The Constitutional Implications of the Yap State Excise Act 
in the Constitutional Structure of the Federated States of Micronesia
 
By Victor Nabeyan
Final Year Law Student
U.S.P., Port Vila, Vanuatu
Abstract
The Yap State Legislature had two primary aims when it enacted the Yap State Excise Tax Act of 1979. Firstly, it desired a tax scheme which would broaden the tax base of the Yap State government and facilitate and foster local industries at the same time. Secondly, it sought to engineer a tax device, the administration of which would be cheap and convenient. The result was that the original Yap State Excise Tax Act came to be a system which deliberately did two things. It imposed duties upon imported items and required full tax payments before the items were released from their ports of entry. Simultaneously, it exempted products domestically manufactured from taxation.
The FSM Supreme Court struck down an identical tax in Chuuk State as being unconstitutional. The Yap State Legislature reacted with an amendment calibrated to cure the constitutional defects discovered by the court in the Chuuk State Act. The amendment appears to have successfully garrisoned the Yap State Excise Tax Act against a judicial finding of unconstitutionality on the same basis as in the Chuuk State case. However, in concentrating and restricting its mind to remedying the constitutional problems identified in the Chuuk State tax, the Yap State Legislature may have failed to address other constitutional issues that bear directly on state taxation. Consequently, the Yap State Excise Tax Act of 1979 as amended may still be vulnerable to other angles of constitutional challenge.
This paper, then, seeks to examine the constitutionality of the Yap State Excise Tax Act of 1979 as amended. In doing so, it will inevitably delineate the division of state and national taxing powers in the Federated States of Micronesia. If it finds the Act to be unconstitutional, it will also propose ways by which it can be modified so as to be constitutional. 
 
Political Background and the Division of Powers.
The third of the three major ethnic island groups in the Pacific, Micronesia lies north of the equator at more than 4,000 kilometers south-west of Hawaii. It is comprised of Yap, Chuuk (formerly Truk), Pohnpei (formerly Ponape), Kosrae, Palau, the Marshall Islands, the Northern Marianas, and Guam. At the end of World War II, all of Micronesia, with the exception of Guam, was part of the United States Trust Territory of the Pacific under a mandate of the United Nations. In 1979, Yap, Chuuk, Pohnpei, and Kosrae bound together as sister states in a self-governing federal system called the Federated States of Micronesia (FSM). 
At the center of this federated unification is a national government and a national constitution. Each of the four states has a state government and a constitution. The federalist nature of the FSM political structure has naturally accorded the national constitution uncontested supremacy and has pinned FSM constitutional jurisprudence along the boundaries of state and national powers as expressly and impliedly defined by the national constitution.
It is well settled in the FSM and the two prominent federal systems of the world, the United States and Australia, that the powers expressly reposed to the national or federal government by the national or federal constitution is the central government’s exclusively. And whatever powers the national constitution does not delegate to the national government are generally state powers. 
"The powers of the national government are ‘express powers’ and those of the states, ‘residual’. That means that the national government has only those powers expressed in the Constitution, while the state governments have all other powers of government." FSM ConCon Journal, Vol. 2 at 813.
But the expressed terms of the Constitution do not limit the powers of the national government. It is universal in federal systems that the central government has what is often referred to as ‘inherent or implied’ powers. These are powers intrinsic and necessarily incidental to the powers expressly conveyed by the Constitution. Consequently, in its entire range, the powers of the national government are those
"… expressly delegate(d) to… it, plus all power(s) necessary to deal with matters of such an indisputably national character as to be beyond the ability of a single state to control." Ibid at 815.
One of the significant features of inherent powers is that they attend the Constitution with the flexibility vital to make it practically enduring and adaptable to social changes. Ibid. A state action, legislation, or subsidiary legislation, which by construction or operation, intrudes upon, exercises, or conflicts with a power expressly or impliedly vested in the national government is unconstitutional to the extent of the intrusion, exercise, or conflict. It is upon the matrix of this constitutional background that the validity of the Yap State Excise Tax Act of 1979 as amended comes to be judged.
 
II. The Yap State Excise Tax Act of 1979 as amended.
In the first year of its formation, the Yap State Legislature enacted the original Excise Tax Act with the policy aims of broadening the tax base of the Yap State government and of encouraging domestic industries. Pertinently, this Act imposed duties upon goods imported into the State and required that goods could not be removed from their ports of entry until the consignee has paid excise taxes on them.
In Innocenti v. Wainit, 2 FSM Intrm. 86 (1986), the FSM Supreme Court held that an identical Excise Tax Act in Chuuk in effect levied duties on imports and, thus, was unconstitutional. The court there found that Article IX, Section 2(d), of the national constitution gives the national government the exclusive power to levy import taxes with the result that state governments were barred from exacting these duties. 
