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Commonwealth Edison Co. v. Montana (full text) :: 453 U.S. 609 (1981) :: Justia U.S. Supreme Court Center Log In
› Commonwealth Edison Co. v. Montana
Commonwealth Edison Co. v. Montana 453 U.S. 609 (1981)
U.S. Supreme CourtCommonwealth Edison Co. v. Montana, 453 U.S. 609 (1981)Commonwealth Edison Co. v. MontanaNo. 80-581Argued March 30, 1981Decided July 2, 1981453 U.S. 609APPEAL FROM THE SUPREME COURT OF MONTANA
(b) Montana's tax comports with the requirements of the Complete Auto Transit test. The tax is not invalid under the third prong of the test on the alleged ground that it discriminates against interstate commerce because 90% of Montana coal is shipped to other States under contracts that shift the tax burden primarily to non-Montana utility companies, and thus to citizens of other States. There is no real discrimination, since the tax is computed at the same rate regardless of the final destination of the coal and the tax burden is borne according to the amount of coal consumed, not according to any distinction between in-state and out-of-state consumers. Nor is there any merit to Page 453 U. S. 610 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.
(b) The tax is not unconstitutional on the alleged ground that it frustrates national energy policies, reflected in several federal statutes, encouraging production and use of coal, and appellants are not entitled to a hearing to explore the contours of these national policies and to adduce evidence supporting their claim. General statements in federal statutes reciting the objective of encouraging the use of coal do not Page 453 U. S. 611 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.
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. Page 453 U. S. 612
Buried beneath Montana are large deposits of low-sulfur coal, most of it on federal land. Since 1921, Montana has imposed a severance tax on the output of Montana coal mines, including coal mined on federal land. After commissioning a study of coal production taxes in 1974, see House Resolutions Nos. 45 and 93, Senate Resolution No. 83, 1974 Mont. Laws 1619-1620, 1653-1654, 1683-1684 (Mar. 14 and Page 453 U. S. 613 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.
On appeal, the Montana Supreme Court affirmed the judgment of the trial court. ___ Mont. ___, 615 P.2d 847 (1980). The Supreme Court held that the tax is not subject to scrutiny under the Commerce Clause [Footnote 2] because it is imposed on the severance of coal, which the court characterized as an intrastate activity preceding entry of the coal into interstate Page 453 U. S. 614 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 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. Page 453 U. S. 615 See, e.g., Helson Randolph v. Kentucky, 279 U. S. 245, 279 U. S. 250-252 (1929); Ozark Pipe Line Corp. v. Monier, 266 U. S. 555, 266 U. S. 562 (1925). Consequently, the distinction between intrastate activities and interstate commerce was crucial to protecting the States' taxing power. [Footnote 4]
The Court has, however, long since rejected any suggestion that a state tax or regulation affecting interstate commerce is immune from Commerce Clause scrutiny because it attaches only to a "local" or intrastate activity. See Hunt v. Washington Apple Advertising Comm'n, 432 U. S. 333, 432 U. S. 350 (1977); Pike v. Bruce Church, Inc., 397 U. S. 137, 397 U. S. 141-142 (1970); Nippert v. Richmond, 327 U. S. 416, 327 U. S. 423-424 (1946). Correspondingly, the Court has rejected the notion that state taxes levied on interstate commerce are per se invalid. See, e.g., Washington Revenue Dept. v. Association of Wash. Stevedoring Cos., 435 U. S. 734 (1978); Complete Auto Transit, Inc. v. Brady, supra. In reviewing Commerce Clause challenges to state taxes, our goal has instead been to "establish a consistent and rational method of inquiry" focusing on "the practical effect of a challenged tax." Mobil Oil Corp. v. Commissioner of Taxes, 445 U. S. 425, 445 U. S. 443 (1980). See Moorman Mfg. Co. v. Bair, 437 U. S. 267, 437 U. S. 276-281 (1978); Washington Revenue Dept. v. Association of Wash. Stevedoring Page 453 U. S. 616 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.
