No. 14982 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1980 

COMMONWEALTH EDISON COMPANY et al., 

Plaintiffs and Appellants, 

VS . 

STATE OF MONTANA et al., 

Defendants and Respondents, 

and 

LAKE SUPERIOR DISTRICT POWER COMPANY et al., 

Plaintiffs and Appellants, 

VS . 

STATE OF MONTANA et al., 

Defendants and Respondents. 

Appeal from: District Court of the First Judicial District, 

Hon. Peter G. Meloy, District Court Judge 

Counsel of Record: 

For Appellants: 

Hooks and Budewitz, Townsend, Montana 

John Carl argued, Butte, Montana 

Rogers and Wells, New York, N.Y. 

William P. Rogers argued and William R. Glendon argued, 

New York, N.Y. 

For Amicus Curiae: 

Garrity, Keegan and Brown, Helena, Montana 

Hon. Mark White argued, Attorney General, Austin, Texas 

For Respondents: 

Hon, Mike Greely, Attorney General, argued, Helena, Montana 

Mike McGrath argued, Assistant Attorney General and Mike 

McCarter argued, Assistant Attorney General, Helena, Montana 

Cannon and Gillespie, Helena, Montana 

Ross Cannon argued, Helena, Montana 

For Amicus Curiae: 

Leo F. J. Wilking argued, Special Assistant Attorney General 

for State Tax Commissioner, Bismark, North Dakota 

Submitted: April 21, 1980 

Decided: IUL i - 1980 -L. 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

This is an appeal from a judgment of the District 

Court, First Judicial District, Lewis and Clark County, 

Montana, the Hon. Peter G. Meloy presiding, upholding the 

validity of Montana's coal severance tax. 

Plaintiffs sought a declaratory judgment from the 

District Court that the tax unconstitutionally burdens 

interstate commerce, and unconstitutionally frustrates 

federal policy. Commonwealth Edison Company and its coplaintiffs 

brought one action for this purpose, and Lake Superior 

District Power Company and its coplaintiffs brought a second 

action. Because the issues are the same, the actions were 

consolidated. 

The District Court granted defendantst motions to 

dismiss the complaints before trial, finding as a matter of 

law that they did not state claims upon which relief could 

be granted. Judgment was entered in each case in favor of 

the defendants and the plaintiffs appealed. 

Since each case comes to us on appeal from a judgment 

of dismissal, we accept the facts which are well-pleaded in 

the complaints as true. This was the rule before we adopted 

the Montana Rules of Civil Procedure, Heis )f er v. Severy 

(1945), 117 Mont. 105, 111, 158 P.2d 501, 503, and is the 

rule now. However, conclusions of law in the pleadings need 

not be accepted by this Court as binding under a judgment on 

a motion to dismiss. Allegations of conclusions of law 

present no issuable facts. Waite v. Standard Accident 

4 d<,i 

Insurance Co. (1957), 132 Mont. 220, 315 P.2d484. If 

therefore factual issues exist which should have been considered 

by the District Court prior to granting judgment, the judgment 

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must be reversed. Conversely, if as a matter of law, under 

any view of the alleged facts, plaintiffs cannot prevail, 

affirmance of the District Court is commanded. 

We have fully considered the contentions of plaintiffs 

on their appeal; we have examined the pleadings, and the 

grounds of the motion to dismiss; we have looked at the 

admitted factual matters which plaintiffs allege would 

invalidate the tax; and we have concluded from the whole 

record that the Montana Coal Severance Tax in its present 

form is a lawful exercise of Montana's taxing authority 

under our State and Federal Constitutions. Accordingly, we 

affirm the District Court. 

Three issues were raised by plaintiffs for our review: 

1. Is the coal severance tax impermissible under the 

Commerce Clause of the United States Constitution? 

2. Is the coal severance tax impermissible under the 

Supremacy Clause of the United States Constitution as 

frustrating national policies and statutes? 

3. Is the coal severance tax impermissible under the 

Supremacy Clause of the United States Constitution as 

frustrating national policies contained in the Mineral Lands 

Leasing Act of 1920? 

THE TAX AND ITS HISTORY 

In 1975 and 1977, the Montana Legislature amended its 

coal severance tax schedules, section 84-1314, R.C.M. 1947, 

now section 15-35-103, MCA. It now contains these provisions: 

"15-35-103. Severance - tax -- rates imposed -- 

exemptions. (1) A severance tax is imposed 

on each ton of coal produced in the state in 

accordance with the following schedule: 
"Heating quality Surface 

(Btu per pound Mining 

of coal) : 

"Under 7,000 12 cents or 

20% of value 

"7,000-8,000 22 cents or 

30% of value 

"8,000-9,000 34 cents or 

30% of value 

"Over 9,000 40 cents or 

30% of value 

Underground 

Mining 

5 cents or 

3% of value 

8 cents or 

4% of value 

10 cents or 

4% of value 

12 cents or 

4% of value 

"'Value' means the contract sales price. 

" (2) The formula which yields the- greater amount of tax 

in a particular case shall be used at each point on this 

schedule. 

" (3) A person is not liable for any severance tax upon 

20,000 tons of the coal he produces in a calendar year." 

No issue is raised here that there is an unconstitutional 

difference between the rate of taxes charged for stripmining of coal and for underground mining of coal. 

Prior to 1975, the Montana tax on strip-mined coal 

ranged from twelve to fourteen cents a ton, depending on BTU 

content. The 1975 amendment was a response to the meteoric 

increase in strip-mined coal entrepreneurs in the state in 

the 1970's. From the 1940's until the mid-1960's activity 

in coal strip-mining as well as in underground coal mining 

remained fairly dormant in the state. The increase in gross 

tonnage produced since 1971 from strip-mining is demonstrated 

by the following figures taken from the records of the 

Montana Department of Revenue, of which we have taken judicial 

notice: 

-- One Year Gross Tons 
In the general election of 1976 the Montana voters 

amended their state constitution by adding a new Section 5 

to Article IX, 1972 Montana Constitution. In essence the 

constitutional addition provides that from and after December 

31, 1979, at least fifty percent of the severance tax collected 

shall be dedicated to a trust fund, the principal of which 

is to remain inviolate unless appropriated by a vote of 

three-fourths of the members of each house of the legislature. 

This Court notes in passing our impression that the 

1975 coal severance tax provisions, and the 1976 constitutional 

amendment, were in part responses to the historical experience 

of Montana with respect to the inadequacy of earlier forms 

of taxes on mineral production. In 1965, the Hon. James 

Felt rose in the State Eouse of Representatives to complain 

that the richest hill on earth (Butte) had paid not a dime 

in net proceeds tax the previous year. Some modifications 

in computation agreed to by the mining company ameliorated 

that condition in subsequent years. Nevertheless, Montana's 

experience had shown that its mineral wealth could be exhausted 

and exported with little left in Montana to make up the loss 

of its irreplaceable resources. Montana has been painfully 

educated about the extreme economic jolts that follow when 

the mine runs out, the oil depletes, or the timber saws come 

still. We have a good many examples that teach us what 

happens to our hills when the riches of our Treasure State 

are spent. For these and other reasons, when strip coal 

mining was beginning to burgeon, in 1975, the legislature 

moved to fix a tax that would provide both for the present 

and the future when the coal deposits were gone. 

