Opinion ID: 1630649
Heading Depth: 1
Heading Rank: 4

Heading: Does the Louisiana Ad Valorem Tax Scheme Facially Discriminate Against Interstate Commerce?

Text: The first step in dormant Commerce Clause analyses is to determine whether the challenged law discriminates against interstate commerce on its face or rather whether it regulates evenhandedly with only incidental effects on interstate commerce. Oregon Waste Systems v. Department of Environmental Quality of the State of Oregon, 511 U.S. 93, 99, 114 S.Ct. 1345, 1350, 128 L.Ed.2d 13 (1994). Discrimination has been defined in this context as differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter. Id. According to the U.S. Supreme Court case Pike v. Bruce Church, Inc., Where a statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970). To be facially discriminatory, the relevant statutes must facially benefit in-state interests over out-of-state interests or give some benefit to intrastate companies that it does not give to interstate companies. In South Central Bell Telephone Co. v. Alabama, the U.S. Supreme Court declared an Alabama tax unconstitutional as facially discriminatory against interstate commerce, where the tax allowed domestic corporations to be taxed at one percent (1%) of the par value of their stocks, while foreign corporations were taxed at .3 percent (.3%) of the value of the actual amount of capital employed. 526 U.S. 160, 119 S.Ct. 1180, 143 L.Ed.2d 258 (1999). The Court found the differential treatment of foreign corporations subjected them to a higher tax burden due to the base values used. The domestic corporations could control their tax burden by setting the par value of their stocks at whatever level they chose, while the foreign corporations were required to use a value based on the firm's financial status. The statute involved specifically provided for a difference in tax treatment based on whether the corporation was organized in the state or was a foreign corporation, and the difference served to benefit the domestic corporations by allowing them to lower their taxes by lowering their tax base where foreign corporations did not have the same option. Further, in Fulton Corp. v. Faulkner , the U.S. Supreme Court found a North Carolina intangibles tax to be facially discriminatory where the tax was inversely proportional to the percentage of state income tax to which the corporation was exposed. 516 U.S. 325, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996). The Court reasoned this tax facially favored those businesses doing business in-state by allowing them to decrease their tax liability by the amount of state tax to which they were exposed. This arrangement favored in-state interests as it encouraged companies to do more business in the state to lower their tax burden, which as a result discouraged interstate commerce. In Camps Newfound/Owatonna, Inc. v. Town of Harrison, the Supreme Court struck down a Maine property tax exemption aimed at local charitable camps that served a larger proportion of in-state residents than out of state residents. 520 U.S. 564, 117 S.Ct. 1590, 137 L.Ed.2d 852 (1997). The Court found the statute facially discriminated against interstate commerce by offering a tax benefit to camps that served primarily intrastate clientele, while denying the same benefit to camps that served predominantly interstate clients. The court found the statute per se invalid, and stated, State laws discriminating against interstate commerce on their face are `virtually per se invalid.' Id. at 575, 1598, 117 S.Ct. 1590 (quoting Fulton Corp. v. Faulkner, 516 U.S. 325, 331, 116 S.Ct. 848, 854, 133 L.Ed.2d 796 (1996)). The above cases are readily distinguishable from the instant matter. La. R.S. 47:1851(K), the statute in question, states: Pipeline company means any company that is engaged primarily in the business of transporting oil, natural gas, petroleum products, or other products within, through, into, or from this state, and which is regulated by (1) the Louisiana Public Service Commission, (2) the Interstate Commerce Commission, or (3) the Federal Power Commission, as a natural gas company under the Federal Natural Gas Act, 15 U.S.C. §§ 717-717w, because the person is engaged in the transportation of natural gas in interstate commerce, as defined in the Natural Gas Act. Regulatory status is the factor that determines what is considered a pipeline company, not interstate or intrastate character like in the South Central Bell case. Nor do these statutes in conjunction grant some benefit to in-state companies over out-of-state companies as in Fulton and Camps Newfound. This statute simply classifies natural gas pipeline companies based on their regulatory status. Both interstate and intrastate companies are affected equally by this rule, as under this statute, any rate-regulated pipeline company transporting gas in this state falls under the classification of a pipeline company, whether or not the company is interstate or intrastate. Both interstate and intrastate companies that qualify as pipeline companies are also classified as public service properties and are taxed on 25 percent (25%) of their property's fair market value. While, under Louisiana law only those pipeline companies that sell to local distributing systems are rate-regulated, and under Federal law, all interstate natural gas pipelines are rate-regulated, this is an incidental effect of the classification due to preemption of federal law, and not a patent facial discrimination against interstate commerce. [10] Considering that the ad valorem tax rate is in reality based on whether the pipeline company is subject to rate-regulation by the FERC or the LPSC, a rule which applies equally to both intrastate and interstate companies and does not base classification on whether the company operates intrastate or interstate, we find the tax scheme is not discriminatory on its face, and conclude the court of appeal erred in so finding. Further, even if this court found that the statutes facially treat interstate companies differently than some intrastate companies, this differential treatment would not rise to the level of discrimination because, as explained below, the plaintiffs have not proven they are paying more in taxes than the intrastate companies. To have discrimination the intrastate companies must benefit from the differential treatment. See Oregon Waste Systems, 11 U.S. at 99, 114 S.Ct. at 1350. Since we find the tax scheme does not discriminate against interstate commerce on its face and that the statutes regulate even handedly, the next question we must answer is whether or not the incidental effects of the tax scheme in its practical operation serve to burden interstate commerce.