Amicus Curiae Brief — Midland Central Appraisal District v. BP America Production Co.

o. 10-890 FEB 10 201

0) Supreme Court, U.S

\EN FILED

N

In The

Supreme Court of the Anited States

¢

MIDLAND CENTRAL APPRAISAL DISTRICT,

Petitioner,

V.

BP AMERICA PRODUCTION CO., ET AL.,

Respondents.

$$ 9

On Petition For A Writ Of Certiorari

To The Texas Court Of Appeals,

Eleventh Appellate District

®

BRIEF OF AMICI CURIAE

TEXAS ASSOCIATION OF SCHOOL BOARDS

LEGAL ASSISTANCE FUND

AND THE TEXAS MUNICIPAL LEAGUE

IN SUPPORT OF PETITIONER

¢

DON CRUSE*

LAW OFFICE OF DON CRUSE

1108 Lavaca Street,

Suite 110-436

Austin, Texas 78701

don@doncruse.com

(512) 853-9100

*Counsel of Record

Counsel for Amici Curiae

COCKLE LAW BRIEF PRINTING CO (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

How does the “substantial nexus” prong of Complete

Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), apply

to tangible personal property involved in commerce

that is assessed a non-discriminatory ad valorem

property tax:

Is nexus, as the court below held, evaluated

based on older “continuity of transit” cases

exempting goods in the flow of commerce

from paying their own way?

Does nexus, as the court below held, also

require a taxing authority to prove in

personam “activity” by the taxpayer beyond

the presence of the taxable res in the taxing

jurisdiction?

TABLE OF CONTENTS

Questions Presented

Tae Oe CS ooo. iccsvcrcecsssatn cue

Summary of the Argument

y g

Argument

I.

There Is an Entrenched Split About How

the Complete Auto Framework Applies To

Goods in Transit, Including Gas and Oil

A. A split between Texas and Oklahoma

that affects energy has broad im-

TG asic crsccveckanccnenenneeeneeanaueereeeeniea

The split is firm and will not resolve

Using older cases to inform the nexus

analysis distorts the Complete Auto

framework and warrants certiorari ....

These Decisions Reflect an Untenable

View of Complete Auto

A. The “in transit” authorities presup-

pose immunity from taxation in

which interstate commerce does not

pay its own way

1. “In transit” does not fit Complete

TABLE OF CONTENTS — Continued

Page

2. “In transit” unduly penalizes com-

peting intrastate commerce and

would distort the market................

B. For ad valorem property taxes, nexus

should be measured against the

goods, not the taxpayer

Both Petitions Warrant Attention

A. The petitions offer contrasting facts

that could yield a more satisfying

At a minimum, this petition should

be held for an eventual GVR

1. A GVR would ensure that the

court of appeals applies the correct

There is little doubt that the Court

has jurisdiction

Conclusion

TABLE OF AUTHORITIES

Page

CASES

Allied-Signal, Inc. v. Director, Div. of Taxation,

Fre PG TD vcancdscskadadcesteavictnisinicdetanecsnsen 14

Appraisal Review Bd. v. Tex-Air Helicopters,

Ine., 970 S.W.2d SSO CLOR. UFGB).0sccciccccrnscsessnsessenns 19

Carson Petroleum Co. v. Vial, 279 U.S. 95

(1929)

Champlain Realty Co. v. Town of Brattleboro,

260 U.S. 366 (1922)

Coe v. Errol, 116 U.S. 517 (1886)

Complete Auto Transit, Inc. v. Brady, 430 U.S.

274 (1977) passim

Davenport v. Garcia, 834 S.W.2d 4 (Tex. 1992) .........19

Eureka Pipe Line Co. v. Hallanan, 257 U.S. 265

(1921)

Harrison Cent. Appraisal Dist. v. Peoples Gas,

Light & Coke Co., 270 S.W.3d 208 (Tex. App.

