Sea-Land Services, Inc. v. Municipality of San Juan

Decision Date18 September 1980
Docket NumberCiv. No. 1143-72.
Citation505 F. Supp. 533
PartiesSEA-LAND SERVICES, INC. et als Plaintiffs v. The MUNICIPALITY OF SAN JUAN et als Defendants.
CourtU.S. District Court — District of Puerto Rico

Jiménez & Fusté, San Juan, P. R., for plaintiffs.

William H. Preston, Jr., Jorge Hernández Pérez and Jorge Souss, San Juan, P. R., for Municipality of San Juan.

Emeterio Maldonado Guzmán, Arecibo, P. R., for Municipality of Arecibo.

Natalio García, Dept. of Justice, San Juan, P. R., for Municipality of Ponce.


PESQUERA, Chief Judge.

In this case, we have been asked to solve two constitutional questions of paramount importance. In the presence of weighty authority to the contrary,1 we are urged to hold that the commerce2 and "import—export"3 clauses of the U.S. Constitution apply to Puerto Rico. On that account, we must ascertain whether the municipal license taxes imposed on plaintiffs by the major coastal municipalities are unconstitutional.

Upon the filing of an amended complaint,4 defendants moved to dismiss on the ground, inter alia, that the Butler Act Amendment to the Puerto Rico Federal Relations Act, 48 U.S.C.A. § 872 prohibited suits in federal court for the purpose of restraining the assessment or collection of local taxes. We held that in the absence of a speedy and efficient remedy under local law,5 we could entertain this action.6

The issues are now submitted for our decision after a hearing where most of the crucial facts were stipulated.


Plaintiff Gulf Puerto Rico Lines, Inc.* is a corporation organized and "commercially domiciled" in Puerto Rico. It had its principal place of business in New Orleans, Louisiana and offices in the municipalities of San Juan, Ponce and Mayaguez until October 15, 1974, when it discontinued its business.

Sea-Land Service, Inc., the parent company of Gulf, is incorporated in Delaware, has its principal place of business in New Jersey and offices throughout the world, including the municipalities of San Juan, Ponce, Mayaguez and Arecibo.7 Both Sea-Land and Gulf have been at all times pertinent hereto engaged in the business of ocean transportation of goods for hire through the Port of San Juan,8 among others.

Sea-Land's freight is solicited by an independent freight soliciting agent who works on commissions.9 The agent is responsible for all advertising, promotion and publishing of vessel sailing schedules and other similar services. Upon solicitation of a container load or freight by the agent, the shipper usually hires a local trucker to pick up an empty container at Sea-Land's terminal for delivery to the shipper's facility.10 Sea-Land requires compliance with certain minimum standards in order to be entitled to haul company trailers. Such local truckers are related to Sea-Land only through the contracted work described above.

Once the shipper loads the container, the trucker is instructed to redeliver it to plaintiffs' truck terminals at the port of embarkation. Upon receipt, plaintiffs take custody of the container and the contents thereof and then load the container on a ship for carriage to the port of destination.

The bulk of the revenues received by Sea-Land in connection with its activities in Puerto Rico and elsewhere is the freight charge. In addition to freight, Sea-Land charges for the following accessorial services commonly associated with its operations in Puerto Rico:

A—Documentation—charge for the preparation of shipping documents by Sea-Land to a particular shipper.
B—Pick-up—charge that arises when a shipper requests from Sea-Land the pickup of the cargo at the shipper's facility. Sea-Land hires a trucker for the local overland transportation and passes the freight charge to the shipper or consignee in the waybill.
C—Delivery—similar to pick-up charge, arises when a consignee requests delivery of merchandise.
D—Consolidation—upon request of a shipper, Sea-Land will consolidate two or more individual shipments and forward them on one bill of lading to one consignee at one point of delivery; charge for this service includes a profit margin.
E—Handling—charge for transfer between rail cars or motor vehicles (stuffing or unstuffing).
F—Heavy lift—charge for the use of special equipment when containers are loaded with weight in excess of twenty-five tons.
G—Insurance—service provided upon request by the shipper; charge is according to the cargo.
H—Transfer charge—charge for inter-terminal trucking of shipments in transit from the U.S. mainland to the Virgin Islands.
I—Stevedoring—charge for cargo handling alongside dock facilities, including pick-up of cargo to and from marshalling areas to warehouses, docks and also loading and unloading of the vessels.
J—Demurrage—Rent or penalty charge for the use of plaintiffs' trailers after expiration of contracted time.

