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

~ MOTION FILED

OCT 13 1994 i)

No. 94-466

In The

Supreme Court of the United 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.

¢

On Petition For A Writ Of Certiorari

To The Supreme Court Of Texas

*

MOTION OF THE INSTITUTE OF PROPERTY

TAXATION TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE IN SUPPORT OF

DIAMOND SHAMROCK REFINING AND

MARKETING COMPANY’S PETITION

FOR A WRIT OF CERTIORARI

2

Epwarp Kutewer, IH

(Counsel of Record)

KENNETH L. MALONE

Foster, Lewis, LANGLEY, GARDNER

& BANACK, INC.

112 East Pecan St., Suite 1100

San Antonio, Texas 78205-1533

(210) 226-3116

Fax: (210) 226-1065

Counsel for Amicus Curiae

Institute of Property Taxation

af

No. 94-466

e

In The

Supreme Court of the United States

October Term, 1994

¢

DIAMOND SHAMROCK REFINING AND

MARKETING COMPANY,

Petitioner,

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

*

MOTION OF THE INSTITUTE OF PROPERTY

TAXATION TO FILE BRIEF AMICUS CURIAE

IN SUPPORT OF DIAMOND SHAMROCK REFINING

AND MARKETING COMPANY’S PETITION

FOR A WRIT OF CERTIORARI

+

TO THE HONORABLE SUPREME COURT OF THE

UNITED STATES:

The Institute of Property Taxation, by and through its

counsel of record, Edward Kliewer, III, of Foster, Lewis,

Langley, Gardner & Banack, Incorporated moves the

Court for permission to file a brief amicus curiae in the

1

above entitled case. This motion is made upon the follow-

ing statements. ;

STATEMENT AS TO CONSENT

Petitioner Diamond Shamrock Refining and Market-

ing Company has consented in writing to the filing of the

subject amicus brief.

Respondents Nueces County Appraisal District and

the Appraisal Review Board of the Nueces County

Appraisal District have declined in writing to consent to

the filing of the subject amicus brief.

.

STATEMENT OF INTEREST OF THE

INSTITUTE OF PROPERTY TAXATION

The Institute of Property Taxation (“IPT”) is a not-

for-profit corporation organized under the laws of the

District of Columbia with offices at 3350 Peachtree Road,

NE, Suite 280, Atlanta, Georgia 30326. IPT is a nationwide

organization which has approximately twenty-eight hun-

dred members. The membership includes tax representa-

tives of many business corporations, large and small,

throughout the United States; employees of independent

tax consulting firms; individual tax consultants; represen-

tatives of other professional organizations; and individ-

uals all of whom share a common interest in (1) fostering

and promoting the uniform and equitable administration

of property taxes and other state and local taxes (except

income taxes), and (2) minimizing the costs of adminis-

tration and compliance with state and local laws.

IPT pursues these purposes through the promotion of.

education and professionalism of its members, the

exchange of information and assistance among its mem-

bers, cooperation with governmental bodies and the

International Association of Assessing Officers to

improve state and local tax administration throughout

North America, and the establishment and promotion of

high standards of competence and efficiency in tax man-

agement.

To enhance the education and professionalism of its

members, IPT presents annual week-long schools in real

and personal property, and sales and use taxation, as well

as frequent forums, symposia and conferences concerning

more specific topics and interests. It administers two

professional certification programs — the CMI (“Certified

Member of the Institute”) for property tax professionals

and the CSM (“Certified Sales Tax Member”) for sales tax

professionals. IPT members who seek to obtain these

professional designations are required to meet rigorous

educational and experience requirements and suc-

cessfully pass comprehensive written and oral examina-

tions.!

IPT has a strong interest in the fair administration of

state and local taxes and all legal developments that

affect such administration. The issue in this case is one of

great national significance. The principles decided in this

case can affect not only ad valorem personal property

1 Appended hereto is a statement of the Institute’s princi-

ples, purposes and its code of ethics.

taxation, but could be extended to other forms of taxa-

tion. This case and its implications and ramifications for

other states and for other forms of taxation have been the

topic of much discussion at recent IPT gatherings both in

formal program presentations and informally among

members. IPT members have expressed concern over the

potential effect of this case on taxation policy in other

States and as to other forms of taxation. They fear a

forthcoming wave of new, onerous and unconstitutional

taxes on goods in-transit. IPT, therefore, has a strong

interest in ensuring that, irrespective of the ultimate judg-

ment rendered, the Court’s decision is made with full

appreciation of the scope and importance of this issue.

Because of the diverse positions and interests of IPT

members, consensus is seldom reached among its board

of directors when requests for amicus participation are

received, and IPT rarely files amicus curiae briefs. In this

case, however, upon careful consideration, the board

unanimously authorized the filing of this brief. Moreover,

in a case involving virtually the same questions concern-

ing exported goods, the board likewise authorized the

filing of a brief on behalf of IPT in the state court. By

participating as amicus curiae, IPT hopes to provide

meaningful assistance in the consideration of this case.

4

STATEMENT OF PURPOSE AND

SCOPE OF AMICUS BRIEF

It is the opinion of the Institute of Property Taxation

that the issue before the Court is one of substantial

national importance. The Institute believes that it is well

situated to comment upon the national significance of the

issue. It is therefore the desire of the Institute to under-

take to briefly illustrate the importance of this case and to

bring to the Court’s attention certain additional authori-

ties and argument relevant to the resolution of the case.

Therefore, the Institute of Property Taxation respect-

fully requests permission of the Court to submit the

enclosed brief in the above-entitled case.

