WARDAIR CANADA v. FLORIDA DEPT. OF REVENUE
Legal provision: 49 U.S.C. 1301
ORAL ARGUMENT OF WALTER D. HANSEN, ESQ. ON BEHALF OF THE APPELLANT
Chief Justice Burger: Mr. Hansen, I think you may proceed whenever you are ready.
Mr. Hansen: Thank you, Mr. Chief Justice, and may it please the Court:
In the spring of 1983, Florida enacted and began collecting an unapportioned fuel tax on aviation fuel uplifted in Florida by Wardair, a Canadian airline, and by other foreign airlines, such fuel to be used exclusively in international commerce.
Wardair challenged the validity of that tax in a Florida circuit court on the grounds that it was unconstitutional and that it violated the terms of the Nonscheduled Air Services Agreement between the United States and Canada, an agreement which regulates the foreign air transport services which Wardair can provide in and out of the United States.
The circuit court held that the tax was constitutional, but that it did violate the terms of the bilateral agreement and issued an appropriate injunction.
On appeal, the case was certified to the Florida Supreme Court and that court again held the tax to be constitutional, but that it did not violate the terms of the bilateral agreement because there was no exemption from the payment of a state fuel tax.
That decision is at total odds with Japan Line against the County of Los Angeles in which this Court held that the California tax on cargo containers used exclusively in international commerce and owned by foreign nationals was unconstitutional even though there was no specific federal prohibition against the tax.
The question in this case is identical to the question in the Japan Line decision, whether a state has the power to tax an instrument of foreign commerce owned by foreign nationals and used exclusively in international commerce.
The Japan Line case is a pure one involving, as it does, solely the power over foreign commerce, an exclusive preserve of the federal government, with no parts shared with the individual states.
Unidentified Justice: Well, Mr. Hansen, in Japan Line I think the Court at least expressed considerable concern, reliance upon the asymmetry that would exist, and here, I guess, Canada imposes a tax on fuel under the same circumstances that Florida does.
Mr. Hansen: Yes, you are quite right, Justice O'Connor.
But, it is my belief that that fact does not enter into this case as an issue.
What it does do is show--
Unidentified Justice: But, certainly... It certainly cuts back on the reliance you can place on Japan Lines in my view.
Mr. Hansen: --Well, no, I respectfully disagree.
What it does show, Justice O'Connor, is that if there is a method to remedy the problem that the United States may have with Canada as to this reciprocity, the federal government has to have the exclusive power to devise the remedy to suit the national interest.
It cannot be worried about what the individual states may do with that circumstance.
It has to have the power.
The federal government has to have the power to attempt to remedy and it is doing that right now.
Unidentified Justice: Well, isn't the Canadian counterpart provincial rather than national?
Mr. Hansen: Yes.
The tax is a tax--
Unidentified Justice: It is not imposed by the dominion of Canada, it is imposed by a couple of provinces.
Mr. Hansen: --It is imposed by the provinces, just like Florida is imposing a tax here.
I might suggest, however, that insofar as that problem is concerned, there are several things to consider.
One, to my knowledge, there has not been a U.S. air carrier which has challenged that tax in Canada.
Two, there is presently a diplomatic initiative in an attempt to seek a remedy to that problem.
And, three, one of the United States air carriers that performs service to Canada has joined with other carriers in an amici brief supporting Wardair's case today.
In the Containers Corp. of America against the Franchise Tax Board, this Court commented on the Japan Line case, saying that it was consistent with international practice and expressed federal policy.
That case is a pure case involving the power of the federal government over foreign commerce.
And, this case is as pure.
It is Wardair's contention that the Japan Line decision should be considered here.
Unidentified Justice: Mr. Hansen, just to clear up one point for me to be sure I am right on it, you do not contend, as I understand your position, that there is a violation of any specific treaty between the United States and your executive agreement?
Mr. Hansen: By the Florida tax?
Unidentified Justice: Yes, or by the provincial tax in Canada, either one.
Mr. Hansen: Well, I can't answer insofar as Canada is concerned.
I do know that the provision in the Nonscheduled Air Services Agreement shows that the countries are to provide these tax exemptions to the best possible way that the national law will provide.
Now, whether or not Canada can do anything about this problem, I don't really know.
Unidentified Justice: Well, just more narrowly, as I read your brief, you did not contend that the Florida tax violated that convention.
