Article I, Section 8, Clause 3:
[The Congress shall have Power . . .] To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; . . .
State taxation and regulation of commerce from abroad are also subject to negative commerce clause constraints. In the seminal case of Brown v. Maryland, 1 in the course of striking down a state statute requiring
all importers of foreign articles or commodities, preparatory to selling the goods, to take out a license, Chief Justice Marshall developed a lengthy exegesis explaining why the law was void under both the Import-Export Clause 2 and the Commerce Clause. According to the Chief Justice, an inseparable part of the right to import was the right to sell, and a tax on the sale of an article is a tax on the article itself. Thus, the taxing power of the states did not extend in any form to imports from abroad so long as they remain
the property of the importer, in his warehouse, in the original form or package in which they were imported. This is the famous
original package doctrine. Only when the importer parts with his importations, mixes them into his general property by breaking up the packages, may the state treat them as taxable property.
Obviously, to the extent that the Import-Export Clause was construed to impose a complete ban on taxation of imports so long as they were in their original packages, there was little occasion to develop a Commerce Clause analysis that would have reached only discriminatory taxes or taxes upon goods in transit. 3 In other respects, however, the Court has applied the foreign commerce aspect of the clause more stringently against state taxation.
Thus, in Japan Line, Ltd. v. County of Los Angeles, 4 the Court held that, in addition to satisfying the four requirements that govern the permissibility of state taxation of interstate commerce, 5
When a State seeks to tax the instrumentalities of foreign commerce, two additional considerations . . . come into play. The first is the enhanced risk of multiple taxation. . . . Second, a state tax on the instrumentalities of foreign commerce may impair federal uniformity in an area where federal uniformity is essential. 6 Multiple taxation is to be avoided with respect to interstate commerce by apportionment so that no jurisdiction may tax all the property of a multistate business, and the rule of apportionment is enforced by the Supreme Court with jurisdiction over all the states. However, the Court is unable to enforce such a rule against another country, and the country of the domicile of the business may impose a tax on full value. Uniformity could be frustrated by disputes over multiple taxation, and trade disputes could result.
Applying both these concerns, the Court invalidated a state tax, a nondiscriminatory, ad valorem property tax, on foreign-owned instrumentalities, i.e., cargo containers, of international commerce. The containers were used exclusively in international commerce and were based in Japan, which did in fact tax them on full value. Thus, there was the actuality, not only the risk, of multiple taxation. National uniformity was endangered, because, although California taxed the Japanese containers, Japan did not tax American containers, and disputes resulted. 7
On the other hand, the Court has upheld a state tax on all aviation fuel sold within the state as applied to a foreign airline operating charters to and from the United States. The Court found the Complete Auto standards met, and it similarly decided that the two standards specifically raised in foreign commerce cases were not violated. First, there was no danger of double taxation because the tax was imposed upon a discrete transaction – the sale of fuel – that occurred within only one jurisdiction. Second, the one-voice standard was satisfied, because the United States had never entered into any compact with a foreign nation precluding such state taxation, having only signed agreements with others, which had no force of law, aspiring to eliminate taxation that constituted impediments to air travel. 8 Also, a state unitary-tax scheme that used a worldwide-combined reporting formula was upheld as applied to the taxing of the income of a domestic-based corporate group with extensive foreign operations. 9
Extending Container Corp., the Court in Barclays Bank v. Franchise Tax Bd. of California, 10 upheld the state's worldwide-combined reporting method of determining the corporate franchise tax owed by unitary multinational corporations, as applied to a foreign corporation. The Court determined that the tax easily satisfied three of the four-part Complete Auto test – nexus, apportionment, and relation to state's services – and concluded that the nondiscrimination principle – perhaps violated by the letter of the law – could be met by the discretion accorded state officials. As for the two additional factors, as outlined in Japan Lines, the Court pronounced itself satisfied. Multiple taxation was not the inevitable result of the tax, and that risk would not be avoided by the use of any reasonable alternative. The tax, it was found, did not impair federal uniformity or prevent the Federal Government from speaking with one voice in international trade, in view of the fact that Congress had rejected proposals that would have preempted California’s practice. 11 The result of the case, perhaps intended, is that foreign corporations have less protection under the negative commerce clause. 12
The power to regulate foreign commerce was always broader than the states' power to tax it, an exercise of the
police power recognized by Chief Justice Marshall in Brown v. Maryland. 13 That this power was constrained by notions of the national interest and preemption principles was evidenced in the cases striking down state efforts to curb and regulate the actions of shippers bringing persons into their ports. 14 On the other hand, quarantine legislation to protect the states' residents from disease and other hazards was commonly upheld though it regulated international commerce. 15 A state game-season law applied to criminalize the possession of a dead grouse imported from Russia was upheld because of the practical necessities of enforcement of domestic law. 16
Nowadays, state regulation of foreign commerce is likely to be judged by the extra factors set out in Japan Line. 17 Thus, the application of a state civil rights law to a corporation transporting passengers outside the state to an island in a foreign province was sustained in an opinion emphasizing that, because of the particularistic geographic situation the foreign commerce involved was more conceptual than actual, there was only a remote hazard of conflict between state law and the law of the other country and little if any prospect of burdening foreign commerce.