WASHINGTON REV. DEPT. v. STEVEDORING ASSN.

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Argument of Slade Gorton

Chief Justice Warren E. Burger: We will hear arguments next in State of Washington against the Association of Stevedores.

Mr. Attorney General, I think you can reasonably begin.

Mr. Slade Gorton: Mr. Chief Justice and may it please the Court.

The State of Washington imposes a general gross receipts tax on practically all services performed within the State.

Together with a similar tax on other business activities, it is the principal form of taxation on business and fullest for the support of the State institutions and services.

The source of any goods upon which taxable service are performed is irrelevant.

There is therefore no discrimination against goods originating at or destined to points outside of the State.

In Puget Sound Stevedoring versus Tax Commission, in 1937, this Court found that that tax to be invalid in so far as it was imposed upon a stevedore’s business of loading and unloading ships in interstate and foreign commerce.

The basis of that decision was the stevedoring “is interstate or foreign commerce”.

The privilege of engaging in which was not subject to what you then characterized as a direct tax by the State.

Ten years later in Carter & Weekes you adhered to that decision.

The Court held that the tax was not properly apportioned and that the risk of multiple taxation was present, because both the state of the loading and that of the unloading might tax the stevedoring activities in their respective jurisdictions.

Stevedoring was not considered to be distinct enough from the transit by ship to be taxable.

At that time, of course, to characterize the tax as being directly on interstate commerce was sufficient to invalidate it.

Four justices dissent it.

You have agreed to review the soundness of Carter & Weekes and Puget Sound Stevedoring perhaps in the light of your recent decisions in Michelin Tire and Complete Auto Transit.

We submit, however, that the vitality of those two stevedoring precedents ended as long ago as 1951 when you decided Canton Railroad v. Rogan and Western Maryland Railway v. Rogan.

Roughly half of the Canton Railroad’s receipts were for war freight services, the privilege of using Canton’s peers for the transfer of cargo to lighters and to trucks, and for switching freight carts, loaded with imports and exports, between the peers and trunk line railroads.

Maryland nevertheless imposed a gross receipts tax on all of Canton’s income including that from these services for imports and exports.

You found that tax not to violate Article I Section 10, as it was not levied against the articles of import and export because “the tax is not on the goods but on the handling of them at the port.

An article maybe 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 can not be so wide.”

It is true that the Court expressly reserved the question of whether stevedoring fell within its holding.

Stevedoring, of course, was not before you, but a tax on stevedoring is as clearly one on the handling of goods at the port and do not on the goods themselves as was the tax in Canton.

Just two years ago in Michelin Tire you took the opportunity even more carefully to examine the Import-Export Clause.

You decided there that a nondiscriminatory property tax on imported tires in storage was not an imposed or a duty prohibited by Article I Section 10.

Note, however, that unlike the activities here and in Canton the tax in Michelin Tire was levied directly on the goods and that not merely on the activity of handling them.

In Michelin Tire you examined the concerns of the framers of the Constitution in drafting the Import-Export Clause.

We found three such concerns: First, the necessity that the United States speak with one voice in regulating foreign relations and international trade; second, import duties were to be the major source of the federal government’s revenues and should not be diverted to the states; and third, harmony among the states was to be preserved by preventing seaboard states from taxing goods merely passing through on their way to interior states.

The respondents here do not suggest that Washington’s tax has any impact on first two concerns.

They do, however, accuse us of a tollgate mentality of trying to get something for nothing from the citizens of other states whose goods use our ports.

They are in error.

First, it is somewhat odd that respondent should so castigate tolls.

Perhaps they hold that they Court would prohibit the State of Maryland from charging a truck a toll for crossing the Chesapeake Bay Bridge, simply because the truck was carrying exports bound for a ship at the dock in Baltimore, but a nondiscriminatory toll in return for a service provided is clearly constitutional.

The validity of a tax or toll or levy is not determined by the label which those who pay it, attached to it.

The characterizations or assertions upon which respondent’s argument rests are found on Page 21 and 22 of its brief.

First, respondents claim that by their nature the imports and exports passing through sea ports involved stevedores.

Next, they assert that almost admit that a tax on the mover of imports is a tax on the goods themselves.

They are wrong on both counts.

Justice Potter Stewart: Mr. Attorney General, it is not your submission that this tax is the equivalent of a toll collected by a state for a specific service rendered such as the use of the state road?

Mr. Slade Gorton: It is not.

I am simply stating that to characterize it as a toll on the part of the respondents does not answer any of the questions which are before you.

It is up to you to determine what it actually is.

I do not claim that it is a direct equivalent of the toll either. I just say the tollgate mentality argument is irrelevant.

Unknown Speaker: Mr. Gorton, now that you are interrupted, am I correct your tax does not apply to farming or to insurance?

Mr. Slade Gorton: This specific tax does not apply to the occupation or farming or to insurance.

Insurance is covered by another tax.

There is an insurance premium tax in the State, and of course farmers pay a disproportionate real property tax because of their holdings.

Unknown Speaker: At least they will say they do.

Mr. Slade Gorton: At least they will claim they do successfully to the legislature.

Our tax, at least in this case like the toll on the Chesapeake Bay Bridge, is not levied against imports or exports at all.

For example, it does not apply to imports or exports by air or by rail or even by ship when no in state stevedoring services are provided.

The table, inserted at the end of respondents’ own brief, is perhaps the most graphic illustration of this point.

Neither Washington’s most important export, aircraft, nor its most important import, petroleum, requires the use of stevedoring services at all.

Justice Thurgood Marshall: Well, you told us, not tool long that you read, but you read that apple was a pretty big --

Mr. Slade Gorton: They were and they do not use stevedores except on the rare occasion when they are being shipped overseas rather than to North Carolina as in that case.

