Opinion issued January 13, 2015




                                     In The

                              Court of Appeals
                                    For The

                         First District of Texas
                           ———————————
                             NO. 01-12-00264-CV
                           ———————————
                    ETC MARKETING, LTD., Appellant
                                       V.
           HARRIS COUNTY APPRAISAL DISTRICT, Appellee



                   On Appeal from the 127th District Court
                            Harris County, Texas
                      Trial Court Case No. 2010-71360



                 DISSENTING OPINION ON REHEARING

      This case addresses a county appraisal district’s right to impose ad valorem

taxes on “working” gas in interstate commerce that is temporarily stored in a

storage facility in the county.   The majority opinion extends the county’s ad
valorem taxing power to this gas in contravention of both United States Supreme

Court and Texas authority. Therefore, I respectfully dissent.

      Appellant ETC Marketing, Ltd. (“ETC”), a marketer of natural gas,

protested the appraisal and ad valorem taxation by appellee Harris County

Appraisal District (“HCAD”) of the portion of the working gas temporarily stored

in Houston Pipeline Company, LP’s Bammel facility in Harris County, Texas, and

awaiting resale in the interstate market that was allotted to ETC. The majority

affirms the trial court’s order denying ETC’s motion for summary judgment and

granting HCAD’s competing motion, thus upholding the tax. Because I believe the

tax places an unconstitutional burden on interstate commerce, I would reverse and

render judgment declaring that the ad valorem tax imposed on ETC’s portion of the

working gas stored in the Harris County facility by HCAD is unconstitutional. I

withdraw the prior dissenting opinion dated October 2, 2014, and issue this

dissenting opinion in its stead.

                                       Background

      The facts material to the analysis are restated below for ease of reference.

      As the majority acknowledges, ETC buys, markets, and resells natural gas

that it acquires from multiple sellers, principally from the “Katy Hub,” a central

delivery and distribution point for natural gas into and out of the state of Texas.

All of the gas ETC buys for resale is “working gas,” or gas that is intended for



                                         2
ultimate delivery through the pipeline system to other buyers and end users. The

gas ETC buys is entrusted to its affiliate, Houston Pipeline Company, LP (“HPL”),

either for immediate transportation to a buyer or user through HPL’s pipeline or for

storage at HPL’s Bammel facility, located in Harris County, for later transportation

into the interstate pipeline system. There ETC either sells the gas or causes it to be

further transported by the pipelines to ETC’s requested redelivery points in Texas

and out of state. Both ETC and HPL conduct business and maintain offices in

multiple locations throughout Texas. Both entities have offices and employees in

Houston and Dallas. HPL operates solely in Texas, but its pipelines connect with

interstate pipelines.

      HPL transports gas into the interstate pipelines both for ETC and for others

as permitted by Federal Energy Regulatory Commission (“FERC”) regulations.

Gas owned by ETC and by the other marketers is physically commingled in the

pipeline system for withdrawal for later delivery to purchasers or users as working

gas. Thus, within the Bammel reservoir, any gas destined for sale in Texas is

physically commingled with gas destined for sale in interstate commerce. HPL

directs the physical movement of the gas; and, once ETC entrusts the gas it buys to

HPL, ETC has no control over the storage or movement of the gas.

      HPL’s Bammel facility is not the only natural gas storage facility between

the place where ETC purchases the gas and the burner tips where it is ultimately



                                          3
consumed. HPL’s pipeline system connects with multiple downstream pipelines

and systems that, in turn, utilize other storage facilities in other states to facilitate

the movement of the gas in the same way it utilizes the Bammel facility. Storage

facilities such as the Bammel reservoir are located throughout the entire

nationwide natural gas distribution system and are necessary for the efficient

movement of the gas, facilitating regulation of pipeline capacities so that sufficient

gas supplies can be provided to downstream users during peak demand periods.

FERC recognizes such storage as a component of the transportation of natural gas.