Mr. Hansen: Well, I did insofar as it violated the... what those tax exemptions demonstrate and they demonstrate just what this Court concluded was demonstrated by the Customs Convention on Containers in Japan Line.
It demonstrated a desirability for a uniform--
Unidentified Justice: But, that all is support for your basic argument that Japan Line controls as a matter of constitutional law.
Mr. Hansen: --Yes.
Unidentified Justice: But, as I understand, you do not independently argue that the convention itself provides a federal reason for holding a state tax unconstitutional.
Maybe you did.
I missed it.
Mr. Hansen: There is no specific exemption from a state tax in the Chicago Convention or the Nonscheduled Air Services Agreement.
In Japan Line there were three elements which were essential to the Court's decision.
The subject taxed was owned by a foreign national.
It was used exclusively in international commerce and it was an instrument of foreign commerce.
All three of those elements are met here.
Wardair is a foreign national.
The aviation fuel it uplifts out of Florida is used exclusively in international commerce.
Wardair cannot provide any service other than foreign air transportation exclusively.
And, it is an instrument of foreign commerce.
Now, an instrument of foreign commerce is no term of art.
Means of commerce is another way of expressing it as shown by this Court in Helson against Kentucky where it found that fuel used to propel a transport vehicle was an instrument of commerce.
In Japan Line, the Court found that the cargo containers were instrument of foreign commerce as a matter of law based on the tax exemption provisions contained in Customs Convention on Containers.
In that convention for cargo containers used exclusively in international commerce the convention provided an exemption from national import duties and national import taxes and that is all.
It did not exempt from any state taxes, yet this Court held the California tax to be unconstitutional.
In this case, both the Chicago Convention and the Nonscheduled Air Services Agreement provide tax exemptions almost exactly the same as those contained in the Customs Convention on Containers plus other state exemptions for aviation fuel uplifted... I am sorry, used exclusively in international commerce and cover fuel which is uplifted in the territory of one country by the carrier of another, thus Wardair's aviation fuel uplifts in Florida are covered.
Now, the Court in Japan Line showed that it was not important whether the exemption granted an exemption from state taxes.
What it did show is what it demonstrates, what the tax exemption demonstrates.
And, the Court reasoned that the tax exemption provision evidenced a desirability for a uniform federal regulation of containers used exclusively in international commerce and reflected a federal policy to remove all impediments as to their use as instruments of foreign commerce.
It was on that basis that the Court held that since the California tax frustrated the attainment of that federal regulatory uniformity, it was inconsistent with the power of Congress over foreign commerce and, therefore, unconstitutional.
That same reasoning and that same ultimate conclusion is as applicable in this case.
Florida's tax on Wardair's fuel was unconstitutional because it was a serious infringement on the power of Congress over foreign commerce.
There is another element here that is not contained in the Japan Line case that bolsters the case against the Florida fuel tax.
Congress has expressed a clear mandate through the Federal Aviation Act requiring the uniform federal regulation of foreign air transportation.
Even though Congress deregulated domestic air transportation almost eight years ago, the federal government still regulates on a highly structured basis through the Federal Aviation Act all foreign air transportation and the reason is clear.
United States air carrier participation in foreign air transportation is totally dependent upon the ability of the federal government to operate effectively in regulating foreign air transportation with foreign governments and reaching adequate international regulatory agreements or understandings based on reciprocity and comity.
The uniform federal regulation of foreign air transportation by the federal government is absolutely essential if that national interest purpose is to be met.
By Section 1102 of the Federal Aviation Act, Congress enacted a set of goals to be met through the International Regulatory Agreement signed by the United States.
Those goals include the reduction of discrimination and the increased competition opportunities by the United States air carriers in foreign air transportation.
Any unilateral state action which may disrupt the regulatory balance as to foreign air transportation reached by the International Regulatory Agreements signed by the United States would either impair or thwart the achievement of those statutory goals set by Congress and thereby infringe on Congress' power over foreign commerce.
There is one other aspect to this case.
If there is proliferation of any such interferences by states such as Florida's tax on Wardair's fuel, in the words of this Court in Japan Line, would make speaking with one voice impossible, yet if the Florida Supreme Court is not reversed here, such a proliferation will take place.
The amici brief supporting Florida in this case makes that fact known very clearly.
