US will not appeal ruling limiting oil spill tax

President Joe Biden's administration will not ask the US Supreme Court to review a 2020 court ruling that said applying a 9¢/bl oil spill cleanup tax to crude exports was unconstitutional.

The US District Court for the Southern District of Texas found that the tax ran afoul of the "export clause" in the US Constitution that blocks federal taxes or duties on exports. The 5th US Circuit Court of Appeals earlier this year affirmed that ruling. The Biden administration had argued the tax was a permissible user fee because it allows companies to offset some of their liability risks from an oil spill.

The Biden administration this month decided appealing the case, Trafigura Trading v USA, to the Supreme Court would be "unwarranted" because there is not yet disagreement among federal circuit courts on the constitutionality of the tax, US solicitor general Elizabeth Prelogar said. The 5th Circuit is the first appeals court to weigh in on the legality of the longstanding tax, which raises revenue for the Oil Spill Liability Trust Fund.

"We remain committed to defending the statute in other circuits," Prelogar wrote in a 13 October letter to US House of Representatives speaker Nancy Pelosi (D-California).

The oil spill tax, as enacted by Congress, puts a 9¢/bl tax on crude received at refineries, imported petroleum products and crude exports. The court ruling only applies to crude exports.

Texas and Louisiana are responsible for loading the majority of crude that is exported abroad, and the 5th Circuit handles cases emanating from those states. Perlogar's letter suggests the US does not intend to enforce the ruling outside of the 5th Circuit.

The US Internal Revenue Service, which administers the tax, declined to comment on how it intends to enforce the ruling.

If the tax is not collected on the nearly 3mn b/d of crude the US exported last year, it would imply a loss of $98mn that year for the Oil Spill Liability Trust Fund.

The Biden administration had an initial deadline of 21 August to determine whether to file an appeal to the US Supreme Court in the case. The administration twice requested and received extensions so it would have more time to decide whether to file an appeal. The final deadline to petition the Supreme Court to hear the case was 20 October.

The US Justice Department only appeals a limited number of court cases each year to the Supreme Court, focusing on cases with national importance. Prelogar, in her letter to Pelosi, suggested it was possible that the US Congress could develop a legislative workaround so the oil spill tax could be reinstated on crude exports.

"It may be possible to remedy the putative constitutional infirmity the lead opinion identified through legislative amendment" that would not raise concerns under the export clause, Perlogar said.

The 5th Circuit ruling could have ramifications for the collection of a separate 16.4¢/bl tax on crude and petroleum products that will begin on 1 January 2023 and raise funds for the "Superfund" hazardous waste cleanup program. The Superfund tax, which was part of the Inflation Reduction Act, has a similar design as the oil spill tax with respect to crude exports.

By Chris Knight