OCTOBER TERM, 1995
Syllabus
UNITED STATES
v. INTERNATIONAL BUSINESS MACHINES
CORP.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL
CIRCUIT
No.95-591. Argued March 18, 1996-Decided June 10, 1996
Pursuant to § 4371 of the Internal Revenue Code, respondent
International Business Machines Corporation (IBM) paid a tax on
insurance premiums remitted to foreign insurers to cover shipments
of goods to its foreign subsidiaries. When its refund claims were
denied, IBM filed suit in the Court of Federal Claims, contending
that § 4371's application to policies insuring export shipments
violated the Export Clause, which states that "[n]o Tax or Duty
shall be laid on Articles exported from any State." The court
agreed, rejecting the Government's argument that
Thames
& Mersey Marine Ins. Co. v.
United States,
237 U. S. 19-in
which this Court held that a federal stamp tax on policies insuring
marine risks could not, under the Export Clause, be
constitutionally applied to policies covering export shipments-had
been superseded by subsequent decisions interpreting the
Import-Export Clause, which states in relevant part, "No State
shall ... lay any Imposts or Duties on Imports or Exports." The
Court of Appeals affirmed.
Held: The Export Clause prohibits assessment of
nondiscriminatory federal taxes on goods in export transit. Pp.
846-863.
(a) While this Court has strictly enforced the Export Clause's
prohibition against federal taxation of goods in export transit and
certain closely related services and activities, see,
e. g.,
Thames &
Mersey, supra, it has not exempted
pre-export goods and services from ordinary tax burdens or exempted
from federal taxation various services and activities only
tangentially related to the export process, see,
e.
g., Cornell v.
Coyne, 192 U. S. 418. Conceding
that the tax assessed here violates the Export Clause under
Thames &
Mersey, the Government asks that the
case be overruled because its underlying theory has been rejected
in the context of the Commerce and Import-Export Clauses and those
Clauses have historically been interpreted in harmony with the
Export Clause. pp. 846-850.
(b) When this Court expressly disavowed its early view that the
dormant Commerce Clause required a strict ban on state taxation of
interstate commerce,
Complete Auto Transit, Inc. v.
Brady, 430 U.
S. 274, 288-289, it resolved a long struggle over the meaning
of the nontextual negative command of that Clause. The Export
Clause, on the other
844
Syllabus
hand, expressly prohibits Congress from laying any tax or duty
on exports. These textual disparities strongly suggest that shifts
in the Court's view of the dormant Commerce Clause's scope cannot
govern Export Clause interpretation. Cf.
Richfield Oil Corp.
v.
State Ed. of Equalization, 329 U. S. 69, 75-76.
Pp.850-853.
(c) While one may question
Thames &
Mersey's
finding that a tax on policies insuring exports is functionally the
same as a tax on exportation itself, the Government apparently has
chosen not to do so here. Under the principles that animate the
policy of
stare decisis, the Court declines to overrule
Thames &
Mersey's longstanding precedent, which
has caused no uncertainty in commercial export transactions, on a
theory not argued by the parties. Pp. 854-856.
(d) This Court's recent Import-Export Clause cases do not
require that
Thames &
Mersey be overruled.
Meaningful textual differences that should not be overlooked exist
between the Export Clause and the Import-Export Clause. In finding
the assessments in
Michelin Tire Corp. v.
Wages,
423 U. S. 276,
and
Department of Revenue of Wash. v.
Association of
Wash. Stevedoring Cos., 435 U. S. 734, valid, the
Court recognized that the Import-Export Clause's absolute ban on
"Imposts or Duties" is not a ban on every tax. Because impost and
duty are thus narrower terms than tax, a particular state
assessment might be beyond the Import-Export Clause's reach, while
an identical federal assessment might be subject to the Export
Clause. The word "Tax" has a common, and usually expansive, meaning
that should not be ignored. The Clauses were also intended to serve
different goals. The Government's policy argument-that the Framers
intended the Export Clause to narrowly alleviate the fear of
northern repression through taxation of southern exports by
prohibiting only discriminatory taxes-cannot be squared with the
Clause's broad language. The better reading is that the Framers
sought to alleviate their concerns by completely denying to
Congress the power to tax exports at all. See
Fairbank v.
United States, 181 U. S. 283. Pp.
857-861.
(e) Even assuming that
Michelin and
Washington
Stevedoring govern the Export Clause inquiry here, those
holdings do not interpret the Import-Export Clause to permit
assessment of nondiscriminatory taxes on imports and exports in
transit. Pp.861-862.
59 F.3d
1234, affirmed.
THOMAS, J., delivered the opinion of the Court, in which
REHNQUIST, C. J., and O'CONNOR, SCALIA, SOUTER, and BREYER, JJ.,
joined. KENNEDY, J., filed a dissenting opinion, in which GINSBURG,
J., joined,
post, p. 863. STEVENS, J., took no part in the
consideration or decision of the case.
845
Jeffrey P. Minear argued the cause for the United
States.
On the briefs were Solicitor General Days, Assistant Attorney
General Argrett, Deputy Solicitor General Wallace, Kent L. Jones,
Gary R. Allen, and Ernest
J. Brown.
James R. Atwood argued the cause for respondent. With him
on the brief was
Andrew W Singer.
JUSTICE THOMAS delivered the opinion of the Court.
We resolve in this case whether the Export Clause of the
Constitution permits the imposition of a generally applicable,
nondiscriminatory federal tax on goods in export transit. We hold
that it does not.
I
Section 4371 of the Internal Revenue Code imposes a tax on
insurance premiums paid to foreign insurers that are not subject to
the federal income tax.1 26 U. S. C. § 4371 (1982 ed.).
International Business Machines Corporation (IBM) ships products
that it manufactures in the United States to numerous foreign
subsidiaries and insures those shipments against loss. When the
foreign subsidiary makes the shipping arrangements, the subsidiary
often places the insurance with a foreign carrier. When it does,
both IBM and the subsidiary are listed as beneficiaries in the
policy.
IBM filed federal excise tax returns for the years 1975 through
1984, but reported no liability under § 4371. The Internal Revenue
Service (IRS) audited IBM and determined that the premiums paid to
foreign insurers were taxable under § 4371 and that IBM-as a named
beneficiary of the insurance policies-was liable for the tax. The
IRS assessed a tax against IBM for each of those years.
IBM paid the assessments and filed refund claims, which the IRS
denied. IBM then commenced suit in the Court of
1 The tax does not apply if a policy issued by a foreign insurer
is "signed or countersigned by an officer or agent of the insurer
in a State, or in the District of Columbia, within which such
insurer is authorized to do business." 26 U. S. C. § 4373(1) (1982
ed.).
846
Federal Claims, contending that application of § 4371 to
policies insuring its export shipments violated the Export Clause.
The focus of the suit was this Court's decision in
Thames
&
Mersey Marine Ins. Co. v.
United States,
237 U. S. 19
(1915), in which we held that a federal stamp tax on policies
insuring marine risks could not, under the Export Clause, be
constitutionally applied to policies covering export shipments. The
United States argued that the analysis of
Thames &
Mersey is no longer valid, having been superseded by
subsequent decisions interpreting the ImportExport
Clause-specifically,
Michelin Tire Corp. v.
Wages,
423 U. S. 276
(1976), and
Department of Revenue of Wash. v.
Association
of Wash. Stevedoring Cos., 435 U. S. 734 (1978). The
Court of Federal Claims noted that this Court has never overruled
Thames &
Mersey and ruled that application of §
4371 to policies insuring goods in export transit violates the
Export Clause. 31 Fed. Cl. 500 (1994). The Court of Appeals for the
Federal Circuit affirmed.
59 F.3d
1234 (1995). We agreed to hear this case to decide whether we
should overrule
Thames &
Mersey. 516 U. S. 1021
(1995).
II
The Export Clause states simply and directly: "No Tax or Duty
shall be laid on Articles exported from any State." U. S. Const.,
Art. I, § 9, cl. 5. We have had few occasions to interpret the
language of the Export Clause, but our cases have broadly exempted
from federal taxation not only export goods, but also services and
activities closely related to the export process. At the same time,
we have attempted to limit the term "Articles exported" to permit
federal taxation of pre-export goods and services.
Our early cases upheld federal assessments on the manufacture of
particular products ultimately intended for export by finding that
pre-export products are not "Articles exported." See
Pace v.
Burgess, 92 U.
S. 372 (1876);
Turpin v.
Burgess, 117 U. S. 504 (1886);
Cornell v.
