Source: https://www.law.cornell.edu/supremecourt/text/451/725
Timestamp: 2019-05-21 11:12:03
Document Index: 371327955

Matched Legal Cases: ['§ 2', '§ 1251', '§ 1332', '§ 47', '§ 1305', '§ 1301', '§ 1301', '§ 1302', '§ 47', '§ 47', '§ 47', '§ 1303', '§ 2', '§ 47', '§ 1251', '§ 1251', '§ 1251', '§ 1303', '§ 1303', '§ 1303', '§ 1303', '§ 1303', '§ 1303', '§ 8', '§ 1303', '§ 47', '§ 47', '§ 2', '§ 2', '§ 1332', '§ 1333', '§ 1333', '§ 1451']

State of MARYLAND et al., Plaintiffs, v. State of LOUISIANA. | US Law | LII / Legal Information Institute
451 U.S. 725 (101 S.Ct. 2114, 68 L.Ed.2d 576)
(a) Louisiana's First-Use Tax, while imposed on the pipelines, is passed on to the ultimate consumer. Thus the plaintiff States, as major purchasers of natural gas whose cost has increased as a direct result of imposition of the tax, are directly affected in a "substantial and real" way so as to justify the exercise of this Court's original jurisdiction under Art. III, § 2, cl. 2, of the Constitution, which provides for such jurisdiction over cases in which a "State shall be a Party," and 28 U.S.C. 1251(a) (1976 ed., Supp. III), which provides that this Court shall have "original and exclusive jurisdiction of all controversies between two or more States." Jurisdiction is also supported by the plaintiff States' interests as parens patriae, acting to protect their citizens from substantial economic injury presented by imposition of the First-Use Tax. Pennsylvania v. West Virginia, 262 U.S. 553. Pp. 735-739.
(b) This case is an appropriate one for the exercise of this Court's exclusive jurisdiction under § 1251(a), even though state-court actions are pending in Louisiana in which the constitutional issues raised here are presented. Neither the plaintiff States, the United States, nor the FERC is a named party in any of the state actions, and they have not sought to intervene therein. Louisiana's tax, affecting millions of consumers in over 30 States implicates serious and important concerns of federalism fully in accord with the purposes and reach of this Court's original jurisdiction. The exercise of original jurisdiction is also justified because the tax affects the United States' interests in the administration of the OCS area and the case is therefore an appropriate one for the exercise of this Court's nonexclusive original jurisdiction, under 28 U.S.C. 1251(b)(2) (1976 ed., Supp. III), of suits brought by the United States against a State. Arizona v. New Mexico, 425 U.S. 794, 96 S.Ct. 1845, 48 L.Ed.2d 376, distinguished. Pp. 739-745.
* The lands beneath the Gulf of Mexico have large reserves of oil and natural gas. Initially, these reserves could not be developed due to technological difficulties associated with off-shore drilling. In 1938, the first drilling rig was constructed off the coast of Louisiana, and with the advent of new technologies, offshore drilling has become commonplace. 1 Exploration and development of the OCS in the Gulf of Mexico have become large industries providing a substantial percentage of the natural gas used in this country. 2 Most of the gas being extracted from the lands underlying the Gulf is piped to refining plants located in coastal portions of Louisiana where the gas is "dried"the liquefiable hydrocarbons gathered and removedon its way to ultimate distribution to consumers in over 30 States. It is estimated that 98% of the OCS gas processed in Louisiana is eventually sold to out-of-state consumers with the 2% remainder consumed within Louisiana. 3 The contractual arrangements between a producer of gas and the pipeline companies vary. Most often, the producer sells the gas to the pipeline companies at the wellhead, although the producer may retain an interest in any extractable components. Some producers, however, retain full ownership rights and simply pay a flat fee for the use of the pipeline companies' facilities. 4
The ownership and control of these large reserves of natural gas have been much disputed. In United States v. Louisiana, 339 U.S. 699, 70 S.Ct. 914, 94 L.Ed. 1216 (1950), the Court applied the principle of its holding in United States v. California, 332 U.S. 19, 67 S.Ct. 1658, 91 L.Ed. 1889 (1947)that the United States possesses paramount rights to lands beneath the Pacific Ocean seaward of California's low-water markto the offshore areas adjacent to Louisiana. In 1953, Congress passed the Submerged Lands Act, 43 U.S.C. 1301-1315, ceding any federal interest in the lands within three miles of the coast, while confirming the Federal Government's interest in the area seaward of the 3-mile limit. 5 See United States v. Louisiana, 363 U.S. 1, 80 S.Ct. 961, 4 L.Ed.2d 1025 (1960); United States v. Maine, 420 U.S. 515, 524-526, 95 S.Ct. 1155, 1160-1161, 43 L.Ed.2d 363 (1975). In the same year, Congress passed the Outer Continental Shelf Lands Act, 43 U.S.C. 1331-1343 (OCS Act), which declared that the "subsoil and seabed of the outer Continental Shelf appertain to the United States and are subject to its jurisdiction, control, and power of disposition. . . ." § 1332. The OCS Act also established procedures for federal leasing of OCS land to develop mineral resources. While the passage of these Acts established the respective legal interests of the parties, there has been extensive litigation to establish the legal boundaries of the federal OCS domain. See generally United States v. Louisiana, 446 U.S. 253, 254-260, 100 S.Ct. 1618, 1620-1623, 64 L.Ed.2d 196 (1980) (detailing the history of the "long-continuing and sometimes strained controversy" between the United States and Louisiana concerning the OCS lands).