Respectfully submitted,

Epwarp Kurewer, III

(Counsel of Record)

KENNETH L. MALONE

Foster, Lewis, LANGLEY, GARDNER

& BANACK, INC.

112 East Pecan St., Suite 1100

San Antonio, Texas 78205-1533

(210) 226-3116

Fax: (210) 226-1065

—

Counsel for Amicus Curiae

Institute of Property Taxation

TABLE OF CONTENTS

Page

STATEMENT OF INTEREST OF THE INSTITUTE OF

oo Ee es 0” 2

STATEMENT AS TO SCOPE OF BRIEF AMICUS

ey ag Gb Alek on odcine « 46m a.us oes 4

REASONS FOR GRANTING THE WRIT ........... +

I. THE HISTORICAL IN-TRANSIT RULE IS STILL

ee 6

Il. THE HISTORICAL IN-TRANSIT RULE IS SUP-

PORTED BY THE IMPORT-EXPORT CLAUSE

PURPOSES DISCUSSED IN MICHELIN........ 10

A. Bpeek Wee One Voice ......... cen cscs: 10

B. Harmony Among The States ................ 14

III. APPLICATION OF THE BRIGHT-LINE IN-

TRANSIT RULE IS NEEDED.................. 17

EE TO a en 20

=

ii

TABLE OF AUTHORITIES

Page

CASES

Associated Indus. v. Lohman, __ U.S. ___, 114 S. Ct.

peep i me rrGe t pran mm. y Serr 14, 16

Carson Pet. Co. v. Vail, 279 U.S. 95-(1929)............. 6

Champlain Realty Co. v. Town of Brattleboro, 260 U.S.

Se I ss hese ch os nA nT eae he 6

Car wv. Tome of Errol, 116 US. S37 (1806). ............. 7

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

ED iinctih nek nvns snap dae enna naewiles tenet es 17, 18

Container Corp. v. Franchise Tax Bd., 463 U.S. 159

ry rr re ret ne eee ren 17

Department of Revenue v. Association of Washington

Stevedoring Cos., 435 U.S. 734 (1978).......... 7, 8, 17

Fort Gratoit Sanitary Landfill, Inc. v. Michigan

Department of Nat. Resources, ___ U.S. __, 112 S.

Ce, FR Pe ans shawn aa sadn eee dc aareines 14, 16

General Oil Co. v. Crain, 209 U.S. 211 (1908).......... 6

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

GE Ndncncsartesdesnsedeeagnnast esse ennoes saeeks 6

Itel Containers Int'l Corp. v. Huddleston, __ U.S.

une BAD S. CR. DOTS (UGGS) oon cc cccevcces 7, %2,.13, 19

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

CG on oc nonce neteatasauinatseanyseensaces OD

Kosydar v. National Cash Register Co., 417 U.S. 62

GPE 0600s racks as cumeeneksacssonssdaeeenesad 6, 19

License Cases, 5 How. 504 (1847).......... 13, 15, 16, 17

ili

TABLE OF AUTHORITIES - Continued

Page

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

ati A ChE 4 AAC aed acwnecoenese 17

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

900 F.2d 816 (5th Cir. 1990), cert. denied, 498 U.S.

PR ind 50M ihre en phn dace cevasasews iy TZ, 3

Lome. Amelia, 19 Wall. BP (IG72Z)... «2... ccc ccccccces 7

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

Minnesota v. Blasius, 290 U.S. 1 (1933)................ 6

Quill Corp. v. North Dakota, ___ U.S. __, 112 S. Ct.

SE aia sdea ncn bbs akenscundaines 17, 18, 19

R.J. Reynolds Tobacco Co. v. Durham County, 479

Se Eo 7, 8

Richfield Oil Corp. v. State Board of Equalization, 329

ED 65h eke eke dhe ecb ncdane ae beseden ad 6, 12

Wardair Canada, Inc. v. Florida Department of Reve-

nue, EE ee 13

Wisconsin v. J.C. Penney Co., 311 U.S. 435 (1940)...... 4

STATUTES

Tex. Tax Code Ann. § 11.01(b), (c) (Vernon 1992) .... 15

MISCELLANEOUS

J. Hellerstein, State Taxation, { 4.11, 5.4 (1983)..8, 9, 10

W. Hellerstein, Michelin Tire Corp. v. Wages:

Enhanced State Power to Tax Imports, 1976 S. Ct.

ELD Rae Oeabh ES Geek 6eesenescecccecss 8

iia Senne a a ee

iv

TABLE OF AUTHORITIES - Continued

Page

Comment, Constitutional Law - Nondiscriminatory

Ad Valorem Property Tax May Be Applied to |

Imports, 30 Rutgers L. Rev. 193 (1976).............. 8

Note, 12 Wake Forest L. Rev. 1055 (1976) ........-. 8, 9 |

No. 94-466

4

In The

Supreme Court of the United States

October Term, 1994

¢

DIAMOND SHAMROCK REFINING AND

MARKETING COMPANY,

Petitioner,

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

°

BRIEF AMICUS CURIAE OF THE INSTITUTE

OF PROPERTY TAXATION FILED IN SUPPORT

OF DIAMOND SHAMROCK REFINING AND

MARKETING COMPANY’S PETITION

FOR A WRIT OF CERTIORARI

¢

The Institute of Property Taxation respectfully joins

as Amicus Curiae in Support of Petitioner, Diamond

Shamrock Refining and Marketing Company’s petition

for writ of certiorari to review the judgment of the

Supreme Court of the State of Texas in this case.

