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           IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

AMERICAN HONDA                              )       No.  66774-2-I
MOTOR COMPANY, INC.,                        )
                                            )       DIVISION ONE
                      Appellant,            )
                                            )
JAGUAR LAND ROVER NORTH                     )
AMERICA, LLC, as successor in interest              )      PUBLISHED OPINION
to Land Rover North America, Inc.; and )
VOLVO CARS OF NORTH AMERICA                 )
LLC,                                        )
                                            )
                      Plaintiffs,           )
                                            )
          V.                                )
                                            )
CITY OF SEATTLE,                            )
DEPARTMENT OF EXECUTIVE                     )
ADMINISTRATION,                             )
                                            )
                      Respondent.           )       FILED:  April 2, 2012

       Schindler, J.  --  American Honda Motor Company Inc. (AHM) appeals summary 

judgment dismissal of the lawsuit against the City of Seattle (City) to obtain a refund of 

business and occupation (B&O) taxes. AHM claims the B&O tax violates the Import-

Export Clause of the United States Constitution, article I, section 10, clause 2.  We 

affirm.

                                            FACTS

       The facts are not in dispute.  AHM is a California corporation registered to do  

No. 66774-2-I/2

business in Washington.  AHM manufactures automobiles, all-terrain vehicles, 

motorcycles, parts, and power equipment in the United States, Japan, and Canada.  

AHM sells vehicles, parts, and equipment at wholesale to dealerships throughout the 

United States.    

       In 2008, the Director of the City of Seattle Department of Executive 

Administration, Division of Revenue and Consumer Affairs (Director) conducted an 

audit of AHM for the period beginning January 1, 2003 through March 31, 2007.  As 

part of the audit, the Director reviewed the financial records produced by AHM, 

including wholesale revenue reports, dealer lists, and tax return paperwork.  The 

Director found that during the audit period, AHM sold vehicles at wholesale to Seattle 

Honda car dealership MN One Inc., and made sales to other Seattle customers, 

including motorcycle and power equipment dealerships. The Director also found that 

imported vehicles delivered "to the Seattle dealership [were] inspected and accepted 

by dealership employees."

       The Director determined that AHM did not include the wholesale sales of the 

imported vehicles that were delivered to the Seattle dealership in the calculation of the 

gross sales subject to the B&O tax under the Seattle Municipal Code (SMC).  AHM 

claimed that the wholesale sales of imported vehicles were subject to an exemption or 

deduction for purposes of the B&O tax. However, despite repeated requests from the 

Director for additional documentation, AHM did not provide any information in support 

of the position that it was entitled to an exemption from the B&O tax.

       On August 28, 2008, the Director issued an assessment notifying AHM that 

                                               2 

No. 66774-2-I/3

under the SMC, AHM owed B&O taxes in the amount of $123,674.  The Director

concluded that the wholesale sales of the imported vehicles that were delivered by

AHM and were "inspected and accepted" by the dealerships should have been included 

in the calculation of the gross income subject to the B&O tax.  The Director calculated 
the B&O tax owed based on .00215 percent of the gross proceeds of sales.1 With 

interest and penalties, the total was $154,902.  The assessment notice states, in 

pertinent part:

              Seattle Municipal Code (SMC) 5.45.080 B states, "A person 
       engaging in business activities in the City who does not maintain an office 
       or place of business in the City shall allocate to the City that portion of the 
       taxpayer's gross income or gross proceeds of sales that are derived from 
       business activities performed in the City." The Taxpayer makes sales to 
       the Seattle Honda dealer in Seattle as well as various smaller dealers.  
       Thus, the gross proceeds of sales to customers located in Seattle are 
       taxable to the City of Seattle.
              The taxpayer has made a claim that some of their sales are not 
       subject to the Seattle B&O tax because they qualify for an import 
       exemption or deduction.  The taxpayer has not provided any information 
       to substantiate this claim.  The tax is imposed on AHM's business activity 
       in the City, which includes the sale and delivery of goods and services in 
       the City.
              Per Seattle Rule 5-44-193C, "sales of imports by an importer or his 
       or her agent are not taxable and a deduction will be allowed with respect 
       to the sales of such goods, if at the time of sale such goods are still in the 
       process of import transportation.  Immunity from tax does not extend to 
       the sale of imports to Seattle customers by the importer thereof or by any 
       person after completion of importation whether or not the goods are in the 
       original unbroken package or container." The vehicles are not still in the 
       import stream since they are delivered to the Seattle customer 
       (dealership).[2]

