Amicus Curiae Brief — Ferrellgas Partners, LP, Petitioner v. Director, Division of Taxation

Supreme Court briefDec 2, 2021

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No. 21-641

In the Supreme Court of the United States

FERRELLGAS PARTNERS, L.P.,

Petitioner,

DIRECTOR, DIVISION OF TAXATION

ON PETITION FOR A WRIT OF CERTIORARI TO THE NEW

JERSEY SUPERIOR COURT, APPELLATE DIVISION

BRIEF OF THE ENERGY INFRASTRUCTURE

COUNCIL AS AMICUS CURIAE

IN SUPPORT OF PETITIONER

JEREMY C. MARWELL

Counsel of Record

MATTHEW X. ETCHEMENDY

VINSON & ELKINS LLP

2200 Pennsylvania Ave.,

NW, Suite 500 West

Washington, DC 20037

(202) 639-6500

jmarwell@velaw.com

Counsel for Amicus Curiae

TABLE OF CONTENTS

Page

Table Of Authorities ................................................... II

Interest Of Amicus Curiae .......................................... 1

Introduction And Summary Of Argument ................. 2

Argument ..................................................................... 5

The Question Presented Is Critically

Important To MLPs, Which Are In Turn

Critically Important For The Energy Sector

And The Broader Economy. .................................. 5

II. New Jersey’s Levy Is Unconstitutional, And

The Decision Below Creates Harmful Legal

Confusion For Interstate Businesses. ................ 11

III. Simple, Widely Used, And Constitutional

Systems Of Fair Apportionment Are Available

To New Jersey. .................................................... 16

IV. This Case Is An Excellent And Timely Vehicle.

............................................................................. 19

Conclusion.................................................................. 20

(I)

TABLE OF AUTHORITIES

Cases:

Page(s)

Am. Trucking Ass’ns, Inc. v. Mich. Pub. Serv.

Comm’n,

545 U.S. 429 (2005) .............................. 11, 12, 13, 19

Am. Trucking Ass’ns, Inc. v. Scheiner,

483 U.S. 266 (1987) .......................................... 14, 15

Armco Inc. v. Hardesty,

467 U.S. 638 (1984) ................................................ 12

Comptroller of the Treasury v. Wynne,

575 U.S. 542 (2015) .................................... 11, 12, 15

Container Corp. v. Franchise Tax Bd.,

463 U.S. 159 (1983) .......................................... 17, 18

Hess Realty Corp. v. Director, Div. of Tax’n,

10 N.J. Tax 63 (1988) ............................................. 18

Mayer & Schweitzer, Inc. v. Director, Div. of

Tax’n,

20 N.J. Tax 217 (2002) ........................................... 18

N.C. Dep’t of Revenue v. Kimberly Rice Kaestner

1992 Family Tr.,

139 S. Ct. 2213 (2019) ............................................ 18

Okla. Tax Comm’n v. Jefferson Lines, Inc.,

514 U.S. 175 (1995) .......................................... 12, 17

South Dakota v. Wayfair, Inc.,

138 S. Ct. 2080 (2018) ............................................ 20

United States v. Lopez,

514 U.S. 549 (1995) ................................................ 10

III

Cases—Continued:

Page(s)

W. Lynn Creamery, Inc. v. Healy,

512 U.S. 186 (1994) ................................................ 10

Other Authorities:

Alerian, MLP Primer (May 2019),

https://bit.ly/3noDUJy ............................................. 9

Enbridge, Transporting Natural Gas,

https://bit.ly/3oMYin4 .............................................. 9

Energy Infrastructure Council, Basic Tax

Principles, https://eic.energy/basic-taxprinciples .................................................................. 6

