Opinion ID: 1940006
Heading Depth: 1
Heading Rank: 3

Heading: Application of Florida's Use Tax and New Sea Escape's Commerce Clause Challenge

Text: Florida's sales and use tax statute, found in section 212.05 of the Florida Statutes, permits the assessment of sales or use tax against every person ... who engages in the business of selling tangible personal property at retail in this state, ... or who stores for use or consumption in this state any item or article of tangible personal property as defined herein and who leases or rents such property within the state. § 212.05, Fla. Stat. (1997). On appeal, New Sea Escape argued that no tax, not even a pro rata amount, should be assessed against the gambling equipment because that equipment is only used once the vessel has sailed beyond Florida's territorial waters. The district court correctly rejected this assertion, citing the taxing statute, which broadly defines use to include the exercise of any right or power over tangible personal property incident to the ownership thereof, or interest therein. § 212.02(20), Fla. Stat. (1997). In addition, the district court properly invoked Klosters Rederi A/S v. State Department of Revenue, 348 So.2d 656 (Fla. 3d DCA 1977), where the Third District Court of Appeal determined that the removal from storage and placement of such items as facial tissue, toilet paper, and party supplies on a cruise ship departing from the Port of Miami constituted the taxable use of property within the State of Florida. [4] See id. at 658. As determined by the district court, the interpretation of use articulated in Klosters Rederi certainly extends to the instant case where the record demonstrates that the gambling equipment aboard New Sea Escape's vessel is installed, stored, and maintained in Florida, and that money is removed from the machines while the ship is docked in Port Everglades. We approve the district court's determination and reasoning on this point. Before this Court, New Sea Escape again urges that it is entitled to a complete exemption, asserting that taxation of its cruise-to-nowhere operations violates the Commerce Clause of the United States Constitution under the standard announced in Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434, 99 S.Ct. 1813, 60 L.Ed.2d 336 (1979). In Japan Line, the United States Supreme Court articulated a test for determining whether a state regulation affecting foreign commerce violates the Commerce Clause. As a basis for the standard, the Court borrowed the four-prong test set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), for determining the constitutionality of state taxation that affects interstate commerce. The decision in Complete Auto provided that if the state tax is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State, no impermissible burden on interstate commerce exists. Id. at 279, 97 S.Ct. 1076. The Court in Japan Line articulated two additional factors for consideration of taxes assessed against instrumentalities engaged in foreign commerce, which include whether the tax, notwithstanding apportionment, creates a substantial risk of international multiple taxation, and, second, whether the tax prevents the Federal Government from `speaking with one voice when regulating commercial relations with foreign governments.' Japan Line, 441 U.S. at 451, 99 S.Ct. 1813 (quoting Michelin Tire Corp. v. Wages, 423 U.S. 276, 285, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976)). The Supreme Court subsequently clarified this prong of the test, determining that a state tax at variance with federal policy will violate the `one voice' standard if it either implicates foreign policy issues which must be left to the Federal Government or violates a clear federal directive. Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159, 194, 103 S.Ct. 2933, 77 L.Ed.2d 545 (1983). New Sea Escape contends that Florida's sales and use tax contravenes the Japan Line standard because it subjects the company to risk of multiple taxation and prevents the federal government from addressing the issue of foreign commerce with one voice. Respondent's argument cannot, however, surmount the material differences between Japan Line and the instant case. Japan Line involved the application of an ad valorem property tax to cargo containers owned by Japanese shipping companies. See 441 U.S. at 436, 99 S.Ct. 1813. The shipping companies were all Japanese corporations with their principal places of business and commercial domiciles in that country, and the vessels used in shipping were registered and had their home ports in Japan. See id. The shipping containers also had their home ports in Japan, and were used exclusively for hire in the transportation of cargo in foreign commerce. Id. The Supreme Court specifically noted that the containers were subject to property tax in Japan and, in fact, [were] taxed there. Id. Thus, the issue in Japan Line was whether instrumentalities of commerce that are owned, based, and registered abroad and that are used exclusively in international commerce, may be subjected to apportioned ad valorem property taxation by a State. Id. at 444, 99 S.Ct. 1813. In the instant case, the respondent is a Bahamian corporation, but it is registered in the State of Florida as a dealer for Florida sales and use tax purposes and maintains its corporate offices in Fort Lauderdale. See New Sea Escape, 823 So.2d at 162. As previously stated, the gambling equipment aboard New Sea Escape's vessel is installed, stored, and maintained while the ship is docked in Florida. While the respondent asserts that multiple taxation is present in the instant case, the company does not profess that it is, or to what extent it is, subject to actual taxation in the Bahamas. New Sea Escape's contention that Florida's sales and use tax results in double taxation and prevents the federal government from speaking with one voice, without more, will not support a finding of a Commerce Clause violation under Japan Line as clarified in Container Corp. Our conclusion in this regard is bolstered by the fact that taxes were assessed against New Sea Escape on a prorated basis pursuant to section 212.08(8) of the Florida Statutes, which provides that vessels engaged in interstate or foreign commerce are subject to state taxation based on the number of miles traveled within Florida during the taxing year. See § 212.08(8)(a), Fla. Stat. (1997). This Court has specifically upheld the constitutionality of Florida's prorated sales and use tax statute. See Tropical Shipping & Constr. Co. v. Askew, 364 So.2d 433, 436 (Fla.1978). In Tropical Shipping, this Court recognized the balance that must be struck between the obligation to construe tax exemption statutes narrowly and the responsibility to ensure that the construction adheres to constitutional requirements by not deny[ing] businesses engaged in interstate or foreign commerce their right to be free from undue state interference. Id. at 435. Guided by these principles we determined: First we note that Florida has the right to tax interstate or foreign commerce to impose a fair share of the cost of the local government. Freeman v. Hewit, 329 U.S. 249, 67 S.Ct. 274, 91 L.Ed. 265 (1947). The United States Supreme Court has upheld the usage of a pro-ration formula to fairly apportion the cost of doing business in the state. Braniff Airways v. Nebraska State Board of Equalization and Assessment, 347 U.S. 590, 74 S.Ct. 757, 98 L.Ed. 967 (1954). Thus Florida's pro-ration of its sales and use tax is a valid method for insuring that business[es] engaged in interstate and foreign commerce pay their fair share. Id. at 436.