Since the commencement of the instant actions, the 

plaintiffs have paid their coal severance taxes under protest. 

Were the coal severance tax found to be invalid, presently 

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some $87,000,000 and accrued interest in protested taxes 

should have to be returned by the State to the taxpaying 

producers, we were informed in oral argument. 

EFFECT OF THE COMMERCE CLAUSE 

Before we discuss the commerce clause contentions, we 

look at the relationship of the various plaintiffs to the 

coal tax which is being attacked. The true taxpayers before 

us in this case are the producers of the coal. The Montana 

coal severance tax is levied at the time the coal is separated 

by the producer from the realty in Montana, and at its value 

when sold by the producer in Montana. Section 15-35-103, 

MCA. Thus in this case, only the coal producing plaintiffs 

are actually paying taxes, they being Decker Coal Company, 

Peabody Coal Company, Westmoreland Resources, Inc., and 

Western Energy Company. The remaining plaintiffs are 

utilities to whom the producers, by contract or indirectly, 

may have passed on the coal severance tax as a part of the 

price of Montana coal. To contend that the utility plaintiffs 

are the true plaintiffs because by contract or indirectly 

they have assumed the coal severance taxes would seem also 

to argue that the coal producers have no real issue at stake 

here. Nevertheless the coal producers have the only vital 

stake in this case because they and not the utility companies 

are in fact the taxpayers. It is the producers to whom the 

protested taxes would be returned should the tax be found 

unlawful. In deciding this case therefore, we look to the 

status in Montana of the producing taxpayers to determine 

whether the coal, at the time it is severed by the producers, 

is subject to the present Montana state taxation. 

The United States Constitution provides in Article I, 

Section 8, that Congress shall have the power "to regulate 

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Commerce with foreign Nations, and among the several States, 

and with the Indian Tribes." 

The principal contention of the plaintiffs in this case 

is that the holdings of the United States Supreme Court in 

Heisler, Oliver -- Iron Co., and --- Hope Gas Co., infra, no longer 

have any force. The plaintiffs do not allow that Montana 

can tax a purely local event such as the severance of coal 

from a seam or deposit. They insist that the commerce 

clause reaches even into the very severance of the coal, and 

that the only issue for the District Court to have decided 

here was whether the coal severance tax had impact enough to 

hamper or obstruct interstate commerce. The plaintiffs 

concede that the state can levy some tax, perhaps twelve and 

a half to fifteen percent of the value of the coal. Therefore, 

by inference, the plaintiffs contend that at some point not 

specified, between fifteen to thirty percent of the value of 

the coal, Montana's coal severance tax butts into the lintel 

of federal impermissibility. 

In essence, the plaintiffs' argument under the commerce 

clause reduces to this: Montana has no inherent right to 

tax the intrastate severance of coal which may eventually 

enter interstate commerce except by federal sufferance; such 

sufferance ceases when the tax can be construed to hamper or 

obstruct commerce between the states. 

The law on state taxation of production of goods, it 

seems to us, has been settled by the United States Supreme 

Court since the 1920's. Leading cases on manufacturing 

(American Mfg. Co. v. St. Louis (1919), 250 U.S. 459, 39 

S.Ct. 522, 63 L.Ed. 1084); producing (Hope Gas Co. v. Hall 

(1927), 274 U.S. 284, 47 S.Ct. 639, 71 L.Ed. 1049); and 

extracting (Oliver Iron Co. v. Lord (1923), 262 U.S. 172, 43 

S.Ct. 526, 67 L.Ed. 929); Heisler v. Thomas Colliery Co. 

-7- 
(1922), 260 U.S. 245, 43 S.Ct. 83, 67 L.Ed. 237); established 

a common theme: production of personal property within a 

state is a local activity which precedes the entry of the 

property into interstate commerce, and is therefore subject 

to state regulation and taxation. 

Yet we have found no United States Supreme Court case, 

and none has been cited to us, which implicitly or directly 

overthrows the rule that the several states have the reserved 

power to tax intrastate manufacturing, extraction, and 

production of goods. It is true that some cases have used 

language which seems to assail this reserved power. Notwithstanding, it must be concluded after an analysis of the 

cases bearing on the subject that the United States Supreme 

Court continues to recognize the taxing power of the states 

in these intrastate fields. 

The plaintiffs' attack against the coal severance tax 

under the commerce clause is based upon the premise that the 

United States Supreme Court has moved away from its holdings 

in --- Hope Gas Co., Oliver -- Iron Co., and Heisler, supra. The 

cases on which plaintiffs rely for this contention may be 

summarized as follows: 

(1) Labor Board v. Jones & Laughlin (1937), 301 U.S. 1, 

57 S.Ct. 615, 81 L.Ed. 893, upholding the NLRA against a 

constitutional attack; Wickard v. Filburn (1942), 317 U.S. 

111, 63 S.Ct. 82, 87 L.Ed. 122, upholding a federal program 

of acreage allotments for wheat production; Parker v. Brown 

(1943), 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, which 

upheld a California state statute that fixed prices and 

restricted sales of raisins grown in California but which 

contains language seeming to reject the mechanical test of 

Heisler; Freeman v. Hewit (1946), 329 U.S. 249, 67 S.Ct. 

-8- 
274, 91 L.Ed. 265, holding unconstitutional the application 

of an Indiana gross income tax act to the sales of securities 

by brokers in New York; the securities being assets of an 

Indiana estate, and incidentally, applying the commerce 

clause to intangibles as well as to tangibles; Nippert v. 

Richmond (1946), 327 U.S. 416, 66 S.Ct. 586, 90 L.Ed. 760, 

striking down a municipal tax on solicitors in Richmond, 

Virginia; Pike v. Bruce Church, Inc. (1970), 397 U.S. 137, 

90 S.Ct. 844, 25 L.Ed.2d 174, striking down an Arizona state 

regulation concerning the packing of cantaloupes grown in 

Arizona; Hunt v. Washington Apple Advertising Comm'n. (19771, 

432 u.S. 333, 97 S.Ct. 2434, 53 L.Ed.2d 383, striking down a 

North Carolina statute which prescribed the labeling oC 

containers in which apples were to be sold in that state; 

A. & P. Tea Co. v. Cottrell (1976), 424 U.S. 366, 96 S.Ct. 

923, 47 L.Ed.2d 55, holding unconstitutional the application 

of a Mississippi regulation that milk and milk products 

could be sold in Mississippi from another state only if the 

other state had reciprocal provisions for ~ississippi milk, 

where a Louisiana producer was refused a permit from Mississippi; Complete Auto Transit, Inc. v. Brady (1977), 430 

U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326, reh.den. 430 U.S. 