      The gas moves constantly throughout the pipeline system, and sellers, such

as ETC, who have delivered gas into the system at one point, have the right to sell

a corresponding volume of gas at another point in the system, subject only to

FERC regulations governing the gas and HPL’s handling of it. Distinct volumes of

gas are segregated by paper allocation, which is used for verifying compliance with

contracts and pipeline requirements, reporting to the Texas Railroad Commission,

and payment of tariffs. ETC then sells the gas at “paper points” at various places

along the interstate pipeline systems with which HPL may connect. The point of

sale does not necessarily correspond to a physical location associated with any

particular seller’s natural gas.




                                           4
                                      Analysis

      As the majority states, to prevail on appeal, ETC must demonstrate both that

the natural gas taxed by HCAD was in interstate commerce and, if so, that the gas

was not subject to ad valorem taxation by HCAD under the Complete Auto test.1

The majority declines to determine whether the gas was in interstate commerce on

the ground that the gas is subject to ad valorem taxation by HCAD regardless of

whether it was in interstate commerce. Slip Op. at 7. I would hold that the storage

of gas in the Bammel facility is an integral part of the interstate delivery of gas

regulated by FERC and that the ad valorem tax fails the Complete Auto test that

justifies the taxation of tangible property in interstate commerce. I would reverse

and render judgment declaring the tax unconstitutional.

      A. Law Governing the Taxation of Tangible Personal Property

      The Texas Constitution provides that “[a]ll . . . tangible personal property in

this State, unless exempt as required or permitted by this Constitution . . . shall be

taxed in proportion to its value, which shall be ascertained as may be provided by

law.” TEX. CONST. art. VIII, § 1. Under the Texas Tax Code, unless exempt by

law, tangible personal property is taxable if it is located in the taxing unit “for

longer than a temporary period.” TEX. TAX CODE ANN. § 11.01 (West 2008); see

also id. § 21.02(a)(1) (West Supp. 2014) (“[T]angible personal property is taxable


1
      Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S. Ct. 1076 (1977).

                                           5
by a taxing unit if it is located in the unit on January 1 for more than a temporary

period.”). But “[p]roperty exempt from ad valorem taxation by federal law is

exempt from taxation.” TEX. TAX CODE ANN. § 11.12 (West 2008).

      The Interstate Commerce Clause of the United States Constitution grants

Congress the power to regulate interstate commerce. See U.S. CONST. art. I, § 8,

cl. 3. The United States Supreme Court has long interpreted the Commerce Clause

to include a “dormant” Commerce Clause, which prohibits a state from imposing

discriminatory burdens on interstate commerce. Am. Trucking Ass’ns, Inc. v. Mich.

Pub. Serv. Comm’n, 545 U.S. 429, 433, 125 S. Ct. 2419, 2422–23 (2005); see In re

Nestle USA, Inc., 387 S.W.3d 610, 624–25 (Tex. 2012) (orig. proceeding). “[A]

tax imposed on local activity related to interstate commerce is valid if, and only if,

the local activity is not such an integral part of the interstate process, the flow of

commerce, that it cannot realistically be separated from it.” Mich.-Wis. Pipe Line

Co. v. Calvert, 347 U.S. 157, 166, 74 S. Ct. 396, 401 (1954) (holding

unconstitutional Texas occupation tax on taking gas from outlet of independent

gasoline plant in state, after production, gathering, and processing, for immediate

interstate transmission). “‘The very purpose of the Commerce Clause was to

create an area of free trade among the several States. That clause vested the power

of taxing a transaction forming an unbroken process of interstate commerce in the




                                          6
Congress, not in the States.’” Id. at 170, 74 S. Ct. at 403 (quoting McLeod v. J.E.

Dilworth Co., 322 U.S. 327, 330–31, 64 S. Ct. 1023, 1026 (1944)).

      The burden is on the taxpayer to prove that a tax is invalid under the

Dormant Commerce Clause by showing that the tax fails at least one prong of the

Complete Auto test. See Barclays Bank PLC v. Franchise Tax Bd. of Cal., 512

U.S. 298, 310–11, 114 S. Ct. 2268, 2276 (1994); Midland Cent. Appraisal Dist. v.