In 1978, the Louisiana Legislature enacted a tax of seven cents per thousand cubic feet of natural gas 6 on the "first use" of any gas imported into Louisiana which was not previously subjected to taxation by another State or the United States. La.Rev.Stat.Ann. §§ 47:1301-47:1307 (West Supp.1981) (Act). The Tax imposed is precisely equal to the severance tax the State imposes on Louisiana gas producers. The Tax is owed by the owner of the gas at the time the first taxable "use" occurs within Louisiana. § 1305 B. About 85% of the OCS gas brought ashore is owned by the pipeline companies, the rest by the producers. Since most States impose their own severance tax, it is acknowledged that the primary effect of the First-Use Tax will be on gas produced in the federal OCS area and then piped to processing plants located within Louisiana. It has been estimated that Louisiana would receive at least $150 million in annual receipts from the First-Use Tax. 7
The stated purpose of the First-Use Tax was to reimburse the people of Louisiana for damages to the State's waterbottoms barrier islands, and coastal areas resulting from the introduction of natural gas into Louisiana from areas not subject to state taxes as well as to compensate for the costs incurred by the State in protecting those resources. § 1301C. Moreover, the Tax was designed to equalize competition between gas produced in Louisiana and subject to the state severance tax of seven cents per thousand cubic feet, and gas produced elsewhere not subject to a severance tax such as OCS gas. § 1301 A. The Act specified a number of different uses justifying imposition of the First-Use Tax including sale, processing, transportation, use in manufacturing, treatment, or "other ascertainable action at a point within the state." § 1302(8). 8
The Act itself, as well as provisions found elsewhere in the state statutes, provided a number of exemptions from and credits for the First-Use Tax. The Severance Tax Credit provided that any taxpayer subject to the First-Use Tax was entitled to a direct tax credit on any Louisiana severance tax owed in connection with the extraction of natural resources within the State. La. Rev.Stat.Ann. § 47:647 (West Supp. 1981). 9 Second, municipal or state-regulated electric generating plants and natural gas distributing services located within Louisiana, as well as any direct purchaser of gas used for consumption directly by that purchaser, were provided tax credits on other Louisiana taxes upon a showing that "fuel costs for electricity generation or natural gas distribution or consumption have increased as a direct result of increases in transportation and marketing costs of natural gas delivered from the federal domain of the outer continental shelf . . .," which implicitly includes any increases resulting from the First-Use Tax. La.Rev.Stat.Ann. § 47:11B (West Supp.1981). 10 Furthermore, imported natural gas used for drilling oil or gas within the State was exempted from the First-Use Tax. La.Rev.Stat.Ann. § 47:1303A (West Supp.1981). Thus, Louisiana consumers of OCS gas for the most part are not burdened by the Tax, but it does uniformly apply to gas moving out of the State. The Act also purported to establish the legal effect of the Tax in terms of defining the proper allocation of the Tax among potentially liable parties. Specifically, the Act declared that the "tax shall be deemed a cost associated with uses made by the owner in preparation of marketing of the natural gas." § 1303 C. Any contract which attempted to allocate the cost of the Tax to any party except the ultimate consumer was declared to be "against public policy and unenforceable to that extent." Ibid.
* The Constitution provides for this Court's original jurisdiction over cases in which a "State shall be a Party." Art. III, § 2, cl. 2. Congress has in turn provided that the Supreme Court shall have "original and exclusive jurisdiction of all controversies between two or more States." 28 U.S.C. 1251(a) (1979 ed., Supp.III). In order to constitute a proper "controversy" under our original jurisdiction, "it must appear that the complaining State has suffered a wrong through the action of the other State, furnishing ground for judicial redress, or is asserting a right against the other State which is susceptible of judicial enforcement according to the accepted principles of the common law or equity systems of jurisprudence." Massachusetts v. Missouri, 308 U.S. 1, 15, 60 S.Ct. 39, 42, 84 L.Ed. 3 (1939). See New York v. Illinois, 274 U.S. 488, 490, 47 S.Ct. 661, 71 L.Ed. 1164 (1927); Texas v. Florida, 306 U.S. 398, 405, 59 S.Ct. 563, 567, 83 L.Ed. 817 (1939). 11
Louisiana asserts that this case should be dismissed for want of standing because the Tax is imposed on the pipeline companies and not directly on the ultimate consumers. Under its view, the alleged interests of the plaintiff States do not fall within the type of "sovereignty" concerns justifying exercise of our original jurisdiction. Standing to sue, however, exists for constitutional purposes if the injury alleged "fairly can be traced to the challenged action of the defendant, and not injury that results from the independent action of some third party not before the court." Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26, 41-42, 96 S.Ct. 1917, 1925-1926, 48 L.Ed.2d 450 (1976). See Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 72-81, 98 S.Ct. 2620, 2630-2634, 57 L.Ed.2d 595 (1978). This is clearly the case here. The plaintiff States are substantial consumers of natural gas. 12 The First-Use Tax, while imposed on the pipeline companies, is clearly intended to be passed on to the ultimate consumer. Indeed, the statute forbids the Tax from being passed on or back to any third party other than the purchaser of the gas and explicitly directs that it should be considered as a cost of preparing the gas for market. La.Rev.Stat.Ann. § 47:1303 C (West Supp. 1981). In fact, the pipeline companies, with the approval of the FERC, have passed on the cost of the First-Use Tax to their customers. See Louisiana First-Use Tax in Pipeline Rate Cases, Docket No. RM78-23, Order No. 10, 43 Fed.Reg. 45553 (1978). 13 Thus, the Special Master property determined that "although the tax is collected from the pipelines, it is really a burden on consumers." Second Report, at 12. It is clear that the plaintiff States, as major purchasers of natural gas whose cost has increased as a direct result of Louisiana's imposition of the First-Use Tax, are directly affected in a "substantial and real" way so as to justify their exercise of this Court's original jurisdiction.
