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Court of Appeal, First District, Division 2, California.

SEA-LAND SERVICE, INC., a corporation, Plaintiff and Appellant, v. The COUNTY OF ALAMEDA and the City of Oakland, Defendants and Respondents.

Civ. 30758.

Decided: January 22, 1974

Graham & James, Francis L. Tetreault, Paul A. Dezurick, San Francisco, for plaintiff and appellant. Richard J. Moore, County Counsel, Joseph P. Bingaman, Deputy County Counsel, County of Alameda, Oakland, for defendants and respondents. John H. Larson, County Counsel, James Dexter Clark, Deputy County Counsel, Los Angeles, for County of Los Angeles (Amicus Curiae).

The taxpayer, Sea-Land, Inc. (Sea-Land) appeals from a judgment denying relief in an action for the refund of 1967, 1968 and 1969 personal property taxes collected by the County for the City on the basis of Sea-Land's cargo containers in the City and County on the lien dates. The main contention on appeal is that the cargo containers are exempt from taxation pursuant to California Administrative Code, title 18, section 205, and as instrumentalities of foreign and interstate commerce, pursuant to the commerce and import-export clauses of the U.S. Constitution. We have concluded that the judgment must be affirmed.

The stipulated facts are as follows: On the respective lien dates, the approximate amounts of tax based on the depreciated fair market value of the number of Sea-Land containers physically present in the City and County were: 1967–$46,346; 1968–$110,272.63; and 1969–$144,518.68. The County Assessment Appeals Board denied Sea-Land's appeals and timely claims for refund were filed and denied. The containers are used exclusively for the transportation of cargo for hire in intercoastal (interstate) and foreign commerce; there is no use for intrastate transportation of cargo, and intrastate movements of empty containers are for the purpose of picking up cargo to be carried in foreign or intercoastal commerce. Eighty-five percent (65 percent in 1967) of the containers physically present within the City and County's borders on the respective lien dates were loaded with cargo either inbound from or outbound to foreign ports. The remaining 15 percent (35 percent in 1967) were loaded with cargo bound to or from intercoastal ports. The intercoastal service is between California and the east coast, with stops in Panama and Puerto Rico. The foreign service is to Europe and the Orient, particularly Japan, Okinawa and Vietnam. No container has a usual place of return between voyages, but each is in constant transit, save for repair time and time awaiting new cargo. None of the containers present on the lien dates had been present for as much as six of the 12 months prior to any of the respective lien dates. The average stay of any of the containers in California at any one time is less than three weeks, and no container is permanently stationed in California or scheduled, on departure by vessel or from the terminal area, to return to Oakland.

The number of containers physically present on each lien date was fairly representative of the number present on other days at that level of operations; an increase in operations and equipment during each year caused the increase in number from 1967 to lien date 1968 to lien date 1969.

The commercial domicile of Sea-Land is in Elizabeth, New Jersey, and Sea-Land is incorporated in Delaware. The vessels of Sea-Land are registered either in Wilmington, Delaware, or in foreign ports, and none is registered in California. Sea,-land's vessels are specially designed to accommodate the subject containers and the vessels carry cargo only in such containers. Only Sea-Land's vessels and chassis are designed to accommodate the special 35 foot length of the containers. The containers, after discharge from the vessel, are transported by truck (chassis) or rail, either by Sea-Land's trucks within the terminal area or by independent common carriers, to the ultimate destination of the cargo. The inland destinations and origins of cargo include California, as well as other states. The unloaded cargo container is brought to the vessel by rail or truck after being loaded with outbound cargo.

Article 13, section 1 of the state Constitution provides: ‘All property in this State except as otherwise in this Constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value. . . .’

Cargo containers are personal property and unless exempted, must be assessed and subjected to property taxation. None of the specific exemptions set forth in Revenue and Taxation Code, section 201–227, refer to cargo containers.

Sea-Land first contends that pursuant to California Administrative Code, title 18, section 205(a) (set forth below),1 the containers are taxable only in New Jersey, Sea-Land's principal place of business.