Thus, neither of these major exports and imports is subject to the tax.

On the other hand, our tax is applied to the analogous intrastate services, the freight handlers, for example, whether the destination of the freight they handle is inside the state, in another state, or in a foreign country.

We, like Maryland in Canton Railroad, are not taxing goods at all, but merely the handling of those goods at the port.

Respondents’ bold assertion that the two are identical is not only conceptually at error but repudiates directly your holding in Canton Railroad, which brings us to the analogous limitations of the Commerce Clause.

Last year into Complete Auto Transit you resolved that the test of the validity of a tax affecting commerce is “not the formal language of the tax statute but rather its practical effect”.

Now that a tax is to be sustained when it “is applied to an activity with the substantial nexus with the taxing state; it is fairly apportioned, it does not discriminate against interstate commerce, and it is fairly related to the services provided by the state.”

Respondents here do not deny the substantial nexus, nor can they claim that the tax is other than precisely apportioned because all of their business is done wholly within the State of Washington.

The tax does not discriminate against interstate commerce.

It applies equally to stevedoring services and to all other services with respect to handling goods whether the goods come from or are bound to other points in the State of Washington, Alaska, or Japan.

Finally, the tax is reasonably related to services provided by the Sate.

For 40 year, respondents have avoided the principal business tax applied to other business in the State for the support of both state and local services.

It is time to end their free ride.

Respondents claim that even though the tax may not be discriminatory now, it might become so in the future.

In both Complete Auto Transit and Michelin Tire you found that assertion to be insufficient to invalidate a tax.

The rationale for such a decision here is even stronger.

Chief Justice Warren E. Burger: We will resume at that point at 10 o’clock tomorrow morning Mr. Attorney General.

Mr. Slade Gorton: Thank you Mr. Chief Justice.

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Argument of Slade Gorton

Chief Justice Warren E. Burger: Mr. Attorney General you may resume where you left off at 3 o'clock yesterday.

Mr. Slade Gorton: Mr. Chief Justice and may it please the Court.

Respondents challenged Washington's Gross Receipts Tax on Stevedoring under both the commerce clause and the import export clause.

Both are relevant as the Stevedores provide services for goods, both to and from other states and to and from other nations.

Since Complete Auto Transit last year, the rule is that the validity under the commerce clause are easy to state; labels attached to the tax are irrelevant.

A tax is not invalid unless it discriminates against inter-state or foreign commerce, is improperly apportioned, is unrelated to any services provided by the taxing state or applies to business to which the taxing state has no substantial nexus.

Non of these objections can be fairly applied to this tax.

The import-export clause, on the other hand is both more peremptory and more narrow, but a tax may run afoul of it for reasons which would also invalidated under the commerce clause.

A non-discriminatory property tax against goods in transit is an example which you used in Michelin Tire.

Such a tax of course, would also be improperly apportioned.

Justice William H. Rehnquist: Could a tax violate the export-import clause without violating the commerce clause?

Mr. Slade Gorton: Precisely, that is my next point was to Mr. Justice Rehnquist.

The peremptory ban of the import-export clause itself, however, is directed only against imposts and duties on imports or exports.

Such an import --

Unknown Speaker : But unlike the commerce clause, it is a direct probation on --

Mr. Slade Gorton: It is a direct probation and in that sense it is more peremptory and specific than as the commerce clause.

Such an impost or duty is invalid even though it meets all of our commerce clause tests, but in fact there are relatives few such levies.

An example; if the State of Washington imposed a manufacturing tax on widgets and a compensating tax on widgets imported from Japan, the later tax might well meet all of the tests of the commerce clause, but it would still be an impost or a duty on an import.

Another example is a tax on bills of lading, the documentary evidence of goods and commerce, and thus a tax on the goods themselves.

But Article 1, Section 10 does not apply to a tax which is not an impost or a duty on imports or exports.

In Michelin Tire you found the property tax there not be an impost or a duty even though the tires might still be imports.

This case we submit is easier than Michelin Tire, not only is our tax not an impost or a duty, it is not on imports or exports either.

Canton Railroad points out that the effect of the import-export is narrower as to services related to imported goods than it is to the goods themselves and that it does not extend to transportation services consisting of handling of goods at the port, which is exactly what the respondent Stevedores do.

Our tax is on that local service only, ignores both the goods and their value, deals with the subject which no other state can conceivably tax and is designed to defray the fair share of the costs of government provided to those who are engaged in Stevedoring service.

It ignores that large class of imports and exports which do not require Stevedoring services.

Thus it is not infringe upon any of the purposes of the import-export clause which you outlined in Michelin Tire.

Justice Thurgood Marshall: Mr. Attorney General in Michelin those tires had come rest, does that amount to anything in this case?

Mr. Slade Gorton: It does not --

Justice Thurgood Marshall: They really had come to rest.

Mr. Slade Gorton: You certainly could have decided Michelin Tire on that basis.

The intriguing element of the decision was that you specifically declined to do so in order to focus on import levy so I do not believe that has any significance here.

Yesterday Mr. Justice Blackmun noticed the respondent's claim that Washington's Gross Receipts Tax was not general because it did not apply to every single business occupation in the state.

Under respondent's theory no property tax is general because some property is always exempt.

The federal income tax is not general because some categories of income are exempt.

As a matter of fact we would be hard pressed to find under that theory a single general tax anywhere in the United States.

Justice Harry A. Blackmun: In that connection General Gorton, is any service industry in the State of Washington taxed at a rate that is different from what is applied to Stevedores?

