Source: https://supreme.justia.com/cases/federal/us/453/609/
Timestamp: 2019-04-22 16:51:41+00:00

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Montana imposes a severance tax on each ton of coal mined in the State, including coal mined on federal land. The tax is levied at varying rates depending on the value, energy content, and method of extraction of the coal, and may equal, at a maximum, 30% of the "contract sales price." Appellants, certain Montana coal producers and 11 of their out-of-state utility company customers, sought refunds, in a Montana state court, of severance taxes paid under protest and declaratory and injunctive relief, contending that the tax was invalid under the Commerce and Supremacy Clauses of the United States Constitution. Without receiving any evidence, the trial court upheld the tax, and the Montana Supreme Court affirmed.
1. The Montana severance tax does not violate the Commerce Clause. Pp. 453 U. S. 614-629.
"is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to services provided by the State."
Pp. 453 U. S. 614-617.
appellants' contention that they are entitled to an opportunity to prove that the tax is not "fairly related to the services provided by the State" by showing that the amount of the taxes collected exceeds the value of the services provided to the coal mining industry. The fourth prong of the Complete Auto Transit test requires only that the measure of the tax be reasonably related to the extent of the taxpayer's contact with the State, since it is the activities or presence of the taxpayer in the State that may properly be made to bear a just share of the state tax burden. Because it is measured as a percentage of the value of the coal taken, the Montana tax, a general revenue tax, is in proper proportion to appellants' activities within the State, and, therefore, to their enjoyment of the opportunities and protection which the State has afforded in connection with those activities, such as police and fire protection, the benefit of a trained workforce, and the advantages of a civilized society. The appropriate level or rate of taxation is essentially a matter for legislative, not judicial, resolution. Pp. 453 U. S. 617-629.
2. Nor does Montana's tax violate the Supremacy Clause. Pp. 453 U. S. 629-636.
(a) The tax is not invalid as being inconsistent with the Mineral Lands Leasing Act of 1920, as amended. Even assuming that the tax may reduce royalty payments to the Federal Government under leases executed in Montana, this fact alone does not demonstrate that the tax is inconsistent with the Act. Indeed, in § 32 of the Act, Congress expressly authorized the States to impose severance taxes on federal lessees without imposing any limits on the amount of such taxes. And there is nothing in the language or legislative history of the Act or its amendments to support appellants' assertion that Congress intended to maximize and capture through royalties all "economic rents" (the difference between the cost of production and the market price of the coal) from the mining of federal coal, and then to divide the proceeds with the State in accordance with the statutory formula. The history speaks in terms of securing a "fair return to the public" and if, as was held in Mid-Northern Oil Co. v. Walker, 268 U. S. 45, the States, under § 32, may levy and collect taxes as though the Federal Government were not concerned, the manner in which the Federal Government collects receipts from its lessees and then shares them with the States has no bearing on the validity of a state tax. Pp. 453 U. S. 629-633.
demonstrate a congressional intent to preempt all state legislation that may have an adverse impact on the use of coal. Nor is Montana's tax preempted by the Powerplant and Industrial Fuel Use Act of 1978. Section 601(a)(2) of that Act clearly contemplates the continued existence, not the preemption, of state severance taxes on coal. Furthermore, the legislative history of that section reveals that Congress enacted the provision with Montana's tax specifically in mind. Pp. 453 U. S. 633-636.
___ Mont. ___, 615 P.2d 87, affirmed.
MARSHALL, J., delivered the opinion of the Court in which BURGER, C.J., and BRENNAN, STEWART, WHITE, and REHNQUIST, JJ., joined. WHITE, J., filed a concurring opinion, post, p. 453 U. S. 637. BLACKMUN, J., filed a dissenting opinion, in which POWELL and STEVENS, JJ., joined, post, p. 453 U. S. 638.
Montana, like many other States, imposes a severance tax on mineral production in the State. In this appeal, we consider whether the tax Montana levies on each ton of coal mined in the State, Mont.Code Ann. § 15-35-101 et seq. (1979), violates the Commerce and Supremacy Clauses of the United States Constitution.
16, 1974); Montana Legislative Council Fossil Fuel Taxation (1974), in 1975, the Montana Legislature enacted the tax schedule at issue in this case. Mont.Code Ann. § 15-35-103 (1979). The tax is levied at varying rates depending on the value, energy content. and method of extraction of the coal, and may equal, at a maximum, 30% of the "contract sales price." [Footnote 1] Under the terms of a 1976 amendment to the Montana Constitution, after December 31, 1979, at least 50% of the revenues generated by the tax must be paid into a permanent trust fund, the principal of which may be appropriated only by a vote of three-fourths of the members of each house of the legislature. Mont. Const., Art. IX, § 5.
Appellants, 4 Montana coal producers and 11 of their out-of-state utility company customers, filed these suits in Montana state court in 1978. They sought refunds of over $5.4 million in severance taxes paid under protest, a declaration that the tax is invalid under the Supremacy and Commerce Clauses, and an injunction against further collection of the tax. Without receiving any evidence, the court upheld the tax and dismissed the complaints.
commerce. In this regard, the Montana court relied on this Court's decisions in Heisler v. Thomas Colliery Co., 260 U. S. 245 (1922), Oliver Iron Mining Co. v. Lord, 262 U. S. 172 (1923), and Hope Natural Gas Co. v. Hall, 274 U. S. 284 (1927), which employed similar reasoning in upholding state severance taxes against Commerce Clause challenges. As an alternative basis for its resolution of the Commerce Clause issue, the Montana court held, as a matter of law, that the tax survives scrutiny under the four-part test articulated by this Court in Complete Auto Transit, Inc. v. Brady, 430 U. S. 274 (1977). The Montana court also rejected appellants' Supremacy Clause [Footnote 3] challenge, concluding that appellants had failed to show that the Montana tax conflicts with any federal statute.
