United States Court of Appeals,
Fifth Circuit.
No. 97-20508
Summary Calendar.
DEER PARK INDEPENDENT SCHOOL DISTRICT; Galena Park Independent
School District; Sheldon Independent School District,
Plaintiffs-Appellants,
v.
HARRIS COUNTY APPRAISAL DISTRICT; et al., Defendants,
Harris County Appraisal District; Shell Chemical Corporation;
Shell Oil Company; Marubeni Tubulars Incorporated; Mitsui Tubular
Products Incorporated; Lyondell-Citgo Refining Company Limited;
Crown Central Petroleum Corporation; Vinson Supply Company; Siderca
Corporation, Defendants-Appellees.
GALENA PARK INDEPENDENT SCHOOL DISTRICT, Plaintiff-Appellant,
v.
Harris County Appraisal District; et al., Defendants,
HARRIS COUNTY APPRAISAL DISTRICT; Marubeni Tubulars Incorporated;
Mitsui Tubular Products Incorporated; Lyondell-Citgo Refining
Company Limited; Crown Central Petroleum, Defendants-Appellees.
SHELDON INDEPENDENT SCHOOL DISTRICT, Plaintiff-Appellant,
v.
HARRIS COUNTY APPRAISAL DISTRICT (Central); et al., Defendants,
Harris County Appraisal District (Central); Vinson Supply
Company; Siderca Corporation, Defendants-Appellees.
Jan. 22, 1998.
Appeal from the United States District Court for the Southern
District of Texas.
Before REYNALDO G. GARZA, SMITH and BENAVIDES, Circuit Judges.
PER CURIAM:
This case comes from a final summary declaratory judgment of
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the United States District Court for the Southern District of
Texas, Judge Lynn Hughes, presiding. This case was decided on
cross-motions for summary judgment. The district court granted
summary judgment in favor of the Defendants-Appellees, the Harris
County Appraisal District, et al. (the "Companies"). The
Plaintiffs-Appellants, the Deer Park Independent School District,
et al. (the "School Districts") timely appealed, and the matter now
lies before this panel.
Background
The School Districts1 filed suit in the district court on
September 30, 1996, seeking a declaratory judgment stating that 19
U.S.C. § 81o(e) is unconstitutional. This statute grants
exemptions from state and local ad valorem taxes on property to
businesses located inside of Foreign Trade Zones ("FTZs").
Specifically, the School Districts alleged that these exemptions
unconstitutionally deprived them of tax revenue.
The Companies2 are various corporations with operations in the
FTZs. Both sides have stipulated that the property involved in
1
The School Districts are: The Deer Park Independent School
District, the Galena Park Independent School District, and the
Sheldon Independent School District. The Companies asked that the
appeal of the Sheldon Independent School District be dismissed for
want of jurisdiction. We do not pass on that point at this time,
because it is moot, given the outcome of this case.
2
The Companies are: the Lyondell-Citgo Refining Company,
Ltd., the Crown Central Petroleum Corporation, the Shell Oil
Company, the Shell Chemical Corporation, the Siderca Corporation,
the Vinson Supply Company, Mitsui Tubular Products, Inc., and
Marubeni Tubulars, Inc. The Harris County Appraisal District was
included as a defendant in this suit because of its role as tax
assessor.
2
this dispute is either (i) tangible personal property imported from
outside the United States and held in an activated FTZ for the
purpose of storage, sale, exhibition, repackaging, assembly,
distribution, sorting, grading, cleaning, mixing, display,
manufacturing, or processing, or (ii) tangible personal property
produced in the United States and held in an activated FTZ for
exportation, either in the above form or as altered by the above
processes. But for the operation of § 810(e), all or a significant
part of the property would be taxable by the School Districts.
Several related cases were consolidated into this one, and the
parties stipulated to the relevant facts. Both sides submitted
motions for summary judgment, and on May 16, 1997, the district
court made its ruling. The district court granted summary judgment
in favor of the Companies, and denied the School Districts' motion
for summary judgment.
The School Districts timely appealed, claiming that the
district court erred in granting summary judgment in favor of the
Companies. They argue that § 81o(e) is an unconstitutional
exercise of Congress' power under the Commerce Clause, and violates
the Tenth Amendment and the Guarantee Clause of the Constitution.