Coyne, 192 U. S. 418
847
(1904). Pace and
Turpin both involved a federal
excise tax on tobacco products. In
Pace, though tobacco
intended for export was exempted from the tax, the exemption itself
was subject to a per-package stamp charge of 25 cents. When a
tobacco manufacturer challenged the stamp charge, we upheld the
charge on the basis that the stamps were designed to prevent fraud
in the export exemption from the excise tax and did not, therefore,
represent a tax on exports. 92 U. S., at 375. When Congress later
repealed the 25-cent charge for the exemption stamp in a statute
that referred to the stamp as an "export tax," another manufacturer
sued to recover the money it had paid for the exemption stamps. See
Turpin, supra. Without disturbing the prior ruling in
Pace that the stamp charge was not a tax on exports, 117 U.
S., at 505, we explained that the prohibition of the Export Clause
"has reference to the imposition of duties on goods by reason or
because of their exportation or intended exportation, or whilst
they are being exported,"
id., at 507. We said that the
plaintiffs would have had no Export Clause claim even if there had
been no exemption from the excise because the goods were not in the
course of exportation and might never be exported.
Ibid.
Turpin broadly suggested that the Export Clause prohibits both
taxes levied on goods in the course of exportation and taxes
directed specifically at exports.
In
Cornell, the Court addressed whether the Export Clause
prohibited application of a federal excise tax on filled cheese
manufactured under contract for export. Looking to the analysis set
out in
Turpin, we rejected the contention that the Export
Clause bars application of a nondiscriminatory tax imposed before
the product entered the course of exportation. "The true
construction of the constitutional provision is that no burden by
way of tax or duty can be cast upon the exportation of articles,
and does not mean that articles exported are relieved from the
prior ordinary burdens of taxation which rest upon all property
similarly situ-
848
ated."
Cornell, supra, at 427.
Pace, Turpin, and
Cornell made clear that nondiscriminatory pre-exportation
assessments do not violate the Export Clause, even if the goods are
eventually exported.
At the same time we were defining a domain within which
nondiscriminatory taxes could permissibly be imposed on goods
intended for export, we were also making clear that the Export
Clause strictly prohibits any tax or duty, discriminatory or not,
that falls on exports during the course of exportation. See
Fairbank v.
United States, 181 U. S. 283 (1901);
United States v.
Hvoslef, 237 U. S. 1 (1915);
Thames & Mersey Marine Ins. Co. v.
United States, supra. In
Fairbank, for example, we
addressed a federal stamp tax on bills of lading for export
shipments imposed by the War Revenue Act of 1898. The Court found
that the tax was facially discriminatory, 181 U. S., at 290, and,
though not directly imposed on the goods being exported, the tax
was nevertheless "in effect a duty on the article transported,"
id., at 294. Consequently, the tax fell directly into the
category of forbidden taxes on exports defined in
Turpin. In
striking down the tax, we said:
"The requirement of the Constitution is that exports should be
free from any governmental burden. The language is 'no tax or
duty.' Whether such provision is or is not wise is a question of
policy with which the courts have nothing to do. We know
historically that it was one of the compromises which entered into
and made possible the adoption of the Constitution. It is a
restriction on the power of Congress ... ." 181 U. S., at 290.
Hvoslef and
Thames &
Mersey differed
from
Fairbank in that the taxes imposed in those cases-on
ship charters and marine insurance, respectively-did not facially
discriminate against exports. The Court nonetheless prohibited the
application of those generally applicable, nondiscriminatory
849
taxes to the transactions at issue because each tax was, in
effect, a tax on exports. The type of charter contract at issue in
Hvoslef was "in contemplation of law a mere contract of
affreightment," 237 U. S., at 16, and we found that the tax, as
applied to charters for exportation, "was in substance a tax on the
exportation; and a tax on the exportation is a tax on the exports,"
id., at 17. Likewise, in
Thames &
Mersey, we found that "proper insurance during the voyage is
one of the necessities of exportation" and that "the taxation of
policies insuring cargoes during their transit to foreign ports is
as much a burden on exporting as if it were laid on the charter
parties, the bills of lading, or the goods themselves." 237 U. S.,
at 27.
Shortly after
Hvoslef and
Thames &
Mersey, the Court rejected an attempt to shield from
taxation the net income of a company engaged in the export
business.
William E. Peck &
Co. v.
Lowe,
247 U. S. 165
(1918). In accordance with the analysis set out in
Turpin,
we found both that the tax was nondiscriminatory and that "[i]t is
not laid on articles in course of exportation or on anything which
inherently or by the usages of commerce is embraced in exportation
or any of its processes." 247 U. S., at 174.
Only a few years later the Court struck down the application of
a tax on the export sale of certain baseball equipment. See
A. G.
Spalding &
Bros. v.
Edwards,
262 U. S. 66
(1923). Although the tax was clearly nondiscriminatory, we
explained that the goods being taxed had entered the course of
exportation when they were delivered to the export carrier.
Id., at 70. Because the taxable event, the transfer of
title, occurred at the same moment the goods entered the course of
exportation, we held that the tax could not constitutionally be
applied to the export sale.
Id., at 69-70.
The Court has strictly enforced the Export Clause's prohibition
against federal taxation of goods in export transit, and we have
extended that protection to certain services and activities closely
related to the export process. We have not,
850
however, exempted pre-export goods and services from ordinary
tax burdens; nor have we exempted from federal taxation various
services and activities only tangentially related to the export
process.
III
The Government concedes, as it did below, that this case is
largely indistinguishable from
Thames &
Mersey
and that, if
Thames &
Mersey is still good law,
the tax assessed against IBM under § 4371 violates the Export
Clause. See Tr. of Oral Arg. 5; 59 F. 3d, at 1237. The parties
apparently agree that there is no legally significant distinction
between the insurance policies at issue in this case and those at
issue in
Thames &
Mersey, and, accordingly, the
Government asks that we overrule
Thames &
Mersey.
The Government asserts that the Export Clause permits the
imposition of generally applicable, nondiscriminatory taxes, even
on goods in export transit. The Government urges that we have
historically interpreted the Commerce, Import- Export, and Export
Clauses in harmony and that we have rejected the theory underlying
Thames &
Mersey in the context of the Commerce
and Import-Export Clauses. Accordingly, the Government contends
that our Export Clause jurisprudence, symbolized by
Thames
&
Mersey, has become an anachronism in need of
modernization. The Government asks us to reinterpret the Export
Clause to permit the imposition of generally applicable,
nondiscriminatory taxes as we have under the Commerce Clause and,
it argues, under the Import-Export Clause.
A
The Government contends that our dormant Commerce Clause
jurisprudence has shifted dramatically and that our traditional
understanding of the Export Clause, which is based partly on an
outmoded view of the Commerce Clause, can no longer be justified.
It is true that some of our early Export Clause cases relied on an
interpretation of the
851
Commerce Clause that we have since rejected. In
Fairbank,
181 U. S., at 298-300, for example, we analogized to
Robbins
v.
Shelby County Taxing Dist., 120 U. S. 489, 497
(1887), in which we held that "[i]nterstate commerce cannot be
taxed at all [by the States], even though the same amount of tax
should be laid on domestic commerce, or that which is carried on
solely within the state." Referring to the categorical ban on
taxation of interstate commerce declared in
Robbins, we
likened the scope of the Commerce Clause's ban on state taxation of
interstate commerce to the Export Clause's ban on federal taxation
of exports.
Fairbank, supra, at 300; see also
Hvoslef, 237 U. S., at 15 ("The court [in
Fairbank]
found an analogy in the construction which had been given to the
commerce clause in protecting interstate commerce from state
legislation imposing direct burdens"). After
Thames &
Mersey, the Commerce Clause construction espoused in
Robbins fell out of favor, see
Western Live Stock v.
Bureau of Revenue, 303 U. S. 250, 254 (1938)
("It was not the purpose of the commerce clause to relieve those
engaged in interstate commerce from their just share of state tax
burden even though it increases the cost of doing the business"),
and we expressly disavowed that view in
Complete Auto Transit,
Inc. v.
Brady, 430 U. S. 274, 288-289
(1977).
Our rejection in
Complete Auto of much of our early
dormant Commerce Clause jurisprudence did not, however, signal a
similar rejection of our Export Clause cases. Our decades-long
struggle over the meaning of the nontextual negative command of the
dormant Commerce Clause does not lead to the conclusion that our
interpretation of the textual command of the Export Clause is
equally fluid. At one time, the Court may have thought that the
dormant Commerce Clause required a strict ban on state taxation of
interstate commerce, but the text did not require that view.2
2 The Commerce Clause is an express grant of power to Congress
to "regulate Commerce ... among the several States." U. S. Const.,
Art. I, § 8, cl. 3. It does not expressly prohibit the States from
doing anything,
852
The text of the Export Clause, on the other hand, expressly
prohibits Congress from laying any tax or duty on exports. These
textual disparities strongly suggest that shifts in the Court's
view of the scope of the dormant Commerce Clause should not, and
indeed cannot, govern our interpretation of the Export Clause. Cf.
Richfield Oil Corp. v.