Mr. Slade Gorton: Yes.

Railroads are higher Mr. Justice Blackmun, but most services, the great bulk of services are taxed at this rate.

Justice Harry A. Blackmun: Other question and I will stop, as I understand the state's power here was exercised through a revenue ruling?

Mr. Slade Gorton: Yes, but it is a revenue ruling which is totally consistent with the state statute.

The only reason that the state statute has not been applied to this activity previously is decision to decide Stevedoring which of course resulted in an injunction against that exercise of that statute.

Justice Harry A. Blackmun: And I take it, in any event your opposition raises no question about the fact that was raised by or applied by a revenue ruling as distinguished from something else?

Mr. Slade Gorton: I do not believe that it does, but I will to believe that.

Justice Harry A. Blackmun: (Voice Overlap)

Justice William H. Rehnquist: Under your theory, the coastal states, whether East Coast, West Coast or Gulf Coast would always have some taxing advantages that the inland states would not have, I take it simply by virtue of the fact that Stevedoring activities are conducted in those states and not in other states?

Mr. Slade Gorton: If one concentrates Mr. Justice Rehnquist only upon Stevedoring services, I suppose some inland states would be able to do so.

I would imagine St. Louise has Stevedoring.

There would certainly have to be navigable waters in a state for a state to subject its --

Unknown Speaker : Well, Wyoming has coal mines?

Mr. Slade Gorton: Pardon?

That is exactly the answer.

Wyoming can tax coal mining, California and Florida can tax the production of Oranges, these in a sense are advantages to those states because of their peculiar geographical nature, but they do not rise to constitutional significance.

Justice William H. Rehnquist: Well, it is accepted to the extent the tool gate mentality that your opponents mentioned and you criticized yesterday, does seem to have been on the minds of the framers, whereas the taxation of Oranges and coal mines does not seem to have been?

Mr. Slade Gorton: Yes, but you have held as recently as Michelin Tire that the mere fact that a non-discriminatory state tax which does not affect, which does not deal,less favorably with imports then it does with domestic goods, does not violate the import-export clause because it does not meet any of the purposes of the import-export clause.

In other words, the mere fact that a tax or a services adds to the costs of goods or services in some other state, if the taxes are fair one and fairly apportioned, is not a ground for finding it to be invalid.

Unknown Speaker : The coastal states could impose a tax on salt water fisherman which would presumably increase the cost of fish in the interior states --

Mr. Slade Gorton: Everywhere in the United States, but you would not void that on the constitutional --

Chief Justice Warren E. Burger: Do the coastal states have some burdens that the oranges states might not have?

Mr. Slade Gorton: Certainly.

In this case the coastal state has the burden of provided police services and fire services and every other governmental services for Stevedores.

The State of Wyoming has no such burden for Stevedores.

Chief Justice Warren E. Burger: An activity more concentrated way on the waterfront, in other words?

Mr. Slade Gorton: Yes.

We have to protect our waterfront.

Wyoming has no waterfront which it has to protect and we were levying a non-discriminatory tax against businesses on that waterfront.

Unknown Speaker : Do you collect the Sales or Use tax on the transactions involving imports delivered in the State of Washington?

Mr. Slade Gorton: Only when they are sold in the state of Washington and we cannot levy a sales tax against an item which is sold in another state whether it is an import or not.

Unknown Speaker : Well, I suppose, you levy Use taxes on --

Mr. Slade Gorton: We would not levy a Use tax on a item which --

Unknown Speaker : That is what I wanted to know --

Mr. Slade Gorton: Business or commerce, no.

Unknown Speaker : Do you not levy Use tax on goods that are brought over across the border in Oregon and brought back into Washington?

Mr. Slade Gorton: Yes we do.

Unknown Speaker : But how about imports?

Mr. Slade Gorton: Yes, I believe that we would tax an import which came to rest in the state of Washington and was being utilized by a resident of the State of Washington, but not an import, this would of course involve no burden on people in other states.

We would not tax -- we would not levy a Sales or a Use tax against an import which was on its way to Idaho.

Unknown Speaker : You do not think Atlantic Richfield applies the other way then?

Mr. Slade Gorton: Atlantic Richfield, that seems to me, first you spoke of taxes rather than imposts or duties in Atlantic Richfield.

Secondly Atlantic Richfield's decision does not need to reversed or overruled in this case.

Atlantic Richfield is taxed --

Unknown Speaker : Some other day.

Mr. Slade Gorton: I think not.

Atlantic Richfield's tax was invalid under your long line of decisions to the effect that a Sales tax can be levied only by the destination jurisdiction; which in that case California was not and you current law has not threatened by any means the holding of the Atlantic Richfield case and we do not challenge it.

One final point which is raised by these respondents is the implication that there are somehow politically powerless outsiders in a marginal business.

Interstate and foreign trade are vital to the economic health of the State of Washington.

These private corporate respondents reside in and do business exclusively in the state and the Public Ports Association respondent represents municipal corporations, so politically powerful that they have obtained a special state constitutional exemption from property tax limitations applicable to every other governmental entity including the state itself save one.

In summary, Washington's Gross Receipt Tax here at issue, does not tax imports or exports at all.

In fact a large proportion of the imports and exports passing through the state are not even affected by the tax because they do not require Stevedoring services.

The taxes levied on the handling of goods only and not on the goods themselves.

Those services are performed entirely within the state and the tax is thus precisely apportioned.

The does not discriminate against inter-state or foreign commerce and is fairly related to governmental services provided by the state.

As Walter Helistien (Ph) says in his masterful Michigan Law Review article of last June on Complete Auto Transit and Michelin Tire and I quote ”In each case this Court's opinion can fairly be read as stressing a common doctrinal theme.

