Opposition Brief — Diamond Shamrock Refining & Marketing Co. v. Nueces County Appraisal District

Fa} | ie oe he

Ny oct 13 1994

No. 94-466 ith Citi

In The

Supreme Court of the Hnited States

*

October Term, 1994

DIAMOND SHAMROCK REFINING AND MARKETING

COMPANY,

Petitioner,

VS.

NUECES COUNTY APPRAISAL DISTRICT AND THE

APPRAISAL REVIEW BOARD OF THE NUECES COUNTY

APPRAISAL DISTRICT,

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of Texas

RESPONDENTS’ BRIEF IN OPPOSITION

RUSSELL R. GRAHAM

Counsel of Record

CALAME, LINEBARGER, GRAHAM

& PENA, L.L.P.

Attorneys for Respondents

P.O. Box 17428

Austin, Texas 78760

($12) 447-6675

Angela i (800) 3 APPEAL * (800) 5 APPEAL * (800) BRIEF 21

ervices,

i

QUESTIONS PRESENTED

1. Whether the Import-Export Clause prohibits the imposition

of ad valorem property taxes on imported goods merely because

they are in transit within their state of destination?

2. Whether the Commerce Clause prohibits the imposition of

ad valorem property taxes on imported goods merely because they

are in transit within their state of destination?

ii

LIST OF PARTIES

Petitioners:

Respondents adopt Petitioner’s listing pursuant to this Court’s

Rule 29.1.

Respondents:

Respondent Nueces County Appraisal District is a political

subdivision of the State of Texas. Respondent Appraisal Review

Board of the Nueces County Appraisal District is an appointed

board responsible for determining administrative appeals related to

the District’s actions.

itl

TABLE OF CONTENTS

Page

Questions Presented ........... 2c cece cece eee cee i

ek ae hae e ed une owen il

ee A en og ee a ili

EE ee iV

Opimions Below ..... 2... ccc ccc cccc cece ccccene 2

Constitutional Provisions Involved .................. 2

De eee eseecesecsecese y J

Reasons for Denying the Writ .............-0 eee eee 7

I. The decision below does not conflict with

decisions of this Court or the Fifth Circuit under the

Import-Export Clause. ............-eeeeeeees 8

A. The Decision Below Is Consistent With The

Decisions Of This Court Under The Import-

Se oe 8

B. The Decision Below Is Consistent With The

Decision Of The Fifth Circuit. ............ 17

Il. The decision below does not conflict with

decisions of this Court under the Commerce

RR genes eeeaseecee 17

iv

Contents

Page

MEET R ECP oe er ro eee Cre er eee 22

TABLE OF CITATIONS

Cases Cited:

American Trucking Association, Inc. v. Scheiner, 483 U.S.