Now, this case concerns solely the power of the federal government to regulate foreign air transportation in concert with its foreign government partners and to devise such remedies as the national interests warrant when there are disagreements with those partners.
This power over foreign commerce--
Unidentified Justice: May I ask you one question that goes back to Japan Line.
Mr. Hansen: --Okay.
Unidentified Justice: What was the tax?
That was a property tax on the--
Mr. Hansen: Yes, that is right.
Unidentified Justice: --And here we have a sales tax.
Mr. Hansen: Yes.
Well, whether it is a sales tax or excise tax, it depends upon who you talk to.
Unidentified Justice: Do you think Japan Airlines would have made it unconstitutional for California?
Say the containers had been manufactured in California.
You can impose a sales tax on--
Mr. Hansen: Yes, I do.
Unidentified Justice: --You do?
Mr. Hansen: Yes.
Unidentified Justice: And, you think this is the same as if they imposed a property tax on the... If they imposed a personal property tax on the value of the gasoline while it was in the state or something like that?
Mr. Hansen: Yes.
Unidentified Justice: You think it is the same?
Mr. Hansen: Yes, I do.
This case concerns solely the power of the federal government to regulate foreign commerce and that is the reason there is no pre-emption question in this case.
Florida did not have the power to tax Wardair's fuel.
Unidentified Justice: You mean even in the absence of a convention?
Mr. Hansen: In the absence of the... With the circumstances which we have in this case, it is our position that they did not have the power.
Unidentified Justice: Even without... Supposing there had been no convention in this case.
Mr. Hansen: Oh, yes.
I think even in the absence of such a convention because whatever is done in foreign air transportation it is done in concert by the United States and foreign governments.
There cannot be any foreign air transportation unless there is an agreement between the United States and foreign governments as to what air transportation will be permitted.
That ability is solely in the hands of the federal government and the states have no power in that area.
What we are talking about here is foreign air transportation and what happened here was that Florida intruded and that intrusion--
Unidentified Justice: Does your principle apply to an American carrier which buys gasoline in Florida just for its overseas flights?
Mr. Hansen: --That question has not been brought to this case.
Unidentified Justice: I understand that.
Mr. Hansen: To this Court.
And, in Japan Line, if I recall correctly, the Supreme Court reserved its decision on that point.
And, now, I think, Justice Stevens, you are asking me to hazard a guess as to what the Supreme Court will do.
Unidentified Justice: I was just wondering whether your evaluation of your own principle would apply in that case or not or you just don't know.
Mr. Hansen: If it is construed to be foreign air transportation and not a question of a domestic power such as was contained in the Containers Corp. of America with just resinouses of foreign commerce, but strictly involved foreign commerce and foreign air transportation, then I would say that Florida would violate the Constitution.
Here, again, some of the United States air carriers that brought the case up from Florida did not raise that question.
They raised interstate commerce questions solely.
Chief Justice Burger: Your time has expired now, counsel.
ORAL ARGUMENT OF ALBERT G. LAUBER, JR., ESQ. IN SUPPORT OF APPELLANT
Mr. Lauber: Mr. Chief Justice, and may it please the Court:
Let me begin by saying a word about the Canadian problem we have in the case.
It is somewhat ironic that this case involves a carrier from the only nation in the world that to our knowledge lets its political subdivisions impose taxes on aviation fuel use by foreign carriers.
Two Canadian Provinces, Quebec and Alberta, exempt foreign carriers from the tax, but the balance do impose a tax.
I should note that the State Department has not yet determined finally whether these Canadian provincial taxes do breach reciprocity.
We think that they probably do, but that question is often a rather ambiguous one.
Unidentified Justice: Is there some argument... some plausible argument to be made, Mr. Lauber, do you think, that although the Florida tax does breach reciprocity the Canadian provincial tax don't?
Mr. Lauber: Well, I can imagine arguments Canada might try to make to defend the tax.
They might try and defend the tax in some kind of price equalization measure to bring up the eastern seaboard prices to the level comparable to western.
They might try and defend it.
We think they probably could not do that successfully.
We think here it is quite clear that these taxes do breach reciprocity.
But, in other cases, it might be very unclear.
It is very often--
Unidentified Justice: You mean just something out of the air.
Reciprocity would be some principle or do you mean some treaty or some executive agreement?
