Petition for Writ of Certiorari — Diamond Shamrock Refining & Marketing Co. v. Nueces County Appraisal District

Supreme Court brief1994

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st ~ — —— — Ta . a

Supreme Court, U.S.

| FILED

94 466 SEP 13 19%

OFFICE OF 1HE CLERK

No.

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1994

DIAMOND SHAMROCK REFINING

AND MARKETING COMPANY,

Petitioner,

Vv.

NUECES COUNTY APPRAISAL DISTRICT AND

THE APPRAISAL REVIEW BOARD OF THE

NUECES COUNTY APPRAISAL DISTRICT,

Respondents.

Petition for a Writ of Certiorari to the

Supreme Court of Texas

PETITION FOR A WRIT OF CERTIORARI

Of Counsel: TIMOTHY B. DYK

TIMOTHY J. FRETTHOLD (Counsel of Record)

DIAMOND SHAMROCK DANIEL H. BROMBERG

REFINING AND MARKETING CO. _JONES, DAY, REAVIS

P.O. Box 696000 & POGUE

San Antonio, TX 78269 1450 G Street, N.W.

Washington, D.C. 20005

(202) 879-3939

Counsel for Petitioner

QUESTIONS PRESENTED

1. Whether the Import-Export Clause permits ports of entry

into the United States (and related tax jurisdictions) to impose ad

valorem property taxes upon goods in transit through them?

2. Whether the Commerce Clause permits ports of entry into

the United States (and related tax jurisdictions) to impose ad

valorem property taxes upon goods in transit through them?

PARTIES TO THE PROCEEDINGS

Pursuant to this Court’s Rule 29.1, following are the parent

company, subsidiaries (except wholly-owned subsidiaries), and

affiliates of petitioner: Diamond Shamrock Refining and

Marketing Co. is a wholly-owned subsidiary of Diamond

Shamrock, Inc. Big Diamond, Inc.; Colonnade Assurance, Ltd.;

Corporate Claims Management, Inc.; Engineering Technology,

Inc.; Phoebus Energy, Ltd.; Shamrock Ventures, Ltd.; Sigmor

Beverage, Inc.; and Skelly-Bellvieu Pipeline Co., L.L.C. are

subsidiaries or affiliates of Diamond Shamrock Refining and

Marketing Co.

ili

TABLE OF CONTENTS

Page

Se gy i

PARTIES TO THE PROCEEDINGS .............. il

pt ys iv

Ts oo kas ce hee te eee cee 1

a 2

CONSTITUTIONAL PROVISIONS INVOLVED ...... 2

Re 2 ass pete g yb wk 66s os et es 2

REASONS FOR GRANTING THE WRIT .......... 7

I. THE DECISION BELOW CONFLICTS WITH

DECISIONS OF THIS COURT AND OF THE

FIFTH CIRCUIT UNDER THE IMPORT-

eS ee eee 8

A. The Decision Below Is Inconsistent With The

Decisions Of This Court Under The Import-

I is Ge pas ee twee eee 8

B. The Decision Below Conflicts With A Decision

Of the Court of Appeals For The Fifth Circuit

Under The Import-Export Clause ......... 15

Il. THE DECISION BELOW CONFLICTS WITH

DECISIONS OF THIS COURT UNDER THE

ee 16

Ill. THE DECISION BELOW RAISES AN

IMPORTANT AND RECURRING ISSUE ....... 18

I cok be hn bck he eee ees 20

TABLE OF AUTHORITIES

Page

Cases

American Trucking Ass‘n., Inc. v. Scheiner, 483 U.S. 266

Cs Go oo a eS Pa ee a 14

Associated Industries v. Lohman, 114 S. Ct. 1815

CPOE sik fois on be bi A ee as 13, 14

Brown v. Maryland, 25 U.S. (12 Wheat.) 419 (1827) ..... 9

Carson Petroleum v. Vial, 279 U.S. 95 (1929) ........ 16

Champlain Realty Co. v. Town of Brattleboro,

oe ra ia bie ks oe 6 8 6 eo ee 16

Ce WUE, Se ais EP CRUE oe ce ewes 16, 20

Cook v. Pennsylvania, 97 U.S. 566 (1878) .......... 12

Cooley v. Board of Wardens, 53 U.S. (12 How.) 299

CHRES ua 6k a ee ed ee as ns 9

D.H. Holmes Co. v. McNamara, 486 U.S. 24

CHEE hee a so es he ee ee ae wees Oe oy

Department of Revenue v. Association of Washington

Stevedoring Cos., 435 U.S. 734 (1978) ............ 11

Harris County Appraisal Dist. v. Virginia Indonesia Co. ,

871 S.W.2d 864 (Tex. Ct. App. 1994) (writ of error

Pe a oe eee 16

Hughes Bros. Timber Co. v. Minnesota, 272 U.S. 469

COR ys he ee a ce Be Res es 16

Itel Containers Int’l. Corp. v. Huddleston,

153 3. GS, ee eee a Sa a SS eee 8, 12

Kelley v. Rhoads, 183 U.S. 1 (1902) . 2... 2. eee ees 18

License Cases, 46 U.S. (5 How.) 504 (1847) ......... 11

Low v. Austin, 80 U.S. (13 Wall.) 29 (1870) ......... 10

Louisiana Land & Exploration Co. v. Pilot Petroleum Corp.,

900 F.2d 816 (Sth Cir.), cert. denied, 498 U.S. 897

(Saran arrecmererer trey yr Mo rer or ae 16

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

Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456

COSBED seo ok New ae eae ee OEE ee bens 13

TABLE OF AUTHORITIES (Cont’d.)

Page

West Lynn Creamery, Inc. v. Healey, 114 S. Ct. 2205

gots he Bh 5 VET Re AE a x 58 8d 13, 14

Western Oil Refining Co. v. Lipscomb, 244 U.S. 346

Md Ack k 4a 5 5. PET PR Eee ees * 17

Youngstown Sheet & Tube Co v. Bowers, 358 U.S. 534

ee 9, 10

Constitutional Provisions and Statutes

Te eT Oe ee ae a 2

U.S. Const. art. 1, § 10, cl.2...---- eee rrr’ 2,8

Mies Const, at. 4,§ 112. ..-------e errr 18

ee 3

ke ye a 2

Ala. Code § 40-11-1(b)(16) (1993) .------ srr 18

Alaska Stat. § 29.45.010 (1992) ...------- rrr 18

Ariz. Rev. Stat. Ann. § 2-202 (1991)...------s-+00° 18

Ariz. Rev. Stat. Ann. § 42-631 (1991) .----- +--+ 7? 19

Ark. Code Ann. § 26-3-201 (Michie a 18

Ark. Code Ann. § 26-26-1102(6)(1) (Michie 1992) ...-.- 19

Cal. Rev. & Tax Code § 201 (West >) Se 18

Colo. Rev. Stat. § 39-1-105 (1982 & Supp. 1993) ...--- 18

Conn. Gen. Stat. § 12-71 (1993) Se ee 18

D.C. Code Ann. § 47-1508(4)(1981) .---------00 7 19

D.C. Code Ann. § 47-1522(a) (1981 & Supp. 1994) .... 18

Fla. Stat. Ann. § 192.032(4) (West ae 19

Fla. Stat. Ann. § 196.001(1) (West ES ee 18

Ga. Code Ann. § 48-5-3 (1991) ...------scctcct 18

Ga. Code Ann. § 48-5-5 (1991) .------ sss crc 18

Idaho Code § 63-101 (1989) ..--------srccrrtt 18

Idaho Code § 63-105W (1989) .---------ssctctt 19

Ind. Code Amn. § 6-1.1-2-1 (West 1989 & Supp. 1994) .. 18

TABLE OF AUTHORITIES (Cont’d.)

Page

Ind. Code Ann. § 6-1.1-10-29 (West 1989 & Supp. 1994). 19

Ind. Code Ann. § 6-1.1-10-30 (West 1989) .......... 18

Mam. Seat. Atm. § TO-1GE (Oe wee cc ce ees 18

oe ee 19

Ky. Rev. Stat. Ann. § 132.020(6) (Michie Supp. 1992) .. 18

La. Rev. Stat. Ann. § 47:1951 (West 1990) .......... 18

La. Rev. Stat. Ann. § 47:1951.1(2) (West 1990) ....... 18

Mass. Gen. Laws Ann. ch. 59, § 2 (West 1988) ....... 18

Md. Code Ann., Tax-Prop. § 101(a)(1) (1994) ........ 18

Me. Rev. Stat. Ann. tit. 36, § 502 (West 1978) ....... 18

Me. Rev. Stat. Ann. tit. 36, § 655(1)(G) (West 1978) ... 18

Mich. Comp. Laws Ann. § 211.1 (West 1986) ........ 18

Mich. Comp. Laws Ann. § 211.9(1) (West 1986) ...... 19

Minn. Stat. Ann. § 272.01(1) (West 1989 & Supp. 1994) . 18

Miss. Code Ann. § 27-31-13 (1972) .............. 18

Mo. Ann. Stat. § 137.075 (Vernon 1988) ........... 18

Mo. Ann. Stat. § 137.910 (Vernon 1988) ........... 19

Mont. Code Ann. § 15-6-101(1) (1993) ............ 18

Mont. Code Ann. § 15-6-202 (1993) .............. 19

©. Ga. Seek. © Re Cs 6c cc eee. 18

N.C. Gen. Stat. § 105-275(2) (1993 & Supp. 1993) ..... 19

N.D. Cent. Code § 57-02-03 (1993) .............. 18

N.J. Stat. Ann. § 54:4-1 (West 1986 & Supp. 1994) .... 19

N.M. Stat. Ann. § 7-35-2(1) (Michie 1993 & Supp.1994) . 18

N.M. Stat. Ann § 7-37-2 (Michie 1993 & Supp. 1994)... 18

Neb. Rov. Stat. § Trade Crees Geet ete e se be eee 18

Nev. Rev. Stat. Ann. § 361.045 (Michie 1993) ....... 18

Nev. Rev. Stat. Ann. § 361.160 (Michie 1993) ....... 19

Okla. Stat. Ann. tit. 68, § 2804 (West 1992) ......... 18

Okla. Stat. Ann. tit. 68, § 2831(E) (West 1992) ....... 19

Vii

TABLE OF AUTHORITIES (Cont’d.)

Page

Or. Rev. Stat. § 307.030(1) (Supp. 1994) ........... 18

R.I. Gen. Laws § 44-3-1 (1988) ................. 18

S.C. Code Ann. § 12-37-210 (Law. Co-op 1976) ...... 18

S.C. Code Ann. § 12-37-1110 (Law. Co-op. 1976) ..... 19

S.D. Codified Laws Ann. § 10-4-1 (Supp. 1994) ...... 18

Tenn. Code Ann. § 67-5-101 (1989) .............. 18

Tenn. Code Ann. § 67-5-217 (1989) .............. 19

Tex. Tax Code Ann. § 1.04(12) (West Supp. 1994) ...... 4

Tex. Tax Code Ann. § 21.02 (West Supp. 1994) ...... 10

Utah Code Ann. 59-2-901 (1963) ................ 18

Va. Code Ann. § 58.1-100 (Michie 1991) ........... 18

Va. Code Ann. § 58.1-3000 (Michie 1991) .......... 18

Va. Code Ann. § 58.1-3514 (Michie 1991) .......... 19

Wn ey wre ec ec tee ew 18

W. Va. Code § 11-5-13(a) (1991) ................ 19

Wash. Rev. Code Ann. § 84.36.005 (West 1991) ...... 18

Wash. Rev. Code Ann. § 84.36.140 (West 1991) ...... 19

Wash. Rev. Code Ann. § 84.36.176 (West 1991) ...... 19

Wash. Rev. Code Ann. § 84.36.181 (West 1991) ...... 19

Wis. Stat. Ann. § 70.01 (West 1989) .............. 18

Wye. Sem. § Se--1Gz (ISPS) 2. ww we eee 18

bo 18

Miscellaneous Authority

1 W. Crosskey, Politics and the Constitution in the

History of the United States (1953) ................ 9

Energy Information Administration, Petroleum Supply

pS 8,9

Energy Information Administration, State Energy Data

EEE 19

P. Hartman, Federal Limitations on State and

Deen mete wceccce 17

viii

TABLE OF AUTHORITIES (Cont’d.)

I J. Hellerstein and W. Hellerstein, State Taxation:

Corporate Income and Franchise Taxes (2d ed. 1993) ... 17

Statistical Abstract of the United States 1993

Col erGe. Tee ee Pe ae 2 05S oss 7

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1994

No.

DIAMOND SHAMROCK REFINING

AND MARKETING COMPANY,

Petitioner,

Vv.

NUECES COUNTY APPRAISAL DISTRICT AND

THE APPRAISAL REVIEW BOARD OF THE

NUECES COUNTY APPRAISAL DISTRICT,

Respondents.

Petition for a Writ of Certiorari to the

Supreme Court of Texas

PETITION FOR A WRIT OF CERTIORARI

Diamond Shamrock Refining and Marketing Company

("Petitioner") respectfully petitions for a writ of certiorari to

review the judgment of the Supreme Court of the State of Texas

in this case.

OPINIONS BELOW

The opinion of the Supreme Court of Texas (App. 1a) is

reported at 876 S.W.2d 298. The opinion of the Court of

Appeals for the Thirteenth Judicial District, Corpus Christi, Texas

(App. 14a) is reported at 853 S.W.2d 212. The judgment and the

findings of fact and conclusions of law of the 117th District Court

of Nueces County, Texas are unreported. (App. 42a, 52a).

JURISDICTION

The Texas Supreme Court entered its judgment on April 20,

1994. Petitioner’s motion for rehearing was overruled on June

15, 1994. This Court’s jurisdiction is invoked under 28 U.S.C.

§ 1257(3).

CONSTITUTIONAL PROVISIONS INVOLVED

Article I, § 8 of the United States Constitution provides in

pertinent part as follows:

The Congress shall have Power To . . . regulate Commerce

with foreign Nations, and among the several States, and with

the Indian Tribes... .

Article I, § 10, cl.2 of the United States Constitution provides

as follows:

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: 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 Controul of the Congress.

STATEMENT

This case presents an important and recurring question

concerning goods imported into this country: whether ports of

entry into the United States may impose ad valorem personal

property taxes on goods in transit through them.

Petitioner Diamond Shamrock imports crude oil from the North

Sea and the West Coast of Africa through the port of Corpus

Christi, which is located in Nueces County, Texas.’ (App. 43a,

' For the sake of convenience, the terms "petitioner" and "Diamond

Shamrock" are used herein to refer to Diamond Shamrock Refining and

Marketing Company, its subsidiaries, and affiliates. Similarly, “port of

65a). The oil is transported by tanker to the Gulf of Mexico and

then transferred into a storage facility on Harbor Island operated

by American Petrofina, a common carrier. (App. 43a, 57a-58a).

From Harbor Island, the oil is pumped through pipelines owned

by American Petrofina and by petitioner to Three Rivers, Texas

where petitioner operates a refinery. (App. 43a, 58a).

Normally, a portion of the oil imported by petitioner is delayed

on Harbor Island and stored there in tanks owned by American

Petrofina. (App. 43a, 58a). Such delays are typical in the oil

industry. The tankers used to import crude oil into this country

have massive cargo holds, on the order of magnitude of one or

two million barrels. Pipelines such as American Petrofina’s

simply do not have the capacity to transport such volumes of oil

all at once. As a consequence, unlike domestic crude oil, which

is transported to the refinery as it is pumped out of the ground,

imported crude oil must be stored temporarily at its port of entry

until it can be pumped to the refinery. In petitioner’s case, this

process may take anywhere from one to four weeks. (App. 58a).

Under Texas law, various city, county and other political

subdivisions are authorized to assess personal property taxes.

See, e.g., Tex. Const. art. VIII, § 1 (authorizing most political

subdivisions of the state to assess personal property taxes).”

Corpus Christi" is used to refer to ports in Corpus Christi Bay.

* The definition in the Texas Property Tax Code of "taxing unit" gives

some indication of the number of political subdivisions the state of Texas

authorizes to impose property taxes. Under the Texas Proper, Tax

Code,

"Taxing unit" means a county, an incorporated city or town

(including a home-rule city), a school district, a special district or

authority (including a junior college district, a hospital district, a

district created by or pursuant to the Water Code, a mosquito control

district, a fire prevention district, or a noxious weed control district),

or any other political unit of this state, whether created by or

pursuant to the constitution or a local, special, or general law, that

is authorized to impose and is imposing ad valorem taxes on property

Although American Petrofina pays hundreds of thousands of

dollars in taxes on its Harbor Island facility each year, in 1989

respondent Nueces County Appraisal District decided to include

petitioner’s oil temporarily stored there awaiting shipment at

American Petrofina’s Harbor Island facility in the Nueces County

appraisal roll for the years 1988 and 1989. (App. 57a, 59a). The

Appraisal District also included oii stored at Harbor Island in the

appraisal roll for the year 1990. (App. 57a). The consequence

was that the oil was taxed at the rate applicable to property

located within the county for the entire year. Petitioner protested

these decisions, and on July 19, 1989, and on August 31, 1990,

respondent Appraisa: Review Board of Nueces County rejected

petitioner’s protests. (App. 45a, 47a). Petitioner then filed the

present action pursuant to state law in Nueces County district

court.

The case was tried before a district court in Nueces County on

stipulated facts. Among other things, the parties stipulated that

while in Nueces County, the oil imported by petitioner was "in

transit to" petitioner’s refinery in Three Rivers and that its

presence in Nueces County was "reasonably necessary for the

accommodation of the transportation of the crude oil" to the

refinery. (App. 58a). Finding that the oil in question was

imported from abroad and that its destination was outside Nueces

County, the trial judge concluded that the Import-Export Clause

and the Commerce Clause prohibited the authorities within

Nueces County from assessing property taxes on the oil because

the oil was in transit. (App. 42a-44a, 65a).

Sitting en banc, the Corpus Christi Court of Appeals reversed

in a 4-3 decision. The majority found that because the taxes in

question did not discriminate against foreign commerce on their

face and that because the oil’s destination was within the State of

Texas, the taxes did not, and could not, offend any of the

even if the governing body of another political unit determines the tax

rate for the unit or otherwise governs its affairs.

Tex. Tax Code Ann. § 1.04(12) (West Supp. 1994).

purposes of the Import-Export Clause identified by this Court in

Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976). (App. 16a-

20a). The majority also declared that it was irrelevant whether

the goods were in transit through Nueces County at the time they

were appraised. Although the majority recognized that the fact

that oil was in transit at the time of appraisal would have been

relevant under traditional Import-Export Clause analysis, in its

estimation, after Michelin "the concept of ‘in transit' loses any

rational meaning" independent of the purposes of the Clause.