976, which we will discuss more in detail hereafter; Washington 

Rev. Dept. v. Stevedoring Assn. (1978), 435 U.S. 734, 98 

S.Ct. 1388, 55 L.Ed.2d 682, also discussed hereafter. 

Plaintiffs have cited a number of other cases, but 

their full recitation here would only be cumulative. 

The District Court, in ruling on the motions to dismiss, 

determined that the cases relied on by the plaintiffs from 

the United States Supreme Court fell into four categories, 

which we here set forth together with some examples: 

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(1) When Congress has asserted its regulatory powers 

under congressional acts. Labor Board v. Jones & Laughlin, 

supra; Parker v. Brown, supra. 

(2) When the State engages in regulatory activity of 

interstate commerce. Pike v. Bruce Church, Inc., supra; 

A. & P. Tea Co. v. Cottrell, supra. 

(3) When the state imposes a tax on interstate commerce 

activity. Nippert v. Richmond, supra; Complete Auto Transit, Inc

v. Brady, supra. 

(4) When the state imposes a tax on an activity which 

is not in commerce. Heisler v. Thomas Colliery Co., supra; 

Alaska v. Arctic Maid (1961), 366 U.S. 199, 81 S.Ct. 929, 6 

L.Ed. 227. 

The District Court determined that the coal severance 

tax in issue here fell into the fourth category. The District 

Court further found that the cases in the fourth category 

involved a local incident subject to the state's reserved 

power of taxation on goods which preceded their entry into 

interstate commerce. We agree. 

It is fair judicial policy for us not to regard as 

controlling here dicta found in cases in which the United 

States Supreme Court has upheld the regulatory powers of 

Congress under the commerce acts. See, for example of 

dicta, Labor Board v. Jones & Laughlin, supra; Parker v. 

Brown, supra. 

It is likewise fair judicial policy for us not to feel 

bound here by dicta found in cases involving states which 

have engaged in regulation of interstate commerce. Again, 

see Pike v. Bruce Church, Inc., supra; Philadelphia vd New 

Jersey (1978), 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475. 

Nor do we feel bound or controlled by dicta found in cases 

decided by the United States Supreme Court involving states 

-10- 
or municipalities which have imposed a tax on an interstate 

commerce activity. For example, Nippert v. Richmond, 

supra; Complete Auto Transit, Inc. v. Brady, supra. We 

rely instead on those cases where the United States Supreme 

Court has directly upheld state taxation of production, 

extraction or manufacturing. 

While the plaintiffs have contended that the trend of 

the United States Supreme Court decisions has been to move 

away from the holdings in Heisler, Oliver -- 

Iron Co., and 

--- Hope Gas Co., supra, we do not find that contention supported 

in cases involving state taxes. Indeed, if we can read the 

trend of the decisions, it has been the policy of the Supreme 

Court to'open up and to allow, not to prevent, state taxation 

of interstate commerce transactions. What has occurred in 

those decisions is that the Supreme Court has moved away 

over the course of years from the "immunity per sew rule 

which prevented state taxation of interstate commerce, 

LeLoup+,v. Port of Mobile (1887), 127 U.S. 640, 8 S.Ct. 

1380, 32 L.Ed. 311, to a rule ofr~commodation which recognizes 

that interstate commerce, in utilizing the services and 

protections of a state is required to "pay its way". See 

Western Live Stock v. Bureau (1938), 303 U.S. 250, 58 S.Ct. 

546, 82 L.Ed. 823. For this reason the Supreme Court has 

upheld state taxation which intrudes upon interstate commerce 

but where there exist local incidents which justify state 

taxation nevertheless. General Motors v. Washington (19641, 

377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430; Norton Co. 

v. Dept. of Revenue (1951), 340 U.S. 534, 71 S.Ct. 377, 95 

L.Ed. 517. Local incidents which are severable from interstate 

commerce but occur within a state, such that multiple 

taxation by other states on the same activity is not a 

threat, provide a basis which has brought about the standards 

-11- 
announced by the Supreme Court in Complete Auto Transit, 

Inc. v. Brady, supra, to find constitutional permissibility 

for state taxes on - interstate commerce. 

A most recent case demonstrating the tendency of the 

United States Supreme Court to encourage and allow state 

taxation of interstate commerce can be found in Exxon 

Corp. v. Wisconsin Dept. of Revenue (1980), U.S. I 

100 S.Ct. 2109, L.Ed.2d . Exxon had filed income 

tax returns in Wisconsin using a geographical system of 

accounting which reflected only its Wisconsin marketing 

operations and which showed a loss for each year, resulting 

in no taxes being due. Exxon kept its accounts in three 

major functional departments: exploration, refining, and 

marketing. Transfers of products and supplies among the 

three functional departments were theoretically based on 

competitive prices. Exxon had no exploration, production or 

refining operations in Wisconsin in the taxable years in 

question. Only marketing in Wisconsin was carried on by 

Exxon. Nonetheless, Wisconsin treated Exxon as a unit, and 

apportioned its income in such manner that a tax was produced, 

for which Wisconsin made demand upon Exxon. The United 

States Supreme Court held that Wisconsin was not prevented 

from applying its statutory apportionment formula to appellants 

total income under the due process clause of the Fourteenth 

Amendment. It held that the unitary business principle was 

a proper basis for apportioning state income tax upon an 

interstate enterprise when its income can be reasonably 

related to the activities of the corporation within the 

taxing state. The Wisconsin tax was held valid even though 

its statutory apportionment formula indirectly taxed income 

derived from extraction or refinement of oil and gas located 

outside the state. The Supreme Court found nexus, proper 

-12- 
apportionment, and a rational relationship between the 

income attributed to the state and the interstate values of 

the enterprise. (Compare Mont. Dept. of Rev. v. Am. Smelting 

& Refining (1977), 173 Mont. 316, 567 P.2d 901.) 

Mobile Oil Corp. v. Com'r. of Taxes of Vermont (19801, 

- U.S. , 100 S.Ct. 1223, 63 L.Ed. 510, likewise approved 

such apportionment, finding a nexus is established if the 

corporation avails itself of the substantial privilege of 

carrying on business within the state. 

These recent cases buttress our statement that plaintiffs 

have misread the trend of the United States Supreme Court 

cases. That trend lies in the direction of allowing states 

to tax products in interstate commerce, once a nexus with 

the taxing state is established. 

The intent and portent of the United States Supreme 

Court in these cases is not to overturn the holdings of 

Heisler, Oliver -- Iron Co., and --- Hope Gas Co., supra. Indeed 

the Court has consistently recognized the vitality of those 

holdings on production and extraction. In Freeman v. Hewit, 

supra, Justice Frankfurter expressed the distinction between 

permissible and prohibited taxes as follows: 

". . . a seller State has various means of obtaining 

legitimate contribution to the cost of its government, 

without imposing a direct tax on interstate sales. 