The crux of the Innocenti decision was that at the time of taxation, the items taxed were still characteristically imports. Reacting to avoid the possibility of suffering the same ruling, the Yap State Legislature amended the Yap State Excise Tax Act of 1979 to operate only after goods have lost their import character. See SCREP No. 2-61 at 2. As amended, section 106 of the Act now mandates excise tax on an imported item shall attach only
"… after the release of… (the)… item from a port of entry of the State, (and) upon removal of the item from its original box, case, container, bate or other package…."
The rationale of this amendment is that an imported item looses its import character upon being removed from its port of entry and upon being removed from the package in which it was imported and, thus, state taxation on it at or after the occurrences of those events are constitutional. See SCREP 2-61 at 2.
 
III. Possible Grounds for Constitutional Nullity.
There are four provisions of the national constitution which all state taxation appears subject. Enumerated below, the first two were designed to identify the separation between national and state taxing powers. The last two were devised to restrain governmental action, irrespective of whether it is state or national, from encroaching on natural justice and the constitutionally protected fundamental rights that derive from it. Individually and collectively, these provisions offer the basis upon which state taxation schemes could be assailed as unconstitutional. 
The first provision is the Import Tax Clause. Article IX, Section 2(d), delegates to Congress, the legislative branch of the national government, the exclusive power to
"impose taxes, duties, and tariffs based on imports."
If, notwithstanding the amendment, the Yap State Excise Tax Act remains, either by construction or operation, a levy on import, it is inconsistent with Article IX, Section 2(d).
The second ground is the Commerce Clause. Article IX, Section 2(g), bequeaths to the national government the exclusive power to
"regulate… foreign and interstate commerce…."
If, in effect, the Yap State Excise Tax Act as amended burdens, intrudes upon, or hinders foreign or interstate commerce, it is unconstitutional.
The third ground is the Equal Protection Clause. Article IV, Section 3, accords every person the "… equal protection of the laws."
This Clause requires that persons similarly situated or who are of the same class be treated equally at law. Southwestern Oil Company v. Texas, 54 L Ed 688 at 693. See also FSM ConCon Journal, Vol. 2 at 796. Thus, if the Yap State Excise Tax Act burdens foreign-originated items while it ignores the same items manufactured or produced domestically, it unconstitutionally denies persons who possess the former the equal protection of the law.
The final ground is the Due Process Clause. Article IV, Section 3 provides that
"[a] person may not be deprived of life, liberty, or property without due process of law…" (Emphasis added).
The Yap State Excise Tax Act, as a whole, does not seem to violate the Due Process Clause. It was enacted through legislative procedures that are well settled as satisfying the requirements of due process. Sufficient notice of the hearing on the bill which proposed it were given, the hearing was open to the public, and, upon promulgation, the Act was sufficiently published and is available for public inspection.
Section 106 of the Act as amended, however, creates a presumption the application of which may violate due process. This section states that
"[i]t is presumed that on or after forty-five calendar days from the date the items are released from the port of entry, such items have been removed from their original box, case, container, bale or other package."
The amendment to the Yap State Excise Tax Act is premised on the notion that foreign-originated items loose their distinctive import characters upon being removed from the original packages in which they were imported. As a general rule of evidentiary procedure, this element of the Act would place upon the government the onus of proving that taxes are levied on foreign-originated goods after they have been removed from their original packages. The presumption of Section 106 was designed to displace from the government the administrative inconvenience involved in satisfying this onus. 
A presumption is a rule of law directing the inference of a fact or law (the presumed fact or law) upon proof of another fact (the basic fact). 29 Am Jur 2d, Section 181. There are two types of presumptions: Rebuttable and conclusive (irrebuttable) presumption. Adjudication on the constitutional propriety of either species of presumptions generally centers on their impacts on the right of due process. Ibid.
The Due Process Clause, inter alia, gives a person whose interests the government seeks to deprive or otherwise burden the right to a hearing and the right to be heard. It is for this reason that in both criminal and civil jurisprudence rebuttable presumptions are accorded greater tolerance while conclusive presumptions are frowned upon. The former allows a person the right of contest. The latter forecloses it. Hooven v. Evatt, 324 US 657. The presumption created by the Act would, thus, be constitutional if it is rebuttable and unconstitutional if it is not.
