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U.S. Supreme Court vacates and remands Texas decision striking down tax on domestically owned cargo containers used in international shipping.

On Mar. 8, 1993, the U.S. Supreme Court vacated the Texas Court of Appeals' decision in Harris County Appraisal District v. Transamerica Container Leasing, Inc., 821 SW 2d 63 7 (Tex. Ct. App. 1991), appeal docketed, No. 92-973 (1993), and remanded the case back to the Texas court for further consideration. The Texas Court of Appeals had previously held that the assessment of ad valorem property tax on shipping containers used in international commerce owned by a domestic corporation violated the Foreign Commerce Clause of the U.S. Constitution because of the substantial risk of multiple international taxation.

The Supreme Court directed the Texas Court of Appeals to consider the Court's recent holding in Itel Containers International Corporation, 113 S. Ct. 1095 (1993). In Itel, the Supreme Court upheld the validity of the Tennessee sales tax on leases of containers owned by a domestic company and used exclusively in international commerce. The Court easily concluded that there was no substantial risk of international multiple taxation because the sales tax at issue was imposed on a discrete transaction occurring within the state. Moreover, the state in Itel provided a credit against its own tax for any tax paid in another jurisdiction on the same transaction.

The issue in Transamerica Container is whether the ad valorem property tax on domestically owned international cargo containers, despite apportionment, creates a substantial or enhanced risk of international multiple taxation in violation of the Foreign Commerce Clause as interpreted by the U.S. Supreme Court in Japan Line, Ltd. v. County of Los Angeles, 441 US 434 (1979). In Japan Line, the Court struck down, on Foreign Commerce Clause grounds, a property tax on foreign-owned international cargo containers; the tax created a substantial risk of international multiple taxation and prevented the Federal government from "speaking with one voice when regulating commercial relations with foreign governments." The Japan Line Court reserved decision on the issue of domestically owned containers used in international commerce.

Although the taxpayer in Transamerica Container has conceded the speaking with one voice issue, it contends that there is a substantial risk of international multiple taxation. Arguably, Itel should not compel the Texas Court of Appeals to uphold the Texas levy. Itel involved a transaction-based tax with a credit provision designed to eliminate multiple taxation. Transamerica Container, in contrast, involves a property tax on movable personal property.
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Author:Mims-Velarde, Rebecca F.
Publication:The Tax Adviser
Date:Jun 1, 1993
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