Haynes and Boone's Newsroom

Lynne Liberato May Face U.S. Supreme Court Regarding Taxability of Moving Crude Oil
12/29/2010

Midland Central Appraisal District Sends Petition to Supreme Court
Midland Reporter-Telegram

A petition will be filed today with the U.S. Supreme Court regarding the Midland Central Appraisal District's ability to tax crude oil at the Midland Tank Farm.

Judges in Midland and at the state's 11th Court of Appeals ruled earlier the oil could not be taxed. In October, the Texas Supreme Court denied a motion for re-hearing, which gave the appraisal district through the end of the year to file a petition with the U.S. Supreme Court. 

At issue is whether barrels of crude oil being stored at the Midland Tank Farm are subject to property taxes. 

"The facilities pay local taxes. The issue here is whether the oil that's passing through Midland should be taxed," said Lynne Liberato, with Haynes and Boone LLP. "Typically, under the law, if a product is passing through a community it is not taxed."

Those with the Midland Central Appraisal District argue that while the oil is en route to somewhere else, the tanks are continually full and should be susceptible to taxes.

Liberato said the facility itself already does pay taxes. However, she said, the crude oil typically is taxed when it's taken out of the ground and when it reaches its final destination -- not in the middle, which is what would occur if taxed in Midland County. Just like automobiles being moved on a flatbed truck aren't taxed when they pass through a community, she said they think Texas "got it right" in ruling oil can't be taxed while in transit either.

"Even though some has to stay there all the time, that's still a part of facilitating the movement," she said, adding the tanks have to have some oil in them at all times to remain functioning. "We have two very different courts of appeals who have held the oil or the gas is not taxable. It seems highly unlikely another court would decide differently."

This article has been excerpted from Midland Reporter-Telegram. To view the complete text, click here.