No. 95-591

In the Supreme Court of the United States

OCTOBER TERM, 1995

UNITED STATES OF AMERICA, PETITIONER

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION

PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

DREW S. DAYS, III
Solicitor General

LORETTA C. ARGRETT
Assistant Attorney General

LAWRENCE G. WALLACE
Deputy Solicitor General

KENT L. JONES
Assistant to the Solicitor General

GARY R. ALLEN
ERNEST J. BROWN
Attorneys

Department of Justice
Washington, D.C. 20530
(202) 514-2217
    
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QUESTION PRESENTED

Section 4371 of the Internal Revenue Code, 26
U.S.C. 4371, imposes a tax of four cents per dollar on
casualty insurance premiums paid to a foreign in-
surer for the risks of a domestic insured that are
"wholly or partly within the United States" (26
U.S.C. 4372(d)(1)). The question presented in this
case is:

Whether, as applied to casualty insurance for losses
incurred during the shipment of goods from locations
within the United States to purchasers abroad, the
tax imposed by Section 4371 of the Internal Revenue
Code violates the Export Clause of the Constitution
of the United States (U.S. Const. Art. I, 9, Cl. 5).

(I)

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TABLE OF CONTENTS

Page

Opinions below . . . . 1
Jurisdiction . . . . 1
Constitutional and statutory provisions involved . . . . 2
Statement . . . . 4
Reasons for granting the petition . . . . 12
Conclusion  . . . . 31
Appendix A . . . . 1a
Appendix B . . . . 12a
Appendix C . . . . 31a
Appendix D . . . . 32a
Appendix E . . . . 34a

TABLE OF AUTHORITIES

Cases:

A.G. Spalding & Bros. v. Edwards, 262 U.S. 66
(1923) . . . . 21-22
Almy v. California, 65 U.S. (24 How.) 169 (1861) . . . . 19
Anglo-Chilean Nitrate Sales Corp. v. Alabama,
288 U.S. 218 (1933) . . . . 18
Board of Trustees v. United States, 289 U.S. 48
(1933) . . . . 30
Brown v. Maryland, 25 U.S. (12 Wheat.) 419
(1827) . . . . 15, 16, 17
Canton R.R. v. Rogan, 340 U.S. 511 (1951) . . . . 22
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
(1977) . . . . 21, 22, 24, 25
Cook v. Pennsylvania, 97 U.S. 566 (1878) . . . . 18
Cornell v. Coyne, 192 U.S. 418 (1904) . . . . 16, 19
Crew Levick Co. v. Pennsylvania, 245 U.S. 292
(1917) . . . . 22
Crutcher v. Kentucky, 141 U.S. 47 (1891) . . . . 20
Department of Revenue of Washington v. Associa-
tion of Washington Stevedoring Cos., 435 U.S. 734
(1978) . . . . 9, 15, 22, 25, 26, 27, 28

(III)

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IV

Cases-Continued:              

Page

DiSanto v. Pennsylvania, 273 U.S. 34 (1927) . . . . 20-21
Fairbank v. United States, 181 U.S. 283 (1901) . . . . . 19
Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824) . . . . 29-30
Hooven & Allison Co. v. Evatt, 324 U.S. 652
(1945) . . . . 18
Joseph v. Carter & Weekes Stevedoring Co., 330 U.S.
422 (1947) . . . . 22
Kosydar v. National Cash Register Co., 417 U.S.
62 (1974) . . . . 16
License Cases, 46 U.S. (5 How.) 504 (1847) . . . . 17
Limbach v. Hooven & Allison Co., 466 U.S. 353
(1984) . . . . 27
Low v. Austin, 80 U.S. (13 Wall.) 29 (1872) . . . . 17, 18
May v. New Orleans, 178 U.S. 496 (1900) . . . . 18
Memphis Steam Laundry Cleaner, Inc. v. Stone,
342 U.S. 389 (1952) . . . . 20
Michelin Tire Corp. v. Wages, 423 U.S. 276
(1976) . . . . 9, 16, 22, 23, 24, 27
Nippert v. City of Richmond, 327 U.S. 416 (1946) . . . . 21
Pace v. Burgess, 92 U.S. 372 (1876) . . . . 18
Puget Sound Stevedoring Co. v. State Tax Comm'n,
302 U.S. 90 (1937) . . . . 22
Robbins v. Shelby County Taxing District, 120 U.S.
489 (1887) . . . . 20
Rodriguez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477 (1989) . . . . 9, 10, 13
Spector Motor Service, Inc. v. O'Connor, 340 U.S.
602 (1951)  . . . . 21, 25
Thames & Mersey Marine Ins. Co. v. United States,
237 Us. 19 (1915)  . . . . 9, 13, 20, 21
Turpin v. Burgess, 117 U.S. 504 (1886)  . . . . 16, 19
United States v. American Bar Endowment,
477 U.S. 105 (1986) . . . . 14
United States v. Goodyear Tire & Rubber Co.,
493 U.S. 132 (1989) . . . . 14

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V

Cases-Continued              

Page

United States v. Hill, 113 S. Ct. 941 (1993) . . . . 14
United States v. Hvoslef 237 U.S. 1 (1915) . . . . 16, 20
United States v. Marigold, 50 U.S. (9 How.) 560
(1850) . . . . 30
United States v. The William, 28 Fed. Cas. 614
(D. Mass. 1808) (No. 16,700) . . . . 30
Western Live Stock v. Bureau of Revenue, 303 U.S.
250 (1938) . . . . 22
Youngstown Sheet & Tube Co. v. Bowers, 358 U.S.
534 (1959) . . . . 18

Constitution, statutes and regulation:

U.S. Const.:
Art. I:
8, Cl. 3 (Commerce Clause) . . . . 2, 20, 21, 24, 25, 29
9, Cl. 5 (Export Clause) . . . . passim
10, Cl. 2 (Import-Export Clause) . . . . passim
Act of Aug. 8, 1882, ch. 468, 22 Stat. 372 . . . . 18
Internal Revenue Code (26 U.S.C.):
864(c) . . . . 4
882(a)(1) . . . . 4
4371 . . . . passim
4372 . . . . 3
4372(a) . . . . 3, 5
4372(d)(1) . . . . 3, 5, 12, 14-15
4373 (l982) . . . . 4
4373(1) (1982) . . . . 4, 5
4374 . . . . 4, 5, 8
4461 (1988 & Supp. V 1993)  . . . . 13, 14
4461(a) . . . . 13
4461(b) (Supp. V 1993) . . . . 13
4462(a)(1) . . . . 13
4462(f)(2) . . . . 14

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VI

Statutes and regulation-Continued:        

Page

War Revenue Act of 1898, ch. 448, 30 Stat. 448 . . . . 19, 20
26: 
30 Stat. 459 . . . . 19
30 Stat. 460 . . . . 20
30 Stat. 461 . . . . 20
War Revenue Act of 1917, ch. 63,  600(f) 40 Stat.
316-317 . . . . 21
28 U.S.C. 1295(a)(5) . . . . 14
28 U.S.C. 1581(a) . . . . 14
26 C.F.R. 46.4371-2(a) . . . . 5

Miscellaneous:

2 M. Farrand, The Records of the Federal Convention
of 1787 (1966) . . . . 29
H.R. Rep. No. 2333, 77th Cong., 2d Sess. (1942) . . . . 5, 15, 30
C. Warren, The Making of the Constitution (reprint
1993) (1928) . . . . 28

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In the Supreme Court of the United States
      
OCTOBER TERM, 1995

No.

UNITED STATES OF AMERICA, PETITIONER
         
v.

INTERNATIONAL BUSINESS MACHINES CORPORATION

PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

The Solicitor General, on behalf of the United
States of America, petitions for a writ of certiorari to
review the judgment of the United States Court of
Appeals for the Federal Circuit in this case.
      
OPINIONS BELOW

The opinion of the court of appeals (App., infra, 1a-
11a) is reported at 59 F.3d 1234. The opinion of the
Court of Federal Claims (App., infra, 12a-30a) is
reported at 31 Fed. Cl. 500.
       
JURISDICTION

The judgment of the court of appeals (App., infra,
31a) was entered on July 10, 1995. The jurisdiction of
this Court is invoked under 28 U.S.C. 1254(1).

(1)

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2

CONSTITUTIONAL AND STATUTORY     
PROVISIONS INVOLVED

1. The Constitution of the United States provides,
in relevant part:

a. Art. I,  8, Cl. 3:

The Congress shall have Power * * * To
regulate Commerce with foreign Nations, and
among the several States, and with the Indian
Tribes.

b. Art. I, 9, Cl. 5:

No Tax or Duty shall be laid on Articles
exported from any State.

c. Art. I, 10, Cl. 2:

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 it's in-
spection Laws * * *.

2. The Internal Revenue Code provides, in relevant
part:

a. 26 U.S.C. 4371:

There is hereby imposed, on each policy of
insurance, indemnity bond, annuity contract,
or policy of reinsurance issued by any foreign
insurer or reinsurer, a tax at the following
rates:

(1) 4 cents on each dollar, or fractional
part thereof, of the premium paid on the
policy of casualty insurance or the indem-

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3

nity bond, if issued to or for, or in the name
of, an insured as defined in section 4372(d);

* * * * *

b. 26 U.S.C. 4372:

(a) For purposes of section. 4371, the term
"foreign insurer or reinsurer" means an
insurer or reinsurer who is a nonresident
alien individual, or a foreign partnership, or
a foreign corporation. * * *

(b) For purposes of section 4371(1), the
term "policy of casualty insurance" means
any policy (other than life) or other in-
strument by whatever name called whereby
a contract of insurance is made, continued, or
renewed.   

* * * * *

(d) For purposes of section 4371(1), the
term "insured" means-

(1) a domestic corporation or part-
nership, or an individual resident of the
United States, against, or with respect to,
hazards, risks, losses, or liabilities wholly
or partly within the United States, * * *

* * * * *

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4

c. 26 U. S. C. 4373(1982): 1.

The tax imposed by section 4371 shall not
apply to-

(1) Any policy, indemnity bond, or
annuity contract signed or countersigned
by an officer or agent of the insurer in a
State, or in the District. of Columbia,
within which such insurer is authorized
to do business; * * *

* * * * *

d. 26 U.S.C. 4374:

The tax imposed by this chapter shall be
paid, on the basis of a return, by any person who
makes, signs, issues, or sells any of the docu-
ments and instruments subject to the tax, or for
whose use or benefit the same are made, signed,
issued, or sold. * * *

STATEMENT

1. Respondent International Business Machines
Corporation brought this suit in the Court of Federal
Claims to obtain a refund of $1.5 million in taxes
assessed under Section 4371 of the Internal Revenue

___________________(footnotes)

1 This provision was amended in 1988 to conform its
language to terminology elsewhere employed by Congress to
describe activities that are "effectively connected" to activities
within the United States and are therefore subject to the
federal income tax. See 26 U.S.C. 864(c), 882(a)(1).  The
amendment does not alter the application of the statute in the
context of this case.

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5

Code. IBM does not dispute that the taxes were
correctly assessed under the statute. Instead, IBM
contends that the statute is unconstitutional as
applied to the facts of this case.
a. Section 4371 of the Internal Revenue Code, 26
U.S.C. 4371, imposes a tax of four cents per dollar on
casualty insurance premiums paid to a foreign in-
surer for the risks of a domestic insured that are
"wholly or partly within the United States" (26
U.S.C. 4372(d)(1)). 2. The tax is to be paid by "any
person * * * for whose use or benefit" the policy is
"made, signed, issued, or sold." 26 U.S.C. 4374.
Section 4371 was enacted in 1942 to "eliminate an
unwarranted competitive advantage now favoring
foreign insurers" who are not subject to the federal
income tax. H.R. Rep. No. 2333, 77th Cong., 2d Sess.
61 (1942). The tax therefore does not apply if the
insurance policy issued by the foreign insurer is
"signed or countersigned by an officer or agent of the
insurer in a State, or in the District of Columbia,
within which such insurer is authorized to do
business." 26 U.S.C. 4373(1) (1982). See also note 1,
supra; 26 C.F.R. 46.4371-2(a).
b. IBM manufactures a variety of business prod-
ucts that it sells throughout the world.  During
the period involved in this case, IBM shipped prod-
ucts for international sales from its manufacturing
facilities in Arizona, California, Colorado, Florida,
Minnesota, New York, North Carolina, Virginia and
Texas (App., infra, 13a-14a). IBM made its inter-

___________________(footnotes)

2 The term "foreign insurer " is defined to mean an insurer
"who is a nonresident alien individual, or a foreign partnership,
or a foreign corporation" (26 U.S.C. 4372(a)).

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6

national sales through a network of more than one
hundred wholly owned subsidiaries (id. at 14a-15a):

Sales outside the United States of IBM prod-
ucts manufactured within the United States
were accomplished by a purchase order to IBM
from its foreign subsidiary, under which IBM
billed the subsidiary and generally shipped the
goods directly to the subsidiary's customer.
Lower priced goods might be shipped to a
consolidation center in the foreign country, and
maintained as inventory by the foreign subsidiary
to fill future orders. * * *

Shipment of products from the United States to
the foreign customer began by truck on a com-
mon carrier (from the manufacturing plant or
warehouse). The goods generally were destined
for a United States airport (typically, John F.
Kennedy in New York for shipments to Europe
and the Middle East, Miami International for
shipments to Latin America, and San Francisco
International for shipments to the Far East), but
some shipments were by sea.  While traveling
within the United States, the products would
typically be unloaded at one or more intermediate
freight forwarder locations, where , they would
typically remain for two to five days, but could
remain * * * as long as thirty days. The prod-     
ucts would be reloaded at the freight forwarders'
facilities and continue ultimately to the point of
embarkation, where they were loaded onto an
airplane or a ship. Once the products reached the
air or sea port in the foreign country, they were

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7

unloaded, cleared customs, and loaded on trucks
for shipment to their final destination.

The terms of sale specified that title to the goods, and
risk of loss, passed from IBM to its foreign sub-
sidiaries only when the. goods cleared customs in
the foreign country. The foreign subsidiaries were
nonetheless required to bear the cost of insuring the
products against damage or loss during the entire
shipment (App., infra, 15a).
The insurance obtained for these shipments was
"point to point": it covered the risk of damage or loss
during transportation of the goods from the IBM
facility in the United States to the point of foreign
delivery. When IBM made the arrangements, the
insurance was placed with a domestic insurer and
the cost was billed to the foreign subsidiary. When
the foreign subsidiary made the arrangements, the
insurance was often placed with a foreign carrier,
which the subsidiary paid directly. In both situations,
IBM and its foreign subsidiary were listed as joint
beneficiaries on the policies of insurance (App., infra,
15a-16a).
If damage occurred before the goods cleared
customs-while IBM retained title to the goods and
risk of loss-IBM received the insurance proceeds
directly under these policies. If the loss occurred
after the goods cleared customs-when title and risk
of loss had passed to the importing foreign subsidiary
-the insurance proceeds were paid to the subsidiary.
In the latter event, the proceeds were used by the
subsidiary to pay the full purchase price of the
damaged products to IBM or, if IBM had already been
paid, to reimburse the subsidiary for its loss (App.,
infra, 16a).

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8

e. IBM filed federal excise tax returns for 1975
through 1984 but did not report any liability under
Section 4371 of the Internal Revenue Code. On audit,
the Internal Revenue Service determined that the
premiums paid to foreign insurers were subject to the
tax imposed by Section 4371 and that, pursuant to
Section 4374, IBM was liable for the tax as a named
beneficiary of the insurance policies.
The foreign subsidiaries reported to IBM that,
during 1980, they had paid premiums of $2,065,137 to
foreign insurers for "point to point" insurance for
shipments of products that IBM manufactured in the
United States. The tax applicable to those premiums
under Section 4371 of the Code-calculated by mul-
tiplying the premiums by four percent-is $82,605.
The parties stipulated that the foreign insurance
premiums attributable to shipments of IBM products
in each of the years 1975-1979 and 1981-1984 were the
same as in 1980. The IRS therefore assessed the
same amount of tax for each of those years under
Section 4371 (App., infra, 18a).
2. IBM paid the resulting assessments and fried
claims for refund. When those claims were denied,
IBM commenced this refund suit in the Court of
Federal Claims.
a. IBM contended that the tax imposed by Section
4371 of the Internal Revenue Code-as applied to
insurance premiums for losses occurring during the
shipment of goods from locations within the United
States to purchasers abroad-violates the Export
Clause of the Constitution, which provides that "[n]o
Tax or Duty shall be laid on Articles exported from
any State." U.S. Const. Art. I, 9, Cl. 5. IBM
contended that the tax on insurance for export

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9

shipments is a "Tax or Duty * * * laid on Articles
exported" and is invalid under the specific holding of
this Court in Thames & Mersey Marine Ins. Co. v.
United States, 237 U.S. 19 (1915). In Thames &
Mersey, the Court held a federal stamp tax on policies
insuring marine risks unconstitutional as applied to
shipments for export.
The United States contended that the analysis of
Thames & Mersey is no longer valid. The govern-
ment reasoned that subsequent decisions of the
Court, such as Michelin Tire Corp. v. Wages, 423
U.S. 276 (1976), and Department of Revenue of
Washington v. Association of Washington Steve-
doring Cos., 435 U.S. 734 (1978), require the con-
clusion that the Export Clause does not invalidate a
generally applicable, nondiscriminatory tax that does
not fall uniquely and discretely on articles of export
or export transactions.
b. The Court of Federal Claims held that ap-
plication of the tax imposed by Section 4371 to
insurance premiums for goods in export transit
violates the Export Clause because it "amounts to a
tax on exports" (App., infra, 26a). The court reasoned
that this conclusion follows from the precise holding
of this Court's 1915 decision in Thames & Mersey,
which stated (237 U.S. at 26):

It cannot be doubted that insurance during the
voyage is by virtue of the demands of commerce an
integral part of the exportation.

The Court of Federal Claims emphasized that,
under Rodriguez de Quijas v. Shearson/American
Express, Inc., 490 U.S. 477, 484 (19-89), lower courts
"must adhere to the accepted practice of following
Supreme Court precedent unless the Supreme Court

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10

clearly states that it is overruling earlier cases and
explains why it is doing so" (App., infra, 28a). The
court found no clear evidence that Thames & Mersey
has been overruled or that its analysis has been
discarded by this Court. The court held that Thames
& Mersey therefore remains authoritative and that it
compels the conclusion that the tax imposed by
Section 4371 is unconstitutional as applied in this
case (id. at 29a).
The court acknowledged that this Court's more
recent decisions under the Import-Export Clause in
Michelin Tire and Washington Stevedoring have
upheld application of nondiscriminatory state taxes to
goods and services involved in importation and
exportation. The court concluded, however, that
those decisions could be distinguished on their facts.
The court explained that Washington Stevedoring-
which upheld application of a state gross receipts tax
to a stevedoring company that handled export and
import shipments-concerned "stevedoring" rather
than "insurance" and that "stevedoring is a service
whose value is not necessarily tied to the value of the
goods it serves" (App., infra, 29a). The court further
stated that Michelin Tire-which upheld application
of a state property tax to imported goods located
within the borders of the State-is inapposite because
"in Michelin the (imported goods] had left the import
stream and were * * * thus outside the scope of the
Import-Export Clause" (ibid.).
3. The court of appeals affirmed (App., infra, 1a-
11a). The court noted (id. at 11a) that this Court
has admonished the lower courts that (Rodriguez de
Quijas v. Shearson/American Express Co., 490 U.S.
at 484)

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11

[i]f a precedent of this Court has direct application
in a case, yet appears to rest on reasons rejected
in some other line of decisions, the Court of
Appeals should follow the case which directly
controls, leaving to this Court the prerogative of
overruling its own decisions.

The court of appeals stated that it was therefore
bound to follow Thames & Mersey, and hold the tax
imposed by Section 4371 unconstitutional as applied in
this case, unless subsequent decisions of this Court
"clearly signaled" an intent to, overrule that earlier
decision (App., infra, 8a).
The court of appeals concluded that it was "not so
sure" (App., infra, 8a) that Washington Stevedoring
and Michelin Tire signaled the requisite clear intent
of this Court to abandon the analysis of Thames
& Mersey. The court of appeals did not dispute
that, if an analysis "similar" to that applied un-
der the Import-Export Clause in Michelin Tire and
Washington Stevedoring were applied under the
Export Clause, the holding and reasoning of Thames
& Mersey would be discredited (App., infra, 7a-8a).
Instead, the court stated that it was not certain that a
similar analysis would be applied because there is a
difference in the language of the two Clauses that
could require a different result: the Import-Export
Clause bars States from laying "Imposts or Duties on
Imports or Exports"; the Export Clause bars the
United States from laying any "Tax or Duty * * *
on Articles exported from any State." The court of
appeals stated (id. at 9a-10a): 

Although the [Supreme] Court at first expressed
the view that the "diversity in language" between
the two clauses did not reflect any difference in

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12

"the act which is prohibited," Brown v. Mary-
land, 25 U.S. (12 Wheat.) 419, 425 (1827), in both
Michelin and Washington Stevedoring the Court
has noted and attached significance to the dif-
ference between the narrow term "Imposts and
Duties" * * * and the broader term "Tax" * * *.
See Michelin, 423 U.S. at 290; Washington Steve-
doring, 435 U.S. at 759.

Reasoning that a "tax" that might be permitted
under the "narrow" Language of the Import-Export
Clause might nonetheless be invalid under the
"broader" language of the Export Clause (App., infra,
10a), the court concluded that the recent Import-
Export Clause decisions fail to provide the requisite
clear guidance that would permit a lower court to
"disregard[] a higher court decision that all agree is
binding precedent if it is still valid" (id. at 10a-11a). 3.
The court therefore held "that [its] duty is to follow
Thames & Mersey and hold Section 4371 invalid as
applied" (id. at 1 la).

REASONS FOR GRANTING THE PETITION

The decision in this case holds a federal statute
unconstitutional as applied to a significant, recurring
set of commercial transactions. The court of appeals
concluded that the federal tax on insurance premiums
paid to a foreign insurer for risks that are "wholly
or partly within the United States" (26 U.S.C.
4372(d)(1))-as applied to casualty insurance for
shipments from within the United States to foreign
countries-represents a "Tax or Duty * * * laid on
              
___________________(footnotes)

3 The court of appeals noted that the United States had
conceded that, "if Thames & Mersey is still good law, the
assessments at issue in this case are invalid" (App., infra, 6a).

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13

Articles exported" (U.S. Const. Art. I, 9, Cl. 5) and
therefore violates the Export Clause of the Con-
stitution.  The court stated, in reaching that con-
clusion, that it was compelled to follow this Court's
1915 decision in Thames & Mersey Marine Ins. Co. v.
United States, supra, even though the analysis of
that decision has been placed in question by more
recent decisions of this Court.
Only this Court has "the prerogative of overruling
its own decisions." Rodriguez de Quijas v. Shearson/
American Express Co., 490 U.S. at 484. The Court
has directed lower courts to "follow the case which
directly controls" even when that case "appears to
rest on reasons rejected in some other line of
decisions" (ibid.). As the result, only this Court can
determine whether the considerations that led it to
uphold generally applicable, nondiscriminatory state
taxes under the Import-Export Clause-in Michelin
Tire and Washington Stevedoring-also require that
the generally applicable, nondiscriminatory federal
statute involved in this case be upheld under the
Export Clause of the Constitution.
The question presented in this case is of
substantial recurring importance. The proper scope
of the Export Clause has significance not only for the
tax imposed under Section 4371 but also for other
nondiscriminatory federal taxes of general appli-
cation. For example, Section 4461 imposes on all ship-
pers a "tax on any port use" of 0.125 percent of the
value of all commercial cargo loaded or unloaded in
United States ports. See 26 U.S.C. 4461(a), (b) (Supp.
V 1993), 4462(a)(1). Approximately 700 cases are
currently pending in the United States Court of
International Trade challenging the constitutionality

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14

of that statute under the Export Clause. See United
States Shoe Corp. v. United States, No. 94-11-00668
(Ct. Int. Trade). 4. The Federal Circuit has exclusive
jurisdiction over any appeal from the decision in those
cases. 28 U.S.C. 1295(a)(5).
The Federal Circuit is a court of nationwide juris-
diction.  Since all taxpayers are entitled to pay a
challenged tax and sue for a refund within the Federal
Circuit, it is unlikely that other courts of appeals will
have an opportunity to review this issue under Sec-
tion 4371 or other affected statutes. In similar cir-
cumstances, this Court has recognized the need for
plenary review of Federal Circuit decisions that
present issues of substantial importance. See, e.g.,
United States v. Hill, 113 S. Ct. 941, 945 (1993);
United States v. Goodyear Tire & Rubber Co., 493
U.S. 132, 138 (1989); United States v. American Bar
Endowment, 477 U.S. 105, 109 (1986). Review by this
Court of a decision of the Federal Circuit holding
a statute of Congress unconstitutional is fully
warranted.
1. The tax imposed by Section 4371 of the Internal
Revenue Code is not specifically directed to nor
directly "laid on Articles exported" (U.S. Const. Art.
I, 9, Cl. 5). Instead, it applies to insurance premiums
paid to foreign insurers for any casualty risk that
is "wholly or partly within the United States" (26

___________________(footnotes)
                                               
4 Similar litigation is also pending in the federal district
court in Maryland.  See American Ass'n of Exporters and
Importers, Inc. v. Bentsen, No. L94-1839 (D. Md.). The United
States has moved to dismiss that case on the grounds that
exclusive jurisdiction over cases under Section 4461 lies in the
Court of International Trade. See 28 U.S.C. 1581(a); 26 U.S.C.
4462(f)(2).