— Texarkana 2008, pet. denied) passim

Hughes Bros. Timber Co. v. Minnesota, 272

U.S. 469 (1926)

In re Assessment of Personal Prop. Taxes

Against Mo. Gas Energy, 234 P.2d 938 (Okla.

DEE wksasiinsiseusarsedseitior ida pam oainane 6, 7

Indep. Warehouses v. Scheele, 331 U.S. 70

ENS Biss Avcurcuscscecieso weer eet aaa eed eon 11

Michigan v. Long, 463 U.S. 1032 (1983)..........-.-. 18, 19

TABLE OF AUTHORITIES — Continued

Page

Michigan-Wisconsin Pipe Line Co. v. Calvert,

er ee 9 I y tevssiidonte tsar iecicncn 9, 11

Midland Cent. Appraisal Dist. v. BP Am. Prod.

Co., 282 S.W.3d 215 (Tex. App. — Eastland,

pet. denied) , passim

Miller Bros. v. Maryland, 347 U.S. 340 (1954)

Minnesota v. Blasius, 290 U.S. 1 (1933)

Mississippi River Transmission Corp. v. Simon-

ton, 442 So. 2d 764 (La. Ct. App. 1983).............0...... D

Oklahoma Tax Comm’n v. Jefferson Lines, Inc.,

ae GA Oe © I och ices iether etaenanes 9

Spector Motor Serv. v. O'Connor, 340 U.S. 602

(1951)

Three Affiliated Tribes of Fort Berthold Reser-

vation v. Wold Eng’g, P-C., 467 U.S. 138

(1984)

Zacchini v. Scripps-Howard Broad. Co., 433

ie Bk oy) Spree Ba Pi te Ne Oe OME OAD 20

STATUTES

28 U.S.C. §1341

TEx. ConstT. art. VIII, §1(b)

Trex. TAX CODE §21.02(a)(1)

TABLE OF AUTHORITIES — Continued

OTHER AUTHORITIES

Amicus Brief of American Gas Association,

Missouri Gas v. Schmidt (No. 08-1458)

“Interstate Natural Gas Supply Dependency, 2007,”

http:/Avww.eia.doe.gov/pub/oil_gas/natural_gas/

analysis_publications/ngpipeline/dependstates_

map.html (visited Feb. 6, 2010)

“Intrastate Natural Gas Segment,” http://www.

eia.doe.gov/pub/oil_gas/natural_gas/analysis_

publications/ngpipeline/intrastate.html (vis-

ited Feb. 8, 2010)

INTEREST OF AMICI CURIAE

The Texas Association of School Boards Legal

Assistance Fund is an association of public school

districts that plays a role in litigation likely to have a

broad impact on its member districts.’

Those school districts have a particularly acute

interest in the federal constitutional questions raised

in this petition because the Texas school-funding

system — like many local government entities across

the country — depends on a local ad valorem property-

tax system.

The brief is joined by The Texas Municipal

League, which is a non-profit association of over 1090

incorporated cities that provides legislative, legal,

and educational services to its members.

Continued uncertainty over how ad valorem

taxes fit into the Commerce Clause framework makes

it more difficult to shape the local tax policy that

supports critical services.

‘ No counsel for any party has authored this brief in whole

or in part, nor has any entity other than the named amici curiae

made a monetary contmbution to the preparation or submission

of the brief. See Sup. Ct. R. 37 5. Timely notice was given to all

parties, and each gave written consent. See Sup. Ct R 37.2(a).

2

SUMMARY OF THE ARGUMENT’

There is now a split between two key states in

the energy industry, Oklahoma and Texas, about

what constitutional test applies to measure the

taxability of oil and gas reserves under local ad

valorem taxes.

