Sears, Roebuck & Co. v. County of Los Angeles

Opinion

FLEMING, J. Defendants County of Los Angeles and City of Compton appeal a judgment in favor of plaintiff Sears, Roebuck & Company in an action to recover taxes paid under protest. The issue is whether certain goods imported by Sears and stored in its warehouses pending distribution to Sears’ retail outlets during fiscal years 1973, 1974, and 1975 are immune from ad valorem taxation.

This litigation tracks certain changes in the applicable statutory and case law, which we summarize as follows: The import-export clause of the United States Constitution prohibits the states from laying any “imposts or duties on imports or exports.” (U.S. Const., art. I, § 10, cl. 2.) In 1827 the United States Supreme Court in Brown v. Maryland, 25 U.S. (12 Wheat.) 419 [6 L.Ed. 678], determined that the import-export clause also prohibited taxation of imported goods. The court added, however, that goods lose their status as imports and become taxable when they have been “so acted upon” by the importer as to “become incorporated and mixed up with the mass of property in the country.” But so long as the goods “[remain] the property of the importer, in his warehouse, in the original form or package in which [they are] imported, a tax upon [such imported goods],” the court reasoned, “is too plainly a duty on imports to escape the prohibition in the Constitution.” (Brown v. Maryland, supra, pp. 441-422 [6 L.Ed., p. 439].) In 1871 the court in Low v. Austin (1872) 80 U.S. (13 Wall.) 29 [20 L.Ed. 517], extended the protection of the “original package doctrine” to prohibit nondiscriminatory ad valorem state property taxes on imported goods. (May v. New Orleans (1900) 178 U.S. 496 [44 L.Ed. 1165, 20 S.Ct. 976].) Courts continued to apply the original package doctrine to the ad valorem taxation of imported goods for over 100 years. But on January [6114], 1976, the United States Supreme Court in Michelin Tire Corporation v. Wages (1976) 423 U.S. 276 [46 L.Ed.2d 495, 96 S.Ct. 535], concluded that ad valorem property taxes imposed on goods which were no longer in transit were not “duties or imposts” within the meaning of the import-export clause, and expressly overruled Low v. Austin, (Michelin, supra, 423 U.S., p. 279 [46 L.Ed.2d, p. 500]). Under Michelin, imported goods which have come to rest in the state are not immune from ad valorem taxation, whether or not they remain in their original packages.

In response to the Michelin decision the California Legislature, recognizing the potential unfairness and inequity that could result from a retroactive application of Michelin, (Assem. Bill No. 3061; see also Schettler v. County of Santa Clara (1977) 74 Cal.App.3d 990, 996-998 [141 Cal.Rptr. 731]), enacted Revenue and Taxation Code section 226, effective July 3, 1976, providing that “the validity of any ad valorem property tax assessment on imported goods, heretofore or hereafter imposed, levied or collected with respect to tax years prior to the 1976-1977 tax year shall be determined pursuant to statutory and case law in effect prior to the decision in Michelin v. Wages [citation].” However, after enacting section 226 the Legislature promptly amended the statute to permit limited, retroactive application of the Michelin decision. The amendment, effective September 20, 1976, provided that in “any assessment made prior to 14 January 1976, the court may, if the circumstances warrant and the taxing authority demonstrates that it would be equitable to do so, follow the decision in Michelin v. Wages.”