While these permitted taxes may in an ultimate sense 

come out of interstate commerce, they are not, as 

would be a tax on gross receipts, a direct imposition 

on that very freedom of commercial flow which for 

more than 150 years has been the ward of the commerce 

clause." 329 U.S. at 256, 67 S.Ct. at 278, 91 L.Ed. 

274. 

In like manner, state taxation of manufacturing within a 

state has also been upheld, though manufacturing of goods 

destined for commerce may be thought to present a weaker 

case than the production or extraction of goods. Adams Mfg. 

Co. v. Storen (1938), 304 U.S. 307, 58 S.Ct. 913, 82 L.E~. 
The intent of the United States Supreme Court to 

preserve these fields for state taxation as preliminary to 

interstate commerce and within the reserved taxing powers of 

the states is manifest. In Alaska v. Arctic Maid, supra, 

for example, the court found that Alaska's taxing of the 

gathering and freezing of fish taken from Alaska's territorial 

waters by ships was a "preliminary local business'', to be 

compared with Oliver -- Iron Co., supra, as its "first cousin"; 

this, even though the ships eventually took their frozen 

cargo directly from the seas to the State of Washington for 

canning. From that evident intent of the Supreme Court, we 

find this portent: there is no indication by the United 

States Supreme Court that its historical judicial sanction 

of state taxation on production, extraction and manufacturing 

is in jeopardy. 

Indeed, the very inference of such a threat in a Supreme 

Court opinion would have raised such a clamor that the case 

would be a benchmark. We find none, and can only conclude 

that the Supreme Court will be as consistent in this area 

in the future as it has been in the past. 

See Federal Compress Co. v. McLean (1934), 291 U.S. 17, 

54 S.Ct. 267, 78 L.Ed. 622; and Chassaniol v. Greenwood 

(1934), 291 U.S. 584, 54 S.Ct. 541, 78 L.Ed. 1004; referred 

to with approval in Pike v. Bruce Church, Inc., supra. Also 

Caskey Baking Co. v. Virginia (1941), 313 U.S. 117, 61 S.Ct. 

881, 85 L.Ed. 1223. 

The importance of these reserved fields of taxation to 

the states cannot be overstated. The State of Texas, whose 

attorney general appears before us as amicus opposing Montana's 

tax, will realize $980 million in oil and gas production 

taxes this year. The State of Alaska has sufficient revenues 

from the severance of oil and gas within its borders that its 

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1980 legislature, before its recent adjournment, provided 

$900 million in an inviolate trust, not unlike Montana's, 

from those revenues. Such examples of local taxes could be 

added to almost state by state. No more important case on 

the power of states to levy taxes can be imagined than is 

presented here. For if the - rate of tax on a local activity, -- - 

as here, can be found to violate the commerce clause, then 

certainly the amount -- of tax raised by a state on a local 

activity is in the same jeopardy. Were we or the United States 

Supreme Court to reach that result, then we should see, in 

the words of the old spiritual that "the walls came a-tumblin' 

down. '" 

Plaintiffs' attack here is another in a series that seeks 

to assail and overturn the recognized power of states in these 

regards. In Be1 Oil Corporation v. Roland (1962), 242 La. 

498, 137 So.2d 308, appeal dismissed 371 U.S. 2, the state 

court upheld the validity of a severance tax on the extraction 

of natural gas in Louisiana. In Industrial Uranium Co. v. 

State Tax Commission (1963), 95 Ariz. 130, 387 P.2d 1013, an 

Arizona privilege tax on mining was upheld. In Post Oak Oil 

Company v. Oklahoma Tax Com'n. (Okla. 1978), 575 P.2d 964, a 

state excise tax on the severance of natural gas in Oklahoma 

withstood a commerce clause attack. All of these courts 

relied, as we do, on the continued adherence by the United 

States Supreme Court to its steadycourse of sanction in these 

fields. 

On the basis that the severance of coal here is a 

taxable event that precedes entry into interstate commerce, 

we rule without hesitation that plaintiffs cannot prevail on 

their claims under count I of their complaints, because 

Montana's coal severance tax does not violate the commerce 

clause. The severance of coal by mining is not an interstate 

activity. 
In oral argument, the plaintiffs asked us to give them 

a straight up-and-down decision on whether the coal severance tax was governed by the commerce clause. We have 

done that in the foregoing paragraphs. However, we feel 

compelled to remark that even if the commerce clause in this 

case obtained, plaintiffs could not have prevailed and the 

motion dismissing the complaints would have been properly 

granted in any event. 

In making their commerce clause argument, the plaintiffs 

have contended that we were bound to apply the tests set 

forth in Complete Auto Transit, Inc., supra. In that case, 

the United States Supreme Court considered the constitutionality of a Mississippi tax on the "privilege of doing 

business in that state". The earlier case of Spector Motor 

Service v. O'Connor (1951), 340 U.S. 602, 71 S.Ct. 508, 95 

L.Ed. 573, had adopted a formalistic test to the effect that 

taxes on the "privilege" of doing interstate business 

violated the commerce clause. The United States Supreme 

Court in Complete Auto Transit, Inc. overruled Spector 

stating that state taxes affecting interstate commerce must 

be viewed as to their practical effect and must be examined 

in light of a four-pronged test of that practical effect: 

(1) Whether the tax is applied to an activity with a 

substantial nexus with the taxing state, 

(2) Whether it is fairly apportioned, 

(3) Whether the tax does not discriminate against 

interstate commerce and, 

(4) Whether the tax is fairly related to the services 

provided by the state. 430 U.S. at 277-8, 97 S.Ct. at 1078, 

51 L.Ed.2d at 330. 

Washington Rev. Dept. v. Stevedoring Assn., supra, 

-16- 
upheld this four-pronged test and further recognized that a 

state had a significant interest in exacting from interstate 

commerce its fair share of the cost of state government. 

435 U.S. at 748, 98 S.Ct. at 1398, 55 L.Ed.2d at 695. 

Complete Auto Transit, Inc. is a good example of our 

earlier assertion that the United States Supreme Court, 

instead of intruding upon the reserved fields of taxation 

allowed the state on local activities, has been moving 

toward a permissive or accomodating position allowing state 

taxation of interstate commerce under certain conditions. 

Applying the Complete Auto Transit, Inc. four-pronged test, 

for the sake of argument, to the case at bar, plaintiffs 

could not prevail as a matter of law. Surely there can be 

no argument here that a substantial, in fact, the only nexus 

of the severance of coal is established in Montana. There 

can be no discussion of apportionment, because the severance 

can occur in no other state. There is no danger of multiple 

taxation, for no other state can tax the severance. See, 

Chassaniol, supra; compare, Mich.-Wis. Pipeline Co. v. 

Calvert (1954), 347 U.S. 157, 74 S.Ct. 396, 98 L.Ed. 583. 

There would remain, if Complete Auto Transit, Inc. 

applied, only the fourth test, whether the tax is fairly 

related to the services provided by the state. 