Last Term, the Court had before it a petition

challenging Oklahoma’s side of the split. The Court

called for the views of the Solicitor General, who

expressed the view that Oklahoma had the better

side of the argument and that, in any event, the

Texas courts had not yet spoken with finality. Now

they have, and there is no reason to delay this Court’s

review. A split between sister states about the federal

° ° ° ° 3

law governing goods in transit deserves attention.

The court of appeals embraced a “continuity of

transit” test dating from a time when this Court had

held that interstate commerce was by its nature

exempt from state taxes. That test does not shed light

on the modern Complete Auto framework, and import-

ing it into the nexus prong threatens significant

* This amicus bref is being submitted in support of this

petition and in support of Harrison Central Appraisal District v.

Peoples Gas, Light and Coke Co., No. 10-896, both of which raise

the same constitutional issues. When necessary for clarity, the

present petition is referenced as the “Midland case” in contrast

to the “Harrison case.”

* Federal circuits generally do not hear challenges to state

ad valorem taxes because of the Tax Injunction Act. 28 U.S.C.

§1341.

damage to ad valorem property tax rolls, shifting the

burden onto domestic taxpayers and, in effect, dis-

criminating against intrastate commerce.

Further, the court of appeals adopted a legally

incorrect view of how nexus should be tested for ad

valorem property taxes. The court held that substan-

tial nexus under Complete Auto requires a showing of

in personam (“activity”) contacts by the taxpayer

rather than contact with the taxable res.

These petitions frame the problem well, end their

contrasting facts offer a good vehicle to test the rule.

Until this Court resolves these foundational ques-

tions under Complete Auto, both industry and taxing

authorities will be wandering in the fog of Nineteenth

Century “continuity of transit” case law that ill fits

the modern economy and results in sharply disparate

treatment of different industries based on features

unrelated to the constitutional principles underpin-

ning the Commerce Clause.

.

ARGUMENT

There Is an Entrenched Split About How

the Complete Auto Framework Applies To

Goods in Transit, Including Gas and Oil.

A. A split between Texas and Oklahoma

that affects energy has broad im-

portance.

Texas and Oklahoma have split on a question of

constitutional law that creates uncertainty for the

energy industry and local governments alike. The

affected states are central to the national energy

industry both in geography and geology.*

As things stand, when oil or gas flows through

pipelines that cross the Red River, it leaves one view

of federal law (Texas’ more expansive one that shields

the goods from taxes) and encounters a polar opposite

view of federal law (which permits nondiscriminatory

local taxes).

* In arguing for certioram in Missour: Gas, the American

Gas Association pointed to a helpful Department of Energy map

showing the web of gas pipelines across the lower 48 states See

Amicus Brief of American Gas Association, Missour: Gas v.

Schmidt (No. 08-1458), at 17 & 3a (map). That map remains

the most current on the Department’s website. See “Interstate

Natural Gas Supply Dependency, 2007,” http://www.eia.doe.

gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/

dependstates_map.html (visited Feb 6, 2010). In addition to the

network of interstate pipelines, it highlights 30 states that “are

at least 85% dependent” on the network for natural gas from

producing states such as Texas and Oklahoma. /d.

Consider, for example, the newly tapped Barnett

Shale, which is centered just below the Red River on

the Texas side of the border. Should any of this gas be

sent to a storage facility north of the Red River, it can

be taxed; on the south side of the Red River, it is

given complete federal immunity from taxation.

The split also touches neighboring states on the

interstate pipeline system.’ For example, Louisiana

courts continue to apply the older “continuity of

transit” analysis when determining whether goods

can be assessed an ad valorem tax.’ Formally, they

apply state enactments made when “in transit” was

prevailing federal law. But with the present split of

authority and without guidance from this Court,

Louisiana policymakers do not know what latitude

they have to loosen those restrictions over local ad

valorem taxation.

For one example of how pipelines cut across these neigh-

boring states, look at the pipeline in Missour: Gas. One of its

two branches begins in Texas and runs through Oklahoma to

Kansas, where it has a storage facility before reaching its

endpoint Missouri: Gas, 234 P3d at 944 The other begins in

Oklahoma, where it has a storage facility, and then merges

together with the endpoint in Kansas. /d.