Opportunity of hearing and rebuttal are the procedural components of the Due Process Clause. There is, however, another layer to the Due Process Clause through which all government decision-making processes affecting private interests must pass. This is the substantive due process. It requires that governmental actions affecting private interests be predicated upon or manifests some rationality or legitimacy. Hence, even if the presumption of 13 YSC 106 survives the procedural prong of the Due Process Clause, it would still be offensive to the Constitution if it is devoid of any rationality.
 
IV. Constitutional Assessment of the Yap State Excise Tax Act of 1979 as amended.
a. Article IX, Section 2(d), of the National Constitution: The Import Tax Clause.
It seems that the Yap State Excise Tax Act as amended could survive a constitutional challenge on the basis of Article IX, Section 2(d). The amendment to the Act was based on the so-called ‘original package’ doctrine posited in the landmark case of Brown v. Maryland, US 12 Wheat 419, 6 L Ed 678. The court held there that, at some point, imported items do loose their import features. Chief Justice Marshall wrote that
"… when the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of the property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the state; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the constitution." Ibid at 686. (Emphasis added).
Chief Justice Marshall went on to say that an importer has so acted and altered
"… the state of things… if he sells them, or otherwise mixes them with the general property of the state, by breaking up his packages, and travelling with them as an itinerant peddler." Ibid at 687.
Brown appears to be the standing law in the United States and in countries, like the Federated States of Micronesia, which give faith and credit to American decisions as persuasive authorities. It has been affirmed in numerous subsequent cases, the most notable of which are May v. New Orleans, 178 US 496 (1900), 44 L Ed 1165; Sonneborn Brothers v. Keeling, 262 US 506 (1923), 67 L Ed 67; and Youngstown Sheet & Tube Co. v. Bowers, 3 L Ed 2d 490.
As it stands then, the Yap State Excise Tax Act does not appear to levy duties on imports. Pursuant to section 106 thereof, excise tax accrues only after an item has been removed from the port of entry and after its original package has been broken. At this point, the taxed item has lost its distinctive character as an import.
Conceivably, some taxpayers, especially retailers, could claim the items, which they import and dispose off wholesale without breaking their original containers, are immune from state taxation. If this argument holds, it would create a loophole in the Act that the state government would not welcome. The breaking up of the original package, however, is not the sole factor of determining whether an item has lost its distinctive character as an import.
"[T]hat the package has not been broken is only one of several factors in determining whether the goods have been…"
amassed with the general property within the State. Youngstown Sheet, 3 L Ed 2d at 500. 
"Another way is by putting them to the use for which they were imported. And inasmuch as the reconciliation of the competing demands of the constitutional immunity and the state’s power to tax is an extremely practical matter, we must approach the question whether… materials had been put to the use for which they were imported with full awareness of realities and treat them in a practical way." Ibid. See also Hooven v. Evatt, 324 US at 657, 89 L Ed 1252 at 1265.
Because of the expense involved in importation, it is realistic to hold that there is always a purpose for which a particular item is imported. It would be unrealistic to think that a person would expend money in importing an item that he does not intend to put to some use. Whether or not an imported item has been put to its intended use has to be a matter of realistic and practical inference. Ibid. 
Furthermore, inasmuch as realistic and practical inference turns on the daily common sense and experience of man, it manifests the elasticity which can, depending on the facts, save state tax schemes from an attack on the basis of Article IX, Section 2(d). For this reason, an unconstitutional application of the Yap State Excise Tax Act by way of imposing duties on goods while they are still characteristically imports cannot have the automatic effect of generally annulling the Act. It would still survive as a constitutional burden on foreign-originated articles in another instance where it is applied and enforced consistently with the criteria of Brown.
 
b. Article IV, Section 3, of the National Constitution: The Equal Protection Clause. 
The constitutional right to equal protection of the law extends to tax legislation. 71 Am Jur 2d, Section 157. See also Hillsborough Twp. v. Cromwell, 326 US 620, 90 L Ed 358. The Equal Protection Clause requires that persons who are similarly situated or who are of the same class be treated equally at law. FSM ConCon Journal, Vol. 2 at 796. See also Yick Wo v. Hopkins, 118 US 355 at 369 (1886); and Southwestern Oil Company at 693. Implicit in the principles of equal protection of the law is that 
"… all persons should be equally entitled to pursue their happiness and acquire and enjoy property… and that no impediment should be interposed to the pursuits of anyone except as applied to the same pursuits by others under like circumstances… and that no greater burdens should be laid upon one than are laid upon others in the same calling and condition…." (Emphasis added). FSM ConCon Journal, Vol. 2 at 796. 