In the first place, there is no real distinction -- in terms of economic effect -- between severance taxes and other types of state taxes that have been subjected to Commerce Clause scrutiny. [Footnote 5] See, e.g., Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U. S. 157 (1954); Joseph v. Carter & Weekes Stevedoring Co., 330 U. S. 422 (1947); Puget Sound Stevedoring Co. v. State Tax Comm'n, 302 U. S. 90 (1937), both overruled in Washington Revenue Dept. v. Association of Wash. Stevedoring Cos., supra. [Footnote 6] State taxes levied on a "local" activity preceding entry of the goods into interstate commerce may substantially affect interstate commerce, and this effect is the proper focus of Commerce Clause inquiry. See Mobil Oil Corp. v. Commissioner of Taxes, supra, at 445 U. S. 443. Second, this Court has acknowledged that "a State has a significant interest in exacting from interstate commerce its fair share of the cost of state government," Washington Revenue Dept. v. Association of Wash. Stevedoring Cos., supra, at 435 U. S. 748. As the Court has stated, "[e]ven interstate business must pay its way.'" Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 303 U. S. 254 (1938), quoting Postal Telegraph, Cable Page 453 U. S. 617 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.
Appellants assert that the Montana tax "discriminate[s] against interstate commerce" because 90% of Montana coal is shipped to other States under contracts that shift the tax burden primarily to non-Montana utility companies, and thus Page 453 U. S. 618 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).
The premise of our discrimination cases is that "[t]he very purpose of the Commerce Clause was to create an area of free trade among the several State." McLeod v. J. E. Dilworth Co., 322 U. S. 327, 322 U. S. 330 (1944). See Hunt v. Washington Apple Advertising Comm'n, 432 U.S. at 432 U. S. 350; Boston Stock Exchange v. State Tax Comm'n, supra, at 429 U. S. 328. Under such a regime, the borders between the States are essentially irrelevant. As the Court stated in West v. Kansas Natural Gas Co., 221 U. S. 229, 221 U. S. 255 (1911), "in matters of foreign Page 453 U. S. 619 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.
Furthermore, appellants' assertion that Montana may not "exploit" its "monopoly" position by exporting tax burdens to other States cannot rest on a claim that there is need to protect the out-of-state consumers of Montana coal from discriminatory tax treatment. As previously noted, there is no real discrimination in this case; the tax burden is borne according to the amount of coal consumed, and not according to any distinction between in-state and out-of-state consumers. Rather, appellants assume that the Commerce Clause gives residents of one State a right of access at "reasonable" prices to resources located in another State that is richly endowed with such resources, without regard to whether and on what terms residents of the resource-rich State have access to the resources. We are not convinced that the Commerce Clause, of its own force, gives the residents of one State the right to control in this fashion the terms of resource development and depletion in a sister State. Cf. Philadelphia v. New Jersey, supra, at 437 U. S. 626. [Footnote 8] Page 453 U. S. 620
Appellants argue that they are entitled to an opportunity to prove that the amount collected under the Montana tax is not fairly related to the additional costs the State incurs because of coal mining. [Footnote 10] Thus, appellants' objection is to Page 453 U. S. 621 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.
"A tax is not an assessment of benefits. It is, as we Page 453 U. S. 623 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."
"'[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 Page 453 U. S. 624 the cost of doing business.'"