i Ee rere errr here ror y secre 20, 21

Braniff Airways, Inc. v. Nebraska State Board of

Equalization, 347 U.S.590 (1954) .........0...... 18

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

ST Ee TTR EO ale 18, 19, 20

D.H. Holmes Co. v. McNamara, 486 U.S. 24 (1988) ..... 7,20 |

Department of Revenue of Washington v. Association of

Washington Stevedoring Companies, 435 U.S. 734

tof. Pere Pe Teer er Perr er eet ee Thea re 12,20

Exxon Corp. v. San Patricio County Appraisal District, 822

S.W. 2d 269 (Tex. App. — Corpus Christi 1991, writ

GG ois ER OE a FRA ev wk a 4

Goldberg v. Sweet, 488 U.S.252(1989) .............. 19

Japan Line Ltd. v. Los Angeles County, 441 U.S.434 .... 17

Joseph v. Carter & Weekes Stevedoring Co., 330 U.S. 422

(I9GT) oo ci RR es OR ES 12

Vv

Contents

Page

Limbach v. Hooven & Allison Co., 466 U.S. 353 (1984) .. 13

Lousiana Land & Exploration Company v. Pilot Petroleum

Corporation, 900 F2d 816 (Sth Cir. 1990),

cert. denied, 498 U.S. 897 (1990) ......---+eeeeees 17

Low v. Austin, 80 U.S. 29 (1872) ....-- eee rere eee 9

Maryland v. Louisiana, 451 U.S.724(1981) ........--- 20

Michelin Tire Corp. v. Wages, 423 U.S. 276 C1GIG) x caces passim

Ott v. Mississipi Valley Barge Line Co., 336 U.S. 169

CRIED oc cccwcvievievteurenncrssserecnscenangens 18,19

Puget Sound Stevedoring Co. v. State Tax Commission, 302

U.S. 9O (1937) 2. ccc cccccccccrccccccncseccccces 12

Pullman’s Palace Car Co. v. Pennsylvania, 141 U.S. 18

PrP rrr erent err ee 17,18

R.J. Reynolds Tobacco Co. v. Durham County, North

Carolina, 479 U.S. 130 (1986) ......-+- see rere: 13,14, 15

Spector Motor Service, Inc. v. O ‘Conner, 340 U.S. 602

iy du cceccesereeerndacedeeveneverees 18

Trinova Corporation v. Michigan Department of Treasury,

498 U.S. 358 (1991) .. 2... eee cee eee cere eee e eee 20, 21

Tyler Pipe Industries, Inc. v. Washington State Department

of Revenue, 483 U.S. 231 (1987) ...----+ seer rece 20

vi

Contents

Page

Statute Cited:

Title 1, Tex. Tax Code Ann. (West Supp. 1994) ......... 3

United States Constitution Cited:

Commerce Clause, Article 1, § 8 of the United States

IE 4s sos Sa esh ee \oeddneei reads eaee wae passim

Import-Export Clause, Article I, § 10, cl. 2 of the United

ED iN vcd ade ccs ctvae tet deeediens passim

PTs SE a a EN ER Te SRS Ha 17

a by es

1

No. 94-466

In The

Supreme Court of the United States

-

October Term, 1994

DIAMOND SHAMROCK REFINING AND MARKETING

COMPANY,

Petitioner,

VS.

NUECES COUNTY APPRAISAL DISTRICT AND THE

APPRAISAL REVIEW BOARD OF THE NUECES COUNTY

APPRAISAL DISTRICT,

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of Texas

RESPONDENTS’ BRIEF IN OPPOSITION

The Respondents, Nueces County Appraisal District and the

Appraisal Review Board of the Nueces County Appraisal District,

respectfully request that this Court deny the Petition for Writ of

Certiorari submitted by Petitioner, Diamond Shamrock Refining

and Marketing Company.

2

OPINIONS BELOW

The “Opinions Below” section of the Petition for Writ of

Certiorari accurately summarizes the lower court proceedings.

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 Control of the Congress.

STATEMENT OF THE CASE

This case presents another instance of a taxpayer seeking to

avoid the payment of just taxes by trying to cloak itself within the

protections afforded to interstate and international commerce by

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

States Constitution.

fae ehh

3

This cause arose under the provisions of the Texas Property

Tax Code (hereinafter referred to as the Tax Code or the Code).!

The Respondents are the Nueces County Appraisal District, which

has the responsibility under the provisions of the Tax Code for the

development of appraisal rolls containing a description and

valuation of all properties within the District’s boundaries subject

to property taxation, and the Appraisal Review Board of the

Nueces County Appraisal District which is, under the provisions of

Chapter 41, Tax Code, responsible for determining protests filed

by property owners related to the appraisal of their property.

Petitioner brought this cause as a petition for review under the

provisions of Chapter 42 of the Code. Petitioner sought judicial

review of the action of the Respondents in determining that certain

crude oil owned by Petitioner and located within the Respondents’

boundaries on January | of 1988, 1989 and 1990 was taxable.

Petitioner imports crude oil which originates from foreign

sources and is transported by ships to the Harbor Island storage

facility owned by American Petrofina and located within the

Respondents’ boundaries (App. 57a-58a).? From Nueces County

the oil is transported by pipeline to its ultimate destination which is

Petitioner’s refinery in Three Rivers, Texas (App. 58a).