The taxpayers here, the coal producers, have the right 

to and the availability of all the governmental comforts and 

protection which this state provides. Since the United 

States Supreme Court is tending toward the position that 

interstate commerce must pay its way in the respective 

states affected thereby, it is with logic of great force 

that Montana can require strip-coal mining to assume its 

justshare for the cost of the state government that it 

-17- 
enjoys, and for the governmental cost that has occurred, is 

now occurring, and will in the future occur as the direct 

result of such strip-coal mining. Here Montana meets the 

test set out in General Motors - v. Washington, supra, 377 

U.S. at 441, 84 S.Ct. at 1568, 12 L.Ed.2d at 435: 

"For our purposes the decisive issue turns on the 

operating incidents of the tax. In other words, the 

question is whether the State has exerted its power 

in proper proportion to appellant's activities 

within the state and to appellant's consequent 

enjoyment of the opportunities and protections which 

the State has afforded. . ." 

It is impossible for any court to foot up the dollar 

cost of the governmental benefits received and to be received 

by the taxpayers here. Aptly the state points out the 

heart of plaintiffs' complaint is the rate of the tax. The 

state further contends that no United States Supreme Court 

opinion invalidating a state levy has turned on the rate of 

a tax. No summation of the cost of governmental benefits 

has ever been required by any court in determining the 

validity of a rate of levy in a general excise, property or 

income tax imposed by a state. It is said: 

"A tax is not an assessment of benefits. 

It is, as we have said, a means of distributing 

the burden of the cost of government. The 

only benefit to which the taxpayer is constitutionally 

entitled is that derived from his enjoyment of the 

privileges of living in an organized society, 

established and safeguarded by the devotion of 

taxes to public purposes . . .. Any other view would 

preclude the levying of taxes except as they are used 

to compensate for the burden on those who pay them, and 

would involve the abandonment of the most fundamental 

principle of government--that it exists primarily to 

provide for the public good." Carmichael v. 

Southern Coal Co. (1937), 301 U.S. 495, 522-523, 

57 S.Ct. 868, 878-879, 81 L.Ed. 1245, 1260-1261. 

The rate of a tax is a determination for the legislature to 

make, not a court. Montana's legislature has determined 

that its coal severance tax is fairly related to the governmental 

services Montana provides, and to the benefits of a trained 
work force and the advantages of a civilized society. See, 

Japan Line, Ltd. v. County of Los Angeles (1979), 441 U.S. 

434, 99 S.Ct. 1813, 60 L.Ed.2d 336; Washington Rev. Dept. 

v. Stevedoring Assn., supra. We are not talking here about 

"user" charges or like fees imposed for the use of state 

facilities where the charge for the service must bear some 

fair relation to the service or property provided for use. 

Such "user" charges are capable of being determined. See 

Evansville Airport v. Delta Airlines (1972), 405 U.S. 707, 

92 S.Ct. 1349, 31 L.Ed.2d 620. Taxes as here imposed for 

the general support of the government are fairly related to 

that purpose by the mere fact that a government is thereby 

maintained. It is only when the taxpayer has an insufficient 

nexus to the taxing state, or the tax is disproportionate to 

the incidents of commerce being taxed, that the fair-relation 

test applies. See, e.g. National Bellas Hess, Inc. v. Dept. 

of Revenue (1967), 386 U.S. 753, 756, 758, 87 S.Ct. 1389, 

18 L.Ed.2d 505. 

Complete Auto - -- Transit, Inc., is intended to apply to 

situations where a state or local taxing authority adopts a 

tax that intrudes upon, hampers or obstructs in some fashion 

interstate commerce. It has no application in this case to 

the intrastate severance of coal by mining. But even if 

Complete Auto Transit, Inc. applied, as we have shown, 

plaintiffs could not prevail here as a matter of law. 

We note that a tax of thirty percent of the coal's 

value at the time of its severance is not any indication of 

the impact of the severance tax as to the cost of coal at 

its final destination, in-state or out-of-state. The attorney 

general of Texas, appearing here as amicus, informed us in 

oral argument that Montana coal destined for Texas is now 

-19- 
purchased at $7 per ton at the mine, resulting in a severance tax in Montana of $2.10 per ton; however, the coal at 

destination in Texas costs $30 per ton. Most of the added 

price comes from the cost of transportation of the coal to 

Texas, which costs, the attorney general informed us, have 

increased from $8 per ton to $20 per ton in a short time. 

Demonstrably therefore, as to Texas, the interstate impact 

of the Montana coal severance tax is no greater than that of 

federal and state taxes on gasoline at the pump (before the 

recent price increases) or the state and city sales taxes on 

goods and services found in most localities. On the same 

tack, when we consider the customers of the utilities who 

are appearing in this case, it is obvious without argument 

or proof that coal costs are only a portion of total generating 

costs of electricity. Although plaintiffs have contended 

that Montana's coal tax is passed on to the utility consumers, it must be admitted that this is because of the 

particular terms of the coal contracts of purchase entered 

into by the utility-plaintiffs. It would be strange indeed 

if the legality of a tax could be made to depend on the 

vagaries of the terms of contracts. We do not assume that in 

the broad picture all of the Montana coal tax is passed on 

to consumers because Montana does not have a monopoly in the 

production of coal. Montana coal must compete in the market 

with coal produced in Wyoming, North Dakota, and other 

sources of supply. Under those circumstances, economic 

factors will determine whether the producers will shoulder 

all or part of the tax, or pass it on in the form of increased prices. 

The argument therefore that Montana is "exporting its 

coal tax" to out-of-state users has no more force in reality 

-20- 
when applied to Montana coal than to any other type of 

lawful tax on goods or products eventually moving in interstate commerce. Certainly, taxes paid on goods and products 

from origin to the eventual consumer are a factor in the 

final price to the consumer; that is an economic fact of our 

lives. In that sense, every state or locality that levies a 

tax on goods or products originating therein or manufactured 

therein is exporting its tax. No sane rule of law can or 

should be developed that would make a local tax illegal 

solely because it is a factor in the cost the eventual 

consumer pays. Such a rule would make state government 

taxation of goods and products a judicial morass. 

It is for these reasons that we have determined, as we 

have stated earlier, to look at the status of the true 

taxpayers in this case, the producers of the coal. The 

Montana severance tax is levied at the time the coal is 

separated by the producer from the realty in Montana at its 

value when sold in Montana. In that light we have no 

difficulty in finding that Montana has the power as a state 

to tax the severance of coal within its borders. Plaintiffs 

contended in oral argument that because the coal bought by 

the utilities from the producers was already under contract 

for sale when mined, that the instant the coal was severed, 

it was in interstate commerce. We do not have to address 

that argument because the taxable event, as far as Montana 

is concerned is the act of severance itself. The event of 

severance necessarily precedes the instant when the coal 

ceases to be part of the realty and becomes part of the 

mass of personalty in Montana. We are not required here to 

determine whether the mined coal should not be considered a 

part of interstate commerce until the moment when the 

producer hands the coal over to the buyer, or its transporter 

-21- 
for the account of the buyer. There is no need to concern 

ourselves with such fine points here. The severance itself 

is a taxable event and the Montana statutes here tax that 

event in advance of any entry of the coal into commerce. In 

other words, the coal is produced and that production is 

taxed. Montana's coal severance tax is therefore ahead of 

and preliminary to the sweep of the power of Congress to 

regulate commerce. If this be not so, Montana and all other 

states would have to concede that any power of a state to 

tax the production of products which may eventually enter 

into interstate commerce is at the whim or forbearance of 

the federal government. Neither the United States Supreme 

Court nor any other court has so held, and well enough, for 

such a decision would shatter the shield of judiciallyapproved states' rights in this field. 