So long as the state does not discriminate against our importer's burden upon the constitutionally protected interest, the tax will be sustained.”

Perhaps the sole serious aberrations from this theme are Puget Sound, Stevedoring and Carter & Weekes.

We submit that it is time to put them to rest.

Chief Justice Warren E. Burger: Mr. Piper?

Argument of John T. Piper

Mr. John T. Piper: Mr. Chief Justice and may it please the Court.

The respondents are Stevedoring Companies of the State of Washington and also the Washington Public Ports Association to that extent by their participation, we have one segment of the public contesting with another.

The respondents by the record load and unload ships between the first in-point and the last point rest on the pier or dock and the ship's hold.

We are here to defend as you know the validity of two of your decisions, the Puget Sound case decided in 1937, the Carter & Weekes decided ten years later in 1947, and we invoke two clauses of the constitution, commonly called the import-export clause and the commerce clause.We see the clauses as a different in force and in effect.

Until this morning it was our impression from the briefs of the state that they saw the clauses as imposing substantially the same prohibitions on the commerce; namely if your tax is okay, if it does not discriminate and if it apportions.

We hear today that the commerce or the import-export clause does have more force.

I must admit that I did not catch the exact point on which it had more force, but we will of course say it does not, we will try to be specific as to the additional force we think it has over the implied prohibition of the commerce clause.

We start therefore, with our what might be our best foot forward, the import-export clause which does contain an express prohibition.

Our thesis under the import-export clause is this.

That the expressed prohibition which in paraphrase says that no state shall levy duties on imports and exports, does cover in a literal, plain meaning sense loading and unloading because we suggest two reasons.

Loading and unloading is in a functional sense right at the heart of the import-export process.

We also invoke we think a kind of approach suggested by this Court in Michelin where Michelin pointed out that the tax there, a tax on the mass of goods and the property in the state after they had come to rest was avoidable by the importer.

We say here that on analysis we think anyone would come to the conclusion that a tax fastened on the loading, on the unloading would not be avoidable by the importer-exporter.

That if the state were given power over that link in the process, they would have effectively power over the process as a whole.

Chief Justice Warren E. Burger: How would you distinguish the statute, one levied on in terms of a charge on the use of the wharf or the dock by the one of Publicly owned wharf or dock?

Mr. John T. Piper: The wharfage kind of case, cases like that have been regarded as collateral of the things that seem to be supplemental or an aid to the process, not integral to it, have been treated traditionally as collateral.

I am not sure that I would say that it could have been decided otherwise, but that is the law.

Chief Justice Warren E. Burger: But, I am wondering, how you distinguish it from police and fire protection?

There is that, certainly when you are importing an oil you have the particularly high fire risk or if it is something even more volatile, the risk goes up.

Now, how is that fundamentally different for constitutional purposes from police and fire protection routine, which is --

Mr. John T. Piper: As we read your cases, this Court seems to have focussed on the essential import process bringing the goods in, getting them sold and the things that are peripheral in aid of as a matter of first impression perhaps they might have been protected, but they have not been.

Chief Justice Warren E. Burger: You cannot bring them in without the vehicle, can you?

Mr. John T. Piper: That is correct.

I think the only answer I can give is that there has been a very bare bones kind of protection.

It does not include such things as a wharfage, cranes, for renting cranes.

In the Stevedore case for example, among the activities that the Stevedoring Company did was to make longshoreman available by hire.

That was not protected, although it was in aid of the process.

So it is a hardcore line and I guess what we are saying here is that even a strictest definition would find the landing of the goods essential to import indeed the loading of the goods essential to the exporting.

There is a negative side to our thesis that we may to deal with also, the state it seems to us on brief at least, has attempted or suggested that they would graft on to the clause, a kind of implied limitation which would be to the effect that it was, a tax is alright if does not discriminate and it is apportioned.

We would resist that for reasons that I will state.

We are not of course sure just how strongly they about that limitation after this morning, but we will deal with anyway.

Returning to why we feel that were covered by the express language, the language that is actually there in the clause, I turn again to the functional idea.

If importing is bringing things into the country what can be more central to that than putting them on the land.

This court in Brown v. Maryland in fact expressly said that a tax could be as effective to control importing and exporting if it is attached at the instant of landing, as if it is attached out of the entry at the harbor.

Going in the other direction, what could be more central to getting the goods out of the country exporting then getting them aboard the ship.

Another test as I have suggested came out of your decision we think in Michelin.

There you pointed out that the tax there could have been avoided by the importer just by keeping the goods moving.

Now, the implication of that reasoning it seems to us is if the functional that is involved here is so fundamental to the process that the importer can not avoid it.

It is part of the process.

In another words, if you give the state a power over this link in the chain, he has power over the whole process.

The Brown v. Maryland case is instructive there, that was the one that this court relied on principally in Michelin.

There the tax was a license to sell and this Court reasoned that without the ability to sell the product, the active importing was useless.

So that by fastening on the ability to sell, they effectively taxed the process itself.

The Omni case we have cited on brief is another example.

There, there was a tax not on the importer, but on the carrier or more precisely on the carriers in bill of lading and this Court took notice of the fact that a bill of lading is really essential to commerce.

Therefore, if you fasten on that bill of lading you have fastened on the process itself.

In short what we are saying is that we come under the literal express language of the clause as written that if you give the power, give the state the power to tax, this link in the process they can effectively tax the process.

Now, I come to their, what I would call to say the negative part of our thesis under this clause is there an implied limitation in the clause, that says in effect no state shall levy duty on imports except that the state may do so if the tax is unapportioned and non discriminatory.