We noted probable jurisdiction, 449 U.S. 1033 (1980), to consider the important issues raised. We now affirm.
As an initial matter, appellants assert that the Montana Supreme Court erred in concluding that the Montana tax is not subject to the strictures of the Commerce Clause. In appellants' view, Heisler's "mechanical" approach, which looks to whether a state tax is levied on goods prior to their entry into interstate commerce, no longer accurately reflects the law. Appellants contend that the correct analysis focuses on whether the challenged tax substantially affects interstate commerce, in which case it must be scrutinized under the Complete Auto Transit test.
We agree that Heisler's reasoning has been undermined by more recent cases. The Heisler analysis evolved at a time when the Commerce Clause was thought to prohibit the States from imposing any direct taxes on interstate commerce.
Cos., supra, at 435 U. S. 743-751; Complete Auto Transit, Inc. v. Brady, supra, at 430 U. S. 277-279. We conclude that the same "practical" analysis should apply in reviewing Commerce Clause challenges to state severance taxes.
Co. v. Richmond, 249 U. S. 252, 249 U. S. 259 (1919). Consequently, the Heisler Court's concern that a loss of state taxing authority would be an inevitable result of subjecting taxes on "local" activities to Commerce Clause scrutiny is no longer tenable.
430 U.S. at 430 U. S. 279.
Appellants do not dispute that the Montana tax satisfies the first two prongs of the Complete Auto Transit test. As the Montana Supreme Court noted, "there can be no argument here that a substantial, in fact, the only, nexus of the severance of coal is established in Montana." ___ Mont. at ___, 615 P.2d at 855. Nor is there any question here regarding apportionment or potential multiple taxation, for as the state court observed, "the severance can occur in no other state" and "no other state can tax the severance." Ibid. Appellants do contend, however, that the Montana tax is invalid under the third and fourth prongs of the Complete Auto Transit test.
to citizens of other States. But the Montana tax is computed at the same rate regardless of the final destination of the coal, and there is no suggestion here that the tax is administered in a manner that departs from this evenhanded formula. We are not, therefore, confronted here with the type of differential tax treatment of interstate and intrastate commerce that the Court has found in other "discrimination" cases. See, e.g., Maryland v. Louisiana, 451 U. S. 725 (1981); Boston Stock Exchange v. State Tax Comm'n, 429 U. S. 318 (1977); cf. Lewis v. BT Investment Managers, Inc., 447 U. S. 27 (1980); Philadelphia v. New Jersey, 437 U. S. 617 (1978).
Instead, the gravamen of appellants' claim is that a state tax must be considered discriminatory for purposes of the Commerce Clause if the tax burden is borne primarily by out-of-state consumers. Appellants do not suggest that this assertion is based on any of this Court's prior discriminatory tax cases. In fact, a similar claim was considered and rejected in Heisler. There, it was argued that Pennsylvania had a virtual monopoly of anthracite coal, and that, because 80% of the coal was shipped out of State, the tax discriminated against and impermissibly burdened interstate commerce. 260 U.S. at 251-253 [argument of counsel -- omitted]. The Court, however, dismissed these factors as "adventitious considerations." Id. at 260 U. S. 259. We share the Heisler Court's misgivings about judging the validity of a state tax by assessing the State's "monopoly" position or its "exportation" of the tax burden out of State.
and interstate commerce, there are no state lines.'" See Boston Stock Exchange v. State Tax Comm'n, supra, at 429 U. S. 331-332. Consequently, to accept appellants' theory and invalidate the Montana tax solely because most of Montana's coal is shipped across the very state borders that ordinarily are to be considered irrelevant would require a significant and, in our view, unwarranted departure from the rationale of our prior discrimination cases.
In any event, appellants' discrimination theory ultimately collapses into their claim that the Montana tax is invalid under the fourth prong of the Complete Auto Transit test: that the tax is not "fairly related to the services provided by the State." 430 U.S. at 430 U. S. 279. Because appellants concede that Montana may impose some severance tax on coal mined in the State, [Footnote 9] the only remaining foundation for their discrimination theory is a claim that the tax burden borne by the out-of-state consumers of Montana coal is excessive. This is, of course, merely a variant of appellants' assertion that the Montana tax does not satisfy the "fairly related" prong of the Complete Auto Transit test, and it is to this contention that we now turn.
the rate of the Montana tax, and even then, their only complaint is that the amount the State receives in taxes far exceeds the value of the services provided to the coal mining industry. In objecting to the tax on this ground, appellants may be assuming that the Montana tax is, in fact, intended to reimburse the State for the cost of specific services furnished to the coal mining industry. Alternatively, appellants could be arguing that a State's power to tax an activity connected to interstate commerce cannot exceed the value of the services specifically provided to the activity. Either way, the premise of appellants' argument is invalid. Furthermore, appellants have completely misunderstood the nature of the inquiry under the fourth prong of the Complete Auto Transit test.
"Nothing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit from its expenditure, and who are not responsible for the condition to be remedied."
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 abandonment of the most fundamental principle of government -- that it exists primarily to provide for the common good."
Carmichael v. Southern Coal Coke Co., 301 U. S. 495, 301 U. S. 521-523 (1937) (citations and footnote omitted). See St. Louis & S.W. R. Co. v. Nattin, 277 U. S. 157, 277 U. S. 159 (1928); Thomas v. Gay, 169 U. S. 264, 169 U. S. 280 (1898).
There is no reason to suppose that this latitude afforded the States under the Due Process Clause is somehow divested by the Commerce Clause merely because the taxed activity has some connection to interstate commerce; particularly when the tax is levied on an activity conducted within the State.
"The exploitation by foreign corporations [or consumers] of intrastate opportunities under the protection and encouragement of local government offers a basis for taxation as unrestricted as that for domestic corporations."
the cost of doing business.'"