+

STATEMENT OF INTEREST OF THE

INSTITUTE OF PROPERTY TAXATION

The Institute of Property Taxation (“IPT”) is a not-

for-profit corporation organized under the laws of the

District of Columbia with offices at 3350 Peachtree Road,

NE, Suite 280, Atlanta, Georgia 30326. IPT is a nationwide

organization which has approximately twenty-eight hun-

dred members. The membership includes tax representa-

tives of many business corporations, large and small,

throughout the United States; employees of independent

tax consulting firms; individual tax consultants; represen-

tatives of other professional organizations; and individ-

uals all of whom share a common interest in (1) fostering

and promoting the uniform and equitable administration

of property taxes and other state and local taxes (except

income taxes), and (2) minimizing the costs of adminis-

tration and compliance with state and local laws.

IPT pursues these purposes through the promotion of

education and professionalism of its members, the

exchange of information and assistance among its mem-

bers, cooperation with governmental bodies and the

International Association of Assessing Officers to

improve state and local tax administration throughout

North America, and the establishment and promotion of

high standards of competence and efficiency in tax man-

agement.

To enhance the education and professionalism of its

members, IPT presents annual week-long schools in real

and personal property, and sales and use taxation, as well

as frequent forums, symposia and conferences concerning

more specific topics and interests. It administers two

professional certification programs — the CMI (“Certified

Member of the Institute”) for property tax professionals

and the CSM (“Certified Sales Tax Member”) for sales tax

professionals. IPT members who seek to obtain these

professional designations are required to meet rigorous

educational and experience requirements and suc-

cessfully pass comprehensive written and oral examina-

tions.!

IPT has a strong interest in the fair administration of

state and local taxes and all legal developments that

affect such administration. The issue in this case is one of

great national significance. The principles decided in this

case can affect not only ad valorem personal property

taxation, but could be extended to other forms of taxa-

tion. This case and its implications and ramifications for

other states and for other forms of taxation have been the

topic of much discussion at recent IPT gatherings both in

formal program presentations and informally among

members. IPT members have expressed concern over the

potential effect of this case on taxation policy in other

States and as to other forms of taxation. They fear a

forthcoming wave of new, onerous and unconstitutional

taxes on goods in transit. IPT, therefore, has a strong

interest in ensuring that, irrespective of the ultimate judg-

ment rendered, the Court’s decision is made with full

appreciation of the scope and importance of this issue.

Because of the diverse positions and interests of IPT

members, consensus is seldom reached among its board

1 Appended hereto is a statement of the Institute’s princi-

ples, purposes and its code of ethics.

of directors when requests for amicus participation are

received, and IPT rarely files amicus curiae briefs. In this

case, however, upon careful consideration, the board

unanimously authorized the filing of this brief. Moreover,

in a case involving virtually the same questions concern-

ing exported goods, the board likewise authorized the

filing of a brief on behalf of IPT in the state court. By

participating as amicus curiae, IPT hopes to provide

meaningful assistance in the consideration of this case.

¢

STATEMENT AS TO SCOPE OF

BRIEF AMICUS CURIAE

The issue before the Court has been ably addressed

by Diamond Shamrock Refining and Marketing Company

in its petition for writ of certiorari. IPT, therefore, seeks to

briefly address the importance of this case and to bring to

the Court’s attention some additional authorities relevant

to the case, focusing primarily on the Import-Export

Clause concerns.

REASONS FOR GRANTING THE WRIT

Years ago this Court recognized the insistent “pres-

sures for new governmental revenues” which present

“the baffling task of tapping fresh sources of” funding.

E.g., Wisconsin v. J.C. Penney Co., 311 U.S. 435, 442 (1940).

Those pressures are certainly no less great today. The

Texas Supreme Court’s exegesis in this case not only

impermissibly allows taxation of Diamonds Shamrock’s

oil in transit but can also be expected to have the same

effect on oil of other concerns. As Diamond Shamrock

pointed out, this case directly impacts taxation of the

more than fifty billion dollars worth of oil imported

annually, which constitutes 10% of all goods imported

into the United States each year. (Pet. 7). But, it has no

less impact on the other 90% of annually imported goods.

While the means of transportation may differ for other

goods, those goods are likewise subject to taxation at

their ports of entry under the Texas Supreme Court’s

opinion. Exports, too, are similarly subject to taxation.

Moreover, the court’s holding may encourage, and be

used to support, the impermissible taxation of goods in

transit from state to state. Neither are these effects

restricted to the taxing authorities concerned in this case.

In this quest for sources of funding, other Texas political

subdivisions will undoubtedly soon follow in the taxation

of goods in transit. Nor is that result restricted to Texas;

other states and their subdivisions, too, could institute

such tax practices both with respect to property taxation

and, perhaps, as to other forms of taxation. The conse-

quent burdens, financial and administrative, have the real

potential to be devastating to the national economy.

The Texas Supreme Court noted that Michelin “over-

ruled earlier cases to adopt a new analytical framework,

thereby creating ‘a fundamentally different approach to

cases claiming the protection of the Import-Export

Clause.’ ” (App. 4a). While that observation is undoubt-

edly true, this Court has never indicated that Michelin

obliterated the entirety of the Import-Export Clause juris-

prudence that preceded it. Indeed, in Michelin, the Court

overruled only one case, and the Court has never over-

ruled the cases which held that goods in transit are not

taxable. Rather than overrule this prohibition, Michelin

recognized it and its continued application in proper

cases. Moreover, this prohibition of taxation of goods in

transit vindicates the policies underlying the Import-

Export Clause, recognized in Michelin. Further, this prohi-

bition provides needed guidance to local governments in

applying their taxing authority. The far-reaching effect of

the Texas Court’s decision should be circumscribed and

the long-standing bright-line rule — that the states may

not tax property in transit - should be applied to bring

stability and certainty to this area of the law which sorely

needs those qualities. These reasons warrant the contin-

ued application of this principle as an integral part of the

new analytical framework of Michelin.