Accordingly, the majority asserted that once those purposes are

satisfied, "the taxability of the property becomes a matter for the

state." (App. 20a). For similar reasons, the majority rejected

petitioner’s Commerce Clause Chailenge. One judge concurred

separately.

Three judges dissented. The dissent found no basis for

restricting the application of the in-transit rule of the Import-

Export Clause and the Commerce Clause to goods that have not

yet reached their state of destination. In focusing on whether

goods are in transit, they observed, this Court’s concern has not

been where goods come to rest but rather whether they are in the

midst of a commercial journey that originated outside the state in

which they were taxed. (App. 28a). Similarly, in the dissent’s

view, far from abandoning its traditional concern with whether

goods are in transit at the time personal property taxes are

assessed, the Court expressly reaffirmed the importance of this

fact in Michelin. (App. 27a-29a).

Finally, the dissent concluded that the taxes assessed upon

petitioner were both discriminatory and unfairly burdensome. It

observed that "[t]he ‘operating incident’ of the tax herein is the

mere presence of the oil in the taxing jurisdiction: the oil’s transit

through Nueces County." (App. 40a). Under such circum-

stances, the taxes levied upon petitioner’s oil were not a "quid pro

quo for direct benefits conferred" upon petitioner but rather an

extra charge for services for which the thousands of dollars in

taxes paid by American Petrofina had already fully compensated

the county. (App. 34a-35a).

On review the Texas Supreme Court affirmed. That court held

that the Import-Export Clause was not violated by the taxes

imposed upon petitioner’s oil. It did so even though it

acknowledged that the oil was "'in transit’ while in Nueces

County."* (App. 6a). The Texas Supreme Court also

acknowledged that in Michelin this Court stated that the Import-

Export Clause prohibits "'the assessment of even nondiscrim-

inatory property taxes on goods which are merely in transit

through the State when the tax is assessed.'" (App. 5a (quoting

Michelin, 423 U.S. at 290)). Nevertheless, the State Court

upheld the taxes assessed by Nueces County on the ground that

the in-transit exception announced in Michelin did not apply to

goods that enter the country through their state of destination.

The Texas Supreme Court purported to reach this conclusion

on the basis of its reading of the purposes of the Import-Export

Clause. According to the Texas court, one purpose of the Clause

was to prevent states with ports of entry "'from levying taxes on

citizens of other States by taxing goods merely flowing through

their ports to the inland States not situated as favorably

geographically.'" (App. 4a (quoting Michelin, 423 U.S. at 285-

86)). The taxes imposed upon petitioner did not, in the court’s

view, pose such a threat because "the oil in question here entered

only the State of Texas and . . . never left Texas in its crude oil

form." (App. 6a (emphasis in original)). Thus, according to the

Texas court, when read in context, "the Michelin Court’s

qualification clearly applies only to goods in transit through the

state to or from another state and not to goods merely in transit

within the only state the goods ever enter." (App. 6a (emphasis

in original)).

The Texas Supreme Court also rejected petitioner’s Commerce

Clause challenge, finding that petitioner’s oil, though in transit

> To the extent that the Court of Appeals suggested otherwise, the Texas

Supreme Court found that "the Court of Appeals made an impermissible

inference that conflicts with the facts as stipulated by the parties."

(App. 6a n.2).

through Nueces County, had been delayed there for a significant

period, and, therefore, had a sufficient nexus with the county to

justify taxation under the Commerce Clause. (App. 10a-12a).

The court noted many decisions of this Court invalidating state

and local taxation of goods in transit, but attempted to distinguish

them on the ground that they involved not "foreign goods ‘in

transit’ through only one state, which remain in that state," but

"goods ‘in transit' through one State on the way to or from

another State or on the way to a foreign country." (App. 9a-10a

nn. 6-7 (citations omitted)). The Texas court also asserted that

after this Court’s decision in D.H. Holmes Co. v. McNamara, 486

U.S. 24 (1988), “whether Diamond Shamrock’s ‘in transit’

argument has any remaining validity under the modern Commerce

Clause analysis is questionable." (App. 10a n.7).

REASONS FOR GRANTING THE WRIT

This case involves a question of importance under both the

Import-Export Clause and the Commerce Clause: whether ports

of entry into the United States are free to impose ad valorem

personal property taxes on goods in transit through them.

More than five hundred billion dollars worth of goods are

imported into this country each year.* By value, petroleum

constitutes 10% of those goods, and the vast bulk of petroleum

imported into this country is in the form of crude oil.* Nearly all

of this oil is imported by tanker, and a small number of

deepwater ports in Texas handle a third of this volume, roughly

800 million barrels a year, with Corpus Christi and Houston

being the busiest ports of entry.° (Another third is imported

* See Statistical Abstract of the United States: 1993 808 (113th ed.

1993).

5 See id. at 808, 818.

® See Energy Information Administration, Petroleum Supply Annual 1992

31 (May 1993) (noting that 2.2 billion barrels of oil were imported into

the United States in 1992); see also id. at 44, 49 (noting that while

approximately 1.44 billion barrels of oil were refined in Texas in 1992,

only 650 million barrels of oil were produced in Texas in that year).

through ports in Louisiana.’) Most of this oil is in turn refined

on the Texas Gulf Coast and distributed to consumers both inside

and outside of Texas, from the Eastern Seaboard to the Rocky

Mountains.* Typically, this oil, like many other imported goods,

is off-loaded from ships at the port and stored there temporarily

until it can be moved by pipeline or rail to the refinery. The

decision below subjects this oil and other goods imported into

Texas to ad valorem personal property taxation at the port of

entry even though those goods are only in transit through the

port. The effect of the decision is to authorize ports of entry to

impose duties on oil and other goods in transit that will be passed

on to citizens of other states consuming the goods in their finished

form. The decision is contrary to the express language and

purposes of the Import-Export Clause and in violation of the

Foreign Commerce Clause.

I. THE DECISION BELOW CONFLICTS WITH DECI-

SIONS OF THIS COURT AND OF THE FIFTH CIRCUIT

UNDER THE IMPORT-EXPORT CLAUSE.

A. The Decision Below Is Inconsistent With The Decisions

Of This Court Under The Import-Export Clause.

The Import-Export Clause provides in pertinent part, "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, cl.2. Within its domain, this prohibition is absolute. There

is no exception for goods imported into their state of destination,

nor, as Justice Scalia noted last Term, can this prohibition be

evaded by showing that a tax on imports is nondiscriminatory.

See Itel Containers Int’l. Corp. v. Huddleston, 113 S.Ct. 1095,

1108 (1993) (Scalia, J., concurring in part and concurring in the

7 See id. at 31, 44, 49.

® See id. at 169, (noting that 1.5 billion barrels of oil were refined in

Texas in 1992); Energy Information Administration, State Energy Data

Report 299 (May 1992) (noting that 950 million barrels of oil were

consumed in Texas in 1992).

judgment). When an import is taxed, the only issue is whether

the tax qualifies as an impost or a duty under the Import-Export

Clause. The decision below is contrary to the decisions of this

Court ruling that the assessment of ad valorem personal property

taxes upon imported goods in transit through their port of entry

is a duty prohibited by the Import-Export Clause.

While the term "Imposts" is relatively narrow, covering only

charges levied when and where a good enters the country, the

term "Duties" is much broader. See Michelin Tire Corp. v.

Wages, 423 U.S. 276, 291 (1976). As employed by the Framers

of the Constitution, the term duties "apparently comprehended

nearly all internal 'taxes.'"® The label that a state or local

government chooses to attach to a given tax does not, however,

determine whether it is a duty within the meaning of the

Import-Export Clause. In applying the Clause, this Court has

looked to the substance of the tax, not its form, in order to

determine whether it is subject to the Clause’s prohibition. See,

e.g., Michelin, 423 U.S. at 289 n.9 (‘certainly it is the thing,

and not the name, which is to be considered'") (quoting Cooley

v. Board of Wardens, 53 U.S. (12 How.) 299, 314 (1852)).

Thus, for many years, this Court interpreted the Import-Export

Clause to prohibit any state or local tax that "'intercepts the

import, as an import, in its way to become incorporated with the

general mass of property.'"”°

Plainly, an ad valorem personal property tax, when applied to

imported goods in transit, is an import duty under this definition

° 1 W. Crosskey, Politics and the Constitution in the History of the

United States 296 (1953); see also Michelin, 423 U.S. at 290-91

(adopting Professor Crosskey’s "persuasive demonstration" of what the

Framers understood imposts and duties to be). In 1787, "probably only

capitation, land and general property exactions were known by the term

'tax' rather than the term ‘duty.'" Michelin, 423 U.S. at 291 (citing 1

W. Crosskey, supra, at 297).

'© Michelin, 423 U.S. at 298 (quoting Brown v. Maryland, 25 U.S. (12

Wheat.) 419, 443 (1827) (Marshall, C.J.)); accord Youngstown Sheet &

Tube Co v. Bowers., 358 U.S. 534, 541 n.7 (1959).

and, more importantly, under such circumstances the tax is, on a

substantive level, indistinguishable from an import duty. As the

dissent in the Texas Court of Appeals noted, when property taxes

are assessed upon imported goods in transit, the incidence of the

tax is the same as that of an import duty: "the mere presence of

the [goods] in the taxing jurisdiction." (App. 40a). This means

not only that the property tax "intercepts" the imported goods

before it reaches its destination, but also that the tax has exactly

the same effect as an import duty. Ad valorem property taxes are

always similar to import duties in that both are based upon a

percentage of the value of the goods being taxed. Normally, the

taxes are distinguished by their incidence: import duties are

triggered by the entry of goods into the jurisdiction whereas

property taxes apply only to goods present in a jurisdiction with

some degree of permanence (see, e.g., Tex. Tax Code Ann.

§ 21.02 (West Supp. 1994)). When, however, a property tax is

applied to goods in transit, the incidence of the tax becomes the

mere presence of those goods in the taxing jurisdiction, and any

substantive distinction between property taxes and import duties

collapses.

Recognizing this equivalence, for more than a century this

Court held that imported goods were immune from all state and

local taxation until they were either used, sold, or removed from

their original packages. See, e.g., Youngstown Sheet & Tube Co

v. Bowers, 358 U.S. 534, 541-42 (1959); see Low v. Austin, 80

U.S. (13 Wall.) 29, 33-34 (1870). Ultimately, the "original

package" doctrine proved to be too broad, too arbitrary in its

application and too tenuously based in the history and purposes of

the Clause to survive. See, e.g., Michelin, 423 U.S. at 286-94;

see also id. at 282-83 (noting that "[s]cholarly analysis had been

uniformly critical of Low v. Austin."). Accordingly, in Michelin,

this Court discarded the doctrine and held that "a

nondiscriminatory ad valorem property tax which is also imposed

on imported goods that are no longer in import transit" is

consistent with the Import-Export Clause. 423 U.S. at 286.

However, in so doing, this Court did not suggest that goods

that are in transit may be subjected to local property taxes. To

the contrary, Michelin made clear that goods in transit remain

immune from state and local property taxation. The decision

expressly noted that such taxes may conflict with the

Import-Export Clause’s objective of preventing states with

thriving ports of entry, such as Corpus Christi, from imposing

"transit fees" on imported goods passing through those ports on

their way to consumers in other states. See 423 U.S. at 290."

This Court also quoted with favor an opinion by Chief Justice

Taney explaining that the assessment of property taxes violates the

Import-Export Clause only when the goods in question are in

transit.’”

Subsequent decisions of this Court considering the in-transit

rule have recognized the rule and distinguished it based on the

specific facts before the Court. In Department of Revenue v.

'! Specifically, after observing that nondiscriminatory property taxes

pose little threat of such fees when applied to goods that have completed

their import journey, this Court found that

to the extent there is any conflict whatsoever with this purpose of the

Clause, it may be secured merely by prohibiting the assessment of

even nondiscriminatory property taxes on goods which are merely in

transit through the State when the tax is assessed.

Michelin, 423 U.S. at 290.

'2 The quoted passage reads as follows:

Undoubtedly, a State may impose a tax upon its citizens in proportion

to the amount they are respectively worth; and the importing

merchant is liable to this assessment like any other citizen, and is

chargeable according to the amount of his property, whether it

consists of money engaged in:trade, or of imported goods which he

proposes to sell, or any other property of which he is the owner. But

a tax of this description stands upon a very different footing from a

tax on the thing imported, while it remains a part of foreign

commerce and is not introduced into the general mass of property in

the State.

Michelin, 423 U.S. at 300-01 (quoting License Cases, 46 U.S. (5 How.)

504, 576 (1847) (opinion of Taney, C.J.)) (emphasis added).

Association of Washington Stevedoring Cos., 435 U.S. 734

(1978), this Court considered the application of a business and

occupation tax to stevedoring services provided to imports and

exports. Because the tax did not fall directly upon imported

goods, this Court distinguished Michelin and the in-transit rule

and, accordingly, did not "reach the question of the applicability

of the Michelin approach when a State directly taxes imports or

exports in transit." 435 U.S. at 757 n.23. Similarly, in Jtel

Containers, the Court considered a sales tax applied to the leasing

of cargo containers used in international shipping. Once again,

the Court found itself faced with a tax that did not fall directly

upon the goods being imported. See 113 S.Ct. at 1106. There,

however, the Court recognized the "prohibition on the direct

taxation of imports and exports ‘in transit'" and assumed that the

"rule has not been altered by the approach we adopted in

Michelin." Id. at 1106.

In view of the history of and policies underlying the

Import-Export Clause, the Michelin rule serves important

purposes. As this Court noted in Michelin,

One of the major defects of the Articles of Confederation and

a compelling reason for the calling of the Constitutional

Convention of 1787, was the fact that the Articles essentially

left the individuals States free to burden commerce both among

themselves and with foreign countries very much as they

pleased.

423 U.S. at 283. Unable to resist the temptation of exporting

costs to other jurisdictions, "[s}tates having fine harbors imposed

tax on all goods reaching the Continent through their ports."

Cook v. Pennsylvania, 97 U.S. 566, 574 (1878). Not

surprisingly, one of the evils the Import-Export Clause sought to

prevent was the "levying of taxes which could only be imposed

because of the peculiar geographical situation of certain States that

enabled them to single out goods destined for other States."

Michelin, 423 U.S. at 290. The in-transit rule recognized by this

Court in Michelin prevents states from discriminating against

foreign commerce by prohibiting them from imposing taxes upon

goods that are in transit through their ports.

The Texas Court of Appeals majority explicitly rejected the

in-transit rule. Although the Texas Supreme Court was more

circumspect, acknowledging the continued vitality of this rule, it

interpreted the rule so narrowly as to prevent its application to

goods that enter the country in the state where they will be

processed into finished goods. No such limiting distinction can

be found in Michelin or any of this Court’s earlier decisions.

Whether or not goods are first processed in their state of entry,

the risk remains that port-of-entry taxes on raw materials will be

exported to other states as part of the price for the finished goods.

Moreover, just last term in Associated Industries v. Lohman, 114

S.Ct. 1815 (1994), this Court rejected a similar claim that

regulation of commerce should be analyzed on a state rather than

a county-by-county level, holding instead that such regulations are

"appropriately assessed with reference to the specific subdivision"

promulgating the regulations at issue. Jd. at 1822.

The decision below also conflicts with the policies that led this

Court to invoke the distinction between goods that are in transit

and those that are not. State and local governments are often

tempted to use their taxing power to impose de facto tariffs on

goods passing through them and thereby pass along the cost of

their operations to consumers outside their jurisdiction.” See,

e.g., West Lynn Creamery, Inc. v. Healey, 114 S.Ct. 2205, 2211

(1994) ("the cases are filled with state laws that aspire to reap

some of the benefits of tariffs by other means"). Normally, this

tendency is held in check by the local interests that would be

adversely affected by such taxes. See Minnesota v. Clover Leaf

Creamery Co., 449 U.S. 456, 473 n.17 (1981) ("the existence of

major in-state interests adversely affected by the Act is a powerful

'S Of course, consumers will not pay those costs if the relevant markets

are sufficiently competitive. This economic truism does not, however,

affect analysis under the Import-Export Clause. See Michelin Tire Co.,

423 U.S. at 288 n.8.

safeguard against legislative abuse"). When, however, imported

goods are in transit, they are normally not owned by anyone

within the jurisdiction, which means that there will frequently be

no local interests adversely affected by -- and therefore willing to

act as a "political check" upon -- taxation designed to discriminate

against imported goods in transit.

Imported goods, while in transit, are also susceptible to subtle

and often undetectable, forms of discrimination. A port of entry

need not explicitly single out goods imported through the port in

order to extract a fee from them for the use of the port. It might,

for example, impose a special tax upon a particular category of

property and define that category so that it encompasses goods

imported through the port but little other property in the

jurisdiction. Or, subtler still, the jurisdiction might choose to

shift from sales, income or other taxes that do not affected goods

in transit through the port to property taxes that do. In these and

other ways, a port of entry may take advantage of transportation

bottlenecks that delay goods imported through them to extract

from those goods a disproportionate share of the cost of the

jurisdiction’s operations without imposing a tax that discriminates

against imports on its face.

Of course, if courts could easily detect such discrimination,

there would be no need for a rule banning the assessment of all

property taxes upon imported goods in transit. Courts are,

however, ill-equipped to detect covert discrimination against

imported goods in transit. They are not competent to evaluate

comparative tax burdens directly, see, e.g., Associated Indus. v.

Lohman, 114 S.Ct. at 1825 n.5; American Trucking Ass’n., Inc.

v. Scheiner, 483 U.S. 266, 189 (1987), and the proxy upon which

they normally rely -- the fairness of the political process (see,

e.g., West Lynn Creamery v. Healey, 114 S.Ct. at 2215) -- is

rarely available when the goods taxed are in transit because, as

discussed above, there will normally be no political check upon

the tendency to discrimination against imported goods in transit.

Under such circumstances, where discrimination is not only

likely, but also likely to go undetected, the only judicially

manageable solution is the one adopted by this Court in Michelin:

a bright-line rule barring the assessment of property taxes upon

goods in transit.

The Texas Supreme Court’s decision is plainly in conflict with

this rule and, therefore, with Michelin. Even if subsequent

decisions, such as Jtel and Washington Stevedoring are viewed as

reserving the "in-transit" question, that question remains

important and should be resolved by this Court.

B. The Decision Below Conflicts With A Decision Of The

Court Of Appeals For The Fifth Circuit Under The

Import-Export Clause.