Upon review of the pleadings, briefs, and record on file, we find
no reversible error and affirm the decision of the district court.
Standard of Review
Summary judgment is appropriate if the record discloses that
"there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law."
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Fed.R.Civ.Proc. 56(c); Sims v. Monumental General Ins. Co., 960
F.2d 478, 479 (5th Cir.1992). The pleadings, depositions,
admissions, and answers to interrogatories, together with
affidavits, must demonstrate that no genuine issue of material fact
remains. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548,
91 L.Ed.2d 265 (1986). We review the facts drawing all inferences
in favor of the party opposing the motion. Reid v. State Farm
Mutual Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir.1986).
In addition to the aforementioned general procedural matters,
we review challenges to the validity of a Congressional exercise of
power under the Commerce Clause using the following standards. The
burden for the challenger in cases such as this is high. This
Court must determine only (1) whether a rational basis exists for
finding that the regulated activity affects interstate commerce,
and (2) whether the means chosen by Congress were "reasonably
adapted to the end permitted by the Constitution." Hodel v.
Virginia Surface Mining & Reclamation Ass'n, 452 U.S. 264, 276, 101
S.Ct. 2352, 2360, 69 L.Ed.2d 1 (1981). The Commerce Clause power
is complete in itself and is only limited by those limits
prescribed in the Constitution. Id.
Congress' regulatory power under the Commerce Clause may be
used to regulate the use of the channels of interstate commerce,
Congress may protect and regulate the instrumentalities of
interstate commerce (including people or things in interstate
commerce), and Congress may regulate those activities having a
substantial relation to interstate commerce. U.S. v. Lopez, 514
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U.S. 549, 556, 115 S.Ct. 1624, 1629, 131 L.Ed.2d 626 (1995). While
the states do retain broad powers under the Constitution, they
"only do so to the extent that the Constitution has not divested
them of their original powers and transferred these powers to the
Federal Government." Garcia v. San Antonio Metropolitan Transit
Authority, 469 U.S. 528, 549-550, 105 S.Ct. 1005, 1016-17, 83
L.Ed.2d 1016 (1985). The right to regulate foreign and interstate
commerce is one of powers expressly granted to the federal
government by Art. I, § 8, cl. 3 of the Constitution.
Analysis
While all the claims are related, the primary contention of
the School Districts is that Congress did not have power under the
Commerce Clause to enact and enforce § 81o(e), and as a result, the
statute should be declared unconstitutional. We have already
stated the broad extent of Congress' powers under the Commerce
Clause, as well as the fact that the standard of review is whether
there was a rational basis for Congress' actions and whether the
means chosen were reasonably adapted to the ends. Hodel, 452 U.S.
at 276, 101 S.Ct. at 2360.
Congress' actions in this case were rational and pass muster.
First of all, there can be no doubt that the activities in the FTZs
constitute foreign, and by extension, interstate commerce, so they
are within the purview of the Congress. Next, it is completely
rational to believe that the imposition of ad valorem taxes on the
property in the FTZs would affect interstate and foreign commerce,
and that forbidding such taxes would provide uniform treatment of
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FTZs throughout the country. Such uniformity in foreign commerce
is a well-recognized federal interest. Japan Line, Ld. v. County
of Los Angeles, 441 U.S. 434, 448-449, 99 S.Ct. 1813, 1821-1822, 60
L.Ed.2d 336 (1979). Further, in enacting § 81o(e), Congress
explicitly found that the aims of the original act of Congress
which created FTZs were being frustrated by non-uniform local and
state ad valorem taxes. Congress believed, rationally, that this
negatively affected interstate and foreign commerce, and fashioned
a reasonable response.
Also this law is of importance to Texas because the Texas
Constitution specifically lists the permissible exemptions from ad
valorem taxation, and property within FTZs is not on the list. For
this reason, Texas Senators Lloyd Bentsen and John Tower, in
conjunction with Texas Congressmen Jim Wright and Jack Brooks,
sponsored this law. This law was passed to help Texas, by
encouraging industry, and is not a type of oppression or
"dragooning" of the state, as the School Districts contend.
