Jurisdictional Statement — Alabama Department of Revenue v. Pilot Petroleum Corp.

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a Supreme Court, U.S,

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QYQ-2 D4 auG 8 (8

No. JOSEPH F. SPANIOL, JR.

CLERK

a ane a. As

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

ALABAMA DEPARTMENT OF REVENUE,

Petitioner

versus

PILOT PETROLEUM CORPORATION

and

THE LOUISIANA AND EXPLORATION COMPANY,

Respondents

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FIFTH CIRCUIT

JURISDICTIONAL STATEMENT

Counsel of Record: Of Counsel

John J. Breckenridge Don Siegelman

4116 Gordon Persons Bldg. Ron Bowden

Montgomery, AL 36132 4116 Gordon Persons Bldg.

Telephone: Montgomery, AL 36132

(205) 242-9690 Telephone:

(205) 242-9690

COUNSEL FOR PETITIONER

QUESTIONS PRESENTED FOR REVIEW

1. Whether Title 28, United States Code, Section

1341, deprived the district court of jurisdiction to

decide the questions of state taxation sub judice

raised by the Taxpayer?

2. Whether the district court’s decision to refrain

from addressing questions concerning the consti-

tutionality of an Alabama excise tax was proper

under the doctrine of comity?

3. Whether the majority of the court of appeals

correctly decided questions of Alabama law regarding

an Alabama excise tax?

4. Whether a sale of gasoline by a distributor

licensed by the State of Alabama to a distributor not

licensed by the State of Alabama, which took place

entirely within Alabama, was pre-empted from

taxation by the State of Alabama due to the Export-

Import Clause of the United States Constitution?

5. Whether the decisions of this Honorable Court

referenced by the Court of Appeals in its decision were

followed and properly applied by the majority of the

court of appeals to the factual situation sub judice?

LIST OF PARTIES TO PROCEEDINGS BELOW

PLAINTIFF-APPELLEE Below:

The Louisiana Land and Exploration Company, a

corporation,

DEFENDANT-APPELLANT Below:

Pilot Petroleum Corporation, a corporation,

INTERVENOR BELOW:

State of Alabama, Department of Revenue.

TABLE OF CONTENTS

SOT Te PTT eT Tee i

RU UIE EW ccc ce cckewnes a il

ed ye ie Cvs dss bese e' vi

Ey ee 1

Jurisdictional Basis of Petition ............... 1

Constitutional Provisions

And Statutes Involved ........2.......... 2

re 3

Ce xa vewee oe en 6

I. ‘Title 28, United States Code, §1341, de-

prived the district court of jurisdiction to

decide the questions of state taxation

sub judice raised by the Taxpayer ... 6

Il. Thefederal courts should have refrained

from addressing questions concerning

the constitutionality of the Alabama

excise tax under the doctrine of comity

eae oe ke oe oka eee ese ws 10

III. The majority of the court of appeals

incorrectly decided questions of Ala-

bama law regarding Alabama’s gasoline

es he ad ce nw 4e 64:9 0 16

IV: The sale of gasoline which took place

entirely within Alabama was not an

ili

“export”, and was not pre-empted from

state taxation by the Import-Emport

Clause of the U.S. Constitution ......

The decisions of this Honorable Court

referenced by the Court of Appeals in its

decision were not followed and were not

properly applied to the factual situation

sub judice by the majority of the court

GEE ccc vad ch oecevasGekeerese

Ee os ceca aa use erca ae caeae ae

Appendices

Judgment of The United States Court of

Appeals, Fifth Circuit, entered May 10,

SE cd care dn eiie viasedne keke

Opinion and judgment of The United

States District Court for The Eastern

District of Louisiana, entered August

heen eee

Pilot Petroleum’s “Exceptive Allegation

SN oo ov css rcwe cen aioe

LL&E’s Motion for Summary Judg-

ment, Statement of Uncontested Facts,

and Memorandum in Support of Motion

for Summary Judgment. ...........

Pilot Petroleum’s memorandum in

opposition to LL&E’s Motion for Sum-

mary Judgment and in support of Pilot’s

Motion for Summary Judgment, State-

ment of Material Facts, Motion for

Summary Judgment ...............

LL&E’s memorandum in opposition to

Motion for Summary Judgement of Pilot

Petroleum Corporation .............

Verbatim of Article I, Section 10, Clause

S US CORMIER nok kc cdc eavakanee

Verbatim Text of Relevant Alabama

ine ee ee ee

TABLE OF AUTHORITIES

California v. Grace Brethren Church,

457 U.S. 393, 102 S.Ct. 2498,

eRe 8 | eR errr eee )

Exxon Corp. v. Eagerton,

462 U.S. 176, 103 Sup. Ct. 2296 at 2305,

76 L.Ed.2d 497 (1983) ...............-. 22

Fair Assessment in Real Estate

Association v. McNary,

454 U.S. 100, 102 S.Ct. 177,

i PR E ft) ee 11, 12

Franchise Tax Board of California v.

Alcan Aluminum Limited,

v. , 110 S.Ct. 661,

107 L.Ed.2d 696

(decided January 10, 1990) .............. )

Lake Superior Consol. Iron Mines v. Lord,

peek fk RR RERR rn. mee 22

Michelin Tire Corp. v. Wages,

423 U.S. 276, 96 S.Ct.

535 46 L.Ed.2d 495 (1976) ... 14, 21, 25, 26

Richfield Oil Corp. v. State Board

of Equalization,

329 U.S. 69, 67 S.Ct. 156,

en § ll er 23-25

TABLE OF AUTHORITIES

Page

Rosewell v. LaSalle National Bank

450 U.S. 503, 101 S.Ct. 1221,

67 L.Ed. 2d 464, rehearing denied

451 U.S. 1011, 101 S.Ct. 2349,

RR FC: eer 7,9

United States Trust Co. of New York v.

New Jersey,

St EE 5 ok cad dadebdaaucesecevaa 22

Washington Revenue Department v.

Stevedoring Association,

435 U.S. 734, 98 S.Ct. 1388,

55 L.Ed.2d 682 (1978) ............... 14, 22, 26

Constitution and Statutes

Article I, §10, CL.2, U.S. Constitution,

ere passim

Code of Alabama 1975, §40-12-191 ............. 20

Code of Alabama 1975, §40-17-31 .............. 18

Code of Alabama 1975, §40-17-32 ........... 13, 19

28 United States Code §1341 .............. passim

vii

OPINIONS BELOW

The opinion of the United States Court of Appeals, Fifth

Circuit, which is hereby sought to be reviewed was entered

on May 10, 1990. This opinion appears in the Official

Reports for the Fifth Circuit Court of Appeals at Volume

900, Federal Reporter, Second Series, at page 816 (900

F.2d 816 (5th Cir. 1990)), and is included herein as

Appendix A.

The opinion and judgment of the trial court, the United

States District Court for the Eastern District of Louisiana,

Section B, the Honorable Chief Judge Fredrick J. R. Heebe

presiding, was entered on August 30, 1988. This opinion

and judgment does not appear in any official or unofficial

report, but is included herein as Appendix B.

JURISDICTIONAL BASIS

The majority judgment of the United States Court of

Appeals, Fifth Circuit, reversing the previous judgment

and order of the United States District Court for the

Eastern District of Louisiana, was entered on May 10,

1990. This Petition for Writ of Certiorari is filed within 90

days from the aforesaid date. The jurisdiction of this

Honorable Court is conferred and invoked pursuant to 28

U.S.C. §1254(1), which governs the review of decisions by

the courts of appeals, specifically a civil case after rendition

of judgment by the United States Court of Appeals, Fifth

Circuit.

The majority judgment of the United States Court of

Appeals, Fifth Circuit, is either in direct conflict with or

ignores the previous holdings of this Honorable Court in

the cases of: Rosewell v. LaSalle National Bank, 450 U.S.

503, rehearing denied 451 U.S. 503, (1981); and, Fair

Assessment in Real Estate Association v. McNary, 454

U.S. 100, (1981); so as to require an exercise of this

Honorable Court’s power of supervision.

Furthermore, the majority judgment of the Fifth Cir-

cuit Court of Appeals has clearly and erroneously mis-

applied the previous holdings of this Honorable Court in

the cases of Richfield Oil Corporation v. State Board of

Equalization, 329 U.S. 69, (1946); Michelin Tire Corpora-

tion v. Wages, 423 U.S. 276, (1976); and Washington

Revenue Department v. Stevedoring Association, 435

U.S. 734, (1978), to the undisputed facts involved herein so

as to necessitate an exercise of this Honorable Court’s

review of a decision of the Court of Appeals, Fifth Circuit.

The decision which the Department of Revenue is urging

this Honorable Court to review was conceded by the Court

of Appeals to be a case of first impression concerning the

Import Export Clause of the United States Constitution.

CONSTITUTIONAL PROVISIONS AND STATUTES

This petition involves the applicability of the Import

Export Clause of the United States Constitution, article I,

section 10, clause 2, to an excise tax imposed by the State of

Alabama on the sale of gasoline (aviation jet fuel) by a

distributor licensed to engage in such business by the State

of Alabama to an unlicensed distributor, where the sale

took place entirely within Alabama, but the gasoline was

subsequently exported to Canada by the unlicensed dis-

tributor. The text of the Import-Export Clause is set forth

in Appendix G. The applicable Alabama statutes concern-

ing the need for persons engaging in the business of selling

or distributing gasoline in Alabama to first obtain a license

from the state, and imposing an excise tax on such sales or

distributions are: Sections 40-12-191; 40-17-31(a), (d)(1), (e);

40-17-32; 40-17-36; and 40-17-38, Code of Alabama 1975.

The applicable Alabama statutes are set forth in their

entirety at Appendix H.

This petition also involves the applicability of 28 U.S.C.

§1341, as it pertains to the jurisdiction of federal courts to

determine questions regarding the collection of state taxes.

The text of 28 U.S.C. §1341 is set forth at Appendix I.

STATEMENT OF THE FACTS

This case was originally submitted to the trial court

on cross-motions for summary judgment. The material

facts are not in dispute, and are uncontroverted. For the

purposes of this petition, the Court of Appeals recitation

of the facts must be considered sufficient.

“Pilot Petroleum Corporation (Pilot) contracted with

the Louisiana Land & Exploration Company (LL&E) to

purchase approximately 112,000 barrels of jet fuel oil

(footnote omitted). On November 7, 1986, LL&E de-

livered the fuel free on board the Liberian flagged

tanker, MARYANN, while it was anchored in the port of

Mobile, Alabama. The fuel was then exported to Halifax,

Nova Scotia, Canada. Following delivery, Pilot received

two invoices for the purchase price of the fuel. The first

invoice totalled $201,929.78, including $5,390.78 which

was attributable to fuel tax. The second invoice charged

$50,400.00 for fuel tax out of a total bill of $1,772,400.00.

Pilot paid LL&E, excluding the amounts attributable to

the Alabamastate tax.” (Opinion of the Court of Appeals,

900 F.2d at 817).

“In November, 1986, LL&E paid to the Alabama

Department of Revenue the tax due as a result of its fuel

sales to Pilot, despite the fact that it had not been paid the

amount of the tax by Pilot. LL&E filed a petition for

refund in August, 1987, which contended that Pilot was

exempt from the tax under Alabama law because it was

properly licensed and bonded. Alabama law provides

that licensed distributors are exempt from the fuel

excise tax (footnote omitted). Because Pilot did not

become a licensed distributor until December 15, 1986,

which was after the date of the fuel sale, the Department

denied LL&E’s request for refund (footnote omitted).”

(Opinion of the Court of Appeal, 900 F.2d at 817).

“Pilot never reimbursed LL&E for the tax LL&E

paid on its behalf. LL&E then filed this suit in the United

States District Court for the Eastern District of

Louisiana. The district court concluded that the pur-

chaser bears ultimate responsibility for the payment of

taxes under both Alabama law and the LL&E-Pilot

contract. The court further held that Pilot should first

exhaust its administrative remedies by paying the tax

and petitioning the Alabama Department of Revenue,

and then file suit against the State of Alabama to

challenge the constitutionality of the tax.” (Opinion of the

Court of Appeals, 900 F.2d at p. 818). Pilot then appealed

to the Fifth Circuit Court of Appeals.

STATEMENT OF THE CASE

The Respondents Pilot Petroleum Corporation and the

Louisiana Land and Exploration Company are two cor-

porations which are engaged inter alia in the buying and

selling of gasoline. The Petitioner Alabama Department of

Revenue is charged by Alabama law inter alia with the

duty to collect state excise taxes due on sales of gasoline

occurring within the jurisdiction of the State of Alabama.

On March 4, 1988, Louisiana Land and Exploration

Company (“LL&E”) filed a complaint in the United States

District Court for the Eastern District of Louisiana against

Pilot Petroleum Corporation (“Pilot”) for $55,790.78, plus

interest, attorneys’ fees, and costs. The suit was based on

two transactions between the parties whereby LL&E had

sold to Pilot over 100,000 barrels of aviation jet fuel, which

LL&E had delivered to Pilot Petroleum in Mobile, Ala-

bama. Based on such sales to Pilot, LL&E reported and

paid over te the Alabama Department of Revenue gasoline

excise taxes, and according to the terms of the contract of

sale, demanded reimbursement from Pilot Petroleum.

On May 2, 1988, in response to LL&E’s complaint, Pilot

filed an “Exceptive allegation and answer” averring inter

alia that since “all allegations and claims asserted by

(LL&E) arise out of transactions in the State of Alabama

and are subject to law of the State of Alabama” then “the

Court is without personal jurisdiction over the claims

asserted, and the Complaint should be dismissed for lack of

jurisdiction ...” Pilot Petroleum’s answer also contained a

genera! denial to the allegations stated or otherwise men-

tioned in the complaint, but pointedly did not assert the

Import Export Clause as a defense. (Pilot’s answer is

setforth herein at the conclusion as Appendix C.)

On July 12, 1988, LL&E filed a motion for summary

judgment, and a memorandum in support of its motion

with the U.S. District Court. (Setforth herein at the

conclusion as Appendix D.) On July 26, 1988, Pilot filed a

memorandum in opposition to LL&E’s motion for sum-

mary judgment, as well as its own (cross) motion for

summary judgment, along with a “statement of contested

material facts.” (All of Pilot’s July 26, 1988, documents are

setforth herein at the conclusion as Appendix E.) On

August 2, 1988, LL&E filed a memorandum in opposition

to Pilot’s motion for summary judgment, along with a

response to Pilot’s statement of material facts. (Setforth

herein at the conclusion as Appendix F.)

On August 10, 1988, after considering the pleadings,

memoranda and arguments of the parties, the district

court granted LL&E’s motion for summary judgment and

denied Pilot’s, and on August 30, 1988 entered written

reasons for its decision (Appendix B.) On August 31, 1988,

the district court entered a judgment in favor of LL&E and

against Pilot Petroleum in the amount of $55,790.78,

together with interest and reasonable attorneys’ fees.

On September 12, 1988, Pilot Petroleum filed a notice of

appeal to the United States Court of Appeals for the Fifth

Circuit. Both parties were allowed to file briefs according

to the Federal Rules of Appellate Procedure, and did in

fact file such appeallate briefs. The parties were also

allowed an opportunity to orally argue their causes before a

a |

three-judge panel of the Fifth Circuit. It was after such oral

argument was conducted that the Attorney General of the

State of Alabama was notified by the Fifth Circuit Court of

Appeals that the applicability of the Alabama excise tax on

gasoline had been called into question. At the invitation of

the Court of Appeals, the State of Alabama Department of

Revenue filed an appearance and brief as intervenor on

July 20, 1989. Pilot Petroleum filed its response to the

intervenor’s brief on August 23, 1989.

On May 10, 1990, the United States Court of Appeals,

Fifth Circuit, in a split-two-to-one decision, reversed the

decision of the district court.

Each of the questions presented for review in this

petition were presented to the Court of Appeals by the

State of Alabama for consideration prior to the instant

decision being reached by the Court of Appeals.

ARGUMENT

It is the position of the Alabama Departinent of Revenue

that the majority decision of the three judge panel of the

Fifth Circuit Court of Appeals is so obviously erroneous

and contrary to all existant law regarding state taxation

and the Import-Export Clause of the U.S. Constitution so

as to require the exercise of this Honorable Court's super-

visory and review powers. The questions raised by such 2

flawed decision, involving an issue which the Court of

Appeals admitted was one of first impression, is of such

wide spread importance so as to necessitate the attention of

this Honorable Court.

WHETHER TITLE 28, UNITED STATES

CODE, §1341, DEPRIVED THE DISTRICT

COURT OF JURISDICTION TO DECIDE

THE QUESTIONS OF STATE TAXATION

SUB JUDICE RAISED BY THE TAX-

PAYER?

The majority decision of the Court of Appeals concluded:

. “the Alabama Fuel Tax is an impost upon an export within

the meaning of the Import-Export Clause, and is therefore

unconstitutional.” It is the position of the Alabama Depart-

ment of Revenue that the District Court properly refrained

from addressing any questions raised by Pilot concerning

the Alabama Excise Tax and its relationship to the

Constitution, deciding instead to leave the resolution of

such questions to the Alabama courts. Furthermore, 28

U.S.C. §1341 prohibited the District Court from enter-

taining questions concerning the constitutionality and

applicability of a state tax. 28 U.S.C. §1341 provides:

The district court shall not enjein, suspend or

restrain the assessment, levy or collection of any

tax under state law where a plain, speedy and

efficient remedy may be had in the courts of such

state.

The Department of Revenue submits that the language

of 28 U.S.C. §1341, known as the Tax Injunction Act, is

sufficiently clear in its meaning and should be easily

understood. The Tax Injunction Act embodies a decision by

Congress to transfer jurisdiction over a class of substanta-

tive federal claims, from the federal district courts to the

state courts, so long as the state court procedures are “plain,

speedy and efficient”, and a final review of the substanta-

tive federal claims can be obtained in the United States

Supreme Court. Rosewell v. LaSalle National Bank, 450

U.S. 503, rehearing denied 451 U.S. 1011, (1981).