The clause as you know has one express exception.

A state may tax in order to enforce or execute its inspection laws, but there is an imperative in that exception.

It says, it may tax to the extent absolutely necessary.

So we are faced then with just one exception that is express and a rather stringently restricted exception at that.

May you graft on, should this Court graft on to the express clause, an implied limitation that a tax is okay if it is unapportioned and non discriminatory.

Now, despite counsel's statement this morning that the import-export clause does have more force, we have not in our minds at least detected, what force it would have beyond approving the taxes that are non discriminatory and apportioned.

Certainly there is no suggestion in their brief as to just why a tax would be struck down if it could meet those two requirements.

We give you three exceptions that we take to the idea that there is some limitation here in the nature of taxes are okay if they are non discriminatory and apportioned.

Your decision in Richfield has dealt with this question at length, very carefully taken into account the history of the constitution, the standards by which the constitution should be expounded, I m not going to repeat it because we dealt with it at length in our brief at pages 11 and 12.

I want to go to my second exception to the idea that we can impliedly limit this clause to the purposes of the clause.

Counsel yesterday stated correctly that this Court in Michelin identified three purposes of the clause.

One of the purposes we discussed on brief which is the prevention of the transit fee.

Michelin said that the clause was fashioned to prevent transit fees and the experience under the articles of the confederation had taught that seaboard states were inclined to fasten on these transit fees on goods flowing to the inland states.

Throughout the decision in Michelin, there are repeated careful distinctions of the transit situation from the tax on the mass of the property involved there.

For example, the holding of this Court in Michelin, stated in the last paragraph of the opinion begins, petitioner's tires in this case were no longer in transit.

There is at page 290 of the Michelin opinion a statement or I think a very suggestion, I am going to put it that way, that even a non discriminatory property tax might have to exclude or would have to exclude goods in transit.

So we think that the transit idea has been carefully set aside and preserved in the Michelin decision.

Now, the state wants to do exactly what that purpose was intended to prevent.

They want to have a transit fee, now to be sure it is a sanitized transit fee because it is non discriminatory and apportioned, but it is a transit fee nonetheless.

It enlarges their tax base by the increased volume of traffic at the expense of the inland states.

I address myself now to the other two purposes that you identified in Michelin that underly this clause.

We did not address them as counsel correctly pointed out on brief, but I do now.

The federal government wished to avoid having the states share with it the revenues and the power of regulation over foreign commerce, and we say that the state's brief asserts the power to do exactly that.

They say at page 32 in a title, a state may consistent with the import-export clause impose a tax on the act or privilege of engaging in the business of transporting goods, moving in foreign commerce.

Now, that business would include the business of the foreign carriers themselves.

Stevedoring or loading and unloading is the issue here, but the business of transporting goods, moving in foreign commerce, that is a business that the foreign carriers are engaged in.

Suppose for example that they asserted that tax and the foreign carriers perhaps not being accustomed to that treatment, resisted payment.

(Inaudible) collection officers presumably would take the most practical means of collection mainly seizing the ship.

That would have I think some impact on foreign relations.

Again, on the regulation point, if the power to tax is the power to regulate, this Court has as we pointed on on brief, previously said that our state, which is the Dairy State may tax all your margin, this was in 1930s, without violating the rules against discrimination, which are very loose, we say rather feeble rules.

Well, why could not they, if they were granted the power they ask here to tax handling or tax loading and unloading, why could not they discriminate between what is being unloaded and loaded like discriminate against Olio, against South American Beef.

Why could not they in other words use a power to tax loading and unloading to erect their own tariffs.

Now, this is speculation.

I guess the point we would say is that the speculation or the concerns expressed here were considered by the framers of the Constitution and it is not we suggest appropriate for them to be second guessed.

Those are the purposes that the framers thought merited this expressed prohibition and we suggest that they should be accepted and the language should be applied as it was written.

I come to the last reason why we accepted the idea that there is some implied limitation here and it comes back again to the idea that we think there surely must be more force in an expressed clause than in an implied one, and therefore, whatever you may decide is the rule in the Commerce Clause and we of course assert that the Commerce Clause has a stronger prohibition than the state does, but whatever you may decide surely there is some additional strength or force in effect in the import-export clause than you would find in the Commerce Clause.

In connection with this question about the greater force of the import-export clause, let me mention the Canton Railroad case discussed by counsel yesterday as being the case in which impliedly overruled the Stevedoring cases.

That was a case written by Mr. Justice Douglas.

Now, the language of that opinion and its companion did in fact consisted the word 'handling,' but if you look at the facts carefully, a handling covers things that are (Inaudible) loading and unloading.

It covered storage, wharfage, weighing of loaded freight cars, furnishing a crane, these are the peripheral sort of things Mr. Chief Justice that as I said in tradition just have not received the protection, apparently not being close enough to the core, this was in fact a distinction made in the first Stevedore case.

Perhaps the closest thing to transportation there was switching of cars from one point in Baltimore, that is from the piers to the trunk line of railroads.

Mr. Justice Douglas said, that was more remote than Stevedoring and he distinguished the Stevedoring case.

At least you think that, that was a mere perfunctory distinguishment that Mr. Justice Douglas made, I call your attention to the fact that Mr. Justice Douglas participated in the second Stevedore case in 1946, just four years before Canton.

And there he voted to strike, to sustain the tax under the Commerce Clause, but under the import-export clause he switched over to the majority and was joined by one other justice, so there was a 7-2 decision there.

And he said to him, the express prohibition of the import-export clause made the difference and again it was Mr. Justice Douglas who wrote the Richfield opinion which said, lack of discrimination is not enough to save a tax that applies to import-exports.