State Bd. of Equalization,
329 U. S. 69,
75-76 (1946) (distinguishing accommodations made under the Commerce
Clause from the express textual prohibition of the Import-Export
Clause).
B
The Government's primary assertion is that modifications in our
Import-Export Clause jurisprudence require parallel modifications
in the Export Clause context. More specifically, the Government
argues that our decisions in
Michelin Tire Corp. v.
Wages, 423 U.
S. 276 (1976), and
Department of Revenue of Wash. v.
Association of Wash. Stevedoring Cos., 435 U. S. 734 (1978),
establish that States may impose generally applicable,
nondiscriminatory taxes even if those taxes fall on imports or
exports. The Export Clause, the Government contends, is no more
restrictive.
The Import-Export Clause, which is textually similar to the
Export Clause, says in relevant part, "No State shall ... lay any
Imposts or Duties on Imports or Exports." U. S. Const., Art. I, §
10, cl. 2. Though minor textual differences exist and the Clauses
are directed at different sovereigns, historically both have been
treated as broad bans on taxation of exports, and in several cases
the Court has interpreted the provisions of the two Clauses in
tandem. For instance, in the Court's first decision interpreting
the Import-Export Clause, Chief Justice Marshall said:
though we have long recognized negative implications of the
Clause that prevent certain state taxation even when Congress has
failed to legislate. See
Fulton Corp. v.
Faulkner,
516 U. S. 325,
330-331 (1996);
Quill Corp. v.
North Dakota, 504 U. S. 298, 309
(1992).
853
"The States are forbidden to lay a duty on exports, and the
United States are forbidden to lay a tax or duty on articles
exported from any State. There is some diversity in language, but
none is perceivable in the act which is prohibited." Brown
v. Maryland, 12 Wheat. 419, 445 (1827).
See also
Kosydar v.
National Cash Register Co.,
417 U. S. 62,67,
n. 5 (1974);
Hvoslef, supra, at 13-14;
Cornell, 192
U. S., at 427-428;
Turpin, 117 U. S., at 506-507. The
Government argues that our longstanding parallel interpretations of
the two Clauses require judgment in its favor. We disagree.
In
Michelin, we addressed whether a State could impose a
nondiscriminatory ad valorem property tax on imported goods that
were no longer in import transit. Michelin, which imported tires
from Canada and France and stored them in a warehouse, argued that
Georgia could not constitutionally assess ad valorem property taxes
against its imported tires. We explained that "[t]he Framers of the
Constitution ... sought to alleviate three main concerns": (i)
ensuring that the Federal Government speaks with one voice when
regulating foreign commerce; (ii) preserving import revenues as a
major source of federal revenue; and (iii) preventing disharmony
likely to be caused if seaboard States taxed goods coming through
their ports.
Michelin, supra, at 285-286. The Court found
that nondiscriminatory ad valorem taxes violate none of these
policies. A century earlier, however, the Court had ruled that,
under the "original package doctrine," a State could not impose
such a tax until the goods had lost their character as imports and
had been incorporated into the mass of property in the State.
Low v.
Austin, 13 Wall. 29, 34 (1872). The
Michelin Court overruled
Low and held that the
nondiscriminatory property tax levied on Michelin's inventory of
imported tires did not violate the Import-Export Clause because it
was not an impost or duty on imports. 423 U. S., at 301. See also
Limbach v.
Hooven &
Allison Co., 466 U. S. 353 (1984)
(reaffirming that
854
Michel in expressly overruled the original package
doctrine altogether and not merely
Low on its facts).
Two years later, in
Washington Stevedoring, we upheld
against an Import-Export Clause challenge a nondiscriminatory state
tax assessed against the compensation received by stevedoring
companies for services performed within the State. The Court found
that Washington's stevedoring tax did not violate the policies
underlying the Import-Export Clause. Unlike the property tax at
issue in
Michelin, the activity taxed by Washington occurred
while imports and exports were in transit. That fact was not
dispositive, however, because the tax did not fall on the goods
themselves:
"The levy reaches only the business of loading and unloading
ships or, in other words, the business of transporting cargo within
the State of Washington. Despite the existence of the first
distinction, the presence of the second leads to the conclusion
that the Washington tax is not a prohibited 'Impost or Duty' when
it violates none of the policies [that animate the Import-Export
Clause]." Washington Stevedoring, supra, at 755.
Relying on
Canton R. Co. v.
Rogan, 340 U. S. 511 (1951),
which upheld a tax on the gross receipts of a railroad that
operated a marine terminal and transported imports and exports, we
ruled in
Washington Stevedoring that taxation of
transportation services, whether by railroad on the docks or by
stevedores loading and unloading ships, did not relate to the value
of the goods and could not be considered imposts or duties on the
goods themselves. 435 U. S., at 757.
1
A tax on policies insuring exports is not, precisely speaking,
the same as a tax on exports, but
Thames &
Mersey
held that they were functionally the same under the Export Clause.
We noted in
Washington Stevedoring that one may question the
finding in
Thames &
Mersey that the tax was
855
essentially a tax upon the exportation itself. 435 U. S., at
756, n. 21. We expressed concern that "[t]he basis for
distinguishing
Thames &
Mersey is less clear"
than for
Fairbank or
Richfield Oil, because the
marine insurance policies in
Thames &
Mersey
arguably "had a value apart from the value of the goods." 435 U.
S., at 756, n. 21. Nevertheless, the Government apparently has
chosen not to challenge that aspect of
Thames &
Mersey in this case. Tr. of Oral Arg. 5, 8-9, 40. When
questioned on that implicit concession at oral argument, the
Government admitted that it "chose not to" argue that § 4371 does
not impose a tax on the goods themselves.
Id., at 9. It
would be inappropriate for us to reexamine in this case, without
the benefit of the parties' briefing, whether the policies on which
§ 4371 is assessed are so closely connected to the goods that the
tax is, in essence, a tax on exports.3 See,
e. g.,
id., at 27-28 ("[T]he record doesn't reveal the sort of statistical
information Justice Breyer was suggesting might be relevant" to
determine "whether this is sufficiently indirect that it's not a
tax on
3 The Court has never held that the Export Clause prohibits only
direct taxation of goods in export transit. In
Brown v.
Maryland, 12 Wheat. 419 (1827), Chief Justice Marshall
expressed in dicta his skepticism that a federal occupational tax
on exporters could pass scrutiny under the Export Clause.
Id., at 445 ("[W]ould government be permitted to shield
itself from the just censure to which this attempt to evade the
prohibitions of the constitution would expose it, by saying that
this was a tax on the person, not on the article, and that the
legislature had a right to tax occupations?"). In
Fairbank,
Hvoslef, and
Thames &
Mersey, we struck down
taxes that were not assessed directly on goods in export transit,
but which the Court found to be so closely related as to be
effectively a tax on the goods themselves. We have never repudiated
that principle, but neither have we ever carefully defined how we
decide whether a particular federal tax is sufficiently related to
the goods or their value to violate the Export Clause. To the
extent the issue was raised in the petition for certiorari, the
Government failed to address the issue in its brief on the merits
and therefore has abandoned it. See
Posters 'N' Things, Ltd.
v.
United States, 511 U. S. 513, 527
(1994);
Russell v.
United States, 369 U. S. 749, 754, n. 7
(1962).
856
exports, ... because the Government has conceded throughout that
they are not disputing that this tax, if discriminatory, is in
violation of the Constitution").
Stare decisis is a "principle of policy,"
Helvering v.
Hallock, 309 U. S. 106, 119
(1940), and not "an inexorable command,"
Payne v.
Tennessee, 501
U. S. 808, 828 (1991). Applying that policy, we frequently have
declined to overrule cases in appropriate circumstances because
stare decisis "promotes the evenhanded, predictable, and
consistent development of legal principles, fosters reliance on
judicial decisions, and contributes to the actual and perceived
integrity of the judicial process."
Id., at 827. "[E]ven in
constitutional cases, the doctrine carries such persuasive force
that we have always required a departure from precedent to be
supported by some 'special justification.'"
Id., at 842
(SOUTER, J., concurring) (quoting
Arizona v.
Rumsey,
467 U. S. 203, 212 (1984)).
Though from time to time we have overruled governing decisions
that are "unworkable or are badly reasoned,"
Payne, supra,
at 827; see
Smith v.
Allwright, 321 U. S. 649, 665
(1944), we have rarely done so on grounds not advanced by the
parties.
Thames &
Mersey has been controlling
precedent for over 80 years, and the Government does not, indeed
could not, argue that the rule established there is "unworkable."
Despite the dissent's speculative protestations to the contrary,
post, at 871-872, there is simply no evidence that
Thames &
Mersey has caused or will cause
uncertainty in commercial export transactions. The principles that
animate our policy of
stare decisis caution against
overruling a longstanding precedent on a theory not argued by the
parties, and we decline to do so in this case.4
4 The dissent suggests that "the Court assumes the statute to be
invalid rather than deciding it to be so."
