Plaintiffs Brief — Maryland v. Louisiana
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Preme Court, U. &
FILED
MAR 29 1979
=
MICHAML RODAK, JR., CLERR
Supreme Court of the United States ;
OCTOBER TERM, 1978
No. N Q > Original |
STATE OF MARYLAND,
STATE OF ILLINOIS,
STATE OF INDIANA,
COMMONWEALTH OF MASSACHUSETTS,
STATE OF MICHIGAN,
STATE OF NEW YORK,
STATE OF RHODE ISLAND AND
PROVIDENCE PLANTATIONS,
STATE OF WISCONSIN,
Plaintiffs,
Vv.
STATE OF LOUISIANA,
Defendant.
BRIEF IN SUPPORT OF MOTION FOR LEAVE
TO FILE COMPLAINT
STEPHEN H. SACHS
Attorney General of Maryland
1400 One South Calvert Building
Baltimore, Maryland 21202
WILLIAM J. SCOTT
Attorney General of Illinois
500 South Second
Springfield, Illinois 62706
THEODORE L. SENDAK
Attorney General of Indiana
219 State House
Indianapolis, Indiana 46204
FRANCIS X. BELLOTTI
Attorney General of Massachusetts
One Ashburton Place
Boston, Massachusetts 02108
FRANK J. KELLY
Attorney General of Michigan
525 West Ottawa Street
Lansing, Michigan 48913
March 29, 1979
ROBERT ABRAMS
Attorney General of New York
#2 World Trade Center
New York, New York 10047
DENNIS J. ROBERTS II
Attorney General of Rhode Island
Providence County Courthouse
Providence, Rhode Island 0290
BRONSON C. La FOLLETTE
Attorney General of Wisconsin
114E State Capitol
Madison, Wisconsin 53702
EDWARD BERLIN
FRED W. GELDON
LEVA, HAWES, SYMINGTON,
MARTIN & OPPENHEIMER
815 Connecticut Ave., N.W.
Washington, D.C. 20006
Special Counsel to Plaintiffs
The Daily Record Co., Baltimore, Md. 21202 ee
TABLE OF CONTENTS
IN oi ccncincbirctshac cas berascauasnauunsoneensontaldane
RU UNT EIEIO T UND: sovccieccdscccvcvscsqssovcecipnvesonensevies
STATUTES AND CONSTITUTIONAL PROVISIONS
Re nel edb nawiicaseenkaabiaele
ARGUMENT:
I.
II.
SOOO EERE EEE HEHE EEE E SESE EEE EE EEEEEEEEEEEEHEEEEEEESEHEEEE HEHE
Plaintiff States Have Standing To
Challenge The Louisiana First Use Tax
A.
C.
Plaintiff States Have Standing In
Their Proprietary Capacities To
Challenge The Louisiana First Use
AE INI Ai canucativaah cab iccainiebeieclicia erhiecibaaalareisien Saas
Plaintiff States Have Standing To
Challenge The Louisiana First Use
Tax As Parens Patriae Of Their
Citizens Who Are Consumers Of
UE I i cciiciata ccatisiaiarstvesenciun
This Suit Is Not Barred By The
Decision In Arizona v. New Mexico
The Louisiana First Use Tax Raises
Important And Substantial Federal
Questions And Is In Conflict With
Applicable Decisions Of This Court ....
A.
The Louisiana First Use Tax Con-
stitutes An Unconstitutional And
Discriminatory Burden Upon Inter-
state Commerce .............ccccceeees sive
1. The Louisiana First Use Tax Is
a Tax On Interstate Commerce
2. The Louisiana First Use Tax Is
Applied On Certain Activities
—
12
13
14
18
19
19
li
PAGE
That Do Not Have A Sufficient
Nexus With Louisiana .............. 21
3. The Louisiana First Use Tax Is
Not Fairly Apportioned ........... 21
4. The Louisiana First Use Tax
Discriminates Against Inter-
state COMMELCE ............ccecsceeeees 22
5. The Louisiana First Use Tax Is
Not Fairly Related To Services
Provided By Louisiana ............ 24
B. The Louisiana First Use Tax Vio-
lates The Supremacy Clause .......... 26
C. The Louisiana First Use Tax Is An
| Unconsitutional Impost Or Duty
(Jah TOI aaivesvisscsecedniasescianstesbbaasennes 28
1. The Louisiana First Use Tax
Reaches Imports. ..............:00000+ ae
2. The Louisiana First Use Tax
Would Complicate The Federal
Government’s Foreign Trade
FMRI. sicsiaceinaninimaigtenigaasteuaoms 30
3. The Louisiana First Use Tax
Would Disturb Th armony
Among The States 4...........00..0 31
D. The Louisiana First Use Tax Un-
constitutionally Impairs The Obli-
gation of Contracts ..................0.00, 32
E. The Louisiana First Use Tax De-
nies Equal Protection Of The Laws 34
COOORES SIRE ~ cnc sicisdizvsnendabinnasaiitecntene cite ine 35
PAPI airs asicaObidinribcsinelocasiceed tp Re ae eae la
ill
TABLE OF CITATIONS
Cases
PAGE
Allied Structure Steel Co. v. Spannaus, —_—._ U.S.