Energy Infrastructure Council, MLP 101: The

Basics, https://eic.energy/mlp-101-the-basics ......... 5

Energy Infrastructure Council, Publicly Traded

Partnerships Trading on U.S. Exchanges

(Aug. 24, 2021),

https://eic.energy/uploads/mlpsonexchanges_0

8242021.pdf .............................................................. 8

John Goodgame, Master Limited Partnership

Governance, 60 Bus. Law. 471 (2005) ............. 6, 7, 9

Matthew DiLallo, The 10 Biggest MLP Stocks,

Motley Fool (Aug. 23, 2019),

https://bit.ly/3oBwVMB ........................................... 7

Truth in Accounting, Financial State of the

States 2021 (Sept. 2021),

https://bit.ly/3ozQqoW ........................................... 11

INTEREST OF AMICUS CURIAE 1

The Energy Infrastructure Council (“EIC”) is a

non-profit trade association dedicated to advancing

the interests of companies that develop and operate

energy infrastructure. It is also the nation’s only trade

association representing the publicly traded partnerships commonly known as master limited partnerships (“MLPs”). EIC currently has 117 members, including 40 MLPs. Its membership comprises traditional and renewable energy infrastructure companies, service providers, and other businesses and individuals that operate in and around the energy industry. Its core mission is to represent and promote the

interests of energy infrastructure companies.

This case is critically important to EIC and its

members because the question presented has serious

ramifications for the economic interests of MLPs. New

Jersey has singled out partnerships, including MLPs,

to pay a special levy calculated based on the number

of partners in each partnership. Because MLPs are

publicly traded partnerships, anyone can become a

partner by purchasing a partnership unit. MLPs often

have partners residing in most or all of the 50 states,

and commonly do business in numerous states—indeed, the MLP form is especially favored by businesses

involved in the transportation and distribution of natural resources, a form of trade that is at the very heart

1 No counsel for any party authored this brief in whole or in

part, and no party or counsel for a party made a monetary contribution intended to fund the preparation or submission of this

brief. No entity or person, aside from amicus curiae and its

counsel, made any monetary contribution intended to fund the

preparation or submission of this brief. All parties were given

timely notice and consented to the filing of this brief.

(1)

of interstate commerce. The sheer number of limited

partners in the majority of MLPs means that most

MLPs will likely be required to pay the maximum

amount under New Jersey’s levy. And if other states

were to adopt a levy like New Jersey’s, each MLP

would be subject to a de facto flat tax for every state in

which it does business.

MLPs are therefore significantly burdened by the

New Jersey levy, and similar levies that exist (or may

be enacted) in other states. The extent of such burden

is a disincentive against forming or continuing businesses through the MLP structure. That would diminish a valuable source of capital for a critical segment

of our nation’s energy sector, and would directly harm

EIC’s members. EIC therefore has a strong interest in

the outcome of this case.

INTRODUCTION AND

SUMMARY OF ARGUMENT

1. This case raises the question whether the Commerce Clause permits New Jersey to charge an annual

levy on any partnership that derives any income from

the state, equal to $150 per partner up to a maximum

of $250,000, with no statutory mechanism for apportionment. That question is critically important to

master limited partnerships (“MLPs”), including

many of EIC’s members. MLPs are publicly traded

partnerships, and often (as here) have many thousands of partners across the country. Thus, for practical purposes, New Jersey’s per-partner levy will often

operate as a flat $250,000 tax on MLPs that derive any

income from New Jersey, as it has for Petitioner. See

Pet. App. 3a. If other states adopted similar levies,

MLPs would be subject to large, unapportioned levies

in multiple states—a significant financial burden, and

one that competitors operating wholly intrastate

would not have to bear. That untoward outcome is not

only discordant with the purposes of the Commerce

Clause, it has harmful practical effects, because the

MLP structure is a preferred form for companies that

develop and own energy transportation infrastructure.

In other words, the kinds of levies assessed by New

Jersey here and upheld by its courts strike at the heart

of companies that design, construct, maintain, and operate some of the nation’s most vital channels of interstate commerce.

2. New Jersey’s levy is not just unfairly burdensome; it is flatly unconstitutional. The levy clearly violates this Court’s well-established internal consistency test; if other states imposed similar levies,

there would be disproportionate burdens on interstate

commerce, particularly for energy-distribution MLPs

like Petitioner and many of EIC’s members. The New

Jersey Tax Court (whose reasoning the state appellate

court “substantially” adopted as its own, Pet. App.