Post, at 864. We
make no such assumptions. Rather, we begin with a longstanding
decision that, by all accounts, controls this case. Even the
Government agrees that Congress enacted a law whose application in
this case directly contravenes our hold-
857
2
What the Government does argue is that our ImportExport Clause
cases require us to overrule
Thames &
Mersey.5 We have good reason to hesitate before adopting the
analysis of our recent Import-Export Clause cases into our Export
Clause jurisprudence. Though we have frequently interpreted the
Clauses together, see
supra, at 852854, our more recent
Import-Export Clause cases, on which the Government relies, caution
that meaningful textual differences exist and should not be
overlooked. The Export Clause prohibits Congress from laying any
"Tax or Duty" on exports, while the Import- Export Clause prevents
the States from laying any "Imposts or Duties" on imports or
exports. In both
Michelin and
Washington Stevedoring,
we left open the possibility that a particular state assessment
might not properly be called an impost or duty, and thus would be
beyond the reach of the Import-Export Clause, while an identical
federal assessment might properly be called a tax and would be
subject to the Export Clause. Though we found in
Michelin
that a nondiscriminatory state property tax does not transgress the
policy dictates of the Import- Export Clause, we also recognized
that the ImportExport Clause is "not written in terms of a broad
prohibition of every 'tax,'" and that impost and duty are narrower
terms than tax. 423 U. S., at 290-293. In
Washington
Stevedoring, we likewise rejected the assertion that the
ImportExport Clause absolutely prohibits all taxation of imports
and exports. 435 U. S., at 759. We said that "the term 'Impost or
Duty' is not self-defining and does not necessarily encompass all
taxes" and that the respondents' argument to
ing in
Thames &
Mersey. We sit not to condemn
§ 4371, but rather to determine whether it is to be saved by
overruling binding precedent.
5 The dissent suggests that we make a "serious mistake" in
deciding whether a nondiscriminatory tax on goods violates the
Export Clause,
post, at 881. We do not agree that it is a
mistake to address the arguments actually advanced by the
parties.
858
the contrary ignored "the central holding of
Michelin
that the absolute ban is only of 'Imposts or Duties' and not of all
taxes."
Ibid.
The distinction between imposts or duties and taxes is
especially pertinent in light of the peculiar definitional analysis
we chose in
Michelin. Finding substantial ambiguity in the
phrase "Imposts or Duties," we "decline[d] to presume it was
intended to embrace taxation that does not create the evils the
Clause was specifically intended to eliminate." 423 U. S., at
293-294. We entirely bypassed the etymological inquiry into the
proper meaning of the terms "impost" and "duty," and instead
created a regime in which those terms are conclusions to be drawn
from an examination into whether a particular assessment "was the
type of exaction that was regarded as objectionable by the Framers
of the Constitution."
Id., at 286. We are not prepared to
say that the word "Tax" is "sufficiently ambiguous,"
id., at
293, that we may ignore its common, and usually expansive,6 meaning
in favor of an Export Clause decisional rule in which a tax is not
a "Tax" unless it discriminates against exports. Consequently,
Michelin and
Washington Stevedoring, which held that
the assessments in question were not "Imposts or Duties" at all, do
not logically validate the assessment at issue in this case, which,
by all accounts, remains a "Tax."
It is not intuitively obvious that
Michelin's
three-pronged analysis of the Framers' concerns is really just
another way of stating a nondiscrimination principle. But even if
it were, the Government cannot reasonably rely on
Michelin
to govern the Export Clause because
Michelin drew its
analysis around the phrase "Imposts or Duties" and expressly
ex-
6 Though
Michelin discusses "taxes" in terms of "every
exaction," 423 U. S., at 290, it also suggests that at the time of
the founding "probably only capitation, land, and general property
exactions were known by the term 'tax' rather than the term
'duty,'"
id., at 291. In any event, the
Michelin
Court understood that the terms used in the Export Clause were
broader than those used in the Import-Export Clause.
859
eluded the broader term "Tax" that appears in the Export Clause.
Michelin marked a more permissive approach to state taxation
under the Import-Export Clause only by distinguishing the
presumptively stricter language of the Export Clause. We agree with
the Government that
Michelin informs our decision in this
case, but not in a way that supports the Government's position. It
is simply no longer true that the Court perceives no substantive
difference between the two Clauses.
We are similarly hesitant to adopt the Import-Export Clause's
policy-based analysis without some indication that the Export
Clause was intended to alleviate the same "evils" to which the
Import-Export Clause was directed. Unlike the Import-Export Clause,
which was intended to protect federal supremacy in international
commerce, to preserve federal revenue from import duties and
imposts, and to prevent coastal States with ports from taking
unfair advantage of inland States, see
Michelin, supra, at
285-286, the Export Clause serves none of those goals. Indeed,
textually, the Export Clause does quite the opposite. It
specifically prohibits Congress from regulating international
commerce through export taxes, disallows any attempt to raise
federal revenue from exports, and has no direct effect on the way
the States treat imports and exports.
As a purely historical matter, the Export Clause was originally
proposed by delegates to the Federal Convention from the Southern
States, who feared that the Northern States would control Congress
and would use taxes and duties on exports to raise a
disproportionate share of federal revenues from the South. See 2 M.
Farrand, The Records of the Federal Convention of 1787, pp. 95,
305-308, 359-363 (rev. ed. 1966). The Government argues that this
"narrow historical purpose" justifies a narrow interpretation of
the text and that application of § 4371 to policies insuring
exports does not conflict with the policies embodied in the Clause.
Brief for United States 32-34. While the original impetus may
860
have had a narrow focus, the remedial provision that ultimately
became the Export Clause does not, and there is substantial
evidence from the Debates that proponents of the Clause fully
intended the breadth of scope that is evident in the language. See,
e. g., 2 Farrand, Records of the Federal Convention,
supra, at 220 (Mr. King: "In two great points the hands of
the Legislature were absolutely tied. The importation of slaves
could not be prohibited-exports could not be taxed");
id.,
at 305 ("Mr. Mason urged the necessity of connecting with the power
of levying taxes ... that no tax should be laid on exports");
id., at 360 (Mr. Elseworth
[sic]: "There are solid
reasons agst. Congs taxing exports");
ibid. ("Mr. Butler was
strenuously opposed to a power over exports");
id., at 361
(Mr. Sherman: "It is best to prohibit the N ationallegislature in
all cases");
id., at 362 ("Mr. Gerry was strenuously opposed
to the power over exports").
The Government argued for a different narrow interpretation of
the Export Clause in
Fairbank. See 181 U. S., at 292-293.
Arguing that the Debates expressed a primary interest in diffusing
sectional conflicts, the Government urged the
Fairbank Court
to interpret the Export Clause to permit taxation of "the act of
exportation or the document evidencing the receipt of goods for
export, for these exist with substantial uniformity throughout the
country."
Id., at 292. We rejected that argument:
"If mere discrimination between the States was all that was
contemplated, it would seem to follow that an ad
valorem tax upon all exports would not be obnoxious to this
constitutional prohibition. But surely under this limitation
Congress can impose an export tax neither on one article of export,
nor on all articles of export." Ibid.
As in
Fairbank, we think the text of the constitutional
provision provides a better decisional guide than that offered
by
861
the Government. The Government's policy argument-that the
Framers intended the Export Clause to narrowly alleviate the fear
of northern repression through taxation of southern exports by
prohibiting only discriminatory taxescannot be squared with the
broad language of the Clause. The better reading, that adopted by
our earlier cases, is that the Framers sought to alleviate their
concerns by completely denying to Congress the power to tax exports
at all.
3
Even assuming that
Michelin and
Washington
Stevedoring govern our Export Clause inquiry in this case, the
Government's argument falls short of its goal. Our holdings in
Michelin and
Washington Stevedoring do not reach the
facts of this case and, more importantly, do not interpret the
Import- Export Clause to permit assessment of nondiscriminatory
taxes on imports and exports in transit.
Michelin involved a
tax on goods, but the goods were no longer in transit. The tax in
Washington Stevedoring burdened imports and exports while
they were still in transit, but it did not fall directly on the
goods themselves. This case, as it comes to us, is a hybrid in
which the tax both burdens exports during transit and-as the
Government concedes and our earlier cases held-is essentially a tax
on the goods themselves. The Government argues that
Michelin
and
Washington Stevedoring by analogy permit Congress to
impose generally applicable, nondiscriminatory taxes that fall
directly on exports in transit. Brief for United States 32
(Michelin and
Washington Stevedoring "demonstrate
that, when a generally applicable, nondiscriminatory tax is at
issue, the mere fact that the tax applies also to goods that are in
the export or import process does not provide a constitutional
immunity from taxation"). If this contention is to succeed, the
Government at the very least must show that our Import-Export
Clause jurisprudence now permits a
862
State to impose a nondiscriminatory tax directly on goods in
import or export transit. We think the Government has failed to
make that showing.