When it is realized that the coal producing plaintiffs 

are the real and only taxpayers of the Montana tax, the 

"exported tax" theory falls. With it falls the notion that 

there is no political check on the Montana legislature to 

limit the tax. Experience shows the producer plaintiffs are 

a vigorous presence at any session of the Montana legislature. Records of the Montana Secretary of State, of which 

we take judicial notice, Rule 202(b), M.R.~vid., show the 

number of lobbyists registered for the coal industry in 

recent sessions, sections 5-7-103 and 5-7-201, MCA, and 

their participation before legislative committees on matters 

affecting the coal industry. 

Finally, with respect to the commerce clause, plaintiffs 

have continued to assert an argument which does not raise a 

substantive issue or one material to our decision in this 

case, but nonetheless requires a comment lest our silence be 

considered an admission of its substance. 

-22- 
The nonissue raised by plaintiffs is that since a good 

deal of the coal being mined by plaintiffs or potentially to 

be mined (in oral argument it was said 75% of the coal) 

underlies federal leases, this coal therefore is not Montana's 

"birthright" but belongs to the nation as a whole. The 

argument is intended to have us believe that Montana is 

taxing here not the coal producers, but the people of the 

United States themselves. 

Montana, in common with many of the states, has a 

substantial portion of its surface area under federal 

ownership. In addition, the federal government reserved to 

itself coal and other minerals in many of its patents or 

deeds of grant. We assume this situation gives rise to the 

nonissue raised by the plaintiffs. 

Plaintiffs' argument is addressed to emotion and not to 

law. As long as the federal coal remains in deposit under 

federal ownership, it is "our" coal in the sense that it 

belongs to the people through the federal government. Once 

mined under a federal lease or permit, title to the coal is 

vested as personal property in the lessee or permittee as 

soon as it is mined and removed from its original place, 

subject only to the royalty rights of the lessor, Olson v. 

Pedersen (1975), 194 Neb. 159, 231 N.W.2d 310, the same as 

with oil and gas. De Mik v. Cargill (Okla. 1971), 485 P.2d 

229. Montana may impose taxes on the private lessees of 

federal lands. 30 U.S.C. 5189; Oklahoma Tax Comrn'n. v. 

Texas Co. (1949), 336 U.S. 342, 69 S.Ct. 561, 93 L.Ed. 721; 

reh.den. (1949), 336 U.S. 958, 69 S.Ct. 887, 93 L.Ed. 1111. 

The coal being taxed here therefore is not "our" coal, 

but the personal property of the plaintiffs who produced it 

under lease or permit. When the coal is mined, the federal 

government is in no different position as a lessor than a 

private lessor who grants a mining lease or permit. 

-23- 
THE SUPREMACY CLAUSE 

"This [federal] Constitution and the Laws of the 

United States which shall be made in Pursuance thereof", 

states U.S. CONST.. Art. VI, C1. 2, ". . . shall be the 

supreme Law of the Land . . .." 

Here plaintiffs contend that Montana's coal severance 

tax is preempted because it "frustrates and impairs" implementation of federal po1icy;that the District Court 

misconceived the national policies involved here; that the 

overall national energy policy is to encourage a greatly 

expanded production and use of western coal; and that the 

question of substantial frustration is one of fact which 

cannot be determined on the pleadings. 

Montana responds that the plaintiffs have failed to 

allege or to identify any "Laws of the United States" which 

the coal severance tax could frustrate or impair; and that 

the general policy considerations and goals alleged by 

plaintiffs are not "laws of the United States" which are 

declared to be the "supreme Law of the Land". 

The motion to dismiss made by the State in the District 

Court challenged the legal sufficiency of the supremacy 

clause claim of the plaintiffs. 

It is conceded by the plaintiffs that Congress has not 

expressly preempted or limited the authority of the State to 

levy the coal severance tax, nor "clearly and unmistakably" 

required the conclusion that Congress intended to prohibit 

or limit the tax. Rather the plaintiffs contend, as their 

complaints allege: 

"32. That the coal severance tax, on 

its face, and as applied, substantially frustrates 

and impairs fulfillment of national policies and 

purposes of certain acts of Congress." (App. 27) 
Under this argument plaintiffs contend that proof of 

"substantial frustration" does not require plaintiffs to 

show a specific Congressional intent to preempt the field 

(Pl. Brief at 60). 

In fine, plaintiffs have contended that it is not the 

tax, but the - rate of --- the tax which constitutes an obstacle 

to federal policy and which requires a determination of fact 

as to whether such obstacle exists. 

By their argument, plaintiffs seek to bring themselves 

within the coverage of statements made by the United States 

Supreme Court in Ray v. Atlantic Richfield Co. (1978), 435 

U.S. 151, 158, 98 S.Ct. 988, 55 L.Ed.2d 179; Jones v. Rath 

Packing Company (1977), 430 U.S. 519, 525-526, 97 S.Ct. 

1305, 51 L.Ed.2d 604; reh-den. (1977), 431 U.S. 925, 97 S.Ct. 

2201, 53 L.Ed.2d 240; De Canas v. Bica (1976), 424 U.S. 351, 

357 n. 5, 96 S.Ct. 933, 47 L.Ed.2d 43; and Perez v. Campbell 

(1971), 402 U.S. 637, 652, 91 S.Ct. 1704, 29 L.Ed.2d 233. 

Plaintiffs claim to be inheritors the decision in 

M'Culloch v. Maryland (1819), 17 U.S. 415 (4 Wheat. 316), 

In making its determination on the preemption issue, 

the District Court examined the following acts of Congress 

submitted or cited to the District Court as acts which 

defined the federal policies in the field: 

Powerplant and Industrial Fuel Use Act of 1978 

Pub. Law No. 95-620,92 Stat. 3289 

Natural Gas Policy Act of 1978 Pub. Law No. 95- 

621, 92 Stat. 3351 

Energy Conservation and Production Act Pub. Law 

No. 94-385, 90 Stat. 1125 

Energy Policy and Conservation Act Pub. 

Law No. 94-163, 89 Stat. 871 

Federal Nonnuclear Energy Research and Development Act of 1974 Pub. Law No. 93-577, 88 Stat. 1878 
Energy Reorganization Act of 1974 Pub. Law No. 

