United States v. International Business Machines Corporation

PETITIONER: United States
RESPONDENT: International Business Machines Corporation
LOCATION: North Carolina General Assembly

DOCKET NO.: 95-591
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Federal Circuit

CITATION: 517 US 843 (1996)
ARGUED: Mar 18, 1996
DECIDED: Jun 10, 1996

James R. Atwood - Argued the cause for the respondent
Jeffrey P. Minear - Argued the cause for the petitioner

Facts of the case

Pursuant to the Internal Revenue Code, International Business Machines Corporation (IBM) paid a tax on insurance premiums it paid to foreign insurers to insure exports from the U.S. to foreign countries. IBM sought a refund on the tax and filed suit in the Court of Federal Claims when its refund claim was denied by the IRS. IBM contended the tax violated the Export Clause of the U.S. Constitution, which states that "[n]o Tax or Duty shall be laid on Articles exported from any State." The court agreed. The Court of Appeals affirmed.


May the federal government impose a tax on premiums that U.S. businesses pay foreign insurers for risks that could arise in this country?

Media for United States v. International Business Machines Corporation

Audio Transcription for Oral Argument - March 18, 1996 in United States v. International Business Machines Corporation

William H. Rehnquist:

We'll hear argument now in Number 95-591, the United States v. International Business Machines Corporation.

Mr. Minear.

Jeffrey P. Minear:

Thank you, Mr. Chief Justice, and may it please the Court:

The issue in this case is whether section 4371 of the Internal Revenue Code runs afoul of the Export Clause of the Constitution.

Section 4371 imposes a generally applicable tax not limited to exports on premiums paid by foreign insurers for risks that occur wholly or partly within the United States.

It eliminates a competitive advantage that foreign insurers would otherwise enjoy by virtue of their exemption from the Federal income tax.

The Federal Circuit ruled that the Export Clause prohibits the application of that tax to insurance associated with exports.

They concluded that this Court's decision in Thames & Mersey v. United States compelled that result.

We submit that this Court's ruling in Thames & Mersey is no longer viable.

That decision was a departure from precedent when it was decided 80 years ago, and it rested on a Commerce-Clause rationale this Court has since repudiated.

But perhaps most important, Thames cannot be reconciled with this Court's modern tax decisions, which have worked a basic change in the law.

Those decisions, Michelin Tire and Washington Stevedoring, have, in the words of the Court, abandoned the past practice of examining when goods lose their character as imports or exports, and has refocused the inquiry on the nature of the tax at issue.

Using that approach, the Court has concluded that the Import-Export Clause does not prohibit the application of generally applicable taxes, but rather prohibits--

Sandra Day O'Connor:

Well, Mr. Minear, we're dealing here with the Export Clause, not the Import-Export Clause, isn't that right?

Jeffrey P. Minear:

--That is correct, Your Honor.

Sandra Day O'Connor:

And it certainly is possible that the Export Clause has different purposes than the Import-Export Clause.

Jeffrey P. Minear:

That is possible, but we do not think it is borne out by either the language or the content of the clause itself.

Sandra Day O'Connor:

You do concede that if we do not overrule the Thames case that you lose?

Jeffrey P. Minear:

That is correct.

We have made that concession in the briefs.

Sandra Day O'Connor:

And it obviously would require ultimately overruling more than just Thames & Mersey.

There are some other cases that are of the same genre, are they not?

Jeffrey P. Minear:

But relatively few, Your Honor.

In fact, there were four cases that were decided before Thames and Mersey--

Sandra Day O'Connor:

Well, why should we do that at all?

Why not leave them in place?

What harm does it do?

Jeffrey P. Minear:

--The harm that it does is, it results in a lack of coherence in this Court's overall approach to the problem in this area.

Sandra Day O'Connor:

Well, occasionally one has that.

We certainly have the precedents out there, and I just... you're going to have to persuade me that there are some very important reasons for overturning these longstanding precedents.