       AHM filed a lawsuit against the City to obtain a refund of the B&O tax, interest,

       1 SMC 5.45.050(C). The City amended the taxation provisions of the SMC during the audit 
period and replaced former chapter 5.44 SMC (2001) with chapter 5.45 SMC (2002).  Chapter 5.45 SMC 
has since been amended to change the numbering of certain provisions. Because the amendments do 
not result in a substantive change to the provisions of the SMC relevant to our analysis, we refer to the 
code provisions currently in effect.
       2 (Emphasis in original.)

                                               3 

No. 66774-2-I/4

and penalties.3 AHM alleged that imposing the B&O tax on the wholesale sales of 

imported vehicles "prior to completion of import transportation" violates the Import-

Export Clause of the United States Constitution.

       AHM and the City filed cross motions for summary judgment. AHM did not 

challenge the facts set forth in the assessment notice.  In addition, there was no 

dispute that a "portion of the sales made by Honda to the dealership located in Seattle 

consist of vehicles manufactured in Canada and Japan and imported by Honda."  City

Tax Audit Manager Joseph Cunha also states in his declaration that the City "has 

required that companies that sell imported goods that are delivered to customers 
located in Seattle pay the City's B&O tax" since at least 2000.4  

       The legal question raised in the cross motions for summary judgment was

whether the Import-Export Clause prohibits the City from imposing the B&O tax on the 

wholesale sale of imported vehicles sold to dealerships in Seattle.  The court ruled that

the B&O tax assessment did not violate the Import-Export Clause and dismissed the

lawsuit.  AHM appeals.

                                          ANALYSIS

       We review a decision on summary judgment and questions of law de novo.

Kruse v. Hemp, 121 Wn.2d 715, 722, 853 P.2d 1373 (1993).  The construction of a city 

tax ordinance is also a question of law reviewed de novo.  Ford Motor Co. v. City of 

       3 Jaguar Land Rover North America LLC and Volvo Cars of North America LLC also challenged 
assessments of the B&O tax on the wholesale sales of imported vehicles.  However, Jaguar and Volvo 
do not appeal the trial court's ruling that the B&O tax does not violate the Import-Export Clause.
       4 The City moved to strike paragraph five of the declaration submitted by AHM Senior Local Tax 
Analyst John Pouba.  Paragraph five refers to an audit by the Washington State Department of Revenue.  
The trial court granted the motion to strike the paragraph.  AHM does not appeal the decision to strike 
paragraph five.  
                                               4 

No. 66774-2-I/5

Seattle, Exec. Servs. Dep't, 160 Wn.2d 32, 41, 156 P.3d 185 (2007).  The burden is on 

the taxpayer to establish that a B&O tax assessment is incorrect.5  Ford, 160 Wn.2d at 

41.  

       Relying heavily on the decision in Richfield Oil Corp. v. Board of Equalization, 

329 U.S. 69, 76-85, 67 S. Ct. 156, 91 L. Ed. 80 (1946), AHM contends the B&O tax

assessment violates the Import-Export Clause of the United States Constitution. The 

City contends that under the Supreme Court's analysis in Michelin Tire Corp. v. Wages, 

423 U.S. 276, 96 S. Ct. 535, 46 L. Ed. 2d 495 (1976), and Department of Revenue of 

Washington v. Ass'n of Washington Stevedoring Cos., 435 U.S. 734, 98 S. Ct. 1388, 

55 L. Ed. 2d 682 (1978), the B&O tax does not violate the Import-Export Clause. 

       Article I, section 10, clause 2 of the United States Constitution prohibits state 

and local governments from levying an impost or duty on imports or exports.

              No State shall, without the consent of the congress, lay any 
       imposts or duties on imports or exports, except what may be absolutely 
       necessary for executing its inspection laws:  and the net produce of all 
       duties and imposts, laid by any state on imports or exports, shall be for 
       the use of the treasury of the United States; and all such laws shall be 
       subject to the revision and control of the congress.

