Texas Supreme Court Confirms that Commerce Clause Does Not Prohibit Levying of Property Taxes on Stored Natural Gas


Will the U.S. Constitution’s Commerce Clause always insulate interstate commerce from the imposition of state and local taxes? Not always, as the Texas Supreme Court recently confirmed, when it agreed with the Court of Appeals for the First District of Texas, that Texas counties are permitted to levy property taxes on natural gas held in storage in Texas while awaiting future resale and shipment to out-of-state consumers. The case is ETC Marketing, Ltd. v. Harris County Appraisal District. Affirming the Court of Appeals, the Court rejected the argument that taxing the temporary storage of natural gas conflicts with the Commerce Clause in the U.S. Constitution.

Applying the test developed by the U.S. Supreme Court in Complete Auto Transit, Inc. v. Brady, the Texas Supreme Court held that this action passes constitutional muster because the tax is fairly apportioned, does not discriminate against interstate commerce, applies to an activity with a substantial nexus with the State of Texas and is fairly related to the services provided by the State of Texas. Accordingly, the taxing authority’s decision to appraised the value of approximately 33 billion cubic feet of natural gas was upheld.

However, Chief Justice Hecht dissented, remarking that [g]Gas storage is integral to interstate transportation as a matter of fact. To hold as the Court does that storage of gas to facilitate its interstate shipping is nothing more than a shipper’s business choice directly contradicts not only the Supreme Court, but … the Federal Energy Regulatory Commission, and most importantly, the laws of physics.”