With respect to Louisiana's second argument, it is true that we have construed the congressional grant of exclusive jurisdiction under § 1251(a) as requiring resort to our obligatory jurisdiction only in "appropriate cases." Illinois v. City of Milwaukee, 406 U.S. 91, 93, 92 S.Ct. 1385, 1388, 31 L.Ed.2d 712 (1972); Arizona v. New Mexico, 425 U.S., at 796-797, 96 S.Ct., at 1846-1847. This view is consistent with the general observation that the Court's original jurisdiction should be exercised "sparingly." United States v. Nevada, 412 U.S. 534, 538, 93 S.Ct. 2763, 2765, 37 L.Ed.2d 132 (1973). See Ohio v. Wyandotte Chemicals Corp., 401 U.S., at 501, 91 S.Ct., at 1011; Massachusetts v. Missouri, 308 U.S., at 18-20, 60 S.Ct., at 43-44. 14 In City of Milwaukee, we noted that what is "appropriate" involves not only "the seriousness and dignity of the claim," but also "the availability of another forum where there is jurisdiction over the named parties, where the issues tendered may be litigated, and where appropriate relief may be had." 406 U.S., at 93, 92 S.Ct., at 1388. Louisiana urges that presently pending state lawsuits raising the identical constitutional issues presented here constitute sufficient reason to forgo the exercise of our original jurisdiction.
There have been filed in various lower courts several suits challenging the constitutionality of the First-Use Tax. The first suit was brought by Louisiana in state court seeking a declaratory judgment that the First-Use Tax is constitutional. Edwards v. Transcontinental Gas Pipe Line Corp., No. 216,867 (19th Judicial Dist., East Baton Rouge Parish). Among the named defendants were all of the pipeline companies doing business in the State. The pipeline companies sought to have the Tax declared unconstitutional. 15 Other lawsuits were filed in state court seeking a refund of taxes paid under protest. Southern Natural Gas Co. v. McNamara, No. 225,533 (19th Judicial District, East Baton Rouge Parish). These refund actions were filed after this Court granted plaintiff States' motion for leave to file their complaint. 16 Since under Louisiana law there is no provision for interim injunctive relief, the pipeline companies were required to pay the Tax. The receipts have been put in an escrow account subject to refund with interest paid on the account at the rate of 6%. Neither the plaintiff States, the United States, nor the FERC is a named party in any of the state actions nor have they filed leave to intervene, although Louisiana represented at oral argument that such a motion would not be opposed. 17 The final suit was commenced by the FERC against various state officials, seeking to enjoin enforcement of the First-Use Tax on constitutional grounds. FERC v. McNamara, No. C.A. 78-384 (MD La.). That action is presently stayed.
In City of Milwaukee, on which Louisiana relies, the proposed suit by Illinois against four municipalities did not fall within our exclusive grant of original jurisdiction because political subdivisions of the State could not be considered as a State for purposes of 28 U.S.C. 1251(a) (1976 ed., Supp.III). 406 U.S., at 94-98, 92 S.Ct., at 1388-1390. Similarly, the decision in Wyandotte Chemicals did not involve § 1251(a), since it was a suit between a State and citizens of another State and so did not fall under our exclusive jurisdiction. Louisiana also relies, however, on Arizona v. New Mexico for an example of a case where we determined not to exercise our exclusive jurisdiction in a case between States because the matter was "inappropriate" for determination. 18
In that case, we denied Arizona's motion for leave to file a complaint against New Mexico. Arizona was suing to challenge New Mexico's electrical energy tax which imposed a net kilowatt hour tax on any electric utility generating electricity in New Mexico. Arizona sought a declaratory judgment that the tax constituted, inter alia, an unconstitutional discrimination against interstate commerce. Arizona brought the suit in its proprietary capacity as a consumer of electricity generated in New Mexico and as parens patriae for its citizens. Arizona further alleged that it had no other forum in which to vindicate its interests. New Mexico asserted that the three Arizona utilities affected by the statute had chosen not to pay the tax and instead had jointly filed suit in state court seeking a declaratory judgment that the tax was unconstitutional. This Court held that "in the circumstances of this case, we are persuaded that the pending state-court action provides an appropriate forum in which theissues tendered here may be litigated." 425 U.S., at 797, 96 S.Ct., at 1847 (emphasis in original).
Of course, the issue of appropriateness in an original action between States must be determined on a case-by-case basis. Despite the facial similarity with Arizona v. New Mexico, there are significant differences from the present case that compel an opposite result. First, one of the three electric companies involved in the state-court action in New Mexico was a political subdivision of the State of Arizona. Arizona's interests were thus actually being represented by one of the named parties to the suit. In this case, none of the plaintiff States is directly represented in the tax refund case. 19 It is also important to note that Arizona had itself not suffered any direct harm as of the time that it moved for leave to file a complaint since none of the utilities had yet paid the tax. Unlike the present case, it was highly uncertain whether Arizona's interest as a purchaser of electricity had been adversely affected. 20 New Mexico's procedure did not limit the utility companies to seeking a refund of taxes already paid, but rather permitted the companies to refuse to pay the tax pending a declaration of the statute's constitutionality. In contrast, Louisiana requires the Tax to be paid pending the refund action with interest accruing at the rate of 6%. As recognized by the Special Master, the effect of the limited interest rate is to permit Louisiana to benefit from any delay attendant to the state-court proceedings even if the Tax is ultimately found unconstitutional.