As was pointed out to the Court of Appeals by the State

of Alabama, the jurisdictional bar of 28 U.S.C. §1341 could

not be avoided by challenging a state tax as being in

violation of the U.S. Constitution. However, the Court of

Appeals specifically rejected such arguments, and the

Petitioner Alabama Department of Revenue would respect-

fully refer this Honorable Court’s attention to the reasons

given by the Court of Appeals in rejecting such jurisdic-

Par D8 dA LiL) Rane eae ores

ee ~

tional contentions. In its opinion, the Court of Appeals held:

“In astrange twist, considering that the constitu-

tionality of state laws or practices is a major part

of the grist of federal district courts, the district

court directed Pilot to pursue administrative

remedies in the State of Alabama before raising

any constitutional defense in the federal courts.”

900 F.2d at 818.

The above expression of the rationale of the Court of

Appeals is very revealing. It demonstrates that the ma-

jority of the Court of Appeals did not understand the scope

and effect of the prohibition contained in 28 U.S.C. §1341.

The Department of Revenue does not believe that the logic

of the district court was so “strange” when one considers

that unlike “the vast majority of those situations where

state laws or practices may be grist for the federal courts,”

in the present instance there is a specific statutory

prchibition, as well as an established long-standing policy,

against the federal courts entertaining such actions. Fur-

thermore, the “strange twist” observed by the Court of

Appeals would seem positively bizarre, when one considers

that it was Pilot itself who urged the federal district court

that since “all allegations and claims asserted by (LL&E) in

this action arise out of transactions in the State of Alabama

and are subject to the law of the State of Alabama ... this

action should be dismissed, for lack of subject matter

jurisdiction over the claims asserted”. (Pilot’s Answer p. 1;

Appendix C, p. Ic.)

A further example of the fallacious reasoning used by

the majority in the Court of Appeal’s decision on this point

is found at 900 F.2d p. 818, wherein the majority held:

The Tax Injunction Act does not bar federal

court jurisdiction in this case, however, because

this suit was filed to collect a state tax, rather

than enjoin, suspend or restrain the collection of

ari Oe Aha Wee

MDa WES Lon > hore iD AIA PAR AA LAN Raa

taxes. (Footnote omitted). Furthermore, LL&E

chose to bring this suit in the Eastern District of

Louisiana; and it cannot now limit Pilot’s

defenses.

The above statement by the majority of the Court of

Appeals concerning the scope and effect of the Tax

Injunction Act is directly contrary to numerous decisions of

this Honorable Court which have repeatedly held that the

principal motivating force behind the enactment of the

Tax Injunction Act by Congress “was first and foremost a

vehicle to limit drastically federal district court jurisdic-

tion to interfere with so important a local concern as the

collection of taxes.” Franchise Tax Board of California

v. Alean Aluminum Limited, U.S. —___, 110 S.Ct.

661, 107 L.Ed.2d 696 (decided January 10, 1990); Califor-

nia v. Grace Brethren Church, 457 U.S. 393, (1982);

Rosewell v. LaSalle National Bank, 450 U.S. 503, (1981).

If the decision of the Court of Appeals is to be followed, the

prohibition of 28 U.SC. §1341 can now easily be avoided by

a taxpayer simply refusing to pay the tax, and forcing the

collector of the tax to sue for the recovery of the tax. Such

suit will then be considered appropriate for federal jurisdic-

tion because it is a “suit to collect a state tax, not a suit to

enjoin, suspend or restrain the collection of a state tax.”

The very statement by the Court of Appeals that the

“Tax Injunction Act does not bar federal court jurisdiction

in this case ... because this suit was filed to collect a state

tax, rather than enjoin, suspend or restrain the collection of

taxes” is nonsensical. It simply does not make sense. It is

especially illogical if you accept the Court of Appeals’

repeated assertions that LL&E acted as an agent on behalf

of the State of Alabama in the collection of the excise tax,

and it was the State of Alabama’s excise tax that was ruled

unconstitutional.

It also must be emphasized that LL&E did not assert

the Tax Injunction Act as a jurisdictional bar as the Court

of Appeals stated in justification of its decision to exercise

jurisdiction. It is.apparent the Court of Appeals was

confused about the true posture of the case. It should have

been evident that it would have been ridiculous for LL&E

to have filed a complaint against Pilot and then to have

asserted that the jurisdiction over its own complaint was

barred by the Tax Injunction Act. It was not LL&E, but the

Intervenor State of Alabama (who was brought into the

action at the appellate level due to the insistence of Pilot)

who asserted the Tax Injunction Act as a jurisdictional bar.

However, the State of Alabama was not the only party who

asserted the federal court’s lack of jurisdiction over the

questions pertaining to the legality of the Alabama tax. In

its answer, Pilot also asserted as its defense that the district

court did not have jurisdiction over questions of Alabama

law!

The Department of Revenue submits that the language

and intent of the Tax Injunction Act should be sufficiently

clear so as to be readily understood. The prohibition

contained in the Tax Injunction Act was intended to

drastically limit the jurisdiction of federal courts to inter-

fere with the assessment and collection of state taxes. It is

apparent that the majority decision of the Circuit Court of

Appeals has somehow misunderstood and avoided the clear

congressional mandate intended by the adoption of the Act.

Such an erroneous interpretation of the Tax Injunction Act

should justify the granting of the Writ of Certiorari in the

instant case.

WHETHER THE FEDERAL COURTS

SHOULD HAVE REFRAINED FROM

ADDRESSING QUESTIONS CONCERN-

ING THE CONSTITUTIONALITY OF THE

ALABAMA EXCISE TAX UNDER THE

DOCTRINE OF COMITY?

wo cncleiabaaelllll

Pe Cadi

Prior to the Court of Appeals rendering its decision in

the present case, the State of Alabama, as Intervenor,

urged the Court of Appeals that it was not only proper for

the District Court to have refrained from addressing the

state tax questions raised by Pilot on the basis of the

statutory prohibition contained in 28 U.S.C. §1341, but also

urged the Court of Appeals to abstain from such action

based upon the principles of comity.

In the case of Fair Assessment in Real Estate Associa-

tion v. McNary, 454 U.S. 100 (1981), the basic principles

underlying the doctrine of comity as it relates to 28 U.S.C.

§1341 and federal review of state tax administration were

set forth. Justice Rehnquist, speaking for the majority of

the Court in a unnanimous decision, held:

Neither the legislative history of the Act nor that

of its precursor, 28 U.S.C. §1342, suggests that

Congress intended that federal court defference

in state tax matters be limited to actions enu-

merated in those sections. (Citation omitted).

Thus, the principle of comity which predated the

Act was not restricted by its passage.

The post-Act vitality of the comity principle is

perhaps best demonstrated by our decision in

Great Lakes Dredge & Dock Co. v. Huffman, 319

U.S. 293, 63 S.Ct. 1070, 87 L.Ed. 1407 (1948).

Several Louisiana taxpayers brought an action

in Federal District Court seeking a declaratory

judgment that the state tax as applied to them

was unconstitutional and void. Although §1341

was raised as a possible bar to the suit, as it has

been raised in this case, “we [found] it unneces-

sary to inquire whether the words of the statute

may be so construed as to prohibit a declaration

by federal courts concerning the invalidity of a

state tax.” 319 U.S., at 299, 63 S.Ct. at 1073.

Instead, “we [were] of the opinion that those

considerations which have led federal courts of

equity to refuse to enjoin the collection of state

taxes, save in exceptional cases, require[d]a like

restraint in the use of the declaratory judgment

procedure.” Ibid. Those considerations were, of

course, principles of federalism:

“The scrupulous regard for the rightful indepen-

dence of state governments which should at all

times actuate the federal courts, and a proper

reluctance to interfere by injunction with their

fiscal operations, require that such relief be

denied in every case where the asserted federal

right may be preserved without it.” ... Inter-

ference with state internal economy and adminis-

tration is inseparable from assaults in the federal

courts on the validity of state taxation, and neces-

sarily attends injunctions, interlocutory or final,

restraining collection of state taxes. These are the

considerations of moment which have persuaded

federal courts of equity to deny relief to the

taxpayer ...” Id., at 298, 63 S.Ct., at 1073

(Matthews v. Rodgers, 284 U.S. at 525, 52 S.Ct at

219).

The Court’s reliance in Great Lakes upon the

necessity of federal-court respect for state taxing

schemes demonstrates not only the post-Act

vitality of the comity principle, but also its

applicability to actions seeking a remedy other

than injunctive relief. The focus was not on the

specific form of relief requested, but on the fact

that “in every practical sense [it] operate[d] to

suspend collection of the state taxes until the

litigation [was] ended. (Citation omitted).

Fair Assessment in Real Estate Association v.

McNary, 454 U:S., at 110.

That the majority decision of the Court of Appeals in the

present case is intrusive there can be little doubt. Alabama,

like all other states, has imposed an excise tax on the sale

and distribution of gasoline taking place within its borders.

One exception to the imposition of this tax is where one

; licensed distributor sells gasoline to another licensed

distributor. See: Section 40-17-32, Code of Alabama

1975. The Court of Appeals’ majority decision recognized

this exception in the Alabama law in footnotes 5and 6of its

: Opinion. It goes without saying that under the revenue

powers, as well as the police powers of Alabama, the State

is authorized to tax and regulate such a volatile and energy

precious commodity as gaseline. The Court of Apneals did

not reject the Alabama scheme of taxation requiring those

persons who engage in the business of selling gasoline to

obtain a license from the State prior to engaging in such

business on the ground that such requirement was an

unreasonable or unconstitutional exercise of state powers.

Instead, the majority of the Court of Appeals has by its

decision held that where a licensed distributor makes a sale

of gasoline to an unlicensed distributor, such sale taking

place entirely within Alabama, then the State of Alabama

is prohibited from exercising any jurisdiction over such

sale so long as the unlicensed distributor is buying the

gasoline for export. This holding by the majority of the

Court of Appeals will have a tremendous detrimental

effect on the ability of the State of Alabama to regulate and

tax the sale of gasoline. The effect of this decision is that so

long as any person not licensed with the State of Alabama

comes to Alabama and buys gasoline for export, then the

unlicensed buyer would not have to observe any of Ala-

bama’s laws regarding the sale of gasoline, relying instead

upon the Import-Export Clause. This drastic intrusion is

certainly the type situation which the doctrine of comity is

intended to address, and the Department of Revenue

submits that the failure of the majority of the Court of

Appeals to observe the previous pronouncements of the

————

Supreme Court regarding the doctrine of comity, and the

necessity of federal courts to refrain from unduly intruding

in state taxation, require the review of this Honorable

Court. It is assumed that the previous decisions of the

Supreme Court on the doctrine of comity were published

for the purpose of providing guidelines to the various

federal courts, and the Fifth Circuit Court of Appeals’

failure to observe such guidelines can only result in

unequal protection and inconsistent treatment under the

law.

The Court of Appeals’ decision to ignore the arguments

of the State of Alabama regarding the applicability of the

doctrine of comity is especially puzzling when one con-

siders the pronouncements in the decision itself that

although the Supreme Court had in the past refused to

address the issues considered by the majority of the Court

of Appeals as being material, the majority would still insist

upon presenting their view of the Import-Export Clause

and its relationship to the Alabama excise tax on gasoline,

and to use this opportunity to announce the Court of

Appeals theory concerning “the export stream”.

After a somewhat lengthy discussion of the case of

Michelin Tire Corp. v. Wages, 423 U.S. 276, (1976), and

the relationship of this case to the Import-Export Clause,

the Court of Appeals concluded: “Therefore, the Michelin

Court left open the question of whether a tax on goods in

transit would constitute an “impost” or “duty” under the

Import-Export Clause.” 900 F.2d at 820.

The majority of the Court of Appeals then considered

the holding of this Honorable Court in the case of

Washington Revenue Department v. Stevedoring

Association, 435 U.S. 734, (1978), and concluded:

The Court expressly refused to reach

the issue now before us today: whether

a state may directly tax imports or

exports that are in transit. (900 F.2d at

820).

Since it is apparent the majority of the Court of Appeals

recognized that the Supreme Court had previously re-

frained and “refused to reach the issue” before the Court of

Appeals, it is difficult to understand the majority of the

Court of Appeals’ decision to ignore the doctrine of comity

and to instead attempt to fathom “the contemporary view

of the Supreme Court.” 900 F.2d at 820. The Department of

Revenue submits that it is in just such instances as are

involved in the present action that the doctrine of comity

would be most applicable. Certainly those courts of appeal

which recognize that this Supreme Court has in the past

refused to address the very questions raised in the proceed-

ing before the federal court should not, in spite of such

recognition, engage in speculation as to the “contemporary

view of the Supreme Court” with regard to the Import-

Export Clause.

The decision of the Court of Appeals in the present case

establishes a radical precedent. In the present case a buyer

of aviation fuel was allowed to challenge the constitu-

tionality of an Alabama excise tax in federal court, rather

than pursuing such remedy in state court as contemplated

by both 28 U.S.C. §1341 and the doctrine of comity. This

decision on the part of the majority of the Court of Appeals

iseven more difficult to understand when it is realized that

the Court of Appeals recognized throughout its decision

that the true parties in interest were Pilot and the State of

Alabama:

Even if Pilot had alternative adequate

means to challenge the constitutionality

of the Alabama tax, this case should be

viewed primarily as a dispute between

the State of Alabama and Pilot ...

Because LL&E acts as a mere agent for

the State in the collection of taxes, this

suit, in effect, is between the state of

Alabama and Pilot Petroleum. (900

F.2d at 818.)

It is the position of the Department of Revenue that once

the Court of Appeals recognized that the true parties in the

dispute were Pilot and the Staie of Alabama, then such

recognition was all the more reason for the Court of

Appeals to have given effect to the prohibition contained in

28 U.S.C. §1341, as well as adherred to the policy considera-

tions of comity enunciated by the Supreme Court in its

previous decisions. The Department of Revenue respect-

fully submits that this failure on the part of the Court of

Appeals requires the exercise by this Honorable Court of

its supervisory and review powers.

IT]

WHETHER THE COURT OF APPEALS

CORRECTLY DECIDED QUESTIONS OF

ALABAMA LAW REGARDING AN ALA-

BAMA EXCISE TAX?

In the majority opinion portion of its decision, the Court

of Appeals held:

Yet, the Alabama Code allows refunds only to

taxpayers who pay taxes directly to the Alabama

Department of Revenue. (Footnote omitted.)

Therefore, because Pilot does not pay the tax to

the State of Alabama, it has no standing to

pursue a refund of the tax paid by LL&E

supposedly on Pilot’s behalf. 900 F.2d at 818.

Not only does the above-quoted portion of the majority

opinion of the Court of Appeals disclose its misunderstand-

ing of Alabama law, but the verbatim quotation of the

statute involved, which was included as a footnote by the

Court of Appeals in its decision, clearly omitted and failed

to state the applicable portion of the Alabama refund

statute. In its argument to the Court of Appeals, Pilot made

this very same argument that Pilot lacked standing to raise

the issues regarding the constitutionality of the Alabama

tax in an Alabama court because it did not pay taxes

ee ee

A tk se tl a al

directly to the Alabama Department of Revenue. In its

brief to the Court of Appeals as Intervenor, the Department

of Revenue addressed this very same argument by Pilot as

follows:

The State would address this argument by asking

the following question: “Who made the decision

that Pilot had no standing under Alabama law to

exhaust any administrative remedy?”

No where in the record has it ever been shown

that Pilot even attempted to exhaust any remedy

in Alabama. Pilot made this decision on its own

not to seek any remedy from Alabama. Pilot has

chosen to simply ignore LL&E’s demand to be

paid under its contract, and to offer as justifica-

tion for such refusal the excuse that “the State of

Alabama probably wouldn’t grant Pilot any

relief anyway.” The State believes it is fair to say

that until Pilot asks for administrative relief,

none will be granted. For the record, it is the

State of Alabama’s position that in fact Pilot

could have been made a party to the adminis-

trative proceeding before the Department of

Revenue. The very statute upon which Pilot

relies to support its position that it had no

standing under Alabama law to petition for

refund provides in part:

Before any refund under this section

can be made, the taxpayer, his heirs,

successors, or assigns shall file in dupli-

cate a petition directed to the Depart-

ment of Revenue, ... (Emphasis sup-

plied). §40-1-34 Code of Alabama

1975.

Clearly Pilot could have requested LL&E to

assign its rights to seek a refund to Pilot.

Furthermore, §40-17-3l(e), Code of Alabama

1975, provides that when the “distributor, re-

finer, retail dealer or storer, or in the case of a

licensed user, (collects the tax, it is) acting merely

as an agent of the State for the collection and

payment of the tax to the State”. Thus, if Pilot

should pay LL&E the excise tax in question, it

must be considered as paying the tax directly to

the Department of Revenue, since it paid said tax

to an agent of the Department.

(Intervenor State of Alabama's Brief before the

Court of Appeals, Fifth Circuit, pp. 28-29,

emphasis in the original.)

WHETHER A SALE OF GASOLINE BY A

DISTRIBUTOR LICENSED BY THE

STATE OF ALABAMA, TO A DISTRIBU-

TOR NOT LICENSED BY THE STATE OF

ALABAMA, WHICH TOOK PLACE

ENTIRELY WITHIN ALABAMA, WAS

PREEMPTED FROM TAXATION BY THE

STATE OF ALABAMA DUE TO THE

IMPORT-EXPORT CLAUSE OF THE

UNITED STATES CONSTITUTION?

At the outset it is crucial to understand that the

Alabama excise tax at issue is not collected on an export!