° Eg., Mississipp: River Transmission Corp v. Simonton,

442 So 2d 764, 770 (La Ct. App 1983).

Id at 770.

B. The split is firm and will not resolve

itself.

The petitions now before the Court attack two

Texas decisions that, serendipitously, came down as

bookends around the Oklahoma Supreme Court's

decision in Missouri Gas, one before and one after.

Both states were aware of the split and further

entrenched their conflicting positions.

The Oklahoma court noted the first Texas deci

sion in conflict with its holding. Jn re Assessment of

Personal Prop. Taxes Against Mo. Gas Energy, 234

P.2d 938, 959-60 (Okla. 2008). And it expressed its

disagreement in no uncertain terms:

[W]e remain unpersuaded by that court’s

reasoning. The Texas court first scrutinizes

Harrison County’s ad valorem tax using the

traditional continuity of transit analysis, a

test we reject today as having been su-

perseded by the Supreme Court’s decision

in Complete Auto Transit v. Brady... .

In addition, we decline to follow the Tex-

as court’s reasoning in concluding that the

ad valorem taxation of storage of gas fails to

meet the first and fourth prongs of the Brady

test. ...

We are convinced that the Texas court’s

focus on the parties’ activities and their

in personam types of contacts with the

taxing state is mistaken. The tax at issue

is an ad valorem property tax, a tax on

property where it is located, not on the tax

payer's activities.

Id. at 959-60 n.84 (emphasis added) (discussing

Harrison Cent. Appraisal Dist. v. Peoples Gas,

Light & Coke Co., 270 S.W.3d 208 (Tex. App. — Texar

kana 2008, pet. denied)). With only one justice dis

senting, Oklahoma’s position is firm.

Nor has Texas budged. At the time of the Okla

homa decision, the Harrison opinion it so harshly

criticized was pending rehearing in the court of

appeals, After supplemental briefing by both sides,

that court left intact its opinion, cementing the split.”

And when the Midland opinion was issued, it

even more explicitly rejected the core holding of the

Oklahoma case — that the old “in transit” line of cases

had been superseded by Complete Auto. Instead, it

rested its decision on that very quicksand — reliance

on the old continuity of transit analysis and looking

for in personam contacts to support an ad valorem

property tax.’ Midland Cent. Appraisal Dist. v. BP

* The Harrison opinion was issued on September 24, 2008

The Oklahoma opinion was issued on October 21, 2008. A letter

brief was filed with the Harrison court on November 3, 2008,

and a response was filed a few weeks later The Harrison court

denied rehearing on December 9, 2008. (Docket information for

this case is available at the court website, http //www.6thcoa

courts.state.tx us, using the “Case Search” feature and the

docket number “06-07-00103-CV” )

* Indeed, when the Midland court sought to distinguish the

facts from the Oklahoma case, it invoked the “in transit” reason

ing that the Oklahoma court had rejected Midland, 282 S W 3d

(Continued on following page)

8

Am. Prod. Co., 282 S.W.3d 215, 221-23 (Tex. App.

Eastland, pet. denied) (analyzing continuity of trans-

it); id. at 223-24 (using “in transit” to substitute for a

nexus analysis); id. at 224 (looking for in personam

contacts by the owner while discounting the proper-

ty’s connection to the taxing jurisdiction).

Through borrowing rigid, formalistic “in transit”

precedents, Harrison and Midland have rejected the

pragmatic approach to the Dormant Commerce

Clause recognized in Complete Auto. The Texas

Supreme Court’s denial of review in these two peti-

tions confirms that the split will not resolve itself.

C. Using older cases to inform the nexus

analysis distorts the Complete Auto

framework and warrants certiorari.