The exercise of our original jurisdiction is also supported by the fact that the First-Use Tax affects the United States' interests in the administration of the OCSa factor totally absent in Arizona v. New Mexico. While we do not have exclusive jurisdiction in suits brought by the United States against a State, see 28 U.S.C. 1251(b)(2) (1976 ed., Supp.III), we may entertain such suits as original actions in appropriate circumstances. See, e. g., United States v. California, 332 U.S. 19, 67 S.Ct. 1658, 91 L.Ed. 1889 (1947). See also United States v. Alaska, 422 U.S. 184, 186, n. 2, 95 S.Ct. 2240, 2245, n. 2, 45 L.Ed.2d 109 (1975). To be sure, we "seek to exercise our original jurisdiction sparingly and are particularly reluctant to take jurisdiction of a suit where the plaintiff has another adequate forum in which to settle his claim." United States v. Nevada, 412 U.S., at 538, 93 S.Ct., at 2765. In this case, however, it is clear that a district court action brought by the United States, which necessarily would not include the plaintiff States, would be an inadequate forum in light of the present posture of this case. In addition, because of the interest of the United States in protecting its rights in the OCS area, with ramifications for all coastal States, as well as its interests under the regulatory mechanism that supervises the production and development of natural gas resources, we believe that this case is an appropriate one for the exercise of our original jurisdiction under § 1251(b)(2).
For the reasons stated above, we reject Louisiana's exceptions to the report of the Special Master, and accept the recommendation that we deny Louisiana's motion to dismiss. 21
On the merits, plaintiffs argue that the First-Use Tax violates the Supremacy Clause because it interferes with federal regulation of the transportation and sale of natural gas in interstate commerce. The Supremacy Clause provides that "this Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land . . . any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." Art. VI, cl. 2. It is basic to this constitutional command that all conflicting state provisions be without effect. See McCulloch v. Maryland, 4 Wheat. 316, 427, 4 L.Ed. 579 (1819). See also Hines v. Davidowitz, 312 U.S. 52, 61 S.Ct. 399, 85 L.Ed. 581 (1941). Consideration under the Supremacy Clause starts with the basic assumption that Congress did not intend to displace state law. See Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947). But as the Court stated in Rice :
"Such a purpose to displace state law may be evidenced in several ways. The scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it. Pennsylvania R. Co. v. Public Service Comm'n, 250 U.S. 566, 569 40 S.Ct. 36, 37, 64 L.Ed. 1142; Cloverleaf Butter Co. v. Patterson, 315 U.S. 148 62 S.Ct. 491, 86 L.Ed. 754. Or the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject. Hines v. Davidowitz, 312 U.S. 52, 61 S.Ct. 399, 85 L.Ed. 581. Likewise, the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose. Southern R. Co. v. Railroad Commission, 236 U.S. 439 35 S.Ct. 304, 59 L.Ed. 661; Charleston & W. C. R. Co. v. Varnville Co., 237 U.S. 597 35 S.Ct. 715, 59 L.Ed. 1137; New York Central R. Co. v. Winfield, 244 U.S. 147 37 S.Ct. 546, 61 L.Ed. 1045; Napier v. Atlantic Coast Line R. Co. 272 U.S. 605, 47 S.Ct. 207, 71 L.Ed. 432. Or the state policy may produce a result inconsistent with the objective of the federal statute. Hill v. Florida, 325 U.S. 538 65 S.Ct. 1373, 89 L.Ed. 1782." Ibid.
Of course, a state statute is void to the extent it conflicts with a federal statuteif, for example, "compliance with both federal and state regulations is a physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 1217-18, 10 L.Ed.2d 248 (1963), or where the law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, supra, at 67, 61 S.Ct., at 404. See generally Ray v. Atlantic Richfield Co., 435 U.S. 151, 157-158, 98 S.Ct. 988, 944-45, 55 L.Ed.2d 179 (1978); City of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 633, 93 S.Ct. 1854, 1859, 36 L.Ed.2d 547 (1973).
Plaintiffs argue that § 1303 C of the Act violates the Natural Gas Act, 15 U.S.C. 717-717w (1976 ed. and Supp.III) (Gas Act), as amended by the Natural Gas Policy Act of 1978. 22 In 1938, Congress enacted the Gas Act to assure that consumers of natural gas receive a fair price and also to protect against the economic power of the interstate pipelines. See FPC v. Hope Natural Gas Co., 320 U.S. 591, 610, 612, 64 S.Ct. 281, 291, 292, 88 L.Ed. 333 (1944); Atlantic Refining Co. v. Public Service Comm'n of New York, 360 U.S. 378, 388-389, 79 S.Ct. 1246, 1253-54, 3 L.Ed.2d 1312 (1959). The Gas Act was intended to provide the Federal Power Commission, now the FERC, with authority to regulate the wholesale pricing of natural gas in the flow of interstate commerce from wellhead to delivery to consumers. Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 682, 74 S.Ct. 794, 799, 98 L.Ed. 1035 (1954).
Under the present law, natural gas owners are entitled to recover from their customers all legitimate costs associated with the production, processing, and transportation of natural gas. See FPC v. United Gas Pipe Line Co., 386 U.S. 237, 243, 87 S.Ct. 1003, 1007, 18 L.Ed.2d 18 (1967) (cost of service normally includes proper allowance for taxes and this allowance is "obviously within the jurisdiction of the Commission"). As part of the First-Use Tax, Louisiana has directed that the amount of the Tax should be "deemed a cost associated with uses made by the owner in preparation of marketing of the natural gas." § 1303 C. 23 The Act further provides that an owner shall not have an enforceable right to seek reimbursement for payment of the Tax from any third party other than a purchaser of the gas, ibid., even though the third party may be the owner of marketable hydrocarbons that are extracted from the gas in the course of processing.