93-438, 88 Stat. 1233 

Energy Supply and Environmental Coordination Act 

of 1974, Pub. Law No. 93-319, 88 Stat. 246 

Emergency Petroleum Allocation Act of 1973, Pub. 

Law No. 93-159, 87 Stat. 627 

Clean Air Amendments of 1970 Pub. Law No. 91- 

604, 84 Stat. 1676 

From those acts, the District Court determined that 

there was a national policy to provide incentives to increase 

the use of other sources of energy, including coal, so as to 

decrease our dependence on oil. The District Court also 

determined from those acts, and from the cases it examined 

relating to the subject, that "Congress has not and did not 

intend to preclude the State of Montana from imposing a tax 

on mining activities within the State. . ." App. at 240. 

It is in this conclusion of law that the plaintiffs now 

contend on appeal that the District Court erred: The 

plaintiffs do not claim that the federal acts submitted to 

the District Court establish a national policy which prevents 

Montana from levying some tax on the severance of coal. 

Instead, plaintiffs contend that the District Court should 

have allowed a factual hearing to determine whether the 

rate of Montana's coal severance tax substantially frustrates 

national policy; and that the order of the District Court 

precluded plaintiffs from proving what the national energy 

policy was. 

Some seventy or eighty years ago it used to be argued 

that the Constitution of the United States followed the 

flag. Here, plaintiffs in reality are contending that the 

Constitution follows the Dow-Jones average. 

In examining the whole of the District Court's memorandum in support of its order, we think it implicit in the 

District Court's opinion not only that Montana is not prohibited 

-26- 
by federal enactments and policy from levying a coal 

severance tax but also that the amount of Montana's coal 

severance tax is not prohibited. In any event, we find 

the latter conclusion is a necessary result as a matter of 

law under the preemption argument. 

Out of the welter of cases which has been cited to 

us on this issue by the parties, we, upon examination of 

such authorities, find it safe to say that no state excise 

tax has ever been struck down unless it had clearly conflicted 

with an act of Congress in the field (M'Culloch v. Maryland, 

supra); and likewise, that no state excise tax is likely to 

be held by the United States Supreme Court to be limited as 

to its amount unless it is expressly or by necessary implication 

shown to be prohibited or that the amount interferes with a 

power assumed or delegated to the United States. 

The essence of the rule upon which we rely here, and of 

the rule which we think inheres in any of the United States 

Supreme Court decisions on the subject is set out in Penn 

Dairies v. Milk Control Comm'n. (1943), 318 U.S. 261, 275, 

"An unexpressed purpose of Congress to set aside 

statutes of the states regulating their internal 

affairs is not lightly to be inferred and ought 

not to be implied where the legislative command, 

read in the light of its history, remains ambiguous. 

Considerations which lead us not to favor repeal 

of statutes by implication, United States - v. Borden 

Co., 308 U.S. 188, 198-9; United States v. Jackson, 

302 U.S. 628, 631; Posadas v. - National - city -- Bank, 

296 U.S. 497, 503-5, should be at least as persuasive 

when the question is one of the nullification of 

state power by Congressional legislation. 

". . . Courts should guard against resolving these 

competing considerations of policy by imputing to 

Congress a decision which quite clearly it has not 

undertaken to make. Furthermore we should be slow 

to strike down legislation which the state concededly 

had power to enact, because of its asserted burden 

on the federal government. For the state is powerless to remove the ill effects of our decision, while 

the national government, which has the ultimate power, 

remains free to remove the burden." 
The mere statement by the plaintiffs that the Montana 

coal severance tax substantially frustrates a national 

policy for the use of western coal is not a sufficient basis 

to trigger a factual determination in the District Court. 

The scope and substance of national policy are matters of 

statutory interpretation. This is a matter of law not 

requiring the taking of testimony. Again, of course, for 

purposes of a motion to dismiss, a District Court is not 

required to accept plaintiffs allegations of law and legal 

conclusions as true. Newport News Co. v. Schauffler (1938), 

303 U.S. 54, 58 S.Ct. 466, 82 L.Ed. 646; Mitchell v. 

Archibald and Kendall, Inc. (7th Cir. 1978), 573 F.2d 429, 

432; Kadar Corporation v. Milbury (1st Cir. 1977), 549 F.2d 

230, 233; Blackburn v. Fisk University (6th Cir. 1971), 443 

F.2d 121, 124. 

Whether we agree here with plaintiffs that the decision 

of the District Court was only to the effect that no 

federal enactments prohibited - any coal tax is of no moment. 

The reason for the district judge making that finding was 

that he could find no federal enactment of specific policy 

with respect to which the Montana coal severance tax conflicted. For the same reason, when we examine plaintiffs' 

contention that the amount of the tax constitutes a substantial 

frustration of federal policy, that argument must also fall 

because of plaintiffs' failure to establish a federal enactment with which the amount of Montana tax conflicts or which 

is substantially frustrated. 

We find ourselves in agreement with the ~istrict Court 

that the federal statutes cited do not establish domestic 

energy policies wherein Congress intended to nullify other 

national, state, local or individual policies or interests 

which may increase the cost of coal production in use. 

-28- 
Stated another way, we do not find a national domestic 

energy policy or congressional enactments predicated upon a 

Montana coal severance tax of fifteen percent or less. 

Indeed, the federal enactments point in other directions. 

There are incentives for the development of underground coal 

mines. 42 U.S.C. 86211. There is a provision for export 

restrictions. 42 U.S.C. 86212. Miners of low sulfur coal 

are not exempted from costly environmental strip mining 

regulations. 30 U.S.C. 81251, et seq. Health and safety 

requirements are enforced upon strip coal miners. 30 U.S.C. 

8801, et seq. Royalties on federal lands are payable under 

the Mineral Lands Leasing Act of 1920 as amended. 30 U.S.C. 

8181, et seq. Congress seems to prefer underground coal 

mining. 30 U.S.C. 81201, et seq. As the District Court 

found, to the distaste of the plaintiffs, Congress favors 

and encourages the production and use of high sulfur eastern 

and midwestern coal, rather than low sulfur western coal, 

the latter of which is to be used principally by existing 

facilities for which technological upgrading of air pollution 

control equipment is impractical or not feasible. 42 

U.S.C. 88 7411 and 7425. Indeed, 87411, as amended in 

1977, requires users of low sulfur coal nevertheless to 

install the "best technological system of continuous emission 

reduction" required for all stationary sources, even though 

such systems may be unnecessary because the low-sulfur coal 

meets the emission standards. See, U.S. Code ~ongressional 

and Administrative News, 95th Congress, 1977 Session, Vol. 

11, at 1245. Congress would rather that eastern and midwestern plants used "local coal", even coal with higher 

sulfur content than western low-sulfur coal. 

How then can any court determine that the effect of 

Montana's coal severance tax is to frustrate national policy, 

-29- 
when no national policy can be discerned as a matter of 

law? 