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 oi! 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 (App. 58a).

1. Title 1, Tex. Tax Code Ann. (West Supp. 1994).

2. All Appendix references are to the Appendix attached to the Petition.

4

While the disputed property is the crude oil that was present at

Harbor Island on January 1 of 1988, 1989 and 1990, crude oil

owned by the Petitioner was continuously present at the Harbor

Island facility during the years 1987 through 1990 (App. 58a).

None of Petitioner’s crude oil was pumped or sold outside the

State of Texas (App. 59a). While the crude oil was located within

Respondents’ boundaries it was provided with governmental

services (App. 59a).

The Petition, on Page 3, asserts several facts that are not

reflected in the record of this cause, such as “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.” While Respondents do not contest

these facts, they directly dispute the conclusion that Petitioner

draws from them that “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.” This statement is not

only unsupported by the evidence in the record of this cause, it is

just plain wrong. Domestic crude oil is regularly gathered into tank

farms before being shipped by pipelines to a refinery. See Exxon

Corp. v. San Patricio County Appraisal District, 822 S.W. 2d 269

(Tex. App. — Corpus Christi 1991, writ denied), involving

domestic oil. Petitioner’s statement that there is some significant

difference in the method of transporting domestic versus foreign

crude oil is incorrect. Any barrel of crude oil located in tankage

within Texas is for all practical purposes indistinguishable from

any other barrel. All are destined to be refined and both domestic

and foreign crude oil often flow through the exact same tank farms

and pipelines.

The cause was tried before the court, without a jury, on

5

stipulated facts on April 11, 1991. Judgment for Diamond

Shamrock was entered on April 25, 1991 (App. 52a-55a). The

Corpus Christi Court of Appeals, sitting en banc, reversed the trial

court’s judgment and rendered judgment that the property was

taxable in a 4-3 decision (App. 14a-41a). 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 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

estimination, 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 challenge. 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).

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

6

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 non-discriminatory 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 reached 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 the oil in dispute, though

technically in transit through Nueces County, (1) was part of a

continuous presence of a large quantity of Petitioner’s oil in the

County and (2) that the oil received governmental services while in

the County; 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

Ps brine od oe

7

local taxation of goods in transit, but distinguished 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. 10an.7).

REASONS FOR DENYING THE WRIT

The decision below was limited to the narrow facts of this

case’ and on the basis of those facts it is clear that tax imposed on

Petitioner’s property violated none of the purposes of the Import-

Export Clause or the Commerce Clause of the United States

Constitution.

3. The Texas Supreme Court limited its holding as follows:

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 toa 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.

App. 3a.

8

I.

THE DECISION BELOW DOES NOT. CONFLICT

WITH DECISIONS OF THIS COURT OR OF THE FIFTH

CIRCUIT UNDER THE IMPORT-EXPORT CLAUSE.

A. The Decision Below Is Consistent With The Decisions Of

This Court Under The Import-Export Clause.

The Import-Export Clause is Article I, § 10, cl. 2 of the United

States Constitution and reads 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 Control of the Congress.

Petitioner’s position, simply stated, is that the oil cannot be taxed

because it is still in movement between its point of origin (foreign)

and its final destination (Three Rivers, Texas). Respondents, on the

other hand, would urge that the real issue is not whether the oil is in

movement between its origin and its destination but whether it is

“in transit” as that term has been defined by this Court in the

context of the immunity from taxation afforded by the Import-

Export Clause.

