Ambros, Inc. v. Maddox

• Decision Date: 04 April 1962
• Docket Number: No. 1-62.,1-62.
• Citation: 203 F. Supp. 934
• Parties: AMBROS, INC., a corporation, Plaintiff, v. A. G. MADDOX, Acting Commissioner of Revenue and Taxation, Government of Guam, Defendant.
• Court: U.S. District Court — District of Guam

203 F. Supp. 934

AMBROS, INC., a corporation, Plaintiff, v. A. G. MADDOX, Acting Commissioner of Revenue and Taxation, Government of Guam, Defendant.

No. 1-62.

District Court of Guam.

April 4, 1962.

Turner, Barrett & Ferenz, Howard G. Trapp, Agana, Guam, for plaintiff.

Louis A. Otto, Jr., Atty. Gen., Harold W. Burnett, Deputy Atty. Gen., Richard D. Magee, Deputy Island Atty., Agana, Guam, for defendant.

SHRIVER, District Judge.

The plaintiff, Ambros, Inc., a Guam corporation, brought this action against the defendant for recovery of gross receipts taxes paid to the defendant as Acting Commissioner of Revenue and Taxation of the government of Guam. This Court has jurisdiction under the Organic Act of Guam and Section 19508 of the Government Code of Guam, which permits an action in the District Court for the refund of any tax imposed and alleged to have been erroneously and illegally assessed or collected. At the pretrial conference the parties stipulated as to the underlying facts and further stipulated that after the submission of briefs the Court would determine the validity of the tax; and that if the Court found for the plaintiff, the amount of the tax would be subject to plaintiff's proof. This opinion holds that the tax in question, if otherwise valid, violates the tax uniformity provision in Section 11 of the Organic Act of Guam, 48 U.S.C.A. § 1423a. The plaintiff is engaged in the importation and distribution of alcoholic beverages and tobacco products. As such, it was subject to the payment of ad valorem taxes on such beverages or tobacco products, but if such products were sold to a military purchaser or were exported, the amount of such tax could be recovered. As part of its business, it sold products to the Trust Territory of the Pacific Islands and received a refund or drawback of the taxes previously paid. The defendant contends that the gross proceeds from such sales were subject to a two per cent (2%) gross receipts tax under the following provisions of the Government Code of Guam:

"19541.01. Tax on the Business of Selling Tangible Personal Property. Upon every person engaging or continuing within Guam in the business of selling any tangible property whatsoever (not including, however, bonds or other evidence of indebtedness or stocks) a tax equivalent to two per cent (2%) of gross proceeds of sales.

"19541.0101. Provided, that gross proceeds of sales of tangible property in foreign commerce shall constitute a part of the measure of the tax imposed."

While it was agreed that sales to the Trust Territory are in foreign commerce, it is to be noted that the same tax would be applicable on exports from Guam to the United States. Section 19500.04 provides:

"`Foreign' shall mean that which is outside of the territory of Guam; and `domestic' shall mean that which is legally within the territory of Guam."

The plaintiff contends that the tax, if made applicable by one of the several States, clearly violates the commerce clause of the United States Constitution, Art. I, Sec. 8, Cl. 3. The defendant concedes that such a tax would probably violate Art. I, Sec. 10, Cl. 2 of the Constitution as well, citing Richfield Oil Corp. v. State Board of Equalization, 329 U.S. 69, 67 S.Ct. 156, 91 L.Ed. 80 (1946). In Anderson v. Mullaney (9 Cir. 1951) 191 F. 2d 123, 128, 13 Alaska 332; Aff. 342 U.S. 415, 72 S.Ct. 428, 96 L.Ed. 458, the Court of Appeals had occasion to consider an Alaskan statute which imposed a higher license fee on nonresident commercial fishermen than it did on resident fishermen. The Court stated:

"In dealing with those aspects of the Commerce Clause which make it a limitation upon the power of the State, Mr. Justice Frankfurter, speaking for the court in Freeman v. Hewit, 329 U.S. 249, 252, 67 S.Ct. 274, 276, 91 L.Ed. 265, said: `Our starting point is clear. In two recent cases we applied the principle that the Commerce Clause was not merely an authorization to Congress to enact laws for the protection and encouragement of commerce among the States, but by its own force created an area of trade free from interference by the States. In short, the Commerce Clause even without implementing legislation by Congress is a limitation upon the power of the States. Southern Pacific Co. v. State of Arizona, 325 U.S. 761, 65 S.Ct. 1515, 89 L.Ed. 1915; Morgan v. Commonwealth of Virginia, 328 U.S. 373, 66 S.Ct. 1050 90 L.Ed. 1317. In so deciding we reaffirmed, upon fullest consideration, the course of adjudication unbroken through the Nation's history.' It cannot be said that the Alaska legislature has any greater freedom in burdening commerce between the States and the Territory than it would have if Alaska were a State.

"The reason why the Territorial Legislature is thus limited is not that the Commerce Clause, ex proprio vigore, operates as a constitutional limitation. For so far as the Constitution is concerned, Congress might, we assume, confer upon a territory the power to impose burdens upon commerce between the territory and the States, for Congress may `make all needful Rules and Regulations' respecting the territories under Art. IV, § 3, cl. 2. Shively v. Bowlby, 152 U.S. 1, 48, 14 S.Ct. 548, 38 L.Ed. 331. But we cannot conceive that in granting legislative power to the Territorial Legislature it was intended that the power should exceed that possessed by the legislature of a State in dealing with commerce. The words `all rightful subjects of legislation' describing the extent to which the legislative power of the Territory should extend, 48 U.S.C.A. § 77, do not include the imposition upon commerce such as that here involved of burdens which a State might not create under like circumstances. `All rightful subjects of legislation' must be held to refer to matters local to Alaska."

In Buscaglia v. Ballester (1 Cir. 1947) 162 F.2d 805; Cer. den. 332 U.S. 816, 68 S.Ct. 154, 92 L.Ed. 393, the Court of Appeals had occasion to consider the applicability of the above provisions of the Constitution to an unincorporated territory. It should be noted in the Alaskan case, Alaska was not only an incorporated territory, but that the Constitution was made applicable to it. The Court stated:

"Nor does either the commerce clause, Art. I, Section 8, Cl. 3, or the clause prohibiting the imposition of duties or imposts on imports, Art. I, Section 10, Cl. 2, of the federal Constitution impose any barrier to the laying of the disputed tax.

"The commerce clause gives Congress plenary power to regulate our foreign and interstate commerce and thus as a necessary consequence it has the secondary effect of a restriction upon the power of the states in the premises. It thus has two aspects, but in neither of them, either as a grant of federal power or as a necessarily consequential limitation upon state power, does it affect Puerto Rico. In its aspects of a grant of power to the federal government it adds nothing to the comprehensive power given to Congress by the Constitution, Art. IV, Section 3, Cl. 2, to legislate with respect to national territory, and it can have no consequential effect of limiting territorial action since Congress already has the power under Art. IV, Section 3, Cl. 2, supra, to limit such action to any extent it chooses, even to the extent of annulling local legislation. See § 34 of the Organic Act. 39 Stat. 951, 961, 48 U.S.C.A. § 822 et seq.

"The constitutional prohibition upon the imposition of duties or imposts on imports is inapplicable because that prohibition is laid upon the states, and Puerto Rico, as we frequently have occasion to say, is not a state but an organized territory not incorporated into the United States, N. L. R. B. v. Gonzalez Padin Company, Inc., 1 Cir., 161 F. 2d 353, and cases cited.

"The actual question

...