Xerox Corporation v. County of Harris, Texas

• Decision Date: 13 December 1982
• Docket Number: No. 81-1489,81-1489
• Citation: 459 U.S. 145,103 S.Ct. 523,74 L.Ed.2d 323
• Parties: XEROX CORPORATION, Appellant v. COUNTY OF HARRIS, TEXAS and City of Houston, Texas
• Court: U.S. Supreme Court

459 U.S. 145

103 S.Ct. 523

74 L.Ed.2d 323

XEROX CORPORATION, Appellant

v COUNTY OF HARRIS, TEXAS and City of Houston, Texas

No. 81-1489.

Argued Nov. 10, 1982.

Decided Dec. 13, 1982.

Syllabus

Appellant, a New York corporation that manufactures and sells copying machines, shipped machine parts manufactured in this country to Mexico City, Mexico, for assembly by its affiliate there. After assembly, the copiers were transported by a customs bonded trucking company to a customs bonded warehouse in Houston, Tex., where they were segregated from other merchandise and stored while awaiting sale and shipment to appellant's affiliates in Latin America. None of these copiers were ever sold to customers for domestic use, but remained under the continuous control and supervision of the United States Customs Service from the time they entered the warehouse until they cleared United States Customs at their export ports. In 1977, both the city of Houston and Harris County (appellees) assessed ad valorem personal property taxes on the copiers stored in the Houston warehouse. Appellant sought declaratory and injunctive relief in state court, claiming that the taxes were unconstitutional. Appellees counterclaimed for the taxes assessed. The trial court entered judgment for appellant, holding that the taxes violated the Import-Export and Commerce Clauses of the Constitution. The Texas Court of Civil Appeals reversed and granted judgment to appellees on their counterclaims, holding that the taxes violated neither Clause of the Constitution and, alternatively, that the trial court had violated state law in granting injunctive relief.

Held:

1. This Court has jurisdiction over the appeal under 28 U.S.C. § 1257(2). Notwithstanding appellees' argument that this Court lacks jurisdiction because the Court of Civil Appeals' decision reversing the grant of an injunction rested on an independent and adequate state ground, an indispensable predicate to the award of judgment to appellees on their counterclaims was a determination that the taxes were permissible under the Federal Constitution. P.149

2. State property taxes, such as those involved here, on goods stored under bond in a customs warehouse are pre-empted by Congress' comprehensive regulation of customs duties. Under the customs system, established pursuant to Congress' powers under the Commerce Clause, imports may be stored duty free in Government-supervised bonded warehouses for prescribed periods, and during such periods, may be withdrawn and reexported without payment of duty. Only if the goods are withdrawn for domestic sale or stored beyond the prescribed period does any duty become due. Congress created such duty-free enclaves under federal control in order to encourage merchants here and abroad to make use of American ports as transshipment centers for goods in foreign trade. It would not be compatible with the comprehensive scheme Congress enacted to effect these goals if the states were free to tax such goods while they were lodged temporarily in Government-regulated bonded storage in this country. Cf. McGoldrick v. Gulf Oil Corp., 309 U.S. 414, 60 S.Ct. 664, 84 L.Ed. 840. Pp. 150-154.

619 S.W.2d 402, reversed and remanded.

Alfred H. Hoddinott, Jr., for appellant.

Cheryl Helena Chapman, Houston, Tex., for appellees.

Chief Justice BURGER delivered the opinion of the Court.

We noted probable jurisdiction to decide whether a state may impose nondiscriminatory ad valorem personal property taxes on imported goods stored under bond in a customs warehouse and destined for foreign markets. The Texas Court of Civil Appeals held such taxes constitutional.

I

Appellant Xerox Corporation is a New York corporation engaged in the business of manufacturing and selling business machines. Its operations span the globe, and it has established affiliates in foreign countries to facilitate foreign sales. It has assembly plants and production facilities in Mexico.

Xerox manufactured parts for copying machines in Colorado and New York which were shipped to Mexico City, Mexico for assembly by its affiliate there. The copiers assembled in Mexico were designed for sale in the Latin American market and all printing on the machines and instructions accompanying them were in Spanish or Portuguese. Most of the copiers operated on electric current of 50 cycles per second, rather than the 60 cycles per second that is standard in the United States. Many of the copiers assembled by its affiliate in Mexico City were not approved by either United Laboratories or Canadian Standards Association, as required for sale in the United States. To convert the copiers for domestic sale would have cost approximately $100 per copier.

