Shell Oil Co. v. State Bd. of Equalization

Decision Date06 June 1966
Citation414 P.2d 820,51 Cal.Rptr. 524,64 Cal.2d 713
CourtCalifornia Supreme Court
Parties, 414 P.2d 820 SHELL OIL COMPANY, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION et al., Defendants and Respondents. Sac. 7576. In Bank

Graham, James & Rolph, Robert D. Mackenzie and John M. Collette, San Francisco, for plaintiff and appellant.

Thomas C. Lynch, Atty. Gen., Ernest P. Goodman, Asst. Atty, Gen., and John J. Klee, Jr., Deputy Atty. Gen., for defendants and respondents.

PEEK, Justice.

The Shell Oil Company seeks a refund of taxes collected from it pursuant to the California Sales and Use Tax Law 1 based upon sales of bunker fuel oil to vessels engaged in interstate and foreign commerce. It contends that the tax is prohibited under the import-export and commerce clauses of the United States Constitution.

The import-export clause provides: 'No State shall, without the Consent of Congress lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws * * *.' (U.S.Const., art. I, § 10, cl. 2.)

The commerce clause provides that Congress shall have the power 'to regulate Commerce with foreign Nations, and among the several States * * *.' (U.S.Const., art. I, § 8, cl. 3.)

In addition to its foregoing contention, Shell also asserts that the tax is improper under section 6352 of the Revenue and Taxation Code, which exempts from taxation the receipts from sales which the state is prohibited from taxing under the Constitution or laws of the United States or of California. We need not, of course, under the circumstances of this case consider this section independently of our consideration of the import-export and commerce clauses of the federal Constitution.

The vessels, to which the fuel here claimed to have been improperly taxed was sold and delivered, fall into three categories: ships registered in foreign countries and engaged in foreign commerce; ships registered in the United States and engaged in foreign commerce; ships registered in the United States and engaged in interstate commerce. As to all vessels engaged in foreign commerce, Shell contends first that bunker fuel oil is itself an 'export' within the meaning of the import-export clause and, second that the tax is an improper levy against the 'process of exportation.'

As to sales to vessels in any of the categories, Shell asserts that the tax exposes commerce to direct and multiple tax burdens prohibited by the commerce clause of the federal Constitution and that, even were this not so, the tax is precluded because Congress has impliedly occupied the field of taxation of bunker fuel oil sold as ships' stores.

The trial court rejected the foregoing contentions and upheld the tax as constitutional as applied to the sales in question. We are persuaded that the trial court has properly resolved the issues presented.

Under the import-export clause, a state may not impose a tax against an article of export if the article has commenced its movement abroad and the 'certainty of the foreign destination is plain.' (Richfield Oil Corp. v. State Board (1946) 329 U.S. 69, 82--83, 67 S.Ct. 156, 163, 91 L.Ed. 80; Gough Industries v. State Bd. of Equal. (1959) 51 Cal.2d 746, 748--749, 336 P.2d 161; see United States v. Hvoslef (1915) 237 U.S. 1, 13, 35 S.Ct. 459, 59 L.Ed. 813.) In the Richfield case oil was shipped to New Zealand with no portion of it being used or consumed in the United States. It was held at 329 U.S. page 84, 67 S.Ct. at page 164 that California's sales tax could not constitutionally be applied, for oil was an export, and its delivery to the hold of the vessel was both '(t)he incident which gave rise to the * * * tax (and) * * * a step in the export process.'

The initial issue, therefore, is whether bunker fuel oil, sold for consumption by ships of foreign and domestic registry as they ply the oceans to foreign ports, can be characterized as an article of 'export' within the meaning of the import-export clause. While the United States Supreme Court has left open the precise question of whether a 'tax upon the sale of * * * oil as ships' stores to vessels engaged in foreign commerce is * * * an impost on * * * exports * * * prohibited by * * * the Constitution' (McGoldrick v. Gulf Oil Corp. (1940) 309 U.S. 414, 429, 60 S.Ct. 664, 669, 84 L.Ed. 840), it and other courts have frequently stated that for an article to constitute an export within the meaning of the Constitution it must be intended for a destination in a foreign country. (See State of Alaska v. Arctic Maid (1961) 366 U.S. 199, 202, 81 S.Ct. 929, 6 L.Ed.2d 227; Richfield Oil Corp. v. State Board, supra, 329 U.S. 69, 83, 67 S.Ct. 156; Dooley v. United States (1901) 183 U.S. 151, 154--155, 22 S.Ct. 62, 46 L.Ed. 128.) For an article to constitute an import it must actually be brought into this country (Woodruff v. Parham (1868) 75 U.S. (8 Wall.) 123, 131, 19 L.Ed. 382), and it 'is the logical sequence of the case of Woodruff v. Parham, that the word 'export' should be given a correlative meaning, and applied only to goods exported to a foreign country.' (Dooley v. United States, supra, 183 U.S. 151, 154, 22 S.Ct. 62, 64.) Thus, as it would seem unlikely that articles placed aboard ship for use on that vessel during a voyage to the United States from a foreign land could be deemed imports (cf. Brown v. State of Maryland (1827) 25 U.S. (12 Wheat.) 419, 442, 6 L.Ed. 678), so it would seem equally unlikely that fuel or other consumables utilized during the voyage from the United States to foreign shores could be classified as exports.

