Itel Containers Intern. Corp. v. Cardwell, 01-S-01-9005CH-00038
| Decision Date | 22 April 1991 |
| Docket Number | No. 01-S-01-9005CH-00038,01-S-01-9005CH-00038 |
| Citation | 1992 A.M.C. 2540,814 S.W.2d 29 |
| Parties | ITEL CONTAINERS INTERNATIONAL CORPORATION, Plaintiff/Appellant, v. Charles E. CARDWELL, Commissioner of Revenue, State of Tennessee, Defendant/Appellee. 814 S.W.2d 29, 1992 A.M.C. 2540 |
| Court | Tennessee Supreme Court |
Phillip W. Collier, James C. Seiffert, T. Morgan Ward, Jr., Louisville, James C. Gooch, Michael D. Sontag, Nashville, for plaintiff-appellant.
Charles W. Burson, Atty. Gen. and Reporter, Daryl J. Brand, Asst. Atty. Gen., Nashville, for appellee.
Charles A. Trost, Nashville, Edward A. Woolley, Bedford, N.Y., for amicus curiae Institute of Intern. Container Lessors.
This case presents the question whether Tennessee may constitutionally impose a sales tax upon the transfer of possession in Tennessee of domestically-owned cargo containers used exclusively in international commerce. The Chancellor held that the imposition of such a tax is constitutionally permissible. We agree and affirm.
The facts were stipulated at trial as follows:
Itel Containers International Corporation ("Itel") is a Delaware corporation, with its principal place of business in San Francisco, California. Itel's principal business is the leasing of cargo containers which are used exclusively in international commerce. These containers are manufactured and purchased abroad by Itel, and enter the United States as instruments of international traffic. Itel has posted with the United States Customs Service a continuous bond which guarantees payment of all duties, taxes, or liquidated damages which could be assessed for a failure to comply with government regulations regarding Itel's withdrawal of any of the containers from international commerce.
Itel solicits container leases world-wide through its marketing offices located in numerous U.S. cities, but Itel conducts no marketing solicitation from any Tennessee location. Itel accepts leases of its containers only in its San Francisco office. All of its container leases restrict the use of the containers to international commerce. As a result of its international operations, Itel allows its customers to pick up and re-deliver containers at numerous locations around the world and in the United States.
In Tennessee, Itel receives, repairs, stores, and delivers containers at its terminal building in Memphis, and also, by contract with other independent terminals, at two other Tennessee locations. Itel is registered as a dealer with the Tennessee Department of Revenue, and collects and remits sales and use tax on fees which it collects for repair services rendered in Tennessee.
The tax assessment complained of in this appeal is based upon Itel's leases of its cargo containers which were delivered in Tennessee to international carriers for international shipments. These leases began when the carriers took delivery of the containers at Itel's Tennessee locations.
Itel earns no revenue from the use of the containers while they are present in Tennessee, until they are picked up by the international carrier/lessee. The Department of Revenue computed the sales tax based upon its calculation of the average container days leased, and the average number of containers leased per month. Itel paid the assessment of tax, penalties, and interest under protest, and filed this action to recover those sums.
Itel challenges the validity of the tax assessment, I. on the statutory grounds that the mere transfer of possession of cargo containers in Tennessee is not a "sale" according to Tenn.Code Ann. Sec. 67-6-102(23)(A), and that because its containers have not "become a part of the mass of property in this state," they are exempt from Tennessee sales tax pursuant to Tenn.Code Ann. Sec. 67-6-211; II. alternatively, Itel asserts that Tennessee's imposition of a sales tax upon leases of federally bonded instruments of international traffic violates the Commerce, Supremacy, Import/Export, and Due Process clauses of the United States Constitution.
Itel argues that the mere transfer of possession of leased property in Tennessee is not a taxable event. The Tennessee Retailers' Sales Tax Act imposes sales tax on the lease or rental of tangible personal property in this state. Tennessee Code Annotated Sec. 67-6-201 provides:
It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state ... or who rents or furnishes any of the things or services taxable under this chapter ... or who leases or rents such property, either as lessor or lessee, within the state of Tennessee....
"Lease or rental" is also included within the statutory definition of "sale:"
"Sale" means any transfer of title or possession, or both, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatsoever of tangible personal property for a consideration....