U.S. Const. art. I, § 10, cl. 2.  

       Before Michelin and Washington Stevedoring, the determination of whether a 

state or local tax violated the Import-Export Clause focused on whether the tax 

"reached imports or exports."  Wash. Stevedoring, 435 U.S. at 752.  With respect to 

imports, the Court analyzed whether the Import-Export Clause prohibited states from 

imposing "a nondiscriminatory ad valorem property tax on imported goods until they 

       5 Under SMC 5.55.140(B), the assessment is prima facie correct.  
                                               5 

No. 66774-2-I/6

lose their character as imports."  Michelin, 423 U.S. at 282.  With respect to exports, "the 

dispositive question was whether the goods had entered the 'export stream,' the final, 

continuous journey out of the country. . . . As soon as the journey began, tax immunity 
attached."  Wash. Stevedoring, 435 U.S. at 752.6 The Court also previously assumed 

that the Import-Export Clause prohibited state and local governments from imposing 

any tax on imports or exports.  Richfield, 329 U.S. at 76.

       In Richfield, the Court addressed whether a state retail sales tax assessed on

the sale of oil by a California company to the government of New Zealand violated the 

Import-Export Clause.  Richfield, 329 U.S. at 71.  California assessed the retail sales

tax based on gross receipts from the transaction after the oil was loaded onto the New 

Zealand naval tanker.  Richfield, 329 U.S. at 71-72.  

       The Court accepted the determination of the California supreme court that the 

tax "is an excise tax for the privilege of conducting a retail business measured by the 

gross receipts from sales . . . and does not become a tax on the sale or because of the 

sale."  Richfield, 329 U.S. at 83-84.  But the Supreme Court concluded that the 

question of whether "the tax deprives the taxpayer of a federal right" turns not on the 

characterization of the tax under state law, but rather, on "its operation and effect."  

Richfield, 329 U.S. at 84.  The Court also notes that the State conceded that if the oil 

was taxed as an export, "or because of . . . exportation," the tax would violate the 

Import-Export Clause.  Richfield, 329 U.S. at 84.  

       Because the State imposed the tax after the oil was loaded onto the tanker, the 

Court concluded that "[t]he incident which gave rise to the accrual of the tax was a step 

       6 (Citations omitted.)
                                               6 

No. 66774-2-I/7

in the export process," and there was no "probability that the oil would be diverted to 

domestic use."  Richfield, 329 U.S. at 84, 83.

       The foreign purchaser furnished the ship to carry the oil abroad.  Delivery 
       was made into the hold of the vessel from the vendor's tanks located at 
       the dock. That delivery marked the commencement of the movement of 
       the oil abroad.  It is true, as the Supreme Court of California observed, 
       that at the time of the delivery the vessel was in California waters and was 
       not bound for its destination until it started to move from the port. But 
       when the oil was pumped into the hold of the vessel, it passed into the 
       control of a foreign purchaser and there was nothing equivocal in the 

                                               7 

No. 66774-2-I/8

       transaction which created even a probability that the oil would be diverted 
       to domestic use.

Richfield, 329 U.S. at 82-83.  

       Strictly construing the language of the Import-Export Clause, the Court held that

the Constitution prohibits state and local government from imposing "any" tax on 

imports or exports, and "prohibits every State from laying 'any' tax on imports or exports

without the consent of Congress."  Richfield, 329 U.S. at 76 (quoting U.S. Const. art. I, 

§ 10, cl. 2).    

       In Michelin and Washington Stevedoring, the Court adopted a different approach 

to cases claiming the protection of the Import-Export Clause.  Michelin changed the 

focus of the analysis to "whether the tax sought to be imposed is an 'Impost or Duty' "

as contemplated by the Framers of the Constitution, and expressly abandoned the 

concept that the Import-Export Clause prohibited "all forms of state taxation" on imports 

and exports. Limbach v. Hooven & Allison Co., 466 U.S. 353, 360, 104 S. Ct. 1837, 80 

L. Ed. 2d 356 (1984); Michelin, 423 U.S. at 279.

       [T]his Court in Michelin specifically abandoned the concept that the 
       Import-Export Clause constituted a broad prohibition against all forms of 
       state taxation that fell on imports.  Michelin changed the focus of 
       Import -- Export Clause cases from the nature of the goods as imports to 
       the nature of the tax at issue. The new focus is not on whether the goods 
       have lost their status as imports but is, instead, on whether the tax sought 
       to be imposed is an "Impost or Duty."

