Appellant, a New York corporation that manufactures and sells
copying machines, shipped machine parts manufactured in this
country to Mexico City, Mexico, for assembly by its affiliate
there. After assembly, the copiers were transported by a customs
bonded trucking company to a customs bonded warehouse in Houston,
Tex., where they were segregated from other merchandise and stored
while awaiting sale and shipment to appellant's affiliates in Latin
America. None of these copiers were ever sold to customers for
domestic use, but remained under the continuous control and
supervision of the United States Customs Service from the time they
entered the warehouse until they cleared United States Customs at
their export ports. In 1977, both the city of Houston and Harris
County (appellees) assessed ad valorem
taxes on the copiers stored in the Houston warehouse. Appellant
sought declaratory and injunctive relief in state court, claiming
that the taxes were unconstitutional. Appellees counterclaimed for
the taxes assessed. The trial court entered judgment for appellant,
holding that the taxes violated the Import-Export and Commerce
Clauses of the Constitution. The Texas Court of Civil Appeals
reversed and granted judgment to appellees on their counterclaims,
holding that the taxes violated neither Clause of the Constitution
and, alternatively, that the trial court had violated state law in
granting injunctive relief.
1. This Court has jurisdiction over the appeal under 28 U.S.C. §
1257(2). Notwithstanding appellees' argument that this Court lacks
jurisdiction because the Court of Civil Appeals' decision reversing
the grant of an injunction rested on an independent and adequate
state ground, an indispensable predicate to the award of judgment
to appellees on their counterclaims was a determination that the
taxes were permissible under the Federal Constitution. P.
459 U. S.
2. State property taxes, such as those involved here, on goods
stored under bond in a customs warehouse are preempted by Congress'
comprehensive regulation of customs duties. Under the customs
system, established pursuant to Congress' powers under the Commerce
Clause, imports may be stored duty-free in Government-supervised
Page 459 U. S. 146
warehouses for prescribed periods, and during such periods may
be withdrawn and reexported without payment of duty. Only if the
goods are withdrawn for domestic sale or stored beyond the
prescribed period does any duty become due. Congress created such
duty-free enclaves under federal control in order to encourage
merchants here and abroad to make use of American ports as
transshipment centers for goods in foreign trade. It would not be
compatible with the comprehensive scheme Congress enacted to effect
these goals if the states were free to tax such goods while they
were lodged temporarily in Government-regulated bonded storage in
this country. Cf. McGoldrick v. Gulf Oil Corp.,
309 U. S. 414
459 U. S.
619 S.W.2d 402, reversed and remanded.
BURGER, C.J., delivered the opinion of the Court, in which
BRENNAN, WHITE, MARSHALL, BLACKMUN, REHNQUIST, STEVENS, and
O'CONNOR, JJ., joined. POWELL, J., filed a dissenting opinion,
p. 459 U. S.
CHIEF JUSTICE BURGER delivered the opinion of the Court.
We noted probable jurisdiction to decide whether a state may
impose nondiscriminatory ad valorem
taxes on imported goods stored under bond in a customs warehouse
and destined for foreign markets. The Texas Court of Civil Appeals
held such taxes constitutional.
Appellant Xerox Corp. is a New York corporation engaged in the
business of manufacturing and selling business machines. Its
operations span the globe, and it has established
Page 459 U. S. 147
affiliates in foreign countries to facilitate foreign sales. It
has assembly plants and production facilities in Mexico.
Xerox manufactured parts for copying machines in Colorado and
New York which were shipped to Mexico City, Mexico, for assembly by
its affiliate there. The copiers assembled in Mexico were designed
for sale in the Latin American market, and all printing on the
machines and instructions accompanying them were in Spanish or
Portuguese. Most of the copiers operated on electric current of 50
cycles per second, rather than the 60 cycles per second that is
standard in the United States. Many of the copiers assembled by
appellant's affiliate in Mexico City were not approved by either
United Laboratories or the Canadian Standards Association, as
required for sale in the United States. To convert the copiers for
domestic sale would have cost approximately $100 per copier.
