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Harris County v. Harris County Appraisal District & Prsi Trading, LLC

Court of Appeals of Texas, First District

June 22, 2017

HARRIS COUNTY, Appellant
v.
HARRIS COUNTY APPRAISAL DISTRICT AND PRSI TRADING, LLC, Appellees

          On Appeal from the 334th District Court Harris County, Texas Trial Court Case No. 2013-61450

          Panel consists of Justices Keyes, Higley, and Lloyd.

          OPINION

          Russell Lloyd Justice

         This is 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").[1] 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.

         Background

         A. Foreign Trade Zones

         Foreign 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) (2016).

         Under a 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).

         B. Factual and Procedural History

         In 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.

         In 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 Trading NV.

         On 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.

         In 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)").

         In late 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 PRSI(CT)'s application.

          On 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.[2] 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.[3] 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.

         However, on September 21, 2009, CBP issued a letter ruling in which it held that

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.

          On May 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.

         On May 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 ...


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