American Smelting & Refining Co. v. County of Contra Costa (271 Cal. App. 2d 437, 1969)

SIMS, J.

The County of Contra Costa and its officials charged with the levy, assessment, collection and cancellation of property taxes have appealed from a judgment which granted the American Smelting and Refining Company a peremptory writ of mandate commanding appellants to cancel an allegedly illegal property tax assessment, and an injunction permanently restraining the collection of property taxes levied on that assessment. The assessment, made in 1966 for the 1966-1967 secured assessment roll, involves personal property of an aggregate assessed value of $12,666,078. The property consists of imported metal-bearing ores and concentrates, such material in process, and refined metals, including gold, subject to United States Customs Bond, similar materials of foreign origin, including gold in petitioner’s bonded warehouse, but not subject to bond, and gold of domestic origin. The assessment covers the inventories of such metals held on the first Monday of March 1966, and those which allegedly escaped assessment in the three preceding years. The total tax involved is $846,781.39.

The controversy embraced in the legal issues presented by this ease antedates the founding of the present federal government. It finds expression in the commerce clause and the import-export clause of the United States Constitution. The interpretations and application of the constitutional concepts are found in those precedents stemming from Brown v. Maryland (1827) 25 U.S. (Wheat.) 419 [6 L.Ed. 678].

The observations of Chief Justice Marshall, in Brown v. Maryland, supra, apply to the controversy presented by this case. There he wrote: ‘ The constitutional prohibition on the states to lay a duty on imports—a prohibition which a vast majority of them must feel an interest in preserving—may certainly come in conflict with their acknowledged power to tax persons and property within their territory. The power, and the restriction on it, though quite distinguishable, when they do not approach each other, may yet, when the intervening colors between white and black, approach so nearly as to perplex the understanding, as colors perplex the vision in marking the distinction between them. Yet the distinction exists, and must be marked as the cases arise.” (25 U.S. at p. 441 [6 L.Ed. at p. 686].)

In this case immunity from taxation is predicated upon the following principles: First, that under the commerce clause, the Congress has explicitly, by approval of a Customs Regulation, prohibited the taxation of imported goods while under customs bond; Second, that even in the absence of the regulation, Congress by providing for bonded smelting and refining warehouses has preempted whatever rights the state or local government otherwise might have to tax imported ores and metals which are subject to bond; Third, that in any event the controverted assessment and tax would constitute a prohibited burden on foreign commerce. It is further asserted that the import-export clause precludes state and local taxation of the ores and minerals because they do not enter into domestic commerce until they are shipped from the smelter. Finally, the exemption of gold, whether of foreign or domestic origin, and whether unrefined and encompassed in ore, or in refined or pure state, is predicated upon federal laws and regulations governing the production, ownership and use of that precious metal.

The taxing authorities assail the ultimate findings of fact and the conclusions of law upon which the judgment is predicated. They insist that the taxpayer by engaging in the local business of smelting and refining, has subjected the property appropriated to that enterprise to local taxation, and that the regulations of the federal government which are designed to protect the collection of customs duties, and to restrict the market for gold do not endow such property with immunity from state or local taxation.

An examination of the uncontradicted facts in the light of the applicable principles of law leads to the conclusions that the ores and minerals in question, with the exception of those appropriated to fulfill the taxpayer’s obligation to reexport, are not protected by the import-export clause, or the commeree clause; and that neither the federal laws and regulations enacted for the regulation of foreign commerce and the protection of the federal revenues, nor the laws and regulations restricting traffic in gold gives the ores and minerals an immunity from nondiscriminatory local taxation. The judgment must be reversed.

General Facts

The following facts are extracted from the uncontroverted findings of fact made by the trial court.

The taxpayer is a corporation organized under the laws of New Jersey, with its principal office and place of business in New York. It is engaged in business in several states and in foreign countries. The present controversy arises out of its ownership of a lead smelter and refinery at Selby, in Contra Costa County, which it operates for the purpose of extracting refined lead and other metals from ores and concentrates. Most of the metal-bearing ores and concentrates smelted and refined by petitioner at Selby arrive by ocean-going transport from foreign countries. The ores and concentrates are unloaded directly onto the taxpayer’s dock from the ship. Befined lead, refined gold, refined silver, minor amounts of refined platinum and palladium, and by-product materials containing copper, zinc, antimony, tin, bismuth and cadmium requiring further refining emerge from the smelter and refinery. The by-product materials are sent to refineries in other states for further refining. The refined metals extracted by Selby are not manufactured products but are unwrought metals sold to manufacturers for use as raw materials, except for those sales of gold bullion made to the United States government, and except for about 6 percent of the plant’s total lead production which is produced in the form of antimonial lead, with antimony which is derived from the ores, concentrates and scrap lead processed in the smelter.

The taxpayer treats ores and concentrates under the terms and conditions of contracts negotiated with the owners of the material to be treated. Usually such a contract will provide that possession and risk of loss will pass to the taxpayer as “Buyer” at the time the property is delivered at the smelter. The taxpayer undertakes to pay the “Seller” for the raw material received on the basis of a stated percentage of the metal content at published market prices for those metals, with specified deductions, called margins, for smelting and refining.

In some cases the owner of the ores or concentrates desires to market some or all of the metals himself or is required to return those metals to the country of origin. In such cases a toll contract is negotiated stating the percentage of each metal content to be accounted for, the condition governing the return of metals, and the charges for smelting and refining. Under this type of contract the taxpayer returns to the supplier a quantity of metal equivalent to the accountable content of the ores delivered. The form of contract is essentially the same as that used in the case of ores over which the taxpayer has the unfettered power of disposition except that the return of an equivalent amount of metal is substituted for payment in cash.

After their arrival at the taxpayer’s plant, the ores and concentrates are segregated by producer and shipment, and are stored and assigned lot identification numbers in the taxpayer’s yards. For technological reasons lots from each foreign mine must be enabled to enter the smelting and refining process as a separate unit because of the differing composition of different lots.

Throughout the years in question, and for over 40 years, the Selby refinery has been designated a Class 7 Customs Bonded Smelting and Refining Warehouse, and has continuously operated as such with the full approval of the United States Bureau of Customs. (See § 312 of the Tariff Act of 1930, as amended [19 U.S.C.A. § 1312].) Within its Selby bonded warehouse, the taxpayer smelts and refines imported metal-bearing materials upon which duties have not yet become payable and which are in the custody and under the supervision of the United States Bureau of Customs, together with imported metal-bearing materials which have been duty-paid, or which are duty-free. Domestic metal-bearing ores also enter the taxpayer’s smelting processes. These domestic materials, which the taxpayer uses as fluxes, have a low metal content compared to the imported concentrates from which most of the silica and limestone naturally present in the ore has been removed by milling and concentrating processes at the foreign mines. The concentrating of ores permits the foreign miner to avoid shipping charges on relatively worthless rock and earth. Since the smelting process requires the use of limestone, silica and other fluxes, the taxpayer’s Selby plant acquires these materials from domestic sources and in domestic fluxing ores of low-grade metal content. The taxpayer does not contest its assessment by Contra Costa County for property taxes on the metal content of ores of domestic origin, other than on domestic gold.