The effect of § 1303 C is to interfere with the FERC's authority to regulate the determination of the proper allocation of costs associated with the sale of natural gas to consumers. The unprocessed gas obtained at the wellhead contains extractable hydrocarbons which are most often owned and sold separately from the "dried" gas. The FERC normally allocates part of the processing costs between these related products, and insists that the owners of the liquefiable hydrocarbons bear a fair share of the expense associated with processing. 24 See generally FPC v. United Gas Pipe Line Co., supra, at 243, 87 S.Ct., at 1007 ("income and expense of unregulated and regulated activities should be segregated"). By specifying that the First-Use Tax is a processing cost to be either borne by the pipeline or other owner without compensation, an unlikely event in light of the large sums involved, or passed on to purchasers, Louisiana has attempted a substantial usurpation of the authority of the FERC by dictating to the pipelines the allocation of processing costs for the interstate shipment of natural gas. Owners of natural gas are foreclosed by the operation of § 1303 C from entering into valid contracts requiring the owners of the extracted hydrocarbons to reimburse the pipelines for costs associated with transporting and processing these products. The effect of § 1303 C is to shift the incidence of certain expenses, which the FERC insists are incurred substantially for the benefit of the owners of extractable hydrocarbons, to the ultimate consumer of the processed gas without the prior approval of the FERC.
It is our view, however, that the issue is ripe for decision without further evidentiary hearings. Under the Gas Act, determining pipeline and producer costs is the task of the FERC in the first instance, subject to judicial review. Hence, the further hearings contemplated by the Special Master to determine whether and how processing costs are to be allocated are as inappropriate as Louisiana's effort to pre-empt those decisions by a statute directing that processing costs be passed on to the consumer. Even if the FERC ultimately determined that such expenses should be passed on in toto, this kind of decisionmaking is within the jurisdiction of the FERC; and the Louisiana statute, like the state Commission's order in Northern Natural Gas, supra, is inconsistent with the federal scheme and must give way. At the very least, there is an "imminent possibility of collision," ibid. 25 The FERC need not adjust its rulings to accommodate the Louisiana statute. To the contrary, the State may not trespass on the authority of the federal agency. As we see it, plaintiffs are entitled to judgment on the pleadings that § 1303 C is invalid under the Supremacy Clause. To that extent, therefore, we sustain plaintiffs' exceptions to the Special Master's second report. 26
Plaintiffs also argue that the First-Use Tax violates the Commerce Clause of the United States Constitution which provides that "the Congress shall have Power . . . to regulate Commerce . . . among the several States. . . ." Art. I, § 8, cl. 3. Prior case law has established that a state tax is not per se invalid because it burdens interstate commerce since interstate commerce may constitutionally be made to pay its way. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). See Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823 (1938). The State's right to tax interstate commerce is limited, however, and no state tax may be sustained unless the tax: (1) has a substantial nexus with the State; (2) is fairly apportioned; (3) does not discriminate against interstate commerce; and (4) is fairly related to the services provided by the State. Washington Revenue Dept. v. Washington Stevedoring Assn., 435 U.S. 734, 750, 98 S.Ct. 1388, 1399, 55 L.Ed.2d 682 (1978). One of the fundamental principles of Commerce Clause jurisprudence is that no State, consistent with the Commerce Clause, may "impose a tax which discriminates against interstate commerce . . . by providing a direct commercial advantage to local business." Northwestern States Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S.Ct. 357, 362, 3 L.Ed.2d 421 (1959). See Boston Stock Exchange v. State Tax Comm'n, 429 U.S. 318, 329, 97 S.Ct. 599, 606, 50 L.Ed.2d 514 (1977). This antidiscrimination principle "follows inexorably from the basic purpose of the Clause" to prohibit the multiplication of preferential trade areas destructive of the free commerce anticipated by the Constitution. Boston Stock Exchange, supra. See Dean Milk Co. v. Madison, 340 U.S. 349, 356, 71 S.Ct. 295, 298, 95 L.Ed. 329 (1951).
Initially, it is clear to us that the flow of gas from the OCS wells, through processing plants in Louisiana, and through interstate pipelines to the ultimate consumers in over 30 States constitutes interstate commerce. Louisiana argues that the taxable "uses" within the State break the flow of commerce and are wholly local events. But although the Louisiana "uses" may possess a sufficient local nexus to support otherwise valid taxation, 27 we do not agree that the flow of gas from the wellhead to the consumer, even though "interrupted" by certain events, is anything but a continual flow of gas in interstate commerce. Gas crossing a state line at any stage of its movement to the ultimate consumer is in interstate commerce during the entire journey. California v. Lo-Vaca Gathering Co., 379 U.S. 366, 369, 85 S.Ct. 486, 488, 13 L.Ed.2d 357 (1965). See Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157, 163, 74 S.Ct. 396, 399, 98 L.Ed. 583 (1954); FPC v. East Ohio Gas Co., 338 U.S. 464, 472-473, 70 S.Ct. 266, 271, 94 L.Ed. 268 (1950); Deep South Oil Co. v. FPC, 247 F.2d 882, 887-888 (CA5 1957). See generally Illinois Natural Gas Co. v. Central Illinois Public Service Co., 314 U.S. 498, 503-504, 62 S.Ct. 384, 386, 86 L.Ed. 371 (1942) (fact of sale does not serve to change the "essential interstate nature of the business").
