Etc Mktg., Ltd. v. Harris Cnty. Appraisal Dist.

• Citation: 528 S.W.3d 70
• Decision Date: 28 April 2017
• Docket Number: NO. 15-0687.,15-0687.
• Parties: ETC MARKETING, LTD., Petitioner, v. HARRIS COUNTY APPRAISAL DISTRICT, Respondent
• Court: Texas Supreme Court

528 S.W.3d 70

ETC MARKETING, LTD., Petitioner,

v.HARRIS COUNTY APPRAISAL DISTRICT, Respondent

NO. 15-0687.

Supreme Court of Texas.

Argued December 6, 2016

Opinion Delivered: April 28, 2017

Lynne Liberato, William A. Feldman, Haynes and Boone, LLP, Houston TX, John J. Shaw, Robert J. Myers, Myers at Law, Fort Worth TX, for Petitioner.

Eric C. Farrar, Mario L. Dell'Osso, Olson & Olson, L.L.P., Houston TX, for Respondent.

Justice Devine delivered the opinion of the Court, in which Justice Green, Justice Johnson, Justice Willett, Justice Lehrmann, Justice Boyd, and Justice Brown joined.

The Commerce Clause of the United States Constitution limits a state's power to tax interstate commerce. But this limit is not all-encompassing, and states may tax some property despite its interstate character. This case requires us to determine whether those constitutional limits bar property taxes levied on natural gas stored in Texas while awaiting future resale and shipment to out-of-state consumers.

We are not the first to address this question. The Oklahoma and Kansas Supreme Courts found taxation of stored gas constitutional under similar circumstances. See In re Assessment of Personal Prop. Taxes Against Mo. Gas Energy, a Div. of S. Union Co. for Tax Years 1998, 1999, and 2000 , 234 P.3d 938, 959 (Okla. 2008) [hereinafter Missouri Gas ]; In re Appeals of Various Applicants From a Div. of Prop. Valuation of Kan. for Tax Year 2009 Pursuant to K.S.A. 74-2438 , 298 Kan. 439, 313 P.3d 789, 799 (2013) [hereinafter Kansas Gas ]. The court of appeals likewise found the tax valid in this case. See 476 S.W.3d 501, 513 (Tex. App.—Houston [1st Dist.] 2015). But the dissenting justice and one other court of appeals saw the issue differently, finding that the Commerce Clause forbids the taxation at issue. See id. at 523 (Keyes, J., dissenting); Peoples Gas, Light, and Coke Co. v. Harrison Cent. Appraisal Dist. , 270 S.W.3d 208, 219 (Tex. App.—Texarkana 2008, pet. denied). Although Texans and Oklahomans may disagree from time to time¹ , our Supreme Courts agree, at least, on this: a nondiscriminatory tax on surplus gas held for future resale does not violate the Commerce Clause. The judgment of the court of appeals is affirmed.

I. Background

ETC Marketing, Ltd. buys and sells natural gas. ETC purchases gas at the Katy marketing hub, which is located in Texas. And ETC immediately entrusts that gas to its affiliate, Houston Pipe Line Company (HPL), a pipeline operator authorized by the Federal Energy Regulatory Commission (FERC) to transport gas. HPL's pipeline system does not extend beyond the borders of Texas but does connect to several other interstate pipelines. This interstate connection allows ETC to market and sell gas across the country.

Once injected into the pipeline, ETC's gas commingles with other gas, making tracking the exact location of certain gas molecules impossible. To overcome this dilemma, ETC and HPL allocate ownership of stored gas on paper. When ETC orders HPL to ship a certain volume of gas downstream, the volume of gas shipped is subtracted from ETC's total allocated amount.

Central to this dispute is the storage of ETC's gas. HPL stores ETC's gas at the Bammel facility in Harris County. The Bammel facility, which HPL owns and operates, connects to HPL's pipeline system and is located atop the Bammel reservoir. That reservoir lies under several thousand acres and holds a vast amount of natural gas. In order to create the pressure necessary to pump gas in and out of the reservoir, HPL maintains a permanent supply of "cushion gas" in the facility. HPL pays ad valorem taxes on that cushion gas and on the Bammel facility itself. But HPL does not pay taxes on stored gas owned by marketers like ETC.

ETC purchased a dedicated storage capacity in the Bammel reservoir from HPL. The resulting storage agreement between the two parties is authorized by Section 311 of the Natural Gas Policy Act. Pursuant to the agreement, HPL pumps ETC's excess gas (gas that exceeds the pipeline's capacity) into the reservoir. There, the gas remains while it awaits orders from ETC to ship certain volumes to downstream consumers. This storage capacity allows ETC to maintain a surplus of gas on the pipeline system so that it can better satisfy future demand and "time the market" during peak periods. As demand rises and falls, the volume of stored gas fluctuates accordingly. Specifically, ETC begins to accumulate gas in April and effectively sells all of the accumulated gas by the end of the winter season. ETC thus maintains a seasonal—though not year-round—presence of gas in the reservoir. Although ETC intends to and does sell a majority of this stored gas outside Texas, it is not obligated to do so. Rather, ETC can sell the gas outside Texas, within Texas, or not at all.

