Louisiana Land and Exploration Co. v. Pilot Petroleum Corp.

• Decision Date: 10 May 1990
• Docket Number: No. 88-3662,88-3662
• Citation: 900 F.2d 816
• Parties: , 58 USLW 2683 The LOUISIANA LAND AND EXPLORATION COMPANY, Plaintiff-Appellee, v. PILOT PETROLEUM CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 816

900 F.2d 816

12 ITRD 1693, 58 USLW 2683

The LOUISIANA LAND AND EXPLORATION COMPANY, Plaintiff-Appellee, v. PILOT PETROLEUM CORPORATION, Defendant-Appellant.

No. 88-3662.

United States Court of Appeals Fifth Circuit.

May 10, 1990.

Robert B. Deane, Douglas Grundmeyer, Chaffe, McCall, Phillips, Toler & Sarpy, New Orleans, La., for defendant-appellant.

John Breckenridge, Asst. Atty. Gen., Montgomery, Ala., for intervenor State of Ala.

Katherine Goldman, John F. Landrum, Milling, Benson, Woodward, Hillyer, Pierson

& Miller, New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before BROWN, WILLIAMS, and JOLLY, Circuit Judges.

JOHN R. BROWN, Circuit Judge:

The question this case presents is whether the state of Alabama may tax jet fuel, which is sold for export to a foreign country. Pilot Petroleum Corporation argues that the Alabama tax ¹ violates the Import-Export Clause ² of the United States Constitution. The district court granted the Louisiana Land & Exploration Company's motion for summary judgment. After this court certified to Alabama's attorney general that the constitutionality of its excise fuel tax had been drawn in question, ³ in response to which we sought and obtained extensive briefs, the state of Alabama intervened. We hold that the tax is unconstitutional and we reverse the decision below.

How It All Came About

Pilot Petroleum Corporation (Pilot) contracted with the Louisiana Land & Exploration Company (LL & E) to purchase approximately 112,000 barrels of jet fuel oil. ⁴ On November 7, 1986, LL & E delivered the fuel free on board the Liberian flagged tanker, MARYANN, while it was anchored in the port of Mobile, Alabama. The fuel was then exported to Halifax, Nova Scotia, Canada. Following delivery, Pilot received two invoices for the purchase price of the fuel. The first invoice totalled $201,929.78, including $5,390.78 which was attributable to fuel tax. The second invoice charged $50,400.00 for fuel tax out of a total bill of $1,772,400.00. Pilot paid LL & E, excluding the amounts attributable to the Alabama state tax.

In November, 1986, LL & E paid to the Alabama Department of Revenue the tax due as a result of its fuel sale to Pilot, despite the fact that it had not been paid the amount of the tax by Pilot. LL & E filed a petition for refund in August, 1987, which contended that Pilot was exempt from the tax under Alabama law because it was properly licensed and bonded. Alabama law provides that licensed distributors are exempt from the excise fuel tax. ⁵ Because Pilot did not become a licensed distributor until December 15, 1986, which was after the date of the fuel sale, the Department denied LL & E's request for refund. ⁶

Pilot never reimbursed LL & E for the tax LL & E paid on its behalf. LL & E then filed this suit in the United States District Court for the Eastern District of Louisiana. The district court concluded that the purchaser bears ultimate responsibility for the payment of taxes under both Alabama law and the LL & E-Pilot contract. The court further held that Pilot should first exhaust its administrative remedies by paying the tax and petitioning the Alabama Department of Revenue, and then file suit against the state of Alabama to challenge the constitutionality of the tax. Pilot appeals.

District Court Had Jurisdiction to Examine Constitutionality

In a strange twist, considering that the constitutionality of state laws or practices is a major part of the grist of federal district courts, the district court directed Pilot to pursue administrative remedies in the state of Alabama before raising any constitutional defense in the federal courts. Yet, the Alabama Code allows refunds only to taxpayers who pay taxes directly to the Alabama Department of Revenue. ⁷ Therefore, because Pilot does not pay the tax to the State of Alabama, it has no standing to pursue a refund of the tax paid by LL & E supposedly on Pilot's behalf.

In addition, LL & E claims that the district court was barred from deciding the tax's constitutionality based on the Tax Injunction Act. ⁸ The Act forbids federal district courts from "enjoining, suspending or restraining the assessment, levy or collection" of any state tax when that state offers a plain, efficient, and speedy remedy. The Tax Injunction Act does not bar federal court jurisdiction in this case, however, because this suit was filed to collect a state tax, rather than enjoin, suspend, or restrain the collection of taxes. ⁹ Furthermore, LL & E chose to bring this suit in the Eastern District Court of Louisiana; and it can not now limit Pilot's defenses.