BP Am. Prod. Co., 282 S.W.3d 215, 223 (Tex. App.—Eastland 2009, pet. denied).

Under the Complete Auto standard, a state tax on interstate commerce ordinarily

“will not survive Commerce Clause scrutiny if the taxpayer demonstrates that the

tax (1) applies to an activity lacking a substantial nexus to the taxing State; (2) is

not fairly apportioned; (3) discriminates against interstate commerce; or (4) is not

fairly related to the services provided by the State.” Barclays Bank, 512 U.S. at

310–11, 114 S. Ct. at 2276 (emphasis in original) (citing Complete Auto Transit,

Inc. v. Brady, 430 U.S. 274, 279, 97 S. Ct. 1076, 1079 (1977)). A state tax must,

therefore, fail only one prong of the Complete Auto test to be unconstitutional.

      B. Application of the Interstate Commerce Clause to the Storage of
         Natural Gas

      The majority finds it unnecessary to determine whether ETC’s gas is in

interstate commerce, reasoning that, even if it is, the tax is constitutional. Thus, for

purposes of its argument, it simply assumes that the gas is in interstate commerce,




                                           7
and it addresses the facts of the case solely in the context of determining whether

the Complete Auto test is satisfied. See Slip Op. at 11–22.

      The majority first recites the facts it finds material to its determination as to

whether the gas has a “substantial nexus” with Texas, the taxing state, and

therefore satisfies the first factor used under the Complete Auto test. Slip Op. at

11–16. It observes that ETC has offices and employees in Harris County and

elsewhere in Texas; that the gas at issue was purchased by ETC at the Katy Hub in

Harris County; that HPL, which has offices and employees in Texas and whose

entire system, including the Bammel facility, is located within Texas, transported

the gas; and that ETC’s natural gas is stored for up to several months in the

Bammel facility “pursuant to a storage agreement with [HPL].” Slip Op. at 11–12.

      The majority opines that “[t]hese factors establish that ETC Marketing ha[s]

a substantial physical presence in Harris County” and that these facts distinguish

this case from a case that ETC relies upon, Peoples Gas, Light, & Coke Co. v.

Harrison Cent. Appraisal Dist., 270 S.W.3d 208 (Tex. App.—Texarkana 2008,

pet. denied). Slip Op. at 12. The majority reasons that, “unlike this case, Peoples

Gas had no physical facilities, employees, representatives, or customers in Texas,”

whereas “ETC Marketing had a physical presence in Harris County including

employees, offices, and—most significantly—natural gas that it had specifically

contracted to store with [HPL].” Slip Op. at 12. It points out, “Unlike the pipeline



                                          8
at issue in Peoples Gas, [HPL’s] facilities are located entirely within Texas,

including the Bammel reservoir in Harris County.” Slip Op. at 12–13. The

majority also points out that Peoples’ “only connection to Texas was through the

‘structure and location’ of the separately owned pipeline, which made the decision

about where to store the gas and paid its own ad valorem taxes on the facility and

equipment used for storage of natural gas in Texas.” Slip Op. at 12.

      Unlike the majority, I would first determine whether the portion of the

working gas owned by ETC that is temporarily stored in the Bammel facility is

indeed in interstate commerce under the facts of the case; and, if it is, I would

apply the Complete Auto test to determine the constitutionality of the ad valorem

tax imposed by HCAD on that gas. Therefore, rather than beginning with the first

Complete Auto factor, I would perform the same analysis as the Peoples court—

first determining whether the working gas owned by ETC is property in interstate

commerce and, if so, determining whether it is nevertheless subject to the ad

valorem tax imposed by HCAD. When the analysis is performed this way, it is

clear to me that the distinctions the majority draws between this case on the one

hand—in which a county appraisal district imposed an ad valorem tax on the

amount of working gas owned by the taxpayer that was in temporary storage in a

Texas county in a gas storage facility connected to the interstate pipeline system—

and the Peoples case on the other hand—in which a different Texas county



                                         9
appraisal district did the same thing—are immaterial to the analysis of the

constitutionality or unconstitutionality of the tax. Finding no material distinction

between this case and the Peoples case, I would reach the same result as the

Texarkana Court of Appeals in Peoples. I would hold that the gas is in interstate

commerce and that the HCAD tax is unconstitutional.

