                                                                         ACCEPTED
                                                                    01-12-00264-CV
                                                          FIRST COURT OF APPEALS
                                                                  HOUSTON, TEXAS
                                                              3/17/2015 11:54:14 AM
                                                                CHRISTOPHER PRINE
                                                                             CLERK

              NO. 01-12-00264-CV

                                                   FILED IN

              In the                        1st COURT OF APPEALS
                                                HOUSTON, TEXAS
                                            3/17/2015 11:54:14 AM
       First Court of Appeals               CHRISTOPHER A. PRINE
                                                     Clerk

          Houston, Texas
           ETC MARKETING, LTD.,

                                        Appellant,

                      v.

     HARRIS COUNTY APPRAISAL DISTRICT,

                                       Appellee.


BRIEF OF VALERO MARKETING & SUPPLY COMPANY
        AS AMICUS CURIAE IN SUPPORT OF
    MOTION FOR EN BANC RECONSIDERATION

                           Reagan W. Simpson
                           State Bar No. 18404700
                           rsimpson@yettercoleman.com
                           Christian J. Ward
                           State Bar No. 24033434
                           cward@yettercoleman.com
                           YETTER COLEMAN LLP
                           909 Fannin, Suite 3600
                           Houston, Texas 77010
                           Telephone: (713) 632-8000
                           Facsimile: (713) 632-8002

                           Attorneys for Amicus Curiae
                           Valero Marketing & Supply Company
                                              TABLE OF CONTENTS

                                                                                                                    PAGE

Index of Authorities ...................................................................................................3 

Interest of Amicus Curiae ..........................................................................................5 

Summary of the Argument.........................................................................................6 

Argument....................................................................................................................8 

I.       The Panel Should Never Have Reached The Constitutional Issue
         Because Texas State Law Forbids The Tax HCAD Seeks To Impose. ..........8 

II.      The Tax Fails The U.S. Supreme Court’s Strict Scrutiny Test For
         Taxation Of Goods In Interstate Commerce. ................................................10 

III.     The Panel’s Ruling Has Significant Negative Consequences That
         Make Immediate Correction Essential. .........................................................12 

Conclusion and Prayer .............................................................................................14 

Certificate of Compliance Under Appellate Rule 9.4 ..............................................16

Disclosure Under Appellate Rule 11(c) ...................................................................16 

Certificate of Service ...............................................................................................17 




                                                             2
                                         INDEX OF AUTHORITIES

                                                                                                          PAGE(S)

Cases

Am. Trucking Ass’ns, Inc. v. Michigan Pub. Serv. Comm’n,
  545 U.S. 429 (2005) .............................................................................................12

Barclays Bank PLC v. Franchise Tax Bd. of Cal.,
  512 U.S. 298 (1994) .............................................................................................10

Complete Auto Transit, Inc. v. Brady,
  430 U.S. 274 (1977) .............................................................................................10

Goldberg v. Sweet,
  488 U.S. 252 (1989) .............................................................................................11

In re B.L.D.,
   113 S.W.3d 340 (Tex. 2003) ..................................................................................8

Midland Cent. Appraisal Dist. v. BP Am. Prod. Co.,
  282 S.W.3d 215 (Tex. App.—Eastland 2009, pet. denied),
  cert. denied, 131 S. Ct. 2097 ......................................................................... 10, 11

Patterson-UTI Drilling Co. v. Webb Cnty. Appraisal Dist.,
  182 S.W.3d 14 (Tex. App.—San Antonio 2005, no pet.)......................................9

Peoples Gas, Light, & Coke Co. v. Harrison Cent. Appraisal Dist.,
  270 S.W.3d 208 (Tex. App.—Texarkana 2008, pet. denied),
  cert. denied, 131 S. Ct. 2097 ......................................................................... 10, 11

Spector Motor Serv. v. McLaughlin,
  323 U.S. 101 (1944) ...............................................................................................8

TracFone Wireless, Inc. v. Comm’n on State Emergency, Commc’ns,
  397 S.W.3d 173 (Tex. 2013) ..................................................................................9




                                                          3
Statutes

Tex. Tax Code §11.01(c)(1).......................................................................................9

Tex. Tax Code §21.02(a)(1).......................................................................................9




                                                        4
                                     INTEREST OF AMICUS CURIAE
          Amicus curiae Valero Marketing and Supply Company (Valero) is a

subsidiary of Valero Energy Corporation and owns all inventories among Valero

Energy Corporation’s various subsidiaries.1                     Valero has extensive inventories in

interstate commerce. Thus, Valero is directly affected by issues raised by this case

and is also well-positioned to comment on the broader impact that the panel’s

ruling will have on industries including the petroleum industry if that ruling is

permitted to stand.

