State taxation and regulation of commerce from abroad are also subject to negative commerce clause constraints. In the seminal case of Brown v. Maryland,1071 in the course of striking down a state statute requiring all importers of foreign articles or commodities, preparatory to selling the goods, to take out a license, Chief Justice Marshall developed a lengthy exegesis explaining why the law was void under both the import-export clause1072 and the commerce clause. According to the Chief Justice, an inseparable part of the right to import was the right to sell, and a tax on the sale of an article is a tax on the article itself. The tax, it was found, did not impair federal uniformity or prevent the Federal Government from speaking with one voice in international trade, in view of the fact that Congress had rejected proposals that would have preempted California's practice.30 The result of the case, perhaps intended, is that foreign corporations have less protection under the negative commerce clause.31
Obviously, to the extent that the import-export clause was construed to impose a complete ban on taxation of imports so long as they were in their original packages, there was little occasion to develop a commerce-clause analysis that would have reached only discriminatory taxes or taxes upon goods in transit.1073 In other respects, however, the Court has applied the foreign commerce aspect of the clause more stringently against state taxation.
Thus, in Japan Line, Ltd. v. County of Los Angeles,1074 the Court held that, in addition to satisfying the four requirements that govern the permissibility of state taxation of interstate commerce,1075 When a State seeks to tax the instrumentalities of foreign commerce, two additional considerations . . . come into play. The first is the enhanced risk of multiple taxation.... Second, a state tax on the instrumentalities of foreign commerce may impair federal uniformity in an area where federal uniformity is essential.1076 Multiple taxation is to be avoided with respect to interstate commerce by apportionment so that no jurisdiction may tax all the property of a multistate business, and the rule of apportionment is enforced by the Supreme Court with jurisdiction over all the States. However, the Court is unable to enforce such a rule against another country, and the country of the domicile of the business may impose a tax on full value. Uniformity could be frustrated by disputes over multiple taxation, and trade disputes could result.
1071 25 U.S. (12 Wheat.) 419 (1827).
1072 Article I, § 10, cl. 2. This aspect of the doctrine of the case was considerably expanded in Low v. Austin, 80 U.S. (13 Wall.) 29 (1872), and subsequent cases, to bar States from levying nondiscriminatory, ad valorem property taxes upon goods that are no longer in import transit. This line of cases was overruled in Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976).
30 Reliance could not be placed on Executive statements, the Court explained, because "the Constitution expressly grants Congress, not the President, the power to 'regulate Commerce with foreign Nations.'" 512 U.S. at 329. "Executive Branch communications that express federal policy but lack the force of law cannot render unconstitutional California's otherwise valid, congressionally condoned, use of worldwide combined reporting." Id. at 330. Dissenting Justice Scalia noted that, although the Court's ruling correctly restored preemptive power to Congress, "it permits the authority to be exercised by silence." Id. at 332.
31 The Supreme Court, Leading Cases, 1993 Term, 108 HARV. L. REV. 139, 139-49 (1993).
1073 See, e.g., Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64 (1963); Minnesota v. Blasius, 290 U.S. 1 (1933). After the holding in Michelin Tire, the two clauses are now congruent. The Court has observed that the two clauses are animated by the same policies. Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 449–50 n.14 (1979).
1074 441 U.S. 434 (1979).
1075 Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). A state tax failed to pass the nondiscrimination standard in Kraft General Foods, Inc. v. Iowa Dept. of Revenue & Finance, 505 U.S. 71 (1992). Iowa imposed an income tax on a unitary business operating throughout the United States and in several foreign countries. It included in the tax base of corporations the dividends the companies received from subsidiaries operating in foreign countries, but it allowed exclusions from the base of dividends received from domestic subsidiaries. A domestic subsidiary doing business in Iowa was taxed but not ones that did no business. Thus, there was a facial distinction between foreign and domestic commerce.
1076 441 U.S. at 446, 448. See also Itel Containers Int’l Corp. v. Huddleston, 507 U.S. 60 (1993) (sustaining state sales tax as applied to lease of containers delivered within the State and used in foreign commerce).
Applying both these concerns, the Court invalidated a state tax, a nondiscriminatory, ad valorem property tax, on foreign-owned instrumentalities, i.e., cargo containers, of international commerce. The containers were used exclusively in international commerce and were based in Japan, which did in fact tax them on full value. Thus, there was the actuality, not only the risk, of multiple taxation. National uniformity was endangered, because, while California taxed the Japanese containers, Japan did not tax American containers, and disputes resulted.1077
On the other hand, the Court has upheld a state tax on all aviation fuel sold within the State as applied to a foreign airline operating charters to and from the United States. The Court found the Complete Auto standards met, and it similarly decided that the two standards specifically raised in foreign commerce cases were not violated. First, there was no danger of double taxation because the tax was imposed upon a discrete transaction, the sale of fuel, that occurred within one jurisdiction only. Second, the one-voice standard was satisfied, inasmuch as the United States had never entered into any compact with a foreign nation precluding such state taxation, having only signed agreements with others, having no force of law, aspiring to eliminate taxation that constituted impediments to air travel.1078 Also, a state unitary-tax scheme that used a worldwide-combined reporting formula was upheld as applied to the taxing of the income of a domestic-based corporate group with extensive foreign operations.1079
1077 441 U.S. at 451–57. For income taxes, the test is more lenient, accepting not only the risk but the actuality of some double taxation as something simply inherent in accounting devices. Container Corp. of America v. Franchise Tax Board, 463 U.S. 159, 187–192 (1983).