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15

U.S.C. 4372(d)(1)). It thus applies without discrim-
ination to "wholly" domestic transactions as well
as to risks that are only "partly" within the United
States. As the House Ways and Means Committee
observed when the statute was enacted in 1942,
Section 4371 is designed to "eliminate an unwar-
ranted competitive advantage now favoring foreign
insurers" who are not subject to the federal income
tax. H.R. Rep. No. 2333, supra, at 61.
As a generally applicable, nondiscriminatory tax
that is not discretely and exclusively imposed on
"Articles exported," the tax imposed under Section
4371 is constitutional. It violates neither the text
nor the object of the Export Clause and is validated by
the recent decisions of this Court. In particular, in
Michelin Tire, the Court "initiated a different ap-
proach to Import-Export Clause cases" that upholds
generally applicable taxes that reach "services
provided * * * to imports, exports, and other goods')
without discrimination. Department of Revenue of
Washington v. Association of Washington Steve-
doring Cos., 435 U.S. at 752, 761. The analysis of
Michelin Tire and Washington Stevedoring applies
equally to challenges to federal taxes under the
Export Clause and, under that analysis, the tax
imposed by Section 4371 should be sustained.
2. a. The Export and Import-Export Clauses
Are Complementary in Scope. In this Court's first
case under either the Import-Export or the Export
Clause, Chief Justice Marshall observed of-the two
Clauses that "[t]here is some diversity in language,
but none is perceived in the act which is prohibited."
Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 445
(1827). That observation has been repeated by this

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16

Court on numerous occasions. 5. In the more nu-
merous cases under the Import-Export Clause and
the less numerous cases under the Export Clause,
the Court has routinely cited cases under the two
Clauses without differentiation. Moreover, the anal-
ysis applied in opinions under the two Clauses has not
varied. 6
b. The "Original Package" Doctrine Under the
Import-Export Clause. In Brown v. Maryland, a
Maryland statute required that importers or whole-
salers of foreign articles or commodities purchase a
license costing $50 to sell such goods. 25 U.S. (12
Wheat.) at 436. Brown was convicted of having im-
ported and sold a package of foreign dry goods without
having obtained a license. In holding that the statute
violated the Import-Export Clause, the Court ex-
plained that a tax on the privilege of sale was, in sub-

___________________(footnotes)

5 See, e.g., Turpin v. Burgess, 117 U.S. 504, 506-507 (1886);
Cornell v. Coyne, 192 U.S. 418, 427 (1904); United States v.
Hvoslef, 237 U.S. 1, 14 91915); Kosydar v. National Cash
Register Co., 417 U.S. 62, 67 n.5 (1974).

6 The suggestion of the court of appeals that the language of
the Export Clause may be "broader" in its prohibitive scope
than the language of the Import-Export Clause (App., infra,
10a) does not withstand analysis. The entire text of the two
Clauses must be considered. The Import-Export Clause pre-
cludes States from imposing "Imposts or Duties on Imports or
Exports"; the Export Clause specifies that no federal "Tax or
Duty shall be laid on Articles exported." U.S. Const. Art. I,
10, Cl. 2; Art. I, 9, Cl. 5. An "impost" on an "export" is
a "tax" on an "Article exported."; a "tax" on an "Article
exported" is an "impost." Under the text of the two Clauses,
it is the charge collected on the item exported that is at issue.
A "tax" that is not "laid on" "Articles exported" does not fall
within the scope of the Export Clause. See Michelin Tire Corp.
v. Wages, 423 U.S. at 293-294; pages 23-24, infra.

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17

stance, a duty upon things imported for sale. Id. at
439. Rejecting the suggestion that this would mean
that imported goods would be perpetually immune
from taxation, the Court stated that an import retains
its "distinctive character" only while in the "original
form or package in which it was imported" (id. at 442).
In the License Cases, 46 U.S. (5 How.) 504 (1847),
Chief Justice Taney acknowledged that a tax directed
at imports would be invalid and did not question the
validity of the "original package" doctrine. But he
concluded that a generally applicable, nondiscrimina-
tory state property tax would be unconstitutional
merely because it also applied to imported goods (id.
at 576):

Undoubtedly a State may impose a tax upon its
citizens in proportion to the amount they are 
respectively worth; and the importing merchant is
liable to this assessment like any other citizen,
and is chargeable according to the amount of his
property, whether it consists of money engaged in
trade, or of imported goods which he proposes to
sell, or any other property of which he is the 
owner. But a tax of this description stands upon a
very different footing from a tax on the thing
imported, while it remains a part of foreign
commerce, and is not introduced into the general
mass of property in the State.

In Low v. Austin, 80 U.S. (13 Wall.) 29 (1872), how-
ever, the Court reached a different conclusion,
holding that a generally applicable California prop-
erty tax could not be imposed upon a shipment of
French champagne held in an importer's warehouse
in the "original package" in which shipped. Id. at 35.
In doing so, the Court neglected to consider the con-

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18

trary conclusion of Chief Justice Taney in the
License Cases, although his approval of the "original
package" doctrine was cited by the Court. Id. at 33-
34. 7
c. The Early Export Clause Cases. The Export
Clause was invoked in Pace v. Burgess, 92 U.S. 372
(1876), by a tobacco manufacturer who, in 1868, was
subject to a federal excise tax on tobacco products.
Although tobacco intended for export was exempt
from the tax, the exemption was subject to the
requirement that packages for export be identified
by an affixed engraved stamp costing 25 cents. The
manufacturer brought suit to recover the price of
the exemption stamps, claiming that they constitut-
ed a prohibited tax on exports. The Court denied
recovery, explaining that the exemption stamps were
designed to prevent fraud and did not represent a tax.
Id. at 375.
In 1882, however, Congress discontinued the charge
for the exemption stamp in a statute that referred to
the stamp as an "export tax." Act of Aug. 8, 1882, ch.
468, 22 Stat. 372. On that basis, another tobacco
manufacturer sued to recover the amounts he had
paid for exemption stamps before the charge was
discontinued. The Court adhered to its decision in
Pace v. Burgess, but with a somewhat different
rationale.  In describing the Export and Import-

___________________(footnotes)

7 The so-called "original package" rule was also followed in
Cook v. Pennsylvania, 97 U.S. 566 (1878), Anglo-Chilean
Nitrate Sales Corp. v. Alabama, 288 U.S. 218 (1933), and
Hooven & Allison Co. v. Evatt, 324 U.S. 652 (1945). See also
May v. New Orleans, 178 U.S. 496 (1900), and Youngstown
Sheet & Tube Co. v. Bowers, 358 U.S. 534 (1959).

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19

Export Clauses, the Court stated (Turpin v. Burgess,
117 U.S. 504, 507 (1886) (emphasis added)):

The prohibition in both cases has reference to the
imposition of duties on goods by reason or because
of their exportation or intended exportation, or
whilst they are being exported. * * * But a
general tax, laid on all property alike, and not
levied on goods in course of exportation, nor
because of their intended exportation, is not
within the constitutional prohibition.

Relying upon the above passage, the Court
subsequently held that a manufacturer of cheese for
export could not-merely from the fact that the
cheese was intended for export-escape liability for
the federal tax of one cent per pound upon that
product. Cornell v. Coyne, 192 U.S. 418, 428 (1904).
The Court explained that the Export Clause "does not
mean that articles exported are relieved from the
prior ordinary burdens of taxation which rest upon all
property similarly situated" (id. at 427).
d. The Decision in Thames & Mersey. The direct
ancestor of Thames & Mersey was Fair bank v.
United States, 181 U.S. 283 (1901). That case involved
a provision of the War Revenue Act of 1898 that
imposed a variety of stamp taxes on written in-
struments, including "bills of lading * * * for any
goods, merchandise, or effects, to be exported from a
port or place in the United States to any foreign port
or place" (ch. 448, 26, 30 Stat. 459). In Fairbank, the
Court held that the stamp tax on bills of lading for
exported goods violated the Export Clause. Invoking
a prior, similar holding under the Import-Export
Clause (Almy v. California, 65 U.S. (24 How.) 169
(1861)), the Court held that the tax upon the bill of

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20

lading was invalid because it was equivalent to a tax
upon the exported articles themselves.
Two cases argued on the same day are the cases
upon which IBM relies. Like Fairbank, they involved
taxes imposed by the War Revenue Act of 1898.
Unlike Fairbank, however, neither tax was imposed
expressly or directly on export transactions. United
States v. Hvoslef, 237 U.S. 1 (1915), involved a federal
stamp tax upon any "Contract or agreement for the
charter of any ship" (26, 30 Stat. 460). Thames &
Mersey, on which IBM most directly relies, involved
a federal stamp tax on policies of marine insurance
"whether against peril by sea or on inland waters"
(26, 30 Stat. 461). Since these statutes did not dif-
ferentiate between domestic voyages and shipments
to foreign ports, it might have been supposed that
they would be sustained as general taxes of neutral
application under the reasoning of Turpin v. Burgess
and Cornell v. Coyne. See page 19, supra.
In Hvoslef, however, the Court instead invoked
Fairbank without acknowledging that the stamp tax
challenged in Hvoslef, unlike the tax challenged in
Fairbank, was of general, not limited, application. In
support of its decision in Hvoslef, the Court also
invoked Robbins v. Shelby County Taxing District,
120 U.S. 489 (1887). Robbins was the first of "a long
line of 'drummer' cases" under the Commerce Clause,
in which the Court held that a State could not impose
a licensing fee on a person who solicited orders for
goods to be shipped from another State. 8. The Court
stated in Robbins (id. at 497):

___________________(footnotes)

8 See Memphis Steam Laundry Cleaner, Inc. v. Stone, 342
U.S. 389, 392 (1952). Robbins had a numerous progeny. See,
e.g., Crutcher v. Kentucky, 141 U.S. 47 (1891); DiSanto

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21

It is strongly urged, as if it were a material
point in the case, that no discrimination is made
between domestic and foreign drummers-those of
Tennessee and those of other states; that all are
taxed alike. But that does not meet the difficulty.
Interstate commerce cannot be taxed at all, even
though the same amount of tax should be laid on
domestic commerce, or that which is carried on
solely within the state.

Having applied Fairbanks and Robbins to immunize
export transactions from broadly applicable taxing
provisions in Hvoslef the Court entered its decision
in Thames & Mersey two weeks later on the author-
ity of Hvoslef. 237 U.S. at 27.
The decisions in Hvoslef and Thames & Mersey
established a pattern that this Court subsequently
followed of immunizing export transactions from
generally applicable federal taxes. For example, when
Congress imposed a general tax on various sporting
goods under the War Revenue Act of 1917, ch. 63,
600(f), 40 Stat. 316-317, the Court invoked Hvoslef
and Thames & Mersey to hold that the Export Clause
prohibited imposition of the tax to a shipment of
baseballs and bats to a purchaser in Venezuela. A.G.

___________________(footnotes)

v. Pennsylvania, 273 U.S. 34 (1927); Nippert v. City of
Richmond, 327 U.S. 416 (1946). Among the more recent was
Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602 (1951),
which this Court overruled in Complete Auto Transit, Inc. v.
Brady, 430 U.S. 274 (1977). See page 25, infra. These deci-
sions concerning the negative implications of the Commerce
Clause are not logically relevant to analysis under the Export
Clause. Although the Commerce Clause is a limitation on the
powers of the States, it confers powers on the United States.
See page 29, infra.

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22

Spalding & Bros. v. Edwards, 262 U.S. 66 (1923). See
also Crew Levick Co. v. Pennsylvania, 245 U.S. 292
(1917) (same under Import-Export Clause). Similarly,
in Puget Sound Stevedoring Co. v. State Tax
Commission, 302 U.S. 90 (1937), and Joseph v. Carter
& Weekes Stevedoring CO., 330 U.S. 422 (1947), the
Court held that gross receipts or sales taxes could
not be imposed upon payments for loading or
unloading ship cargoes transported in interstate or
foreign commerce.
e. The Modern Doctrine. Toward the end of this
period of decisions, there were indications of recon-
sideration. For example, in Western Live Stock v.
Bureau of Revenue, 303 U.S. 250, 254-255 (1938), the
Court heavily qualified, if it did not contradict, the
broad rationale of Robbins on which Hvoslef was
based. And, in Canton R.R. v. Rogan, 340 US. 511
(1951), the Court indicated a revised view of the
proper treatment of taxes upon transactions related
or collateral to importation and exportation when it
wrote (id. at 514-515):

The difference [between this case and cases such
as Spalding] is that in the present case the tax is
not on the goods but on the handling of them at
the port. * * * [W]hen the tax is on activities
connected with the export or import the range of
immunity cannot be so wide.

Full reconsideration finally came in Michelin Tire
Corp. v. Wages, 423 U.S. 276 (1976), Complete Auto
Transit, Inc. v. Brady, 430 U.S. 274 (1977), and De-
partment of Revenue of Washington v. Association
of Washington Stevedoring Cos., 435 U.S. 734 (1978).
See also Limbach v. Hooven & Allison Co., 466 U.S.
353 (1984). Those decisions expressly overruled many

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23

of the decisions previously discussed and, without
cataloging them in detail, rejected other decisions
that had disposed of the same issues in the same
fashion.
(i) Michelin Tire involved the constitutionality of
a state property tax as applied to imported tires held
in the importer's warehouse in Georgia. Invoking the
"original package" doctrine applied in Low v. Austin,
the importer maintained that its imported tires were
exempt from state tax, The Court rejected that
claim, holding that (423 U.S. at 279)

Georgia's assessment of a nondiscriminatory ad
valorem property tax against the imported tires is
not within the constitutional prohibition against
laying "any Imposts or Duties on Imports * * *",
and * * * insofar as Low v. Austin, 13 Wall. 29
(1872) is to the contrary, that decision is over-
ruled.

In reaching that decision, the Court reviewed the
text and object of the Import-Export Clause, as well
as its historical origin, 423 U.S. at 283-284. The
Court noted that the considerations that gave rise to
the Clause were that: (i) the federal government must
speak with one voice in regulating commercial
relations with foreign governments, and state tariffs
on exports and imports could conflict with that
requirement; (ii) import revenues were to be- the
major source of revenue to the federal government
and should not be diverted to the States; and (iii)
harmony among the States would be disrupted if the
seaboard States could tax goods passing through
their harbors to or from their inland neighbors. Id.
at 285. The Court observed that nondiscriminatory
property taxes interfere with none of the constitu-

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24

tional concerns of the Import-Export Clause. Id. at
286-290.
Addressing the specific text of the Import-Export
Clause in Michelin Tire, the Court "decline[d] to
presume it was intended to embrace taxation that
does not create the evils the Clause was specifically
intended to eliminate" (423 US. at 293-294). The
Court explained that the "original package" language
of Brown v. Maryland had been misunderstood (id. at
298):

[I]t is clear that the Court's view in Brown [v.
Maryland] was  that merely because certain
actions taken by the importer on his imported
goods would so mingle them with the common
property within the State as to "lose their
distinctive character as imports" and render them
subject to the taxing power of the State, did not
mean that in the absence of such action, no
exaction could be imposed on the goods. Rather,
the Court clearly implied that the prohibition
would not apply to a state tax that treated
imported goods in their original packages no
differently from the "common mass of property in
the country"; that is, treated it in a manner that
did not depend on the foreign origins of the goods.

The Court further noted that the opinion in Low v.
Austin had misread Chief Justice Taney's opinion in
the License Cases which "makes crystal clear that
the prohibition applied only to state exactions upon
imports as imports and did not apply to nondiscri-
minatory ad valorem property taxes." 423 U.S. at 300.
See pages 16-17, supra.
(ii) In Complete Auto Transit, Inc. v. Brady, 430
U.S. 274 (1977), the Court held that the Commerce

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25

Clause does not bar application of a generally appli-
cable state tax to the gross revenues of a company
engaged exclusively in the transportation of motor
vehicles in interstate commerce. The Court recon-
sidered and overruled its decision in Spector Motor
Service, Inc. v. O'Connor, 340 U.S. 602 (1951), which,
following Robbins, had held that Connecticut could
not impose a tax for the privilege of engaging in
interstate commerce. See page 20 & note 8, supra.
The Court noted in Complete Auto that it was
unquestioned that the activity engaged in by the
taxpayer was sufficiently connected to the State to
justify a tax, that the tax was fairly related to the
benefit provided to the taxpayer, that the tax did not
discriminate against interstate commerce, and that
the tax was not unfairly apportioned. 430 U.S. at 287.
Under those circumstances, the Court concluded that
"the Spector rule does not address the problems with
which the Commerce Clause is concerned" and over- 
ruled that decision. Id. at 288. The Court's holding
in Complete Auto necessarily, albeit implicitly, over-
ruled Robbins and the "long line of 'drummer' cases"
that that decision had spawned. See note 8, supra.
(iii) In Department of Revenue of Washington v.
Association of Washington Stevedoring Cos., 435
U.S. 734 (1978), the Court considered the State of
Washington's renewed attempt to apply its gross
receipts tax to the proceeds generated from loading
and unloading ocean-going vessels.  In the earlier
decisions in Puget Sound and Carter & Weekes,
the Court had invoked the Commerce Clause to
hold unconstitutional the application of the State's
tax to the proceeds of stevedoring cargoes in inter-
state and foreign commerce. See page 22, supra. In

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26

Washington Stevedoring, however, the Court had
little difficulty, after. Complete Auto, in overruling
those decisions insofar as the Commerce Clause was
involved. 435 U.S. at 743-751.
The Import-Export Clause required separate con-
sideration. Michelin Tire had inquired whether a
generally applicable tax that does not favor or
disfavor imports or exports conflicts with any of the
policies leading to the adoption of the Import-Export
Clause and had upheld the application of the property
tax to imported goods, whether or not in the original
package, when it found no friction or inconsistency.
A similar inquiry led the Court to conclude in
Washington Stevedoring that the generally appli-
cable Washington tax on gross receipts from
stevedoring offended none of the policies of the
Import-Export Clause. 435 U.S. at 754-755. The
Court specifically rejected the suggestion that the
fact that Michelin Tire dealt only with goods no
longer in transit required that the cases be
differentiated. Id. at 755-757. The Court noted that
Canton Railroad demonstrated that the analysis that
prevailed in Michelin Tire was not to be discarded
simply because the goods were in transit.  Ibid.
Moreover, the fact that Michelin Tire involved only
imports while the Washington tax related to proceeds
from stevedoring exports as well did not call for a
different conclusion. Id. at 757-758. The Court con-
cluded that the considerations that led to the deci-
sion in Michelin Tire were equally applicable to the
Washington tax. Ibid. 9.

___________________(footnotes)

9 Justice Powell concurred separately in Washington
Stevedoring. He concluded that the controlling factor in that
case, as in Michelin Tire, is that local taxpayers should not be

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27

(iv) In Limbach v. Hooven & Allison Co., 466 U.S.
353 (1984), the Court made clear that more than just a
few named decisions had been overruled by Michelin
Tire and Washington Stevedoring. Instead, in over-
ruling an earlier decision that had invalidated the
application of a "nondiscriminatory ad valorem per-
sonal property tax to imported fibers still in their
original packages" (id. at 354), the Court emphasized
that the reasoning that underlay those earlier de-
cisions had been "repudiated" (id. at 362). The fact
that the Court in Michelin Tire did not explicitly
name all of the cases whose reasoning had been re-
jected does not indicate that those older decisions
retain "current validity." Id. at 361.
f. Application of the Modern Doctrine to the
Export Clause. There is no reason why the more
recent decisions of this Court should not be auth-
oritative with respect to the Export Clause, and
every reason why they should be. As we have noted,
beginning with Brown v. Maryland and periodically
since then, the Court has stated that the two Clauses
have the same scope. Moreover, cases under the two
Clauses have been cited by the Court without
differentiation. Most recently, in Washington Steve-
doring, the Court cited Spalding (an Export Clause
case) along with cases involving state taxes and the
Import-Export Clause to illustrate reasoning that
was no longer approved. 435 U.S. at 752.
As this Court explained in Washington Steve-
doring, the Court in Michelin Tire "surveyed the
               
___________________(footnotes)

required to subsidize the services used and enjoyed by
importers and exporters; instead, the consumers of such goods
should pay for the services rendered by government just as
they paid transportation costs. 435 U.S. at 761-764.

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28

history and purposes of the Import-Export Clause to
determine, for the first time, which taxes fell within
the absolute ban on 'Imposts and Duties'" (435 U.S.
at 751). The Court concluded from this examination
that a generally applicable tax that merely falls, with-
out discrimination, on imports and exports as well
as other goods, does not violate the Import-Export
Clause. 423 U.S. at 302.
An examination of the history and objectives of the
Export Clause similarly demonstrates that the
generally applicable, nondiscriminatory tax imposed
by Section 4371 of the Internal Revenue Code does not
violate that Clause. As the court of appeals noted
(App., infra, 4a), the Export Clause reflected the fear
of the agricultural and exporting southern States
that the more populous and numerous northern
States would impose discriminatory taxes on the
export of their products. The debate is well described
in Charles Warren's classic The Making of the
Constitution 570-574, (reprint 1993) (1928). 10. See also

___________________(footnotes)

10 The central portion of Warren's description is as follows
(at 571-572) (footnote omitted):

The question of a prohibition of taxes and duties on exports
now brought these sectional differences into an outbreak in
the Convention.

It is to be noted, as a preliminary to consideration of
this clash, that the Committee's proposal to forbid export
duties was a very radical departure from the theory and
practice theretofore prevailing in governmental taxation.
As has been well said: "To attempt to organize a Govern-
ment without the power to tax exports was an innovation.
From time immemorial, every nation had taxed whatever
productions of its soil its inhabitants might presume to
export. In the old economy, its maxim was to tax exports
but to admit imports free." The prohibition of export duty

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29

App., infra, 4a; Madison's Notes of Debates in the
Federal Convention, reproduced in 2 M. Farrand,
The Records of the Federal Convention of 1787, at
305-308, 359-363, 441-442 (1966) (proceedings of August
16, 21, 28, 1787).
It is beyond question that the tax imposed by
Section 4371 is generally applicable and discriminates
against no region or product. It applies equally to
fire, storm, flood, and earthquake insurance, and to
insurance against damage or loss for shipments from,
for. example, San Francisco to Alaska, Hawaii, or
Guam, or from New York to Miami or Galveston, as it
does to insurance covering IBM's shipments to its
foreign subsidiaries or their customers. Moreover,
the United States-like the States-assists and
protects IBM's shipments over highways within the
United States (financed in substantial part by the
federal government) as well as in the movement of
such goods by sea or air beyond our borders.
It must also be recognized that the Commerce
Clause gives Congress comprehensive authority over
exports and imports. It was established early that
Congress had the power to embargo or otherwise
control the export of such goods or materials as it
chose. Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 191-192

___________________(footnotes)

now inserted in the new Constitution was not based,
however, on any change in economic theory but on purely
political and sectional conditions. The South, being agri-
cultural and having three great crops which grew nowhere
else,-tobacco, rice, and indigo,-feared that the possession
of this power by Congress would enable the North to
discriminate against it, by a tax which would operate only
on the peculiarly Southern articles of export. This fear
had been expressed early in the Convention.

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30

(1824); United States v. Marigold, 50 U.S. (9 How.)
560, 566-567 (1850); United States v. The William, 28
Fed. Cas. 614, 620-623 (D. Mass. 1808) (No. 16,700). It
is, of course, well established that the taxing poser
may be employed in the regulation of foreign com-
merce. Board of Trustees v. United States, 289 U.S.
48, 57, 58 (1993). The Export Clause removes only a
small and narrowly defined area from this far-ranging
authority.
Considering the origins of the Export Clause, and
this Court's more recent decisions, the prohibitions
of that Clause should be confined to taxes directly 
and exclusively assessed upon, and discriminating
against, "Articles exported." The federal statute that
the court of appeals held unconstitutional in this case
does not violate that standard.
3. The statute that the court of appeals invalidated
cannot effectively be enforced without this Court's
further review. Under the decision in this case, any
taxpayer who obtains foreign insurance for export
shipments may pay an assessment under Section 4371
and obtain a refund by bringing suit within the 
Federal Circuit. See page 14, supra. Congress en-
acted the tax imposed by Section 4371 to raise "an
appreciable amount of revenue" and to "eliminate an
unwarranted competitive advantage" for foreign
insurers who do not pay federal income taxes. H.R.
Rep. No. 2333, supra, at 61. Absent review by this 
Court, these statutory objectives will plainly be
defeated. And, as the court of appeals recognized
(App., infra, 11a), it is uniquely the responsibility of
this Court to complete the task of eliminating in-
consistency in its own jurisprudence in this area.

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31

CONCLUSION

The petition for a writ of certiorari should be 
granted.
Respectfully submitted.

DREW S. DAYS, III
Solicitor General

LORETTA C. ARGRETT
Assistant Attorney General

LAWRENCE G. WALLACE
Deputy Solicitor General

KENT L. JONES
Assistant to the Solicitor General

GARY R. ALLEN
ERNEST J. BROWN
Attorneys

OCTOBER 1995

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APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

No. 94-5164

INTERNATIONAL BUSINESS MACHINES CORPORATION,
PLAINTIFF-APPELLEE

v.

THE UNITED STATES, DEFENDANT-APPELLANT

Appealed from : U.S. Court of Federal Claims

DECIDED: July 10, 1995

Before: ARCHER, Chief Judge, PLAGER and BRYSON,
Circuit Judges.

BRYSON, Circuit Judge.

This case raises a question concerning the
constitutionality of a federal statute. The govern-
ment, as appellant, acknowledges that a 1915 Supreme
Court decision is directly on point and that, if the 
decision is still good law, the statute at issue must be
held unconstitutional as applied. The government 
argues, however, that the 1915 decision has been
undermined by subsequent Supreme Court authority,
and it asks us to regard that case as no longer
binding. We do not regard it as clear that the

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2a

Supreme Court's more recent decisions have re-
pudiated the 1915 decision. We therefore affirm the
decision of the Court of Federal Claims invalidating
the taxes at issue in this case.
          