Limbach, 466 U.S. at 360.  

       The Court in Michelin addressed whether an ad valorem property tax on 

inventory that included tires and tubes imported from France and Nova Scotia violated 

the Import-Export Clause.  Michelin, 423 U.S. at 279-80.  After examining the history of 

                                               8 

No. 66774-2-I/9

the Import-Export Clause and the meaning of the words "impost" and "duty," the Court 

held that "the Clause is not written in terms of a broad prohibition of every 'tax.' "

Michelin, 423 U.S. at 290.    

       "Imposts" were like customs duties, that is, charges levied on imports at 
       the time and place of importation.  "Duties" was a broader term embracing 
       excises as well as customs duties, and probably only capitation, land, and 
       general property exactions were known by the term "tax" rather than the 
       term "duty." . . . The characteristic common to both "imposts" and "duties"
       was that they were exactions directed at imports or commercial activity as 
       such and, as imposed by the seaboard States under the Articles of 
       Confederation, were purposefully employed to regulate interstate and 
       foreign commerce and tax States situated less favorably geographically.
Michelin, 423 U.S. at 291-93.7  The Court concludes that the intent of the Clause was to 

prevent states from imposing exactions on "the privilege of moving [goods] through a 

State."  Michelin, 423 U.S. at 290.  

              Nothing in the history of the Import-Export Clause even remotely 
       suggests that a nondiscriminatory ad valorem property tax which is also 
       imposed on imported goods that are no longer in import transit was the 
       type of exaction that was regarded as objectionable by the Framers of the 
       Constitution.

Michelin, 423 U.S. at 286.  

       In determining whether a tax is "the type of state exaction which the Framers of 

the Constitution . . . had in mind as being an 'impost' or 'duty,' " Michelin, 423 U.S. at 

283, the Court identified three main concerns that must be taken into consideration as 

follows:  

              The Framers of the Constitution . . . sought to alleviate three main 
       concerns by committing sole power to lay imposts and duties on imports 
       in the Federal Government, with no concurrent state power: [(1)] the 
       Federal Government must speak with one voice when regulating 
       commercial relations with foreign governments, and tariffs, which might 
       affect foreign relations, could not be implemented by the States 

       7 (Citation and footnote omitted.)
                                               9 

No. 66774-2-I/10

       consistently with that exclusive power; . . . [(2)] import revenues were to 
       be the major source of revenue of the Federal Government and should 
       not be diverted to the States; and [(3)] harmony among the States might 
       be disturbed unless seaboard States, with their crucial ports of entry, 
       were prohibited from levying taxes on citizens of other States by taxing
       goods merely flowing through their ports to the other States not situated 
       as favorably geographically.
Michelin, 423 U.S. at 285-86.8

       In addressing the first concern, the Court determined that the ad valorem 

property tax on the imported tires and tubes did not "deprive the federal government of 

the exclusive right to all revenues from imposts and duties on imports and exports" but, 

rather, paid for services provided by the local government. In reaching that conclusion, 

the Court differentiates between taxes that apportion "the cost of such services as 

police and fire protection among the beneficiaries," and "imposts" and "duties."  

       Unlike imposts and duties, which are essentially taxes on the commercial 
       privilege of bringing goods into a country, such property taxes are taxes 
       by which a State apportions the cost of such services as police and fire 
       protection among the beneficiaries according to their respective wealth; 
       there is no reason why an importer should not bear his share of these 
       costs along with his competitors handling only domestic goods. 

Michelin, 423 U.S. at 287.

       The Court states that "nondiscriminatory property taxation can have no impact 

whatsoever on the Federal Government's exclusive regulation of foreign commerce."  

Michelin, 423 U.S. at 286-87.  While the Court agreed that the Import-Export Clause 

clearly prohibits a state from imposing a tax "based on the foreign origin of the imported 

goods," the Court states that the Import-Export Clause does not permit different 

treatment or exemption from uniform taxes that are imposed for services without regard 

       8 (Footnotes omitted.)
                                              10 

No. 66774-2-I/11

to import or export status.  Michelin, 423 U.S. at 287.