The Court has never upheld a state tax assessed directly on
goods in import or export transit. In
Michelin, we suggested
that the Import-Export Clause would invalidate application of a
nondiscriminatory property tax to goods still in import or export
transit. 423 U. S., at 290 (compliance with the Import-Export
Clause may be secured "by prohibiting the assessment of even
nondiscriminatory property taxes on [import or export] goods which
are merely in transit through the State when the tax is assessed").
See also
Virginia Indonesia Co. v.
Harris County
Appraisal Dist., 910 S. W. 2d 905, 915 (Tex. 1995)
(invalidating application of a nondiscriminatory ad valorem
property tax to goods in export transit).
We also declined to endorse the Government's theory in
Washington Stevedoring. After reciting that the Court in
Canton R. Co. had distinguished
Thames &
Mersey, Fairbank, and
Richfield Oil, we pointed out
that in those cases "the State [or Federal Government] had taxed
either the goods or activity so connected with the goods that the
levy amounted to a tax on the goods themselves."
Washington
Stevedoring, 435 U. S., at 756, n. 21. We expressly declined to
"reach the question of the applicability of the
Michelin
approach when a State directly taxes imports or exports in
transit,"
id., at 757, n. 23, because, although the goods in
that case were in transit, the tax fell on "a service distinct from
the goods and their value,"
id., at 757. Thus, contrary to
the Government's contention, this Court's Import-Export Clause
cases have not upheld the validity of generally applicable,
nondiscriminatory taxes that fall on imports or exports in transit.
We think those cases leave us free to follow the express textual
command of the Export Clause to prohibit the application of any tax
"laid on Articles exported from any State."
863
***
We conclude that the Export Clause does not permit assessment of
nondiscriminatory federal taxes on goods in export transit.
Reexamination of the question whether a particular assessment on an
activity or service is so closely connected to the goods as to
amount to a tax on the goods themselves must await another day. We
decline to overrule
Thames &
Mersey. The judgment
of the Court of Appeals for the Federal Circuit is affirmed.
It is so ordered.
JUSTICE STEVENS took no part in the consideration or decision of
this case.
JUSTICE KENNEDY, with whom JUSTICE GINSBURG joins,
dissenting.
The Court today holds a federal statute unconstitutional without
giving heed to the simplest reason for sustaining it. We granted
certiorari on the question "[w]hether, as applied to casualty
insurance for losses incurred during the shipment of goods from
locations within the United States to purchasers abroad, the tax
imposed by Section 4371 of the Internal Revenue Code violates the
Export Clause of the Constitution of the United States (D. S.
Const. Art. I, § 9, Cl. 5)," Pet. for Cert. 1. A straightforward
answer to the question presented requires us to address the narrow
issue of the continuing validity of our holding in
Thames
&
Mersey Marine Ins. Co. v.
United States, 237 D.
S. 19 (1915), that a general tax on certain insurance premiums, as
applied to exporters, is a prohibited tax on export goods.
Rejecting this course, the Court ventures upon a broad
constitutional inquiry not even implicated by the statute. To do
so, it rewrites the question presented. In the first sentence of
the opinion, the Court says, "We resolve in this case whether the
Export Clause of the Constitution permits the imposition of a
generally applicable, nondiscriminatory
864
KENNEDY, J., dissenting
federal tax on goods in export transit,"
ante, at 845. In
so reformulating the question, the Court makes the assumption that
§ 4371's insurance tax is a tax on export goods, thereby adopting
the premise of
Thames &
Mersey that I had thought
we were to address. In the end the Court assumes the statute to be
invalid rather than deciding it to be so. I find no precedent for
setting aside an Act of Congress in this peremptory way. Worse yet,
the Court's assumption is wrong; because § 4371 taxes a service
distinct from the goods and is not a proxy for taxing the goods, it
does not fall within the prohibition of the Export Clause. The
Court thus carves out an undeserved exemption from § 4371 for
exporters, adding significant complexity to its administration.
Moreover, in a case in which the Export Clause should not even
apply, the Court tackles the great problem of reconciling our
Export Clause jurisprudence with modern decisions interpreting the
Commerce and Import-Export Clauses, U. S. Const., Art. I, § 8, cl.
2, and Art. I, § 10, cl. 2. This is unwise and unnecessary. I would
limit the inquiry to a reconsideration of
Thames &
Mersey, and uphold the statute as applied to respondent.
With respect, I dissent.
I
We consider a rather simple federal tax. Section 4371 of the
Internal Revenue Code imposes a tax of "4 cents on each dollar, or
fractional part thereof, of the premium paid on the policy of
casualty insurance or the indemnity bond, if issued to or for, or
in the name of, an insured .... " 26 U. S. C. § 4371(1) (1982 ed.).
The term "insured" is defined to include any "domestic corporation
or partnership, or an individual resident of the United States,
against, or with respect to, hazards, risks, losses, or liabilities
wholly or partly within the United States .... " § 4372(d)(1). The
statute does not discriminate against exports. Indeed, it does not
even mention them. The tax must be paid not only by domestic
traders but also by any insured, even an individual, who is
cov-
865
ered in whole or in part for domestic casualty risks. The
purpose of the tax is to "eliminate an unwarranted competitive
advantage now favoring foreign insurers," H. R. Rep. No. 2333, 77th
Cong., 2d Sess., 61 (1942), who do not pay federal income tax. Cf.
26 U. S. C. § 4373(1) (1982 ed.) (exempting from § 4371 any policy
issued by a foreign insurer that is "signed or countersigned by an
officer or agent of the insurer in a State, or in the District of
Columbia, within which such insurer is authorized to do business"
and is therefore subject to the income tax).
Resolution of the case requires us to determine whether the
Export Clause has any bearing on taxes on services like insurance
provided to exporters, where the service itself is not exported.
The plain text of the Clause casts much doubt on the proposition.
It states: "No Tax or Duty shall be laid on Articles exported from
any State," U. S. Const., Art. I, § 9, cl. 5. The majority avoids
this necessary question by asserting that the Government failed to
argue the point and so abandoned it.
Ante, at 855, and n. 3.
True, the Government defends § 4371 on the ground that it does not
discriminate between exports and other forms of trade, but this is
not a concession that there is no distinction between a tax on
insurance premiums and a tax on goods. In fact, the Government
makes repeated references to the distinction in its briefs, albeit
in the context of discussing the nondiscriminatory character of §
4371. See,
e. g., Brief for United States 12-13 (The
tax "does not apply specifically to export transactions; to the
contrary, it applies only to insurance risks that are either
'wholly' or 'partly' domestic");
id., at 15 ("The tax
imposed by Section 4371 of the Internal Revenue Code is not
specifically directed to nor directly 'laid on Articles exported'
(u. S. Const. Art. I, § 9, Cl. 5). Instead, it applies to insurance
premiums paid to foreign insurers for many forms of insurance,
including any casualty risk that is 'wholly or partly within the
United States' (26 U. S. C. §4372(d)(1))");
id., at 34
("Even as applied to casualty insurance, the tax
866
KENNEDY, J., dissenting
unquestionably has only an incidental and remote relationship to
exports and the export process ... ").
At oral argument, the Assistant to the Solicitor General
acknowledged that he had not made a separate argument based on the
distinction between export goods and services related to the
exporting process. He explained that the nondiscrimination theory
had greater utility, sparing courts the nettlesome inquiry into
what is an export. Tr. of Oral Arg. 9. When asked why the
Government was avoiding the simpler and clearer argument that §
4371 was just a tax on foreign insurers to offset the tax burdens
borne by domestic insurers, he responded, "We do not mean to avoid
that argument. That's part of our argument of why this is a tax of
general application."
Id., at 12. Later in oral argument, he
stated that "it's problematic to describe a tax on insurance as a
tax on the good," and cited that problem as a reason for calling
into question our decision in
Thames &
Mersey.
Tr. of Oral Arg. 40. When asked if his position had foreclosed us
from deciding the case on that basis, he responded:
"I don't believe you're foreclosed ... by our concession from
addressing that issue as you see fit."
Ibid. We have relied
on statements more equivocal than this to reconsider and overrule a
bad precedent even when the parties in their briefs had argued that
the precedent should be upheld. See
Blonder-Tongue Laboratories,
Inc. v.
University of Ill. Foundation, 402 U. S. 313, 319-320
(1971).
The Court's faulty characterization of the Government's argument
leads it down some odd byways. For example, in Part III-B-3, the
Court rejects the Government's attempt to rely upon
Department
of Revenue of Wash. v.
Association of Wash. Stevedoring
Cos., 435 U. S.