The taxpayer has been licensed by the United States Treasury Department, Office of Domestic Gold and Silver Operations to hold for treatment a maximum of ‘ ‘ 400,000 fine troy ounces” of gold. On the first Monday of March in 1966, and of each prior year, it was in possession of inventories of gold for treatment, in ores or in some stage of refining, or entirely refined and awaiting shipment. The taxpayer performs no manufacturing operation on gold, it only refines fine gold from gold-bearing materials.

On June 15, 1966, the county tax assessor notified petitioner that the 1966-1967 tax roll would reflect an assessment of $13,093,766 representing the aggregate of metal inventories of foreign origin on hand the first Monday in March 1966, and similar inventories which had escaped assessment for the tax years 1963-1964, 1964-1965 and 1965-1966. (See Rev. & Tax. Code, §§ 531-535. [The taxpayer raised objections to the application of the escaped assessment procedure before the board of supervisors, but did not carry them forward in its petition for a writ of mandate.]) The taxpayer made an application to the board of supervisors for a reduction of its assessment, a hearing was held and the application was denied. This litigation ensued. The trial court found that $12,353,760 of the proposed assessment represented property of foreign origin. Of this sum, $5,226,030 was unprocessed and the balance represented material in process and refined metal. Of the total sum of foreign origin, $8,970,009 represented property in bond, $4,779,403 unprocessed, and $4,190,606 in process and refined metal. Of the total property of foreign origin, $1,277,300 represented gold in ore, in process and refined. In addition, the court found that there was $292,318 in gold of domestic origin in varying stages of production. The total of the property of foreign origin, plus the value of the domestic gold, was relieved of the assessment and the tax.

Import-Export Clause

The court found as an ultimate finding of fact: “Metals refined from metal-bearing materials imported- at petitioner’s Selby bonded smelting and refining warehouse do not enter the domestic commerce of the United States until after they leave the bonded warehouse enroute to a domestic purchaser. ’ ’ Embodied in its conclusions of law is the statement, “Pursuant ... to the import clause of the United States Constitution (Art. I, § 10, cl. 2) ... the Court will issue its writ of mandate. ...” The taxing authorities contend that the ultimate finding of fact is a mixed finding of fact and conclusion of law. The taxpayer asserts that it is a true finding of fact which is predicated upon other circumstances established by the evidence and set forth in the findings of fact. Analysis of this assertion indicates that it is predicated upon facts which tend to show that other federal laws and regulations have granted immunity to the property and so have withheld it from domestic commerce. This theory is discussed below in connection with the analysis of the question of federal preemption under the commerce clause. It is necessary to evaluate the immunity conferred by the import-export clause itself, not only to put the facts in proper perspective, but also because there is concededly some property, nondutiable or upon which the duty has been paid. Such property is on a different footing than that in which the federal government claims an interest in order to protect its revenue.

The fundamental test under the import-export clause was phrased by Chief Justice Marshall as follows: “. . . when the importer has so acted upon the thing imported, that it has become incorporated and mixed up with the mass of 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: ...” (Brown v. Maryland, supra, 25 U.S. at p. 441 [6 L.Ed. at p. 686].)

The taxing authorities claim that the producers and the sellers of the ores and concentrates are the importers because they bear the risk of loss until the property is delivered to the taxpayer’s dock. They claim the right to tax which was recognized in Waring v. The Mayor (1868) 75 U.S. (8 Wall.) 110 [19 L.Ed. 342], wherein the court held that the resale, by one who had purchased from agents of the vessel for delivery into his lighters, was not protected because the shipowner and his agent were the importers. This contention is met by Hooven & Allison Co. v. Evatt (1945) 324 U.S. 652 [89 L.Ed. 1252, 65 S.Ct. 870], where the court distinguished that precedent, and on facts similar to those involved here, concluded: “From all this it is clear that from the beginning, after the contract of purchase is signed, the foreign producer is obligated to sell the merchandise on credit, to ship it to an American port and to deliver it to petitioner, which is obligated to accept and pay for it. Performance of the contract calls for, and necessarily results in, importation of the merchandise from its country of origin to the United States. Petitioner’s contracts of purchase are the inducing and efficient cause of bringing the merchandise into the country, which is importation. Examination of the documents and consideration of the course of business can leave no doubt that the petitioner not only causes the importation but that the purpose and necessary consequence of it are to supply petitioner with the raw material for its manufacture of cordage at its factory in Ohio.” (324 U.S. at p. 661 [89 L.Ed. at p. 1261].)

The taxing authorities also assert that the ores and concentrates and the resulting metals are not entitled to any immunity as imports because they are not packaged, but are handled in bulk. (See E. J. Stanton & Sons v. County of Los Angeles (1947) 78 Cal.App.2d 181, 187-189 [177 P.2d 804]; and Mexican Petroleum Corp. v. City of South Portland (1922) 121 Me. 128 [115 A. 900, 26 A.L.R 965]; and cf. Mexican Petroleum Corp. v. Louisiana Tax Com. (1931) 173 La. 604 [138 So. 117].) The facts found tend to show a segregation which would justify the conclusion that the ores and concentrates prior to processing were retained in such original package” as was consistent with their nature. It is unnecessary to resolve the question so presented, nor to determine whether the evidence, as distinguished from the facts found, shows such a commingling with domestic goods that the status of the ores and concentrates, the material in process, and the refined metals changed from imported material to part of the mass of property in the country. The salient issue is whether they were appropriated to the use for which they were imported.