23a-24a) largely ignored this constitutional flaw, all

but declaring itself free to brush aside this Court’s

precedents, which have repeatedly affirmed the vitality of the internal consistency requirement. The decision below is wrong—and, worse still, significantly

heightens the confusion in this area of the law, creating additional financial uncertainty for businesses engaged in interstate commerce, including MLPs. This

Court should grant review to clarify that state courts

must apply this Court’s precedent as written—not selectively rely on the views of dissenting Justices when

it suits local policy preferences, as the Tax Court did

below.

3. While New Jersey’s levy in its current form violates the Commerce Clause, enforcing constitutional

limits in this case would have no material adverse consequences for the state. New Jersey could remedy the

constitutional flaw in its levy without abandoning the

levy altogether, or materially impacting its revenues.

One solution would be to employ a simple apportionment system based on formulas that both this Court

and courts in New Jersey have long approved. Given

the availability of that readily administrable, constitutionally sound alternative, there is no practical or

financial reason why New Jersey should need to resort

to Commerce Clause violations in order to meet its revenue needs.

4. This case is an excellent and timely vehicle for

deciding the question presented. The facts of this case

provide a particularly stark illustration of the potential for unapportioned levies to burden interstate commerce. Here, Petitioner—an MLP that sells critical

energy products in all 50 states—was required to pay

a $250,000 unapportioned levy that, in some years,

was greater than the amount of its entire New Jerseysource income. This case accordingly presents ideal

facts for highlighting the severe impacts on interstate

commerce that would occur if the internal consistency

test is not applied to unapportioned flat fees and taxes.

Moreover, given other developments in the law, the

question presented is likely to grow in importance.

This case comes at a particularly opportune time for

this Court to resolve the growing confusion among

state courts in this area.

The Court should grant the petition.

ARGUMENT

I. The Question Presented Is Critically

Important To MLPs, Which Are In Turn

Critically Important For The Energy Sector

And The Broader Economy.

Petitioner, Ferrellgas Partners, L.P., is a master

limited partnership (“MLP”), see Pet. 6, as are many

of EIC’s members. Although the decision below has

implications for all businesses in interstate commerce,

the question presented is especially important for

MLPs—and thus, in turn, for energy infrastructure

companies, and especially the midstream oil and gas

sector. To see why, it is important to understand how

MLPs work, their importance to the energy sector, and

the reasons why New Jersey’s levy operates to create

serious, unfair, and disproportionate burdens on

MLPs. If the decision below stands and other states

feel emboldened to enact similar unconstitutional levies, the negative consequences for MLPs would be significant.

MLPs are publicly traded partnerships; instead of

shares of stock, partnership “units” are bought and

sold on public exchanges. See Energy Infrastructure

Council, MLP 101: The Basics, https://eic.energy/mlp101-the-basics (last visited Nov. 30, 2021). MLPs have

been in existence since 1981, and they were first created to allow businesses to raise capital from individual investors who might not be able to afford the more

sizeable investments often demanded by non-traded

partnerships. The MLP structure is most commonly

used for businesses with a steady rate of return, in industries that require considerable upfront capital but

generate a reliable stream of revenue once their infrastructure is in place. This makes MLPs particularly

attractive for entities doing business in the energy

transportation and distribution sector. See John

Goodgame, Master Limited Partnership Governance,

60 Bus. Law. 471, 481 (2005). Petitioner, which sells

propane (including the familiar “Blue Rhino” brand of

propane tanks), is one example. See Pet. App. 8a (describing business).

The key attribute for an MLP is its classification as

a partnership for federal income taxation purposes.

See Goodgame, 60 Bus. Law. at 471-472; see also Energy Infrastructure Council, Basic Tax Principles,

https://eic.energy/basic-tax-principles (last visited

Nov. 30, 2021) (describing MLP taxation principles).

The purpose of the MLP structure is to avoid a “double

taxation” that occurs when taxes are levied at both the

entity (corporation) and equity-holder levels. See

Goodgame, 60 Bus. Law. at 472. Instead of having to

pay both of these taxes, in an MLP (as with other kinds

of partnerships), a partnership’s income is considered

earned by all of the partners. Ibid. This income is

then allocated among all the partners in proportion to

their interests in the partnership, and each partner

pays tax on his or her share of the partnership income.