Even if Pilot had alternative adequate means to challenge the constitutionality of the Alabama tax, this case should be viewed primarily as a dispute between the state of Alabama and Pilot. Pursuant to section 40-17-31(e) of the Alabama Code, the retailer or distributor is required to add the amount of the excise tax to the price of the fuel. ¹⁰ Although the code places responsibility for the collection of taxes on the delivering party, it specifically provides that the tax "is in fact a levy on the consumer or user with distributor ... acting merely as an agent of the state for the collection and payment of the tax to the state." ¹¹ Because LL & E acts as a mere agent for the state in the collection of taxes, this suit, in effect, is between the state of Alabama and Pilot Petroleum. Down to Basics:

Constitutionality of the Tax

The LL & E-Pilot contract clearly places responsibility for payment of the tax on Pilot. Section 5 of the General Provisions of the contract mandates that the receiving party [Pilot] reimburse the delivering party [LL & E] for all taxes "legally required to be paid", which are paid by the delivering party on behalf of the receiving party. Although it was probably never in the contemplation of these parties that they were facing or were even close to a constitutional problem which goes back to the very formation of this new nation, the contract provides that Pilot must pay only taxes that are "legally required to be paid". This language necessarily calls into question the constitutionality of the Alabama tax.

A. Evolution of the Import-Export Clause

The Import-Export Clause of the United States Constitution states that "No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports."

Pilot relies on Richfield Oil Corp. v. State Bd. of Equalization, 329 U.S. 69, 67 S.Ct. 156, 91 L.Ed. 80 (1946), to support its claim that the Alabama excise tax is a tax on exports and therefore violates the Import-Export Clause. In Richfield, the Richfield Oil Company entered into a contract with the New Zealand government for the sale of oil f.o.b. Los Angeles. Richfield delivered the oil by pipeline from its refinery in California to its storage tanks at the harbor where the naval tanker, R.F.A. Nucula, received the oil from the shore tanks into its ship tanks. The oil was then transported to Auckland, New Zealand. No portion of the oil was used in the United States. California assessed a retail sales tax against Richfield measured by the gross receipts of the transaction. The Court reasoned that when the oil was pumped into the ship's tanks, the movement of the oil abroad had commenced since the parties were certain that the oil would not be diverted for domestic use. Thus, the Court concluded that the sales tax constituted an impost upon an export within the meaning of the Import-Export Clause of the United States Constitution.

Richfield has never been overruled by the United States Supreme Court. However, in Michelin Tire Corp. v. Wages, 423 U.S. 276, 96 S.Ct. 535, 46 L.Ed.2d 495 (1976), the Court initiated a new approach to the Import-Export Clause. In Michelin, the Georgia tax commissioner assessed ad valorem property taxes against tires and tubes imported by Michelin from France and Nova Scotia. Instead of attempting to determine whether the tires and tubes were in fact imports under the Import-Export Clause, the Michelin court focused on the nature of the Georgia tax. Specifically, the Court outlined three policies that were to be served by the Clause.

First, the Federal Government must speak with one voice when regulating commercial relations with foreign governments. For example, tariffs which might affect foreign relations could not be implemented by the States consistently with that exclusive power. Second, import revenues were to be the major source of revenue for the Federal Government and should not be diverted to the States. Finally, harmony among the States might be disturbed unless seaboard States, with their crucial ports of entry, were prohibited from levying taxes on citizens of other States by taxing goods merely flowing through their ports to the other States not situated as favorably geographically. Michelin, 423 U.S. at 285-86, 96 S.Ct. at 540-41, 46 L.Ed.2d at 503.

The Court decided that the ad valorem property tax did not offend any of these policies. First, the tax had no impact upon the federal government's exclusive regulation of foreign commerce because, "by definition, such a tax does not fall on imports as such because of their place of origin." It could not be used to create special protective tariffs or preferences for certain domestic goods; nor could it be applied selectively to encourage or discourage importation in a manner inconsistent with federal regulation. Second, the tax did not deprive the federal government of any revenues to which it was entitled. Property taxes are taxes by which a state apportions the cost of police and fire protection, which was supplied by the local government. Importers should bear these costs, as well. Although the tax may have a minimal effect on the cost of imports to consumers, the court recognized that the resulting variance in demand for imports would not be large enough...