Parrott & Co. v. City & County of San Francisco

These are consolidated appeals by the City and County of San Francisco from judgments in three separate actions ordering the city to refund certain personal property taxes imposed by it on certain imported liquors.

The factual backgrounds of and the law applicable to the three consolidated cases are similar. Respondents are importers from foreign countries of intoxicating liquors. On the first Monday of March, 1952, each respondent owned and possessed in warehouses in San Francisco a designated quantity of liquor, that it had imported from abroad. Admittedly, the liquor was still in the original unbroken packages in which it had been imported. Admittedly, this liquor was

The city, purporting to act pursuant to article XIII of the Constitution and sections 201 and 202 of the Revenue and Taxation Code, levied and collected an ad valorem personal property tax on the liquor in question. The levy was made after the city had demanded that the respondents list all personal property owned or controlled by them or in their possession on the tax date. The imported liquor was separately listed, and taxed separately from the other personal property of the taxpayers. These respondents paid that portion of the tax assessed against the imported liquor under protest, and then instituted these actions to recover that tax, claiming that the liquor was exempt from state taxation.

The trial court judge, the Honorable Albert Wollenberg, held in favor of the taxpayers and ordered the taxes refunded. He set forth the grounds of his decision in a memorandum opinion in which he stated, in part: “The question for decision is whether or not the defendant City and County of San Francisco has the power to impose an ad valorem property tax on intoxicating liquors in the hands of the original importers and in the original package. An affirmative answer to this question can only be grounded on the premise that the Twenty-first Amendment to the Constitution of the United States repeals pro tanto, by implication, Article I, Section 10, Paragraph 2, of said Constitution [import-export clause], insofar as intoxicating liquors are concerned. The validity of this premise the Court is not willing to concede. ’ ’

After discussing several of the problems involved the court concluded: “The Federal Government has sole, exclusive and plenary taxing power over imports and exports, with but one exception—that of reasonable inspection. . . . The Federal power to tax imports is plenary and exclusive. This has been expressed in an unbroken line of decisions over one hundred and twenty-five years . . .

“It is the decision of this Court that no state, nor any

Before directly dealing with the proper interpretation of the Twenty-first Amendment some mention should be made of the general law interpreting the breadth and scope of the import-export clause. As early as 1827 Chief Justice Marshall, speaking for the United States Supreme Court in the case of Brown v. Maryland, 12 Wheat. (U.S.) 419 [ 6 L.Ed. 678 ], enunciated the so-called "original package” doctrine. Under that doctrine foreign imports, while still in their original packages and in the hands of the original importers, were held immune from state taxation. In 1871, in the case of Low v. Austin, 13 Wall. (U.S.) 29 [ 20 L.Ed. 517 ], the United States Supreme Court, in a case similar to those here under consideration, held that the “original package” doctrine applied to foreign imported liquor so as to render such liquor free from state taxation. The “original package” doctrine, as far as foreign imports are concerned, has been followed by the United States Supreme Court in a long line of eases. One of the most recent is Hooven & Allison Co. v. Evatt, 324 U.S. 652 [ 65 S.Ct. 870 , 89 L.Ed. 1252 ], decided in 1945, and written by Chief Justice Stone. In that case the state attempted to levy an ad valorem tax on certain hemp imported by an Ohio manufacturer and held by him in the original packages preparatory for use in his Ohio factory. It was held that the import-export clause barred such taxation. After quoting the import-export clause the court stated (p. 656):

“These provisions were intended to confer on the national government the exclusive power to tax importations of goods into the United States. That the constitutional prohibition necessarily extends to state taxation of things imported, after their arrival here and so long as they remain imports, sufficiently appears from the language of the constitutional provision itself and its exposition by Chief Justice Marshall in Brown v. Maryland, supra. We do not understand anyone to challenge that rule in this case.

“ It is obvious that if the states were left free to tax things imported after they are introduced into the country and

Moreover, the practical effect of appellant’s interpretation cannot be overlooked. If the coastal states could tax or prohibit the importation of foreign liquors, it could ‘ ‘ dry up ’ ’ the interior states so far as such liquors are concerned. Moreover, a coastal state could, for example, tax Irish whiskey and not tax Scotch whiskey, and thus influence foreign commerce and the tariff structure of the nation adverse to the public interest. It was for these very reasons that the United States Constitution placed all powers relating to foreign intercourse exclusively in the hands of the federal government. (See for a few classic cases so holding, Holmes v. Jennison, 14 Pet. (U.S.) 540, 570 [ 10 L.Ed. 579 , 618, Appx.]; Board of Trustees v. United States, 289 U.S. 48 , 56 [ 53 S.Ct. 509 , 77 L.Ed. 1025 ]; United States v. Belmont, 301 U.S. 324 , 331 [ 57 S.Ct. 758 , 81 L.Ed. 1134 ].) It should also be mentioned that if the coastal states could tax imported liquor and keep the tax proceeds they would be enriching themselves at the expense of the nation. The import-export clause above quoted expressly provides that the revenue from any such imposts shall be for the use of the United States treasury. Thus,

One other general comment can be made. Although the Twenty-first Amendment has been in effect for nearly 22 years, the appellant is unable to point to any decision in the entire United States holding that a state or its agencies has the power under the amendment to levy an ad valorem tax on foreign imported liquor, while it is still in its original package, unconsigned and unsold, nor has appellant referred us to any statute of any city, county or state that has ever before attempted to levy such a tax. Of course, this does not prove that such a tax cannot be levied, but in view of the keen interest of local taxing authorities in finding new sources of tax revenue, if the two provisions of the Constitution are so inconsistent that the amendment repealed, pro tanto, the import-export clause as contended by appellant, it is somewhat surprising to find that no enterprising tax assessor has heretofore noted such inconsistency.