The Complete Auto test is this Court’s general

framework for analyzing taxes under the Dormant

Commerce Clause. Complete Auto closed a schism

between older cases presuming that states inherently

lacked authority over interstate commerce and others

holding that interstate commerce could be made to

“pay its way.” Complete Auto Transit, Inc. v. Brady,

430 U.S. 274, 284 (1977). It reaffirmed that there was

at 224 (“The crude oil in the present case was not in storage but,

rather, was 1n transit in the stream of interstate commerce.”);

cf. Missourt Gas, 234 P.3d at 955 (“Were the court making the

old ‘in transit’ or ‘at rest’ determination, this record would make

that determination very difficult.”).

9

no “free trade” immunity from taxes on interstate

commerce, id. at 278-79, and instead that taxes were

permitted if they met the four requirements later

termed the Complete Auto test, id. at 279.

Since 1977, that framework has been applied to

many state and local taxes and regulations. The

Court has developed a sophisticated set of tools for

measuring discriminatory effect.

But the Court has given little guidance about

how to interpret the first prong of Complete Auto —

the “substantial nexus” prong. As a result, the lower

courts are floundering. The Harrison and Midland

courts’ approach of using older cases to inform this

analysis subverts Complete Auto by carving out an

antique, Nineteenth Century “free trade’ immunity

for commerce. Just as anachronistically, these “in

transit” cases embed into their analysis assumptions

about what discrimination is or is not permissible —

creating tension with the more evolved modern

versions of the second and third prong of Complete

Auto.”

'* For example, Midland justifies its adherence to the “in

transit” test by noting that, otherwise, multiple states might

have jurisdiction over the goods at some point in their journey

Midland, 282 S W.3d at 224 (citing Michigan-Wisconsin Pipe

Line Co. v. Calvert, 347 U.S 157, 170 (1954)). But under Com-

plete Auto, the second and third prongs address any multiple-

taxation concern directly, there 1s no need to overload the first

prong, which is simply the wrong tool E.g., Oklahoma Tax

Comm'n v Jefferson Lines, Inc ,514U S 175, 184 (1995).

10

This tension between the framework used in the

older cases such as Minnesota v. Blasius, 290 U.S. 1,

9-10 (1933) (goods in the flow of interstate commerce

have “immunity ... from state taxation”), and the

Complete Auto framework goes back to first princi-

ples. The continuity-of-transit cases are looking for a

hook to divest states of jurisdiction — movement in

commerce — by elevating the goods into a special

realm of federal immunity. If that hook is imported

into the nexus prong of Complete Auto, it would sap

all the flexibility and nuance from the modern test.

Il. These Decisions Reflect an Untenable View

of Complete Auto.

The Texas courts have made two related mis-

takes about a single prong of the Complete Auto test:

(1) looking to whether the oil or gas was “in transit”

as a measure for substantial nexus with the state and

(2) framing nexus as whether the taxpayer had other

“activity” in the state beyond ownership of the taxa-

ble res.

A. The “in transit” authorities presup-

pose immunity from taxation in which

interstate commerce does not pay its

own way.

The Texas courts focused extensively on whether

the gas or oil would be considered “in transit” — and

did so by invoking cases built on the pre-Complete

Auto idea that interstate commerce was immune from

Ll

taxation. See Harrison, 270 S.W.3d at 215-17 (in

holding the gas was “in transit,” relying on Supreme

Court constitutional cases from 1886, 1922, 1926,

1929, 1933, 1947, and 1954); Midland, 282 S.W.3d at

221-23 (adding a case from 1921)."

Those cases presuppose an absolute immunity

of interstate commerce from state taxing authority.

E.g., Blasius, 290 U.S. at 9-10 (continuous movement

creates “immunity of the property from state taxa-

tion”); Champlain Realty, 260 U.S. at 276 (discussing

“the immunity from state taxation [of] things actual-

ly in interstate commerce”).