After assembly in Mexico, the copiers were transported by a
customs bonded trucking company to the Houston Terminal Warehouse
in Houston, Tex., [Footnote 1
a Class 3 customs bonded warehouse. There they were stored for
periods ranging from a few days to three years while awaiting sale
and shipment to Xerox affiliates in Latin America. The copiers
remained in the warehouse, segregated from other merchandise, until
a shipment order was received. When Xerox received an order, it
would transport the copiers under bond to either the Port of
Houston or the Port of Miami, where they were loaded on board
vessels for shipment to Latin America. The copiers remained under
the continuous control and supervision of the United States Customs
Service from the time they entered the bonded warehouse until they
Page 459 U. S. 148
United States Customs at the Port of Houston or the Port of
Miami for export. [Footnote
None of the copiers assembled in Mexico and stored in Houston
were ever sold to customers for domestic use; all were ultimately
sold abroad. Consequently, Xerox paid no import duties on them.
The local authorities did not assess any taxes on the copiers
stored under customs bond in 1974 and 1975. In 1977, the city of
Houston [Footnote 4
personal property taxes of $156,728 on the
copiers stored in the Houston warehouse during 1977. [Footnote 5
] The County of Harris [Footnote 6
] followed suit, assessing
$55,969 in taxes for 1977 and also assessing $48,426 in back taxes
for 1976, for a total of $104,395.
As soon as Xerox learned that the local authorities intended to
tax its Mexican-assembled copiers, it shipped all the machines to a
foreign trade zone in Buffalo, N.Y., from which it continued to
fill orders for shipment to Latin America
Page 459 U. S. 149
Declaratory and injunctive relief was sought in state court both
from the taxes already assessed and such taxes as appellees might
impose in the future. Xerox claimed that the taxes in question were
unconstitutional because they violated the Import-Export Clause and
the Commerce Clause of the Constitution. Art. I., § 10, cl. 2; Art.
I, § 8, cl. 3. Appellees counterclaimed for the taxes assessed.
The trial court held that the taxes assessed by appellees
violated both the Import-Export and Commerce Clauses, and it
granted judgment to Xerox. The Texas Court of Civil Appeals, First
District, reversed, holding that the taxes violated neither the
Import-Export Clause nor the Commerce Clause. 619 S.W.2d 402
(1981). Alternatively, it held that the trial court had violated
Texas Rule of Civil Procedure 683 in granting injunctive relief.
Finally, it granted judgment to appellees on their counterclaims in
the amount of $131,311 plus penalties and interest to Harris County
and $156,728 plus penalties and interest to the city of Houston.
The Texas Supreme Court denied Xerox's application for a writ of
error, and this appeal followed. We noted probable jurisdiction,
456 U.S. 913 (1982), and we reverse.
A preliminary question is whether this Court has jurisdiction
over the appeal. Appellees argue that this Court lacks jurisdiction
since the decision of the Texas court reversing the grant of an
injunction rested on an independent and adequate state ground.
However, an indispensable predicate to an award of judgment to the
appellees on their counterclaims was a determination that the taxes
at issue were permissible under the United States Constitution; the
Texas Court of Civil Appeals so held. It is not claimed that any
independent and adequate state law ground supports that holding. We
therefore have jurisdiction to review that judgment. 28 U.S.C. §
Page 459 U. S. 150
Pursuant to its powers under the Commerce Clause, Congress
established a comprehensive customs system which includes
provisions for Government-supervised bonded warehouses where
imports may be stored duty free for prescribed periods. At any time
during that period, the goods may be withdrawn and re-exported
without payment of duty. Only if the goods are withdrawn for
domestic sale or stored beyond the prescribed period does any duty
become due. 19 U.S.C. § 1557(a) (1976 ed., Supp. V). While the
goods are in bonded warehouses, they are in the joint custody of
the United States Customs Service and the warehouse proprietor, and
under the continuous control and supervision of the local customs
officers. 19 U.S.C. § 1555. Detailed regulations control every
aspect of the manner in which the warehouses are to be operated. 19
CFR §§ 19.1-19.6 (1982).