A state tax must be assessed in light of its actual effect considered in conjunction with other provisions of the State's tax scheme. "In each case it is our duty to determine whether the statute under attack, whatever its name may be, will in its practical operation work discrimination against interstate commerce." Best & Co. v. Maxwell, 311 U.S. 454, 455-456, 61 S.Ct. 334, 335, 85 L.Ed. 275 (1940). See Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 69, 83 S.Ct. 1201, 1203, 10 L.Ed.2d 202 (1963); Gregg Dyeing Co. v. Query, 286 U.S. 472, 478-480, 52 S.Ct. 631, 633-35, 76 L.Ed. 1232 (1932). In this case, the Louisiana First-Use Tax unquestionably discriminates against interstate commerce in favor of local interests as the necessary result of various tax credits and exclusions. No further hearings are necessary to sustain this conclusion. Under the specific provision of the First-Use Tax, OCS gas used for certain purposes within Louisiana is exempted from the Tax. OCS gas consumed in Louisiana for (1) producing oil, natural gas, or sulphur; (2) processing natural gas for the extraction of liquefiable hydrocarbons; or (3) manufacturing fertilizer and anhydrous ammonia, is exempt from the First-Use Tax. § 1303 A. Competitive users in other States are burdened with the Tax. Other Louisiana statutes, enacted as part of the First-Use Tax package, provide important tax credits favoring local interests. Under the Severance Tax Credit, an owner paying the First-Use Tax on OCS gas receives an equivalent tax credit on any state severance tax owed in connection with production in Louisiana. § 47:647 (West Supp.1981). On its face, this credit favors those who both own OCS gas and engage in Louisiana production. 28 The obvious economic effect of this Severance Tax Credit is to encourage natural gas owners involved in the production of OCS gas to invest in mineral exploration and development within Louisiana rather than to invest in further OCS development or in production in other States. Finally, under the Louisiana statutes, any utility producing electricity with OCS gas, any natural gas distributor dealing in OCS gas, or any direct purchaser of OCS gas for consumption by the purchaser in Louisiana may recoup any increase in the cost of gas attributable to the First-Use Tax through credits against various taxes or a combination of taxes otherwise owed to the State of Louisiana. § 47:11 B (West Supp.1981). Louisiana consumers of OCS gas are thus substantially protected against the impact of the First-Use Tax and have the benefit of untaxed OCS gas which because it is not subject to either a severance tax or the First-Use Tax may be cheaper than locally produced gas. OCS gas moving out of the State, however, is burdened with the First-Use Tax. 29
The Special Master was aware that the effect of the Louisiana tax system is to favor local interests. With respect to the Severance Tax Credit, the Special Master noted that "since there is no apparent relation between the ownership of outer continental shelf gas and the production of gas in Louisiana, it is hard to understand Louisiana's motive in permitting this credit, but it obviously aids an intrastate operation in a way not available to a pipeline engaged only in interstate transportation or producing gas outside of Louisiana." Second Report, at 34. Moreover, the credit available to electrical generating plants, gas distributing services, and direct purchasers resulted in Louisiana customers being "protected in whole or in part from the incidence of the tax which is passed on to consumers out of the State." Ibid. Despite these concerns, the Special Master did not recommend granting plaintiffs' motion to invalidate the Tax under the Commerce Clause because, as he saw it, it was difficult to tell the effect of the various credits, given the totality of the operation of the state tax provisions. Thus, instead of being discriminatory, the "actuality of operation" test required by Halliburton Oil Well Cementing Co. v. Reily, supra, at 69, 83 S.Ct., at 1203, might demonstrate after a full hearing that the First-Use Tax is a proper " 'compensating' tax intended to complement the state severance tax as the use tax complemented the sales tax in Henneford v. Silas Mason Co., 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937)." Second Report, at 35.
There is no question that this controversy falls within the literal terms of the constitutional and statutory grant of original jurisdiction to this Court. U.S.Const., Art. III, § 2, cl. 2; 28 U.S.C. 1251(a) (1976 ed., Supp.III). As the Court stated in Illinois v. Milwaukee, 406 U.S. 91, 93, 92 S.Ct. 1385, 1387, 31 L.Ed.2d 712 (1972), however, "we construe 28 U.S.C. 1251(a)(1), as we do Art. III, § 2, cl. 2, to honor our original jurisdiction but to make it obligatory only in appropriate cases." Because of the nature of the interests which the plaintiff States seek to vindicate in this original action, and because of the existence of alternative forums in which these interests can be vindicated, I do not consider this an "appropriate case" for the exercise of original jurisdiction. The plaintiff States have not, in my view, established the "strictest necessity" required for invoking this Court's original jurisdiction, Ohio v. Wyandotte Chemicals Corp., 401 U.S. 493, 505, 91 S.Ct. 1005, 1013, 28 L.Ed.2d 256 (1971), and therefore I would grant defendant Louisiana's motion to dismiss the complaint.
* It has been a consistent and dominant theme in decisions of this Court that our original jurisdiction should be exercised with considerable restraint and only after searching inquiry into the necessity for doing so. As we noted in Illinois v. Milwaukee, "it has long been this Court's philosophy that 'our original jurisdiction should be invoked sparingly.' " 406 U.S., at 93, 92 S.Ct., at 1387 (quoting Utah v. United States, 394 U.S. 89, 95, 89 S.Ct. 761, 765, 22 L.Ed.2d 99 (1969)). Chief Justice Fuller wrote in 1900 that original "jurisdiction is of so delicate and grave a character that it was not contemplated that it would be exercised save when the necessity was absolute. . . ." Louisiana v. Texas, 176 U.S. 1, 15, 20 S.Ct. 251, 256, 44 L.Ed. 347. The reasons underlying this restraint have also been long established. The Court has wisely insisted that original jurisdiction be sparingly invoked because it is not suited to functioning as a nisi prius tribunal. "This Court is . . . structured to perform as an appellate tribunal, ill-equipped for the task of factfinding and so forced, in original jurisdiction cases, awkwardly to play the role of factfinder without actually presiding over the introduction of evidence." Ohio v. Wyandotte Chemicals Corp., supra, at 498, 91 S.Ct., at 1009. 1 Over 40 years ago, when the Court's docket was considerably lighter than it is today, Chief Justice Hughes articulated the concern that accepting original-jurisdiction cases "in the absence of facts showing the necessity for such intervention, would be to assume a burden which the grant of original jurisdiction cannot be regarded as compelling this Court to assume and which might seriously interfere with the discharge by this Court of its duty in deciding the cases and controversies appropriately brought before it." Massachusetts v. Missouri, 308 U.S. 1, 19, 60 S.Ct. 39, 43, 84 L.Ed. 3 (1939). The Court has recognized that expending its time and resources on original-jurisdiction cases detracts from its primary responsibility as an appellate tribunal. "The breadth of the constitutional grant of this Court's original jurisdiction dictates that we be able to exercise discretion over the cases we here under this jurisdictional head, lest our ability to administer our appellate docket be impaired." Washington v. General Motors Corp., 406 U.S. 109, 113, 92 S.Ct. 1396, 1398, 31 L.Ed.2d 727 (1972). See also Illinois v. Milwaukee, supra, at 93-94, 92 S.Ct., at 1387. ("We incline to a sparing use of our original jurisdiction so that our increasing duties with the appellate docket will not suffer"). Original-jurisdiction cases represent an "intrusion on society's interest in our most deliberate and considerate performance of our paramount role as the supreme federal appellate court. . . ." Ohio v. Wyandotte Chemicals Corp., supra, at 505, 91 S.Ct., at 1013.
