**- ”**  **.JIX MATI-OX**  December 12, 1990 xl"romNEYDESERAL

, Honorable Bob Bullock

Comptroller of Public Opinion No. JM-1258

Accounts L.B.J. Office Building Austin, Texas 78774 Re: Validity of import fees
onbarges pursuant to section 26.3574 of the Water Code (RQ-2039)

DearMr. Bullock:
Chapter 26 of the Water Code sets forth comprehensive regulatory provisions regarding water quality control in this state. Subchapter Iof chapter 26governs the registration and regulation of operators of underground and aboveground storage tanks that contain certain hazardous, toxic, or otherwise harmful substances.

In 1989 the legislature enacted abill that, inter alia -I amended subchapter I, creating a petroleum storage tank remediation fund and a storage tank fund in the state treasury for the cleanup of releases from certain petroleum storage tanks and tanks containing regulated substances, as defined by the act. Acts 1989, 71st Leg., ch. 228, 55 16, 18,at 1015, 1020. See aenerally Attorney General Opinion JM-963 (1988). Thepetroleum storage tank remediation fund consists, inpart, of fees imposed by section 26.3574 of the Water Code. Water Code § 26.3573(b)(2).

You askwhether, in light of our holding in Attorney General Opinion JR-714 (1987), the import fee imposed on barges pursuant to subsection (d)of section 26.3574 of the Water Code is "invalid." In Attorney General Opinion JM-714, we concluded that a proposed amendment to the petroleum severance taxprovisions of the Tax Code that would have imposed a tax on imported petroleum would violate the commerce clause of the United States Constitution. Therefore, weunderstand you to askwhether section 26.3574 of theWater Code also violates the commerce clause. We conclude that itdoes. We do notunderstand you to ask about, and accordingly we donot address, other constitutional provisions, specifically theprivileges and immunities and equal protection clauses of the federal Constitution. Wewill firstdiscuss the relevant Water Code provisions. Then wewill discuss United States Supreme Court

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Honorable Bob Bullock -Page 2 (JM-1258)

cases regarding state regulation that affects interstate
commerce.
Section 26.3573 of theWater Code creates in the state treasury thepetroleum storage tank remediation fund, which consists, inpart, of fees charged under section 26.3574 of theWater Code. Section 26.3574 of theWater Code provides inpertinent part:

(a) In this section:

(1) 'Bulk facility' means a facility, including pipeline terminals, refinery terminals, rail and barge terminals, and associated underground and aboveground tanks, connected or separate, from which petroleum Droducts arewithdrawn frombulk and delivered intoacarao tank or abarae used to transDort those Droducts. This term does not include petroleum products consumed atan electric generating facility.

(2) 'Cargo tank' means an assembly that isused.for transporting, hauling, or delivering liquids and that consists of a tank having one or more compartments mounted on a wagon, truck, trailer, railcar, orwheels.

(3) 'Withdrawal from bulk' means the removal of apetroleum product from abulk facility storage tank fordeliverv directlv into a carao tank or abarae to be transported to another location other than another bulk facility fordistribution or sale inthis state.
(b) A fee is imDOSed on the deliverv of a petroleum Droduct onwithdrawal frombulk of that DrOdUCt asDrovided bv this subsection. Each operator of a bulk facility on withdrawal frombulk of apetroleum product shall collect from theperson who orders the withdrawal a fee in an amount determined as follows:
[sets forth graduated schedule of fees based upon tank size for 'each delivery into a carao tank' but omits any reference to a delivery into abarge]

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.

. . . . (d) A Derson ho imDorts aDetroleu Droduct ina carao &k ora barae destyned for deliverv into an underaround or abovearound storaae tank, regardless of whether or not the tank is exempt from regulation under Section 26.344 of this code [which sets forth exemptions from the regulation provisions of the subchapter], other than a storage tank connected to or part of a bulk facility in this state, shall Dav to the comDtroller a fe 0 the number of aallons imDorted cozputid asprovided by Subsections (b),and (c)of this section. If a bulk facilitv ODerator imDorts a Detroleum Droduct in a carao tank or abarae. the bulk facilitv oDerator isnot reouired toDav the fee on that imDOrted Detroleum DrOdUCt if the petroleum DrOdUCt is delivered to a bulk facilitv from which the Detroleum Droduct will bewithdrawn frombulk.