i Oy.) ee 11, 32, 33, 34
Arizona v. New Mexico, 425 U.S. 794 (1976) ....7, 8, 14,
15, 16,17
Arkansas v. Texas, 346 U.S. 368 (1953) ............. 12
Boston Stock Exchange v. State Tax Commis-
SE EF, CBRE CLOT 1) ccccccreccicceccccroccsscccessess 19, 23
Brown v. Maryland, 25 U.S. (12 Wheat.) 419
Neen os decasanbnsscnueabactecenescoece 30
California v. Texas, ___. U.S. ___., 57 L. Ed. 2d
en .. ssubucpecnneesccebose 14
Department of Revenue of Washington v. Associ-
ation of Washington Stevedoring Compan-
ies, 435 U.S. 734 (1978) .......... 9,11, 19, 21, 24, 29, 31
Doremus v. Board of Education of Hawthorne,
I NOE ooo... sccccasconbaccsvcnessvcosccceeseces 16
East Ohio Gas Co. v. Tax Commission of Ohio,
RS MED CEL) cccccccccoccccccscscccceccoes 9,11, 19, 20, 30
Edwin W. Edwards v. Transcontinental Gas Pipe
Line Corp., No. 216867 (19th Judicial District
Court, La., filed Sept. 22, 1978) oo... 15
Federal Energy Regulatory Commission v.
McNamara, Civil Action No. 78-384 (M.D.
Df, ) ER 6, 16
Federal Power Commission v. Hunt, 376 U.S. 515
ee aswesecpaasnssdeconaceroes 17
Federal Power Commission v. Tennessee Gas
Transmission Co., 371 U.S. 145 (1962) ......... 17
Georgia v. Pennsylvania Railroad Co., 324 U.S.
Teen cases cenccsccenssoocssesscss 7,13, 14
iv
PAGE
Halliburton Oil Well Cementing Co. v. Reily, 373
Rk SR A semis aitigiahsentcieninthininaviniegshtimniladaacnishadiatt 23
Hawaii v. Standard Oil Co., 405 U.S. 251 (1972) 13
Home Building & Loan Association v. Blaisdell,
B08 TID Fae TIF ~ siichithiniticmtinnwuenn 11, 32
Illinois v. City of Milwaukee, 406 U.S. 91 (1972) 12
Illinois Natural Gas Co. v. Central Illinois Public
Service Co., 314 U.S. 498 (1942) .......... 20
Louisiana v. Board of Supervisors, 228 La. 951,
OR Si, R-T Ce Marden recs cnneisnandisceccagetocns 16
Maryland v. Wirtz, 392 U.S. 183 (1968) .............. ie
Memphis Natural Gas Co. v. Stone, 335 U.S. 80
|, RARITY EEN BRE BLOF e- OMIE N e Br ULL Uri ny FP 21
Michelin Tire Corp. v. Wages, 423 U.S. 276 (1976)
RE IR Soy PR I POON eT eT Bec MR Ee Ne 11, 28, 29, 30, 31
Michigan-Wisconsin Pipe Line Co. v. Calvert,
SES RE: BE CRIED tcicdidintssnidcervcteerveteccbotas 9, 20, 21, 22
Missouri ex rel. Barrett v. Kansas Natural Gas
ts Cris, Ce GIO sictcicsetistevnctantcscoctiveroninns 27
Muskrat v. United States, 219 U.S. 346 (1911) . 16
North Dakota v. Minnesota, 263 U.S. 365 (1923) 12
Northern Natural Gas Co. v. State Corporation
Commission, 372 U.S. 84 (1963)... 27
Northwestern States Portland Cement Co. v.
Minnesota, 358 U.S. 450 (1959) wo. 9,21, 22
Oklahoma v. United States Civil Service Com-
mission, 330 U.S. 127 (1087) .....cccccccocosceseceeesse 12
Pennsylvania v. West Virginia, 262 U.S. 553
(HBTIBY secscvecccss aiecsensancmaidiellabdaniabictceenitinsaiinats 7,12, 18
Phillips Petroleum Co. v. Wisobnein: 347 U.S. 672
UREN ARCA MeN Oy STEEN a REST IE RTs OAS 27
Raymond Motor Transportation, Inc. v. Rice, 434
as I TEE ities bined tatnasinatabctetnencigueestitelabiaiis 35
v
State Tax Commission of Mississippi v. Inter-
state Natural Gas Co., 284 U.S. 41 (1981) ..
State Water Control Board v. Washington
Suburban Sanitary Commission, 61 F.R.D.
I I a las
Tennessee Gas Pipe Line Company v. Federal
Energy Regulatory Commission, No. 78-3813
PAGE
21
16
CORR Cae. TER EIS. BB, BOTED) ciciccccstescccscscissccsee 6
United Fuel Gas Co. v. Hallanan, 257 U.S. 277
9 IRR RRSGHSORE SE RES U ORARY R Mane Frcs SN 19
Wheeling Steel Corp. v. Glander, 337 U.S. 562
OES NESSE Ege (eC an are rns Cae re ee 34
Youngstown Sheet & Tube Co. v. Bowers, 358
I I a a bdoacas 31
Constitutional Provisions and Statutes
United States Constitution:
Article I, section 8, clause 3. ............ccccccssesseees 2
Article I, section 10, clause 1 .....................00. 3, 32
Article I, section 10, clause 2 .................ccce000. 3, 28
Article III, section 2, clauses 1 and 2 .......... 1
cc delane 2,3
Section 1, fourteenth amendment .................. 3
United States Statutes:
52 Stat. 821-33, Title 15, U.S. Code, Sections
II ioisisacecctsnetaniassernlaiscenines 5, 26, 27
62 Stat. 927, Title 28, U.S. Code, Section 1251
gee een A Rae Eames oN 1,7, 12
62 Stat. 932, Title 28, U.S. Code, Section 1341
ERTL AERC SUR ne Ree. PRON 16
67 Stat. 29-32, Title 43, U.S. Code, Sections
I SPI nassiicinassicncgcesonantddgaessecesénesne 5
vi
PAGE
67 Stat. 462-70, Title 43, U.S. Code, Sections
SAE TAG ksinnnissveieeuscanne 5, 26, 28
76 Stat. 72, Title 19, U.S. Code, Section 1202,
Schedule 4, Part 10, Item 475.15 (1976) 30
86 Stat. 280-89, Title 16, U.S. Code, Sections
1451-1464 (1976), as amended by 92 Stat.