734 (1978), where we held that a state tax of general
applicability imposed upon a stevedoring firm did not violate the
Import-Export Clause even though it may have added to the cost of
importing and exporting. The Court points out that the tax in
Washington Stevedoring did not fall directly on the goods,
ante, at 861,
867
and that we reserved the question whether States could tax goods
in import or export transit,
ante, at 862 (citing 435 U. S.,
at 757, n. 23). So, in the Court's view,
Washington
Stevedoring does not support the Government's argument that
"Congress [may] impose generally applicable, nondiscriminatory
taxes that fall directly on exports in transit,"
ante, at
861. The Government never argues that § 4371 imposes a tax on goods
in transit, however. See,
e. g., Brief for United
States 15 (the tax imposed by §4371 "does not fall specifically on
articles of export or export transactions"). If the Government can
be faulted, it is for urging us to uphold § 4371 on a broad theory
(a tax that does not discriminate against exports is valid) rather
than the narrow theory subsumed within it (this particular tax does
not fall on export goods at all). Nothing in the Government's
argument prevents us from deciding the case on the narrower
ground.
Even were we to suppose that the Government did not argue the
goods and services distinction, the prudential rule against
deciding a case on an unargued theory is in any event not absolute.
See
Arcadia v.
Ohio Power Co., 498 U. S. 73, 77 (1990);
Erie R. Co. v.
Tompkins, 304 U. S. 64, 77-78 (1938)
(overturning
Swift v.
Tyson, 16 Pet. 1 (1842), as
unconstitutional); see also 304 U. S., at 82 (Butler, J.) (pointing
out that no constitutional question was argued or briefed either in
this Court or the court below). Cf.
Evans v.
United
States, 504 U. S.
255, 269 (1992) (addressing a theory not argued by the parties
but advanced by JUSTICE THOMAS in dissent);
United States v.
Burke, 504 U.
S. 229, 246 (1992) (SCALIA, J., concurring in judgment). This
rule has less force when the issue before us is whether it is
constitutional to apply the statute where Congress intended it to
apply. The predicate question of whether the Export Clause
prohibits taxes on distinct services like insurance is "essential
to the analysis" of the question presented,
Procunier v.
Navarette, 434
U. S. 555, 559-560, n. 6 (1978), and necessary to "an
intelligent resolution of the constitutionality" of the statute,
Vance v.
868
KENNEDY, J., dissenting
Terrazas, 444 U. S. 252, 258, n. 5
(1980). It is before us and should be decided. See this Court's
Rule 14.1(a) ("The statement of any question presented will be
deemed to comprise every subsidiary question fairly included
therein").
To give Congress the respect it is owed, we must decide whether
the statute is in fact unconstitutional as applied, not make the
borderline call that the Government's litigation position bars us
from reaching a question which, as the Court seems to agree, is
presented by the case. In interpreting statutes, for example, we
have long observed "[t]he elementary rule ... that every reasonable
construction must be resorted to, in order to save a statute from
unconstitutionality."
Hooper v.
California, 155 U. S. 648, 657
(1895). See also
United States ex rel. Attorney General v.
Delaware & Hudson Co., 213 U. S. 366, 408 (1909)
("[W]here a statute is susceptible of two constructions, by one of
which grave and doubtful constitutional questions arise and by the
other of which such questions are avoided, our duty is to adopt the
latter");
Murray v.
Schooner Charming Betsy, 2 Cranch
64, 118 (1804).
"This approach not only reflects the prudential concern that
constitutional issues not be needlessly confronted, but also
recognizes that Congress, like this Court, is bound by and swears
an oath to uphold the Constitution. The courts will therefore not
lightly assume that Congress intended to infringe constitutionally
protected liberties or usurp power constitutionally forbidden it."
Edward J. DeBartolo Corp. v. Florida Gulf
Coast Building & Constr. Trades Council, 485 U. S. 568, 575
(1988).
We have not considered ourselves foreclosed from adopting saving
constructions the parties failed to suggest. See,
e.
g., Panama R. Co. v.
Johnson, 264 U. S. 375, 389-391
(1924) (interpreting Jones Act to allow action to be brought in
admiralty); cf. Brief for Plaintiff-in-Error 9-22 and Brief for
869
Defendant-in- Error 3-12, in
Panama R. Co. v.
Johnson, O. T. 1923, No. 369. We cannot here avoid a
constitutional question by statutory construction, but we should
take all measures to avoid declaring that Congress "usurp[ed] power
constitutionally forbidden it,"
DeBartolo, supra, at 575.
The majority cites no case in which we have declared a federal
statute unconstitutional by disregarding an unargued theory that
would save the statute, and I am not aware of any. We should at
least consider a construction of the Export Clause that would
render it inapplicable to the statute, rather than assuming the
issue away and reaching the unnecessary judgment that a coordinate
branch violated the Constitution.
There may be instances, even in constitutional cases, when we
should eschew alternative theories for sustaining a statute. For
example, we might do so if the theories depend upon different
provisions of law or require factual development and legal analysis
far afield from that done by the parties or the courts below. That
is not this case. The question whether the Export Clause applies to
taxes on distinct export-related services requires most of the same
inquiries the majority undertakes: construing the text of the
Export Clause, considering its history and purpose, and reviewing
our precedents. It also requires explicit reexamination of the
reasoning of
Thames &
Mersey Marine Ins. Co. v.
United States, 237 U. S. 19 (1915), which
the Government has asked us to overrule, in particular the idea
that a tax on insurance premiums is a tax on the goods. The last is
the only step the Court refuses to take.
There is not, as the Court intimates,
ante, at 855, a
need for statistical development of the relative incidence of this
tax on exporters, unless the Court (as appears unlikely) is
interested in the statistics from 1942 to determine if the statute
was a pretext when it was enacted. The current incidence of the tax
on exporters, whatever it is, will reflect market conditions in
light of the operation of this tax over more than 50 years,
including the strength of foreign insur-
870
KENNEDY, J., dissenting
ers in certain lines exporters purchase, cf. R. Holtom,
Underwriting Principles & Practices 451 (3d ed. 1987) (ocean
marine insurance dominated by foreign companies). There is no law
prohibiting persons from being insured under policies of foreign
insurers issued abroad, and nothing in the statute exempts
nonexporters from its operation. The Court has all the information
it needs to decide this case on the proper basis, and it should not
rest its decision that § 4371 is unconstitutional upon a dubious
assumption that a general tax on insurance premiums is a tax on
export goods.
In
Massachusetts v.
United States, 333 U. S. 611 (1948), the
Government had conceded certain matters of statutory construction
which, we felt, undermined its entire position.
Id., at 624.
We refused to accept those concessions, and, giving the statute its
proper interpretation, ruled in the Government's favor.
Id.,
at 625. It mystifies me that in a constitutional case, where our
decision is not subject to congressional revision, the Court here
accepts the Government's purported concession of the meaning of the
Export Clause without any independent examination of the question,
and then invokes the Clause to strike down a statute. See
Torres v.
Puerto Rico, 442 U. S. 465, 471, n. 3
(1979) ("[E]ven an explicit concession" by the Commonwealth of
Puerto Rico that it was subject to the requirements of the Fourth
Amendment would not "relieve this Court of the performance of the
judicial function of deciding the issue") (internal quotation marks
omitted).
Quite apart from the unnecessary judgment that an Act of
Congress is unconstitutional as applied, today's decision adds
significant complexity to the administration of § 4371. Under the
thumb of the Court's holding that all premiums paid to insure
export goods are exempt from § 4371, but also under the statutory
mandate to collect the tax in all other instances, the Internal
Revenue Service (IRS) henceforth finds itself faced with an array
of new problems unexplained and unmentioned by the Court. Insurance
is one of the
871
most complex of businesses, with a multitude of coverage and
policy options in different product lines, all generated and still
evolving in pursuit of the profitable and efficient underwriting of
risks. Not every case will fit the simple model here: a policy
written for a single shipment; coverage beginning only with a
common carrier picking up the goods from the warehouse or
manufacturing plant; simple ascertainment of point of entry into
the export stream. Stipulation of Facts "13, 16, App. to Pet. for
Cert. 37a, 39a; cf.
A. G.
Spalding &
Bros.
v.
Edwards, 262
U. S. 66, 68-69 (1923) (delivery to common carrier signals
commencement of export).
Commercial inland marine transit insurance, the form of casualty
insurance which covers domestic transportation of goods, "is
usually written on an open basis, under which all shipments of the
kind of merchandise described in the policy are covered." Holtom,
supra, at 435. It would appear, from today's decision, that
if a company has an open policy from a foreign insurer covering the
domestic leg of the journey for all shipments, the IRS must
untangle what portion of the insurance covered goods that had
commenced the process of exportation, and then prorate the tax. So
too would proration (or some other accommodation) appear necessary
if the policy is taken out on a single shipment but part of the
shipment is delivered within the country and part abroad.
