Itel Containers International Corp. v. Huddleston

Background

A Delaware company that leases large steel cargo containers used only in international shipping challenged Tennessee’s sales tax after the State assessed tax, penalties, and interest on leases delivered in Tennessee. The company argued the tax violated two international Container Conventions, related federal regulations, and constitutional protections that limit state taxation of imports and exports and foreign commerce.

Reasoning

The Court examined the words of the two Container Conventions and decided they bar only taxes that are imposed because of the act of importation itself, not every tax applied to containers while they are temporarily in a country. The majority found Tennessee’s tax is a nondiscriminatory sales tax on the transfer or lease transaction inside the State, not a customs duty tied to importation. The Court also concluded the tax does not frustrate federal objectives, and it noted the United States filed a brief supporting Tennessee’s view. The Court therefore rejected claims under the Commerce Clause, the Import-Export Clause, and federal supremacy.

Real world impact

As a result, Tennessee may collect its sales tax on container leases that occur inside the State, and other States may follow similar taxing approaches unless Congress or the Executive acts otherwise. The decision narrows the kinds of state taxes that the Container Conventions and federal law automatically prevent, focusing on taxes directly tied to importation.

Dissents or concurrances

Justice Scalia agreed in the judgment but criticized the Court’s tests for blocking state regulation; Justice Blackmun dissented, arguing the Conventions and international practice should bar direct state taxes on leased containers.