Appeal from the 334th District Court Harris County, Texas
Trial Court Case No. 2013-61450
consists of Justices Keyes, Higley, and Lloyd.
Russell Lloyd Justice
an appeal of the trial court's judgment on a petition for
judicial review of an order of Harris County Appraisal
District's ("HCAD") Appraisal Review Board
denying Harris County's challenge to the granting of a
property tax exemption on certain inventory owned by PRSI
Trading, LLC ("PRSI"). Harris County contends that
the trial court erred in denying its motion for summary
judgment and granting PRSI's and HCAD's cross-motions
for summary judgment because PRSI's inventory is not
exempt from ad valorem taxation under applicable federal law.
We reverse and render.
Foreign Trade Zones
trade zones ("FTZs") are areas under the
supervision of United States Customs and Border Protection
("CBP") that are considered outside the customs
territory of the United States for purposes of payment of
customs duties. See 75th Annual Report of Foreign
Trade Zones Board to the Congress of the United States.
Authority for establishing these areas is granted to the
Foreign Trade Zones Board ("FTZ Board") pursuant to
the Foreign Trade Zones Act of 1934 ("the Act") and
the FTZ Board's regulations. See 19 U.S.C.
§ 81a-u (2012); 15 C.F.R. § 400.3 (2017). The FTZ
Board also has the authority to approve "subzones,
" which are special purpose zones established as part of
a zone project for a limited purpose that cannot be
accommodated within an existing zone, and that enjoy the same
status as goods held in an FTZ. See 15 C.F.R. §
400.3(a)(2) (2017), 19 C.F.R. § 146.1(b) (2016).
Putting a zone into operation is a two-stage process.
See Foreign Trade Zones Manual, at ¶ 4.1
(2011). First, the FTZ Board must approve a grant to
establish, operate, and maintain the zone. Id.
Second, CBP must approve activation to allow merchandise to
be admitted to the zone in zone status. Id. In order
for the zone to be activated, the operator of the zone must
obtain approval of the grantee, in this case, the Port of
Houston and the port director. 19 C.F.R. § 146.6(e)
1983 amendment to the Act, goods held in an FTZ for export
out of the United States are exempt from state and local ad
valorem taxation. See 19 U.S.C. § 81o(e)
(2012). This exemption is commonly referred to as an
"FTZ exemption." Under Texas Tax Code section
11.12, "[p]roperty exempt from ad valorem taxation by
federal law is exempt from taxation." Tex. Tax Code Ann.
§ 11.12 (West 2015).
Factual and Procedural History
1995, the FTZ Board created Subzone 84-N in favor of its
original operator, Crown Central Petroleum Corporation
("Crown"). Subzone 84-N covers the refinery located
at 111 Red Bluff Road and 1200 Red Bluff Road, in Pasadena,
Texas. Crown entered into an agreement with Harris County,
insuring that the county would not oppose the subzone.
2004, the refinery was sold to Pasadena Refining System,
Inc., a Delaware corporation ("PRSI(DE)"). At the
time it purchased the refinery, PRSI(DE) was a wholly owned
subsidiary of Astra Refining System, Inc. which was a wholly
owned subsidiary of Astra Holding USA. Astra Holding USA,
Inc., in turn, was a wholly owned subsidiary of Astra Oil
January 21, 2005, PRSI(DE) entered into an agreement with the
Port of Houston, the grantee of Subzone 84-N, authorizing
PRSI(DE) to operate Subzone 84-N for the manufacturing,
blending, and storage of petrochemicals and other related
products at the refinery. On February 4, 2005, PRSI(DE)
requested that CBP approve it as a new operator of Subzone
84-N, subject to the concurrence of the Port of Houston. The
Port of Houston concurred with PRSI(DE)'s request and, on
February 20, 2005, CBP approved PRSI(DE) as the new operator
of Subzone 84-N. Harris County did not know of nor approve of
this new operator designation.
August 2006, PRSI(DE) was merged into its parent, Astra
Refining System, Inc. which was simultaneously merged into
its parent, Astra Holding USA, Inc. Astra Holding USA, Inc.
subsequently changed its name to Pasadena Refining System,
Inc., a Connecticut corporation ("PRSI(CT)").
August 2006, PRSI(CT) submitted an application to CBP asking
that it approve PRSI(CT) as a new operator of the FTZ. In a
letter dated February 15, 2008, CBP advised PRSI(CT) that it
needed to obtain a letter of concurrence from the Port of
Houston for approval to be granted. CBP did not approve
April 7, 2008, PRSI(CT) filed a statement with CBP changing
its position and asserting that it was not a new operator of
Subzone 84-N and that it did not require an activation
pursuant to 19 C.F.R. § 146.6. On April 29, 2008, the Port
of Houston advised CBP that if it required a letter of
concurrence from the Port of Houston, then the Port of
Houston would first need a "letter of
non-objection" from Harris County, and it had not yet
received such a letter. Despite this uncertainty over the zone,
PRSI requested, and CBP granted, PRSI month-to-month
extensions of time to operate Subzone 84-N between April 18,
2008 and March 27, 2013.
on September 21, 2009, CBP issued a letter ruling in which it
Pasadena Refining DE, the operator of Subzone 84-N, ceased to
exist on August 29, 2006, and Pasadena Refining CT is a new
entity for purposes of determining whether it is a new zone
operator. Therefore, in Pasadena Refining CT's
application for approval of what must be an activation,
Pasadena Refining CT must provide a letter of concurrence
from the [Port of] Houston Authority, the zone grantee,
before CBP will approve the activation.
5, 2010, PRSI(CT) requested that CBP reconsider its
determination. As it had done in its original request for
approval, PRSI(CT) argued in its request for reconsideration
that, as a result of the merger, it had succeeded, as a
matter of state law, to the operator status of PRSI(DE) and
could not be a new operator.
On April 12, 2013, CBP issued a second letter ruling,
reaffirming its holding:
The CBP Regulations and the [Foreign Trade Zone Manual]
require that new FTZ operators be approved prior to operating
a zone. . . . [S]ince Pasadena DE ceased to exist, CBP's
approval to operate the FTZ also ceased. Pasadena CT[, ]
therefore, must be a new operator. This new operator must
apply for approval to operate the FTZ.
6, 2013, the Port of Houston notified CBP that it continued
to decline to approve of PRSI(CT) as a new subzone operator,
and it requested deactivation of Subzone 84-N. On ...