1078 Wardair Canada v. Florida Dep’t of Revenue, 477 U.S. 1 (1986).
1079 Container Corp. of America v. Franchise Tax Board, 463 U.S. 159 (1983). The validity of the formula as applied to domestic corporations with foreign parents or to foreign corporations with foreign parents or foreign subsidiaries, so that some of the income earned abroad would be taxed within the taxing State, is a question of some considerable dispute.
Extending Container Corp., the Court in Barclays Bank v. Franchise Tax Bd. of California,1080 upheld the State’s worldwide-combined reporting method of determining the corporate franchise tax owed by unitary multinational corporations, as applied to a foreign corporation. The Court determined that the tax easily satisfied three of the four-part Complete Auto test—nexus, apportionment, and relation to State’s services—and concluded that the non-discrimination principle—perhaps violated by the letter of the law—could be met by the discretion accorded state officials. As for the two additional factors, as outlined in Japan Lines, the Court pronounced itself satisfied. Multiple taxation was not the inevitable result of the tax, and that risk would not be avoided by the use of any reasonable alternative. The tax, it was found, did not impair federal uniformity or prevent the Federal Government from speaking with one voice in international trade, in view of the fact that Congress had rejected proposals that would have preempted California’s practice.4 The result of the case, perhaps intended, is that foreign corporations have less protection under the negative commerce clause.5
The power to regulate foreign commerce was always broader than the States’ power to tax it, an exercise of the police power recognized by Chief Justice Marshall in Brown v. Maryland.1082
That this power was constrained by notions of the national interest and preemption principles was evidenced in the cases striking down state efforts to curb and regulate the actions of shippers bringing persons into their ports.1083 On the other hand, quarantine legislation to protect the States’ residents from disease and other hazards was commonly upheld though it regulated international commerce.1084 A state game-season law applied to criminalize the possession of a dead grouse imported from Russia was upheld because of the practical necessities of enforcement of domestic law.1085
1080 512 U.S. 298 (1994).
1081 The Supreme Court, Leading Cases, 1993 Term, 108 HARV. L. REV. 139, 139–49 (1993).
1082 25 U.S. (12 Wheat.) 419, 443–444 (1827).
1083 New York City v. Miln, 36 U.S. (11 Pet.) 102 (1837) (upholding reporting requirements imposed on ships’ masters), overruled in Henderson v. New York, 92 U.S. 259 (1876); Passenger Cases (Smith v. Turner), 48 U.S. (7 How.) 282 (1849); Chy Lung v. Freeman, 92 U.S. 275 (1876).
1084 Campagnie Francaise De Navigation a Vapeur v. Louisiana State Bd. of Health, 186 U.S. 380 (1902); Louisiana v. Texas, 176 U.S. 1 (1900); Morgan v. Louisiana, 118 U.S. 455 (1886).
1085 New York ex rel. Silz v. Hesterberg, 211 U.S. 31 (1908).
4 Reliance could not be placed on Executive statements, the Court explained, since the Constitution expressly grants Congress, not the President, the power to ‘regulate Commerce with foreign Nations.’ 512 U.S. at 329. Executive Branch communications that express federal policy but lack the force of law cannot render unconstitutional California’s otherwise valid, congressionally condoned, use of worldwide combined reporting. Id. at 330. Dissenting Justice Scalia noted that, although the Court’s ruling correctly restored preemptive power to Congress, it permits the authority to be exercised by silence. Id. at 332.
5 The Supreme Court, Leading Cases, 1993 Term, 108 HARV. L. REV. 139, 139– 49 (1993).
Nowadays, state regulation of foreign commerce is likely to be judged by the extra factors set out in Japan Line.1086 Thus, the application of a state civil rights law to a corporation transporting passengers outside the State to an island in a foreign province was sustained in an opinion emphasizing that, because of the particularistic geographic situation the foreign commerce involved was more conceptual than actual, there was only a remote hazard of conflict between state law and the law of the other country and little if any prospect of burdening foreign commerce.
1086 Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 456 n.20 (1979) (construing Bob-Lo Excursion Co. v. Michigan, 333 U.S. 28 (1948).
Last modified: June 9, 2014