Furthermore, there can be no question that Montana may constitutionally raise general revenue by imposing a severance tax on coal mined in the State. The entire value of the coal, before transportation, originates in the State, and mining of the coal depletes the resource base and wealth of the State, thereby diminishing a future source of taxes and economic activity. [Footnote 13] Cf. Maryland v. Louisiana, 451 U.S. at 451 U. S. 758-759. In many respects, a severance tax is like a real property tax, which has never been doubted as a legitimate means of raising revenue by the situs State (quite apart from the right of that or any other State to tax income derived from use of the property). See, e.g., Old Dominion S. Co. v. Virginia, 198 U. S. 299 (1905); Western Union Telegraph Co. v. Missouri ex rel. Gottlieb, 190 U. S. 412 (1903); Postal Telegraph Cable Co. v. Adams, 155 U. S. 688 (1895). When, as here, a general revenue tax does not discriminate against interstate commerce and is apportioned to activities occurring within Page 453 U. S. 625 the State, the State
T	he relevant inquiry under the fourth prong of the Complete Auto Transit test [Footnote 14] is not, as appellants suggest, the amount of the tax or the value of the benefits allegedly bestowed as measured by the costs the State incurs on account of the taxpayer's activities. [Footnote 15] Rather, the test is Page 453 U. S. 626 closely connected to the first prong of the Complete Auto Transit test. Under this threshold test, the interstate business must have a substantial nexus with the State before any tax may be levied on it. See National Bellas Hess, Inc. v. Illinois Revenue Dept., 386 U. S. 753 (1967). Beyond that threshold requirement, the fourth prong of the Complete Auto Transit test imposes the additional limitation that the measure of the tax must be reasonably related to the extent of the contact, since it is the activities or presence of the taxpayer in the State that may properly be made to bear a "just share of state tax burden," Western Live Stock v. Bureau of Revenue, 303 U.S. at 303 U. S. 254. See National Geographic Society v. California Board of Equalization, 430 U. S. 551 (1977); Standard Pressed Steel Co. v. Washington Revenue Dept., 419 U. S. 560 (1975). As the Court explained in Wisconsin v. J. C. Penney Co., supra, at 311 U. S. 446 (emphasis added),
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. Page 453 U. S. 627 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.
Appellants argue, however, that the fourth prong of the Complete Auto Transit test must be construed as requiring a factual inquiry into the relationship between the revenues generated by a tax and costs incurred on account of the taxed activity, in order to provide a mechanism for judicial disapproval under the Commerce Clause of state taxes that are excessive. This assertion reveals that appellants labor under a misconception about a court's role in cases such as this. [Footnote 16] The simple fact is that the appropriate level or rate of taxation is essentially a matter for legislative, and not judicial, resolution. [Footnote 17] See Helson & Randolph v. Kentucky, 279 U. S. 245, 279 U. S. 252 (1929); cf. 417 U. S. Alco Parking Corp., 417 Page 453 U. S. 628 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.
Furthermore, the reference in the cases to police and fire protection and other advantages of civilized society is not, as appellants suggest, a disingenuous incantation designed to avoid a more searching inquiry into the relationship between the value of the benefits conferred on the taxpayer and the amount of taxes it pays. Rather, when the measure of a tax is reasonably related to the taxpayer's activities or presence in the State -- from which it derives some benefit such as the Page 453 U. S. 629 substantial privilege of mining coal -- the taxpayer will realize, in proper proportion to the taxes it pays,
Appellants contend that the Montana tax, as applied to mining of federally owned coal, is invalid under the Supremacy Clause because it "substantially frustrates" the purposes of the Mineral Lands Leasing Act of 1920, ch. 85, 41 Stat. 437, 30 U.S.C. § 181 et seq. (1976 ed. and Supp. III) (1920 Act), as amended by the Federal Coal Leasing Amendments Act of 1975, Pub.L. 94-377, 90 Stat. 1083 (1975 Amendments). Appellants argue that, under the 1920 Act, the "economic rents" attributable to the mining of coal on federal land -- i.e., the difference between the cost of production (including a reasonable profit) and the market price of the coal -- are to be captured by the Federal Government in the form of royalty payments from federal lessees. The payments thus Page 453 U. S. 630 received are then to be divided between the States and the Federal Government according to a formula prescribed by the Act. [Footnote 19] In appellants' view, the Montana tax seriously undercuts and disrupts the 1920 Act's division of revenues between the Federal and State Governments by appropriating directly to Montana a major portion of the "economic rents." Appellants contend the Montana tax will alter the statutory scheme by causing potential coal producers to reduce the amount they are willing to bid in royalties on federal leases. As an initial matter, we note that this argument rests on a factual premise -- that the principal effect of the tax is to shift a major portion of the relatively fixed "economic rents" attributable to the extraction of federally owned coal from the Federal Treasury to the State of Montana -- that appears to be inconsistent with the premise of appellants' Commerce Clause claims. In pressing their Commerce Clause arguments, appellants assert that the Montana tax increases the cost of Montana coal, thereby increasing the total amount of "economic rents," and that the burden of the tax is borne by out-of-state consumers, not the Federal Treasury. [Footnote 20] But Page 453 U. S. 631 even assuming that the Montana tax may reduce royalty payments to the Federal Government under leases executed in Montana, this fact alone hardly demonstrates that the tax is inconsistent with the 1920 Act. Indeed, appellants' argument is substantially undermined by the fact that, in § 32 of the 1920 Act, 41 Stat. 450, 30 U.S.C. § 189, Congress expressly authorized the States to impose severance taxes on federal lessees without imposing any limits on the amount of such taxes. Section 32, as set forth in 30 U.S.C. § 189, provides in pertinent part:
"* * * *" "We think the proviso plainly discloses the intention of Congress that persons and corporations contracting with the United States under the act should not, for that reason, be exempt from any form of state taxation otherwise Page 453 U. S. 632 lawful."
