HOUSTON – (BUSINESS WIRE) – In a federal tax refund case with significant implications for the oil and gas industry, Trafigura Trading, LLC, a market leader in the global commodities industry, has retained Chamberlain Hrdlicka to challenge the constitutionality of 26 USC § 4611 (b), which imposes a “tax on. . . domestic crude oil. . . exported from the United States. These taxes are one source of funding for the Oil Spill Liability Trust Fund, enacted under the 1990 Oil Pollution Act. For the fiscal periods in question, Trafigura paid more than $ 4.2 million in taxes on its crude oil exports. After being denied a refund by the Internal Revenue Service, Trafigura filed a lawsuit in the Southern District of Texas.
Trafigura argued that Section 4611 (b) violates the export clause of the United States Constitution, which states: “No tax or duty will be imposed on items exported from any state. The government did not dispute that Trafigura paid the taxes, but argued that Section 4611 (b), although labeled as a tax, is a user charge paid by exporters in exchange for legal liability. capped under the 1990 Oil Pollution Act. fee instead of a tax, the government argued, the export clause would not prohibit the tax.
The Supreme Court’s guidelines on the user fee defense are found in two distinct cases. In Pace v. Burgess, enacted in 1875, Congress imposed an excise tax on tobacco and enacted a complementary provision exempting tobacco intended for export. To identify these exempt packages, exporters had to pay 25 cents in exchange for a stamp they could affix to the package. The court held that the tax was a user fee because the price of the stamp did not fluctuate with the quantity or value of the export and the tax closely approximated the cost of providing the stamp.
This was not the case in United States v. US Shoe Corp., where in 1998 the Court struck down a port maintenance tax on commercial exports as unconstitutional under the export clause. Unlike the charge of 25 cents in Pace, the port maintenance tax fluctuated with the quantity or value of the export and did not closely approximate the costs of providing port maintenance services to the taxpayer.
On September 8, 2020, the Court determined that Section 4611 (b) is an unconstitutional export tax because the amount of the tax varies depending on the amount of crude oil exported, and “the charges do not equitably reflect the use by the exporter of the services provided by the funds withdrawn from the charges. The court adjourned its decision on the remedy.
Trafigura is represented by attorneys for Chamberlain Hrdlicka, Steven J. Knight, Senior Counsel and Chairman of the Firm’s Appeals Office, Lawrence W. Sherlock, Co-Chairman of the Firm’s Tax Controversy, and Peter A. Lowy, Co-Chairman of the Firm. State cabinet and local tax controversy and planning practice.
About Chamberlain Hrdlicka
Chamberlain Hrdlicka is a diverse business law firm with offices in Houston, Atlanta, Philadelphia and San Antonio. The company represents both public and private companies, as well as individuals and family businesses across the country. The firm provides advice on civil appeals, litigation, tax planning and tax controversy, corporate, securities and finance, energy law, estate planning and administration, intellectual property, international and immigration law, commercial and business litigation, real estate and construction law. For more information visit: www.chamberlainlaw.com.