      ETC is a marketing company that buys gas committed to the interstate

natural gas pipeline system, some of which is stored by HPL, the pipeline owner, at

the Bammel facility in Harris County until a specified quantity is resold and

delivered by ETC to a customer at a paper point along the interstate pipeline

system, subject to regulations promulgated by FERC. Peoples was similarly “a

distribution company that purchase[d] natural gas from suppliers and deliver[ed] it

to users in Chicago, Illinois” through an interstate pipeline system operated by

Natural Gas Pipeline Company of America (“the Pipeline”). Peoples, 270 S.W.3d

at 211. Like ETC, Peoples bought and sold natural gas in the interstate pipeline

system owned and operated by the Pipeline. Id. Some of the gas distributed by

Peoples was stored at the North Lansing facility, a natural gas storage facility in a

large depleted natural gas field in Harrison County, Texas, similar to the Bammel

facility located in Harris County. Id. The Pipeline, however, had many associated

storage facilities for gas in the pipeline, which were owned and operated “in the

aggregate.” Id. In Peoples, Harrison County attempted to place an ad valorem tax



                                         10
on a portion of the working gas in the Harrison County storage facility that it had

allocated to Peoples based on the Pipeline’s records of Peoples’ working natural

gas balance at the facility at the end of the year. See id. at 211–12. Here, HCAD

has done the same thing with respect to a Harris County storage facility.

      In short, Harrison County attempted to do exactly what Harris County has

done in this case under the same material circumstances, the only differences being

that ETC has offices in Texas, whereas Peoples did not, and that HPL, which

operates the Bammel facility and stores gas there, including gas allocated to ETC,

operates an intrastate Texas pipeline system connected to the interstate pipeline

system, whereas the Pipeline into which Peoples delivered its gas stored at the

North Lansing facility was itself an interstate pipeline system. The Texarkana

Court of Appeals, however, struck down the ad valorem tax, unlike the majority in

this case. The majority here upholds the tax on the ground that ETC has a physical

presence in Texas, whereas Peoples did not, and ETC’s gas stored at the Bammel

facility moves into the pipeline system of HPL, a Texas pipeline, to the points of

sale and consumption along the interstate pipeline system to which HPL connects,

whereas Peoples’ gas moved directly into an interstate pipeline operated by the

Pipeline. Slip Op. at 12–13. These distinctions are, in my view, distinctions

without a difference in any way material to this case.




                                         11
      The Peoples court’s reasoning is instructive. The court first pointed out that

the natural gas transportation and storage industry was restructured by FERC in

1992, creating “a system of commercial rights for the pipeline customer that was

separate from the physical operation of the pipeline system” in which gas is bought

and sold at “paper points,” or imaginary points along the pipeline “that do not

necessarily reflect the physical location of the gas purchased.”       Peoples, 270

S.W.3d at 213. In this nationwide gas transportation system—the same as that in

this case—the system operator, here HPL, retains complete control of the physical

operation of the pipeline and decides when and where the natural gas is stored, and

there is no physical connection between a pipeline customer’s storage account

balance and physical volumes at any particular storage facility. See id.

      The Peoples court reasoned that although the Pipeline had full custody,

control, and possession of the gas in the pipeline system it had no ownership rights

over it. Id. at 213–14. Rather, for ad valorem tax purposes, Peoples was the owner

of its allotted portion of the natural gas stored at the Pipeline’s North Lansing

facility in Harrison County.     Id. at 214.    However, the court held that the

Commerce Clause shielded Peoples from the county appraisal district’s ad valorem

tax assessment because the gas was in interstate commerce and the tax did not pass

the Complete Auto test that would nevertheless allow it to be assessed. See id. at

215–19.