Diamond Shamrock’s oil was indisputably in transit

at the time it was taxed, but Respondents nevertheless

imposed the tax. The Texas Supreme Court erroneously

upheld the tax by disregarding this essential prohibition.

I. THE HISTORICAL IN-TRANSIT RULE IS STILL

APPLICABLE.

It has long been the law, under both the Import-

Export and Commerce Clauses, that “the States may not

tax property in transit.” E.g., Minnesota v. Blasius, 290 U.S.

1, 9 (1933); see, e.g., Kosydar v. National Cash Register Co.,

417 U.S. 62, 65-66 (1974); Richfield Oil Corp. v. State Bd. of

Equalization, 329 U.S. 69, 80, 83 (1946); Carson Pet. Co. v.

Vail, 279 U.S. 95, 101 (1929); Hughes Bros. Timber Co. v.

Minnesota, 272 U.S. 469, 476 (1926); Champlain Realty Co. v.

Town of Brattleboro, 260 U.S. 366, 376 (1922); General Oil

ee

Co. v. Crain, 209 U.S. 211, 229 (1908); Coe v. Town of Errol,

116 U.S. 517 (1886).

This Court in Michelin did not overrule any of these

and other cases which held that goods actually in transit

were not taxable. Indeed, none of these prior cases have

been overruled. In Michelin, the Court overruled only one

case, and overruled it only insofar as it was contrary to

the Court’s holding that “Georgia’s assessment of a non-

discriminatory ad valorem property tax against the

imported tires [which were no longer in transit] is not

within the constitutional prohibition against laying ‘any

Imposts or Duties on Imports. ...’ ” Michelin Tire Corp. v.

Wages, 423 U.S. 276, 279, 301 (1976), overruling, Low v.

Austin, 13 Wall. 29 (1872). The Court predicated its dis-

cussion of the Import-Export Clause analysis of Michelin

on the distinction between goods in transit and those that

were not. Michelin, 423 U.S. at 286.

No case since Michelin has challenged in this Court a

tax actually on goods in transit. Nevertheless, the Court

has on several occasions discussed the in-transit status of

goods and has applied the principles of pre-Michelin

cases in resolving the contentions raised. See, e.g., Itel

Containers Int'l Corp. v. Huddleston, im... 2398. Ct

1095, 1106 (1993) (sales tax on proceeds of container

leases, not on goods in transit, held valid); R.J. Reynolds

Tobacco Co. v. Durham County, 479 U.S. 130, 154-55 (1986)

(“nothing transitory about” tobacco that had reached its

destination and was stored in warehouse; storage in cus-

tom-bonded warehouse did not confer “in-transit” sta-

tus); Department of Revenue v. Association of Washington

Stevedoring Cos., 435 U.S. 734, 757 (1978); Japan Line Ltd. v.

County of Los Angeles, 441 U.S. 434, 436 (1979) (tax on

cargo containers — instrumentalities of commerce — not

goods in transit); Michelin, 423 U.S. at 302 (“tires in this

case were no longer in transit”). In R.J. Reynolds, as in

Michelin, the Court considered in-transit contentions con-

cerning ad valorem taxation. In both cases, the goods

were not in transit and, in upholding the taxes, the Court

went to considerable lengths to distinguish the facts on

that basis. R.J. Reynolds, 479 U.S. at 154-55; Michelin, 423

U.S. at 302.

Because this Court has not considered a tax on goods

actually in transit after Michelin, it has not fully discussed

the effect of the in-transit status. In Washington Stevedor-

ing, however, the Court cited commentaries which dis-

cussed the in-transit qualification of Michelin. Washington

Stevedoring, 435 U.S. at 755 n.20. These commentaries

expound the continued immunity for goods in transit

which the Court described in Michelin. See W. Hellerstein,

Michelin Tire Corp. v. Wages: Enhanced State Power to Tax

Imports, 1976 S. Ct. Rev. 99, 116 (1976); Comment, Consti-

tutional Law - Nondiscriminatory Ad Valorem Property Tax

May Be Applied to Imports, 30 Rutgers L. Rev. 193, 202

(1976); Note, 12 Wake Forest L. Rev. 1055, 1062 (1976).

“Michelin teaches that nondiscriminatory ad valorem

property taxes are not ‘impost’ or ‘duties’ within the

meaning of the Import-Export Clause, at least when the

goods sought to be taxed are not in transit.” Hellerstein,

1976 S. Ct. Rev. at 117.

Whether the court is saying that an exaction not

otherwise an “impost” or “duty” becomes one

when imposed upon goods in transit or, alter-

natively, that there is a “protected penumbra” of

guarantees beyond the explicit terms of the

clause that would bar such an exaction, a court

must consider this issue [the in-transit issue] in

examining a taxpayer’s claim that a state tax is a

prohibited tax on imports, if it has concluded

that the levy does not discriminate against such

goods. [Footnotes omitted].

Id. at 116. The standards developed under the Commerce

Clause provide appropriate criteria and should be used in

determining the in-transit status under the Import-Export

Clause. Id. at 126.

Another of these commentators agreed with Pro-

fessor Hellerstein’s analysis noting that Michelin replaced

the original package doctrine with a two-level analysis.