          As Valero knows, the panel’s opinion threatens to impose heavy burdens on

Texas business in general and the petroleum industry in particular, including

administrative and financial burdens. For example, it would be impossible to

follow or track individual molecules of hydrocarbon inventories due to the nature

of how crude and product are moved and traded while moving between sources of

supplies and end-users. And if Texas appraisal districts and other, out-of-state

taxing jurisdictions all impose similar taxes on petroleum products in interstate

commerce, companies like Valero will be injured by multiple taxation in a given

year.

          For reasons such as these, Valero has a strong interest in the outcome of

ETC Marketing’s motion for reconsideration, and writes in support of that motion.


1
    Valero is the source of the only fee for preparing this brief. See Tex. R. App. P. 11(c).


                                                        5
                            SUMMARY OF THE ARGUMENT
      Amicus Valero urges the Court to reconsider this case en banc, vacate the

panel’s judgment, and issue a new opinion reversing the trial court because the

panel majority erroneously reached and determined the constitutional issue in a

way that has significant, detrimental ramifications for the Texas petroleum industry

and Texas businesses and taxpayers in general.

      The panel should never have reached the constitutional issue in the first

place because, under Texas statutory law, HCAD has no power to impose the tax

on ETC Marketing’s natural gas stored temporarily in Harris County while

traveling in interstate commerce. Both the U.S. and Texas Supreme Courts say

that courts should not reach constitutional issues unnecessarily. The U.S. Supreme

Court has, in particular, emphasized that in Commerce Clause taxation cases a

court must first determine whether the state even intends to tax the relevant

interstate activity. The majority’s failure to heed that principle makes its

imposition of a new, flawed constitutional rule all the more insupportable. Taxing

statutes are strictly construed, and the relevant Texas statutes do not permit the tax

HCAD seeks to impose on ETC.

      In any event, the majority was wrong to conclude that the tax on ETC’s

natural gas satisfied any of the four prongs required to survive strict Commerce

Clause scrutiny, let alone all four. For a tax to satisfy the test, it must meet all four



                                           6
requirements: the activity taxed must have a substantial nexus to the taxing state,

and the tax must be fairly apportioned, not discriminate against interstate

commerce, and be fairly related to public services provided. The tax on ETC’s

natural gas meets none of those criteria because the gas was stored only

temporarily while in interstate commerce, in a facility that is itself the beneficiary

of any public services and on which the facility owner already pays ad valorem tax.

The tax thus improperly sets up a financial barrier around Harris County and

Texas.

      The judgment permitting Harris County to impose an unconstitutional tax on

ETC’s natural gas has broad, dangerous consequences. In many practical ways,

the panel’s ruling threatens to irreparably injure the Texas petroleum industry,

other Texas businesses and taxpayers, and Texas consumers. Beyond the fact that

owners of natural gas and other petroleum products that pass through Harris

County while in interstate commerce will be subject to the illegal tax, the door is

now open to ad valorem taxation of all manner of goods in interstate commerce.

The Court should close that door by granting reconsideration and vacating the

panel’s judgment.




                                          7
                                    ARGUMENT

I.     The Panel Should Never Have Reached The Constitutional Issue
       Because Texas State Law Forbids The Tax HCAD Seeks To Impose.
       The majority’s damaging error in application of constitutional law is all the

more troubling because this case should never have been decided on constitutional

grounds in the first place. Texas statutory law does not permit the taxation HCAD

seeks to impose here.

       The United States Supreme Court has explained that, in general, courts

should avoid making constitutional law when statutory law answers the relevant

question, and specifically in cases involving the Commerce Clause and “the

distribution of the taxing power as between the State and the Nation.” Spector

Motor Serv. v. McLaughlin, 323 U.S. 101, 105 (1944).             When the question

involves an alleged tax on interstate commerce, a court must first decide if the state

intends for the tax to apply to one in the position of the putative taxpayer, “from

what aspect of interstate business [the state] seeks an exaction,” what subject

matter the state seeks to tax, “and what is the calculus of the tax” sought. Id. at

104.     “Every one of these questions must be answered before we reach the

constitutional issues which divided the court below.” Id. The Texas Supreme

Court likewise “only decide[s] constitutional questions when [we] cannot resolve

issues on nonconstitutional grounds.” In re B.L.D., 113 S.W.3d 340, 349 (Tex.

2003).


                                          8
      In Texas, “[s]everal cardinal, century-old principles dictate strictness in tax

matters.” TracFone Wireless, Inc. v. Comm’n on State Emergency Commc’ns, 397

S.W.3d 173, 183 (Tex. 2013).        In particular, “tax authorities cannot collect

something that the law has not actually imposed.” Id.