Appellants contend that the Montana tax is not "otherwise lawful," because it conflicts with the very purpose of the 1920 Act. We do not agree. There is nothing in the language or legislative history of either the 1920 Act or the 1975 Amendments to support appellants' assertion that Congress intended to maximize and capture all "economic rents" from the mining of federal coal, and then to distribute the proceeds in accordance with the statutory formula. The House Report on the 1975 Amendments, for example, speaks only in terms of a congressional intent to secure a "fair return to the public." H.R.Rep. No. 94-681, pp. 17-18 (1975). Moreover, appellants' argument proves too much. By definition, any state taxation of federal lessees reduces the "economic rents" accruing to the Federal Government, and appellants' argument would preclude any such taxes, despite the explicit grant of taxing authority to the States by § 32. Finally, appellants' contention necessarily depends on inferences to be drawn from §§ 7 and 35 of the 1920 Act, 30 U.S.C. §§ 207 and 191 which, as amended, prescribe the statutory formula for the division of the payments received by the Federal Government. See Complaint ¦¦ 38-41, J.S.App. 57a-58a. Yet § 32 of the 1920 Act, as set forth in 30 U.S.C. § 189, states that "[n]othing in this chapter" -- which includes §§ 7 and 35 -- "shall be construed or held to affect the rights of the States . . . to levy and collect taxes upon . . . output of mines . . . of any lessee of the United States." And if, as the Court has held, the States may "levy and collect taxes as though the [federal] government were not concerned," Mid-Northern Oil Co. v. Walker, supra, at 268 U. S. 49, 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. We Page 453 U. S. 633 therefore reject appellants' contention that the Montana tax must be invalidated as inconsistent with the Mineral Lands Leasing Act.