Comment, 30 Rutgers L. Rev. at 202. Under that analysis,

“lo]nly if the tax is nondiscriminatory and leveled on

goods not ‘in transit’ will the tax be valid under Mic-

helin.” (Emphasis added) Id. The third commentary cited

in Washington Stevedoring, in the one paragraph devoted

to the issue, noted that goods in import transit were an

exception to the unequivocal holding of Michelin so that

even a nondiscriminatory tax on such goods would vio-

late the Import-Export Clause. Note, 12 Wake Forest L.

Rev. 1055, 1062 (1976).

In sum, even after Michelin, just as the pre-Michelin

cases held, property taxes on goods in transit are repug-

nant to the Import-Export Clause. J. Hellerstein, State

Taxation, ¥ 5.4 at 188 (1983). Michelin limited the prohibi-

tion of taxes under the Import-Export Clause to the same

bounds applicable under the Commerce Clause; both pro-

hibit discriminatory taxes and taxes on goods in transit.

Hellerstein, 1976 Sup. Ct. Rev. at 130; see State Taxation,

{ 4.11 at 137. In other words, Michelin limited Import-

10

Export Clause immunity by vitiating the original package

doctrine and made that immunity coextensive with that

afforded domestic goods in interstate transit. See Heller-

stein, 1976 Sup. Ct. Rev. at 124. The standards for deter-

mining the in-transit issue under the Commerce Clause

likewise apply to that issue under the Import-Export

Clause. Id. at 126.

II. THE HISTORICAL IN-TRANSIT RULE IS SUP-

PORTED BY THE IMPORT-EXPORT CLAUSE PUR-

POSES DISCUSSED IN MICHELIN.

The Tex«s Supreme Court incorrectly viewed and

applied this Court’s Michelin anaiysis and thereby erro-

neously denied the in-transit status of Diamoad Sham-

rock’s oil any efficacy. In that Court’s view, the Michelin

test monolithically applied to all nondiscriminatory prop-

erty taxes to deny Import-Export Clause protection even

to goods admittedly in transit. (App. 5a-6a). That view

denies any effect to the several mentions of the in-transit

status in Michelin and later cases. Contrary to this Texas

Court's view, the distinctive status of goods in transit was

purposefully referenced in Michelin. The in-transit status

certainly has significance to both the first and third

Import-Export Clause concerns. Even a nondiscrimina-

tory ad valorem property tax on goods in transit imper-

missibly impacts the Federal Government's ability to

speak with one voice in matters of foreign relations and

disturbs the harmony among the states.

A. Speak With One Voice. In Michelin, in summariz-

ing its analysis of the historical underpinnings of the

Import-Export Clause, the Court noted that nothing in

11

that history “even remotely suggests that a non-

discriminatory ad valorem property tax w’'~ is also

imposed on imported goods that are no longer in import

transit was the type of exaction that was regarded as

objectionable by the Framers of the Constitution.” Mich-

elin, 423 U.S. at 286. Then, in discussing the first element

of the analysis announced, this Court noted:

It is obvious that such nondiscriminatory prop-

erty taxation can have no impact whatsoever on

the Federal Government's exclusive regulation

of foreign commerce, probably the most impor-

tant purpose of the Clause’s prohibition. By def-

inition, such a tax does not fall on imports as

such because of their place of origin. It cannot

be used to create special protective tariffs or

particular preferences for certain domestic

goods, and it cannot be applied selectively to

encourage or discourage any importation in a

manner inconsistent with federal regulation.

[Emphasis added]

Id. This discussion of the “speak with one voice” element

which concerned “such nondiscriminatory property taxa-

tion,” referred back to, and made the discussion referable

to, such nondiscriminatory property taxation “imposed

on goods that are no longer in import transit.” Id.

A nondiscriminatory property tax on goods no

longer in import transit has no impact on the Federal

Government’s exclusive regulation of toreign commerce,

does not fall on imports as such because of their place of

origin, etc. Id. at 286. To the contrary, such a tax on

imported goods in transit does impact the Federal Gov-

ernment’s regulation of foreign commerce. Louisiana Land

& Exploration Co. v. Pilot Pet. Corp., 900 F.2d 816, 821 (5th

12

Cir. 1990), cert. denied, 498 U.S. 897 (1990); see Itel, 113 S.

Ct. at 1106; Michelin, 423 U.S. at 286. In Louisiana Land, the

State of Alabama imposed an excise tax on jet fuel deliv-

ered aboard a foreign vessel bound for Canada. Louisiana

Land, 900 F.2d at 821. The court applied the Michelin

analysis and, noting that oil is shipped from foreign

sources primarily in oceangoing tankers, held that the tax

discouraged foreign parties who purchased oil from

United States companies from using United States ports

to transport the fuel from the United States to foreign

countries. Id. Further, the court noted, coastal states with

ports like the Port of Mobile, Alabama derived significant

revenue from such a tax because they could tax large

quantities of fuel that were delivered into tankers from

the port. Id. at 821. The court further noted that the tax

was not on stored inventory or a business or occupation,

but, rather, the tax was levied on the goods themselves

while they were in transit, and thus further relied upon

Richfield Oil, which, the court noted, has never been over-

ruled. Louisiana Land, 900 F.2d at 819, 821. The court

recognized that permitting any and every state to impose

a direct tax on goods in transit in the export stream

would circumvent the speak with one voice element of

Michelin. Id. at 821. The court held that the fuel tax was an

impost upon an export within the meaning of the Import-

Export Clause and, thus, held the tax unconstitutional. Id.

The reasoning of Louisiana Land applies with greater

force to this case. The taxes imposed in §”-eces County,

Texas on Diamond Shamrock’s oil were, undeniably,

imposed upon the oil itself while it was in transit. (App.