The decision below also conflicts with a recent decision of the

Fifth Circuit Court of Appeals. In Louisiana Land & Exploration

Co. v. Pilot Petroleum Corp., 900 F.2d 816 (Sth Cir.), cert.

denied, 498 U.S. 897 (1990), the Pilot Petroleum Corporation

contracted to sell jet fuel oil to buyers in Canada. Delivery was

to occur at an oil tanker anchored in the port of Mobile,

Alabama. In order to meet its obligations under the contract,

Pilot Petroleum purchased the requisite fuel oil from the

Louisiana Land & Petroleum Company, which delivered the oil

to the tanker. When the state of Alabama attempted (using

Louisiana Land as its agent) to levy a sales tax on Pilot

Petroleum’s sale to the Canadian buyers, Pilot Petroleum objected

on the ground that the tax was barred by the Import-Export

Clause. Finding that "the Alabama fuel tax in this case is a tax

that is levied on the goods themselves while they are in transit,"

the Fifth Circuit concluded that the tax was prohibited by the

Import-Export Clause. 900 F.2d at 821; see also id. (relying

upon Michelin).

Although the Texas Supreme Court acknowledged the existence

of the Fifth Circuit’s decision in Louisiana Land, it did not

attempt to distinguish the decision. It merely noted that "a tax on

goods in transit into the foreign export stream of commerce may

negatively impact" the policy of exclusive federal control of

commercial relations with foreign nations underlying the

Import-Export Clause and cited Louisiana Land. (App. 6a n.3).

The Texas court offered no explanation as to why a tax on goods

in the foreign import stream would not similarly impact that

policy. Not surprisingly, at least one lower court in Texas has

failed to see one and, relying upon the opinion of the Texas Court

of Appeals below, upheld the assessment of property taxes direct-

ly upon exports in transit to a foreign destination. See Harris

County Appraisal Dist. v. Virginia Indonesia Co., 871 S.W.2d

864, 868, 870-71 (Tex. Ct. App. 1994) (writ of error granted

Sept. 8, 1994). Certiorari should be granted to resolve the

conflict with Louisiana Land.

II. THE DECISION BELOW CONFLICTS WITH DECI-

SIONS OF THIS COURT UNDER THE COMMERCE

CLAUSE.

The decision below also raises important and recurring

questions under the Commerce Clause and conflicts with decisions

of this Court under that clause. This Court has on numerous

occasions prohibited the assessment of property taxes upon goods

in transit. See, e.g., Carson Petroleum v. Vial, 279 U.S. 95

(1929) (invalidating property taxes assessed on oil destined for

customers in England and France but stored temporarily at a port

until sufficient oil to fill a tanker accumulated); Hughes Bros.

Timber Co. v. Minnesota, 272 U.S. 469 (1926) (invalidating

property taxes assessed on logs destined for a mill in Michigan

but awaiting loading onto ships in Minnesota); Champlain Realty

Co. v. Town of Brattleboro, 260 U.S. 366 (1922) (invalidating

property taxes assessed on logs being floated from Vermont to

New Hampshire but temporarily delayed by river conditions);

Kelley v. Rhoads, 188 U.S. 1 (1902) (invalidating a grazing tax

on sheep being driven across Wyoming to Nebraska); see also

Coe v. Errol, 116 U.S. 517, 518-519, 528 (1886) (noting with

favor that the New Hampshire Supreme Court invalidated a tax on

logs being floated from New Hampshire to Maine but delayed by

low water). Most of these cases involve taxes assessed by

political subdivisions such as Nueces County rather than the states

authorizing the taxes. Moreover, so far as petitioner is aware,

this Court has never suggested that the political subdivisions of a

state have any greater power to tax goods in transit under the

Commerce Clause than the states themselves do, and Associated

Industries, of course, makes clear that they do not.

The Texas Supreme Court attempted to distinguish this Court’s

decisions applying the in-transit rule on their facts. It noted that

the decisions cited by petitioner below "involve taxes on goods ‘in

transit' through one State on the way to or from another State or

on the way to a foreign country." (App. 9a n.6 (citations

omitted)). It failed, however, to note that this Court has on at

least one occasion invalidated a tax on goods in transit in their

state of final destination. See Western Oil Refining Co. v.

Lipscomb, 244 U.S. 346 (1917). Furthermore, the same concerns

over the potential for difficult-to-detect discrimination that

prompted this Court to employ the in-transit rule under the

Import-Export Clause apply under the Commerce Clause, where

the rule was first formulated. See supra pp. 13-15.

Nor has this Court overruled its decisions under the Commerce

Clause applying the in-transit rule. Although this Court did state

in D.H. Holmes Co. v. McNamara, 486 U.S. 24 (1988), that it is

"largely irrelevant" for Commerce Clause purposes whether goods

are "considered in the stream of interstate commerce” (id. at 31),

in that case it neither considered a property tax nor analyzed the

in-transit rule. More importantly, in Michelin, this Court

explicitly recognized that in addition to violating the

Import-Export Clause, the assessment of property taxes upon

imported goods in transit "would also be invalid under traditional

Commerce Clause analysis" (id. at 290 n.11), and commentators

in this area have uniformly concluded that the in-transit rule

survives. See P. Hartman, Federal Limitations on State and

Local Taxation § 7:3, at 383 (1981) (noting that the in-transit rule

has "been closely followed and thus far the Court has denied the

competence of the States to tax articles in interstate transit"); I J.

Hellerstein & W. Hellerstein, State Taxation: Corporate Income

and Franchise Taxes {{ 4.11, 5.06 (2d ed. 1993) (arguing that the

assessment of property taxes on goods in transit violates the

Commerce Clause). Certiorari should be granted to resolve the

conflict between the decision below and this Court’s in-transit

Commerce Clause decisions.

Ill. THE DECISION BELOW RAISES AN IMPORTANT

AND RECURRING ISSUE.

The issue raised by this case is not unusual. More than forty

states either directly impose or authorize political subdivisions to

impose personal property taxes.“ Although several states

specifically recognize that property taxes may not be imposed

upon imported goods in transit and exempt those goods from

assessment,'° most do not, and others appear to have ignored the

'* Ala. Code § 40-11-1(b)(16) (1993); Alaska Stat. § 29.45.010 (1992);

Ariz. Rev. Stat. Ann. § 2-202 (1991); Ark. Code Ann. § 26-3-201

(Michie 1992); Cal. Rev. & Tax. Code § 201 (West 1987); Colo. Rev.

Stat. § 39-1-105 (1982 & Supp. 1993); Conn. Gen. Stat. § 12-71

(1993); D.C. Code Ann. § 47-1522(a) (1981 & Supp. 1994); Fla. Stat.

Ann. § 196.001(1) (West 1989); Ga. Code Ann. § 48-5-3 (1991); Idaho

Code § 63-101 (1989); Ind. Code Ann. § 6-1.1-2-1 (West 1989 & Supp.

1994); Kan. Stat. Ann. § 79-101 (1989); Ky. Rev. Stat. Ann.

§ 132.020(6) (Michie Supp. 1992); La. Rev. Stat. Ann. § 47:1951 (West

1990); Me. Rev. Stat. Ann. tit. 36, § 502 (West 1978); Md. Code Ann.,

Tax-Prop. § 101(a)(1) (1994); Mass. Gen. Laws Ann. ch. 59, § 2 (West

1988); Mich. Comp. Laws Ann. § 211.1 (West 1986); Minn. Stat. Ann.

§ 272.01(1) (West 1989 & Supp. 1994); Miss. Const. art. 4, § 112; Mo.

Ann. Stat. § 137.075 (Vernon 1988); Mont. Code Ann. § 15-6-101(1)

(1993); Neb. Rev. Stat. § 77-201 (1990); Nev. Rev. Stat. Ann.

§ 361.045 (Michie 1993); N.J. Stat. Ann. § 54:4-1 (West 1986 & Supp.

1994); N.M. Stat. Ann. §§ 7-35-2(1), 7-37-2 (Michie 1993 & Supp.

1994); N.C. Gen. Stat. § 105-274 (1993); N.D. Cent. Code § 57-02-03

(1993); Okla. Stat. Ann. tit. 68, § 2804 (West 1992); Or. Rev. Stat.

§ 307.030(1) (Supp. 1994); R.I. Gen. Laws § 44-3-1 (1988); S.C. Code

Ann. § 12-37-210 (Law. Co-op 1976); S.D. Codified Laws Ann. § 10-

4-1 (Supp. 1994); Tenn. Code Ann. § 67-5-101 (1989); Utah Code Ann.

59-2-901 (1963); Va. Code Ann. §§ 58.1-100, 58. 1-3000 (Michie 1991);

Wash. Rev. Code Ann. § 84.36.005 (West 1991); W. Va. Code § 11-5-

1 (1991); Wis. Stat. Ann. § 70.01 (West 1989); Wyo. Stat. § 39-1-102

(1994).

'S Ga. Code Ann. § 48-5-5 (1991); Ind. Code Ann. § 6-1.1-10-30 (West

1989); La. Rev. Stat. Ann. § 47:1951.1(2) (West 1990); Me. Rev. Stat.

Ann. tit. 36, § 655(1)(G) (West 1978); Mass. Gen. Laws Ann. ch. 59,

§ 2; Miss. Code Ann. § 27-31-13 (1972); Wyo. Stat. § 39-1-

Constitution’s ban against such taxes and exempted only a portion

of the goods in transit through their states."° Directly or

indirectly, resolution of the issue raised by the decision below --

whether state and local governments may assess personal property

taxes upon goods in transit in foreign commerce -- affects all of

these states.

This issue is of indisputable importance. The amount of

foreign trade in this country is increasing each year, and raw

materials such as oil are especially vulnerable to taxation at their

ports of entry. The huge volumes in which such materials are

imported create transportation bottlenecks at the few ports able to

accommodate them, which in turn necessitate the temporary

storage of those goods in those ports. As a consequence, ports of

entry are often faced with the opportunity to tax, and therefore the

temptation to discriminate against, imported goods that are merely

in transit through them. The immediate effect of the decision

below is to subject the billions of dollars of crude oil imported

through Texas ports to such local assessments. If allowed to

stand, this decision may also affect an even larger proportion of

the goods imported into this country, as other ports, tempted by

the potentially vast and politically painless revenues to be derived

from imposing import duties on foreign commerce, follow Texas’

lead.

201(a)(1994).

‘6 Ariz. Rev. Stat. Ann. § 42-631 (1991); Ark. Code Ann. § 26-26-

1102(b)(1) (Michie 1992); D.C. Code Ann. § 47-1508(4)(1981); Fla.

Stat. Ann. § 192.032(4) (West 1989); Idaho Code § 63-105W (1989);

Ind. Code Ann. § 6-1.1-10-29 (West 1989 & Supp. 1994); Kan. Stat.

Ann. § 79-201f (1989); Mich. Comp. Laws Ann. § 211.9(2) (West

1986); Mo. Ann. Stat. § 137.910 (Vernon 1988); Mont. Code Ann.

§ 15-6-202 (1993); Nev. Rev. Stat. Ann. § 361.160 (Michie 1993);

N.C. Gen. Stat. § 105-275(2) (1993 & Supp. 1993); Okla. Stat. Ann.

tit. 68, § 2831(E) (West 1992); S.C. Code Ann. § 12-37-1110 (Law.

Co-op. 1976); Tenn. Code Ann. § 67-5-217 (1989); Va. Code Ann.

§ 58.1-3514 (Michie 1991); Wash. Rev. Code Ann. §§ 84.36.140,

84.36.176, 84.36.181 (West 1991); W. Va. Code § 11-5-13(a) (1991).

Finally, it is especially important that the legal rules in this

area be clear. As this Court recognized long ago, it is "highly

important, both to the shipper and the State," that the point at

which state and local governments may assess property taxes be

"clearly defined so as to avoid all ambiguity or question." Coe

v. Errol, 116 U.S. at 526. In order to plan effectively, businesses

must be able to forecast with some accuracy their tax expenditures

and state and local governments their revenues. Uncertainty over

the ability of such governmental units to tax the goods flowing

through them undermines the ability of both to do so. This case

presents in a sharply defined manner the issue of whether ports of

entry into this country may assess ad valorem property taxes upon

goods in transit through them and is, therefore, an appropriate

vehicle for resolving these important and recurring issues.

CONCLUSION

For the foregoing reasons, the petition for certiorari should be

granted.

Respectfully submitted,

Of Counsel: TIMOTHY B. DYK

Timothy J. Fretthold (Counsel of Record)

P.O. Box 696000 DANIEL H. BROMBERG

DIAMOND SHAMROCK JONES, DAY, REAVIS

REFINING AND & POGUE

MARKETING CO.

San Antonio, TX 78269

September 13, 1994

1450 G Street, N.W.

Washington, D.C. 20005

(202) 879-3939

Counsel for Petitioner

APPENDIX

DIAMOND SHAMROCK REFINING

AND MARKETING COMPANY,

Petitioner,

Vv.

NUECES COUNTY APPRAISAL DISTRICT

and the Appraisal Review Board

of the Nueces County Appraisal District,

Respondents.

No. D-3982

Supreme Court of Texas

Argued Jan. 19, 1994

Decided April 20, 1994

Edward Kliewer, III, Kenneth L. Malone. San Antonio, for

petitioner

Russell R. Graham, Peter W. Low, Austin, for respondents.

PHILLIPS, Chief Justice, delivered the opinion of the Court

in which all Justices join.

In this case we consider whether oil which is imported from

abroad directly into Texas, which is its final destination, may be

taxed while in transit within Texas under the Import-Export

Clause and the Commerce Clause of the United States

Constitution. We hold that it may, and we therefore affirm the

judgment of the court of appeals. 853 S.W.2d 212.

Diamond Shamrock brought this action as a petition for review

under the provisions of Chapter 42 of the Texas Property Tax

Code challenging the determination by the Nueces County

Appraisal District and the Nueces County Appraisal Review

Board that certain crude oil owned by Diamond Shamrock was

taxable for the years 1988, 1989 and 1990. The parties tried this

Case upon an agreed statement of facts pursuant to Tex.R.Civ.P

263.

The oil in question was shipped from foreign sources through

the Gulf of Mexico, off-loaded at the Harbor Island storage

facility in Nueces County, held there in tanks, and transmitted by

pipeline to Diamond Shamrock’s refinery in Three Rivers, Live

Oak County, Texas. Some of Diamond Shamrock’s crude oil was

always present at Harbor Island between 1987 and 1990, although

the particular oil in the tanks on January 1, 1988, 1989 and 1990

was actually present for a maximum period of 12 to 25.3 days.

The government provides services to the Harbor Island facility in

general and to Diamond Shamrock’s crude oil in particular.

The parties stipulated that the grounds of Diamond Shamrock’s

complaint were as follows:

Plaintiff [Diamond Shamrock] protested the inclusion of its

property on such appraisal rolls to Defendant, the Appraisal

Review Board, pursuant to Chapter 41 of the Texas Property

Tax Code on the ground that such property was not subject to

ad valorem taxation in Texas for tax years 1988, 1989 and

1990, because such taxation is precluded by the Commerce

Clause and the Import/Export Clause of the United States

Constitution. Plaintiff did not protest the situs in Texas at

which the property is taxed, nor its market value, and neither

is at issue in these cases.

The trial court decreed that the oil in question was exempt from

taxation by Nueces County for the tax years in question, and it

ordered that the property be deleted from the applicable appraisal

rolis for those tax years. The court of appeals reversed,

rendering judgment that Diamond Shamrock’s oil in Nueces

County is not exempt property under either the Commerce Clause ~

or the Import-Export Clause of the United States Constitution.

In this Court, Diamond Shamrock contends that, under both

the Import-Export Clause and the Commerce Clause of the United

States Constitution, U.S. Const. art. I, § 10, cl. 2 and § 8, cl. 3,

the oil is not taxable in Nueces County because it is "in transit."

To support this proposition, Diamond Shamrock cites, e.g., R.J.

Reynolds Tobacco Co. v. Durham County, U.S. 130, 107 S.Ct.

499, 93 L.Ed.2d 449 (1986); Department of Revenue v. Ass’n of

Wash. Stevedoring Cos., 435 U.S. 734, 98 S.Ct. 1388, 55

L.Ed.2d 682 (1978); Michelin Tire Corp. v. Wages, 423 U.S.

276, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976); Louisiana Land &

Exploration Co. v. Pilot Petroleum Corp. , 900 F.2d 816 (Sth Cir.

1990), cert. denied, 498 U.S. 897, 111 S.Ct. 248, 112 L.Ed.2d

207 (1990); City of Farmers Branch v. Matsushita Elec. Corp..,

537 S.W.2d 452 (Tex. 1976); and Calvert v. Zanes-Ewalt

Warehouse, Inc., 502 S.W.2d 689 (Tex. 1973), appeal dism’d,

416 U.S. 923, 94 S.Ct. 1921, 40 L.Ed.2d 279 (1974). The

District counters that none of the evils prevented by application

of the Import-Export Clause or the Commerce Clause are

implicated by its taxation of Diamond Shamrock’s oil, and that

Diamond Shamrock should pay for the government services

provided to its property.

Under these facts, we do not resolve a number of significant

questions. For instance, we do not decide whether oil passing

through Texas on its way to a foreign country or to another State

is taxable under the Import-Export Clause or the Commerce

Clause. Nor do we decide whether oil arriving in Texas from

another State is taxable. Rather, the only question presented is

whether oil that enters Texas from a foreign country and reaches

its ultimate destination here may, under the United States

Constitution, be taxed in a particular Texas county, despite the

fact that it is still "in transit" while there.

The Import-Export Clause of the United States Constitution

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: and the

net product 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 revision and

control of the Congress.

U.S. Const. art. I, § 10, cl. 2. The leading case interpreting this

Clause is Michelin Tire Corporation v. Wages, 423 U.S. 276, 96

S.Ct. 535, 46 L.Ed.2d 495 (1976), which overruled earlier cases

to adopt a new analytical framework, thereby creating “a

fundamentally different approach to cases claiming the protection

of the Import-Export Clause." Limbach v. Hooven & Allison Co. ,

466 U.S. 353, 359, 104 S.Ct. 1837, 1841, 80 L.Ed.2d 356

(1984)("Hooven II"). See also Department of Revenue v. Ass’n

of Wash. Stevedoring Cos., 435 U.S. 734, 752, 98 S.Ct. 1388,

1400, 55 L.Ed.2d 682 (1978).

Michelin involved a challenge to a county ad valorem property

tax on tires imported from France and Nova Scotia which were

being held in a wholesale distribution warehouse. From there, the

tires were distributed to franchised dealers in six southeastern

states. Michelin, 423 U.S. at 278-80, 96 S.Ct. at 537-38. The

Court upheld the tax, holding that it did not offend the three

policies underlying the Import-Export Clause, to wit:

[(1)] 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 consistent with that exclusive power;

[(2)] import revenues were to be the major source of revenue

of the Federal Government and should not be diverted to the

States; and [(3)] harmony among the States might be disturbed

unless seaboard States, with their crucial ports of entry, were

prohibited from levying taxes on citizens of other States by

taxing goods merely flowing through their ports to the inland

States not situated as favorably geographically.

