City of Farmers Branch v. American Honda Motor Co., Inc.
| Decision Date | 31 July 1975 |
| Docket Number | No. 839,839 |
| Parties | CITY OF FARMERS BRANCH, Texas, et al., Appellants, v. AMERICAN HONDA MOTOR COMPANY, INC., Appellee. |
| Court | Texas Court of Appeals |
Durant, Mankoff, Davis & Wolens, Ronald M. Mankoff, C. Robert Rainwater, Dallas, for appellants.
Carrington, Coleman, Sloman, Johnson & Blumenthal, Marvin S. Sloman, Peter Tierney, Dallas, for appellee.
Plaintiff-appellee, American Honda Motor Company, Inc. (American Honda) 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 American Honda'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. 1 Further, American Honda sought a permanent injunction, 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. In a non-jury trial, the court held that imported merchandise in American Honda's surplus storage brought to Farmers Branch directly from Japan was exempt from taxation under the Import-Export clause, but that otherwise exempt imports in 'surplus storage' in American Honda's Farmers Branch warehouse brought from 'surplus storage' in other warehouses of American Honda in the continental United States were not exempt. The parties filed stipulated facts, and pursuant to appellants' request, the trial court filed finding of fact and conclusions of law.
We have this day decided an appeal in City of Farmers Branch et al. v. Matsushita Electric Corporation of America, 527 S.W.2d 768, 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. 2 On January, 1, 1972, American Honda rendered for taxation personal property valued at $160,310.85 which was situated in its warehouse in Farmers Branch. American Honda also had additional property valued at $293,050.15 in its warehouse which it did not render for taxation, claiming that the property was exempt under Article 1, Section 10, Clause 2, of the United States Constitution. It is undisputed that American Honda claimed this exemption and pursued all administrative remedies, but was denied the claimed exemption for the inventory in question.
The disputed inventory consisted of parts and accessories for motorcycles, automobiles or outboard motors which were manufactured by Honda, Ltd., in Japan and distributed domestically to American Honda's warehouses situated throughout the United States. The location of American Honda's warehouses is determined in substantial part by the geographical pattern of retail demand for appellee's units and the parts needed for repair of consumer-owned units. All goods shipped by Honda, Ltd. to appellee, including all of the disputed inventory on January 1, 1972, were subject to United States' custom duties which had been paid by custom brokers on behalf of American Honda.
In its Gardena, California, offices American Honda maintains a perpetual inventory count of all units and parts of stock in each of its warehouses in the United States by means of its data processing system. To determine the size of its inventories in each warehouse, American Honda considers various factors such as demand requirements, budgetary considerations, availability from source, anticipated monetary revaluations and other special considerations such as the possibility of future material shortages. The inventory turnover of parts at American Honda's Farmers Branch warehouses is approximately once a year or slightly more than once a year.
When parts are ordered by American Honda, employees of Honda, Ltd. at its warehouse in Japan put these parts in corrugated cartons and seal them. These corrugated cartons are then placed in sea vans by Honda, Ltd.'s employees and the sea vans are transported to the steamship dock in Japan where they are loaded onto steamships for transport to the United States. Except for a few specialized instances, the cartons of parts contain a relatively large number of items per carton.
The steamship line whose vessel is to carry a specific shipment supplies a sea van at the Honda, Ltd. parts warehouse dock in Japan for use in transporting corrugated cartons of parts to the United States. A sea van is a large metal container which weighs 6,200 pounds and measures 40 feet long, eight feet high and eight and one-half feet wide. The van is at all times owned by the steamship line and is furnished by the steamship line for the purpose of carrying the cargo of sealed corrugated cartons overseas. When the sea vans have been unloaded at Farmers Branch, Gardena, and elsewhere, they are returned to the steamship line which owns them at a port of entry in the United States.
In 1971, the sea vans from Japan were brought to American Honda's Gardena, California, warehouse where they were opened and the sealed corrugated cartons were unloaded and placed in enclosed semi-trailer trucks for shipment to American Honda's Farmers Branch warehouse or they were stocked in 'surplus inventory' at American Honda's Gardena warehouse and, at a later time, forwarded to the Farmers Branch warehouse for 'surplus storage' there.
There are two segregated areas for storing the inventory at American Honda's Farmers Branch warehouse. The area for the storage of the sealed unopened corrugated cartons is designated 'surplus storage' and is segregated from other parts of the warehouse. When the sealed unopened corrugated cartons arrive at American Honda's Farmers Branch warehouse, employees unload these cartons at a receiving area and they are taken to the 'surplus storage' area until they are needed in the 'open stock' area.
The 'open stock' area is the other area for storing inventory at Farmers Branch. It is segregated from the 'surplus storage' area and consists of storage bins of parts which are no longer in cartons and are for current use in filling orders. When an open stock bin becomes low on parts, it is refilled by removing a carton from 'surplus storage,' opening the carton and distributing its contents into the depleted open stock bin. Sometimes, sealed and unopened cartons which normally would be stored in the 'surplus storage' area are kept on top of the racks containing bins of open stock in the 'open stock' area although the cartons remain sealed and unopened. This area is referred to as 'above-bin surplus storage.' These cartons, though sealed and unopened, are not included in the inventory-count of 'surplus storage' and are not included in the count of disputed inventory.
Transfers of stock from the American Honda Farmers Branch warehouse to other American Honda warehouses in the United States are made from both 'open stock' and from the stock of sealed and unopened corrugated cartons in 'surplus storage' and 'above-bin surplus storage' while transfers of stock from Gardena, California, to the Farmers Branch warehouse are out of stock of sealed corrugated cartons in 'surplus storage' and not from 'open stock.
The main function of appellee's warehouses, including its warehouse in Farmers Branch, is to store merchandise which is necessary to supply to retail dealers carrying 'Honda' brand merchandise in the southwest region. No manufacturing, repair work, or servicing is carried on at the American Honda warehouse in Farmers Branch. All disputed inventory on hand at the American Honda warehouse in Farmers Branch on January 1, 1972, was the property of American Honda, unsold, segregated in the 'surplus storage area' of the warehouse, and in the original unopened corrugated cartons in which it was packed in Japan.
In their first point, appellants maintain the trial court erred in finding that the disputed inventory in the Farmers Branch warehouse of American Honda on January 1, 1972, had not been incorporated into the mass of goods in the United States and, therefore, was still 'imports' for the purposes of Article 1, Section 10, Clause 2, of the United States Constitution. Appellants rely primarily on Youngstown Sheet and Tube Company v. Bowers, 358 U.S. 534, 541--42, 79 S.Ct. 383, 387, 3 L.Ed.2d 490 (1959), and argue that (1) the disputed inventory has lost its character as imports; (2) the disputed inventory has been fully committed to the appellee's operational needs and, therefore, should not be tax exempt; and (3) the act of importation which is protected by Article 1, Section 10, Clause 2, may end, and in this particular case, has ended, before the goods are removed from the original package. We disagree.
In Brown v. State of Maryland, 25 U.S. (12 Wheat.) 419, 6 L.Ed. 678, 686 (1827), the Supreme Court interpreted the Import-Export clause and espoused what has become known as the 'original package' doctrine. The court speaking through Chief Justice Marshall stated that '* * * (w)hen 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.'
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 Dep't. of...
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City of Farmers Branch v. American Honda Motor Company, Inc.
...of those questions in Matsushita control the disposition of this cause. The judgments of the trial court and the Court of Civil Appeals, 527 S.W.2d 776, are reversed; the injunction entered by the trial court against the assessment and collection of the taxes is dissolved; and judgment is h......