Court Opinion

ID: 9432616
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:35:50.595545+00
Date Added: 2024-06-11T17:23:34.936171
License: Public Domain

ChieF Justice Rehnquist,
with whom Justice Black-mun joins,
dissenting.
Petitioner in this case limits its Commerce Clause challenge to a single argument — that Iowa’s taxing scheme unconstitutionally discriminates against foreign commerce. It has brought a facial challenge to the Iowa taxing scheme. The burden on one making a facial challenge to the constitutionality of a statute is heavy; the litigant must show that “no set of circumstances exists under which the Act would be valid. The fact that [the tax] might operate unconstitutionally under some conceivable set of circumstances is *83insufficient to render it wholly invalid.” United States v. Salerno, 481 U. S. 739, 745 (1987).
The only case dealing with the Foreign Commerce Clause substantially relied on by the Court in its opinion upholding petitioner’s challenge to the Iowa statute is Japan Line, Ltd. v. County of Los Angeles, 441 U. S. 434 (1979). It is important, therefore, to note how different are the facts in that case from those in the present one. In Japan Line, California had levied a nondiscriminatory ad valorem property tax on cargo containers which were owned by Japanese shipping companies based in Japan, had their home ports in Japan, and were used exclusively in foreign commerce. The containers were physically present in California for a fractional part of the year, but only as a necessary incident of their employment in foreign commerce. Japan levied no tax on similarly situated property of United States shipping companies. -
In Container Corp. of America v. Franchise Tax Bd., 463 U. S. 159 (1983), where we upheld a California franchise tax against a claim of violation of the Foreign Commerce Clause, we noted at least two distinctions between that case and our earlier decision in Japan Line. First, the tax there imposed was not on a foreign entity, but on a domestic corporation. Second, the United States did not file a brief urging that the tax be struck down. 463 U. S., at 196. In the present case, like Container Corporation, the Iowa tax is imposed on a domestic corporation, not on a foreign entity. And in the present case, the Executive Branch has not merely remained neutral, as it did in Container Corporation, but has filed a brief urging that the tax be sustained against the Foreign Commerce Clause challenge.
The Court agrees that the Iowa tax involved here does not favor subsidiaries incorporated in Iowa over foreign subsidiaries, but points out that the tax does favor subsidiaries incorporated in other States over foreign subsidiaries. Iowa, obviously has no selfish motive to accomplish such a result, *84and the absence of such a motive is strong indication that none of the local advantage which has so often characterized our Commerce Clause decisions is sought here. See, e. g., Bacchus Imports, Ltd. v. Dias, 468 U. S. 263, 268 (1984). Indeed, petitioner carries on operations in Iowa, where the “State’s own political processes [can] serve as a check against unduly burdensome regulations.” Kassel v. Consolidated Freightways Corp. of Del., 450 U. S. 662, 675 (1981).
But assuming that it is sufficient to show simply that non-Iowa domestic “commerce” enjoys a benefit not enjoyed by foreign “commerce,” the Court surely errs in concluding that such a showing has been made in the present case. Because petitioner has chosen to make a facial challenge to the Iowa statute, the record is largely devoid of any evidence to suggest that Iowa’s taxing scheme systematically works to discourage foreign commerce to the advantage of its domestic counterpart.
Petitioner’s failures in this respect are severalfold. First, it is unclear on the present record what amount of foreign commerce is affected by the Iowa statute. The difficulty flows from our inability to make any useful generalizations about a corporation’s business activity based solely on the corporation’s country of incorporation. The Court recognizes that, in this era of substantial international trade, it is simple-minded to assume that a corporation’s foreign domicile necessarily reflects that it is principally, or even substantially, engaged in foreign commerce. Ante, at 76. To the contrary, foreign domiciled corporations may engage in little or even zero foreign activity. In such cases, the suggestion that Iowa’s tax has any real effect on foreign commerce is absurd; petitioner certainly has not demonstrated “by ‘clear and cogent evidence’ that [the state tax] results in extraterritorial values being taxed” in all cases. Franchise Tax Bd., supra, at 175. In turn, Iowa’s tax can hardly be found to always unconstitutionally discriminate against foreign commerce. Given that petitioner’s burden is to demonstrate *85that there are no circumstances in which Iowa’s statute could be constitutionally applied, the existence of such a possibility should be fatal to petitioner’s chances of success in this case.
