Richfield Oil Corp. v. State Board of Equalization

GIBSON, C. J.

I dissent.

Under the prevailing decisions of the United States Supreme Court the tax imposed in the present case is prohibited by the “import-export” clause of the Constitution of the United States which provides that “No State shall . . . lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws. . . .” (Art. I, § 10, cl. 2.) Since the question is entirely one of federal law, we are bound by those decisions.

It is admittedly difficult to ascertain the precise point at which the products of a state which are exported to foreign countries cease to be a part of the general mass of property of that state, subject to nondiscriminatory taxation as such, and become “exports” entitled to the constitutional protection against the imposition of taxes or duties. Clearly, where a general tax is laid on all property alike, goods not then intended for export are not exempt because they happen to be exported afterwards. (Brown v. Houston, 114 U.S. 622 [5 S.Ct. 1091, 29 L.Ed. 257].) And, goods are not exempt from such taxation merely because they are intended for exportation or manufactured under a contract for export. (Turpin v. Burgess, 117 U.S. 504 [6 S.Ct. 835, 29 L.Ed. 988]; Cornell v. Coyne, 192 U.S. 418 [24 S.Ct. 383, 48 L.Ed. 504].) On the other hand, goods in the actual course of transportation to a foreign destination and goods delivered to a common carrier for that purpose are in the process of exportation and constitutionally cannot be taxed. (A. G. Spalding & Bros. v. Edwards, 262 U.S. 66 [43 S.Ct. 485, 67 L.Ed. 865]; see William E. Peck & Co. v. Lowe, 247 U.S. 165, 175 [38 S.Ct. 432, 62 L.Ed. 1049]; Turpin v. Burgess, supra, at p. 506; Coe v. Errol, 116 U.S. 517, 527 [6 S.Ct. 475, 29 L.Ed. 715].) It was said in Coe v. Errol, supra, that goods exported to a foreign country do not cease to be part of the common property of the state of their origin for tax purposes until they “have been shipped or entered with a common carrier for transportation ... or have been started upon such transportation in a continuous route or journey.” (Cf. Railroad Commission v. Texas & P. Ry. Co., 229 U.S. 336 [33 S.Ct. 837, 57 L.Ed. 1215]; Texas & N. O. R. R. Co. v. Sabine Tram. Co., 227 U.S. 111 [33 S.Ct. 229, 57 L.Ed. 442]; Southern P. Terminal Co. v. Interstate Commerce Com., 219 U.S. 498 [31 S.Ct. 279, 55 L.Ed. 310].)

*159Applying these general principles or formulas to the facts of the present ease, it seems reasonably clear that the sale of the oil, under terms requiring delivery to the ship of a foreign government, at which time title passed, was a step in its exportation. The case of A. G. Spalding & Bros. v. Edwards, 262 U.S. 66 [43 S.Ct. 485, 67 L.Ed. 865], is particularly pertinent here. In that case a Venezuelan firm requested New York commission merchants to buy certain sporting goods for their account. The commission merchants ordered the goods from plaintiff Spalding, instructing it to deliver the same to a specified exporting carrier in New York addressed to the Venezuelan firm. The plaintiff delivered the goods as directed and received a receipt from the carrier which it sent to the commission merchants, who exchanged it for a bill of lading in their own name. The commission merchants paid plaintiff and in due time the goods were transported and delivered to the firm in Venezuela. In holding that a tax based on that sale could not constitutionally be imposed upon plaintiff, the court stated, at page 69, in language equally applicable to the case at bar, “The very act that passed the title, and that would have incurred the tax had the transaction been domestic, committed the goods to the carrier that was to take them across the sea, for the purpose of export, and with the direction to the foreign port upon the goods. The expected and accomplished effect of the act was to start them for that port. ’ ’