In addition, the Court's decision draws the IRS into the factual
morass of determining when exportation has begun. That will often
be less clear than it is here. For example, a company may have its
own trucks carry goods to a freight forwarder or port, or a hiatus
in the journey might be extensive enough to remove the goods from
the export stream, see
Joy Oil Co. v.
State Tax
Comm'n, 337 U. S.
286, 288-289 (1949); since "not every preliminary movement of
goods toward eventual exportation" triggers the constitutional
immunity,
Kosydar v.
National Cash Register Co.,
417 U. S. 62, 69,
n. 6 (1974), the determination of the commencement of
872
KENNEDY, J., dissenting
exportation is another layer of complexity added to the
administration of § 4371. Finally, the IRS now must determine which
of the many, ever evolving types of insurance fall within the broad
prohibition of
Thames &
Mersey against any tax
that burdens the exporting process. See 237 U. S., at 27. Truckers,
for example, often take insurance out to cover liability for the
loss or damage to merchandise that they are carrying. Holtom,
supra, at 435. The cost of that insurance, which may be
specific to an export shipment and related to the value of the
goods, is likely passed through in some measure to the exporter and
therefore "falls upon the exporting process,"
Thames &
Mersey, 237 U. S., at 27. Questions will also arise whether
it violates the Export Clause to tax insurance taken out by an
export freightforwarder to cover a warehouse storing goods in
transit, or to tax ocean marine protection and indemnity insurance
taken out by a vessel owner to protect against damage to export
cargo, cf. Holtom,
supra, at 452, if part of the risk
covered is domestic.
The severity of these administrative burdens will depend in part
upon the penetration of the domestic market by foreign insurers in
certain lines. We can anticipate increased burdens with the 4%
price cut in foreign insurance for exporters that results from
today's decision. The Court is wrong to frustrate the will of
Congress by giving exporters an undeserved exemption from § 4371
and by adding needless complexity to the administration of the
statute, all upon the incorrect, unexamined assumption that the tax
is on exported goods.
II
Turning to the question that I take to be dispositive, I would
hold that the Export Clause does not apply to § 4371. The text and
history of the Clause, and its interpretation by the Fifth
Congress, suggest that taxes on insurance do not fall within its
prohibitions. Because § 4371 taxes a service distinct from the
actual export of the goods, and does not
873
function as a proxy for taxing their value, I would uphold its
application to International Business Machines Corporation
(IBM).
In my view, the Framers understood the Export Clause to prohibit
what its text says: any federal tax "laid on Articles exported," U.
S. Const., Art. I, § 9, cl. 5, not taxes on services like insurance
that may have indirect effect on the cost of exporting. There was a
history of nations' imposing onerous taxes on exported goods, even
in England until the rise of mercantilist trade policy resulted in
the repeal of most export taxes by the end of the 17th century, see
W. Kennedy, English Taxation 1640-1799, p. 35 (1913). And specific
taxes on exported goods were the only taxes mentioned in the debate
at the Constitutional Convention over the Export Clause. For
example, Gouverneur Morris of Pennsylvania, opposing the Clause,
favored taxing exports as an alternative to direct taxes on
individuals.
"He considered the taxing of exports to be in many cases highly
politic. Virginia has found her account in taxing Tobacco. All
Countries having peculiar articles tax the exportation of them; as
France her wines and brandies. A tax here on lumber, would fall on
the W. Indies & punish their restrictions on our trade. The
same is true of live-stock and in some degree of flour. In case of
a dearth in the West Indies, we may extort what we please. Taxes on
exports are a necessary source of revenue. For a long time the
people of America will not have money to pay direct taxes. Seize
and sell their effects and you push them into Revolts." 2 M.
Farrand, Records of the Federal Convention of 1787, p. 307 (rev.
ed.1966).
See also
id., at 306 (Mr. Madison: taxes on exported
goods, like tobacco, in which Americans were unrivalled would shift
the tax burden to foreigners);
id., at 360 (Gouverneur
Morris: taxes on goods are essential to embargoes, while taxes
on
874
KENNEDY, J., dissenting
ginseng and ship masts would shift the tax burden abroad, and
taxes on skins, beavers, and other raw materials might encourage
American manufactures);
id., at 361 (Mr. Dickenson
[sic]: suggesting exemption of certain articles from the
Export Clause);
id., at 362 (Mr. Fitzimmons: discussing
duties imposed on wool by Great Britain). Proponents of the Export
Clause also focused on taxes on goods.
Id., at 307 (Mr.
Mercer: a tax on exported goods encourages the raising of articles
not meant for exportation);
id., at 360 (Mr. Williamson:
discussing taxation of North Carolina tobacco by Virginia);
id., at 361 (Mr. Sherman: general prohibition on power to
tax exports necessary because "[a]n enumeration of particular
articles would be difficult invidious and improper");
id.,
at 363 (Colonel Mason: discussing Virginia tax on tobacco; Mr.
Clymer: discussing middle States' apprehensions of taxes on
products like wheat flour and provisions that, unlike tobacco and
rice, were sold in competitive markets). Oliver Ellsworth of
Connecticut even contended that he opposed export taxes in part
because "there are indeed but a few articles that could be taxed at
all; as Tobo. rice & indigo, and a tax on these alone would be
partial & unjust."
Id., at 360.
In interpreting constitutional restrictions on the taxing power,
we must recall that the want of this power in the National
Government was one of the great weaknesses of the Articles of
Confederation. With its expenses outpacing revenues from
requisitions from the States, the central Government had emptied
its vaults by 1782 and soon defaulted on its substantial debt. R.
Paul, Taxation in the United States 4-5 (1954). As the Convention
records indicate, depriving the Federal Government of the power to
tax even export goods was a contentious issue, given the concern
that it would cut off a needed source of revenue as well as disable
Congress from using export taxes as an instrument of policy.
Madison's last-minute proposal that the Export Clause's total
prohibition on taxing exports be replaced with a provision
875
requiring a two-thirds vote of each House failed by the vote of
only one State. 2 Farrand,
supra, at 363. There is no cause
for extending the Export Clause beyond the bargain struck at the
Convention and embodied in its text.
There is other compelling historical evidence weighing against
Thames &
Mersey's view of the Export Clause as a
prohibition extending even to taxes on services that have the
indirect effect of raising exportation costs. In 1797 the Fifth
Congress passed "An Act laying Duties on stamped Vellum, Parchment
and Paper." Among its provisions was a stamp duty upon
"any policy of insurance or instrument in nature thereof,
whereby any ships, vessels or goods going from one district to
another in the United States, or from the United States to any
foreign port or place, shall be insured, to wit, if going from one
district to another in the United States, twenty-five cents; if
going from the United States to any foreign port or place, when the
sum for which insurance is made shall not exceed five hundred
dollars, twenty-five cents; and when the sum insured shall exceed
five hundred dollars, one dollar .... " Act of July 6, 1797, ch.
11, § 1, 1 Stat. 527.
The duties survived until the unpopular Federalist tax system,
which was felt to bear too heavily upon those least able to pay,
was abolished soon after Jefferson took office. See Paul,
supra, at 6.
We have always been reluctant to say a statute of this early
origin offends the Constitution, absent clear inconsistency. See
Knowlton v.
Moore, 178 U. S. 41, 56 (1900)
(imposition of legacy taxes in the same 1797 statute casts doubt on
claim that Congress lacks such power); see
Ludecke v.
Watkins, 335
U. S. 160, 171 (1948) ("The [Alien Enemy Act of 1798] is almost
as old as the Constitution, and it would savor of doctrinaire
audacity now to find the statute offensive to some emanation of the
Bill of Rights"). The 1797
876
KENNEDY, J., dissenting
statute should dispel any doubt on the issue. Taxes on insurance
do not offend the Export Clause. It is not likely, moreover, that
the Act was passed to circumvent the Export Clause. The early
Congresses were scrupulous in honoring the Export Clause by making
specific exemptions for exports in laws imposing general taxes on
goods. See,
e. g., Act of Mar. 3, 1791, ch. 15, § 51,
1 Stat. 199, 210-211 (tax on distilled spirits); Act of June 5,
1794, ch. 51, § 14, 1 Stat. 384, 387 (tax on snuff and refined
sugar). Their refusal to grant exporters similar exemptions from
insurance taxes indicates that those taxes were not viewed as
equivalent to taxes on goods.
In
Fairbank v.
United States, 181 U. S. 283 (1901), the
Court struck down an 1898 statute imposing a stamp tax on an export
bill of lading despite a similar tax in the 1797 statute. The
decision in
Fairbank was 5-4, with a strong dissent from the
first Justice Harlan urging deference to the implicit exposition of
the Export Clause by the Fifth Congress. The Court, though,
reserved the contemporaneousexposition rule for" 'doubtful cases,'"
id., at 311, and had no doubt that the "discriminating and
excessive tax" imposed on export bills of lading in the 1898 Act
(10 times that imposed on internal bills of lading,
id., at
290) was unconstitutional.