Mr. Lauber: --By that we mean the international consensus that aviation fuel used by foreign carriers in foreign commerce should be exempt from all taxes except those imposed by the home country of the airline and that--
Unidentified Justice: Where do you find that consensus reflected, in some document or--
Mr. Lauber: --Well, the Chicago Convention by its terms says that foreign carriers are to be exempt from tax on aviatic fuel they bring into a country, exempt both from national taxes and local taxes.
That is a treaty ratified by the Senate.
Unidentified Justice: --It certainly doesn't reach this case.
Mr. Lauber: Right.
You have to go further to get to this case.
Unidentified Justice: You really don't find that in that document.
Mr. Lauber: That is correct.
The treaty by... If the treaty pre-empted the tax, you wouldn't be here.
However, the International Civil Aviation Organization which is an arm of the Convention has adopted resolutions which have extended the exemption from local and national taxes to include that only fuel brought into a country, but fuel, equipment, and supplies taken on board within the country.
Unidentified Justice: Whose resolution is that?
Mr. Lauber: That is International Civil Aviation Organization.
That resolution has no force of law, but it expresses the strong commitment of all parties to the Convention to this policy of reciprocal tax exemption for aviation fuel.
Unidentified Justice: Except for Canada and--
Mr. Lauber: Except for the Canadian provinces.
Unidentified Justice: --And Florida?
Mr. Lauber: And for Florida and several other states have followed Florida's example.
But, in our view, the key thing is it is not the particular taxing practices of different foreign countries or their provinces that determine the outcome here.
It is the federal policy of reciprocal exemptions.
We are now at the negotiations with Canada to try and get this situation resolved and Florida's action has impeded our ability to do that because we can't really promise Canada exemptions here and--
Unidentified Justice: What do we mean when you say "we" can't?
Are you talking about the President, Congress, this organization you referred to?
Who is the we?
Mr. Lauber: --We is the Transportation Department aided by the State Department who are charged by the FAA Act with negotiating--
Unidentified Justice: Do they have lawmaking authority that supersedes the power of a state?
Mr. Lauber: --Well, they have been empowered by Congress to enter into bilateral aviation agreements and we believe--
Unidentified Justice: Which they have done and which don't control the case.
Mr. Lauber: --They don't fully control the case, but--
Unidentified Justice: They don't touch this at all, do they?
Mr. Lauber: --But, they do evidence, as the Customs Convention on Containers evidence in Japan Line a very strong federal and international commitment to avoiding the kinds of taxes involved here.
Unidentified Justice: But, is it not correct that if there were no Convention, nothing, just the facts we have here, you would have the same kind of constitutional argument or do you depend on these various executive agreements that are not controlling.
Mr. Lauber: We depend on them the way the shipping company in Japan Line depended on the Container Convention.
That multilateral compact did not pre-empt state taxes, but the Court viewed it as showing a very strong federal and worldwide commitment to a tax exemption for Chicago Container.
So, we think just as the Container Convention was evidentiary of the correct result while not dispositive in Japan Line, the same is true here of the Chicago Convention in the various bilateral agreements.
Unidentified Justice: Would the agreements now in existence between this country and other countries, would they forbid the United States from imposing a tax on aviation fuel?
Mr. Lauber: Clearly.
The agreements all bar national taxes.
Unidentified Justice: Well, wouldn't you think that if they wanted to go farther, they should have gone farther?
These agreements directed themselves to taxation and they didn't touch local taxes.
Mr. Lauber: But, the same is true in Japan Line, Justice White.
The Congress in a way had spoken there by enacting the Container Convention which barred taxes imposed by reason of the importation.
They addressed taxes only to that degree and the Court nevertheless held that despite the lack of expressed pre-emption there is still a violation of the Commerce Clause.
Indeed, if one required a congressional statute on point, there would never be any Commerce Clause jurisprudence.
By definition we only rely on the negative implications of the Commerce Clause when the reason of the statute--
Unidentified Justice: Mr. Lauber, does the airline have to pay all the other taxes in Florida?
Mr. Lauber: --Justice Marshall, the airline is required--
Unidentified Justice: All of the sales taxes and everything else?
Mr. Lauber: --In our view, they should be exempt from sales tax on equipment and fuel they use on the aircraft in international commerce.
