No. 14982 INTHE SUPREME COURT OF THE STATE OF MONTANA 1980

COMMONWEALTH EDISON COMPANY etal., Plaintiffs and Appellants,

VS

# . STATE OF MONTANA et al., Defendants and Respondents, and LAKE SUPERIOR DISTRICT POWER COMPANY etal., Plaintiffs and Appellants,

VS

# . STATE OF MONTANA etal., Defendants and Respondents.

Appeal from: DistrictCourt of the FirstJudicial District, Hon. Peter G. Meloy, District Court Judge Counsel of Record: For Appellants: Hooks and Budewitz, Townsend, Montana John Carlargued, Butte, Montana Rogers and Wells, New York, N.Y. WilliamP. Rogers argued and WilliamR. 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 StateTax Commissioner, Bismark, North Dakota

Submitted: April 21, 1980 

## IULi- 

### 1980 Decided: -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 unconstitutionallyburdens interstate commerce, and unconstitutionally frustrates federalpolicy. Commonwealth Edison Company and its coplaintiffs brought one action for this purpose, and Lake Superior District Power Company and its coplaintiffsbrought a second action. Because the issues are the same, the actions were consolidated. The District Court granted defendantstmotions to dismiss the complaintsbefore trial, finding as a matter of law that they did not state claims upon which relief could be granted. Judgmentwas entered in each case in favor of the defendants and theplaintiffs appealed. Since each case comes to us on appeal from a judgment of dismissal,we accept the factswhich are well-pleaded in the complaints as true. Thiswas the rule before we adopted the Montana Rules of Civil Procedure,Heis )fer v. Severy (1945),117Mont. 105, 111, 158 P.2d 501, 503, and is the rule now. However, conclusionsof law in the pleadings need not be accepted by this Court as binding under a judgmenton

amotion to dismiss. Allegations of conclusionsof law present no issuable facts. Waite v. StandardAccident 

### 4d<,i InsuranceCo. (1957), 132Mont. 220, 315 P.2d484. If therefore factual issues exist which should have been considered by the DistrictCourtprior to granting judgment, the judgment -2-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 contentionsof plaintiffs

on their appeal;we have examined the pleadings, and the grounds of themotion 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 impermissibleunder the Supremacy Clause of the United States Constitution as frustrating national policies and statutes? 3. Is the coal severance tax impermissibleunder the Supremacy Clause of the United States Constitution as frustrating national policies contained in the Mineral Lands Leasing Act of 1920? THE TAXAND 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. Itnow 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 accordancewith the following schedule:"Heating quality Surface (Btuper 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 salesprice. 

### " (2) The formulawhich 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 calendaryear." 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 amendmentwas 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 aswell as in underground coalmining 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 TonsIn the general election of 1976 the Montana voters amended their state constitutionby adding a new Section 5 to Article IX, 1972Montana Constitution. In essence the constitutional addition provides that from and after December 31, 1979, at least fifty percent of the severance tax collected shallbe dedicated to a trust fund, the principal of which is to remain inviolate unless appropriatedby a vote of three-fourths of themembers of each house of the legislature. This Court notes inpassing 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 onmineral 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. Somemodifications in computation agreed to by the mining company ameliorated that condition in subsequentyears. Nevertheless,Montana's experience had shown that its mineral wealth could be exhausted and exportedwith little left inMontana 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 thatwould provide both for the present and the futurewhen the coal depositswere 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 -5-some $87,000,000 and accrued interest in protested taxes should have to be returnedby 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 taxwhich isbeing 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 soldby the producer in Montana. Section 15-35-103, MCA. Thus in this case, only the coal producing plaintiffs

are actuallypaying 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 coalproducers have no real issue at stake here. Nevertheless the coalproducers have the only vital stake in this casebecause 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 theproducing 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 StatesConstitution provides inArticle I, Section 8, that Congress shall have the power "to regulate -6-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 theholdings of the United States Supreme Court in Heisler, Oliver 

### -- Iron Co., and 

### --- Hope Gas Co., infra,no longer have any force. Theplaintiffs do not allow that Montana can tax a purely local event such as the severance of coal from a seamor 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. Theplaintiffs 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, theplaintiffs contend that at somepoint 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 coalwhich may eventually enter interstate commerce except 