Based upon the undisputed facts, LL&E, an Alabama

licensed distributor, withdrew from its inventory and sold

aviation gasoline in Alabama to Pilot, an unlicensed

distributor. This is the transaction which was subject to the

Alabama tax! The gasoline was then exported by Pilot to

Canada. The transaction which was subject to the Alabama

tax occurred entirely within the borders of Alabama. In

order to determine the true essence of the transaction, one

simply has to ask the following questions: “Who was the

exporter?” The answer is of course that Pilot was the

ee ee ee ee ee er

exporter when Pilot delivered the gasoline in question to

Canada to complete the sale to its customer. “Did LL&E

export anything?” The answer is: “Of course not.” The sale

from LL&E to Pilot was not an “export”. The fact that it

was delivered toa foreign flagged vessel at Pilot’s direction

would not make the sale by LL&E to Pilot an export.

“When was the gasoline exported?’ The Department of

Revenue submits that the answer to this question is: “When

the gasoline was shipped by Pilot to its Canadian customer”.

As such, Alabama’s taxation of the sale by LL&E to Pilot

did not constitute an invalid exercise under the Import-

Export Clause of a state’s power to tax. The Department of

Revenue concedes, as it did to the Court of Appeals, that the

sale by Pilot to its Canadian customer was not subject to

any Alabama tax pursuant to the provisions of the Import-

Export Clause.

Under Alabama law sales between licensed distributors

of gasoline are exempt from the excise tax on gasoline.

Section 40-17-32, Code of Alabama 1975, manifests a

clear intent on the part of the Legislature of Alabama that

only sales between licensed distributors are exempt from

the payment of the gasoline excise tax. Section 40-17-32

provides in part:

The excise tax imposed by §40-17-31 shall be

collected by persons, as defined in this article,

storing gasoline or distributing the same or

allowing the same to be withdrawn from storage,

.. provided, that receipts by any licensed dis-

tributors or storers from another licensed

distributor or storer shall be treated on the same

basis as gasoline received or distributed by such

licensed distributors or storers in interstate

commerce. (Emphasis supplied).

There are numerous provisions within the Alabama

Gasoline Excise Tax Law which indicate that only those

persons who are licensed with the Alabama Revenue

Department as distributors are entitled to make purchases

of gasoline tax free.

Section 40-12-191, Code of Alabama 1975, provides in

part:

Every distributor before engaging in the busi-

ness of selling, distributing or withdrawing from

storage gasoline in this state, shall first make

application to the Department of Revenue

upon forms prepared by the department of

revenue, for a license to engage in said busi-

ness. (Emphasis supplied).

Section 40-12-191 clearly requires every distributor to

be licensed prior to engaging in the business of a dealer in

gasoline in Alabama.

In the instant case, Pilot, by failing to obtain a license

as a gasoline distributor prior to engaging in the business

of dealing in gasoline in Alabama failed to comply with the

applicable provisions of the Alabama Gasoline Excise Tax

Law. Therefore the withdrawal of gasoline from storage by

LL&E, and the subsequent sale to Pilot, an unlicensed

distributor, must be considered a taxable transaction

which took place solely within Alabama. Under Alabama

law, it was the transaction between LL&E and Pilot, and

NOT between Pilot and Pilot’s Canadian customer, which

must be considered the taxable transaction. No foreign

customer was involved in the Alabama transaction. The

transaction was completely an intrastate occurrence which

took place entirely within the borders of Alabama.

The Court of Appeals’ decision completely ignored this

aspect of Alabama’s scheme of taxation. The very question

the Court of Appeals chose to address in its decision reveals

the basic flaw in the logic of the majority decision:

The question this case presents is whether the

state of Alabama may tax jet fuel, which is sold

for export to a foreign country. (900 F.2d, at 817.)

Se Sik

The Department of Revenue respectfully submits that

the Court of Appeals, by framing the question as stated

above, completely missed the mark with respect to whether

the transaction in question was subject to an Alabama tax.

The more proper question to ask would have been whether

Alabama may tax a transaction which takes place entirely

within its borders. “May the State of Alabama tax a sale of

gasoline to an unlicensed distributor, where the gasoline is

ultimately exported by the unlicensed distributor?” It is the

position of the Department of Revenue that such taxation

on the part of the State of Alabama is not prohibited or in

any manner prevented by the Import-Export Clause.

The majority decision of the Court of Appeals in the

present case sets a new and radically different standard

than any seen so far. Previously, it was determined that ata

certain point and place in time a specific transaction could

be considered an export. However, under the majority

opinion of the Court of Appeals, goods are now to be

considered “in the stream of export.” (900 F.2d, at 821.)

Under the present decision of the Court of Appeals, the

person making the sale to the person actually engaged in

exporting the goods in question is now considered exempt

from state taxation under the Import-Export Clause. One

logically has to ask “Where does the ‘stream of export’

begin and end?” Is the person who sells goods to the person

who sells the same goods to the person exporting the goods

also exempt from taxation, since the goods themselves will

ultimately be exported? The Department of Revenue sees

no logical answer to the problems raised by the majority

decision of the Court of Appeals.

Certainly the adoption this new standard concerning

the relationship between state taxation and the Import-Ex-

port Clause would now become a matter of private contract,

as is the situation presently under consideration, rather

than applying the standards and tests previously followed

by this Honorable Court in such cases as Michelin Tire

Corp. v. Wages, 423 U.S. 276, (1976) and Washington

Revenue Department v. Stevedoring Association, 435

U.S. 734, (1978). The majority of the Court of Appeals

tacitly recognized that this new standard would allow

parties to a private contract to be able to call into question

the constitutionality of a state tax:

Although it was probably never in the con-

templation of these parties that they were facing

or were even close to a constitutional problem

which goes back to the very formation of this new

nation, the contract provides that Pilot must pay

only taxes that are legally required to be paid’.

This language necessarily calls into question the

constitutionality of the Alabama tax. 900 F.2d, at

819.

The Supreme Court has time and again held that the

parties to a private contract cannot limit a state’s ability to

levy taxes or to select upon whom these taxes shall fall.

Lake Superior Consol. Iron Mines v. Lord, 271 U.S. 577

(1926); United States Trust Co. of New York v. New

Jersey, 431 U.S. 1 (1977). One whose rights, are subject to

state restrictions, cannot remove them from the power of

the State by making a contract about them. The contract

will carry with it the infirmity of the subject matter.

Exxon Corp. v. Eagerton, 462 U.S. 1976, (1983).

Admittedly, these cases deal with an interpretation of the

Contract Clause contained in the U.S. Constitution. How-

ever, it is also clear that if the majority opinion of the Court

of Appeals is adopted, then such parties as a seller of

gasoline and a buyer of gasoline could restrict the State’s

power to tax a sale of gasoline taking place entirely within

its own borders by simply “contracting” that such goods

would ultimately be exported and therefore removed from

State taxation. This radical new concept with regard to

sales taking place entirely within a state, which were

previously within the subject matter jurisdiction of the

State itself, and the power of private parties to contract

away a State’s soverign power to tax such transactions

must of necessity require the review of this Honorable

Court.

WHETHER THE DECISIONS OF THIS

HONORABLE COURT REFERENCED BY

THE COURT OF APPEALS IN ITS OPIN-

ION WERE PROPERLY APPLIED BY

THE MAJORITY OF THE COURT OF

APPEALS TO THE FACTUAL SITUA-

TION SUB JUDICE?

The decision of the Court of Appeals, which the Alabama

Department of Revenue is petitioning this Honorable

Court to review, mentions only three cases to support its

holding that the Alabama excise tax in question violates

the Import-Export Clause of the Constituticn. It will be

‘obvious from a reading of not only the Court of Appeals’

citation of these cases, but also the cases themselves, that

none of these decisions relied upon by the majority of the

Court of Appeals to support its conclusion are in fact

applicable to the factual situation involved herein.

RICHFIELD CASE

The first case mentioned by the Court of Appeals in its

opinion is the case of Richfield Oil Corp. v. State Board of

Equalization, 329 U.S. 69, (1946). As stated in the Court of

Appeals’ opinion, this very same decision was relied upon

by Pilot in its appearance before the Court of Appeals. As

the State argued to the Court of Appeals, an examination of

the facts contained in the Richfield case, clearly demon-

strates that the facts of the case are not analogous to the

facts involved in the present action. It is clear that the

transaction under consideration in Richfield was the sale

between Richfield and its foreign New Zealand customer.

However, as the undisputed facts involved herein estab-

lished, the transaction which causes the Alabama excise

tax to be due in the situation presently under consideration

is the withdrawal of untaxed jet fuel by LL&E, a licensed

distributor, from its inventory located in Alabama, and the

subsequent distribution of said gasoline in Alabama by sale

to Pilot, an unlicensed distributor. In other words, in the

present situation, the sale between LL&E and Pilot is “one-

step back up the line” from the factual situation contained

in Richfield. By way of analogy, Alabama could be

considered as collecting the tax from the distributor who

sold the fuel to Richfield, assuming Richfield was an

unlicensed distributor in Alabama.

In the Richfield case, California attempted to place its

tax upon the exportation of the fuel itself. In fact the

transaction in Richfield involved a sale by Richfield to

New Zealand, f.o.b. Los Angeles; whereas in the present

situation, the excise tax was based upon the transaction

between LL&E and Pilot, f.o.b. Mobile, Alabama. In the

Richfield case, the foreign customer, New Zealand, took

title to the fuel in Los Angeles. In the present factual

situation, Pilot took title from LL&E in Mobile, Alabama.

Furthermore, in Richfield, title passed to the foreign

customer when it was delivered to the customer by

Richfield in Los Angeles. However, under the factual

situation involved herein, title passed from LL&E to Pilot

in Mobile, Alabama. Title to the jet fuel did not pass from

Pilot to its foreign customer until the fuel was delivered at

the Canadian ports. The title to the fuel in question passed

from LL&E, not toa foreign customer, but to Pilot. The sale

by LL&E was not in foreign commerce, and as such, cannot

be considered to be an export by LL&E. It is important to

remember that title passed from LL&E to Pilot entirely

within Alabama, and as such, was subject to the applicable

Alabama excise tax laws.

MICHELIN CASE

The majority on the Court of Appeals never specifically

held that the decision in the Richfield case, supra, was

controlling with regard to the factual situations involved

herein, the Court of Appeals simply stated: “Richfield has

never been overruled by the United States Supreme

Court.” The Appellate Court then began a discussion of the

case of Michelin Tire Corp. v. Wages, 423 U.S. 276,

(1976). The discussion of the Michelin case by the Court of

Appeals begins at 900 F.2d, p. 819. It is difficult to

understand exactly why the Court of Appeals even

mentioned the Michelin case, since admittedly the factual

situation involved herein would pass the three-prong

Michelin test. Furthermore, the Court of Appeals specifi-

cally ruled that the holding of the Michelin case “left open

the question of whether a tax on goods in transit would

constitute an “impost” or “duty” under the Import-Export

Clause. (900 F.2d at 820).

The Department of Revenue has speculated as to the

reasons the Court of Appeals even referred to the Michelin

case, since the Alabama excise tax so clearly passes all of

the requirements of the Michelin test. The question

remains: “If the Michelin test was not applicable to the fact

situation involved in the present case, then why did the

majority of the Court of Appeals choose to cite it?” The only

answer that comes readily to mind is that the Michelin

case was cited for the purpose of explaining the evolution of

the Import-Export Clause in order to explain the Court of

Appeals’ subsequent conclusion with regard to the “con-

temporary view of the Supreme Court” on a matter “that

has never been previously addressed.” 900 F.2d at 820.

WASHINGTON STEVEDORING CASE

The final case relied upon by the Court of Appeals was

the case of Department of Revenue of the State of

Washington v. Association of Washington Stevedoring

Co., 435 U.S. 734, (1978). (900 F.2d at 820). The Court of

Appeals recognized that the Supreme Court in the Wash-

ington Stevedoring case held that a tax on income

received from stevedoring activities did not violate the

prohibition contained in the Import-Export Clause, using

the Michelin three-prong policy test. However, the Court

of Appeals held:

Although the Court found that the Washington

tax did not disturb any of the three policies of the

Clause, it still had to address the fact that the

stevedoring activities were taxed while the ex-

ported and imported goods were in transit. Thus,

the U.S. Supreme Court was faced with the

question of whether a business and occupation

tax on activities related to in-transit imports and

exports violates the Import-Export Clause.

Because of the indirect nature of the tax, i.e., the

tax did not relate to the value of the goods, the

Court refused to discard the Michelin approach

merely because the goods were in-transit. The

Court expressly refused to reach the issue now

before us today: whether a state may directly tax

imports or exports that are in transit. (Citation

omitted). 900 F.2d, at 820.

Thus the Court of Appeals recognized that in the past

the Supreme Court has expressly refused to reach the issue

which the Court of Appeals chose to address. The Court of

Appeals instead held that under its “contemporary view” of

the Supreme Court, this Honorable Court would in fact

hold the Alabama tax as being violative of the Import-

Export Clause.

COURT OF APPEALS CONCLUSION IS ERRONEOUS

The Court of Appeals concluded that the Alabama

excise tax would be in violation of the Import-Export

Clause because: (1) Alabama’s excise tax on fuel adversely

effects United States foreign commerce with respect to a

very important commodity; (2) coastal states which possess

ports like the Port of Mobile, Alabama, derive significant

amounts of revenue from this tax, since they are able to tax

the large quantitites of fuel that are pumped from their

port into tankers; and (3) the Alabama Fuel Tax in this case

is a tax that is levied on the goods themselves while they are

in transit. The Department of Revenue is confident that

upon closer examination, this Honorable Court will deter-

mine that each of the reasons offered by the Court of

Appeals in support of its conclusions are in fact illogical

and contrary to reality. As stated above, there has been no

explanation whatsoever offered by anyone, including the

Court of Appeals, to explain how Alabama’s excise tax

adversely affects United States foreign commerce. It has

repeatedly been conceded that if Pilot had in fact complied

with the applicable Alabama laws prior to engaging in the

business of a dealer in Alabama, then the sales from LL&E

to Pilot would have been exempt. The fact that Pilot chose

“to put the cart before the horse” and not comply with

Alabama laws could not be considered as having any more

of an adverse effect on foreign commerce than requiring

other business entities to comply with applicable state laws

before engaging in any business regulated by an individual

_ state. Furthermore, the fact that Alabama has a port and is

a coastal state could in no way be considered as being the

cause for Pilot not having complied with the laws of

Alabama prior to engaging in the business of a gasoline

dealer in Alabama. No “significant amounts of revenues

from this tax are realized simply because Alabama is a

coastal state.” Finally, the fuel tax in this case is not a tax on

the goods themselves while they are in transit. This

conclusion is at the heart of the Court of Appeals’ majority

decision. When LL&E delivered the gasoline in question

into the tanks of a foreign flagged tanker at Pilot’s

direction, the goods were not “in transit in foreign com-

merce.” The gasoline was not the subject of foreign export

at the time of taxation.

CONCLUSION

For the reasons stated, and because the Court of

Appeals decided this case of first impression in conflict

with previous decisions of this Honorable Court, the

questions presented are so substantial as to require plenary

consideration, with briefs on the merits, and oral argument,

for their resolution.

Don Ltgabaar—

DON SIEGELMAN, Attorney General

State of Alabama

Kon. Bonnben

RON BOWDEN, Acting Chief Counsel]

Department of Revenue and Assistant

Attorney General, State of Alabama

. BRECKENRI , Assistant Counsel

Defartment of Revenue and Assistant

Attorney General, State of Alabama

P.O. Box 320001

Montgomery, AL 36132-0001

Telephone: (205) 242-9690

COUNSEL FOR PETITIONER

ALABAMA DEPARTMENT OF REVENUE

No.

In The

SUPREME COURT OF THE UNITED STATES

October Term, 1990

ALABAMA DEPARTMENT OF REVENUE,

Petitioner

versus

PILOT PETROLEUM CORPORATION AND THE

LOUISIANA LAND AND EXPLORATION COMPANY,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PROOF OF SERVICE

I, John J. Breckenridge, an attorney for the Alabama

Department of Revenue, Petitioner herein, and a member

of the Bar of the Supreme Court of the United States,

hereby certify that on the 7th day of August, 1990, I served

copies of the foregoing Jurisdictional Statement on all

parties required to be served, as follows:

1. On Respondent herein, Pilot Petroleum Corpora-

tion, by depositing a copy in the United States mail,

properly addressed and with first-class postage prepaid

addressed to their attorneys of record, as follows:

Robert B. Dean, Esq. and Douglas L. Grundmeyer, Esq.

of CHAFFE, MCCALL, PHILLIPS, TOLAR & SARPY,

2300 Energy Center, 1100 Poydras Street, New Orleans,

Louisiana, 70163-2300; and

2. On Respondent herein, Lousisiana Land and Ex-

ploration Company by depositing a copy in the United

States mail, with first-class postage prepaid, addressed to

Katherine Goldman, Esq. and John F. Landrum, Esq., of

MILLING, BENSON, WOODWARD, HILLYER, PIER-

SON & MILLER, Suite 2300, 909 Poydras Street, New

Orleans, Louisiana 70112, by depositing same in the

United States mail, properly addressed and with first-class

postage prepaid on the 7th day of August, 1990.

J. BRECKENRI , Assistant Counsel

Department of Revenue and Assistant

Attorney General, State of Alabama

P.O. Box 320001

Montgomery, AL 36132-0001

Telephone: (205) 242-9690

COUNSEL FOR PETITIONER

ALABAMA DEPARTMENT OF REVENUE

APPENDIX

APPENDIX A

THE LOUISIANA LAND AND

EXPLORATION COMPANY,

Plaintiff-Appellee,

PILOT PETROLEUM CORPORATION,

Defendant- Appellant.

No. 88-3662.

United States Court of Appeals,

Fifth Circuit.

May 10. 1990.

Appeal from the United States District Court for

the Eastern District of Louisiana.

Before BROWN, WILLIAMS, and JOLLY, Cir-

cuit Judges.

