The Export Taxation Clause

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

—Chief Judge Matthew H. Solomson, Athanasius Sirilla, & Jacob B. Chefitz

Introduction

The Constitution grants Congress a broad “Power To lay and collect Taxes, Duties, Imposts and Excises.”¹ (See Essay No. 39.) However, the Export Taxation Clause imposes an absolute limit on this power: “No Tax or Duty shall be laid on Articles exported from any State.” This provision was vigorously debated during the Constitutional Convention. Delegates from southern agrarian states worried that an export tax would unfairly burden the South, the economy of which depended on exports significantly more than the North. Delegates from northern commercial states stressed the importance of taxing exports as a simple way to collect revenue. The Export Taxation Clause was one of the many accommodations the Framers made to cement unity among the various sections of the Union. Modern litigation about the clause generally turns on whether various services related to exports are considered “Articles.”

History Before 1787

In the Declaration of Independence, the colonies, being unrepresented in Parliament, voiced resentment against the king of Great Britain for “imposing Taxes on us without our Consent.”² The Articles of Confederation reflected the objection of “no taxation without representation.”³ Only the local state governments, and not the national government, were allowed to levy taxes.⁴ Opponents of a centralized government often argued that America was too large for a national legislature to represent all citizens adequately. Ultimately, the Articles of Confederation government failed, at least in part, because it was an underfunded, weak national government lacking a taxing power. James Madison, among many others, identified this failure in his April 1787 “Vices of the Political System of the United States” memorandum. The first vice on Madison’s list was “Failure of the States to comply with the Constitutional requisitions.”⁵

The Constitutional Convention

While the Framers of the Constitution ultimately did not expressly limit Congress’s power to place tariffs on imports from foreign nations, there was vigorous disagreement about whether Congress and the states should be able to tax exports to foreign nations. On June 18, 1787, Alexander Hamilton of New York said that “national revenue” could be “drawn” from “exports which notwithstanding the common opinion are fit objects of moderate taxation.”⁶ These taxes would be paid by farmers and other businesses that exported goods. Unsurprisingly, this idea would prove unpopular in southern states that exported agrarian products. On August 16, George Mason of Virginia insisted that “no tax should be laid on exports” and expressed his hope that the “Northn. States did not mean to deny the Southern [states] this security.”⁷ Mason proposed that “no tax duty or imposition, shall be laid by the Legislature of the U[nited] States on articles exported from any State.”⁸ Gouverneur Morris of Pennsylvania objected to Mason’s proposal as “so radically objectionable, that it might cost the whole system the support of some members.”⁹ Morris argued that it would not be “equitable to tax imports without taxing exports; and that taxes on exports would be often the most easy and proper of the two.”¹⁰

Madison contended that national taxes on exports would be “proper,” as “the States cannot with propriety exercise it separately.”¹¹ He recognized that the “burden should be somewhat heaviest on” the southern states but said that “time will equalize the situation of the States in this matter.”¹² Elbridge Gerry of Massachusetts thought that the federal government “could not be trusted” with the power to tax exports, which “might ruin the Country . . . raising one [part] and depressing another part of it.”¹³ Roger Sherman of Connecticut agreed: “A power to tax exports would shipwreck the whole.”¹⁴ The delegates did not vote on Mason’s proposal at that time. They also did not resolve the question of whether states could tax exports.

On August 21, debate on Mason’s proposal resumed. As a compromise, Madison proposed that Congress be empowered to tax exports with a two-thirds vote of each house.¹⁵ All of the southern states voted against this proposal, which was defeated by a vote of six to five.¹⁶ The Virginia delegation, however, was divided with George Washington and Madison voting in favor of the proposal. Washington, who served as President of the Convention, spoke only twice in Philadelphia and rarely registered his separate views. The fact that he felt the need to vote on this proposal indicates that this issue must have been very significant for him.

Ultimately, Mason’s original proposal was approved by a vote of seven to four with Washington and Madison voting no.¹⁷ Thus, the general southern view prevailed over Madison’s and Washington’s dissent.

The Ratification Debates

The Export Taxation Clause did not prove to be particularly controversial during the ratification debates. In Federalist No. 32, Hamilton discussed the relationship between the federal government and the state governments with regard to taxation. As noted, Congress has the “Power To lay and collect Taxes, Duties, Imposts and Excises.” This power, Hamilton wrote, would seem to include an “exclusive power in the Union to lay duties on imports and exports.” But “no tax or duty shall be laid on articles exported from any state; in consequence of which qualification, it now only extends to the duties on imports.” In other words, Congress could impose tariffs on imports but could not tax exports.