      The law did not actually impose the tax on ETC’s natural gas because the

gas was not located in Texas for “longer than a temporary period,” Tex. Tax Code

§11.01(c)(1), and thus HCAD had no jurisdiction to impose a tax on it. The gas

was only temporarily located in Harris County, before it was transported to out-of-

state buyers. Additionally, the gas had no situs in Harris County because it was not

located in the county on January 1 for “more than a temporary period” based on its

owner’s intent and the type of property. Tex. Tax Code §21.02(a)(1); see, e.g.,

Patterson-UTI Drilling Co. v. Webb Cnty. Appraisal Dist., 182 S.W.3d 14, 18

(Tex. App.—San Antonio 2005, no pet.).

      The panel thus should have resolved this case in ETC’s favor on the

statutory ground that the tax is illegal under Texas law. The majority’s erroneous

constitutional holding will have far-reaching and detrimental consequences for

Texas businesses and taxpayers—including, but certainly not limited to, those in

the petroleum industry—and on interstate commerce. Those broad consequences

illustrate the soundness of the principle against deciding constitutional issues

unnecessarily. Because the majority disregarded that principle, its twofold error in



                                         9
unnecessarily reaching out to decide the constitutional issue and then deciding it

wrongly will have manifold ramifications.

II.   The Tax Fails The U.S. Supreme Court’s Strict Scrutiny Test For
      Taxation Of Goods In Interstate Commerce.
      Having erroneously reached the constitutional issue regarding the

Commerce Clause, the majority then set a dangerous precedent in finding that

HCAD’s taxation of ETC’s natural gas was constitutional. To survive Commerce

Clause scrutiny, a tax must satisfy all four prongs the U.S. Supreme Court laid out

in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). The tax here

satisfies none of those prongs, and the majority’s holding otherwise opens the door

for similarly unconstitutional taxation of other Texas businesses.

      For a tax to survive strict Commerce Clause scrutiny, it must: (1) apply to an

activity having a substantial nexus to the taxing state, (2) be fairly apportioned, (3)

not discriminate against interstate commerce, and (4) be fairly related to the

services the state provides. Barclays Bank PLC v. Franchise Tax Bd. of Cal., 512

U.S. 298, 310-11 (1994); Complete Auto, 430 U.S. at 279. As the other two Texas

courts of appeals that have considered similar facts held, a tax like the one HCAD

seeks to impose fails that test. Peoples Gas, Light, & Coke Co. v. Harrison Cent.

Appraisal Dist., 270 S.W.3d 208, 219 (Tex. App.—Texarkana 2008, pet. denied),

cert. denied, 131 S. Ct. 2097; Midland Cent. Appraisal Dist. v. BP Am. Prod. Co.




                                          10
282 S.W.3d 215, 224 (Tex. App.—Eastland 2009, pet. denied), cert. denied, 131 S.

Ct. 2097.

      The activity HCAD seeks to tax is ETC’s receipt of natural gas that is only

temporarily present in Harris County in the course of being transported in the

interstate pipeline system. That activity has no “substantial nexus” to Texas. The

only connection is the tenuous one that the gas is temporarily located in the local

structure while passing through the interstate system. See Peoples, 270 S.W.3d at

218-19. Further, the origin and destination of the particular gas at issue cannot be

reliably determined.

      The tax is not fairly apportioned because it is not “internally and externally

consistent.” Goldberg v. Sweet, 488 U.S. 252, 260-61 (1989). It is internally

inconsistent because if multiple taxing authorities were to impose the same ad

valorem tax the taxes could be levied on any gas (or other products) temporarily

stored within those jurisdictions while traveling in interstate commerce to their

destination. See Midland Cent., 282 S.W.3d at 224. It is externally inconsistent

because the “portion of the revenues from the interstate activity” does not

“reasonably reflect[] the in-state component of the activity being taxed.”

Goldberg, 488 U.S. at 262.       There is no way—reasonable or otherwise—to

determine if HCAD’s multi-million dollar assessment actually relates to the




                                         11
amount of the fungible natural gas temporarily located in Harris County at the

relevant time.

       The tax discriminates against interstate commerce because it “impose[s]

burdens on interstate trade that are clearly excessive in relation to the putative local

benefits” and has “the inevitable effect of threatening the free movement of

commerce by placing a financial barrier around the State.” Am. Trucking Ass’ns,

Inc. v. Michigan Pub. Serv. Comm’n, 545 U.S. 429, 433 (2005) (internal quotation

marks and alterations omitted). The tax places a financial barrier around both

Harris County in particular and, to the extent natural gas and other products travel

through Harris County while in interstate commerce, Texas as a whole. And the

public services Harris County provides benefit the storage facility, rather than the

gas that happens to be temporarily stored there, so the multi-million dollar tax

imposed far exceeds any local benefits ETC receives.

       Similarly, the tax is not fairly related to the services provided. Again, the

public services benefit the storage facility itself, not the gas. And the facility

owner already pays significant property taxes on the facility and the “cushion gas”

it permanently stores there.