The federal constitutional prohibition, under the 

Supremacy clause, is against state laws which contravene 

"the laws of the United States which shall be made in 

pursuance of [the federal constitution]." What is wanting 

in plaintiffs argument is - any federal enactment, constitutionally adopted, which is clearly, substantially frustrated 

by Montana's coal severance tax. 

The taxing power of the state is an essential power of 

its sovereignty. Weston v. City Council of Charleston 

(1829), 27 U.S. Lw (2 Peters 449), 7 L.Ed. 481. This 

power cannot be set aside or limited on weightless statements that a federal policy is being substantially frustrated. 

Contrary to the contention of plaintiffs, De Canas v. 

Bica,supra, was not sent back by the Supreme Court for a 

factual determination, but rather for a construction by the 

California courts of California statutory law. De Canas v. 

Bica, supra, 424 U.S. at 363-364, 96 S.Ct. at 940, 47 L.Ed.2d 

at 53-54. In Exxon Corp. v. Governor of Maryland (1978), 

437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, reh.den. 439 

U.S. 884, the United States Supreme Court rejected a contention that a broad general national policy can preempt 

state laws which have some indirect effect upon national 

policy. The court said in Exxon: 

"Appellants point out . . . the . . . basic 

national policy favoring free competition, and 

argue that the Maryland statute 'undermine[sI1 

the competitive balance that Congress struck 

between the Robinson-Patman and Sherman Acts. 

This is just another way of stating that the 

Maryland statute will have an anticompetitive 

effect. In this sense, there is a conflict 

between the statute and the central policy of 

the Sherman Act -- our 'charter of economic 

liberty.' Northern Pacific R. Co. v. 

United States, 356 U.S. 1, 4. Nevertheless, 
this sort of conflict cannot itself constitute a sufficient reason for invalidating 

the Maryland statute. For if an adverse 

effect on competition were, in and of itself, 

enough to render a state statute invalid, the 

Statest power to engage in economic regulation 

would be effectively destroyed. We are, therefore, 

satisfied that neither the broad implications 

of the Sherman Act nor the Robinson-Patman Act 

can fairly be construed as a congressional decision 

to pre-empt the power of the Maryland Legislature 

to enact this law." 437 U.S. at 133-134, 98 S.Ct. 

at 2217-2218, 57 L.Ed.2d at 104-105. 

Again, under this preemption contention, a large number 

of cases are cited by the parties. Recitation of their 

holdings and effect would be cumulative here. Plaintiffs 

have attacked the decision of the District Court upon the 

ground that no court case was relied on by it to find that 

Montana's coal severance tax did not contradict a federal 

national policy. On this point, plaintiffs are stoking the 

same furnace as did the District Court. Plaintiffs have 

led us to no decision invalidating a state excise tax based 

on its rate as in contravention of federal policy. 

We conclude that from any viewpoint, whether as a 

question of the power of the State of Montana to levy any 

tax, or its power to levy a tax at the rate here set 

forth, there has been no preemption by the federal government 

in the field of coal severance taxation, or any national 

policy derived from Congressional enactments pursuant to the 

Constitution with which the Montana coal severance tax is in 

conflict. 

THE - FEDERAL MINERAL LANDS LEASING ACT - OF - -- 1920 

Here, plaintiffs assert that the severance tax violates 

the Supremacy Clause of the United States Constitution on 

the ground that the tax grossly distorts the "compromise" 

between the federal government and the states expressed in 

the Mineral LandsLeasing Act of 1920, Chapter 85, 41 Stat. 

437, as amended by the Federal Coal Leasing Amendments Act 

of 1975, Pub. Law No. 94-377, 90 Stat. 1083. 
of a longstanding debate concerning the ownership, disposition and use of federally owned mineral reserves in the 

western territories and states. The result, claim plaintiffs, 

is that the federal government retained the minerals for the 

people of the nation, subject to the payment of a share of 

the mineral royalties to the states in which the minerals 

were located. 

Under the Act of 1920, as amended, fifty percent of 

amounts received by the federal government from sales, 

bonuses, royalties and rental of public lands thereunder 

are returned to the respective states wherein the leased 

lands or deposits are located, for uses specified in the Act. 

Plaintiffs claim Montana is without power, because it 

substantially frustrates national policy, to tax the 

"economic rents" remaining over and above the rents and 

royalty payments. "Economic rents" are defined as the difference 

between the costs of production, including an acceptable 

profit, and the price which the products could obtain in 

the market place. Plaintiffs state that Montana has appropriated the "economic rents", which plaintiffs find to be a 

fundamental frustration of federal policy. 

Here again, plaintiffs argue that they are not required 

to show an express prohibition under federal law; rather 

they contend that substantial frustration of the fulfillment 

of national policy is sufficient to render the state law unconstitutional under the Supremacy clause. 

The principal factor militating against plaintiffs' 

position on this part of their complaint is that Congress 

specifically allowed state taxation under the Mineral Lands 

Leasing Act of 1920. The Act contains this provision (30 

U.S.C. 5189): 
". . . Nothing in this chapter shall be construed 

or held to affect the rights of the States or 

other local authority to exercise any rights which 

they may have, including the right to levy and 

collect taxes upon improvements, output of mines, 

or other rights, property, or assets of any lessee 

of the United States." 

If indeed, a "compromise" was reached with respect to 

the leasing of federally-owned mineral interests in public 

lands, that compromise included, under 30 U.S.C. 8189, the 

right of states to tax the "output of mines". This indeed 

is a clear expression of federal policy and Montana's coal 

severance tax is within that policy. 

In Mid-northern Oil Co. v. Montana (1925), 268 U.S. 

45, 45 S.Ct. 440, 69 L.Ed. 841, affirming id-hrthern Oil , > 

; fl !/, , 1-4 . . \ 

Co. v. Walker (1922), 65 Grit. 414, 211 P. 353, the Supreme 

Court said: 

". . . [Allthough the act deals with the letting of 

public lands and the relations of the government 

to the lessees thereof, nothing in it shall be 

so construed as to affect the rights of the states, 

in respect of such private persons and corporations, 

to levy and collect taxes as though the government 

were not concerned." 268 U.S. at 49, 45 S.Ct. at 

441, 69 L.Ed. at 843. 

The Supreme Court also said: 

"No doubt, what Congress immediately had in mind 

was the necessity of making it clear that, notwithstanding the interest of the government in 

leased lands, the rights of the states to tax 

improvements thereon and the output thereof 

should not be in doubt . . .. We think the proviso 

plainly discloses the intention of Congress that 

persons in corporations contracting with the United 

States under the act, should not, for that reason, 

be ~xempt from any form of state taxation otherwise 

lawful." 268 U.S. at 50, 45 S.Ct. at 441, 469 L.Ed. 

at 843. 

Again the District Court was correct in dismissing 

plaintiffs complaints under count 3 as a matter of law, for 

no justiciable controversy is presented by such count. 

CONCLUSION 

The judgment of the District Court in dismissing the 

plaintiffs complaints is affirmed. 
Justice 

We Concur: 

'ir,tAL-4.&4 

Chief Justice