Commonwealth Edison Co. v. Montana

Commonwealth Edison Co. v. Montana, 453 U.S. 609 (1981), is a 6-to-3 ruling by the Supreme Court of the United States that held that a severance tax in Montana does not violate the Commerce Clause or the Supremacy Clause of the United States Constitution..Elison, Larry M. and Snyder, Fritz. The Montana State Constitution: A Reference Guide. Santa Barbara, Calif.: Greenwood Publishing Group, 2001.

Background In 1975, concerned that Montana was a "stereotypical colonial state"Elison and Snyder, The Montana State Constitution: A Reference Guide, 2001, p. 174. with little economic development whose natural resources would be extracted and the state left with severe environmental degradation, the Montana State Legislature enacted a severance tax on each ton of coal mined in the state.Mathew, Hal. "Montana Looks to Days When Coal Is Gone." Los Angeles Times. May 6, 1979; "Plundered Butte Stands As A Warning to the West." The Spokesman-Review. June 24, 1979. Then-Governor Tom Judge called the statute "the most significant piece of legislation enacted in Montana in this century."Malone, Michael P.; Roeder, Richard B.; and Lang, William L. Montana: A History of Two Centuries. 2d rev. ed. Seattle: University of Washington Press, 2003. It was attacked in a RAND Corporation study (partly financed by the National Academies of Science) as excessive."Coal Tax Found Excessive In Great Plains States." Associated Press. November 28, 1976. An amendment was proposed and adopted in 1976 requiring that at least one-fourth of the coal severance tax be deposited into a Permanent Coal Tax Trust Fund and that, after 1979, at least half the tax revenues be deposited into the fund. The fund could not be tapped unless three-fourths of each chamber of the state legislature voted to do so.Merrill-Maker, Andrea. Montana Almanac. 2d ed. Guilford, Conn.: Globe Pequot, 2005. The tax, levied on the cost "at the mine mouth," varied depending on the market value of the coal, the coal's energy content, and the method of extraction.Coal Tax Oversight Subcommittee. Montana Legislature. Reappraising Montana's Coal Severance Tax: Report and Recommendations of Coal Tax Oversight Subcommittee. Helena, Mont.: Montana Legislative Council, November 1984. Generally speaking, most sub-bituminous coal was taxed at a rate of 30% and lignite coal at 20%.

Coal producers in Montana and 11 out-of-state utilities (including Commonwealth Edison) challenged the constitutionality of the severance tax, arguing it was invalid under the Commerce and Supremacy Clauses of the U.S. Constitution."Coal Tax Legal Aid Sought." Associated Press. April 19, 1978; "Coal Tax Fight Looms." Associated Press. May 1, 1978; "Utilities File Suit Over Tax On Coal." Associated Press. June 21, 1978; "State Initiates Coal Tax Defense." Associated Press. September 9, 1978. The Montana state district court for Lewis and Clark County dismissed the complaint in July 1979."State in 'Strong Position' to Meet Appeals." Associated Press. July 28, 1979. Montana State Attorney General Mike Greely hailed the decision, declaring "Montana will never again roll over and play dead when big outside interests decide to take our resources." The plaintiffs appealed to the Montana Supreme Court. Additional Midwestern utilities joined the suit, claiming that the state of Montana was acting like OPEC and accusing Montanans of being "blue-eyed Arabs"."Montana Unfairly Profits, Coal Users Say of Tax." Chicago Tribune. April 20, 1980"U.S. Coal States Study OPEC's Ways of Raising Revenues." Los Angeles Times. September 15, 1980Light, Alfred R. "Drawing the Wagons into a Circle: Sectionalism and Energy Politics." Publius. 1978 The Montana Supreme Court upheld the tax's constitutionality on July 17, 1980.Commonwealth Edison Co. v. State, 189 Mont. 191, 615 P.2d 847 (Mont. 1980)."Coal, Utility Interests Appeal Severance Tax. Associated Press. October 17, 1980. The utilities appealed, and the U.S. Supreme Court granted certiorari in December 1980."Supreme Court Will Rule on Right of Access to Federal Contractor Records." Los Angeles Times. December 9, 1980; "Court to Study State Tax on Exported Coal." New York Times. December 9, 1980..

Ruling

Majority Justice Marshall wrote the decision for the majority. He was joined by Chief Justice Burger and Justices Brennan, Stewart, White and Rehnquist.

