concur.
Assigned by the Chairperson of the Judicial Council.