The language of the Yap State Excise Tax Act does not technically exclude the taxation of persons who possess local products. In actual application, however, it consistently burdens persons who possess foreign-originated goods while it does not tax persons who possess goods of the same kinds which are produced domestically. Classification based on origin of property was anticipated and intended by the Yap State Legislature in order to foster and promote local industries. See SCREP 2-61 at 4. Whatever the economic prudence of it may be though, such a classification is naturally suspect under the Equal Protection Clause.
The Equal Protection Clause was not designed, however, to prevent the State from adjusting its taxing system through classification based on reasonable and legitimate policy. Southwestern Oil Company at 693. A State
"… may, if it chooses, exempt certain classes of property from taxation at all… so long as… (it)… proceeds within reasonable limits and general usages… (and)… within the discretion of the state legislature or the people of the state…" Ibid.
A legitimate policy of the State, one which falls within its discretion, is to arrange its revenue collection so as to foster its local industrial interests. Allied Stores of Ohio v. Bowers, 358 US 522, 3 L Ed 2d 480 at 484. The State
"… has the inherent power to legislate so as to increase the industries of the State, develop its resources, and add to its wealth and prosperity. Regulations for these purposes are not designed to impose unequal restrictions upon anyone, but to promote the general good with as little individual inconvenience as possible." FSM ConCon Journal, Vol. 2 at 797.
The time at which classification by a tax scheme, contrived to facilitate and promote domestic industries, infringes the Equal Protection Clause is when it is "palpably arbitrary". Allied Stores at 485. Classification
"… must rest upon some ground of difference having a fair and substantial relation to the object of the legislation." F.S. Royster Guano Co. v. Virginia, 253 US 412, 64 L Ed 989 at 990. "If the selection or classification is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law." Brown-Forman Co. v. Kentucky, 217 US 563, 54 L Ed 883 at 887. "It has been repeatedly held and it appears to be entirely settled that a (State) statute which encourages the location within the State of needed and useful industries by exempting them, though not also others, from its taxes is not arbitrary and does not violate the Equal Protection Clause…." Allied Stores at 485.
In Allied Stores, it was held that the goal of the State of Ohio in encouraging non-state residents to store property in Ohio by exempting them from a warehousing tax was reasonable, not arbitrary, and, thus, inoffensive to the Equal Protection Clause. On the same rationale, Yap State could argue that, in order to foster local industries, the Excise Tax Act as amended reasonably distinguishes between persons who posses foreign-originated items and those who possess domestic products. This classification hinges on a fair and legitimate difference, bears a reasonable and substantial connection to the object of the Excise Tax Act, and, hence, is not palpably arbitrary. Accordingly, the Act may withstand a challenge on the basis of Article IV, Section 3. 
 
c. Article IV, Section 3, of the National Constitution: The Due Process Clause
The basis of possible due process assault on the Yap State Excise Tax Act lies in the statutory presumption created by Section 106 of the Yap State Excise Tax Act as amended. Supra. If the presumption divests from taxpayers the right of procedural due process that is inherent in Article IV, Section 3, of the national constitution, i.e. the right to a hearing and the right to be heard, it is unconstitutional. Whether a statutory presumption violates procedural due process depends on whether it is rebuttable or irrebuttable. If it operates to presumptively construct a fact or state of facts which are irrefutable in law, then it is unconstitutional. 
The Yap State Excise Tax Act does not expressly indicate the nature of the presumption. Likewise, the legislative history of the Act appears unhelpful in ascertaining its refutability or irrefutability. Analyzing the overall construction of the Yap State Excise Tax Act together with the manner in which the presumption is applied is, perhaps, the only means of resolution of this issue left. Hooven and Youngstown Sheet support this analytical paradigm. Supra. The courts there intimated that the constitutional assessment of tax legislation should take a realistic and practical approach.
Going by the language of Section 106 of the Act, the Yap State Division of Revenue and Taxation (hereinafter referred to as ‘Revenue’) presumes, after 45 days have elapsed since the importer removed items from the port of entry, that he has broken their original packages. No attempt is made by Revenue to factually ascertain what it presumes at law. Pursuant to an internal procedural manual promulgated by the Director of Administrative Services under the incidental powers of his office, Revenue then mails a notice to the importer. The notice, in accordance with the manual, informs the importer that excise tax is due and that a 3 percent penalty will accrue if the tax is not fully paid within 10 calendar days of the date the notice is mailed. No notice is given that Revenue presumes at law that the original packages have been broken and that the importer has a right to rebut that presumption. More often than not, the importer defaults upon the notice and the penalty is assessed. 