I

During the pertinent tax years, 1975 through 1984,
International Business Machines Corporation (IBM)
sold information processing systems and related
products to domestic and foreign customers. With
respect to many of its foreign sales, IBM manu-
factured products in the United States, sold them to
its foreign subsidiaries, and shipped them either
directly to the foreign customers or to consolidation
centers in the customers' countries.  The products
were shipped by common carrier from IBM's domestic
manufacturing plants to domestic ports or airports,
where they were loaded onto ships or airplanes. Upon
arrival in the foreign country, the products were
cleared through customs and shipped to the foreign
customers or consolidation centers.  Title to the
products passed from IBM to its foreign subsidiaries
when the goods cleared customs in the foreign
countries. In some cases, IBM's foreign subsidiaries
purchased insurance from foreign insurers for the
products during their shipment; in those cases, both
IBM and the foreign subsidiaries were listed as
insured beneficiaries.
The Internal Revenue Service audited IBM's
federal excise tax returns for 1975 through 1984 and
determined that, as a beneficiary, IBM was subject to
a four percent excise tax on the premiums paid to
foreign insurers. The excise tax was assessed under
the authority of 26 U.S.C. 4371, which imposes a
four percent tax on each policy of casualty insurance
issued by a foreign insurer to a domestic entity for
risks or liabilities wholly or partly within the United
States, Section 4371 applies only to insurance ob-
tained from foreign insurers who are not subject to

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3a

federal income tax; it was designed to offset the
advantage that such insurers would otherwise have
over domestic insurance companies that are subject
to domestic income taxes. See H.R. Rep. No. 2333,
77th Cong., 2d Sess. 61 (1942).
IBM paid the assessed excise taxes and filed suit in
the Court of Federal Claims, seeking a full refund of
the taxes paid. In a thorough opinion on which we
rely, the Court of Federal Claims held that the excise
tax on premiums charged by foreign insurers, as
applied to casualty insurance on goods in the export
stream, was in effect a tax upon the exported products
themselves and thus ran afoul of the Export Clause of
the Constitution, Article I, Section 9, Clause 5.
International Business Machines Corp. v. United
States, 31 Fed. Cl. 500 (1994). In so holding, the court
relied on the Supreme Court's decision in Thames &
Mersey Marine Insurance Co. v. United States, 237
U.S. 19 (1915), which struck down a similar tax on
marine insurance policies.
The Court of Federal Claims rejected the govern-
ment's argument that the analysis in the Thames &
Mersey case has been repudiated in subsequent
Supreme Court decisions, and that the excise tax
imposed on foreign insurance policies should be
upheld as a permissible tax of general application that
does not discriminate against exports. Instead, the
court concluded that casualty insurance is an
integral part of commercial exportation, that the
value of exported goods bears a close relationship to
the value of insurance policies on those goods, and
that the tax imposed in this case therefore amounted
to a tax on exports, prohibited by the Export Clause.
          
II

This case presents the question whether the
Supreme Court analysis of the Export Clause in the
Thames & Mersey case retains its vitality in the
wake of subsequent Supreme  Court decisions

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4a

involving the Import-Export Clause, Article I,
Section 10, Clause 2, in which the Court has modified
its approach to issues arising under that. Clause.
          
A

The Export Clause provides, in one sentence: "No
Tax or Duty shall be laid on Articles exported from
any State." Along with the Import-Export Clause,
which prohibits any State, without the consent of
Congress, from laying "any Imposts or Duties on
Imports or Exports," the Export Clause was "one of
the compromises which entered into and made
possible the adoption of the Constitution." Fairbank
v. United States, 181 U.S. 283 (1901).
At the Constitutional Convention, strong senti-
ments were voiced on the subject of export taxes.
Representatives of the Southern States expressed
concern that a Congress controlled by the more
numerous and populous Northern States would
impose burdensome levies on Southern exports.
Charles Pinckney of South Carolina insisted that
security against taxes on exports be included in the
Constitution, on a par with security against the
emancipation of the slaves. 2 The Records of the
Federal Convention of 1787 95 (Max Farrand cd.
1927). According to Madison's notes, George Mason
of Virginia  likewise "urged the necessity of
connecting with the power of levying taxes duties &c,
. . . that no tax should be laid on exports. . . . He hoped
the [Northern] States did not mean to deny the
Southern this security." Id. at 305. Concern over the
risk of abuse of the power to tax exports was
expressed even by a Northern delegate, Elbridge
Gerry of Massachusetts, who stated his view that
"the legislature could not be trusted with such a
power.  It might ruin the Country. It might be
exercised partially, raising one and depressing
another part of it." Id. at 307.

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5a

Acknowledging the importance of the Export
Clause and its flat prohibitory language, the Supreme
Court has consistently given the Clause a broad
construction.  In one of the first major decisions
applying the Export Clause, the Court struck down a
stamp tax imposed on bills of lading relating to goods
designated for foreign export. Such a tax, the Court
explained, "is in substance and effect equivalent to a
tax on the articles included in that bill of lading, and,
therefore, a tax or duty on exports, and in conflict
with the constitutional prohibition." Fairbanks v.
United States, 181 U.S. at 312.
In applying that test, the Court distinguished
between taxes imposed on property prior to its
entering the export stream and taxes imposed,
directly or indirectly, on property during the export
process. For example, in Cornell v. Coyne, 192 U.S.
418 (1904), the Court upheld a tax on filled cheese that
was imposed prior to its exportation, holding that a
nondiscriminatory tax on manufactured cheese was
not unconstitutional simply because the manu-
facturer intended from the outset to export the
cheese. By contrast, in United States v. Hvoslef, 237
U.S. 1 (1915), the Court struck down a tax imposed on
charter parties for the carriage of cargo to foreign
ports. As applied to the charter parties for export at
issue in the case before it, the Court held that the tax
was "nothing else than a tax on exportation" and thus
prohibited by the Export Clause. Id. at 18. It did not
matter, the Court held, that the statute in question
was not limited to charter parties for exports, but
applied to charter parties generally; even if the
statute in question created a nondiscriminatory tax
or general application, it was unconstitutional to the
extent that it was applied to charter parties for
export, because in so doing, it had the prohibited
effect of imposing a tax on exports. Id.
Two weeks after Hvoslef, the Supreme Court in
the Thames & Mersey case struck down a stamp tax

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6a

on policies of marine insurance to the extent that it
applied to policies insuring exports. The Court put
the question as whether "the tax upon such policies
[is] so directly and closely related to the 'process of
exporting' that the tax is in substance a tax upon the
exportation and hence within the constitutional
prohibition." 237 U.S. at 25. Finding that marine
insurance "is by virtue of the demands of commerce
an integral part of the exportation," id. at 26, the
Court concluded that the tax at issue, as a practical
matter, fell upon the exporting process and therefore
was invalid under the Export Clause.
          
B

The government concedes that if Thames &
Mersey is still good law, the assessments at issue in
this case are invalid.  In the government's view,
however, subsequent decisions  construing  the
Import-Export Clause have rendered Thames &
Mersey analytically unsound. The government con-
tends that the Export Clause should be interpreted
not to outlaw taxes of general application, as long as
they do not discriminate against exported goods or
services relating to exports. The government there-
fore invites this court to disregard the Supreme
Court's contrary analysis of the Export Clause in
Thames & Mersey.
In pressing its case against Thames & Mersey, the
government relies particularly on two decisions
construing the Import-Export Clause, Michelin Tire
Corp. v. Wages, 423 U.S. 276 (1976), and Department
of Revenue v. Association of Washington Steve-
doring Companies, 435 U.S. 734 (1978). Prior to the
Michelin decision, the Supreme Court viewed the
Import-Export Clause as erecting a general pro-
hibition against state taxation of imports and exports.
The focus of inquiry was on whether the impact of the
tax fell on goods that were in foreign commerce; if it
did, the tax was forbidden (except in the limited

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7a

circumstances permitted by the Clause itself). See
Almy v. California, 65 U.S. (24 How.) 169 (1861); Low
v. Austin, 80 U.S. (13 Wall.) 29 (1872).
In the Michelin case, the Court jettisoned that
mode of analysis and adopted a new approach based on
the text and purposes of the Import-Export Clause.
Overruling its prior decision in Low v. Austin, the
Court held that a nondiscriminatory ad valorem
property tax does not run afoul of the Import-Export
Clause simply because it is applied to goods that have
recently been imported. The Court noted that the
Import-Export Clause bans only "Imports or Duties";
it "is not written in terms of a broad prohibition of
every 'tax.'" Michelin, 423 U.S. at 290. Moreover,
the Court explained that the Framers adopted the
Import-Export Clause to ensure that the federal
government would speak with one voice in regulating
commerce with foreign nations, to preserve import
revenues for the federal government, and to protect
states without port facilities from exploitation by
those directly engaged in foreign commerce. None of
those concerns, the Court stated, is triggered by a
nondiscriminatory ad valorem tax "which is also
imposed on goods that are no longer in import
transit." 423 U.S. at 286.
The Supreme Court used similar reasoning to
reach a similar result two years later in the
Washington Stevedoring case. In that case, which
involved an Import-Export Clause challenge to a state
tax on stevedoring services, the Court rejected an
argument that the tax was impermissible when
applied to stevedoring services relating to foreign
imports and exports.  A nondiscriminatory tax on
stevedoring services was not an "import or duty" on
imports or exports, the Court concluded, but simply a
local tax on services that happened to facilitate the
importation and exportation of goods.
Relying on Michelin and Washington Steve-
doring, the government argues that Section 4371

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should be upheld as a nondiscriminatory tax that does
not specifically target exports and therefore is not an
invalid "tax or duty" laid "on articles exported from
any State."  Although Michelin and Washington
Stevedoring arose under the Import-Export Clause,
rather than the Export Clause, the government
argues that the Supreme Court is likely to follow a
similar analysis under the Export Clause when the
occasion arises. 
The government finds additional support for its
position in cases decided under the Commerce Clause.
As under the Import-Export Clause, early Commerce
Clause cases struck down even nondiscriminatory
taxes on the privilege of doing business in a state
when applied to an activity that was part of interstate
commerce.  See, e.g., Spector Motor Service v.
O'Connor, 340 U.S. 602 (1951); Robbins v. Shelby
County Taxing Dist., 120 U.S. 489 (1987). That line
of cases, however, was overturned in Complete Auto
Transit, Inc. v. Brady, 430 U.S. 274 (1977), in which
the Court held that the Commerce Clause is not
violated by the application of a fairly apportioned and
nondiscriminatory tax on the privilege of doing
business in a state, even if the tax is applied to an
interstate activity.
The government points out that in Hvoslef (and by
extension in Thames & Mersey, which relied on
Hvoslef) the Court. invoked the line of Commerce
Clause authority that was disapproved in Complete
Auto.  The government also points out that the
Court's analysis of the Export Clause in Thames
& Mersey paralleled the Court's then-governing
approach to the Import-Export Clause, which has
also been disapproved. Accordingly, the government
submits, the analytical foundations of Thames &
Mersey have been removed, and its demise is a
foregone conclusion.
We are not so sure. While the Supreme Court may
at some point reconsider Thames & Mersey, it has

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9a

not clearly signaled that it is ready to do so. Support
for the continuing vitality of Thames & Mersey can
be found both in the Court's Import-Export Clause
decisions and in the distinctions in language and
policy between the Import-Export Clause and the
Export Clause.
In Canton Railroad Co. v. Rogan, 340 U.S. 511
(1951), a predecessor of the Washington Stevedoring
case, the Supreme Court upheld state taxes cm
transportation services as applied to goods being
imported or exported.  The Court was careful to
distinguish Thames & Mersey, noting that the tax on
marine insurance policies addressed in Thames &
Mersey was "the equivalent of a direct tax on the
articles." 340 U.S. at 513-14. And in Washington
Stevedoring, the Court recognized that the tax on
insurance policies in Thames & Mersey was on an
"activity so connected with the goods that the levy
amounted to a tax on the goods themselves." 435 U.S.
at 756 n.21. Although the Washington Stevedoring
Court acknowledged that "the basis for distin-
guishing Thames & Mersey is less clear" than for
other similar cases (because marine insurance
policies arguably have a value apart from the value of
the insured goods), the Court noneless noted that
"the value of goods bears a much closer relation to
the value of insurance policies on them than to the
value of loading and unloading ships."  Id. Thus,
while the Court's treatment of Thames & Mersey
may reflect less than a ringing endorsement of that
decision, the Court's characterization of Thames &
Mersey as distinguishable from, rather than in
tension with, the Canton Railroad and Washington
Stevedoring cases significantly undermines the
government's contention that Thames & Mersey
must be regarded as a dead letter.
The Supreme Court has also pointed to the
difference in language between the Import-Export
Clause and the Export Clause. Although the Court at

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10a

first expressed the view that the "diversity in
language" between the two clauses did not reflect any
difference in "the act which is prohibited," Brown v.
Maryland, 25 U.S. (12 Wheat.) 419, 425 (1827), in
both Michelin and Washington Stevedoring the
Court has noted and attached significance to the
difference between the narrow term "Imposts and
Duties" (the language of the Import-Export Clause)
and the broader term "Tax" (the language of the
Export Clause).  See Michelin, 423 U.S. at 290;
Washington Stevedoring, 435 U.S. at 759.
The Court has suggested that a difference in policy
underlies the difference in language. While the
Import-Export Clause was intended to prohibit States
from imposing a "transit fee" on goods moving in
foreign commerce, Washington Stevedoring, 435
U.S. at 764 (Powell, J., concurring in part and
concurring in the result), the Export Clause served
the broader purpose of "forbid[ding] federal taxation
of exports." Washington Stevedoring, 435 U.S. at
758. The Supreme Court's current narrower view of
the prohibition in the Import-Export Clause thus
does not dictate that the Export Clause be given a
similarly narrow construction.
          
III

Urging us to anticipate the overruling of Thames
& Mersey, able counsel for appellant has called our
attention to the opinion of Judge Learned Hand,
dissenting in Spector Motor Service, Inc. v. Walsh,
139 F.2d 809, 823 (2d Cir. 1943). In his opinion in that
case, Judge Hand explained that a lower court should
not feel obliged to follow a higher court decision "in
the face of changes plainly foreshadowed," simply
because the higher court decision has not yet been
explicitly overruled. While that proposition may be
sound in extreme cases, we do not agree with counsel
that it applies to this case. Here, unlike in the case

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11a

Judge Hand put, we do not believe the change the
government anticipates is "plainly foreshadowed."
Although the Supreme Court may yet reconsider
the Thames & Mersey decision, and with it the
Court's traditional analysis of the Export Clause, we
do not feel free in this case to take the extraordinary
step of disregarding a higher court decision that all
agree is binding precedent if it is still valid. Thus,
the precedent that seems to us most pertinent is
not Judge Hand's dissent in the Spector Motor case,
but the Supreme Court's own more recent directive
to inferior courts, in Rodriguez de Quijas v.
Shearson/American Express, Inc., 490 U.S. 477, 484
(1989):

If a precedent of this Court has direct application
in a case, yet appears to rest on reasons rejected
in some other line of decisions, the Court of
Appeals should follow the case which directly
controls, leaving to this Court the prerogative of
overruling its own decisions.

In light of that instruction, and the undisputed
applicability of Thames & Mersey to the tax imposed
in this case, we conclude that our duty is to follow
Thames & Mersey and hold Section 4371 invalid as
applied.

AFFIRMED.

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APPENDIX B

IN THE UNITED STATES COURT
OF FEDERAL CLAIMS

No. 388-89T

(Filed June 23, 1994)

INTERNATIONAL BUSINESS MACHINES CORPORATION,
PLAINTIFF

v.

The UNITED STATES, DEFENDANT

Taxation: Excise Tax on Foreign Insurers;
Export Clause (Art. I, 9, cl. 5)

OPINION

LYDON, Senior Judge:

In this litigation,  International  Business
Machines Corporation (IBM) seeks to recover de-
ficiencies assessed by the Internal Revenue Service
after the Service determined that IBM failed to pay a
four percent excise tax on premiums paid to foreign
insurers that issued policies covering products IBM
sold to its foreign subsidiaries. No facts are in
dispute, and each party has moved for summary
judgment.  The issue presented in the summary
judgment motions is whether the excise tax on
foreign insurance premiums violates the con-
stitutional prohibition against taxing exports. Be-
cause the court agrees with IBM that the tax at issue

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13a

in this case is prohibited by the Constitution, the
court grants summary judgment in favor of IBM.

I                 

Sales of IBM Products Outside the United States  

The following facts have been stipulated by the
parties or are otherwise undisputed. IBM is a do-
mestic corporation incorporated under the laws of the
State of New York, whose principal place of business
is in Armonk, New York. IBM is a developer and
manufacturer of sophisticated information processing
systems and related products, sold throughout the
world. During the tax years at issue in this case,
1975-84, sales of IBM products outside the United
States were made through a worldwide network
of more than one hundred wholly owned foreign
subsidiary corporations. IBM products sold by for-
eign subsidiaries were manufactured either in their
own overseas plants (or in the plants of other IBM
foreign subsidiaries) or by IBM at manufacturing
plants in the United States.
During the tax years in issue, IBM products
manufactured in the United States and sold outside
the United States through foreign subsidiaries
included (but were not limited to) the following items,
manufactured at the locations indicated:

Product:                                Manufacturing
                                              Locations:  
   
Mainframe computers          Poughkeepsie, NY                    
Tape drivers,            
large printers,
magnetic tape                       Tucson, AZ

Disc drives                           San Jose, CA

Copiers, toner, supplies       Boulder, CO

Intermediate computers       Rochester, MN,
                                             Austin, TX

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14a

Personal computers,           
keyboards                            Austin, TX, Boca  
                                             Raton, FL

Point of sale banking          
machines, circuit cards        Charlotte, NC

Communication devices,
cathode ray terminals           Raleigh, NC

Semiconductors                   Manassas, VA, East
                                             Peekskill, NY,
                                             Burlington, NY

Large circuit boards,
specialized intermediate
computers                            Endicott, NY

Sales outside the United States of IBM products
manufactured within the United States were ac-
complished by a purchase order to IBM from its
foreign subsidiary, under which IBM billed the
subsidiary and generally shipped the goods directly to
the subsidiary's customer. Lower priced goods might
be shipped to a consolidation center in the foreign
country, and maintained as inventory by the foreign
subsidiary to fill future orders. Depending upon the
particular product, IBM would fill a subsidiary's
order either by (1) building the product to particular
specifications contained in a purchase order ("built
to order"), or (2) utilizing, ongoing production at a
factory or inventory warehouse ("built to plan").
Shipment of products from the United States to
the foreign customer began by truck on a common
carrier (from the manufacturing plant or warehouse).
The goods generally were destined for a United
States airport (typically, John F. Kennedy in New
York for shipments to Europe and the Middle East,
Miami International for shipments to Latin America,
and San Francisco International for shipments to the

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15a

Far East), but some shipments were by sea. While
traveling within the United States, the products
would typically be unloaded at one or more inter-
mediate freight forwarder locations, where they
would typically remain for two to five days, but could
remain while awaiting space on an airliner for as long
as thirty days. The products would be reloaded at the
freight forwarders' facilities and continue ultimately
to the point of embarkation, where they were loaded
onto an airplane or a ship. Once the products reached
the air or sea port in the foreign country, they were
unloaded, cleared customs, and loaded on trucks for
shipment to their final destination.
When foreign subsidiaries purchased IBM
products from IBM during the years in issue, the
terms of sale called for title to the products (and the
risk of loss) to pass from IBM to the subsidiary when
the goods cleared customs in the foreign country.
The terms of sale also called for the purchasing
subsidiary to bear the cost of insuring the products
against damage or destruction during shipment.

Insurance Covering the Shipment of IBM Products
Sold to Foreign Subsidiaries                    

All U.S.- manufactured products IBM sold to
foreign subsidiaries were covered by casualty
insurance against damage or destruction during
shipment. Insurance was "point to point," that is, it
covered the risk of loss to goods during trans-
portation by surface or air transportation from the
IBM facility in the United States until delivered to
the foreign customer or a foreign consolidation
center. In some cases, IBM arranged for the
insurance; when it did so, insurance was placed with a
U.S. insurance carrier, and the cost was billed to the
foreign subsidiary. In other instances, the foreign
subsidiary placed the insurance; when it did so, the
insurance often was "with a foreign carrier, which the
subsidiary paid for directly. In all cases, both IBM

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16a

and its foreign subsidiary were listed as insured
beneficiaries.
When a foreign subsidiary obtained its own
insurance coverage with a foreign insurer, the policy
covered not only shipments to it by IBM from the
United States, but shipments of goods purchased
from foreign affiliates in other countries as well. The
insurer would charge a separate premium to cover
each shipment, the amount of which was determined
by multiplying the declared value of the particular
shipment by the premium rate applicable to that
shipment. The premium rate depended on such
underwriting factors as the place of origin and
destination of the goods, the type of goods involved
and how they were packaged, the time and distance of
the trip, the route and mode of transportation, and the
amount of material handling expected during the trip.
If damage to an IBM product being shipped to
a foreign country occurred while IBM had title to
the goods (and the risk of loss), then IBM would
be entitled to the insurance proceeds under the
insurance policy (whether issued by a U.S. company
or a foreign insurer). If the loss occurred, however,
after the importing foreign subsidiary acquired title
to the products, the insurance proceeds would be
payable to the subsidiary. In the latter case, the
subsidiary would use the proceeds to pay IBM the full
purchase price of the damaged products, or to
reimburse itself for the purchase price if IBM had
already been paid. Since most IBM products shipped
to foreign subsidiaries were packaged in containers,
damage was frequently not discovered until after the
products arrived at their destination. As a practical
matter, it was often impossible to determine when a
loss occurred and therefore who was legally entitled
to receive the policy proceeds.  In most cases
involving foreign insurance carriers, therefore, the
insurance  company simply paid the insurance

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17a

proceeds to the foreign subsidiary which used the
proceeds to pay IBM for the goods.

The Service's Position During the Audits

For the tax periods at issue in this litigation, each
quarter during the years 1975 through 1984, IBM
filed federal excise returns that did not report any
liability under 4371 of the Internal Revenue Code of
1954, a four percent excise tax on premiums paid for
certain policies of insurance issued by foreign
insurers. On audit, the Service determined that IBM
was liable for the 4371 tax as a result of the policies
purchased from foreign insurance companies insofar
as those policies applied to IBM products being
exported from the United States.
As part of the audit process, IBM requested the
Service's District Director to seek technical advice
from the Service's National Office on whether the
4371 tax as applied to IBM's exports was in violation
of Article I, 9, clause 5 of the United States Consti-
tution, which will be referred to throughout this
opinion as the Export Clause. In a Technical Advice
Memorandum dated May 12, 1982, the National Office
rejected IBM's constitutional argument on the
grounds that the 4371 tax was not a "tax" within the
meaning of the Export Clause because the primary
object of the tax statute was regulatory as opposed to
revenue-raising.
On reconsideration, the Service issued a second
Technical Advice Memorandum, dated November 6,
1984, reaffirming its earlier position and adding. a
second argument, that the Export Clause did not
restrict application of the 4371 tax because the
incurred risks included some transportation within
the United States. The Service found that the
Export Clause had no application at all to an export
voyage if some portion of the total voyage included an
intra-U.S. transportation leg. Because the insurance
policies in question here covered not just the

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18a

overseas portion of the export shipments but also the
inland leg from the IBM manufacturing facilities to
the U.S. air or sea port, the Service concluded that
the Export Clause had no application to any of the
shipments. Presently, the government is not relying
on the positions advanced by the Service described
above.

The Assessments

The Service determined that the premiums paid to
foreign insurers with respect to U.S. manufactured
IBM products sold to its foreign subsidiaries were
subject to the tax imposed by 4371. During the
audit, IBM sent questionnaires to its foreign sub-
sidiaries and determined that the premiums paid by
them to foreign insurers during the year 1980,
allocable to U.S manufactured IBM products sold
outside the United States, totaled $2,065,137. For
expediency in making assessments under 4371, IBM
and the Service agreed that the foreign insurance
premiums attributable to such products in each of the
years 1975-79 and 1981-84 were the same as the
premiums paid in 1980. Accordingly, the Service
assessed 4371 taxes of $82,605 per year (a figure
calculated by multiplying the annual premiums by
four percent), along with interest and delinquency
penalties for each quarter in issue. IBM paid its
assessments in full, and timely filed claims for
refund.  The Service denied these claims on
December 23, 1988. IBM timely filed its action in this
court on July 11, 1989. Since then, the government
has since abated the penalty assessments and
refunded the amounts so assessed to IBM, with
interest.  The assessments for tax and interest,
which are still in dispute, total $1,532,235.87.

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19a

The Present Motions

The sole question presented by the motions far
summary judgment is whether 4371 is constitu-
tionally impermissible, given the facts agreed to by
the parties.  Article I, section 9, clause 5 of the
United States Constitution, the Export Clause,
provides: "No Tax or Duty shall be laid on Articles
exported from any State." This provision was in-
tended to free all exportations from the burdens of
national taxation.

Section 4371 provides:
  
There is hereby imposed, on each policy of
insurance, indemnity bond, annuity contract, or
policy of reinsurance issued by a foreign insurer
or reinsurer, a tax at the following rates:
  
(1) Casualty insurance and indemnity bonds 4
cents on each dollar, or fractional part thereof, of
the premium paid on the policy of casualty
insurance or the indemnity bond, if issued to or
for, or in the name of, an insured as defined in
section 4372(d);

The parties appear to agree that as the terms
"foreign insurer," "policy of casualty insurance," and
"insured" are defined in 4372, the premiums on
casualty insurance that IBM purchased are facially
subject to the tax imposed by 4371.
          
II

A.  IBM's Argument 

IBM directs the court's attention to Thames &
Mersey Marine Insurance, Co. v. United States, 237
U.S. 19, 35 S. Ct. 496, 59 L.Ed. 821 (1915), cited for the
holding that the Export Clause prohibits the levying
of taxes on policies of marine insurance on exports.