Therefore, MLPs are treated as “pass through” entities

and need not pay the entity-level income tax that

would otherwise result in double taxation. The MLP

structure offers important benefits, combining favorable partnership tax rules, with access to a broad investor base through the public securities markets. The

net result is a lower cost of capital than either a traditional public corporation, or private partnership—

thus fostering investment in certain capital-intensive

businesses. Essentially, MLPs are designed to provide

typical retail investors with the opportunity to make

investments in business activities in which they might

not otherwise be able to invest.

MLPs are not the most common or familiar type of

business organization, but they have considerable sector-specific importance. In particular, the MLP has

been a common business structure in the midstream

oil and gas sector, which develops, owns, and operates

the infrastructure (e.g., pipeline, processing, and storage facilities) required to deliver reliable and affordable energy to American consumers and businesses.

See, e.g., Matthew DiLallo, The 10 Biggest MLP

Stocks, Motley Fool (Aug. 23, 2019), https://bit.ly/3oBwVMB (describing the holdings and business operations of selected large MLPs). Historically, all MLPs

were taxed in the manner described above, with all income “passing through” the partnership to the individual investors, who then paid tax on their share of the

net income generated by the MLP. However, the Revenue Act of 1987 limited “pass-through” tax treatment

to publicly traded partnerships engaging in certain

types of activities, primarily in the natural resources

sector. See Goodgame, 60 Bus. Law. at 471-472.

These changes had a large impact on the MLP sector,

and as a result, natural-resource and energy MLPs

constitute roughly 80 percent of MLPs by market

value, with 90 percent of those focused on the midstream oil and gas space. See DiLallo, MLP Stocks,

https://bit.ly/3oBwVMB.

Numerous MLPs are energy companies that do

business across state lines and attract investors in

multiple states.2 Given the size of many MLPs and

their publicly traded structure, they often have many

more partners than is typical for other kinds of partnerships. For example, for tax year 2009, Petitioner

had 67,019 partners; for tax year 2010, 66,835 partners; and for tax year 2011, 82,047 partners. See Pet.

App. 8a.

Accordingly, MLPs are burdened to a unique extent

by New Jersey’s levy, and would also be uniquely burdened by any similar levies enacted in other states.

New Jersey’s $150-per-partner levy may be modest for

a partnership with only a handful of partners, but the

typical size of MLPs means that they will likely be subject to the maximum annual levy amount of

$250,000—hardly a small sum. And because the levy

applies regardless of how much money is earned in the

state, if other states imposed similarly structured levies, MLPs (which, as noted, tend to do business across

state lines and attract investors nationwide) would be

paying the maximum levy for the same income in multiple states. By contrast, a partnership that derived

its business entirely from intrastate activities would

only pay that levy once. Thus, if New Jersey’s tax

scheme were adopted in other states, MLPs would be

forced to pay a substantial, unapportioned levy in

every state from which they derive business. That

2 For a list of MLPs traded on U.S. exchanges, see Energy In-

frastructure Council, Publicly Traded Partnerships Trading on

U.S. Exchanges (Aug. 24, 2021), https://eic.energy/uploads/mlpsonexchanges_08242021.pdf.

would place a unique burden on MLPs compared to intrastate competitors—exactly the type of burden the

Commerce Clause forbids.

This, in turn, would be harmful to virtually all consumers and businesses in the United States. Continued investment in MLPs is critical to our economy.