BROWN, Circuit Judge:

The question this case presents is whether the state

of Alabama may tax jet fuel, which is sold for export to

a foreign country. Pilot Petroleum Corporation argues

that the Alabama tax! violates the Import-Export

Clause’ of the United States Constitution. The district

‘Alabama law provides: Every distributor, refiner, retail dealer,

storer or user of gasoline or any substitute or device therefor sold for use

as a fuel to propel aircraft shall collect and pay over to the state

department of revenue an excise tax in accordance with the following

schedule upon the selling, use or consumption, distributing, storing or

withdrawing from storage in this state for use as a fuel to propel aircraft:

.. b. Any fuel used to propel aircrat powered by jet or turbine engines

shal! be taxed at the rate of nine-tenths one cent per gallon.

ALA. CODE § 40-17-31(d)(1) (1975).

*The Import Export Clause states: “No State shall, without the

Consent of the Congress, lay any Imposts or Duties on Imports or

Exports, except what may be absolutely necessary for executing its

inspection Laws ...”

U.S. CONST. Art. I, § 10, el. 2.

court granted the Lousisiana Land & Exploration

Company’s motion for summary judgment. After this

court certified to Alabama’s attorney general that the

constitutionality of its excise fuel tax had been drawn

in question,? in response to which we sought and

obtained extensive briefs, the state of Alabama

intervened. We hold that the tax is unconstitutional

and we reverse the decision below.

How It Ali Came About

Pilot Petroleum Corporation (Pilot) contracted

with the Louisiana Land & Exploration Company

(LL&E) to purchase approximately 112,000 barrels of

jet fuel oil.4 On November 7, 1986, LL&E delivered

the fuel free on board the Liberian flagged tanker,

MARYANN, while it was anchored in the port of

Mobile, Alabama. The fuel was then exported to

Halifax, Nova Scotia, Canada. Following delivery,

Pilot received two invoices for the purchase price of

the fuel. The first invoice totalled $201,929.78, includ-

ing $5,390.78 which was attributable to fuel tax. The

second invoice charged $50,400.00 for fuel tax out of a

total bill of $1,772,400.00. Pilot paid LL&E, excluding

the amounts attributable to the Alabama state tax.

’Pursuant to federal law: In any action, suit, or proceeding in a court

of the United States to which a State ... is not a party, wherein the

constitutionality of any statute of that State affecting the public interest

is drawn in question, the court shall certify such fact to the attorney

general of the State, and shall permit the State to intervene for

presentation of evidence, if evidence is otherwise admissible in the case,

and for argument on the question of constitutionality.

28 U.S.C. § 2403(b).

‘Pilot first contacted Karbon Corporation, a petroleum products

broker, for the purpose of purchasing jet fuel. On November 4, 1986,

Karbon transmitted to LL&E a telex confirming the sale by LL&E to

Pilot of approximately 100,000 barrels of jet fuel at the price of .4100

cents per gallon. On November 7, Karbon sent a second telex confirming

the sale of approximately 12,000 barrels at .4375 cents per barrel.

In November, 1986, LL&E paid to the Alabama

Department of Revenue the tax due as a result of its

fuel sale to Pilot, despite the fact that it had not been

paid the amount of the tax by Pilot. LL&E filed a

petition for refund in August, 1987, which contended

that Pilot was exempt from the tax under Alabama

law because it was properly licensed and bonded.

Alabama law provides that licensed distributors are

exempt from the excise fuel tax.’ Because Pilot did not

become a licensed distributor until December 15,

1986, which was after the date of the fuel sale, the

Department denied LL&E’s request for refund.®

Pilot never reimbursed LL&E for the tax LL&E

paid on its behalf. LL&E then filed this suit in the

United States District Court for the Eastern District

of Louisiana. The district court concluded that the

5Section 40-17-32 provides in part: The excise tax imposed by 40-17-

31 shall be collected by persons, as defined in this article, storing

gasoline or distributing the same ... provided, that receipts by any

licensed distributors ... shall be treated on the same basis as gasoline

received or distributed by such licensed distributors in interestate

commerce.

ALA. CODE § 40-17-32 (1975).

‘Prior to delivery, Pilot contacted the Alabama Department of

Revenue to obtain information regarding the requirements imposed by

Alabama law which would apply to the sale. Pilot obtained a bond as

required by the Revenue Department on December 3, 1986. Pilot also

applied to obtain a gasoline license per the Department’s directives.

However, Pilot was later informed by the Department that the license

application was defective. Pilot filed a corrected application and

received its license on December 15, 1986.

Alabama law provides that sales between licensed distributors are

exempt from the fuel excise tax. LL&E was licensed by the state of

Alabama to sell and export gasoline products from Alabama.

Had Pilot obtained its license before or on the date of the sale in

question, the issue of the constitutionality of the state fuel tax would not

be before us today.

purchaser bears ultimate responsibility for the pay-

ment of taxes under both Alabama law and the

LL&E-Pilot contract. The court further held that

Pilot should first exhaust its administrative remedies

by paying the tax and petitioning the Alabama

Department of Revenue, and then file suit against the

state of Alabama to challenge the constitutionality of

the tax. Pilot appeals.

District Court Had Jurisdiction to

Examine Constitutionality

In a strange twist, considering that the constitu-

tionality of state laws or practices is a major part of the

grist of federal district courts, the district court

directed Pilot to pursue administrative remedies in

the state of Alabama before raising any constitutional

defense in the federal courts. Yet, the Alabama Code

allows refunds only to taxpayers who pay taxes

directly to the Alabama Department of Revenue.’

Therefore, because Pilot does not pay the tax to the

state of Alabama, it has nostanding to pursue a refund

of the tax paid by LL&E supposedly on Pilot’s behalf.

In addition, LL&E claims that the district court

was barred from deciding the tax’s constitutionality

based on the Tax Injunction Act.2 The Act forbids

federal district courts from “enjoining, suspending or

restraining the assessment, levy or collection” of any

’The Alabama Code provides: Where any taxpayer in the payment of

taxes or licenses which are paid directly to the Department of Revenue,

by a mistake of fact or law has paid an amount in excess of the amount

due or has made an erroneous payment ... the treasurer is authorized to

pay such warrant for the amount of such overpayments or erroneous

payment.

ALA. CODE § 401-34 (1975).

®Tax Injunction Act, 28 U.S.C. § 1341.

state tax when that state offers a plain, efficient, and

speedy remedy. The Tax Injunction Act does not bar

federal court jurisdiction in this case, however,

because this suit was filed to collect a state tax, rather

than enjoin, suspend, or restrain the collection of

taxes.? Furthermore, LL&E chose to bring this suit in

the Eastern District Court of Louisiana; and it can not

now limit Pilot’s defenses.

Even if Pilot had alternative adequate means to

challenge the constitutionality of the Alabama tax,

this case should be viewed primarily as a dispute

between the state of Alabama and Pilot. Pursuant to

section 40-17-31(e) of the Alabama Code, the retailer

or distributor is required to add the amount of the

excise tax to the price of the fuel.!° Although the code

places responsibility for the collection of taxes on the

delivering party, it specifically provides that the tax

‘is in fact a levy on the consumer or user with

distributor ... acting merely as an agent of the state for

the collection and payment of the tax to the state.”

Because LL&E acts as a mere agent for the state in the

ce@llection of taxes, this suit, in effect, is between the

state of Alabama and Pilot Petroleum.

Down to Basics:

Constitutionality of the Tax

The LL&E-Pilot contract clearly places responsi-

_ bility for payment of the tax on Pilot. Section 5 of the

General Provisions of the contract mandates that the

receiving party [Pilot reimburse the delivering party

9See Hargrave v. McKinney, 413 F.2d 320 (5th Cir. 1969).

WALA. CODE § 40-17-31(e) (1975).

11],

[LL&E] for all taxes “legally required to be paid”,

which are paid by the delivering party on behalf of the

receiving party. Although it was probably never in

the contemplation of these parties that they were

facing or were even close to a constitutional problem

which goes back to the very formation of this new

nation, the contract provides that Pilot must pay only

taxes that are “legally required to be paid”. This

language necessarily calls into question the con-

stitutionality of the Alabama tax.

A. Evolution of the

Import-Export Clause

The Import-Export Clause of the United States

Constititon states that “No State shall, without the

Consent of the Congress, lay any Imposts or Duties on

Imports or Exports.”

Pilot relies on Richfield Oil Corp. v. State Bd. of

Equalization, 329 U.S. 69, 67 S.Ct. 156, 91 L.Ed. 80

(1946), to support its claim that the Alabama excise

tax is a tax on exports and therefore violates the

Import-Export Clause. In Richfield, the Richfield Oil

Company entered into a contract with the New

Zealand government for the sale of oil f.o.b. Los

Angeles. Richfield delivered the oil by pipeline from

its refinery in California to its storage tanks at the

harbor where the naval tanker, R.F.A. Nucula,

received the oil from the shore tanks into its ship

tanks. The oil was then transported to Auckland, New

Zealand. No portion of the oil was used in the United

States. California assessed a retail sales tax against

Richfield measured by the gross receipts of the

transaction. The Court reasoned that when the oil was

pumped into the ship’s tanks, the movement of the oi]

abroad had commenced since the parties were certain

that the oil would not be diverted for domestic use.

Thus, the Court concluded that the sales tax con-

stituted an impost upon an export within the meaning

of the Import-Export Clause of the United States

Constitution.

Richfield has never been overruled by the United

States Supreme Court. However, in Michelin Tire

Corp. v. Wages, 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d

495 (1976), the Court initiated a new approach to the

Import-Export Clause. In Michelin,the Georgia tax

commissioner assessed ad valorem property taxes

against tires and tubes imported by Michelin from

.France and Nova Scotia. Instead of attempting to

determine whether the tires and tubes were in fact

imports under the Import-Export Clause, the Miche-

lin court focused on the nature of the Georgia tax.

Specifically, the Court outlined three policies that

were to be served by the Clause.

First, the Federal Government must speak with

one voice when regulating commercial relations with

foreign governments. For example, tariffs which

might affect foreign relations could not be imple-

mented by the States consistently with that exclusive

power. Second, import revenues were to be the major

source of revenue for the Federal Government and

should not be diverted to the States. Finally, harmony

among the States might be disturbed unless seaboard

States, with their crucial ports of entry, were pro-

hibited from levying taxes on citizens of other States

by taxing goods merely flowing through their ports to

the other States not situated as favorably geograph-

ically. Michelin, 423 U.S. at 285-86, 96 S.Ct. at 540-41,

46 L.Ed.2d at 503.

The Court decided that the ad valorem property

tax did not offend any of these policies. First, the tax

had no impact upon the federal government’s exclu-

sive regulation of foreign commerce because, “by

definition, such a tax does not fall on imports as such

because of their place of origin.” It could not be used to

create special protective tariffs or preferences for

certain domestic goods; nor could it be applied

selectively to encourage or discourage importation in

a manner inconsistent with federal regulation.

Second, the tax did not deprive the federal govern-

ment of any revenues to which it was entitled.

Property taxes are taxes by which a state apportions

the cost of police and fire protection, which was

supplied by the local government. Importers should

bear these costs, as well. Although the tax may havea

minimal effect on the cost of imports to consumers, the

court recognized that the resulting variance in

demand for imports would not be large enough to

significantly diminish the number of imports upon

which the federal government could levy duties so as

not to indirectly deprive it of income. Finally,

harmony among the states was not disturbed by such

a property tax because inland states would be paying

only for protective services rendered by coastal states.

Because prohibition of a nondiscriminatory ad

valorem property tax did not further any of these

objectives of the Import-Export Clause, the Court held

that the Georgia tax was not an “impost” or “duty”

within the meaning of the Import-Export Clause.

However, the Court limited its holding to taxes levied

on goods no longer in transit. Michelin, 423 U.S. at

302, 96 S.Ct. at 548, 46 L.Ed.2d at 512. It concluded

that nothing in the history of the Clause “even remotely

ee ee eee ae ne ee eee Oeaeeeeerreeeoeeeereerrrrr

suggests that a nondiscriminatory ad valorem

property tax which is also imposed on imported goods

that are no longer in import transit was the type of tax

that was regarded as objectionable by the Framers.”

Michelin, 423 U.S. at 286, 96 S.Ct. at 541, 46 L.Ed.2d

at 503. Therefore, the Michelin court left open the

question of whether a tax on goods in transit would

constitute an “impost” or “duty” under the Import-

Export Clause.

In Washington Revenue Dep't v. Stevedoring Ass'n,

435 U.S. 734, 98 S.Ct. 1388, 55 L.Ed. 2d 682 (1978), the

state of Washington applied a tax to income received

from stevedoring” activities. Using the Michelin

three-prong policy test, the Court found that none of

the policies were threatened by Washington’s business

tax. 1) The Federal Governement’s ability to conduct

foreign policy was not affected. Because all businesses

were taxed, special protective tariffs would not be

created. Additionally, a foreign business or vessel was

not being taxed. 2) Federal import revenues were not

affected for the same reasons as in Michelin. In fact,

the tax’s effect on the demand for imported goods was

even less substantial than as in Michelin because

Washington taxed only the value of the loading and

unloading of the goods, not the value of the goods

themselves. 3) Since the tax only compensated the

government for providing protective services, it would

not upset harmony among the states.

Although the Court found that the Washington tax

did not disturb any of the three policies of the Clause, it

still had to address the fact that the stevedoring

'2Stevedoring is the business of loading and unloading cargo from

ships.

activities were taxed while the exported and imported

goods were in transit. Thus, the U.S. Supreme Court

was faced with the question of whether a business and

occupation tax on activities related to in-transit

imports and exports violates the Import-Export

Clause. Because of the indirect nature of the tax, i.e.,

the tax did not relate to the value of the goods, the

Court refused to discard the Michelin approach

merely because the goods were in transit. The Court

expressly refused to reach the issue now before us

today: whether a state may directly tax imports or

exports that are in transit. Washington Stevedoring,

435 U.S. at 757 n. 23, 98 S.Ct. at 1403 n. 23, 55 L.Ed.2d

at 702 n. 23.

B. In-Transit Exports Are Still

Within the Clause

It is true that the Import-Export Clause no longer

forbids states from taxing all imports and exports

without the consent of Congress. The broad prohibi-

tion against any and all taxation upon imports and

exports has been discarded. However, we believe,

consistent with the contemporary view of the Supreme

Court, that the Import-Export Clause was specifically.

intended to prevent the type of taxation involved in

this case.

One of the primary reasons for calling the Constitu-

tional Convention of 1787 was to prevent states for

inhibiting commerce among themselves and with

foreign countries. Before the Convention, coastal

states taxed imported goods that were destined for

inland states. Inlands states, or states having no

convenient ports, were subject to unfair taxation by

their neighboring states. As one of the serious con-

10a

troversies before them, the Framers sought to alle-

viate the problem with the enactment of the Com-

merce and Import-Export Clause. See Michelin, 423

U.S. at 283-84, 96 S.Ct. at 539-40, 46 L.Ed.2d at 502

(quoting 3 M. Farrand, The Records of the Federal

Convention of 1787 542 (1911)). Thus, the policies

animating both Clauses are the same.

Where the protections of the Commerce Clause

have been invoked, the Supreme Court has stated that

“laws which concern the exterior relations of the

United States with other nations and governments are

general in their nature, and should proceed exclusive-

ly from the legislative authority of the nation.”

Bowman v. Chicago & N.R. Co., 125 U.S. 465, 482, 8

S.Ct. 689, 697, 31 L.Ed. 700, 706 (1888). Stated another

: way, the United States Government must speak with

one voice when regulating commercial relations with

foreign governments. Michelin, 423 U.S. at 285, 96

: S.Ct. at 540, 46 L.Ed.2d at 503. To permit any and

every state to impose a direct tax on goods in the

) export stream would circumvent this objective.

In this case, the jet fuel was delivered aboard a

foreign vessel which was bound for Nova Scotia,

Canada. No question existed about its destination.

Alabama’s excise tax on fuel adversely affects United

States’ foreign commerce with respect to this very

important commodity. The foreign shipment of oil is

accomplished primarily through the use of oil tankers.

This type of tax discourages foreign parties, who

purchase oil from U.S. companies and refineries,

from using U.S. ports to transport fuel from the

United States into foreign countries. Additionally,

coastal states which possess ports like the Port of

lla

ee naneell

Mobile, Alabama derive significant amounts of reve-

nue from this tax, since they are able to tax the large

quantities of fuel that is pumped from their port into

the tankers.

The Alabama excise fuel tax is not 2.n indirect tax

like the taxes levied in Michelin and Washington

Stevedoring: it is not an assessment imposed on stored

inventory which includes imported or exported prod-

ucts, nor is it a tax on a business or occupation which is

related to the importation or exportation process.

Rather, the Alabama fuel tax in this case is a tax that

is levied on the goods themselves while they are in

transit. As in Richfield, the fuel was delivered f.o.b.

into the tanks of a foreign flagged tanker for export to

a foreign country. Without contradiction, the oil was

in transit. It was the subject of foreign export at the

time of taxation.

We conclude that the Alabama fuel tax is an impost

upon an export within the meaning of the Import-

Export Clause, and is therefore unconstitutional. The

decision of the district court in in error.

REVERSED.

E. GRADY JOLLY, Circuit Judge, dissenting:

With respect for the majority’s view, I dissent,

because, first, the contract in this case does not call

into question the constitutionality of Alabama’s jet

fuel tax. Second, even if we must consider the constitu-

tionality of this tax, a non-discriminatory property tax

that applies equally to sales, consumption and storage

of all jet fuel is plainly not prohibited by the constitu-

12a

tion’s Import-Export Clause simply because some of

the taxed fuel is exported.