       The Import-Export Clause clearly prohibits state taxation based on the 
       foreign origin of imported goods, but it cannot be read to accord imported 
       goods preferential treatment that permits escape from uniform taxes 
       imposed without regard to foreign origin for services which the State 
       supplies.

Michelin, 423 U.S. at 287.  

       The Court also concluded that the tax did not interfere with the free flow of 

imported goods among the states because it was not assessed on goods in transit 

through the state.

       In effect, the Clause was fashioned to prevent the imposition of exactions 
       which were no more than transit fees on the privilege of moving through a 
       State. . . . A non-discriminatory ad valorem property tax obviously stands 
       on a different footing, and to the extent there is any conflict whatsoever 
       with this purpose of the Clause, it may be secured merely by prohibiting 
       the assessment of even nondiscriminatory property taxes on goods which 
       are merely in transit through the State when the tax is assessed.
Michelin, 423 U.S. at 290.9  The tax on imported tires did not " 'intercept[] the import, as 

an import, in its way to become incorporated with the general mass of property.' "  
Michelin, 423 U.S. at 29810 (quoting Brown v. Maryland, 25 U.S. 419, 443, 12 Wheat.

419, 6 L. Ed. 678 (1827)).  

       The Court also concluded the nondiscriminatory ad valorem tax did not usurp the 

authority of the federal government to regulate foreign relations because it was applied

to all property and was not based on import status.  Michelin, 423 U.S. at 286.  

       By definition, such a tax does not fall on imports as such because of their 
       place of origin.  It cannot be used to create special protective tariffs or 
       particular preferences for certain domestic goods, and it cannot be 
       applied selectively to encourage or discourage any importation in a 
       manner inconsistent with federal regulation.

       9 (Footnote omitted.)

       10 (Emphasis in original.)
                                              11 

No. 66774-2-I/12

Michelin, 423 U.S. at 286.  The Court states that the goods stored in the distribution 

warehouse "operated no differently than would be a distribution warehouse utilized by a 

wholesaler dealing solely in domestic goods."  Michelin, 423 U.S. at 302.  Based on the 

analysis of the three main policy concerns, the Court held that "the nondiscriminatory 

property tax levied on petitioner's inventory of imported tires" was not an impost or duty 

prohibited by the Import-Export Clause of the Constitution.  Michelin, 423 U.S. at 302.    

       In Washington Stevedoring, the Court addressed the question of whether a B&O 

excise tax on the " 'privilege of engaging in business activities' " as measured by the 

gross income of the business of loading and unloading imports and exports from cargo 

ships violated the Import-Export Clause.  Wash. Stevedoring, 435 U.S. at 738, n.4 

(quoting RCW 82.04.290(1)).  

       In determining whether the B&O tax was an impost or duty that violated the 

Import-Export Clause, the Court addressed the three policy considerations identified in 

Michelin in analyzing the nature of the tax.

              Michelin initiated a different approach to Import-Export Clause 
       cases.  It ignored the simple question whether the tires and tubes were 
       imports. Instead, it analyzed the nature of the tax to determine whether it 
       was an "Impost or Duty." 423 U.S., at 279, 290-94. Specifically, the 
       analysis examined whether the exaction offended any of the three policy 
       considerations leading to the presence of the Clause.

Wash. Stevedoring, 435 U.S. at 752.  

       The Court concludes that because the B&O tax is a general business tax that 

applies to business activity conducted in the state of Washington, it did not create an 

impediment to the federal government.  Because the tax was not imposed on the

                                              12 

No. 66774-2-I/13

goods, but rather, compensated the State for the services and protection extended to 

the stevedoring business, the Court states that there is a "reasonable nexus" between 

the B&O tax and the State.  The Court also concludes that the tax "is properly 

apportioned, does not discriminate, and relates reasonably to services provided by the 

State."  Wash. Stevedoring, 435 U.S. at 754-55.    

       Noting that the Court in Michelin "qualified its holding" based on "the 

observation" that the tax applied to goods no longer in transit, the Court also addresses 

the question of whether "a tax relating to goods in transit" was nonetheless an impost 

or duty under the Import-Export Clause.   Wash. Stevedoring, 435 U.S. at 755.  

