City of Farmers Branch v. Matsushita Elec. Corp. of America

• Decision Date: 31 July 1975
• Docket Number: No. 838,838
• Citation: 527 S.W.2d 768
• Parties: CITY OF FARMERS BRANCH, Texas, et al., Appellants, v. MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Appellee.
• Court: Texas Court of Appeals

Page 768

527 S.W.2d 768

CITY OF FARMERS BRANCH, Texas, et al., Appellants, v. MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Appellee.

No. 838.

Court of Civil Appeals of Texas,

Tyler.

July 31, 1975.

Rehearing Denied Aug. 28, 1975.

Durant, Mankoff, Davis & Wolens, Ronald M . Mankoff, C. Robert Rainwater, Dallas, for appellants.

Thompson, Knight, Simmons & Bullion, Jerry Buchmeyer, Dallas, for appellee.

McKAY, Justice.

Plaintiff-appellee, Matsushita Electric Corporation of American (MECA) brought suit against appellants, City of Farmers Branch, Texas, and T. E. Waldrip, the Tax Assessor-Collector of Farmers Branch, seeking a declaratory judgment that certain inventory on hand at MECA's Farmers Branch warehouse on January 1, 1972, is exempt from taxation by virtue of the provisions of Article 1, Section 10, Clause 2 (the Import-Export Clause) of the United States Constitution. Further, MECA sought both temporary and permanent injunctions, enjoining Farmers Branch and Waldrip from attempting to impose, collect or enforce any taxes upon or with respect to the disputed inventory for the year of 1972. The trial court held that imported merchandise brought from Japan and stored in its original cartons in MECA's Farmers Branch warehouse was exempt from taxation, but that any merchandise stored in MECA's warehouse in Farmers Branch which was received from any other MECA warehouse in the United States was not exempt even if the merchandise remained in its original cartons. Also, the court held that any merchandise imported from Puerto Rico and stored in MECA's warehouse in Farmers Branch was not exempt. The parties filed stipulated facts, and pursuant to appellants' request, the trial court filed findings of fact and conclusions of law.

We have this day decided an appeal in City of Farmers Branch, et al v. American Honda Motor Co., Inc., No. 839, which appeal raised some of the same questions as are presented here.

This cause of action arose by virtue of appellants' imposition of an ad valorem tax on personal property located within Farmers Branch, under the power vested in it by Article 1165 of the Texas Revised Civil Statutes. MECA rendered to Farmers Branch for taxation certain personal property situated in its warehouse. MECA had additional personal property valued at $2,425,334.70 situated in its Farmers Branch warehouse which it did not render, claiming that the property was exempt under Article 1, Section 10, Clause 2, of the United States Constitution. Of that amount, the total value of Panasonic products imported from Puerto Rico was $140,714.71. It is undisputed that MECA claimed this exemption and pursued all administrative remedies, but was denied the claimed exemption for the disputed inventory.

No manufacturing, repairing or servicing is carried on at the Farmers Branch warehouse, as it is only used to store the imported products prior to their sale and shipment to retailers, dealers, distributors and others in Texas, Louisiana, Mississippi, Arkansas, Oklahoma and three counties in Tennessee.

MECA did not claim any exemption from the ad valorem tax for (1) non-inventory property, (2) property not imported from outside the United States or (3) for imported products which had been removed from the corrugated cartons in which they were shipped from outside the United States. MECA did claim an exemption from taxation for the imported Panasonic products which remained in their original unbroken packages and were imported from either Japan or Puerto Rico .

The Panasonic products imported from Japan were manufactured in Japan and placed in corrugated cartons by the foreign manufacturer. Each carton was taped or stapled at the factory and was loaded into a large sea van, 40 feet long, 8 feet high and 8 1/2 feet wide, weighing 6,260 pounds, and leased by an independent common carrier. After a sea van was loaded, it proceeded to dockside, was separated from its wheels and cab by crane and loaded onto a ship, where title to the products passed to MECA. The ship proceeded to the United States and at Seattle, Washington, the port of entry, federal custom duties were paid on the products. The entire van was removed from the ship by crane and affixed to a railroad flat car, by which it proceeded to Fort Worth, Texas. There, the van was once again affixed to wheels and a cab and proceeded directly to MECA's warehouse in Farmers Branch. Upon the van's arrival at the warehouse, each of the original corrugated cardboard cartons was unloaded and placed in the warehouse. Throughout the entire process described, the original corrugated cartons remained taped and/or stapled and were stored in that condition in the warehouse until an order was received from a dealer or distributor to purchase the particular products contained in the cartons. After unloading, the van was immediately returned to the carrier for use in transporting goods of other manufacturers and importers. At all times the van was owned or leased by the independent common carrier and MECA at no time had direct control over its progress. The Panasonic products imported from Puerto Rico were purchased by and shipped to MECA in the same manner as those imported from Japan except that the port of entry was New Orleans, Louisiana.

