Export Clause and Taxes

Article I, Section 9, Clause 5:

No Tax or Duty shall be laid on Articles exported from any State.

Article 1, Section 9, Clause 5 of the U.S. Constitution prohibits Congress from laying taxes and duties on articles exported from any state.1 Known as the Export Clause,2 it applies to taxes and duties, not user fees.3 The Supreme Court has interpreted the Export Clause to address shipments only to foreign countries, not shipments to unincorporated territories, such as Puerto Rico and the Commonwealth of the Northern Mariana Islands.4 The Court has also construed the Export Clause as requiring “not simply an omission of a tax upon the articles exported, but also a freedom from any tax which directly burdens” the process of exporting.5

For example, in United States v. IBM, the Supreme Court held that an excise tax6 on insurance premiums paid to foreign insurers for policies insuring exported goods was unconstitutional under the Export Clause.7 In IBM, the parties agreed that the facts and issue before the Court were largely indistinguishable from an earlier case, Thames & Mersey Marine Insurance Co. v United States,8 in which the Court held that a tax on insuring exports was “functionally the same” as a tax on exports.9 Applying stare decisis principles, the Court declined to overrule Thames & Mersey Marine Insurance absent additional briefing from the parties on whether the insurance policies subject to the excise tax were “so closely connected to the goods that the tax is, in essence, a tax on exports.” 10

The Supreme Court has ruled that the Export Clause’s restriction on Congress’s taxing power does not extend to several taxes, such as a tax on all property alike, including property intended for export but not in the “course of exportation” 11 ; a nondiscriminatory tax on an exporter’s income;12 and a stamp tax to identify goods intended for export.13 The Court, however, has held that stamp taxes imposed on foreign bills of lading;14 charter parties, which “were exclusively for the carriage of cargo from state ports to foreign ports” ;15 or marine insurance policies16 were in effect taxes or duties upon exports, and so void.

The Supreme Court has also held that refunds for taxes collected in violation of the Export Clause are subject to the the general tax refund scheme adopted by Congress.17 The Court stated: “We therefore hold that the plain language of 26 U.S.C. §§ 7422(a) and 6511 requires a taxpayer seeking a refund for a tax assessed in violation of the Export Clause, just as for any other unlawfully assessed tax, to file a timely administrative refund claim before bringing suit against the Government.” 18 The Court reasoned that this was necessary so that “allegations of taxes unlawfully assessed—whether the asserted illegality is based upon the Export Clause or any other provision of law—are processed in an orderly and timely manner, and that costly litigation is avoided when possible.” 19