              The Court in Michelin qualified its holding with the observation that 
       Georgia had applied the property tax to goods "no longer in transit." 423 
       U.S. at 302. . . . Because the goods were no longer in transit, however, 
       the Court did not have to face the question whether a tax relating to 
       goods in transit would be an "Impost or Duty" even if it offended none of 
       the policies behind the Clause.  Inasmuch as we now face this inquiry, we 
       note two distinctions between this case and Michelin.  First, the activity 
       taxed here occurs while imports and exports are in transit.  Second, 
       however, the tax does not fall on the goods themselves.  The levy 
       reaches only the business of loading and unloading ships or, in other 
       words, the business of transporting cargo within the State of Washington. 
       Despite the existence of the first distinction, the presence of the second 
       leads to the conclusion that the Washington tax is not a prohibited 
       "Impost or Duty" when it violates none of the policies.  
Wash. Stevedoring, 435 U.S. at 755.11  

         Although the B&O tax was imposed on loading and unloading imports and 

exports "in transit," the Court held that because "the tax does not fall on the goods 

themselves" but on the business of transporting cargo within the state, the B&O tax was 

not an impost or duty that violated the Import-Export Clause.  Wash. Stevedoring, 435 

       11 (Emphasis added) (footnote omitted).
                                              13 

No. 66774-2-I/14

U.S. at 755.  In reaching that conclusion, the Court expressly rejects the argument that 

the Import-Export Clause "effects an absolute prohibition on all taxation of imports and 

exports," and states that the decision in Richfield is "limited to the question whether the 

tax fell upon the sale or upon the right to retail."  Wash. Stevedoring, 435 U.S. at 759.  

And as the Court points out, the analysis in Richfield "ignores the central holding of 

Michelin that the absolute ban is only of 'Imposts or Duties' and not of all taxes."  

Wash. Stevedoring, 435 U.S. at 759.  

City of Seattle B&O Tax 

       Here, like the B&O excise tax in Washington Stevedoring, the City's B&O tax is 

an excise tax imposed on the privilege of engaging in the business of wholesale sales

in the City and is measured by a percentage of gross income.  

              A B&O tax is an excise tax imposed for "the privilege of doing 
       business" in a particular jurisdiction. 1B Kelly Kunsch et al., Washington
       Practice: Methods of Practice § 72.7, at 452 (1997).  Washington 
       imposes a B&O tax for the privilege of doing business in this state.  RCW 
       82.04.220.  Cities may also impose their own B&O tax for the exercise of 
       the privilege within that city. The value of the "privilege is measured by 
       the gross proceeds of the business; the rate of tax is determined by the 
       type of business in which the taxpayer is engaged." 1B Kunsch et al., 
       supra, § 72.7, at 452.

Ford, 160 Wn.2d at 39.

       In Ford, our supreme court identified the three basic elements that trigger the 

B&O tax.  

              A tax statute has three basic elements: "First, there must be an 
       incident that triggers the tax." [1B Kunsch et al., supra,] § 72.3, at 449. 
       The "taxable incident" is the "activity that the legislature has designated 
       as taxable." Id. Second, there must be a base that represents the value 
       of the taxable incident. This is known as the "tax measure." Id.  Third, 
       there must be a "tax rate," which, when multiplied by the tax measure, 
       determines "the amount of tax due." Id. At issue in this case are the 

                                              14 

No. 66774-2-I/15

       taxable incident and tax measure of Seattle and Tacoma's B&O tax.

Ford, 160 Wn.2d at 39.

       The "taxable incident" is the act or privilege of engaging in business activities in 

the City.  Ford, 160 Wn.2d at 39.  The definition of "business" in the SMC is broad and 

includes "all activities engaged in with the object of gain, benefit, or advantage to the 

taxpayer." SMC 5.30.020(H).  

       As the court made clear in Ford, a B&O tax "is levied upon the privilege of doing 

business as a wholesaler, not upon the actual sales at wholesale."  Ford, 160 Wn.2d at 

42.  

       A tax imposed on the actual sale of products is, by definition, a sales tax.
       B&O taxes, on the other hand, are not sales taxes.  The cities' municipal 
       codes plainly tell us that their B&O taxes are imposed on "the act or 
       privilege of engaging in business activities within the City." SMC 
       5.45.050.