629, Pub. L. No. 95-372 (1978) .............. 25
92 Stat. 3350, Pub. L. No. 95-621 (1978) ...... 26
Louisiana Statutes:
La. Rev. Stat. Ann. §§ 47:631-646 (West 1970
ES TIGR: Sih tnaiadeaninidbsaieaanien 4, 23
Act No. 436, 1978 La. Sess. Law Serv. 842
(West) (to be codified as La. Rev. Stat.
Pe BSTC G . citetcsitinicdntsvencindieeailan 3, 5, 23, 34
Act No. 294, 1978 La. Sess. Law Serv. 482
(West) (to be codified as La. Rev. Stat.
Pete, BE ATRBOA-TTIGD cisisitsccccscccsceonsocassndins passim
Act No. 293, 1978 La. Sess. Law Serv. 480
(West) (to be codified as La. Rev. Stat.
ps | ERATE Se enon ee eet Ae 3, 4, 25
La. Rev. Stat. Ann. § 47:1575 (West) ............ 16
La. Rev. Stat. Ann. § 47:1576A (West Supp.
WO -eidiciiniewscnnssiedentipeibiaibiaaa ae eee a 17
Act No. 361, 1978 La. Sess. Law Serv. 704
(West) (to be codified as La. Rev. Stat.
Pe: Te NED icsencenserscscinisnitniintinsein 25
Administrative Proceeding
State of Louisiana First Use Tax in Pipeline Rate
Cases, Docket No. RM78-23:
Order No. 10, 43 Fed. Reg. 45,553 (Oct. 3,
SITU. csunnnieCesAtinsiniiciasiiasapetlacsaccttniatiadaems 5
Vii
PAGE
Order No. 10-A, 43 Fed. Reg. 60,438 (Dec. 28,
UN eicibiaccnansiad sind cpleaniasadaNlarcsbiiehaavoessaktenng 6
Order No. 10-B, 44 Fed. Reg. 13,460 (Mar. 12,
1 SATE SER ALS ERC TT LT TCO ER aD 6
Miscellaneous
New York Times, Mar. 19, 1979
IN THE
Supreme Court of the United States
OcTOBER TERM, 1978
No. , Original
STATE OF MARYLAND,
STATE OF ILLINOIS,
STATE OF INDIANA,
COMMONWEALTH OF MASSACHUSETTS,
STATE OF MICHIGAN,
STATE OF NEW YORK,
STATE OF RHODE ISLAND AND
PROVIDENCE PLANTATIONS,
STATE OF WISCONSIN,
Plaintiffs,
v.
STATE OF LOUISIANA,
Defendant.
BRIEF IN SUPPORT OF MOTION FOR LEAVE
TO FILE COMPLAINT
JURISDICTION
By this action Maryland, Illinois, Indiana, Massachu-
setts, Michigan, New York, Rhode Island, and Wiscon-
sin challenge the constitutionality of the Louisiana
First Use Tax on natural gas passing through Louisi-
ana in transit to other states.
This controversy between the plaintiff states and the
State of Louisiana is within the original and exclusive
jurisdiction of this Court under article III, section 2,
clauses 1 and 2 of the Constitution of the United States
and 62 Stat. 927, Title 28, United States Code, Section
1251(a)(1) (1976).
2
QUESTION PRESENTED
Whether a challenge by plaintiff states to the
constitutionality of the Louisiana First Use Tax,
imposed on natural gas entering into and passing
through Lonisiana while in transit to other states,
presents an appropriate case for this Court’s exercise of
its exclusive, original jurisdiction, where plaintiffs
present facts which establish that:
I. The First Use Tax constitutes an unconstitu-
tional, discriminatory burden upon inter-
state commerce.
II. The First Use Tax violates the supremacy
clause of the United States Constitution.
III. The First Use Tax is an unconstitutional
impost or duty on imports.
IV. The First Use Tax unconstitutionally im-
pairs the obligation of contracts.
V. The First Use Tax denies equal protection of
the laws. ry
STATUTES AND CONSTITUTIONAL
PROVISIONS INVOLVED
Article I, section 8, clause 3 of the Constitution of the
United States provides as follows:
The Congress shall have Power. . . To regulate
Commerce with foreign Nations, and among the
several states, and with the Indian. Tribes.
Article VI, clause 2 of the Constitution of the United
States provides as follows:
This Constitution, and the Laws of the United
States which shall be made in Pursuance thereof;
and all Treaties made, or which shall be made,
under the Authority of the United States, shall be
the supreme Law of the Land; and the Judges in
every State shall be bound thereby, any Thing in
3
the Constitution or Laws of any State to the
Contrary notwithstanding.
