                      The Attorney                 General of Texas
                                        December        27,     1978

JOHN L. HILL
Attorney General


                   Honorable Mike Westergren                           Opinion No. I-l- 1308
                   Nueces County Attorney
                   Corpus Christi, Texas 78401                         Re: Whether         article   7150f,
                                                                        V.T.C.S., is constitutional, and if
                   Honorable George N. Rodriguez, Jr.                  so, whether it applies to petro-
                   El Paso County Attorney                             leum products.
                   Room 201, City-County Building
                   El Paso, Texas 79901

                   Gentlemen:
                         You have requested advice          regarding article 7150f, V.T.C.S., which
                   exempts from taxation certain          property temporarily    in the state.     Mr.
                   Rodriguez wishes to know whether        the statute is an unconstitutional  attempt
                   to exempt taxable property from        taxation.   Mr.. Westergren wishes to know
                   whether the exemption extends          to and includes crude oil and petroleum
                   products.

                         Article   71501, V.T.%.S., known as the           “freeport”   law, provides    as
                   follows:

                                   All property consigned to a consignee in this State
                                from outside this State to be forwarded to a point
                                outside this State, which is entitled under the tariffs,
                                rules, and regulations      approved by ‘the Interstate
                                Commerce Commission to be forwarded at through
                                rates from the point of origin to the point of
                                destination,   if not detained within this State for a
                                period of more than ninety (90) days, shall be deemed
                                to be property ,moving in interstate commerce, and no
                                such property shall be subject to taxation in this State.
                                Goods, wares, ores, and merchandise           originating
                                outside this State, whether consigned to or owned by a
                                taxpayer, shall be deemed to be located in this State
                                for only a temporary period, do not acquire taxable
                                situs in this State, and are not subject to taxation in
                                this State if not detained more than nine (9) months
                                and if such goods, wares, ores, and merchandise are so




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Honorable Mike Westergren
Honorable George N. Rodriguez, Jr.     -   Page 2     (H-1308)



           held for assembly, storage, manufacturing,       processing or
           fabricating purposes.     It is further provided that personal
           property originating outside this State and transported into
           this State for sale within this State must be assessed as any
           other personal property. Provided further, that all laws and
           parts of laws in conflict herewith are hereby repealed to the
           extent of such conflict only.

       The statute   prevents taxation of certain property under two different
situations: (1) where property consigned to someone ln the state is entitled to pass
through the state at through rates subject to a 90 day limitation; (2) where “goods,
wares, ores, and merchandise” originating outside of the state are in the state for
under nine months for purposes of. assembly, storage, manufacture, processing, or
fabrication.   The first provision of article 7150f operates by deeming that the
property Is moving in interstate commerce and thus not subject to state taxation.
The second provision operates by denying the goods, wares, ores, and merchandise a
taxable situs in Texas. The constitutional question is directed at both provisions,
while the question as to the inclusion of petroleum products concerns only the
second provision.

       Article 8, section 1 of the Texas Constitution provides for the taxation of
“[aIll property in this State.” Article 8, section 2 provides for specific exemptions
from taxation and states that “all laws exempting property from taxation other
than the property mentioned in this Section shall be null and void.” Other
provisions provide for tax exemptions not relevant here. See, e.g., Tex. Const. art.
11, S 9 (property of counties, cities, and towns owned for public purposes).       The
framers of the Constitution intended that all property be subject to taxation unless
specifically exempted by the Constitution or by the legislature under constitutional
authorization.   City of Wichita Falls v. Cooper, 170 S.W.2d 777 (Tex. Civ. App. -
Fort Worth 1943, writ ref’d); see Leander I.S.D. v. Cedar Park Water Supply Corp.,
479 S.W.2d 908 (Tex. 1972). The state is prohibited by the interstate commerce
clause of the United States Constitution from taxing goods in transit through the
state.    U.S. Const. art. 1, S 8; Champlain Realty Co. v. Town of Brattleboro, 260
U.S. 366 (1922); Tex. Const. art. 1, S 1. See Calvert v. Zanes-Ewalt Warehouse, Inc.,
502 S.W.2d 689 (Tex. 1973), app. dis., 416a.S. 923 (1974).