. . . . (f) Subsection (b)of this section does not apply to a delivery of apetroleum product destined for export from this state if the petroleum product is incontinuous movement to a destination outside this state. (Emphasis added.)
Thus, under subsection (d)of section 26.3574, aperson who imports1 inacargo tank orabarge apetroleum product destined for delivery into anunderground or aboveground storage tankwill pay a feebased upon the number of gallons imported when theproduct isdelivered. Ifan operator of a bulk facility imports apetroleum product ina cargo tank or

1. It isunclear whether theword 'qimport11 is intended only to reach petroleum products that enter Texas from another country, orpetroleum products that enter Texas from another state aswell. SeeAttorney General Opinion JM-714 (1987). Because it isuzkely that petroleum products from another country would be delivered to Texas inabarge, as opposed to a tanker, we think itreasonable that "import" .refers to interstate delivery ofapetroleum product. For purposes of this opinion, we assume that "import" refers to both foreign and interstate delivery.

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abarge, the bulk facility operator isnot required to pay the fee if the bulk facility into which the petroleum product isdelivered isone fromwhich the product ultimatelywill bewithdrawn. Under subsection (b),the fee effectively ispassed through.

Under subsection (b)of section 26.3574, anyperson who orders thewithdrawal ofa petroleum product from a bulk facility intoa cargo tank (but not into a barge) is required topay a fee to be collected by the operator of the bulk facility based upon the number ofgallons withdrawn when the product is delivered.2 The operator of a bulk facility will pay the fee only inan instance inwhich the petroleum product isnotwithdrawn.
Thus, under subsections (b)and (d),taken together, a person who orders a withdrawal from bulk of a petroleum product into acargo tank (butnot into abarge) is subject to the feewhen theproduct isdelivered. Similarly, a person who llimports"apetroleum product in either a cargo tank or a barge is subject to a feewhen theproduct is delivered. In otherwords, aperson who "imports" a petroleumproduct by barge from Louisiana will be subject to a feewhen theproduct isdelivered to anunderground storage

2. Based upon the omission of theword "barges" in the fee schedule set forth in subdivisions (1)through (5) of subsection (b), you construe subsection (b) not to reach operators of intrastate barges. We note that subsection (b)
can be construed to impose that fee on operators of intrastate barges or, inthe alternative, to impose a fee in
anunspecified amount on operators of intrastate barges.

Three arguments support that construction. First, that construction would comport with the evident legislative intent of imposing the delivery feeupon those persons who
aremost likely tobe involved,with a petroleum spill or leak. Second, the definitions of "bulk facility" and "withdrawal frombulk" set forth in subsection (a) include delivery of apetroleum product into abarge. Third, that construction will overcome serious constitutional objections to the statute. We are required to construe a statute, if it ispossible to.do so, inamanner that isconstitutional. A construction of subsecton (b) of section 26.3574 that imposes the delivery fee on operators of intrastate barges, inaddition to operators of intrastate cargo tanks, would
overcome equal protection and commerce clause challenges to the statute. However, for purposes of this opinion, we accept your construction.

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tank inGalveston; however, aperson who delivers apetroleumproduct bybarge from Texas City fordelivery to an underground storage tank inGalveston will not be subject to the fee.3 Weunderstand you to ask about the imposition of the feeon those persons who "import1 apetroleum product in
abarge. Weunderstand you to askwhether the imposition of the fee on only those persons who deliver interstate by barge, as opposed to those who deliver intrastate by barge, violates the commerce clause of theUnited States Constitution.

TheUnited States Constitution expressly reserves to the federal government the authority to regulate commerce with foreign countries, aswell as among the states. The
commerce clause provides: "TheCongress shall have Power

. . . To regulate commerce with foreign Nations, and among the several States, and with the Indian Tribes." U. S. Con&. art. I, 5 8, cl. 3.

The commerce clause has been interpreted not only as conferring power on the national government to regulate commerce, but also as limiting the states' powers to interferewith commerce. This restriction on state power often isreferred to as the "negative implication of the commerce clause" oras the "dormant commerce clause" principle. See. e.cr.,Wardair Canada. Inc.v. Florida **DeD ’** **t** ofRevenue, 477 U.S. 1 (1986). Under the dormant commerce clause, the United States Supreme Court has held unconstitutional a variety of state regulatory programs4 and taxation measures5
asunduly burdening commerce.