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20a

In Thames & Mersey, the taxpayer sought to recover
amounts it paid in stamp taxes on policies insuring
exports against marine risks. In its analysis, the
Court turned quickly to United States v. Hvoslef, 237
U.S. 1, 35 S. Ct. 459, 59 L.Ed. 813 (1915), a case decided
two weeks before Thames & Mersey. In Hvoslef, the
Court invalidated a, tax levied on charter parties
which were exclusively for the carriage of cargo from
state ports to foreign ports because the tax was
essentially a tax on exports. The Thames & Mersey
court said that its issue followed directly, for the
question presented by both Hvoslef and Thames &
Mersey was: "Is the tax upon such policies so directly
 and closely related to the 'process of exporting' that
the tax is in substance a tax upon the exportation and
hence within the constitutional prohibition?" Thames
& Mersey, 237 U.S. at 25, 35 S. Ct. at 498. Put another
way by the Court, the constitutionality of this tax
depended on "whether policies of insurance against
marine risks during the voyage to foreign ports are
not so vitally connected with exporting that the tax
on such policies is essentially a tax upon the
exportation itself." Id. at 26, 35 S. Ct. at 498. An-
swering this question by examining "the exigencies
of trade [to] determine what is essential to the
process of exporting," the Court held that marine
insurance policies are so vitally connected to the
export process that a tax on the policies amounts to a
tax on the exports themselves, in contravention of the
Export Clause. Cf. Fairbank v. United Slates, 181
US. 283, 21 S. Ct. 648, 45 L.Ed. 862 (1901) (stamp tax
on bill of lading for exported goods is in effect a tax on
the articles included in the bill of lading, and is
therefore a tax on exports).
The second prong of IBM's contention is that as
far as certain taxes are proscribed by the Export
Clause of the Constitution, 4371 is such a tax. IBM
states that the predecessor of 4371 was a stamp tax
enacted as part of a comprehensive wartime revenue

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21a

bill, the Revenue Act of 1918. Ch. 18, 1107, 40 Stat.
1057, 1138. The excise tax on foreign insurers was
re-enacted as part of a World War II revenue bill, the
Revenue Act of 1942. Ch. 619, 502, 56 Stat. 798, 955.
A House report discussing this revenue measure,
cited by IBM, stated "It is believed that the revised
provision till yield an appreciable amount of revenue,
and at the same time eliminate an unwarranted
competitive advantage now favoring foreign insurers
[who are not subject to income tax]." H.R.Rep. No,
2333, 77th Cong., 2d Sess. 61 (1942).
Finally, IBM argues that export protection begins
as soon as goods enter the "export stream," and
accordingly the prohibition against taxation that
burdens exports extends to the payment of taxes on
premiums by IBM in this case. The "export stream"
is the final, continuous journey out of the country,
and tax immunity attaches as soon as the journey
begins. Dep't of Revenue v. Ass'n of Washington
Stevedoring Cos., 435 U.S. 734, 752, 98 S. Ct. 1388,
1400, 55 L.Ed.2d 682 (1978). Referring again to
Thames & Mersey, IBM argues that the payment of
these taxes is so directly and closely related to the
process of exporting that the tax is in substance a
tax upon the exportation, and thus constitutionally
prohibited. Section 4371, argues IBM, falls outside
the spirit of the Supreme Court's thoughts in
Fairbank v. United States, 181 U.S. 283, 21 S. Ct. 648,
45 L.Ed. 862 (1901). There, the court stated

[T]he purpose of the restriction is that
exportation, all exportation, shall be free from
national burden . . . . [I]t is clear that the
framers of the Constitution intended not
merely that exports should not be made a
source of revenue to the National Government,
but that the National Government should put
nothing in the way of burden upon such
exports.
Id. at 292-93,21 S. Ct. at 652.

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22a

B. The Government's Argument

As mentioned previously, the government is not
presently advancing the two positions defended by the
Service's National Office that it took on 4371 during
the audit process, namely, that 4371 does not impose
a tax that has any constitutional ramifications
because its primary purpose is regulatory instead of
revenue-raising, and that Thames & Mersey is
distinguishable because these shipments were not
pure exportation in that they included an inland leg
from a plant inside the United States to a port.
In its cross-motion, the government does not
disagree with the admonition in Fairbank that ex-
ports cannot be burdened by taxation that interferes
with the export process. Where IBM goes astray,
argues the government, is in its argument that
Thames & Mersey controls this case. The govern-
ment says that Thames & Mersey is silent on the
question of whether the excise tax imposed by 4371
targeted exports in a discriminatory fashion or
whether the tax was facially neutral in this regard.
The thrust of the government's motion for summary
judgment is that Thames & Mersey has been
superseded by Supreme Court decisions that have
shifted the critical "Export Clause" question to
whether a tax discriminates against exports in their
capacity as exports.
The government's argument is premised on its
interpretation of two related Supreme Court de-
cisions. In Michelin Tire Corp. v. Wages, 423 U.S.
276, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976), the State of
Georgia assessed ad valorem property taxes against
Michelin's inventory of imported tires and tubes.
Michelin argued that the ad valorem tax was
prohibited by the "Import-Export Clause" of the
Constitution, Article I,  10, clause 2, which provides:
"No State shall, without the Consent of the Con-
gress, lay any Imposts or Duties on Imports and
Exports, except what maybe absolutely necessary for

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23a

executing its own inspection Laws. . . ," The Court
rejected Michelin's proposition, stating: "Nothing in
the history of the Import-Export Clause even re-
motely suggests that a nondiscriminatory ad valorem
property which is also imposed on imported goods
that are no longer in transit was the type of exaction
that was regarded as objectionable by the Framers of
the Constitution." Id. at 286, 96 S. Ct. at 541.
Critical to the Court's holding in Michelin was
its discussion of Low v. Austin, 80 U.S. (13 Wall.) 29,
20 L. Ed. 517 (1872). The Court characterized Low as
"the leading decision of this Court holding that the
States are prohibited by the Import-Export Clause
from imposing a nondiscriminatory ad valorem
property tax on imported goods until they lose their
character as imports and become incorporated into
the mass of property in the State." Michelin, 423
U.S. at 282, 96 S.Ct. at 539. Low, the Court con-
tinued, improperly expanded the prohibition of the
Import-Export Clause, rejecting the more reasoned
views expressed by Justice Marshall in Brown v.
Maryland, 25 U.S. (12 Wheat.) 419, 6 L.Ed. 678 (1827),
and Justice Taney in the License Cases, 46 U.S. (5
How.) 504, 12 L.Ed. 256 (1847), that an examination
of the origins of the Clause "makes crystal clear
that the prohibition applied only to state exactions
upon imports as imports and did not apply to
nondiscriminatory  ad valorem property taxes."
Michelin, 423 U.S. at 300, 96 S.Ct. at 547. Accord-
ingly, the Court found that Low was wrongly decided
and explicitly overruled it. Id. at 301, 96 S. Ct. at 548.
What in Michelin the Supreme Court said about
the taxation of imports qua imports, it extended to
the taxation of exports qua exports in Washington
Stevedoring. There, the Court resumed a discus-
sion it began in Michelin. The Court noted that
"Michelin initiated a different approach to Import-
Export Clause cases. It ignored the simple question
whether the tires and tubes were imports. Instead, it

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24a

analyzed the nature of the tax to determine whether
it was an 'Impost or Duty.'" Washington Steve-
doring, 435 U.S. at 752, 98 S.Ct. at 1400. The import
tax in Michelin was upheld because it did not offend
the three main concerns of the Framers of the
Import-Export Clause: the government speaking
with one voice when regulating commercial relations
with foreign governments; preventing federal sources
of import revenues from being diverted to the states;
and preventing states from levying taxes on citizens
of other states by taxing goods merely flowing
through their ports to other states.
Although the Court in Washington Stevedoring
recognized that there were some formal factual
distinctions between it and Michelin, it extended the
Michelin "three concerns" analysis to taxation
involving exports. The Court pointed out that an
export tax need only be measured against the first
and third concerns: the export-tax ban of the Import-
Export Clause does not serve the second concern,
protection of federal revenues, because that objective
is satisfied by the Export Clause of Article I, 9. In
sum, the Court decided that an export tax should be
tested for its conformance with the first and third
policies of the Import-Export Clause, and if the
constitutional interests are not disturbed, the tax
should not be considered an "Impost or Duty" pro-
hibited by the Constitutional ban.
Among the distinctions drawn by the Washington
Stevedoring Court between its facts and those
in Michelin was that in Michelin the tax fell on
the goods themselves, whereas in Washington
Stevedoring the tax fell on stevedoring, the business
of loading and unloading ships. The Court noted that
a tax on stevedoring does not relate to the value of the
goods being transported, and therefore cannot be
considered a tax on the goods themselves. Id. at 757,
98 S.Ct. at 1402. To reach this conclusion, Washing-
ton Stevedoring turned briefly to Canton Railroad

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25a

Co. v. Rogan, 340 U.S. 511, 71 S.Ct. 447, 95 L.Ed, 488
(1951), in which the Court upheld a gross-receipts tax
on a railroad that engaged in a variety of services
relating to importing and exporting on the grounds
that the immunity of services incidental to exporting
and exporting was not as broad as the immunity of the
goods themselves, a distinction described in Canton
Railroad that found favor in Washington Steve-
doring.
Of course, no bright-line test for distinguishing
between goods and related services emerged from
Canton Railroad, but as the Court in Washington
Stevedoring noted, Canton Railroad did distinguish
the tax it upheld from other taxes which the Court
had previously invalidated. Among the cases distin-
guished was Thames & Mersey. In the words of the
Washington Stevedoring Court:
  
In [the cases in which the Court had previously
struck down taxes,] the State had taxed either
the goods or activity so connected with the
goods that the levy amounted to a tax on the
goods themselves. . . . [T]he stamp tax on bills
of lading in Fairbank effectively taxed the
goods because the bills represented the goods.
The basis for distinguishing Thames &
Mersey is less clear because there the tax fell
upon marine insurance policies. Arguably, the
policies had a value apart from the value of the
goods. In distinguishing that case from the
taxation of stevedoring activities, however, one
might note that the value of goods bears a
much closer relation to the value of insurance
policies on them than to the value of loading
and unloading ships.

Washington Stevedoring, 435 U.S. at 756 n. 21, 98
S.Ct. at 1402 n. 21.
In its motion, the government suggests that a
reading of Washington Stevedoring and the cases

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26a

leading up to it indicates that there has been a
fundamental revision in the way the Supreme Court
approaches cases that invoke both the Import-Export
Clause and the Export Clause. It argues that there is
no meaningful difference between a tax on the
proceeds of stevedoring services and a tax on
premiums paid for policies of casualty insurance, a
transaction the government describes as being
incidental to the process of exporting. Taking its cue
from Michelin, the government says that as ap-
plied to IBM in this case the  4371 tax is "non-
discriminatory" because it doesn't "discriminate"
against exports, i.e., the tax doesn't target exports as
exports but instead is a generally applicable tax on
insurance policies written by foreign insurers that
applies regardless of whether the insured goods are
in the export stream, and because the tax as such is
"non-discriminatory" it does not run afoul of the
Export Clause.
          
III

Having carefully considered the parties' briefs and
the cases relied on therein, the court cannot agree
with the government that Michelin and Washington
Stevedoring control the facts of this case. Plainly
enough, the parties agree that 4371 imposes a "tax,"
as that term is generally used and understood. And,
the court agrees with IBM that the tax imposed by
4371 is a tax that amounts to a tax on exports. That
the imposition of an excise tax on insurance that
must be purchased to secure against the risks
amounts to a tax on the goods themselves was
recognized years ago by the Supreme Court, which
wrote that "[i]t cannot be doubted that insurance
during the voyage is by virtue of the demands of
commerce an integral part of the exportation the
business of the world is conducted upon this basis."
Thames & Mersey, 237 U.S. at 26, 35 S. Ct. at 498.

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27a

Thus, because the 4371 tax is essentially a
burden on the exportation process under the rule of
Thames & Mersey, to avoid application of the rule and
prevail on its motion the government must dem-
onstrate either that Thames & Mersey has been
explicitly overruled, or if it has not been, that later
precedent more properly controls. The court does not
think that the government has successfully demon-
strated either of these propositions.
The government argues that Thames & Mersey
has been overruled because Washington Stevedoring
overruled its decisions in Puget Sound Stevedoring
Co. v. State Tax Comm'n, 302 U.S. 90, 58 S. Ct. 72, 82
L.Ed. 68 (1937) and Joseph v. Carter & Weekes
Stevedoring Co., 330 U.S. 422, 67 S. Ct. 815, 91 L.Ed.
993 (1947), two cases in which the Court invalidated
state taxes on the proceeds from stevedoring
interstate and international cargoes because they
violated the Import-Export Clause. A partial dissent
and partial concurrence in Carter & Weekes held that
the Import-Export Clause prevented the stevedoring
tax from applying to cargoes to and from foreign
ports, invoking Thames and Mersey as grounds for
its conclusions regarding exports. The government
maintains that because Washington Stevedoring
overruled Carter & Weekes, then Thames & Mersey
must also have been overruled.
The court rejects this argument. Carter &
Weekes was explicitly overruled in Washington
Stevedoring. The Court in Michelin wrote many
pages to explain in detail why it was overruling the
long-standing rule of Low v. Austin. Washington
Stevedoring does specifically overrule two cases and
endorses a new way of examining cases that involve
the Import-Export Clause, but the court does not read
Washington Stevedoring as stating that the Court
has "abandoned the rule it expanded in Thames &
Mersey in an analysis of the Export Clause. The
court must adhere to the accepted practice of

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28a

following Supreme Court precedent unless the
Supreme Court clearly states that it is overrul-
ing earlier eases and explains why it is doing
so. Rodriguez de Quijas v. Shearson/American
Express, Inc., 490 U.S. 477, 484, 109 S.Ct. 1917, 1921,
104 L.Ed.2d 526 (1989) ("If a precedent of this Court
has direct application in a case, yet appears to rest on
reasons rejected in some other line of decisions, the
Court of Appeals should follow the case which
directly controls, leaving to this Court the pre-
rogative of overruling its own decisions.") Washing-
ton Stevedoring overruled two prior decisions that
relied on the Import-Export Clause to invalidate
taxes on stevedoring. In the absence of explicit
instruction from the Supreme Court that its long-
standing approach to evaluating challenges under the
Export Clause should be disregarded, the court
declines to presume that such an instruction has been
implicitly given.
Furthermore, the court is not inclined to read
Washington Stevedoring as overruling Thames &
Mersey when the Court in Washington Stevedoring
cites Thames & Mersey as a precedential case that in
the present context had to be distinguished. In its
discussion of Canton Railroad, the Court in Wash-
ington Stevedoring drew parallels to that earlier
case, noting that:

[t]axation in neither [stevedoring nor railroad
services] relates to the value of goods, and
therefore in neither can it be considered taxation
on the goods themselves. The force of Canton R.
Co. therefore prompts the conclusion that the
Michelin policy analysis should not be discarded
merely because the goods are in transit, at least
where the taxation falls upon a service distinct
from the goods and their value.

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29a

Washington Stevedoring, 435 U.S. at 757, 98 S.Ct. at
1403. Clearly, the Court no longer considers a tax
on stevedoring to be a tax on exports because
stevedoring is a service whose value is not nec-
essarily tied to the value of the goods it serves. In
that same discussion, however, the Court distin-
guished a tax on stevedoring from the tax on the
marine insurance policies invalidated in Thames &
Mersey, stating that "the value of goods bears a much
closer relation to the value of insurance policies on
them than to the value of loading and unloading
ships." Id. at 756 n. 21, 98 S. Ct. at 1402 n. 21.
Thus, even if the government is correct in its
assertion that all taxes that involve exports, whether
considered in light of the Export Clause or the
Import-Export Clause, should be examined to see if
they discriminate against exports qua exports, it
appears that in the Court's view a tax such as that
imposed by 4371 could indeed be considered a tax on
exports in their capacity as exports. The present
case is distinguishable from Michelin and Washing-
ton Stevedoring: in Michelin the tires had left the
import stream and were held to be beyond the import
stream and thus outside the scope of the Import-
Export Clause, and in Washington Stevedoring the
Court said that the Import-Export Clause was not
violated because stevedoring bore no significant
relationship to the goods transported. In the present
case, the casualty insurance policies were at all times
within the export stream and were significantly
related to the exportation process. Whether the
4371 tax would be impermissible even without the
support of Thames & Mersey is, we realize, not stated
dispositively by the Court, but there is nothing in
Washington Stevedoring that indicates that Thames
& Mersey and the connection drawn in that case
between insurance policies and the value of goods
have been banished into irrelevance.

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30a
         
IV

For the reasons discussed above, the court finds
that the 4371 tax imposed on IBM violates the terms
of the Export Clause. Plaintiff's motion for summary
judgment is granted, and defendant's motion for
summary judgment is denied. The parties are
directed to confer and agree on the judgment award
that should be entered in favor of the plaintiff. The
parties shall advise the court in this regard within
thirty days.

/s/ Thomas J. Lydon
THOMAS J. Lydon
Senior Judge

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31a
     
APPENDIX C

UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

No. 94-5164 

INTERNATIONAL BUSINESS MACHINES CORPORATION,
PLAINTIFF-APPELLEE
  
v.

THE UNITED STATES, DEFENDANT-APPELLANT

JUDGMENT

ON APPEAL from the United States Court of
Federal Claims

in CASE NO(S).  388-89T

This CAUSE having been heard and considered, it

is ORDERED and ADJUDGED:

AFFIRMED

ENTERED BY ORDER OF THE COURT

DATED: July 10, 1995 /s/ Francis X. Gindhart
                                           FRANCIS X. GINDHART
                                           Clerk

ISSUED AS A MANDATE: August 31, 1995

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32a
   
APPENDIX D
IN THE UNITED STATES
COURT OF FEDERAL CLAIMS

No. 388-89T

INTERNATIONAL BUSINESS MACHINES CORPORATION
         
v.
     
THE UNITED STATES

[Filed Aug. 31, 1994]
     
AMENDED JUDGMENT

Pursuant to the court's opinion of July 28, 1994,
granting plaintiff's motion for summary judgment,

IT IS ORDERED AND ADJUDGED this date,
pursuant to Rule 58, that plaintiff recover of and from
the United States the sum of $1,532,235.87 which
covers the assessed taxes and interest, covering tax
years 1975-1984 in the manner set forth in the
attached exhibit which is incorporated and made part
of the judgment herein, plus statutory interest on
such assessed taxes and interest as provided by law.
No costs.     

David A. Lampen       
Clerk of Court

August 31, 1994     By: /s/ Jack L. Wilson
                                Deputy Clerk

NOTE: As to appeal, 60 days from this date, see
RCFC 72, re number of copies listing of all plaintiffs.
Filing fee is $105.00.

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33a

JOINT EXHIBIT l-ASSESSED TAXES AND INTEREST

[TABLE/CHART OMITTED]

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34a
       
APPENDIX E
     
IN THE UNITED STATES
    
COURT OF FEDERAL CLAIMS

No. 388-89T    
(Senior Judge Thomas J. Lydon)

INTERNATIONAL BUSINESS MACHINES CORPORATION,        
PLAINTIFF
          
v.
    
THE UNITED STATES, DEFENDANT
     
STIMULATION OF FACTS

The parties hereby stipulate that the following
facts, including the attached Joint Exhibit 1, may be
accepted as true for purposes of this case.  The
parties believe that this stipulation of facts is
comprehensive, that no genuine issues of material
fact exist, and that the case may be resolved on cross
motions for summary judgment. Nevertheless, the
parties reserve the right to introduce other evidence
that is not inconsistent with the facts stipulated.
The parties also reserve the right to object to the
relevance, materiality, and admissibility of any of the
stipulations or the attached exhibit.

PROCEDURAL BACKGROUND

1.  Plaintiff, International Business Machines
Corporation (IBM), is a domestic corporation
incorporated under the laws of the State of
New York. IBM's principal place of business is
in Armonk, New York.
2.  This case involves the four percent federal
excise tax imposed by Section 4371(1) of the

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35a

Internal Revenue Code (26 U.S. C.) on pre-
miums paid for certain policies of insurance
issued by foreign insurers.
3. The periods involved are each of the quarters
during the years 1975 through 1984, inclusive
(the "quarters in issue").
4. IBM filed federal excise returns for the
quarters in issue that did not report any lia-
bility under Section 4371.
5. On audit of IBM's federal excise tax returns
for the quarters in issue, the Internal Revenue
Service ("IRS") determined that IBM was
liable for the tax imposed by Section 4371 as a
result of certain foreign insurance trans-
actions hereafter described. The IRS assessed
IBM for Section 4371 taxes, interest, and
"delinquency" or "failure to pay" penalties for
each of the quarters in issue (the "assess-
ments").
6. IBM paid the assessments in full, and timely
filed claims for refund with the IRS for all
amounts paid in satisfaction of the assess-
ments.  The IRS denied" IBM's claims for
refund on December 23, 1988, This tax refund
action was timely filed by IBM on July 11, 1989.
The parties believe that this Court has
jurisdiction of the action under 28 U.S.C.
Section 1491(a)(1) and Section 7422 of the
Internal Revenue Code (the "Code") (26 U.S.C.
Section 7422).
7. Defendant has abated the IRS' penalty assess-
ments and refunded the amounts so assessed to
IBM, with interest.

SALE OF IBM PRODUCTS OUTSIDE THE 
UNITED STATES 

8.  IBM is a developer and manufacturer of
sophisticated information processing systems
and related products, sold throughout the

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36a

world. During the quarters in issue, sales of
IBM products outside the United States were
made through a worldwide network of more
than 100 wholly owned foreign subsidiary
corporations. For example, IBM products were
sold using the quarters in issue by cor-
porations organized and operating in Abu
Dhabi, Argentina, Belgium, Brazil, Canada,
Egypt, Germany, Haiti, India, Japan, Kuwait,
Malaysia, Norway, Peru, South Africa,
Switzerland, Thailand, the former U. S. S. R.,
Vietnam, and Zambia.
9. IBM products sold by foreign subsidiaries were
manufactured either in their own overseas
plants (or in the plants of other IBM foreign
subsidiaries) or by IBM at manufacturing
plants in the United States.
10. During the quarters in issue, IBM products
manufactured in the United States and sold
outside the United States through foreign
subsidiaries included (but were not limited to)
the following items, manufactured at the
locations indicated:

Product:                               Manufacturing
                 	                Locations:

Mainframe computers       Poughkeepsie, NY
Tape drivers,
large printers,
magnetic tape		 Tucson, AZ

Disc drives		 San Jose, CA

Copiers, toner, supplies      Boulder, CO

Intermediate computers      Rochester, MN,
			 Austin, TX

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37a

Personal computers,
keyboards		 Austin, TX, Boca
			 Raton, FL

Point of sale banking
machines, circuit cards 	 Charlotte, NC

Communication devices,
cathode ray terminals	 Raleigh, NC

Semiconductors		 Manassas, VA, East
			 Peekskill, NY,
			 Burlington, NY

Large circuit boards,
specialized intermediate
computers		 Endicott, NY

11. Sales outside the United States of IBM pro-
ducts manufactured within the United States
were accomplished by a purchase order to IBM
from its foreign subsidiary, under which IBM
billed the subsidiary and generally shipped the
goods directly to the subsidiary's customer.
Lower priced goods might be shipped to a con-
solidation center in the foreign country, and
maintained as inventory by the foreign sub-
sidiary to fill future orders.
12. Depending upon the particular product, IBM
would fill a subsidiary's order either by (1)
building the product to the particular specifi-
cations contained in a purchase order ('(build to
order"), or (2) utilizing ongoing production at a
factory or inventory at a warehouse ("built to
plan").
13. Shipment of products from the United States
to the foreign customer began by truck on a
common carrier (from the manufacturing plant
or warehouse).  The goods generally were

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38a

destined for a United States airport (typically,
John F'. Kennedy in New York for shipments to
Europe and the Middle East, Miami Inter-
national for shipments to Latin America, and
San Francisco International for shipments to
the Far East), but some shipments also were
by sea. While traveling within the United
States, the products would typically be un-
loaded at one or more intermediate freight
forwarder locations, where they would typi-
cally remain for 2-5 days, but could remain
while awaiting space on an airliner for as long
as 30 days. The products would be reloaded at
the freight forwarders' facilities and continue
ultimately to the point of embarkation, where
they were loaded onto an airplane or a ship.
Once the products reached the air or sea port
in the foreign country, there were unloaded,
cleared customs, and loaded on trucks for
shipment to their final destination. For pur-
poses of the parties) cross  motions for
summary judgment, the parties agree that any
variations from these typical fact patterns
were not significant and are not relevant to the
resolution of the motions.
14. When foreign subsidiaries purchased IBM
products from IBM during the years in issue,
in terms of sale called for title to the products
(and the risk of loss) to pass from IBM to the
subsidiary when the goods cleared customs in
the foreign country. The terms of sale also
called for the purchasing subsidiary to bear the
cost of insuring the products against damage
or destruction during shipment.

INSURANCE COVERING THE SHIPMENT OF
IBM PRODUCTS SOLD TO FOREIGN SUB-
SIDIARIES

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39a

15. All U.S manufactured products IBM sold to
foreign subsidiaries were covered by casualty
insurance against damage or destruction
during shipment.  Insurance was "point to
point'', that is, covered the risk of loss to goods
during transportation by surface or air
`transportation from the IBM facility in the
United States until delivered to the foreign
customer or a foreign consolidation center. In
some eases, IBM arranged for the insurance;
when it did so, insurance was placed with a
U.S. insurance carrier, and the cost was billed
to the foreign subsidiary. In other instances,
the foreign subsidiary placed the insurance;
when it did so, the insurance often was with a
foreign carrier, which the subsidiary paid for
directly. In all cases, both IBM and its foreign
subsidiary were listed as insured beneficiaries.
16. When a foreign subsidiary obtained its own
insurance coverage with a foreign insurer, the
policy covered not only shipments to it by IBM
from the United States, but shipments of goods
purchased from foreign affiliates in other
countries as well. The insurer would charge a
separate premium to cover each shipment, the
amount of which was determined by the
declared value of the particular shipment,
multiplied by the premium rate applicable to
that shipment. The premium rate depended on
such underwriting factors as the place of
origin and destination of the goods, the type of
goods involved and how they were packaged,
the time and distance of the trip, the route and
mode(s) of transportation, and the amount of
material handling expected during the trip.
17. If damage to an IBM product being shipped to a
foreign country occurred while IBM had title
to the goods (and the risk of loss), then IBM

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40a

would be entitled to the insurance proceeds
under the insurance policy (whether issued by
a US. company or a foreign insurer). If the
loss occurred, however, after the importing
foreign subsidiary acquired title to the
products, the insurance proceeds would be
payable to the subsidiary. In the latter case,
the subsidiary would use the proceeds to pay
IBM the full purchase price of the damaged
products, or to reimburse itself for the
purchase price, if IBM had already been paid.
18.  Since most IBM products shipped to foreign
subsidiaries were packaged in containers,
damage was frequently not discovered until
after the products arrived at their designation.
As a practical matter, it was often impossible
to determine when a loss occurred and
therefore who was legally entitled to receive
the policy proceeds. In most cases involving
foreign insurance carriers, therefore, the
insurance company simply paid the insurance
proceeds to the foreign subsidiary which used
the proceeds to pay IBM for the goods.