They pay sales tax on the computer equipment in the terminal.
They pay user fees for equipment they rent from the state at the airport.
Unidentified Justice: And the difference is?
Mr. Lauber: This goes up in the air on the way to foreign nations.
Unidentified Justice: Well, don't the pork chops go up in the air that you purchased for dinner that night?
Mr. Lauber: Well, that is--
Unidentified Justice: On the plane.
Mr. Lauber: --That is a difficult question, but our position is that the food taken onboard to be fed to the passengers in international traffic also must be exempt from sales tax.
Food that people eat in the terminal when doing the tickets is not exempt from sales tax.
Whatever goes into the plane to facilitate international transportation, in our view, must be exempt from tax as it is in every other country of the world except, it seems, in some Canadian provinces.
Unidentified Justice: Mr. Lauber, does Section 1513(b) of Title 49 which says states can levy sales taxes have any application here?
Mr. Lauber: I think not, Justice O'Connor.
Were it not for... That section makes it clear that a sales tax per se can be levied on airlines which means the domestic airlines can be required to be paid the tax, but whether the tax can be applied constitutionally to one group of airlines, namely the foreign airlines, is a constitutional question which Congress didn't address in that statute.
Unidentified Justice: Yes.
The statute does not differentiate between foreign and domestic flights.
Mr. Lauber: That is correct.
But, that statute had a rather narrow purpose.
It was enacted as part of an overruling of this Court's decision which allowed a head tax to be imposed, a per-passenger head tax by states, and Congress declared in Section A of that provision that head taxes could not be imposed, thereby overruling the Court's decision.
But then to reassure the states it enacted B which said that other taxes of general application were not pre-empted.
But, we don't think Congress had in mind anything like what we have here which is a tax imposed on foreign airlines, fuel use in foreign commerce.
Let me say one thing about Justice Stevens' question about the containers in Japan Line.
Our view would be that if the containers... if the Japanese company there bought containers in California to replace containers on their container ships and used them solely in foreign commerce, they would have an exemption from sales tax.
They would not be exempt from equipment they bought in the state to be used in California.
Unidentified Justice: What about the emphasis in the Japan case of the risk of multiple taxation?
Do you have that risk here?
Mr. Lauber: We think there is no risk of that here.
Unidentified Justice: At least on that ground it is different from Japan Line?
Mr. Lauber: It is different, but the Court in Japan Line quite clearly said that if the state tax either creates a risk of multiple taxation or prevents federal uniformity from being achieved, it would be invalid.
And, in fact, I think in Container Corporation where the Court did find multiple taxation, they nevertheless upheld the California unitary income tax on a U.S. company.
We think that shows that the multiple taxation is not really the key to Japan Line because that aspect was present in Container Corporation.
I think what Container shows is that the key to Japan Line is really the second part of the test which we do have here.
Chief Justice Burger: Mr. Mellichamp?
ORAL ARGUMENT OF JOSEPH C. MELLICHAMP, III, ESQ. ON BEHALF OF THE APPELLEE
Mr. Mellichamp: Mr. Chief Justice, and may it please the Court:
The question presented in this case is whether the excise tax, which is a sales tax, imposed by Florida upon the privilege of engaging in the business of selling tangible personal property, which in this case includes aviation fuel, unconstitutionally impairs the power of the federal government to regulate foreign commerce.
The case is a narrow constitutional challenge to the exercise of this fundamental state power, the power to tax, the power to tax purchases of goods in the state.
The challenge by the Appellant rests on two grounds and those two grounds are set forth in the Japan Line case of this Court.
In that case this Court said when you are looking to taxes that affected foreign commerce there were two additional tests beyond that in the Complete Auto case.
There were four of them in that case.
In this case, the tax unquestionably passes the four-prong test in Complete Auto.
We are left with two in Japan Line.
The first in Japan Line was the risk of multiple taxation.
The parties in this case concede there are no such risks of multiple taxation in this case unlike in Japan Line where there was an ad valorem tax on a container and that container could be taxed somewhere else and in that case in Japan... In fact, was taxed in Japan.
In this case, we have an excise tax or sales tax upon the privilege of doing business in the State of Florida.
That incident can only be taxed once.
The second ground in Japan Line and the ground that the Appellant relies on is that it prevents the United States from speaking with one voice.