On a few occasions, when the MECA warehouse in Farmers Branch was in short supply of a particular Panasonic product, MECA made arrangements for a shipment of these products from another MECA warehouse in the United States. When these products arrived at the Farmers Branch facility they were in the original unbroken cartons in which they were imported from Japan or Puerto Rico.

In their first point, appellants maintain that the trial court erred in concluding that the goods in the Farmers Branch warehouse of MECA on January 1, 1972, had not been incorporated into the mass of goods in the United States, and, therefore, were still 'imports' for the purposes of Article 1, Section 10, Clause 2 of the United States Constitution. Appellants argue that (1) the disputed inventory, through an elaborate marketing system, has lost its character as imports; (2) the disputed inventory has been fully committed to appellee's operational needs and, therefore, should not be tax exempt; and (3) the act of importation may end, and in this case has ended, before the goods are removed from the original package. We disagree.

Article 1, Section 10, Clause 2 of the United States Constitution provides:

'No State shall, without the Consent of the Congress, lay any Imports or Duties on Imports or Exports, except what may be absolutely necessary for executing its Inspection Laws * * *.'

In Brown v. State of Maryland, 25 U.S. (12 Wheat.) 419, 6 L.Ed. 678 (1827), the Supreme Court interpreted the Import-Export Clause and adopted what has become known as the 'original package' doctrine . The Court stated, speaking through Chief Justice Marshall:

'* * * when the importer has so acted upon the thing imported, that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the State; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the constitution.' Brown v. State of Maryland, supra, p. 441--2.

The United States Supreme Court has continued to apply the original package doctrine in Low v. Austin, 80 U.S. (13 Wall.) 29, 20 L.Ed. 517 (1872); Hooven & Allison Co. v. Evatt, 324 U.S. 652, 65 S.Ct. 870, 89 L.Ed. 1252 (1945); and Dept. of Revenue v. James Beam Distilling Co., 377 U.S. 341, 84 S.Ct. 1247, 12 L.Ed.2d 362 (1964). Some of the more recent state and federal court decisions which apply the 'original package' doctrine to imported goods held for sale are: Wages v. Michelin Tire Corporation, 233 Ga. 712, 214 S.E.2d 349 (1975) cert. granted; Wilson v. County of Wake, 19 N.C.App. 536, 199 S.E.2d 665, 668 (1973); Price Paper Corporation v. Detroit, 42 Mich.App. 488, 202 N.W.2d 523, 525 (1972); Sterling Liquor Distributors Inc. v. County of Orange, 3 Cal.App.3d 510, 83 Cal.Rptr. 571 (1970) cert. denied, 400 U.S. 822, 91 S.Ct. 43, 27 L.Ed.2d 50 (1970); Tricon, Inc. v. King County, 60 Wash.2d 392, 374 P.2d 174 (1962) cert. denied, 372 U .S. 908, 83 S.Ct. 721, 9 L.Ed.2d 717 (1963); Standard-Triumph Motor Company v. City of Houston, Texas, 220 F.Supp. 732, 734 (S.D.Tex.1963) vacated on other grounds, 347 F.2d 194 (5th Cir. 1965) cert. denied 382 U.S. 974, 86 S.Ct. 539, 15 L.Ed.2d 466 (1966); State ex rel. H. A. Morton Company v. Board of Review, City of Milwaukee, 15 Wis.2d 330, 112 N.W.2d 914 (1962); Miehle Printing Press and Manufacturing Company v. Department of Revenue, 18 Ill.2d 445, 164 N.E.2d 1 (Ill.1960); Singer Co. v. County of Kings, 46 Cal.App.3d 852, 121 Cal.Rptr. 398 (1975).

In the case at bar, the disputed inventory remained as the property of MECA, in MECA's Farmers Branch warehouse in the corrugated cartons in which it was imported. Therefore, applying the 'original package' doctrine, we believe that a tax upon the disputed inventory could not escape the prohibition set forth in the Import-Export Clause of the Constitution.

In Youngstown Sheet and Tube Company v. Bowers, 358 U.S. 534, 541--2, 79 S.Ct. 383, 3 L.Ed.2d 490 (1959), the Supreme Court, relying upon Brown v. Maryland, reemphasized some of the acts or conduct of the importer that would deem the importer to have 'so acted upon the thing imported' as to cause it to be 'mixed up with the mass of property in the country (and to lose) its distinctive character as an import.' The Court stated that goods lost their character as imports when the importer (1) 'sells them,' (2) '(breaks) up his packages, and (travels) with them as an itinerant pedlar' or (3) when goods are brought into this country by an importer 'for...