Additional charges such as wharfage, bunker sur-charge, "arrimo", landing and others are sometimes reflected in the waybill, although they are but operational costs relayed to a shipper or consignee. Likewise, all of the above charges, with the exception of consolidation and handling, leave no profit to plaintiffs. They represent compensation for the incidental or necessary cost of ocean transportation of goods, and are included in Sea-Land's rate structure on a cost and profit basis.

Sea-Land operates an ocean transportation service11 in fifty three countries, where it serves approximately one hundred and forty ports. Puerto Rico is connected by ship with all those countries, cargo being continuously in transit to and from the majority of such ports.12 For such purposes, Sea-Land maintains marine terminals at all such ports, as well as sales offices either by self-employed sales representatives or through contractual arrangements with sales agents.13

Terminals located within defendants' geographic demarcations are used for various purposes; they may serve as ports of embarkation for goods shipped from Puerto Rico to a final destination outside the island and are also often operated as ports of arrival for merchandise with final destination in Puerto Rico. Additionally, Sea-Land uses the port of San Juan as a relay station for cargo that moves to and from Latin American countries. Although such cargo passes through and is handled at the San Juan terminal (and in many instances complete freight and accessorial charges are collected in the San Juan office), the only activity related to San Juan is that of relaying the cargo from one ship to another at that terminal as part of the north or southbound trips. In like manner, revenues may be received (due to practical operational or accounting considerations) at Sea-Land's local offices for services wholly provided between foreign ports.

A sale or payment for services provided by plaintiffs may be made at origin, destination, or any other point where Sea-Land has an outlet. The bill of lading may be prepared by the shipper, the consignee, by an independent freight forwarder retained by said parties or by plaintiffs themselves.14 Due to the nature of plaintiffs' business, their internal operational techniques are employed through divisional organization and a centralized accounting system. This system places no relevancy on the particular office where the waybill was cut or the freight collected. Profitability analysis is made on the basis of trade lines and does not depend on specific geographic locations. Consequently, from a financial and accounting standpoint, revenue percentages of worldwide operations are not ascribed or apportioned to particular Sea-Land's facilities.


On March 28, 1914, the Legislature of Puerto Rico enacted the Municipal License Tax Act of Puerto Rico (hereinafter the "1914 Act"). This Act delegated legislative taxing power to island municipalities so as to levy and collect taxes from persons for the privilege of doing business within their territorial jurisdictions. Plaintiffs' business was not expressly included in the 1914 Act as one upon which the tax could be levied. However, through passage of Section 31 of Law No. 142 on July 21, 1960, the respective municipal assemblies were authorized to include through ordinances or resolutions any industry, business establishment or agency not enumerated in Section 2 of the 1914 Act. Defendant municipalities of San Juan, Ponce, Mayaguez and Arecibo, in the light of said authority, adopted ordinances or resolutions whereby plaintiffs' business was required to pay the tax. The legal situation remained unchanged through the Municipal License Tax Act of 1971,15 which repealed the 1914 Act.16

On July 10, 1974 the Legislature of Puerto Rico passed Law No. 113, also known as the Municipal License Tax Act (hereinafter "the 1974 Act") which in turn repealed the 1971 Act. Although this statute did not specifically list the businesses or industries subject to assessment,17 it did include within its scheme every person engaged in any type of activity for profit. Accordingly, under the 1914, 1971 and 1974 Acts the taxes, levied on the volume of business within each particular municipality, covered plaintiffs' business either directly or indirectly.

In the 1974 Act, presently in force, the term "volume of business" is defined as follows:18

"... the gross income that is received or earned from the rendering of any service, from the sale of any goods or from any other industry or business in the municipality where the main organization carries out its operations or the gross income that is received or earned by the main organization in the municipality where it keeps offices, warehouses, branches, ... or any other kind of industrial or commercial organization to carry out business in its name, without considering its gains or profits." (21 LPRA 651a(6)(A))

Under 21 LPRA 651a(2), the term "person" includes "... a corporation ... which is engaged for profit in the rendering of any service ... in any municipality of the Commonwealth of Puerto Rico". 21 LPRA...

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