Rule 205 sets forth the rule for establishing the taxable situs of property that moves from place to place within the state. The rule is predicated upon the theory that unless property has been within the taxing jurisdiction for at least six months of the immediately preceding 12 months, the property has failed to acquire such contact with the taxing jurisdiction so as to create a taxable situs. However, Sea-Land's argument overlooks the fact that, while a specific container may never spend an aggregate of six months of time in any 12-month period in the County, a constant number of Sea-Land's containers are in the County on every day of the year.2

Further, Section 205 does not consider the effect upon the question of situs or repeated, even daily, contact with the local taxing authority of movable property which may consist of the same or similar units of property. Since the regulations adopted by a state agency to implement, interpret or make specific the law enforced or administered by it are not legislative acts, or amendments to legislative acts, but are interpretive of the law as it exists, section 205 can have no application here.

Preliminarily, we turn to SeaLand's contention that the proportional assessment standard deprived it of equal protection (U.S. Constitution, Amendment XIV, section 1). The cases dealing with taxation of instrumentalities of interstate commerce and foreign commerce recognize that the exact may not be habitually employed in the taxing state and recognize that different units can be used in determining whether or not sufficient contact with the taxing jurisdiction has taken place creating a taxable situs. Thus, in Braniff Airways v. Nebraska Board, 347 U.S. 590, 600, 74 S.Ct. 757, 763, 98 L.Ed. 967, the court held: ‘The limitation imposed by the Due Process Clause upon state power to impose taxes upon such instrumentalities were succinctly stated in the Ott case [Ott v. Mississippi Valley Barge Line Co., 336 U.S. 169, 69 S.Ct. 432, 93 L.Ed. 585]: ‘So far as due process is concerned the only question is whether the tax in practical operation has relation to opportunities, benefits, or protection conferred or afforded by the taxing State.’ 336 U.S., at 174, 69 S.Ct. Ct. 432.'

The court continued (at 600–601, 74 S. Ct. at 764): ‘Thus the situs issue devolves into the question of whether eighteen stops per day by appellant's aircraft is sufficient contact with Nebraska to sustain that state's power to levy an apportioned ad valorem tax on such aircraft. We think such regular contact is sufficient to establish Nebraska's power to tax even though the same aircraft do not land every day and even though none of the aircraft is continuously within the state. ‘The basis of the jurisdiction is the habitual employment of the property within the State.’ Appellant rents its ground facilities and pays for fuel it purchases in Nebraska. This leaves it in the position of other carriers such as rails, boats and motors that pay for the use of local facilities so as to have the opportunity to exploit the commerce, traffic, and trade that originates in or reaches Nebraska.' (Emphasis ours.)

Justice Douglas, in a concurring opinion, said at 603, 74 S.Ct. at 765: ‘My understanding of our decisions is that the power to lay an ad valorem tax turns on the permanency of the property in the State. All the property may be there or only a fraction of it. Property in transit, whether a plane discharging passengers or an automobile refueling, is not subject to an ad valorem tax. Property in transit may move so regularly and so continuously that part of it is always in the State. Then the fraction, but no more, may be taxed ad valorem.’ (Emphasis ours.)

The most recent California decision relating to the situs of migratory equipment is Zantop Air Transport, Inc. v. County of San Bernardino, 246 Cal.App.2d 433, at 437, 54 Cal.Rptr. 813, at 816, where the court held: ‘The word ‘situated’, however, as used in section 10, article XIII of the Constitution and section 404 of the Revenue and Taxation Code is synonymous with ‘situs'; it means having such contacts as confer jurisdiction to tax. [Citations.] Plaintiff admits that under Braniff Airways, Inc. v. Nebraska State Board of Equalization, supra, 347 U.S. 590 [74 S.Ct. 757, 98 L.Ed. 967], a properly apportioned value of its aircraft has a taxable situs in this state. Past decisions have implicitly, if not expressly, determined that the situs of such property within the state is in the county in which it is present on a regular and ascertainable portion of its life. [Citations.] The fact that section 14, article XIII of the Constitution providing for the centralized assessment of railroad, utility, and certain other types of property fails to include aircraft cannot be taken as an intention to exempt such property from taxation. It is a constitutional mandate (§ 1, art. XIII), implemented by legislation (Rev. & Tax. Code, §§ 201, 401, 404), that all property, not otherwise exempt, shall bear its fair and equal burden of taxation. [Citation.] There are no constitutional or statutory provisions exempting interstate migratory flight equipment.’ (Emphasis ours.)

