518 S.W.3d 371
Tex.2017Background
- ETC Marketing purchased and stored large volumes of natural gas in the Bammel reservoir in Harris County, Texas, under a storage agreement with Houston Pipe Line Company (HPL); HPL operates the intrastate pipeline that connects to interstate pipelines.
- ETC stores surplus gas seasonally to "time the market" and may sell the gas in-state, out-of-state, or not at all; ownership is allocated on paper because gas commingles in the pipeline.
- Harris County Appraisal District (HCAD) appraised and assessed ad valorem taxes on ETC's allocated stored gas for the 2010 tax year; ETC protested, arguing the gas was in interstate commerce and immune from taxation under the Commerce Clause.
- Lower courts (district court and court of appeals) upheld the tax under Complete Auto Transit; one court of appeals decision and a dissent saw the tax as unconstitutional under the Commerce Clause.
- The Texas Supreme Court considered (1) whether ETC waived a Texas Tax Code "temporary period" defense (it found waiver) and (2) whether the tax violates the dormant Commerce Clause under the Complete Auto four-prong test.
Issues
| Issue | Plaintiff's Argument (ETC) | Defendant's Argument (HCAD) | Held |
|---|---|---|---|
| Whether stored gas is in interstate commerce (threshold) | Gas injected into a connected pipeline system and intended for out-of-state sale is in interstate commerce | Storage breaks continuity; gas held for sale/disposition is not in transit | Gas placed into pipeline system that enters interstate commerce is in interstate commerce (followed Maryland v. Louisiana); proceed to Complete Auto |
| Substantial nexus (Complete Auto prong 1) | Storage is integral to transportation (industry necessity, FERC treats storage as transportation) and HPL controls gas; nexus lacking or continuity of transit remains | Property (not taxpayer presence) must have nexus; storage is held at owner’s pleasure for resale so stoppage breaks continuity of transit | Property (gas) has substantial nexus to Texas because storage here broke continuity of transit (in-transit analysis controls); taxpayer physical presence irrelevant |
| Fair apportionment (prong 2) | Tax risks multiple taxation of interstate property | Texas tax targets property located in-state on Jan 1 (or Sept 1 election), an objective temporal/geographic rule; identical taxes in other states would not double-tax the same property in the same year | Tax is internally and externally consistent; apportionment prong satisfied |
| Discrimination & relation to services (prongs 3 and 4) | Tax functions as a financial barrier to interstate commerce and stored gas receives no special state services beyond those taxed to HPL | Ad valorem tax is neutral as to destination; tax applies to all qualifying property; stored gas benefits from local services (police, fire, civil infrastructure) | Tax is nondiscriminatory and reasonably related to services provided; both prongs satisfied |
Key Cases Cited
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (establishes four-prong test for state taxation under the dormant Commerce Clause)
- Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175 (1995) (explains dormant Commerce Clause and modern test application)
- Maryland v. Louisiana, 451 U.S. 725 (1981) (concludes gas in pipeline system is in interstate commerce during entire journey)
- Minnesota v. Blasius, 290 U.S. 1 (1933) (classic in-transit analysis distinguishing transitory stops from business storage)
- Carson Petroleum Co. v. Vial, 279 U.S. 95 (1929) (example of stoppage that preserved continuity of transit because storage awaited transport means)
- Federal Compress & Warehouse Co. v. McLean, 291 U.S. 17 (1934) (warehouse receipt/entrustment scenario holding stored goods not in transit and taxable)
- Allied-Signal, Inc. v. Director, Division of Taxation, 504 U.S. 768 (1992) (Commerce Clause requires a definite link between the taxing state and the person, property, or transaction taxed)
- Diamond Shamrock Refin. & Mktg. Co. v. Nueces Cty. Appraisal Dist., 876 S.W.2d 298 (Tex. 1994) (Texas case reconciling Complete Auto with in-transit analysis)
- In re Assessment of Personal Prop. Taxes Against Mo. Gas Energy, 234 P.3d 938 (Okla. 2008) (Oklahoma Supreme Court upholding taxation of stored gas under similar facts)
- In re Appeals of Various Applicants from Div. of Prop. Valuation of Kan., 313 P.3d 789 (Kan. 2013) (Kansas Supreme Court upholding taxation of stored gas under similar facts)