None of these concerns are adequately answered by the expedient of employing a Special Master to conduct hearings, receive evidence, and submit recommendations for our review. It is no reflection on the quality of the work by the Special Master in this case or any other master in any other original-jurisdiction case to find it unsatisfactory to delegate the proper functions of this Court. Of course this Court cannot sit to receive evidence or conduct trialsbut that fact should counsel reluctance to accept cases where the situation might arise, not resolution of the problem by empowering an individual to act in our stead. I for one think justice is far better served by trials in the lower courts, with appropriate review, than by trials before a Special Master whose rulings this Court simply cannot consider with the care and attention it should. It is one thing to review findings of a district court or state court, empowered to make findings in its own right, and quite another to accept (or reject) recommendations when this Court is in theory the primary factfinder. As Chief Justice Stone put it in Georgia v. Pennsylvania R. Co., 324 U.S. 439, 470, 65 S.Ct. 716, 732, 89 L.Ed. 1051 (1945) (dissenting opinion): "In an original suit, even when the case is first referred to a master, this Court has the duty of making an independent examination of the evidence, a time-consuming process which seriously interferes with the discharge of our ever-increasing appellate duties."
"In the exercise of our original jurisdiction so as truly to fulfill the constitutional purpose we not only must look to the nature of the interests of the complaining Statethe essential quality of the right assertedbut we must also inquire whether recourse to that jurisdiction . . . is necessary for the State's protection."
The fact that States now purchase countless varieties of items for their own use which were not purchased 50 or even 25 years ago suggests that concern for our own limited resources is not the only factor which should motivate us in allowing our original jurisdiction to be invoked sparingly. With the greatly increased litigation dockets in most state and federal trial courts, there will be the strongest temptation for various interest groups within the State to attempt to persuade the Attorney General of that State to bring an action in the name of the State in order to make an end run around the barriers of time and delay which would confront them if they were merely private litigants. 2 Thus in permitting indiscriminate use of our original jurisdiction we not only consume our own scarce resources, but permit in effect the bypassing of ordinary trial courts where private parties are required to litigate the same issues. Such a departure from past practice risks the creation of an entirely separate system for litigation in this country, standing side by side with the state-court systems and the federal-court system. It will obviously be tempting to many interests of a variety of persuasions on the merits of a particular issue to "start at the top", so to speak, and have the luxury of litigating only before a Special Master followed by the appellate-type review which this Court necessarily gives to his findings and recommendations.
I would require that the State's claim involve some tangible relation to the State's sovereign interests. Our original jurisdiction should not be trivialized and open to run-of-the-mill claims simply because they are brought by a State, but rather should be limited to complaints by States qua States. This would include the prototypical original action, boundary disputes, and the familiar cases involving disputes over water rights. In such cases, the State seeks to vindicate its rights as a State, a political entity. 3 Since nothing about the complaint in this case involves sovereign interests, I would hold that there is no jurisdiction on the basis of the States' own purchases of natural gas. 4
The exercise of original jurisdiction in this case is particularly inappropriate since the issues the plaintiff States would have us decide not only can be, but in fact are being, litigated in other forums. Although this case would come within our original and exclusive jurisdiction if appropriate, the question whether it is appropriate depends in part on the availability of alternative forums. See Illinois v. Milwaukee, 406 U.S., at 93, 92 S.Ct., at 1387; Arizona v. New Mexico, 425 U.S. 794, 796-797, 96 S.Ct. 1845, 1846-47, 48 L.Ed.2d 376 (1976). 5
The precise issues which the Court finds it somehow necessary to reach today are raised in actions which are currently pending in a Louisiana state court. An action by Louisiana seeking a declaratory judgment that its First-Use Tax is constitutional is pending, Edwards v. Transcontinental Gas Pipe Line Corp., No. 216,867 (19th Judicial Dist., East Baton Rouge Parish), is a refund suit brought by the 17 pipeline companies actually liable for the tax, Southern Natural Gas Co. v. McNamara, No. 225,533 (19th Judicial Dist., East Baton Rouge Parish). The pipeline companies raise in the Louisiana proceeding the identical challenges raised by the plaintiff States in the present case. 6
In view of the foregoing I consider Arizona v. New Mexico, supra, controlling. There the Court declined to exercise original and exclusive jurisdiction over a suit brought by Arizona challenging injury to it and its citizens as consumers of electricity generated in New Mexico and subject to a New Mexico tax. As here, the tax was imposed on utilities, not directly on the consumers. The Court quoted language from Illinois v. Milwaukee, supra, and Massachusetts v. Missouri, 308 U.S. 1, 60 S.Ct. 39, 84 L.Ed. 3 (1939), concerning the sparing use of our original jurisdiction and the appropriateness of considering alternative forums, and noted that the utilities, like the pipeline companies here, had sued in state court. The Court concluded that "in the circumstances of this case, we are persuaded that the pending state-court action provides an appropriate forum in which the issues tendered here may be litigated" (emphasis in original). 425 U.S., at 797, 96 S.Ct., at 1847. Although the Court in this case stresses that the plaintiff States are not parties in the Louisiana state-court proceedings, in Arizona v. New Mexico we specifically emphasized that the relevant question was whether the issues could be litigated elsewhere.
