Source: https://www.chanrobles.com/usa/us_supremecourt/451/725/case.php
Timestamp: 2020-07-10 16:01:07
Document Index: 717295894

Matched Legal Cases: ['§ 2', '§ 1251', '§ 1322', '§ 47', '§ 1305', '§ 47', '§ 47', '§ 47', '§ 2', '§ 8', '§ 10', '§ 47', '§ 1251', '§ 1251', '§ 1303', '§ 717', '§ 1303', '§ 1303', '§ 1303', '§ 1303', '§ 1303', '§ 47', '§ 47']

US Supreme Court Decisions On-Line> Volume 451 > MARYLAND V. LOUISIANA, 451 U. S. 725 (1981)
Subscribe to Cases that cite 451 U. S. 725
(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 chanrobles.com-red
(b) The First-Use Tax is unconstitutional under the Commerce Clause. The flow of gas from OCS wells, through processing plants in Louisiana, and through interstate pipelines to the ultimate consumers in chanrobles.com-red
WHITE, J., delivered the opinion of the Court, in which BURGER, C.J.,and BRENNAN, STEWART, MARSHALL, BLACKMUN, and STEVENS, JJ., joined. BURGER, C.J.,filed a concurring opinion, post, p. 451 U. S. 760. REHNQUIST, J., filed a dissenting opinion, post, p. 451 U. S. 760. POWELL, J., took no part in the consideration or decision of the case. chanrobles.com-red
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 offshore drilling. In 1938, the first drilling rig was constructed off the coast of Louisiana, and, with the advent of new technologies, chanrobles.com-red
offshore drilling, has become commonplace. [Footnote 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. [Footnote 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 chanrobles.com-red
§ 1322. The OCS Act also established procedures for federal leasing of OCS land to develop mineral resources. While the passage of these Acts established the chanrobles.com-red
In 1978, the Louisiana Legislature enacted a tax of seven cents per thousand cubic feet of natural gas [Footnote 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. § 1305B. 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. [Footnote 7] chanrobles.com-red
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. chanrobles.com-red
which implicitly includes any increases resulting from the First-Use Tax. La.Rev.Stat.Ann. § 47:11B (West Supp. 1981). [Footnote 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 chanrobles.com-red
On March 29, 1979, eight States filed a motion for leave to file a complaint under this Court's original jurisdiction pursuant to Art. III, § 2, of the Constitution. The complaint sought a declaratory judgment that the First-Use Tax was unconstitutional under: (1) the Commerce Clause, Art. I, § 8, cl. 3; (2) the Supremacy Clause, Art. VI, cl. 2; (3) the Import-Export Clause, Art. I, 10, cl. 2; (4) the Impairment of Contracts Clause, Art. I, § 10, cl. 1; and (5) the Equal Protection Clause of the Fourteenth Amendment. The plaintiff States also sought injunctive relief against Louisiana or its agents collecting the Tax with respect to any gas in interstate commerce as well as a refund of taxes already collected. We granted plaintiffs' motion for leave to file on June 18, 1979. 442 U.S. 937. Subsequently, as is usual, we appointed a Special Master to facilitate handling of the suit. 445 U. S. 913 (1980). To date, the Special Master has issued two reports. In the first report, dated May 14, 1980, the Special Master recommended that the Court approve the motions of New Jersey, the United States, the Federal Energy Regulatory Commission (FERC), and 17 pipeline companies to intervene as plaintiffs. The Master's second report was issued on September 15, 1980, and essentially made two recommendations. First, the Master recommended that we deny Louisiana's motion to dismiss and reject the submissions that the plaintiff States had no standing to bring the action, and that the case was not an appropriate one for the exercise of our original jurisdiction. Second, on the plaintiff States' motion for judgment on the pleadings on the grounds that the Tax was unconstitutional on its face, the Special Master, while recognizing chanrobles.com-red
Simon v. Eastern Kentucky Welfare Rights Organization, 426 U. S. 26, 426 U. S. 41-42 (1976). See Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U. S. 59, 438 U. S. 72-81 (1978). This is clearly the case here. The plaintiff States are substantial consumers of natural gas. [Footnote 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. § 47:1303C (West Supp. chanrobles.com-red
Jurisdiction is also supported by the States' interest as parens patriae. A State is not permitted to enter a controversy as a nominal party in order to forward the claims of individual citizens. See Oklahoma ex rel. Johnson v. Cook, 304 U. S. 387 (1938); New Hampshire v. Louisiana, 108 U. S. 76 (1883). But it may act as the representative of its citizens in original actions where the injury alleged affects the general population of a State in a substantial way. See, e.g., Missouri v. Illinois, 180 U. S. 208 (1901); Kansas v. Colorado, 185 U. S. 125 (1902); Georgia v. Tennessee Copper Co., 206 U. S. 230 (1907). See generally Note, The Original Jurisdiction of the United States Supreme Court, 11 Stan. L.Rev. chanrobles.com-red
Id. at 262 U. S. 592. chanrobles.com-red
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, 406 U. S. 93 (1972); Arizona v. New Mexico, 425 U.S. at 425 U. S. 796-797. 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, 412 U. S. 538 (1973). See Ohio v. Wyandotte Chemicals Corp., 401 U.S. at 401 U. S. 501; Massachusetts v. Missouri, 308 U.S. at 308 U. S. 18-20. [Footnote 14] In City of Milwaukee, we noted that what is chanrobles.com-red
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. [Footnote 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. [Footnote 16] chanrobles.com-red
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 406 U. S. 97-98. 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, chanrobles.com-red
The tax at issue in the Arizona case did not sufficiently implicate the unique concerns of federalism forming the basis of our original jurisdiction. At most, the New Mexico tax chanrobles.com-red
United States v. Nevada, 412 U.S. at 412 U. S. 538. 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 chanrobles.com-red
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. [Footnote 21] chanrobles.com-red
Art. VI, cl. 2. It is basic to this constitutional command that all conflicting state provisions be without effect. See 17 U. S. 427 (1819). See also Hines v. Davidowitz, 312 U. S. 52 (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, 331 U. S. 230 (1947). But as the Court stated in Rice:@