Government-regulated, bonded warehouses have been a link in the
chain of foreign commerce since "a very early period in our
history." Fabbri v. Murphy, 95 U. S.
, 95 U. S. 197
(1877). A forerunner of the present statute was the Warehousing Act
of 1846, 9 Stat. 53. A major objective of the warehousing system
was to allow importers to defer payment of duty until the goods
entered the domestic market or were exported. The legislative
history explains that Congress sought to reinstate
"the sound~ though long neglected,~ maxim of Adam Smith, 'That
every tax ought to be levied at the time and in the manner most
convenient for the contributor to pay it' [by providing] that the
tax shall only be paid when the imports are entered for
consumption. . . ."
H.R.Rep. No. 411, 29th Cong., 1st Sess., 3 (1846).
The Act stimulated foreign commerce by allowing goods in transit
in foreign commerce to remain in secure storage, duty free, until
they resumed their journey in export. The geographic location of
the country made it a convenient place for
Page 459 U. S. 151
transshipment of goods within the Western Hemisphere and across
both the Atlantic and the Pacific. A consequence of making the
United States a center of world commerce was that
"our carrying trade would be vastly increased; that shipbuilding
would be stimulated; that many foreign markets would be supplied,
wholly or in part, by us with merchandise now furnished from the
warehouses of Europe; that the industry of our seaports would be
put in greater activity; [and] that the commercial transactions of
the country would be facilitated. . . ."
Cong.Globe, 29th Cong., 1st Sess., App. 792 (1846) (remarks of
Sen. Dix). To these ends, Congress was willing to waive all duty on
goods that were reexported from the warehouse, and to defer, for a
prescribed period, the duty on goods destined for American
consumption. This was no small sacrifice at a time when customs
duties made up the greater part of federal revenues, [Footnote 7
] but its objective was to
stimulate business for American industry and work for
In short, Congress created secure and duty-free enclaves under
federal control in order to encourage merchants here and abroad to
make use of American ports. The question is whether it would be
compatible with the comprehensive scheme Congress enacted to effect
these goals if the states were free to tax such goods while they
were lodged temporarily in Government-regulated bonded storage in
In McGoldrick v. Gulf Oil Corp., 309 U.
(1940), the City of New York sought to impose a
sales tax on imported petroleum that was refined into fuel oil in
New York and sold as ships' stores to vessels bound abroad. The
crude oil was
Page 459 U. S. 152
imported under bond and refined in a customs bonded
manufacturing warehouse and was free from all duties. We struck
down the state tax, finding it preempted by the congressional
at 309 U. S.
The Court determined that the purpose of the exemption from the
tax normally laid upon importation of crude petroleum was
"to encourage importation of the crude oil for [refinement into
ships' stores] and thus to enable American refiners to meet foreign
competition and to recover trade which had been lost by the
imposition of the tax."
at 309 U. S. 427
see also id.
at 309 U. S. 428
The Court went on to note that, in furtherance of this purpose,
"Congress provided for the segregation of the imported
merchandise from the mass of goods within the state, prescribed the
procedure to insure its use for the intended purpose, and, by
reference, confirmed and adopted customs regulations prescribing
that the merchandise, while in bonded warehouse, should be free
from state taxation."
at 309 U. S.
-429. The Court concluded that
"the purpose of the Congressional regulation of the commerce
would fail if the state were free at any stage of the transaction
to impose a tax which would lessen the competitive advantage
conferred on the importer by Congress, and which might equal or
exceed the remitted import duty."
at 309 U. S. 429
In so deciding, the Court expressly declined to rely on the customs
regulation "prescribing the exemption from state taxation," holding
that the regulation merely stated "what is implicit in the
Congressional regulation of commerce presently involved."