57a-58a). Unlike the tax in Louisiana Land, which fell upon

a discrete transaction or occurrence in Alabama, the sale

13

or handling for use of the fuel, the tax on Diamond

Shamrock’s oil was imposed merely upon the presence of

the oil. Id. at 822 (Jolly J., dissenting); see Itel, 113 S. Ct. at

1106; Wardair Canada, Inc. v. Florida Dept. of Revenue, 477

U.S. 1, 9 (1986) (tax imposed only on sale, a discrete

transaction). Hence, in addition to the effects noted in

Louisiana Land, the tax on Diamond Shamrock’s oil gives

rise to a substantial risk of multiple taxation. Unlike

taxing a discrete event or occurrence, because the oil can

and will be “present” in many foreign jurisdictions, it is

as much subject to taxation in those jurisdictions as it is

in Nueces County. By contrast with goods in transit,

when goods have reached their final destination and are

no longer in transit, a business purpose of the owner is

being served, the goods become a part of the mass of

property within that jurisdiction and taxation is proper.

See Michelin, 423 U.S. at 302; License Cases, 5 How. 504,

575-76 (1847) (Taney, C.J.).

Further, by definition, a property tax on goods in

transit, even one that, on its face, appears to be non-

discriminatory, falls upon the goods as such because of

their place of origin. See Michelin, 423 U.S. at 286. Goods

merely passing through a taxing jurisdiction en route to

their intended destination and present in that jurisdiction

for no other purpose of the owner are there, and hence

taxed there, because their place of origin required them to

be transported through the jurisdiction. That is certainly

true of Diamond Shamrock’s oil in this case. Foreign

shipment of oil is accomplished almost exclusively by oil

tanker, that being the only practical means for such trans-

portation. See Louisiana Land, 900 F.2d at 821; (Pet. at 7, 7

n.6). If Diamond Shamrock’s oil had not come by tanker

14

from foreign sources, it would never have been in Nueces

County, en route to its final destination. Nor would it

have been subject to the brief stoppage caused solely by

the change of the means of transportation from oceango-

ing tanker to pipeline. Perforce, its foreign origins neces-

sarily resulted in the imposition of the tax on the oil

concerned in this cause. Moreover, the Texas tax is inher-

ently applied selectively to this oil which was unfor-

tuitously in Nueces County on January 1 while in transit

to the Three Rivers refinery. See Michelin, 423 U.S. at 286.

Despite being present in Nueces County for only weeks

or even days, this oil was nonetheless taxed at the full

rate, on the full value of the oil, just as personal property

permanently located in the state. (App. 57a-58a). A state

or its subdivision cannot serve its parochial interest and

burden foreign commerce by such a tax. See Associated

Indus. v. Lohman, ___ U.S. __, 114 S. Ct. 1815, 1822 (1994)

(burden on commerce of discriminatory tax “is appro-

priately assessed with reference to the specific subdivi-

sion [of the state] in which applicable laws reveal

differential treatment,”); Fort Gratoit Sanitary Landfill, Inc.

v. Michigan Dept. of Nat. Resources, __ U.S. __, 112 S. Ct.

2019, 2024 (1992) (State or its subdivision may not avoid

strictures of Commerce Clause by curtailing the flow of

commerce through State or subdivision).

B. Harmony Among The States. The Texas tax disturbs

the harmony among the states and, hence, does not meet

the third concern discussed in Michelin. This Court noted

in Michelin that “nondiscriminatory ad valorem property

taxes do not interfere with the free flow of imported

goods among the states, as did exactions by States under

the Articles of Confederation directed solely at imported

15

goods.” Michelin, 423 U.S. at 288. The ad valorem tax here

as it is applied to Diamond Shamrock’s oil is directed

solely at those imported goods. This Texas ad valorem

property tax is normally applied only to property that is

located in the taxing jurisdiction with some permanence.

See Tex. Tax Code Ann. § 11.01(b), (c) (Vernon 1992).

Contrary to the circumstances of other personal property,

Diamond Shamrock’s in-transit oil is only temporarily in

the Nueces County taxing jurisdictions; indeed, it is only

passing through. Hence, the tax as applied here is an

exaction upon imports as imports, not a “property tax

indiscriminately applied to all owners of property.” Mic-

helin, 423 U.S. at 300, citing, License Cases, 5 How. at 576.

In Michelin, this Court recognized that ad valorem prop-

erty taxes are not proper under the Import-Export Clause

on goods “merely in transitu, and on their way to the

distant cities, villages, and country for which they are

destined” and those goods could “in no sense be

regarded as a part of that mass of property in the State

usually taxed for the support of the state government.”

License Cases, 5 How. at 575; see Michelin, 423 U.S. 290, 290

n.10, citing, License Cases, 5 How. at 575-76. Taxes on such

goods are “no more than transit fees on the privilege of

moving through a state,” and are precisely the type of

nondiscriminatory property taxes that can be prohibited

to secure the third noted purpose of the Impo1'-Export

Clause. Michelin, 423 U.S. at 290.

Again, with respect to this third concern, the Texas

Supreme Court has interpreted Michelin too narrowly.

(App. 6a). That court concluded that there simply was no

opportunity for a disturbance of the harmony among the

states because the goods were in transit within the only

16

state the goods ever entered. (Id.) This Court has consis-

tently recognized the fallacy of this conclusion. Actions of

state subdivisions are equally subject to constitutional

strictures as are those of the States. Associated Industries,

114 S. Ct. at 1822; see Fort Gratoit, 112 S. Ct. at 2024. More

importantly, goods in transit are not “part of that mass of

property in the state usually taxed for the support of the

state government.” License Cases, 5 How. at 575.