And that stands in tension with Complete Auto,

which acknowledged a shift away from the constitu-

tional understanding within which those _pre-

Complete Auto cases were decided. For that reason,

they do not meaningfully inform a proper evaluation

of “substantial nexus” under the modern Complete

Auto test.

"“ Michigan-Wisconsin Pipe Line Co v. Calvert, 347 U.S.

157 (1954); Indep. Warehouses v. Scheele, 331 U.S 70 (1947);

Minnesota v Blasius, 290 U.S. 1 (1933); Carson Petroleum Co. v.

Vial, 279 U.S. 95 (1929); Hughes Bros. Timber Co. v Minnesota,

272 U.S. 469 (1926); Champlain Realty Co v. Town of Brattle-

boro, 260 U.S. 366 (1922); Eureka Pipe Line Co. v. Hallanan, 257

U.S. 265 (1921); Coe v Errol, 116 U.S. 517 (1886).

12

1. “In transit” does not fit Complete

Auto.

The historical understanding of “in transit”

cannot be imported wholesale into Complete Auto’s

nexus prong without displacing the rest of the test.

The Court stated its goal to have a “standard of

permissibility of state taxation based upon its actual

effect rather than its legal terminology.” Complete

Auto, 430 U.S. at 281. Areturn to “in transit” is a step

backwards and would serve “only to distract the

courts and parties from their inquiry into whether

the challenged tax produced results forbidden by the

Commerce Clause.” Jd. at 285.

Reviving the “in transit” test also brings back the

Spector philosophy that “interstate commerce should

enjoy a sort of ‘free trade’ immunity from state taxa-

tion.” Complete Auto, 430 U.S. at 278 (discussing

Spector Motor Serv. v. O'Connor, 340 U.S. 602 (1951)).

Complete Auto should have dispelled those ghosts of

constitutional history. Under its four-prong test,

“interstate commerce may be made to pay its way.”

Complete Auto, 430 U.S. at 284-85.

2. “In transit” unduly penalizes com-

peting intrastate commerce and

would distort the market.

Natural gas, to use the example provided by the

Harrison case, is a market where the “in transit” test

would put a thumb on the free-market balance be-

tween local (intrastate) and distant (interstate)

13

options.” If storage facilities along interstate pipelines

have a federal immunity to local tax, they will have a

pricing advantage over nearby sources of gas.

The Dormant Commerce Clause should level the

field for interstate commerce, not award it an un-

earned edge in the marketplace. The market distor-

tion caused by this holding strongly suggests that the

formalistic “in transit” rule has broken with the

reality of the modern economy.

B. For ad valorem property taxes, nexus

should be measured against the goods,

not the taxpayer.

The court of appeals based its nexus holding on a

wrongly framed legal test. Instead of asking whether

the goods themselves had a sufficient nexus with

Texas to support a nondiscriminatory tax, it instead

asked whether the taxpayer had some other in

personam contacts beyond ownership of the goods.

The court described this as a search for some

other “activity” by the nominal owner of the oil within

the borders of the state. Midland, 282 S.W.3d at 224.

'* Texas, for example, has a substantial network of purely

intrastate natural-gas pipelines. See “Intrastate Natural Gas

Segment,” http//www eia.doe.gov/pub/oil_gas/natural_gas/analysis_

publications/ngpipelineAntrastate html (visited Feb. 8, 2010)

(“Intrastate pipelines in Texas account for 45,000 of the 58,600

mules of natural gas pipelines in the state.”)

14

In a functionally similar test, Harrison looked for

whether the taxpayer had some “personal presence”

within the state beyond the presence of the natural

gas. Harrison, 270 S.W.3d at 218. These formulations

became central to each court’s holding under the

13

nexus prong.

In one of the Court’s few statements on the nexus

prong of Complete Auto, it borrowed a due-process

formulation saying that a tax requires substantial

nexus “between a state and the person, property, or

transaction it seeks to tax.” Allied-Signal, Inc. v.

