American Smelting & Refining Co. v. Contra Costa County

• Decision Date: 04 April 1969
• Citation: 271 Cal.App.2d 437,77 Cal.Rptr. 570
• Parties: AMERICAN SMELTING AND REFINING COMPANY, Plaintiff and Respondent, v. The COUNTY OF CONTRA COSTA, Alfred M. Dias, James E. Moriarity, Thomas J. Coll, James P. Kenny, and E. A. Linscheid as the Board of Supervisors of Said County, John Nejedly as District Attorney of Said County, E. F. Wanaka as Tax Assessor of Said County, D. H. Funk, as County Auditor of Said County, and Emmett Hitchcock as Tax Collector of Said County, Defendants and Appellants. Civ. 24762.
• Court: California Court of Appeals Court of Appeals

Page 570

77 Cal.Rptr. 570

271 Cal.App.2d 437

AMERICAN SMELTING AND REFINING COMPANY, Plaintiff and Respondent, v. The COUNTY OF CONTRA COSTA, Alfred M. Dias, James E. Moriarity, Thomas J. Coll, James P. Kenny, and E. A. Linscheid as the Board of Supervisors of Said County, John Nejedly as District Attorney of Said County, E. F. Wanaka as Tax Assessor of Said County, D. H. Funk, as County Auditor of Said County, and Emmett Hitchcock as Tax Collector of Said County, Defendants and Appellants.

Civ. 24762.

Court of Appeal, First District, Division 1, California.

April 4, 1969.

As Modified on Denial of Rehearing ified on Denial of Rehearing April 29, 1969.

Hearing Denied July 2, 1969.

John A. Nejedly, Dist. Atty., of Contra Costa County, Howard T. Gonsalves, Deputy Dist. Atty., of Contra Costa County, Martinez, for appellants.

Valentine Brookes, Paul E. Anderson, Charles S. Franklin, San Francisco, for respondent; Kent, Brookes & Anderson, San Francisco, of counsel.

SIMS, Associate Justice.

The County of Contra Costa and its officials charged with the levy, assessment, collection and cancellation of property taxes have appealed from a judgment which granted the American Smelting and Refining Company a peremptory writ of mandate commanding appellants to cancel an allegedly illegal property tax assessment, and an injunction permanently restraining the collection of property taxes levied on that assessment. ¹ The assessment, made in 1966 for the 1966--1967 secured assessment roll, involves personal property of an aggregate assessed value of $12,666,078. The property consists of imported metal-bearing ores and concentrates, such material in process, and refined metals, including gold, subject to United States Customs Bond, similar materials of foreign origin, including gold in petitioner's bonded warehouse, but not subject to bond, and gold of domestic origin. The assessment covers the inventories of such metals held on the first Monday of March 1966, and those which allegedly escaped assessment in the three preceding years. The total tax involved is $846,781.39.

The controversy embraced in the legal issues presented by this case antedates the founding of the present federal government. ² It finds expression in the Commerce Clause ³ and the Import-Export Clause ⁴ of the United States Constitution. The interpretations and application of the constitutional concepts are found in those precedents stemming from Brown v. Maryland (1827) 25 U.S. (12 Wheat.) 419, 6 L.Ed. 678.

The observations of Chief Justice Marshall, in Brown v. Maryland, supra, apply to the controversy presented by this case. There he wrote: 'The constitutional prohibition on the states to lay a duty on imports, a prohibition which a vast majority of them must feel an interest in preserving, may certainly come in conflict with their acknowledged power to tax persons and property within their territory. The power, and the restriction on it, though quite distinguishable, when they do not approach each other, may yet, when the intervening colors between white and black, approach so nearly, as to perplex the understanding, as colors perplex the vision, in marking the distinction between them. Yet the distinction exists, and must be marked as the cases arise.' (25 U.S. at p. 441.)

In this case immunity from taxation is predicated upon the following principles: First, that under the Commerce Clause, the Congress has explicitly, by approval of a Customs Regulation, prohibited the taxation of imported goods while under customs bond; Second, that even in the absence of the regulation, Congress by providing for bonded smelting and refining warehouses has preempted whatever rights the state or local government otherwise might have to tax imported ores and metals which are subject to bond; Third, that in any event the controverted assessment and tax would constitute a prohibited burden on foreign commerce. It is further asserted that the Import-Export Clause precludes state and local taxation of the ores and minerals because they do not enter into domestic commerce until they are shipped from the smelter. Finally, the exemption of gold, whether of foreign or domestic origin, and whether unrefined and encompassed in ore, or in refined or pure state, is predicated upon federal laws and regulations governing the production, ownership and use of that precious metal.