Justice Marshall addressed the Commerce Clause issue first. The majority agreed with Commonwealth Edison's claim that, even though a tax is imposed before the goods become interstate commerce, this does not mean the tax evades constitutional analysis.Commonwealth Edison Co. v. Montana, 453 U.S. at 615. Rejecting the reasoning in Heisler v. Thomas Colliery Co.,. the majority "disapproved" of any distinction between intrastate and interstate commerce based on the idea that the Commerce Clause denies states the right to burden interstate commerce, and concluded that state severance taxes came under the jurisdiction of the Constitution's Commerce Clause.Commonwealth Edison Co. v. Montana, 453 U.S. at 614–617.Although Justice Marshall said in Footnote 7 that Heisler and its "progeny" had not been overruled, legal scholars argue that it is effectively overturned. See: Brenner, Saul and Spaeth, Harold J. Stare Indecisis: The Alteration of Precedent on the Supreme Court, 1946–1992. New York: Cambridge University Press, 1995. The respondents argued that the appropriate test for evaluating a tax under the Commerce Clause should be the four-prong test set forth in Complete Auto Transit, Inc. v. Brady,. and that the Montana tax violated the third prong of the Complete Auto Transit test by discriminating against out-of-state consumers of Montana's coal.Commonwealth Edison Co. v. Montana, 453 U.S. at 617–618. But the majority concluded no discrimination existed, because the tax burden was borne equally by all out-of-state consumers.Commonwealth Edison Co. v. Montana, 453 U.S. at 618–619. The appellants also argued the tax violated the fourth prong of the test because it was not "fairly related to the services provided by the State" (e.g., the amount of the tax collected exceeds the cost of services provided).Commonwealth Edison Co. v. Montana, 453 U.S. at 620. But the majority disagreed: Commonwealth Edison had fundamentally misconstrued the Court's test in Complete Auto. The Montana Supreme Court had characterized the severance tax as intended for general government purposes, a finding the U.S. Supreme Court refused to dispute.Commonwealth Edison Co. v. Montana, 453 U.S. at 621. Thus, there could be no "excessiveness" test.Commonwealth Edison Co. v. Montana, 453 U.S. at 621–622, 627–628. Nor was there any question that the state of Montana had the right to levy the tax for the purposes it did.Commonwealth Edison Co. v. Montana, 453 U.S. at 622–25. Justice Marshall next identified how the fourth prong of the Complete Auto test should be interpreted: The relevant inquiry under the fourth prong of the Complete Auto Transit test 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. Rather, the test is closely connected to the first prong of the Complete Auto Transit test. Under this threshold test, the interstate business must have a substantial nexus with the State before any tax may be levied on it. See National Bellas Hess, Inc. v. Illinois Revenue Dept., 386 U.S. 753 (1967). Beyond that threshold requirement, the fourth prong of the Complete Auto Transit test imposes the additional limitation that the measure of the tax must be reasonably related to the extent of the contact, since it is the activities or presence of the taxpayer in the State that may properly be made to bear a "just share of state tax burden," Western Live Stock v. Bureau of Revenue, 303 U.S., at 254. See National Geographic Society v. California Board of Equalization, 430 U.S. 551 (1977); Standard Pressed Steel Co. v. Washington Revenue Dept., 419 U.S. 560 (1975).Commonwealth Edison Co. v. Montana, 453 U.S. at 625–626 (footnotes omitted). The Court held that the Montana severance tax easily met this test.Commonwealth Edison Co. v. Montana, 453 U.S. at 626–627. The Court refused to decide whether a tax could ever be "too high" under the Constitution, leaving this judgment expressly to the legislative branch.Commonwealth Edison Co. v. Montana, 453 U.S. at 627–629.

Justice Marshall next addressed whether the tax violated the Supremacy Clause. The first contention was that the tax interfered with the purposes of the Mineral Lands Leasing Act of 1920, 30 U.S.C. § 181 et seq., et seq. as amended by the Federal Coal Leasing Amendments Act of 1975, P.L. 94-377.Commonwealth Edison Co. v. Montana, 453 U.S. at 629. But the Court observed that the Mineral Lands Leasing Act of 1920 expressly authorizes states to impose severance and excise taxes on coal mined from federal land, and that the Supreme Court had agreed with this interpretation of the law in Mid-Northern Oil Co. v. Walker..Commonwealth Edison Co. v. Montana, 453 U.S. at 631–633. There was nothing in the legislative history of either the 1920 Act or the 1975 Amendments to indicate otherwise; indeed, if a state severance tax were found to interfere with federal leases, all such taxes (of any amount) would have to be enjoined—an outcome Congress clearly did not intend.Commonwealth Edison Co. v. Montana, 453 U.S. at 632–633. Appellants had also argued that the Montana tax "frustrated" the broad goals of national energy policy, but the Court refused to agree on two grounds. First, the Court would not overturn a state act unless "the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained." Commonwealth Edison Co. v. Montana, 453 U.S. at 634, quoting . Second, the Supreme Court found that during debates over recent national energy legislation Congress had been fully cognizant of the Montana tax and had refused to take action to pre-empt it or ameliorate its impact on other states.Commonwealth Edison Co. v. Montana, 453 U.S. at 633–637.

In a brief concurrence, Justice White called the issues involved "troubling". Nonetheless, "Congress has the power to protect interstate commerce from intolerable or even undesirable burdens," he wrote, and "The constitutional authority and the machinery to thwart efforts such as those of Montana, if thought unacceptable, are available to Congress... . As I presently see it, therefore, the better part of both wisdom and valor is to respect the judgment of the other branches of the Government."Commonwealth Edison Co. v. Montana, 453 U.S. at 637–638 (White, J., concurring).

Dissent Justice Blackmun dissented, joined by Justices Powell and Stevens.