The Anti-Federalist Brutus from New York wrote that a “duty on exports” would be “the best source of revenue to grant the general government” and could “be raised by simple laws, with few officers, with certainty and expedition.” Brutus could not “perceive the reason of the restriction” in the Export Taxation Clause.¹⁸

Judicial Precedent

The U.S. Supreme Court has strictly enforced the Export Taxation Clause’s prohibition against any tax on goods in the course of exportation. For example, the Court found unconstitutional a tax on baseballs and baseball bats that applied to a manufacturer after it agreed to ship some bats and balls to a buyer in Venezuela—but before the goods had been shipped.¹⁹ This standard applies to both “discriminatory” and “non-discriminatory” taxes.²⁰ The Court expressly rejected the argument that “the sole purpose of this constitutional restriction was to prevent discrimination between the states by imposing an export tax on certain articles which might be a product of only a few of the states. . . .”²¹

The Court has also declared unconstitutional taxes on certain services and activities “closely related to the export process”²² but has refrained from clearly defining what is “closely related” to the export process and thus may not be taxed: “[T]he question [of] whether a particular assessment on an activity or service is so closely connected to the goods as to amount to a tax on the goods themselves must await another day.”²³

The Court has read the clause to prohibit only federal taxes or duties imposed on goods in the course of exportation but not before exportation. In other words, this constitutional restriction does not apply merely because the goods may be intended for export.²⁴ In the late 1800s, for example, the Court upheld a federal law that imposed a stamp charge on packages of tobacco that were to be exported and thus were exempt from an excise tax.²⁵ The charge was not considered an export tax because the goods were not actually in the course of exportation. The Court has similarly upheld other federal assessments on pre-export goods ultimately intended for exportation, such as a tax on manufacturing of filled cheeses.²⁶

By contrast, the Court has declared unconstitutional taxes imposed on certain services and activities that are directly related to the export process, such as taxes on bills of lading, marine insurance policies, and harbor maintenance.²⁷ United States v. International Business Machines Corp. (1996) declared unconstitutional a tax on foreign insurance premiums. The Court concluded that the Framers sought to “completely deny[] to Congress the power to tax exports at all.”²⁸ In a dissenting opinion, Justice Anthony Kennedy contended that the Export Taxation Clause, as understood by the Framers, would prohibit export taxes on “articles” but not on services like insurance that arguably have only an indirect effect on export costs.²⁹

The Supreme Court has taken a relatively narrow view of Congress’s power to tax exports, consistent with the plain language of the Export Taxation Clause, but Congress has found ways to regulate exports in other ways. For example, export taxes are imposed based on the goods or services exported, but user fees represent fair “compensation given for [governmental] services rendered.”³⁰ The stamps on tobacco packages were upheld as permissible user fees because the price was a flat rate that did not depend on the quantity or type of tobacco. This fee was held not to constitute an impermissible export tax. Congress has also regulated exports through embargoes on goods for export that are arguably more restrictive than an export tax.³¹

Taxpayers may sue the United States for violating the Export Taxation Clause in the Court of Federal Claims. These suits request a federal tax refund.³² Jurisdiction for these cases is based on the Tucker Act, which grants jurisdiction to the Court of Federal Claims over certain monetary claims, including those founded on the Constitution.³³

Open Questions

• What is the scope of the Export Taxation Clause’s prohibition? How “closely related” to the export process must a tax be before it is prohibited?

1. Art. I, § 8, cl. 1. ↩︎
2. Declaration of Independence, ¶ 19. ↩︎
3. Patrick Henry, Virginia Resolves on the Stamp Act (1765), https://perma.cc/6279-NRQJ. ↩︎
4. Articles of Confederation, art. VIII. ↩︎
5. James Madison, Vices of the Political System of the United States (Apr. 1787), https://perma.cc/589D-EXB6; George Anastaplo, The Constitution at Two Hundred: Explorations, 22 Tex. Tech. L. Rev. 967, 969 (1991). ↩︎
6. 1 Farrand’s 286. ↩︎
7. 2 Farrand’s 305. ↩︎
8. Id. at 306. ↩︎
9. Id. ↩︎
10. Id. ↩︎
11. Id. ↩︎
12. Id. at 307. ↩︎
13. Id. ↩︎
14. Id. at 308. ↩︎
15. Id. at 363. ↩︎
16. Id. ↩︎
17. Id. at 363–64. ↩︎
18. Storing 2.9.92. ↩︎
19. A.G. Spalding & Bros. v. Edwards, 262 U.S. 66 (1923). ↩︎
20. United States v. IBM Corp., 517 U.S. 843, 845, 860–61 (1996). ↩︎
21. Fairbank v. United States, 181 U.S. 283, 292–93 (1901). ↩︎
22. IBM, 517 U.S. at 848–49. ↩︎
23. Id. at 863. ↩︎
24. Pace v. Burgess, 92 U.S. 372 (1876); Turpin v. Burgess, 117 U.S. 504, 507 (1886); Cornell v. Coyne, 192 U.S. 418 (1904). ↩︎
25. Turpin, 117 U.S. at 507. ↩︎
26. Cornell, 192 U.S. at 429. ↩︎
27. Fairbank, 181 U.S. at 294; Thames & Mersey Marine Ins. Co., v. United States, 237 U.S. 19, 27 (1915); United States v. U.S. Shoe Corp., 523 U.S. 360, 369 (1998). ↩︎
28. 517 U.S. at 860–61. ↩︎
29. Id. at 873 (Kennedy, J., dissenting). ↩︎
30. Pace, 92 U.S. at 375. ↩︎
31. Erik M. Jensen, The Export Clause, 6 Fla. Tax Rev. 1, 46 (2003). ↩︎
32. I.R.C. §§ 6511, 6532, 7422. ↩︎
33. 28 U.S.C. § 1491(a)(1); Cyprus Amax Coal Co. v. United States, 205 F.3d 1369, 1373 (Fed. Cir. 2000); United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1, 14 (2008). ↩︎