Director, Div. of Taxation, 504 U.S. 768, 777 (1992)

(quoting Miller Bros. v. Maryland, 347 U.S. 340, 344-

45 (1954)). Before Complete Auto, the Court had

stated how local ad valorem taxes can be imposed on

local property: “Of course, the situs of property may

tax it regardless of the citizenship, domicile, or resi-

dence of the owner.” Miller Bros., 347 U.S. at 345.

But the Court has not yet spoken so plainly about

how the Commerce Clause gauges nexus over these

same ad valorem taxes after Complete Auto.

In the absence of specific guidance, the lower

courts now disagree about what test to use for nexus.

Oklahoma looks for nexus with the property.

'* The court of appeals acknowledged, “the oil itself had a

substantial nexus with this state.” 282 S.W3d at 224. And

Harrison noted that “[ilf one were to look strictly at the generic

act of storing gas___.. it mght appear that such an activity would

have a substantial nexus with the State.” 270 S W 3d at 218.

15

Missouri Gas, 234 P.3d at 955 (looking to the presence

of the gas, not the taxpayer, within the state). But the

Texas courts have looked for nexus with some “activi-

ty” of the out-of-state owner of the property being

taxed. Midland, 282 S.W.3d at 224; Harrison, 270

S.W.3d at 218.

Looking to nexus with the owner’s “activities”

would lead to bizarre results for local governments

who depend on ad valorem property tax. For these

local taxing jurisdictions, marshaling such proof may

be a challenge. Nor does distinguishing between

taxable property based on whether its owner happens

to have other activities or property nearby further the

constitutional values underpinning the Commerce

Clause. The Court should clearly state that nexus

for ad valorem property taxes should be measured

against the property being taxed, not its owner.

Ill. Both Petitions Warrant Attention.

With Harrison and Midland, the Court can

choose between two petitions raising the same consti-

tutional issue. In the Texas Supreme Court, these two

cases were briefed in parallel and treated by the

parties as intertwined.

The Court should consider taking the petitions as

a pair. Failing that, it should grant a lead petition

and, ultimately, vacate and remand the other.

16

A. The petitions offer contrasting facts

that could yield a more satisfying rule

than either alone.

Although both petitions involve products of the

energy industry, the fact patterns differ in ways that

bear on the older “in transit” analysis. As a pair, they

may offer a more satisfying way to announce a rule

than any single, later petition is likely to do:

(1) The Harrison CAD v. Peoples Gas petition

presents a classic case of natural gas storage facili-

ties, akin to a warehouse for goods. This should have

passed muster even under the old “in transit” cases

because the gas was stored for business reasons, such

as shifting supply to meet seasonal variations in

market demand.

(2) The Midland CAD v. BP America petition

presents something more akin to a cross-dock for

goods, where some oil barely pauses and other oil is

subjected to “batching,” “blending,” and “staging” for

different purposes and lasting different periods of

time." Although the better holding is that taxing this

property satisfies Complete Auto, this is a closer case.

By taking this set of petitions, the Court can

announce a rule that deals both with goods arguably

“ Even under a strict “in transit” analysis, some of these

operations might interrupt the continuity of transit. For exam-

ple, “blending” combines fuel with different characteristics to

make a more marketable product than its original components.

17

“in transit” under pre-Complete Auto jurisprudence

(such as oil in the Midland tank farm) and goods that

are plainly “in storage” under that view (such as the

gas in Harrison). Addressing both at once is the

surest way to remove the confusion over how, if at all,

these concepts fit under Complete Auto.

B. At a minimum, this petition should be

held for an eventual GVR.

1. AGVR would ensure that the court

of appeals applies the correct rule.

The Midland opinion directly discussed Harrison,

concluding that the facts in its own case “present[ ]

an even stronger case for a Commerce Clause viola-

tion than did the circumstances in [Harrison].” 282

S.W.3d at 223-24.