What Petitioner seeks to do is harken back to the traditional

analysis used by this Court prior to abandoning that analysis in

Michelin Tire Corp. v. Wages, supra.

z

9

While it is true that even this Court misunderstood for one

hundred years the intentions of the Framers when they

incorporated the Import-Export Clause into the United States

Constitution [see Low v. Austin, 80 U.S. 29 (1872)], that

misunderstanding was remedied when the Court handed down its

opinion in Michelin. In that case, this Court went into great detail in

discussing the real reasons for the inclusion of the Import-Export

Clause in the United States Constitution. Those reasons were

summarized by this Court as follows:

The Framers of the Constitution thus

sought to alleviate three main concerns by

committing sole power to lay imposts and

duties on imports in the Federal Government,

with no concurrent state power: the Federal

Government must speak with one voice when

regulating commercial relations with foreign

governments, and tariffs, which might affect

foreign relations, could not be implemented by

the States consistently with that exclusive

power; import revenues were to be the major

source of revenue of the Federal Government

and should not be diverted to the States; and

harmony among the States might be disturbed

unless seaboard States, with their crucial ports

of entry, were 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.

At 285-286.

This Court then proceeded into a detailed analysis of the first

two reasons for the Import-Export Clause and indicated why non-

discriminatory property taxation would in no way conflict with the

10

first two purposes of the Clause (at 286-288). The only issue in the

instant cause is whether the taxes in question conflict with the third

purpose of the Clause.

Since Petitioner’s claim for immunity from taxation is based

solely on the fact that the imported oil has not reached its final

destination, the refinery in Three Rivers, Texas, this Court’s

holding in Michelin with regard to the third purpose of the Import-

Export Clause is of paramount importance to this cause. In that

regard this Court held as follows:

Finally, nondiscriminatory ad volorem

property taxes do not interfere with the free

flow of imported goods among the States, as

did the exactions by States under the Articles of

Confederation directed solely at imported

goods.

To be sure, allowance of nondiscriminatory ad

volorem property taxation may increase the

‘cost of goods purchased by “inland”

consumers. But as already noted, such taxation

is the quid pro quo for benefits actually

conferred by the taxing State. There is no

reason why local taxpayers should subsidize

the services used by the importer; ultimate

consumers should pay for such services as

police and fire protection accorded the goods

just as much as they should pay transportation

costs associated with those goods. An evil to be

prevented by the Import-Export Clause was the

levying of taxes which could only be imposed

because of the peculiar geographical situation

+

6

=

|

1]

of certain States that enabled them to single out

goods destined for other States. Jn effect, the

Clause was fashioned to prevent the imposition

of exactions which were no more than transit

fees on the privilege of moving through a State.

A nondiscriminatory ad valorem property tax

obviously stands on a different footing, 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.

At 289-290. (Emphasis added).

With respect to Petitioner’s property located within the

Respondents’ boundaries, it is stipulated that it receives services

from local governments (App. 59a). It is also stipulated that

property of this type owned by Petitioner is continuously present

within the Respondents’ boundaries (App. 58a). It is stipulated that

had the oil in question originated in Texas it would be taxable (App.

62a). Finally, it is stipulated that none of the oil is destined to a

location outside of Texas (App. 59a). With these stipulations in

mind, it is easy to see that what Petitioner seeks is not protection

from the evils that the Import-Export Clause was designed to

prevent but rather preferential treatment not available to other

similarly situated taxpayers.

Respondents would urge that the third purpose of the Clause

was to serve as a shield to inland states and their citizens and was

never intended to protect importers from bearing their fair share of

the cost of government. In the instant cause, the Respondents

would ask Petitioner which inland state and its citizens are being

denied their shield? The answer obviously is — none.

12

Petitioner’s oil is not “merely in transit through” Texas, but

rather it is continuously present, receiving governmental services,

and will be consumed within the State. What Petitioner seeks to do

is transform the shield designed to protect others into a sword to be

used to protect its private interests. Petitioner’s property is

continuously present within Respondents’ boundaries and

receives governmental services there but Petitioner seeks to use

this sword to hold the State of Texas and its political subdivisions at

bay when compensation for those services is sought. What

Petitioner seeks is an exemption for up to seventy-five percent

(75%)* of the oil it owns in Texas, and intends to use in Texas, on

the basis of the provisions of the Import-Export Clause when the

protections meant to be offered by that Clause are in no way

offended by the tax.

Petitioner justifies this position by citing cases which are

easily distinguished on their facts or their era.