In Hooven & Allison Co. v. Evatt, supra, the court stated: ' ‘ This Court has pointed out on several occasions that imports for manufacture cease to be such and lose their constitutional immunity from state taxation when they are subjected to the manufacture for which they were imported, May v. New Orleans, supra, 178 U.S. 501, 20 S.Ct. 977, 44 L.Ed. 1165; Gulf Fisheries Co. v. MacInerney, supra, 276 U.S. 126, 48 S.Ct. 228, 72 L.Ed. 495; McGoldrick v. Gulf Oil Corp., supra, 309 U.S. 423, 60 S.Ct. 667, 84 L.Ed. 840, or when the original packages in which they were imported are broken, Low v. Austin, supra, 13 Wall. 34, 20 L.Ed. 517; May v. New Orleans, supra, 178 U.S. 508, 509, 20 S.Ct. 980, 981, 44 L.Ed. 1165. But no opinion of this Court has ever said or intimated that imports held by the importer in the original package and before they were subjected to the manufacture for which they were imported, are liable to state taxation. ’ ’ (324 U.S. at p. 666 [89 L.Ed. at p. 1264].) The court struck down an Ohio ad valorem tax assessed against bales of hemp and other fibres which the taxpayer was found to have imported and stored in a warehouse at its factory preliminary to their use in the manufacture of cordage and similar products. Four justices dissented.

Of the cases cited in Hooven & Allison Co. v. Evatt, supra, Gulf Fisheries Co. v. MacInerney (1927) 276 U.S. 124 [72 L.Ed. 495, 48 S.Ct. 227]; and McGoldrick v. Gulf Oil Corp. (1939) 309 U.S. 414 [84 L.Ed. 840, 60 S.Ct. 664], are pertinent to the issues raised here. In the former case the court upheld a Texas license tax levied on a wholesale dealer in fish. The facts showed the fish were iced and processed on the wharf in Texas before being offered for sale. The court concluded,. “All the fish sold have, after landing and before laying the tax, been so acted upon as to become part of the common property of the State. They have lost their distinctive character as imports and have become taxable by the State. ’ ’ (276 U.S. at p. 127 [72 L.Ed. at p. 497].) From the foregoing it is clear that once the ores and concentrates are appropriated to the smelting and refining process for which they were imported they lose whatever immunity they might otherwise have had under the import-export clause. Any exemption for materials-in-process, or refined metals must be predicated upon other considerations.

McGoldrick v. Gulf Oil Corp., supra, does not contain anything to the contrary in regard to the claimed exemption under the import-export clause. The opinion recites: “For present purposes we may assume, without deciding, that had the crude oil not been imported in bond it would, upon its manufacture, have become a part of the common mass of property in the state and so would have lost its distinctive character as an import and its constitutional immunity as such from state taxation. See Gulf Fisheries Co. v. MacInerney, 276 U.S. 124, 126 [72 L.Ed. 495, 496, 48 S.Ct. 227]; Waring v. The Mayor, 8 Wall. 110 [19 L.Ed. 342]; May v. New Orleans, 178 U.S. 496 [44 L.Ed. 1165, 20 S.Ct. 976]; New York ex rel. Burke v. Wells, 208 U.S. 14 [52 L.Ed. 370, 28 S.Ct. 193].” (309 U.S. at p. 423 [84 L.Ed. at p. 845].) It concludes, “It is unnecessary to consider whether the tax upon the sale of the oil as ships’ stores to vessels engaged in foreign commerce is in the circumstances of this case an impost on imports or exports, or a duty of tonnage prohibited by Article I, § 10, Clauses 2 and 3 of the Constitution.” (Id., at p. 429 [84 L.Ed. at p. 849].)

Hooven & Allison Co. v. Evatt, supra, appeared to give immunity to imported materials held for manufacture or processing. This immunity was limited, if not abolished, by the companion cases of Youngstown Sheet & Tube Co. v. Bowers, and United States Plywood Corp. v. City of Algoma (1958) 358 U.S. 534 [3 L.Ed.2d 490, 79 S.Ct. 383]. In these cases the court upheld property taxes on imported materials that were held for use in the manufacturing process. It is unnecessary to determine whether the majority opinion successfully distinguished Hooven & Allison Co. v. Evatt. (Cf. 358 U.S. at p. 544 [3 L.Ed.2d at p. 498] with Frankfurter, J. dissenting, at pp. 561-564 [3 L.Ed.2d at pp. 507-509], and see The Supreme Court, 1958 Term (1959) 73 Harv.L.Rev. 84, 176-179; Note (1959) 34 Notre Dame Law. 593, 594-596; and Note, 1959 Wis.L.Rev. 330, 335-336.) The majority concluded : “The materials here in question were imported to supply, and were essential to supply, the manufacturer’s current operating needs. When, after all phases of their importation had ended, they were put to that use and indiscriminate portions of the whole were actually being used to supply daily-operating needs, they stood in the same relation to the State as like piles of domestic materials at the same place that were kept for use and used in the same way. The one was then as fully subject to taxation as the other. In those circumstances, the tax was not on ‘imports,’ nor was it a tax on the materials because they had been imported, but because at the time of the assessment they were being used, in every practical sense, for the purposes for which they had been imported. They were therefore subject to taxation 'just like domestic property that was kept at the same place in the same way for the same use. We cannot impute to the Framers of the Constitution a purpose to make such a discrimination in favor of materials imported from other countries as would result if we approved the views pressed upon us by the manui facturers. Compare May v. New Orleans, 178 U.S. at 509 [44 L.Ed. at p. 1170].” (Id., pp. 549-550 [3 L.Ed.2d at pp. 500-501].)

From the foregoing there has been distilled a “current operational needs” test, to determine whether an inventory of materials of foreign origin may be subjected to taxation. (See City & County of Denver v. Denver Publishing Co. (1963) 153 Colo. 539, 548-549 [387 P.2d 48, 53]; Orr Felt & Blanket Co. v. Schneider (1965) 3 Ohio St.2d 14, 23-24 [209 N.E.2d 150, 156], followed in Republic Steel v. Porterfield (1968) 14 Ohio St.2d 101 [236 N.E.2d 661]; and Wheeling Steel Corp. v. Porterfield (1968) 14 Ohio St.2d 85 [236 N.E.2d 652]; Note, 34 Notre Dame Law., supra, 593, 596; and Note, supra, 1959 Wis.L.Rev. 330, 340.) In Virtue Bros. v. County of Los Angeles (1966) 239 Cal.App.2d 220 [48 Cal.Rptr. 505] (hearing by the S.Ct. denied, March 2, 1966, and writ of certiorari denied (1966) 385 U.S. 820 [17 L.Ed.2d 58, 87 S.Ct. 45]) the court, in a well reasoned opinion, rejected the formula, adopted by the Colorado and Ohio courts, which was predicated upon the amount of goods which would be used before the time needed to secure a new supply would elapse. (239 Cal.App.2d at pp. 228-229.) The court posed the rhetorical question, “If all that a manufacturer requires for current operational needs is an inventory which will be expended just as the next regular shipment is unloaded at the manufacturer’s plant, why is any inventory in excess of replenishment needs, so defined, ever maintained?” (Id., at pp. 229-230.) It concluded as follows: “The materials here in question had reached the end of their importation journey, and indiscriminate portions of the whole were actually being used to supply daily operating needs. The property tax upon them was nondiscriminatory; they were not singled out because they were imported, nor was the tax even remotely connected with the activity of importation. Had the materials been of domestic origin, they would have been fully taxable under the assessment now in dispute. By enforcing this tax, California is in no way taking undue advantage of its position as an importing state to the detriment of inland states. 'We cannot impute to the Framers of the Constitution a purpose to make such a discrimination in favor of materials imported from other countries as would result if we approved the views pressed upon us by the manufacturers. ’ (Youngstown Sheet & Tube Co. v. Bowers, supra, at page 550 [3 L.Ed.2d at p. 501].) [Fn. omitted.] In our opinion, Youngstown requires that the full inventory in the possession of plaintiffs, committed to the purpose of manufacture, on the first Monday in March, is subject to tax. We so hold.” (Id., at p. 231. See also, South Coast Fisheries, Inc. v. Department of Fish & Game (1963) 213 Cal.App.2d 325, 331-333 [28 Cal.Rptr. 537]; and cf. Philippine Refining Corp. v. Contra Costa (1938) 24 Cal.App.2d 665, 667-670 [76 P.2d 163]; and Imperial Dev. Co. v. Calexico (1920) 47 Cal.App. 666, 669-671 [191 P. 50].)