The taxing authorities assail the ultimate findings of fact and the conclusions of law upon which the judgment is predicated. They insist that the taxpayer by engaging in the local business of smelting and refining, has subjected the property appropriated to that enterprise to local taxation, and that the regulations of the federal government which are designed to protect the collection of customs duties, and to restrict the market for gold do not endow such property with immunity from state or local taxation.

An examination of the uncontradicted facts in the light of the applicable principles of law leads to the conclusions that the ores and minerals in question, with the exception of those appropriated to fulfill the taxpayer's obligation to reexport, are not protected by the Import-Export Clause, or the Commerce Clause; and that neither the federal laws and regulations enacted for the regulation of foreign commerce and the protection of the federal revenues, nor the laws and regulations restricting traffic in gold gives the ores and minerals an immunity from nondiscriminatory local taxation. The judgment must be reversed.

General Facts

The following facts are extracted from the uncontroverted findings of fact made by the trial court.

The taxpayer is a corporation organized under the laws of New Jersey, with its principal office and place of business in New York. It is engaged in business in several states and in foreign countries. The present controversy arises out of its ownership of a lead smelter and refinery at Selby, in Contra Costa County, which it operates for the purpose of extracting refined lead and other metals from ores and concentrates. Most of the metal-bearing ores and concentrates smelted and refined by petitioner at Selby arrive by Ocean-going transport from foreign countries. The ores and concentrates are unloaded directly onto the taxpayer's dock from the ship. Refined lead, refined gold, refined silver, minor amounts of refined platinum and palladium, and by-product materials containing copper, zinc, antimony, tin, bus-muth and cadmimum requiring further refining emerge from the smelter and refinery. The by-product materials are sent to refineries in other states for further refining. The refined metals extracted by Selby are not manufactured products but are unwrought metals sold to manufacturers for use as raw materials, except for those sales of gold bullion made to the United States government, and except for about six percent of the plant's total lead production which is produced in the form of antimonial lead, with antimony which is derived from the ores, concentrates and scrap lead processed in the smelter.

The taxpayer treats ores and concentrates under the terms and conditions of contracts negotiated with the owners of the material to be treated. Usually such a contract will provide that possession and risk of loss will pass to the taxpayer as 'Buyer' at the time the property is delivered at the smelter. The taxpayer undertakes to pay the 'Seller' for the raw material received on the basis of a stated percentage of the metal content at published market prices for those metals, with specified deductions, called margins, for smelting and refining. ⁵

In some cases the owner of the ores or concentrates desires to market some or all of the metals himself or is required to return those metals to the country of origin. In such cases a toll contract is negotiated stating the percentage of each metal content to be accounted for, the condition governing the return of metals, and the charges for smelting and refining. Under this type of contract the taxpayer returns to the supplier a quantity of metal equivalent to the accountable content of the ores delivered. The form of contract is essentially the same as that used in the case of ores over which the taxpayer has the unfettered power of disposition except that the return of an equivalent amount of metal is substituted for payment in cash. ⁶

After their arrival at the taxpayer's plant, the ores and concentrates are segregated by producer and shipment, and are stored and assigned lot identification numbers in the taxpayers yards. For technological reasons lots from each foreign mine must be enabled to enter the smelting and refining process as a separate unit because of the different composition of different lots.

Throughout the years in question, and for over 40 years, the Selby refinery has been designated a Class 7 Customs Bonded Smelting and Refining Warehouse, and has continuously operated as such with the full approval of the United States Bureau of Customs. (See § 312 of the Tariff Act of 1930, as amended (19 U.S.C.A. § 1312).) Within its Selby bonded warehouse, the taxpayer smelts and refines imported metal-bearing materials upon which duties have not yet become payable and which are in the custody and under the supervision of the United States Bureau of Customs, together with imported metal-bearing materials which have been duty-paid, or which are duty-free. Domestic metal-bearing ores also enter the taxpayer's smelting processes. These domestic materials, which the taxpayer uses as fluxes, have a low metal content compared to the imported concentrates from which most of the silica and limestone naturally present in the ore has been removed by milling and concentrating processes at the foreign mines. The concentrating of ores permits the foreign miner to avoid shipping charges on relatively worthless rock and earth. Since the smelting process requires the use of limestone, silica and other fluxes, the...