Virginia Indonesia Co. v. Harris County Appraisal Dist.

• Decision Date: 22 December 1995
• Docket Number: No. 94-0245,94-0245
• Citation: 39 Tex.Sup.Ct.J. 37,910 S.W.2d 905
• Parties: 39 Tex. Sup. Ct. J. 37 VIRGINIA INDONESIA COMPANY, Petitioner, v. HARRIS COUNTY APPRAISAL DISTRICT and Harris County Appraisal Review Board, Respondents.
• Court: Texas Supreme Court

Page 905

910 S.W.2d 905

39 Tex. Sup. Ct. J. 37

VIRGINIA INDONESIA COMPANY, Petitioner, v. HARRIS COUNTY APPRAISAL DISTRICT and Harris County Appraisal Review Board, Respondents.

No. 94-0245.

Supreme Court of Texas.

Argued Dec. 15, 1994.

Decided Oct. 27, 1995.

Rehearing Overruled Dec. 22, 1995.

J. Randolph Burton, Houston, for petitioner.

Kenneth Wall, Houston, for respondents.

CORNYN, Justice, delivered the opinion of the Court in which PHILLIPS, Chief Justice, and GONZALEZ, HIGHTOWER, ENOCH, SPECTOR, and BAKER, Justices, join.

In this case we consider whether goods purchased by the Virginia Indonesia Company (VICO) on behalf of an Indonesian joint venture are exempt from a state ad valorem tax. The trial court granted VICO's motion for summary judgment on the basis that the goods are exempt from taxation under the import-export and commerce clauses of the United States Constitution and under section 11.01 of the Texas Tax Code. U.S. CONST. art. 1, § 10 (import-export) & art. 1, § 8 (commerce). The court of appeals reversed. 871 S.W.2d 864. We reverse the judgment of the court of appeals and render judgment that the tax at issue violates the import-export clause of the United States Constitution.

VICO, a Delaware corporation, is the operator and agent for an Indonesian oil and gas exploration joint venture. As one of its duties as operator, VICO purchases goods from vendors throughout the United States on behalf of the joint venture. Pursuant to a production sharing agreement between the joint venture and Pertamina, a state enterprise of the Republic of Indonesia, the goods become the property of Pertamina upon arrival in Indonesia. VICO is reimbursed for its costs, but it receives no additional compensation.

VICO uses a standard purchase order marked "FOREIGN PURCHASE ORDER" that includes the notation "Ultimate destination for all items on this order is Indonesia." At the time of purchase, the goods are committed to foreign export and cannot thereafter be diverted to domestic use. The goods are transported from the vendors directly to an independent export packer in Houston, Harris County, Texas. Upon arriving at the export packer's facility, the goods are checked to confirm that the proper items were shipped, and that they meet specifications required for import to Indonesia. Any dispute over the items are resolved at that time. VICO then requests approval from Indonesia to import the goods. When approval is granted, an international inspection agency inspects the goods on behalf of Indonesia and clears the goods for shipment. The goods are then packed and shipped abroad on the next available vessel.

In most instances, the goods remain with the export packer no longer than 45 days while these procedures are being performed. In exceptional cases, however, this period may be somewhat longer: if the goods received from the vendor are damaged or defective, or if VICO encounters problems obtaining approval for import to Indonesia, the goods may remain with the export packer for up to 175 days. VICO has some quantity of goods present at the export packer's facility year-round.

For the tax years 1989 and 1990, VICO was granted an exemption from ad valorem taxation for its personal property in Harris County. In September 1991, VICO was notified by the Harris County Appraisal District that its estimated ad valorem tax liability for 1991 was $8,441.74, which was based on a $380,260.00 appraisal of VICO's property at the export packer's facility on January 1, 1991. VICO timely protested the tax assessment, including the appraised value, to the Harris County Appraisal Review Board. The Review Board affirmed, and VICO filed suit in district court against the Appraisal District and the Review Board (collectively, Harris County).

In its motion for summary judgment, VICO argued that its goods are merely in transit through Texas and that they are therefore immune from state taxation under the import-export and commerce clauses of the United States Constitution. VICO further argued that its goods are not subject to the state's taxing authority because they do not meet the criteria of Texas Tax Code § 11.01(c). The trial court granted VICO's motion for summary judgment on both grounds. The court of appeals reversed, holding that VICO failed to conclusively prove the existence of either federal or state grounds for an exemption from the ad valorem tax. 871 S.W.2d at 871.