Article I, section 10, clause 2 of the Constitution of the
United States provides as follows:
No State shall, without the Consent of the
Congress, lay any Imposts or Duties on Imports or
Exports, except what may be absolutely necessary
for executing its inspection Laws: and the net
Produce of all Duties and Imposts, laid by any
State on Imports or Exports, shall be for the Use of
the Treasury of the United States; and all such
Laws shall be subject to the Revision and Controul
of the Congress.
Article I, section 10, clause 1 of the Constitution of the
United States provides as follows:
No State shall... pass any. . . Law impairing
the Obligation of Contracts... .
Section 1 of the fourteenth amendment to the
Constitution of the United States provides as follows:
No State shall make or enforce any law which
shall abridge the privileges or immunities of
citizens of the United States; nor shall any State
deprive any person of life, liberty or property,
without due process of law; nor deny to any person
— its jurisdiction the equal protection of the
aws.
The First Use Tax on Natural Gas, Act No. 294, 1978
La. Sess. Law Serv. 482 (West) (to be codified as La.
Rev. STAT. ANN. §§ 47:1301-1307), is set out in full in
Exhibit A to the accompanying Complaint, pp. 1a-8a.
The First Use Tax on Natural Gas — Severance Tax
Credit, Act No. 436, 1978 La. Sess. Law Serv. 842 (West)
(to be codified as La. Rev. Stat. ANN. § 47:647), is set
out in full in Exhibit B to the accompanying Complaint,
pp. Ya-12a.
The First Use Tax Trust Fund, Act No. 293, 1978 La.
Sess. Law Serv. 480 (West) (to be codified as La. REv.
4
Strat. ANN. § 47:1351), is set out in full in the Appendix
to this brief, pp. la-4a., infra.
STATEMENT
The purpose of this suit is to set aside, on constitu-
tional grounds, Louisana’s First Use Tax on Natural
Gas (hereinafter referred to as “First Use Tax”).!
Effective April 1, 1979, the State of Louisiana intends
to impose a First Use Tax at a rate of seven cents per
thousand cubic feet (““Mcf’’) upon the first occurrence of
any “use”? of natural gas within Louisiana, providing
that such gas is not otherwise subject to a severance,
production or import tax levied by any state, territory or
by the United States. Since Louisiana imposes a
severance tax upon all intrastate production,’ the
incidence of the First Use Tax is solely upon natural
gas produced outside Louisiana, which, for practical
purposes, means natural gas produced outside the
territorial limits of the United States, from acreage
controlled by the Federal Government.
The alleged purpose of the tax is to compensate
Louisiana for damage to its waterbottoms, barrier reefs,
and shorelines. § 47:1301. Contractual provisions that
would place responsibility for state taxes on the
producers of natural gas are declared to be “against
public policy and unenforceable to that extent.”
! First Use Tax on Natural Gas, Act No. 294, 1978 La. Sess.
Law Serv. 482 (West) (to be codified as La. Rev. Stat. ANN.
§§ 47:1301-1307). A copy of the First Use Tax is attached to
the Complaint as Exhibit A.
2 Under the Act “use” includes, among other activities, the
sale, transportation or processing of natural gas, § 47:1302(8),
but it does not include “natural gas used or consumed in the
manufacture of fertilizer and anhydrous ammonia within the
state.” § 47:1303A.
3 La. Rev. Stat. ANN. §§ 47:631-646 (West 1970 and Supp.
1978.) The severance tax on intrastate production of natural
gas is also set at seven cents per Mcf. § 47:633(9) (Supp. 1978).
5
§ 47:1303C. Contemporaneous with the passage of the
First Use Tax, the Louisiana legislature enacted a
severance tax credit‘ which permits in-state producers
liable for the First Use Tax to credit that liability,
dollar-for-dollar, against their severance tax liability.
The First Use Tax will be levied against substantial
quantities of natural gas produced from the Outer
Continental Shelf (“OCS”), a domain under the control
of the Federal Government outside the seaward boun-
daries of the State of Louisiana. Gas from this
federally-controlled domain is transported through
Louisiana by interstate pipelines.®
The Federal Energy Regulatory Commission
(“FERC”), through the adoption of an automatic
tracking mechanism,’ has provided a procedure for
4 First Use Tax on Natural Gas — Severance Tax Credit,
Act No. 436, 1978 La. Sess. Law. Serv. 842 (West) (to be
codified as LA. REv. STat. ANN. § 47:647). A copy of the First
Use Tax on Natural Gas — Severance Tax Credit is attached
to the Complaint as Exhibit B.
> The Outer Continental Shelf is defined and delineated in
the Outer Continental Shelf Lands Act, 67 Stat. 462-70, 43
U.S.C. §§ 1331-1343 (1976). The Submerged Lands Act, 67
Stat. 29-32, 43 U.S.C. §§ 1301-1315 (1976), passed several
months earlier in 1953, draws the line of demarcation
between state and federal domains.
6 Each of these pipelines is a “natural gas company” as
defined in section 2 of the Natural Gas Act, 52 Stat. 821, 15
U.S.C. §717a(6) (1976), and is regulated by the Federal
Energy Regulatory Commission (““FERC’’) as successor to the
Federal Power Commission. As part of the Natural Gas Act’s
comprehensive regulatory scheme, the purchase of natural
gas from producers, its transportation in interstate com-
merce, and its sale to distribution companies must be made
pursuant either to certificates of public convenience and
ae or rate schedules or tariffs issued or approved by
7 State of Louisiana First Use Tax in Pipeline Rate Cases,
Docket No. RM 78-23, Order No. 10, “Order Establishing
Procedures Governing Pipeline Recovery of the State of
Louisiana First Use Tax,” issued August 28, 1978, 43 Fed.
