Trafigura Trading LLC v. United States

29 F.4th 286

TRAFIGURA TRADING LLC, Plaintiff—Appellee,

v.UNITED STATES of America, Defendant—Appellant.

No. 21-20127

United States Court of Appeals, Fifth Circuit.

FILED March 24, 2022

Steven Jon Knight, Lawrence W. Sherlock, Esq., Chamberlain Hrdlicka, Houston, TX, Michael J. Haungs, Esq., Supervisory Attorney, U.S. Department of Justice, Tax Division, Appellate Section, Washington, DC, for Plaintiff-Appellee.

Judith Ann Hagley, Esq., Francesca Ugolini, U.S. Department of Justice, Tax Division, Appellate Section, Washington, DC, Manuel Paul Lena, Esq., U.S. Department of Justice Tax Division, Dallas, TX, for Defendant-Appellant.

Before Wiener, Graves, and Ho, Circuit Judges.

James C. Ho, Circuit Judge:^*

Alexander Hamilton was non-stop. There were a million things he wanted done. So when he was chosen for the Constitutional Convention, he spoke like he was running out of time. He talked for six hours. The Convention was listless. And among his ideas was the power to tax exports.

But the Southern states feared export taxes would disproportionately harm their economies. They worried Congress would tax them relentlessly, and then turn around and run a spending spree. They knew that, if Congress could tax exports, it would not be a question of if, but of which one.

So they demanded a categorical ban on export taxes. They knew they would have to holler just to be heard. But they would rather be divisive than indecisive. So they didn't throw away their shot. They made an all-out stand: No ban on export taxes, no Constitution.

Northern delegates expressed their disgust—but the South's agenda was there discussed. The North wanted to tax exports and regulate commerce. But the South wanted neither. The delegates were diametrically opposed—foes. But they took a break. And they eventually emerged with a compromise, having open doors that were previously closed: The federal government could regulate commerce, but not tax exports.

The compromise no doubt frustrated many citizens. But they had no say in what their leaders traded away—they weren't in the room where it happened. A group of delegates suggested another approach—export taxes only if approved on a super-majority vote—hoping that would be enough. But the South was not satisfied. It worried that, if it stood for nothing, what would it fall for? So rather than wait for it, they let the proposal burn.

Ultimately, though, Hamilton got more than he gave. And he wanted what he got. But as for the power to tax exports, he was helpless.

As a result, the Constitution forbids Congress from taxing exports. And that resolves this case. The federal government insists that Trafigura Trading must pay a tax on domestic crude oil that it exports from the United States. But the district court said no to this. We affirm.¹

I.

The Constitutional Convention began in Philadelphia on May 25, 1787. 1 Max Farrand, ed., THE RECORDS OF THE FEDERAL CONVENTION of 1787, at 1 (1966). Hamilton did not speak during the first few weeks of the Convention. But "[i]t was predictable that when the wordy Hamilton broke silence, he would do so at epic length." Ron Chernow, ALEXANDER HAMILTON 231 (2004). "On Monday morning, June 18, the thirty-two-year-old prodigy rose first on the convention floor and in the stifling, poorly ventilated room he spoke and spoke and spoke. Before the day was through, he had given a six-hour speech (no break for lunch) that was brilliant, courageous, and, in retrospect, completely daft." Id.

In that speech, Hamilton set forth his vision for a strong central government, armed with a number of powers that had been omitted in the Articles of Confederation. In particular, he was the first delegate to suggest that the new federal government should have a broad power to tax that would specifically include exports: "Whence then is the national revenue to be drawn? from Commerce, even {from} exports which notwithstanding the common opinion are fit objects of moderate taxation." 1 Farrand, supra , at 286.

The power to tax exports was endorsed by a number of fellow delegates. James Madison agreed that "the power of taxing exports is proper in itself, and as the States cannot with propriety exercise it separately, it ought to be vested in them collectively." 2 Farrand, supra , at 306. Gouverneur Morris likewise affirmed that "[t]axes on exports are a necessary source of revenue." Id. at 307. James Wilson was also "decidedly agst prohibiting general taxes on exports," id. , for "[t]o deny this power is to take from the Common Govt. half the regulation of trade," id. at 362.

But Southern delegates were firmly opposed to export taxes. The South was the nation's primary exporter, so any federal export tax would disproportionately burden Southern states. See, e.g. , Erik M. Jensen, The Export Clause , 6 FLA. TAX REV. 1, 8 (2003). Southerners feared that the North would control the majority of seats in both Houses of Congress, and would use that power to aggrandize itself at the South's expense by taxing exports. As George Mason put it, "a majority when interested will oppress the minority.... If we compare the States in this point of view the 8 Northern States have an interest different from the five Southn. States, — and have in one branch of the legislature 36 votes agst 29. and in the other, in the proportion of 8 agst 5." 2 Farrand, supra , at 362.