Id. at 285-86, 96 S.Ct. at 540-41.!

' By these policies, the Framers sought to cure one of the "major

defects" of the Articles of Confederation; namely "the fact that the

Articles essentially left the individual States free to burden commerce

both among themselves and with foreign countries very much as they

pleased." Michelin, 423 U.S. at 283, 96 S.Ct. at 539.

Because the tax was a nondiscriminatory property tax, the

Court held that it did not violate either the "one voice" policy or

the "federal revenue enhancement" policy. Jd. at 286, 287, 96

S.Ct. at 541, 541. As to the “harmony between the States"

policy, Michelin likewise held that "nondiscriminatory ad valorem

property taxes do not interfere with the free flow of imported

goods among the States." /d., 423 U.S.at 288, 96 S.Ct. at 542.

Although such taxes may increase the cost of goods purchased by

"inland" consumers, such taxation is merely a quid pro quo for

benefits actually conferred by the State. Thus, "[t]here is no

reason why local taxpayers should subsidize the services used by

the importer." Jd. at 289, 96 S.Ct. at 542. The Clause was

intended to prevent certain geographically situated States from

being able to impose "exactions which were no more than transit

fees on the privilege of moving through a State," and thus "[a]

nondiscriminatory ad valorem property tax obviously stards on a

different footing." Jd. at 290, 96 S.Ct. at 543.

Michelin went on, however, to qualify its holding slightly for

goods "merely in transit through the State," stating that "to the

extent there is any conflict whatsoever with this purpose of the

Clause, it may be secured merely by prohibiting the assessment

of even nondiscriminatory property taxes on goods which are

merely in transit through the State when the tax is assessed." /d.,

423 U.S. at-290, 96 S.Ct. at 543.

The Supreme Court has since explained its new approach as follows:

To repeat: we think it clear that this Court in Michelin specifically

abandoned the concept that the Import-Export Clause constituted a

broad prohibition against all forms of state taxation that fell on

imports. Michelin changed the focus of Import-Export Clause cases

from the nature of the goods as imports to the nature of the tax at

issue. The new focus is not on whether the goods have iost their

status as imports but is, instead, on whether the tax sought to be

imposed is an “Impost or Duty."

Hooven II, 466 U.S. at 360, 104 S.Ct. at 1842. See also Reynolds

Tobacco, 479 U.S. at 153, 107 S.Ct. at 513.

Pointing to the parties’ stipulation that its crude oil is "in

transit" while in Nueces County, Diamond Shamrock argues that

the tax here falls within the "merely in transit" qualification. We

disagree. The tax in question here does not in any way impinge

on the third “harmony among the States" policy of the Import-

Export Clause. Although still on its foreign import journey and

in that sense "in transit," the oil in question here entered only

the State of Texas and, according to the stipulated facts, never left

Texas in its crude oil form. Thus, there simply was no

opportunity for harmony between the states to be disturbed.’

Read in context, the Michelin Court’s qualification clearly applies

only to goods in transit through the state to or from another state

and not to goods merely in transit within the only state the goods

ever enter. See Robert C.W. Frantz, Comment, Constitutional

Law--Nondiscriminatory Ad Valorem Tax May Be Applied To

Imports, 30 Rutgers L.Rev. 193, 197 (1976) (defining the

"transit" discussed by the Michelin Court as "i.e., travelling

through the importing state en route to another"). Under the

2 We agree with Diamond Shamrock that, in stating that the oil in

question was not "in transit" because it was heid in storage for a

business purpose, as opposed to being held in storage merely to

accommodate its transportation into the pipeline to Three Rivers, the

court of appeals made an impermissible inference that conflicts with the

facts as stipulated by the parties in this Agreed Case under Tex.R.Civ.P.

263. We do not agree, however, that the court’s judgment was

grounded on this fact. To the contrary, the court held that "the concept

of ’in transit’ loses any rational meaning" once the purposes of the

Import-Export Claused have been satisfied. 853 S.W.2d at 216.

* Likewise, the "in transit" nature of the oil does not bring its taxation

in Nueces County into conflict with the first two policy prongs of the

Import-Export Clause, as identified in Michelin. Although a tax on

goods in transit into the foreign export stream of commerce may

negatively impact the "one voice" policy, see Louisiana Land, 900 F.2d

at 821, it is clear under Michelin that a nondiscriminatory ad valorem

tax on imported goods does not violate either of the first two policy

prongs of the Clause, regardless of whether the goods are in transit or

not.

Import-Export Clause, the oil is taxable in Texas. Where in

Texas--Nueces County, Live Oak County or elsewhere--is not a

subject governed by that Clause.

The Commerce Clause of the United States Constitution grants

Congress power "[t]o regulate Commerce with foreign Nations,

and among the several States, and with the Indian tribes." U.S.

Const. art. I, § 8, cl. 3. Modern analysis of this Clause is

governed by Complete Auto Transit, Inc. v. Brady, 430 U.S. 274,

288, 97 S.Ct. 1076, 1083, 51 L.Ed.2d 326 (1977), where the

Court abandoned the abstract notion that interstate commerce

"itself" cannot be taxed by the States. See D.H. Holmes Co. v.

McNamara, 486 U.S. 24, 30, 108 S.Ct. 1619, 1623, 100 L.Ed.2d

21 (1988). In Complete Auto, the Supreme Court set out a four-

pronged test, requiring a valid state tax to: 1) apply to an activity

with a substantial nexus with the taxing state; 2) be fairiy

apportioned; 3) not discriminate against interstate commerce; and

4) be fairly related to the services provided by the State.

Complete Auto, 430 U.S. at 279, 287, 97 S.Ct. at 1079, 1083.

When, as here, the state tax is on foreign, rather than merely

interstate, commerce, the tax also must not: 1) create a substantial

risk of international multiple taxation; or 2) prevent the federal

government from speaking with one voice in its regulation of

commercial regulations with foreign governments. Japan Line,

Ltd. v. County of Los Angeles, 441 U.S. 434, 451, 99 S.Ct.

1813, 1823, 60 L.Ed.2d 336 (1979).

Diamond Shamrock argues that the tax here cannot pass the

first and fourth prongs of the Complete Auto test because the

goods are "in transit."* We disagree.° The essence of Diamond

* Diamond Shamrock does not argue that the second and third prongs

of Complete Auto are not met in this case. Even if there was a question

of fair apportionment, it would have to be answered under Texas law

since the oil is only being taxed in the State of Texas. The Supreme

Court in Goldberg v. Sweet, 488 U.S. 252, 260-61, 109 S.Ct. 582, 588-

89, 102 L.Ed.2d 607 (1989) noted that the central purpose behind the

Shamrock’s argument is that because the oil is by stipulation "in

transit" through Nueces County, it did not have the required

nexus with the county to allow the tax. As the oil was at all

times "entering, exiting, or passing through" the county, there

was no "incidence" to justify taxation. As the Supreme Court

held in Quill Corp. v. North Dakota, __US. : aks

S.Ct. 1904, 1913, 119 L.Ed.2d 91 (1992), the first and fourth

prongs of Complete Auto “limit the reach of the State taxing

authority so as to ensure that State taxation does not unduly

burden interstate commerce." See also Itel Containers Int’l Corp.

v. Huddleston, __ US. , 113 S.Ct. 1095, 1104,

122 L.Ed.2d 421 (1993) (compliance by a tax with all four prongs

of Complete Auto confirms "both the State’s legitimate interest in

taxing the transaction and the absence of an attempt to interfere

with the free flow of commerce, be it foreign or domestic"). As

with the Import-Export Clause, however, the "transit" at issue

here is entirely within the State of Texas. Thus, the issue

presented is whether satisfaction of the Complete Auto nexus

requirements is precluded by that "transit," such that the taxation

apportionment requirement of Complete Auto is "to ensure that each

State taxes only its fair share of an interstate transaction." There is no

possible question that this nondiscriminatory ad valorem tax fails the

third prong of the test. Likewise, there is no question that the two

additional tests of Japan Line are met in this case. The “one voice"

requirement of Japan Line is the same as that required by Michelin,

according to the Supreme Court in tel Containers Int’! Corporation v.

Huddleston, U.S. ’ , 113 S.Ct. 1095, 1105, 122 L.Ed.2d

421 (1993), and Michelin held that nondiscriminatory ad valorem taxes

do not conflict with this policy. And, no issue of potential multiple

international taxation is raised by the stipulated facts of this case.

5 We likewise reject Diamond Shamrock’s argument that the District

waived error under the Commerce Clause. The District’s point of error

to the court of appeals, complaining that the trial court erred by finding

the property exempt from taxation, was broad enough to preserve error

on both constitutional grounds.

of foreign oil entering and remaining in only one state unduly

burdens or interferes with foreign commerce.°

° We note that while the "transit" at issue here involves foreign goods

that enter only one state and remain there, all but one of the many cases

cited by Diamond Shamrock for the proposition that goods "in transit"

are not taxable under the Commerce Clause involve taxes on goods "in

transit" through one State on the way to or from another State or on the

way toa foreign country. See, e.g., Michigan-Wisconsin Pipe Line Co.

v. Calvert, 347 U.S. 157, 164-70, 74 S.Ct. 396, 399-403, 98 L.Ed. 583

(1954) (considering Texas tax on occupation of "gathering gas" where

the taxable incidence was the taking of gas for the purpose of immediate

interstate transmission); Hughes Bros. Timber Co. v. Minnesota, 272

U.S. 469, 474, 47 S.Ct. 170, 172, 71 L.Ed. 359 (1926) (considering

Minnesota tax on goods already on way to Michigan); State v. Anderson,

Clayton & Co., 92 F.2d 104, 107 (Sth Cir. 1937) (considering tariff

within Texas on cotton destined for foreign countries and other States),

cert. denied, 302 U.S. 747, 58 S.Ct. 265, 82 L.Ed. 578 (1937); Calvert

v. Zanes-Ewalt Warehouses, Inc. , 502 S.W.2d 689, 692-93 (Tex. 1973),

appeal dism’d, 416 U.S. 923, 94 S.Ct. 1921, 40 L.Ed.2d 279 (1974)

(considering cigarette tax on cigarettes received in interstate commerce);

County of Harris v. Xerox Corporation, 619 S.W.2d 402, 406 (Tex.

Civ. App.--Houston [1st Dist.] 1981. writ ref’d n.r.e.), rev’d on other

grounds, 459 U.S. 145, 103 S.Ct. 523, 74 L.Ed.2d 323 (1982)

(considering tax on goods in customs bonded warehouses in Houston

awaiting sale and shipment to foreign country); American S.S. Co. v.

Limbach, 61 Ohio St.3d 22, 572 N.E.2d 629, 631-32 (1991)

(considering use tax on vessel used to ferry out-of-state goods from

transfer facility in Ohio to final destination in Ohio); Board of Educ. v.

Property Tax Appeal Bd., 106 Ill.App.3d 82, 62 Ill.Dec. 20, 21, 23,

435 N.E.2d 818, 819, 821 (1982) (considering Illinois tax on crude oil

in transit from Oklahoma to Indiana). Diamond Shamrock cites Swift

Textiles, Inc. v. Watkins Motor Lines, Inc., 799 F.2d 697 (11th Cir.

1986), a case decided under the Carmack Amendment to the Interstate

Commerce Act, which involves facts similar to those here and states in

dicta that "modern interstate commerce analysis" is used to exempt

goods in transit in foreign commerce from taxation. The court supports

this proposition by citing Michelin which, for the reasons discussed

above, do not lead us to the conclusion that goods in foreign commerce

transit which enter only one state are exempt from taxation, under either

10a

Obviously, where the four prongs of Complete Auto are not

met, goods are not taxable under the Commerce Clause whether

or not they are "in transit." And, the circumstances which make

the goods "in transit" may inform a court’s decision that the first

and fourth nexus requirements of Complete Auto are not met. For

instance, if oil in tanks or trucks merely passed through Nueces

County without stopping, it would be "in transit" in a way that

would cause it to have little or no nexus with the county. But

under other circumstances, as in this case, there can be sufficient

nexus to support a tax even if goods are technically "in transit."’

the Import-Export Clause or the Commerce Clause.

7 Our holding today is limited to foreign goods "in transit" through

only one state, which remain in that state. Even as to goods in interstate

commerce, however, the question of whether Diamond Shamrock’s "in

transit" argument has any remaining validity under the modern

Commerce Clause analysis is questionable, at least to goods which have

entered the state of their final destination. In D.H. Holmes v.

McNamara, 486 U.S. 24, 108 S.Ct. 1619, 100 L.Ed.2d 21 (1988), the

Supreme Court upheld the validity under the Commerce Clause of a

Louisiana use tax imposed on catalogs printed outside of the State and

shipped to prospective customers within the State. The Court applied

the four-prong Complete Auto test and found that all four prongs were

satisfied. Noting that Complete Auto abandoned the abstract notion that

interstate commerce "itself" cannot be taxed by the States, the Court

rejected what amounted to an "in transit" argument, stating:

We recognized [in Complete Auto] that, with certain restrictions,

interstate commerce may be required to pay its fair share of state

taxes. Accordingly, in the present case, it makes little difference for

Commerce Clause purposes whether appellant’s catalogues "came to

rest" in the mailboxes of its Louisiana customers or whether they

were still considered in the stream of interstate commerce. This

distinction may be of some importance for other purposes (in

determining, for instance, whether a “taxable moment" has

occurred ...), but for Commerce Clause analysis it is largely

irrelevant.

lla

This distinction is clear in our law. In Exxon Corp. v. San

Patricio County, 822 §.W.2d 269 (Tex. App.--Corpus Christi

1991, writ denied), the county sought to tax oil which was held

in pipeline company tanks for an average of only seventeen days

awaiting shipment in the pipeline. In holding that the property

had attained situs under the Texas situs statute, Tex. Tax Code

Ann. § 21.02 (Vernon 1982), the court explained:

We do not agree that when determining whether a large

quantity of oil is to be taxed we should consider the situs of

each individual barrel separately.... We do not view this mass

of oil as a continual flow of singular barrels which

independently do not remain in the County long enough to

establish a tax situs there. Rather, because Exxon held a

quantity of over 400,000 barrels of oil in San Patricio County

in seventeen tanks at all times, a massive quantity was located

in the County throughout 1987 and 1988 for more than a

temporary period. That the particular oil present on January 1,

1988, shortly left the county is not determinative.

Exxon, 822 S.W.2d at 277-73." Here, Diamond Shamrock

argues that "[t]he incidence of the tax sought to be imposed is

merely the oil’s passing through--actual movement through--

Nueces County." This argument is only persuasive, however, if

one considers each barrel of oil separately. Instead, under Exxon,

D.H. Holmes, 486 U.S. at 30-31, 108 S.Ct. at 1623-24 (citation

omitted, emphasis added). See also Havil v. Gurley, 382 So.2d 109,

111 (Fla. Dist.Ct.App. 1980) (Florida state ad valorem tax on

merchandise shipped from Tennessee did not violate Commerce Clause

“even if the merchandise may be considered to be in transit," since the

four prongs of Complete Auto were met).

The Exxon opinion also provides support for our holding that the

fourth prong of Complete Auto is met in this case. Considering the oil

as present within the county in large quantities year-round, as opposed

to focusing on specific barrels in the county for only a period of days,

there can be no doubt that the tax in question here is fairly related to the

government services that are provided.

12a

the incidence of the tax sought to be imposed is the year-round

presence of a large quantity of Diamond Shamrock’s oil at rest in

Nueces County, which receives government services. We hold

that these facts satisfy the first and fourth nexus prongs of

Complete Auto, and that no interference with foreign commerce

is demonstrated in this case. Therefore, the tax here does not

violate the Commerce Clause.”

The court’s opinion in Exxon also answers the argument that,

if the oil in question here is held to be taxable despite being "in

transit," all goods that likewise enter the state of Texas as the

state of final destination will become taxable merely by crossing

the state line, thus creating the potential for taxation by numerous

counties in the State. In rejecting a similar argument, the court

explained:

Exxon analogizes the constant flow of oil through working

tanks and pipelines to the transport of oil in tanker trucks,

whereby the trucks sporadically pass through a county and are

located by chance within that county’s boundaries on January

ist of a Tax Year. We disagree. In that scenario, individual

units of oil are carried directly through the county, from

border to border, with little or no delays so that a massive

quantity of oil does not remain within the county continuously.

Id. at 273. Oil passing through a county without stopping, in

pipelines or on trucks, would thus not be located in that county

"for more than a temporary period" so as to allow taxation under

the Code.

Under Exxon, the oil at issue here does attain situs in Nueces

County and is taxable in Texas despite being "in transit" through

the state. Indeed, the parties stipulated that if the crude oil had

originated from sources within the State of Texas it would be

subject to ad valorem taxation in this State. The "in transit"

° For the same reasons, assuming the Import-Export Clause might be

implicated by similar concerns in this case, taxation of the oil is not

invalid under that constitutional provision.

13a

nature of the oil does not call its taxation in Nueces County into

question under either the Commerce Clause or the Import-Export

Clause of the United States Constitution. Accordingly, we affirm

the judgment of the court of appeals.

14a

NUECES COUNTY APPRAISAL DISTRICT

and the Appraisal District Board of the

Nueces County Appraisal District,

Appellants,

DIAMOND SHAMROCK REFINING AND

MARKETING COMPANY,

Appellee.

No. 13-91-308-CV

Court of Appeals of Texas

Corpus Christi

April 29, 1993

Russell R. Graham, Calame, Linebarger, Graham & Pena,

Austin, for appellants.

Edward Kliewer, III, Kenneth Malone, Foster, Lewis &

Langley, San Antonio, for appellee.

Before the court en banc.

OPINION

SEERDEN, Justice.

This is an ad valorem taxation case. The trial court entered a

judgment against the Nueces County Appraisal District and the

Appraisal Review Board of the Nueces County Appraisal District

which decreed that the crude oil owned by Diamond Shamrock

and located within appellants’ appraisal jurisdiction on January Ist

of 1988, 1989, and 1990, was exempt from ad valorem taxation

for those years. By a single point of error, appellants complain

that the trial court erred by holding that Diamond Shamrock’s

property was exempt from taxation. We reverse and render.

The Constitution of the State of Texas provides that "all real

property and tangible personal property in this State, unless

exempt as required or permitted by this Constitution . . . shall be

taxed in proportion to its value... ." Tex. Const. art. VII,

| : |

15a

§ 1(b). See Tex. Const. art. VIII, §§ 1(d), 1-b, 1-j, 1-k, 2.

Principles of federal law may limit a state’s power to tax. Tex.