And, it is the Appellant's position that there are two grounds for finding a violation of this test.
The first ground was that the tax, the sales tax involved in this case was pre-empted by federal legislation and the international agreements or the executive agreements involved in this case.
And, the second ground was that the state excise tax impermissibly intrudes upon the federal government's power over foreign affairs.
On the first issue of pre-emption, they claim that under the Federal Aviation Act that the Congress has pre-empted this entire area.
I would submit to the Court that there is nothing contained in any of the provisions they cite that pre-empts the state from imposing an otherwise valid sales tax, in fact, such as before the Court today.
And, in fact, Section 1513(b) evidences Congress' intend to preserve that source of income to the State of Florida, in other words, sales tax.
And, that section, as this Court found in the Aloha case, Congress preserved that right or reserved that right to the states, whereas in subsection (a) of that section it prohibited or preempted certain state taxes.
So, now we are down to the international agreements, or in this particular case, one international agreement.
The question when you look at the international agreement is what is the one voice that the federal government has spoken in these agreements?
I would submit that in those agreements what the federal government has done is reserve its sovereign right to allow the states to tax as they please as long as the tax is not discriminatory in this area of sales tax.
The agreement itself speaks only to national excise taxes.
The Convention of 1944 speaks only of national and local taxes on fuel brought into the country.
The resolution that was mentioned by the Appellant that was done in 1966, while it speaks to state taxes or taxes on a local level, this resolution, I submit, has never been incorporated into this agreement or any other of the agreements.
In fact, the United States has reserved its sovereign power in this area in these agreements.
Some of the other agreements mentioned by the various amicus in this case, some of the newer agreements after 1978, use the term "best efforts" and this begs the question, if the United States in these agreements, other agreements involved in this case, are saying they will use their best efforts, it is an admission that the agreements don't cover this area.
It is an admission that the federal government has reserved its sovereign power in this area to allow the states to tax as they please as long as it is not discriminatory.
So, the federal policy is not there.
The federal policy is there, Florida would submit, that allows the state to impose this tax.
That policy is expressed in these agreements.
The only other two grounds for a federal policy to violate is the threat of retaliation which is not present in this case.
In this case, Canada, under this agreement, allows its provinces to do the same that the United States, in reserving its sovereign power, allows the State of Florida to do.
Unidentified Justice: But, Florida, counsel, reserves the right to tax other foreign airplanes besides Canadian planes on their fuel, doesn't it?
Mr. Mellichamp: Yes, Justice Rehnquist.
Unidentified Justice: So, that may be a good defense to this case, but how about Florida's assertion of a power to tax, say, you know, a plane flying from Miami to London, a British plane, or a Belgium plane flying from Brussels to Miami?
Mr. Mellichamp: None of the agreements that are before this Court, Justice Rehnquist, affect or discuss or pre-empt or prohibit state excise taxes or sales taxes involved in this case.
The Solicitor General in his brief points this out.
None of them talk about it.
All of them reserve the sovereign right of the United States to allow the states to tax as they please as long as it doesn't discriminate.
Unidentified Justice: Well, do think then the fact that the Canadian provinces that are imposing a tax here... Is it kind of a make weight argument for your side or is it a pretty important argument or does it really not amount to very much?
Mr. Mellichamp: When you are looking to see what these agreements cover and how the people that negotiated them, the nations that negotiated them, felt were covered, what were covered in these agreements, it has considerable weight, because in this case, the other nation in this case considers the agreements not to prohibit such taxation by their subnational units of government and in that respect it has some weight.
The other source of federal policy only exists in the brief of the Solicitor General and only at the request of this Court was that brief submitted.
Florida submits to this Court that the agreements, the Convention evidences the federal policy that was not evident in the Japan Line case, but was evident in the Container case.
In that case, this Court found that on numerous occasions treaties were entered into by the United States, but specifically would not address the taxation of income by states.
I submit in this case the same is evident for this Court, that in numerous, in all occasions in these executive agreements entered into by the federal government, none of them prohibit the states from imposing sales tax.
All of them reserve the United States sovereign power to allow the states to do this just as in the Container case.
I would submit that Florida's tax has not been pre-empted, that Florida's tax does not impair the ability of the federal government to speak with one voice and, as such, the tax is not unconstitutional.
Chief Justice Burger: Thank you, gentlemen.
The case is submitted.