Page 459 U. S. 153
The analysis in McGoldrick
applies with full force
here. First, Congress sought, in the statutory scheme reviewed in
to benefit American industry by remitting
duties otherwise due. The import tax on crude oil was remitted to
benefit oil refiners employing labor at refineries within the
United States, whose products would not be sold in domestic
commerce. Here, the remission of duties benefited those shippers
using American ports as transshipment centers. Second, the system
of customs regulation is as pervasive for the stored goods in the
present case as it was in McGoldrick
for the refined
petroleum. In both cases, the imported goods were segregated in
warehouses under continual federal custody and supervision.
Finally, the state tax was large enough in each case to offset
substantially the very benefits Congress intended to confer by
remitting the duty. [Footnote
] In short, freedom from state taxation is as necessary to the
congressional scheme here as it was in McGoldrick.
Although there are factual distinctions between this case and
they are distinctions without a legal
difference. We can discern no relevance to the issue of
congressional intent in the fact that the fuel oil in
could be sold only as ships' stores, whereas
Xerox had the option to pay the duty and withdraw the copiers for
domestic sale, or that, in McGoldrick,
the city sought to
impose a sales tax, and here appellees assessed a property tax.
A similar conclusion was reached in District of Columbia v.
International Distributing Corp.,
118 U.S.App.D.C. 71, 331
F.2d 817 (1964). There, the Court of Appeals held that a wholesaler
of imported alcoholic beverages was not liable
Page 459 U. S. 154
for District of Columbia excise taxes on the sale of such
beverages to foreign embassies while the beverages were stored in a
customs bonded warehouse. The court reasoned that Congress intended
to make customs bonded warehouses federal enclaves free of state
taxation, and that, although the imported goods were physically
within the District of Columbia, they were not subject to its
taxing jurisdiction until they were removed from the warehouse.
Since the sales took place prior to removal, the District could not
tax those sales. The Court of Appeals quoted with approval the
following language of the Tax Court:
"'The idea of bonded warehouses and their use by the United
States custom authorities negatives the proposition that, at the
time of sale, the alcoholic beverages were in the possession of the
petitioner [the corporation]. True it is that the private bonded
warehouse was physically in the District of Columbia; and the
liquors were stored therein; and in that sense, they were in the
District. In law, however, they were still without that
jurisdiction, and did not become subject thereto until they had
been withdrawn from the private bonded warehouse and removed from
the control of the customs official.'"
at 73-74, 331 F.2d at 819-820. International
merely confirms what this Court said in
1877 in Fabbri v. Murphy,
95 U.S. at 95 U. S.
-198: "Congress did not regard the importation as
complete while the goods remained in the custody of the proper
officers of customs."
Accordingly, we hold that state property taxes on goods stored
under bond in a customs warehouse are preempted by Congress'
comprehensive regulation of customs duties.
It is unnecessary for us to consider whether, absent
congressional regulation, the taxes here would pass muster under
the Import-Export Clause or the Commerce Clause.
Page 459 U. S. 155
The judgment of the Texas Court of Civil Appeals is reversed,
and the case is remanded for proceedings not inconsistent with this
Reversed and remanded.
Until 1974, Xerox shipped its Mexican-assembled copiers to the
Free Trade Zone of Panama, where they were stored tax-free. In
1974, rising anti-American sentiment in Panama led Xerox to seek
another storage facility. It settled on the Houston warehouse
because of the excellent port facilities in the Port of
Goods stored in customs bonded warehouses are under the "joint
custody" of the warehouse proprietor and the United States Customs
Service. The United States Customs Service is "in charge" of the
warehouse, and all work performed there is under its "supervision."