And § 102(b)(3) of the Powerplant and Industrial Fuel Use Act of 1978 (PIFUA), 92 Stat. 3291, 42 U.S.C. § 8301(b)(3) (1976 ed., Supp. III), recites a similar objective "to encourage and foster the greater use of coal and other alternate fuels, in lieu of natural gas and petroleum, as a primary energy source." We do not, however, accept appellants' implicit suggestion that these general statements demonstrate a congressional intent to preempt all state legislation that may have an adverse impact on the use of coal. In Exxon Corp. v. Governor of Maryland, 437 U. S. 117 (1978), we rejected a preemption argument similar to the one appellants urge here. There, it was argued that the "basic national policy favoring free competition" reflected in the Sherman Act preempted a state law regulating retail distribution of gasoline. Id. at 437 U. S. 133. The Court acknowledged Page 453 U. S. 634 the conflict between the state law and this national policy, but rejected the suggestion that the "broad implications" of the Sherman Act should be construed as a congressional decision to preempt the state law. Id. at 437 U. S. 133-134. Cf. New Motor Vehicle Bd. of California v. Orrin W. Fox Co., 439 U. S. 96, 439 U. S. 110-111 (1978). As we have frequently indicated,
PIFUA prohibits new electric power plants or new major fuel-burning installations from using natural gas or petroleum as a primary energy source, and prohibits existing facilities from using natural gas as a primary energy source after 1989. 42 U.S.C. §§ 8311(1), 8312(a) (1976 ed., Supp. III). Appellants contend that "the manifest purpose of this Act to favor the use of coal is clear." Brief for Appellants 37. As the statute itself makes clear, however, Congress did not intend PIFUA to preempt state severance taxes on coal. Section 601(a)(1) of PIFUA, 92 Stat. 3323, 42 U.S.C. § 8401(a)(1) (1976 ed., Supp. III), provides for federal financial Page 453 U. S. 635 assistance to areas of a State adversely affected by increased coal or uranium mining, based upon findings by the Governor of the State that the state or local government lacks the financial resources to meet increased demand for housing or public services and facilities in such areas. Section 601(a)(2), 42 U.S.C. § 8401(a)(2) (1976 ed., Supp. III), then provides that
"[T]he western states may collect severance taxes on that coal Page 453 U. S. 636 "
In sum, we conclude that appellants have failed to demonstrate either that the Montana tax suffers from any of the constitutional defects alleged in their complaints or that a Page 453 U. S. 637 trial is necessary to resolve the issue of the constitutionality of the tax. Consequently, the judgment of the Supreme Court of Montana is affirmed.
But this very fact gives me pause and counsels withholding our hand, at least for now. Congress has the power to protect interstate commerce from intolerable or even undesirable burdens. It is also very much aware of the Nation's energy needs, of the Montana tax, and of the trend in the energy-rich States to aggrandize their position and perhaps lessen the tax burdens on their own citizens by imposing unusually high taxes on mineral extraction. Yet Congress is so far content to let the matter rest, and we are counseled by the Executive Branch through the Solicitor General not to overturn the Montana tax as inconsistent with either the Commerce Clause Page 453 U. S. 638 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.
The State of Montana has approximately 25% of all known United States coal reserves, and more than 50% of the Nation's low-sulfur coal reserves. [Footnote 2/1] Department of Energy, Demonstrated Reserve Base of Coal in the United States on January 1, 1979, p. 8 (1981); National Coal Assn., Coal Data 1978, p. 14 (1980). Approximately 70-75% of Montana's Page 453 U. S. 639 coal lies under land owned by the Federal Government in the State. See Hearings on H.R. 6625, H.R. 6654, and H.R. 7163 before the Subcommittee on Energy and Power of the House Committee on Interstate and Foreign Commerce, 96th Cong., 2d Sess., 22 (1980) (Hearings) (statement of Rep. Vento). The great bulk of the coal mined in Montana -- indeed, allegedly as much as 90%, see ante at 453 U. S. 617-618 -- is exported to other States pursuant to long-term purchase contracts with out-of-state utilities. See H.R.Rep. No. 96-1527, pt. 1, pp. 3-4 (1980). Those contracts typically provide that the costs of state taxation shall be passed on to the utilities; in turn, fuel adjustment clauses allow the utilities to pass the cost of taxation along to their consumers. Ibid. Because federal environmental legislation has increased the demand for low-sulfur coal, id. at 3, and because the Montana coal fields occupy a "pivotal" geographic position in the midwestern and northwestern energy markets, see J. Krutilla & A. Fisher with R. Rice, Economic and Fiscal Impacts of Coal Development: Northern Great Plains xvi (1978) (Krutilla), Montana has supplied an increasing percentage of the Nation's coal. [Footnote 2/2]