Finally, that the tax herein is precluded under the

third Michelin element is further evidenced by the fact

that importers of goods, particularly importers of foreign

crude, under the extant circumstances are deprived of the

modern transportation options explicitly recognized by

this Court in Michelin as a means to avoid taxation. See

Michelin, 423 U.S. at 288. Those means of transportation

“enable importation directly into the inland States.” Id.

As the Texas Court recognized, domestic oil can be trans-

ported by trucks or pipelines in smaller amounts on

intermittent trips and, thus, avoid taxation. (App. 12a).

The fact that the oil here was, as stipulated, necessarily

stopped at the port of entry merely to accommodate and

facilitate its transit made it no less “directly” imported

than the cited means of transportation allow importation.

See id. That pause in transit should not, and indeed does

not, make the goods taxable. To uphold the tax would

permit taxation of and interference with the importation

of the oil despite the use of the very means of avoiding

taxation specified in Michelin. But the Court in Michelin

did not describe a mere tax avoidance device; this Court’s

observation recognized the constitutional bar of taxation

of goods in transit. This constitutional infirmity can, and

must, be avoided “merely by prohibiting the assessment

17

of even nondiscriminatory property taxes on goods which

are merely in transit through the State when the tax is

assessed.” Id. at 290.

Both the first and third elements of Michelin are not

met where the goods to be taxed are in transit. Michelin,

423 U.S. at 286. The distinction recognized, though not

applied, in Michelin and other cases concerning goods in

transit must be given effect in the proper case. In this

case, the oil is indisputably in transit and the in-transit

distinction must be given effect. Michelin prohibits the

instant tax. See id.

III. APPLICATION OF THE BRIGHT-LINE IN-TRAN-

SIT RULE IS NEEDED.

In Michelin, the court turned from formalistic deter-

minations that embodied the concept that all state taxa-

tion that fell on imports was prohibited by the Import-

Export Clause. See, e.g., Limbach v. Hooven & Allison Co.,

466 U.S. 353, 360 (1984); Washington Stevedoring, 435 U.S.

at 762 (Powell, J., concurring). The Court has also turned

from rules that have no relationship to economic realities.

E.g., Complete Auto Transit Inc. v. Brady, 430 U.S. 274, 279

(1977). But, nevertheless, the Court has not rejected all

prior authorities and approaches for determining immu-

nity from taxation. See, e.g., Quill Corp. v. North Dakota,

— US. __, 112 S. Ct. 1904, 1912, 1914 (1992) (pre-Com-

plete Auto bright-line rule applied); Container Corp. v.

Franchise Tax Bd., 463 U.S. 159, 189-90 (1983) (Japan Line

established bright-line rule); Michelin, 423 U.S. at 300-301

(overruling Low v. Austin, but relying on License Cases).

Bright-line rules like the prohibition of taxation of goods

18

in transit have a place in the jurisprudence of commerce.

See Quill, 112 S. Ct. at 1908-09, 1914. In Quill, the North

Dakota Supreme Court shunned a “bright-line rule” of a

pre-Complete Auto case for a more “flexible substantive

approach,” concluding that subsequent developments in

the law required rejection of the earlier principles. Id. In

reversing the North Dakota Court’s judgment, this Court

noted: “We have never intimated a desire to reject all

established ‘bright-line’ tests.” Id. at 1914.

“Undue burdens on interstate commerce may be

avoided not only by a case-by-case evaluation of

actual burdens imposed by particular regula-

tions or taxes, but also, in some situations, by

the demarcation of a discrete realm of commer-

cial activity that is free from interstate taxation.”

Id.

Quill demonstrates that all bright-line tests have not

been supplanted by flexible substantive approaches. Id.

Some formal demarcation of a discrete realm of com-

merce that must be free from state taxation is both per-

missible and warranted. This is certainly true where the

formalism is not merely a trap for unwary draftsmen. Id.

The long-standing, bright-line demarcation asserted

herein, which has never been overruled or seriously ques-

tioned, meets the Quill criteria and should be applied. See

id.

The prohibition of taxation of goods in transit is

warranted by the policies underpinning the Import-

Export Clause and properly addresses those policies. The

establishment of definite boundaries of legitimate state

taxing authority is desirable and beneficial in this area of

the law which has been described as a “quagmire,” id. at

———

19

1915, and, in some respects, as being “completely indeter-

minate,” Itel, 113 S. Ct. at 1107 (Scalia, J., concurring); see

id. at 1107-08 (illustrating indeterminate nature of test by

discussion of “speak with one voice” test that, applied

literally, would always be satisfied), and in which there is

“much room for controversy and confusion” and little

precise guidance to the states. Quill, 112 S. Ct. at 1915.

These observations are undoubtedly true and, in fact, are

illustrated by this case. (App. 1a-7a). The in-transit rule

should be specifically reaffirmed and applied in this case

to resolve the confusion and to provide workable guide-

lines. The preference for such a rule is particularly war-

ranted because less than two years before Michelin the

Court recognized the virtue of the simplicity of such rules

which meet the “highly important” need of both the

shipper and the State for clear definition “to avoid all

ambiguity or questions.” Kosydar, 417 U.S. at 71.

+

20

CONCLUSION

For the foregoing reasons, and the reasons advanced

by the Petitioner, which IPT wholeheartedly endorses,

Amicus Curiae, the Institute of Property Taxation urges

that Diamond Shamrock’s petition for writ of certiorari be

granted.

Respectfully submitted,

EDWARD K.iewer III

(Counsel of Record)

KENNETH L. MALONE

Foster, Lewis, LANGLEY, GARDNER

& BANACK, INC.