After assembly in Mexico, the copiers were transported by a customs bonded trucking company to the Houston Terminal Warehouse in Houston, Texas,¹ a Class 3 customs bonded warehouse. There they were stored for periods ranging from a few days to three years while awaiting sale and shipment to Xerox affiliates in Latin America. The copiers remained in the warehouse, segregated from other merchandise, until a shipment order was received. When Xerox received an order, it would transport the copiers under bond to either the Port of Houston or the Port of Miami, where they were loaded on board vessels for shipment to Latin America. The copiers remained under the continuous control and supervision of the United States Customs Service from the time they entered the bonded warehouse until they cleared United States Customs at the Port of Houston or the Port of Miami for export.²

None of the copiers assembled in Mexico and stored in Houston were ever sold to customers for domestic use; all were ultimately sold abroad. Consequently, Xerox paid no import duties on them.³

The local authorities did not assess any taxes on the copiers stored under customs bond in 1974 and 1975. In 1977, the City of Houston ⁴ assessed ad valorem personal property taxes of $156,728 on the copiers stored in the Houston warehouse during 1977.⁵ The County of Harris ⁶ followed suit, assessing $55,969 in taxes for 1977 and also assessing $48,426 in back taxes for 1976, for a total of $104,395.

As soon as Xerox learned that the local authorities intended to tax its Mexican-assembled copiers, it shipped all the machines to a foreign trade zone in Buffalo, New York, from which it continued to fill orders for shipment to Latin America.

Declaratory and injunctive relief was sought in state court both from the taxes already assessed and such taxes as appellees might impose in the future. Xerox claimed that the taxes in question were unconstitutional because they violated the Import-Export Clause and the Commerce Clause of the Constitution. Art. I., § 10, cl. 2; Art. I, § 8, cl. 3. Appellees counterclaimed for the taxes assessed.

The trial court held that the taxes assessed by appellees violated both the Import-Export and Commerce Clauses, and it granted judgment to Xerox. The Texas Court of Civil Appeals, 1st District, reversed, holding that the taxes violated neither the Import-Export Clause nor the Commerce Clause. 619 S.W.2d 402 (1981). Alternatively, it held that the trial court had violated Tex.R.Civ.P. 683 in granting injunctive relief. Finally, it granted judgment to appellees on their counterclaims in the amount of $131,311 plus penalties and interest to Harris County and $156,728 plus penalties and interest to City of Houston. The Texas Supreme Court denied Xerox's application for a writ of error and this appeal followed. We noted probable jurisdiction, --- U.S. ----, 102 S.Ct. 1766, 72 L.Ed.2d 172 (1982), and we reverse.

II

A.

A preliminary question is whether this Court has jurisdiction over the appeal. Appellees argue that this Court lacks jurisdiction since the decision of the Texas court reversing the grant of an injunction rested on an independent and adequate state ground. However, an indispensable predicate to an award of judgment to the appellees on their counterclaims was a determination that the taxes at issue were permissible under the United States Constitution; the Texas Court of Civil Appeals so held. It is not claimed that any independent and adequate state law ground supports that holding. We therefore have jurisdiction to review that judgment. 28 U.S.C. § 1257(2).

B

Pursuant to its powers under the Commerce Clause, Congress established a comprehensive customs system which includes provisions for government supervised bonded warehouses where imports may be stored duty-free for prescribed periods. At any time during that period the goods may be withdrawn and reexported without payment of duty. Only if the goods are withdrawn for domestic sale or stored beyond the prescribed period does any duty become due. 19 U.S.C. § 1557(a) (1976). While the goods are in bonded warehouses they are in the joint custody of the United States Customs Service and the warehouse proprietor and under the continuous control and supervision of the local customs officers. 19 U.S.C. § 1555 (1976). Detailed regulations control every aspect of the manner in which the warehouses are to be operated. 19 CFR §§ 19.1-19.6 (1981).

Government regulated, bonded warehouses have been a link in the chain of foreign commerce since "a very early period in our history." Fabbri v. Murphy, 95 U.S. 191, 197, 94 L.Ed. 468 (1877). A forerunner of the present statute was the Warehousing Act of 1846, ch. 84, 9 Stat. 53 (1846). A major objective of the warehousing system was to allow importers to defer payment of duty until the goods entered the domestic market or were exported. The legislative history explains that Congress sought to reinstate:

"the sound though long neglected maxim of Adam Smith, 'that every tax ought to be levied at the time and in the manner most convenient for the contributor to pay it;' [by providing] that the tax shall only be paid when the imports are entered for consumption. . . ." H.R.Rep. No. 411, 26th...