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

Supreme Court, U.S.

FILED

No. 94-466 OFFICE OF THE CLERK |

oa,

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1994

DIAMOND SHAMROCK REFINING

AND MARKETING COMPANY,

Petitioner,

a

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

; REPLY BRIEF FOR PETITIONER

|

| Of Counsel: TIMOTHY B. DYK

TIMOTHY J. FRETTHOLD (Counsel of Record)

DIAMOND SHAMROCK REFINING DANIEL H. BROMBERG

be 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

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1994

No. 94-466

DIAMOND SHAMROCK REFINING

AND MARKETING COMPANY,

Petitioner,

V.

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

REPLY BRIEF FOR PETITIONER

As shown in the petition, this case presents a sharply-defined

issue of national importance. There can be no serious question

that the decision of the Texas Supreme Court conflicts with

decisions of this Court under the Import-Export Clause and the

Commerce Clause as well as with the decision of the Fifth Circuit

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

900 F.2d 816 (Sth Cir.), cert. denied, 498 U.S. 897 (1990).

1. Respondents do not dispute the enormous economic

significance of this case. As shown in the petition (at 7-8, 18-

21), and in the brief of Amicus Curiae American Petroleum

Institute filed in support of the petition (at 2-3), billions of dollars

of crude oil are imported into this country each year through a

limited number of ports in Texas. Respondents concede — as

they must — that this oil, like many other imported goods, is

2

often temporarily delayed at its port of entry due to transportation

bottlenecks.’ (Opp. at 4.) In addition, Respondents do not

dispute that ports of entry such as Corpus Christi assess property

taxes upon goods imported through them; that ports of entry can

discriminate against imported goods by imposing facially neutral

property taxes; or that there are few if any, political checks upon

such discrimination. Finally, Respondents do not contest what the

briefs of Amici Curiae American Petroleum Institute, General

Motors Corporation, and Institute for Property Taxation clearly

demonstrate: that state and local governments throughout the

country will be encouraged to impose new taxes upon interstate

and foreign commerce now that the Texas Supreme Court has

approved a form of taxation hitherto assumed invalid under this

Court’s decisions.

2. Respondents oppose certiorari on the ground that, in their

view, the decision below was correct. They primarily argue that

the tax in question is consistent with the purposes of the Import-

Export Clause and the Commerce Clause because no transit fees

were passed along to citizens of other states. (Opp. at 11-12.)

This argument is premised upon the erroneous and unsupported

assumption that the oil imported into Texas was "consumed within

the State." (Opp. at 12.) There is, however, no evidence in the

record that the oil in question was consumed within the state.

The stipulation states only that the oil was refined in-Texas (App.

58a-59a), and the Texas Supreme Court’s decision was premised

on the fact that "[nJone of the crude oil in question was pumped

or sold outside the State of Texas in its present form." (App. 20a

(emphasis added).) Thus, the decision below held that ports of

entry may impose property taxes on raw materials in transit

through them even though those materials may later be processed

into finished goods and sold to consumers outside their state of

entry.

' Respondents also argue that domestic crude oil is subject to similar

bottlenecks (Opp. at 4.), thereby implicitly agreeing with Amicus Curiae

General Motors Corporation that this case presents an issue of

importance to interstate as well as foreign commerce.

3

More fundamentally, the Import-Export Clause does not merely

prohibit taxes that discriminate against out-of-state consumers; it

bars "all Duties and Imposts" levied by states on imported goods.

U.S. Const., art. I, § 10, cl.2 (emphasis added); see Itel

Containers Int’l Corp. v. Huddleston, 113 S.Ct. 1095, 1108

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

judgment) (noting that the prohibition on imposts and duties has

a "firm basis in a constitutional text that cannot be avoided by

showing that the tax on imports and- exports is

nondiscriminatory") (footnote omitted). As shown in the petition

(at 9-11), the term "Duties" easily encompasses the tax at issue

here. Respondents do not deny this, nor do they deny that a

property tax assessed by a port of entry upon goods in transit

_ through the port "is, on a substantive level, indistinguishable from

an import duty." (Pet. at 10.)