III.   The Panel’s Ruling Has Significant Negative Consequences That Make
       Immediate Correction Essential.
       In short, the majority’s holding permits the imposition of an unconstitutional

tax in Harris County and the other nine counties within this Court’s jurisdiction.


                                           12
The threat to the free movement of petroleum products in interstate commerce is

alone significant enough to warrant immediate correction, and the majority’s

disposition has broader ramifications affecting owners of all manner of property

moving in interstate and foreign commerce.

      As amicus Valero well knows, a company must take into account the risk of

local taxation in making important business decisions. That is true even in the near

term. Companies that, like Valero, currently have property in interstate commerce

that passes through Harris County will be irreparably injured even if the Supreme

Court ultimately corrects the panel majority’s error. A company must pay the tax

imposed pursuant to an adverse appraisal district decision each year, unless it files

suit to challenge it, with the attendant litigation risk of doing so. The company

must also, for example, make decisions about moving product elsewhere.

      The petroleum industry needs predictability in the tax law it must follow.

Before now, companies like Valero could rely on consistent decisions in cases like

Peoples and Midland Central Appraisal District v. BP America Production Co.

The panel’s decision conflicts with those cases, and it will subject companies to a

complex patchwork regime.

      The illegal tax will increase the cost of oil and gas products to Texas

consumers, including businesses, families, schools—anyone who uses fuel or other

petroleum products. And the problem is not limited to petroleum products. If left



                                         13
uncorrected, the majority opinion clears the way for ad valorem taxation of

manufactured goods—any products—that pass through Harris or other counties

while in interstate commerce.

      The majority’s judgment puts this Court’s tax law into conflict with the

Federal Constitution, state statutory law, and precedent of other Texas courts of

appeals. And the unconstitutional tax policy it sanctions is bad for Texas business,

taxpayers, and consumers.

                               CONCLUSION AND PRAYER
      For these reasons and those more fully addressed in ETC’s motion for en

banc reconsideration, amicus Valero urges the Court to grant the motion for en

banc rehearing, vacate the panel’s judgment, and issue a new opinion reversing the

judgment of the trial court.




                                         14
Respectfully submitted,


/s/ Reagan W. Simpson
Reagan W. Simpson
State Bar No. 18404700
rsimpson@yettercoleman.com
Christian J. Ward
State Bar No. 24033434
cward@yettercoleman.com
YETTER COLEMAN LLP
Two Houston Center
909 Fannin, Suite 3600
Houston, Texas 77010
Telephone: 713-632-8000
Facsimile: 713-632-8002

Counsel for Amicus Curiae
Valero Marketing & Supply Company




  15
           CERTIFICATE OF COMPLIANCE UNDER APPELLATE RULE 9.4
      I certify that this brief complies with the type-volume limitation of Texas

Rule of Appellate Procedure 9.4(i)(2) because it contains 2,143 words, excluding

the parts of the briefs exempted by Texas Rule of Appellate Procedure 9.4(i)(1).



                                       /s/ Christian J. Ward
                                       Christian J. Ward



                   DISCLOSURE UNDER APPELLATE RULE 11(C)
Amicus curiae Valero is the source of the only fee for preparing this brief.




                                          16
                            CERTIFICATE OF SERVICE
      Pursuant to Tex. R. App. P. 9.5(e), I hereby certify that a true and correct

copy of this brief has been served on lead counsel and additional counsel for all

parties by electronic means on March 17, 2015, as follows:

Lynne Liberato                                Mario L. Dell’Osso
Lynne.Liberato@haynesboone.com                mdellosso@olsonllp.com
William Feldman                               Charles M. Williams
William.Feldman@haynesboone.com               cwilliams@olsonllp.com
HAYNES AND BOONE, LLP                         Sarah M. Morrow
1221 McKinney Street, Suite 2100              smorrow@olsonllp.com
Houston, Texas 77010-2007                     Eric C. Farrar
Telephone: (713) 547-2000                     efarrar@olsonllp.com
Telecopier (713) 547-2600                     OLSON & OLSON, L.L.P.
                                              Wortham Tower, Suite 600
Robert J. Myers                               2727 Allen Parkway
RMyers@myerslawtexas.com                      Telephone: (713) 533-3800
John J. Shaw                                  Facsimile: (713) 533-3888
JShaw@myerslawtexas.com
MYERS ✯ LAW                                   Counsel for Appellee
2525 Ridgmar Blvd., Suite 150                 Harris County Appraisal District
Fort Worth, Texas 76116
Telephone: (817) 731-2500
Telecopier: (817) 731-2501

Counsel for Appellant
ETC Marketing, Ltd.


                                     /s/ Christian J. Ward
                                     Christian J. Ward




                                        17
