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Star-Kist Foods, Inc. v. County of Los Angeles, 42 Cal.3d 1, 719 P.2d 987, 227 Cal.Rptr. 391, 8 ITRD 1330

Facts

For the tax year 1976-1977, Los Angeles County and the Cities of Los Angeles and Long Beach assessed ad valorem taxes on Star-Kist Foods, Inc.'s inventory of canned tuna stored in California. Star-Kist paid the tax but sought a refund for the portion of the inventory that was manufactured outside the U.S. and brought into California for shipment to other states. The refund claim was based on a newly enacted statute that exempted certain business inventories from taxation, which the defendants argued was unconstitutional under the commerce clause.

Star-Kist paid the tax, but sought a refund of the $44,197 assessed on that portion of Star-Kist's inventory that had been manufactured or produced outside the United States and brought into California for shipment to other states for sale in the ordinary course.

Issue

Whether counties and municipalities may challenge the constitutionality of a statute exempting from ad valorem taxation business inventories of foreign origin or destination which are transshipped through the state, and if so, whether such exemption violates the commerce clause.

We consider two questions: whether counties and municipalities may challenge the constitutionality of a statute exempting from ad valorem taxation business inventories of foreign origin or destination which are transhipped through the state; and if so, whether such exemption violates the commerce clause.

Rule

Counties and municipalities have standing to challenge state laws on federal constitutional grounds, particularly when such laws may interfere with Congress' exclusive power over commerce as defined by the commerce clause.

Counties and cities must look to the state Constitution and the Legislature for their creation and delegated powers.

Analysis

The court determined that the statute in question, which exempted certain business inventories from taxation, discriminated against interstate commerce by favoring foreign commerce. The court applied the four-part test from Complete Auto Transit to assess the constitutionality of the tax, concluding that the exemption created an undue burden on interstate commerce and violated the commerce clause.

Viewing the commerce clause challenge in this light leads to the conclusion that political subdivisions might legitimately raise such claims.

Conclusion

The court affirmed the lower court's decision, ruling that the statute exempting certain business inventories from ad valorem taxation was unconstitutional as it violated the federal commerce clause.

The judgment is affirmed.

Who won?

Star-Kist Foods, Inc. prevailed in the case because the court found that the tax exemption statute violated the commerce clause by discriminating against interstate commerce.

Star-Kist based its refund claim on the exemption contained in newly enacted Revenue and Taxation Code section 225, which provided an exemption from taxation for personal property manufactured or produced, (1) outside this state and brought into this state for transshipment out of the United States, or (2) outside of the United States and brought into this state for transshipment out of this state, for sale in the ordinary course of trade or business.

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