Shell relies upon infrequent language in some cases to the effect that because goods are intended for shipment out of the country, and not to return, they become exports. It has been stated that to export is merely to 'carry or send abroad.' (See Canton R. Co. v. Rogan (1951) 340 U.S. 511, 515, 71 S.Ct. 447, 95 L.Ed. 488; Matson Nav. Co. v. State Bd. of Equal. (1955) 136 Cal.App.2d 577, 583, 289 P.2d 73.) A careful examination of these and other cases, however, demonstrates that to constitute an export, an article must not only be 'sent abroad' but must be done so with '(a)nother country as the intended destination of the goods.' (Matson Nav. Co. v. State Bd. of Equal., supra, 136 Cal.App.2d 577, 583, 289 P.2d 73; see Richfield Oil Corp. v. State Board, supra, 329 U.S. 69, 83, 67 S.Ct. 156, 164.)

In a situation involving a statutory 'drawback' 'on the exportation' of an article, the United States Supreme Court held that because oil consumed as ships' stores was not an export, the suppliers of the oil were not entitled to a refund of import duties paid upon the importation of the oil (Swan & Finch Co. v. United States (1903) 190 U.S. 143, 23 S.Ct. 702, 47 L.Ed. 984.) The court declared that '(w)hatever primary meaning may be indicated by its derivation, The word 'export' as used in the Constitution and laws of the United States, generally means the transportation of goods from this To a foreign country. * * * '(E)xportation is a severance of goods from the mass of things belonging to this country with an intention of uniting them to the mass of things belonging to some foreign country' * * *. It cannot mean simply a carrying out of the country, for no one would speak of goods shipped by water from San Francisco to San Diego as 'exported,' although in the voyage they are carried out of the country. Nor would the mere fact that there was no purpose of return justify the use of the word 'export.' Coal placed on a steamer in San Francisco to be consumed in propelling that steamer to San Diego would never be so designated. Another country or state as the intended destination of the goods is essential to the idea of exportation.' (Swan & Finch Co. v. United States, supra, 190 U.S. 143, 144--145, 23 S.Ct. 702, 703, emphasis added; cf. McGoldrick v. Gulf Oil Corp., supra, 309 U.S. 414, at p. 428, 60 S.Ct. 664, 669.)

Shell next argues that at least with respect to ships of foreign registry, the fuel oil constituted an export at the time of delivery, because such vessels are 'foreign territory' and the oil came within 'foreign dominion' immediately upon delivery.

The concept that ships of foreign registry are foreign territory is a fiction upon which constitutional issues should not rest, even in part. (See Cunard S.S. Co. v. Mellon (1923) 262 U.S. 100, 43 S.Ct. 504, 67 L.Ed. 894; cf. Foppiano v. Speed (1905) 199 U.S. 501, 519--520, 26 S.Ct. 138, 50 L.Ed. 288.) Though 'the statement (is) sometimes made that a merchant ship is a part of the territory of the country whose flag she flies. * * * this, as has been aptly observed, is a figure of speech, a metaphor. * * * The jurisdiction which it is intended to describe * * * partakes more of the characteristics of personal than of territorial sovereignty. * * * It is chiefly applicable to ships on the high seas, where there is no territorial sovereign; and as respects ships in foreign territorial waters it has little application beyond what is affirmatively or tacitly permitted by the local sovereign. * * * (The assertion) that a ship is part of the territory of the country whose flag she carries * * * is a fiction. * * *' (Cunard S.S. Co. v. Mellon, supra, 262 U.S. at pp. 123--124, 43 S.Ct. at p. 507; cf. Lauritzen v. Larsen, (1953) 345 U.S. 571, 585, 73 S.Ct. 921, 97 L.Ed. 1254.)

The logic of the Swan case applies equally to all vessels, regardless of the technicality of their registration. An article delivered to a vessel which flies a foreign flag cannot, for that reason alone, be deemed to have been received at a foreign country or destination, and thus to become an 'export' within the definitions promulgated by the United States Supreme Court.

While a vessel's fuel supply is thus not itself an export in the constitutional sense, nevertheless if a tax on the sale of the fuel is a tax on the 'process of exportation' the tax would be...

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