Xerox Corp. v. County of Harris

1982-12-13

Headline: Court blocks Texas and Houston from taxing imported goods stored in bonded customs warehouses, ruling local ad valorem property taxes are preempted while items remain under federal customs supervision awaiting export.

Holding: In a reviewed decision, the Court held that nondiscriminatory local ad valorem property taxes on imported goods stored under federal customs bond and held for export are preempted by Congress’ comprehensive customs scheme.

Real World Impact:

Bars local ad valorem taxes on goods held in federal customs-bonded warehouses awaiting export.
Protects the economic benefit of duty deferral and encourages use of U.S. ports and bonded storage.
Forces local tax collectors to avoid taxing bonded imported goods while under customs supervision.

Topics: imported goods taxation, customs bonded warehouses, local property taxes, trade and export rules

Summary

Background

A multinational company stored copying machines in a Houston customs-bonded warehouse after assembling them in Mexico. The machines were kept under federal customs supervision, never sold in the United States, and intended for export. Houston and Harris County assessed local ad valorem property taxes on the stored machines, and the company sued, arguing the taxes were unconstitutional because the federal customs system should prevent such local taxes.

Reasoning

The Court examined the long-standing federal customs warehousing system, Congress’s aim to encourage foreign trade, and earlier cases that had protected bonded storage from state taxation when that taxation would defeat federal goals. The majority concluded that allowing nondiscriminatory local property taxes on goods held under customs bond would undermine Congress’s comprehensive customs scheme and the competitive advantage Congress intended to create. The Court therefore held those taxes preempted and reversed the state court judgment.

Real world impact

After this ruling, local governments may not collect routine ad valorem property taxes on imported items while those items remain in federal customs-bonded storage and are under customs control awaiting export. The decision protects the federal policy of encouraging use of U.S. ports and bonded storage by preserving the economic benefit of duty deferral or remission. The Court remanded the case to the lower court for further proceedings consistent with this opinion.

Dissents or concurrances

A dissenting Justice argued there is no clear congressional intent to bar nondiscriminatory local property taxes, stressed that the taxes did not discriminate against interstate commerce, and emphasized that stored goods received local services like police and fire protection.