The majority opinion summarily concludes that

the language of the contract at issue “necessarily calls

into question the constitutionality of the Alabama

tax.” The majority reads the provision “legally

required to be paid” to mean duly or properly imposed

in accordance with law. It reaches this interpretation

although admitting that “it was probably never in the

contemplation of these parties that they were facing or

were even close to a constitutional problem.” Slip op..,

3844, —. The phrase “legally required to be paid”

should be read as simply an awkward expression for

“payable by law.” This reading would effect the

parties’ stated intent to shift “product taxes, fees or

charges imposed [by government entities] on the

Delivering Party [LL&E]’ to the receiving party,

Pilot, without also passing on extra-legal charges

arbitrarily imposed by port authorities. Because the

jet fuel tax was required by a duly enacted law of the

state of Alabama, the contract clearly placed the cost

on Pilot. In short, the majority gives the contract an

artificial reading to reach the constitutional question,

which is contrary to the general proposition that we

should avoid constitutional issues when there are non-

constitutional grounds upon which the case can be

decided. Matter of Hipp, Inc., 895 F.2d 1503, 1509 (5th

Cir. 1990) (cases cited therein).

Even if the contract requires that we consider the

constitutionality of the tax, the majority erred in

concluding that “the Import-Export Clause was

specifically intended to prevent the type of taxation

13a

involved in this case.” Slip op., 3846, —. In reaching its

conclusion, the majority reviews the past and recent

history of the Clause and observes that the Supreme

Court has not explicitly addressed the Clause’s applica-

tion to direct taxes on goods “in transit.” The Court’s

recent decisions, however, make clear that even a tax

operating directly on goods “in transit” is not pro-

hibited if it is non-discriminatory and does not

frustrate the policies underlying the Clause. Ala-

bama’s tax is unquestionably non-discriminatory; it

applies equally to all fuel sold or handled for use by

anyone, domestically or for export. “Failure to assess

the tax would shift the tax burden from [the exporter ]

and the ultimate consumers of its ...products to the

local taxpayers of [Alabama ]}—a result completely at

odds with Michelin.” RJ. Reynolds Tobacco Co. v.

Durham County, N.C., 479 U.S. 130, 107 S.Ct. 499,

514, 93 L.Ed.2d 449 (1986) (nondiscriminatory ad

valorem tax that applied to imported tobacco not

prohibited by Clause because it “is nothing more than

a means ‘by which a State apportions the cost of such

services as police and fire protection among the

beneficiaries according to their respective wealth.””)

Id., citing Michelin, 423 U.S. 276, 287, 96 S.Ct. 535,

541, 46 L.Ed.2d 495 (1976).

Contrary to the majority’s conclusion, Alabama's

tax does not frustrate the three policies underlying the

Import-Export Clause: federal revenue collection,

unitary federal foreign economic policy and interstate

commercial harmony. There can be no interference

with federal revenue collection because the federal

government may not tax exports. U.S. Const., Art. I, §

9. Although all property or excise taxes that fall on

l4a

imports and exports in some sense affect foreign

economic policy,

it is obvious that such nondiscriminatory property

taxation can have no impact whatsoever on the

Federal Government’s exclusive regulation of

foreign commerce, probably the most important

purpose of the Clause’s prohibition. By definition,

such a tax does not fall on [exports]as such because

of their place of [destination]. It cannot be used to

create special protective tariffs or particular

preferences for certain domestic goods, and it

cannot be applied selectively to encourage or dis-

courage any [exportation ]in a manner inconsistent

with federal regulation.

Michelin Tire Corp. v. Wages, 423 U.S. 276, 286, 96

S.Ct. 535, 541, 46 L.Ed.2d 495 (1976).

Finally, although “allowance of nondiscriminatory

ad valorem property taxation may increase the cost of

goods purchased by ‘inland consumers ... such taxa-

tion is the quid pro quo for benefits actually conferred

by the taxing state.” Michelin, 423 U.S. at 288-89, 96

S.Ct. at 542. The majority is surely correct that most

oil exports are by tanker and that only coastal states

can tax this form of commerce; by the same token it is

only coastal states that bear the regulatory, admini-

strative and, increasingly, environmental, costs of this

commerce. The Framers did not intend such states to

bear all these costs, and this nondiscriminatory tax

imposed at the Mobile, Alabama port on fuel, which

happened to be exported, is not unconstitutional. I

therefore respectfully dissent.

15a

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

No. 88-945

SECTION “B”

This cause came on for hearing on a previous day on

the motion of plaintiff, the Louisiana Land & Explora-

tion Company (LL&E), for summary judgment, and

the motion of defendant, Pilot Petroleum Corporation

(Pilot), for summary judgment.

The Court, having heard the arguments of counsel

and having studied the legal memoranda submitted

by the parties, granted the motion of plaintiff, LL&E,

for summary judgment and denied the motion of

defendant, Pilot, for summary judgment. Upon

request of counsel for the defendant, the Court now

provides these written reasons.

REASONS

LL&E isa Maryland corporation with its principal

place of business in Orleans Parish, Louisiana. It is

engaged in the exploration, production, refining, and

marketing of hydrocarbons. Pilot is a Delaware cor-

poration, headquartered in California, and qualified

to do business in Louisiana, which purchases aviation

fuel.

Pilot contacted Karbon Corporation (Karbon), a

petroleum products broker, for purposes of purchas-

ing a quantity of jet fuel oil to be exported to ports on

the east coast of Canada. Karbon arranged the pur-

chase from LL&E for delivery Free On Board the

Liberian M/T MARY ANN at Mobile, Alabama.

LL&E had a gasoline license from the Alabama

Department of Revenue which permitted it to sell and

export gasoline products from Alabama.

Pilot, which had never made any purchases of

products in Alabama, contacted the Alabama State

Department of Revenue to inquire whether it had to

meet any requirements. Pilot was told that it should

obtain a gasoline license from that department. There-

after Pilot submitted the application and supporting

documents to the Alabama Department of Revenue.

On November 7, 1986 LL&E delivered on board

the Liberian flag M/T MARY ANN in the port of

Mobile, Alabama a quantity of jet fuel for delivery to

the east coast of Canada. Thereafter the MARY ANN

proceeded to Halifax, Nova Scotia where said cargo

was discharged and delivered.

Subsequent to the departure of the MARY ANN

for Canada, LL&E submitted to Pilot two invoices.

The first invoice was in the amount of $1,722,000 for

jet fuel and $50,400 for Alabama state tax, totalling

$1,772,400. The second invoice was in the amount of

$196,539 for jet fuel and $5,390.78 for Alabama state

tax, for a total of $201,929.78.

Pilot notified LL&E that Alabama state tax was

not chargeable against this consignment because it

was exported to a foreign country, and subtracted the

state tax from the two invoices. Pilot paid the invoices

in full, excluding the Alabama state tax.

After consultation with Marvin Schram, Revenue

Examiner of the Alabama Department of Revenue,

LL&E reported and paid the fuel taxes attributable to

these sales in connection with its November 1986

Aviation Fuels Excise Tax return. Mr. Schram

advised LL&E that Pilot had failed to obtain a bond

until December 3, 1986, and that Pilot’s license was

not actually issued until December 15, 1986. Mr.

Schram told LL&E that a license could operate

retroactively to the date of the bond, but not earlier.

+ LL&E filed a petition for refund with the Alabama

Department of Revenue on August 24, 1987. On

August 31, 1987 the Alabama Department of Revenue

notified LL&E that the petition was denied in full,

because Pilot had not been properly licensed in

Alabama as a distributor of gasoline at the time of the

sales. This notice of denial of request for refund

contained incorrect inforyoation. It stated that Pilot

“arranged for this fuel to be shipped to another state.”

On September 4, 1987 LL&E contacted Pilot to

advise that the petition for refund had been denied. By

letter dated September 10, 1987, Fred Smith, on

behalf of LL&E, transmitted to Pilot a copy of the

notice of denial of request for refund. Stapled to the

notice of denial enclosed in Mr. Smith’s letter was a

statement of appeal rights setting forth the procedures

for review of the denial. It stated that “[p]etitions for

refund may be reviewed by requesting a conference

with the examiner’s supervisor or field examiner’s

supervisor. If agreernent is not reached, an informal

hearing may be requested in Montgomery with the

Division’s Hearings Officer. Ii agreement is still not

reached, a request for a hearing before the Admini-

strative Law Judge may be requested within 15 days

of the Department’s written denial.”

Neither LL&E nor Pilot appealed the denial of the

request for a refund.

On January 19, 1988 LL&E repeated its demand

upon Pilot for reimbursement of the taxes which

LL&E had paid to the Alabama Department of

Revenue. Pilot did not reimburse LL&E for the taxes.

LL&E then filed this suit.

The contract documents signed by Pilot and LL&E

set forth the mutual obligations of Pilot and LL&E

with respect to gas sales. Section 5 of the General

Provisions deals with taxes:

5. TAXES:... Should any product taxes, fees or

charges be imposed on the Delivering Party by any

federal, state, or municipal agency as a direct

result of this sale or the manufacture, storage,

delivery, receipt, or inspection thereof, the Receiv-

ing Party will reimburse the Delivering Party for

all such taxes, duties, or fees legally required to be

paid and paid in respect of the product delivered by

it. Should the Receiving Part fail to reimburse

Delivering Party, Delivering Party will be entitled

to collect reimbursement, damages incurred as a

result of non-payment, and reasonable attorney’s

fees incurred in collection thereof from the Receiv-

ing Party.

Under Alabama law, LL&E as the delivering party is

liable to the Alabama Department of Revenue for the

collection of excise taxes from Pilot. Ala. Code §40-17-

31(1979). LL&E was “acting merely as an agent of the

state for the collection and payment of the tax to the

state.” §40-17-31(e). The statute reads that it is “the

purpose and intent of this provision that the tax levied

is in fact a levy on the consumer or user....” Id.

(Emphasis added).

The parties are in agreement that the bond and

license were not issued by the State of Alabama until

after the sale was made. If the bond and license had

been issued timely, that is before the sale, there is no

dispute that no tax would have been due to the State of

Alabama. However, Pilot is now arguing that Ala-

bama had no right to levy the sales tax on its cargo at

all because the cargo was on a foreign vessel destined

for a foreign port.

Pilot refers this Court to 46 U.S.C. §883 which

prohibits the interstate carriage of goods on foreign

flag vessels on penalty of forfeiture of all of the cargo

carried on the vessel. Even had LL&E not been

advised in advance that this cargo was for export toa

foreign country, Pilot argues that the fact that it was

loaded aboard a foreign flag vessel was notice to the

world that the product had to go to a foreign country

and not to another state.

With respect to goods or products imported to or

exported from states of the United States, the U.S.

Constitution, §10, Clause 2, provides:

No state shall, without the Consent of the Congress,

lay any Imposts or Duties on Imports or Exports,

except what may be absolutely necessary for execut-

ing its inspection Laws: and the net Produce of all

Duties and Imposts, laid by any State on Imports or

Exports shall be for the Use of the Treasury of the

United States; and all such Laws shall be subject to

the Revision and Control of the Congress.

This Court has before it the question of who owes

the tax to the State of Alabama, LL&E or Pilot.

According to both the contract executed by the parties

and the Alabama statutes, the purchaser bears ulti-

mate responsibility for the payment of any sales tax.

The seller is only to act as the agent of the state in the

collection of the taxes.

As between LL&E and Pilot, Pilot owes the taxes to

the State of Alabama. Pilot should take up any

constitutional arguments with the State of Alabama

through the proper procedural channels. After these

administrative remedies are exhausted is the proper

time to file suit against the State of Alabama challeng-

ing the constitutionality of the Alabama tax.

Accordingly,

IT IS THE ORDER OF THE COURT that there

be judgment in favor of the plaintiff, the Louisiana

Land and Exploration Company, and against the

defendant, Pilot Petroleum Corporation, in the

amount of $55,790.78, together with interest thereon

at the rate of nine and three/quarters (9.75%) percent

per annum from September 10, 1987 until paid, and

reasonable attorneys’ fees incurred in collection of the

foregoing.

New Orleans, Louisiana, this 29th day of August,

1988.

/s/Fredrick J.R. Heebe

FREDRICK J.R. HEEBE

UNITED STATES

DISTRICT JUDGE

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

No. 88-945

SECTION “B”

JUDGMENT

This cause came on for hearing on a previous day on

the motion of plaintiff, the Louisiana Land & Explora-

tion Company, for summary judgment and the Court

having granted same; accordingly,

IT IS ORDERED, ADJUDGED AND DE-

CREED that there be judgment in favor of plaintiff,

the Lousiana Land and Exploration Company, and

against the defendant, Pilot Petroleum Corporation,

in the amount of $55,790.78, together with interest

thereon at the rate of nine and three/quarters (9.75%)

percent per annum from September 10, 1987 until

paid, and reasonable attorney’s fees incurred in collec-

tion of the foregoing.

Dated at New Orleans, Louisiana on this 31st day of

August 1988.

/s/Fredrick J.R. Heebe

FREDRICK J.R HEEBE

UNITED STATES

DISTRICT JUDGE

APPENDIX C

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTiON

No. 88-945

EXCEPTIVE ALLEGATION AND ANSWER

The Exceptive Allegation and Answer of Pilot

‘Petroleum Corporation to the Complaint of Louisiana

Land and Exploration Company, with respect

represents:

EXCEPTIVE ALLEGATION

The Court is without personal jurisdiction over

Defendant or subject matter jurisdiction over the

claims asserted, and the Complaint should be dis-

missed for lack of jurisdiction and service upon Pilot

Petroleum Corporation should be quashed as invalid.

FIRST DEFENSE

All allegations and claims asserted by Plaintiff in

this action arise out of transactions in the State of

Alabama and are subject to law of the State of

Alabama. Accordingly, this is an improper or in-

convenient forum and this action should be dismissed,

or alternatively transferred to the U.S. District Court

in Alabama.

SECOND DEFENSE

Reserving the foregoing jurisdictional exceptions

and defenses, Defendant answers the allegations of

fact of the articles of the Complaint as foliows:

Admits Article 1.

Admits Defendant is a Delaware corporation

having its principal place of business in California and

denies the remaining allegations of Article 2.

Denies Article 3.

Denies Article 4except it admits that the exhibit is

authentic and the best evidence of its contents.

Denies Article 5except it admits that the exhibit is

authentic and contains the best evidence of its

contents.

Denies Article 6 except it admits that the exhibits

referred to are authentic and are the best evidence of

their contents.

ts A

Denies Article 7 and the validity of Exhibit E.

Denies Article 8.

Denies Article 9 and applicability of Exhibit E to

the transaction which is the subject of this suit.

10.

Admits that said jet fuel was delivered FOB the

M/V MARYANNE, a Liberian flag vessel, and denies

that said transaction gave rise to any liability for

payment of taxes to the State of Alabama by

Defendant or Plaintiff.

11.

Denies Article 11.

12.

Admits the authenticity of Exhibit F and that it

was sent to Defendant, but denies the validity of

Exhibit F or the accuracy of its contents.

13.

Admits that Defendant received Exhibit G, but

denies the validity of Exhibit G or theaccuracy of its

contents.

14.

Denies Article 14and further avers that if Plaintiff

paid said taxes as alleged, Plaintiff voluntarily paid

them for Plaintiff's own account, and Plaintiff is in no

way entitled to claim reimbursement of said taxes

from Defendant.

15.

Defendant avers that it is a properly licensed and

bonded distributor of gasoline with the Alabama

Department of Revenue and denies the remainder of

Article 15.

16.

Denies Article 16.

17.

Denies Article 17 for lack of sufficient information

to justify a belief.

18.

Admits that demand was made, but denies the

validity or enforceability of any claims or demands

made therein.

19.

Defendant avers that it does not owe the taxes

claimed and therefore had no reason to pay or

reimburse same to Plaintiff.

20.

Denies Article 20.

WHEREFORE, Petitioner prays that service on it

be quashed and dismissed for lack of personal and

subject matter jurisdiction; alternatively that the

Complaint be transferred to the U.S. District Court in

Alabama. If this Honorable Court retains jurisdiction,

Defendant prays that after due proceedings had,

there be judgment against Plaintiff and in favor of

Defendant, dismissing the Complaint at Plaintiff's

costs, and for all general and equitable relief.

/s/Robert B. Deane

ROBERT B. DEANE

CHAFFE, MCCALL,

PHILLIPS, TOLER

& SARPY

CERTIFICATE OF SERVICE

I certify that a copy of the above and foregoing

pleading has been served upon counsel of record by

hand and/or U.S. Mail, postage prepaid and properly

addressed, this 2nd day of May, 19838.

/s/Robert B. Deane

ROBERT B. DEANE

CHAFFE, MCCALL,

PHILLIPS, TOLER

& SARPY

APPENDIX D

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

No. 88-945

MOTION OF PLAINTIFF,

THE LOUISIANA LAND AND EXPLORATION

COMPANY,

FOR SUMMARY JUDGMENT

Plaintiff, The Louisiana Land and Exploration

Company, through undersigned counsel, pursuant to

Rule 56 of the Federal Rules of Civil Procedure,

respectfully moves for summary judgment in its favor

and against defendant, Pilot Petroleum Corporation.

As set forth in the accompanying memorandum, the

affidavits of Bob Cooper and Fred Smith, and

attached exhibits, there is no genuine dispute as to any

material fact.

/s/John F. Landrum

JOHN F. LANDRUM

TRIAL COUNSEL

CERTIFICATE

I hereby certify that a copy of the foregoing Motion

for Summary Judgment Memorandum in Support,

Notice of Motion, and Statement of Uncontested

Material Facts, have been served upon all counsel of

record by hand delivery or by depositing same in the

United States mail, postage prepaid and properly

addressed, this 17th day of July, 1988.

/s/John F. Landrum

JOHN F. LANDRUM

TRIAL COUNSEL

STATEMENT OF UNCONTESTED MATERIAL FACTS

SUBMITTED BY PLAINTIFF,

THE LOUISIANA LAND AND EXPLORATION

COMPANY

Plaintiff, The Louisiana Land and Exploration

Company (“LL&E”), pursuant to Rule 3.9 of the Local

Rules for the United States District Court, Eastern

District of Louisiana, submits the following Statement

of Uncontested Material Facts.

