Reynolds Tobacco Company v. Durham County, North Carolina Reynolds Tobacco Company v. Durham County, North Carolina

• Citation: 479 U.S. 130,93 L.Ed.2d 449,107 S.Ct. 499
• Decision Date: 09 December 1986
• Docket Number: Nos. 85-1021,85-1022,s. 85-1021
• Parties: R.J. REYNOLDS TOBACCO COMPANY, Appellant v. DURHAM COUNTY, NORTH CAROLINA, et al. R.J. REYNOLDS TOBACCO COMPANY, Appellant v. DURHAM COUNTY, NORTH CAROLINA, et al
• Court: U.S. Supreme Court

479 U.S. 130

107 S.Ct. 499

93 L.Ed.2d 449

R.J. REYNOLDS TOBACCO COMPANY, Appellant

v DURHAM COUNTY, NORTH CAROLINA, et al.

R.J. REYNOLDS TOBACCO COMPANY, Appellant

v. DURHAM COUNTY, NORTH CAROLINA, et al.

Nos. 85-1021, 85-1022.

Argued Oct. 6, 1986.

Decided Dec. 9, 1986.

Syllabus

Appellant, a New Jersey corporation with its principal office and only manufacturing facilities located in North Carolina, blends tobacco imported from foreign countries with domestic tobacco in producing finished tobacco products virtually all of which are consumed in the United States. Upon importation, the foreign tobacco is placed under customs bond given by appellant, and is stored in one or more of the customs-bonded warehouses owned and maintained by appellant in appellee Forsyth and Durham Counties, N.C., usually for a 2-year period to permit aging. Appellant pays the required customs duties upon withdrawal of the tobacco from the warehouses. Under North Carolina statutes, tobacco present in the State on January 1 of each year is subject to a nondiscriminatory ad valorem property tax levied and collected by counties and municipalities. In listing its taxable personal property for 1983 in appellee counties, appellant claimed that, under the ruling in Xerox Corp. v. County of Harris, 459 U.S. 145, 103 S.Ct. 523, 74 L.Ed.2d 323, its imported tobacco in customs-bonded warehouses was immune from state taxation on federal constitutional grounds. The counties' tax supervisors denied the claim, and the denials were upheld on administrative appeals. The North Carolina Court of Appeals affirmed, rejecting appellant's contentions that the tax violated the Import-Export and Due Process Clauses, and distinguished Xerox, reasoning that it prohibited state taxation only of imported goods stored under bond and awaiting export, not of those destined for domestic manufacture and consumption. Appellant filed with the North Carolina Supreme Court both a notice of appeal and a petition for discretionary review. The court granted a motion to dismiss for lack of a substantial constitutional question and denied appellant's petition. Appellant then filed with this Court an appeal from the North Carolina Supreme Court and another appeal from the North Carolina Court of Appeals.

Held:

1. This Court has appellate jurisdiction as to the North Carolina Supreme Court's judgment, under 28 U.S.C. § 1257(2), which extends such jurisdiction to review a "final" judgment "rendered by the highest court of a State in which a decision could be had . . . where is drawn in question the validity of a statute of any state on the ground of its being repugnant to the Constitution, treaties or laws of the United States, and the decision is in favor of its validity." Pp. 136-139.

(a) Appellant properly challenged on federal constitutional grounds the validity of North Carolina's ad valorem property tax, and there was a final judgment in favor of validity. Cf. Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 99 S.Ct. 1813, 60 L.Ed.2d 336. Pp.136-138.

(b) The appeal from the North Carolina Supreme Court, not the North Carolina Court of Appeals, is the proper one under § 1257(2). A North Carolina statute gives a litigant an appeal of right to the State Supreme Court from any Court of Appeals decision that "directly involves a substantial question arising under the Constitution of the United States." In the absence of positive assurance to the contrary by the North Carolina Supreme Court, its grant of appellees' motion to dismiss the appeal for lack of a substantial federal constitutional question constitutes a decision on the merits affirming the Court of Appeals' judgment, not a determination that the State Supreme Court lacked jurisdiction over the appeal. Pp. 138-139.