There is no need to reconsider
Fairbank, nor to
distinguish it by sole reliance upon the interpretation offered in
Washington Stevedoring, which observed that the stamp duty
at issue in
Fairbank "effectively taxed the goods because
the bills represented the goods," 435 U. S., at 756, n. 21. The tax
here, unlike the stamp duty in
Fairbank, does not
discriminate against exports; it taxes a service distinct from the
act of exporting; and it has the clear regulatory purpose of
eliminating a perceived competitive advantage of foreign insurers.
Viewed in this light, the conclusion of the Fifth Congress that the
Export Clause did not bar any tax on export insurance should have
great weight in assessing the
877
constitutionality of § 4371, and
Fairbank is not to the
contrary.
Turning once more to
Thames &
Mersey, I note
the 1797 statute was neither briefed to the Court there nor
discussed in its opinion. The Court, furthermore, did not examine
the text or history of the Export Clause, relying instead on the
broad theory of the Clause espoused in the companion case,
United States v.
Hvoslef, 237 U. S. 1 (1915): namely,
that it meant the "process of exporting ... should not be
obstructed or hindered by any burden of taxation,"
id., at
13 (internal quotation marks and citation omitted). See
Thames &
Mersey, 237 U. S., at 25.
(Hvoslef's holding that a nondiscriminatory tax on charter
parties was unconstitutional as applied to export shipments, by the
way, is also called into question by the 1797 Act, which imposed a
similar tax.)
Besides failing to consider the evidence just cited, the
Thames &
Mersey Court relied in part on the
theory that insurance is not commerce and so, by implication, the
regulatory aspect of the tax could not be justified as an exercise
of Congress' Commerce Clause power. See
Thames &
Mersey, supra, at 25, citing
Paul v.
Virginia,
8 Wall. 168 (1869). As a result, the Court reasoned, an insurance
policy was simply a personal contract and a document which, by
custom, was a necessary part of every export transaction. 237 U.
S., at 2526. A tax on the premiums of such a policy, which fell
upon the exporting process and increased its costs, was thought to
be the equivalent to a tax laid on charter parties, bills of
lading, or the goods themselves.
Id., at 27. We abandoned
long ago the notion that insurance is not commerce and so beyond
the power of Congress to regulate. See
United States v.
South-Eastern Underwriters Assn., 322 U. S. 533, 543-545
(1944). Congress enacted § 4371 to regulate competition within the
insurance field, and its authority to do so ought not to be
impaired by a strained reading of the Export
878
KENNEDY, J., dissenting
Clause or reliance on the outmoded reasoning of
Thames
& Mersey.
We have discarded, in Import-Export Clause cases, the idea afoot
in
Hvoslef and
Thames &
Mersey that a tax
on services necessary to the export process is equivalent to a tax
on goods. In
Canton R. Co. v.
Rogan, 340 U. S. 511 (1951), the
Court upheld a state gross-receipts tax on a steam railroad, even
as applied to the railroad's handling of exports and imports from
its marine terminal in the port of Baltimore. The tax was "not on
the
goods but on the
handling of them at the port,"
we said, and "when the tax is on activities connected with the
export or import the range of immunity cannot be so wide."
Id., at 514-515. Following
Canton, the Court in
Washington Stevedoring decided that taxes on services may be
permissible even if levied upon an activity, such as stevedoring,
which occurs while imports and exports are in transit. We remarked:
"The transportation services in both settings are necessary to the
import-export process. Taxation in neither setting relates to the
value of the goods, and therefore in neither can it be considered
taxation upon the goods themselves." 435 U. S., at 757. The
distinctions drawn between services and goods in those cases did
not depend on the differences between the text of the Export and
Import-Export Clauses, and should be observed here.
The Court's effort to justify its decision on the grounds of
stare decisis, ante, at 856, is unconvincing.
Stare
decisis does not protect a constitutional decision where the
reasoning is as poor as it is in
Thames &
Mersey,
see
Smith v.
Allwright, 321 U. S. 649, 665
(1944), nor when the precedent, even if not yet proved unworkable,
is at odds with more recent cases, see
Fulton Corp. v.
Faulkner, 516
U. S. 325, 345346 (1996). It is, moreover, just a matter of
time before
Thames &
Mersey proves itself
unworkable; prior to today, it had not been given the chance to
work its mischief on § 4371.
As we move to a more service-intensive and exportoriented
economy, and as policymakers and experts debate
879
the wisdom of shifting from income to excise taxes, see Lugar,
The National Sales Tax: Avoiding the Zero-Sum Scenario, 48 Tax
Executive 26 (1996); Bartlett, Replacing Federal Taxes with a Sales
Tax, 68 Tax Notes 997 (1995), we should not use shaky precedent to
deprive Congress of important regulatory and revenue-raising
options. As respondent conceded at oral argument, Tr. of Oral Arg.
31, the reasoning of
Thames &
Mersey invites
claims by export service providers for exemptions from any number
of federal excise taxes, for example, a challenge to the
diesel-fuel tax, 26 U. S. C. § 4041, by truckers carrying export
shipments. The Export Clause cannot bear this reading.
The protections of the Export Clause must extend, perhaps,
somewhat beyond specific taxes on goods, for "[i]f it meant no more
than that, the obstructions to exportation which it was the purpose
to prevent could readily be set up by legislation nominally
conforming to the constitutional restriction but in effect
overriding it."
Hvoslef, supra, at 13. As a result, the
Court has found certain taxes to be proxies for taxes on the goods.
See
Washington Stevedoring, supra, at 756, n. 21 (discussing
sales tax struck down in
Richfield Oil Corp. v.
State Bd.
of Equalization, 329 U. S. 69 (1946), and
the tax on a bill of lading struck down in
Fairbank v.
United States, 181 U. S. 283 (1901)). In
Washington Stevedoring, we expressed some doubt that the tax
on insurance in
Thames &
Mersey fell in this
forbidden category, but, to avoid overruling the case, "note[d]
that the value of goods bears a much closer relation to the value
of insurance policies on them than to the value of loading and
unloading ships." 435 U. S., at 756, n. 21.
The insurance premiums taxed here, like those taxed in
Thames &
Mersey, bear some relation to the value
of the goods, but this does not make them a proxy for a tax on the
goods. Premiums, i.
e., the price of insurance, depend on
risk of loss, and value of the goods is only one component factor
of risk. So much is made clear by Stipulation 16 in
880
KENNEDY, J., dissenting
this case. Before the premiums for a shipment of IBM goods of a
certain value could be fixed, a premium rate had to be determined.
The rate was a function of the risk factors specific to a
particular shipment: "the place of origin and destination of the
goods, the type of goods involved and how they were packaged, the
time and distance of the trip, the route and mode(s) of
transportation, and the amount of material handling expected during
the trip." Premiums were then determined by multiplying the value
of the goods by the shipment-specific premium rate. Stipulation of
Facts , 16, App. to Pet. for Cert. 39a. Cf. Holtom, Underwriting
Principles & Practices, at 453-457 (discussing various factors
taken into account in underwriting ocean marine insurance, such as
nationality of the crew, vessel management, seaworthiness of the
vessel, suitability of the vessel for specific cargo, packaging,
season of travel, perishability, pilferage risks at ports of call,
and risks of damage from accompanying cargo). The premium charged
to insure a million dollars of goods for the short overland journey
from IBM's computer factory in Richfield, Minnesota, to a customer
in Quebec would be trifling in comparison to the premium charged to
insure transport of goods of equivalent value from its factory in
San Jose, California, across the continent east to New York and
then by sea to Russia. Cf. Stipulation of Facts, App. to Pet. for
Cert. 36a-37a; Brief for Respondent 3, n. 2. Given the stipulated,
undeniable premise that premiums are graded by risk of loss, they
are not a predictable proxy for a Congress intent upon taxing
export value. Premiums are a rough proxy, however, for the income
of foreign insurers, which is why a Congress intent on eliminating
the income tax advantages of those insurers would structure § 4371
as it did.
Section 4371's requirement that the insurance cover domestic
risks in whole or in part is further evidence that Congress did not
intend it to operate as a proxy for taxing exports. A statute that
exempts all exporters who use a
881
domestic insurer for the inland leg of a shipment is not an
effective instrument for taxing export goods.
I would uphold § 4371 as applied to IBM because the statute
imposes a tax on a distinct export-related service and is not a
proxy for a tax on the exports themselves. The Court, in my view,
makes a serious mistake in assuming the opposite and reaching the
question whether a nondiscriminatory tax on goods violates the
Export Clause. I would reverse the judgment of the Court of Appeals
for the Federal Circuit.
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