Department of Revenue of State of Washington v. Association of Washington Stevedoring Companies

• Citation: 435 U.S. 734,55 L.Ed.2d 682,98 S.Ct. 1388
• Decision Date: 26 April 1978
• Docket Number: No. 76-1706,76-1706
• Parties: DEPARTMENT OF REVENUE OF the STATE OF WASHINGTON, Petitioner, v. ASSOCIATION OF WASHINGTON STEVEDORING COMPANIES et al
• Court: U.S. Supreme Court

435 U.S. 734

98 S.Ct. 1388

55 L.Ed.2d 682

DEPARTMENT OF REVENUE OF the STATE OF WASHINGTON, Petitioner,

v ASSOCIATION OF WASHINGTON STEVEDORING COMPANIES et al.

No. 76-1706.

Argued Jan. 16, 17, 1978.

Decided April 26, 1978.

Syllabus

1. The State of Washington's business and occupation tax does not violate the Commerce Clause by taxing the interstate commerce activity of stevedoring within the State. Complete Auto Transit, Inc. v. brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326, followed; Puget Sound Stevedoring Co. v. State Tax Comm'n, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68, and Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993, overruled. Pp. 743-751.

(a) A State under appropriate conditions may tax directly the privilege of conducting interstate business. Complete Auto Transit, Inc. v. Brady, supra. P. 745.

(b) When a general business tax levies only on the value of services performed within the State, the tax is properly apportioned and multiple burdens on interstate commerce cannot occur. Pp. 746-747.

(c) All state tax burdens do not imperm ssibly impede interstate commerce, and the Commerce Clause balance tips against the state tax only when it unfairly burdens commerce by exacting from the interstate activity more than its just share of the cost of state government. Pp. 747-748.

(d) State taxes are valid under the Commerce Clause, where they are applied to activity having a substantial nexus with the State, are fairly apportioned, do not discriminate against interstate commerce, and are fairly related to the services provided by the State; and here the Washington tax in question meets this standard, since the stevedoring operations are entirely conducted within the State, the tax is levied solely on the value of the loading and unloading occurring in the State, the tax rate is applied to stevedoring as well as generally to businesses rendering services, and there is nothing in the record to show that the tax is not fairly related to services and protection provided by the State. Pp. 750-751.

2. Nor is the Washington business and occupation tax, as applied to stevedoring so as to reach services provided wholly within the State to imports, exports, and other goods, among the "Imposts or Duties" prohibited by the Import-Export Clause. Michelin Tire Corp. v. Wages, 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d 495. Pp. 751-761.

(a) The application of the tax to stevedoring threatens none of the Import-Export Clause's policies of precluding state disruption of United States foreign policy, protecting federal revenues, and avoiding friction and trade barriers among the States. The tax as so applied does not restrain the Federal Government's ability to conduct foreign policy. Its effect on federal import revenue is merely to compensate the State for services and protection extended to the stevedoring business. The policy against interstate friction and rivalry is vindicated, as is the Commerce Clause's similar policy, if the tax falls upon a taxpayer with reasonable nexus to the State, is properly apportioned, does not discriminate, and relates reasonably to services provided by the State. Pp. 751-755.

(b) While, as distinguished from Michelin Tire Corp. v. Wages, supra, where the goods taxed were no longer in transit, the activity taxed here occurs while imports and exports are in transit, nevertheless the tax does not fall on the goods themselves but reaches only the business of loading and unloading ships, i. e., the business of transporting cargo, within the State, and hence the tax is not a prohibited "Impost or Duty" when it violates none of the policies of the Import-Export Clause. Pp. 755-757.

(c) While here the stevedores load and unload imports and exports, whereas in Michelin Tire Corp. v. Wages, supra, the state tax in question touched only imports, nevertheless the Michelin approach of analyzing the nature of the tax to determine whether it is a prohibited "Impost or Duty" should apply to taxation involving exports as well as imports. Any tax relating to exports can be tested for its conformity to the Import-Export Clause's policies of precluding state disruption of United States foreign policy and avoiding friction and trade barriers among the States, although the tax does not serve the Clause's policy of protecting federal revenues in view of the fact that the Constitution forbids federal taxation of exports. Pp. 757-758.

(d) The Import-Export Clause does not effect an absolute ban on all state taxation of imports and exports, but only on "Imposts or Duties." Pp. 759-760.

