Crude Oil Exporter Files Suit Claiming Refund of Federal Oil Spill Tax Paid on Exports of CrudeOil

Apr 16, 2019

A crude oil exporter recently filed suit in the United States Court for the Southern District of Texas claiming a refund of federal oil spill taxes paid on domestically produced crude oil that was exported from the United States. The suit stems from a refund claim that the Taxpayer filed with the IRS claiming that the tax as imposed on exported crude oil was unconstitutional. The IRS had denied that refund
claim and the IRS Office of Appeals had refused to consider the case, saying that the proper forum was to filed suit in court.

The applicable statute at 26 U.S.C. 4611(b)(1)(A) imposes the federal oil spill tax on “any domestic crude oil that is exported from the United States.” However, the Export Clause of the U.S. Constitution states that “No Tax or Duty shall be laid on Articles exported from any State.” (U.S. Const. Art. I, para 9, cl. 5). This clause has been cited by the Courts of several prior occasions as the basis for declaring a tax on exports unconstitutional, such as the Harbor Maintenance Tax (United States v. U.S. Shoe Corp., 523 U.S. 360 (1998)) and the excise tax on coal (Ranger Fuel Corp. v. U.S. 33 F. Supp.2d 466 (E.D. Va. 1998)). With considerable precedent, it seems logical that the oil spill tax as imposed on exports is also unconstitutional. The IRS disagreed and denied the Taxpayer’s timely refund claim, saying that the Export Clause does not address exports of crude oil from the United States and that the intent of the clause was to prevent taxes on trade between states, not trade between the U.S. and other countries. To be clear, the Export Clause also does not address the export of coal, yet the IRS refused to follow that precedent as well as related IRS guidance such as Notice 2000-28 and IRS Chief Counsel Advice Memo 200211043, both of which discuss the Export Clause in the context of the excise tax on coal.

The Taxpayer sought review of the IRS decision from the IRS Appeals Division, however the IRS Appeals Division said it would not consider a constitutional issue and instructed the Taxpayer to file suit in a court of law.