Source: http://supreme.nolo.com/us/453/609/case.html
Timestamp: 2019-11-14 19:37:34
Document Index: 110693930

Matched Legal Cases: ['§ 181', '§ 32', '§ 7', '§ 207', '§ 32', '§ 189', '§ 7', '§ 102', '§ 8301', '§ 15']

COMMONWEALTH EDISON CO. V. MONTANA, 453 U. S. 609 - Volume 453 - 1981 - Full Text - US Supreme Court Center - USSC Cases - Nolo
US Supreme Court Center > Volume 453 > COMMONWEALTH EDISON CO. V. MONTANA, 453 U. S. 609 (1981) > Full Text
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
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
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.
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
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
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.
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
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]
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
The Montana Supreme Court held that the coal severance tax is "imposed for the general support of the government." ___ Mont. at ___, 615 P.2d at 856, and we have no reason to question this characterization of the Montana tax as a general revenue tax. [Footnote 11] Consequently, in reviewing appellants' contentions, we put to one side those cases in which the Court reviewed challenges to "user" fees or "taxes" that were designed and defended as a specific charge imposed by the State for the use of state-owned or state-provided transportation or other facilities and services. See, e.g., 405 U. S. S. 622� Airport Authority Dist. v. Delta Airlines, Inc., 405 U. S. 707 (1972); Clark v. Paul Gray, Inc., 306 U. S. 583 (1939); Ingels v. Morf,@ 300 U. S. 290 (1937). [Footnote 12]
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
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
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.
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
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
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
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
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
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
Indeed, appellants alleged in their complaints that the contracts between appellant coal producers and appellant utility companies require the utility companies to reimburse the coal produces for their severance tax payments, and that the ultimate incidence of the tax primarily falls on the utilities' out-of-state customers. Complaint �� 17, 18, App. to Juris.Statement (J.S.App.) 53a-54a. Presumably, with regard to these contracts, the Federal Government's receipts will be unaffected by the Montana tax.
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
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
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
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,
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
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,
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
"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,
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]
quoting Nippert v. Richmond, 327 U.S. at 327 U. S. 424. Accordingly, while
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,
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