### by federal sufferance; such sufferance ceases when the tax can be construed to hamper or obstruct commercebetween 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 onmanufacturing

(AmericanMfg. Co. v. St. Louis (1919),250 U.S. 459, 39 S.Ct. 522, 63L.Ed. 1084); producing (HopeGas Co. v. Hall

(1927), 274 U.S. 284, 47 S.Ct. 639, 71 L.Ed. 1049); and extracting (OliverIronCo. v. Lord (1923),262 U.S. 172, 43 S.Ct. 526, 67L.Ed. 929); Heisler v. Thomas Colliery Co. -7-(1922),260 U.S. 245, 43 S.Ct. 83, 67L.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. Yetwe 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 reservedpower. Notwithstanding, itmust 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 IronCo., and Heisler, supra. The 

### --- -- cases on which plaintiffs rely for this contentionmay be summarized as follows: (1)Labor Board v. Jones & Laughlin (1937),301 U.S. 1, 57 S.Ct. 615, 81 L.Ed. 893,upholding theNLRA 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; Parkerv. 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 themechanical test of Heisler; Freemanv. Hewit (1946),329 U.S. 249, 67 S.Ct. -8-274, 91L.Ed. 265, holding unconstitutional the application of an Indiana gross income tax act to the sales of securities by brokers inNew York; the securitiesbeing assets of an Indiana estate, and incidentally,applying the commerce clause to intangibles aswell as to tangibles;Nippert v. Richmond (1946), 327 U.S. 416, 66 S.Ct. 586, 90L.Ed. 760, strikingdown 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, strikingdown a North Carolina statutewhich prescribed the labeling oC containers inwhich apples were to be sold in that state; A. & P. Tea Co. v. Cottrell (1976),424 U.S. 366, 96 S.Ct. 923, 47L.Ed.2d 55,holding unconstitutional the application of a Mississippi regulation thatmilk and milk products could be sold inMississippi from another state only if the other statehad reciprocalprovisions for ~ississippi milk, where a Louisiana producer was refused a permit fromMississippi; CompleteAuto Transit, Inc. v. Brady (1977), 430 U.S. 274, 97 S.Ct. 1076, 51L.Ed.2d 326, reh.den. 430U.S. 976,whichwe will discussmore 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. Plaintiffshave 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 togetherwith some examples: -9-(1) When Congress has asserted its regulatory powers under congressional acts. Labor Board v. Jones & Laughlin, supra; Parker v. Brown, supra. (2) When the Stateengages inregulatory activity of interstatecommerce. Pike v. Bruce Church, Inc., supra; A. & P. TeaCo. 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 taxon an activitywhich isnot incommerce. 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 inissuehere fellintothe fourth category. The District Court further found that the cases inthe fourth category involved a local incident subject tothe state's reserved power of taxation on goods which preceded their entry into interstatecommerce. We agree. It is fairjudicial policy forus not toregard as controllinghere dicta found incases inwhich the United States Supreme Court has upheld the regulatory powers of Congress under the commerce acts. See, forexample of dicta, Labor Board v. Jones & Laughlin, supra; Parker v. Brown, supra. It islikewise fairjudicial policy forus not tofeel bound hereby dicta found incases involving states which have engaged inregulation of interstatecommerce. Again,