5. As shown in the petition (at 10-12), the decision below

conflicts with Michelin Tire Corp. v. Wages, 423 U.S. 276

(1976). Respondents do not deny that Michelin prohibits taxes

upon imported goods in transit, nor do they dispute that Michelin

adopted Chief Justice Taney’s position that the Clause prohibits

the assessment of property taxes upon goods in transit. Instead,

Respondents contend that in R.J. Reynolds Tobacco Co. v.

Durham County, 479 U.S. 130 (1986), this Court held that

property taxes could be imposed upon goods "technically in

transit" so long as those goods are in their state of destination.

(Opp. at 13-15.) Respondents’ reliance upon Reynolds, a case the

Texas Supreme Court cited only in passing (see App. 2a, 5an.1),

is misplaced. The tobacco at issue in Reynolds was deposited in

warehouses to age for up to two years, see 479 U.S. at 133-34,

leading this Court to conclude that there was "nothing transitory"

abeut the tobacco. See id. at 155. The goods here, by contrast,

weve not stored for any appreciable time, and it was expressly

stipulated that they were in transit when they were taxed. (App.

57a-58a).

4. Respondents appear to concede that the decision below

conflicts with pre-Michelin decisions of this Court under the

Import-Export Clause. They assert that those cases are

nonetheless "easily distinguished on their facts or their era."

4

(Opp. at 12.) Respondents do not, however, offer any of the

supposedly easily made factual distinctions. Nor do they suggest

that any of the cases cited in the petition have been overruled.

Cf. Itel Containers, 113 S.Ct. at 1106 (assuming that the

"prohibition on the direct taxation of imports and exports ‘in

transit’ . . . has not been altered by the approach we adopted in

Michelin"); Michelin, 423 U.S. at 279 (holding that only "insofar

as Low v. Austin, 13 Wall. 29 (1872), is to the contrary, that

decision is overruled").

5. As shown in the petition (at 13, 16-17), the decision

below conflicts with this Court’s decision in Associated Industries

v. Lohman, 114 S.Ct. 1815 (1994), because it analyzes

Respondents’ regulation of commerce on the state rather than the

county level and thereby authorizes political subdivisions of a

state to regulate commerce in a manner in which the state is

forbidden. This point was either lost on Respondents or they

have simply chosen to ignore it. In any event, the resulting

conflict merits resolution by this Court.

6. Respondents do not dispute that the decision below

conflicts with the decision of the Fifth Circuit in Louisiana Land

& Exploration Co. v. Pilot Petroleum Corp., 900 F.2d 816,

except to suggest that Louisiana Land may be distinguished

because it involves exports rather than imports. (Opp. at 17.)

This is a distinction without a difference. The Import-Export

Clause does not distinguish between imports and exports: it bars

"all Duties and Imposts, laid by any State on Imports or Export."

U.S. Const. art. I, § 10, cl. 2. As the petition demonstrates (at

16), the lower courts in Texas have understood the decision below

to apply to exports as well as imports.

7. As shown in the petition (at 16-17), the decision below

also conflicts with a long line of cases under the Commerce

Clause prohibiting the imposition of property taxes upon goods in

transit. Although Respondents argue that the tax imposed in this

case is consistent with the analytical framework adopted in

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

do not suggest that Complete Auto overruled or in any way

rejected the cases cited by petitioner. Respondents do not even

5

attempt to defend the suggestion below (see App. 10a n.7), which

the petition demonstrated to be unfounded (Pet. at 17), that this

Court questioned the continuing validity of the in-transit rule in

D.H. Holmes Co. v. McNamara, 486 U.S. .24 (1988). Nor do

Respondents deny that leading commentators still consider the in-

transit rule to be the law. (See Pet. at 17.)

8. Resolution of the conflicts over the issue raised by this

case — whether ports of entry may assess property taxes on goods

in transit through them — is important to the planning and

efficient operation of the import sector of the economy and to the

operations of the state and local governments encompassing ports

of entry and other transportation bottlenecks. The decision below

presents the perfect vehicle in which to resolve this issue.

CONCLUSION

For the foregoing reasons and those stated in the petition, the

petition for writ of 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. 1450 G Street, N.W.

San Antonio, TX 78269 Washington, D.C. 20005

(202) 879-3939

October 18, 1994 Counsel for Petitioner