Tax Code Ann. § 11.12 (Vernon 1992);' Dallas County

Appraisal Dist. v. L.D. Brinkman, 701 S.W.2d 20, 20 (Tex.App.-

-Dallas 1985, writ ref'd n.r.e.). Thus, subject only to the state’s

constitutional exemptions and federal limitations, the State of

Texas has the power and the duty to tax any real and tangible

personal private property in the state. Jd. When construing

constitutional authorization of tax exemptions, "our courts must

resolve any doubts against the exemption because tax exemptions

are never favored." Aransas County Appraisal Review Board v.

Texas Gulf Shrimp, 707 S.W.2d 186, 188 (Tex. App.--Corpus

Christi 1986, writ refd n.r.e.).

The following facts, among others, were stipulated by the

parties. The crude oil was shipped from foreign sources to

American Petrofina’s Harbor Island storage facility within the

Nueces County Appraisal District to await shipment by pipeline

to its final destination, Diamond Shamrock’s refinery located

approximately 100 miles from Harbor Island in Three Rivers,

Texas. None of the crude oil was pumped or sold outside Texas.

-On January 1, 1988, 323, 019 barrels of crude oil were present

for no longer than 12 days at the Harbor Island facility; 658,968

barrels were present on January 1, 1989, for no longer than 25.3

days; and, 408,667 barrels were present on January 1, 1990, for

no longer than 18.1 days. At all times during the years 1987

through 1990, some volume of crude oil owned by Diamond

Shamrock was present in the Harbor Island storage facility.

While located in Nueces County, the crude oil received

governmental services.

Further, Diamond Shamrock admits that the tax is valid except

to the extent that it may be precluded by the Import-Export

Clause and the Commerce Clause of the United States

' Section 11.12 of the Texas Tax Code states that "[p]roperty exempt

from ad valorem taxation by federal law is exempt from taxation.”

Other exemptions are delineated in §§ 11.11-11.24 and §§ 11.251-11.30.

16a

Constitution, and, if valid, this property is subject to taxation in

appellants’ taxing district. The parties also stipulated that if the

oil originated from sources within Texas, it would be subject to

ad valorem taxation in Texas.

THE IMPORT-EXPORT CLAUSE

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: 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 revision and

control of the Congress.

U.S. Const. art. I, § 10, cl. 2.

Diamond Shamrock contends that the oil was in transit to its

refinery and immune from property taxes under the Import-Export

Clause until it arrived at its final destination in Three Rivers,

Texas. Using the traditional analysis of taxation under the

Import-Export Clause, as urged by Diamond Shamrock, all taxes,

even nondiscriminatory property taxes, on imports and the

importing processes are banned by the Clause. City of Farmers

Branch v. Matsushita Elec. Corp. of Am., 537 §.W.2d 452, 454

(Tex. 1976) (citing Low v. Austin, 80 U.S. (13 Wall.) 29, 20

L.Ed. 517 (1871) and Brown v. Maryland, 25 U.S. 262, 12

Wheat 419 6 L.Ed. 678 (1827)). A court’s primary considera-

tion, under this traditional approach, is whether the tax under

review reaches imports or exports. Department of Revenue of

Washington v. Association of Washington Stevedoring Cos., 435

U.S. 734, 752, 98 S.Ct. 1388, 1400, 55 L.Ed.2d 682 (1978).

Diamond Shamrock argues that whether goods are in transit

and not subject to local taxation depends on the intent of the

parties. Diamond Shamrock relies on cases that determine the

validity of the tax by analyzing the character of the taxed

property. Swift Textiles, Inc. v. Watkins Motor Lines, Inc. , 799

17a

F.2d 697, 699, 700-01, 701 n. 2 (11th Cir. 1986); State v.

Anderson, Clayton & Co., 92 F.2d 104, 107 (Sth Cir. 1937),

cert. denied, 302 U.S. 747, 58 S.Ct. 265, 82 L.Ed. 578 (1937);

Binder- up v. Pathe Exch., Inc., 263 U.S. 291, 309, 44 S.Ct. 96,

99, 68 L.Ed. 308 (1923).

In Swift, the Court considered the intent of the parties and

whether the shipment was a part of a larger journey originating

in a foreign country. It determined whether the intrastate

shipment of machinery was a continuation of foreign commerce

under the Carmack Amendment to the Interstate Commerce Act.

Swift, 799 F.2d at 699, 700-01, 701 n.2. Swift, 799 F.2d at 699,

700-01, 701 n. 2. Appellants correctly argue that the intentions

of the parties might be relevant for defining the nature of a

shipment when the dispute is between a common carrier and its

client and the issues are contractual in nature. However, under

the present facts we are concerned, not with a contract as it

applies to an appropriate act, but with the validity of a tax

imposed upon one of the parties by a third-party taxing district.

Diamond Shamrock cites the following propositions in

Anderson, Clayton. "“[T]he intention existing at the time the

movement starts governs and fixes the character of the shipment,"

and "[tJemporary stoppage within the state, made necessary in

furtherance of the interstate carriage, does not change its

character." Anderson, Clayton, 92 F.2d at 107. Diamond

Shamrock relies on cases that reflect the traditional analysis of

taxation under the Import-Export Clause.

The United States Supreme Court abandoned the traditional

inquiry into the character of the taxed property in Michelin Tire

Corp. v. Wages, 423 U.S. 276, 279, 96 S.Ct. 535, 537, 46

L.Ed.2d 495 (1976). See R.J. Reynolds Tobacco Co. v. Durham

County, North Carolina, 479 U.S. 130, 152, 107 S.Ct. 499, 513,

93 L.Ed.2d 449 (1986); Xerox Corp. v. County of Harris, 459

U.S. 145, 150-51, 103 S.Ct. 523, 526-27, 74 L.Ed.2d 323

(1982); Washington Stevedoring, 435 U.S. at 759, 98 S.Ct. at

1404; Recent Cases, 29 Vanderbilt L.Rev. 487, 493-94 (1978).

In Michelin, the Court initiated a new, fundamentally different

18a

approach to the Import-Export Clause. Under the contemporary

analysis, instead of focusing on whether the property has lost its

status as an "import," the Court focused on whether the tax

sought to be imposed is an "impost or duty." Michelin, 423 U.S.

at 290-94, 96 S.Ct. at 543-45; see Limbach v. Hooven & Allison

Co., 466 U.S. 353, 360, 104 S.Ct. 1837, 1842, 80 L.Ed.2d 356

(1984); Louisiana Land & Exploration v. Pilot Petroleum, 900

F.2d 816, 820-21 (Sth Cir. 1990), cert. denied, 498 U.S. 897,

111 S.Ct. 248, 112 L.Ed.2d 207 (1990). Appellants urge that,

under the holding in Michelin, the oil was not in transit for

taxation purposes. Additionally, even if "in transit," appellants

contend that it was not automaticaliy immune from taxation.

"[T]Jhe [Import-Export] Clause was fashioned to prevent the

imposition of exactions which were no more than transit fees on

the privilege of moving through a State." Michelin, 423 U.S. at

290, 96 S.Ct. at 543. The Court in Michelin concluded that an

exaction by a state would be objectionable if it offended any of

the three policy considerations which led the framers to

incorporate the Import-Export Clause into the Constitution.

These considerations are:

1. [T]he 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 that

exclusive power;

2. [lJmport revenues were to be the major source of revenue

of the Federal Government and should not be diverted to the

States; and

3. [H]armony among the States might be disturbed unless

seaboard States, with their crucial ports of entry, were

prohibited from levying taxes on citizens of other States by

taxing goods merely flowing through their ports to the inland

States not situated as favorably geographically.

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

that the tax at issue in this case offends none of these policies.

19a

First, this property tax can have no impact on the federal

government’s exclusive regulation of foreign commerce. By

definition, it does not fall on imports because of their place of

origin. Michelin, 423 U.S. at 286, 96 S.Ct. at 541.

Second, the federal government retains the exclusive right to

all revenues from exactions on imports and exports. Unlike

imposts and duties, which are essentially taxes on the commercial

privilege of bringing goods into a country, ad valorem property

taxes are taxes by which a state apportions the cost of such

services as police and fire protection among the beneficiaries.

Michelin, 423 U.S. at 287, 96 S.Ct. at 541; Matsushita, 537

S.W.2d at 454. Although the Import-Export Clause prohibits

state taxation based on the foreign origin of the imported goods,

it cannot be read to accord imported goods preferential treatment

that permits escape from uniform nondiscriminatory taxes for

services which the state supplies. Michelin, 423 U.S. at 286-87,

96 S.Ct. at 541-42. There is no reason why Diamond Shamrock

should not bear its share of these costs.

Diamond Shamrock argues that the only reason for the oil

being in the Harbor Island tanks was because it could not be

transported out more quickly through the pipeline. However, the

stipulations reveal that Diamond Shamrock’s Three Rivers storage

capacity was only 200,000 barrels while the average volume in

the Harbor Island facility on January Ist of the relevant years was

463,550 barrels. It appears that Diamond Shamrock could have

stored the oil in these tanks until such time as the capacity of the

tanks at Three Rivers could have accepted it. We conclude that

a substantial amount of oil was stored in the Harbor Island facility

because it had a higher comparable capacity than the tanks at

Three Rivers.

Finally, this tax in no way conflicts with the third purpose of

the Import-Export Clause. With this concern the framers desired

to encourage harmony among the states. Michelin, 423 U.S. at

286-88, 96 S.Ct. at 541-42. The crude oil originated totally from

foreign sources. It entered the United States at the Harbor Island

facility located within the Nueces County Appraisal District. The

20a

parties stipulated that the final destination of the crude oil was

Three Rivers, Texas. None of the crude oil in question was

pumped or sold outside the State of Texas in its present form.

The import was concluded when offloaded and put into storage

tanks and was stored there continuously until it was transferred to

the tanks in Three Rivers. Under these facts, there was never an

opportunity for disturbing harmony among the states. This tax

has no effect on the cost of property moving to any inland state,

but simply requires appellee to bear a share of the cost of

government in proportion to its ownership of this property.

We conclude that once the purposes of the Import-Export

Clauses of the United States Constitution have been satisfied, as

in this case, the concept of "in transit" loses any rational

meaning. At that point the taxability of the property becomes a

matter for the state. It is clear that had thts oil been produced in

another taxing district in Texas and transferred to the Harbor

Island Storage facilities under the same circumstances and for the

same purposes, Texas law would hold the appellants’ tax valid.

See Exxon Corp. v. San Patricio County Appraisal Dist., 822

S.W.2d 269 (Tex.App.--Corpus Christi 1991, writ denied). The

fact that this crude oil came from a foreign country makes it no

more "in transit" under Texas law than it would have been in the

Exxon case.

THE COMMERCE CLAUSE

The Commerce Clause grants Congress power "[t]o regulate

Commerce with foreign Nations, and among the several States,

and with the Indian tribes . . . ." U.S. Const. art. I, § 8, cl. 3.

Initially, Diamond Shamrock contends that because appellants

failed to brief or argue the Commerce Clause question, they have

waived the right to challenge the trial court’s judgment on that

issue. However, appellants filed a reply brief that argues the

validity of the tax under the Commerce Clause. The issue has not

been waived on appeal.

Diamond Shamrock urges that the traditional rule which

provides a blanket prohibition against any state taxation imposed

2la

directly on an interstate [or foreign] transaction, applies in this

case. See Freeman v. Hewit, 329 U.S. 249, 256-57, 67 S.Ct.

274, 278-79, 91 L.Ed. 265 (1946). Appellants contend that the

Supreme Court has abandoned the traditional analysis of interstate

and international commerce immunities from state taxation, and

has moved to a review of the tax in question to determine whether

it discriminates against such commerce or fairly relates to services

provided by the State or both. See Michelin, 423 U.S. at 286-89,

96 S.Ct., at 541-42; Complete Auto Transit, Inc. v. Brady, 430

U.S. 274, 282, 97 S.Ct. 1076, 1080, 51 L.Ed.2d 326 (1977);

Washington Stevedoring, 435 U.S. at 753, 98 S.Ct. at 1400;

Colonial Pipeline Co. v. Traigle, 421 U.S. 100, 108, 95 S.Ct.

1538, 1543, 44 L.Ed.2d 1 (1975).

Complete Auto sets out the test for the validity of taxes on

interstate commerce. A tax is sustainable against a Commerce

Clause challenge when the tax 1) is applied to an activity with a

substantial nexus with the taxing state, 2) is fairly apportioned, 3)

does not discriminate against interstate commerce, and 4) is fairly

related to the services provided by the State. Complete Auto, 430

U.S. at 279, 97 S.Ct. at 1079; see Washington Stevedoring, 435

U.S. at 750, 98 S.Ct. at 1399. The Court in Japan Line, Ltd. v.

County of Los Angeles, 441 U.S. 434, 451, 99 S.Ct. 1813, 1823,

60 L.Ed.2d 336 (1979), formulated a more extensive foreign

commerce clause test by adding two inquiries to the existing

Complete Auto interstate commerce clause test: 1) whether the

tax, notwithstanding apportionment, creates a substantial risk of

international multiple taxation, and 2) whether the tax may impair

federal uniformity and prevent the federal government from

speaking with one voice when regulating commercial relations

with foreign governments. Japan Line, 441 U.S. at 448, 451, 99

S.Ct. at 1821, 1823. We conclude that the foreign commerce

clause test is satisfied, thus, no impermissible burden on this

foreign commerce exists.

Diamond Shamrock urges the tax in question is impermissible

under either the Complete Auto or the Japan Line tests. Under

the first prong of Complete Auto, Diamond Shamrock contends

that the crude oil did not have a sufficient nexus to Nueces

22a

County because it was only entering, exiting, or passing through

the county. The stipulated facts reveal that some of Diamond

Shamrock’s oil was present within appellants’ boundaries at all

times during the tax years in question. The oil was consumed in

the state. The oil present on January ist of each of the three

years remained for a period of 12, 25, and 18 days, respectively.

The oil received governmental services in Nueces County. We

conclude that the oil had a substantial local nexus with the taxing

entity, satisfying prong one.

Under the second prong of Complete Auto, Diamond Shamrock

contends that because appellants’ tax is on the full value of the oil

on the assessment date, it does not meet the apportionment

requirement of Complete Auto. We disagree.

The apportionment test is designed to avoid multiple taxation

of the same property or activity among the states or nations. Its

purpose "is to ensure that each State taxes only its fair share of an

interstate transaction." Goldberg v. Sweet, 488 U.S. 252, 260,

109 S.Ct. 582, 588, 102 L.Ed.2d 607 (1989). Under the facts of

this case, no multiple burdens were demonstrated. The tax could

occur in no other state because the oil had no contact with any

other state. Additionally, the facts revealed no apportionment

issue involving the importing country.

Even if there were an apportionment issue as it relates to the

portion of the property present within the county’s boundary, the

burden of proving the tax unfair or that an exemption applies is

on the taxpayer who makes such a claim. See Central R.R. Co.

of Pennsylvania v. Pennsylvania, 370 U.S. 607, 613-17, 82 S.Ct.

1297, 1302-04, 8 L.Ed.2d 720 (1962). To meet his burden the

taxpayer must show that the taxing state is taxing more than its

fair share of the property’s value. The record reveals Diamond

Shamrock contested neither the volume nor the value of the

property which appellants sought to tax. As a result, it has

waived any claim that this state has sought to impose a tax on

more than its fair share of the property. If property is located in

the taxing district on the assessment day, the presumption is that

it is taxable. The burden should be on the person or entity taxed

1 Sele A Sete RIO re Betts

23a

to prove otherwise. See Tex.Tax Code Ann. § 21.02(1) (Vernon

1992); Davis v. City of Austin, 632 S.W.2d 331, 333 (Tex.

1982).

The record contains nothing that shows the tax discriminates

against interstate or foreign commerce, the third prong of

Complete Auto. Clearly, this nondiscriminatory tax passes this

test because the taxing state only taxed that property which was

present within its boundaries and received governmental services

regardless of its origin or its destination.

Under Complete Auto’s fourth prong, "the tax is fairly related

to the services provided by the State," Diamond Shamrock repeats

its argument involving nexus and appropriation with the same

result: the facts, as articulated under prong one, show a clear

relationship exists between the tax and the services provided.

Thus, the fourth prong is met.

Next, we review the two foreign commerce requirements

identified in Japan Line. Diamond Shamrock asserts that the tax

enhances the risk of multiple taxation and impairs federal

uniformity. Specifically, Diamond Shamrock urges that full

taxation on goods in transit may provoke retaliation by foreign

nations. Relying on Japan Line, Diamond Shamrock argues that

since appellants taxed the crude oil on its full value, multiple

taxation is inevitable and the United States has no way to prevent

that multiple taxation. See Japan Line, 441 U.S. at 447, 99 S.Ct.

at 1820.

The property in question in Japan Line was shipping containers

owned by Japan Line, Inc., a Japanese domiciliary. Japan Line,

441 U.S. at 436, 99 S.Ct. at 1815. The containers were

repeatedly sent back and forth between Japan and the United

States. Id. All containers were subject to property tax in Japan

and, in fact, were taxed in Japan. /d. The County of Los

Angeles sought to tax the same entity on the assessed value of the

containers present in its jurisdiction on the assessment date. Id.

at 437, 99 S.Ct. at 1815. The Court held that because Japan had

the right to tax the property value of the containers in full,

California’s tax necessarily produced multiple taxation. Jd. at

24a

447, 99 S.Ct. at 1820. The Court further held that the California

tax prevented the United States from speaking with one voice in

foreign affairs because the risk of retaliation by Japan, under

these circumstances, was acute. Jd. at 453, 99 S.Ct. at 1824.

No similar facts exist in the present case. Once the crude oil

enters this country, the application of appellants’ tax does not

necessarily result in double taxation. In act, it is undisputed that

if the property is subject to property taxes in Texas, its taxable

situs is Nueces County, thus avoiding the possibility of double

taxation within the state. Diamond Shamrock’s arguments under

Japan Line concerning an enhanced risk of multiple taxation and

an impairment of federal uniformity have no application in this

case.

Finally, an ad valorem property tax that conflicts with the three

basic purposes of the Import-Export Clause would also be invalid

under the Commerce Clause analysis because the policies

animating both clauses are much the same. Japan Line, 441 U.S.

at 449 n. 14, 99 S.Ct. at 1822 n. 14. As previously discussed,

no conflict exists between this tax and the federal government’s

exclusive regulation of foreign commerce or its exclusive right to

all revenues from exactions on imports and exports, or the

framers’ desire to encourage harmony among the states.

We hold that the tax is sustainable against a Commerce Clause

challenge.

Because the Import-Export Clause and the Commerce Clause

have no application in this case, the law of the State of Texas

applies. Thus, we conclude that Diamond Shamrock’s crude oil

located in the Harbor Island facility on January 1st of 1988, 1989,

and 1990 is not exempt from the ad valorem property taxes for

those years.