6
consumer reimbursement of any First Use Tax pay-
ments by pipelines. Although those charges are to be
collected subject to refund, pending a final judicial
determination of the constitutionality of the tax, the
immediate burden and incidence of the tax will be
passed directly to the ultimate consumers.
Based on the volumes of natural gas entering Louisia-
na from the OCS in 1977, it has been estimated by FERC
that the First Use Tax will be imposed on approximately
3,190 millicn Mcf® resulting in the imposition of a 225
million dollars per annum charge on consumers.
Each of the eight plaintiff states is a significant
consumer of natural gas, and each plaintiff state and its
citizens will be substantially harmed by the First Use Tax
and will suffer economic burdens and hardships.
Reg. 45,553 (Oct. 3, 1978); Order No. 10-A, “Order on
Rehearing, Modifying Prior Order, Amending Regulation
and Requesting Comment,” issued December 20, 1978, 43
Fed. Reg. 60,438 (Dec. 28, 1978), appeal docketed, Tennessee
Gas Pipe Line Co. v. Fed. Energy Regulatory Comm’n, No.
78-38-13, et al. (5th Cir. Dec. 26, 1978); and Order No. 10-B,
“Order on Rehearing, Modifying Prior Order and Amending
Regulations,” issued March 2, 1979, 44 Fed. Reg. 13,460 (Mar.
12, 1979).
* This estimate is based on total OCS production entering
Louisiana in 1977 of 3,647, 513, 674 Mcf, less 220 million Mcf
in shrinkage during processing, 100 million Mcf reserved for
the producer’s own use or direct industrial sales, and
140 million Mcf consumed in the production of fertilizer and
anhydrous ammonia in Louisiana. See Complaint, para-
graph 14, Fed. Energy Regulatory Comm’n v. McNamara,
Civil Action No. 78-384 (M.D. La., filed Sept. 29, 1978). The
First Use Tax will also be imposed upon all volumes of
natural gas that may be imported from foreign countries
without severance taxes and imported through Louisiana.
7
SUMMARY OF ARGUMENT
I. PLAINTIFF STATES HAVE STANDING To CHALLENGE
THE LOUISIANA First USE TAx.
Plaintiff states are suing both in their proprietary
capacities and as parens patriae. In their proprietary
capacities, plaintiff states are themselves major consu-
mers of natural gas subject to the First Use Tax and will
be directly injured by that tax. A state may sue in its
proprietary capacity. Maryland v. Wirtz, 392 U.S. 183
(1968). This Court is the only federal forum in which
plaintiffs can assert their claim. 62 Stat. 927, 28 U.S.C.
§ 1251(a)(1) (1976).
Plaintiff states also sue as parens patriae to prevent the
substantial harm that the First Use Tax would cause to
the health and welfare of their citizens and to the
economic vitality of the commercial activities of those
citizens. Pennsylvania v. West Virginia, 262 U.S. 553
(1923); Georgia v. Pennsylvania Railroad Co., 324 U.S.
439 (1945).
The decision in Arizona v. New Mexico, 425 U.S. 794
(1976), in which this Court declined to accept an original
action by Arizona challenging the constitutionality of an
electrical energy tax imposed by New Mexico on utilities
that retailed to Arizona customers, should not bar the
filing of this case.
First, Arizona did not allege and did not face immediate
harm from the challenged tax, because the Arizona
utilities had refused to pay the tax and had challenged it
judicially. In this case, however, the pipeline companies
must pay the First Use Tax even before its constitutional-
ity has been determined, and have been granted the right
by FERC immediately to pass that cost on to consumers.
Thus, the First Use Tax will have an immediate, direct
impact on the rates paid for natural gas by plaintiff states
and their citizens.
8
Second, whereas in Arizona v. New Mexico a subdivi-
sion of Arizona had joined in a pending New Mexico state
court challenge to the tax, none of the plaintiff states or
their subdivisions are parties to any pending judicial
challenge to the First Use Tax. Neither the declaratory
judgment action filed by the State of Louisiana in state
court nor an action brought by FERC in federal district
court and stayed pending the outcome of the state court
litigation represent appropriate actions in which the
plaintiffs can litigate their claim. The proper forum,
under the Constitution, is the Supreme Court of the
United States.
Third, this case raises issues of national significance
and federal law — including the conflict between the First
Use Tax and federal energy regulation — that were not
raised by Arizona’s challenge to the New Mexico
electrical energy tax.
Finally, this case, unlike Arizona v. New Mexico,
involves a challenge by a cross section of states that
represent multiple regions of the country to the collection
of hundreds of million dollars annually by a single state
hundreds of miles away. If Louisiana is allowed to impose
its First Use Tax upon natural gas in interstate
commerce, other states could race to impose countervail-
ing measures on comparable products and our national
economy would regress into the precise interstate
feudalism that our Constitution and our federal system
were designed to prevent.
II. THE LouIsiIANA First Use TAx RaAIses IMPORTANT
AND SUBSTANTIAL FEDERAL QUESTIONS AND Is IN
CONFLICT WITH APPLICABLE DECISIONS OF THIS
Court.