                                         12
      Stating that “[t]he crucial question in determining whether the state may

exert its taxing power is whether there is ‘continuity of transit,’” the Peoples court

looked first to see whether there was such continuity. Id. at 215–16 (quoting

Indep. Warehouses v. Scheele, 331 U.S. 70, 73, 67 S. Ct. 1062, 1064–65 (1947)

(stating, “If the interstate movement has begun, it may be regarded as continuing,

so as to maintain the immunity of the property from state taxation, despite

temporary interruptions due to the necessities of the journey or for the purpose of

safety and convenience in the course of the movement. . . . Formalities, such as the

forms of billing, and mere changes in the method of transportation, do not affect

the continuity of the transit”)). The Peoples court opined that because “Peoples

has no control over where [its] natural gas is stored and how much is stored at any

given location, we cannot say that Peoples made the decision to store gas at North

Lansing in order to serve its business purpose.” Id. at 216. Consequently, it

concluded that “the stoppage of natural gas in North Lansing does not serve the

business purpose of Peoples.” Id. at 217. Rather, it served the business purpose of

the Pipeline. See id. The court determined that the storage of natural gas at the

North Lansing facility did not take the gas out of interstate commerce, which “it

entered by injection into an interstate pipeline,” because “[t]o conclude otherwise

would be to segregate, from the pipeline itself, a function deemed ‘necessary and




                                         13
integral’ to the pipeline,” namely the function of storing working gas in the system

for delivery to points of resale and consumption in interstate commerce. Id.

      Here, by contrast, the majority declines to determine whether the working

gas stored at the Bammel facility was in interstate commerce, but states that it

assumes it was. Slip Op. at 10–11. However, it implicitly, and contradictorily,

concludes that the portion of the working gas allotted to ETC was not in interstate

commerce, stating, “There was no evidence that the gas was already bound for

another state when it was committed to [HPL],” and, “[T]here was evidence that

ETC Marketing contracted to store the gas in [HPL’s] facilities, located entirely

within Texas, for its own business purposes . . . .” Slip Op. at 13. This is the

opposite of the Peoples court’s conclusions that the working gas in the pipeline

was in interstate commerce from the moment it was injected into the pipeline

system and that the storage was an integral part of the Pipeline’s business purpose

of interstate gas transportation and could not realistically be separated from it. See

Peoples, 270 S.W.3d at 217. I agree with the reasoning of the Peoples court,

which is supported by Supreme Court case law. See Mich.-Wis. Pipe Line Co., 347

U.S. at 166, 74 S. Ct at 401 (stating that tax of local activity related to interstate

commerce is valid only if it is not such an integral part of interstate process of flow

of commerce that it cannot realistically be separated from it).




                                          14
      In reaching the opposite conclusion from the Peoples court, the majority

places great emphasis on ETC’s business purpose in storing the gas at the Bammel

facility so it could “tim[e] the market and sell[] the gas at higher prices out of state

during cold months” and the lack of evidence of specific sales of the stored gas

into the interstate market. Slip Op. at 13. I agree with the majority that ETC has

as a business purpose the storage of a portion of its gas in interstate commerce until

the price rises with demand and that it contracted with HPL (as Peoples contracted

with the Pipeline) to use a portion of the Bammel facility to store some of its gas

for this purpose. However, it does not follow that this business purpose took the

gas out of interstate commerce or justified burdening the portion of ETC’s gas

allocated to the Bammel facility with a local ad valorem tax in Harris County.

Storage of a portion of the gas until needed served the business purposes of both

ETC and HPL, but storage of a portion of ETC’s gas at the Bammel facility was

only incidental to the overriding purpose served by the agreement between ETC

and HPL: the efficient transportation and sale of natural gas throughout the

interstate pipeline system in order to meet the need for gas as and wherever the

need might arise, a function “necessary and integral” to the operation of the FERC-

regulated nationwide gas distribution system. See Peoples, 270 S.W.3d at 217.

      I would hold that the working gas owned by ETC on which HCAD imposed

the contested ad valorem tax was in interstate commerce when it was temporarily



                                          15
stored in the Bammel facility, and I would then apply the Complete Auto test to

determine whether the ad valorem tax imposed by HCAD on that gas placed an

unconstitutional burden on interstate commerce.