I turn now to my --

Unknown Speaker : Mr. Piper just one observation there.

What he says in Canton because this is pretty close, he ends up his discussion by saying, hence we need not decide whether loading for export and unloading for import are immune from tax by reason of the import-export clause and cites Carter & Weekes when it would seem that Carter & Weekes had already decided it.

He is in fact saying we need not decide whether or not to overrule Carter & Weekes, is it not a fair reading of that?

Mr. John T. Piper: Yes, I believe it is and if we had nothing more to go on, I would say that it would be fair to imply that perhaps he has some doubt in his mind because we need not decide a sort of language and that is why I call your attention to the fact that just four years before --

Unknown Speaker : He had been one of the two dissenters?

Mr. John T. Piper: Yes.

Unknown Speaker : One other question.

He points, he draws the line, the acts begin and end at the water's edge, he uses that language in Canton case.

This activity actually goes beyond the water's edge because it goes into the hold of the ship.

Mr. John T. Piper: It overlaps it.

It is from point of rest, last point of rest into the ship from the hold of the ship back to first point of rest, that language is not precise.

I think the distinction that he makes the distinguishing of the Stevedore cases, you just have to take as adding the precision that the language itself does not contain.

Unknown Speaker : Yes.

And why is it income tax on Stevedore, state income tax on the Stevedore, why would it be acceptable?

Mr. John T. Piper: I think traditionally with some real economic merit of course, this Court has regarded property taxes, net income taxes, as standing on somewhat better constitutional ground as far as movement in Commerce is concerned, because it tends to attack accumulated wealth and it tends --

Unknown Speaker : Well, that may be good enough for the Commerce, but you say that the Clause you got here – involved here is got a better reprobate?

Mr. John T. Piper: Alright, your question would be what would happen if you attempted to --

Unknown Speaker : Why is an income tax valid under this clause even if it violates Commerce?

Mr. John T. Piper: I am actually trying to recall whether a decision has been made that says that an income tax is valid.

Unknown Speaker : Well, whether these statements are made or not, you are cutting new ground now, you want to cut new ground or you do not want to cut new ground and why would it not be a justification for sustaining an income tax?

Mr. John T. Piper: If I had to predict what would occur and the rationale behind it, I would probably say that on income tax, on the portion of the net income that might be traced to the import let us say, would probably be --

Unknown Speaker : Now, Stevedore says he has got no income, but Stevedore?

Mr. John T. Piper: Alright, and the tracing would be easy in that case.

I would be inclined to predict a sustaining on the basis of the history where income taxes and property taxes have been considered sufficiently remote.

Now, conceptually you get difficulties in justifying this.

The taxation being practical, we say, well, it does not seem to have the same impact that excises do and we justified on practical grounds, while conceptually we do get into difficulties, very much like the --

Unknown Speaker : How about the grocery seeds tax on the importer?

Mr. John T. Piper: On the importer?

Unknown Speaker : Yeah.

Mr. John T. Piper: I think that --

Unknown Speaker : He is in the business of importing?

Mr. John T. Piper: Yes.

Unknown Speaker : And he is the fellow who goes and picks the goods up from the point of rest, where the Stevedore leaves it he picks it up and he is the importer and he picks it up and then puts it on a common carrier and head for New York or head for some other place?

Mr. John T. Piper: Your decision in Brown v. Maryland would clearly protect the importer.

If by that you mean the person who was responsible for the goods having them brought into the country.

He was --

Unknown Speaker : You mean he would not have to pay the grocery seeds tax?

Mr. John T. Piper: That is correct under Brown v. Maryland.

That importer in Brown v. Maryland did not even have to pay the tax on his sale, on the theory that by taxing his sale, you ineffectively made it, if he could not sell his importing was useless.

So I think that, that decision has been made if you are talking about the fellow who brings the goods, who causes the goods to be brought into the country.

Unknown Speaker : What if he always is going to do with his – sell it in state, does that make any difference?

What if all he is going to do with it is to use it as a raw material to manufacture?

Mr. John T. Piper: You cannot tax him let us say at the point of manufacture without any question.

I turn now to the Commerce clause which as we have said is an implied prohibition, therefore it is weaker.

It leaves large areas available for taxation.

For example, under the Commerce clause the interstate sale itself is taxable.

The state of the market may tax it.

The production of the goods, the manufacture or extraction of the goods is taxable.

A good deal of transportation of interstate goods is taxable.

Our thesis here is though that there remains and should remain in law an area of protection of transportation, of movement in commerce and I propose to develop that thesis and draw the lines referring to your decisions by some illustrations.

Assume first a journey from Alaska to Seattle unloaded let us say by Stevedores to a local carrier and proceeding from Seattle to a inland city in Washington, let us say Walla Walla, your decision in Complete Auto Transit permits a tax on the carrier that handles the transit from the port of Seattle to Walla Walla.

That in fact is not a new rule that was an old rule; the case of Philadelphia Railroad v. Night which was distinguished in the first stevedore case involved a taxi service that the interstate carrier had set up and that taxi service was considered local transit.

So that may be, that segment of the carriage of the interstate goods may be taxed.

Going the other direction from Walla Walla to Seattle and then to Alaska, your decision in Interstate Oil would allow the local transit from Walla Walla to the port of Seattle to be taxed.

Now, we come to the area where we say there should be some protection.

Assume a journey from Alaska through Washington to an inland state, Minnesota, Wisconsin, Illinois, Washington under the stevedore line of cases --

Justice William H. Rehnquist: With no kind of shipment, no staff, in the state of Washington --

Mr. John T. Piper: We will assume in this case that a carrier from Alaska to Seattle unloaded by stevedores put aboard an interstate Railroad and continuing on through, we would say no tax there and we think that that not only reconciles your decisions, but we suggest that it makes good economic sense to emphasize the points that or the rationale you have made in Complete Auto Transit.