The government could contend that the notice and the 10 day grace period meet the requirements of procedural due process by according the importer the opportunity to demonstrate that he has not in fact broken the original packages. The problem with this contention, however, is that the notice does not tell the importer that a presumption against his property interest has been made and that he has a right to contest it. Revenue acts on the presumption by assessing excise taxes and attaching penalties without proffering the importer the opportunity of rebuttal. The inevitable result of a realistic and practical analysis may, thus, be that any appearance of refutability that the notice and 10 day grace period may purportedly impute is merely cosmetic.
In the alternative, the government could insist that the right of contesting the presumption inheres within the juridical process. In Southwestern Oil Company, the court decided at 692 that
"[i]f the state seeks, directly, by civil suit, or indirectly, by criminal prosecution in one of its courts, to enforce the provisions of the statute, the way is open for the taxpayer, in his defense, to raise the question of the constitutional validity either of the statute as a whole, or of any method prescribed in it for the collection of the tax. No element of due process of law seems to be wanting unless it be… that the penalties for failing to make the… (things)… required by the statute are so severe and exacting as to make it unsafe for the taxpayer to question the validity of such penalties, and thereby interfere with or suspend the collection of the taxes by insisting that they have been imposed in disregard of the due process of law." (Emphasis added).
The State could submit that, even if the presumption of 13 YSC 106 may not tailor itself to the procedural due process of law, evidentiary procedures in civil and criminal litigation convey the taxpayer the opportunity to contest the factual and constitutional validity of the presumption. The 3% penalty accruing upon non-payment of the tax when it attaches at the instance of the presumption may not be so severe so as to relegate empty this opportunity of contest. 
However, even though on the basis of Southwestern Oil Company, a procedural due process challenge on the presumption appears containable, procedural due process is not the only angle of a Due Process Clause attack on statutory presumptions. 
"While procedural due process requires governmental decision-making to conform with the concept of what is fair and just, substantive due process, on the other hand, addresses the rationality of the legislature. … In subjecting a statute to the requirements of substantive due process, the court asks: (1) Does the government have the power to regulate the subject matter?" FSM ConCon Journal, Vol. 2 at 796. See also Loan Association v. Topeka, 20 Wall. 655 (1875); and Carmichael v. Southern Coal & Coke Co., 300 U.S. 644 (1937). "(2) if the government has the power to regulate, the court next asks of what (sic) the statute proposes to do bears a rational relationship to the implementation of the legislative goal. Another way of asking the same question is, Can any reasonable legislature choose this particular statute to achieve its goal?" FSM ConCon Journal, Vol. 2 at 796. See also Munn v. Illinois, 94 U.S. 113 (1877); and Ferguson v. Skrupa, 372 U.S. 726 (1963).
For purposes of analyzing the substantive constitutionality of the presumption in 13 YSC 106, the power of the Yap State Legislature to impose excise tax is now assumed. The sine qua non of substantive due process tests the rationality of the presumption by visiting the nexus between the presumed fact or law and the basic fact. In Usery v. Turner Elkhorn Mining Co., 49 L Ed 2d 752 at 773, the court reasoned that the fundamental and underlying principle of statutory presumptions is that there is 
"… some rational connection between the fact proved and the ultimate fact presumed, and that the inference of one fact from proof of another shall not be so unreasonable as to be a purely arbitrary mandate."
The court in Usery did recognize that deference must be given to the lawmaker on some questions of rationality. It noted at 774 that
"[t]he process of making the determination of rationality is, by its nature, highly empirical, and in matters not within specialized judicial competence or completely commonplace, significant weight should be accorded the capacity of Congress to amass the stuff of actual experience and cull conclusions from it."
However, the rationality or irrationality of a perceived nexus between the proven fact, i.e. the expiration of 45 days after the removal of items from the port of entry, and the presumed fact, i.e. the items have been broken from their original packages, is not a matter of "highly empirical" deliberations. The plain universal truth is that an operation of nature, such as the coming and passing of any number of days, does not logically bear proof of a human act, such as the breaking up of original packages.
The connection between these two facts appears arbitrarily concocted for the sake of administrative efficiency. Procedure by presumption is an effective tool since it is easier and cheaper than individualized determination. But the Constitution places more value on procedural and substantive due process than on administrative speed and convenience. Stanley v. Illinois, 31 L Ed 2d 551 at 561-561. The presumption in 13 YSC 106 would, thus, likely fail in the end.
But failure of one part of 13 YSC 106 may not ruin the section entirely.
"The rule is well-settled that if one part of a statute is valid and the other invalid, the former may be enforced, if it be not so connected with or dependent on the other as to make it clear that the legislature would not have passed that part without the part that may be deemed invalid." Southwestern Oil Company at 692.
