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Lynne Liberato Says Supreme Court Could Set Precedent on Oil Tank Taxation
03/25/2011

Local Appraisal Districts to Hear Oil, Gas Want Cases
Fort Worth Business Press

Appraisal districts from Tarrant, Collin and Dallas counties are among those that have filed briefs urging the U.S. Supreme Court to hear two Texas lawsuits concerning taxability of oil and gas in tank farms.

Dallas filed its amicus curiae (friend of the court) brief, cosigned by Tarrant, Collin and other counties, on behalf of the plaintiff in Midland Central Appraisal District v. BP American Production Co. The case centers on taxability of oil in the Midland Tank Farm.

Appraisal districts from across Texas and the country have filed friend of the court briefs in a related case concerning taxability of gas in underground storage tanks. That case is Harrison Central Appraisal District v. The Peoples Gas, Light and Coke Co.

In both cases, Texas appeals courts concluded that the oil and gas were exempt from ad valorem tax under the dormant commerce clause because the product remained in interstate transit. The Texas Supreme Court declined to revisit the cases. Plaintiffs have petitioned for a writ of certiorari from the U.S. Supreme Court, asking it to hear both cases. The top court will indicate as early as mid-April or as late as this fall whether it agrees to hear them. Only one percent of cases are typically accepted by the Supreme Court, but the issues under dispute could be considered legally “ripe” and deserving of consideration.

The Midland suit focuses on tax years 2003 and 2004, with lawsuits for subsequent years pending. About $3 million in taxes per year are at stake, said Midland’s lead counsel, D. Kirk Swinney of McCreary, Veselka, Bragg and Allen PC. The exact amount changes annually based on the price of oil, amount of oil in the tank farm and the tax rate. According to Swinney, Midland Tank Farm can hold up to about 6 million barrels of oil. Each barrel is equivalent to 42 gallons. When the appraisal district has inventoried the premises, the tank farm had held between 1 million and 5.8 million barrels of oil.

“Getting the Supreme Court to hear a case is always a long shot,” said Lynne Liberato of Haynes and Boone LLP, who will represent the oil companies if the high court agrees to hear the case. “From a technical standpoint, the Supreme Court will just decide this case, but the decision they make will affect how courts proceed in other years. It sets precedent.”

“Our position, and the position that been adopted by all courts it was presented to in Texas, is that the mere presence of oil there at all times is just to facilitate transit,” said Liberato. “The oil is not stored there. The oil that remains there is solely to allow the oil to pass through the tank farm and ultimately on to the refineries. The companies that own the pipelines and tank farm already pay taxes. Our companies are shippers that move oil.”

Excerpted from Fort Worth Business Press.