From a review of the above authorities pertaining to migratory equipment, it is clear that the apportionment theory of taxation is applicable to Sea-Land's containers. The assessor has not attempted to assess all of Sea-Land's containers which pass through the County. The assessor has assessed only that portion which represents the average number of containers located in the County on a daily basis. The fact that no single container may be present in the County for any substantial period of time does not exempt all of the containers from taxation under section 205 of title 18 of the California Administrative Code. Quite to the contrary, it is this habitual use or presence in the County of containers (even though not the same ones) that the courts have repeatedly recognized as creating a taxable situs.

Sea-Land further contends that its containers are exempt pursuant to the commerce clause (art. I, § 8, clause 3) of the U.S. Constitution.

Sea-Land's cargo containers are not instrumentalities of commerce that move from point to point under their own motive power or are committed to any fixed route or regular schedule. They are, in fact, containers—boxes—that are transported by different instrumentalities of commerce such as trucks, trains and ships. The containers are instrumentalities of commerce only to the extent that they provide a means for transferring cargo from one form of transportation, such as rail, to another form of transportation, such as ship, without the necessity of loading and unloading the cargo each time the mode of transportation changes. The containers provide a service that is competitive with railroads and trucking on land and is adaptable to sea travel.

As indicated above, no provisions of California law exempt the cargo containers from taxation. Sea-Land, however contends that the cargo containers are exempt from taxation as instrumentalities of foreign commerce and interstate commerce and are taxable only at their ‘home port.’ Our review of the case law permitting the levying of ad valorem taxes on instrumentalities of interstate commerce and foreign commerce clearly shows Sea-Land's position to be untenable.

Although the early rule was that instrumentalities of commerce, specifically ships, were taxable only at their home port, the U. S. Supreme Court in Hays v. Pacific Mail Steamship Company, 17 How. 596, 58 U.S. 596, 15 L.Ed. 254, recognized exceptions and applied different rules to different modes of transportation. In Pullman's Car Co. v. Pennsylvania, 141 U.S. 18, 11 S.Ct. 876, 35 L.Ed. 613, the court upheld the right of the State of Pennsylvania to tax railroad cars based upon the ratio of the railroad's mileage in the state as compared with the railroad's mileage. Again, in 1949, in Ott v. Mississippi Barge Line, 336 U.S. 169, 69 S.Ct. 432, 93 L.Ed. 585, the Supreme Court created an additional exception to the home port doctrine for vessels plying the inland waterways in interstate commerce and held: ‘. . . interstate commerce can be made to pay its way by bearing a nondiscriminatory share of the tax burden which each State may impose on the activities or property within its borders' (p. 174, 69 S.Ct. p. 435). Further, in Standard Oil Co. v. Peck, 342 U.S. 382, 72 S.Ct. 309, 96 L.Ed. 427, the court required the domiciliary state to apportion the taxes on Standard Oil's vessels. This repudiation of the ‘home port’ doctrine to interstate commerce was again sustained when the question of taxation of aircraft arose in Braniff Airways v. Nebraska Board, supra. In Braniff, the court sustained an apportioned tax applied to the flight equipment of Braniff Airways, and noted that due process does not prevent a state from exacting the tax based on the regular daily stops made by the carrier's airplanes within the state. The court noted, 347 U.S. at 600, 74 S.Ct. at 763: ‘We perceive no logical basis for distinguishing the constitutional power to impose a tax on such aircraft from the power to impose taxes on river boats.’

The California Supreme Court has consistently agreed with the Braniff theory. In Slick Airways v. County of Los Angeles, 140 Cal.App.2d 311, 295 P.2d 46, our Supreme Court permitted the assessment of Slick Airways aircraft (used in both interstate and foreign commerce) but held that such an assessment must be based on an apportionment theory. In Flying Tiger Line, Inc. v. County of L. A., 51 Cal.2d 314, 333 P.2d 323, our Supreme Court held that the Flying Tiger Line, Inc., a Delaware corporation with its principal place of business in the County of Los Angeles, could not be taxed upon the full value of its aircraft that were regularly flown in interstate and foreign commerce, but that such tax could be levied only on an apportioned basis.