Colonial Pipeline Co. v. Traigle, 421 U. S. 100, 421 U. S. 108 (1975), quoting Western live Stock v. Bureau of Revenue, 303 U.S. at 303 U. S. 254. The "just share of state tax burden" includes sharing in the cost of providing "police and fire protection, the benefit of a trained workforce, and the advantages of a civilized society.'" Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U. S. 207, 447 U. S. 228 (1980), quoting Japan Line, Ltd. v. County of Los Angeles, 441 U. S. 434, 441 U. S. 445 (1979). See Washington Revenue Dept. v. Association of Wash. Stevedoring Cos., 435 U.S. at 435 U. S. 750-751; id. at 435 U. S. 764 (POWELL, J., concurring in part and concurring in result); General Motors Corp. v. Washington, 377 U. S. 436, 377 U. S. 440-441 (1964).
"is free to pursue its own fiscal policies, unembarrassed by the Constitution, if by the practical operation of a tax the state has exerted its power in relation to opportunities which it has given, to protection which it has afforded, to benefits which it has conferred by the fact of being an orderly, civilized society."
"[T]he validity of the tax rests upon whether the State is exacting a constitutionally fair demand for that aspect of interstate commerce to which it bears a special relation. For our purposes, the decisive issue turns on the operating incidence 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. . . . As was said in Wisconsin v. J. C. Penney Co., 311 U. S. 435, 311 U. S. 444 (1940), '[t]he simple but controlling question is whether the state has given anything for which it can ask return.'"
"the incidence of the tax as well as its measure [must be] tied to the earnings which the State . . . has made possible, insofar as government is the prerequisite for the fruits of civilization for which, as Mr. Justice Holmes was fond of saying, we pay taxes."
Against this background, we have little difficulty concluding that the Montana tax satisfies the fourth prong of the Complete Auto Transit test. The "operating incidence" of the tax, see General Motors Corp. v. Washington, 377 U.S. at 377 U. S. 440-441, is on the mining of coal within Montana. Because it is measured as a percentage of the value of the coal taken, the Montana tax is in "proper proportion" to appellants' activities within the State, and, therefore, to their "consequent enjoyment of the opportunities and protections which the State has afforded" in connection with those activities. Id. at 377 U. S. 441. Cf. Nippert v. Richmond, 327 U.S. at 327 U. S. 427.
When a tax is assessed in proportion to a taxpayer's activities or presence in a State, the taxpayer is shouldering its fair share of supporting the State's provision of "police and fire protection, the benefit of a trained workforce, and the advantages of a civilized society.'" Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U.S. at 447 U. S. 228, quoting Japan Line, Ltd. v. County of Los Angeles, 441 U.S. at 441 U. S. 445.
U.S. 369 (1974); Magnano Co. v. Hamilton, 292 U. S. 40 (1934). In essence, appellants ask this Court to prescribe a test for the validity of state taxes that would require state and federal courts, as a matter of federal constitutional law, to calculate acceptable rates or levels of taxation of activities that are conceded to be legitimate subjects of taxation. This we decline to do.
In the first place, it is doubtful whether any legal test could adequately reflect the numerous and competing economic, geographic, demographic, social, and political considerations that must inform a decision about an acceptable rate or level of state taxation, and yet be reasonably capable of application in a wide variety of individual cases. But even apart from the difficulty of the judicial undertaking, the nature of the factfinding and judgment that would be required of the courts merely reinforces the conclusion that questions about the appropriate level of state taxes must be resolved through the political process. Under our federal system, the determination is to be made by state legislatures in the first instance, and, if necessary, by Congress when particular state taxes are thought to be contrary to federal interests. [Footnote 18] Cf. Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. at 445 U. S. 448-449; Moorman Mfg. Co. v. Bair, 437 U.S. at 437 U. S. 280.
"[t]he only benefit to which the taxpayer is constitutionally entitled . . . [:] 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."
Carmichael v. Southern Coal & Coke Co., 301 U.S. at 301 U. S. 522. Correspondingly, when the measure of a tax bears no relationship to the taxpayers' presence or activities in a State, a court may properly conclude under the fourth prong of the Complete Auto Transit test that the State is imposing an undue burden on interstate commerce. See Nippert v. Richmond, 327 U.S. at 327 U. S. 427; cf. Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U. S. 157 (1954). We are satisfied that the Montana tax assessed under a formula that relates the tax liability to the value of appellant coal producers' activities within the State comports with the requirements of the Complete Auto Transit test. We therefore turn to appellants' contention that the tax is invalid under the Supremacy Clause.
"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."
"Congress . . . meant by the proviso to say, in effect, that, although the act deals with the letting of public lands and the relations of the [federal] government to the lessees thereof, nothing in it shall be so construed as to affect the right of the states, in respect of such private persons and corporations, to levy and collect taxes as though the government were not concerned. . . ."
Mid-Northern Oil Co. v. Walker, 268 U. S. 45, 268 U. S. 48-50 (1925) (emphasis added). It necessarily follows that, if the Montana tax is "otherwise lawful," the 1920 Act does not forbid it.
therefore reject appellants' contention that the Montana tax must be invalidated as inconsistent with the Mineral Lands Leasing Act.
The final issue we must consider is appellants' assertion that the Montana tax is unconstitutional because it substantially frustrates national energy policies, reflected in several federal statutes, encouraging the production and use of coal, particularly low-sulfur coal such as is found in Montana. Appellants insist that they are entitled to a hearing to explore the contours of these national policies and to adduce evidence supporting their claim that the Montana tax substantially frustrates and impairs the policies.
"to reduce the demand for petroleum products and natural gas through programs designed to provide greater availability and use of this Nation's abundant coal resources."
"[p]reemption of state law by federal statute or regulation is not favored 'in the absence of persuasive reasons -- either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained.'"