In this case it is established that all of the materials imported and held by the taxpayer were committed to the smelting and refining process from which the metals which gave the materials their value would be extracted. In the absence of some other countervailing factor the import-export clause confers no immunity on the materials held for further processing.

The taxpayer seeks to avoid this conclusion by distinguishing between manufacturing goods from imported raw materials, and the extraction of metals from raw ore or concentrates. The attempted distinction is one without a substantial difference. It is true that the goods produced by the manufacturing process generally have an intrinsic value distinguished from the value of the raw materials which went into their fabrication, whereas the metals extracted from the ores and concentrates are themselves raw materials, which previously gave value to the material from which they have been extracted. Any categorization of the taxability of the materials used in the various processes by the end results fails to correctly gauge where domestic commerce begins and importation leaves off. I-t is not merely the sale of the end product that constitutes the domestic commerce. It is the carrying on of the business of manufacturing, processing or extracting which is the subject of local jurisdiction. (See Adams Mfg. Co. v. Storen (1938) 304 U.S. 307, 312-314, and cases cited fns. 14 & 15 [82 L.Ed. 1365, 1369-1371, 58 S.Ct. 913, 117 A.L.R. 429].) The conclusions in this regard make it unnecessary to consider to what extent the taxpayer produces lead products, as distinguished from refined metals.

There remains for consideration the small amount of ores and refined metals attributable to toll contracts which the court found were included in the inventories. The findings are inconsistent (see fn. 6, and accompanying text, supra). On the one hand, it is stated that the foreign producer under such contracts owns the ores in storage, the material in process and the refined metal. On the other hand, the contracts are said to be similar to the general contracts, with the exception that payment is made in specie rather than money. It is acknowledged that no particular refined metal is appropriated to the satisfaction of the obligation incurred by the contracts.

Goods in transit for export are immune from state and local taxation. (See cases reviewed in Von Hamm-Young Co. v. City & County of San Francisco (1947) 29 Cal.2d 798, 802 [178 P.2d 745, 171 A.L.R. 274]; Export Leaf Tobacco Co. v. County of Los Angeles (1949) 89 Cal.App.2d 909, 916-922 [202 P.2d 622]; and Note, Import-Export Clause: A Blanket Prohibition Misapplied, 40 So.Cal.L.Rev. 529.) On the other hand, where the transit is halted to process the goods, or otherwise, for the business purposes and profit of the person entitled to the goods, the property may be subject to tax. (Bacon v. Illinois (1913) 227 U.S. 504, 515-517 [57 L.Ed. 615, 620-621, 33 S.Ct. 299]; and see Von Hamm-Young Co. v. City & County of San Francisco, supra, 29 Cal.2d at p. 803; and Export Leaf Tobacco Co. v. County of Los Angeles, supra, 89 Cal.App.2d at p. 923.) Under the foregoing principles there was such a break in the transit of the ore from the owner-producer, and the return of the refined metal to it, as to subject the ore awaiting process and in process to taxation, unless prevented by intervening federal law.

Although it might be said that certain metal refined from the particular ore was appropriated for export, the facts do not show that there was such an appropriation. Prom all that appears the taxpayer was free to satisfy his obligation to the “owner” by sending refined metal from Selby, or an equivalent amount purchased domestically or anywhere else in the world. Under these circumstances, there is no particular refined metal which can claim the protection of the export portion of the import-export clause. (Hugo Neu Corp. v. County of Los Angeles (1966) 241 Cal.App.2d 703, 707-709 [50 Cal.Rptr. 916]; and cf. Montrose Chemical Corp. v. County of Los Angeles (1966) 243 Cal.App.2d 300, 303-304 [52 Cal.Rptr. 209].)

In Youngstown Sheet & Tube Co. v. Bowers, supra, the court stated: The design of the constitutional immunity was to prevent ‘ [t]he great importing States [from laying] a tax on the non-importing States, ’ to which the imported property is or might ultimately be destined, which would not only discriminate against them but also ‘ would necessarily produce countervailing measures on the part of those States whose situation was less favorable to importation. ’ (Brown v. Maryland, supra, at 440 [6 L.Ed. at p. 686]. [Other citations omitted.] ” (358 U.S. at p. 545 [3 L.Ed.2d at p. 498].) The taxpayer points out that the Selby refinery’s tidewater location is a vital factor because it enables it to secure foreign ores. It contends that to permit the tax would offend the quoted principle because the taxing authorities would be levying a toll on inland states where any of the refined metals are ultimately sold and used. This argument overlooks the qualifying phrase “so long as they retain their distinctive character as imports.” This character is lost when the transit is interrupted for processing, whether it be at the Selby plant, in Nevada, in Youngstown, Ohio, or in Algoma, Wisconsin. The significance of the tideland location is that it permits the refiner to reduce the costs of production by dispensing with the expense of transporting bulk ore overland; and, assuming a free market, results in a reduction of the price to the consumer. Presumably the refinery would be equally responsible for the costs of local government (and thereby pass on burdens to the ultimate consumer) if it conducted its refining of imported ores in any of the aforementioned locations.

No independent ground of tax immunity is found under the import-export clause.