Sea-Land relies on Scandinavian Airlines System, Inc. v. County of Los Angeles, 56 Cal.2d 11, 14 Cal.Rptr. 25, 363 P.2d 25, cert. den. 368 U.S. 899, 82 S.Ct. 175, 7 L.Ed.2d 94, where the court held that aircraft, belonging to a foreign domiciliary and flying exclusively in foreign commerce do not obtain a taxable situs in the one port in the United States where they have regular contact but are subject to taxation only under the ‘home port’ doctrine. Scandinavian Airlines, supra, is clearly distinguishable from the case at bar, as it involved aircraft owned by citizens of a foreign county and was based in part on international treaties between the United State and foreign countries. Sea-Land is a domestic corporation whose containers move across the nation, as well as across the seas. This distinction was clearly pointed out in the Scandinavian Airlines, supra, at page 30, 14 Cal.Rptr. at page 36, 363 P.2d at page 36:

‘By placing reliance on these decisions, the majority seemed to have been of the view that the Flying Tiger airplanes were to be treated as if they were engaged in interstate commerce. The case cannot be considered authority for the proposition that airplanes flying only in foreign commerce will be taxed on either the ‘home port’ or the apportioned basis.' (Emphasis ours.)

The court continued at 31, 14 Cal.Rptr. at 37, 363 P.2d at 37: ‘Neither state nor federal courts have as yet been called upon to determine the application of these principles to domestically owned and based airplanes flying in foreign commerce, other than in the Flying Tiger case, which, for the reasons already discussed, is not here controlling.’ To apply the rationale of the Scandinavian Airlines case to the instant case would completely disregard Flying Tiger Lines, supra.

Sea-Land's containers have a daily contact with the County and have obtained a taxable situs other than their ‘home port’ by such permanency of location and use within the taxing jurisdiction as recognized in Scandinavian Airlines, supra, where our Supreme Court held at 30, 14 Cal.Rptr. at 36, 363 P.2d at 36: ‘Although movable personalty is generally held to be taxable only at its owner's place of residence, it may attain a tax situs different from such place by reason of permanency of location or use within the taxing jurisdiction; . . .’

Furthermore, the facts present a picture of use by Sea-Land of its containers as storage as those containers that are not immediately placed on trucks are stored in the Sea-Land terminal area. Clearly, these containers cease to be instruments of commerce when they are taken off the ship and used for a purpose that is inconsistent with their use on a ship.

Sea-Land also cites 19 Code of Federal Regulations 1041a(a)(1), 1041a(3) and 1041a(f) (set forth below).3 However, these regulations merely exempt the containers from the levy of a custom duty every time the containers arrive in a port. They do not stand for the proposition that containers are taxable only at the owner's ‘home port’ rather than in the several states on an apportioned basis. Further, Sea-Land contends that a decision based upon the nationality of the owner would lead to the conclusion that the state could tax the containers of American carriers in foreign commerce but not the containers of their foreign competitors, thus disadvantaging carriers based in sister states, which is clearly contrary to the intent of federal law. The conclusion cannot follow from a reading of the Scandinavian Airlines case, supra, that clearly stands for the proposition that aircraft flying in foreign commerce should be taxed only by authorities of its own nation and not the authorities in a foreign nation.

Sea-Land next argues that since its vessels are designed specifically for the use of the cargo containers, the cargo containers are an integral part of Sea-Land's vessels. However, the fact that the carriage of cargo by use of the containers represents the most efficient use of Sea-Land's vessels does not mean that Sea-Land's vessels cannot function without the containers. Sea-Land has stipulated that the chassis on which the containers rest during land travels are also specifically designed for Sea-Land's containers. Carrying this reasoning to its logical conclusion, Sea-Land, when licensing its chassis, would be required to pay an additional license fee attributable to the weight or value of the container. Sea-Land, however, admits that no such fee has been charged on its containers. Thus, on land, as at sea, Sea-Land's specially designed containers merely expeditiously facilitate the transportation of cargo from point of origin to point of destination without the necessity of unloading the cargo.

Sea-Land, citing Leather's Best, Inc. v. S.S. Mormaclynx, 451 F.2d 800, 815 (CCA 2, 1971), also attempts to characterize its containers as a part of a ship. That case dealt with the question as to what was the ‘package’ to which the carrier's liability extended, the ‘container’ or the manufacturer's packages contained therein. In this regard, the court stated at 815: ‘Still we cannot escape the belief that the purpose of § 4(5) of COGSA was to set a reasonable figure below which the carrier should not be permitted to limit his liability and that ‘package’ is thus more sensibly related to the unit in which the shipper packed the goods and described them than to a large metal object, functionally a part of the ship, in which the carrier caused them to be ‘contained.”