The basic problem with the Court's opinion, in my view, is that it articulates no limiting principles that would prevent this Court from being deluged by original actions brought by States simply in their role as consumers or on behalf of groups of their citizens as consumers. Perhaps the principles sketched in this dissent are not the best limiting principles which could be devised, but the difficulty in developing such principles does not lessen the need for them. The absence of limiting principles in the Court's opinion, I fear, "could well pave the way for putting this Court into a quandary whereby we must opt either to pick and choose arbitrarily among similarly situated litigants or to devote truly enormous portions of our energies to such matters." Ohio v. Wyandotte Chemicals Corp., 401 U.S., at 504, 91 S.Ct., at 1012. 7 The problem is accentuated in this case because it falls within our original and exclusive jurisdiction, which means that similar cases not only can be but must be brought here.
"Jurisdictional doubts inevitably lose force once leave has been given to file a bill, a master has been appointed, long hearings have been held, and a weighty report has been submitted. And, so were this the last as well as the first assumption of jurisdiction by this Court of a controversy like the present, even serious doubts about it might well go unexpressed. But if experience is any guide, the present decision will give momentum to kindred litigation, and reliance upon it beyond the scope of the special facts of this case. . . . Legal doctrines have, in an odd kind of way, the faculty of self-generating extension. Therefore, in picking out the lines of future development of what is new doctrine, the importance of these issues may make it not inappropriate to indicate difficulties which I have not been able to overcome and potential abuses to which the doctrine is not unlikely to give rise." Texas v. Florida, 306 U.S. 398, 434, 59 S.Ct. 563, 580, 83 L.Ed. 817 (1939). 8
The pipeline companies removed the case to federal court. Louisiana's motion to remand was granted, essentially on the ground that the intervention of the Federal District Court would be contrary to the provisions of the Tax Injunction Act, 28 U.S.C. 1341. Edwards v. Transcontinental Gas Pipe Line Corp., 464 F.Supp. 654 (MD La.1979).
We note in passing that Louisiana's other arguments against the exercise of our original jurisdiction are lacking in merit. First, our original jurisdiction is not affected by the provisions of the Eleventh Amendment which only withholds federal judicial power in suits against a State "by Citizens of another State, or by Citizens or Subjects of any Foreign State." Thus, an original action between two States only violates the Eleventh Amendment if the plaintiff State is actually suing to recover for injuries to specific individuals. Hawaii v. Standard Oil Co., 405 U.S. 251, 258-259, n. 12, 92 S.Ct. 885, 889, n. 12, 31 L.Ed.2d 184 (1972). Second, the Tax Injunction Act, which by its terms only applies to injunctions issued by federal district courts, 28 U.S.C. 1341, is inapplicable in original actions. We thus reject Louisiana's exceptions based on these grounds.
The Natural Gas Policy Act of 1978 was enacted to alleviate the adverse economic effects of the disparate treatment of intrastate and interstate natural gas sales. Under 15 U.S.C. 3320 (1976 ed., Supp.III), a price for the first sale of gas shall not be considered to exceed the maximum lawful price if it is necessary to recover "any costs of compressing, gathering, processing, treating, liquefying, or transporting such natural gas, or other similar costs, borne by the seller and allowed for, by rule or order, by the Commission."
Plaintiff States, as well as the pipeline companies, also press another Supremacy Clause issue, contending that the First-Use Tax is inconsistent with the OCS Act, 43 U.S.C. 1331-1356 (1976 ed. and Supp.III). Under § 1332, it is declared to be the policy of the United States that "the subsoil and seabed of the outer Continental Shelf appertain to the United States and are subject to its jurisdiction, control, and power of disposition as provided in this subchapter." Section 1333(a)(1) expressly extends the Constitution and laws of the United States to the subsoil and seabed of the shelf. While the Act borrows "applicable and not inconsistent" state laws for certain purposes, such as were necessary to fill gaps in federal laws, see Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352, 355-359, 89 S.Ct. 1835, 1836-39, 23 L.Ed.2d 360 (1969), it expressly declares that "[s]tate taxation laws shall not apply to the outer Continental Shelf." § 1333(a)(2)(A). Moreover, the OCS Act provides that the provision for adopting state law "shall never be interpreted as a basis for claiming any interest in or jurisdiction on behalf of any State for any purpose over the seabed and subsoil of the outer Continental Shelf, or the property and natural resources there of or the revenues therefrom." § 1333(a)(3). By passing the OCS Act, Congress "emphatically implemented its view that the United States has paramount rights to the seabed beyond the three-mile limit. . . ." United States v. Maine, 420 U.S. 515, 526, 95 S.Ct. 1155, 1161, 43 L.Ed.2d 363 (1975).
The intervening pipeline companies also argue that Louisiana has no valid environmental interest in imposing the First-Use Tax since the measure is pre-empted by the Coastal Zone Management Act of 1972, 86 Stat. 1280, as amended, 16 U.S.C.A. §§ 1451-1464 (1974 and Supp.1981). The Coastal Zone-Management Act provides federal funds to compensate States for environmental damage occurring as a result of offshore energy development to States which agree to comply with the standards mandated by the Act. The importance of the concerns for environmental damage are expressly recognized in the OCS Act. See 43 U.S.C. 1332(4)(A) (1976 ed., Supp.III). We need not reach this contention in light of our disposition of the other claims, and to this extent the exceptions of the plaintiff States and the pipeline companies are overruled.
State of MARYLAND, et al. v. State of LOUISIANA