Congress has allowed use of this favorable structure

for certain types of businesses, to foster investment in

specific areas—primarily, capital-intensive businesses

such as those developing energy infrastructure. As

noted, the MLP structure has been a cornerstone of the

energy transportation and distribution sector for decades. Many “midstream assets” such as “pipelines carrying oil, natural gas, [natural gas liquids], or other

petroleum products” are owned by MLPs. Goodgame,

60 Bus. Law. at 482. “MLPs own the pipelines, storage

tanks, and processing facilities that bring energy from

the wellhead to America’s doorstep and increasingly to

the coast for exports.” Alerian, MLP Primer at 3 (May

2019), https://bit.ly/3noDUJy. Especially in an era

where economically critical energy products often

travel thousands of miles to destination markets,

through interstate pipeline networks “similar to the

interstate highway system,”3 this sector is a paradigmatic example of the kind of interstate activity the

Commerce Clause is intended to “regulate and protect”—to wit, building and operating “instrumentalities of interstate commerce,” transporting “things in

interstate commerce,” and keeping “the channels of interstate commerce” open and efficient. United States

3 Enbridge, Transporting Natural Gas, https://bit.ly/3oMYin4

(last visited Nov. 30, 2021).

v. Lopez, 514 U.S. 549, 558 (1995). It would be particularly discordant with the dormant Commerce

Clause’s purpose—preventing states from imposing

unfair burdens on interstate commerce that, individually or in the aggregate, pose a “danger to the national

market,” W. Lynn Creamery, Inc. v. Healy, 512 U.S.

186, 197 (1994)—to allow New Jersey’s unconstitutional levy to stand, given that it uniquely burdens

companies focused specifically on the business of

transporting economically vital energy products

across the country.

The consequences would be even more serious if

other states adopted levies similar to New Jersey’s.

And there is a real risk that other states would follow

New Jersey’s example if this Court does not intervene.

Although New Jersey labeled its levy as a fee to compensate the state for tax return processing and compliance enforcement, see Pet. App. 30a, there is no serious question that it is a tax (not a mere processing

fee) in a substantive economic sense; the revenues are

placed into the state’s general fund, massively exceed

real-world processing costs, and were created as part

of a law designed to raise general fund revenue. See

Pet. 5-6. New Jersey generates tens of millions of dollars from the levy in question, even after netting out

the salaries of the employees involved in processing returns. See Pet. App. 10a-11a (comparing revenues

from levy to return processing costs). If New Jersey’s

levy is allowed to stand, other states will have significant incentives—both financial and political—to impose similar “fees” on companies that primarily do

business in other states, and that are not duly proportioned to those businesses’ level of local activity, to

generate additional state revenue while limiting impacts on local constituents. Cf. Truth in Accounting,

Financial State of the States 2021 at 6 (Sept. 2021),

https://bit.ly/3ozQqoW (finding that “39 states d[o] not

have enough money to pay all of their bills,” with “total

debt of the 50 states amount[ing] to $1.5 trillion”).

This Court’s review is urgently warranted to clarify

that states cannot use large, unapportioned levies of

this kind as an end-run around the dormant Commerce Clause.

II. New Jersey’s Levy Is Unconstitutional, And

The Decision Below Creates Harmful Legal

Confusion For Interstate Businesses.

This case concerns nothing less than the ongoing

vitality of one of the crucial pillars in this Court’s

dormant Commerce Clause jurisprudence: “the internal consistency test.” Comptroller of the Treasury v.

Wynne, 575 U.S. 542, 563 (2015). Just as the dormant

Commerce Clause itself has “deep roots” in this

Court’s jurisprudence, so too does the internal consistency test—which, as this Court explained in 2015,

was “formally introduced” four decades ago, and has

been “invoked in no fewer than seven cases” in this

Court (now eight), “invalidating the tax in three of

those cases” (now four). Id. at 549, 563-564.

The internal consistency test, a requirement for

fair apportionment, essentially asks: “What would

happen if all States did the same?” Am. Trucking

Ass’ns, Inc. v. Mich. Pub. Serv. Comm’n, 545 U.S. 429,

437 (2005) (ATA-Michigan). If the answer is that interstate commerce would be “place[d] * * * at a disadvantage,” the levy fails the test. Okla. Tax Comm’n v.