2. Consistent with the Supremacy Clause, a State may impose a non-discriminatory ad valorem property tax on imported goods stored in a customs-bonded warehouse and destined for domestic manufacture and sale. The holding in Xerox Corp. v. County of Harris, supra, is limited to its factual situation, that is, where taxed imported goods in customs-bonded warehouses are intended for transshipment in foreign commerce. North Carolina's taxation of appellant's goods does not contradict the purposes of the federal statutory scheme governing customs-bonded warehouses to promote foreign commerce and to aid certain sectors of American economic life. To invalidate the North Carolina tax would place domestic tobacco, which is subject to the ad valorem property tax while aging, at a distinct disadvantage to the imported tobacco; domestic producers and local taxpayers would "subsidize" the growers of imported tobacco. Nor does the taxation here conflict with the central purpose behind customs-bonded warehouses: to ensure that federal customs duties are collected. The federal statutes and regulations that guide monitoring the movement of imported goods and the warehouse proprietor's conduct with respect to such goods both guarantee the collection of federal revenues and are not so comprehensive as to leave no room for North Carolina's assessment of ad valorem taxes. Pp. 139-125 3. Application of the North Carolina tax to appellant's imported tobacco does not violate the Import-Export Clause. The focus of Import-Export Clause cases is on the nature of the tax at issue, not the nature of the goods as imports. North Carolina's tax does not offend the policies behind the Clause: concern that a state tax might interfere with federal regulation of foreign commerce; fear that on account of such state taxation the Federal Government will lose an important source of revenue; and a desire to maintain harmony among the States, which would be disturbed if seaboard States could tax goods merely flowing through their ports to other States not so favorably situated. Cf. Michelin Tire Corp. v. Wages, 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d 495. Pp. 152-155.

4. North Carolina's tax does not violate the Due Process Clause. A state tax comports with the Clause if the taxing power exerted by the State bears a "fiscal relation" to protection, opportunities, and benefits given by the State. In light of the police, fire, and other services provided to appellant's imported tobacco by North Carolina counties and cities, such a "fiscal relation" clearly exists in this case. P. 156.

No. 85-1021, 314 N.C. 540, 335 S.E.2d 21, affirmed. No. 85-1022, appeal dismissed; reported below: 73 N.C.App. 475, 326 S.E.2d 911.

BLACKMUN, J., delivered the opinion for a unanimous Court.

Erwin N. Griswold, Washington, D.C., for appellant.

Rex E. Lee, Washington, D.C., for appellees.

Justice BLACKMUN delivered the opinion of the Court.

This case ¹ presents the narrow but important question whether a State may impose a nondiscriminatory ad valorem property tax on imported goods stored under bond in a cus- toms warehouse and destined for domestic manufacture and sale.

I

Appellant R.J. Reynolds Tobacco Company is a New Jersey corporation with its principal office in Winston-Salem, N.C. Reynolds manufactures finished tobacco products for sale to distributors and other authorized purchasers. App. to Juris. Statement 26a. Virtually all its products are consumed in the United States. Id., at 31a. Its only manufacturing facilities are in Winston-Salem, where it blends imported tobacco with domestic tobacco in its manufacturing process.²

The foreign tobacco is shipped to a port of entry in the United States and is placed under customs bond given by Reynolds to secure the payment of federal import duties. See 19 U.S.C. § 1555 (1982 ed., Supp. III). The tobacco is then transported by truck or rail to one or more of the 88 customs-bonded warehouses owned and maintained by Reynolds in Forsyth and Durham Counties, N.C.³ Because nearly all imported tobacco requires aging, it is usually in the warehouses for two years. Reynolds pays the required customs duties upon withdrawal of tobacco from the warehouses. Reynolds stores its domestic tobacco in nonbonded warehouses in the same two counties. It receives identical city and county police, fire, and other public services at its customs-bonded and nonbonded warehouses. App. to Juris. Statement 32a.

Tobacco present in North Carolina on January 1 of each year is subject to an ad valorem property tax in the amount of 60% of the rate generally applicable to other property.⁴ See N.C.Gen.Stat. §§ 105-277(a) and 105-285 (1985). Counties and municipalities are authorized to levy and collect property taxes, but they must do so in a manner uniform throughout the State. See § 105-272. In listing its taxable personal property for 1983 in Durham and Forsyth Counties, Reynolds claimed that, under this Court's ruling in Xerox Corp. v. County of Harris, 459 U.S. 145, 103 S.Ct. 523, 74 L.Ed.2d 323 (1982), its imported tobacco in customs-bonded warehouses was immune from taxation on federal constitutional grounds. App. 4-13. The tax supervisors for the respective counties denied this claim, and the County Boards of Equalization and Review upheld the denials. Id., at 15-23.

Reynolds then filed appeals (consolidated for hearing) with the North Carolina Property Tax Commission, sitting as the State Board of Equalization and Review. Reynolds again contended that the taxation of the imported tobacco was at odds with Xerox. The Commission, however, found Xerox distinguishable because the warehoused goods under consideration in that case were destined for foreign markets and were lodged only temporarily in customs-bonded warehouses in this country, whereas Reynolds' tobacco was not so destined and had "nothing temporary about its existence in this country." App. to Juris. Statement 35a-36a. The Commission, id., at 36a, likened the Reynolds facts, instead, to those of American Smelting & Refining Co. v. County of Contra Costa, 271 Cal.App.2d 437, 77 Cal.Rptr. 570 (1969), appeal dism'd, 396 U.S. 273, 90 S.Ct. 553, 24 L.Ed.2d 462 (197...