The reason? Its reading of pre-Complete Auto

cases about whether goods are “in transit.” Jd. at 221-

22 (citing no federal cases from after 1933); td. at 224

(citing “in transit” as key to nexus). If the Court

grants review in Harrison and ultimately (and cor-

rectly) reverses, then a vacatur and remand of Mid-

land would permit it to apply the modern test.

2. There is little doubt that the Court

has jurisdiction.

The Midland opinion discusses a provision of

Texas law that asks if the property being taxed was

18

present “for more than a temporary period.” TEx. TAx

CODE §21.02(a)(1); Midland, 282 S.W.3d at 224.

Without referencing any state case law — and without

even offering a construction of the statutory text — the

opinion pointed back to its much more extensive

discussion of federal law (“[a]s discussed above”) to

explain how it applied state law. Id. at 224-25.

As a threshold matter, a state-law ground only

affects this Court’s jurisdiction if its independence is

“clear from the face of the opinion.” Michigan v. Long,

463 U.S. 1032, 1040 (1983). Nowhere does the opinion

state that this was an independent question of state

law. Nor does it say that the scope of the Texas stat-

ute (“more than a temporary period”) in any way

departs from federal constitutional constraints.

Instead of an independent state-law analysis, the

opinion cross-referenced its federal holding. Midland,

282 S.W.3d at 224.

Second, the Court has jurisdiction whenever “a

state court’s interpretation of state law has been

influenced by an accompanying interpretation of

federal law.” Three Affiliated Tribes of Fort Berthold

Reservation v. Wold Eng’g, P.C., 467 U.S. 138, 152

(1984). Federal law, including an extensive discussion

of whether the oil was “in transit” under pre-

Complete Auto precedents, 282 S.W.3d 221-22, drove

the outcome here.

Third, although the presumptions of Michigan v.

Long make further inquiry unnecessary, this area of

1S

Texas law is in fact deeply “interwoven” with federal

law. Id. at 1040.

That’s because Texas pushes its taxing jurisdic-

tion over tangible personal property to the constitu-

tional limit; only those exemptions spelled out in the

state constitution or required by conflicting federal

law are permitted; mere state statutes cannot author-

ize exemptions.” Appraisal Review Bd. v. Tex-Air

Helicopters, Inc., 970 S.W.2d 530, 534 (Tex. 1998)

(holding that another portion of this statute was

permissible as “an attempt to comply with United

e ° 9 16

States constitutional mandates”).

When a state has bound itself to an unduly

limiting view of federal constraints — when driven by

“what it understood to be federal constitutional

considerations to construe and apply its own law in

' Tex. Constr. art. VIII, §1(b) (“All real and personal

property in this State, unless exempt as required or permitted

by this Constitution .. shall be taxed in proportion to its

value”) No party has argued that these goods are exempt under

any state constitutional provision. The only possible source of

exemption is federal law

'° In cases involving state constitutional rights, Texas

courts have been instructed to make clear whenever they rely on

a presumed deviation between state and federal law. Davenport

v. Garcia, 834 S.W2d 4, 20 (Tex. 1992) (an opinion should, if

appropriate, “provide a ‘plain statement’ that it is relying on

independent and adequate state law”). The Midland court did

not There is no state constitutional exemption at issue here;

only federal exemptions could apply

20

the manner it did,” Zacchinit v. Scripps-Howard

Broad. Co., 433 U.S. 562, 568 (1977) — this Court is in

a unique position to protect the balance of federalism

by granting review

CONCLUSION

The petition should be granted.

Respectfully submitted,

DON CRUSE”

LAW OFFICE OF DON CRUSE

1108 Lavaca Street,

Suite 110-436

Austin, Texas 78701

don@doncruse.com

(512) 853-9100

‘Counsel of Record Counsel for Amict Curta

Dated: February 10, 201]