       Whether the property described in the first provision of article 7150f should in
fact be free of state taxation depends on whether it is actually moving in interstate
commerce.     As long as property remains in transit or is delayed only for reasons
incidental to transportation,  such as a breakdown of the carrier, the state may not
tax it. Champlain Realty Co. v. Town of Brattleboro, m          at 376. If there is an
interruption between the point of origin and final destination for purposes not
incidental to transportation,   the continuity of transit is broken and the shipment
subject to local taxation. Minnesota v. Blasius, 290 U.S. l(l933) (livestock held for
sale); Bacon v. People, 227 U.S. 504 (1913) (storage of grain); General Gil Co. v.




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    Honorable Mike Westergren
    Honorable George N. Rodriguez, Jr.       -     Page 3   (H-1308 1



    w,       209 U.S. 211(1908) (oil stored and put in barrels for distribution); McCutchen
    v. Board of Equalization of Taxes, 94 A. 310 (N.J. 1915) (repacking and blending of
    flour). See Calvert v. Zanes-Ewalt Warehouses, Inc., G            (cigarettes received in
    Texas fo=stribution      were subject to taxing jurisdiction of state). Whether or not
    interstate    commerce has been interrupted sufficiently        for the state to tax is
    determined by applying legal principles to the facts of the case. Independent
    Warehouses, Inc. v. Scheele, 331 U.S. 70 (1947); Hughes Brothers Timber Co. v.
    Minnesota, 272 U.S. 469 (19261. Factors to be considered include the owner’s
    intention, his ability to change destination, and the means of transportation, as well
    as the purpose of the interruption.     Champlain Realty Co. v. Town of Brattleboro,
               The Interstate Commerce Act does not forbid local taxation where it is
    Ti=
    ot erwise permissible, Independent Warehouses, Inc. v. Scheele, e              at 85, nor
    does the form of billing control whether transportation      is continuous, Minnesota v.
    Blasius, m       at 10. Whether the property described in the first clause of article
    7150f is actually subject to state tax is a fact question, to be determined on a case
    by case basis. Although some of the described ‘property is no doubt in interstate
    ‘commerce, we cannot say that all of it is regardless of other facts surrounding the
    shipment. To the extent that the provision forbids taxation of property which our
    courts would hold has come to rest in Texas, we believe it would be held to be
    unconstitutional    as an attempt to exempt taxable property. Dickison v. Woodmen
    of the World Life Insurance Society, 280 S.W.2d 315 (Tex. Civ. App. - San Antonio
    1955, writ ref’d).

            The second clause of article 7150f describes property that is no longer moving
     in Interstate commerce and has come to rest in Texas for ourooses that would
     subject it to state taxation.      See Bacon v. People, G;     Caivert v. Zanes-Ewalt
     Warehouse, Inc., SE.        The legislature has attempted to free this property from
    taxation bv declarine that it does not acauire a taxable situs in the state if not
     detained more thai nine months.            Your inquiry raises the question of the
     constitutional  limits on legislative authority to define tax situs. This is a difficult
     question, which has not been addressed by Texas courts.

           The concept of “tax situs” has been explained by the Supreme Court of Texas
    in construing article 8, section 11 of the Constitution,        which provides that ‘Talll
    property, . . . shall be assessed  for taxation,   and the taxes paid in the county where
    situated. . . .” (Emphasis added).        This provision does not necessarily require
    personal property to be taxed in the county where it is physically located, but
    instead declares the common law rule that a taxing district may only tax property
    actually or constructively     within its jurisdiction. - Great Southern Life Insurance
    Co. v. City of Austin, 243 S.W. 778 (Tex. 1922). At common law, personal property
    was taxable onlv at the owner’s domicile. a orinciole eXDreSSed bv~ the maxim
    “mobilia sequunter personam.”          Exceptions developed so‘ that certain tangible
    personal property had a taxable situs where employed in business, regardless of the
    owner’s domicile. In addition, the legislature could fix the tax situs of securities at
    their business situs. & at 78. The court stated that the Constitution leaves the




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Honorable Mike Westergren
Honorable George N. Rodriguez, Jr.     -   Page 4   (H-1308 I



field open for reasonable legislative action with regard to fixing tax situs and
upheld a statute which required securities owned by an insurance company to be
taxed at its home office, even though the certificates    were deposited with ‘the
Secretary of State in Austin. The Supreme Court later upheld a statute fixing the
tax situs of tangible personal property at the company’s home office rather than
where physically located. Dallas v. Texas Prudential Insurance Co., 291 S.W.2d 693
(Tex. 1956). See also Lawson v. City of Groves, 487 S.W.2d 439 (Tex. Civ. App. -
Beaumont 1972, no writ).