Commerce Clause

The court found as an ultimate finding of fact, “The assessed taxes would constitute a serious economic burden on foreign commerce.” It concluded in part, “Pursuant ... to the commerce clause of the United States Constitution (Art. I, § 8, cl. 3) ... the Court will issue its writ of mandate.”

In Brown v. Maryland, supra, Chief Justice Marshall reviewed “ [t]he oppressed and degraded state of commerce, previous to the adoption of the constitution. . . .” (25 U.S. at p. 445 [6 L.Ed. at p. 688].) He examined “the just extent of a power to regulate commerce with foreign nations, and among the several states.” (Id., p. 446 [6 L.Ed. at p. 688].) He concluded: “Congress has a right not only to authorize importation, but to authorize the importer to sell. ...” (Id., p. 446 [6 L.Ed. at p. 688].) “. . .if the power to authorize a sale, exists in Congress, the conclusion that the right to sell is connected with the law permitting importation, as an inseparable incident, is inevitable. . . . Any charge on the introduction and incorporation of the articles into and with the mass of property in the country, must be hostile to the power given to Congress to regulate commerce, since an essential part of the regulation, and principal object of it, is, to prescribe the regular means for accomplishing that introduction and incorporation . . . the taxing power of the states . . . cannot interfere with any regulation of commerce.” (Id., p. 447 [6 L.Ed. at p. 688].)

The distinction between the restraint on state power imposed by the commerce clause, and the prohibitions of the import-export clause are set forth in Richfield Oil Corp. v. State Board (1946) 329 U.S. 69 [91 L.Ed. 80, 67 S.Ct. 156], “The two constitutional provisions, while related, are not coterminous. To be sure, a state tax has at times been held unconstitutional both under the Import-Export Clause and under the Commerce Clause. Brown v. Maryland, 12 Wheat. 419 [6 L.Ed. 678]; Crew Levick Co. v. Pennsylvania, 245 U.S. 292 [62 L.Ed. 295, 38 S.Ct. 126]. But there are important differences between the two. The invalidity of one derives from the prohibition of taxation on the import or export; the validity of the other turns nowise on whether the article was, or had ever been, an import or export. See Hooven & Allison Co. v. Evatt, 324 U.S. 652, 665-666 [89 L.Ed. 1252, 1263-1264, 65 S.Ct. 870], and eases cited. Moreover, the Commerce Clause is cast, not in terms of a prohibition against taxes, but in terms of a power on the part of Congress to regulate commerce. It is well established that the Commerce Clause is a limitation upon the power of the States, even in absence of action by Congress. Southern Pac. Co. v. Arizona, 325 U.S. 761 [89 L.Ed. 1915, 65 S.Ct. 1515]; Morgan v. Virginia, 328 U.S. 373 [90 L.Ed. 1317, 66 S.Ct. 1050, 165 A.L.R. 574]. But the scope of the limitation has been determined by the Court in an effort to maintain an area of trade free from state interference and at the same time to make interstate commerce pay its way. As recently stated in McGoldrick v. Berwind-White Coal Mining Co., supra, p. 48 [309 U.S. 33 (84 L.Ed. 565, 571, 60 S.Ct. 388, 128 A.L.R. 876)], the law under the Commerce Clause has been fashioned by the Court in an effort ‘to reconcile competing constitutional demands, that commerce between the states shall not be unduly impeded by state action, and that the power to lay taxes for the support of state government shall not be unduly curtailed. ’ That accommodation has been made by upholding taxes designed to make interstate commerce bear a fair share of the cost of the local government from which it receives benefits (see e.g. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254-55 [82 L.Ed. 823, 826-827, 58 S.Ct. 546, 115 A.L.R. 944], and cases cited; McGoldrick v. Berwind-White Coal Mining Co., supra) and by invalidating those which discriminate against interstate commerce, which impose a levy for the privilege of doing it, which place an undue burden on it. Adams Mfg. Co. v. Storen, 304 U.S. 307 [82 L.Ed. 1365, 58 S.Ct. 913, 117 A.L.R. 429]; Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434 [83 L.Ed. 272, 59 S.Ct. 325]; Best & Co. v. Maxwell, 311 U.S. 454 [85 L.Ed. 275, 61 S.Ct. 334]; Nippert v. Richmond, 327 U.S. 416 [90 L.Ed. 760, 66 S.Ct. 586, 162 A.L.R. 844].

‘ ‘ It seems clear that we cannot write any such qualifications into the Import-Export Clause. It prohibits every State from laying ‘ any ’ tax on imports or exports without the consent of Congress. Only one exception is created—‘ except what may be absolutely necessary for executing its inspection laws. ’ The fact of a single exception suggests that no other qualification of the absolute prohibition was intended. It would entail a substantial revision of the Import-Export Clause to substitute for the prohibition against ‘any’ tax a prohibition against ‘any discriminatory’ tax. As we shall see, the question as to what is exportation is somewhat entwined with the question as to what is interstate commerce. But the two clauses, though complementary, serve different ends. And the limitations of one cannot be read into the other.” (329 U.S. at pp. 75-76 [91 L.Ed. at pp. 88-89].)

The taxpayer acknowledges that before a state tax or regulation can be declared unconstitutional under the commerce clause, it must be shown to “burden” the commerce involved, be it interstate or foreign (see Halliburton Oil Well etc. Co. v. Reily (1963) 373 U.S. 64, 69 [10 L.Ed.2d 202, 206, 83 S.Ct. 1201]; Nippert v. City of Richmond (1946) 327 U.S. 416, 425 [90 L.Ed. 760, 765, 66 S.Ct. 586, 162 A.L.R. 844]; Gwin etc. Inc. v. Henneford (1939) 305 U.S. 434, 438 [83 L.Ed. 272, 275-276, 59 S.Ct. 325]; Adams Mfg. Co. v. Storen (1937) 304 U.S. 307, 312 [82 L.Ed. 1365, 1370, 58 S.Ct. 913, 117 A.L.R. 429]; Anglo-Chilean etc. Corp. v. Alabama (1933) 288 U.S. 218, 225 and 228 [77 L.Ed. 710, 714, 716, 53 S.Ct. 373]); and that it is not every “burden” that falls under the restraint which is implied from the grant of power to the federal government. As noted in the last quotation, the test is usually discrimination.

