Shell Oil Co. v. State Bd. of Equalization

• Decision Date: 28 September 1965
• Court: California Court of Appeals Court of Appeals
• Parties: SHELL OIL COMPANY, a corporation, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION of the State of California and the State of California, Defendants and Respondents. Civ. 10953.

Page 653

46 Cal.Rptr. 653

SHELL OIL COMPANY, a corporation, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION of the State of California and the State of California, Defendants and Respondents.

Civ. 10953.

District Court of Appeal, Third District, California.

Sept. 28, 1965.

As Modified on Denial of Rehearing Oct. 25, 1965.

For Opinion on Hearing, see 51 Cal.Rptr. 524, 414 P.2d 820.

Graham, James & Rolph, Brobeck, Phleger & Harrison, Dorr, Cooper & Hays, Lillick, Geary, Wheat, Adams & Charles, Robert D. MacKenzie, San Francisco, for appellant.

Stanley Mosk and Thomas C. Lynch, Attys. Gen., by James E. Sabine, Asst. Atty. Gen., Ernest P. Goodman and John Klee, Deputy Attys. Gen., San Francisco, for respondent.

FRIEDMAN, Justice.

In this tax refund suit Shell Oil Company challenges California's power to impose its retail sales tax on sales of 'bunker' fuel oil for consumption on ships engaged in foreign and interstate commerce. As to sales made to ships of foreign registry and those engaged exclusively in foreign commerce, the tax is claimed to violate the 'importexport clause' of the Federal Constitution. ¹ Secondly, regardless of vessel registry, immunity from state taxation is urged under the interstate and foreign commerce clause of the Constitution. ²

The case was submitted to the trial court on a stipulated set of facts. The trial court hpheld the tax and Shell appeals. According to the stipulation, Shell sells 'unbonded' bunker fuel oil as ships' stores to be consumed by the vessels in the course of the voyage. The vessels fall into three categories: (1) vessels registered in foreign countries and engaged in foreign commerce; (2) vessels registered in the United States and engaged in foreign commerce; (3) vessels registered in the United States and engaged in interstate commerce. Each sale was made under a master contract obligating Shell or one of its related companies to furnish fuel to the vessel in any part of the world. Delivery of the oil in question was made at various California ports. In some instances the vessels tied up and received fuel at a fuel dock operated by Shell, in others from a barge operated by Shell or its agent. Each vessel took on cargo at the California port at which it loaded bunker fuel. This cargo was then discharged at foreign or American ports outside California. The stipulation recites that the oil was indispensable to the voyage which followed its purchase and was actually consumed during the voyage. After delivery of the oil Shell submitted a bill to the operator of the vessel. In all cases except one the bill was submitted to a firm located outside California. In two cases the bill was submitted to firms located in foreign countries. In all cases Shell collected the California sales tax and has agreed to refund the tax to the buyers if successful in the present refund action.

Decisions marking the limits of state taxation under the import-export clause usually involve articles unquestionably destined for ultimate use or consumption in a foreign land. The question in such cases is not the article's ultimate character as an export, but whether the process of exportation is under way at the time of the tax incident. The import-export clause prevents California from imposing a sales tax on articles sold within the state if at the time of sale the certainty of a foreign destination is plain. (Richfield Oil Corp. v State Board of Equal., 329 U.S. 69, 82-83, 67 S.Ct. 156, 91 L.Ed. 80 (1946); Gough Industries, Inc. v. State Board of Equal., 51 Cal.2d 746, 749, 336 P.2d 161 (1959); Union Oil Co. of California v. City of Los Angeles, 227 Cal.App.2d 608, 613-614, 38 Cal.Rptr. 923 (1964); Matson Nav. Co. v. State Board of Equal., 136 Cal.App.2d 577, 583-584, 289 P.2d 73 (1955); see Empresa Siderurgica, S.A. v. County of Merced, 337 U.S. 154, 157, 69 S.Ct. 995, 93 L.Ed. 1276 (1949); A. G. Spalding & Bros. v. Edwards, 262 U.S. 66, 69-70, 43 S.Ct. 485, 67 L.Ed. 865 (1923).)

The initial problem here is not whether the process of exportation has been commenced or completed, but whether the article is an 'export' at all. The present commodity falls within the general class of ships' stores, destined for consumption in transit without ever reaching a foreign port. The federal Supreme Court has left open the question whether local sales taxes may apply to the sale of oil as ships' stores of vessels in foreign commerce. (McGoldrick v. Gulf Oil Corp., 309 U.S. 414, 429, 60 S.Ct. 664, 84 L.Ed. 849 (1940).)