We reverse the judgment of the trial court and render that

Diamond Shamrock’s property is not qualified as exempt

property.

Concurring opinion by DORSEY, J.

etn URAGA YL. whee tes mw

25a

Dissenting opinion by Assigned Justice GERALD T.

BISSETT,’ joined by NYE, C.J., and KENNEDY, J.

DORSEY, Justice, concurring.

I join in the well-written majority opinion authored by Justice

Seerden. I write to express my analysis of the case, because I do

not believe the following issue is illuminated by the exegesis of

the dissent.

Both the Import-Export Clause and the Commerce Clause of

the federal constitution prohibit a state from levying a duty on

goods passing through that state, when those goods originate from

and are destined for a foreign land or sister state. If the goods

are merely "passing through" bound for another jurisdiction, they

are in transit and not subject to the local state’s taxation.

The oil at issue was produced abroad, transported by ship until

unloaded into the terminal at Harbor Island, located in Nueces

County, Texas. The oil will be transported from there by

pipeline to a refinery in Live Oak County, Texas, where it will be

refined and transformed into gasoline and other products. There

is no assertion that the resulting gasoline and related products will

be transported from Texas to be consumed elsewhere. The oil is

owned by Diamond Shamrock at all relevant times.

The issue in the present case is whether the State of Texas may

tax the oil in the storage tanks in Nueces County. The issue is

not which taxing entity within the State of Texas is the proper

taxing agency. The Import-Export and Commerce Clauses are

restrictions on the State vis-a-vis the Federal Government. If the

goods sought to be taxed cease being in transit within the state,

the State may impose non-discriminatory ad valorem taxes.

The power of the State to tax being at issue, it is not important

where within the state the material finally comes to rest and

ceases to be in transit. It is immaterial for federal constitutional

? Assigned to this Court by the Chief Justice of the Supreme Court of

Texas pursuant to Tex. Gov’t Code Ann. § 74.003 (Vernon 1988).

26a

purposes that the final destination of the imported crude oil is

Nueces County or Live Oak County, Texas. If the State of Texas

has jurisdiction to tax, a dispute regarding which taxing authority

within the state may levy ad valorem taxes is determined by state

law. Neither the Import-Export Clause nor the Commerce Clause

of the United States Constitution is implicated.

GERALD T. BISSETT, Justice

(Assigned), dissenting.

I respectfully dissent. I would hold that both the Import-

Export Clause and the Commerce Clause in the United States

Constitution prohibit the tax in this case.

First, in addition to the summary of the facts set out in the

majority opinion, I add the following facts which were stipulated

by the parties:

The crude oil at issue originates totally from foreign

sources, and is transmitted by ships through the Gulf of

Mexico to the Harbor Island storage facility located within the

Nueces County Appraisal District as part of and incident to the

transportation of the crude oil to its ultimate destination outside

the Nueces County Appraisal District. The presence of the

crude oil within the Nueces County Appraisal District, while

in transit to its ultimate destination, is reasonably necessary for

the accommodation of the transportation of the crude oil into

two (2) pipelines owned by American Petrofina which

transports the crude oil 36.2 miles to a metering station in

Refugio, Texas, from which it is pumped 65 miles in a

pipeline owned by plaintiff to its ultimate predetermined

destination, the Plaintiff's refinery located in Three Rivers,

Texas. Plaintiff does not divert the oil to any other facility

other than the Three Rivers refinery.

No manufacturing, assembly, servicing, processing,

commingling with other oil from other sources, or refining of

any kind is performed on the subject crude oil while located

within the Nueces County Appraisal District, while the crude

ene eee en ce ee

27a

oil is awaiting its accommodation of transportation to its

ultimate destination.

* * K* K kK x

[I]n 1988, the owner of the Harbor Island storage facility

paid One Hundred Twenty-Nine Thousand Six Hundred

Seventy-nine and 70/100 Dollars ($129,679.70) in ad valorem

taxes, in 1989 paid One Hundred Thirty-three Thousand Two

Hundred Six and 53/100 Dollars ($133,206.53) in ad valorem

taxes and in 1990 paid One Hundred Forty Thousand Nine

Hundred Three and 17/100 Dollars ($140,903.17) in ad

valorem taxes.

THE IMPORT-EXPORT CLAUSE

The majority relies primarily upon the holding in Michelin Tire

Corp. v. Wages, 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d 495

(1976), as authority for holding "that the trial court erred in

holding that Diamond Shamrock’s property was exempt from

taxation." That case differs in a very material and substantial way

from the facts in the case at bar.

In Michelin, the taxing authorities of Guinsett County,

Georgia, assessed ad valorem taxes against tires and tubes

imported by the taxpayer (Michelin) from foreign sources that

were included on the assessment dates in an inventory maintained

at its wholesale distribution center in the county. The Michelin

Court noted that "nothing in the history of the Import-Export

Clause remotely suggested that a non-discriminatory ad valorem

property tax, also imposed on imported goods that are no longer

in transit was objectionable to the Framers of the Constitution."

(Emphasis added). Michelin, 423 U.S. at 286, 96 S.Ct. at 541.

In discussing the third policy consideration set out in the opinion

“the preservation of harmony between the states," the Court

observed that the Clause "prevented imposition of exactions that

were no more than transit fees on the privilege of moving through

a State." Id., 423 U.S. at 290, 96 S.Ct. at 543. The court then

said that non-discriminatory ad valorem property taxes stand on

a different footing,

28a

and to the extent there is any conflict whatsoever with this

purpose of the Clause, it may be secured merely by prohibiting

the assessment of even nondiscriminatory property taxes on

goods which are merely in transit through the State when the

tax is assessed.

Id., 423 U.S. at 290, 96 S.Ct. at 543.

It appears that the Court’s language, quoted above, when read

in context, is that a tax on goods in transit, for merely moving

through a taxing jurisdiction, like appellants’ tax herein, is

prohibited.

The focus of the above quoted language of the Court in

Michelin is not on the "through the State," but is on the "in

transit" nature of the goods. Jd. The critical inquiry is not

whether the leg of the journey in the United States crosses a state

border, but whether the leg of the journey in the United States

was intended to be a part of a larger journey that originated in a

foreign nation.

It was held in Michelin:

Petitioner’s tires in this case were no longer in transit. They

were stored in a distribution warehouse from which petitioner

conducted a wholesale operation, taking orders from franchised

dealers and filling them from a constantly replenished inventory.

The warehouse was operated no differently than would be a

distribution warehouse utilized by a wholesaler dealing solely in

domestic goods, and we therefore hold that the nondiscriminatory

property tax levied on petitioner’s inventory of imported tires was

not interdicted by the Import-Export Clause of the Constitution.

(Emphasis added)

Id., 423 U.S. at 302, 96 S.Ct. at 548.

The United States Supreme Court stated in R.J. Reynolds

Tobacco Co. v. Durham County, N.C., 479 U.S. 130, 107 S.Ct.

499, 93, L.Ed.2d 449 (1986):

MRR MUREIER E

Valk al Ate bMS Ran hilnd) RN we POLE B AS SY ene See ln aorta

29a

This Court has observed that in Michelin it limited its holding

to the imported goods ’no longer in transit’. . . . The imported

tobacco here, we repeat, has nothing transitory about it: it has

reached its State--indeed, its County--of destination. . . .

Id., 479 U.S. at 154-55, 107 S.Ct. at 514.

In Department of Revenue vy. Association of Washington

Stevedoring Cos. , 435 U.S. 734, 754-55. 98 S.Ct. 1388, 1401-02,

55 L.Ed.2d 682 (1978), the goods were in transit. The tax was

not upon the goods themselves, but was on the business or

occupation of stevedoring, loading and unloading cargo, which

occurred entirely within the state. By undertaking this analysis

and upholding the tax because it was not on the goods in transit,

the court again recognized that goods in transit are not taxable.

The court specifically observed that the immunity of services

incidental to interstate transit is not so broad as the immunity of

the goods themselves. Justice Powell noted in his concurring

opinion that while the nondiscriminatory tax in Michelin was held

not to violate any of the policies that underlie the Import-Export

Clause,

the Court suggested that even a nondiscriminatory tax on goods

merely in transit through the state might run afoul of the

Import-Export Clause.

Id., 435 U.S. at 762, 98 S.Ct. at 1405.

It has long been the rule under federal law that the states may

not tax personal property actively in transit. Mr. Justice Rutledge

stated in Independent Warehouses, Inc. v. Scheele, 331 U.S. 70,

67 S.Ct. 1062, 91 L.Ed. 1346 (1947):

[I}f the interstate movement has begun, it may be regarded as

continuing, so as to maintain the immunity of the property

from state taxation, despite temporary interruptions due to the

necessities of the journey . . . mere changes in the method of

transportation do not affect the continuity of the transit. . . .

Id., 331 U.S. at 73, 67 S.Ct. at 1064-65.

30a

It was stated in Champlain Realty Co. v. Town of Brattleboro,

260 U.S. 366, 376-77, 43 S.Ct. 146, 149, 67 L.Ed. 309, 314

(1922):

[I]f the interruptions (of the goods in transit) are only to

promote the safe or convenient transit, then the continuity of

the interstate trip is not broken. . . . In other words, in such

cases interstate continuity of transit is to be determined by a

consideration of the various factors of the situation. Chief

among these are the intention of the owner, the control he

retains to change destination, the agency by which the transit

is effected, the actual continuity of the transportation, and the

occasion or purpose of the interruption during which the tax is

sought to be levied.

See also, Hughes Brothers Timber Co. v. Minnesota, 272 U.S.

469, 471, 47 S.Ct. 170, 171, 71 L.Ed. 359 (1926); General Oil

Co. v. Crain, 209 U.S. 211, 230-31, 28 S.Ct. 475, 482, 52

L.Ed. 754, 765 (1908); Texas v. Anderson, Clayton & Co., 92

F.2d 104, 107 (Sth Cir. 1937), cert. denied, 302 U.S. 747, 58

S.Ct. 265, 82 L.Ed. 578 (1937).

The Supreme Court of Texas promulgated the following rule

in Calvert v. Zanes-Ewalt Warehouse, Inc., 502 S.W.2d 689

(Tex. 1973), appeal dism’d, 416 U.S. 923, 94 S.Ct. 1921, 40

L.Ed.2d 279 (1974):

It is the established rule that goods in interstate transit are not

subject to local taxation. However, where there is an

interruption at a point between the point of origin and the final

destination, the controlling principle has been stated as follows:

any interruption of the movement of commodities at an

intermediate point between origin and final destination-which

is not incidental to the transportation or the use of the means

of transportation (or, being so incidental, is used or extended

for the purposes of the owner not incidental to the

transportation or the means used therefor) breaks the continuity

in transit and subjects the shipment to local taxation at the

point of interruption... .

3la

*x* * kK * x x

The crucial question in determining whether the taxing power

of the. State may be exerted is that of "continuity of transit."

Id., 502 S.W.2d at 692.

The same rules apply in a case where the property is in foreign

transit, as it was in the instant case.

In City of Farmers Branch v. Matsushita Elec. Corp., 537

S.W.2d 452 (Tex. 1976), cert. denied, 429 U.S. 861, 97 S.Ct.

164, 5 L.Ed.2d 139 (1976), the court stated that it understood

Michelin to hold

that where the tax is not upon the importation or movement of

imported goods, and where the goods are no longer in transit,

the goods are subject to the imposition of nondiscriminatory ad

valorem property taxation by the states and their subdivisions.

(Emphasis added)

Id. at 453.

What Michelin did was to shift the inquiry from the "original

package" doctrine and the "mingled with other goods in the state"

test regarding goods that were no longer "in transit." See

Michelin, 423 U.S. at 294-302, 96 S.Ct. at 544-48. Michelin did

not, however, apply this analysis to goods that were still in

transit. Michelin, 423 U.S. at 286, 290 & 300-01, 96 S.Ct. at

541, 543 & 547-48.

Michelin did not determine whether the tires and tubes in fact

were imports under the Import-Export Clause; instead it focused

on the nature of the tax. It decided that the tax did not offend

any of the three policies that were to be served under the Clause.

The Michelin Court left open the question of whether a tax on

foreign goods would constitute an "impost" or "duty" under the

Clause. See Louisiana Land & Exploration Co. v. Pilot

Petroleum, 900 F.2d 816, 820 (Sth Cir. 1990), cert. denied, 498

U.S. 897, 111 S.Ct. 248, 112 L.Ed.2d 207 (1990).

32a

To permit a coastal state to impose a direct tax on foreign

goods in the import and export streams of foreign commerce

would circumvent the objection that the United States Government

must speak with one voice when regulating commercial relations

with foreign governments. The taxes levied by the Appraisal

District are not an indirect tax like the taxes levied in Michelin

and Washington Stevedoring; they are not taxes on stored

inventory (Michelin), nor are they taxes on a business which is

related to imports or exports (Washington Stevedoring). Instead,

the taxes in the present case are direct taxes levied on the goods

themselves while they are in transit. See, Louisiana Land &

Exploration, 900 F.2d at 821.

As a general rule, goods stopped in transit for reasons other

than necessary transportation accommodations cease to be in

transit so that taxation of such goods in the state is proper.

However, once the interstate or foreign commerce is established

at the time movement begins, the temporary stoppage within the

State made necessary in order to deliver the goods to its final

destination does not change the character of the goods. The

goods are still in foreign commence and retain such character

until they reach their final destination.

The only purpose for the stopover at Harbor Island in the case

now before this court was *’ accommodate the transportation of

oil to its final destination. in all shipments by water there are

delays at the seaport. . . . It would be idle to say that such delays

break the continuity of the interstate journey and cause the freight

to come to rest within the state." Anderson, Clayton, 92 F.2d at

107. The change in the mode of transportation from ship to

pipeline effected at Harbor Island was absolutely necessary, and

it did not affect the continuity of the transit of appellee’s oil. See

Hughes Bros., 272 U.S. at 474, 47 S.Ct. at 172. This change

was part of the transit itself. The stoppage in the transportation

of the oil was not for the benefit of appellee. No profit to

appellee can be attributed to such stoppage.

All of the crude oil in question originated from foreign

sources, as brought to the United states by ship, and its final

33a

destination was intended by appellee to be Three Rivers, Texas,

which was not within the Nueces County Appraisal District. It

was located at American Petrofina’s Harbor Island storage

facility, in Nueces County, on January 1 of the relevant years,

only “as part of and incident to" its transportation to its ultimate,

predetermined and final destination. The stopover at Harbor

Island was necessary to effectuate the change in means and mode

of transportation from ship to pipeline. The last 100 inland miles

of the continuous trip from the storage facility at Harbor Island in

Nueces County to appellee’s refinery were, by necessity, made

first by an American Petrofina’s pipeline and then by appellee’s

pipeline from Refugio, Texas, to the refinery. The

accommodation of transportation for this last leg of the journey

resulted in none of the oil being at Harbor Island for more than

25.3 days during any tax years concerned here, and in 1988 none

was present for more than 12 days. While some of appellee’s oil

was present at the facility at all times during the years 1988,

1989, and 1990, it was there at all times as a part of and incident

to this transportation process to its predetermined destination, the

refinery.

The majority reasons that appellee’s oil is taxable by them even

though it is "in transit," relying upon Youngstown Sheet and Tube

Co. v. Bowers, 358 U.S. 534, 79 S.Ct. 383, 3 L.Ed.2d 490

(1959), and R.J. Reynolds Tobacco Co. v. Durham County, N.C.,

479 U.S. 130, 107 S.Ct. 499, 93 L.Ed.2d 449 (1986). The

reliance is misplaced.

In Youngstown, the goods (ore and lumber) were at their final

destination and were being used in the company’s manufacturing

process. By contrast, when appellants in the present case sought

to tax appellee’s oil, it was not then in appellee’s manufacturing

process; it was in the custody of another company, American

Petrofina, solely incident to and for the purpose of transporting it

to appellee’s refinery.

If irrevocable commitment to supply appellee’s refinery was all

that was required, the Youngstown Court’s discussion of the actual

use of the goods at the final destination would have been

34a

superfluous. See Youngstown, 358 U.S. at 546-47, 79 S.Ct. at

390-91. Youngstown upheld the tax because the court found that

the manufacturer there had so acted upon the goods as to cause

them to lose their import character

by irrevocably committing them, after their importation

journeys [had] definitely ended, to "use in manufacturing" at

the plant and point of final destination, and by "entering" and

"using" them "in manufacturing" at that place[.] (Emphasis

added)

Youngstown, 358 U.S. at 543, 79 S.Ct. at 388. Here again, the

court’s entire consideration of all these factors would have been

utterly useless if merely entering the state was sufficient to invoke

the power to tax. All the court would have had to find was that

the goods were in the state; therefore, they were taxable

In R.J. Reynolds, the Court upheld the tax against an Import-

Export challenge because the tax was levied by state taxing

agencies on tobacco that was stored in customs bounded

warehouses, for two years where, customarily, Reynolds cleaned,

sorted, repacked, as well as stored, the tobacco. The warehouses

were owned by Reynolds. The Court concluded that no

congressional intent to confer "in transit" status on all goods

could be inferred, and held that the tobacco was not "in transit"

and that the tax was permissible since the tobacco had reached its

final destination.

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

157, 74 S.Ct. 396, 98 L.Ed. 583 (1954), the pipeline company

maintained a continuous flow of gas from Texas to its consumer

outside Texas. Nothing was done to the gas at the point of

taking; it was unchanged. The Court held that a tax on the taking

of the gas into the pipeline was a tax on actual movement in

commerce, and therefore, was impermissible.

The taxes which appellants propose to levy against appellee’s

oil are not a quid pro quo for direct benefits conferred upon

appellee by the State of Texas and Nueces County. This oil

merely passes through appellants’ jurisdiction. Undoubtedly,

35a

American Petrofina, the owner of the Harbor Island storage

facility, receives benefits from the state and Nueces County.

These benefits may arguably inure indirectly to appellee’s oil in

American Petrofina’s care, custody, and control; however,

appellants are fully compensated for any indirect benefits they

confer on appellee’s oil by taxes in the thousands of dollars paid

on the facility by American Petrofina. That facility is properly

taxed on the basis of its use and the income from that use is

reflected in its taxable value and the taxes ultimately paid. See

Tex. Tax Code Ann. §§ 1.04 & 23.01 (Vernon 1982, Supp.

1991). In turn, appellee pays for any benefits indirectly conferred

on it in that the price it pays to American Petrofina for temporary

storage includes price factors in American Petrofina’s ad valorem

tax costs. The imposition of appellants’ tax on appellee’s oil as

it merely passes through Nueces County would, thus, result in

appellee paying for any minimal services it might receive at a

greater rate than those present full time in the Appraisal District

would pay for full time services.