The chapter within which 13 YSC 106 falls does not have a severance provision. But it seems that the rest of 13 YSC 106 is not so connected and interdependent with the presumptive clause that isolated enforcement of the former is not possible. The first part of 13 YSC 106 defines and describes the event that invokes excise taxes. The presumption was, it appears, enacted merely to simplify the administration of the main text of 13 YSC 106. It would likely be held to be severable and would, hence, not bring the rest of 13 YSC 106 down with it. 
d. Article IX, Section 2(g), of the National Constitution: The Commerce Clause.
The Commerce Clause, Article IX, Section 2(g), of the national constitution expressly reposes to the national government the power to regulate foreign and interstate commerce. This power is exclusive. FSM ConCon Journal, Vol. 2. at 818. See also Walling v. People of Michigan, 29 L Ed 691 at 694. The Commerce Clause was intended by the framers of the national constitution to preclude state governments
"… from using their… taxing powers in ways which would prevent or unreasonably impede the free flow of goods and services in foreign and interstate commerce." FSM ConCon Journal, Vol. 2 at 865-866. 
The extent at which a state tax amounts to a restriction on foreign and interstate commerce is a matter that the Constitution leaves to the court. Ibid. In McGoldrick v. Berwind-White Coal Mining Co., 309 US 33, 84 L Ed 565 at 569, the court said the test of when a state tax has encroached on Article IX, Section 2(g), is when it manifests a 
"… tendency… to prohibit the (interstate or foreign) commerce or place it at a disadvantage as compared or in competition with intrastate commerce, and any state tax which discriminates against the commerce are familiar examples of the exercise of state taxing power in an unconstitutional manner…." (Emphasis added).
In sum, whether state taxation violates the Commerce Clause turns on whether the levy tends to prohibit, discriminate against, or place at a disadvantage interstate or foreign commerce vis-à-vis intrastate commerce. An unmistakable manner by which state taxation burdens interstate and foreign commerce is when it discriminates against a commodity because of its origin. Gregg Dyeing Co. v. Query, 76 L Ed 1232 at 1238. See also Walling, supra.
It appears that the Yap State Excise Tax Act as amended does not, at least technically, immunize local products from tax liability. This may be the conjunctive effect of all of Section 103 of the Act. And insofar as this is true, it can be argued that the Yap State Excise Tax Act does not discriminate against commodities arriving from ashore Yap State. But this argument may not suffice. In Gregg Dyeing Co., the court wrote at 1236 that constitutional legitimacy 
"… is not dependent upon the form of a taxing scheme…. We regard the substance rather than the form, and the controlling test is found in the operation and effect of the statute as applied and enforced by the State." (Emphasis added).
The Gregg Dyeing test could prove lethal. While the Yap State Excise Tax Act does not discriminate in form, it does so in application. Revenue consistently refrains from taxing domestic items while it exacts levies on imported goods of the same kind. Section 103(a)(4) imposes excise duties on meat, fish, vegetables, fruits, and other edible preparations such as poultry. These are products that are both imported and produced domestically. Yet, Revenue levies and collects taxes on the ones imported without doing the same on those locally manufactured. 
It seems then that there is a credible argument that, as applied and enforced by the State, the Yap State Excise Tax Act tends to ‘place at a disadvantage or discriminate against’ foreign and interstate commerce. This appears to be the vice of the Act. 
It needs mentioning that the Commerce Clause was not intended to defeat all forms of state taxation which bears some effect on interstate or foreign commerce. There are state legislation which burden interstate or foreign commerce as a matter of the incidental or consequential effect of economic forces. These do not necessarily trespass into the boundary of power delegated exclusively to Congress. 
"A tax may be levied on net income wholly derived from interstate commerce. Non-discriminatory taxation of the instrumentalities of interstate (and foreign) commerce is not prohibited. The like taxation of property, shipped interstate, before its movement begins, or after it ends, is not forbidden. Nor is taxation of a local business or occupation which is separate and distinct from the transportation or intercourse which is interstate commerce, forbidden merely because in the ordinary course such transportation or intercourse is induced or occasioned by such business, or is prerequisite to it." McGoldrick at 570. See also Western Livestock v. Bureau of Revenue, 303 US 253, 82 L Ed 826. (Emphasis added).
The government could assert that the Excise Tax Act does not burden interstate and foreign commerce since, at the point of its operation, the taxed items have come to its journey’s end and have, thus, lost their import characters. The fact that, prior to being taxed, the goods transited through foreign commerce could be argued as immaterial. Any effect that the tax may have on foreign or interstate commerce could be deemed as a permissible incident of the natural play of economics. McGoldrick at 570.