We point out to you that if the tax on the incoming goods, say from Seattle to Walla Walla, if it was a tax there, the people who are going to feel it are the consumers in Walla Walla.

There is going to be operating the normal political restraints against taxes.

Likewise if the goods are going from Walla Walla to Seattle, the people that are going to feel that tax are the producers in Walla Walla whose goods become somewhat less competitive, but on the through traffic, there really is not any political restraint and we have suggested to you that the rules that you have against discrimination just are not quite enough and they just allow too much latitude.

For example, our tax I should think could be increased at least up to railroads which is 3.6 times of what they are now.

So we commend to the Court a consideration of retaining what we think is a reconciliation of the cases on their holdings to protect the through transit, the interstate carrier, which would include stevedoring on my hypothetical because you do not have the political restraints, you have the transit fee syndrome.

Justice William H. Rehnquist: Is that not as a practical matter though pretty much moot because your destination state is going to impose a use tax and so the – they will be able to show that there is in fact double taxation if Washington as well as say Minnesota are the state of destination taxes?

Mr. John T. Piper: Well, excises of course can be taxed upon any number of different acts.

Now, use tax would imposed on the, by the destination state, but say on the use by the consumer in that state, but it would not, I think, I am suggesting that unless we are able to sustain the authority that we are defending here, I think we need the rule that be through states may not tax.

I do not think, I would invoke the use tax as a rationale.

Justice William H. Rehnquist: But is not your typical tax that you are imposing here is imposed on the privilege of doing business and then measured at a certain percentages, is it not?

Mr. John T. Piper: Yes it is.

We say though that to the extent that it fastens on to movement which is a through type movement, it has been a struck down and should be because we see no, again we see the transit fee syndrome there.

We do not see the political restraints that you have in the destination state or in the origin state.

We pointed out on brief why do we think that the rule against discrimination just is not enough of a safeguard to protect against the transit fee syndrome.

Now, we of course recognize that the transit fee is a purpose of the import export clause.

We suggest that the policy behind the transit fee is worthy of consideration as your weigh, as you are allowed to do under the Commerce clause, the various interest of the states for revenue and the interest of let us say a common market.

Now, we think that this protection of through goods against the transit fee is a good common market concept.

We in our state, for example, are making a distinction, we did distinction not a long ago, not only between butter and oil margin, but we tax Billiards and Pool and Golf, but not, we did not tax Bowling.

If you were for a while in our state, if you rolled balls along the grass or along a felt surface you were taxable, but if you rolled them on a wood surface you were not.

Those distinctions are permitted.

It is perfectly good law.

The rules against discrimination give legislators tremendous latitude and they are just not an adequate safeguard we think against the transit fee syndrome.

We having said to you that we think the transit fee syndrome is worth considering as you allowed to do under the Commerce clause we return in summary to say under the import export clause it has been considered and the framer said, “we do not want it.”

They have said, “we do not want the states sharing in the revenues and the power to regulate commerce.

That we think, that question is really not up for a reconsideration.

It has been settled and there should be no implied limitation grafted onto the expressed prohibition.

Chief Justice Warren E. Burger: Mr. Attorney General do you have anything further?

Rebuttal of Slade Gorton

Mr. Slade Gorton: Mr. Chief Justice and may it please the Court.

You asked Mr. Piper to distinguish the tax in Canton Railroad from the one which the state proposes to and holds here and the answer was simply that wharfage was collateral or peripheral, I believe were the words used.

There was no direct answer to the question.

The services in Canton Railroad and even more graphically in Western Maryland Railway which was a companion decision in the early 1950s were clearly beyond peradventure of doubt, taxes on transportation on the service of transportation and they were upheld against charges that they violated the import and export clause because as we have already discussed while the import export clause is peremptory is an absolute bar, it is a very narrow absolute bar.

Mr. Piper keeps speaking of its application to taxes, yet does not mentioned taxes.

It speaks of imposts or duties on imports or exports.

Justice William H. Rehnquist: How about Brown against Maryland, there the tax was on the sale, was it not?

Mr. Slade Gorton: There the tax was on the sale and there in the early days, before this Court used the Commerce clause and they built up doctrines of discrimination and the like, that tax was determined to be a tax against imports because it was discriminatory.

The only sellers who had to pay the tax in Brown versus Maryland were sellers of imports.

The competing seller of local goods was not charged with those at all.

The tax in import in other words as an import not as one of the goods that were commonly located in the state.

Unknown Speaker : It is not your submission is it that in order for there to be a violation of the export import clause there must be a tax that discriminates against imports or exports, any tax --

Mr. Slade Gorton: No, any, no not any tax.

Unknown Speaker : Any imposed?

Mr. Slade Gorton: Any imposed or duty which is a --

Unknown Speaker : On exports or imports?

Mr. Slade Gorton: On imports or exports --

Unknown Speaker : Violates the constitution may be by mistake.

Mr. Slade Gorton: Whether it discriminates --

Unknown Speaker : In other words, a state at least in levying its impost is constitutionally required to discriminate in favor of exports and imports.

Mr. Slade Gorton: Precisely, the rules on discrimination and apportionment do not apply if you have an impost or duty against an import or export, but as you have pointed out most recently in Michelin that language imposts and duties is much more narrow than the language impost, duties, excises and taxes.

Unknown Speaker : Well, can you think of a non discriminatory impost or duty, I guess you cannot?