Further, the plenary power granted to Congress under the
Commerce Clause includes the power to protect interstate and
foreign commerce from taxation. State Bd. of Insurance v. Todd
Shipyards Corp., 370 U.S. 451, 456, 82 S.Ct. 1380, 1383, 8 L.Ed.2d
620 (1962). This power to grant or withhold protection from
regulation or taxation "is so complete that its ideas of policy
should prevail." Id. Congress' actions were well within its power
under the Commerce Clause, and pass muster under the standards
listed.
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The School Districts also claim that § 81o(e) violates the
Tenth Amendment. As stated previously, the Tenth Amendment's
reservation to the states of power not conferred on the federal
government in no way inhibits the activities of the federal
government in situations in which a power has been so conferred.
See Garcia, 469 U.S. at 549-550, 105 S.Ct. at 1016-1017. The
explicit granting of power to the Congress, in regard to its right
to regulate foreign and interstate commerce, in conjunction with
the Supremacy Clause, clearly gives Congress power over this
situation. See e.g., Seniors Civil Liberties Ass'n, v. Kemp, 965
F.2d 1030, 1034 (11th Cir.1992).
Further, historically, Congressional prohibitions on state
taxation have been upheld over Tenth Amendment challenges. For
example, even when National League of Cities v. Usery, 426 U.S.
833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976) was the lead Supreme
Court case on these matters,3 the Supreme Court upheld a federal
law which preempted a state tax that discriminated against the sale
of electricity outside the state. Arizona Public Service Co. v.
Snead, 441 U.S. 141, 99 S.Ct. 1629, 60 L.Ed.2d 106 (1979). The
Supreme Court rejected the argument that Congress lacked authority
under the Commerce Clause to regulate state taxation, stating that
Congress had broad power in this sphere, had a rational basis for
finding that the tax interfered with interstate commerce, and the
means selected were reasonable to achieve Congress' ends. Id. at
3
National League of Cities was overruled by Garcia, 469 U.S.
at 557, 105 S.Ct. at 1020.
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150, 99 S.Ct. at 1634. More recent cases have given support to
this proposition as well. For example, in New Jersey v.
Consolidated Railroad Corp., 690 F.Supp. 1061 (Reg'l Rail
Reorg.Ct.1988), the court held that Congress could exempt Conrail
(a privately owned railroad) from taxation, rejecting the state's
Tenth Amendment claim.
Congress acted well within its powers under the Commerce
Clause in this case, its belief that this affected interstate
commerce was rational, and the means it used to achieve its goals
were reasonable and appropriate. Therefore, the School Districts'
Tenth Amendment claims fail.
As a final argument on this point, the School Districts claim
that cases such as New York v. United States, 505 U.S. 144, 112
S.Ct. 2408, 120 L.Ed.2d 120 (1992) and Printz, et al. v. United
States, --- U.S. ----, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997),
somehow support their Tenth Amendment claim. This assertion is
incorrect. Those cases involve an act of Congress which
essentially hijacked the administrative apparatus of state and
local government to help achieve Congress' ends. This case is not
an example of such a Congressional overreach, so this argument
fails as well.
The School Districts also claim that § 81o(e) violates the
Guarantee Clause of the Constitution in that it deprives the states
of a republican form of government. This claim is not only
incorrect, it is absurd. First of all, the Supreme Court has held
that challenges to Congressional action under the Guarantee Clause
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are not justiciable. See Baker v. Carr, 369 U.S. 186, 224, 82
S.Ct. 691, 713, 7 L.Ed.2d 663 (1962); O'Hair v. White, 675 F.2d
680, 684 n. 5 (5th Cir.1982). Also, the School Districts do not
explain the merits of their claim, silence which warrants
rejection. Further, at least as of today, Texas is governed by a
freely elected legislature and executive, not a monarchy, military
dictatorship, or any other type of government which would offend
the Guarantee Clause of the Constitution. Unless and until that
fact changes, this claim is an absolute dead letter.
Conclusion
Based on the foregoing, we find no reversible error in the
decision of the district court, which granted summary judgment in
favor of the Defendants-Appellees, and held that § 81o(e) is
constitutional. Therefore, we AFFIRM the decision of the district
court.
AFFIRMED.
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