see Pike v. Bruce Church, Inc., supra; Philadelphia vdNew Jersey (1978), 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475. Nor dowe feelbound orcontrolledby dicta found incases decided by theUnited States Supreme Court involving states -10-ormunicipalities 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 theUnited StatesSupreme Court has directly upheld statetaxation of production, extraction ormanufacturing. While theplaintiffs have contended that the trend of the United States Supreme Court decisions has been tomove away from the holdings inHeisler, Oliver Iron Co., and -- Hope GasCo., supra, we do not find that contention supported --- incases involving state taxes. Indeed, ifwe can read the trend of the decisions, it has been the policy of the Supreme Court to'openup and toallow, not toprevent, 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 statetaxation of interstatecommerce, LeLoup+,v. Port of Mobile (1887), 127 U.S. 640, 8 S.Ct. 1380, 32 L.Ed. 311, toa ruleofr~commodation which recognizes that interstate commerce, inutilizing the services and protections of a stateisrequired to "pay itsway". See Western Live Stock v. Bureau (1938), 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823. For thisreason the Supreme Court has upheld statetaxation which intrudesupon interstate commerce butwhere there existlocal incidents which justify state taxationnevertheless. General Motors v. Washington (19641, 377 U.S. 436, 84 S.Ct. 1564, 12L.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 thatmultiple taxation by other states on the same activity is not a threat, provide a basiswhich has brought about the standards -11-announced by the Supreme Court in CompleteAuto Transit, Inc. v. Brady, supra, to find constitutionalpermissibility 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 inWisconsin using a geographical system of accounting which reflected only itsWisconsin 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 competitiveprices. Exxon had no exploration,production or refining operations in Wisconsin in the taxable years in question. Only marketing inWisconsinwas carried on by Exxon. Nonetheless, Wisconsin treated Exxon as a unit, and apportioned its income in suchmanner that a taxwas 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. Itheld 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 taxwas 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. (CompareMont. Dept. of Rev. 

### v. Am. Smelting & Refining (1977), 173Mont. 316, 567 P.2d 901.) Mobile Oil Corp. v. Com'r. of Taxes ofVermont (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 substantialprivilege of carrying on business within the state. These recent casesbuttress 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 nexuswith 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 onproduction and extraction. In Freemanv. 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 taxesmay 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 flowwhich for more than 150 yearshas been the ward of the commerce clause." 329 U.S. at 256, 67 S.Ct. at 278, 91L.Ed. 274. In likemanner, state taxation ofmanufacturing within a state has also been upheld, though manufacturing of goods destined for commercemay 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 commerceand within the reserved taxing powers of the states ismanifest. InAlaska v. Arctic Maid, supra, for example, the court found thatAlaska's taxing of the gathering and freezing of fish taken fromAlaska's territorial waters by shipswas a "preliminary local business'', to be compared with Oliver 

### -- Iron Co., supra, as its "firstcousin"; 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 SupremeCourt, we find this portent: there is no indication by the United States Supreme Court that its historical judicial sanction of state taxation onproduction, 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 Courtwill be as consistent in this area in the future as it has been in the past. See Federal CompressCo. v. McLean (1934),291 U.S. 17, 54 S.Ct. 267, 78 L.Ed. 622; and Chassaniolv. 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 sufficientrevenues from the severanceof oil and gas within its borders that its -14-1980 legislature, before itsrecent adjournment, provided $900 million inan inviolate trust, not unlike Montana's, from those revenues. Such examples of local taxes could be added toalmost stateby state. No more important case on thepower of states tolevy taxes can be imagined than is presented here. For if therate of tax on a local activity, 

### --- 

### - as here, can be found toviolate the commerce clause, then certainly the amount 

### -- of tax raised by a stateon a local activityis inthe same jeopardy. Were we orthe United States Supreme Court toreach that result, then we should see, in thewords of theold spiritual that "the walls came a-tumblin' down.