      C. The Complete Auto Test for Constitutional Taxation of Property in
         Interstate Commerce

          1. Substantial nexus to the taxing state

      I agree with the majority that the validity of the tax imposed by HCAD on

the portion of ETC’s gas stored at the Bammel facility must be determined under

the Complete Auto test. See 430 U.S. at 279, 97 S. Ct. at 1079. The first prong of

that test, upon which the majority concentrates, considers whether the tax applies

to an activity that has a substantial nexus with the taxing state. See id.; Slip Op. at

11–16.    Again, the majority distinguishes Peoples, which I find to be both

materially indistinguishable and instructive.

      The Texarkana Court of Appeals observed that Peoples maintained no office

in Texas and had no employees, representatives, or physical facilities in Texas and

that there was no evidence that any of the gas it purchased was delivered in Texas,

although the record suggested that much of the stored gas was produced in Texas.

Peoples, 270 S.W.3d at 218–19. The court found this to be an “insufficient nexus

between Texas and the entity, property, or transaction to be taxed” to justify the tax

under the Complete Auto test. Id. at 219. Therefore, it held that the tax violated

the Commerce Clause. See id.

                                          16
      The majority in this case, viewing those facts as determinative of the

“substantial nexus” factor, concludes that ETC’s own physical presence in Harris

County and its contract with HPL for temporary working gas storage at the

Bammel facility distinguish this case from Peoples and also from Midland Central

Appraisal District v. BP America Production Co. Slip Op. at 12–14. I have

already opined that I find this case indistinguishable from Peoples. I draw the

same conclusion with respect to BP America.

      In BP America, the Eastland Court of Appeals, similarly to the Texarkana

Court of Appeals in Peoples, held that an ad valorem tax was improperly assessed

by a Texas county on oil in interstate commerce passing through an interstate

pipeline but temporarily held in a tank farm located in Texas. See 282 S.W.3d at

219, 223–24. The majority in this case, however, distinguishes oil in interstate

commerce that is temporarily stored in Texas from working gas that is similarly

temporarily stored. It opines, “Unlike ETC Marketing’s natural gas deliberately

stored at Bammel to facilitate timing the natural gas market, the oil at issue in the

Midland case was not held in the tank farm for storage purposes or for any

business purpose of the owner other than its transmission through the pipeline.”

Slip Op. at 14 (citing BP Am. Prod. Co., 282 S.W.3d at 221–23). The problem

with this argument is that every seller of oil or gas in an interstate pipeline system

that is destined for resale on an interstate market necessarily has the business



                                         17
purpose of making money on the resale. Further, this fact is immaterial to the

overriding purpose of holding either oil or gas in a temporary storage facility to

further its efficient transportation and sale throughout the interstate pipeline

system.

      I find the Peoples and BP America decisions to be not only indistinguishable

from this case on the law and material facts but also persuasive authority in

deciding the constitutionality of the tax imposed in this case.

      In assessing the validity of the tax on the oil stored in Midland County under

the first prong of the Complete Auto test, the Eastland Court of Appeals opined in

BP America:

      To comply with the first prong of the Complete Auto test, the ad
      valorem tax on the oil in the tank farm must have applied to an
      activity with a substantial nexus with Texas. Although the oil itself
      had a substantial nexus with this state as much of it was produced in
      this state and some of it was destined for an in-state refinery, the
      “activity” being taxed had no such nexus. The activity essentially
      being taxed in this case was the ownership of oil that was present but
      in transit on January 1 in a tank farm that constituted an integral part
      of an interstate, common carrier pipeline system.

282 S.W.3d at 224. Likewise, the activity that is being taxed in this case is the

ownership of natural gas that was present but in transit in a natural gas storage

facility that constituted an integral part of an interstate, common carrier pipeline

system into which the gas was transmitted for resale and consumption in

accordance with market forces, pipeline handling, and FERC regulations.



