Negative Foreign Commerce Clause: An Analysis of the Reserved Unitary Tax Issue in Container Corporation of America v. California Franchise Tax Board

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Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International

Document Type

Article

Publication Date

1990

ISSN

0741-8477

Publisher

Boston University

Language

en-US

Abstract

The United States Constitution has three commerce clauses: foreign, interstate, and Indian.' Each clause has two aspects-affirmative and negative. Recently, the negative aspect of the interstate commerce clause has been used by the Supreme Court to strike down several discriminatory state taxing schemes. 2 State unitary business taxes,3 which have proven immune from challenge under the interstate commerce clause, may now prove vulnerable under the negative foreign commerce clause, if the Court is willing to (1) extend the structure of its traditional analysis under the Indian commerce clause to the foreign commerce clause, and (2) affirm the negative aspect of the foreign commerce clause with much the same conviction as it has affirmed the negative interstate commerce clause.

Application of the negative foreign commerce clause to a state unitary tax was the issue specifically reserved in Container Corporation of America v. California Franchise Tax Board.4 This article suggests that a valuable insight into the impact which the negative foreign commerce clause may have on unitary state taxes can be extrapolated from the Court's recent negative interstate commerce clause decisions, and from an analysis of the restrictions which the Indian commerce clause has placed on state taxing powers.

In addition to the negative aspect that the Indian commerce clause shares with each of the other commerce clauses, the Indian commerce clause shares three unique characteristics with the foreign commerce clause. First, both the Indian and foreign commerce clauses balance tripartite, rather than binary, interests. The balancing of tribal, state, and federal interests under the Indian commerce clause is similar to the balancing of foreign-sovereign, state, and federal interests under the foreign commerce clause. Neither of these balancings operates analytically like the binary balancing of competing state interests under the interstate commerce clause. Secondly, where there is a presumption against state authority to tax Indian-value without express congressional approval under the Indian commerce clause, there is a presumption in favor of any non-discriminatory taxing scheme under the interstate commerce clause. Language in Container suggests that a presumption similar to that under the Indian commerce clause runs against the states under the foreign commerce clause. Thirdly, the Court's concern under the foreign commerce clause that state taxing schemes not "implicate foreign affairs," (though certain "foreign resonances" are permissible), resembles the "weighing" of burdens, measured in "real economic terms," which concerns the court under the Indian commerce clause. The quest under the interstate commerce clause is quite different. It is concerned with assuring equal treatment of taxpayers or a level playing field. The weight of a particular tax burden and its economic or political implications are irrelevant.

Thus, analysis of the issue reserved in Container should benefit from an examination of the relationship between the Indian and foreign commerce clauses as well as the relationship between the foreign and interstate commerce clauses. Such an expanded analysis should yield a clearer insight into whether a state unitary assessment against a domestic corporation, which is owned by foreign interests, infringes on the foreign commerce clause when the income attributes of the foreign interests are included in the apportioned tax base of the domestic entity. Currently, this issue is under appeal in the California state courts in Barclays Bank International v. California Franchise Tax Board. 5

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