Our summary judgment standard is well established. The movant must show that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). If the movant establishes the right to judgment, the burden shifts to the nonmovant to raise a fact issue that would preclude summary judgment. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex.1979). In deciding whether there is a disputed material fact issue, we regard evidence favorable to the nonmovant as true. Nixon, 690 S.W.2d at 548-49.

I

The import-export clause of the United States Constitution provides:

No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws....

U.S. CONST. art. 1, § 10, cl. 2.

Historically, the United States Supreme Court decided import-export clause challenges by focusing on the nature of the goods, that is, whether the tax-burdened goods were imports or exports. Under the "original package" doctrine, goods were deemed to be imports, and hence immune from state and local taxation, as long as they retained their original form or package of import. Low v. Austin, 80 U.S. 29, 34, 20 L.Ed. 517 (1871) (holding that French champagne, which had been stored in its "original cases, unbroken and unsold" since its importation, was immune from a nondiscriminatory state property tax); see also Anglo-Chilean Nitrate Sales Corp. v. Alabama, 288 U.S. 218, 53 S.Ct. 373, 77 L.Ed. 710 (1933); Hooven & Allison Co. v. Evatt, 324 U.S. 652, 65 S.Ct. 870, 89 L.Ed. 1252 (1945).

Whereas the original package doctrine applied to imports, the "stream of export" doctrine controlled exports. ¹ Under this doctrine, goods are not subject to state taxation once exportation has commenced, which occurs when goods "have been shipped, or entered with a common carrier for transportation to another State, or have been started upon such transportation in a continuous route or journey." Coe v. Errol, 116 U.S. 517, 527, 6 S.Ct. 475, 478, 29 L.Ed. 715 (1886). The mere intent to export is not enough, Empresa Siderurgica v. County of Merced, 337 U.S. 154, 157, 69 S.Ct. 995, 997, 93 L.Ed. 1276 (1949); the goods must begin their "physical entry into the stream of exportation." Kosydar v. National Cash Register Co., 417 U.S. 62, 71, 94 S.Ct. 2108, 2114, 40 L.Ed.2d 660 (1974); see also Richfield Oil Corp. v. State Bd. of Equalization, 329 U.S. 69, 81-83, 67 S.Ct. 156, 162-64, 91 L.Ed. 80 (1946). Once exportation has begun, goods retain their "export" status, and thus remain exempt from state taxation as long as they are in transit. Temporary interruptions "due to the necessities of the journey or for the purpose of safety and convenience in the course of the movement" do not break the continuity of transit; however, stoppages that serve the owner's business purpose interrupt the goods' continuity of transit, rendering them subject to the taxing power of the state. Minnesota v. Blasius, 290 U.S. 1, 9-10, 54 S.Ct. 34, 36-37, 78 L.Ed. 131 (1933). The continued validity of the stream of export doctrine is of prime importance in this case.

In the seminal case of Michelin Tire Corp. v. Wages, 423 U.S. 276, 301, 96 S.Ct. 535, 548, 46 L.Ed.2d 495 (1976), the United States Supreme Court altered its approach to import-export clause challenges and rejected the original package doctrine of Low v. Austin. See generally Walter Hellerstein, Michelin Tire Corp. v. Wages: Enhanced State Power to Tax Imports, 1976 SUP.CT.REV. 99 (explaining Michelin ). The issue in Michelin was whether Georgia could assess a nondiscriminatory ad valorem tax on imported goods held in the taxpayer's warehouse. Rejecting the argument that the tax was unconstitutional simply because it burdened goods in their original packages, the Michelin court concentrated on whether the tax offended any of the three policies underlying the import-export clause:

[ (1) ] the Federal Government must speak with one voice when regulating commercial relations with foreign governments, and tariffs, which might affect foreign relations, could not be implemented by the States consistently with that exclusive power; [ (2) ] import revenues were to be the major source of revenue of the Federal Government and should not be diverted to the States; and [ (3) ] 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.

423 U.S. at 285-86, 96 S.Ct. at 540-41 (footnotes omitted). Addressing the first of these concerns, the Court determined that the tax levied on the taxpayer's goods did not impede the federal government's power to speak with "one voice," explaining that:

[b]y definition, such [nondiscriminatory property taxation] does not fall on imports as such because of their place of origin. It cannot be used to create special protective tariffs or particular preferences for certain domestic goods, and it cannot be applied selectively to encourage or discourage any importation in a manner inconsistent with federal regulation.

Id. at 286, 96 S.Ct. at 541. Nor, the Court held, did the tax offend the second policy concern, which implicates only the federal government's right to the revenue raised from taxes...