1: U.S. Const. art. I, § 8, cl. 1; see, e.g., United States v. U.S. Shoe Corp., 523 U.S. 360 (1998) (holding an ad valorem tax directly imposed on the value of cargo loaded at U.S. ports for export violated the Export Clause).
2: See, e.g., U.S. Shoe, 523 U.S. at 362.
3: Id. at 363 ( “The [Export] Clause, however, does not rule out a ‘user fee,’ provided that the fee lacks the attributes of a generally applicable tax or duty and is, instead, a charge designed as compensation for government-supplied services, facilities, or benefits.” (citing Pace v. Burgess, 92 U.S. 372 (1876))). In general, a user fee is a charge imposed on the user of a government service with the primary purpose of offsetting the costs of that government service. See, e.g., Pace v. Burgess, 92 U.S. 372, 375–76 (1876) ( “The stamp [tax] was intended for no other purpose than to separate and identify the tobacco which the manufacturer desired to export, and thereby, instead of taxing it, to relieve it from the taxation to which other tobacco was subjected. It was a means devised to prevent fraud, and secure the faithful carrying out of the declared intent with regard to the tobacco so marked. The payment of twenty-five cents or of ten cents for the stamp used was no more a tax on the export than was the fee for clearing the vessel in which it was transported, or for making out and certifying the manifest of the cargo. It bore no proportion whatever to the quantity or value of the package on which it was affixed. These were unlimited, except by the discretion of the exporter or the convenience of handling. . . . We know how next to impossible it is to prevent fraudulent practices wherever the internal revenue is concerned . . . . The proper fees accruing in the due administration of the laws and regulations necessary to be observed to protect the government from imposition and fraud likely to be committed under pretence of exportation are in no sense a duty on exportation. They are simply the compensation given for services properly rendered. . . . [W]e cannot say that the charge imposed is excessive, or that it amounts to an infringement of the [Export Clause]. We cannot say that it is a tax or duty instead of what it purports to be, a fee or charge, for the employment of that instrumentality which the circumstances of the case render necessary for the protection of the government.” ).
4: Dooley v. United States, 183 U.S. 151, 153–54 (1901); see also Swan & Finch Co. v. United States, 190 U.S. 143, 144–45 (1903) (explaining “'export’ as used in the Constitution and laws of the United States, generally means the transportation of goods from this to a foreign country” ); see generally Christina Duffy Burnett, United States: American Expansion and Territorial Deannexation, 72 U. Chi. L. Rev. 797, 800 (2005) (explaining the U.S. Supreme Court’s doctrine of territorial incorporation “divided domestic territory . . . into two categories: those places ‘incorporated’ into the United States and forming an integral part thereof (including the states, the District of Columbia, and the ‘incorporated territories'); and those places not incorporated into the United States, but merely ‘belonging’ to it (which came to be known as the ‘unincorporated territories')” ).
5: Fairbank v. United States, 181 U.S. 283, 293 (1901). See William E. Peck & Co. v. Lowe, 247 U.S. 165, 173 (1918) ( “And the court has indicated that where the tax is not laid on the articles themselves while in course of exportation the true test of its validity is whether it ‘so directly and closely’ bears on the ‘process of exporting’ as to be in substance a tax on the exportation.” (quoting Thames & Mersey Marine Ins. Co. v. United States, 237 U.S. 19, 25 (1915))). See also A.G. Spaulding & Bros. v. Edwards, 262 U.S. 66, 69–70 (1923).
6: Fernandez v. Wiener, 326 U.S. 340, 352 (1945) (an excise tax is a tax laid “upon particular use or enjoyment of property or the shifting from one to another of any power or privilege incidental to the ownership or enjoyment of property” ).
7: United States v. IBM, 517 U.S. 843, 854–56 (1996).
8: 237 U.S. 19, 27 (1915) (holding “proper insurance during the voyage is one of the necessities of exportation” and that “the taxation of policies insuring cargoes during their transit to foreign ports is as much a burden on exporting as if it were laid on the charter parties, the bills of lading, or the goods themselves” ).
9: IBM, 517 U.S. at 850, 854. See also id. at 846 ( “We have had few occasions to interpret the language of the Export Clause, but our cases have broadly exempted from federal taxation not only export goods, but also services and activities closely related to the export process. At the same time, we have attempted to limit the term ‘Articles exported’ to permit federal taxation of pre-export goods and services.” ).
10: Id. at 855–56; see id. at 855 ( “[T]he marine insurance policies in Thames & Mersey arguably ‘had a value apart from the value of the goods.’ Nevertheless, the Government apparently has chosen not to challenge that aspect of Thames & Mersey in this case. When questioned on that implicit concession at oral argument, the Government admitted that it ‘chose not to’ argue that [the excise tax] does not impose a tax on the goods themselves.” ) (citations omitted).
11: Turpin v. Burgess, 117 U.S. 504, 507 (1886) ( “But a general tax, laid on all property alike, and not levied on goods in course of exportation, nor because of their intended exportation, is not within the constitutional prohibition. . . . In the present case, the tax (if it was a tax) was laid upon the goods before they had left the factory. They were not in course of exportation; they might never be exported; whether they would be or not would depend altogether on the will of the manufacturer.” ). See also Cornell v. Coyne, 192 U.S. 418, 427 (1904) ( “The true construction of the constitutional provision is that no burden by way of tax or duty can be cast upon the exportation of articles, and does not mean that articles exported are relieved from the prior ordinary burdens of taxation which rest upon all property similarly situated.” ).
12: William E. Peck & Co. v. Lowe, 247 U.S. 165, 174–75 (1918) (holding the Export Clause did not shield an exporter from an income tax laid generally on net incomes because the tax was laid on the exporter’s income from exportation).
13: Pace v. Burgess, 92 U.S. 372, 376 (1876) (finding the “stamp was intended for no other purpose than to separate and identify the tobacco which the manufacturer desired to export, and thereby, instead of taxing it, to relieve it from the taxation to which other tobacco was subjected” and that “[a] stamp may be used, and, in the case before us, we think it is used, for quite a different purpose from that of imposing a tax or duty: indeed, it is used for the very contrary purpose,—that of securing exemption from a tax or duty” ). See also Turpin v. Burgess, 117 U.S. 504, 505 (1886) ( “[T]he tax (if it was a tax) was laid upon the goods before they had left the factory. They were not in course of exportation, they might never be exported, whether they would be or not would depend altogether on the will of the manufacturer. Had the same excise which was laid upon all other tobacco manufactured by the plaintiffs been laid on the tobacco in question, they could not have complained. But it was not. A special indulgence was granted to them (in common with the others), in reference to the particular tobacco which they declared it to be their intention to export. With regard to that, in order to identify it, and to protect the government from fraudulent practices, all that was required of the plaintiffs was to affix a 25 cent stamp of a peculiar design to each package, no matter how much it might contain, and enter into bond either to export it according to the declared intention, or to pay the regular tax, if it should not be exported.” ).
14: Fairbank v. United States, 181 U.S. 283 (1901).
15: United States v. Hvoslef, 237 U.S. 1, 13 (1915). The Court stated that “[a] tax on these charter parties was in substance a tax on the exportation; and a tax on the exportation is a tax on the exports.” Id. at 17.
16: Thames & Mersey Inc. v. United States, 237 U.S. 19 (1915).
17: United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1 (2008).
18: Id. at 23.
19: Id. at 19.