 THE ASSESSMENTS

19.  The Internal Revenue Service determined that
the premiums paid to foreign insurers with
respect to U.S. manufactured IBM products
sold to its foreign subsidiaries were subject to
the four percent excise tax imposed by Section
4371 of the Internal Revenue Code (26 U-S-C.).
20.  During the audit, IBM sent questionnaires to
its foreign subsidiaries and determined that
premiums paid by them to foreign insurers
during the year 1980, allocable to U. S 
manufactured IBM products sold outside the
United States, totaled $2,065,137. For expedi-
ency in making assessments under Section
4371, IBM and the IRS agreed that the foreign

---------------------------------------- Page Break ----------------------------------------

41a

insurance premiums attributable to such
products in each of the years 1975-1979 and
1981-1984 were the same as in 1980. Accord-
ingly, the Internal Revenue Service assessed
Section 4371 taxes of $82,605 per year, cal-
culated by multiplying the annual premiums by
four percent.
21. The Internal Revenue Service's assessments
of Section 4371 tax and interest for each of the
quarters in issue, which are the amounts in
this case, are set forth in Joint Exhibit 1.

---------------------------------------- Page Break ----------------------------------------

No. 95-591

In the Supreme Court of the United States

OCTOBER TERM, 1995

UNITED STATES OF AMERICA, PETITIONER

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

REPLY BRIEF FOR THE UNITED STATES

DREW S. DAYS, III
Solicitor General
Department of Justice
Washington, D.C. 20530
(202) 514-2217

---------------------------------------- Page Break ----------------------------------------

TABLE OF AUTHORITIES

Cases:

Page
 
Brown v. Maryland, 25 U.S. (12 Wheat.) 419
(1927) . . . . 4, 5
Cornell v. Coyne, 192 U.S. 418 (1904) . . . . 7
Department of Revenue of Washington v.
Association of Washington Stevedoring Cos.,
435 U.S. 734 (1978) . . . . 5
Low v. Austin, 80 U.S. (13 Wall.) 29 (1872) . . . . 4
Michelin Tire Corp. v. Wages, 423 U.S. 276
(1976) . . . . 4
Rodrigues de Quijas v. Shearson/American
Express, Inc., 490 U.S. 477 (1989) . . . . 3
Thames & Mersey Marine Ins. Co. v. United
States, 237 U.S. 19 (1915) . . . . 3
United States v. Gainey, 380 U.S. 63 (1965) . . . . 2
United States v. Goodyear Tire & Rubber Co., 
493 U.S. 132 (1989) . . . . 2-3
United States Shoe Corp. v. United States,
No. 95-173 (Ct. Int'l Trade Oct. 25, 1995) . . . . 2

Constitution and statutes:

U.S. Const. Art. I:
9, Cl. 5 (Export Clause) . . . . 2, 3, 5, 6, 7, 8
10, Cl. 2 (Import-Export Clause) . . . . 3, 4, 5
26 U.S.C. 4371(1) . . . . 6
26 U.S.C. 4371(2) . . . . 6
26 U.S.C. 4372(d)(1) . . . . 7
26 U.S.C. 4372(d)(2) . . . . 7
26 U.S.C. 4461(a) . . . . 2

Miscellaneous:

Madison's Notes of Debates in the Federal
Convention . . . . 6
Warren, The Making of the Constitution
(1928) . . . . 6

(I)

---------------------------------------- Page Break ----------------------------------------

In the Supreme Court of the United States
      
OCTOBER TERM, 1995

No. 95-591

UNITED STATES OF AMERICA, PETITIONER

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

REPLY BRIEF FOR THE UNITED STATES

1. Respondent errs in contending that the ques-
tion presented lacks substantial continuing impor-
tance. The Federal Circuit held a federal tax to be
unconstitutional in this case. That decision, if valid,
would require the return of millions of dollars of
federal revenues that have been collected from a large
number of affected taxpayers. It would also directly
undermine the congressional policy of placing foreign
and domestic insurers on a more equal competitive
footing. See Pet. 14-15. Review by this Court of the
Federal Circuit's exercise of the Judiciary's most
"grave power of annulling an Act of Congress" is

(1)

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2

fully warranted. United States v. Gainey, 380 U.S.
63, 65 (1965).
Respondent mistakenly contends that the decision
below implicates "no broad principle applicable to
other revenue measures" (Br. in Opp. 6). Only four
weeks ago, citing and relying on the decision entered
in this case, the United States Court of International
Trade held the federal "tax on any port use" (26
U.S.C. 4461(a)) to be unconstitutional as applied to
transactions involving goods for export. United
States Shoe Corp. v. United States, Slip op. 95-173, at
23 (Oct. 25, 1995). That decision, which involves more
than $500,000,000 in revenues that have already been
collected from the plaintiffs (id. at 8), is appealable
only to the Federal Circuit. 1. See Pet. 13-14.
Since all taxpayers are entitled to pay a challenged
tax and sue for a refund within the Federal Circuit, it
is unlikely that other courts of appeals will have an
opportunity to review the constitutional question
presented in this case. This Court has long noted
that plenary review is appropriate for decisions of the
Federal Circuit that present issues of such sub-
stantial and recurring importance. See, e.g., United

___________________(footnotes)
              
1 As respondent notes (Br. in- Opp. 14-15), the United States
Shoe Corp. case presents the additional question whether the
"tax on port use"  is a fee for services, rather than a `tax."
That question is relevant, however, only if a generally
applicable federal tax that applies without discrimination to
both domestic and international transactions would violate the
Export Clause. In determining that such a generally applicable
tax would violate the Export Clause, the Court of International
Trade cited as authoritative, and applied the reasoning of, the
decision of the Federal Circuit in this case. United States Shoe
Corp. v. United States, slip op. 95-173, at 17-24.

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3

States v. Goodyear Tire & Rubber Co., 493 U.S. 132,
138 (1989); Pet. 14.
Moreover, as the court of appeals emphasized (Pet,
App. 11a), only this Court has "the prerogative of
overruling its own decisions." Rodrigues de Quijas
v. Shearson/American Express, Inc., 490 U.S. 477,
484 (1989). Only this Court can determine whether
the considerations that led it to uphold generally
applicable, nondiscriminatory state taxes under the
Import-Export Clause-and to overrule numerous
inconsistent decisions in the process-apply equally
to challenges to federal taxes under the Export
Clause. In the absence of further review in this case,
the Federal Circuit will be compelled to follow
Thames & Mersey Marine Ins. Co. v. United States,
237 U.S. 19 (1915), even though, as the petition
explains in detail (Pet. 15-30), the reasoning of that
early decision has been repudiated by subsequent
decisions of this Court.
2. a. Respondent contends that textual distinctions
between the language of the Import-Export Clause
and the Export Clause require that significantly dif-
ferent analyses be applied to constitutional chal-
lenges under those Clauses (Br. in Opp. 7-12). In
particular, respondent suggests that an "impost or
duty" under the Import-Export Clause is something
different from-and narrower than-a "tax or duty"
under the Export Clause (id. at 8-9).
In making that contention, respondent ignores the
balance of the text of these Clauses. The Import-
Export Clause precludes States from imposing "Im-
posts or Duties on Imports or Exports"; the Export
Clause specifies that no federal "Tax or Duty shall be
laid on Articles Exported." U.S. Const. Art  I, 10,
Cl. 2; Art. I, 9, Cl. 5. A "tax" that is "laid on" an

---------------------------------------- Page Break ----------------------------------------
4

"article exported" is an "impost" on an "export." An
"impost" on an "export" is a "tax" that is "laid on" an
"article exported."  These constitutional phrases
have an identical meaning, as this Court has con-
sistently held. Giving effect to the entire text of both
Clauses, the Court stated as long ago as Brown v.
Maryland, 25 U.S. (12 Wheat.) 419, 445 (1827), that
"[t]here is some diversity in language, but none is
perceived in the act which is prohibited."
b. Respondent also errs in contending that the
slight difference in phrasing of these two Clauses was
"central to the Michelin and Washington Steve-
doring holdings" (Br. in Opp. 9). In Michelin Tire
Corp. v. Wages, 423 U.S. 276 (1976), the Court first
explained the origin of the "original package" doc-
trine in Low v. Austin, 80 U.S. (13 Wall.) 29 (1872),
and that Low's reliance on Brown v. Maryland for
that doctrine was misplaced. 423 U.S. at 281-283. See
Pet. 16-18, 22-24. The Court then concluded, based
upon a historical analysis of the origins and purposes
of the Import-Export Clause, that "a nondiscrimina-
tory ad valorem property tax is not the type of state
exaction which the Framers of the Constitution or
the Court in Brown had in mind as being an 'impost'
or 'duty.'" 423 U.S. at 283. The Court explained that
the history of the Import-Export Clause revealed that
it was not designed to bring into question the con-
stitutionality of a generally applicable state tax that
applies to imported and domestic goods without
discrimination. Id. at 286-290. See Pet. 23-24. The
Court concluded that, consistent with its limited
purpose, the Clause must be understood to permit
general exactions that do not apply exclusively, or
discriminatorily, to import or export transactions
(423 U.S. at 293-291):

---------------------------------------- Page Break ----------------------------------------

5

[S]ince prohibition of nondiscriminatory ad va-
lorem property taxation would not further the
objectives of the Import-Export Clause, only the
clearest constitutional mandate should lead us to
condemn such taxation.  The terminology em-
ployed in the Clause-"Imposts or Duties''-is
sufficiently ambiguous that we decline to presume
it was intended to embrace taxation that does not
create the evils the Clause was specifically in-
tended to eliminate.

In Department of Revenue of Washington v. Asso-
ciation of Washington Stevedoring Cos., 435 U.S. 734
(1978), the Court again relied on the purposes of the
Import-Export Clause-and not on the long-rejected
contention that its text varies in substance from the
Export Clause-in concluding that a nondiscrimina-
tory, generally applicable state tax is not uncon-
stitutional as applied to transactions involving
imports or exports. The Court noted that the chal-
lenged tax "violates none of the constitutional
policies identified in Michelin" and concluded that
"[i]t is, therefore, not among the 'Imposts or Duties'
within the prohibition of the Import-Export Clause."
Id. at 761 (emphasis added). That holding makes clear
that the decisions in Michelin and Washington
Stevedoring were based upon the "constitutional poli-
cies identified in Michelin" (ibid.) and were not pre-
mised upon the inconsequential "diversity in lan-
guage" of the two Clauses (Brown v. Maryland, 25
U.S. (12 Wheat.) at 445).
3. The reasoning of the Court in Michelin and
Washington Stevedoring applies equally to nondis-
criminatory federal taxes under the Export Clause.
Those decisions demonstrate that, when a generally

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6

applicable, nondiscriminatory tax is at issue, the
mere fact that the tax applies also to goods that are in
the export or import process does not provide a
constitutional immunity from taxation. See Pet. 27-
30.
 As the court of appeals acknowledged in this case
(Pet. App. 4a), and as Madison's Notes of Debates and
Warren's Making of the Constitution demonstrate,
the Export Clause resulted from one of the sectional
divisions that marked the Constitutional Convention
(Pet. 28-29). In particular, it stemmed from the "con-
cern that a Congress controlled by the more numer-
ous and populous Northern States would impose
burdensome levies on Southern exports" (Pet. App.
4a), including the "three great crops which grew
nowhere else-tobacco, rice, and indigo" (Pet. 28
n.10). This narrow historical purpose of the Export
Clause is complemented by the narrow language
employed in the Clause, which proscribes only federal
taxes "laid on" an "article exported,"
There is obviously no basis for respondent to
contend that the generally applicable tax on insur-
ance imposed by Section 4371 of the Internal Revenue
Code conflicts with the policies that the Export
Clause embodies. This federal tax applies to many
forms of insurance that have no relation whatever to
exports or the export process (such as life insurance,
sickness and accident policies, indemnity bonds and
annuity contracts). See 26 U.S.C. 4371(1), (2). Even
as applied to casualty insurance, the tax obviously has
only an incidental and remote relationship to exports
and the export process-and it applies equally to

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7

wholly domestic commerce as well. 2. That the statute
does not discriminate against exports is clear from
its text, for it applies to insurance for any risk that
arises either "wholly or partly within the United
States" (26 U.S.C. 4372(d)(1),(2)).
In view of the limited purpose and narrow language
of the Export Clause, there is no adequate rationale
for sifting through all possible applications of a
generally applicable, nondiscriminatory federal tax to
proscribe its application in remote contexts involving
exported goods. Consider, for example, a hypothetical
transaction that is not unrelated to the facts of this
case. A ship sets out from California with a cargo
produced in Arizona. Part of the cargo will be off-
loaded in British Columbia to a buyer doing business
there, The remainder of the cargo will be delivered to
a buyer in Alaska. The cargo has been insured by a
foreign insurer against damage or loss for its entire
journey-beginning with its loading on trucks in.
Arizona and until delivery at the places of business of
the buyers in British Columbia and Alaska. The
nondiscrimination policies embodied in the Export
Clause plainly do not require that the insurance
covering the part of the cargo delivered in British
Columbia be made exempt from the federal tax on
insurance while the Alaska portion of the cargo is
not.  That would turn the constitutional shield
against discrimination in the Export Clause into a
sword requiring discrimination. As this Court noted
in Cornell v. Coyne, 192 U.S. 418, 427 (1904), the

___________________(footnotes)
                                                    
2 Even within the specific category of casualty insurance,
the statute applies to risks that have little or no connection
with exports and exportation-such as fire, flood and earth-
quake.

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8

Export Clause "does not mean that articles exported
are relieved from the prior ordinary burdens of
taxation which rest upon all property similarly
situated." See Pet. 19-20.
A federal tax on insurance for risks that occur
"wholly or partly within the United States''-and
that applies without discrimination to both domestic
and international commerce-is not a tax "laid on" an
"article exported" within the meaning of the Export
Clause. The contrary conclusion of the Federal Cir-
cuit in this ease, and that court's annulment of an Act
of Congress, warrants review by this Court.
For the reasons stated above and in the petition, the
petition for a writ of certiorari should be granted.
Respectfully submitted.

DREW S. DAYS, III
Solicitor General

NOVEMBER 1995

---------------------------------------- Page Break ----------------------------------------
     
No. 95-591

In the Supreme Court of the United States

OCTOBER TERM, 1995

UNITED STATES OF AMERICA, PETITIONER

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES

DREW S. DAYS, III
Solicitor General

LORETTA C. ARGRETT
Assistant Attorney General

LAWRENCE G. WALLACE
Deputy Solicitor General

KENT L. JONES
Assistant to the Solicitor 
General

GARY R. ALLEN
ERNEST J. BROWN
Attorneys

Department of Justice
Washington, D.C. 20530
(202) 514-2217

---------------------------------------- Page Break ----------------------------------------

QUESTION PRESENTED

Section 4371 of the Internal Revenue Code, 26
U.S.C. 4371, imposes a tax of four cents per dollar on
casualty insurance premiums paid to a foreign
insurer for the risks of a domestic insured that are
"wholly or partly within the United States" (26
U.S.C. 4372(d)(1)). The question presented in this
case is:
Whether, as applied to casualty insurance for losses
incurred during the shipment of goods from locations
within the United States to purchasers abroad, the
tax imposed by Section 4371 of the Internal Revenue
Code violates the Export Clause of the Constitution
of the United States (U.S. Const. Art. I, 9, Cl. 5).

(I)

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TABLE OF CONTENTS

Page

Opinions below . . . . 1
Jurisdiction . . . . 1 
Constitutional and statutory provisions involved . . . . 2
Statement . . . . 2
Summary of argument . . . . 12 
Argument:
Section 4371 of the Internal Revenue Code imposes
a generally applicable, nondiscriminatory tax that
does not fall specifically upon articles of export or
export transactions and does not violate the Export
Clause of the Constitution . . . . 14
Conclusion . . . . 37

TABLE OF AUTHORITIES

Cases:

Almy v. California, 65 U.S.(24 How.) 169 (1861) . . . . 21 
Anglo-Chilean Nitrate Sales Corp. v. Alabama,
288 U.S. 218 (1933) . . . . 19
Board of Trustees v. United States, 289 U.S. 48
(1933) . . . . 36
Brown v. Maryland, 25 U.S. (12 Wheat.) 419
(1827) . . . . 17, 18 
Canton R.R. v. Rogan, 340 U.S. 511 (1951) . . . . 27 
Colonial Pipeline Co. v. Traigle, 421 U.S. 100
(1975) . . . . 26 
Complete Auto Transit, Inc. v. Brady, 430 U.S.
274 (1977) . . . . 22, 27, 29, 30
Cook v. Pennsylvania, 97 U.S. 566 (1878) . . . . 19 
Cornell v. Coyne, 192 U.S. 418 (1904) . . . . 13, 17, 20, 21, 35
Crew Levick Co. v. Pennsylvania, 245 U.S. 292
(1917) . . . . 24
Crutcher v. Kentucky, 141 U.S. 47 (1891) . . . . 22 
Department of Revenue of Washington Q. Associa-
tion of Washington Stevedoring Cos., 435 U.S. 734
(1978) . . . . 9, 27, 30, 31

(III)

---------------------------------------- Page Break ----------------------------------------

Cases-Continued:              

Page

DiSanto v. Pennsylvania, 273 U.S. 34 (1927) . . . . 22
Fairbank v. United States, 181 U.S. 283 (1901) . . . . 21
General Motors Corporation v. Washington, 377
U.S. 436 (1964) . . . . . 26
Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824) . . . . 36
Hooven & Allison Co. v. Evatt, 324 U.S. 652
(1945) . . . . 19
Joseph v. Carter & Weekes, 330 U.S. 422 (1947) . . . . 24
Kosydar v. National Cash Register Co., 417 U.S.
62 (1974) . . . . 17
License Cases, 46 U.S. (5 How.) 504 (1847) . . . . 18
Limbach v. Hooven & Allison Co., 466 U.S. 353
(1984) . . . . 27, 31, 32
Low v. Austin, 80 U.S. (13 Wall.) 29 (1872) . . . . 19
May v. New Orleans, 178 U.S. 496 (1900) . . . . 19
Memphis Steam Laundry Cleaner, Inc. v. Stone,
342 Us. 389 (1952) . . . . 22
Michelin Tire Corp. v. Wages, 423 U.S. 276
(1976) . . . . 9, 14, 27, 28, 29, 35
Moller-Butcher v. United States Department of
Commerce, 12 F.3d 249 (D.C. Cir. 1994) . . . . 36
Nippert v. Richmond, 327 U.S. 416 (1946) . . . . 22
Pace v. Burgess, 92 U.S. 372 (1876) . . . . 19, 20
Peck & Co. v. Lowe, 247 U.S. 165 (1918) . . . . 13, 24
25, 34, 36
Postal Telegraph-Cable Co. v. City of Richmond.
249 U.S. 252 (1919) . . . . 26
Puget Sound Stevedoring Co. v. State Tax Commis-
sion, 302 U.S. 90 (1937) . . . . 24
Robbins v. Shelby County Taxing District, 120 U.S.
489 (1887) . . . . 22
Rodriquez de Quijas v. Shearson/American Express,
Inc., 490 U.S. 477 (1989) . . . . 10, 11
A. G. Spalding & Bros. v. Edwards, 262 U.S. 66
(1923)  . . . .  24

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V

Cases-Continued:              

Page

Spector Motor Service, Inc. v. O'Connor, 340 U.S.
602 (1951) . . . . 22, 30
Thames & Mersey Marine Ins. Co. v. United States,
237 U.S. 19 (1915) . . . . 9, 21, 23
Turpin v. Burgess, 117 US. 504 (1886) . . . . 17, 20, 23
United States v. Bozarov, 974 F.2d 1037 (9th Cir.
1992), cert. denied, 113 S. Ct. 1273 (1993) . . . . 36
United States v. Hvoslef, 237 U.S. 1 (1915) . . . . 21
United States v. Marigold, 50 U.S. (9 How.) 560
(1850) . . . . 36
United States Shoe Corp. v. United States,
Slip Op. 95-173 (Oct. 25, 1995) . . . . 15
United States v. The William. 28 Fed. Cas. 614
(D. Mass. 1808) . . . . 36
Western Live Stock v. Bureau of Revenue, 303 U.S.
250 (1938) . . . . 26
Woodruff v. Parham, 75 U.S. (8 Wall.) 123 (1869) . . . . 16
Youngstown Sheet & Tube Co. v. Bowers. 358 U.S.
534 (1959) . . . . 19
U.S. Const. Art. I:
8, Cl. 3 (Commerce Clause) . . . . 2, 22
23, 26, 29, 30, 36
9, Cl. 5 (Export Clause) . . . . passim
10, Cl. 2 (Import-Export Clause) . . . . passim
Act of Aug. 8, 1882, ch. 468, 22 Stat. 372 . . . . 20
Export Administration Act of 1979, 50 U.S.C.
App. 2401-2420 . . . . 36
Internal Revenue Code (26 U. S.C.):
864(c) . . . . 4
882(a)(1) . . . . 4
4371 . . . . passim
4371(1) . . . . 8, 34
4371(2) . . . . 34
4372 . . . . 3 
4372(a) . . . . 5
4372(d)(1) . . . . 5, 12, 14, 15, 34

---------------------------------------- Page Break ----------------------------------------

Statutes and regulation-Continued:        

Page

4373 . . . . 4
4373(1) (1982) . . . . 5
4374 . . . . 4, 5
4461 . . . . 15
4461(a) (Supp. V 1993) . . . . 15
4461(b) (Supp. V 1993) . . . . 15
28 U.S.C. 1295(a)(5) . . . . 15
War Revenue Act of 1898, ch. 448,30 Stat. 448 . . . . 21
25, 30 Stat. 457 . . . . 21
Schedule A, 30 Stat. 458
30 Stat. 459 . . . . 21
30 Stat. 461 . . . . 21
War Revenue Act of 1917, ch. 63, 40 Stat. 300 . . . . 23
26 C.F.R. 46.4371-2(a) . . . . 5

Miscellaneous:

H.R. Rep. No. 2333, 77th Cong., 2d Sess. (1942) . . . . 5, 16
Madison's Notes of Debates in the Federal Convention,
reproduced in 2 M. Farrand, The Records of the
Federal Convention of 1787 (1966) . . . . 33
L. Tribe, American Constitutional Law (2d ed.
(1988) . . . . 24-25

Miscellaneous-Continued:           

Page

C. Warren, The Making of the Constitution (reprint
1993) (1928) . . . . 33

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In the Supreme Court of the United States

OCTOBER TERM, 1995

No. 95-591

UNITED STATES OF AMERICA, PETITIONER

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

BRIEF FOR THE UNITED STATES

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1a-
11a) is reported at 59 F.3d 1234. The opinion of the
Court of Federal Claims (Pet. App. 12a-30a) is
reported at 31 Fed. Cl. 500.
       
JURISDICTION

The judgment of the court of appeals (Pet. App. 31a)
was entered on July 10, 1995. The petition for a writ
of certiorari was filed on October 10, 1995 (a Tuesday
following a Monday holiday), and was granted on
December 8, 1995. The jurisdiction of this Court
rests upon 28 U.S.C. 1254(1).

(1)

---------------------------------------- Page Break ----------------------------------------

2

CONSTITUTIONAL AND STATUTORY PROVISIONS
INVOLVED

1. The Constitution of the United States provides,
in relevant part:

a. Art. I, 8, Cl. 3:
   
The Congress shall have Power * * * To
regulate Commerce with foreign Nations,
and among the several States, and with the
Indian Tribes.
  
b. Art. I, 9, Cl. 5:
   
No Tax or Duty shall be laid on Articles
exported from any State.
  
c. Art. I, 10, Cl 2:
   
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 it's   
inspection Laws * * *.

2. The Internal Revenue Code provides, in relevant
part:
  
a. 26 U.S.C. 4371:     

There is hereby imposed, on each policy   
of insurance, indemnity bond, annuity con-
tract, or policy of reinsurance issued by any
foreign insurer or reinsurer, a tax at the
following rates:
     
(1) 4 cents on each dollar, or fractional
part thereof, of the premium paid on the

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3

policy of casualty insurance or the in-
demnity bond, if issued to or for, or in
the name of, an insured as defined in
section 4372(d);

(2) 1 cent on each dollar, or fractional
part thereof, of the premium paid on the
policy of life, sickness, or accident
insurance, or annuity contract, unless
the insurer is subject to tax under
section 819, and

(3) 1 cent on each dollar, or fractional
part thereof, of the premium paid on the
policy of reinsurance covering any of the
contracts taxable under paragraph (1) or
(2).

b. 26 U.S.C. 4372:

(a) For purposes of section 4371, the term
"foreign insurer or reinsurer" means an
insurer or reinsurer who is a nonresident
alien individual, or a foreign partnership, or
a foreign corporation. * * *

(b) For purposes of section 4371(1), the
term "policy of casualty insurance" means
any policy (other than life) or other
instrument by whatever name called, where-
by a contract of insurance is made, con-
tinued, or renewed.
       
* * * * *

(d) For purposes of section 4371(1), the
term "insured"  means-(1) a domestic

---------------------------------------- Page Break ----------------------------------------
          
4

corporation or partnership, or an individual
resident of the United States, against, or
with respect to, hazards, risks, losses, or
liabilities wholly or partly within the United
States, * * *.
         
* * * * *
  
c. 26 U.S.C. 4373 (1982): 1.
The tax imposed by section 4371 shall not
apply to-
     
(1) any policy, indemnity bond, or
annuity contract signed or countersigned
by an officer or agent of the insurer in a
State, or in the District of Columbia,
within which such insurer is authorized
to do business; * * *
         
* * * * *
  
d. 26 U.S.C. 4374:
    
The tax imposed by this chapter shall be   
paid, on the basis of a return, by any person   
who makes, signs, issues, or sells any of the
documents. and instruments subject to the
tax, or for whose use or benefit the same are
made, signed, issued or sold. * * *

___________________(footnotes)

1 This provision was amended in 1988 to conform to
terminology elsewhere employed by Congress to describe
activities that are "effectively connected" to activities within
the United States and are therefore subject to the federal
income tax. See 26 U.S.C. 864(c), 882(a)(1). The amendment
does not alter the application of the statute in the context of
this case.