### '" Plaintiffs' attack here is another in a series that seeks toassailand overturn the recognized power of statesinthese regards. In Be1OilCorporation 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 inLouisiana. In Industrial Uranium Co. v. StateTax Commission (1963), 95 Ariz. 130, 387 P.2d 1013, an Arizona privilege taxon 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 severanceof natural gas inOklahoma withstood a commerce clause attack. Allof these courts relied, as we do, on the continued adherence by theUnited States Supreme Court toits steadycourse of sanction inthese fields. On thebasis that the severance of coalhere is a taxable event thatprecedes entry into interstatecommerce, we rulewithout hesitation that plaintiffs cannot prevail on theirclaims under count I of their complaints, because Montana's coal severance tax does not violate the commerce clause. The severanceof coal by mining is not an interstate activity.In oral argument, the plaintiffs asked us to give them a straightup-and-down decision on whether the coal severance taxwas 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. Inmaking their commerce clause argument, the plaintiffs have contended thatwewere 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 "privilegeof doing business in that state". The earlier case of SpectorMotor Servicev. 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 interstatebusiness 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 theirpractical effect and must be examined in light of a four-pronged test of that practical effect: (1) Whether the tax is applied to an activitywith a substantial nexuswith 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 commerceunder certain conditions. Applying the CompleteAuto 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 canbe no argument here that a substantial, in fact, the only nexus of the severanceof 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 ofmultiple 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 servicesprovided by the state. The taxpayers here, the coal producers, have the right to and the availability of all the governmental comforts and protectionwhich this stateprovides. Since the United States Supreme Court is tending toward the position that interstate commerce must pay itsway in the respective states affected thereby, it iswith logic of great force thatMontana can require strip-coalmining 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-coalmining. 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: "Forour purposes the decisive issue turns on the operating incidents of the tax. In other words, the question iswhether the State has exerted its power inproper 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 statepoints 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 imposedby a state. It is said: "A tax is not an assessment of benefits. It is, aswe have said,ameans of distributing the burden of the cost of government. The only benefit to which the taxpayer is constitutionally entitled is that derived fromhis enjoyment of the privileges of living in an organized society, established and safeguardedby 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 thosewho pay them, and would involve the abandonment of themost fundamental principle of government--that it exists primarily to provide for the public good." Carmichaelv. 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 legislaturehas determined that its coal severance tax is fairly related to the governmental servicesMontana provides, and to the benefits of a trainedwork force and the advantages of a civilized society. See, Japan Line,Ltd. v. County of Los Angeles (1979),441U.S. 434, 99 S.Ct. 1813, 60 L.Ed.2d 336;Washington Rev. Dept.

v. StevedoringAssn., supra. We are not talking here about "user"charges or like fees imposed for the use of state facilitieswhere the charge for the servicemust bear some fair relation to the service or property provided for use. Such "user"charges are capable of being determined. See Evansville Airport v. DeltaAirlines (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 thatpurpose by themere fact that a government is thereby maintained. It is onlywhen 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 situationswhere a state or local taxing authority adopts a tax that intrudes upon, hampers or obstructs in some fashion interstate commerce. Ithas no application in this case to the intrastate severance of coal by mining. But even if CompleteAuto 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 indicationof the impactof 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 themine, 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 $20per 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 (beforethe recent price increases)or the state and city sales taxes on goods and services found in most localities. On the same tack,whenwe 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 ispassed on to the utility consumers, itmust be admitted that this is because of the particular terms of the coal contracts of purchase entered into by the utility-plaintiffs. Itwould 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 consumersbecause Montana does not have amonopoly in the production of coal. Montana coal must compete in the market with coalproduced in Wyoming,North Dakota, and other

sources of supply. Under those circumstances,economic factorswill determine whether the producers will shoulder all or part of the tax, orpass 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 orproducts eventuallymoving 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 orproducts originating therein ormanufactured 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 rulewould make state government taxation of goods and products a judicialmorass. It is for these reasons thatwe 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 theproducer from the realty in Montana at its value when sold in Montana. In that light we have no difficulty in finding thatMontana has the power as a state to tax the severance of coalwithin itsborders. Plaintiffs contended in oral argument that because the coal bought by the utilities from the producerswas already under contract for sale when mined, that the instant the coalwas severed, itwas 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 themoment 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 finepoints here. The severance itself is a taxable event and the Montana statuteshere tax that event in advance of any entry of the coal into commerce. In otherwords, the coal isproduced 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 stateswould have to concede that any power of a state to tax the production of products which may eventually enter into interstate commerce is at thewhim or forbearance of the federalgovernment. 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 coalproducing 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 judicialnotice, 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 onmatters 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 onematerial to our decision in this case,but nonetheless requires a comment lest our silencebe considered an admission of its substance. -22-The nonissue raised by plaintiffs is that since a good deal of the coalbeing mined by plaintiffs or potentially to bemined (inoral argument itwas 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 otherminerals inmany of its patents or deeds of grant. We assume this situationgives 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 ismined and removed from its original place, subject only to the royalty rights of the lessor, Olson v. Pedersen (1975),194Neb. 159, 231 N.W.2d 310, the same as with oil and gas. DeMik v. Cargill (Okla. 1971), 485 P.2d 229. Montanamay impose taxes on theprivate 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 orpermit. When the coal is mined, the federal government is inno differentposition as a lessor than a private lessorwho grants amining lease orpermit. -23-THE SUPREMACY CLAUSE "This [federal] Constitution and the Laws of the United Stateswhich shallbe made in Pursuance thereof", statesU.S. CONST..Art. VI, C1. 2,

# ".

.