Jefferson Lines, Inc., 514 U.S. 175, 185 (1995). The

internal consistency test provides an intuitively sound

measure of whether a state is “attempting to take

more than its fair share of taxes” from interstate commercial activity. Ibid. In addition to its intuitive

soundness, this test has the advantage of providing an

easy-to-administer standard that does not depend on

“the shifting complexities of the tax codes of 49 other

States,” Armco Inc. v. Hardesty, 467 U.S. 638, 644-645

(1984), or allow an individual state to justify an unfair

tax on grounds that other states have refrained from

adopting similarly unfair policies. There is no question that the internal consistency test remains vital;

this Court confirmed as much less than seven years

ago, even going to special lengths to emphasize the

test’s legal and economic “virtue[s].” Wynne, 575 U.S.

at 562. Nor is there any question that New Jersey’s

levy flunks the internal consistency test. See Pet. 8-9.

In ATA-Michigan, this Court upheld a modest regulatory fee—$100 per truck, 545 U.S. at 431—that “focus[ed] upon local activity,” even though it could not

satisfy the internal consistency test. See id. at 438.

While the precise scope of ATA-Michigan’s exception

to the internal consistency requirement is unclear

(and that itself is a major reason to grant the petition),

see Pet. 12-14, New Jersey’s levy falls outside any fair

reading of ATA-Michigan’s rationale. There is no

meaningful sense in which New Jersey’s levy is “local”

in its “focus”; unlike the per-truck fee in ATA-Michigan, New Jersey’s levy bears not even a rough relationship to the business’ degree of in-state economic

activity, and record evidence shows that it is untethered to the state’s costs in reviewing and processing

partnership information returns. See Pet. App. 10a11a, 40a-41a; accord Pet. 5-6.

Moreover, ATA-Michigan placed weight on the

likelihood that an alternative to the $100-per-truck fee

that did not violate the internal consistency test (such

as a fee proportioned to miles traveled inside the state)

would require complex “liability, billing, and auditing

mechanisms” that would almost certainly not “be

worth the candle” given the modest size of the fee. 545

U.S. at 436. That concern has no application here.

New Jersey could restructure its levy to abide by the

internal consistency test, an approach which would require no novel tracking or auditing mechanisms, and

involve no substantial administrative burden. See infra Part III.

The decision below was wrong. But it has also exacerbated the confusion that already exists over ATAMichigan’s scope. As Petitioner explains, the state

courts are split on the nature and extent of ATA-Michigan’s exception to the internal consistency requirement. See Pet. 12-14. The decision below does more

than just add another state judiciary into the split of

authority; it highlights that at least some state courts

do not feel bound by this Court’s internal consistency

case law at all.

In fact, the New Jersey Tax Court—whose opinion

and reasoning the Appellate Division “substantially”

adopted as its own, Pet. App. 23a-24a—came close to

explicitly disclaiming and rejecting this Court’s binding precedent on the internal consistency test. As Petitioner highlights, the Tax Court’s opinion favorably

cited dissenting opinions that criticized the internal

consistency test and, indeed, treated those dissents as

if they were binding precedent. See Pet. 2, 7, 9. Upon

careful inspection, it is difficult to avoid the conclusion

that the Tax Court all but declared its unwillingness

to be bound by this Court’s precedent (as opposed to

the views of dissenting Justices).

For example, as support for its assertion that Petitioner’s “reliance on the hypothetical” analysis at the

heart of the internal consistency test “certainly [is] not

the law,” the Tax Court’s principal authority was Justice O’Connor’s view, expressed in dissent in American

Trucking Ass’ns, Inc. v. Scheiner (ATA-Scheiner), that

“ ‘internal consistency’ should not be seen as a ‘rule of

general application,’ and precedent did not ‘establish[]

a grandiose version of the “internal consistency test”

as the constitutional measure of all state taxes under

the’ [dormant Commerce Clause].” Pet. App. 62a

(quoting ATA-Scheiner, 483 U.S. 266, 303 (1987)

(O’Connor, J., dissenting)). But the Tax Court’s selective quotation obscures the gravity of what it was implying: what Justice O’Connor actually said was that

establishing “an ‘internal consistency’ rule of general

application” was an “enterprise that the Court undertakes for the first time in this case.” ATA-Scheiner, 483

U.S. at 303 (O’Connor, J., dissenting) (emphasis

added). In other words, Justice O’Connor was acknowledging that this Court had in fact “[c]reat[ed] an

‘internal consistency’ rule of general application.”