112 East Pecan St., Suite 1100

San Antonio, Texas 78205-1533

(210) 226-3116

Fax: (210) 226-1065

Counsel for Amicus Curiae

Institute of Property Taxation

la

APPENDIX

THE INSTITUTE OF PROPERTY TAXATION -

STATEMENT OF PRINCIPLES,

PURPOSES AND CODE OF ETHICS

The Institute of Property Taxation is a non-profit

nationwide organization which exists to promote ethical

and professional standards of conduct among its mem-

bers and to administer formal educational programs

related to state and local ad valorem, sales and use taxes.

The Institute has a written code of ethics and stan-

dards of professional practice, whereby each member

agrees to be governed by objective and professional stan-

dards consistent with sound administration of property

and state and local tax laws and the adoption of tax

legislation, with due regard for the interests of society as

well as those of the member company. The following are

the Institute’s Statements of Principles and Purposes and

the Code of Ethics.

PRINCIPLES

The Institute of Property Taxation is dedicated to

fostering the professionalization of its members, to pro-

moting the uniform and equitable administration of ad

valorem taxation and all other forms of state and local

taxation (other than income taxation) and to minimizing

the costs of administration and compliance.

PURPOSES

In furtherance of the above principles, the Institute of

Property Taxation is formed for the following purposes:

2a

1. To foster the education and professionalization

of its members and to provide its membership

with the information and services necessary to

effectively_carry out their responsibilities in ad

valorem and all other forms of state and local

taxation (other than income taxation).

2. To preserve and promote the use of equitable

and non-discriminatory methods in taxation of

business enterprises carrying on diversified

activities in taxing jurisdictions.

3. To eliminate inequitable and discriminatory dis-

tortion or otherwise illegitimate methods of

determining tax liabilities.

4. To collect, analyze and disseminate information

with respect to existing and proposed legisla-

tion, regulations and administrative action

which is pertinent to the purposes of the Insti-

tute; encourage the free discussion of such sub-

jects; present the views of the Institute to other

taxpayer organizations, governmental bodies

and other interested persons; and take such

other actions as are deemed appropriate to the

accomplishment of its purposes.

5. To develop and operate a program for the edu-

cation of its members and to promote the study

of property taxation and other forms of state

and local taxation (other than income taxation)

by encouraging research and by conducting con-

ferences and symposiums on tax matters.

These principles and purposes of the Institute of

Property Taxation can be achieved only by the observance

of the highest standards of ethical and professional con-

duct by its members. To insure the observance of these

3a

high standards, the Board of Governors has adopted the

following code of ethics.

CODE OF ETHICS

STANDARDS OF PROFESSIONAL CONDUCT

The Institute of Property Taxation has established

this Code of Ethics and Standards of Professional Con-

duct to set forth ethical and professional guidelines for all

IPT members in the administration of property and sales

and use taxes.

Each member of IPT agrees to subscribe to this Code

of Ethics and Standards of Professional Conduct and to

report to the IPT Committee on Professional Ethics any

unethical practices or actions by any IPT member.

1. IT IS UNETHICAL to engage in any conduct

that discredits IPT, or the tax profession.

2. IT IS UNETHICAL to engage in any activity that

results in a conviction of any crime that involves

the tax profession.

3. IT IS UNETHICAL to operate beyond the

boundaries of an agreed relationship with an

employer or a client.

4. IT IS UNETHICAL to infer or imply that you

represent a person or firm you do not represent,

or to file any document on behalf of a taxpayer

without specific authorization of the taxpayer.

5. IT IS UNETHICAL to violate the confidential

nature of the employee-employer or the consul-

tant-client relationship, except as required by

law.

10.

Bi

12.

13.

14.

4a

IT IS UNETHICAL to offer or accept anything of

value with the intent of inducing a specific

action.

IT IS UNETHICAL to offer or accept anything of

value as a share of a fee for an assignment in

which you did not participate.

IT IS UNETHICAL to assign, accept or perform

a tax assignment that is contingent upon pro-

ducing a predetermined analysis or conclusion.

IT IS UNETHICAL to file or proceed with any

appeal in which there is known to be no basis in

fact. The determination of whether a basis in

fact exists must be made as soon as reasonably

possible.

IT IS UNETHICAL in the performance of a tax

assignment to issue an appraisal, analysis or

opinion that fails to disclose bias or the accom-

modation of a personal interest.

IT IS UNETHICAL in the performance of a tax

assignment to willfully furnish inaccurate,

deceitful, or misleading information, or to will-

fully conceal material information.

IT IS UNETHICAL to prepare or use in any

manner a resume or statement of professional

qualifications that is misleading or false.

IT IS UNETHICAL in promoting a tax practice

and soliciting assignments to utilize misleading

or false advertising.

IT IS UNETHICAL in promoting a tax practice

and soliciting assignments to make a direct ref-

erence to superiority over an individual compet-

itor.

ID

16.

18.

5a

IT IS UNETHICAL to sclicit any tax assignment

by assuring a specific result or by stating a

conclusion regarding that assignment without

prior analysis of the facts and circumstances

pertaining thereto.

IT IS UNETHICAL to use client listings or refer-

ences without specific authorization.

IT IS UNETHICAL to make any solicitation

implying IPT authorization, endorsement or

approval of any product or service.

IT IS UNETHICAL in the performance of an

independent fee appraisal to violate any part of

the “Uniform Standards of Professional

Appraisal Practice” issued by The Appraisal

Foundation.

Adopted by Board of Governors, April 28, 1991.