Chicago & North Western Transp. Co. v. Kalo Brick & Tile Co., 450 U. S. 311, 450 U. S. 317 (1981), quoting Florida Lime & Avocado Growers, Inc. v. Paul, 373 U. S. 132, 373 U. S. 142 (1963). See Alessi v. Rabestos-Manhattan, Inc., 451 U. S. 504, 451 U. S. 522 (1981); Jones v. Rath Packing Co., 430 U. S. 519, 430 U. S. 525-526 (1977); Perez v. Campbell, 402 U. S. 637, 402 U. S. 649 (1971). In cases such as this, it is necessary to look beyond general expressions of "national policy" to specific federal statutes with which the state law is claimed to conflict. [Footnote 21] The only specific statutory provisions favoring the use of coal cited by appellants are those in PIFUA.
"increased revenues, including severance tax revenues, royalties, and similar fees to the State and local governments which are associated with the increase in coal or uranium development activities . . . shall be taken into account in determining if a State or local government lacks financial resources."
This section clearly contemplates the continued existence, not the preemption, of state severance taxes on coal and other minerals.
"As I pointed out [see Tr. 1822, Legislative History, at 777], Montana already collects $3 a ton on severance taxes on coal and still enjoys a 50 percent royalty return. As the price of coal goes up . . . , these severance taxes, in addition, go up."
"This is a percentage tax, not a flat tax in most instances."
"If we are going to merely determine on the basis of impact on a particular community in a state how much money is going to go to that community, without taking into account how much that community is enriched, I think we are going to have people who are so angry at us in Congress. . . ."
trial is necessary to resolve the issue of the constitutionality of the tax. Consequently, the judgment of the Supreme Court of Montana is affirmed.
Under Mont.Code Ann. § 15-35-103 (1979), the value of the coal is determined by the "contract sales price," which is defined as "the price of coal extracted and prepared for shipment f.o.b. mine, excluding the amount charged by the seller to pay taxes paid on production. . . ." § 15-35-102(1). Taxes paid on production are defined in § 13-35-102(6). Because production taxes are excluded from the computation of the value of the coal, the effective rate of the tax is lower than the statutory rate.
"Congress shall have Power . . . To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes. . . ." U.S.Const., Art. I, § 8, cl. 3.
The "Constitution, and the Laws of the United States . . . shall be the Supreme Law of the Land. . . ." U.S.Const., Art. VI, cl. 2.
"nationalize all industries, it would nationalize and withdraw from state jurisdiction and deliver to federal commercial control the fruits of California and the South, the wheat of the West and its meats, the cotton of the South, the shoes of Massachusetts and the woolen industries of other States, at the very inception of their production or growth, that is, the fruits unpicked, the cotton and wheat ungathered, hides and flesh of cattle yet 'on the hoof,' wool yet unshorn, and coal yet unmined, because they are in varying percentages destined for, and surely to be exported to, States other than those of their production."
260 U.S. at 260 U. S. 259-260.
Of course, the "fruits of California" and the "wheat of the West" have long since been held to be within the reach of the Commerce Clause. Pike v. Bruce Church, Inc., 397 U. S. 137 (1970); Wickard v. Filburn, 317 U. S. 111 (1942).
The Heisler approach has been criticized as unresponsive to economic reality. See Hellerstein, Constitutional Constraints on State and Local Taxation of Energy Resources, 31 Nat.Tax.J. 245, 249 (1978); Brown, The Open Economy: Justice Frankfurter and the Position of the Judiciary, 67 Yale L.J. 219, 232-233 (1957); Developments in the Law: Federal Limitations on State Taxation of Interstate Business, 75 Harv.L.Rev. 953, 970-971 (1962) (Developments).
The Heisler approach has forced the Court to draw distinctions that can only be described as opaque. Compare, for example, East Ohio Gas Co. v. Tax Comm'n, 283 U. S. 465 (1931) (movement of gas into local supply lines at reduced pressure constitutes local business), with State Tax Comm'n v. Interstate Natural Gas Co., 284 U. S. 41 (1931) (movement of gas into local supply lines constitutes part of interstate business).
This is not to suggest, however, that Heisler and its progeny were wrongly decided.
Nor do we share appellants' apparent view that the Commerce Clause injects principles of antitrust law into the relations between the States by reference to such imprecise standards as whether one State is "exploiting" its "monopoly" position with respect to a natural resource when the flow of commerce among them is not otherwise impeded. The threshold questions whether a State enjoys a "monopoly" position and whether the tax burden is shifted out of state, rather than borne by in-state producers and consumers, would require complex factual inquiries about such issues as elasticity of demand for the product and alternative sources of supply. Moreover, under this approach, the constitutionality of a state tax could well turn on whether the in-state producer is able, through sales contracts or otherwise, to shift the burden of the tax forward to its out-of-state customers. As the Supreme Court of Montana observed, "[i]t would be strange indeed if the legality of a tax could be made to depend on the vagaries of the terms of contracts." ___ Mont. ___, ___, 615 P.2d 847, 856 (1980). It has been suggested that the "formidable evidentiary difficulties in appraising the geographical distribution of industry, with a view toward determining a state's monopolistic position, might make the Court's inquiry futile." Developments, supra, n 5, at 970. See Hellerstein, supra, n 5, at 248-249.
Since this Court has held that interstate commerce must bear its fair share of the state tax burden, see Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 303 U. S. 254 (1938), appellants cannot argue that no severance tax may be imposed on coal primarily destined for interstate commerce.
"legitimate local impact costs [of coal mining] -- for schools, roads, police, fire and health protection, and environmental protection and the like -- might amount to approximately 2 [cents] per ton, compared to present average revenues from the severance tax alone of over 2.00 per ton."
Brief for Appellants 12. Appellants contend that, inasmuch as 50% of the revenues generated by the Montana tax is "cached away, in effect, for unrelated and unknown purposes," it is clear that the tax is not fairly related to the services furnished by the State. Reply Brief for Appellants 8.