       In construing article 8, section 11 of the Constitution,    the Supreme Court
dealt with the legislature’s power to fix the tax situs of personal property in one of
two competing tax districts within the state. Texas courts have not dealt with a
statute like article 7150f which does not establish tax situs but instead denies tax
situs in Texas to property taxable in the state under the common law rule. See
Greyhound Lines, Inc. v. Board of Equalization for the City of Fort Worth, 419
S.W.2d 345 (Tex. 1967); City of Dallas v. W. T. Gverton, 363 S.W.2d 821 (Tex. Civ.
App. - Dallas 1962, w&t ref’d n.r.e.1; Waggoner v. Whaley, 50 S.W. 153 (Tex. Civ.
App. 1899, writ refd).      Attorney General Opinions C-432 (19651; C-6764 (19451;
Cl-3059 (1941). Other tax situs statutes specify a place for taxation in the state
which has some connection with the property. -See V.T.C.S. arts. 7147a, 7155, 7166,
7169; Ins. Code art. 3.15.

      Although the Supreme Court has not evaluated a statute like article 7150f, it
has suggested in dicta that a determination that property had no taxable situs in
the state could grant a tax exemption:

              Neither the Constitution    nor the statutes provide for
           exemption of personal property of foreign corporations in
           this State from taxation by this State and its political
           subdivisions.  Indeed, the’express language of Sec. 4, Art.
           VIII of the Constitution denies to the Lenislature the Dower
           to grant such an exemption; and yet, to hold that the &lling
           stock of a foreign motor bus corporation,          constantly
           traveling upon the highways of this State and enjoying the
           protection -and benefits provided by this State, has no
           taxable situs in the State, would be to grant it tax
           exemption.

Greyhound Line.s,Inc. v. Board of Equalization for the City of Fort Worth, w     at
348 349 (emphasis added). The Supreme Court has also said that the Constitution
per&its “reasonable legislative action” to fix tax situs.     Great Southern Life
Insurance Co. v. City of Austin, w        at 785 (emphasis added); see also Texas
Prudential Insurance Company v. City of Dallas, 282 S.W.2d 723 (Tex. Civ. App. -
Waco 19551, atf’d, 291 S.W.2d 693 (Tex. 19561. We believe the courts would require
tax situs statutes to have a reasonable basis in fact and common law principles.




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Honorable Mike Westergren
Honorable George N. Rodriguez, Jr.     -     Page 5     (H- 13 0 8 )



See 21 J. Howell, Texas Practice SS 127, 130.5, 138. Article 7150f prohibits taxation
rgoods     owned by a Texas taxpayer, physically present in the state for sufficient
time to acquire tax situs at common law, see Attorney General Opinion G-6764
(1945), and not exempt as being in interstate      commerce.   Under these circum-
stances, neither the facts nor common law principles support the conclusion that
 tax situs lies outside of Texas. In our opinion, the courts would hold that article
7150f goes beyond reasonable legislative action to define tax situs and instead uses
tax situs as a vehicle for granting a property tax exemption.

      The Supreme Court of Utah considered a similar statute providing an ad
valorem tax exemption for tangible personal property shipped beyond the state
within a twelve month period. Poulger Equipment Company v. State Tax Comm. of
Utah 397 P.2d 298 (Utah 1964). It held that this statute violated a constitutional
asion      requiring that all tangible property in the state, not exempt under laws of
the United States or the state constitution, shall be taxed in proportion to its value.
In our opinion, the Texas courts would also hold that article 7150f violates the
corresponding provisions of the Texas Constitution.

     In view of our answer to the constitutional question, we need not consider Mr.
Westergren’s question concerning the scope of the exemption.

                                   SUMMARY

            Article 71501, V.T.C.S., would probably be held by our courts
            to be unconstitutional    in that it attempts     to exempt
            property from taxation by deeming it to be in interstate
            commerce or to have a tax situs outside of Texas where fact
            and law do not support these conclusions.

                                             Very truly yours,




                                             Attorney    General of Texas




Opinion Committee




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