What the Supreme Court accomplished in Michelin, though a

dramatic shift with regard to the taxation of imports, was but one of

a continuing series of steps toward a more rational review of state

taxation as it relates to the Import-Export Clause.

Shortly after Michelin, this Court went one step further and

allowed a tax upon gross proceeds derived from foreign

commerce, as distinguished from interstate commerce.

Department of Revenue of Washington vy. Association of

Washington Stevedoring Companies, 435 U.S. 734 (1978). In this

case too the Court overruled prior decisions which had held against

such taxes. Puget Sound Stevedoring Co. v. State Tax Commission,

302 U.S. 90 (1937) and Joseph v. Carter & Weekes Stevedoring

Co., 330 U.S. 422 (1947).

4. There were 658,958 barrels in Respondents’ jurisdiction on January 1,

1989 (App. 58a) versus 200,000 barrels at Three Rivers, Texas (App. 62a).

13

In the case of R.J. Reynolds Tobacco Co. v. Durham County,

North Carolina, 479 U.S. 130 (1986), this Court went further and

held that imported tobacco destined for domestic use but stored for

up to two years in customs-bonded warehouses was subject to

, property taxation. This decision serves to clarify the Michelin

- holding with respect to imported goods which had reached their

_ State of destination.

In upholding the property taxes in question this Court cited its

earlier opinion in Limbach v. Hooven & Allison Co., 466 U.S. 353

(1984) (Hooven IT) to explain the change in direction undertaken in

Michelin.

The Court has stated that its decision in

Michelin Tire Corp. v. Wages, “adopted a

fundamentally different approach to cases

claiming the protection of the Import-Export

Clause.” (Cites omitted)

We explained this approach, and its

distinction from the earlier analysis, in

Limbach:

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 lost

their status as imports but is, instead, on

whether the tax sought to be imposed is an

“Impost or Duty.” [at 153 (Emphasis added)].

14

This Court then proceeded to make five points in favor of the

tax. First, the North Carolina tax did not “interfere with the Federal

Government’s regulation of foreign commerce, for, as we have

seen, it falls on imported and domestic goods alike and does not

single out imported goods for unfavorable treatment.” (at 153).

The same is true in the instant cause. Second, the tax did not impede

the collection of customs duties (at 151). The same is true in the

instant cause. Third, “the property tax is nothing more than a means

by which a State apportions the cost of such services as police and

fire protection among the beneficiaries according to their

respective wealth.” (at 154). The same is true in the instant cause.

Fourth, “if imposition of tax happens to have the incidental effect

of discouraging some importation of foreign goods, prohibiting

this result is not a function of ithe Import-Export Clause.” Fifth and,

“finally, in light of the services provided in exchange for this tax, it

hardly constitutes the kind of exaction by the seaboard States on

goods destined for inland States that the Framers sought to prevent

by the Clause. A failure to assess the tax would shift the tax burden

from Reynolds and the ultimate consumers of its tobacco products

to the local taxpayers of North Carolina — a result completely at.

odds with Michelin. Accordingly, we conclude that the application

of the tax to Reynolds’ imported tobacco does not violate the

Import-Export Clause.” Cites omitted (at 154).

Just as in the instant cause Petitioner seeks immunity from

taxation because the property is “in transit,” so did the company in

R.J. Reynolds and the Court wasted little time in denying the claim.

This Court’s reasoning is as follows:

This Court has observed that in Michelin it

limited its holding to the imported goods “ ‘no

longer in transit.’ ” Washington Revenue Dept.,

435 U.S., at 755, 98 S. Ct., at 1401 (quoting

Michelin, 423 U.S., at 302, 96 S. Ct., at 548).

Reynolds contends that, because goods stored

15

in customs-bonded warehouses are by

definition “in transit,” this cause does not fall

within the scope of Michelin’s holding.” This

reasoning, however, is unpersuasive. The

imported tobacco here, we repeat, has nothing

transitory about it: it has reached its State —

indeed, its county — of destination and only the

payment of the customs duty, after the

appropriate aging, separates it from entrance

into the domestic market.