It is true that the Spalding case involved section 9, clause 5, of the Constitution, which prohibits Congress from laying taxes on articles exported from any state, rather than section 10, clause 2, but it has been repeatedly said that the prohibitions of those sections are identical. (Turpin v. Burgess, 117 U.S. 504, 506 [6 S.Ct. 835, 29 L.Ed. 988]; Brown v. Maryland, 12 Wheat. (U.S.) 419 [6 L.Ed. 678].) An effort is made to distinguish that case on the ground that the delivery there involved was to a common carrier, while the delivery in the present case was to the purchaser’s carrier. This distinction is one of form rather than substance. Delivery of goods to a common carrier for transportation is regarded as the beginning of the export journey because the destination of the goods is thereby fixed and certain. (Cf. Turpin v. Burgess, supra, at p. 507; Superior Oil Co. v. Mississippi, 280 U.S. 390, 396 [50 S.Ct. 169, 74 L.Ed. 504]; Coe v. Errol, 116 U.S. 517, 527 [6 S.Ct. 475, 29 L.Ed. 715].) But delivery of the oil to the “Nucula” in this case as effectively fixed its *160destination as did the delivery of the goods to the common carrier in the Spalding ease. Here, as there, title passed upon delivery, and the passage of title enables the purchaser to change the destination of goods and thereby evade the tax. But, as stated in the Spalding case, ‘ ‘ There was not the slightest probability of any such change and it did not occur, ’ ’ and “theoretical possibilities may be left out of account.” (262 U.S. at p. 70.) The law is not concerned with the means of shipment except to inquire whether the means chosen reasonably guarantees continuity of the export journey and foreign delivery in good faith. The means selected in this case, in light of all the circumstances, satisfies that inquiry. The only local phase of the sale was the delivery to the carrier in this state, and that delivery was the first step in the exportation. Under the Spalding case, to fix the step at which articles would be exempt from taxation “at any later point would fail to give the exports the liberal protection that hitherto they have received.” (262 U.S. at p. 70.)

In some respects it would be more difficult to justify imposition of the tax in the present case than in the Spalding case because here the alleged local transaction was a direct sale to the foreign consumer and the oil was actually loaded aboard the carrier, whereas in the Spalding case the sale was to an intermediary and the goods were merely delivered to the carrier.

The contention that the constitutional prohibition against state taxation of exports does not apply to exports originating in taxing states is answered by the decision in Crew-Levick Co. v. Pennsylvania, 245 U.S. 292 [38 S.Ct. 126, 62 L.Ed. 295], where the State of Pennsylvania unsuccessfully sought to tax exports originating in that state. While it may be conceded that article I, section 10, clause 2, was conceived in the desire to prevent the seaboard states from exacting tribute from their sister states (see Cook v. Pennsylvania, 97 U.S. 566, 574 [24 L.Ed. 1015]; Woodruff v. Parham, 8 Wall. (75 U.S.) 123, 134, 135 [19 L.Ed. 382]), the provision is general in its terms.

The prohibition of the federal Constitution, as interpreted by the United States Supreme Court, is not rendered inapplicable on the theory that the California statute levies the tax, not on the sales, but on the local business activities of the seller, and that, therefore, the tax is not an “impost” or “duty” on exports. Although the formal subject of the tax is the “privilege of selling” (Cal. Rev. & Tax. Code, § 6051; *161see Western L. Co. v. State Bd. of Equalization, 11 Cal.2d 156, 164 [78 P.2d 731, 117 A.L.R. 838]), it is clear that the actual taxable event is the sale, or transfer of title or possession, and, in any event, the amount of the tax is expressly measured by gross receipts from sales. (Rev. & Tax. Code, §§ 6006, 6007, 6051.) The United States Supreme Court has stated that in constitutional law cases the formal subject of a tax as declared by a state statute may be disregarded if the tax is in reality on something else, and it has held that taxes purporting to be on local business activities may be unconstitutional if they are in substance on interstate or foreign transactions. (See, for example, Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 439 [59 S.Ct. 325, 83 L.Ed. 272]; Crew-Levick Co. v. Pennsylvania, 245 U.S. 292, 294 [38 S.Ct. 126, 62 L.Ed. 295].) In the Crew-Levick case the court said (p. 294) that “we . . . are in duty bound to determine the questions raised under the Federal Constitution upon our own judgment of the actual operation and effect of the tax, irrespective of the form it bears or how it is characterized by the state courts.' ’ The court held that a Pennsylvania license tax of $3, together with “one-half mill additional on each dollar ... of business transacted annually,” which in effect covered both local and foreign business, was unconstitutional because it ‘ ‘ operates to lay a direct burden upon every transaction in commerce by withholding, for the use of the State, a part of every dollar received in such transactions [exporting merchandise].” (245 U.S. at p. 297.) In like manner, the California sales tax, measured by gross receipts from sales, cannot be applied to export sales since it would withhold “a part of every dollar received in such transactions. ’ ’