The First Use Tax offends multiple provisions of the
United States Constitution:
9
A. The First Use Tax unconstitutionally burdens
interstate commerce. The First Use Tax is applied to
natural gas from a federal domain, and not to activities
with a substantial nexus to Louisiana; it is not fairly
apportioned; it discriminates against interstate com-
merce; and it is not fairly related to services provided by
Louisiana. Department of Revenue of Washington v.
Association of Washington Stevedoring Companies, 435
U.S. 734 (1978).
The flow of natural gas in pipelines from and to
points outside the state constitutes interstate commerce,
East Ohio Gas Co. v. Tax Commission of Ohio, 283 U.S.
465 (1931), which a state may not tax. Michigan-
Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157 (1954).
The “‘uses” taxed by Louisiana are not “separate local
activities” that may permissibly be taxed. Nor do such
uses as transportation or transfer or sale establish a
sufficient nexus to Louisiana to justify the tax.
The First Use Tax is not fairly apportioned. It is not
related to investment, receipts, or other indicia of a
nexus with Louisiana. The tax exposes both natural gas
from the OCS and imported natural gas to the burden
of multiple taxation by other states through which the
same gas would pass. Northwestern States Portland
Cement Co. v. Minnesota, 358 U.S. 450 (1959);
Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S.
157 (1954).
The First Use Tax discriminates against interstate
commerce in several respects. First, it taxes OCS gas
moving through Louisiana but does not tax gas
produced in Louisiana (including gas produced from
that part of offshore Louisiana that remains under
state control) or gas produced in states that impose
severance taxes, even though such gas enjoys the same
protections, and causes the same alleged damages, as
OCS gas. Second, the Louisiana Severance Tax Credit
10
permits taxpayers to credit their First Use Tax liability
against their liability for Louisiana’s severance tax,
thereby favoring pipelines that produce natural resour-
ces subject to the severance tax and burdening those
that do not. Third, natural gas consumed in specified
uses, such as production of sulphur, fertilizer, and
anhydrous ammonia, is exempt from the First Use Tax
if those activities occur in Louisiana, but not if they
occur in other states.
The First Use Tax is not fairly related to services
provided by Louisiana. The size of the tax, which will
return more than $225,000,000 annually to the State of
Louisiana, is utterly disproportionate to the minimal
burdens which the taxed activity places upon the state
or to the minimal privileges afforded by the state.
Although the First Use Tax and Severance Tax have
been set at equivalent rates, the latter is intended to
compensate Louisiana for loss of its natural resources,
a loss not caused by the “use” of OCS gas. The
excessiveness of the First Use Tax is also shown by the
limited proportion of the revenues collected that are
earmarked for the statutory purpose of protecting the
environment, by the collection of other taxes from the
same taxpayers, and by the availability under the
Coastal Zone Management Act of federal grants to
compensate states harmed by OCS development.
B. The First Use Tax violates the supremacy clause.
The Natural Gas Act, the Natural Gas Policy Act, and
the Outer Continental Shelf Lands Act constitute a
comprehensive and preemptive program for the regula-
tion of natural gas.
More specifically, the First Use Tax, by voiding
contractual provisions requiring reimbursement of the
tax by producers, conflicts with numerous certificates of
public convenience and necessity issued by FERC that
incorporate the terms of underlying contracts contain-
11
ing reimbursement provisions. The First Use Tax
conflicts with the requirement in the Outer Continental
Shelf Lands Act that state taxation laws shall not
apply to the OCS.
C. The First Use Tax is an unconstitutional impost or
duty on imports. The tax on its face applies to imports
and is imposed before the “original package” is broken
and before the gas loses its status as an import. East
Ohio Gas Co. v. Tax Commission of Ohio, 283 U.S. 465
(1931). The First Use Tax would create a special
preference for domestic goods and conflict with the
federal government’s foreign trade policy. Michelin Tire
Corp. v. Wages, 423 U.S. 276 (1976). It could seriously
inhibit the importation of natural gas from Canada and
Mexico. And the tax would disturb harmony among the
states. Department of Revenue of Washington v.
Association of Washington Stevedoring Companies, 435
U.S. 734 (1978).
D. The First Use Tax impairs the obligation of
contracts by nullifying provisions requiring producers
to reimburse pipeline companies for the tax. This
nullification clause serves no legitimate end, either by
raising added revenue or by protecting Louisiana’s
environment. Home Building & Loan Association uv.
Blaisdell, 290 U.S. 398 (1934). The nullification clause
does not deal with a broad economic or social problem,
does not cover an area already subject to state
regulation, does not have merely a temporary impact,
and is not aimed at a broad class of persons. Allied
Structure Steel Co. v. Spannaus, __—. U.S. ——, 57 L.
Ed. 2d 727 (1978).
E. The First Use Tax denies equal protection of the
laws, because it establishes a classification treating
taxpayers who are engaged solely in interstate OCS
natural gas activity differently from taxpayers who are
also engaged in in-state natural resource production.
12
ARGUMENT
I.
PLAINTIFF STATES HAVE STANDING TO CHALLENGE
THE LOUISIANA FIRST USE TAX.
A. Plaintiff States Have Standing In Their
Proprietary Capacities To Challenge The
Louisiana First Use Tax.