So a number of Southern delegates voiced firm opposition to the Constitution unless it explicitly prohibited taxes on exports. Charles Pinckney warned that, "if the Committee [of Detail] should fail to insert some security to the Southern States agst.... taxes on exports, he shd. be bound by duty to his State to vote agst. their Report." Id. at 95. His fellow South Carolina delegate Pierce Butler likewise made clear that "he never would agree to the power of taxing exports." Id. at 374.

Northern delegates soon appreciated that, as Roger Sherman of Connecticut put it, "[a] power to tax exports would shipwreck the whole." Id. at 308.

There would be no Constitution, then, unless the delegates reached a compromise on the question of export taxes. They did so by trading the power to tax exports for the power to regulate commerce. Specifically, the South wanted to prohibit export taxes and impose a super-majority voting rule for commercial regulations, while the North wanted to permit export taxes and require only a simple majority to regulate commerce. See Ben Baack et al., Constitutional Agreement During the Drafting of the Constitution: A New Interpretation , 38 J. LEGAL STUD. 533, 546–47 (2009). So a deal was struck: A group of Northern delegates agreed that they would vote to prohibit export taxes, and in return, a group of Southern delegates agreed that they would vote for the simple majority rule for regulations of commerce. Id. at 541 (citing sources).

When the Convention returned to these topics for a final vote, a group of delegates tried to revive the power to tax exports. They proposed a super-majority voting rule for export taxes, "requiring the concurrence of 2/3 or 3/4 of the legislature in such cases." 2 Farrand, supra , at 359. Madison formally moved "to require 2/3 of each House to tax exports — as a lesser evil than a total prohibition." Id. at 363. But the proposal failed, with every Southern delegation voting in the negative. Id. Another proposal would have allowed export taxes for the purpose of regulating trade, while prohibiting such taxes "for the purpose of revenue." Id. But that too failed. Id.

The Convention eventually adopted the language that now appears in Article I, Section 9 of the Constitution: "No Tax or Duty shall be laid on Articles exported from any State." U.S. CONST. art. I, § 9, cl. 5.

The Supreme Court has repeatedly recognized the importance as well as the breadth of the Export Clause. As the Court observed in one of the primary precedents we examine today, "the Export Clause categorically bars Congress from imposing any tax on exports." United States v. U.S. Shoe Corp. , 523 U.S. 360, 363, 118 S.Ct. 1290, 140 L.Ed.2d 453 (1998). "[T]he Export Clause allows no room for any federal tax, however generally applicable or nondiscriminatory, on goods in export transit." Id. at 367, 118 S.Ct. 1290. It is a "simple, direct, unqualified prohibition" on any tax on exports. Id. at 368, 118 S.Ct. 1290. See also Fairbank v. United States , 181 U.S. 283, 290–93, 21 S.Ct. 648, 45 L.Ed. 862 (1901) (observing that it is "obvious" from the text and history of the Export Clause "that the National Government should put nothing in the way of burden upon ... exports"); A.G. Spalding & Bros. v. Edwards , 262 U.S. 66, 70, 43 S.Ct. 485, 67 L.Ed. 865 (1923) (recognizing that exports enjoy "liberal protection" from taxation); United States v. Int'l Bus. Machs. Corp. , 517 U.S. 843, 860, 116 S.Ct. 1793, 135 L.Ed.2d 124 (1996) ("there is substantial evidence from the [Convention] Debates that proponents of the Clause fully intended the breadth of scope that is evident in the language").²

II.

Trafigura Trading is a commodity trading company that purchases and exports crude oil from the United States. Between 2014 and 2017, Trafigura exported around 50 million barrels of crude oil from oilfields in Texas, Louisiana, and North Dakota. Trafigura remitted over $4 million to the IRS for these exports, as required by 26 U.S.C. § 4611(b). That provision imposes a "tax"—at a rate of 8 or 9 cents per barrel, depending on the year—on domestic crude oil "used in or exported from the United States." Id. § 4611(b) – (c)(2)(B).

Proceeds from § 4611(b) go to the Oil Spill Liability Trust Fund. See id. § 9509(b)(1). The Fund serves several functions.

To begin with, the Fund operates "much like insurance for the oil transportation industry": Parties pay into the Fund via § 4611(b), and if they are ever liable for the cleanup costs of an oil spill under 33 U.S.C. § 2702, the Fund reimburses them for all expenses above a statutory cap. In re Frescati Shipping Co. , 886...