19 U.S.C. § 1555.
At the time in question, 19 U.S.C. 1557(a) permitted the storage
of imported goods for up to three years in a customs bonded
warehouse without payment of an import duty. The importer was
required to post a bond for the value of the duty. At the end of
the three years, the goods could be withdrawn for domestic sale
upon payment of the duty owed, or could be withdrawn for re-export
without payment of any duty. In 1978, the time limit on the storage
period was extended from three years to five years. Customs
Procedural Reform and Simplification Act of 1978, Pub.L. 9510, §
108(b)(1), 92 Stat. 892, 19 U.S.C. § 1557(a) (1976 ed., Supp.
Houston assesses and collects taxes for itself and the Houston
Independent School District.
In 1976 and 1977, Xerox paid a total of approximately $1,817,000
in ad valorem
taxes to appellees for copiers located in
Texas for domestic use.
Harris County assesses and collects taxes for itself, the State
of Texas, and other local taxing authorities.
In 1846, approximately 90% of all federal revenues were derived
from customs duties. U.S. Bureau of Census, Historical Statistics
of the United States, Colonial Times to 1970, Part 2, p. 1106
(Bicentennial ed.1975) (customs accounted for $26,713,000 out of
total federal revenues of $29,700,000).
Here, a footnote in the regulations governing customs bonded
warehouses specifically provided that "[i]mported goods in bonded
warehouses are exempt from taxation or judicial process of any
State or subdivision thereof." 19 CFR § 19.6(c), n. 11 (1982). A
recent amendment to the regulations deleted this footnote on
November 1, 1982, effective December 1, 1982. 47 Fed.Reg. 49370.
The Treasury Department offered no explanation for the amendment.
The deletion of footnote 11 without explanation does not alter our
conclusion that the ad valorem
taxes here are preempted by
the statutory scheme.
The fair market value of the copiers located in the Houston
warehouse on January 1, 1977, was $9,015,690. The duty remitted by
the United States on these copiers amounted to $540,000. By
comparison, the appellees here sought to impose taxes on the
copiers for the year 1977 amounting to $211,112. App. 12a-15a,
JUSTICE POWELL, dissenting.
Since 1799, the United States has permitted importers to post a
customs bond in lieu of immediate payment of customs duties on
imported goods. Today the Court holds that these goods stored in
customs-bonded warehouses also are exempt from state property
taxation. This holding would be unremarkable were it based on any
evidence of congressional intent, but such support is lacking. The
Court instead finds that state taxation is incompatible with the
purposes of the federal customs bonded warehousing system.
Customs-bonded storage enables importers to defer paying customs
duties until the goods are ready for domestic sale, or to avoid
paying duties altogether if the goods are re-exported. The Court
correctly observes that Congress' ultimate purpose has been to
encourage imports and enhance the position of the United States as
a center of international trade. I am not persuaded, however, that
nondiscriminatory state taxation of customs-bonded goods is
incompatible with this purpose.
The Court attributes significance to the "pervasive" system of
customs regulation of stored goods, ante
at 459 U. S. 153
but fails to explain how this affects a State's power to tax. The
purpose of the regulation is to guarantee the security of federal
revenues. The owner of customs-bonded goods eventually must pay the
customs duties or re-export the goods. The warehousing system
enables the Federal Government to monitor the removal of bonded
goods for sale or export and ensure that duties are paid when due.
A State's imposition of an ad valorem
tax does not impair
this function. The "pervasive" regulation of the manner in which
customs-bonded goods are stored and withdrawn, therefore, is simply
immaterial to the validity of state taxation of those goods.
Page 459 U. S. 156
The Court also argues that state taxation of customs-bonded
goods would frustrate the congressional purpose of encouraging
foreign trade with the United States. It asserts that appellees'
taxes are large enough "to offset substantially the very benefits
Congress intended to confer by remitting the duty." Ibid.
It seems to me that the word "offset" in this context is misused.