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5

STATEMENT

1. Respondent International Business Machines
Corporation brought this suit in the Court of Federal
Claims to obtain a refund of $1.5. million in taxes
assessed under Section 4371 of the Internal Revenue
Code. IBM does not dispute that the taxes were
correctly assessed under the statute. Instead, IBM
contends that the statute is unconstitutional as
applied to the facts of this case.                 
a. Section 4371 of the Internal Revenue Code, 26
U.S.C. 4371, imposes a tax of four cents per dollar on
casualty insurance premiums paid to a foreign
insurer for the risks of a domestic insured that are
"wholly or partly within the United States" (26
U.S.C. 4372(d)(1)). 2. The tax is to be paid by "any
person * * * for whose use or benefit" the policy is
"made, signed, issued, or sold." 26 U.S.C. 4374.
Section 4371 was enacted in 1942 to "eliminate an.
unwarranted competitive advantage now favoring
foreign insurers" who are not subject to the federal
income tax. H.R. Rep. No. 2333, 77th Cong., 2d Sess.
61 (1942). The tax therefore does not apply if the
policy issued by the foreign insurer is "signed or
countersigned by an officer or agent of the insurer in
a State, or in the District of Columbia, within which 
such insurer is authorized to do business," 26 U.S.C.
4373(1) (1982). See also note 1, supra; 26 C.F.R.
46.4371-2(a).
b. IBM manufactures a variety of business pro-
ducts that it sells throughout the world. During the

___________________(footnotes)

                      
2 The term "foreign insurer" is defined to mean an insurer
"who is a nonresident alien individual, or a foreign partnership,
or a foreign corporation" (26 U.S.C. 4372(a)).

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6

period involved in this case, IBM shipped products for
international sales from its manufacturing facilities
or warehouses in Arizona, California, Colorado,
Florida, Minnesota, New York, North Carolina,
Texas, and Virginia (Pet. App. 13a-14a). IBM made its
international sales through a network of more than
one hundred wholly owned subsidiaries (Pet. App. 14a-
15a):

Sales outside the United States of IBM pro-
ducts manufactured within the United States
were accomplished by a purchase order to IBM
from its foreign subsidiary, under which IBM
billed the subsidiary and generally shipped the
goods directly to the subsidiary's customer.
Lower priced goods might be shipped to a con-
solidation center in the foreign country, and
maintained as inventory by the foreign subsidiary
to fill future orders. * * *
  
Shipment of products from the United States to
the foreign customer began by truck on a common
carrier (from the manufacturing plant or
warehouse). The goods generally were destined
for a United States airport (typically John F.
Kennedy in New York for shipments to Europe
and the Middle East, Miami International for
shipments to Latin America, and San Francisco
International for shipments to the Far East), but
some shipments were by sea. While traveling
within the United States, the products would
typically be unloaded at one or more intermediate
freight forwarder locations, where they would
typically remain for two to five days, but could
remain * * * as long as thirty days. The
products would be reloaded at the freight for-

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7

warders' facilities and continue ultimately to the
point of embarkation, where they were loaded onto
an airplane or a ship. Once the products reached
the air or sea port in the foreign country, they
were unloaded, cleared customs, and loaded on
trucks for shipment to their final destination.

The terms of sale specified that title to the goods,
and risk of loss, passed from IBM to its foreign
subsidiary only when the goods cleared customs in
the foreign country. The foreign subsidiaries were
nonetheless required to bear the cost of insuring the
products against damage or loss during the entire
shipment (Pet. App. 15a).
The insurance obtained for these shipments was
"point to point": it covered the risk of damage or loss
during transportation of the goods from the IBM
facility in the United States to the point of foreign
delivery. When IBM made the arrangements, the
insurance was placed with a domestic insurer and the
cost was billed to the foreign subsidiary. When the
foreign subsidiary made the arrangements, the
insurance was often placed with a foreign carrier,
which the subsidiary paid directly. In both situations,
IBM and its foreign subsidiary were listed as joint
beneficiaries on the policies of insurance (Pet. App.
15a-16a).
If damage or loss occurred before the goods cleared
customs -while IBM retained title to the goods and
risk of loss-IBM received the insurance proceeds
directly under these policies. If the loss occurred
after the goods cleared customs-when title and risk
of loss had passed to the importing foreign subsidiary
-the insurance proceeds were paid to the subsidiary.
In the latter event, the proceeds were used by the

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8

subsidiary to pay the full purchase price of the
damaged or lost goods to IBM or, if IBM had already
been paid, to reimburse the subsidiary for its loss
(Pet. App. 16a).
c. IBM filed federal excise tax returns for 1975
through 1984 but did not report any liability under
Section 4371 of the Internal Revenue Code. On audit,
the Internal Revenue Service determined that the
premiums paid to foreign insurers were subject to the
tax imposed by Section 4371 and that, pursuant to
Section 4374, IBM was liable for the tax as a named
beneficiary of the insurance policies.
The foreign subsidiaries reported to IBM that,
during 1980, they had paid premiums of $2,065,137 to
foreign insurers for "point to point" insurance
covering shipments of products that IBM had manu-
factured in the United States. The tax applicable to
those premiums under Section 4371(1) of the Code-
calculated by multiplying the premiums by four
percent-is $82,605. The parties stipulated that the
foreign insurance premiums attributable to ship-
ments of IBM products in each of the years 1975-1979
and 1981-1984 were the same as in 1980. The IRS
therefore assessed the same amount of tax for each of
those years under Section 4371 (Pet. App. 18a).
2. IBM paid the resulting assessments and filed
claims for refund. When those claims were denied,
IBM commenced this refund suit in the Court of
Federal Claims. The relevant facts were stipulated
by the parties (Pet. App. 34a-41a).
a. IBM contended that the tax imposed by Section
4371 of the Internal Revenue Code-as applied to
insurance premiums on policies covering the ship-
ment of goods from locations within the United
States to purchasers abroad-violates the Export

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9

Clause of the Constitution, which provides that "[n]o
Tax or Duty shall be laid on Articles exported from
any State." U.S. Const. Art. I,  9, Cl. 5. IBM
contended that the tax on insurance for export
shipments is a "Tax or Duty * * * laid on Articles
exported" and is invalid under the specific. holding of
this Court in Thames & Mersey Marine Ins. Co. v.
United States, 237 U.S. 19 (1915). In Thames &
Mersey, the Court held a federal stamp tax on policies
insuring marine risks unconstitutional as applied to
policies covering shipments for export.
The United States contended that the analysis of
Thames & Mersey is no longer valid. The govern-
ment reasoned that subsequent decisions of this
Court, such as Michelin Tire Corp. v. Wages, 423
U.S. 276 (1978), and Department of Revenue of Wash-
ington v. Association of Washington Stevedoring
Cos., 435 U.S. 734 (1978), require the conclusion that
the Export Clause does not invalidate a generally
applicable, nondiscriminatory tax that does not fall
specifically on articles of export or export trans-
actions.
b. The Court of Federal Claims held that
application of the tax imposed by Section 4371 to
insurance premiums for goods in export transit
violates the Export Clause because it "amounts to a
tax on exports" (Pet. App. 26a). The court reasoned
that this conclusion follows from the precise holding
of this Court's 1915 decision in Thames & Mersey,
which stated (237 U.S. at 26):

It cannot be doubted that insurance during the
voyage is by virtue of the demands of commerce an
integral part of the exportation.

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10

The Court of Federal Claims emphasized that,
under Rodriguez de Quijas v. Shearson/American
Express, Inc., 490 U.S. 477, 484 (1989), lower courts
"must adhere to the accepted practice of following
Supreme Court precedent unless the Supreme Court
clearly states that it is overruling earlier cases and
explains why it is doing so" (Pet. App. 28a). The court
found no clear evidence that Thames & Mersey had
been overruled or that its analysis has been discarded
by this Court. The court held that Thames & Mersey
therefore remains authoritative and that it compels
the conclusion that the tax imposed by Section 4371 is
unconstitutional as applied in this case (Pet. App.
29a). The court acknowledged that this Court's more
recent decisions under the Import-Export Clause in
Michelin Tire and Washington Stevedoring have
upheld application of nondiscriminatory state taxes to
goods and services: involved in importation and ex-
portation. The court concluded, however, that those
decisions could be distinguished on their facts. The
court explained that Washington Stevedoring-
which upheld application of a state gross receipts tax
to a stevedoring company that handled export and
import shipments-concerned "stevedoring" rather
than "insurance" and that "stevedoring is a service
whose value is not necessarily tied to the value of the
goods it serves" (Pet. App. 29a). The court further
stated that Michelin Tire-which upheld application
of a state property tax to imported goods located
within the borders of the State-is inapposite because
"in Michelin the [imported goods] had left the import
stream and were * * * thus outside the scope of the
Import-Export Clause" (Pet. App. 29a).

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11

3. The court of appeals affirmed (Pet. App. 1a-11a).
The court noted (id. at ha) that this Court has
admonished the lower courts that (Rodriguez de
Quijas v. Shearson/American Express Co., 490 U.S.
at 484)

[i]f a precedent of this Court has direct application
in a case, yet appears to rest on reasons rejected
in some other line of decisions, the Court of
Appeals should follow the case which directly
controls, leaving to this Court the prerogative of
overruling its own decisions.

The court of appeals stated that it was therefore
bound to follow Thames & Mersey, and hold the tax
imposed by Section 4371 unconstitutional as applied in
this case, unless subsequent decisions of this Court
"clearly signaled" an intent to overrule that earlier
decision (Pet. App. 8a).
The court of appeals concluded that it was "not so
sure" (Pet. App. 8a) that Washington Stevedoring
and Michelin Tire signaled the requisite clear intent
of this Court to abandon the analysis of Thames &
Mersey. The court of appeals did not dispute that, if
an analysis "similar" to that applied under the
Import-Export Clause in Michelin Tire and Wash-
ington Stevedoring were applied under the Export
Clause, the holding and reasoning of Thames &
Mersey would be discredited (Pet. App. 7a-8a).
Instead, the court stated that it was not certain that a
similar analysis would be applied because there is a
difference in the language of the two Clauses that
could require a different result: the Import-Export
Clause bars States from laying "Imposts or Duties on
Imports or Exports"; the Export Clause bars the
United States from laying any "Tax or Duty * * *

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12

on Articles exported from any State." The court of
appeals stated (id. at 9a-10a):

Although the [Supreme] Court at first expressed
the view that the "diversity in language" between
the two clauses did not reflect any difference in
"the act which is prohibited," Brown v. Maryland,
25 U.S. (12 Wheat.) 419, 425 (1627), in both
Michelin and Washington Stevedoring the Court
has noted and attached significance to the
difference between the narrow term "Imposts and
Duties" * * * and the broader term "Tax"
* * * See Michelin, 423 U.S. at 290;
Washington. Stevedoring, 435 U.S. at 759.

Reasoning that a "tax" that might be permitted
under the "narrow" language of the Import-Export
Clause might nonetheless be invalid under the
"broader" language of the Export Clause (Pet. App.
10a), the court concluded that the recent Import-
Export Clause decisions fail to provide the requisite
clear guidance that would permit a lower court to
"disregard] a higher court decision that all agree is
binding precedent if it is still valid" (id. at 10a-11a). 3
The court therefore held "that [its] duty is to follow
Thames & Mersey and hold Section 4371 invalid as
applied" (id. at 11a).
     
SUMMARY OF ARGUMENT

The federal tax on insurance premiums paid to a
foreign insurer for risks that are "wholly or partly
within the United States" (26 U.S.C. 4372(d)(1)) is a
nondiscriminatory" tax of general application. It does
       
___________________(footnotes)

3 The court of appeals noted that the United States had
conceded that, "if Thames & Mersey is still good law, the
assessments at issue in this case are invalid" (Pet. App. 6a).

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13

not apply specifically to export transactions; to the
contrary, it applies only to insurance risks that are
either "wholly" or "partly" domestic. The tax was
enacted to diminish the competitive advantage that
existed for foreign insurers who were otherwise not
subject to the federal income tax.
The court of appeals erred in concluding that
application of this tax to casualty insurance for
shipments from within the United States to foreign
countries violates the Export Clause of the Con-
stitution. In particular, the court erred in relying on
this Court's 1915 decision in Thames & Mersey
Marine Ins. Co. v. United States for this conclusion.
This Court's more recent decisions have repudiated
the reasoning of Thames & Mersey. Under the
analysis of these modern decisions, the tax imposed
by Section 4371 does not violate the Export Clause
because it is a generally applicable, nondiscrimina-
tory tax that does not fall specifically on articles of
export or export transactions. As this Court stated
in upholding a similarly nondiscriminatory federal
tax against an Export Clause challenge in Peck & Co.
v. Lowe, 247 U.S. 165, 175 (1918): "There is no
discrimination. At most, exportation is affected only
indirectly and remotely."
As this Court has noted, the Export Clause "does
not mean that articles exported are relieved from the
prior ordinary burdens of taxation which rest upon all
property similarly situated." Cornell v. Coyne, 192
U.S. 418, 427 (1904). The history of the Export Clause
reflects that it was designed to protect the exports of
individual States from repressive discrimination by
other States acting through their representatives in
the National government. That nondiscrimination
policy does not require that exports be relieved "from

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14

uniform taxes" applicable to all commerce generally
or that Congress give "preferential treatment" to
exports by exempting them from generally applicable
taxes (Michelin Tire Corp. v. Wages, 423 U.S. at 293-
294). The nondiscriminatory, generally applicable tax
imposed by Section 4371 is therefore constitutional
and should be upheld.
        
ARGUMENT

SECTION 4371 OF THE INTERNAL REVENUE
CODE IMPOSES A GENERALLY APPLICABLE,
NONDISCRIMINATORY TAX THAT DOES NOT
FALL SPECIFICALLY UPON ARTICLES OF EX-
PORT OR EXPORT TRANSACTIONS AND DOES
NOT VIOLATE THE EXPORT CLAUSE OF THE
CONSTITUTION

The court of appeals concluded that the federal tax
on insurance premiums paid to a foreign insurer for
risks that are "wholly or partly within the United
States" (26 U.S.C. 4372(d)(1))-as applied to casualty
insurance for shipments from the United States to
foreign countries-represents a "Tax or Duty * * *
laid on Articles exported" (U.S. Const. Art. I, 9, Cl.
5) and therefore violates the Export Clause of the
Constitution. The court stated that it was compelled
to follow this Court's 1915 decision in Thames &
Mersey Marine Ins. Co. v. United States in reaching
that conclusion.
This Court's more recent decisions, however, have
repudiated the reasoning of Thames & Mersey.
Under the analysis of these modern decisions, the tax
imposed by Section 4371 does not violate the Export
Clause because it is a generally applicable, nondis-

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15

criminatory tax that does not fall specifically on
articles of export or export transactions. 4
1. The Tax Imposed By Section 4371 Is A
Generally Applicable, Nondiscriminatory Tax. The
tax imposed by Section 4371 of the Internal Revenue
Code is not specifically directed to nor directly "laid
on Articles exported" (U.S. Const. Art. I, 9, Cl. 5).
Instead, it applies to insurance premiums paid to
foreign insurers for many forms of insurance,
including any casualty risk that is "wholly or partly
within the United States" (26 U.S.C. 4372(d)(1)). It
thus applies without discrimination to "wholly"
domestic transactions as well as to risks that are
only "partly" within the United States. As the House
Ways and Means Committee observed when the
statute was first enacted in 1942, Section 4371 is

___________________(footnotes)

4 The proper scope of the Export Clause has significance
not only for the tax imposed under Section 4371 but also for
other nondiscriminatory federal taxes of general application.
For example, Section 4461 of the Internal Revenue Code
imposes on all shippers a "tax on any port use" of 0.125 percent
of the value of all commercial cargo loaded or unloaded in
United States ports. See 26 U.S.C. 4461(a), (b) (Supp. V 1993),
4462(a)(1). In cases brought by over 700 shippers involving
more than $500,000,000 in revenues that have already been
collected, the United States Court of International Trade
recently held Section 4461 to be unconstitutional as applied to
transactions involving goods for export. United States Shoe
Corp. v. United States, Slip op. 95-173, at 8, 23 (Oct. 25, 1995).
In determining that such a generally applicable, nondiscrimina-
tory tax would violate the Export Clause, the Court of
International Trade cited se authoritative, and applied the
reasoning of, the decision of the Federal Circuit in this case (id.
at 17-24). The Federal Circuit has exclusive jurisdiction over
appeals from decisions of the Court of International Trade. 28
U.S.C. 1295(a)(5).

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16

designed to "eliminate an unwarranted competitive
advantage now favoring foreign insurers" who are not
subject to the federal income tax. H.R. Rep. No. 2333,
supra, at 61.
It is unquestioned that the tax imposed under
Section 4371 could and would be applied to a policy of
casualty insurance issued by a foreign insurer
covering risks that are "wholly" within the United
States-for example, insurance for the transit of
goods from Minnesota to Hawaii. As long ago as
Woodruff v. Parham, 75 U.S. (8 Wall.) 123 (1869), it
was established that goods moving from one State to
another are not "exports" from the shipping State or
"imports" in the receiving State within the meaning
of the Constitution. The question addressed in this
case is thus limited to whether the tax imposed by
Section 4371 on premiums for casualty insurance for
shipments "partly" outside of the United States is
unconstitutional even though application of that tax
to shipments "wholly" within the United States is
unquestionably valid.
2. The Export And Import-Export Clauses Are
Complementary In Scope. The proper resolution of
this narrow question requires consideration of the
text and history of, and the rulings of this Court
under, both the Export Clause and the Import-Export
Clause. The court of appeals suggested, however,
that the language of the Export Clause may be
"broader" in its prohibitive scope than the language of
the Import-Export Clause (Pet. App. 10a) and that
decisions under the latter Clause therefore may not
be relevant in interpretation of the former.
That suggestion, however, does not withstand
analysis. The entire text of the two Clauses must be
considered.  The Import-Export Clause precludes

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17

States from imposing "Imposts or Duties on Imports
or Exports"; the Export Clause specifies that no
federal "Tax or Duty shall be laid on Articles ex-
ported." U.S. Const. Art. I, 10, Cl. 2; Art. I, 9, Cl.
5. An "impost" or "duty" on an "export" is a "tax" on
an "Article exported"; a "tax" on an "Article ex-
ported" is an "impost" or "duty." 5. Giving effect to
the entire text of both Clauses, Chief Justice Mar-
shall stated in this Court's first decision under either
the Import-Export Clause or the Export Clause
(Brown v. Maryland, 25 U.S. (12 Wheat.) at 445):

The States are forbidden to lay a duty on exports,
and the United States are forbidden to lay a tax or
duty on articles exported from any State. There is
some diversity in language, but none is perceivable
in the act which is prohibited.

That observation has been repeated by this Court
on numerous occasions. 6. In the more numerous cases
under the Import-Export Clause and the less numer-
ous cases under the Export Clause, the Court has
routinely cited cases under the two Clauses without
differentiation. Moreover, as we shall discuss, the
analysis applied in opinions under the two Clauses
has not varied.
3. The "Original Package" Doctrine and Early
Decisions Addressing Generally Applicable, Non-   
         
___________________(footnotes)

5 In Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 437
(1827), Chief Justice Marshall explained that an "impost" is a
"duty on imports" and represents "a tax levied on articles
brought into a country * * *."

6 See, e.g., Turpin v. Burgess, 117 U.S. 504, 506-507 (1886);
Cornell v. Coyne, 192 U.S. 418, 427 (1904); United States v.
Hvoslef, 237 US. 1, 14 (1915); Kosydar v. National Cash
Register Co., 417 U.S. 62, 67 n.5 (1974).

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18

discriminatory Taxes Under the Import-Export
Clause. In Brown v. Maryland, a Maryland statute
required that importers or wholesalers of foreign
goods purchase a license costing $50 before selling
such goods. Brown was convicted of having imported
and sold a package of foreign goods without having
obtained the license.  In holding that the statute
violated the Import-Export Clause, the Court ex-
plained that a tax on the privilege of selling foreign
goods was, in substance, a duty upon things imported
for sale. 25 U.S. (12 Wheat.) at 439. Rejecting the
suggestion that this would mean that imported goods
would be permanently immune from taxation by the
States, the Court stated that an import retained its
"distinctive character" only while in the "original
form or package in which it was imparted" (id. at 442).
The statute involved in Brown v. Maryland dis-
criminated against imported goods because it imposed
no comparable licensing requirement for the sale of
domestic goods. See 25 U.S. (12 Wheat.) at 436. In the
License Cases, 46 U.S. (5 How.) 504 (1847), the Court
upheld a similar licensing requirement that applied to
the sales of both imported and domestic goods. Chief
Justice Taney, who had argued the case of Brown v.
Maryland for the State, did not question the validity
of the "original package" doctrine and acknowledged
that a tax directed uniquely at imports would be
invalid. Id. at 574-575. He explained, however, that a
generally applicable, nondiscriminatory state tax
would not be unconstitutional merely because the tax
also applies to imported goods (id. at 576):

Undoubtedly a State may impose a tax upon its
citizens in proportion to the amount they are
respectively worth; and the importing merchant is

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19

liable to this assessment like any other citizen,
and is chargeable accordingly to the amount of his
property, whether it consists of money engaged in
trade, or of imported goods which he proposes to
sell, or any other property of which he is owner.
But a tax of this description stands upon a very
different footing from a tax on the thing imported,
while it remains a part of foreign commerce, and is
not introduced into the general mass of property
in the State.

Twenty-five years after the License Cases,
however, the Court reached a different conclusion in
Low v. Austin, 80 U.S. (13 Wall.) 29 (1872). In Low,
the Court held that a nondiscriminatory, generally
applicable California property tax could not be
imposed upon a shipment of French champagne held in
an importer's warehouse in the "original package" in
which shipped. Id. at 35. In so ruling, the Court
neglected to consider the contrary conclusion of
Chief Justice Taney in the License Cases, although
his approval of the "original package" doctrine was
cited by the Court. Id. at 33-34. 7.
4. The Early Export Clause Cases. The Export
Clause was invoked in Pace v. Burgess, 92 U.S. 372
(1876), by a tobacco manufacturer who, in 1868, was
subject to a federal excise tax on tobacco products.
Although tobacco intended for export was exempt
from the tax, the exemption was subject to the
                
___________________(footnotes)
              
7 The "original package" rule was also followed in Cook v.
Pennsylvania, 97 U.S. 566 (1878), Anglo-Chilean Nitrate Sales
Corp. v. Alabama, 288 U.S. 218 (1933), and Hooven & Allison
Co. v. Evatt, 324 U.S. 652 (1945). See also May v. New Orleans,
178 U.S. 496 (1900); Youngstown Sheet & Tube Co. v. Bowers,
358 U.S. 534 (1959).

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20

requirement that packages for export be identified by
an engraved stamp costing 25 cents. The manufac-
turer brought suit to recover the price of the stamps,
claiming that they constituted a prohibited tax on
exports. The Court denied recovery, explaining that
the stamps were designed to prevent fraud and did not
represent a tax. Id. at 375.
In 1882, however, Congress discontinued the charge
for the exemption stamp in a statute that referred to
the stamp as an "export tax." Act of Aug. 8, 1882, ch.
468, 22 Stat. 372. On that basis, another tobacco
manufacturer sued to recover the amounts he had paid
for these stamps before the charge was discontinued.
The Court adhered to its decision in Pace v. Burgess,
but with a somewhat different rationale. In describ-
ing the Export and Import-Export Clauses, the Court
stated (Turpin v. Burgess, 117 U.S. 504, .507 (1886)
(emphasis added)):

The prohibition in both cases has reference to the
imposition of duties on goods by reason or because
of their exportation or intended exportation, or
whilst they are being exported. * * * But a
general tax, laid on all property alike, and not
levied on goods in course of exportation, nor
because of this intended exportation, is not
within the constitutional prohibition.

Quoting and relying upon the above passage, the
Court subsequently held in Cornell v. Coyne, 192
U.S. 418, 427-428 (1904), that a manufacturer who
produced filled cheese under a contract for export sale
could not-merely because the cheese was designated
for export-escape liability for the federal tax of one
cent per pound on that product. The Court explained
that the Export Clause "does not mean that articles

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21

exported are relieved from the prior ordinary burdens
of taxation which rest upon all property similarly
situated" (id. at 427).
5. The Decisions Leading to Thames & Mersey.
The direct predecessor of Thames & Mersey was
Fairbank v. United States, 181 U.S. 283 (1901). That
case involved a provision of the War Revenue Act of
1898 that imposed a variety of stamp taxes on written
instruments, including "[b]ills of lading * * * for
any goods, merchandise, or effects, to be exported
from a port or place in the United States to any
foreign port or place" (ch. 448, 25 (Schedule A), 30
Stat. 459). In Fairbank, the Court held that this
stamp tax on bills of lading, which applied only to
exported goods, violated the Export Clause. Invoking
a prior, similar holding under the. Import-Export
Clause (Almy v. California, 65 U.S. (24 How.) 169
(1861)), the Court held that the tax upon a bill of
lading was invalid because it was equivalent to a tax
upon the exported goods themselves.
Two later cases, argued on the same day, are the
cases upon which respondent relies. Like Fairbank,
they involved stamp taxes imposed by the War
Revenue Act of 1898. Unlike Fairbank, however,
neither tax was imposed expressly or uniquely on
export transactions. United States v. Hvoslef, 237
U.S. 1 (1915), involved a federal stamp tax upon any
"Contract or agreement for the charter of any ship"
without reference to the intended destination of the
ship or its cargo (30 Stat. 460). Thames & Mersey
Marine ins. Co. v. United States, 237 U.S. 19 (1915),
upon which respondent most directly relies, involved
a federal stamp tax on policies of marine insurance
"whether covering peril by sea or on inland waters"
(25, 30 Stat. 461). Since these statutory provisions

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22

did not differentiate between domestic voyages and
shipments to foreign ports, it might have been
supposed that they would be sustained as
nondiscriminatory taxes of general applicability
under the reasoning of the 1886 decision in Turpin v.
Burgess and the 1904 decision in Cornell v. Coyne.
See pages 20-21, supra.
In Hvoslef, however, the Court invoked its decision
in Fairbank without acknowledging that the stamp
tax challenged in Hvoslef-unlike the tax challenged
in Fairbank - was of general applicability and was
not limited to voyages involving exports. In support of
its conclusion in Hvoslef that a tax of general
applicability would violate the Export Clause if it
applied to export trade, the Court invoked Robbins v.
Shelby County Taxing District, 120 U.S. 489 (1887).
Robbins was the first of "a long line of 'drummer'
eases" in which the Court held, under the Commerce
Clause, that a State could not impose a licensing fee
on a person who solicited orders for goods to be
shipped from another State. 8. The Court stated in
Robbins (id. at 497):
      
___________________(footnotes)

8 See Memphis Steam Laundry Cleaner, Inc. v. Stone, 342
U.S. 389, 392 (1952). Robbins had a numerous progeny. See,
e.g., Crutcher v. Kentucky, 141 U.S. 47 (1891); DiSanto v.
Pennsylvania, 273 U.S. 34 (1927); Nippert v. Richmond, 327
U.S. 416 (1946). Among the more recent was Spector Motor
Service, Inc. v. O'Connor, 340 U.S. 602 (1951), which this Court
overruled in Complete Auto Transit, Inc. v. Brady, 430 U.S.
274 (1977). In Complete Auto Transit, Inc., the Court held,
contrary to Robbins and Spector, that generally applicable
state licensing statutes could be applied according to their
terms, without granting exemption to those whose business was
solely interstate. See 430 U.S. at 279-289; pages 29-30, infra.
These decisions concerning the negative implications of the
Commerce Clause are not logically relevant to analysis under

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23

It is strongly urged, as if it were a material
point in the case, that no discrimination is made
between domestic and foreign drummers-those of
Tennessee and those of other states; that all are
taxed alike. But that does not meet the difficulty.
Interstate Commerce cannot be taxed at all, even
though the same amount of tax should be laid on
domestic commerce, or that which is carried on
solely within the state.