Plaintiff states are major consumers of natural gas
subject to the First Use Tax, including gas used for
space and water heating in public buildings, and as
such will be injured directly in their proprietary
capacities. Plaintiffs estimate that the imposition of the
First Use Tax will cost them at least 1.5 million dollars
annually.
If, in addition, the direct incremental cost of the tax
to the political subdivisions and educational institu-
tions of plaintiff states is considered as well, the
anticipated financial burden would be significantly
greater. Injury to these subdivisions and educational
institutions, as consumers, constitutes injury to the
states themselves for purposes of this Court’s original
jurisdiction. Arkansas v. Texas, 346 U.S. 368, 370 .
(1953).
It is well established that a state may bring an action
in its proprietary capacity, Maryland v. Wirtz, 392 U.S.
183 (1968); Oklahoma v. United States Civil Service
Commission, 330 U.S. 127 (1947), and that this Court
has jurisdiction over such an action when brought
against a sister state. North Dakota v. Minnesota, 263
U.S. 365, 373-74 (1923); Pennsylvania v. West Virginia,
262 U.S. 553, 592 (1923). In the present instance this
jurisdiction is exclusive, 62 Stat. 927, 28 U.S.C.
§ 1251(a)(1) (1976), and the plaintiff states have no
federal forum other than this Court in which to assert
their claim. Illinois v. City of Milwaukee, 406 U.S. 91, 93
(1972).
13
B. Plaintiff States Have Standing To Challenge The
Louisiana First Use Tax As Parens Patriae Of
Their Citizens Who Are Consumers Of Natural
Gas.
The total direct economic cost of the First Use Tax on
the citizens of plaintiff states will exceed 120 million
dollars, excluding the multiplier effect on the economy
generally, which should increase that burden signifi-
cantly.
States may sue as parens patriae in an original
action, Hawaii v. Standard Oil Co., 405 U.S. 251, 257-59
(1972), and this case presents an appropriate exercise of
that doctrine. See Pennsylvania v. West Virginia, 262
U.S. 553, 591-92 (1923); Georgia v. Pennsylvania
Railroad Co., 324 U.S. 439, 447-51 (1945).” A principal
° In a suit to enjoin the enforcement of a West Virginia
conservation statute threatening to cut off the supply of
natural gas flowing from West Virginia fields, Peansylvania
was found to have standing, not only as a proprietor of public
institutions which used the gas, but also “as the repre-
sentative of the consuming public whose supply will be
similarly affected.” 262 U.S. at 591. Where matters of health,
comfort and welfare are concerned, the state, “as the repre-
sentative of the public, has an interest apart from that of the
individuals affected.” Jd. at 592.
' This Court upheld the right of Georgia to bring an
original suit as parens patriae to enforce the civil remedies of
the antitrust laws, on an allegation that the economy of
Georgia and the welfare of her citizens had suffered serious
injury from a conspiracy of the defendant railroad compa-
nies. Addressing the issue of discriminatory rates, the Court
compared the damages alleged in Georgia to those alleged in
Pennsylvania v. West Virginia, supra, note 9, and other
traditional original jurisdiction cases:
If the allegations of the bill are taken as true, the
economy of Georgia and the welfare of her citizens have
seriously suffered as the result of this alleged conspiracy.
Discriminatory rates are but one form of trade barriers.
They may cause a blight no less serious than the spread
of noxious gas over the land or the deposit of sewage in
the streams. They may affect the prosperity and welfare
of a State as profoundly as any diversion of waters from
the rivers. They may stifle, impede, or cripple old
14
objective of plaintiffs in bringing this suit is to avoid
the direct and substantial harm that would be imposed
on their citizens and on commercial activities by
imposition of the discriminatory First Use Tax. The
situation here is directly analogous to that which
pertained in Georgia v. Pennsylvania Railroad: The
First Use Tax would cause serious injury to the health
and welfare of the citizens of plaintiff states and would
threaten the viability of their gas-consuming industries.
The tax would insidiously harm the economic prosper-
ity of entire regions of the country.
C. This Suit Is Not Barred By The Decision In
Arizona v. New Mexico.
This Court has original and exclusive jurisdiction
over disputes between two or more states, and “it has a
responsibility to exercise that jurisdiction when it is
properly invoked.” California v. Texas, ___. U.S. ___.,
57 L. Ed. 2d 464, 467 (1978) (per curiam) (Stewart J.,
concurring opinion).
In Arizona v. New Mexico, 425 U.S. 794 (1976), this
Court declined to accept an original action by Arizona
challenging the constitutionality of New Mexico’s
electrical energy tax imposed on utilities that retailed to
Arizona customers; this case, however, differs in several
important respects and should not be governed by that
decision.
industries and prevent the establishment of new ones.
They may arrest the development of a State or put it ata
decided disadvantage in competitive markets. Such a
charge at least equals in gravity the one which
Pennsylvania and Ohio had with West Virginia over the
curtailment of the flow of natural gas from the West
Virginia fields.
324 U.S. at 450-51. The Court went on to affirm Georgia’s
standing to sue. In this action plaintiff states are in a similar
position.
15
First, as Justice Stevens’ concurring opinion in
Arizona v. New Mexico pointed out, Arizona was “not
sufficiently affected” by the challenged tax “to justify
its invocation of the ‘original and exclusive jurisdiction’ -
of this Court,” because Arizona had not alleged that the
electrical energy tax had “some impact on the rates
paid by consumers of electricity in Arizona.” 425 U.S. at
798. Indeed, the refusal of the Arizona utilities to pay
the New Mexico tax protected Arizona and its citizens
from any injury pending resolution of the challenges to
the tax. That is not the situation here, however.