At oral argument before the Montana Supreme Court, appellants' counsel suggested that a tax of "perhaps twelve and a half to fifteen percent of the value of the coal" would be constitutional. ___ Mont. at ___, 615 P.2d at 851.
Contrary to appellants' suggestion, the fact that 50% of the proceeds of the severance tax is paid into a trust fund does not undermine the Montana court's conclusion that the tax is a general revenue tax. Nothing in the Constitution prohibits the people of Montana from choosing to allocate a portion of current tax revenues for use by future generations.
As the Court has stated, "such imposition, although termed a tax, cannot be tested by standards which generally determine the validity of taxes." Interstate Transit, Inc. v. Lindsey, 283 U. S. 183, 283 U. S. 190 (1931). Because such charges are purportedly assessed to reimburse the State for costs incurred in providing specific quantifiable services, we have required a showing, based on factual evidence in the record, that "the fees charged do not appear to be manifestly disproportionate to the services rendered. . . ." Clark v. Paul Gray, Inc., 306 U.S. at 306 U. S. 599. See id. at 306 U. S. 598-600; Ingels v. Morf, 300 U.S. at 300 U. S. 296-297.
"partak[e] . . . of the nature of a rent charged by the State, based upon its proprietary interest in its public property, [rather] than of a tax, as that term is thought of in a technical sense."
Id. at 122. See generally id. at 122-130.
Most of the States raise revenue by levying a severance tax on mineral production. The first such tax was imposed by Michigan in 1846. See U.S. Dept. of Agric., State Taxation of Mineral Deposits and Production (1977). By 1979, 33 States had adopted some type of severance tax. See U.S. Bureau of Census, State Government Tax Collections in 1979, Table 3, p. 6 (1980).
The fourth prong of the Complete Auto Transit test is derived from General Motors, J. C. Penney, and similar cases. See 430 U.S. at 430 U. S. 279, n. 8; see also National Geographic Society v. California Board of Equalization, 430 U. S. 551, 430 U. S. 558 (1977).
Indeed, the words "amount" and "value" were not even used in Complete Auto Transit. See 430 U.S. at 430 U. S. 279. Similarly, our cases applying the Complete Auto Transit test have not mentioned either of these words. See Exxon Corp. v. Wisconsin Dept. of Revenue, 447 U. S. 207, 447 U. S. 228 (1980); Mobil Oil Corp. v. Commissioner of Taxes, 445 U. S. 425, 445 U. S. 443 (1980); Japan Line, Ltd. v. County of Los Angeles, 441 U. S. 434, 441 U. S. 444-445 (1979); Washington Revenue Dept. v. Association of Wash. Stevedoring Cos., 435 U. S. 734, 435 U. S. 750 (1978); National Geographic Society v. California Board of Equalization, supra, at 430 U. S. 558.
In any event, the linchpin of appellants' contention is the incorrect assumption that the amount of state taxes that may be levied on an activity connected to interstate commerce is limited by the costs incurred by the State on account of that activity. Only then does it make sense to advocate judicial examination of the relationship between taxes paid and benefits provided. But as we have previously noted, see supra at 453 U. S. 623-624, interstate commerce may be required to contribute to the cost of providing all governmental services, including those services from which it arguably receives no direct "benefit." In such circumstances, absent an equal protection challenge (which appellants do not raise) and unless a court is to second-guess legislative decisions about the amount or disposition of tax revenues, it is difficult to see how the court is to go about comparing costs and benefits in order to decide whether the tax burden on an activity connected to interstate commerce is excessive.
"so arbitrary as to compel the conclusion that it does not involve an exertion of the taxing power, but constitutes, in substance and effect, the direct exertion of a different and forbidden power, as, for example, the confiscation of property."
Magnano Co. v. Hamilton, 292 U. S. 40, 292 U. S. 44 (1934).
The controversy over the Montana tax has not escaped the attention of the Congress. Several bills were introduced during the 96th Congress to limit the rate of state severance taxes. See S. 2695, H.R. 6625, H.R. 6654 and H.R. 7163. Similar bills have been introduced in the 97th Congress. See S. 178, H.R. 1313.
As originally enacted in 1920, § 35 of the Mineral Lands Leasing Act, ch. 85, 41 Stat. 450, 30 U.S.C. § 191 (1970 ed.), provided that all receipts from the leasing of public lands under the Act were to be paid into the United States Treasury and then divided as follows: 37.5% to the State in which the leased lands are located, 52.5% to the reclamation fund created by the Reclamation Act of 1902, ch. 1093, § 1, 32 Stat. 388, 43 U.S.C. § 391; and the remaining 10% to be deposited in the Treasury under "miscellaneous receipts."
Section 35 was amended by § 9(a) of the 1975 Amendments to provide for a new statutory formula which is currently in effect. Under this formula, the State in which the mining occurs receives 50% of the revenues, the reclamation fund receives 40%, and the United States Treasury the remaining 10%. 30 U.S.C. § 191.
Indeed, appellants alleged in their complaints that the contracts between appellant coal producers and appellant utility companies require the utility companies to reimburse the coal produces for their severance tax payments, and that the ultimate incidence of the tax primarily falls on the utilities' out-of-state customers. Complaint ¦¦ 17, 18, App. to Juris.Statement (J.S.App.) 53a-54a. Presumably, with regard to these contracts, the Federal Government's receipts will be unaffected by the Montana tax.
Thus, in Exxon, after rejecting the "national policy" preemption argument, the Court went on to consider more focused allegations concerning alleged conflicts between the state law and specific provisions of the Robinson-Patman Act. 437 U.S. at 437 U. S. 129-133.
Appellants' assertion that the Montana tax is preempted by the Clean Air Act, 42 U.S.C. § 7401 et seq. (1976 ed., Supp. III), merits little discussion. The Clean Air Act does not mandate the use of coal; it merely prescribes standards governing the emission of sulfur dioxide when coal is used. Any effect those standards might have on the use of high or low sulphur coal is incidental.