The backbone, however, of the McGoldrick ratio decidendi is that state taxation, which affect interstate or foreign commerce only as an incidental matter of ordinary economics, is constitutionally safe only insofar as it does not discriminate as to origin. Hence, the fact that the Excise Tax Act applies only after the import attributes of the taxed items have been alienated does not obviate from Commerce Clause analysis the issue of discrimination. 
In Walling, the court entertained the constitutionality of a state license tax which imposed a business levy on persons engaged in the selling of liquor brought in from outside of Michigan, but which did not burden sellers of liquor manufactured in Michigan. It was there determined that because the tax discriminated unfavorably against the people and products of other states and countries, it discriminated against and placed interstate and foreign commerce at a disadvantage and, thus, was repugnant to the federal constitution. The Walling court recognized that the sellers were taxed for reselling items after they had lost their import characters. But it intimated that the overriding factor was the discriminatory nature of the license levy. 
The holdings of Walling and Gregg Dyeing Co. have since been upheld. The more recent decisions in McGoldrick and Western Livestock concur with them. It follows that the Yap State Excise Tax Act may wither under a Commerce Clause challenge because of the discriminatory manner in which it exacts taxes.
Another issue that the Excise Tax Act must face in an Article IX, Section 2(g), examination is the validity of the tax measurement method it requires. The Commerce Clause will forbid a tax that is measured from gross receipts derived from interstate or foreign commerce. This true if such method of measurement renders tax assessment a burden on interstate or foreign business activities. J.D. Adams Manufacturing v. Storen, 82 L Ed 1365. See also Gwin, White & Prince v. Henneford, 83 L Ed 272.
In J.D. Adams Manufacturing, the appellant, an exporter, contested the constitutionality of an income tax based on the gross receipts of its business earnings abroad. The court there held that such measurement of taxation bears directly on and burdens the interstate and foreign activities of the appellant and was, thus, offensive to the Commerce Clause. A similar factual situation is found in Gwin, White & Prince. The court decided there that a privilege tax based on gross receipts derived from foreign commerce is constitutionally prohibited. Ibid at 276.
These cases are, however, factually distinguishable. The Excise Tax Act is not an exaction on interstate or foreign commerce receipts. True, Revenue measures tax by an ad valorem valuation based on gross receipts deduced from sales consummated abroad. At the outset, this lays hint of a constitutional fault. But a closer analysis of the nature of the excise tax indicates otherwise.
The Excise Tax Act merely utilizes gross receipts of sales concluded abroad as a means of assessing the property value upon which it taxes a percentage. It does not, unlike the situations in J.D. Adams Manufacturing and Gwin, White & Prince, impose a privilege tax for the importation of goods or for doing any other types of interstate or foreign businesses. The act of importing items which become the object of the Excise Tax Act may amount to foreign commerce. But this fact is not destructive to the State if the gross receipts inferred from such importation serve only as a means of calculating otherwise lawful duties. In Northwestern Mutual Life Insurance v. Wisconsin, 62 L Ed 1025 at 1037, the court said that
"[i]f it amounts to commerce of that character no burden is cast upon it by such tax as is here involved, since the gross receipts coming from that character of business are used only as a measure of the value of the property and franchise lawfully taxable in the state." (Emphasis added).
Accordingly, if the Excise Tax Act were otherwise consistent with the Commerce Clause, the fact that Revenue employs the gross receipts of sales achieved in foreign commerce is immaterial. But, again, the fact that Revenue discriminates between foreign and domestic goods remains a fatal thorn.
Comparative thinking should wonder why case laws tolerate state discrimination as to origin under the Equal Protection Clause while they fiercely reject it under the Commerce Clause. Regrettably, this question does not seem to have been entertained yet. But there may be logic for this difference in treatment. 
It seems that a state action which classifies and discriminates is permitted under the Equal Protection Clause, not only because it rests on a compelling and legitimate public interest, but also because it speaks upon a matter within the territorial concern and power of the State. Thus, a state non-import tax that discriminates as to origin is permissible where (1) it serves the compelling and legitimate interest of the State to foster domestic industries, (2) such domestic industries are a concern of the State, and (3) the effects of the tax’s discrimination are confined to the territorial and regulatory sphere of the State. But where the consequences of state legislative discrimination pour beyond its territorial and regulatory jurisdiction, then they may be too far-reaching. 
This is what happens when state taxation discriminates against interstate or foreign commerce. It places at a disadvantage people and enterprises beyond its territorial and regulatory ambit. In doing so, it defies and undermines the intention of the constitutional framers that state governments be precluded from employing their
 
"… taxing powers in ways which would prevent or unreasonably impede the free flow of goods and services in foreign and interstate commerce." FSM ConCon Journal, Vol. 2 at 865-866.