This taxing saga began in September 2009² , when the Harris County Appraisal District (HCAD) appraised the value of approximately 33 billion cubic feet of gas allocated to ETC and stored in the Bammel reservoir. HCAD then assessed ad valorem taxes on the value of that gas for the 2010 tax year. ETC protested the tax to the Harris County Appraisal Review Board on the basis that the stored gas was in the stream of interstate commerce and therefore immune from taxation.

After the Review Board denied ETC's challenge, ETC appealed to the district court. There, both ETC and HCAD filed motions for summary judgment. ETC relied again on the protections of the Commerce Clause. HCAD countered that the stored gas was not in the stream of interstate commerce, and even if it was, the tax was valid under all four prongs of the Supreme Court's holding in Complete Auto Transit, Inc. v. Brady , which supplies the test for determining the constitutionality of state taxation of interstate commerce. 430 U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). The district court granted HCAD's motion and denied ETC's motion, and ETC appealed. The court of appeals affirmed, assuming the gas was in interstate commerce but agreeing with HCAD that the tax satisfied Complete Auto . See 476 S.W.3d at 513. One justice dissented, finding "no material distinction between this case and Peoples ," which, on similar facts, found the ad valorem tax violated Complete Auto . Id. at 517 (Keyes, J., dissenting); see also Peoples , 270 S.W.3d at 219. We granted ETC's petition for review.

II. The Texas Tax Code

The centerpiece of this dispute is the Commerce Clause. But there is another issue at play—whether the Texas Tax Code provides an independent shield against taxation. Two provisions of the Code are of particular importance.³ First, the state can tax only personal property "located in this state for longer than a temporary period." TEX. TAX CODE § 11.01(c)(1). Likewise, a taxing unit may tax only property "located in the unit on January 1 for more than a temporary period." Id. § 21.02(a)(1) (also known as the "taxable situs" requirement). Taking these provisions together, ETC argues that because its stored gas is not located in Texas for longer than a "temporary period," neither Texas nor HCAD can tax the gas.

ETC cautions that we must address these issues of Texas law first under well-recognized principles of constitutional avoidance. ETC is, of course, correct that we will "only decide constitutional questions when we cannot resolve issues on nonconstitutional grounds." In re B.L.D. , 113 S.W.3d 340, 349 (Tex. 2003). But in doing so, we remain subject to our procedural rules, such as those governing preservation of error. On that front, HCAD contends ETC waived its temporary-period argument in the trial court. We agree.

In its motion for summary judgment, ETC listed the following two grounds for recovery:

1) the property is exempt from taxation as it is in the stream of interstate commerce; and

2) Harris County Appraisal District does not have jurisdiction to appraise the property since the taxing units served by the Appraisal District are without jurisdiction to tax the property.

ETC argues that the second of these grounds preserved its temporary-period argument. HCAD counters that ETC's motion did not mention "temporary period," cite the relevant statutory provisions, or discuss anything other than the applicability of the Commerce Clause.⁴ There was nothing in the motion, HCAD says, to point the trial judge to the statutory sections ETC now invokes.

To preserve error a party must present "the grounds for the ruling that the complaining party sought from the trial court with sufficient specificity to make the trial court aware of the complaint, unless the specific grounds were apparent from the context." TEX. R. APP. P. 33.1(a)(1)(A). And to obtain summary judgment, a movant must "state the specific grounds" entitling it to summary judgment. TEX. R. CIV. P. 166a(c). Undergirding these rules is the principle that the trial court should have the chance to rule on issues that become the subject of the appeal.

The only sentence from ETC's motion that could possibly preserve its temporary- period argument is the statement outlining ground two: "Harris County Appraisal District does not have jurisdiction to appraise the property since the taxing units served by the Appraisal District are without jurisdiction to tax the property."⁵ The body of the motion, the prayer for relief, and the accompanying affidavits were devoted entirely to discussion of the Commerce Clause. Though ETC does not say so expressly, implicit in its argument is the concept that "jurisdiction to tax" must necessarily point to the sections of the Tax Code containing the temporary-period requirement. True, Section 11.01(c)(1) does speak of the temporary-period requirement in jurisdictional terms. TEX. TAX. CODE. § 11.01(c)(1) (explaining that the "state has jurisdiction to tax" personal property "located in this state for longer than a temporary period"). But though a reference to taxing jurisdiction can refer to the temporary-period requirement, it does not mean...