If a State were to impose a special tax on property stored in
customs-bonded warehouses, perhaps such a tax could be viewed as
"offsetting" the benefits of storage. An importer deciding whether
to use the warehouses would weigh the amount saved through
remission of duties against the amount expended to pay the property
tax. In this case, however, the county and city, acting pursuant to
state law, impose the same ad valorem
taxes no matter
where the property is stored. An importer deciding whether to bring
imported goods into Texas therefore knows that, while the goods are
in storage, he will have to pay the property tax whether or not he
uses a customs-bonded warehouse. The value to him of using
customs-bonded storage is the full amount of the savings from
deferral or avoidance of duties -- precisely the benefit Congress
expressly has provided in order to encourage merchants to bring
business to the United States.
The Court accepts appellant's argument that a tax exemption for
goods in customs-bonded warehouses reduces importers' costs, and
thereby furthers the federal interest in encouraging trade. But the
Court itself acknowledges that state legislation should be
preempted only where "necessary" to achieve a congressional
No showing has been made that this standard
is met here. Duty-free storage and exemption from state property
taxation are independent policies for promoting foreign trade.
Congress quite reasonably may choose one policy, as it has done,
without choosing the other.
The Court relies primarily on McGoldrick v. Gulf Oil
Corp., 309 U. S. 414
(1940), in which the Court invalidated a
Page 459 U. S. 157
city tax on the sale of fuel oil from a customs-bonded
manufacturing warehouse to foreign-bound vessels.
does not control this case. As the Court
concedes, see ante
at 459 U. S. 152
did not hold that the warehousing system and
customs regulations alone mandated preemption of state taxation.
Rather, a key factor was that Congress expressly had exempted from
federal taxation the imported petroleum that was refined in the
bonded warehouses for sale to foreign-bound vessels as ships'
stores. The explicit congressional purpose "to enable American
refiners to meet foreign competition," 309 U.S. at 309 U. S. 427
provided a basis on which to infer congressional intent to preempt
state taxation. There is no analogous federal tax exemption here,
nor any evidence of congressional intent to encourage meeting of
foreign competition. All that exists is the warehousing system
itself, and for the reasons stated above I find this
Nor do I find merit in appellant's constitutional arguments.
Appellees' taxes do not violate the Commerce Clause, as they
"applied to an activity with a substantial nexus with the taxing
State, [are] fairly apportioned, [do] not discriminate against
interstate commerce, and [are] fairly related to the services
provided by the State."
Complete Auto Transit, Inc. v. Brady, 430 U.
, 430 U. S. 279
(1977). Nor do these nondiscriminatory ad valorem
violate the Import-Export Clause, Art. I, § 10, cl. 2. See
Michelin Tire Corp. v. Wages, 423 U.
Appellant notes that Michelin Tire
left open the
possibility that even nondiscriminatory property taxes may not be
imposed on goods that still are in transit. But appellant's copiers
were stored for up to three years, and under current law they could
have been stored for up to five years. 19 U.S.C. § 1557(a) (1976
ed., Supp. V). The only conceivable basis for the view that these
goods remain "in transit" is that Congress has so provided. I
cannot agree that Congress has endowed customs-bonded goods with
indefinite immunity from nondiscriminatory state-authorized local
Page 459 U. S. 158
During their prolonged period of storage, appellant's goods
benefited from police and fire protection and the various other
services provided by the county and city.
"[T]he State is simply making the imported goods pay their own
way, as opposed to exacting a fee merely for 'the privilege of
moving through a State.'"
Washington Revenue Dept. v. Association of Washington
Stevedoring Cos., 435 U. S. 734
435 U. S. 764
(1978) (POWELL, J., concurring in part and concurring in result)
(quoting Michelin Tire Corp. v. Wages, supra,
423 U. S.
). The Import-Export Clause never was intended to
exempt imported goods in these circumstances.
I would affirm the judgment of the Texas Court of Civil