Ford, 160 Wn.2d at 42.  

       By its terms, the SMC limits its taxing authority "to only those gross receipts 

derived from the sale of goods delivered" to the City.  Ford, 160 Wn.2d at 46.  Under 

SMC 5.45.050(C), "every person engaging within the City in the business of making 

sales . . . at wholesale" is subject to a B&O tax at the rate of .00215.  SMC 5.45.050(C)

states:

       Upon every person engaging within the City in the business of making 
       sales of retail services, or making sales at wholesale or retail; as to such 
       persons, the amount of tax with respect to such business shall be equal to 
       the gross proceeds of such sales of the business without regard to the 
       place of delivery of articles, commodities or merchandise sold, multiplied 
       by the rate of .00215.

       The SMC also expressly requires a sufficient nexus between the B&O tax and 

                                              15 

No. 66774-2-I/16

the activity of engaging in business.  SMC 5.30.030(B)(5) provides, in pertinent part:   

       The City expressly intends that engaging in business include any activity
       sufficient to establish nexus for purposes of applying the tax under the law
       and the constitutions of the United States and the State of Washington.

       Nonetheless, AHM argues that the City's B&O tax on the business of engaging 

in wholesale sales of imported vehicles that is measured by gross receipts violates the 

Import-Export Clause.  We disagree.  

       First, the tax does not burden or interfere with federal government regulation or 

commerce.  The City's B&O tax is a general business tax that is imposed on the 

privilege of engaging in the business of wholesale sales in the City as measured by 

gross income from the sales.  Second, the tax compensates the City for the services 

provided in order to engage in the business of wholesale sales. Third, the tax is 

"properly apportioned, does not discriminate," and reasonably relates to the services 

provided by the City.  Wash. Stevedoring, 435 U.S. at 755.      

       In support of its argument that the B&O tax violates the Import-Export Clause, 
AHM cites a recent Federal Export Clause12 case, United States v. International 

Business Machines Corp., 517 U.S. 843, 116 S. Ct. 1793, 135 L. Ed. 2d 124 (1996)

(IBM).  In IBM, the Court addressed a federal tax on exports and the application of the 

Export Clause, not the Import-Export Clause.  IBM, 517 U.S. at 845.  Nonetheless, 

AHM points to dicta in IBM to assert that because the imported vehicles are "in transit,"

the City's B&O tax violates the Import-Export Clause.  

              The Court has never upheld a state tax assessed directly on goods 
       in import or export transit.  In Michelin, we suggested that the Import-
       Export Clause would invalidate application of a nondiscriminatory 
       property tax to goods still in import or export transit.  423 U.S. at 290

       12 U.S. Const. art. I, § 9, cl. 5. 

                                              16 

No. 66774-2-I/17

       (compliance with the Import-Export Clause may be secured "by prohibiting 
       the assessment of even nondiscriminatory property taxes on [import or 
       export] goods which are merely in transit through the State when the tax 
       is assessed").
IBM, 517 U.S. at 862.13  

       But contrary to the assertion that the imported vehicles that were sold to the 

dealerships are "in transit," the unchallenged findings establish that the vehicles are 

not "in transit."  In the assessment notice, the Director expressly states that the vehicles 

AHM imports from Japan and Canada are no longer in transit "since they are delivered 

to the Seattle customer (dealership)." See also Ford, 160 Wn.2d at 52 (upholding B&O 

tax on business of wholesale sales of vehicles delivered to dealers in the City).  Here, 

as in R.J. Reynolds Tobacco Co. v. Durham County, North Carolina, 479 U.S. 130, 107 

S. Ct. 499, 93 L. Ed. 2d 449 (1986), because the vehicles AHM sold to the Seattle 

dealership were delivered and accepted by the dealership, there was "nothing 

transitory about" the wholesale sale of the cars.

       The imported tobacco here, we repeat, has nothing transitory about it:  it 
       has reached its State -- indeed, its county -- of destination and only the 
       payment of the customs duty, after the appropriate aging, separates it 
       from entrance into the domestic market.

Reynolds, 479 U.S. at 155.    

       We affirm dismissal of the lawsuit against the City.

WE CONCUR:

       13 (Brackets in original.)
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No. 66774-2-I/18

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