Hugo Neu Corp. v. County of Los Angeles

• Decision Date: 28 April 1970
• Citation: 86 Cal.Rptr. 332,7 Cal.App.3d 21
• Court: California Court of Appeals Court of Appeals
• Parties: HUGO NEU CORPORATION, a corporation, and Proler Steel Corporation, a corporation, joint venturers doing business under the fictitious firm name and style of Hugo Neu-Proler Company, Plaintiffs and Respondents, v. COUNTY OF LOS ANGELES and City of Los Angeles, Defendants and Appellants. Civ. 33357.

Page 332

86 Cal.Rptr. 332

7 Cal.App.3d 21

HUGO NEU CORPORATION, a corporation, and Proler Steel Corporation, a corporation, joint venturers doing business under the fictitious firm name and style of Hugo Neu-Proler Company, Plaintiffs and Respondents, v. COUNTY OF LOS ANGELES and City of Los Angeles, Defendants and Appellants.

Civ. 33357.

Court of Appeal, Second District, Division 5, California.

April 28, 1970.

Hearing Denied June 24, 1970.

John D. Maharg, County Counsel, De Witt W. Clinton, Deputy County Counsel, for defendants and appellants.

Buchalter, Nemer, Field & Savitch and Stuart D. Buchalter and Cary D. Cooper, Los Angeles, for plaintiffs and respondents.

KAUS, Presiding Justice.

The issue presented in this appeal is whether certain scrap metal which was awaiting shipment to Japan had entered the export stream and thus was exempt under the export clause of the Federal Constitution (art. I, § 10, cl. 2) from an ad valorem property tax levied by defendants.

In 1961 plaintiff Hugo Neu Corporation entered into a sales contract with a group of Japanese steel mills under which Hugo Neu Corporation agreed to ship to the Japanese group in Japan 20,000 long tons of 'Proler Scrap' per month for five years, commencing not later than June 28, 1962. In 1962 Hugo Neu and Proler Steel Corporation formed a joint venture and began doing business under the name of Hugo Neu-Proler Company. A plant facility was constructed at Terminal Island, Los Angeles for the exclusive purpose of processing steel scrap for the contract. ¹ The plant was designed to produce about 20,000 long tons of Proler Scrap per month. Since operations commenced in January, 1963, no scrap has been processed at the plant for domestic sale or use. The total output of the facility has been shipped to the Japanese group under the contract.

Plaintiffs obtain raw steel scrap for 'prolerizing' from various sources. Upon delivery to the facility the raw material is sometimes fed directly into the processing machine. Other times it is stacked near the entrance to the machine and prolerized as soon as capacity permits. As the scrap emerges from the plant it is either loaded directly into a ship, or, if no ship is waiting at plaintiffs' plant, it is piled on the dock and loaded when a vessel arrives.

On March 4, 1963, and again on March 2, 1964, defendant County of Los Angeles assessed all the steel scrap--processed and unprocessed alike--which was owned by plaintiffs and at the facility. Plaintiffs paid the taxes under protest and later brought this action for their recovery.

Only 79% Of the scrap assessed is in issue in this proceeding. ² The parties have stipulated that this 79% '* * * had its origin in sales made to Plaintiff by independent or private scrap dealers consisting of auto wreckers, scrap collectors and peddlers who delivered the scrap by truck directly to the loading scales located at the New Dock Street entrance to Plaintiff's terminal island facility. The sale of this 79% Of the scrap by these independent or private dealers to Plaintiff takes place at the New Dock Street entrance at Plaintiff's terminal island facility and title to this 79% Of the scrap passes from the dealers to Plaintiff at the loading scale at the street entrance to Plaintiff's terminal island facility.' Nothing in the record indicates that these deliveries were made pursuant to a preexisting contract.

Article I, section 10, clause 2 of the United States Constitution in pertinent part provides that: 'No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports * * *.' This case requires us to determine whether the scrap assessed to plaintiffs was an 'export' within the meaning of the clause.

The early case of Coe v. Town of Errol (1886) 116 U.S. 517, 527, 6 S.Ct. 475, 29 L.Ed. 715, established that property is not immune from state taxation as an export until it has 'been shipped or entered with a common carrier for transportation to another state or (has) been started upon such transportation in a continuous route or journey.' ³ The purpose of requiring movement or irretrievable commitment to export was to provide certainty that the property would not be diverted for use or sale within the state of its origin. (166 U.S. at 528, 6 S.Ct. at 478.) In the cases since Coe v. Errol, however, the tests announced in that decision which were merely meant to insure certainty of eventual export, have hardened into a strict requirement in their own right. It will not suffice that a journey to a foreign land is absolutely certain as of the date the tax is levied. Both certainty and motion--or commitment thereto--are necessary to a finding that goods are exports; further, they must exist concurrently. (Empresa Siderurgica v. County of Merced, 337 U.S. 154, 157, 69 S.Ct. 995, 93 L.Ed. 1276; Richfield Oil Corp. v. State Board of Equalization, 329 U.S. 69, 82--83, 67 S.Ct. 156, 91 L.Ed. 80; Hugo Neu Corp. v. County of Los Angeles, 241 Cal.App.2d 703, 709, 50 Cal.Rptr. 916.)