On November 4, 1986, Karbon Corporation, as

broker, transmitted to LL&E, in New Orleans,

Louisiana, a telex confirming the sale by LL&E to

Pilot of approximately One Hundred Thousand

(100,000) barrels of jet fuel oil at the price of .4100

cents per gallon, FOB Mobile, Alabama.

On November 7, 1986, Karbon Corporation as

broker transmitted to LL&E in New Orleans,

Louisiana, a second telex confirming the sale by

LL&E to Pilot of approximately Twelve Thousand

(12,000) barrels of jet fuel oil at the price of .4375cents

per gallon, FOB Mobile, Alabama.

LL&E also sent to Pilot telex copies of formal

agreenients pertaining to the sale of jet fuel called for

by the telexes above described. Both formal agree-

ments incorporate by reference the terms of LL&E’s

standard General Provisions. Through the course of

prior dealings between LL&E and Pilot, Pilot also had

possession of and familiarity with the terms of LL&E’s

standard General Provisions before entering the sales

agreements, and before accepting the jet fuel from

LL&E.

The General Provisions provide in pertinent part

as follows:

5. TAXES: ... Should any product taxes, fees or

charges be imposed on the Delivering Party by any

federal, state, or municipal agency as a direct

result of this sale or the manufacture, storage,

delivery, receipt, or inspection thereof, the Receiv-

ing Party will reimburse the Delivering Party for

all such taxes, duties, or fees legally required to be

paid and paid in respect of the product delivered by

it. Should the Receiving Party fail to reimburse

Delivering Party, Delivering Party will be entitled

to collect reimbursement, damages incurred as a

result of non-payment, and reasonable attorney’s

fees incurred in collection thereof from the Receiv-

ing Party.

As called for in the telexes, and in the correspond-

ing formal agreements, on or about November 9, 1986,

LL&E delivered the jet fuel oil at the Port of Mobile,

FOB the MARYANNE, a tanker flying the Liberian.

flag. Pilot accepted the jet fuel so delivered, without

objection.

LL&E has performed all of its obligations under

the jet fuel sales agreements.

On November 13, 1986, LL&E issued to Pilot an

invoice in the amount of $201,929.78, representing

$196,539.00 due for jet fuel called for in the November

4, 1986 telex, together with Alabama jet fuel tax in the

amount of $5,390.78.

On November 21, 1986, LL&E issued to Pilot an

invoice in the amount of $1,772,400.00, representing

$1,722,000.00 due for jet fuel called for in the Novem-

ber 7, 1986 telex, together with Alabama jet fuel tax in

the amount of $50,400.00.

Pilot paid the purchase price of the jet fuel, but did

not pay LL&E the Alabama jet fuel taxes. Pilot

represented to LL&E that Pilot was properly licensed

and bonded as a distributor of gasoline with the

Alabama Department of Revenue at the time Pilot

purchased the jet fuel in question. Pilot represented

that it was accordingly exempt from payment of the

fuel taxes under the Alabama state law exemption for

sales in interestate commerce to licensed distributors.

10.

In compliance with Alabama law, LL&E had

reported and paid the fuel taxes in connection with its

November 1986 Aviation Fuels Excise Tax return.

11.

LL&E filed a petition for refund with the Alabama

Department of Revenue on August 24, 1987.

12.

On August 31, 1987, the Alabama Department of

Revenue notified LL&E that the petition for refund

, was denied in full.

13.

Fred Smith, on behalf of LL&E, called Ed Wilson,

controller for Pilot, on September 4, 1987, to advise

that the Petition for Refund had been denied.

14.

By letter dated September 10, 1987, Mr. Smith

transmitted a copy of the Notice of Denial of Request

for Refund to Pilot. Stapled to the Notice of Denial

enclosed in Mr. Smith’s letter was a statement of

Appeal Rights clearly setting forth the procedures for

review of the denial.

15.

On January 19, 1988, LL&E repeated its demand

upon Pilot for reimbursement of the taxes which

LL&E had paid to the Alabama Department of

Revenue.

16.

Despite the lapse of several months, Pilot has never

reimbursed LL&E for the subject taxes.

/s/John F. Landrum

JOHN F. LANDRUM

TRIAL COUNSEL

MEMORANDUM IN SUPPORT OF

MOTION FOR SUMMARY JUDGMENT

Plaintiff, The Lousiana Land and Exploration

Company (“LL&E”) has sued defendant, Pilot

Petroleum Corporation (“Pilot”) for reimbursement of

jet fuel excise tax which plaintiff paid to the Alabama

Department of Revenue. LL&E also seeks interest

and attorneys’ fees.

STATEMENT OF FACTS

LL&E isa Maryland corporation with its principal

place of business in Orleans Parish, Louisiana, and

engaged in the exploration, production, refining and

marketing of hydrocarbons. Pilot is a Delaware

corporation, headquartered in California, and quali-

fied to do business in Louisiana, which purchases

aviation fuel.

As set forth in the Affidavits of Bob Cooper and the

exhibits identified in the affidavit, LL&E entered into

two agreements to sell jet fuel to Pilot and delivered

the jet fuel on or about November 9, 1987 in Mobile,

Alabama. At issue is Pilot’s failure to pay to LL&E the

Alabama jet fuel excise taxes of $55,790.78 attribut-

able to the two sales.

As set forth in the Affidavit of Fred Smith and the

exhibits identified therein, in compliance with Ala-

bama law, LL&E had reported and paid the fuel taxes

attributable to these sales in connection with its

November 1986 Aviation Fuels Excise Tax return.

When LL&E invoiced Pilot for the fuel sales, Pilot

represented and warranted to LL&E that Pilot was

properly licensed and bonded as a distributor of

gasoline with the Alabama Department of Revenue at

the time Pilot purchased the jet fuel, and accordingly

exempt from payment of the fuel taxes under the

Alabama state law exemption for sales in interestate

commerce to licensed distributors.

LL&E accordingly filed a petition for refund with

the Alabama Department of Revenue on August 24,

1987. On August 31, 1987, the Alabama Department

of Revenue notified LL&E that the petition for refund

was denied in full. Contrary to Pilot’s representations,

Pilot had not been properly licensed in Alabama as a

distributor of gasoline at the time of the sales, and the

fuel sales were subject to the taxes.

Fred Smith, on behalf of LL&E, called Ed Wilson,

controller for Pilot, on September 4, 1987, to advise

that the Petition for Refund had been denied. By letter

dated September 10, 1987, Mr. Smith transmitted to

Pilot a copy of the Notice of Denial of Request for

Refund. Stapled to the Notice of Denial enclosed in

Mr. Smith’s letter was a statement of Appeal Rights

clearly setting forth the procedures for review of the

denial.

On January 19, 1988, LL&E repeated its demand

upon Pilot for reimbursement of the taxes which

LL&E had paid to the Alabama Department of

Revenue. Despite the lapse of several months, Pilot

has never reimbursed LL&E. LL&E accordingly

filed this suit.

RESPONSIVE PLEADINGS OF PILOT

Pilot entered an appearance and filed an “Excep-

tive Allegation and Answer.” The “Exceptive Allega-

tion” contested jurisdiction and service. Pilot also

asserted in its First Defense that the Eastern District

of Louisiana is an inconvient forum and, without filing

a motion of any kind, requested a transfer to the

United States District Court in Alabama. See “Excep-

tive Allegation and Answer,” p. i.

On the merits, Pilot denied the “validity” of Exhibit

E. Pilot asserted that LL&E “voluntarily” paid the

taxes. Pilot also asserted that Pilot is a properly

licensed and bonded distributor of gasoline with the

Alabama Department of Revenue. (Pilot did not

assert that it was properly licensed and bonded at the

time of the fuel sales.)

ARGUMENT

A. This Court has Personal Jursidiction Over

Pilot.

_According to the records of the Louisiana Secretary

of State, Pilot is qualified to do business in Louisiana.

It maintains an office at the Maritime Building, Suite

700, New Orleans, Louisiana 70130. Its registered

agent for service of process is the Prentice-Hall

Cerporation System, 1006 Hibernia Bank Building,

New Orleans, Louisiana 70112. A copy of the certifi-

cate from the Louisiana Secretary of State is attached

hereto as Exhibit K. Accordingly, Pilot is subject to

the jurisdiction of this Court. L.S.A.-R.S. 12:306

states:

Effect of certificate of authority

A foreign corporation which before

January 1, 1969 has received a certificate of

authority which is still valid, or which shall

on or after January 1, 1969 receive a certifi-

cate of authority, shall, until a certificate of

revocation or of withdrawal shall have been

issued as provided in this Chapter:

(1) Be authorized to transact business in

this state, subject to such limitations as may

be recited in the certificate of authority;

(2) Enjoy the same, but no greater, rights

and privileges as a business or nonprofit

corporation organized under the laws of this

state to transact the business which such

foreign corporation is authorized to transact

in this state; and

(3) Except as in this Chapter otherwise

provided, be subject to the same duties,

restrictions, penalties and liabilities imposed

on or after January 1, 1969 upon a business or

nonprofit corporation of like character organ-

ized under the laws of this state.

This statute gives Pilot the same rights, privileges and

liabilities as a Louisiana corporation, including amen-

ability to suit in Louisiana.

Pilot became subject to this Court’s jurisdiction

when service was made upon Pilot’s registered agent

in New Orleans according to the requirements of law.

Compare Exhibit K and Return of Process Server,

attached as Exhibit L. Pilot’s Exceptive Allegation is

not well grounded in fact and must have been filed to

cause unnecessary delay and needless increase in the

cost of this litigation.

B. Pilot Owes LL&E the Amount Sought in the

Complaint.

After the exchange of telexes confirming the sales

contracts (Exhibits A and B), LL&E sent to Pilot

formal sales agreements (Exhibits C and D). These

formal agreements incorporate by reference LL&E’s

standard General Provisions (Exhibit E). The contract

documents attached as Exhibit A through E, and

authenticated by the Affidavit of Bob Cooper, un-

ambiguously set forth the mutal obligations of LL&E

and Pilot with respect to the subject gas sales. Section

5of the General Provisions clearly makes Pilot respon-

sible to LL&E for the excise taxes sued upon:

5. TAXES:... Should any product taxes, fees or

charges be imposed on the Delivering Party by any

federal, state, or municipal agency as a direct

result of this sale or the manufacture, storage,

delivery, receipt, or inspection thereof, the Receiv-

ing Party will reimburse the Delivering Party for

all such taxes, duties, or fees legally required to be

paid and paid in respect of the product delivered by

it. Should the Receiving Party fail to reimburse

Delivering Party, Delivering Party will be entitled

to collect reimbursement, damages incurred as a

result of non-payment, and reasonable attorney’s

10d

fees incurred in collection thereof from the

Receiving Party.

Even if Section 5 of the General Provisions did not

clearly control, LL&E would be entitled to recover

from Pilot. Under Alabama law, LL&E as the deliver-

ing party is liable to the Alabama Department of

Revenue for the collection of excise taxes from Pilot.

Ala. Code §40-17-31 (1979). A copy of the Alabama

statute is attached. This statute refutes Pilot’s claim

that LL&E paid the fuel tax “voluntarily”. More

importantly, the Alabama statute defines LL&E’s

_ obligation as one to “collect.” The tax is levied by law

on Pilot. See §40-17-31(e). The language of the statute

clearly established LL&E’s right to reimbursement

from Pilot, independently of the General Provisions.

F ‘nally, Pilot’s assertion that it is properly licensed

and bonded in Alabama and exempt from the taxes is

meaningless because the question is whether Pilot

was properly licensed and bonded in November, 1986.

Pilot has not even asserted in this lawsuit that it was

licensed and bonded at that time.

Any contention that Pilot was properly licensed

and bonded at the pertinent time frame has been

formally rejected by the Alabama Department of

Revenue (Exhibit H). Pilot had every opportunity to

present its arguments to the Department of Revenue,

and to appeal the Department’s denial. Pilot failed to

avail itself of any such opportunity.

lid

C. LL&E is Entitled to Interest and Attorney's

Fees.

After the Alabama Department of Revenue noti-

fied LL&E that its Petition for Refund had been

denied, LL&E demanded reimbursement from Pilot

on September 10, 1987. Because Pilot's obligation was

to pay LL&E a sum certain, LL&E is entitled to legal

interest at the rate of twelve percent (12%) per annum

from September 10, 1987, to January 1, 1988, and

thereafter at the rate of twelve (12%) until paid.

La.C.C. Arts. 2000, 2924B(4).

Additionally, Pilot must pay LL&E’s attorneys’

fees. Section 5of the General Provision attached to the

- sales agreement (Exhibit E), quoted above, provides

that if Pilot fails to reimburse LL&E, LL&E will be

entitled to recover reasonable attorneys’ fees incurred

in collection.

Independently of the General Provisions, it is

apparent that some of all of Pilot’s defenses have been

asserted merely to delay collection, in violation of the

Federal Rules of Civil Procedure. LL&E accordingly

requests a hearing after the resolution of this motion,

so that LL&E may present evidence of the attorneys’

fees it has incurred.

D. This Case is Appropriate for Summary

Judgment.

Pursuant to Rule 56(c) of the Federal Rules of Civil

Procedure, the pleadings, Affidavits of Bob Cooper

and Fred Smith, and the Exhibits authenticated

thereby and attached hereto, show that there is no

genuine issue as to any material fact and that LL&E is

12d

C. LL&E is Entitled to Interest and Attorney’s

Fees. :

After the Alabama Department of Revenue noti-

fied LL&E that its Petition for Refund had been

denied, LL&E demanded reimbursement from Pilot

on September 10, 1987. Because Pilot’s obligation was

to pay LL&E asum certain, LL&E is entitled to legal

interest at the rate of twelve percent (12%) per annum

from September 10, 1987, to January 1, 1988, and

thereafter at the rate of twelve (12%) until paid.

La.C.C. Arts. 2000, 2924B(4).

Additionally, Pilot must pay LL&E’s attorneys’

_ fees. Section 5of the General Provision attached to the

sales agreement (Exhibit E), quoted above, provides

that if Pilot fails to reimburse LL&E, LL&E will be

entitled to recover reasonable attorneys’ fees incurred

in collection.

Independently of the General Provisions, it is

apparent that some of all of Pilot’s defenses have been

asserted merely to delay collection, in violation of the

Federal! Rules of Civil Procedure. LL&E accordingly

requests a hearing after the resolution of this motion,

so that LL&E may present evidence of the attorneys’

fees it has incurred.

D. This Case is Appropriate for Summary

Judgment.

Pursuant to Rule 56(c) of the Federal Rules of Civil

Procedure, the pleadings, Affidavits of Bob Cooper

and Fred Smith, and the Exhibits authenticated

thereby and attached hereto, show that there is no

genuine issue as to any material fact and that LL&E is

13d

entitled to judgment as a matter of law. Pilot can now

avoid summary judgment only by producing serious

evidence in support of its “exceptive allegations” and

puported defenses:

When the moving party has carried its

burden under Rule 56(c) its opponent must

do more than show that there is some meta-

physical doubt as to the material facts.

Matsushita Electrical Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356, 89

L.Ed.2d 538 (1986). In this respect, LL&E need not

produce evidence to negate every aspect of Pilot’s case:

Instead, as we have explained, the burden on

the moving party may be discharged by

“showing”—that is, by pointing out to the

District Court—that there is an absence of

evidence to support the non-moving party’s

case.

Celotex Corp. v. Catrett, 106 S.Ct. 2548, 2554, 91

L.Ed.2d 265 (1986). To date, Pilot has produced no

evidence whatsoever supporting any contention raised

in the Exceptive Allegations and Answer. Further

still is Pilot from producing evidence with sufficient

legal meaning to prevent summary judgment.

CONCLUSION

For these reasons, LL&E respectfully requests

entry of summary judgment as set forth in the

foregoing motion.

/s/John F. Landrum

JOHN F. LANDRUM

TRIAL COUNSEL

14d

APPENDIX E

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

No. 88-945

SECTION “B” (1)

MEMORANDUM IN OPPOSITION TO LL&E’S MOTION

FOR SUMMARY JUDGMENT AND IN SUPPORT

OF PILOTS MOTION FOR SUMMARY JUDGMENT

Pilot Petroleum Corp. (“Pilot”) respectfully sub-

mits that Louisiana Land and Exploration Company

(“LL&E”) has no cause or right of action against Pilot

for amounts erroneously paid by LL&E to the Ala-

bama Department of Revenue purporting to be state

tax imposed upon goods exported to a foreign country,

which payments were made by LL&E despite advices

_ by Pilot that said taxes were not due. The statements

of fact of Plaintiff and Defendant establish the

following.

Pilot contacted Karbon Corporation, a petroleum

products broker, for purposes of purchasing a quan-

tity of jet fuel oil to be exported to ports on the East

coast of Canada. Karbon Corporation arranged the

purchase from LL&E for delivery Free On Board the

Liberian M/T MARY ANN at Mobile, Alabama. (See

LL&E Exhibits A & B). LL&E had a gasoline license

from the Alabama Department of Revenue which

permitted it to sell and export gasoline products from

Alabama.

Pilot, which had never made any purchases of

products originating in Alabama, contacted the Ala-

bama State Department of Revenue to learn whether

it had to meet any requirements, and was told that it

should obtain a gasoline license from that department.

Pilot submitted the necessary applications for this

purpose and the license was approved, but apparently

it was not issued until after the export took place.