This is a very troublesome case for me, and I join the Court's opinion with considerable doubt and with the realization that Montana's levy on consumers in other States may, in the long run, prove to be an intolerable and unacceptable burden on commerce. Indeed, there is particular force in the argument that the tax is here and now unconstitutional. Montana collects most of its tax from coal lands owned by the Federal Government, and hence by all of the people of this country, while at the same time sharing equally and directly with the Federal Government all of the royalties reserved under the leases the United States has negotiated on its land in the State of Montana. This share is intended to compensate the State for the burdens that coal mining may impose upon it. Also, as JUSTICE BLACKMUN cogently points out, post at 453 U. S. 643, n. 9 another 40% of the federal revenue from mineral leases is indirectly returned to the States through a reclamation fund. In addition, there is statutory provision for federal grants to areas affected by increased coal production.
or federal statutory policy in the field of energy or otherwise. The constitutional authority and the machinery to thwart efforts such as those of Montana, if thought unacceptable, are available to Congress, and surely Montana and other similarly situated States do not have the political power to impose their will on the rest of the country. As I presently see it, therefore, the better part of both wisdom and valor is to respect the judgment of the other branches of the Government. I join the opinion and the judgment of the Court.
JUSTICE BLACKMUN, with whom JUSTICE POWELL and JUSTICE STEVENS join, dissenting.
"A tailored tax, however accomplished, must receive the careful scrutiny of the courts to determine whether it produces a forbidden effect on interstate commerce."
Id. at 430 U. S. 288-289, n. 15. In this case, appellants have alleged that Montana's severance tax on coal is tailored to single out interstate commerce, and that it produces a forbidden effect on that commerce because the tax bears no "relationship to the services provided by the State." Ibid. The Court today concludes that appellants are not entitled to a trial on this claim. Because I believe that the "careful scrutiny" due a tailored tax makes a trial here necessary, I respectfully dissent.
"While coal is not as scarce as natural gas, most of the Montana coal now produced is committed for sale under long-term contracts, and will be purchased with this tax added to its price."
"the combined coal reserves of Montana and North Dakota are simply too great a part of the nation's fossil fuel resources to be ignored because of taxes at these levels. [Footnote 2/6]"
As the Montana Legislature foresaw, the imposition of this severance tax has generated enormous revenues for the State. Montana collected $33.6 million in severance taxes in fiscal year 1978, H.R.Rep. No. 96-1527, pt. 1, p. 3 (1980), and appellants alleged that it would collect not less than $40 million in fiscal year 1979. App. to Juris.Statement 55a. It has been suggested that, by the year 2010, Montana will have collected more than $20 billion through the implementation of this tax. Hearings 22 (statement of Rep. Vento).
No less remarkable is the increasing percentage of total revenue represented by the severance tax. In 1972, the then-current flat rate severance tax on coal provided only 0.4% of Montana's total tax revenue; in contrast, in the year following the 1975 amendment, the coal severance tax supplied 11.4% of the State's total tax revenue. See Griffin & Shelton, Coal Severance Tax Policies in the Rocky Mountain States, 7 Policy Studies J. 29, 33 (1978) (Griffin). Appellants assert that the tax now supplies almost 20% of the State's total revenue. Tr. of Oral Arg. 31. Indeed, the funds generated by the tax have been so large that, beginning in 1980, at least 50% of the severance tax is to be transferred and dedicated to a permanent trust fund, the principal of which must "forever remain inviolate" unless appropriated by a vote of three-fourths of the members of each house of the legislature. Mont.Const., Art. IX, § 5. Moreover, in 1979, Montana passed legislation providing property and income tax relief for state residents. 1979 Mont.Laws, ch. 698.
provided by the State within the meaning of our prior cases. They do suggest, however, that appellants' claim is a substantial one. The failure of the Court to acknowledge this stems, it seems to me, from a misreading of our prior cases. It is to those cases that I now turn.
Id. at 430 U. S. 279. See Maryland v. Louisiana, 451 U. S. 725, 451 U. S. 754 (1981).
that the first two prongs of the test -- substantial nexus and fair apportionment -- are satisfied here. The Court also correctly observes that Montana's severance tax is facially neutral. It does not automatically follow, however, that the Montana severance tax does not unduly burden or interfere with interstate commerce. The gravamen of appellants' complaint is that the severance tax does not satisfy the fourth prong of the Complete Auto Transit test, because it is tailored to, and does, force interstate commerce to pay more than its way. Under our established precedents, appellants are entitled to a trial on this claim.
"'[i]t was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden, even though it increases the cost of doing the business.'"
"these benefits are relevant here only to show that the essential requirements of due process have been met sufficiently to justify the imposition of any tax on the interstate activity."
"'depends upon other considerations of constitutional policy having reference to the substantial effects, actual or potential, of the particular tax in suppressing or burdening unduly the commerce,'"
"at pains to do so in a manner which avoids the evils forbidden by the commerce clause and puts that commerce actually on a plane of equality with local trade in local taxation."
Nippert, 327 U.S. at 327 U. S. 434 (emphasis added).
"[a]ny tailored tax of this sort creates an increased danger of error in apportionment, of discrimination against interstate commerce, and of a lack of relationship to the services provided by the State."
"Not the tax in a vacuum of words, but its practical consequences for the doing of interstate commerce in applications to concrete facts are our concern."
"is not likely to be alleviated by those political restraints which are normally exerted on legislation where it affects adversely interests within the state."
the Court's cases suggest that we require a closer "fit" under the fourth prong of the Complete Auto Transit test than when interstate commerce has not been singled out by the challenged tax.
taxpayers to shoulder a tax burden grossly in excess of any costs imposed directly or indirectly by such taxpayers on the State."
singles out this particular interstate activity and charges it with a grossly disproportionate share of the general costs of government, [Footnote 2/18] the court must determine whether there is some reasonable basis for the legislative judgment that the tax is necessary to compensate the State for the particular costs imposed by the activity.
the solidarity and prosperity of this Nation by the meaning it has given to these great silences of the Constitution."
