30 N.Y.2d 300 | NY | 1972
In a proceeding (CPLR art. 78) to review a tax deficiency assessment by the New York City Finance Administrator, there are cross appeals. The assessments arose out of the petitioner importer’s failure to pay the city franchise tax measured by gross receipts from wholesale and retail sales of imported automobiles. The Federal Constitution immunizes imports from local taxation, and the Supreme Court has held
The Finance Administrator sustained the findings of his hearing examiner that the importer’s receipts from sales of Citroen cars both at wholesale and retail should be included in computing the tax (5 Administrative Code of the City of New York, § B46-1.0 et seq.). A deficiency of $30,920.03, with interest, was assessed for the period July 1, 1959 through December 31, 1963. The Appellate Division unanimously modified in a memorandum and directed that the tax attributable to sales at wholesale ($18,500.25) be deducted from the assessments.
There should be an affirmance. Gross receipts from ears sold at retail were properly included within the tax base. By offering, preparing, and selling cars at retail with a large number of optional features, the importer ended their character as imports. On the other hand, sales at wholesale were properly excluded because there was no substantial alteration or preparation of the vehicles.
Petitioner, a wholly-owned subsidiary of S.A. Andre Citroen, a. French automobile manufacturer, is a New York corporation with its principal place of business in New-York City. It is the exclusive distributor of Citroen cars in the United States selling at wholesale to franchise dealers, and at retail.
The imports arrive by ship at either Brooklyn, Manhattan, or New Jersey piers. Except for a small percentage carried by transporter vehicles, all are temporarily equipped with used batteries, gas, oil, water, and portable sideview mirrors so that they may be driven to the importer’s warehouse in Brooklyn. If delivery is accepted at night, headlights are also installed. The ears are stored for unspecified periods at the warehouse to await preparation and delivery on order.
When a wholesale order is received the automobile is prepared for delivery. A new battery and headlights are installed, any body damage corrected, wheels tightened, and the carburetor adjusted. The car is not cleaned. The preparation takes from one to two hours unless extensive body damage is involved. Usual dealer preparation is not performed on these cars.
The disputed assessments involve $18,500.25 attributable to wholesale transactions, and $6,123.25 to retail sales. The discrepancy of $6,296.53 results from sales of domestic parts and accessories, and is not in dispute. The hearing officer had included receipts from all sales in applying the franchise tax. The Appellate Division modified, directing reduction of so much of the tax measured by wholesale transactions. The court reasoned that the servicing of the cars at the pier was an insuf-' ficient alteration to deprive cars sold at wholesale of local tax immunity. No mention was made of the work done at the warehouse in preparing wholesale cars for delivery.
The Federal Constitution provides that “No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws ”. (U. S. Const., art. I, § 10, cl. 2.) The Federal Government was given the exclusive right to tax imports to prevent port States from taxing the imports and exports of inland States, to raise revenue, and to preserve the prerogative of the sovereign to regulate foreign commerce (see 2 Farrand, The Records of the Federal Convention, pp. 441-442; 3 Farrand, op. cit., supra, pp. 328, 518-521; 2 Elliot’s Debates on Federal Constitution [1828], pp. 354-356; 3 Elliot’s Debates [1854], p. 483; Charles Warren, The Making of the Constitution, pp. 557-559).
The breadth of the tax immunity was first propounded in Chief Justice Marshall’s celebrated opinion in Brown v. Maryland (12 Wheat. [25 U. S.] 419, supra). In the Brown case, the State of Maryland required importers of foreign goods, by the package or bale, to pay a license tax before selling them
To begin with, it would appear from the decided cases that not all franchise taxes which have an impact on imports or importers are forbidden. Taxing statutes employ various factors for assessing the value of the franchise. Some measure the tax by the capital of a corporation or its dividends, and in such instances the courts have held that although imports and exports are affected they do not violate the Constitution (New York v. Roberts, 171 U. S. 658, 664, affg. 149 N. Y. 608; Home Ins. Co. v. New York, 134 U. S. 594, 598-605; People ex rel. Klipstein & Co. v. Roberts, 36 App. Div. 597, 598-599, affd. 167 N. Y. 617; cf. St. Louis S. W. Ry. v. Arkansas, 235 U. S. 350, 364-366; compare Anglo-Chilean Corp. v. Alabama, 288 U. S. 218, 225-226, and dis. opn. at pp. 229, 231-236). Where, as is true in this case, the tax is measured by the property imported or exported, or by its proceeds, it is an impost in effect if not in form (Richfield Oil Corp. v. State Bd., 329 U. S. 69, 80, 83-85; cf. Canton R. R. Co. v. Rogan, 340 U. S. 511, 513-515; see Ann., Imports — State Taxation, 89 L. Ed. 1279, 1293; Ann., Tax on Corporations—Import Clause, 20 ALR 2d 152,
The cars sold at retail lost their character as imports, and receipts from such sales were properly included in computing the franchise tax. Of critical significance is that these cars are directly available to the retail customer with a large number of accessories and services. In the event optional features are required, and it is rare when this is not the case, the installation is made prior to delivery and usually at the importer’s warehouse. Because the importer offers and “ commingles ”, domestically, optional features into the import, it does not preserve the automobile’s “ distinctive character as an import ” (Brown v. Maryland, 12 Wheat. [25 U. S.], at p. 442, supra). As with the original package doctrine a line must be drawn, sometimes arbitrarily, beyond which the tax immunity will not extend (see, e.g., May v. New Orleans, 178 U. S. 496, 509). Most important, the distinction made in this case comports with the business actualities and is economically supportable in separating imports still in the flow of international commerce from those which have come to rest, and are being treated by their owners as property at rest to be modified as they wish.
Cars sold by the importer at wholesale are in a different category. True, batteries, wipers, and' rearview mirrors are installed. But the wipers and mirrors are factory-made parts, only removed from the cars during ocean shipment to avert theft. As a precaution, batteries are not installed prior to shipment. In an analogous case, a Federal court has held that a temporary change in form to facilitate transportation of an import does not extinguish the tax immunity (Standard-Triumph Motor Co. v. City of Houston, 220 F. Supp. 732, judgment vacated on jurisdictional grounds, 347 F. 2d 194, cert. den. 382 U. S. 974; see, also, Southern Pac. Co. v. City of Calexico, 288 F. 634, 643; Mexican Petroleum Corp. v. Louisiana Tax Comm.,
The holding by the Supreme Court in Gulf Fisheries Co. v. MacInerney (276 U. S. 124), heavily relied upon by the city, does not compel a contrary result. The case involved the processing of imported, freshly-caught fish, some of which were only washed and packed in ice. True, there is language suggesting that the mere washing of the fish was a change in their ‘‘ original condition ’ ’, but the legal significance of such a change was not reached. The decision, in fact, turned on the act of removing the fish in bulk from the fishing vessels, processing them at least to some degree, and repacking them in separate barrels. When viewed as an application of the ‘ ‘ original package ’ ’ doctrine, the case loses much of its significance for nonpackage cases.
Accordingly, the order of the Appellate Division should be affirmed, without costs.
Chief Judge Fuld and Judges Burke, Scileppi, Bergan, Jasen and Gibson concur.
Order affirmed.