Perhaps, it is for this reason that state discrimination is vehemently condemned by the Commerce Clause.
V. Conclusion and Recommendation.
The amendment to the Yap State Excise Tax Act of 1979 was for the sole purpose of garrisoning the Act against the precedent set by the FSM Supreme Court in Innocenti. To this extent, the amendment is a product of constitutional law ingenuity. It allows the State of Yap to impose levy on goods imported without infringing the national government’s exclusive power to exact import duties.
Although it appears in Standing Committee Report No. 2-61 that the Yap State Legislature did not address its mind to other constitutional clauses that bear directly on state taxing power, the Excise Tax Act as amended appears to have turned out safe under the Equal Protection Clause. The amendment discriminates between persons who possess for resale goods imported and persons who possess for resale goods domestically manufactured or produced. But, inasmuch as Equal Protection principles condone discriminations made for a compelling and legitimate state interest, the amendment does not appear to be repugnant to the Equal Protection Clause. 
The failure, however, by the Yap State Legislature to visit in its deliberations the full range of the constitutional issues that an amendment, such as that to the Excise Tax Act of 1979, invokes seems to have left the Act vulnerable to other angles of constitutional assault. First, the Excise Tax Act as amended seems to offend substantive due process. The presumption that a taxpayer has broken the original packages in which goods were imported after 45 days has elapsed since he removed those goods from their ports of entry is devoid of any rational basis. In the premise advocated by this presumption, there crucially wants a rational connection between the presumed fact and the basic fact. Nevertheless, unconstitutionality on the basis of the Due Process Clause does not sink the Act entirely. The presumptive provision appears severable.
The mortal vice of the Excise Tax Act as amended is that it appears to discriminate against interstate and foreign commerce vis-à-vis intrastate commerce. The fact that it discriminates between items on the basis of origin makes it wholly unconstitutional under the Commerce Clause. This writer had hoped to study Australian Commerce Clause jurisprudence for persuasive authorities that may provide alternative theories by which to save the Yap State Excise Tax Act as amended. It seems a reasonable thing to do for two reasons. First, the FSM and Australian Constitutions share a common genesis of influence— the United States’ Constitution. Secondly, bi-lateral relations between the FSM and Australia have matured to a degree that the FSM receives extensive assistance from Australia, mostly in terms of technical and fiscal aide. It would not be entirely unprecedented for the FSM to utilize Australian intellectual development, even if it is jurisprudential.
Nonetheless, Australian Commerce Clause tenets are the same as those of the U.S. and the FSM. Under the Australian division of federal and state taxing powers, the Commonwealth has the exclusive power to regulate interstate and foreign commerce. In fact, the Commonwealth government of Australia is expected to ensure the absolute freedom of interstate and foreign trade. Damjanovic & Sons Pty. Ltd. v. The Commonwealth of Australia, 117 CLR 390; Conroy v. Carter and Another, 118 CLR 90; and O’Sullivan v. Noarlunga Meat Ltd., 92 CLR 565. Furthermore, this author failed to find evidence that the High Court of Australia have had occasion to determine whether discriminatory state taxation on items imported amounts to an unconstitutional intrusion upon the federal power to regulate interstate and foreign commerce. It appears then that under FSM constitutional doctrine and those of the two federal systems to which the FSM looks for guidance, Australia and the U.S., the Yap State Excise Tax Act of 1979 as amended would be ruled unconstitutional on the basis of the Commerce Clause.
The most obvious constitutional recourse for the Yap State government is for it to repeal the Excise Tax Act of 1979 and receive tax revenues from imports indirectly through national customs legislation. This would, however, entail, not only complete dependence on the national government to facilitate and foster the internal industries of Yap State through national revenue laws, but also the sharing of the taxes generated from goods imported and paid for by Yapese consumers with the national government and the other States. As this is neither economically nor politically recommendable, Yap may wish to retain a form of direct tax on imported items.
There is talk in Yap State of superseding the Excise Tax Act with a Sales Tax Act. However, a Sales Tax Act that discriminates as to origin would still violate the Commerce Clause. The only way to protect any form of state taxation which burden foreign-originated goods is to apply it to all goods, irrespective of origin. In this way, the tax scheme would not unconstitutionally place at a disadvantage interstate or foreign commerce vis-à-vis intrastate commerce. This would still leave the facilitation and promotion of domestic industries to the discretion of the national government. But the national government is an institution for the States. Yap State should have sufficient muster to lobby and ensure that national revenue policies are facilitative of its local industries.
 
Victor Nabeyan
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