In summary, the federal courts and the Texas Supreme Courts

have established the following criteria to determine whether the

goods are in transit: 1) was there a stoppage in transportation,

and if so, what was the purpose of the stoppage; 2) at the time of

taxation was the final destination of the goods determinable; and

3) was the stoppage a necessary delay, or an accommodation to

the means of transportation, or for business purposes and profits

of the company. County of Harris v. Xerox Corp., 619 S.W.2d

402, 406 (Tex.Civ.App.--Houston [list Dist.] 1981, writ refd

n.r.e.), reversed on other grounds, 459 U.S. 145, 103 S.Ct. 523,

74 L.Ed.2d 323 (1982).

The tax in the instant case is a direct tax on imported goods

within the meaning of Richfield Oil Corp. v. State Board of

Equalization, 329 U.S. 69, 78-79, 67 S.Ct. 156, 161-62, 91

L.Ed. 80 (1946), and as such is in violation of the Import-Export

Clause.

I am of the opinion that the stoppage of the oil at the storage

facility in preparation for its movement by pipelines to its final

36a

destination at appellee’s refinery in Live Oak County did not

deprive the oil of its foreign character. See Anderson, Clayton &

Co., 92 F.2d at 107.

None of the authorities Cited in the majority opinion present

facts that are in any way similar to those in the case at bar. In

those cases, the goods had reached their final destination and had

thereby lost their foreign or interstate character, or the tax was

levied on activity of a business concerning imports and exports.

That is not the case here.

The conclusion by the majority "that a substantial amount of

oil was stored in the Harbor Island facility because it had a higher

comparable capacity than the tanks at Three Rivers" is not

warranted by the stipulation of facts. Furthermore, it is highly

speculative and is not "backed up" by any facts.

I conclude that the Import-Export Clause exempts the oil in

question from ad valorem taxation, and the judgment of the trial

court should be affirmed for that reason alone.

THE COMMERCE CLAUSE

The crude oil was also exempt from taxation by appellants by

the Commerce Clause of the United States Constitution, reading

Section 8. The Congress shall have power to lay and collect

Taxes, Duties, Imposts end Excises, to pay the Debts and

provide for the common Defence and general Welfare of the

United states; but all Duties, Imposts and Excises shall be

uniform throughout the United States;

* * kK KX KX *

To regulate Commerce with foreign Nations, and among the

several States, and with the Indian Tribes;

* * * *¥ KX KX *

U.S. Const. art I, § 8, Cl. 3.

The Clause is not only a grant of power to Congress, but is a

limitation upon the power of the states. See Richfield Oil Corp.

~ a i Le Ta Ba

37a

v. State Board of Equalization, 329 U.S. 69, 75, 67 S.Ct. 156,

159, 91 L.Ed. 80 (1946).

A leading case on the subject is Complete Auto Transit, Inc. v.

Brady, 430 U.S. 274, 97 §.Ct. 1076, 51 L.Ed.2d 326 (1977), in

which it was held that state ad valorem taxes may be assessed on

interstate commerce goods when the tax is applied to an interstate

activity :

with a substantial nexus with the taxing State, is fairly

apportioned, does not discriminate against interstate commerce,

and is fairly related to the services provided by the State.

Id., 430 U.S. at 274, 97 S.Ct. at 1076. The same rule applies to

foreign commerce.

The first requirement in Complete Auto is that the activity taxed

have a nexus within the state. There, Mississippi imposed a tax

on gross income derived from the transportation of persons or

property within the state. The petitioner’s business was to deliver

automobiles, assembled outside the state and shipped into it, to

dealers in the state for sale. The Court rejected

prior authorities, holding that a tax on the privilege of carrying on

certain activities in a state in connection with an interstate

business is not per se violative of the Commerce Clause, and

upheld the tax. The Court, in so deciding, assumed that the

transportation of the automobiles in the state was interstate

commerce. The Court thus recognized that had the automobiles

in question not been in transit in interstate commerce, there would

have been no complaint possible about the tax.

The central purpose of the Complete Auto requirement of fair

apportionment is to insure that each State taxes only its fair share

of an interstate transaction. Goldberg v. Sweet, 488 U.S. 252,

109 S.Ct. 582, 102 L.Ed.2d 607 (1989). Since appellants’ tax is

on full value, and unapportioned, it appears, without further

analysis, that this tax does not meet the apportionment

requirement. See Tyler Pipe Indus., Inc. v. Washington State

Dept., 483 U.S. 232, 251, 107 S.Ct. 2810, 2822, 97 L.Ed.2d

38a

199 (1987). Thus, appellants’ tax is improper for this reason

alone.

The third prong of the Complete Auto test, which prohibits

taxes that discriminate against commerce, has a deeper meaning

than the mere prohibition of the allocation of tax burdens between

insiders and outsiders in a facially discriminatory manner.

The fourth prong of the Complete Auto test is closely related

to the first. The purpose of this prong is to insure that a state’s

tax burden is not placed upon persons who do not benefit from

services provided by the State. Commonwealth Edison v.

Montana, 453 U.S. 609, 626, 101 S.Ct. 2946, 2988, 69 L.Ed.2d

884 (1981). The requirement of the fourth prong goes beyond

that of the first in that the first prong requirement of a nexus of

the goods themselves with the state must be met before amy tax

may be levied. Jd. Beyond that threshold requirement, the fourth

prong additionally requires that the measure of the tax must be

reasonably related to the extent of the contact.

In American Trucking Ass’ns, Inc. v. Scheiner, 483 U.S. 266,

283-85, 107 S.Ct. 2829, 2840-41, 97 L.Ed.2d 226 (1987), the

Court held that Pennsylvania’s flat tax on the operation of all

trucks on the state’s highways imposed a disproportionate burden

on interstate trucks, as compared with intrastate trucks, because

the interstate trucks traveled fewer miles. As indicated

hereinabove, appellants’ tax operates similarly in that full taxes

are assessed for the brief period in which appellee’s oil passes

through the taxing jurisdiction. Scheiner stands for the

proposition that the requirement of fair apportionment is

expressed in the tests of internal and external consistency. Thus,

since the tax here is on the full value of appellee’s oil and is not

apportioned at all, it discriminates against the foreign commerce

concerned here.

In Memphis Natural Gas Co. v. Stone, 335 U.S. 80, 81-3, 68

S.Ct. 1475, 1475-76, 92 L.Ed. 1832 (1948), petitioner asserted

that a franchise tax on capital used within the state solely for

interstate business violated the Commerce Clause. The tax was

not on the gas that passed through petitioner’s pipelines but on

39a

property and operations in the state. The Court found that the tax

was not On commerce itself and there was no possibility of

multiple taxation and upheld the tax.

Underlying all these cases, indeed all the cases on the

Commerce Clause (and the Import-Export Clause), is the very

principle upon which the instant case turns. That is, that goods

in transit from a foreign source may not be taxed. If this were

not true, the distinctions and discussions in these cases would be

superfluous because all goods would be subject to any tax as soon

as they cross into the taxing state. No inquiry beyond whether

the goods had crossed the state line would be necessary. In each

of these cases, however, the inquiry goes far beyond this basic

question. This additional inquiry is necessary because goods

initially in transit remain in transit until they reach their actual

predetermined and intended destination.

The test or standard for review in the instant case involves ad

valorem taxes on foreign commerce, and is set forth in Japan

Line Lid v. Los Angeles County, as follows:

[W]e believe that an inquiry more elaborate than that mandated

by Complete Auto is necessary when a State seeks to tax the

instrumentalities of foreign, rather than of interstate,

commerce. In addition to answering the nexus, apportionment,

and nondiscrimination questions posed in Complete Auto, a

court must also inquire, first, whether the tax, notwithstanding

apportionment, creates a substantial risk of international

multiple taxation, and second, whether the tax prevents the

Federal Government from "speaking with one voice when

regulating commercial relations with foreign governments." If

a state tax contravenes either of these precepts, it is

unconstitutional under the Commerce Clause.

Id., 441 U.S. at 451, 99 S.Ct. at 1823.

This test affects foreign commerce. It is applied because

"[w]Jhen construing Congress’ power to regulate Commerce with

foreign Nations," a more extensive Constitutional inquiry is

required. This more extensive inquiry encompasses the Complete

40a

Auto test plus the "two additional considerations" set out in Japan

Line. The tax concerned in this case, however, is not permissible

under either the Complete Auto test or these additional

considerations.

The first of the additional considerations articulated in Japan

Line is "the enhanced risk of multiple taxation." Jd., 441 U.S. at

446, 99 S.Ct. at 1820. In the context of interstate commerce, the

requirement of apportionment and the corollary preclusion of

taxation of all the property prevents multiple taxation. In the

context of foreign commerce, full and proper apportionment

cannot be ensured. Thus, even if state taxes are "fairly

apportioned," multiple taxation on foreign commerce on "more

than one full value" may still result in a "risk of double tax

burden to which commerce is not exposed, and which the

commerce clause forbids." Jd., 441 U.S. at 447-48, 99 S.Ct. at

1820-21. "[A] slight overlapping of tax--a problem that might be

deemed de minimis in a domestic context--assumes greater

importance in the context of foreign commerce." Jd., 441 U.S. at

456, 99 S.Ct. at 1825.

The second of the additional considerations beyond the

Complete Auto test as set out in Japan Lines is that the state tax

"may impair federal uniformity in an area where uniformity is

essential." Id., 441 U.S. at 448, 99 S.Ct. at 1821. While the

constitutional grant to Congress by the Commerce Clause of

power to regulate commerce between the states and foreign

nations is made in parallel phrases, there is evidence that the

intended scope of the foreign commerce power is to be the

greater. A state tax may impair this greater power and frustrate

achievement of federal uniformity. Jd., 441 U.S. at 449, 99 S.Ct.

at 1822. For instance, where states impose apportioned taxes,

international disputes over reconciling apportionment formulas

may arise.

The "operating incident" of the tax herein is the mere presence

of the oil in the taxing jurisdiction: the oil’s transit through

Nueces County. The oil is there temporarily, in the Harbor

Island facility, which is sought to be fully taxed with the use of

4la

the facility for temporary oil Storage (services) factored into the

tax.

I would hold that the lack of a sufficient nexus of the oil with

the Appraisal District, the failure of the tax to pass the test set out

in Complete Auto, and the failure to meet the requirements of

"additional considerations" required by Japan Line, causes the tax

in question to be in violation of the Commerce Clause of the

United States Constitution, and, therefore, it is impermissible.

Moreover, if appellant’s tax did not violate the Import-Export

Clause, it would violate the Foreign Commerce Clause by

preventing the United States from "speaking with one voice" with

respect to the taxation of foreign goods while they were in

international commerce.

I would affirm the judgment of the trial court.

42a

NO. 89-3953-B

DIAMOND SHAMROCK § IN THE DISTRICT COURT

REFINING AND §

MARKETING COMPANY § 117TH JUDICIAL

§ DISTRICT

V. §

NUECES COUNTY §

APPRAISAL §

DISTRICT AND THE §

APPRAISAL REVIEW §

BOARD OF THE NUECES §

COUNTY APPRAISAL § NUECES COUNTY,

DISTRICT § TEXAS

NO. 89-4334-E

DIAMOND SHAMROCK § IN THE DISTRICT COURT

REFINING AND §

MARKETING COMPANY § 148TH JUDICIAL

§ DISTRICT

V. §

NUECES COUNTY §

APPRAISAL §

DISTRICT AND THE §

APPRAISAL REVIEW §

BOARD OF THE NUECES §

COUNTY APPRAISAL § NUECES COUNTY,

DISTRICT § TEXAS

FIND F FACT AND NS OF LAW

The above-captioned causes, having been duly consolidated, ~- |

came on for trial on April 11, 1991 before the Court without a

jury and in which trial the only evidence presented was that in the

Agreed Stipulation of Facts and the Second Agreed Stipulation of

Facts. All parties and their attorneys were present. After

43a

considering the pleadings, the evidence and the arguments of

counsel, the Court rendered judgment in favor of Plaintiff, such

judgment having been signed on April 25, 1991. In response to

a request by Defendants herein, and over the objection of Plaintiff

that such findings and conclusions are not warranted and need not

be filed, the Court hereby makes its findings of fact and

conclusions of law as follows:

FINDINGS OF FACT

1. On January 1 of 1988, 1989 and 1990, respectively,

323,019, 658,968 and 408,667 barrels of crude oil, owned by

Plaintiff, were in the Harbor Island Storage facility, which is

owned by an entity unrelated to Plaintiff, American Petrofina, and

is located in the Nueces County Appraisal District.

2. This crude oil originated totally from foreign sources and

was transported by ships through the Gulf of Mexico to the

Harbor Island Storage facility where it was temporarily held as

part of and incident to the transportation of that crude oil to its

ultimate destination which is outside the Nueces County Appraisal

District.

3. The temporary presence of this crude oil in the Nueces

County Appraisal District was reasonably necessary for the

accommodation of the transportation of this crude oil to its

ultimate, predetermined destination, the Plaintiff’ s refinery located

in Three Rivers, Live Oak County, Texas, which transportation

was accomplished from the Harbor Island facility through 36.2

miles of pipeline owned by American Petrofina to Refugio,

Refugio County, Texas, and from there through 65 miles of

pipeline owned by Plaintiff to Plaintiff's refinery.

4. No manufacturing, assembly, servicing, processing,

commingling with other oil from other sources, or refining of any

kind was performed on this crude oil while it was located within

the Nueces County Appraisal District awaiting its accommodation

of transportation to its ultimate destination.

fed

ONCLUSIONS OF LAW

1. Plaintiff has complied with all prerequisites for filing and

maintaining the instant lawsuits, and this Court has jurisdiction to

hear and decide these cases.

2. The crude oil, which is the subject of this suit, is not

subject to ad valorem taxation in Nueces County, Texas for tax

years 1988, 1989 and 1990 because such taxation is precluded by

the Commerce Clause of the United States Constitution.

3. The crude oil, which is the subject of this suit, is not

subject to ad valorem taxation in Nueces County, Texas for tax

years 1988, 1989 and 1990 because such taxation is precluded by

the Import/Export Clause of the United States Constitution.

4. The crude oil which is the subject of this suit, as described

by Nueces County Appraisal District account numbers

ID-49-0251-0110 and ID-1906000-110, is exempt from taxation

by Defendants and, accordingly, the property should be removed

from the Defendants’ appraisal rolls for the tax years 1988, 1989

and 1990.

SIGNED this 16th day of May, 1991.

/s/ Vernon Harville

JUDGE PRESIDING

45a

NUECES COUNTY TAX APPRAISAL DISTRICT

APPRAISAL REVIEW BOARD

Order Determining Protest

Cause No. 32 Acct No. ID-1906000-110

The notice of Diamond Shamrock R&M protesting the action

of the Nueces County Appraisal District set forth therein, being

timely filed, was presented for hearing on 6/27, 1989.

The board timely delivered written notice of the hearing date,

time, and place to the protesting property owner. The property

owner and chief appraiser were given the Opportunity to testify,

present evidence and present testimony. After reviewing the

Notice of Protest and after hearing the testimony and evidence

presented, the Board has determined with a quorum present that

the appraisal records are:

Option A - Incorrect in the following manner.

(Option B -) Correct as to the errors alleged in the Notice of

Protest.

NATURE OF PROTEST:

1. Value on property above market value of property

2. Value on property excessive in comparison vith

other similar property

3. Property denied total exemption

Property denied partial exemption (homestead,

disabled veteran)

5. Failure to be granted ag-use, open-space, timber-use,

or other special land valuation

6. Improper situs - ownership in wrong taxing unit

46a

[_] 7. Wrongful determination of ownership

[] 8. Other

It is therefore ORDERED that: Option A:

The Chief Appraiser of the Nueces County Appraisal District

correct the appraisal records in the following manner to

conform the records to the requirements of law:

Value Change: From To

Other: _Value-11,235,400

(Option B:)

Protest be denied and the applicable appraisal records not be

changed.

/s/ Drue J. Combs

Appraisal Review Board

Chairman

47a

NUECES COUNTY TAX APPRAISAL DISTRICT

* * * ORDER DETERMINING PROTEST * * *

17 AUG 1990 APPEAL #: 90000333

ACCOUNT #: ID-1906000-110

DIAMOND SHAMROCK R&M

P.O. BOX 696000

SAN ANTONIO, TX 78269

LEGAL: CRUDE INV AT HARBOR ISLAND

The Notice of Protest of DIAMOND SHAMROCK R&M

protesting the action of the Nueces County Appraisal District set

forth therein, being timely filed, was presented for hearing on

06/11/90.

The board timely delivered written notice of the hearing date,

time, and place to the protesting property owner. The property

owner and Chief Appraiser were given the opportunity to testify,

present evidence and present testimony. After reviewing the

Notice of Protest and after hearing the testimony and evidence

presented, the Board has determined with a quorum present that

the appraisal records are correct.

It is therefore ORDERED that the Protest be denied and the

applicable appraisal records not be changed.

Signed on this 31st day of August, 1990.

/s/ Drue J. Combs

Appraisal Review Board

Chairman

48a :

THE SUPREME COURT OF TEXAS

P.O. Box 12248

Supreme Court Building

Austin, Texas 78711

John T. Adams, Clerk

June 15, 1994

Mr. Edward Kliewer, III Mr. Kenneth L. Malone

Foster Lewis Langley Foster Lewis Langley

Gardner & Banack Gardner & Banack

112 East Pecan Street 112 E. Pecan Street,

Suite 1100 Suite 1100

San Antonio, TX 78205-1533 San Antonio, TX 78205-1533

Mr. Russell R. Graham Mr. Peter W. Low

Calame Linebarger Graham Calame Linebarger Graham &

& Pena Pena

P.O. Box 17428 P.O. Box 17428

Austin, TX 78760 1949 south I.H. 35

Austin, TX 78760

RE: Case No. D-3982

Style: DIAMOND SHAMROCK REFINING AND

MARKETING COMPANY v. NUECES COUNTY

APPRAISAL DISTRICT AND THE APPRAISAL

REVIEW BOARD OF THE NUECES COUNTY

APPRAISAL DISTRICT

Dear Counsel:

Today, the Supreme Court of Texas overruled the motion for

rehearing in the above referenced cause.

Respectfully yours,

John T. Adams, Clerk

By_/s/ Mia Zierlein

Mia Zierlein, Deputy Clerk

49a

OFFICIAL NOTICE

COURT OF APPEALS

13th SUPREME JUDICIAL DISTRICT

May 27, 1993

RE: Case No. 13-91-00308-CV

Style: Nueces County Appraisal District and the Appraisal District

v. Diamond Shamrock Refining and Marketing Company

The appellee’s motion for rehearing in the above cause was this

day OVERRULED.