At 154. (Footnote omitted, emphasis added).

As indicated by this Court, the property in Reynolds had

“reached its State .. . of destination” and very little except time

prevented it from being used for its ultimate purpose. What seemed

most significant to this Court, however, was the non-

discriminatory and “quid pro quo” nature of the tax in question.

The fact that the property might still be, technically, in transit did

not outweigh the fact that the tax in question was fairly related to

the services and protections provided by the state.

Clearly, even a non-discriminatory property tax on imported

goods still in transit should not stand if it is not fairly related to the

services provided by the taxing entity. However, where a fair

relationship exists, the “in transit” status of the property should not

require immunity from taxation. To understand the different

situations which would dictate opposite results one must look to

the nature of property taxation itself.

In every state, the tax is levied on the basis of the value and

location of property on a particular day — generally referred to as

the “assessment date.” Although the tax is based on the status of

property on that date, it is used to pay for governmental services

provided throughout the year.

16

Levying a tax on an isolated shipment of imported goods

which are, more or less by accident, present in the state on the

assessment date but destined for immediate transhipment to

another state would be demanding payment of a year’s worth of

governmental services when in fact those services are only going

to be provided for a few days or perhaps even for a few hours. It

would be impossible to justify imposition of even a non-

discriminatory tax under such circumstances. The services

provided to the property would not be fairly related to the tax

imposed. As a result of modern transportation capabilities, a single

shipment might easily be present in several jurisdictions on the

same day, and thus exposed to multiple taxation. Such a tax would

indeed be the very type of transit fee which the Court in Michelin

condemned.

On the other hand, in the instant cause of action the property

was present within the Respondents’ boundaries not by an

accidental coincidence on the assessment date, but rather as part of

a continuous flow of identical property owned by Petitioner. The

tax, although based on the volume and value of the property:

present within the Respondents’ jurisdiction on January 1 of the

years in dispute, is payment for the services which were provided

throughout the year to the same or identical properties owned by

Petitioner.

The Respondents would urge that under these circumstances,

even if the oil were destined for a refinery in another state, the tax

in question would not be in the nature of the “transit fees”

condemned by the Michelin Court but rather would be the “quid

pro quo for benefits actually conferred” which the Court

specifically endorsed. To not allow such taxation would require

local taxpayers to subsidize the services used by Petitioner which

the Michelin Court specifically condemned.

17

B. The Decision Below Is Consistent With The Decision Of

The Fifth Circuit.

On this point the Respondents would specifically address the

one case cited by Petitioner — Louisiana Land & Exploration

Company v. Pilot Petroleum Corporation, 900 F.2d 816 (Sth Cir.

1990), cert. denied, 498 U.S. 897 (1990). A quick reading of that

case would indicate some support for Petitioner’s position in this

cause. After a closer reading, however, the case is easily

distinguished from the instani cause.

The distinguishing factor is that the tax in question was being

levied on fuel immediately destined for a foreign nation. The

federal courts have been particularly sensitive to taxes, even non-

discriminatory taxes, where the tax will be borne by a foreign

entity. See Japan Line Ltd. v. Los Angeles County, 441 U.S. 434. In

the instant cause there is no conceivable way that the tax in

question could have any impact on this nation’s relations with

another nation. Goods being exported clearly stand on a different

and more sensitive footing than goods which have been imported.

Even the federal government is barred from laying a duty on

exports. United States Constitution, Article I, § 9, cl. 5.

II.

THE DECISION BELOW DOES NOT CONFLICT

WITH DECISIONS OF THIS COURT UNDER THE

COMMERCE CLAUSE.

What this Court accomplished in Michelin, though a dramatic

shift with regard to the taxation of imports, was but one of a

continuing series of steps toward a more rational review of state

taxation as it relates to both the Import-Export Clause and

Commerce Clause of the United States Constitution. Those steps

began in 1891 with the Court’s holding in Pullman’s Palace Car

Co. v. Pennsylvania, 141 U.S. 18 (1891).