The most obvious form of discrimination is a tax or regulation which directly singles out a subject which is solely related to the protected activity. (See Spector Motor Service v. O’Connor (1951) 340 U.S. 602, 607-610 [95 L.Ed. 573, 577-579, 71 S.Ct. 508]; Anglo-Chilean etc. Corp. v. Alabama, supra, 288 U.S. 218, 229 [77 L.Ed. 710, 716]; DiSanto v. Pennsylvania, supra, 273 U.S. 34, 37 [71 L.Ed. 524, 526-527, 47 S.Ct. 267]; Texas Transp. Co. v. New Orleans (1924) 264 U.S. 150, 152-153 [68 L.Ed. 611, 612-613, 44 S.Ct. 242, 34 A.L.R. 907]; Bowman v. Chicago etc. Ry. Co. (1888) 125 U.S. 465, 493 [31 L.Ed. 700, 710, 8 S.Ct. 689]; and Henderson v. Mayor (1875) 92 U.S. 259, 274 [23 L.Ed. 543, 550].) The general property tax involved in this case in no sense singles out property which is the subject of foreign or interstate commerce. The tax is designed to tax all property found within the taxing district or districts, except that which is expressly exempt. (Cal. Const., art. XIII, § 1; Rev. & Tax. Code, § 201.) Moreover, the principles discussed above demonstrate that the property, which the taxing authorities have assessed and seek to tax (with tire possible exception of that which is the subject of toll contracts), has left the stream of foreign and interstate commerce, and has become a part of the general mass of property within the state, subject to use, processing and future sale by the domestic smelter and refinery. (See Youngstown Sheet & Tube Co. v. Bowers & United States Plywood Corp. v. City of Algoma, supra, 258 U.S. 534; Gulf Fisheries Co. v. MacInerney, supra, 276 U.S. 124; Virtue Bros. v. County of Los Angeles, supra, 239 Cal.App.2d 220; and cf. McGoldrick v. Gulf Oil Corp., supra, 309 U.S. 423, 429 [84 L.Ed. 840, 848-849].) Similar principles have been applied to defeat claims that local taxes burdened interstate commerce. (See Gregg Dyeing Co. v. Query (1931) 286 U.S. 472, 478-479 [76 L.Ed. 1232, 1237-1238, 52 S.Ct. 631, 84 A.L.R. 831]; Bacon v. Illinois, supra, 227 U.S. 504, 515-517 [57 L.Ed. 615, 620-621]; General Oil Co. v. Crain (1908) 209 U.S. 211 [52 L.Ed. 754, 28 S.Ct. 475]; and American Steel & Wire Co. v. Speed (1904) 192 U.S. 500 [48 L.Ed. 538, 24 S.Ct. 365].)

. Discrimination may also occur because the effect of a tax or regulation, nondiscriminatory on its face, is such as to place an actual recognizable burden on foreign or interstate commerce. Such a situation occurs when the protected business is forced to bear a heavier tax burden than domestic business (see Halliburton Oil Well etc. Co. v. Reily, supra, 373 U.S. 64, 69-70 [10 L.Ed.2d 202, 206-207]; Nippert v. City of Richmond, supra, 327 U.S. 416, 423, 433-435 [90 L.Ed. 760, 769-771]); or when a domestic tax, otherwise sustainable as not directly burdening the protected commerce, subjects that commerce to multiple taxation which results in a discrimination in favor of domestic business (see Gwin etc. Inc. v. Henneford, supra, 305 U.S. 434, 438-439 [83 L.Ed. 272, 275-276]; Adams Mfg. Co. v. Storen, supra, 304 U.S. 307, 311-314 [82 L.Ed. 1365, 1369-1371]).

The taxpayer does not claim that the question posed by this case falls within any of the foregoing precedents. It does insist that “a concern with the actuality of operation” of the tax (see Halliburton Oil Well etc. Co. v. Reily, supra, 373 U.S. at p. 69 [10 L.Ed.2d at p. 206]) reveals that the imposition of the tax demonstrably and arbitrarily burdens both the taxpayer and the foreign producers whose ores respondent processes. The taxpayer alleged, and the court has found, facts concerning the economies of the taxpayer’s operation which it contends support that conclusion. On analysis it appears that although the proposed tax will certainly burden the taxpayer’s operations, it is in no sense arbitrary or discriminatory. Any economic hardship should not be relieved by a subsidy from those otherwise forced to contribute more to the costs of local government, or, alternatively, those who are deprived of the services of local government which the taxes would produce. The facts and the arguments predicated thereon are more appropriate for an appeal to Congress for a subsidy or for legislation which will impose or increase duties on the refined metals that the taxpayer produces so that it can compete in a world market. If the national interest requires a subsidy it should be borne by the nation as a whole. If duties are increased, the ultimate consumers could pay for the increased cost of domestic production. There is no reason why the taxpayer should be subsidized locally through the claimed exemption.

The facts bearing on the taxpayer’s contentions are as follows: The Selby plant is the only lead smelter and refinery located at tidewater in the Western Hemisphere. In the years 1963, 1964 and 1965 it refined quantities of gold of domestic and foreign origin, newly mined silver, and primary lead and antimonial lead which constituted a substantial (10 percent— 13.9 percent) percentage of domestic, and in the ease of silver, world, production. The taxpayer competes in a world market for the ores and concentrates which it smelts and refines. Its competitors are in Japan and other foreign countries. To be competitive it has had to reduce the smelting and refining margins charged foreign producers to the minimum. The disputed tax on foreign ores, concentrates and metals on hand in March 1966 was $220,801.94 and is not likely to be less in future years. The court found the average property tax charge per ton and the average smelting and refining charge per ton. It found that an attempt to pass on these charges to the supplying producers would result in the taxpayer’s losing its business to foreign smelters, and that the imposition of the tax would materially reduce the Selby smelter’s international competitive position.

The taxpayer’s contracts with foreign producers contain a provision that all governmental charges, except income taxes, are to be borne by the producer through a deduction from the computed purchase price. The court made extensive findings concerning the consequences which would result from the enforcement of this clause if the tax were upheld.

The taxpayer asserts that the burden on foreign commerce is clear and direct because the imposition of the tax would result in a direct charge on the foreign producer when the price he receives is redued by the amount of the tax. It is obvious that this result would be occasioned not by the levy and collection of the tax of itself, but because of the contractual relationship of the parties.

“The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits cannot be doubted. [Citations.] ” (Gregory v. Helvering (1935) 293 U.S. 465, 469 [79 L.Ed. 596, 599, 55 S.Ct. 266, 79 A.L.R. 1355]; and see United States v. Isham (1873) 84 U.S. (17 Wall.) 496, 506 [21 L.Ed. 728, 731].) Nevertheless the tax in this case, as has been demonstrated, is on the property held in this state for processing, property in process, and property processed. The validity of the tax depends upon the legal conclusion, from the facts, that the property is no longer an import, nor is it in the stream of interstate commerce. The taxing authorities, therefore, are not concerned with the arrangements made between the buyer and seller governing the price to be paid for the goods, even though that contract purports to shift the incidence of the tax.