Having applied Fairbank and Robbins to exempt
export transactions from broadly applicable, nondis-
criminatory taxing provisions in Hvoslef, the Court
entered its decision in Thames & Mersey two weeks
later on the authority of Hvoslef. 237 U.S. at 27. In
neither Hvoslef nor Thames & Mersey did the Court
discuss the reasoning of prior decisions (such as
Cornell v. Coyne, supra) that had upheld application
of nondiscriminatory taxes that apply generally "to
all property alike" and are not levied upon or because
of the "exportation" or "intended exportation" of the
goods (Turpin v. Burgess, 117 U.S. at 507).
The decisions in Hvoslef and Thames & Mersey
established a pattern that this Court subsequently
followed of immunizing export transactions from
generally applicable federal taxes. For example, when
Congress imposed a general tax on various sporting
goods under the War Revenue Act of 1917, ch. 63, 40
Stat. 300, 317, the Court invoked not Cornell v. Coyne
but Hvoslef and Thames & Mersey to hold that the
Export Clause prohibited imposition of that tax upon
a shipment of baseballs and bats to a purchaser in    
           
___________________(footnotes)

the Export Clause. Although the Commerce Clause operates as
a limitation on the powers of the States, it confers powers on
the United States. See page 36, supra.

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24

Venezuela. A.G. Spalding & Bros. v. Edwards, 262
U.S. 66 (1923).  See also Crew Levick Co. v.
Pennsylvania, 245 U.S. 292 (1917) (same under the
Import-Export Clause). Similarly, in Puget Sound
Stevedoring Co. v. State Tax Commission, '302 U.S.
90 (1937), and Joseph v. Carter & Weekes, 330 U.S. 422
(1947), the Court held that state sales or gross re-
ceipts taxes could not be imposed upon payments for
loading and unloading ship cargoes transported in
interstate or foreign commerce.
6. The Modern. Decisions Upholding Application
of General, Nondiscriminatory Taxes to Export
Transactions.
a. Three years after the Court's decisions in
Hvoslef and Thames & Mersey, the Court returned to
an interpretation of the Export Clause that focused
on whether the challenged tax applied without dis-
crimination to both domestic and foreign trans-
actions. In Peck & Co. v. Lowe, 247 U.S. 165 (1918),
the Court rejected the contention that the Export
Clause precludes the United States from taxing the
income that a taxpayer derives from export trans-
actions. In Peck & Co., more than two thirds of the
taxpayer's income had been derived from export sales.
Id. at 172. The taxpayer paid the federal income tax
on its entire income and brought suit to recover the
part of the tax paid on the income from export sales.
In a relatively brief opinion by Justice Van
Devanter, the Court denied recovery. The decision is
often stated to rest upon the fact that the tax was
upon net, rather than gross, income. See L. Tribe,

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25

American Constitutional Law 56-19, at 463 n.18 (2d
ed. 1988). 9. Indeed, the opinion states (247 U.S. at 175):

At most, exportation is affected only indirectly
and remotely. The tax is levied after exportation
is completed, after all expenses are paid and losses
adjusted, and after the recipient of the income is
free to use it as he chooses. Thus what is taxed-
the net income-is, as far removed from
exportation as are articles intended for export
before the exportation begins.

But the Court did not rest its decision in Peck &
Co. wholly upon that explanation. Instead, the Court
further stated (247 U.S. at 174-175 (emphasis added)):

The tax in question is unlike any of those
heretofore condemned. * * * On the contrary, it
is an income tax laid generally on net incomes.
And while it cannot be applied to any income
which Congress has no power to tax (see Stanton
v. Baltic Mining Co., supra, pp. 113), it is both
nominally and actually a general tax. It is not laid
on income from exportation because of its source,
or in a discriminative way, but just as it is laid on
other income. The words of the act are "net
income arising or occurring from all sources".
There is no discrimination. At most, exportation
is affected only indirectly and remotely.

___________________(footnotes)

9 That explanation, however, suggests as many questions as
it purports to answer. What if the income tax were imposed
only on net income from export sales? Or what if net income
from export sales were taxed at a rate higher than net income
from domestic transactions? Would either such "net" income
tax survive a challenge under the Export Clause?

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26

The fact that the federal income tax is a "general
tax" that applies to all sources of income without
"discrimination" is the more persuasive basis for the
Court's decision in Peck & Co. That reasoning is a
more complete explanation of the Court's conclusion
(see note 9, supra) and it builds directly upon the
analysis applied by the Court in Turpin v. Burgess
and Cornell v. Coyne. That reasoning also antici-
pates the recent decisions of this Court under the
Import-Export and Commerce Clauses.
b. During the following decades, there were
further indications that the Court was reconsidering
whether the Constitution immunizes interstate and
foreign transactions from generally applicable, non-
discriminatory taxes. For example, in Western Live
Stock v. Bureau of Revenue, 303 U.S. 250 (1938), in
upholding application of a nondiscriminatory,
generally applicable state tax to a taxpayer engaged
in interstate commerce, the Court heavily qualified
the broad Commerce Clause rationale of Robbins on
which Hvoslef relied (303 U.S. at 254, quoting Postal
Telegraph-Cable Co. v. City of Richmond, 249 U.S.
252, 259 (1919)): 10

It was not the purpose of the commerce clause to
relieve those engaged in interstate commerce
from their fair share of state tax burden even
though it increases the cost of doing the business.
"Even interstate business must pay its way"
* * * .

___________________(footnotes)
                
10 See also General Motors corporation V. Washington, 377
U.S. 436 (1964); Colonial Pipeline Co. v. Traigle, 421 U.S. 100
(1975).

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27

And, in Canton R.R. v. Rogan, 340 U.S. 511 (1951), the
Court indicated a revised view of the proper
treatment of taxes upon transactions related or
collateral to importation and exportation when it
wrote (id. at 514-515):

The difference [between this case and cases such
as Spalding] is that in the present case the tax is
not on the goods but on the handling of them at
the port. * * * [W]hen the tax is on activities
connected with the export or import the range of
immunity cannot be so wide.

c. Full reconsideration of these issues ultimately
came in Michelin Tire Corp. v. Wages, 423 U.S. 276
(1976), Complete Auto Transit, Inc. v. Brady, 430
U.S. 274 (1977), and Department of Revenue of
Washington v. Association of Washington Stevedor-
ing Cos., 435 U.S. 734 (1978). See also Limbach v.
Hooven & Allison Co., 466 U.S. 353 (1984). Those
decisions expressly overruled several of the decisions
previously discussed and, without cataloging them in
detail, rejected other decisions that had disposed of
the same issues in the same fashion.
(i) Michelin Tire involved the constitutionality of
a state property tax as applied to imported tires held
in the importer's warehouse in Georgia. Invoking the
"original package" doctrine applied in Low v, Austin,
the importer maintained that its imported tires were
exempt from state tax.  The Court rejected that
claim, holding that (423 U.S. at 279):

Georgia's assessment of a nondiscriminatory ad
valorem property tax against the imported tires is
not within the constitutional prohibition against
laying "any Imposts or Duties on Imports" * * *
and * * * insofar as Low v. Austin, 13 Wall. 29

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28

(1872) is to the contrary, that decision is over-
ruled.

In reaching that decision, the Court reviewed the
text and objectives of the Import-Export Clause, as
well as its historical origin. 423 U.S. at 283-286. The
Court noted that the considerations that gave rise to
the Clause were that: (i) the federal government
must speak with one voice in regulating commercial
relations with foreign governments, and state tariffs
on exports and imports could conflict with that
requirement; (ii) import revenues were to be the
major source of revenue to the federal government
and should not be diverted to the States; and (iii)
harmony among the States would be disrupted if the
seaboard states with good harbors could tax goods
passing through their harbors to or from their neigh-
bors. Id. at 285.
The Court concluded that nondiscriminatory prop-
erty taxes would interfere with none of the objectives
of the Import-Export Clause. 423 U.S. at 286-290.
Noting that the- text of the Import-Export Clause-
proscribing imposts and duties on imports and
exports-did not clearly encompass general property
taxes, the Court "decline[d] to presume it was
intended to embrace taxation that does not create the
evils the Clause was specifically intended to
eliminate" (423 U.S. at 293-294). The Court empha-
sized that (id. at 287):

The Import-Export Clause clearly prohibits state
taxation based on the foreign origin of the
imported goods, but it cannot be read to accord
imported goods preferential  treatment that
permits escape from uniform taxes imposed

---------------------------------------- Page Break ----------------------------------------
          
29

without regard to foreign origin for services
which the State supplies.

The Court further explained that the "original
package" language of Brown v. Maryland had been
misunderstood (423 U.S. at 298):

[I]t is clear that the Court's view in Brown [v.
Maryland] was that merely because certain
actions taken by the importer on his imported
goods would so mingle them with the common
property within the State as to "lose their
distinctive character as imports" and render them
subject to the taxing power of the State, did not
mean that in the absence of such action, no
exaction could be imposed on the goods. Rather,
the Court clearly implied that the prohibition
would not apply to a state tax that treated
imported goods in their original packages no
differently from the "common mass of property in
the country"; that is, treated it in a manner that
did not depend on the foreign origins of the goods.

The Court noted that the opinion in Low v. Austin
had misread Chief Justice Taney's opinion in the
License Cases, which "makes crystal clear that the
prohibition applied only to state exactions upon
imports as imports and did not apply to nondis-
criminatory ad valorem property taxes." 423 U.S. at
300. See pages 18-19, supra.
(ii) In Complete Auto Transit, Inc. v. Brady, 430
U.S. 274 (1977), the Court held that the Commerce
Clause does not bar application of a generally applica-
ble state tax to the gross revenues of a company
engaged exclusively in the transportation of motor
vehicles in interstate commerce. The Court recon-
sidered and overruled its decision in Spector Motor

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30

Service, Inc. v. O'Connor, 340 U.S. 602 (1951), which,
following Robbins. had held that a State could not
impose a generally applicable licensing fee on persons
engaged in interstate commerce. See page 22 & note
8, supra. The Court noted in Complete Auto that it
was unquestioned. that the activity engaged in was
sufficiently connected to the State to justify a tax,
that the tax was fairly related to the benefit provided
to the taxpayer, that the tax did not discriminate
against interstate commerce, and that it was not
unfairly apportioned. 430 U.S. at 287. Under those
circumstances, the Court concluded that "the Spector
rule does not address the problems with which the
Commerce Clause is concerned" and overruled that
decision. Id. at 288. The Court's holding in Complete
Auto necessarily, albeit implicitly, overruled Robbins
and the "long line of 'drummer cases'" that that
decision had spawned. See note 8, supra.
(iii) In Department of Revenue of Washington v.
Association of Washington Stevedoring Companies,
435 U.S. 734 (1978), the Court considered the State of
Washington's renewed attempt to apply its gross
receipts tax to the proceeds from loading and un-
loading ocean-going vessels. In the earlier decisions
in Puget Sound and Joseph v. Carter & Weekes, the
Court had invoked the Commerce Clause to hold
unconstitutional the application of state gross re-
ceipts taxes to the proceeds of stevedoring cargoes in
interstate and foreign commerce. See page 24, supra.
In Washington Stevedoring, however, the Court had
little difficulty, after Complete Auto, in overruling
those decisions insofar as the Commerce Clause was
involved. 435 U.S. at 743-751.
The Import-Export Clause required separate con-
sideration. Michelin Tire had inquired whether a

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31

generally applicable tax that did not favor or disfavor
imports or exports conflicted with any of the policies
leading to the adoption of the Import-Export Clause
and had upheld the application of the property tax to
imported goods, whether or not in the original
package, when it found no friction or inconsistency.
A similar inquiry led the Court to conclude in
Washington Stevedoring that the generally applica-
ble Washington tax on gross receipts from stevedor-
ing offended none of the policies of the Import-Export
Clause. 435 U.S. at 754-755. The Court specifically
rejected the suggestion that the fact that Michelin
Tire dealt only with goods no longer in transit
required that the cases be differentiated. Id. at 755-
757. The Court explained that Canton Railroad
demonstrated that the analysis applied in Michelin
Tire was not to be discarded simply because the goods
were in transit.  Ibid. Moreover, the fact that
Michelin Tire involved only imports while the tax
involved in Washington Stevedoring related to pro-
ceeds from services for both imports and exports did
not call for a different conclusion. Id. at 757-758. The
Court held that the considerations that led to the
decision in Michelin Tire were equally applicable to
the Washington tax. Ibid. 11.
(iv) The Court's decision in Limbach v. Hooven &
Allison Co., 466 U.S. 353 (1984), serves as a supple-
ment to these three significant modern decisions. In
             
___________________(footnotes)                            

11 Justice Powell concurred separately in Washington Steve-
doring. He concluded that the controlling factor in that case,
as in Michelin Tire, was that local taxpayers should not be
required to subsidize the services used and enjoyed by im-
porters and exporters; instead, the consumer of such goods
should pay for the services rendered by government just as
they paid transportation costs. 435 U.S. at 761-764.

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32

Limbach, the Court made clear that more than a few
named decisions had been overruled by Michelin Tire,
Complete Auto, and Washington Stevedoring. In
overruling an earlier decision that had invalidated the
application of a "nondiscriminatory ad valorem per-
sonal property tax to imported fibers still in their
original packages" (466 U.S. at 354), the Court
emphasized that the reasoning that underlay such
decisions had been "repudiated" (id. at 362). The fact
that the Court had not explicitly named and cataloged
all of the cases whose reasoning had been rejected in
its more recent decisions did not mean that those
earlier decisions retained "current validity." Id. at
361. 
7. Application of The Modern Doctrine to the
Export Clause. The reasoning of the Court in
Michelin Tire and Washington Stevedoring applies
equally to nondiscriminatory federal taxes under the
Export Clause. Those decisions demonstrate that,
when a generally applicable, nondiscriminatory tax is
at issue, the mere fact that the tax applies also to
goods that are in the export or import process does
not provide a constitutional immunity from taxation.
See pages 27-29, supra. And, as the Court has
repeatedly emphasized since Brown v. Maryland, the
Export and Import-Export Clauses are comple-
mentary in scope. See pages 16-17, supra. 12.
As the court of appeals acknowledged in this ease
(Pet. App. 4a), and as Madison's Notes of Debates and
Warren's The Making of the Constitution demon-

___________________(footnotes)

12 Most recently, in Washington Stevedoring, the Court cited
Spalding (an Export Clause case) along with cases involving
state taxes and the Import-Export Clause to illustrate rea-
soning that was no longer approved. 435 U.S. at 752.

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33

strate, the Export Clause resulted from one of the
sectional divisions that marked the Constitutional
Convention. 13. In particular, it stemmed from the
"concern that a Congress controlled by the more
numerous and populous Northern States would
impose burdensome levies on Southern exports" (Pet.
App. 4a), including the "three great crops which grew
nowhere else,-tobacco, rice, and indigo" (note 13,
      
___________________(footnotes)

13 See Madison's Notes of Debates in the Federal Convention,
reproduced in 2 M. Farrand, The Records of the Federal Con-
vention of 1787, at 305-308, 359-363, 441-442 (1966) (proceedings
of August 16, 21, 28, 1787); C. Warren, The Making of the
Constitution 570-574 (reprint 1993) (1928). The central portion
of Warren's description is as follows (at 571-572) (footnote
omitted):

The question of a prohibition of taxes and duties on exports
now brought these sectional differences into an outbreak in
the Convention.
  
It is to be noted, as a preliminary to consideration of this
clash, that the Committee's proposal to forbid export duties
was a very radical departure from the theory and practice
theretofore prevailing in government taxation. As has
been well said: "To attempt to organize a Government
without the power to tax exports was a innovation. From
time immemorial, every nation had taxed whatever pro-
ductions of its soil its inhabitants might presume to export.
In the old economy, its maxim was to tax exports but to
admit imports free." The prohibition of export duty now
inserted in the new Constitution was not based, however,
on any change in economic theory but on purely political
and sectional conditions. The South, being agricultural
and having three great crops which grew nowhere else,
tobacco, rice, and indigo-feared that the possession of this
power by Congress could enable the North to discriminate
against it, by a tax which would operate only on the
peculiarly Southern articles of export. This fear had been
expressed early in the Convention.

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34

supra). This narrow historical purpose of the Export
Clause is complemented by the narrow language
employed in the Clause, which proscribes only federal
taxes "laid on Articles exported" (U.S. Const. Art. I,
9, Cl. 5).
There is obviously no basis for respondent to
contend that the generally applicable tax on insur-
ance imposed by Section 4371 of the Internal Revenue
Code conflicts with the policies that the Export
Clause embodies. This federal tax applies to many
forms of insurance that have no relation whatever to
exports or the export process (such as life insurance,
sickness and accident policies, indemnity bonds and
annuity contracts). See 26 U.S.C. 4371(1), (2). Even
as applied to casualty insurance, the tax unquestiona-
bly has only an incidental and remote relationship to
exports and the export process-and it applies equally
to wholly domestic commerce as well. 14. That the
statute does not discriminate against exports is clear
from its text, for it applies to insurance for any risk
that arises either ''wholly or partly within the United
States" (26 U.S.C. 4372(d)(1)). As this Court stated in
upholding the constitutionality of the federal tax
challenged in Peck & Co. v. Lowe, 247 U.S. at 175,
"There is no discrimination. At most, exportation is
affected only indirectly and remotely."
In view of the limited purpose and narrow language
of the Export Clause, there is no adequate rationale
for sifting through all possible applications of a
generally applicable, nondiscriminatory federal tax to
      
___________________(footnotes)

14 Even within the specific category of casualty insurance,
the statute applies to risks that have little or no connection
with exports and exportation such as fire, flood and earth-
quake.

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35

proscribe its application in remote contexts involving
exported goods. Consider, for example, a hypothetical
transaction that is not unrelated to the facts of this
case. A ship sets out from California with a cargo
produced in Arizona.  Part of the cargo will be
offloaded in British Columbia to a buyer doing
business there. The remainder of the cargo will be
delivered to a buyer in Alaska. The cargo has been
insured by a foreign insurer against damage or loss
for its entire journey-beginning with its loading on
trucks in Arizona and until delivery at the places of
business of the buyers in British Columbia and
Alaska. The nondiscrimination policies embodied in
the Export Clause plainly do not require that the
insurance covering the part of the cargo delivered in
British Columbia be made exempt from the federal tax
on insurance while the Alaska portion of cargo is not.
That would turn the constitutional shield against
discrimination in the Export Clause into a sword
requiring "preferential treatment" for exports and
"that permits escape from uniform taxes" imposed
without discrimination (Michelin Tire Corp. v.
Wages, 423 U.S. at 287).
As this Court noted in Cornell v. Coyne, 192 U.S.
at 427, the Export Clause "does not mean that articles
exported are relieved from the prior ordinary burdens
of taxation which rest upon all property similarly
situated."  The United States-like the States-
assists and protects respondent's shipments over
highways within the United States (financed in
substantial part by the federal government) as well as
in the movement of such goods by sea or air beyond
our borders. As a nondiscriminatory, generally appli-
cable tax designed to raise revenues for the perform-
ance of government services, the tax imposed by

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36

Section 4371 is not unconstitutional. Here, as in Peck
& Co. v. Lowe, the tax should be upheld because it is
"not laid on" exports or the export process uniquely
"or in a discriminative way" (247 U.S. at 174).
It should be emphasized that the Commerce Clause
provides Congress with comprehensive authority
over exports as well as imports. It was established
early that Congress has the power to embargo or
otherwise control the export of such goods or
materials as the national interest indicates, Gibbons
v. Ogden, 22 U.S. (9 Wheat.) 1, 191-192 (1824); United
States v. Marigold, 50 U.S. (9 How.) 560, 566-567
(1850); United States v. The William, 28 Fed. Cas.
614, 620-623 (D. Mass. 1808) (No. 16,700). 15. It is also
clear that Congress may take into account-both in
regulating commerce with foreign nations and in
laying and collecting taxes-the competitive advan-
tages enjoyed by foreign nationals and foreign
corporations, Board of Trustees v. United States, 289
U.S. 48,58 (1933). The Export Clause removes only a
small and narrowly defined area from the wide-
ranging authority provided to the Congress by the
Constitution.
Considering the origin, text and narrow objectives
of the Export Clause, the role of that Clause within
the broader structure of the Constitution, and this
Court's recent decisions, the prohibitions of that
Clause should be confined to discriminatory taxes

___________________(footnotes)

15 That authority has recently been exercised in the
enactment of the Export Administration Act of 1979, 50 U.S.C.
App. 2401-2420. See Moller-Butcher v. United States Depart-
ment of Commerce, 12 F.3d 249 (D.C. Cir. 1994); United States
v. Bozarov, 974 F.2d 1037 (9th Cir. 1992), cert. denied, 113 S.
Ct. 1273 (1993).

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37

imposed specifically upon "Articles exported." The
generally applicable, nondiscriminatory tax on in-
surance imposed by Section 4371 of the Internal
Revenue Code does not violate that standard.
       
CONCLUSION

The judgment of the court of appeals should be
reversed.
Respectfully submitted.

DREW S. DAYS, III
Solicitor General

LORETTA C. ARGRETT
Assistant Attorney General

LAWRENCE G. WALLACE
Deputy Solicitor General

KENT L. JONES
Assistant to the Solicitor
General

GARY R. ALLEN
ERNEST J. BROWN
Attorneys

JANUARY 1996

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No. 95-591

In the Supreme Court of the United States

OCTOBER TERM, 1995

UNITED STATES OF AMERICA, PETITIONER

v.

INTERNATIONAL BUSINESS MACHINES CORPORATION

ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

REPLY BRIEF FOR THE UNITED STATES

DREW S. DAYS, III
Solicitor General
Department of Justice
Washington, D.C. 20530
(202) 514-2217

---------------------------------------- Page Break ----------------------------------------

TABLE OF AUTHORITIES

Cases:                   

Page     

Alabama v. King & Boozer, 314 U.S. 1 (1941) . . . . 14
Brown v. Maryland, 25 U.S. (12 Wheat.) 419
(1827) . . . . 8, 12, 15
Burnet v. Coronado Oil & Gus Co., 285 U.S. 393
(1932) . . . . 13
City of Detroit v. Murray Corp., 355 U.S. 489
(1958) . . . . 14
Collector v. Day, 78 U.S. (11 Wall.) 113(1871) . . . . 14
Complete Auto Transit, Inc. v. Brady, 430 U.S.
274 (1977) . . . . 6
Cornell v. Coyne, 192 U.S. 418 (1904) . . . . 2, 4, 7-8, 10
Department of Revenue v. Association of Washing-
ton Stevedoring Cos., 435 U.S. 734 (1978) . . . . 5, 7
Fairbank v. United States, 181 U.S. 283 (1901) . . . . 4
Fox Film Corp. v. Doyal, 286 U.S. 123 (1932) . . . . 13
Gillespie v. Oklahoma, 257 U.S. 501 (1922) . . . . 13
Graves v. New York ex rel. O'Keefe, 306 U.S. 466
(1939) . . . . 13, 14
Graves v. Texas Co., 298 U.S. 393 (1936) . . . . 14
Helvering v. Mountain Producers Corp., 303 U.S.
376 (1938) . . . . 13
License Cases, 46 U.S. (5 How.) 504 (1847) . . . . 9
Limbach v. Hooven & Allison Co., 466 U.S. 353
(1984) . . . . 6
Long v. Rockwood, 277 U. S. 142 (1928) . . . . 13
Low v. Austin, 80 U.S. (13 Wall.) 29 (1872) . . . . 9
Michelin Tire Corp. v. Wages, 423 U.S. 276
(1976) . . . . 5, 7, 9, 10, 15, 16
New York ex rel. Rogers v. Graves, 299 U.S. 401
(1937) . . . . 13
Pace v. Burgess, 92 U.S. 372 (1876) . . . . 2
Panhandle Oil Co. v. Mississippi ex rel. Knox,
277 U.S. 218(1928) . . . . 14
Peck & Co. v. Lowe, 247 U.S. 165 (1918) . . . . 2, 4, 7

(I)

---------------------------------------- Page Break ----------------------------------------

II

Cases-Continued:              

Page

Pollock v. Farmers Loan & Trust Co., 157 U.S.
429 (1895) . . . . 14
Robbins v. Shelby County Taxing District, 120 U.S.
489 (1887) . . . . 6
South Carolina v. Baker, 485 U.S. 505 (1988) . . . . 14
Thames & Mersey Marine Ins. Co. v. United States,
237 U.S. 19 (1915) . . . . 2
Turpin v. Burgess, 117 U.S. 504 (1886) . . . . 2, 3, 4, 10, 12
United States v. County of Allegheny, 322 U.S. 174
(1944) . . . . 14
United States v. City of Detroit, 355 U.S. 466
(1958) . . . . 14
United States v. Hvoslef 237 U.S. 1 (1915) . . . . 2, 6
United States v. Township of Muskegon, 355 U.S.
484 (1958) . . . . 14
Willcuts v. Burro, 282 U.S. 216 (1931) . . . . 13

Constitution and statutes:

U.S. Const.:
Art. I, 8, Cl. 3 (Commerce Clause) . . . . 6
Art. I, 9, Cl. 5 (Export Clause) . . . . passim
Art. I, 10, Cl. 2 (Import-Export Clause) . . . . 7, 8,
							9, 10, 12
Internal Revenue Code, 26 U.S.C. 4371  . . . . 1, 14, 16, 16
War Revenue Act of 1898, ch. 448, 25 (Schedule A),
30 Stat. 459 . . . . 4, 5

Miscellaneous:

Black's Law Dictionary (6th ed. 1990) . . . . 11
Justice Story's Commentaries on the Constitution
(1833) (R. Rotunda and J. Nowak reprint, 1987,
Carolina Academic Press) . . . . 11
Webster's Third New International Dictionary
(Unabridged) (1986) . . . . 11

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In the Supreme Court of the United States

OCTOBER TERM, 1995

No. 95-591
  
UNITED STATES OF AMERICA, PETITIONER
          
v.