Montana and Wyoming together contain 40% of all United States coal reserves and 68% of all reserves of low-sulfur coal. H.R.Rep. No. 96-1527, pt. 1, p. 3 (1980).
Together with Wyoming, Montana supplied 10% of the United States' demand for coal in 1977; it is estimated that Montana and Wyoming will supply 33% of the Nation's coal by 1990. Hearings 22 (statement of Rep. Vento).
The pre-1975 rate was 12, 22, 34, or 40 cents per ton, depending on the Btu content of the coal mined. Krutilla at 50. Appellants state that coal taxed at 34 cents per ton prior to the 1975 amendment is now typically taxed at the effective rate of $2.08 per ton. Brief for Appellants 7-8.
In fact, the study of coal production taxes commissioned by the Montana Legislature in 1974, see ante at 453 U. S. 612-613, found that, while other States may have imposed a higher overall tax burden on coal, "no coal state had, through 1973, higher severance and property taxes than Montana." Subcommittee on Fossil Fuel Taxation, Interim Study on Fossil Fuel Taxation 14 (1974). Thus, even prior to the 1975 amendment, "Montana and its local governments tax[ed] the production of fossil fuels at a higher level than any competitive state. . . ." (Emphasis in original.) Ibid.
North Dakota taxes lignite at a flat rate that is estimated to equal about 20% of value. See H.R.Rep. No. 96-1527, pt. 1, p. 3 (1980). Apparently inspired by these examples, Wyoming increased its state severance and local ad valorem taxes to a combined total of approximately 17 1/2% of value. Wyo.Stat.Ann. §§ 39-2-202, 39-2-402, 39-6-302(a)-(f), and 39-6-303(a) (1977 and Supp.1980). See H.R.Rep. No. 96-1527, pt. 1, p. 3 (1980). With the possible exception of North Dakota's tax on lignite, the severance taxes imposed by Montana and Wyoming are higher than the taxes imposed on energy reserves by any other State. Ibid.
"to investigate the feasibility and value of multi-state taxation of coal with the Dakotas and Wyoming, and to contract and cooperate joining with these other states to achieve that end. . . ."
House Resolution No. 45, 1974 Mont.Laws, p. 1620. The Subcommittee recommended that the Executive pursue this goal. Subcommittee on Fossil Fuel Taxation, supra, at 2.
"Most of Montana's coal is shipped out of state to power plants and utility companies in the Midwest. In reviewing the [long-term] contracts between the coal companies and the utility companies who purchase the coal, all of the contracts that were shown to our Legislative Committee contain an escalation clause for taxes. In other words, the local companies simply add the additional taxes to their bill, and the entire cost is passed on to the purchasers in the Midwest or elsewhere. Because most of the purchasers are regulated utility companies, it is reasonable to assume these companies will, in turn, pass on their extra costs to their customers."
Towe, Explanation of Reasons for Montana's Coal Tax 4, cited in Brief for Appellants 34.
The Montana Supreme Court observed that, under Montana law, facts well pleaded in the complaint must be accepted as true on review of a judgment of dismissal; it therefore necessarily held that appellants could not prevail "under any view of the alleged facts." ___ Mont. ___, ___, 615 P.2d 847, 849 (1980). See also Tr. of Oral Arg. 17-18.
In addition to the severance tax on coal, Montana imposes a gross proceeds tax, Mont.Code Ann. § 15-6-132 (1979), a resource indemnity trust tax, § 15-38-104, a property tax on mining equipment, § 15-6-138(b), and a corporation license tax, § 15-31-101. See Krutilla at 50-54. Furthermore, all costs of reclamation must be borne by the coal companies under both federal and state law, and Montana requires each company to purchase a reclamation bond prior to the commencement of mining operations. § 82-4-338.
"to be used by such State and its subdivisions, as the legislature of the State may direct giving priority to those subdivisions of the State socially or economically impacted by development of minerals leased under this chapter, for (i) planning, (ii) construction and maintenance of public facilities, and (iii) provision of public service. . . ."
Mineral Lands Leasing Act of 1920, § 35, 41 Stat. 450, as amended, 30 U.S.C. § 191. An additional 40% of this federal revenue from mineral leases is indirectly returned to the States through a reclamation fund. Ibid. Moreover, § 601 of the Powerplant and Industrial Fuel Use Act of 1978, Pub.L. 9620, 92 Stat. 3323, 42 U.S.C. § 8401 (1976 ed., Supp. III), authorizes federal grants to areas affected by increased coal production.
This is a marked departure from the Court's prior cases. Rather than suggesting such a mechanical test, those cases imply that a tax will be struck down under the fourth prong of the Complete Auto Transit test if the plaintiff establishes a factual record that the tax is not fairly related to the services and protection provided by the State. See, e.g., Washington Revenue Dept. v. Association of Wash. Stevedoring Cos., 435 U. S. 734, 435 U. S. 750-751 (1978); id. at 435 U. S. 764 (POWELL,.J., concurring in part and concurring in result). See Merrion v. Jicarilla Apache Tribe, 617 F.2d 537, 545, n. 4 (CA10) (en banc), cert. granted, 449 U.S. 820 (1980). Even the trial court in the present case recognized that, if it reached this question, it "would necessarily have to deny the motion to dismiss and proceed to a factual determination." App. 37a.
As the example of Alaska illustrates, this prospect is not a fanciful one. Ninety percent of Alaska's revenue derives from petroleum taxes and royalties; because of the massive sums that have been so raised, that State's income tax has been eliminated. See N.Y. Times, June 5, 1981, section 1, p. A10, col. 1. As noted above, Montana's severance tax already allegedly accounts for 20% of its total tax revenue, and the State has enacted property and income tax relief.