In Browning v. Waycross (1914) 233 U.S. 16 [58 L.Ed. 828, 34 S.Ct. 578], the court upheld an occupation tax upon agents or dealers engaged in putting up lightning rods within the city. The court stated, “We are of the opinion that the court below was right in holding that the business of erecting lightning rods under the circumstances disclosed, was within the regulating power of the state and not the subject of interstate commerce for the following reasons: (a) Because of the affixing of lightning rods to houses, was the carrying on of a business of a strictly local character, peculiarly within the exclusive control of state authority, (b) Because, besides, such business was wholly separate from interstate commerce, involved no question of the delivery of property shipped in interstate commerce or of the right to complete an interstate commerce transaction, but concerned merely the doing of a local act after interstate commerce had completely terminated. It is true, that it was shown that the contract under which the rods were shipped bound the seller, at his own expense, to attach the rods to the houses of the persons who ordered rods, but it was not within the power of the parties by the form of their contract to convert what was exclusively a local business, subject to state control, into an interstate commerce business protected by the commerce clause. It is manifest that if the right here asserted were recognized, or the power to accomplish by contract what is here claimed were to be upheld, all lines of demarcation between national and state authority would become obliterated, since it would necessarily follow that every kind or form of material shipped from one state to the other, and intended to be used after delivery in the construction of buildings or in the making of improvements in any form, would or could be made interstate commerce.” (233 U.S. at pp. 22-23 [58 L.Ed. at pp. 832-833]; italics added; see also Superior Oil Co. v. Mississippi (1930) 280 U.S. 390, 394-396 [74 L.Ed. 504, 507-508, 50 S.Ct. 169].) So here, the parties, by their arrangements for the price, cannot relieve the property in local commerce of its liability to contribute a fair share to the local government which serves that commerce.

The taxpayer contends that an unequal, discriminatory burden is imposed because the tax, which is predicated upon the property on hand on the first Monday in March, will fall only on those producers whose ores and concentrates and metals are on hand at Selby on tax day, and that those whose shipments have been received, processed and sold between annual assessment days will escape the tax. This overlooks the fact that all the ores and concentrates are purchased by the taxpayer, and are not the property of the producers. Any eccentricity in the purchase price received by the producers for various shipments would be occasioned by the contract, not the administration of the taxing system. As noted above, the parties by contract cannot deprive the local government of its power to tax local commerce.

Along the same line, the taxpayer insists that the imposition of the tax will cause foreign producers to ship elsewhere or withhold shipments if it appears that their shipment will arrive at Selby on or just prior to the lien date. (See Rev. & Tax. Code, §§ 117, 405 and 2192.) One answer to this contention is that under any contract similar to that attached to the complaint, the producer is already bound to deliver his production and pay the tax. Secondly, the consequence again is attributable to the contract, not the tax.

The taxpayer also demonstrates, and it is obvious, that if it does not pass the tax on to the producers, its competitive situation in bidding for foreign ores and concentrates is weakened to the extent of the tax. The same result follows if its labor costs, or insurance rates, or fuel and power costs increase. If the national interest necessitates a constant flow of refined metals, particularly lead, through Selby at costs which the domestic price for the refined metals cannot meet, the national treasury and not the local taxing entities, should bear the cost of necessary subsidization as the government of Japan allegedly is doing for its smelters and refineries.

The taxpayer relies upon the principle that the commerce clause should be interpreted to prohibit the tax in order to prevent a tidewater state from burdening users and consumers in the interior states. (See Cook v. Pennsylvania (1878) 97 U.S. 566, 574-575 [24 L.Ed. 1015, 1018].) It was noted in connection with the import-export clause that this policy is inapplicable where processing occurs in the tidewater state. The same considerations compel rejection of the application of the prohibitions of the commerce clause.

Finally, the taxing authorities are accused of attempting to share and interfere with the federal government’s power to impose duties on imports, and regulate the flow of commerce according to its wishes by the exercise of this power. The opposite side of the coin reveals that the taxpayer seeks a subsidy under the cloak of a constitutional exemption which does not exist. The crucial factor is that the protected commerce has heen interrupted so that the taxpayer may process the goods to his profit. The burdens imposed by the local government for the services rendered the processor do not violate the unembellished provisions of the commerce clause.

Federal Preemption

In this ease approximately three-quarters of the value ($8,970,009 out of $12,353,760) of materials of foreign origin which were assessed were subject to United States Custom Bond. The taxpayer claims that the applicable legislation, and the regulations which have permitted it to establish its premises as a bonded smelting and refining warehouse preempt any right that the local government otherwise might have to levy nondiscriminatory property taxes on the property of foreign origin which is locally processed by the taxpayer.

The ultimate findings of fact recite: ‘Throughout the years 1963 through 1966, petitioner’s Selby plant was designated and operated as a Class 7 Customs Bonded Warehouse under the laws of the United States with the complete approval of the United States Bureau of Customs.

“. . . Throughout the years 1963 through 1966, the United States Bureau of Customs supervised the smelting and refining of imported materials containing dutiable metals in petitioner’s bonded warehouse at Selby; while inside the bonded warehouse, the imported metal-bearing materials remained in the custody of the United States Bureau of Customs."

The court concluded: “The Tariff Act of 1930, as amended, constitutes congressional regulation of foreign commerce which prohibits state or local government taxation of imported goods in petitioner’s Customs Bonded Warehouse.

“Pursuant to the foregoing preemptive federal regulation ... to the supremacy clause of the United States Constitution (Art. VI, cl. 2)[] . . . and to decisions of the Supreme Court of the United States (McGoldrick v. Gulf Oil Corp. (1940) 309 U.S. 414, 60 S.Ct. 664; Hostetter v. Idlewild Bon Voyage Liquor Corp. (1964) 377 U.S. 324, 84 S.Ct. 1293), The Court will issue its writ of mandate ...”

In Board of Trustees v. United States (1933) 289 U.S. 48 [77 L.Ed. 1025, 53 S.Ct. 509], the court pointed out that the Tariff Act in question was an exercise of the congressional authority “to regulate commerce with foreign Nations.” (U.S. Const., art. I, § 8, cl. 3.) The court stated: “The words of the Constitution comprehend every species of commercial intercourse between the United States and foreign nations. No sort of trade can be carried on between this country and any other, to which this power does not extend.’ Gibbons v. Ogden, 9 Wheat. 1, 193 [6 L.Ed. 23, 69]. It is an essential attribute of the power that it is exclusive and plenary. As an exclusive power, its exercise may not be limited, qualified or impeded to any extent by state action. Id. pp. 196-200 [6 L.Ed. at pp. 70-71]; Brown v. Maryland, 12 Wheat. 419, 446 [6 L.Ed. 678, 688]; Almy v. California, 24 How. 169, 173 [16 L.Ed. 644, 646]; Buttfield v. Stranahan, 192 U.S. 470, 492, 493 [48 L.Ed. 525, 534, 535, 24 S.Ct. 349]. The power is buttressed by the express provision of the Constitution denying to the States authority to lay imposts or duties on imports or exports without the consent of the Congress. Art. I, § 10, ¶ 2.