The clearest example is Empresa Siderurgica v. County of Merced, Supra. There the plaintiff, a Columbian corporation, had purchased for export to Columbia and acquired title and possession of a cement plant located in Merced County, California. On the tax lien date 12% Of the plant had been shipped out of the county and was not involved in the proceedings. The balance consisted of 10% Which had been dismantled and crated or prepared for shipment, 34% Which had been dismantled but not so prepared and 44% Which had not been dismantled. In spite of the fact that, as Justice Frankfurter's dissent points out, the trial court had in effect found that the entire plant consisted of interdependent pieces of machinery, the Supreme Court or a plan which contemplates exportation, County was an export. After quoting the test laid down in Coe v. Errol, Supra, the court said: 'Under that test it is not enough that there is an intent to export, or a plan which contemplates exporation, or an integrated series of events which will end with it. See Turpin v. Burgess, 117 U.S. 504, 6 S.Ct. 835, 29 L.Ed. 988; Cornell v. Coyne, 192 U.S. 418, 24 S.Ct. 383, 48 L.Ed. 504. The tax immunity runs to the process of exportation and the transactions and documents embraced in it. Fairbank v. United States, 181 U.S. 283, 21 S.Ct. 648, 45 L.Ed. 862; United States v. Hvoslef, 237 U.S. 1, 35 S.Ct. 459, 59 L.Ed. 813, Ann.Cas.1916A, 1286; Thames & Mersey Marine Ins. Co. v. United States, 237 U.S. 19, 35 S.Ct. 496, 59 L.Ed. 821, Ann.Cas.1915D, 1087. Delivery of packages to an exporting carrier for shipment abroad (Spalding & Bros. v. Edwards, 262 U.S. 66, 43 S.Ct. 485, 67 L.Ed. 865) and the delivery of oil into the hold of the ship furnished by the foreign purchaser to carry the oil abroad (Richfield Oil Corp. v. State Board of Equalization, Supra) have been held sufficient. It is the entrance of the articles into the export stream that marks the start of the process of exportation. Then there is certainty that the goods are headed for their foreign destination and will not be diverted to domestic use. Nothing less will suffice.

'So in this case it is not enough that on the tax date there was a purpose and plan to export this property. Nor is it sufficient that in due course that plan was fully executed. The part of the plant that is taxed was dismantled but it had not been delivered to any carrier for export or otherwise started on its journey on the tax date. It might still have been diverted into the domestic market. The fact that any such diversion would entail a breach of contract, that a part of the plant had already started on its export journey, that an export license had been obtained and a letter of credit deposited in this country increases the expectation on the tax date that exportation of the entire plant would eventuate. But that prospect, no matter how bright, does not start the process of exportation. On the tax date the movement to foreign shores had neither started nor been committed.' (337 U.S. at pp. 156--157, 69 S.Ct. at p. 997.)

We can see no essential difference between the facts in Empresa and those in this case. There was, of course, substantial certainty that all of the scrap metal assessed to plaintiffs would eventually be appropriated to their contract with the Japanese buyers. The real trouble with plaintiffs' position is the same that had plagued the plaintiff in Empresa: on the tax lien date the scrap had not started on a transportation to Japan in a 'continuous route or journey.' It rested at the very same plant where plaintiffs had acquired it. Although part of the scrap then was put through the processing machine, that 'movement' was wholly incidental to a step in the manufacturing process. After the scrap emerged from the processing plant, it again came to rest, waiting for a ship. (Hugo Neu v. County of Los Angeles, 241 Cal.App.2d 703, 709, 50 Cal.Rptr. 916.) ⁴

Plaintiffs rely principally on Von Hamm-Young Co. v. City and County of San Francisco, 29 Cal.2d 798; 178 P.2d 745; and Texas & N.O.R. Co. v. Sabine Tram Co., 227 U.S. 111, 33 S.Ct. 229, 57 L.Ed. 442 for the proposition that the continuous movement abroad had begun with the transportation of the raw scrap by plaintiffs' vendors to plaintiffs' plant. We find neither case in point.

Von Hamm-Young involved a Hawaiian importer who purchased merchandise in various parts of the continental United States for resale in Hawaii. On the first Monday in March, 1943, a quantity of goods thus purchased was warehoused in San Francisco awaiting cargo space to hawaii. The importer had purchased the goods in various ways. 90% Had been bought outside of San Francisco and had been shipped by rail to that city, consigned to the importer in Honolulu. 10% Were purchased in San Francisco and reached the warehouses other than by common carrier. The defendant city and county levied a personal property tax on the goods....