Plaintiffs argue that § 1303C 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. [Footnote 22] In 1938, Congress enacted the Gas Act to assure chanrobles.com-red
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, 386 U. S. 243 (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." § 1303C. [Footnote 23] chanrobles.com-red
The effect of § 1303C 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. [Footnote 24] See generally FPC v. United Gas Pipe Line Co., supra, at 386 U. S. 243 ("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 chanrobles.com-red
While the Special Master noted that the FERC was of the opinion that the First-Use Tax was impermissible, the Special Master refused to recommend that the Court grant plaintiffs' motion for judgment on the Supremacy Clause issue respecting § 1303C because he discerned a factual issue concerning the nature of the gas-drying process. Under the Special Master's view, if the facts demonstrated that processing was done for the profit of the owners of the extractable hydrocarbons, then the position of the FERC that such costs chanrobles.com-red
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 preempt 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. [Footnote 25] The FERC need not adjust its ruling 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 chanrobles.com-red
§ 1303C is invalid under the Supremacy Clause. To that extent, therefore, we sustain plaintiffs' exceptions to the Special Master's second report. [Footnote 26] chanrobles.com-red
Plaintiffs also argue that the First-Use Tax violates the Commerce Clause of the United States Constitution which provides that "[t]he Congress shall have Power . . . [t]o chanrobles.com-red
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 chanrobles.com-red
otherwise valid taxation, [Footnote 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. 379 U. S. 369 (1965). See Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U. S. 157, 347 U. S. 163 (1954); FPC v. East Ohio Gas Co., 338 U. S. 464, 338 U. S. 472-473 (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, 314 U. S. 503-504 (1942) (fact of sale does not serve to change the "essential interstate nature of the business").
Best Co. v. Maxwell, 311 U. S. 454, 311 U. S. 455-456 (1940). See Halliburton Oil Well Cementing Co. v. Reily, 373 U. S. 64, 373 U. S. 69 (1963); Gregg Dyeing Co. v. Query, 286 U. S. 472, 286 U. S. 478-480 (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 provisions 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. § 1303A. 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 chanrobles.com-red
Louisiana production. [Footnote 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. § 47:11B (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 chanrobles.com-red
In our view, the First-Use Tax cannot be justified as a compensatory tax. The concept of a compensatory tax first requires identification of the burden for which the State is attempting to compensate. Here, Louisiana claims that the chanrobles.com-red
It may be true that further hearings would be required to provide a precise determination of the extent of the discrimination chanrobles.com-red
Ohio v. Wyandotte Chemicals Corp., supra, at 401 U. S. 498. [Footnote 2/1] chanrobles.com-red
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 chanrobles.com-red
I would hold that, as a general rule, when a State's claim is indistinguishable from the claim of any other private consumer, it is insufficient to invoke our original jurisdiction. The Court in the past has referred to claims by a State in its capacity simply as consumer or owner as mere "makeweights." See Georgia v. Pennsylvania R. Co., supra, at 206 U. S. 450; Georgia v. Tennessee Copper Co., 206 U. S. 230, 206 U. S. 237 (1907); see also Pennsylvania v. West Virginia, 262 U. S. 553, 262 U. S. 611 chanrobles.com-red
If all that is required to invoke our original jurisdiction chanrobles.com-red
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. [Footnote 2/3] 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. [Footnote 2/4] chanrobles.com-red
Here the plaintiff States are not suing to advance a sovereign or quasi-sovereign interest. Rather they are suing to promote the economic interests of those of their citizens who purchase and use natural gas. Advancing the economic interests of a limited group of citizens, however, is not sufficient to support parens patriae original jurisdiction. In Oklahoma v Atchison, T. & S. F. R. Co., 220 U. S. 277, 220 U. S. 289 (1911), the Court ruled that a State had no standing to challenge in an original action unreasonable freight rates imposed by citizens of another State affecting shippers within the State. In New Hampshire v. Louisiana, 108 U. S. 76 (1883), chanrobles.com-red
The Court relies heavily on Pennsylvania v. West Virginia, 262 U. S. 553 (1923), which it describes as "functionally indistinguishable" from the case before us. Ante at 451 U. S. 738-739. I think Pennsylvania v. West Virginia, decided over the dissents of Justices Holmes, Brandeis, and McReynolds, is readily distinguishable, "functionally" or otherwise. The harm in Pennsylvania v. West Virginia was the threatened complete cessation of deliveries of natural gas. This harmed all the citizens of the State, since it would have prevented any of them from purchasing the natural gas. The harm involved was also far more serious than the harm in this case. In Pennsylvania v. West Virginia, the harm was the complete halt in deliveries of a commodity upon which citizens of the plaintiff State depended. The opinion there stressed the direct link to the "health, comfort and welfare" of the citizens of Pennsylvania and the serious jeopardy they would be in if their supply of heating gas were suddenly cut off. 262 U.S. at 262 U. S. 591-592. Such a direct link to health and welfare is simply not present in this case. The distinction between an increase in the cost of a commodity passed on to consumers complained of here, and the complete cessation of a service upon which citizens depended, seems palpable. chanrobles.com-red
In view of the foregoing, I consider Arizona v. New Mexico, supra, controlling. There, the Court declined to exercise original chanrobles.com-red
Ohio v. Wyandotte Chemicals Corp., 401 U.S. at 401 U. S. 504. [Footnote 2/7] The problem chanrobles.com-red