In 1975, following the Arab oil embargo and the first federal coal conversion legislation, the Montana Legislature, by 1975 Mont. Laws, ch. 525, increased the State's severance tax on coal from a flat rate of approximately 34 cents per ton to a maximum rate of 30% of the "contract sales price." Mont.Code Ann. § 15-35-103 (1979). [Footnote 2/3] See H.R.Rep. No. 96-1527, pt. 1, p. 3 (1980). The legislative history of this tax is illuminating. The Joint Conference Committees of the Montana Page 453 U. S. 640 Legislature that recommended this amendment acknowledged: "It is true that this is a higher rate of taxation than that levied by any other American state on the coal industry." [Footnote 2/4] Statement to Accompany the Report of the Free Joint Conference Committees on Coal Taxation 1 (1975). The Committees pointed out, however, that the Province of Alberta, Canada, recently had raised sharply its royalty on natural gas, thereby forcing consumers of Alberta gas in Montana and elsewhere to finance involuntarily Alberta's "universities, hospitals, reduction of other taxes, etc." Ibid. Stating that "we should . . . look north to Alberta," the Conference Committees observed:
Ibid. The Committees noted that, although some new coal contracts might shift to Wyoming to take advantage of that State's lower severance tax, Montana's severance tax was comparable to that recently enacted by North Dakota. [Footnote 2/5] Thus, the Committees Page 453 U. S. 641 had no doubt that the coal industry would grow even with this tax, since
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). Page 453 U. S. 642
Appellants' complaint alleged that Montana's severance tax is ultimately borne by out-of-state consumers, and, for the purposes of this appeal, that allegation is to be treated a true. [Footnote 2/7] Appellants further alleged that the tax bears no reasonable relationship to the services or protection provided by the State. The issue here, of course, is whether they are entitled to a trial on that claim, not whether they will succeed on the merits. It should be noted, however, that Montana imposes numerous other taxes upon coal mining. [Footnote 2/8] In addition, Page 453 U. S. 643 because 70 to 75 of the coal-bearing land in Montana is owned by the Federal Government, Montana derives a large amount of coal mining revenue from the United States as well. [Footnote 2/9] In light of these circumstances, the Interstate and Foreign Commerce Committee of the United States House of Representatives concluded that Montana's coal severance tax results in revenues "far in excess of the direct and indirect impact costs attributable to the coal production." H.R.Rep. No. 96-1527, pt. 1, p. 2 (1980). Several commentators have agreed that Montana and other similarly situated Western States have pursued a policy of "OPEC-like revenue maximization," and that the Montana tax accordingly bears no reasonable relationship to the services and protection afforded by the State. R. Nehring & B. Zycher with J. Wharton, Coal Development and Government Regulation in the Northern Great Plains: A Preliminary Report 148 (1976); Church at 272. See Krutilla at 185. These findings, of course, are not dispositive of the issue whether the Montana severance tax is "fairly related" to the services Page 453 U. S. 644 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.
The Court today acknowledges, and indeed holds, that a Commerce Clause challenge to a state severance tax must be evaluated under Complete Auto Transit's four-part test. Ante at 453 U. S. 617. I fully agree. I cannot agree, however. with the Court's application of that test to the facts of the present case. Appellants concede, and the Court properly concludes, Page 453 U. S. 645 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.