In the interim, Pilot arranged for the Liberian M/T

MARY ANN to receive said cargo at Mobile and

carry same to Canada. The MARY ANN presented

itself at Mobile where the cargo was delivered in

accordance with the terms of the purchase agreement,

Free on Board the M/V MARY ANN. According to

the terms of the contract and as a matter of fact, Pilot

did not take possession or ownership of the product

until it had passed from the shore hoses into the ship’s

manifold (pipe connection with several apertures,

valves and lines for distribution to the tanks of the

MARY ANN). The MARY ANN proceeded to

Halifax, Nova Scotia, where said consignment was

discharged and delivered (Bill of Lading, Ex. Pilot

It is possible that there were several misunder-

standings of fact giving rise to this suit, but they

should not militate against Pilot. First, there is a

serious question as to whether Pilot needed an Ala-

bama gasoline license to purchase from LL&E

gasoline for export to a foreign country. Second,

LL&E had absolutely no obligation to pay this tax to

the State of Alabama and did so contrary to advices of

Pilot. Third, the Alabama Department of Revenue

was apparently under the impression that this con-

signment was exported to another state within the

United States, not toa foreign country, and LL&E did

nothing to correct this mistake although it was patent-

ly obvious that the cargo was destined for a foreign

port. Having voluntarily and unnecessarily paid the

tax against Pilot’s advices, LL&E submitted a token

petition for refund to the Alabama Department of

Revenue which apparently did not recall that this

cargo was exported toa foreign country, and when the

Petition was denied, LL&E failed to follow up on its

appeal rights and now seeks to collect amounts equal

to the so called taxes from Pilot.

Anyone engaged in the commercial movement of

dry or bulk cargo on vessels, including petroleum

products, knows of the statutory prohibition against

interstate carriage of goods on foreign flag vessels on

penalty of forfeiture of all of cargo so carried on the

vessel, 46 U.S.C. §883. Even had LL&E not been

advised in advance that this cargo was for export toa

foreign country, the fact that it was loaded abeard a

foreign flag vessel was notice to the world that the

product had to go foreign.’

No merchandise shall be transported by water or land and water,

on penalty of forfeiture thereof, between points in the United States ...

either directly or via a foreign port, or for any part of the transportation

in any other vessel than a vessel built in an documented under the laws of

the United States and owned by ... citizens of the United States ...” 46

U.S.C. §883.

With respect to goods or products exported to or

from states of the United States, the U.S. Constitution,

Section 10, Clause 2, provides:

“No State shall, without the Consent of the

Congress, lay any Imposts or Duties on

Imports or Exports, except what may be

absolutely necessary for executing its inspec-

tion Laws: and the net Produce of all Duties

and Imposts, laid by any State on Imports or

Exports, shall be for the Use of the Treasury

of the United States; and all such Laws shall

be subject to the Revision and Control of the

Congress.”

This section has been interpreted and applied by

the U.S. Courts to mean exactly what it states.

Hamilton Mfg. Co. v. Massachusetts, 73 U.S. 632, 6

Wall, 18 L.Ed. 904 (1868); Kosydar v. National Cash

660 (1974). It has been specifically applied to petro-

leum products. Phipps v. Cleveland Refining Co., 43

S.Ct. 418, 261 U.S. 449, 67 L.Ed. 739 (1923).

Richfield Oil Corp. v. State Board of Equaliza-

tion, 329 U.S. 69, 67 S.Ct. 156, 160, 91 L.Ed. 80

involved the validity of a state tax measured by the

gross receipts derived from the sale [as in the instant

case] of oil and oil products in the state of California.

Richfield sold oil and oil products “F.O.B. Ship Los

Angeles” for export to New Zealand. California

claimed this to be an excise tax for the privilege of

conducting a retail business in California, and there-

fore not a tax on the sale, but a tax upon receipts from

the sale. The U.S. Supreme Court held that to the

extent that the sales tax was imposed upon goods

exported foreign or the price thereof, it constituted an

With respect to goods or products exported to or

from states of the United States, the U.S. Constitution,

Section 10, Clause 2, provides:

“No State shall, without the Consent of the

Congress, lay any Imposts or Duties on

Imports or Exports, except what may be

absolutely necessary for executing its inspec-

tion Laws: and the net Produce of all Duties

and Imposts, laid by any State on Imports or

Exports, shall be for the Use of the Treasury

of the United States; and all such Laws shall

be subject to the Revision and Control of the

Congress.”

This sectién has been interpreted and applied by

the U.S. Courts to mean exactly what it states.

Hamilton Mfg. Co. v. Massachusetts, 73 U.S. 632, 6

Wall, 18 L.Ed. 904 (1868); Kosydar v. National Cash

660 (1974). It has been specifically applied to petro-

leum products. Phipps v. Cleveland Refining Co., 43

S.Ct. 418, 261 U.S. 449, 67 L.Ed. 739 (1928).

Richfield Oil Corp. v. State Board of Equaliza-

tion, 329 U.S. 69, 67 S.Ct. 156, 160, 91 L.Ed. 80

involved the validity of a state tax measured by the

gross receipts derived from the sale [as in the instant

case] of oil and oil products in the state of California.

Richfield sold oil and oil products “F.O.B. Ship Los

Angeles” for export to New Zealand. California

claimed this to be an excise tax for the privilege of

conducting a retail business in California, and there-

fore not a tax on the sale, but a tax upon receipts from

the sale. The U.S. Supreme Court held that to the

extent that the sales tax was imposed upon goods

exported foreign or the price thereof, it constituted an

impost or duty on exports and violated the Import-

Export Clause of the Federal Constitution (Article 1,

§10, Clause 2).

In Richfield Oil Corp., supra the U.S. Supreme

Court dealt with numerous arguments by the state

that the consignment of oil was actually delivered

within territorial waters of California; that the type of

tax in question was not an impost or duty within the

meaning of §10, Clause 2; that the tax was not on an

export but a tax for the privilege of conducting

business, and so forth. The Court rejected the argu-

ments as subterfuge, holding that a tax on proceeds

from asale of goods purchased for thespecific purpose

of export, by any other name, whether sales tax,

license tax or occupation tax, was nevertheless an

unconstitutional taxation in violation of Article 10,

Clause 2, stating:

“The certainty that the goods are headed to

sea and that the process of exportation has

started may normally be best evidenced by

the fact that they have been delivered to a

common carrier for that purpose. But the

same degree of certainty may exist though no

common carrier is involved. The present case

is an excellent illustration. The foreign

purchaser furnished the ship to carry the oil

abroad. Delivery was made into the hold of

the vessel from the vendor’s tanks located at

the dock. That delivery marked the com-

mencement of the movement of the oil

abroad. It is true, as the Supreme Court of

California observed, that at the time of the

delivery the vessel was in California waters

and was not bound for its destination until it

started to move from the port. But when the

oil was pumped into the hold of the vessel, it

passed into the control of a foreign purchaser

and there was noting equivocal in the trans-

action which created even a probability that

the oil would be diverted to domestic use. It

would not be clearer that the oil had started

upon its export journey had it been delivered

to a common carrier at an inland point. The

means of shipment are unimportant so long

as the certainty of a foreign destination is

plain.

It seems clear under the decisions which we

have reviewed involving Article 1, §9, Clause

5of the Constitution that the commencement

of the export would occur no later than the

delivery of the oil into the vessel...

It is argued, however, that the present tax is

not an impost within the meaning of the

Import-Export Clause. The tax is measured

by the gross receipts of retail sales and is

levied on retailers ‘For the privilege of selling

tangible personal property at retail.’ Cal Stat

1935, p. 1253. The retailers are authorized to

collect the tax from the consumers. Cal Stat

1933, p. 2602. And a sale is ‘any transfer of

title or possession...in any manner or by any

means whatsoever, of tangible personal

property, for a consideration.’ Cal Stat 1935,

p. 1256. The California Supreme Court held

that the tax is an excise tax for the privilege

of conducting a retail business measured by

the gross receipts from sales; that it is not laid

upon the consumer and does not become a tax

on the sale or because of the sale. 27 Cal2d p.

152, 163 P2d p. 2.

That construction, being a matter of state

law, is binding on us. But it is not determina-

tive of the question whether that tax deprives

the taxpayer of a federal right. That issue

turns not on the characterization which the

state has given the tax, but on its operation

and effect.”

In the instant case the telex confirmation of purchase

attached to LL&E’s Statements of Facts (Exs. “A” and

“B”), and the bills of lading attached to Edward R.

Wilson’s Affidavit as Exs. Pilot “1” and “1a”, place this

case squarely within the ambit of Richfield Oil

Corp.; the cargo was delivered F.O.B. into the tanks of

a foreign flag tanker which as a matter of law, intent

and fact, received said cargo for export to a foreign

country. Whether Pilot is an entity from a different

U.S. state or from a different nation is of no con-

sequence; the oil was shipped by negotiable bill of

lading to the order of a foreign party, “Banque

Indosuez.” Under Richfield Oil Corp. the goods were

in transit for exportation “no later than the delivery of

the oil into the vessel...” which is the point at which

title passed from LL&E. In the instant situation it

appears more likely that LL&E stands in the same

position as the exporter-appellant in Richfield Oil

Corp., but whether LL&E or Pilot, or both stand in

the shoes of Richfield, the state tax sought to be

imposed on this sale of cargo for foreign export is

unconstitutional and cannot be enforced against either

LL&E or Pilot.

In Collins v. Bay City Export Lumber Co., 70

§.2d 273, 277; 260 Ala. 308; (Alabama 1953) the

Supreme Court of Alabama considered whether a flat

$100 license tax on lumber companies which exported

lumber to foreign countries, was invalid as a violation

of the Import-Export Clause of the U.S. Constitution.

The Court relied heavily upon the U.S. Supreme

Court decision in Richfield Oil Corp. v. State Board

of Equalization, supra, compared the Alabama

lumber license tax with the sales tax of Richfield Oil

Corp., and concluded that the lumber license tax was

invalid as a violation of the U.S. Constitution.

It is respectfully submitted that the U.S. Supreme

' Court decision in Richfield Oil Corp. as well as that of

the Alabama Supreme Court in Collins v. Bay City

Export Lumber Co., supra, apply to the instant case

to render invalid as unconstitutional any tax sought to

be imposed by the State of Alabama on the sale of this

consignment of jet fuel oil for export to Canada, and

that accordingly LL&E had no legal duty to pay the

“tax” to the State of Alabama, nor does it have any

right to attempt to collect the voluntarily paid “tax”

from Pilot Petroleum Corporation.

Accordingly, Pilot respectfully submits that

LL&E’s Motion for Summary Judgment should be

denied, and Pilot’s Motion for Summary Judgment

dismissing LL&E’s suit with prejudice, should be

granted.

/s/Robert B. Deane

APPENDIX E

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

No. 88-945

SECTION “B”

MOTION FOR PILOT PETROLEUM CORP.

FOR SUMMARY JUDGMENT

Defendant Pilot Petroleum Corporation, through

undersigned counsel, respectfully moves this Honor-

able Court for a Summary Judgment dismissing with

prejudice the Complaint of Louisiana Land and

Exploration Company for the reasons stated in the

attached Statement of Material Facts and Memoran-

dum in support of this Motion.

/s/Robert B. Deane

ROBERT B. DEANE

CERTIFICATE OF SERVICE

I certify that a copy of the above and foregoing

pleading has been served upon counsel of record by

hand or by United States mail, postage prepaid and

properly addressed, this 26th day of July, 1988.

/s/Robert B. Deane

ROBERT B. DEANE

10e

APPENDIX E

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

No. 88-945

SECTION “B”

STATEMENT OF MATERIAL FACTS OF

DEFENDANT, PILOT PETROLEUM CORP.

IN SUPPORT OF MOTION FOR

SUMMARY JUDGMENT

Defendant, Pilot Petroleum Corporation (“Pilot”)

submits the following statement of facts in support of

its Motion for Summary Judgment dismissing the

Complaint of Louisiana Land and Exploration

Company (“LL&E”) with prejudice.

Pilot incorporates herein as part of its Statement of

Material Facts, the Affidavit of Edward R. Wilson,

Comptroller of Pilot Petroleum Corporation, State-

ments 1-11, a copy of which is attached hereto, with

Exs. Pilot “1-4”, all of which are made a part hereof.

The fact that Pilot did not take title to said jet fuel

under the terms of the sale until it was delivered free

lle

on board the foreign flag M/T MARY ANN, and the

bills of lading issued for said cargo (Exs. Pilot “1” and

“1a”) establish that the jet fuel in question had started

upon its export journey and that the certainty of the

foreign destination was apparent.

When LL&E submitted invoices to Pilot (Exs. Pilot

“2” and “3”), purporting to charge Alabama jet fuel

tax with respect to the purchase of the export sale of

the subject jet fuel, Pilot immediately notified LL&E

that the tax was not due on this sale and that Pilot did

not intend to pay the tax. Pilot drew a line through the

sales tax charges on said invoices to show that they

would not be paid, and paid the remainder of the

invoices in full.

LL&E negligently or arbitrarily paid the amounts

claimed herein to the Alabama Department of

Revenue although said amounts were not legally due.

Thereafter LL&E petitioned for refund to the Ala-

bama Department of Revenue but failed to provide

the necessary information in its Petition to show that

this consignment of jet fuel had been purchased for

the sole and specific purpose of exportation to Canada.

Pilot never owed any state taxes on the subject jet

fuel exported to Canada, and having paid no taxes to

the State of Alabama, had no standing, and presently

has no standing to participate in LL&E’s Petition for

Refund, but has always been willing to cooperate in

LL&E’s efforts to obtain a refund.

12e

Throughout the foregoing transactions LL&E had

a valid gasoline license from the Alabama Depart-

ment of Revenue and authorized to export jet fuel

from Alabama.

/s/Robert B. Deane

ROBERT B. DEANE

13e

APPENDIX E

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

No. 88-945

SECTION “B”

STATEMENT OF CONTESTED MATERIAL FACTS

SUBMITTED BY DEFENDANT

PILOT PETROLEUM CORPORATION

Defendant, Pilot Petroleum Corporation, (“Pilot”)

submits the following statements of fact which contro-

vert or qualify the Statement of Uncontested Facts

submitted by plaintiff, Louisiana Land and Explora-

tion Company (““LL&E”).

1. LL&E’s statements 1 and 2are correct as far

as they go, but do not show that the sale “FOB

Mobile, Alabama” was in fact asale “Free On

Board” the Liberian flag Motor Vessel

MARY ANN for carriage of said cargo to

ports on the East Coast of Canada.

2. Pilot does not contest LL&E’s statements 3

through 8 except it denies that LL&E had

any legal basis to include in its invoices of

November 13, 1986 and November 21, 1986

any amount for Alabama State jet fuel tax.

14e

Pilot contests LL&E’s statement 10 in that if

any payment was made of Alabama excise

tax by LL&E, said tax was not paid in

compliance with any valid Alabama law

requiring same. Further, LL&E was not

compelled by any legal process to pay the

alleged fuel taxes, but arbitrarily or

negligently made said payments when none

were due.

LL&E’s statements 11 and 12 are correct as

far as they go. Pilot submits as controverting

evidence the fact that LL&E unduly delayed

in filing a petition for refund; LL&E’s

petition for refund failed to advise the Ala-

bama Department of Revenue that the con-

signment in question had been loaded by

LL&E aboard a foreign flag vessel for

delivery to a foreign port; and thereafter

LL&E failed to pursue any of its administra-

tive and judicial remedies with respect to the

refund sought within time limits specified by

the Alabama Department of Revenue. (Ex-

hibit H and attachment, LL&E Statement of

Facts). |

Pilot never owed any taxes on the subject jet

fuel exported to Canada, and having paid no

taxes to the State of Alabama, had and has no

standing to participate in LL&E’s petition

for refund. Subject to these qualifying state-

ments Pilot does not contest LL&E’s state-

ments 13 through 16.

Throughout the foregoing transactions

LL&E had a valid gasoline license from the

15e

Alabama Department of Revenue and was

authorized to export jet fuel from the State of

Alabama.

Pilot submits additional statements of fact

contained in the Affidavit of Edward R.

Wilson, comptroller of Pilot Petroleum

Corporation, numbers 1 through 11 attached

hereto and incorporated herein in extenso, as

controverting statements of fact, including

Exhibits Pilot 1 through 4 attached thereto.

/s/Robert B. Deane

ROBERT B. DEANE

CERTIFICATE OF SERVICE

I certify that a copy of the above and foregoing

pleading has been served upon counsel of record by

hand or by U.S. Mail, postage prepaid and properly

addressed, this the 26th day of July, 1988.

/s/Robert B. Deane

ROBERT B. DEANE

l6e

APPENDIX F

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

SECTION “B”

No. 88-945

MEMORANDUM IN OPPOSITION TO

MOTION FOR SUMMARY JUDGMENT OF

PILOT PETROLEUM CORPORATION

Plaintiff, Louisiana Land and Exploration

Company (“LL&E”) has moved for summary judg-

ment on its claim for reimbursement of jet fuel excise

taxes. Defendant, Pilot Petroleum Corporation

(“Pilot”) has filed a cross-motion for summary

judgment. Both motions will be heard on August 10,

1988.

Pilot’s defense rests on the contentions that LL&E

“voluntarily” paid the tax to the Alabama Department

of Revenue; that LL&E failed to identify the jet fuel’s

foreign destination in petitioning for refund on Pilot’s

behalf; that the tax is unconstitutional; and that

LL&E had seme duty to appeal the state’s denial of the

refund. Every single element of Pilot’s position is

unsupportable.

As evidenced by the Affidavit of Patricia A.

Godfrey and the Petition For Refund of Taxes

attached hereto and attested by the Supplemental

Affidavit of Fred Smith attached hereto, LL&E paid

the tax only after consultation with Marvin Schram,

Revenue Examiner of the Alabama Department of

Revenue. Pilot had apparently made some attempt to

exempt itself from the jet fuel excise tax by posting a

bond and obtaining a distributor license. However,

Mr. Schram advised Ms. Godfrey that Pilot failed to

obtain a bond until December 3, 1986 and Pilot’s

license was not actually issued until December 15,

1986. (These facts are not disputed by Pilot.) Mr.

Schram stated that a license could operate retroactive-

ly to the date of the bond, but not earlier.

Mr. Schram instructed LL&E to report the fuel

sales on its November, 1986 return, pay the taxes with

the November return, and collect the taxes from Pilot.