# . shall be the supreme Law of the Land 

# ...." Here plaintiffs contend thatMontana's coal severance tax ispreempted because it "frustratesand impairs" implementation of federalpo1icy;that the DistrictCourt misconceived the nationalpolicies involved here; that the overall national energy policy is to encourage a greatly expanded production and use ofwestern coal; and that the question of substantial frustration is one of factwhich cannotbe determined on thepleadings. Montana responds that the plaintiffs have failed to allege or to identify any "Lawsof 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 "supremeLaw of the Land". Themotion 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 fulfillmentof nationalpolicies and purposes of certain acts of Congress." (App. 27)Under this argumentplaintiffs contend that proof of "substantialfrustration" does not requireplaintiffs to show a specific Congressional intent to preempt the field

(Pl. Brief at 60). In fine, plaintiffshave contended that it is not the tax,but the rate of the taxwhich constitutes an obstacle 

## - --- to federalpolicy 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 statementsmade 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), 430U.S. 519, 525-526, 97 S.Ct. 1305, 51 L.Ed.2d 604; reh-den. (1977),431U.S. 925, 97 S.Ct. 2201, 53 L.Ed.2d 240; De Canas v. Bica (1976),424 U.S. 351, 357n. 5, 96 S.Ct. 933, 47L.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),17U.S. 415 (4Wheat. 316),

In making its determinationon the preemption issue, the District Court examined the following acts of Congress submitted or cited to the District Court as acts which defined the federalpolicies in the field: Powerplant and IndustrialFuel UseAct of 1978 Pub. LawNo. 95-620,92 Stat. 3289 Natural Gas PolicyAct of 1978 Pub. LawNo. 95- 621, 92 Stat. 3351 Energy Conservation and ProductionAct Pub. Law No. 94-385, 90 Stat. 1125 Energy Policy and Conservation Act Pub. LawNo. 94-163, 89 Stat. 871 FederalNonnuclear Energy Research and Development Act of 1974 Pub. LawNo. 93-577, 88 Stat. 1878Energy Reorganization Act of 1974 Pub. LawNo. 93-438, 88 Stat. 1233 Energy Supply and Environmental CoordinationAct of 1974, Pub. LawNo. 93-319, 88 Stat. 246 Emergency Petroleum AllocationAct of 1973, Pub. LawNo. 93-159, 87 Stat. 627 CleanAir Amendments of 1970 Pub. LawNo. 91- 604, 84 Stat. 1676 From those acts, the District Court determined that therewas a nationalpolicy 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

onmining 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 severanceof coal. Instead, plaintiffs contend that the District Court should have allowed a factualhearing to determine whether the rate of Montana's coal severance tax substantially frustrates nationalpolicy; and that the order of the District Court precluded plaintiffs fromproving what the national energy policy was. Some seventy or eighty years ago it used to be argued that the Constitutionof 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 supportof 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 lawunder the preemption argument. Out of the welter of caseswhich 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 ithad clearly conflicted with an act of Congress in the field (M'Cullochv. 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 rulewhich we think inheres in any of the United States Supreme Court decisions on the subject is set out in Penn Dairiesv. Milk Control Comm'n. (1943),318 U.S. 261, 275,

"Anunexpressed purpose of Congress to set aside statutesof 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 statutesby 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 statepower by Congressional legislation. 