Sea-Land next maintains that its containers are exempted under the export-import clause (art. I, §§ 9, cl. 5, 10. cl. 2) of the U.S. Constitution. This contention is likewise without merit as the constitutional immunity accorded to exports attaches only to the commodity that is in the export stream and committed to a foreign destination. Thus, the cases repeatedly refer to the ‘export journey’ and hold that one test as to whether the goods have commenced this journey is whether or not the goods have been delivered to a common carrier for transportation. As Sea-Land's containers are instrumentalities of commerce that journey in interstate and foreign commerce rather than having as an ultimate destination a foreign port or nation, the containers are clearly not goods or commodities in the import-export stream, but a part of the transportation facilities. This distinction was recently recognized in Volkswagen Pacific, Inc. v. City of Los Angeles, 7 Cal.3d 48, 55, 101 Cal.Rptr. 869, 496 P.2d 1237, where our court noted that containers are ‘means of transportation’ and discussed the distinction between a container and the ‘separate parcels contained in it.’

Accordingly, we conclude that the court below properly concluded that the containers were subject to the personal property tax on the cargo containers present in the jurisdiction on the lien date. In view of this conclusion, it is not necessary to discuss in detail the remaining contention pertaining to the interest rate applicable to Sea-Land's recovery.

The judgment is affirmed.


1.  ‘(a) Movable property is all property which is intended to be, and is, moved from time to time from one location to another. Such property may be in-transit, consigned, or leased, and under such circumstances its situs is to be determined by reference to section 203 or 204.‘Movable property has situs where located on the lien date if it has been in the county for more than 6 of the 12 months immediately preceding the lien date and if it is to remain in or be returned to the county for any substantial period during the 12 months immediately succeeding the lien date. Property which has been in the county for less than 6 of the 12 months immediately preceding the lien date, but which is committed to use in the county for an indeterminate period or for more than six months, has situs there whether the use extends through or commences with the lien date.‘Property which does not have situs where located on the lien date pursuant to the previous paragraph has situs at the location where it is normally returned between uses or, if there is no such location, at the principal place of business of the owner.’

2.  Section 205 was adopted by the State Board of Equalization on February 7, 1968, effective March 14, 1968. Since the effective date of section 205 was subsequent to the lien date for two of the years in question, 1967 and 1968, and further, since tax statutes are to be applied prospectively only in the absence of language expressly making them retroactive (46 Cal.Jur.2d 520; City of Oakland v. Whipple, 44 Cal. 303, 305), the rule could not apply for the years 1967 and 1968 here in issue.

3.  1041a(a)(1): ‘Lift vans, cargo vans, shipping tanks, skids, pallets, caul boards, and cores for textile fabrics, arriving (whether loaded or empty) in use or to be used in the shipment of merchandise in international traffic are hereby designated as ‘instruments of international traffic’ within the meaning of section 322(a), Tariff Act of 1930, as amended. The Commissioner of Customs is authorized to designate as instruments of international traffic, in decisions to be published in the weekly Customs Bulletin, such additional articles or classes of articles as he shall find should be so designated. Such instruments may be released without entry or the payment of duty, subject to the provisions of the section.'1041a(3): ‘As used in this section, ‘instruments of international traffic’ includes the normal accessories and equipment imported with any such instrument which is a ‘container’ as defined in Article 1 of the Customs Convention on Containers.'1041a(f): ‘Except as provided in paragraph (i) of this section, no part of this section precludes (1) the use of an instrument in picking up and delivering loads at intervening points in the United States while en route between the port of arrival and the point of destination of its imported cargo or (2) such use of the instrument while en route from such point of destination of imported cargo to a point where export cargo is to be loaded or to an exterior port of departure by a reasonably direct route to, or nearer to, the place of such loading or departure, or . . . provided such point-to-point traffic is incidental to the efficient and ecomonical utilization of the instrument in the course of its use in international traffic. Such use does not constitute a diversion to unpermitted point-to-point local traffic within the United States or a withdrawal of an instrument in the United States from its use as an instrument of international traffic under this section.’

TAYLOR, Presiding Justice.

KANE and ROUSE, JJ., concur.

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Docket No: Civ. 30758.

Decided: January 22, 1974

Court: Court of Appeal, First District, Division 2, California.

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