"[t]he fact that a tax is contingent upon events brought to pass without a state does not destroy the nexus between such a tax and transactions within a state for which the tax is an exaction."
Id. at 311 U. S. 445. In General Motors, the question before the Court was the validity of an unapportioned tax on the gross receipts of a corporation in interstate commerce. The Court concluded that there was a sufficient nexus to uphold the tax. 377 U.S. at 377 U. S. 448. See id. at 377 U. S. 449-450 (BRENNAN, J., dissenting).
"on proper application, to determine whether, under the conditions prevailing in a given case, the charge made is reasonably proportionate to the service to be rendered and the liabilities involved, or whether it is a disguised attempt to impose a burden on interstate commerce."
Id. at 249 U. S. 260.
The Court has continued to scrutinize carefully taxes on interstate commerce that are designed to reimburse the State for the particular costs imposed by that commerce. See, e.g., Evansville-Vanderburgh Airport Authority Dist. v. Delta Airlines, Inc., 405 U. S. 707 (1972); Clark v. Paul Gray, Inc., 306 U. S. 583 (1939); Ingels v. Morf, 300 U. S. 290 (1937). In analyzing such taxes, it has required that there be factual evidence in the record that "the fees charged do not appear to be manifestly disproportionate to the services rendered." Clark, 306 U.S. at 306 U. S. 599. The Court concludes that this test has no bearing here because the Montana Supreme Court held that the coal severance tax was "imposed for the general support of the government.'" Ante at 453 U. S. 621. In fact, however, the matter is not nearly so clear as the Court suggests. The Montana court also implied that the tax was designed at least in part to compensate the State for the special costs attributable to coal mining, ___ Mont. at ___, ___ , 615 P.2d at 850, 855, as have appellees here. Brief for Appellees 1-3, 26-27.
"(a) preserve or modestly increase revenues going to the general fund,(b) to respond to current social impacts attributable to coal development, and (c) to invest in the future, when new energy technologies reduce our dependence on coal and mining activity may decline."
Statement to Accompany the Report of the Free Joint Conference Committees on Coal Taxation 1 (1975). Since the tax was designed only to "preserve or modestly increase" general revenues, it is appropriate for a court to inquire here whether the "surplus" revenue Montana has received from this severance tax is "manifestly disproportionate" to the present or future costs attributable to coal development.
Complete Auto Transit gave several examples of "tailored" taxes: property taxes designed to differentiate between property used in transportation and other types of property; an income tax using different rates for different types of business; and a tax on the "privilege of doing business in corporate form" that changed with the nature of the corporate activity involved. 430 U.S. at 430 U. S. 288, n. 15. A severance tax using different rates for different minerals is, of course, directly analogous to these examples.
See also Washington Revenue Dept. v. Association of Wash. Stevedoring Cos., 435 U. S. 734, 435 U. S. 754-755 (1978); id. at 435 U. S. 764 (POWELL, J., concurring in part and concurring in result).
The degree to which a tax may be "exported" turns on such factors as the taxing jurisdiction's relative dominance of the market, the elasticity of demand for the product, and the availability of adequate substitutes. See, e.g., McLure, Economic Constraints on State and Local Taxation of Energy Resources, 31 Nat.Tax J. 257, 257-259 (1978); Posner at 510-512. Commentators are in disagreement over the likelihood that coal severance taxes are, in fact, exported. Compare, e.g., McLure at 259, and Gillis & Peprah, Severance Taxes on Coal and Uranium in the Sunbelt, Tex.Bus.Rev. 302, 308 (1980), with Church at 277 and Griffin at 33. It is clear, however, that that likelihood increases to the extent that the taxing States form a cartel arrangement. Gillis at 308. See n. 5, supra. Whether the tax is, in fact, exported here is, of course, an issue for trial.
There is no basis for the conclusion that the issues presented would be more difficult than those routinely dealt with in complex civil litigation. See, e.g., Milwaukee v. Illinois, 451 U. S. 304, 451 U. S. 349 (1981) (dissenting opinion). "The complexity of a properly presented federal question is hardly a suitable basis for denying federal courts the power to adjudicate." Id. at 451 U. S. 349, n. 25.
See n. 13, supra. Cf. Maryland v. Louisiana, 451 U. S. 725, 451 U. S. 755, n. 27 (1981) (reciting argument of United States that use of 75% of proceeds of Louisiana's "First-Use Tax" to service general debt, and only 25% to alleviate alleged environmental damage from pipeline activities, suggests that tax was not fairly apportioned to value of activities occurring within the State).
As the Court notes, the issue has not escaped congressional attention. Ante at 453 U. S. 628, n. 18. No bill, however, has yet been passed, and this Court is not disabled to act in the interim; to the contrary, strong policy and institutional considerations suggest that it is appropriate that the Court consider this issue. See Brown at 222. Indeed, whereas Montana argues that the question presented here is one better left to Congress, in 1980 hearings before the Senate Committee on Energy and Natural Resources, the then Governor of Montana took the position that the reasonableness of this tax was "a question most properly left to the court," not a congressional committee. See Hearing on S. 2695 before the Senate Committee on Energy and Natural Resources, 96th Cong., 2d Sess., 237 (1980).
"I do not think the United States would come to an end if we lost our power to declare an Act of Congress void. I do think the Union would be imperiled if we could not make that declaration as to the laws of the several States. For one in my place sees how often a local policy prevails with those who are not trained to national views, and how often action is taken that embodies what the Commerce Clause was meant to end."
O. Holmes, Law and the Court, in Collected Legal Papers 291, 295-296 (reprint, 1952).
I agree with the Court that appellants' Supremacy Clause claims are without merit.

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