3. We note that a person who delivers a petroleum product by cargo tank, whether intrastate or interstate, is subject to the fee.

4. See, e.a., Great Atlantic &Pacific Tea Co. v. Cottrell, 424U.S. 366 (1976) (holdingunconstitutional a Mississippi regulation providing that out-of-state milk could be sold inMississippi only if theproducing state would accept Mississippi milk ona reciprocal basis); Pike
**V.** Bruce Church. Inc., 397 U.S. 137 (1970) (holding unconstitutional a state regulatory order prohibiting person from shipping cantaloupes outside the state unless they were packed in state-approved containers).

5. See, e.a Bacchus Imnorts. Ltd.v. Dias, 468U.S. 263 (1984)(holding'that a state tax onalcoholic beverages that exempted certain locally produced beverages was uncon- (Footnote Continued)

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InAttorney General Opinion JM-714, we concluded that a courtwould probably hold that aproposed amendment to the petroleum severance taxprovisions of the Tax Code ;",~z would have imposed a state tax onpetroleum imported other states would violate the commerce clause of the United States Constitution. Based .uponthe test enunciated in Comnlete Auto Transit, Inc.v. Brady, 43: i.S. 274 (1977), and the holding ofMarvland v. Louis.1n 451 U.S. 725 (1981),we predicted that acourt would hoid that such an import tax on petroleum would impermissibly burden interstate commerce. abutwe do not construe the fee imposed by section 26.3574 of theWater Code to impose an import tax on petroleum: therefore, Attorney General Opinion JM-714 does not control your question. In Attorney General Opinion JM-963 (1988),we concluded that aproposed delivery fee on petroleum products thatwas used to create a state cleanup fund inorder to comply with federal statutes was not a tax. Rather, we concluded that such an exaction would be imposed inconnection with the conferral of regulatory authority on the state and ismore closely analogous to a license fee.

The United States Supreme Court very early on distinguished under the commerce clause- the state power to tax from the state power to regulate commerce. Gibbons v. Oaden, 22U.S. (9Wheat.) 1, 199-200 (1824).6 The current

(Footnote Continued) stitutional): Boston Stock Exchanae v. State Tax Comm'n, 429 U.S. 318 (1977)(holding that New York transfer tax on securities transactions was unconstitutional because transactions involving out-of-state sales were taxed more heavily thanmost transactions involving a sale within the state).

6. In Gibbons, the Supreme Court struck down state-granted monopoly for the operation of steamboats tha: had the effect ofprohibiting the operation of a federally licensed steamboat inNew York waters. The court focused on the origin of thepower at issue,whether commerce power or police power, and distinguished the commerce power from the subject matter upon which that power operated. The court concluded thatwhile a state could not regulate "commerce" for its own sake, it might, in the pursuit of other legitimate state goals (suchas thepublic health and safety under thepolice power), take actions thatmight impinge to some extent upon-commerce upon the states.

InCoolev v. Board ofWardens, 53 U.S. (12How.) 299 (1851),the court set forth a test for commerce clause ad- (Footnote Continued)

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'. test employed by the Supreme Court indetermining whether a

state regulation violates the commerce clause isnot the four-prong test for state taxation schemes set forth in Cmnlete Auto Transit, sunra; instead, the court invokes a bglancing test first adopted * Southern Pacific Co. v. Arizona, 325U.S. 761, 768-71 (:t45).7
Essentially, the court has adopted what amounts to a two-tiered approach to state economic regulation under the
commerce clause. When a state statute directly regulates or discriminates against interstate commerce, or when its effect isto favor in-state economic interests over out-ofstate interests, the court generally has struck down the statute without further inquiry. See. e.a Brown-Forman Distillers Corn. v. New York State Liouor &h., 476 U.S. 573 (1986); Edaar v.MITE Corn., 457U.S. Hushes vi Oklahoma, 441 U.S.- 322 624 (1982); (1979); Citv of Philadelnhia v. New Jersey 437 U.S. 617 (1978). however. a statute has onl; indirect effects on When, interstate
commerce and regulates evenhandedly, the court has examined whether the state% burden is legitimate andwhether the burden on interstate commerce clearly exceeds the local benefits. Pikev. Bruce Church. Inc., 397U.S. 137 (1970). The court has also recognized that there isno clear line separating those sorts of state regulation that arevirtuallyper se invalid under the commerce clause and those sorts ofregulation subject to the ~ balancing approach. In either situation, the court focuses on the overall effect of the statute onboth local and interstate activity. BrownFor-manDistillers Corn.,y; Ravmond Motor Transn.. Inc.
v.Rice, 434U.S. 429 (1978).

