District Court Rightly Struck Down Crude Oil Export Tax, Commodities Trader Argues in 5th Circuit

The U.S. District Court for the Southern District of Texas properly struck down the crude oil export tax under 26 U.S.C. Section 4611(b) as unconstitutional, commodity trading and logistics house Trafigura Trading said in its July 30 brief to the U.S. Court of Appeals for the 5th Circuit. The tax on crude oil exports violates the U.S. Constitution's Export Clause banning any taxes on exports, the company said. As a result, the district court appropriately awarded Trafigura a $4.2 million refund for its taxes paid, the company said (Trafigura Trading LLC v. U.S., 5th Cir. #21-20127).

In its appeal to the 5th Circuit, the U.S. is arguing the tax is not a tax but a user fee, allowing it to coexist with the Export Clause. However, user fees have two distinct characteristics: they cannot be proportionate to the quantity or value of the export and they must stand as compensation for a service rendered and not exceed the costs the U.S. incurred in providing the service to the exporter, Trafigura said. The crude oil export tax violates both, the company said, making it impossible for it to be characterized as a user fee.

“Here, the amount of the § 4611(b) export tax is directly proportional to the quantity of the export and is determined by multiplying a set rate (8 or 9 cents) by the quantity measured in barrels -- a unit of measurement that coincides with 42 United States gallons,” the brief said. “Additionally, the amount of the § 4611(b) export tax does not correlate with any cost incurred by the Government in providing a service to the taxpayer in exchange for the tax. Indeed, the primary beneficiaries of the Fund are the parties that have been damaged by a responsible party’s oil spill. Trafigura, as the taxpaying exporter, derives no Government service or benefit in exchange for its payment of taxes and certainly not to the tune of $4.2 million.”