INTERNATIONAL BUSINESS Machines CORPORATION
      
ON WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT

REPLY BRIEF FOR THE UNITED STATES

It is appropriate to emphasize at the outset the
precise nature of respondent's claim in this case.
Respondent does not dispute that the tax imposed by
Section 4371 of the Internal Revenue Code may con-
stitutionally apply to insurance obtained in con-
nection with domestic shipments of goods. Instead,
respondent claims only that this tax may not apply to
insurance procured in connection with shipments of
goods to foreign countries. If, for example, respon-
dent ships cargo on a voyage from California to
Alaska, with an intermediate stop in British Colum-
bia, respondent asserts only that the insurance for
the shipment offloaded in British Columbia-not the
insurance for the shipment continuing on to Alaska

(1)

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2

-is constitutionally exempt from the generally ap-
plicable federal tax.
Respondent's submission is thus grounded in the
proposition that the Export Clause requires prefer-
ential, rather than nondiscriminatory, treatment of
exports and the export process. No decision of this
Court prior to Hvoslef and Thames & Mersey sup-
ports respondent's submission, and decisions both
prior and subsequent to those cases contradict it.
1. a. Respondent errs in contending (Resp. Br. 9-26)
that United States v. Hvoslef, 237 U.S. 1 (1915), and
Thames & Mersey Marine Ins. Co. v. United States,
237 U.S. 19 (1915), are part of an unbroken line of
authority supporting the view that generally ap-
plicable, nondiscriminatory taxes are invalid as ap-
plied to goods for export and export transactions.
Decisions of this Court both before and after Hvoslef
and Thames & Mersey hold that "a general tax, laid
on all property alike, and not levied on goods in course
of exportation, nor because of their intended expor-
tation, is not within. the constitutional prohibition."
Turpin v. Burgess, 117 U.S. 504, 507 (1886). See also
Peck & Co. v. Lowe, 247 U.S. 165, 175 (1918); Cornell
v. Coyne, 192 U.S. 418,427-428 (1904). 1.

___________________(footnotes)
                                   
1 The first two decisions of this Court under the Export
Clause involved a federal tax on manufactured tobacco
products. Tobacco intended for export was exempt from this
tax, subject to the requirement that packages for export be
identified by an engraved stamp costing 25 cents.  Pace v.
Burgess, 92 U.S. 372 (1876); Turpin v. Burgess, 117 U.S. 504
(1886). In each case, the plaintiffs sought a refund of amounts
paid for the identifying stamps. In Pace, the Court concluded
that the stamp requirement did not violate the Export Clause
because it was not itself a tax but merely a device to prevent
fraud and to deter untaxed tobacco products from entering the

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3

Respondent claims that this passage from Turpin
v. Burgess supports the proposition that even a non-
discriminatory tax `laid on all property alike" (117
U.S. at 507) is constitutionally barred from applying
to "goods in course of exportation" (ibid.)-goods that
have commenced what respondent refers to as the
"export process" (Resp. Br. 20). It is axiomatic, how-
ever, that a tax that is "laid on all property alike"
reaches, by definition, goods in the "export process."
Goods in the export process are a subset of "all
property." In the quoted passage from Turpin v.
Burgess, the Court was distinguishing between taxes
of general application, which the Export Clause does
not proscribe, and taxes that are laid specifically, or
discriminatorily, "on goods in course of exportation"
or "because of their intended exportation" (117 U.S.
at 507), which are unconstitutional. The Court made
this clear by emphasizing in Turpin that, if the
"same" tax applicable to domestic products had also

___________________(footnotes)
                                                  
domestic economy. When Congress thereafter removed the
charge for the identifying stamp in a statute that referred to it
as an "export tax," Turpin brought suit to recover amounts he
had paid. The Court rejected that claim, relying again on the
analysis set forth in Pace. The Court in Turpin went on to say
that, even if the charge for the stamp was a tax, it was "a
general tax, laid on all property alike," rather than a specific
tax on or related to exports. The Court concluded (117 U.S. at
507):

Had the same excise which was laid upon all other tobacco
manufactured by the plaintiffs been laid on the tobacco in
question, they could not have complained.

This conclusion is, of course, inconsistent with respondent's
contention that an unbroken line of authority supports the
holding in Hvoslef and Thames & Mersey that a nondiscrim-
inatory tax may not be applied to goods for export.

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4

been applied to goods for export, the taxpayer "could
not have complained" (ibid.). See also Peck & Co. v.
Lowe, 247 U.S. at 175 (upholding a federal tax that
applied without "discrimination" and that affected
"exportation * * * only indirectly and remotely");
note 1, supra.
The Court reached this same conclusion in Cornell
v. Coyne, 192 U.S. 418 (1904), in upholding application
of a general excise tax on "filled cheese" even as ap-
plied to such cheese produced specifically for export.
Id. at 427. The Court explained that "[t]he constitu-
tional prohibition against taxing exports is substan-
tially the same when directed to the United States as
when directed to a State" and that "in both cases" it
refers to duties imposed "by reason or because of" the
exportation; it does not refer to "a general tax, laid on
all property alike" (ibid., quoting Turpin v. Burgess,
117 U.S. at 506). In so holding, the Court explained
that the Export Clause does not relieve exports "from
the prior ordinary burdens of taxation which rest
upon all property similarly situated" (192 U.S. at
427). 2.
Respondent's suggestion that goods in the "export
process" are to be relieved "from the prior ordinary
burdens of taxation which rest upon all property
similarly situated" is, in substance, a claim that a
converse of the "original package" doctrine should
               
___________________(footnotes)

2 The only other case decided under the Export Clause
prior to Hvoslef and Thames & Mersey was Fairbank v. United
States, 181 U.S. 283 (1901).  In Fairbank, the Court held
unconstitutional a stamp tax on bills of lading "for any goods,
merchandise, or effects, to be exported from a port or place in
the United States" (ch. 448, 25 (Schedule A), 30 Stat. 459).
By its terms, this tax was specifically on, and limited to, export
transactions.

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5

apply under the Export Clause. Under respondent's
theory, when an article of commerce crosses an
imaginary line representing the beginning of what
respondent would view as the "export process," an
absolute immunity from general taxes for that good
and for any handling of that good (and for any
insurance upon the handling of that good) arises
under the Export Clause. But this Court rejected
precisely that type of formalistic reasoning in
Michelin Tire Corp. v. Wages, 423 U.S. 276, 298
(1976), in concluding that a tax imposed on imported
articles in their "original package" is constitu-
tionally permissible if the tax does not treat "im-
ported goods * * * differently from the 'common
mass of property in the country' * * *." See also
Department of Revenue v. Association of Wash-
ington Stevedoring Cos., 435 U.S. 734 (1978) (uphold-
ing application of a nondiscriminatory state tax to
revenues from stevedoring services rendered in the
"process" of importing and exporting goods). A
nondiscriminatory federal tax that does not treat
"[exported] goods * * * differently from the `com-
mon mass of property in the country'" is similarly
constitutional. See Pet. Br. 32-37.
b. The 1915 decisions in Hvoslef and Thames &
Mersey involved stamp taxes imposed by the War
Revenue Act of 1898. Hvoslef involved a stamp tax on
any "contract or agreement for the charter of any
ship" without reference to the destination or area of
operation of the ship. Thames & Mersey involved a
stamp tax on policies of marine insurance "whether
covering peril by sea or on inland waters."  The
challenged taxes thus applied without discrimination
to both domestic and foreign commerce. Falling on all
property alike, the taxes were of the type that this

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6

Court had concluded should be sustained in Cornell
and Turpin.
In Hvoslef and Thames & Mersey, however, the
Court relied on the rationale of Robbins v. Shelby
County Taxing District, 120 U.S. 489 (1887), for the
proposition that even nondiscriminatory taxes may
not constitutionally be applied to exports or to export
transactions. 3. See 237 U.S. at 18. In Robbins, the
Court had held that the Commerce Clause precludes
application of general, nondiscriminatory state taxes
to interstate commerce. In Hvoslef, the Court stated
that it knew "of no ground upon which" the treatment
afforded to nondiscriminatory state taxes under the
Commerce Clause should differ from the treatment to
be afforded to nondiscriminatory federal taxes under
the Export Clause. 237 U.S. at 18.
The reasoning that the Court applied in Robbins, of
course, was subsequently "repudiated" by this Court
in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
(1977). See Limbach v. Hooven & Allison Co., 466
U.S. 353, 362 (1984); Pet. Br. 29-30. Aside from the
rationale of Rob bins, which has now been repudiated,
there was and is no authority for the conclusion
reached by the Court in Hvoslef and Thames &
Mersey.
c. Respondent suggests (Resp. Br. 23) that the
tenuous line of authority in which it asserts Hvoslef
             
___________________(footnotes)

3 In Hvoslef, the Court also relied on Fairbank v. United
States, supra, for the proposition that a tax on bills of lading is
equivalent to a tax on the article exported. 237 U.S. at 14-15.
But Fairbank involved a discriminatory tax that applied only
to exported goods (see note 2, supra) and Hvoslef did not. In
Hvoslef, the Court therefore relied exclusively on Robbins as
support for its holding that a nondiscriminatory tax may not
constitutionally be applied to goods for export. 237 U.S. at 18.

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7

and Thames & Mersey are located extends to Peck &
Co. v. Lowe, 247 U.S. 165 (1918). In that case, the
Court, after reviewing each of the earlier cases
involving the Export Clause, upheld the application of
the federal income tax to income from export sales.
The Court noted that the income tax is on net income,
rather than on gross export sales. The more funda-
mental rationale for that decision, however, is found
in the Court's observation that the income tax is a
general tax, "not laid on income from exportation
because of its source, or in a discriminatory way, but
just as it is laid on other income." See Pet. Br. 25-26
&n. 9. The Court emphasized in Peck & Co. that the
tax involved "no discrimination" and that, "[a]t most,
exportation is affected only indirectly and remotely."
247 U.S. at 175. That same rationale sustains the
nondiscriminatory tax challenged in this case.
d. Finally, the unbroken line of authority pro-
claimed by respondent assuredly does not include this
Court's most recent decisions dealing with the
subject. In Michelin Tire Corp. v. Wages, the Court
noted that its decisions had made "crystal clear" that
the Import-Export Clause does not bar application of
nondiscriminatory state taxes to imports-whether
in the "original package" or not. 423 U.S. at 300.
And, in Washington Stevedoring, the Court applied
that same reasoning in upholding the application of
nondiscriminatory state taxes to the handling of
goods for export (an aspect of what respondent terms
the "export process" (Resp. Br. 20)). 435 U.S. at 757-
758.
This Court has often emphasized that "[t]he con-
stitutional prohibition against taxing exports is
substantially the same when directed to the United
States as when directed to a State." Cornell v.

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8

Coyne, 192 U.S. at 427. Although there is "some
diversity in language" between the Export and
Import-Export Clauses, "none is perceivable in the
act which is prohibited." Brown v. Maryland, 25
U.S. (12 Wheat.) 419, 445 (1827). As we explain in
detail in our opening brief (Pet. Br. 32-37), the same
reasons that led this Court to uphold the application
of nondiscriminatory state taxes to the "export
process" under the Import-Export Clause require
that similarly nondiscriminatory federal taxes be
upheld under the Export Clause. Indeed, it would be
decidedly contrary to the overall scheme of the
Constitution to hold that in this one area the States
have greater discretion than the federal government
to enact laws affecting foreign commerce. See Pet.
Br. 36.
2. Respondent seeks to minimize the significance
of Michelin Tire Corp. and Washington Stevedoring
by magnifying the difference in phrasing of the
Export Clause and the Import-Export Clause. The
former specifies that "No Tax or Duty shall be laid on
Articles Exported" (U.S. Const. Art. I, 9, CL 5); the
latter provides that "No State shall * * * lay any
Imposts or Duties on Imports or Exports" (U.S.
Const. Art. I, 10, Cl. 2). Respondent contends that
the analysis applied by this Court in Michelin Tire
Corp. and Washington Stevedoring is inapplicable to
cases involving the Export Clause because the
"absence of a prohibition on `taxes' in the Im-
port/Export Clause was central to the" Court's de-
cisions in those cases (Resp. Br. 32). There are two
answers to respondent's contention; (i) it misde-
scribes the Court's opinions and (ii) it is based on a
misunderstanding of the words employed in these
constitutional Clauses.

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9

a. In Michelin Tire Corp., the Court held that a
"nondiscriminatory" tax on imported goods located
within a State is not unconstitutional and that the
Court had erred 100 years earlier when it ruled to the
contrary in Low v. Austin, 80 U.S. (13 Wall.) 29
(187.2). The Court made that point at the outset of its
opinion (423 U.S. at 279), explained that nondiscrim-
inatory taxes of general application do not offend the
objectives of the Import-Export Clause (id. at 283-
290), noted that a nondiscriminatory general tax does
not clearly represent an "impost" or "duty" laid on
imports or exports (id. at 291-292), and "decline[d] to
presume [the Clause] was intended to embrace tax-
ation that does not create the evils the Clause was
specifically intended to eliminate" (id. at 293-294).
The "Court explained that, as long ago as its 1847
opinion in the License Cases, 46 U.S. (5 How.) 504, the
Court had made "crystal clear" that nondiscrim-
inatory taxes do not offend the Constitution, which
proscribes only "exactions upon imports as imports"
(423 U.S. at 300). The Court's decision in Low v.
Austin, which had held to the contrary, was therefore
overruled (id. at 279).
The "central" point of Michelin is thus twofold.
First, that the Import-Export Clause is designed to
proscribe only "exactions upon imports as imports"
(and upon "exports as exports"); and second, that the
text of that Clause should not be read to proscribe
exactions that do not offend that purpose.
That same analysis applies to the Export Clause.
The text of the Export Clause proscribes only taxes
"laid on Articles exported." As we explain in detail in
our opening brief (Pet. Br. 32-37), the limited pur-
poses of the Export Clause, as well as its narrow text,
reflect that it is designed to proscribe only exactions

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10

upon exports as exports. A nondiscriminatory tax
that falls on "all goods alike" is not an exaction upon
exports as exports and should therefore be sustained.
See, e.g., Cornell v. Coyne, 192 U.S. at 428; Turpin v.
Burgess, 117 US. at 507. See also Michelin Tire
Corp. v. Wages, 423 U.S. at 300.
Particularly at a time when export trade in-
creasingly represents a growing portion of our
Nation's commerce, it is inappropriate to disregard
the limited purpose and narrow text of the Export
Clause to provide an absolute immunity for the
"export process," as respondent urges. By providing
an immunity from taxation upon exports as exports,
the Constitution does not preclude generally applic-
able taxes that fall on all goods alike. As this Court
has emphasized, the Constitution does not shield
articles of export from the same "ordinary burdens of
taxation" that also apply to domestic commerce.
Cornell v. Coyne, 192 U.S. at 427.
b. Respondent's contention that the Export Clause
prohibits application of nondiscriminatory taxes to
the "export process''-even though the Import-
Export Clause concealedly does not-is grounded on
respondent's assertion that the phrase "impost or
duty" in the Import-Export Clause is conceptually
distinct from the phrase "tax or duty" in the Export
Clause. That contention is not correct.
The English language is rich with synonyms. One
result of the Norman Conquest, and of the waves of
earlier and later commercial and political interaction
with the Continent, is that there are innumerable
examples in English usage of words that have differ-
ent origins but indistinct or overlapping meanings.
This is particularly so with respect to governmental
functions: a lawyer and an attorney, a sheriff and a

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11

marshal, an earl and a duke, are examples. A more
relevant example is a "tax" and an "impost." The
word "impost" comes from Middle French "and is
derived from the Medieval Latin "impositum." These
terms signify an "imposition." See Webster's Third
New International Dictionary (Unabridged) 1136
(1986). In usage, an "impost" is a governmental form
of imposition: it is "something imposed or levied: TAX,
TRIBUTE, DUTY." Ibid.
As its derivation and usage reflects, there is no
freed distinction between an "impost" and a "tax."
These are words of separate origin that describe an
undifferentiated and overlapping concept. For exam-
ple, Black's Law Dictionary 756 (6th ed. 1990) defines
the word "imposts" as "Taxes, duties, or impositions
levied for divers reasons. * * * Generic term
for taxes." Authority more nearly contemporaneous
with the adoption of the Constitution also states (Jus-
tice Story's Commentaries on the Constitution 472,
at 337 (1833) (R. Rotunda and J. Nowak reprint,
Carolina Academic Press 1987)):

In a general sense, all contributions imposed by
the government upon individuals for service of the
state, are called taxes, by whatever name they
may be known, whether by the name of tribute,
tythe, talliage, impost, duty, gabel, custom, sub-
sidy, aid, supply, excise, or other name.

Justice Story observed that the word "imposts" is (id.
474, at 339):

sometimes used in the large sense of taxes, or
duties, or impositions, and sometimes in the more
restrained sense of a duty on imported goods and
merchandise.

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12

Brown v. Maryland, which was the Court's first
decision under the Import-Export Clause, was a con-
test over this issue of usage or meaning.  Chief
Justice Marshall announced near the outset of the
opinion that "[t]he counsel for the state of Maryland
would confine this prohibition [of imposts and duties
on imports and exports] to laws imposing duties on
the act of importation or exportation. The counsel for
the plaintiffs in error give them a much wider scope,"
25 U.S. (12 Wheat.) at 437. The Court then con-
sidered, in a number of contexts, the results of each
view, and consistently found support for the broader
view. The Court concluded that the term "impost" is
not used in a narrow or fixed manner, but generally
signifies a "tax levied on articles brought into a
country" (ibid.). That explanation of the term, of
course, parallels the text of the Export Clause, which
prohibits any "Tax or Duty * * * laid on Articles
exported" (U.S. Const. Art. I,  9, Cl. 5). It was in
that context that Chief Justice Marshall explained
that the terms of the Import-Export Clause and the
Export Clause are not distinguishable in meaning:
"There is some diversity in language, but none is
perceivable in the act which is prohibited." 25 U.S.
(12 Wheat.) at 445. In Turpin v. Burgess, 117 U.S. at
506, the Court similarly concluded that "the constitu-
tional prohibition against taxing exports is substan-
tially the same when directed to the United States as
when directed to a State."
As this Court has firmly concluded, there is no
textual basis to differentiate "the constitutional pro-
hibition against taxing exports" set out in these two
Clauses. And, as we have previously shown (Pet. Br.
32-37), the limited purposes of the Export and Import-
Export Clauses compel this same conclusion. For the

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13

same reasons that a generally applicable, nondiscrim-
inatory state tax may constitutionally be applied to
goods for export and to the "export process," the
generally applicable, nondiscriminatory federal tax
involved in this case should also be upheld. 4.  

___________________(footnotes)

4 In addition to Michelin, Washington Stevedoring, and
Complete Auto, the Court has issued numerous decisions that
overruled older precedent that, in a variety of constitutional
contexts, had upheld claims for immunity from generally appli-
cable, nondiscriminatory taxes. As Chief Justice Hughes noted
in Helvering v. Mountain Producers Corp., 303 U.S. 376, 385
(1938), quoting Willcuts v. Bunn, 282 U.S. 216, 225 (1931):
  
In numerous decisions we have had occasion to declare
* * * that the power to tax should not be crippled "by
extending the constitutional exemption from taxation to
those subjects which fall within the general application of
non-discriminatory laws * * * ."

(a) In Fox Film Corp. v. Doyal, 286 U.S. 123 (1932), the
Court upheld a state business tax on gross receipts as applied to
royalties from copyrights. The Court "definitely overruled"
Long v. Rockwood, 277 U.S. 142(1928), which had held that a
state income tax could not constitutionally be applied to
royalties paid for the use of patents issued by the United
States. 286 U.S. at 131.

(b) In Helvering v. Mountain Producers Corp., 303 U.S. at
385, the Court upheld application of the federal income tax to
income received by a private taxpayer from an oil lease of
state-owned land. In so holding, the Court overruled Gillespie
v. Oklahoma, 257 U.S. 501 (1922), which had held that Okla-
homa could not constitutionally apply its income tax to the
income of a lessee of restricted Indian lands, and overruled
Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932), which
had held that the federal income tax could not be applied to the
income derived by a lessee of lands owned by a State. See 303
U.S. at 387.

(c) In Graves v. New York ex rel. O'Keefe, 306 U.S. 466,486
(1939), the Court overruled New York ex rel. Rogers v. Graves,
299 U.S. 401 (1937), which had held that a state income tax

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14

3. Accepting for purposes of argument that the
constitutional reasoning of Michelin Tire Corp. and
Washington Stevedoring is fully applicable under the
Export Clause, respondent asserts that the nondis-
criminatory tax imposed by Section 4371 is none-
theless unconstitutional as applied to insurance for
foreign shipments of export goods.  Respondent
claims that factual differences make Michelin Tire

___________________(footnotes)

                                         
could not be applied to the salary of an employee of a federal
instrumentality, and also overruled Collector v. Day, 78 U.S.
(11 Wall.) 113 (1871), which had held the salary of state judges
to be immune from the federal income tax. 306 U.S. at 486.

(d) In Alabama v. King & Boozer, 314 U.S. 1, 9 (1941), the
Court held that the Constitution did not preclude application of
state sales taxes to purchases of building materials by a con-
tractor performing a cost-plus contract for the United States.
In so holding, the Court overruled Panhandle Oil Co. v. Mis-
sissippi et rel. Knox, 277 U.S. 218 (1928), and Graves v. Texas
Co., 298 U.S. 393 (1936).

(e) In United States v. City of Detroit, 355 U.S. 466 (1958),
United States v. Township of Muskegon, 355 U.S. 484 (1958),
and City of Detroit v. Murray Corp, 355 U.S. 489 (1958), the
Court upheld the application of Michigan property and use
taxes against industrial taxpayers who leased and occupied real
property owned by the United States in the performance of
supply contracts with the United States. In each case, the
United States unsuccessfully invoked United States v. County
of Allegheny, 322 U.S. 174 (1944), which had held that a
government contractor could not constitutionally be liable for a
state property tax on machinery owned by the United States.

(f) In South Carolina v. Baker, 485 U.S. 505, 524 (1988), the
Court held that interest on bonds issued by States and their
political subdivisions is exempt from the federal income tax
only by virtue of the statutory provisions of the Internal Rev-
enue Code and not because of any constitutional requirement.
In so holding, the Court overruled Pollock v. Farmers Loan &
Trust Co., 157 U.S. 429 (1895).

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15

Corp. and Washington Stevedoring "distinguishable"
from the present case" (Resp. Br. 42).
a. Respondent claims that Washington Stevedor-
ing is inapposite because the cost of stevedoring
services, unlike the cost of insurance, has no econom-
ic relation to the value of the exported goods (Resp.
Br. 43). That alleged distinction, however, totally
ignores the facts and holding of Michelin Tire Corp..
The nondiscriminatory ad valorem property tax that
the Court upheld in Michelin was, of course, directly
related to the value of the imported goods. It is the
very nature of an ad valorem tax for the amount of
the tax to be related to the value of the property. The
relationship between the value of the goods and the
challenged tax in Michelin was thus unquestionably
more direct than in the present case, for the cost of
the casualty insurance taxed under Section 4371 of
the Internal Revenue Code varies not only with the
value of the goods but also with the nature, duration
and destination of the shipment.
b. Respondent claims that Michelin Tire Corp. is
inapposite because the imported goods taxed in that
case "were no longer in transit" (Resp. Br. 42). In
making that contention, respondent ignores what is
perhaps the most essential feature of the Court's
decision in that case. As the Court emphasized in
Michelin, the fact that goods remain in transit and
have not yet been "so mingle[d] * * * with the
common property within the State as to `lose their
distinctive character as imports' * * * did not mean
that * * * no exaction could be imposed on the
goods." 423 U.S. at 298, paraphrasing Brown v.
Maryland, 25 U.S. (12 Wheat.) at 441-442. The Court
held that a State does not violate the Constitution by
taxing property, whether imported or domestic, "in a

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16

manner that [does] not depend on the foreign origins
of the goods." 423 U.S. at 298. Respondent's claim of
a factual distinction based upon the fact that the
goods in this case are "in transit" also ignores that
the imported and exported goods for which steve-
doring services were provided-and taxed-in Wash -
ington Stevedoring were unquestionably "in tran-
sit." The essential task of stevedoring, of course, is
to assist the "transit" of goods.
c.  The purported factual distinctions on which
respondent relies in its effort to distinguish this case
from Michelin and Washington Stevedoring thus
simply do not exist. Because the reasoning of Miche-
lin and Washington Stevedoring is equally applicable
to the Export Clause, and because the nondiscrim-
inatory tax imposed by Section 4371 is not imposed
directly or specifically on exports as exports, the fed-
eral tax challenged in this case should be sustained.
For the foregoing reasons and those set forth in
our opening brief, the judgment of the court of appeals
should be reversed.

Respectfully submitted.

DREW S. DAYS, III
Solicitor General

MARCH 1996

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