Co-author Taylor Hall
It’s hardly a win for the little guy against The Man, but in San Patricio County Appraisal District v. Gunvor USA LLC (consolidated with a similar suit against Devon Gas Services, agent for Glencore Ltd.), a Texas court declared that inventories of crude oil stored in coastal tank farms were exempt from ad valorem taxation under the Import-Export Clause, United States Constitution art. I, § 10, cl.2.
The Appraisal District taxed two crude oil traders, Glencore and Gunvor. The oil came by pipeline from the Permian Basin and was staged in tanks along the Corpus Christi Ship Channel to be loaded onto non–Jones Act vessels for export. Title to the oil passed from the producers at the tank farms and both exporters used the tanks and connecting pipelines. Because export terminals control berthing and require sufficient volume to meet a laycan window before calling a ship to berth both taxpayers argued that the oil was exempt from taxation under the Import-Export Clause and the Texas Tax Code. The appraisal review board denied both protests. The trial court granted summary judgment for the taxpayers and the Appraisal District appealed.
The Import-Export Clause
Historically, the Import-Export Clause was interpreted broadly to forbid state taxation on any property that is properly characterized as an “import” or an “export.” Early on, the U. S. Supreme Court characterized a product as an “export” only upon its physical entry into the stream of exportation.
A product is in the stream of exportation only when it has been shipped, entered with a common carrier for transportation to another state, or has started upon such transportation in a continuous route or journey. Under the “stream of export” doctrine, once a product is exported, it maintains its “export” status as long as it is in transit. But if there is a stoppage that serves the owner’s business purpose, the product will be subject to the taxing power of the state. The means of shipment are unimportant if the certainty of the foreign destination is plain.
Was the oil in export transit or in the stream of export?
The Court affirmed Supreme Court of Texas precedent held that goods “in transit” out of the country or “in the stream of export” enjoy bright-line immunity from taxation. Goods begin export movement when they start toward a precommitted foreign destination, and that temporary storage for export necessities does not break transit continuity. The oil here had begun movement to a precommitted foreign destination as of its appraisal date, which satisfied entry into the export stream. There were sales for foreign delivery, continuous export staging at export terminals, and the absence of any diversion to domestic use.
The Court rejected the Appraisal District’s assertion that the oil was not in transit because it was extracted from wells in Texas, and that the oil was taxable despite being bound for export because there were “incredibly large volumes of oil constantly present” stored at both tank farms. All the oil had a pre-committed foreign destination and all of it entered the stream of export. Interim storage at coastal tank farms reflected exportation necessities rather than owner business purposes.
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