In the early case of Brown v. Maryland, 12 Wheat. (U.S.) 419 [6 L.Ed. 678], where the state argued that a license tax on importers did not contravene article I, section 10, clause 2, since it was a tax on the person rather than the article, the Supreme Court said (at p. 444): “It is impossible to conceal from ourselves, that this is varying the form, without varying the substance. It is treating a prohibition, which is general, as if it were confined to a particular mode of doing the forbidden thing. All must perceive that a tax on the sale of an article ... is a tax on the article itself. ... So, a tax on the occupation of an importer is ... a tax on importation. It must add to the price of the article, and be paid by *162the consumer, or by the importer himself, in like manner as a direct duty on the article itself would be made.” By way of dictum the court announced that a license tax on exporters would likewise contravene the prohibitions of the Constitution. And, in the more recent ease of Crew-Levick Co. v. Pennsylvania, 245 U.S. 292 [38 S.Ct. 126, 62 L.Ed. 295], it was expressly held that a state license tax on wholesale vendors of merchandise, measured by gross receipts, is in effect an impost on exports when applied to merchandise sold and shipped to customers in foreign countries. (Cf. United States v. Hvoslef, 237 U.S. 1 [35 S.Ct. 459, 59 L.Ed. 813]; Fairbank v. United States, 181 U.S. 283 [21 S.Ct. 648, 45 L.Ed. 862].) Thus, to the extent that the so-called privilege tax is measured by gross receipts from exports, under the existing decisions of the United States Supreme Court it amounts to a tax on exports and is improper.

It is apparent, however, that a new approach has been taken with respect to the problem of state taxation in the field of interstate commerce, and that there are various local activities by a taxpayer within a state sufficient to support a nondiscriminatory tax although the tax may have some incidental effect on interstate commerce. Thus if the present case involved the commerce clause rather than the import-export clause of the federal Constitution, it may be that the tax could properly be imposed, since it falls equally, without discrimination, upon all sales in the state, whether the goods are destined for local use or for export. In Department of Treasury v. Wood Preserving Corp., 313 U.S. 62 [61 S.Ct. 885, 85 L.Ed. 1188], for example, an Indiana gross receipts tax was upheld although the goods were sold to an out-of-state buyer and, similar to the situation in the Spalding ease, were delivered to a common carrier in the taxing state for transportation out of the state. It is somewhat difficult to reconcile these cases upon any other basis than that one concerned foreign commerce and the other interstate commerce.

It does not follow, however, that the views expressed in the Spalding and Crew-Levick cases with respect to imports and exports have been superseded by the interstate commerce decisions. The eases relate to different clauses of the Constitution and involve both different language and different purposes and policies. While a few cases have suggested that the prohibitions of the commerce and import-export clauses of the Constitution are substantially identical insofar as taxation is concerned (Crew-Levick Co. v. Pennsylvania, 245 *163U.S. 292, 295 [38 S.Ct. 126, 62 L.Ed. 295]; Brown v. Maryland, 12 Wheat. (U.S.) 419 [6 L.Ed. 678]), other eases have rejected even an analogy between the two. (Sonneborn Bros. v. Cureton, 262 U.S. 506 [43 S.Ct. 643, 67 L.Ed. 1095] [refusing to apply original package doctrine to sales of articles transported in interstate commerce] ; Woodruff v. Parham, 8 Wall. (75 U.S.) 123 [19 L.Ed. 382]; cf. Fairbank v. United States, 181 U.S. 283, 306 [21 S.Ct. 648, 45 L.Ed. 862].)

The latest decision of the United States Supreme Court involving state taxation of articles in foreign commerce expressly rejects the analogy of the interstate commerce cases. (Hooven & Allison Co. v. Evatt, 324 U.S. 652 [65 S.Ct. 870, 877, 89 L.Ed. 1252].) The state tax there held improper was a general, nondiscriminatory property tax. Although the United States Supreme Court thus had the opportunity to apply the reasoning of the interstate commerce eases, it did not do so, and, further, not even the dissenting opinion discussed the possibility of revising the older eases but, instead, relied upon a factual distinction. (See note (1945) 58 Harv.L.Rev. 858-876.) Until such time as that court determines to permit nondiscriminatory state taxation of sales made in foreign commerce, it would seem improper for a state court to give its approval to such a tax.

The judgment, therefore, should be affirmed.

Edmonds, J., concurred.

Respondent’s petition for a rehearing was denied November 29, 1945. Gibson, C. J., and Edmonds, J., voted for a rehearing. Traynor, j., did not participate therein.