507 U.S. 60 (1993), 91-321, Itel Containers International Corporation v. Huddleston

Docket Nº:No. 91-321
Citation:507 U.S. 60, 113 S.Ct. 1095, 122 L.Ed.2d 421, 61 U.S.L.W. 4173
Party Name:Itel Containers International Corporation v. Huddleston
Case Date:February 23, 1993
Court:United States Supreme Court

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507 U.S. 60 (1993)

113 S.Ct. 1095, 122 L.Ed.2d 421, 61 U.S.L.W. 4173

Itel Containers International Corporation



No. 91-321

United States Supreme Court

Feb. 23, 1993

Argued Oct. 14, 1992



Petitioner Itel Containers is a domestic company that leases cargo containers for use exclusively in international shipping. After paying under protest a Tennessee sales tax on its proceeds from the lease of containers delivered in the State, Itel filed a refund action, challenging the tax's constitutionality under the Commerce, Import-Export, and Supremacy Clauses. The last challenge was based on an alleged conflict with federal regulations and with two international Container Conventions [113 S.Ct. 1097] signed by the United States: the 1956 Convention prohibiting the imposition of a tax "chargeable by reason of importation," and the 1972 Convention prohibiting taxes "collected on, or in connexion with, the importation of goods." The State Chancery Court reduced the assessment on state law grounds, but rejected the constitutional claims, and the State Supreme Court affirmed.

Held: Tennessee's sales tax, as applied to Itel's leases, does not violate the Commerce, Import-Export, or Supremacy Clause. Pp. 64-78.

(a) The sales tax is not preempted by the 1972 or 1956 Container Convention. The Conventions' text makes clear that only those taxes imposed based on the act of importation itself are disallowed, not, as Itel contends, all taxes on international cargo containers. The fact that other signatory nations may place only an indirect value added tax (VAT) on container leases does not demonstrate that Tennessee's direct tax on container leases is prohibited, because the Conventions do not distinguish between direct and indirect taxes. While the VAT system is not equivalent to Tennessee's sales tax for the purposes of calculation and assessment, it is equivalent for purposes of the Conventions: neither imposes a tax based on importation. The Federal Government agrees with this Court's interpretation of the Container Conventions, advocating a position that does not conflict with the one it took in Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434. Pp. 64-69.

(b) The tax, which applies to domestic and foreign goods without differentiation, does not impede the federal objectives expressed in the Conventions and related federal statutes and regulations. The federal regulatory scheme for containers used in foreign commerce discloses no congressional intent to exempt those containers from all or most domestic

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taxation, in contrast to the regulatory scheme for customs bonded warehouses, which preempts most state taxes on warehoused goods, see, e.g., McGoldrick v. Gulf Oil Corp., 309 U.S. 414. Nor is the scheme so pervasive that it demonstrates a federal purpose to occupy the field of container regulation and taxation. The precise federal policy regarding promotion of container use is satisfied by a limited proscription against taxes that are imposed upon or discriminate against the containers' importation. Pp. 69-71.

(c) The tax does not violate the foreign commerce clause under Japan Line's three-part test. First, as concluded by the State Supreme Court and accepted by Itel, the tax satisfies the domestic commerce clause test of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279. This conclusion confirms both the State's legitimate interest in taxing the transaction and the absence of an attempt to interfere with the free flow of commerce. Second, the tax does not create a substantial risk of multiple taxation implicating foreign commerce concerns, because Tennessee is simply taxing a discrete transaction occurring within the State. Tennessee need not refrain from taxing a transaction merely because it is also potentially subject to taxation by a foreign sovereign. Moreover, Tennessee reduces, if not eliminates, the risk of multiple taxation by crediting against its own tax any tax paid in another jurisdiction on the same transaction. Third, the tax does not prevent the Federal Government from speaking with one voice when regulating commercial relations with foreign governments. The tax creates no substantial risk of multiple taxation, is consistent with federal conventions, statutes and regulations, and does not conflict with international custom. Pp. 71-76.

(d) The tax does not violate the Import-Export Clause under the test announced in Michelin Tire Corp. v. Wages, 423 U.S. 276, 285-286. Because Michelin's first component mirrors the Japan Line one voice requirement, and its third component mirrors the [113 S.Ct. 1098] Complete Auto requirements, these components are satisfied for the same reasons the tax survives Commerce Clause scrutiny. Michelin's second component -- ensuring that import revenues are not being diverted from the Federal Government -- is also met, because Tennessee's tax is neither a tax on importation or imported goods nor a direct tax on imports and exports in transit within the meaning of Richfield Oil Corp. v. State Bd. of Equalization, 329 U.S. 69, 78-79, 84. Pp. 76-78.