T.C. Case #89-3953-B CATHY WILBORN, CLERK

13th Court of Appeals Kenneth Malone

10th Floor Foster, Lewis, Langley,

Nueces County Courthouse Gardner & B

Corpus Christi, Texas 78401 1100 NBC Bank Plaza

112 East Pecan Street

San Antonio, TX 78205-1533

50a

THE STATE OF TEXAS

To the District Court of Nueces County, Greetings:

Before our Supreme Court on the 20th day of April A.D.

1994, the Cause, upon writ of error, to revise or reverse your

Judgment between

DIAMOND SHAMROCK vs. NUECES COUNTY

REFINING AND APPRAISAL DISTRICT

MARKETING COMPANY AND THE APPRAISAL

REVIEW BOARD OF THE

NUECES COUNTY

APPRAISAL DISTRICT

No. D-3982 in the Supreme Court of Texas

No. 89-3953-B in the 117th District Court of Nueces County,

Texas, was determined; and therein our said Supreme Court

entered its judgment or order in these words:

"THE SUPREME COURT OF TEXAS, having heard this

cause on writ of error to the Court of Appeals for the Thirteenth

District, and having considered the appellate record and the

argument of counsel, is of the opinion that the judgment of the

court of appeals should be affirmed.

"IT IS THEREFORE ORDERED, in accordance with the

Court’s opinion, that:

1) The judgment of the court of appeals is affirmed;

2) Nueces County Appraisal District and the Appraisal

Review Board of the Nueces County Appraisal District

shall recover from Diamond Shamrock Refining and

Marketing Company, which shall pay, the costs in this

Court and in the court of appeals.

"A copy of this judgment and of the Court’s opinion is

certified to the court of appeals and to the District Court of

Nueces County, Texas, for observance."

S5la

Wherefore we command you to observe the order of our said

Supreme Court in this behalf, and in all things to have

recognized, obeyed, and executed.

Witness the Honorable Thomas R. Phillips, Chief Justice of

our said

Supreme Court, with the seal thereof annexed, at the City

of Austin, this the 3rd day of August A.D. 1994

JOHN T. ADAMS, Clerk

By/s/ Courtland Crocker

Courtland Crocker, Deputy

52a

NO. 89-3953-B

DIAMOND SHAMROCK § INTHE DISTRICT COURT

REFINING AND §

MARKETING COMPANY § 117TH JUDICIAL

§ DISTRICT

V. §

NUECES COUNTY §

APPRAISAL §

DISTRICT AND THE §

APPRAISAL REVIEW §

BOARD OF THE NUECES §

COUNTY APPRAISAL § NUECES COUNTY,

DISTRICT § TEXAS

NO. 89-4334-E

DIAMOND SHAMROCK § IN THE DISTRICT COURT

REFINING AND §

MARKETING COMPANY § 148TH JUDICIAL

: § DISTRICT

V. §

NUECES COUNTY §

APPRAISAL §

DISTRICT AND THE §

APPRAISAL REVIEW §

BOARD OF THE NUECES §

COUNTY APPRAISAL § NUECES COUNTY,

DISTRICT § TEXAS

FINAL JUDGMENT

On the 11th day of April, 1991, came on to be heard the

above-entitled and numbered cause and DIAMOND SHAMROCK

REFINING AND MARKETING COMPANY, Plaintiff, appeared

by and through its corporate representative and by attorney of

record and announced ready for trial, and NUECES COUNTY

53a

APPRAISAL DISTRICT AND THE NUECES COUNTY

APPRAISAL REVIEW BOARD OF THE NUECES COUNTY

APPRAISAL DISTRICT, Defendants, appeared by attorney of

record and announced ready for trial, and no jury having been

demanded, all matters of fact and things in controversy were

submitted to the Court and the case proceeded to trial.

The Court, having reviewed the parties’ Agreed Stipulations Of

Facts filed pursuant to Rule 263 of the Texas Rules of Civil

Procedure and hearing the argument of counsel, is of the opinion

that the property which is the subject of this suit, as described by

Nueces County Appraisal District Account Numbers ID-49-0251-

0110 and ID-1906000-110, is exempt from taxationby Defendants

for the tax years in question and that, accordingly, the property

should be removed from the Defendants’ Appraisal Rolls for the

tax years 1988, 1989 and 1990. It is, therefore,

ORDERED, ADJUDGED and DECREED by the Court that

the property which is the subject of this suit, as described by

Nueces County District Account Numbers ID-49-0251-0110 and

ID-1906000-110, is exempt from ad valorem taxation by

Defendants for the ad valorem tax years 1988, 1989 and 1990 and

should be deleted by the Defendants from the applicable Appraisal

Rolls for the ad valorem years 1988, 1989 and 1990. It is further

ORDERED, ADJUDGED and DECREED that the Chief

Appraiser of Defendant, NUECES COUNTY APPRAISAL

DISTRICT, shall perform the following administrative

procedures:

(i) within thirty (30) days after this Final Judgment is signed

by the Court, he shall deliver or cause to be delivered a

copy of this Final Judgment to the Assessor for each

taxing unit affected by any correction required in (ii)

below; and

(ii) with proper diligence and within a reasomble period of

time after this Final Judgment is signed by the Court, he

shall (a) correct or cause to be corrected the Appraisal

Rolis or other appropriate appraisal records of Defendant,

54a

NUECES COUNTY APPRAISAL DISTRICT, for the

1988, 1989 and 1990 ad valorem tax years to reflect this

final determination of the Plaintiff's appeal, including,

without limitation, correcting or causing to be corrected

the Appraisal Rolls and other appropriate records of

Defendant, NUECES COUNTY APPRAISAL

DISTRICT, for the 1988, 1989 and 1990 ad valorem tax

years to reflect the deletion of the Plaintiff's property

which is the subject of this suit, as described by Nueces

Appraisal District Account Numbers ID-49-0251-0110

and ID-1906000-110, from the Appraisal Rolls and (b)

certify such corrections to the assessor for each taxing

unit affected by such corrections. It is further

ORDERED, ADJUDGED and DECREED that all costs are

assessed against the Defendants. It is further

ORDERED, ADJUDGED and DECREED that all relief not

expressly granted in this Final Judgment is DENIED.

SIGNED this 25th day of April, 1991.

/s/ Vernon Harville

JUDGE PRESIDING

APPROVED AS TO FORM:

FOSTER, LEWIS, LANGLEY, GARDNER

& BANACK, INCORPORATED

1100 NBC Bank Plaza

112 East Pecan

San Antonio, Texas 78205

(512) 226-3116

FAX:(512) 226-1065

BY _/s/ Edward Kliewer, III

EDWARD KLIEWER, III

State Bar No. 21865500

eae

55a

ATTORNEYS FOR PLAINTIFF

DIAMOND SRAMROCK REFINING AND

MARKETING COMPANY

CALAME, LINEBARGER & GRAHAM

1949 South I.H. 35

Post Office Box 17428

Austin, Texas 78760

(512) 447-6675

BY_/s/ Russell

RUSSELL GRAHAM

State Bar No. 08274500

ATTORNEYS FOR DEFENDANTS

NUECES COUNTY APPRAISAL DISTRICT

AND THE APPRAISAL REVIEW BOARD OF

THE NUECES COUNTY APPRAISAL DISTRICT

[Filed April 11, 1991]

No. 89-3953-B

DIAMOND SHAMROCK = § _IN THE DISTRICT COURT

REFINING AND

MARKETING COMPANY

7 117TH JUDICIAL DISTRICT

NUECES COUNTY

APPRAISAL DISTRICT

AND THE APPRAISAL

REVIEW BOARD OF

THE NUECES COUNTRY

APPRAISAL DISTRICT

No. 89-4334-E

DIAMOND SHAMROCK ~ § IN THE DISTRICT COURT

REFINING AND §

MARKETING COMPANY

NUECES COUNTY, TEXAS

CO? CO? (OP “OO? CO? CO? CO? (OP? CO? CO? CO

Z 148TH JUDICIAL DISTRICT

APPRAISAL DISTRICT

AND THE APPRAISAL

REVIEW BOARD OF

THE NUECES COUNTRY

APPRAISAL DISTRICT §

AGREED STIPULATION OF FACTS

NUECES COUNTY §

;

§ NUECES COUNTY, TEXAS

NOW COME Piaintiff, Diamond Shamrock Refining and

Marketing Company, and Defendants, Nueces County Appraisal

District and the Appraisal Review Board of the Nueces County

Appraisal District, and file this their Agreed Stipulation of Facts

pursuant to Rule 263, Texas Rules of Civil Procedure, by which

57a

facts are true, correct, and established for all purposes relevant to

the resolution of the above style causes of action.

These cases are ad valorem tax cases brought by Plaintiff

pursuant to Chapter 42 of the Texas Property Tax Code

challenging the inclusion of certain of Plaintiff's property on the

Defendants’ appraisal rolls for tax years 1988, 1989 and 1990.

Plaintiff protested the inclusion of its property on such appraisal

rolls to Defendant, the Appraisal Review Board, pursuant to

Chapter 41 of the Texas Property Tax Code on the ground that

such property was not subject to ad valorem taxation in Texas for

tax years 1988, 1989 and 1990, because such taxation is

precluded by the Commerce Clause and the Import/Export Clause

of the United States Constitution. Plaintiff did not protest the

situs in Texas at which the property is taxed, nor its market

value, and neither is at issue in these cases. Plaintiff admits for

purposes of this litigation that taxation of the property for tax

years 1988, 1989 and 1990 is in all respects valid except to the

extent that its taxation may be precluded by the Commerce Clause

or by the Import/Export Clause of the United States Constitution.

Plaintiff has complied with all prerequisites for filing and

maintaining the instant lawsuits and this Court has jurisdiction to

hear and decide these cases.

The property at issue consists of crude oil located within the

Defendants’ appraisal jurisdiction as of January 1, 1988, January

1, 1989 or January 1, 1990, and which bears Nueces County

Appraisal District account number ID 49-0251-0110.

The crude oil at issue originates totally from foreign sources,

and is transmitted by ships through the Gulf of Mexico to the

Harbor Island storage facility located within the Nueces County

58a

Appraisal District as part of and incident to the transportation of

the crude oil to its ultimate destination outside of the Nueces

County Appraisal District. The presence of the crude oil within

the Nueces County Appraisal District, while in transit to its

ultimate destination, is reasonably necessary for the

accommodation of the transportation of the crude oil into two (2)

pipelines owned by American Petrofina which transport the crude

oil 36.2 miles to a metering station in Refugio, Texas, from

which it is pumped 65 miles in a pipeline owned by Plaintiff to its

ultimate predetermined destination, the Plaintiff's refinery located

in Three Rivers, Texas. Plaintiff does not divert the oil to any

other facility other than the Three Rivers refinery.

No manufacturing, assembly, servicing, processing,

commingling with other oil from other sources, or refining of any

kind is performed on the subject crude oil while located within the

Nueces County Appraisal District, while the crude oil is awaiting

its accommodation of transportation to its ultimate destination.

There were 323,019 barrels of the crude oil present in the

Harbor Island facility on January 1, 1988. The longest any of

this oil spent in that facility was 12 days. There were 658,968

barrels of the crude oil present in the Harbor Island facility on

January 1, 1989. The longest any of this oil spent in that facility

was 25.3 days. There were 408,667 barrels of the crude oil

present in the Harbor Island facility on January 1, 1990. The

longest any of this oil spent in that facility was 18.1 days.

VII

At all times during the years 1987 through 1990, crude oil

owned by Plaintiffs was present in the facilities at Harbor Island

owned by American Petrofina and was moving in the manner

described in Paragraph IV above.

59a

~ Vill

None of the crude oil in question is pumped or sold outside the

state of Texas in its present form.

There are governmental services provided to the Harbor Island

facility at Nueces County, Texas, and to the crude oil located at

such facility. In 1988, the owner of the Harbor Island storage

facility paid One Hundred Twenty-nine Thousand Six Hundred

Seventy-nine and 70/100 Dollars ($129,679.70) in ad valorem

| taxes, in 1989 paid One Hundred Thirty-three Thousand Two

Hundred Six and 53/100 Dollars ($133,206.53) in ad valorem

taxes and in 1990 paid One Hundred Forty Thousand Nine

Hundred Three and 17/100 Dollars ($140,903.17) in ad valorem

taxes. Taxes due, if any, on crude oil located at she facility will

be dependent upon the outcome of the instant cause of action.

Respectfully submitted,

FOSTER, LEWIS, LANGLEY,

GARDNER &

~ BANACK, INCORPORATED

1100 NBC Bank Plaza

112 East Pecan

San Antonio, Texas 78205-1533

(512) 226-3116

(512) 226-1065 (Telecopier)

By: /s/ Edward Kliewer III

EDWARD KLIEWER III

State Bar No. 11570500

HARRY W. WOLFF, JR.

State Bar No. 21865500

ATTORNEYS FOR PLAINTIFF

60a

CALAME, LINEBARGER & GRAHAM

1949 South I.H. 35

P.O. Box 17428

Austin, Texas 78760

(512) 447-6675

By: /s/ Russell Graham

RUSSELL GRAHAM

State Bar No. 08274500

ATTORNEYS FOR DEFENDANTS

The Foregoing Agreed Stipulations

of Facts are Hereby

Signed and Certified Correct

Pursuant to Texas Rule of Civil

Procedure 263

JUDGE PRESIDING

6la

[Filed April 11, 1991]

No. 89-3953-B

DIAMOND SHAMROCK _ § IN THE DISTRICT COURT

REFINING AND §

MARKETING COMPANY

¥. 117TH JUDICIAL DISTRICT

APPRAISAL DISTRICT

AND THE APPRAISAL

REVIEW BOARD OF

THE NUECES COUNTRY

APPRAISAL DISTRICT §

No. 89-4334-E

DIAMOND SHAMROCK ~ § IN THE DISTRICT COURT

REFINING AND

MARKETING COMPANY

NUECES COUNTY §

§ NUECES COUNTY, TEXAS

V. 148TH JUDICIAL DISTRICT

NUECES COUNTY

APPRAISAL DISTRICT

AND THE APPRAISAL

REVIEW BOARD OF

THE NUECES COUNTRY

APPRAISAL DISTRICT

SECOND AGREED STIPULATION OF FACTS

NUECES COUNTY, TEXAS

CO? COP? CO? (0? (0? 60? (OP (0? (OC? (0? (OP

NOW COME Plaintiff, Diamond Shamrock Refining and

Marketing Company, and Defendants, Nueces County Appraisal

District and the Appraisal Review Board of the Nueces County

Appraisal District, and file this their Second Agreed Stipulation

of Facts pursuant to Rule 263, Texas Rules of Civil Procedure,

by which the above-named parties stipulate and agree that the

62a

following facts are true, correct, and established for all purposes

relevant to the resolution of the above-styled causes of action.

Plaintiff is a corporation authorized to do business in the State

of Texas.

Plaintiff's refinery located at Three Rivers, Texas refines crude

oil at an average daily rate of 50,000 barrels. Plaintiff has

storage tanks at its Three Rivers refinery capable of holding

200,000 barrels of crude oil. Plaintiff attempts to maintain to the

extent possible 200,000 barrels of crude oil in storage at the

Three Rivers refinery at all times.

If the crude oil in dispute in this cause of action had originated

from sources within the State of Texas it would be subject to ad

valorem taxation in this State. The Nueces County Appraisal

District attempts to appraise for ad valorem taxation all other

crude oil located within its boundaries on January 1, of each year.

The Harbor Island facility is not located in a free trade zone

nor is it a bonded customs storage facility.

Respectfully submitted,

CALAME, LINEBARGER & GRAHAM

P.O. Box 17428

Austin, Texas 78760

(512) 447-6675

Telefax No. (512) 443-3494

By: /s/ Russell Graham

RUSSELL GRAHAM

State Bar No. 08274500

ATTORNEYS FOR PLAINTIFF

63a

FOSTER, LEWIS, LANGLEY,

GARDNER &

BANACK, INCORPORATED

1100 NBC Bank Plaza

112 East Pecan

San Antonio, Texas 78205-1533

(512) 226-3116

Telefax No. (512) 226-1065

By: /s/ Edward Kliewer Ill

EDWARD KLIEWER III

State Bar No. 11570500

HARRY W. WOLFF, JR.

State Bar No. 21865500

ATTORNEYS FOR DEFENDANTS

The Foregoing Agreed Stipulations

of Facts are Hereby

Signed and Certified Correct

Pursuant to Texas Rule of Civil

Procedure 263

JUDGE PRESIDING

64a

[TRANSCRIPT EXCERPTS]

No. 89-3953-B

DIAMOND SHAMROCK ~ § IN THE DISTRICT COURT

REFINING AND §

MARKETING COMPANY §

V. § 117TH JUDICIAL DISTRICT

NUECES COUNTY §

APPRAISAL DISTRICT §

AND THE APPRAISAL §

REVIEW BOARD OF § NUECES COUNTY, TEXAS

THE NUECES COUNTRY §

APPRAISAL DISTRICT §

HEARING ON APRIL 11, 1991

* * KX *

[p. 6]

MR. KLIEWER: Your Honor, this is an ad valorem tax case,

and what it involves is the question of whether or not the Nueces

County Appraisal District has the authority to place on its

appraisal roll crude oil owned by Diamond Shamrock for the

years 1988, 1989 and 1990. This is crude oil that arrives from

the North Sea, and is then put in tanks on Harbor Island, owned

by American Petrofina, and, ultimately, piped up to the Three

Rivers Refinery, owned by Diamond Shamrock in Live Oak

County.

And it’s the position of the Plaintiff that this crude oil is

protected by both the Import-Export Clause and the Commerce

Clause of the United States Constitution and is, thereivve, exempt

from taxation. Obviously the Appraisal District has taken the

opposite position and has place this crude oil on the appraisal rolls

for the years in question. So, the issue before this Court is:

Whether or not this oil is, in fact, as we believe, protected from

property taxation by the Constitution of the United States.

[p. 48]

*x * * *

THE COURT: Gentlemen, I can understand why I was asked

to hear this case.

I studied your briefs, your pleadings. And most of the cases

-- I’m inclined to grant the MICHELIN case is in favor of the

Plaintiff rather than the Defendant.

The Court finds that the point of origin of this oil was in the

North Sea, which is a foreign source. The point of final

destination was the refinery at Three Rivers, Live Oak County,

Texas. The Court finds that the oil did not lose its status as

"import" until it reached its final place of destination. It is

qualified as "exempt property" under the Commerce Code and the

Import-Export Clause.

[p. 49]

Therefore, the Court finds in favor of the Plaintiff.

I hope that -- I’m sure it will. We'll let the Supreme Court

have the final say in this. This is an important case.

x * * *

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.