Two recent decisions have addressed whether ad valorem tax can be imposed on stored natural gas, for use outside of the taxing state. See ETC Mktg, Ltd. v. Harris County Appraisal Dist., 01-12-00264 (Tex. Ct. App. 2014); In re Various Applicants for Exemption from Prop. Tax., 313 P.2d 789, 799 (Kan. 2013), cert. denied Missouri Gas Energy v. Kansas, 13-1216 (2014). These decisions, however, have overlooked (at best) and may have even rejected (at worst) the constitutional principle that goods in interstate commerce, where there is continuity of transit, are not subject to taxation. Instead, both courts found that there is “substantial nexus” to impose ad valorem taxation on the property solely because the natural gas is present in the jurisdiction on the date of the assessment of tax.
In both cases the natural gas was stored to permit natural gas marketing companies to “time the market,” that is, wait until the natural gas can be sold for the highest price. Other courts have also found that the natural gas was taxable under similar facts (although not simply because of a physical presence). See e.g., Enterprise Products Co. v. Whitman, No. 13654 (La. App. 2 Cir. 10/30/1978); 364 So. 2d 634. Therefore, while the outcome of each case may be correct, the analysis conducted by each court is suspect.
In fact, in one case, ETC Marketing, the Texas Court of Appeal stated that even assuming the natural gas was in interstate commerce, the stored natural gas was subject to ad valorem tax. Such position plainly ignores the goods in transit doctrine. The second decision from the Kansas Supreme Court, where the United States Supreme Court denied certiorari on October 6, 2014, reached the same result, but side-stepped any goods-in-transit examination. In re Various Applicants for Exemption from Prop. Tax., 313 P.2d 789, 799 (Kan. 2013), cert. denied Missouri Gas Energy v. Kansas, 13-1216 (2014).
As such, despite the outcome in each case, the simple absence of any discussion by both courts on the “goods-in-transit” doctrine is a worrisome trend. These cases certainly raise questions of whether courts will now interpret “substantial nexus” as merely presence.