Tenn.Code Ann. Sec. 67-6-102(23)(A) (emphasis added).
Itel cites Magnavox Consumer Electronics v. King, 707 S.W.2d 504 (Tenn.1986), in support of its assertion that the legislature intended only to tax proceeds of leases entered into within Tennessee. In Magnavox we considered whether the use of vehicles by a lessee pursuant to a vehicle lease entered into in the state of Indiana were subject to Tennessee's use tax, Tenn.Code Ann. Sec. 67-6-210. Itel's reliance on Magnavox could not be more misplaced, however, because in Magnavox we held that the use tax may be imposed upon lessees who lease property outside of this state for use in Tennessee.
No other authority is cited by Itel for its assertion, and we find that the statutory language quoted above is a clear declaration of the legislature's intent to tax the transfer of possession of tangible personal property in Tennessee, pursuant to lease agreements executed outside of Tennessee.
Itel argues that the delivery of its containers in Tennessee is exempt from taxation pursuant to Tenn.Code Ann. Sec. 67-6-211, because its containers have not "come to rest" in Tennessee. Tennessee Code Annotated Sec. 67-6-211 declares:
It is the intention of this chapter to levy a tax on the sale at retail, the use, the consumption, the distribution, and the storage to be used or consumed in this state of tangible personal property after it has come to rest in this state and has become a part of the mass of property in this state.
We have held that this statute was intended "to extend the taxing power of the state of Tennessee to the fullest extent under the Commerce Clause," Texas Eastern Transmission Corporation v. Benson, 480 S.W.2d 905, 907 (Tenn.1972), and that "where a tax does not constitute a violation of the Commerce Clause, no exemption is available under [the statute]," Williams Rentals, Inc. v. Tidwell, 516 S.W.2d 614, 615 (Tenn.1974). Consequently, the next question to be resolved is whether the challenged tax assessment violates the Commerce Clause of the United States Constitution.
Initially, we note that the United States Supreme Court has held that California's imposition of its ad valorem property tax, assessed upon the value of identical cargo containers used exclusively in foreign commerce, violated the Commerce Clause. In Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 99 S.Ct. 1813, 60 L.Ed.2d 336 (1979), the Court held that
the Constitution confers no immunity from state taxation, and ... interstate commerce must bear its fair share of the state tax burden. Instrumentalities of interstate commerce are no exception to this rule ... if the state tax is applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the state, no impermissible burden on interstate commerce will be found. Complete Auto Transit v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079 (1977).
441 U.S. at 444-45, 99 S.Ct. at 1819 (other citations omitted). The Court assumed that "if the containers were instrumentalities of interstate commerce, Complete Auto would apply and be satisfied...." 441 U.S. at 445, 99 S.Ct. at 1820.
Next, however, the Court held that Japan Line's containers "are instrumentalities of foreign commerce, both as a matter of fact and as a matter of law," 441 U.S. at 445-446, 99 S.Ct. at 1820, and that when a state seeks to tax the instrumentalities of foreign commerce, rather than of interstate commerce,
a court must also inquire, first, whether the tax, notwithstanding apportionment, creates a substantial risk of international multiple taxation, and, second, whether the tax prevents the federal government from speaking with one voice when regulating commercial relations with foreign governments. If a state tax contravenes either of these precepts, it is unconstitutional under the Commerce Clause.
Japan Line, 441 U.S. at 451, 99 S.Ct. at 1823. Applying this test, the Supreme Court held that California's imposition of its property tax upon Japanese-owned shipping containers violated the Commerce Clause because the tax "results in multiple taxation of the instrumentalities of foreign commerce," and the tax "prevents this nation from speaking with one voice in regulating foreign trade." Japan Line, 99 S.Ct. at 1823.
To continue reading
Request your trial
-
Itel Containers International Corporation v. Huddleston
...Richfield Oil Corp. v. State Bd. of Equalization, 329 U.S. 69, 78-79, 84, 67 S.Ct. 156, 161-162, 164, 91 L.Ed. 80. Pp. ---- - ----. 814 S.W.2d 29 (Tenn.1991), KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, STEVENS, O'CONNOR, SOUTER, and THOMAS, JJ., jo......
- Clark v. Nashville Machine Elevator Co.