The constitutional words 'import' and 'export' are correlative and the definition of one closely affects the meaning of the other. Commencing with Brown v. State of Maryland, 25 U.S. (12 Wheat.) 419, 6 L.Ed. 678 (1827), a number of decisions define an import as an article brought into a port of the United States from a foreign country. (Woodruff v. Parham, 75 U.S. (8 Wall.) 123, 19 L.Ed. 382 (1869); Arnold v. United States, 13 U.S. (9 Cranch) 104, 3 L.Ed. 671 (1815); Harrison v. Vose, 50 U.S. (9 How.) 372, 381, 13 L.Ed. 179 (1850); Mata v. United States, 1 Cir., 19 F.2d 484, 486 (1927); American Sugar Refining Co. v. Bidwell, C.C., 124 F. 683, 686 (1903); Kidd v. Flagler, C.C., 54 F. 367 (1893); see, Powell, Note, 58 Harv.L.R. 858, 869.) If, as seems evident, the notion of an import implies a domestic port as a necessary element, then the concept of an export connotes the commodity's ultimate destination in a foreign country for use or consumption. (See Dooley v. United States, 183 U.S. 151, 154, 22 S.Ct. 62, 46 L.Ed. 128 (1901).) Neither, then, would cover goods consumed in the course of the voyage. The decisions most in point state that goods placed on a foreign-bound vessel to be consumed on board during the voyage are not exports. (Swan & Finch Co. v. United States, 190 U.S. 143, 144-145, 23 S.Ct. 702, 47 L.Ed. 984 (1903); West India Oil Co. v. Sancho, 1 Cir., 108 F.2d 144, 147 (1939), aff'd on other grounds in West India Oil Co. v. Domenech, 311 U.S. 20, 61 S.Ct. 90, 85 L.Ed. 16 (1940); Kidd v. Flagler, supra, 54 F. at p. 369 (1893); Matson Navigation Co. v. State Board of Equal., supra, 136 Cal.App.2d at p. 583, 289 P.2d 73; Schenley Distributors, Inc. v. State Tax Comm'r, 18 N.J.Misc. 266, 12 A.2d 638 (1940).)

In Swan & Finch Co. v. United States, supra, a federal statute allowed a drawback or refund of previously paid import duties 'on the exportation' of the commodity. The court held that the sale of ships' stores to vessels bound for foreign ports was not an exportation, stating: 'Whatever primary meaning 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.' (190 U.S. at pp. 145-146, 23 S.Ct. at p. 703.)

We conclude, then, that the vessel's fuel supply is not itself an 'export' within the meaning of the constitutional provision. A more difficult question is whether the tax on the sale of fuel to propel the vessel and its cargo is the equivalent of an impost on the cargo. The import-export clause involves more than an exemption from taxes or imposts upon the goods. (Canton R. Co. v. Rogan, 340 U.S. 511, 514, 71 S.Ct. 447, 95 L.Ed. 488 (1951).) The immunity 'runs to the process of exportation and the transactions and documents embraced in it.' (Empresa Siderurgica, S. A. v. County of Merced, supra, 337 U.S. at p. 156, 69 S.Ct. at p. 997.) Various indirect exactions may be the equivalent of a direct tax on the export commodity. A stamp tax on foreign bills of lading was nullified as the equivalent of a tax on the merchandise covered by the bills. (Fairbank v. United States, 181 U.S. 283, 21 S.Ct. 648, 45 L.Ed. 862 (1901).) A stamp tax on charter parties in foreign commerce has been invalidated, being 'in substance a tax on the exportation; and a tax on the exportation is a tax on the exports.' (United States v. Hvoslef, 237 U.S. 1, 17, 35 S.Ct. 459, 59 L.Ed. 813 (1915).) A stamp tax on insurance policies covering exports was rejected, being 'as much a burden on exporting as if it were laid on the charter parties, the bills of lading, or the goods themselves.' (Thames & Mersey Marine Ins. Co. v. United States, 237 U.S. 19, 27, 35 S.Ct. 496, 499, 59 L.Ed. 821 (1915).)

On the other hand, an indirect exaction was sustained in Canton R. Co. v. Rogan, supra. There the taxpayer, a railroad, contested a state gross receipts tax measured in part by revenue from handling export goods and rental of dockside loading facilities. Denying exemption, the court stated: 'But the present tax is not on the articles of import and export; nor is it the equivalent of a direct tax on the articles * * *. The difference is that in the present case the tax is not on the goods, but on the handling of them at the port. An article may be an export and immune from a tax long before or long after it reaches the port. But when the tax is on activities connected with the export or import the range of immunity cannot be so wide.

'To export means to carry or send abroad; to import means to bring into the country. Those acts begin and end at water's edge.' (340 U.S. at pp. 513-515, 71 S.Ct. at pp. 448-449.)

The Canton Railroad decision left open the question whether a tax on stevedoring services might offend the import-export clause. (340 U.S. at p. 515, 71 S.Ct. 447.) Under the related interstate commerce clause, a local tax on the gross receipts of stevedoring services has been prohibited as a tax on the privilege of engaging in interstate commerce, but a tax on the business of supplying stevedores sanctioned as an imposition on a local business. (Puget Sound Stevedoring Co. v. Tax Com., 302 U.S. 90, 58 S.Ct. 72, 82 L.Ed. 68 (1937); Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422, 67 S.Ct. 815, 91 L.Ed. 993 (1947).) ³

These decisions provide no beacon signaling taxability or immunity here. The problem is one of locating a radius of immunity within...