Mr. Slade Gorton: A non discriminatory impost or duty; perhaps a non discriminatory impost or duty which would be one which was matched --

Unknown Speaker : As long as you have something that is non discriminatory, it can never be an impost or duty, is that you are --

Mr. Slade Gorton: Oh! No, no.

Unknown Speaker : Well, get me example of one that --?

Mr. Slade Gorton: The example which I gave you earlier this morning, the tax on widgets.

The state of Washington imposes a manufacturing tax on widgets and a compensating tax on widgets from Japan.

I do not believe that to be non discriminatory because all widgets are subject to the same tax, but it would clearly be an impost or a duty on an import or an export, and therefore, would be invalid --

Unknown Speaker : What about the importer who imports and resells it, does he pay the Goods Receipt Tax?

Mr. Slade Gorton: No not if he sells out of state.

Unknown Speaker : What about in state?

Mr. Slade Gorton: In state he does, but he pays the tax on the sale and because under those circumstances the domestic producer pays the same tax on sale and --

Unknown Speaker : Well, if I am a -- assume I am a food broker living in Seattle and I have a -- my clients are super markets.

I specialize in foreign foods and some of the manufacturers or processors of foreign foods have offices in Seattle.

I deal with them.

I order from them and tell them to send their goods to the super market.

I specify and I -- all my transactions are right there in Seattle, but I buy the goods and I in effectively resell them to the super markets, but I am an importer, do I pay the Goods Receipt Tax?

Mr. Slade Gorton: Yes, you do pay Goods Receipt Tax.

If, however, you sell those goods in other states, you do not pay the Goods Receipt Tax --

Unknown Speaker : But that is not -- is that because of the -- that is not because of the --

Mr. Slade Gorton: That is because of the Commerce clause.

Unknown Speaker : Yes not because of the --

Mr. Slade Gorton: Your one doctrine separates the sales type situation, the tax on sales from the tax --

Unknown Speaker : That is under another clause, if you do not do that?

Mr. Slade Gorton: In effect under another clause, you say the only state which can tax the sale is the destination state and that of course is the rationale ground of Richfield and the like, but unless --

Unknown Speaker : So your position is that certainly it is not contrary to the export import clause to tax the importer?

Mr. Slade Gorton: To tax the importers, local sale as long as – no it is not.

Unknown Speaker : Or his foreign sale?

Mr. Slade Gorton: No excuse me, it would not be his foreign sale.

Unknown Speaker : Not the import, not the export import clause?

Mr. Slade Gorton: It would be because that was a tax by the origin, the state of origin which you simply do not permit to tax sales, but in this case of course we are not taxing goods at all, that is why it is an easier case --

Unknown Speaker : And regrading on that point, supposing the tax were in the form of a specific, a transaction tax, for each ship unloaded you pay $100 or something like that, what would you say about that?

Mr. Slade Gorton: I would say that that would be a tax directly on the goods.

That would undoubtedly be the Brown v. Maryland situation since you had effected them with -- that would be an effect on the tax --

Unknown Speaker : But it is on the activity, it would be on the activity of unloading the ship regardless of what the goods were, the value or anything like that.

Why is that any different in this tax on the income derived derived from the activity?

Mr. Slade Gorton: Because that tax would have no relationship to the services provided within the state, that the mere fact that the goods were unloaded, it would not how they were under those circumstances.

In this case, we are dealing, the tax is on the handling of the goods themselves.

These employers have already been found to the subject to such a tax if all they do is supply the stevedores to the shipping company itself even if as far back as Puget Sound Stevedoring, that is really a distinction without a difference.

In this case, we do not direct our tax against the goods at all.

How many goods there are?

What goods there are?

What they are worth is all irrelevant.

Unknown Speaker : Well that is true in my example too?

Mr. Slade Gorton: Yes but the we are not taxing, for example, the fact that the ARCO tanker unloads goods without using any services within the state.

When it unloads its petroleum at an in state refinery, it is not subject to this tax because no service is occurring within the state.

We are taxing a service.

We are not taxing interstate commerce for that matter and in this case as directly at all.

We are taxing solely a service which is entirely performed within the State of Washington from beginning to the end of that service.

Justice Thurgood Marshall: You keep saying about the goods.

Well, what about when you swing a container off, where the goods in the container?

Mr. Slade Gorton: Yes, that is right.

Justice Thurgood Marshall: You swing a container off and you put it right on a truck, it never touches, (Inaudible)?

Mr. Slade Gorton: Well, generally speaking it lands on the dock and it is then transferred to --

Justice Thurgood Marshall: Well, I am saying that it did.

Mr. Slade Gorton: But let us say that it does that, Mr. Justice Marshall, we are still --

Justice Thurgood Marshall: What happens if it is on a conveyor belt straight into a box car?

Mr. Slade Gorton: Exactly the same thing.

If that service of unloading were engaged in Washington, this is what you decided in Canton Railroad.

You looked to the import export clause -- You the Supreme Court of the United States looked to the import export clause and said now this clause may have a great breadth when the tax is on the imports or exports themselves, at that time you might very well have extended it as far as Michelin Tire.

In any event, you extended it until the imports were out of their original packages wherever they eventually left, but even back in the 1950 in Canton Railroad, you said the clause is much narrower when it is applied to services related to goods, specifically in that case to handling services.

Those handling services were an integral part of the transportation of the goods, absolutely integral.

They could not, the imports could not get into the United States without getting off those ships and without being transported to the truck line and railroads and then the Western Maryland transported by the rails, could not have done it at all, nonetheless you said it does not apply.

Why did it not apply because it was not a tax against the goods or services.

Chief Justice Warren E. Burger: Thank you gentleman.

The case is submitted.