(e) To say that the Washington tax violates the Import-Export Clause because it taxes the imports themselves while they remain a part of commerce, would be to resurrect the now rejected "original package" analysis whereby goods enjoyed immunity from state taxation as long as they retained their status as imports by remaining in their import packages. P. 760. (f) The Washington tax is not invalid under the Import-Export Clause as constituting the i position of a transit fee upon inland customers, since, as is the case in Commerce Clause jurisprudence, interstate friction will not chafe when commerce pays for the state services it enjoys. Fair taxation will be assured by the prohibition on discrimination and the requirements of apportionment, nexus, and reasonable relationship between tax and benefits. Pp. 760-761.

88 Wash.2d 315, 559 P.2d 997, reversed and remanded.

Slade Gorton, Atty. Gen., Olympia, Wash., for petitioner.

Mr. Justice BLACKMUN delivered the opinion of the Court.

For the second time in this century, the State of Washington would apply its business and occupation tax to stevedoring. The State's first application of the tax to stevedoring was unsuccessful, for it was held to be unconstitutional as violative of the Commerce Clause ¹ of the United States Constitution. Puget Sound Stevedoring Co. v. State Tax Comm'n, 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68 (1937). The Court now faces the question whether Washington's second attempt violates either the Commerce Clause or the Import-Export Clause.²

I

Stevedoring is the business of loading and unloading cargo from ships.³ Private stevedoring companies constitute respondent Association of Washington Stevedoring Companies; respondent Washington Public Ports Association is a nonprofit corporation consisting of port authorities that engage in stevedoring activities. App. 3. In 1974 petitioner Department of Revenue of the State of Washington adopted Revised Rule 193, pt. D, Wash.Admin.Code 458-20-193-D, to implement the State's 1% business and occupation tax on services, set forth in Wash.Rev.Code §§ 82.04.220 and 82.04.290 (1976).⁴ The Rule applies the tax to stevedoring and reads in pertinent part as set forth in the margin.⁵

Revised Rule 193D restores the original scope of the Washington business and occupation tax. After initial imposition of the tax in 1935,⁶ the then State Tax Commission ⁷ adopted Rule 198 of the Rules and Regulations Relating to the Revenue Act of 1935.⁸ That Rule permitted taxpayers to deduct certain income received from interstate and foreign commerce. Income from stevedoring, however, was not described as deductible. When, in 1937, this Court in Puget Sound invalidated the application of the tax to stevedoring, the Commission complied by adding stevedoring income to the list of deductions.⁹ The deduction for stevedoring remained in effect until the revision of Rule 193 in 1974.¹⁰

Seeking to retain their theretofore-enjoyed exemption from the tax, respondents in January 1975 sought from the Superior Court of Thurston County, Wash., a declaratory judgment to the effect that Revised Rule 193D violated both the Commerce Clause and the Import-Export Clause. They urged that the case was controlled by Puget Sound, which this Court had reaffirmed in Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 433, 67 S.Ct. 815, 821, 91 L.Ed. 993 (1947) (together, the Stevedoring Cases ). Absent a clear invitation from this Court, respondents submitted that the Superior Court could not avoid the force of the Stevedoring Cases, which had never been overruled. Record 9.¹¹ Petitioner replied that this Court had invited rejection of those cases by casting doubt on the Commerce Clause analysis that distinguished between direct and indirect taxation of interstate commerce. Id., at 25-37, citing, e. g., Interstate Pipe Line Co. v. Stone, 337 U.S. 662, 69 S.Ct. 1264, 93 L.Ed. 1613 (1949); Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823 (1938). Petitioner also argued that the Rule did not violate the Commerce Clause because it taxed only intrastate activity, namely, the loading and unloading of ships, Record 17-20, and because it levied only a nondiscriminatory tax apportioned to the activity within the State. Id., at 20-22. The Rule did not impose any "Imposts or Duties on Imports or Exports" because it taxed merely the stevedoring services and not the goods themselves, id., at 22-25, citing Canton R. Co. v. Rogan, 340 U.S. 511, 71 S.Ct. 447, 95 L.Ed. 488 (1951). The Superior Court, however, not surprisingly, considered itself bound by the Stevedoring Cases. It therefore issued a declaratory judgment that Rule 193D was invalid to the extent it related to stevedoring in interstate or foreign commerce. App. 17-18.¹²

Petitioner appealed to the Washington Court of Appeals. Record 77. That court certified the case for direct appeal to the State's Supreme Court, citing Wash.Rev.Code § 2.06.030(c) (1976), and Wash. Supreme Court Rule on Appeal I-14(1)(c) (now Rule 4.2(a)(2), Wash. Rules of Court (1977)). After accepting certification, the Supreme Court, with two justices dissenting, affirmed the judgment of the Superior Court. 88 Wash.2d 315, 559 P.2d 997 (1977). The majority considered petitioner's argument that recent cases ¹³ had eroded the holdings in the Stevedoring Cases. It concluded,...