The Court's conclusion to the contrary rests on the premise that the relevant inquiry under the fourth prong of the Complete Auto Transit test is simply whether the measure of the tax is fixed as a percentage of the value of the coal taken. Ante at 453 U. S. 626. This interpretation emasculates the fourth prong. No trial will ever be necessary on the issue of fair relationship so long as a State is careful to impose a proportional, rather than a flat tax, rate; thus, the Court's rule is no less "mechanical" than the approach entertained in Heisler v. Thomas Colliery Co., 260 U. S. 245 (1922), disapproved today, ante at 453 U. S. 617. [Footnote 2/10] Under the Court's reasoning, any ad valorem tax will satisfy the fourth prong; indeed, the Court implicitly ratifies Montana's contention that it is free to tax this coal at 100% or even l,000% of value, should it Page 453 U. S. 646 choose to do so. Tr. of Oral Arg. 21. Likewise, the Court' analysis indicates that Montana's severance tax would not run afoul of the Commerce Clause even if it raised sufficient revenue to allow Montana to eliminate all other taxes upon its citizens. [Footnote 2/11]
"Complete Auto Transit, 430 U.S. at 430 U. S. 279 (emphasis added), quoting Western Live Stock, 303 U.S. at 303 U. S. 254. See Maryland v. Louisiana, 451 U.S. at 451 U. S. 754. Accordingly, Page 453 U. S. 647 interstate commerce cannot claim any exemption from a state tax that "is fairly related to the services provided by the State." Complete Auto Transit, 430 U.S. at 430 U. S. 279. We have not interpreted this requirement of "fair relation" in a narrow sense; interstate commerce may be required to share equally with intrastate commerce 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, e.g., Nippert v. Richmond, 327 U. S. 416, 327 U. S. 433 (1946). Moreover, interstate commerce can be required to "pay its own way" in a narrower sense as well: the State may tax interstate commerce for the purpose of recovering those costs attributable to the activity itself. See, e.g., Postal Telegraph-Cable Co. v. Richmond, 249 U. S. 252 (1919). [Footnote 2/13] Page 453 U. S. 648" The Court has never suggested, however, that interstate commerce may be required to pay more than its own way. The Court today fails to recognize that the Commerce Clause does impose limits upon the State's power to impose even facially neutral and properly apportioned taxes. See ante at 453 U. S. 622-623. In Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U. S. 157, 347 U. S. 163 (1954), Texas argued that no inquiry into the constitutionality of a facially neutral tax on the "taking" of gas was necessary, because the State "has afforded great benefits and protection to pipeline companies." The Calvert Court rejected this argument, holding that
quoting Nippert v. Richmond, 327 U.S. at 327 U. S. 424. Accordingly, while Page 453 U. S. 649 the Commerce Clause does not require that interstate commerce be placed in a privileged position, it does require that it not be unduly burdened. In framing its taxing measures to reach interstate commerce, the State must be
McGoldrick v. Berwind-White Co., 309 U. S. 33, 309 U. S. 46, n. 2 (1940). Cf. Raymond Motor Transportation, Inc. v. Rice, 434 U. S. 429, 434 U. S. 446-447 (1978). In sum, then, when a tax has been "tailored" to reach interstate commerce, Page 453 U. S. 650 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.
"a class of out-of-state Page 453 U. S. 651 taxpayers to shoulder a tax burden grossly in excess of any costs imposed directly or indirectly by such taxpayers on the State."
It is true that a trial in this case would require "complex factual inquiries" into whether economic conditions are such that Montana is, in fact, able to export the burden of its severance tax, ante at 453 U. S. 619, n. 8. [Footnote 2/16] I do not believe, however, that this threshold inquiry is beyond judicial competence. [Footnote 2/17] If the trial court were to determine that the tax is exported, it would then have to determine whether the tax is "fairly related," within the meaning of Complete Auto Transit. The Court to the contrary, this would not require the trial court "to second-guess legislative decisions about the amount or disposition of tax revenues." Ante at 453 U. S. 627, n. 16. If the tax is, in fact, a legitimate general revenue measure identical or roughly comparable to taxes imposed upon similar industries, a court's inquiry is at an end; on the other hand, if the tax Page 453 U. S. 652 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.
"While the Constitution vests in Congress the power to regulate commerce among the states, it does not say what the states may or may not do in the absence of congressional action. . . . Perhaps even more than by interpretation of its written word, this Court has advanced Page 453 U. S. 653 the solidarity and prosperity of this Nation by the meaning it has given to these great silences of the Constitution."
Significantly, however, other Western States have considered or are considering raising their taxes on coal production. Ibid. One study concluded that "[t]ax leadership' in the western states appears to be an emerging reality," and that informal cartel arrangements may arise among these States. Church, Conflicting Federal, State and Local Interest Trends in State and Local Energy Taxation: Coal and Copper -- A Case in Point, 31 Nat.Tax J. 269, 278 (1978) (Church). Indeed, the 1974 Montana Subcommittee on Fossil Fuel Taxation, see n. 4, supra, was directed by the Montana Legislature
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.
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).