5th Circuit Shutters Oil Spill Liability Trust Fund, Declares It Illegal Export Tax

The Oil Spill Liability Trust Fund is an illegal tax on exports and may not be enforced by the U.S., the U.S. Court of Appeals for the 5th Circuit said in a March 24 opinion. Affirming oil exporter Trafigura Trading's win in a Texas district court, Judges Jacques Wiener and James Ho ruled that the fund constitutes a tax, rather than a user fee, and violates the constitutional ban on export taxes. Judge James Graves dissented, writing that because there was a legitimate dispute on whether the fund is a user fee, the district court's order should be vacated (Trafigura Trading v. U.S., 5th Cir. #21-20127).

From 2014 to 2017, Trafigura exported around 50 million barrels of crude oil from Texas, Louisiana and North Dakota, paying over $4 million to the fund. Under the Constitution's Article I, Section 9, which bans a tax on exports, Trafigura sued. The central dispute of the case then became a battle over whether the fund is classified as a tax or a user fee.

Two Supreme Court cases were instructive to the appellate court on this question: Pace v. Burgess and U.S. v. U.S. Shoe Corp. In Pace, the court found that a stamp charge on tobacco was a user fee, not an export tax, because it wasn't proportional to quantity or value, nor was it excessive given the cost of the services to prevent fraud. U.S. Shoe, which involved a harbor maintenance tax applicable to exporters, struck down such a tax as unconstitutional, finding that a charge is a user fee only if it matches the exporters' use of government services.

Looking at the two cases, Ho, the opinion's author, determined the fund is an illicit export tax because the amount to be paid into the fund is based on the volume of oil transported, not the exporters' use of government services. The U.S. said the fee is a "premium for government-provided insurance in the form of capped liability for oil spills," but the fund is also used for other services, including reimbursements to federal, state and Indian tribe trustees for assessing natural resource damage. "None of these things can plausibly be conceived as 'services' provided to exporters in exchange for their payment," Ho said.

Exporters benefit from the activities paid for by the fund, but "the same could be said for virtually every other tax," the judge said. Ho then addressed the dissent, holding that no direct transaction is at issue in this case, clearly making the fund an export tax. Ho's opinion -- liberally using references to the hit musical Hamilton -- frequently referred to the Constitution and its explicit ban on export taxes in the crafting of the ruling barring the existence of the trust fund.