Appellant predicates the major portion of its argument on the case of State Board of Equalization v. Young’s Market, 299 U.S. 59 [ 57 S.Ct. 77 , 81 L.Ed. 38 ]. That case involved the constitutionality of a California statute imposing a license fee on importers of foreign beer. In that case the plaintiffs were domestic corporations engaged in the business of selling at wholesale in California beer imported from Missouri and Wisconsin. The tax was attacked on the ground that it violated the commerce and equal protection clauses of the federal Constitution. The court held that the license fee was valid under the Twenty-first Amendment, and stated (p. 62) :

“Prior to the Twenty-first Amendment it would obviously have been unconstitutional to have imposed any fee for that privilege. The imposition would have been void, not because it resulted in discrimination, but because the fee would be a direct burden on interstate commerce; and the commerce clause confers the right to import merchandise free into any state, except as Congress may otherwise provide. . . .

“The Amendment which ‘prohibited’ the ‘transportation or importation’ of intoxicating liquors into any state ‘in violation of the laws thereof’ abrogated the right to import free, so far as concerns intoxicating liquors.” The court went on to explain that the amendment confers the right on a state to prohibit all “importations” if it so desires, and therefore (p. 63) “the State may adopt a lesser degree of regulation

than, total prohibition. ... It might permit the. manufacture and sale of beer, while prohibiting hard liquors absolutely. If it may permit the domestic manufacture of beer and exclude all made without the State, may it not, instead of absolute exclusion, subject the foreign article to a heavy importation fee?”

This case has been followed in several cases all holding that intoxicating liquor imported from one state to another for delivery or use in the second state can be subjected under the Twenty-first Amendment to various discriminating practices not otherwise permitted by the commerce clause. (See, for example, Mahoney v. Joseph Triner Corp., 304 U.S. 401 [ 58 S.Ct. 952 , 84 L.Ed. 1424 ]; Indianapolis Brewing Co. v. Liquor Control Com., 305 U.S. 391 [ 59 S.Ct. 254 , 83 L.Ed. 243 ]; Joseph S. Finch & Co. v. McKittrick, 305 U.S. 395 [ 59 S.Ct. 256 , 83 L.Ed 246 ].)

There is no doubt some very general language in the Young case, and the cases following it, which, separated from the facts to which such language was intended to apply, seems to support appellant’s argument. But all of these cases dealt with interstate commerce and not with foreign commerce. As was pointed out in Hooven & Allison Co. v. Evatt, 324 U. S. 652 [ 65 S.Ct. 870 , 89 L.Ed. 1252 ], quoted from above, there is a vast difference between the commerce clause and the import-export clause. The commerce clause contains but a limited prohibition while the import-export clause is absolute. Moreover, in the Young case, it is apparent that the beer brought into California from Missouri and Wisconsin was brought in for the purpose of “delivery or use” in California, so that the case fell directly within the express language of the Twenty-first Amendment. In the instant, case the liquors are still imports, not only in their original packages, but unconsigned or unsold so far as ultimate destination is concerned.

Certainly the Young ease does not stand for the proposition that any state can prohibit the transportation across it of liquor intended for another state. It has been expressly held that the Twenty-first Amendment does not apply to intoxicating liquor merely passing through a state and not imported “for delivery or use” in such state. (Collins v. Yosemite Park & C. Co., 304 U.S. 518 [ 58 S.Ct. 1009 , 82 L.Ed. 1502 ].) In that case it was held that California had no power to tax liquor passing through the state to a national park located within the state. (See also Carter v. Virginia, 321 U.S. 131

While it is true that the “original package” doctrine has been limited in interstate commerce cases by the doctrine that state power attaches when the goods have “come to rest” in a state (Minnesota v. Blasius, 290 U.S. 1 [ 54 S.Ct. 34 , 78 L.Ed. 131 ]), that limitation has never been applied to foreign imports. (Hooven & Allison Co. v. Evatt, 324 U.S. 652 [ 65 S.Ct. 870 , 89 L.Ed. 1252 ]; for several cases directly holding that the Twenty-first Amendment did not change this rule see During v. Valente, 267 App.Div. 383 [ 46 N.Y.S.2d 385 ]; William Jameson & Co. v. Morgenthau, 307 U.S. 171 [ 59 S.Ct. 804 , 83 L.Ed. 1189 ].)

We conclude that foreign imported liquor physically present within the taxing district but still in its original package, unconsigned and unsold on the assessment date, and still in the hands of the original importer, is still in foreign commerce, and that no state or any of its subdivisions has power to impose a personal property ad valorem tax on it.

The only other contention of appellant necessary to consider is its argument that respondents are without power to maintain this action because they did not exhaust their administrative remedies by applying to the County Board of Equalization for review and adjustment of their assessment prior to bringing this action. Sections 1601 through 1615 of the Revenue and Taxation Code provide for the review of assessments by the County Board of Equalization. Undoubtedly, when applicable, such remedy must be pursued before a superior court action for refund can be maintained. Thus, in City & County of San Francisco v. County of San Mateo, 36 Cal.2d 196 [ 222 P.2d 860 ], it was held that before a

The three judgments appealed from are affirmed.

Bray, J., and Wood (Fred B.), J., concurred.

A petition for a rehearing was denied April 7, 1955, and appellant’s petition for a hearing by the Supreme Court was denied May 4, 1955.