# ".

.. Courts should guard against resolving these competing considerations of policy by imputing to Congress a decision which quite clearly ithas not undertaken tomake. Furthermorewe shouldbe slow to strike down legislationwhich the state concededly had power to enact,because of its asserted burden on the federal government. For the state ispowerless to remove the ill effects of our decision, while the national government,which has the ultimate power, remains free to remove the burden."Themere statementby the plaintiffs that the Montana coal severance tax substantially frustrates a national policy for the use ofwestern coal is not a sufficient basis to trigger a factualdetermination in the District Court. The scope and substance of nationalpolicy 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 Corporationv. Milbury (1stCir. 1977), 549 F.2d 230, 233; Blackburn v. Fisk University (6thCir. 1971), 443 F.2d 121, 124. Whether we agree here with plaintiffs that the decision of the District Courtwas only to the effect that no federal enactmentsprohibited 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 orwhich 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 enactmentspredicated upon a Montana coal severance tax of fifteenpercent or less. Indeed, the federal enactments point in other directions. There are incentives for the development of underground coal mines. 42U.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 requirementsare enforced upon strip coalminers. 30 U.S.C. 8801,et seq. Royalties on federal lands are payable under the Mineral Lands LeasingAct 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 ofwhich 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, requiresusers of low sulfur coal nevertheless to install the "besttechnological system of continuous emission reduction"required for all stationary sources, even though such systemsmay 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. Congresswould rather that eastern and midwestern plants used "localcoal",even coal with higher sulfur content thanwestern 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 shallbe made in pursuance of [the federal constitution]." What iswanting inplaintiffs 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(2Peters 449), 7 L.Ed. 481. This power cannotbe set aside or limited on weightless statements that a federalpolicy isbeing substantially frustrated. Contrary to the contention of plaintiffs, De Canasv. Bica,supra,was not sentback 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, 424U.S. at 363-364, 96 S.Ct. at 940, 47 L.Ed.2d at 53-54. In Exxon Corp. v. Governor of Maryland (1978), 437U.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: "Appellantspoint out 

# .

# . . the 

# . ..basic national policy favoring free competition,and argue that the Maryland statute 'undermine[sI1 the competitivebalance that Congress struck between the Robinson-Patman and ShermanActs. 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 ShermanAct 

## -- our 'charterof economic liberty.' Northern Pacific R. Co. v. United States, 356 U.S. 1, 4. Nevertheless,this sort of conflictcannot itself constitute a sufficient reason for invalidating the Maryland statute. For if an adverse effect on competitionwere, in and of itself, enough to render a state statute invalid, the Statestpower to engage in economic regulation would be effectively destroyed. We are, therefore, satisfied that neither the broad implications of the ShermanAct nor the Robinson-PatmanAct 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 cumulativehere. Plaintiffs have attacked the decision of the District Court upon the ground that no court casewas 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. Plaintiffshave led us to no decision invalidating a state excise tax based

on its rate as in contravention of federalpolicy. We conclude that from any viewpoint, whether as a question of the power of the State of Montana to levy any tax, or itspower 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 Constitutionwith which the Montana coal severance tax is in conflict. THE 

### -FEDERALMINERAL LANDS LEASINGACT -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 LeasingAmendmentsAct of 1975, 

### Pub. LawNo. 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, claimplaintiffs, is that the federal government retained the minerals for the people of the nation, subject to the payment of a share of themineral royalties to the states inwhich the minerals

were located. Under the Act of 1920, as amended, fiftypercent 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 claimMontana iswithout power, because it substantially frustrates national policy, to tax the "economic rents" remaining over and above the rents and royaltypayments. "Economicrents" are defined as the difference between the costs of production, including an acceptable profit, and theprice which the products could obtain in themarket place. Plaintiffs state that Montana has appropriated the "economicrents",which plaintiffs find to be a fundamental frustration of federalpolicy. Here again, plaintiffs argue that they are not required to show an expressprohibition 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. Theprincipal factor militating against plaintiffs' position on thispart 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 rightswhich theymay 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 federalpolicy and Montana's coal

severance tax iswithin that policy. InMid-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: 

# ".

.

# . [Allthoughthe 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 suchprivate 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: "Nodoubt, what Congress immediatelyhad in mind was the necessity ofmaking 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 complaintsunder count 3 as amatter of law, for no justiciable controversy ispresented 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