18

In that case this Court moved away from the “home port” or

domicile of the owner doctrine as it related to the taxation of

instrumentalities of interstate commerce. Prior to Pullman’s the

vehicles, vessels, and other equipment used to transport goods in

interstate commerce were taxable only at their domicile or “home

port” regardless of the degree of the contact those properties may

have had with other states. The Court in Pullman’s moved to the

more rational view of “apportioned” taxation between the states

where the property operated to allow taxation that reasonably

related to the services and protections provided the property by

those states. The apportionment doctrine has since been regularly

refined and restated. Ott v. Mississippi Valley Barge Line Co., 336

U.S. 169 (1949); Braniff Airways, Inc. v. Nebraska State Board of

Equalization, 347 U.S. 590 (1954).

In the case of Complete Auto Transit, Inc. v. Brady, 430 U.S.

274 (1977),° this Court held that states have the power to tax gross

receipts derived from transporting goods in exclusively interstate

commerce; in other words, to tax the business of interstate

commerce. This decision ended decades of indecision on the part:

of the court about whether the states could levy a direct tax on those

engaged in interstate commerce. Prior to Complete Auto this Court

had allowed indirect taxation but not direct taxation of interstate

commerce. The result was that the states were subjected to a series

of cases more concerned with style than substance. See Spector

Motor Service, Inc. v. O’Conner, 340 U.S. 602 (1951), and

Freeman v. Hewit, 329_U.S. 249 (1946), both of which were

overruled by Complete Auto.

Although it is the Respondents’ position that no interstate

commerce issues are present in this case, perhaps their position can

5. Although Complete Auto is clearly the most significant decision this

Court has rendered with respect to the relationship of the Commerce Clause and

state taxation, it is noteworthy that it goes unmentioned in the Petition.

19

best be explained by responding to the arguments that the

Petitioner made before the court below that the tax in question did

not meet the test set forth in Complete Auto, supra.

That test provides that a tax will be upheld against a

Commerce Clause challenge “when the tax is applied to an 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.”

Petitioner argued that there was no substantial nexus in this

cause. This argument ignored the facts of this case. Petitioner is

authorized to do business in Texas (App. 62a). Oil such as that

involved in this cause was continuously present within the

Respondents’ boundaries (App. 58a). The oil was destined to be

refined within Texas (App. 58a). The oil received governmental

services within Respondents’ boundaries (App. 59a). Finally, the

oil had no contact with any other State (App. 59a). This is not a case

where the tax arose as a result of purely incidental contact with

Texas.

Petitioner also argued that there was no fair apportionment in

the instant cause. Respondents asked the obvious question —

apportionment between Texas and what other State? The

apportionment test is one designed to avoid multiple taxation of the

same property or activity. The idea of apportionment arose

originally with respect to the taxation of instrumentalities of

interstate commerce. See Ott v. Mississippi Valley Barge Line Co.,

supra. The purpose of apportionment “is to ensure that each State

taxes only its fair share of an interstate transaction.” Goldberg v.

Sweet, 488 U.S. 252, 261 (1989). In the case of instrumentalities of

commerce, taxation has been upheld where the tax is levied on a

portion of the fleet’s value which fairly represents its presence or

use within the state. In a case such as the instant cause where the

property had no contact with any other state, there was no

20

possibility of multiple taxation and therefore no apportionment

requirement.

Petitioner also argued that the tax was not fairly related to the

property’s contact with the Respondents’ jurisdiction. If Petitioner

had wished to seriously argue that the tax was not fairly related to

the services provided, it failed to bring forth sufficient evidence to

carry its burden of proof. It could, for example, have attempted to

show that the amounts of oil present on January 1 of each year were

anomalies and that on the average it had only a few thousand

barrels in Nueces County rather than hundreds of thousands. To do

this Petitioner could have protested the volume or value of the oil

being appraised, but it did not.

