FSM 10 Intrm. 042-044

A court must deny a motion for summary judgment unless it finds there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The court must view the facts presented and inferences made in the light most favorable to the nonmoving party, and the burden of showing a lack of triable issues of fact belongs to the moving party. MGM Import-Export Co. v. Chuuk, 10 FSM Intrm. 42, 44 (Chk. 2001).

A state alcoholic beverage possession tax for which liability is triggered by the act of importation although actual payment may be delayed five days, is an import tax, and as such unconstitutional. MGM Import-Export Co. v. Chuuk, 10 FSM Intrm. 42, 44 (Chk. 2001).

This case involves a "possession" tax levied by the State of Chuuk on alcoholic beverages pursuant to Truk State Law No. 5-119, §§ 9, 10, as amended by Chuuk State Law No. 2-93-06, § 2. The plaintiff, MGM Import-Export Company (MGM), states that it is a company established in Chuuk, engaged in importing goods into Chuuk, much of which are then later exported to points outside of Chuuk, including outside of the Federated States of Micronesia, such as to the Marshalls and Palau. A substantial portion of MGM's imported and the goods it then exports from Chuuk are alcoholic beverages.

MGM's verified complaint seeks a declaratory judgment that this "possession" tax is an unconstitutional import tax, that its enforcement be enjoined, that the possession taxes MGM had already paid be refunded, and that damages be awarded to MGM for the defendants' violation of its civil rights by the state's failure to implement regulations and procedures as required by the challenged statute and a deprivation of MGM's property without due process of law, in particular, the state's failure to refund, as authorized by the statute, the possession tax paid on goods MGM exported to other jurisdictions. The parties stipulated to a preliminary injunction by which MGM agreed, for the purpose of the injunction, to pay the possession tax on any current and future alcoholic beverage imports, and upon proof of export of any of the beverages, Chuuk agreed to pay a refund of the possession tax collected on those beverages. The parties also agreed that all possession taxes, fines and penalties collected pursuant to the injunction were paid under duress and under protest.

MGM has moved for summary judgment. MGM contends that it is entitled to a judgment that the Chuuk possession tax is an unconstitutional import tax, that it is restrictive of foreign and interstate commerce, and that the lack of regulations and procedures (except for the agreement in the stipulated preliminary injunction) for the statutorily-required refunds of possession taxes paid on exported alcoholic beverages is violative of MGM's rights to due process.

The defendants (collectively "the state") oppose summary judgment. The state contends that the court cannot grant summary judgment "simply on the basis of whether or not CSL No 5-119 is a tax on import" or declare the law "unconstitutional simply because it is a tax on import," but that the court must look at the whole act to determine if the Chuuk Legislature has exceeded its authority and "its broad police power to regulate and restrict the sales and possession of all the goods" taxed by Chuuk State Law No. 5-119. The state also notes that the possession tax, by the statute's terms, applies only to alcoholic beverages committed for sale or use in Chuuk. The state also asserts that the question of whether the lack of procedures and regulations constitutes a denial of due process is a material fact in dispute and cannot be decided by summary judgment.

"A court must deny a motion for summary judgment unless it finds there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. The court must view the facts presented and inferences made in the light most favorable to the nonmoving party, and the burden of showing a lack of triable issues of fact belongs to the moving party." Nanpei v. Kihara, 7 FSM Intrm. 319, 323 (App. 1995) (citing Adams v. Etscheit, 6 FSM Intrm. 580, 582 (App. 1994)).

Import taxes are an exclusive national power. FSM Const. art. IX, § 2(d). See also Wainit v. Truk (II), 2 FSM Intrm. 86, 87 (Truk 1985) (excise tax to be paid on goods before release from port of entry), aff'd sub nom., Innocenti v. Wainit, 2 FSM Intrm. 173, 181-84 (App. 1986). As such it is a power that is prohibited to the states. FSM Const. art. VIII, § 1.

The statute imposes a tax on the possessor of alcoholic beverage five days after it has been bottled or imported into Chuuk. Truk S.L. No. 5-119, § 10. It is undisputed that alcoholic beverages are not now and have never been bottled in Chuuk. The possession tax is thus levied on the possessor of alcoholic beverages five days after their importation. As such, it is the act of importation that triggers the liability although actual payment may be delayed five days. That makes it an import tax. The Chuuk alcoholic beverage possession tax is therefore unconstitutional. In Department of Treasury v. FSM Telecommunications Corp., 9 FSM Intrm. 575, 581 (App. 2000) the court held unconstitutional as an import tax, a Pohnpei state use tax that required an ad valorem payment sixty days after the goods' importation. In Gimnang v. Yap, 4 FSM Intrm. 212, 215 (Yap 1990) a Yap state tax that was levied on goods ten days after importation was held unconstitutional as an import tax. In both cases, it was the act of importation that triggered the tax liability. The same is true of the Chuuk alcoholic beverage possession tax which requires payment five days after importation.

The state contends that the court must not look just at the possession tax provisions but at the whole act to determine if the state legislature acted within its powers. This is not so. If a statutory provision is unconstitutional and can be severed from the rest of the legislative act, only that provision will be struck down. See, e.g., Chuuk State Supreme Court v. Umwech (II), 7 FSM Intrm. 630, 632 (Chk. S. Ct. Tr. 1996). The Chuuk alcoholic beverage possession tax is easily severable from the other taxes on goods and services in the balance of the statute.

The state's contention, that the possession tax is not restrictive of foreign and interstate commerce because the statute provides for refunds for exported alcoholic beverages, only highlights the nature of the tax as an import tax. But since the possession tax is unconstitutional as an import tax, the issue of whether it is also unconstitutional as restrictive of interstate commerce is not reached.

Likewise, it may also be unnecessary to decide the due process and civil rights issues that are based on the lack of regulations and procedures to implement the provisions now ruled unconstitutional. It is also not certain, as to those issues, that there are no genuine issues of material fact. The issue of refunds for past paid possession taxes also remains open.

MGM is entitled to declaratory judgment that the Chuuk alcoholic beverage possession tax, Truk State Law No. 5-119, §§ 9, 10, as amended by Chuuk State Law No. 2-93-06, § 2, is unconstitutional. The State of Chuuk is therefore permanently enjoined from enforcing those provisions. There being no just reason for delay, let final judgment that Truk State Law No. 5-119, §§ 9, 10, as amended by Chuuk State Law No. 2-93-06, § 2, is unconstitutional be entered accordingly. FSM Civ. R. 54(b).