814 S.W.2d 29 (Tenn.1991), affirmed.

KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, STEVENS, O'CONNOR, SOUTER, and THOMAS, JJ., joined, and in all but Parts IV and V of which SCALIA J., joined. SCALIA, J., filed

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an opinion concurring in part and concurring in the judgment. BLACKMUN, J., filed a dissenting opinion, post, p. 82.

KENNEDY, J., lead opinion

JUSTICE KENNEDY delivered the opinion of the Court.

In this case, we consider the validity of a state tax affecting cargo containers used in international trade, a subject we have addressed once before. See Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979). We sustain Tennessee's sales tax on leases of containers owned by a domestic company and used in international shipping.


The use of large steel containers to transport goods by truck, rail and oceangoing carrier was a major innovation in transportation technology. In 1990, the United States shipped, by value, 60% of its marine imports and 52 of its marine exports in these containers. Itel Containers International

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Corporation, the petitioner here, is a Delaware corporation with its principal place of business in California. Itel's primary business is leasing cargo containers to participants in the international shipping industry, and all its leases restrict use of its containers to international commerce. The leases are solicited and negotiated through Itel marketing offices in California, Illinois, New Jersey, South Carolina, Texas, and Washington, and the leased containers are delivered to lessees or their agents in many of the 50 States, including Tennessee. The Tennessee deliveries occur either at Itel's Memphis terminal or at several designated third-party terminals.

In December, 1986, the Tennessee Department of Revenue assessed $382,465 in sales tax, penalties and interest on the proceeds Itel earned from leased containers delivered in Tennessee for the period of January, 1983, through November, 1986. Itel paid under protest and filed an action for a refund, challenging the constitutionality of the Tennessee tax under the Commerce Clause, the Import-Export Clause, and the Supremacy Clause. The last challenge to the tax was based on an alleged conflict both with federal regulations and with two international conventions to which the United States is a signatory. Customs Convention on Containers, Dec. 2, 1972, [1975] 988 U.N.T.S. 43 (hereinafter 1972 Container Convention); Customs Convention on Containers, May 18, 1956, [1969] 20 U.S.T. 301, T.I.A.S. No. 6634 (hereinafter 1956 Container Convention). The Tennessee Chancery Court reduced the assessment to $158,012 on state law grounds, but rejected Itel's constitutional claims.

On appeal to the Supreme Court of Tennessee, Itel maintained that the Tennessee tax is preempted by the Container Conventions and their implementing federal regulations. The court concluded, however, that congressional regulation of cargo containers is [113 S.Ct. 1099] not pervasive, and that Congress has not otherwise acted to bar state sales taxes on cargo container leases. Itel Containers Int'l Corp. v. Cardwell,

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814 S.W.2d 29, 34 (1991). Instead, the court held, Congress merely prohibits the imposition of federal customs duties on containers, and that prohibition does not preempt Tennessee's sales tax, which is not a customs duty. Id. at 35-36.

Itel also claimed that Tennessee's tax violates the foreign commerce clause principles announced in Japan Line, Ltd. v. County of Los Angeles, supra, because the tax

prevents the Federal Government from "speaking with one voice when regulating commercial relations with foreign governments"

and "creates a substantial risk of international multiple taxation." Id., 441 U.S. at 451. The state court rejected this argument because the tax is imposed only upon a discrete transaction -- the transferred possession of cargo containers within Tennessee -- and therefore does not risk multiple taxation or impede federal regulation of foreign trade. 814 S.W.2d at 36-37.

Last, Itel argued that the tax violates the Import-Export Clause because it prevents the Federal Government from speaking with one voice in international affairs and is a tax on exports that is per se impermissible under Richfield Oil Corp. v. State Bd. of Equalization, 329 U.S. 69 (1946). The court dismissed Itel's one-voice argument for reasons similar to those given in its Commerce Clause analysis, 814 S.W.2d at 38, and held the Tennessee tax does not violate Richfield's per se restriction because it is not a direct tax on the value of goods destined for export. Id. at 33. We granted certiorari, 502 U.S. 1090 (1992), and now affirm.


Itel's primary challenge is...

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