Finally, with respect to the discrimination test established by

Complete Auto, it is clear that the property tax involved here is by

its nature non-discriminatory. That is further buttressed by the

Stipulations between the parties (1) that if the crude oil had

originated in Texas it would be subject to the tax, and (2) that

Respondents attempt to appraise for taxation all other crude oil

located within their boundaries on January 1 of each year (App.

62a).

Whether it is under the Commerce Clause or the Import-

Export Clause that the issue arises, if the tax singles out interstate

or international commerce it will be struck down. See American

Trucking Association, Inc. v. Scheiner, 483 U.S. 266 (1987);

Maryland v. Louisiana, 451 U.S. 724 (1981); and Tyler Pipe

Industries, Inc. v. Washington State Department of Revenue, 483

U.S. 231 (1987). But if the tax is fairly related to the commerce or

property being taxed it will be upheld. Complete Auto; Michelin

Washington Stevedoring; and D.H. Holmes Co., supra; and

Trinova Corporation v. Michigan Department of Treasury, 498

U.S. 358 (1991).

21

The Trinova decision contains perhaps the most concise

statement of the role this Court has set for itself in these cases.

There the Court held as follows:

In reviewing State taxation schemes under

the Commerce Clause, we attempt “to ensure

that each State taxes only its fair share of an

interstate transaction” (cite omitted). We act as

a defense against state taxes which, whether by

design or inadvertence, either give rise to

serious concerns of double taxation, or attempt

to capture tax revenues that, under the theory of

the tax belong of right to other jurisdictions.

At 386.

If one looks at the two-fold role this Court defined for itself in

Trinova, supra, one finds that the Court seeks first to protect

against “double taxation.” That is accomplished easily enough if

the taxing state taxes only the portion of the property normally

present within its boundaries. That would also accomplish the

Court’s second goal, which is to prevent the taxing state from

capturing revenues which belong to another state. in the American

Trucking case, supra, this Court applied a single sovereign test

when reviewing the tax in question (at 282), in effect asking if the

tax could be applied in such a way that state boundaries were a

neutral factor in economic decision-making by those engaged in

interstate commerce. Clearly, non-discriminatory taxes would

meet such a test if the taxing state only taxed that portion oi the

property which was normally present within its boundaries. That is

exactly the formula which has long been used for taxation of

instrumentalities of commerce.

To hold that goods moving in commerce are immune from

taxation without regard to the facts would defeat this Court’s recent

22

decisions in favor of having interstate and international commerce

pay its way. Where such goods are continuously present and

continuously receiving governmental services, taxing them does

not offend the purposes of the Constitution — not taxing them

does.

CONCLUSION

Respondents’ position in its most basic form is that the crude

oil involved in this case is subject to property taxation in Texas in

return for the governmental services it receives from the various

political subdivisions of this state. The oil present within

Respondents’ boundaries on January | of the years in question is

but part of a continuous presence of such oil owned by Petitioner.

Exemption of this oil from taxation would impose on the other

taxpayers of this State the burden of paying for the governmental

services provided to Petitioner’s property. Neither the Commerce

Clause nor the Import-Export Clause of the United States

Constitution were intended by the Framers to impose such a burden

on this State and its taxpayers. Those provisions were instead.

designed to prevent Texas or any other state from imposing taxes

on interstate or international commerce which do not relate fairly

to the governmental services provided to such commerce.

In the instant cause none of the evils sought to be prevented by

the Framers of the United States Constitution by their inclusion of

the Commerce Clause and the Import-Export Clause are present.

Therefore, this State and its political subdivisions have the right

and duty to require Petitioner to pay its fair share of the cost of

government.

The Nueces County Appraisal District and the Appraisal

Review Board of the Nueces County Appraisal District pray that

the Court deny Diamond Shamrock Refining and Marketing

Company’s Petition for Writ of Certiorari because the case

23

presents no issue appropriate for the Court’s review and because

the decision below was not in error.

Respectfully submitted,

RUSSELL R.GRAHAM

Counsel of Record

CALAME, LINEBARGER, GRAHAM

& PENA, L.L.P.

Attorneys for Respondents

P.O. Box 17428

Austin, Texas 78760

(512) 447-6675