Ibid.

Dissenting from a majority decision of this Court

on a question of federal constitutional law was Justice

O’Connor’s prerogative, but it is not the prerogative of

any New Jersey court to do so—long after ATA-

Scheiner was decided, and despite this Court’s emphatic subsequent affirmation of the internal consistency rule’s vitality. Compare Wynne, 575 U.S. at

561-562 (reaffirming the vitality of “the ‘internal consistency’ test” and the “virtue” of its “hypothetical[]”

analysis), and id. at 555 (finding dissent’s “reliance on

* * * dictum particularly inappropriate” where dissenting Justices “do not find themselves similarly

bound by the rule of th[e] [cited] case, which applied

the internal consistency test”), with Pet. App. 62a (attacking internal consistency test’s “hypothetical” analysis as “not the law,” and relying on dicta from “dissents” while rejecting the rule this Court adopted in

the cited case).

Tacitly acknowledging that it was resisting both

ATA-Scheiner and Wynne, the Tax Court cited other

dissenting Justices’ purported “critici[sm] [of] the internal consistency requirement as ‘a judicial fraud.’ ”

Pet. App. 61a n.15 (quoting Wynne, 575 U.S. at 572577 (Scalia, J., dissenting)). But even beyond the Tax

Court’s problematic focus on dissents rather than majority decisions, the purported “judicial fraud” identified in that dissent was not just the internal consistency test, but the entire dormant Commerce

Clause. Wynne, 575 U.S. at 572 (Scalia, J., dissenting).

As this Court noted, that view is inconsistent with 200

years of precedent. Id. at 569 (majority opinion). Respectfully, the Tax Court’s favorable reliance on a dissent rejecting 200 years of consistent precedent indicates that whatever analysis the Tax Court was engaged in, it was not an attempt to fairly apply this

Court’s binding case law.

Businesses, including MLPs and other partnerships, rely on consistent and evenhanded application

of this Court’s Commerce Clause jurisprudence in

making investment decisions and in planning for the

future. By reaching the wrong outcome and all but declaring itself unbound by this Court’s precedent, the

Tax Court struck a serious blow to those investmentbacked expectations. The uncertainty engendered by

this decision will be especially acute for MLPs, including EIC members, as the decision below charts a path

for other states to adopt similar levies—which, particularly in the aggregate, would constitute a burden of

potentially enormous proportions. This Court should

grant review not only to clarify the proper scope of its

decisions in this area, see Pet. 12-14, but also to underscore that state courts are not free to disagree with

this Court’s binding precedent, or decide to follow the

opinions of dissenting Justices rather than majority

decisions.

III. Simple, Widely Used, And Constitutional

Systems Of Fair Apportionment Are

Available To New Jersey.

Although New Jersey’s levy violates the Commerce

Clause in its current form, enforcing constitutional

limits in this case would not have material adverse

consequences for the state. In fact, there are readily

available, reasonable ways in which the levy could be

apportioned in a manner consistent with the internal

consistency test. Thus, there simply is no basis for

New Jersey to resist changing its levy to meet constitutional muster. (And there certainly is no need for

New Jersey to resort to unconstitutional means to

meet its ostensible primary goal of covering processing

costs: as noted, the sums currently collected vastly exceed any conceivable estimate of the relevant processing costs. See Pet. App. 10a-11a, 40a-41a.)

As noted, the internal consistency test looks to

whether a levy’s “identical application by every State

in the Union would place interstate commerce at a disadvantage as compared with commerce intrastate.”

Jefferson Lines, 514 U.S. at 185. As currently structured, New Jersey’s levy clearly fails that test: if it

were adopted by every state, an MLP that does business in all 50 states, like Petitioner, would be subject

to a $12,500,000 aggregate levy ($250,000 times 50),

whereas a competitor doing business only in New Jersey would pay $250,000. Accord Pet. 8-9. The basic

problem is that New Jersey’s levy does not account for

the portion of a partnership’s business in New Jersey,

as opposed to other states.