The Court suggests that, even if foreign domiciled corporations are involved in no foreign trade, the dividend payments from subsidiary to parent are themselves “foreign commerce.” Ante, at 76. Again, this may be true in certain circumstances, as the payment of a dividend may represent a real flow of capital across international boundaries. But certainly there are other situations where the “foreign” aspects of a transaction are extraordinarily attenuated, and any burdening of such transactions concomitantly would not raise Foreign Commerce Clause concerns. Consider, for example, the case of a “foreign” subsidiary — i. e., one that is incorporated in a foreign country — but with operations exclusively in the United States. It has no assets in the foreign country, no operations, nothing of value whatsoever. The corporation declares a dividend payable to its United States parent. The payment in such circumstance may well be accomplished simply by debiting one New York bank account and crediting another. To characterize this as “foreign commerce” seems to me to stretch that term beyond all recognition. And again, the existence of such a possibility is sufficient to undermine petitioner’s facial challenge.
The Court appears to think these problems are surmounted by the parties’ stipulation that petitioner’s subsidiaries operated in “foreign commerce” and that foreign subsidiaries are often established for legitimate business reasons. Ibid. Of course, a stipulation between parties eannot bind this Court on a question of law. Moreover, even the facts that the stipulation establishes are sparse. It tells us nothing about the ratio in modern commerce of “real” foreign subsidiaries to their domestically oriented cousins. Indeed, on the present record it is impossible even to establish the scope of operation of Kraft’s subsidiaries. Compare App. to Pet. for Cert. 52a-53a (reporting foreign tax pay*86ments by 6 of petitioner’s subsidiaries) with id., at 76a-79a (listing petitioner’s 86 nonwholly owned subsidiaries). Without some greater detail, I think it is impossible to conclude that the Iowa taxing scheme would have such real and substantial effects that it could never survive constitutional muster.
Finally, Í cannot agree that, even if the dividend payments made taxable by the Iowa scheme are foreign commerce, that Iowa impermissibly discriminates against such payments. To be sure, two Iowa corporations, one with a foreign subsidiary and one with a domestic non-Iowa subsidiary will in some cases pay a different total tax. But this does not constitute unconstitutional discrimination because, as far as the record demonstrates, Iowa’s taxing scheme does not result in foreign commerce being systematically subject to higher tax burdens than domestic commerce. Given that 45 of 50 States tax corporations on their net income, ante, at 80, n. 22, in deciding to tax only a foreign subsidiary’s dividend payments, rather than the subsidiary’s total income, Iowa assures that the subsidiary’s tax burden is less than that faced by its domestic counterpart. The deduction that Iowa extends to domestically based dividend payments simply helps to avoid what would otherwise be the near certainty that the domestic income would be doubly taxed — once when earned as income by the subsidiary and a second time when paid to the parent corporation.
But Iowa’s attempt to take account of this near certainty with respect to domestic earnings does not in turn require it to make a similar assumption with respect to income earned by foreign sources. As amicus United States correctly points out, “[t]he record in this case fails to indicate even the existence, much less the nature, of such local-level foreign taxes .... Nor is there any evidence to reflect the credits or reductions that foreign local governments would apply or allow.” Brief for United States as Amicus Curiae 15, n. 21.
*87Finally, as I would reject petitioner’s Foreign Commerce Clause claim, I must go on to consider whether its Equal Protection Claim fares any better. It does not. In defending a tax classification such as this, a State need only demonstrate that the classification is rationally related to legitimate state purposes. Exxon Corp. v. Eagerton, 462 U. S. 176, 195 (1983). The statute will be upheld if it could reasonably be concluded “that the challenged classification would promote a legitimate state purpose.” Id., at 196. Administrative efficiency is certainly a legitimate state interest and Iowa’s reliance on the federal taxing scheme obviously furthers its achievement. Petitioner’s claim, therefore, must fail.
I would uphold the Iowa tax statute against this facial , challenge.