Section 40-17-31(e) of the Alabama Code provides:

Every distributor, refiner, retail dealer or

storer of gasoline or other fuels taxed by this

section shall add the amount of the excise tax

levied and assessed herein to the price of the

gasoline or other fuels taxed by this section, it

being the purpose and intent of this provision

that the tax levied is in fact a levy on the

consumer or user with distributor, refiner,

retail dealer or storer, or in the case of a

licensed user, acting merely as an agent for

the state for the collection and payment of the

tax to the state.

After receiving Mr. Schram’s advice, LL&E could not

simply ignore the tax as Pilot now suggests. Piiot’s

assertion that LL&E “voluntarily” paid the tax is

wrong.!

Equally unfounded is Pilot’s position that LL&E

submitted a petition for refund which “apparently did

not recall that this cargo was exported to a foreign

country...” To the contrary, the fina! sentenee of the

Petition For Refund of Taxes (attached) clearly

recites, “Product went to Canada, therefore purchaser

claims that it is not taxable.” Although the August 31,

1987 Notice of Denial of Request for Refund (attached

to LL&E’s original memorandum as Exhibit H)

contains loose language characterizing the sale as

interstate rather than foreign, the denial was not

predicated upon the jet fuel’s destination. Exhibit H

shows that the Department of Revenue denied the

refund due to its well-documented finding that Pilot

failed to license and bond itself timely.

Pilot’s newest defense—one not raised at the time of

the transaction and not raised in its “Exceptive

Allegation and Answer”—is that the transaction was

constitutionally untaxable. Pilot is desperately

attempting to raise an issue where none exists and

shift responsibility for its own negligent failure to post

a bond and obtain a license. Pilot’s constitutional

argument totally misses the point. Pilot had advance

notice and every opportunity to present its position at

every administrative level and failed to do so. Pilot

knew of the Petition for Refund; its controller provided

the information on which the Petition for Refund was

based. Pilot was promptly informed of the results of

the refund petition and the reasons therefor. Pilot took

‘The same “voluntary” payment prevented the accrual of state law

penalties which would have been passed on to Pilot.

no action and did not suggest to LL&E any basis for

taking further action. It cannot now be heard to

complain, because the issue is res judicata. Pilot

cannot now, in this forum, collaterally attack the final

ruling of the Alabama Department of Revenue. and

attempt to put LL&E in the position of vouching for

the Alabama State law.

Nevertheless, without in any way admitting that

the question is a legitimate issue in this proceeeding,

LL&E submits that Pilot’s constitutional argument is

wrong. In support of its constitutional challenge, Pilot

has cited the United States Supreme Court decision of

Richfield Oil Corporation v. State Board of

Equalization, 329 U.S. 69, 67 S.Ct. 156 (1946). Pilot

has failed, however, to cite the decisions following

Richfield that initiated a different approach to the

Import-Export Clause cases, and authorizes which

questioned the validity of the holding in Richfield.

In Michelin Tire Corporation v. Wages, 423 U.S.

276, 96 S.Ct. 535 (1976), the United States Supreme

Court “changed the focus of Import-Export Clause

cases from the nature of the goods as imports [or

exports ]to the nature of the tax at issue.” Limbach v.

Hooven & Allison Co., 466 U.S. 353, 360, 104 S.Ct.

1837 (1984). In Michelin, the taxpayer imported and

distributed wholesale in the United States certain

automobile and truck tires and tubes manufactured in

France and Nova Scotia. When Georgia levied an ad

valorem property tax on Michelin’s inventory of

imported tires, stored in its warehouse in Gwinett

County, Georgia, Micheline sued in a Georgia state

court to contest the statute’s constitutionality. The

Georgia Supreme Court held that the tires were

taxable because, by the time they were assessed, the

tires had lost their status as “imports.” The United

States Supreme Court affirmed the decision, but for a

different reason: it rejected the Richfield inquiry

whether the tax under review reached “imports or

exports,” and focused on the nature of the state

exaction.

In examining whether the state tax offended the

Import-Export Clause, the Michelin court voiced

three policy considerations:

The Framers of the Constitution thus sought

to alleviate three main concerns ... the

Federal Government must speak with one

voice when regulating commercial relations

with foreign governments, and tariffs, which

might affect foreign relations, could not be

implemented by the states consistently with

exclusive power; import revenues were to be

the major source of revenue of the Federal

Government and should not be diverted to

the States; and harmony among the States

might be disturbed unless seaboard States,

with their crucial ports of entry, were pro-

hibited from levying taxes on citizens of

other States by taxing goods merely flowing

through their ports to the other States not

situated as favorably geographically.

423 U.S. at 285-286, 96 S.Ct. at 540. The Court

concluded that the Georgia ad valorem property tax

did not violate the constitutional prohbition against

laying any Imposts or Duties on Imports, in part

because the tax was nondiscriminatory. That is, it

applied not only to inventories of foreign make, but

equally to all qualified inventories in the state. 96 S.Ct.

at 541-544.

Two years later, the Supreme Court decided

Department of Revenue v. Association of Washing-

ton Stevedoring Company, 435 U.S. 734, 98 S.Ct.

1388 (1978), an export case in which the State of

Washington imposed a business and occupation tax to

stevedoring. In Washington Stevedoring, the Court

recognized that prior to the Michelin decision, the

analysis applied to exports was whether “the goods

had entered the ‘export stream,’ the final, continous

journey out of the country.” Washington, at 751, 98

S.Ct. 1400. Citing Richfield, the Court stated,

“Previous Supreme Court decisions had assumed that

all taxes on imports or exports and on the importing or

exporting processes were banned by the Import-

Export Clause.” Id.

The Court then applied the Michelin three-part

analysis and upheld the Washington tax. One factor

was that the protection of federal revenues is not

considered when determining the constitutionality of

a tax on exports because the Constitution forbids

federal taxation of exports. The Court concluded:

The Washington business and occupation

tax, as applied to stevedoring, reaches serv-

ices provided wholly within the State of

Washington to imports, exports, and other

goods. The application violates none of the

constitutional policies identified in Michelin.

It is, therefore, not among the “Imposts or

Duties” within the prohibition of the Import-

Export Clause.

The Court expressly reserved the question of how it

would hold under facts like those in Richfield:

We do not reach the question of the applic-

ability of the Michelin approach when a

State directly taxes imports or exports in

transit.

Our Brother POWELL, as his concurring

opinion indicates, obviously would prefer to

reach the issue today, even though the facts of

the present case, as he agrees, do not present

a case of a tax on goods in transit. As in

Michelin, decided less than three years ago,

we prefer to defer decision until a case with

pertinent facts is presented. At that time,

with full argument the issue with all its

ramifications may be decided.

98 S.Ct. 1403, n. 23.

Learned commentary makes it extremely doubtful

that the question left open in Washington Steve-

doring would be decided today as it was in Richfield.

Comparing Richfield and Washington Stevedoring,

one commentator has stated:

Similarly, in both cases, the taxes were

imposed on the conduct of business by the

taxpayers, although the businesses were

different, selling oil in Richfield and loading

and unloading goods from vessels in

Washington Stevedoring.

By way of distinguishing the two cases,

one can argue that the tax in Richfield,

unlike the tax in Washington Stevedoring,

fell on the goods themselves, because selling

goods involves the essence of the goods,

whereas handling or servicing goods is mere-

ly an incidental activity. Moreover, the Court

in Washington Stevedoring appeared to

regard a tax measured by the value of goods

as tantamount to a tax on the goods them-

selves.

Hence, the Court could distinguish the

cases on such grounds, but such niceties and

refinements as to direct and incidental

taxes dod not commend themselves as the

proper basis for delineating the consti-

tutional taxing powers of the States. A

more acceptable basis for deciding the in-

transit tax cases under the new Import-

Export Clause jurisprudence may be

found in the purpose of the clause to

prevent the seaboard States from exact-

ing a sale on “goods merely flowing

through their ports.”

Hellerstein, State Taxation §5.4 (1983) (Emphasis

added).

The Alabama jet fuel excise tax is a non-dis-

criminatory tax which applies to all gasoline sales

within the State of Alabama unless exempt. In this

case, the fuel was refined in Mobile, and not merely

flowing through Alabama’s ports. The Alabama tax

does not interfere with federal foreign policy or cause

friction between the states. Thus, Pilot’s new conten-

tion that the Alabama jet fuel excise tax was an

Impost or Duty within the prohibition of the Import-

Export Clause, is weak in view of the cited authorities.

At best, Pilot had an arguable constitutional

challenge to the tax. Pilot allowed that challenge to

lapse when it failed to file a timely appeal from the

denial of refund, and never demonstrated an interest

in pursuing the constitutional challenge which it now

suggests to the Court.

Attempting to avoid responsibility for its failure to

pursue an appeal, Pilot now argues that LL&E was

obligated tn appeal for Pilot. This contention is based

solely on the fact that LL&E accommodated Pilot in

the first place by filing a petition for refund. The

absurd implications of Pilot’s position are obvious.

Suppose, as is likely, that the initial appeal were

unsuccessful. Under Pilot’s theory, LL&E would have

to forbear collecting until the final denial of writs in

the United States Supreme Court.

Pilot bears ultimate responsibility for the tax. Ala.

Code §40-17-31(e). Pilot was accordingly the proper

party in interest to challenge the tax (assuming that

an appeal would be tenable). Consistently with Section

40-17-31(e), the Statement of Appeal Rights (Exhibit

H, p. 3) speaks in terms of an appeal by the taxpayer

and not of the tax collector.

CONCLUSION

In line with its original objections to jurisdiction

and forum which it has apparently abandoned, Pilot’s

purpoted constitutional challenge is simply an effort

to delay collection of a tax which originated because of

Pilot’s own failure to license and bond itself. Pilot has

demonstrated no authority for shifting this responsi-

bility to LL&E. LL&E prays that its motion for

summary judgment be granted, and Pilot’s denied,

and further delay thus prevented.

/s/John F. Landrum

JOHN F. LANDRUM

CERTIFICATE

I hereby certify that a copy of the foregoing

Memorandum in Opposition to Motion for Summary

Judgment of Pilot Petroleum Corporation has been

served upon all counsel of record by hand delivery this

2nd day of August, 1988.

s/John F. Landrum

JOHN F. LANDRUM

Amount Approved $ Date Approved

PETITION FOR REFUND OF TAXES

STATE DEPARTMENT OF REVENUE

MISCELLANEOUS TAX DIVISION

MONTGOMERY, ALABAMA 36130

The undersegned hereby makes application for refund of

_ Fifty five thousand seven hundred and ninety and 78/100 — oojiars

$ 55,790 78 ) for Jet Fuel tax paid by said undersigned

(type of tax)

November, 1986

to the State Department of Revenue for the period(s)

wiech amount was erroneously paid, or paid in excess of the amount due, or was paid

through mustake of fact or law

Sand ammount of tax was erroneously paid by reason of the following stated facts, dates,

in @ conversation with Marvin Schram, LL&E was told toc’ .arge Pilot Petroleum the AL

Jet Fuel tax on sales made in November, 1986 because Pilot's license was not effective until

12/15/86 and that the bond was not effective until 12/3/86. Therefore, LL&E charged

Pilot the tax and subsequently paid it to the state in November, 1986

in @ later conversation with Pilot Petroleum’s controller LL&E was toid that Pilot's

cense was ssued retroactive therefore Pilot would not pay LL&E the jet fuel tax which had

already been pad by LL&E to the state

Product went to Canada, therefore purchaser claims that it is not taxable

LL&E Petroleum Marketing, Inc Under penalties of perjury, | declare that

a z the information given in this petition for

refund and in accompanying schedules

Pettone s Name

PO Box 60350 and statements are true, correct and

New Orleans. LA 70160 complete to the best of my knowledge and

ae x belief

Petmoner s Addr ess

Petmoner s Address Authorized Signature

Sworn to and subscribed before me this 21st day of August ,19 87

Notary Public

DEPARTMENTAL USE

Approved By

tweet Miscellaneous Tax Division

See Instructions on Back

Wrote & Yellow Department of Revenue Pink-Pet:tioner’s Copy

APPENDIX F

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

SECTION “B” (1)

No. 88-0945

AFFIDAVIT OF PATRICIA A. GODFREY

BEFORE ME, the undersigned Notary Public in

and for the Parish of Orleans, State of Lcuisiana,

personally appeared Patricia A. Godfrey (“Affiant”),

who, having been duly sworn, affirmed as follows:

Affiant is employed as Supervisor of Accounts

Payable at The Louisiana Land and Exploration

Company (“LL&E”). In December, 1986, Affiant held

the position of Product Accountant at LL&E. In that

capacity, Affiant was responsible for preparing tax

filings to be filed with the State of Alabama, under the

supervision of Fred Smith. In these capacities, Affiant

has personal knowledge, and knowledge gained from

review of records made and maintained in the regular

course of LL&E’s business, of the matters set forth

hereinbelow.

On or about December 18, 1986, Affiant called

Marvin Schram, Revenue Examiner for the Alabama

Department of Revenue. Affiant and Mr. Schram

12f

discussed the fact that a purchaser of jet fuel, Pilot

Petroleum Corp., did not have a license at the time of

two jet fuel sales in November, 1986. Affiant explained

to Mr. Schram Pilot’s belief that its license would be

retroactive.

Mr. Schram replied that, according to his records,

Pilot had not posted a bond until December 3, 1986,

and that a license had not been issued until December

15, 1986.

Mr. Schram further explained that a license can be

retroactive to the date of posting of a bond, but cannot

be retroactive to a sale occurring before the posting of

the bond.

Mr. Schram instructed Affiant to reporton LL&E’s

November, 1986 return the November sales of jet fuel

to Pilot, and to pay the excise tax attributable thereto

and collect same from Pilot.

New Orleans, Louisiana, this 2nd day of August,

1988.

/s/Patricia A. Godfrey

PATRICIA A. GODFREY

/s/John F. Landrum

JOHN F. LANDRUM

NOTARY PUBLIC

13f

APPENDIX F

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF LOUISIANA

THE LOUISIANA LAND & EXPLORATION COMPANY

PILOT PETROLEUM CORPORATION,

CIVIL ACTION

SECTION “B” (1)

No. 88-0945

SUPPLEMENTAL AFFIDAVIT OF FRED J. SMITH, JR.

BEFORE ME, the undersigned Notary Public in

and for the Parish of Orleans, State of Louisiana,

personally appeared Fred J. Smith, Jr. (“Affiant”),

who, having been duly sworn, affirmed as follows:

Affiant is employed by The Louisiana Land and

Exploration Company (“LL&E”)as Manager, Process-

ing and Marketing Accounting. Affiant is responsible

at LL&E for the payment and collection of Alabama

State aviation fuel excise taxes. In that capacity, he

has personal knowledge, and knowledge gained from

review of records made and maintained in the regular

course of LL&E’s business, of the matters set forth

hereinbelow.

Attached hereto is a true copy of the August 21,

1987 Petition for Refund of Taxes which Affiant

signed and caused to be filed with the Alabama

Department of Revenue.

14f

New Orleans, Louisiana, this 2nd day of August,

1988.

/s/Fred J. Smith, Jr.

FRED J. SMITH, JR.

/s/John F. Landrum

JOHN F. LANDRUM

NOTARY PUBLIC

APPENDIX G

RELEVANT PROVISIONS OF THE

UNITED STATES CONSTITUTION

The Import-Export Clause of the Constitution of the

United States, Article I, Section 10, Clause 2, states:

No State shall, without the Consent of the

Congress, lay any Imposts or Duties on [Imports

or Exports, except what may be absolutely neces-

sary for executing its inspection laws

APPENDIX H

The applicable Alabama statutes concerning the

need for persons engaging in the business of selling or

distributing gasoline in Alabama to first obtain a

license from the Alabama Department of Revenue

are:

Section 40-12-191, Code of Alabama 1975, which

states:

Every distributor, before engaging in the

business of selling, distributing or withdraw-

ing from storage gasoline in this state, shall

first make application to the department of

revenue, upon forms prepared by the depart-

ment of revenue, for a license to engage in

said business. The application shall be

executed under oath before a person autho-

rized to take acknowledgements in this state

and shall set forth:

(1) The name under which the business will

be transacted in this state;

(2) The location, with street number and

address, of the distributor’s principal

office or place of business;

(3) The name and complete residence

address of the owner, or the names and

the addresses of the partners, if a part-

nership, or the names and addresses of

the principal officers, if a domestic cor-

poration, or, if a corporation organized

under the laws of another state, the

name and address of the authorized

agent or agents in this state.

(4) The number of trucks or other vehicles,

if any, in which it is proposed to trans-

port gasoline over the public highways

in this state; and

(5) The amount of gasoline estimated by

distributor which will be sold, distrib-

uted or withdrawn from storage

monthly.

Section 40-17-31, Code of Alabama 1975, is the

Alabama statute which levies the gasoline excise tax

which is the subject matter of the present action, and

states:

(a) Every distributor, refiner, retail

dealer, storer or user of gasoline shall collect

and pay over to the state department of

revenue an excise tax of $.07 per gallon upon

the selling, use or consumption, distributing,

storing or withdrawing from storage in this

state for any use of gasoline as defined or

otherwise referred to in this article, except

gasoline sold for use as fuel to propel aircraft

and which gasoline is subject to the tax

imposed in subsection (d) of this section; and

except gasoline sold for use by city and

county boards of education, the Alabama

Institute for Deaf and Blind, the department

of youth services school district, and private

and church schools as defined in section 16-

28-1, and which offer essentially the same

curriculum as offered in grades K-12 in the

pubiic schools of this state; provided that

where any excise tax imposed by this section

upon the sale, use or consumption, distribu-

tion, storage, withdrawal from storage in

this state of such gasoline shall have been

paid to the state by a distributor, refiner or

by any retail dealer, storer or user, such

payments shall be sufficient, the intent being

that the tax shall be paid to the state but once.

(b) The state department of revenue is

hereby authorized to issue to the United

States certificates of exemption, upon forms

prescribed by the department for use by the

United States in purchasing gasoline or

other fuels taxed by this section within the

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