The most straightforward solution is to apportion

the levy in an appropriate manner. One readily administrable option would be to use a formula similar

to the three-factor apportionment formula this Court

considered and approved in Container Corp. v. Franchise Tax Board, 463 U.S. 159, 183-184 (1983). That

formula is based, in equal parts, on the proportion of a

business’ “total payroll, property, and sales which are

located in the taxing State.” Id. at 170. Variations of

this formula have become “something of a benchmark

against which other apportionment formulas are

judged,” ibid., and have met with widespread approval

and uptake, including in New Jersey. See, e.g., Mayer

& Schweitzer, Inc. v. Director, Div. of Tax’n, 20 N.J.

Tax 217, 224-225 (2002); Hess Realty Corp. v. Director,

Div. of Tax’n, 10 N.J. Tax 63, 85-86 (1988).

An apportionment system of this kind would ensure that partnerships, such as MLPs, that are large

and geographically diverse would not be disfavored

relative to partnerships that operate entirely intrastate, even if other jurisdictions adopted similar levies.

Moreover, this approach is practical and administrable. Companies doing business in multiple states are

already familiar with variations of this formula and

routinely prepare the necessary documentation, and

tax authorities (including in New Jersey) are familiar

with applying such rules. The entities subject to the

partnership levy challenged here are already required

to submit informational returns containing information on their items of income and loss. See Pet.

App. 28a-29a. The incremental administrative burdens on New Jersey would almost certainly be minor.

To be sure, this type of formula may be “imperfect,”

Container Corp., 463 U.S. at 182, but the constitutional standard in this area is “fairness,” not perfection. Id. at 169. Nor would this type of formula be the

only option. Within constitutional limits, states have

“discretion to structure their tax systems.” N.C. Dep’t

of Revenue v. Kimberly Rice Kaestner 1992 Family Tr.,

139 S. Ct. 2213, 2226 (2019) (Alito, J., concurring).

But whatever the details of the apportionment formula or method New Jersey might select, there is no

doubt that New Jersey can achieve internal consistency for its levy, and compliance with the Commerce Clause, while preserving the challenged levy in

an appropriately modified form. Given the ready

availability of constitutional alternatives, there is no

basis to distort this Court’s internal consistency test

out of concern for state treasuries.

IV. This Case Is An Excellent And Timely

Vehicle.

Given the disarray in lower courts, see Pet. 9-17,

this Court needs to resolve promptly the scope of ATAMichigan’s exception to the internal consistency requirement; this case is an excellent and timely vehicle

for doing so. As Petitioner explains, this case presents

a clear opportunity to define the scope of both elements

of ATA-Michigan’s rule (the “fee-versus-tax” distinction, and the relevant concept of “local” focus). Id. at

17-19. Moreover, it may be a rare opportunity to address the issue, for practical and procedural reasons

that should not be viewed as diminishing the importance of the question presented. Id. at 19-21. EIC

adds the following points.

First, the facts of this case provide a particularly

stark illustration of how unapportioned levies can severely burden interstate commerce. This case involves

a large levy that imposes a sizeable, disproportionate

financial burden on a class of businesses (MLPs) that

are not only heavily involved in, but tend to specialize

in, interstate commerce in the most direct, physical

sense. See generally supra Part I. And, unlike in

cases involving smaller levies, the burden on those

businesses is vividly apparent. Indeed, in some years

the levy was greater than the amount of Petitioner’s

entire New Jersey-source income. Pet. 6.

Second, this uniquely well-suited vehicle comes at

an especially opportune time, given other develop-

ments in the law. As Petitioner notes, this Court’s decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080

(2018), combined with the growth of online commerce,

means that more and more businesses (including

many smaller businesses) will be subjected to the taxing authority of numerous states, and therefore will

face significant aggregate burdens from unapportioned levies. The question presented in this case will

accordingly grow in importance—not just for MLPs,

but for many businesses. Given the likelihood that

other (and often smaller) businesses will lack feasible

opportunities to litigate the issue, this Court’s review

in this case is urgently warranted.

CONCLUSION

For the foregoing reasons, and those set forth in the

petition, the petition for a writ of certiorari should be

granted.

Respectfully submitted.