Opinion ID: 1179409
Heading Depth: 1
Heading Rank: 5

Heading: whether the tax discriminates against interstate commerce.

Text: The pipeline companies argue that while the tax is facially non-discriminatory, when it is coupled with the tax credit provided under 68 O.S. 1981 § 2357, [13] it becomes overtly discriminatory. In Post Oak, the Court found that: 1) only the royalty and working interest owners were liable for the tax; 2) only royalty and working interest owners could receive credit for the actual payment of the conservation excise tax; and 3) if the royalty and working interest owners were reimbursed by the purchasers for resale, or if the tax were passed through to a consumer, no tax credit would be allowed. The basis for the holding here is that the pipeline companies are not taxpayers  they are resale purchasers who voluntarily contracted to buy gas and to pay taxes. If the pipeline companies fail to pay the taxes, they have no liability for failing to do so. Rather, the royalty and working interest owners must pay the severance tax. The Commission has a cause of action for failure to pay severance taxes against the royalty and working interest owners, not against the purchaser. The only action which might be brought against the pipeline companies would be one by the royalty and working interest owners for breach of contract. There is no discrimination against the pipeline companies because their status as purchaser does not, in the absence of a contract so providing, either obligate them to pay the tax, or define them as an entity from whom taxes are due under 68 O.S. 1981 § 1110. [14] The pipeline companies contend that Maryland v. Louisiana, 451 U.S. 725, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981), which was decided after Post Oak is controlling. However, Maryland is readily distinguishable. There, Louisiana imposed a first use tax on off-shore oil which was extracted from the outer continental shelf and piped to refining plants in Louisiana. First use taxes were levied on all natural gas which was imported into Louisiana which had not been previously taxed by another state. A corresponding tax credit was given to purchasers who used the gas in state. The United States Supreme Court found the first use tax and corresponding tax credit discriminatory. The Court's holding was premised on the finding that the first use tax was not a compensatory tax. A compensatory tax is one which is imposed by the state as the result of identifying a burden on the state which can be offset, to some extent, by levying a tax. The Court's example of a compensatory tax was a severance tax  a state has an interest in the severance of natural resources from its soil. The first use tax in Maryland was found to be a noncompensatory tax on the basis that Louisiana did not have a sovereign interest in receiving reparation for the severance of resources from the federally owned outer continental shelf. However, Oklahoma has a sovereign interest in being recompensed for the severance of natural resources from its native soil. The Commonwealth Edison teaching is that the Commerce Clause does not give the inhabitants of one state a right to control either the terms of resource development or resource depletion in a sister state.