(Footnote Continued) judication that lasted almost 100years. The court upheld a Pennsylvania law requiring ships entering or leaving the port of Philadelphia to engage a local pilot. The court sustained the act on the basis of a distinction between those subjects of commerce that demand a uniform rule throughout the country and those subjects that permit diversity of treatment inorder to satisfy local concerns.

7. The test was first formulated by Professor Noel T. Dowling in a seminal law review article. See Dowling, Interstate Commerce and State Power, 27 Va. L. Rev. 1 (1940).

8. Inother words, state regulation affecting interstate commerce typically will be upheld if (1) the regulation isrationally related to a legitimate state end, (Footnote Continued)

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Inthe leading case of Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), the court struck down anArizona regulatory order prohibiting aperson from shipping cantaloupes outside the state unless theywere packed in state-approved containers. The court declared:

Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, itwill be upheld unless the burden imposed on such commerce is clearly excessive inrelation to theputative local benefits.

. . . Ifa legitimate local purpose is found, then the question becomes
one ofdegree. And the extent of the burden that will be tolerated will of course depend
on the nature of the local interest involved, and onwhether it could bepromoted as well with a lesser impact on interstate activities.

Id. at 142; see also MITE Corn., suora (striking down an Illinois statue that directly regulated and prevented, unless the terns of the statute were satisfied, interstate tender offers): Lewis v. BT Investment Manaaers, Inc., 447 U.S. ,27 (1980) (striking down Florida statutory scheme prohibiting investment advisory services by bank holding companies with principal offices out of state); Hushes v. Oklahoma, suora (strikingdown Oklahoma statute pro;:;itiz; the export of natural minnows from the state): V Philadelphia v. New Jersev suora (strikingdown New Jersey statute prohibiting impor&tion of solid and liquid wastes into the state); Hunt v.Washinaton State Anole Advertisinq Comm'n, 432U.S. 333 (1977) (striking down North Carolina

(Footnote Continued) and (2) the regulatory burden imposed on interstate commerce, and anydiscrimination against it,are outweighed by the state interest in enforcing the regulation. See aenerallv Tribe, American Constitutional Law, ch. 6 (2nd ed. 1988); Rotunda, Nowak, 8 Young, Treatise on Constitutional Law: Substance and Procedure, ch. 11 (1986). See also Redish & Nugent, The Dormant Commerce Clause and the Constitutional Balance of Federalism, 87 Duke L.J. 569 (1987);Eule, Lavina the Dormant Commerce Clause to Rest, 91 Yale L.J. 425 (1982); Maltz, HowMuch Reaulation is Too Much --An Examination of Commerce Clause Jurisorudence, 50 Geo. Wash. L. Rev. 47 (1981); Tushnet, Rethinkina the Dormant Commerce Clause, Wis. L.Rev. 125 (1979).

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statute imposing additional costs onWashington, but not on North Carolina, apple shippers).

We think that a court would hold that the failure of the Texas statute to impose those burdens upon intrastate barge operators that are imposed upon interstate (or foreign) barge operators would not constitute evenhanded regulation and, therefore, would amount to impermissible discrimination under the commerce clause under the United States Constitution.

SUMMARY

The failure of section 26.3574 of the Water Code to impose the same burdens upon intrastate operators of barges delivering petroleum products that are imposed upon interstate (andforeign) operators of barges delivering petroleum products would not constitute evenhanded regulation and, therefore, would amount to impermissible discrimination under the commerce clause of the United States Constitution.

I Verv trulv vo

- ‘- JIM MATTOX '~ Attorney General ofTexas

MARYKELLER FirstAssistant Attorney General

LOUMCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney General

RENEA HICKS Special Assistant Attorney General

RICK GILPIN Chairman, Opinion Committee
Prepared byJim Moellinger Assistant Attorney General

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