                                          18
      Unlike the majority, I would hold that the ad valorem tax imposed by Harris

County on the gas owned by ETC and stored in the Bammel facility does not

satisfy the substantial nexus test, the first prong of the Complete Auto test for

constitutionality under the Commerce Clause, and is therefore unconstitutional.

This conclusion becomes even more compelling when the other prongs of that test

are considered.

          2. Discrimination against interstate commerce

      The Complete Auto test also asks whether the tax discriminates against

interstate commerce.      See 430 U.S. at 279, 97 S. Ct. at 1079. A tax is

nondiscriminatory under Complete Auto when it “places no greater burden upon

interstate commerce than the state places upon competing intrastate commerce of

like character.” Id. at 282, 97 S. Ct. at 1081. The United States Supreme Court

elaborated upon this test in American Trucking Associations. See 545 U.S. at 433–

38, 125 S. Ct. at 2423–26 (upholding flat tax imposed on truckers exclusively for

intrastate activities). The Court observed that it had found unconstitutional state

regulations and taxes that (1) “unjustifiably discriminate on their face against out-

of-state entities”; (2) “impose burdens on interstate trade that are ‘clearly excessive

in relation to the putative local benefits’”; (3) “facially discriminate against

interstate business and offer commercial advantage to local enterprises”;

(4) “improperly apportion state assessments on transactions with out-of-state



                                          19
components”; and (5) “have the ‘inevitable effect [of] threaten[ing] the free

movement of commerce by placing a financial barrier around the State.’” Id. at

433, 125 S. Ct. at 2423 (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90

S. Ct. 844, 847 (1970) and Am. Trucking Ass’ns, Inc. v. Scheiner, 483 U.S. 266,

284, 107 S. Ct. 2829, 2840 (1987)).

      The majority concludes that “the ad valorem taxes here were

nondiscriminatory.” Slip Op. at 19.

      I would hold that the tax imposed by HCAD on ETC’s gas stored in the

Bammel facility in Harris County is discriminatory against interstate commerce on

two of the grounds recognized by the United States Supreme Court in American

Trucking Associations. First, it imposes a burden on working gas in interstate trade

that is “clearly excessive in relation to the putative local benefits” in that the local

benefits of storage in the Bammel facility are not necessary to the efficient

distribution of the gas, which could be stored by HPL and others elsewhere but is

stored in Harris County at HPL’s discretion. And the local benefits of fire and

police protection afforded to the Bammel facility by its location in Harris County

primarily benefit HPL and are taxed to it, as argued below with respect to the

fourth prong of the Complete Auto test. Thus, the benefits to ETC of temporarily

storing a portion of its working gas at the Bammel facility are clearly outweighed

by the burden of paying an ad valorem tax for use of that facility.



                                          20
      Second, the tax has “the ‘inevitable effect [of] threaten[ing] the free

movement of commerce by placing a financial barrier around the [s]tate’” by

imposing a tax on gas temporarily stored in Harris County that is not levied by

taxing authorities in other taxing jurisdictions through which the gas passes and in

which it is temporarily stored. See Am. Trucking Ass’ns, 545 U.S. at 433, 125 S.

Ct. at 2423. In this case, the tax the majority upholds is particularly discriminatory

in that it places a financial barrier around Harris County in the form of an ad

valorem tax that two other Texas courts of appeals have invalidated as

unconstitutional on facts materially indistinguishable from those in this case.

      I would hold that the ad valorem tax imposed by HCAD on ETC’s gas

stored in the Bammel facility is discriminatory against interstate trade and is

therefore unconstitutional under the third prong of Complete Auto.

         3. Fair relation to state-provided services

      The final prong of the Complete Auto test is whether the tax is fairly related

to the services provided by the state. See 430 U.S. at 279, 97 S. Ct. at 1079. The

“fair relation prong of Complete Auto requires no detailed accounting of the

services provided to the taxpayer on account of the activity being taxed, nor,

indeed, is a State limited to offsetting the public costs created by the taxed

activity.” Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 199, 115 S. Ct.

