The Texas Court of Appeals held that crude oil stored in tank farms in San Patricio County solely for export to foreign buyers was constitutionally immune from county ad valorem taxation under the Import-Export Clause of the U.S. Constitution. The court concluded the oil constituted property in the stream of export overseas and therefore could not be taxed by the county.
The taxpayers, two affiliated U.S. entities of a foreign parent, sold crude oil exclusively to non-U.S. buyers. To fulfill those sales, the taxpayers transported crude oil via a third-party pipeline to export tanks in San Patricio County, where the crude oil was temporarily stored before being loaded onto vessels and shipped overseas. At no point was the oil sold into, or diverted to, the domestic market.
Affirming the trial court’s decision, the Court of Appeals relied on U.S. Supreme Court and Texas Supreme Court precedent recognizing bright‑line constitutional immunity for property in the stream of export. The court emphasized that the oil’s foreign destination was fixed and irrevocable. The taxpayers’ sales contracts were exclusively with foreign buyers, and the oil was transported to San Patricio County solely to facilitate export. The temporary storage of the oil in export tanks was not a break in transit, but a necessary and integral step in the export process – allowing the oil to await vessel availability and loading for overseas shipment. Because the record established that the oil was committed to foreign export and never entered, or was capable of entering, the domestic market, the court held that San Patricio County was constitutionally prohibited from imposing ad valorem tax on the oil.