“The Congress may determine what articles may be imported into this country and the terms upon which importation is permitted.” (289 U.S. at pp. 56-57 [77 L.Ed. at p. 1028].)

Section 312 of the Tariff Act of 1930 as amended (June 17, 1930, ch. 497, tit. III, § 312; 46 Stat. 692; May 24, 1962, Pub. L. 87-456, tit. III, § 301(b); 76 Stat. 75; 19 U.S.C.A., § 1312) provides for the establishment of a bonded smelting or refining warehouse. The provisions for cancellation of charges against the bond recognize the fungible nature of the refined metal. They refer to “a quantity of the same kind of metal contained in any product of smelting or refining of metal-bearing materials equal to the dutiable quantity contained in the imported metal-bearing materials less wastage . . .” (§312, subd. (b), pars. (1), (3), (4) and (5).) The bond is discharged to the extent such quantity is exported, or transferred to another bonded smelting or refining warehouse, or transferred to another bonded custom warehouse, or to the extent the bond charges for the duties may be transferred to another bonded smelter or refining warehouse where ‘ ‘ there is on hand at the warehouse . . . sufficient like metal in any form to satisfy the transferred bond charges.’’ (Id.) Charges against the bond may of course be discharged “upon payment of duties on the dutiable quantity of metal contained in the imported metal-bearing materials. ’' (§ 312, subd. (b), par. (2).)

_ Similar provisions have existed since 1894. (See Historical Note, 19 U.S.C.A., § 1312 at p. 46.) In re Guggenheim Smelting Co. (3d Cir. 1903) 126 F. 728, involved a question of the construction of the provisions of the 1897 law which read, “each day a quantity of refined metal equal to ninety per centum of the amount of imported metal smelted or refined that day shall be set aside’’ and retained under bond or exported, unless arrangements were made to pay the duty and enter the metal for domestic consumption. The taxpayer claimed that the act intended a subsidy of 10 percent of the refined metal actually recovered. The government insisted that the refined metal to be set aside was 90 percent of that originally assayed. In sustaining the government’s position the court stated: “Our decision of this case might well he rested upon what has been said respecting the directly pertinent portion of section 29, but some of the extrinsic considerations which the record suggests will now be briefly referred to. It is undoubtedly true that the act of 1897 was intended not only ‘to provide revenue,’ but also ‘to encourage the industries of the United States.’ But this latter intent was effectuated by levying protective duties, and this its twenty-ninth section did not do. It did not impose, but excepted from duties, and this for a reason which is quite apparent. Metals imported and dealt with under its provisions do not enter into the markets of the United States, and consequently do not come into competition with any of their industries. This, we are convinced, was the real and only ground upon which the exemption to smelters and refiners was accorded, and there is nothing whatever in the act to support the contention that it was designed that this particular class of importers should, to any extent, be especially privileged to put upon the markets of the United States, free of duty, a commodity which, when imported by others, was by the same act made subject to duty. Such a purpose cannot be, upon mere conjecture, imputed to Congress. It would not be in furtherance of the protective policy of the act. It would be subversive of it. It would impair the efficacy of the repression interposed to encourage our industries, and in such manner as to give to some of them an advantage over others. We cannot concur in the view that the object of the provisions that only 90 per centum of the imported metal need be exported was to leave in the hands of those engaged in smelting or refining a bonus to foster or promote those industries. No such intent is expressed in the act, but, on the contrary, it clearly appears that protective duties, affecting all alike, were the only means by which it was proposed ‘to encourage the industries of the United States,’ and that nothing in the nature of a subsidy, bounty, or reward was intended to be bestowed upon any of them.” (126 F., at pp. 730-731.) The court observed that the 10 percent was to allow for the loss which occurred in smelting or refining.

An examination of the law and the regulations promulgated under it (19 C.F.R., §§ 19.17-19.25) reveals that the purpose of the creation of the bonded smelter is, as set forth in section 19.18, to carry out the following mandate. A quantity of dutiable metal equal to “ [t]he full dutiable contents of such metal-bearing materials, as ascertained by commercial assay made by Government chemists, less the wastage allowance (including dutiable metals entirely lost in smelting or refining, or both) . . . must be either exported, duty-paid, or transferred to another bonded warehouse. . . ."In the classification of warehouses, the regulations recognize that the bonded smelter and refinery may treat imported metal-bearing materials for domestic consumption as well as for exportation. The law (see fn. 20, supra) expressly recognizes that metal-bearing materials of both foreign and domestic origin may be processed. In dealing with the question of losses in production, the regulations require a statement of the metal-bearing materials worked during the fiscal year which “shall show the quantity of foreign materials and the quantity of domestic material put in process during the smelting operations." (§19.19, subd. (b).) Throughout it is recognized that the government’s interest is in the “dutiable contents" of the material treated; by inference it is recognized that there may also be nondutiable contents. The determination of this dutiable content is of concern to the government, but after sampling and weighing there is no requirement that bonded metal-bearing materials shall be kept separate and distinct from nonbonded material.

Once the imported metal-bearing materials with dutiable contents have been sampled and weighed they become, although segregated in lots for technological reasons in processing, a part of the mass of material in the bonded warehouse. The government’s interest thereafter is to insure that there is sufficient quantity of refined dutiable metal on hand at all times to cover the assayed dutiable contents of the metal-bearing materials received, until payment of duty on or export or transfer of that amount. There is no inherent reason that a tax on the manufacturer's inventories of metal-bearing materials and refined metals of foreign origin will interfere with the government’s interest any more than the concededly permissible taxes on the plant itself and on the metal-bearing materials and refined metals of domestic origin.

If the federal government’s interest in protecting its revenue, as embodied in pertinent law and regulation, is considered as precluding the imposition of a tax on property of foreign origin, the dutiable contents of the metal-bearing material, and the dutiable metal on hand of foreign origin would be excluded from assessment and tax. If the duties were paid because of a threatened rise in duties, or for some other reason, the dutiable property would then be subject to tax. The mere incident of the t