1331, 1345 (1995). Rather, “police and fire protection, along with the usual and



                                         21
usually forgotten advantages conferred by the State’s maintenance of a civilized

society, are justifications enough for the imposition of a tax.” Id. at 200, 115 S. Ct.

at 1346.

      Taking at face value the statement of the law by the Supreme Court in

Oklahoma Tax Commission, the majority reasons that “[ETC] owns the gas while it

is stored at Bammel, and it enjoys the benefit of public services which facilitate gas

storage, which in turn allows it to accomplish its business objective of buying

natural gas and holding it for sale at some later point in time.” Slip Op. at 21.

Therefore, it concludes that “the tax in this case is fairly related to the services

provided by the state.” Slip Op. at 21 (citing Complete Auto, 430 U.S. at 279, 97

S. Ct. at 1079).

      Again, I disagree with the majority’s reasoning and, instead, find the

reasoning and the conclusion of the Peoples court on this fourth prong of the

Complete Auto test to be persuasive. In that case, the Texarkana Court of Appeals,

having found the ad valorem tax imposed by Harrison County on Peoples’ gas

stored in the North Lansing facility to be unconstitutional under the “substantial

nexus” test of the first prong of the Complete Auto test, turned directly to the fourth

prong. It reasoned:

            Under the Commerce Clause, the measure of the tax must be
      reasonably related to the extent of the taxpayer’s presence or activities
      within the taxing state and to the taxpayer’s consequent enjoyment of
      the opportunities which the state has afforded. Even though fire and

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      police services may not be invoked, protection conferred by these
      “along with the usual and usually forgotten advantages conferred by
      the state’s maintenance of a civilized society are justification enough
      for the imposition of a tax.” The District presented substantial
      evidence of services provided within the county. While we do not
      doubt the value of those services, we note, again, that services such as
      law enforcement and the fire department would serve the North
      Lansing facility itself, and the facility undoubtedly belongs to
      Pipeline, which does pay ad valorem taxes on both the “cushion” gas
      it maintains in the facility and the physical plant of the facility itself.

Peoples, 270 S.W.3d at 219 (internal citations omitted). The court held that the tax

imposed by Harrison County on Peoples’ gas in storage at the North Lansing

facility failed the fourth prong of the Complete Auto test as well as the first. Id.

      Here, as in Peoples, the record shows that HPL pays millions of dollars in

property taxes on the Bammel facility and on its cushion gas maintained at the

facility, just as the Pipeline in Peoples paid ad valorem taxes on its cushion gas and

the physical plant of the Harrison County facility. 2 I, therefore, agree with the

Peoples court’s reasoning with regard to the fourth prong of the Complete Auto

test. I would conclude, like that court, that while law enforcement, fire, and other

public services provided by Harris County to the Bammel facility are valuable

services, those services serve the facility itself, on which HPL pays substantial

taxes, in addition to paying taxes on the cushion gas it maintains permanently at

the facility. These taxes are not properly levied against the activity of temporarily

2
      “Cushion gas” is gas that remains in the storage facility and is used to maintain
      adequate pressure to keep the working gas at issue in this case moving through the
      pipeline system.

                                          23
storing gas owned by marketers during its transmission through the interstate

pipeline system or the use of the facility for that purpose.

      I would conclude that the ad valorem tax imposed on ETC’s gas at the

Bammel facility fails the fourth prong of the Complete Auto test, in addition to the

first and third prongs.

      Because I would conclude that the portion of the working gas stored at the

Bammel facility that is allotted to ETC is in interstate commerce and that the ad

valorem tax imposed on that gas by HCAD impermissibly burdens interstate

commerce, as shown by the tax’s failure to satisfy three of the Complete Auto test

factors, I would hold that the tax violates the Commerce Clause of the United

States Constitution.




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                                   Conclusion

      I would reverse the judgment of the trial court and render judgment

declaring that the ad valorem tax imposed by HCAD on working gas allotted to

ETC that is temporarily stored in the Bammel facility in Harris County is

unconstitutional.




                                            Evelyn V. Keyes
                                            Justice

Panel consists of Justices Keyes, Higley, and Massengale.

Justice Keyes, dissenting.




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