Because FERC has allowed the pipelines to pay the
First Use Tax to Louisiana (under protest) and to collect
and escrow the tax from their customers, the First Use
Tax will have an immediate impact on the rates paid by
consumers of natural gas who are citizens of the
plaintiff states, as well as on the rates paid by plaintiff
states for their own consumption. Thus plaintiff states
will begin to suffer injury on April 1, 1979, even while
judicial challenges to the tax are pending.
Second, none of the plaintiff states, and none of their
political subdivisions, are parties to any pending suit in
any other jurisdiction. In Arizona v. New Mexico, a
political subdivision of Arizona had joined a challenge
to the tax in a New Mexico state court. Two actions
concerned with the constitutionality of the First Use
Tax have been filed in Louisiana, but neither repre-
sents an appropriate vehicle either for participation by
plaintiffs or for ultimate review by this Court. The first
suit, a self-seeking action filed in Louisiana state court
by the State of Louisiana,!! seeks a declaratory
judgment that the First Use Tax is constitutional. Not
only is it inappropriate for plaintiff states to be required
to litigate their claim in the state court system of the
11 Edwin W. Edwards v. Transcontinental Gas Pipe Line
Corp., No. 216867 (19th Judicial District Court, La., filed
Sept. 22, 1978).
16
defendant state, but that action is a request for an
advisory opinion and does not present a case or
controversy that would be reviewable by this Court.!2
The second suit, brought by FERC in federal district
court,!3 has been stayed pending the outcome of the
state court litigation.'4 Moreover, intervention by
plaintiff states in that action would divest the district
court of jurisdiction.'5: Thus, plaintiff states — unlike
Arizona — have no adequate alternative forum.
Third, this Complaint raises issues of national
significance and federal law not raised by Arizona’s
challenge to the New Mexico electrical energy tax. For
12 An action by state officials to have a state statute
declared constitutional is not maintainable in the Louisiana
courts. Louisiana v. Bd. of Supervisors, 228 La. 951, 84 So. 2d
597 (1955). Furthermore, because Louisiana law prohibits
state courts from granting relief to defendant taxpayers, LA.
Rev. STAT. ANN. § 47:1575 (1975), the existing state case, even
if maintained, will result in a decree that is advisory in
nature and not reviewable by this Court. Muskrat v. United
States, 219 U.S. 346, 361-63 (1911). Whether or not a state
court is empowered to render advisory opinions, this Court
may not review a state court proceeding that does not pre-
sent an article III case or controversy, Doremus v. Board of
Education of Hawthorne, 342 U.S. 429, 434 (1952).
13 Fed. Energy Regulatory Comm’n v. McNamara, Civil
Action No. 78-384 (M.D. La., filed Sept. 29, 1978).
14 Td., Order of Judge West, Jan. 26, 1979, appeal docketed,
Fed. Energy Regulatory Comm’n v. McNamara, No. 79-1403
(5th Cir. 1979). Three of the plaintiff states filed an
application in that case for amicus curiae status and for
inclusion on the service list, but that application had not
been ruled on at the time the action was stayed.
15 See State Water Control Bd. v. Washington Suburban
Sanitary Comm’n, 61 F.R.D. 588 (D.D.C. 1974) (intervention
by Maryland would convert action to a suit between two
states and thereby destroy district court’s jurisdiction). Note
also that the tax-injunction statute, 62 Stat. 932, 28 U.S.C.
§ 1341 (1976), would bar the federal district court from
enjoining collection of the First Use Tax on behalf of the
plaintiff states, aithough it would not bar an injunction on
behalf of FERC.
17
example, the First Use Tax burdens federal OCS gas,
not merely the intrastate generation of electrical
energy. As such it conflicts with a broad federal
regulatory scheme set forth in the Natural Gas Act and
the Federal Energy Regulatory Commission’s imple-
menting regulations. Indeed, the historic compromise
between the Federal Government and the states, and
the entire legislative system for the control of the
“tidelands” — defining which areas are under a
seaboard state’s control and which areas, farther at sea,
are under federal control — would be set at naught by
the devices Louisiana seeks to employ. New Mexico’s
electrical energy tax did not conflict with any similar
federally preempted area of the law. In addition, as is
alleged in the Complaint, the First Use Tax would
impose a burden upon imported natural gas that would
seriously affect this nation’s foreign trade and foreign
relations and violate the import-export clause of the
Constitution.
Fourth, this case does not present a simple dispute
between two neighboring states; rather, it involves the
imposition by a single state of a burdensome tax upon
more than half the states in the nation. Plaintiffs in
this action are a diverse cross section of states, repre-
senting multiple regions of the country. Hundreds of
millions of dollars will change hands each year if the
First Use Tax is not enjoined. Plaintiffs and their
citizens should not be required to pay these vast sums
of money'® while this case wends its way through the
'6 Tt is well established that “the possibility of refund{s]
does not afford [consumers] sufficient protection [from illegal
rates.]” Fed. Power Comm’n v. Hunt, 376 U.S. 515, 524 (1964).
In addition to the irreparable damage to the economies of
plaintiff states that would be triggered by price rises to
natural gas consumers, “the trickling down process neces-
sary to be followed, the incidental cost cf which is often borne
by the consumer, and... . the transient nature of our society
. . often prevents refunds from reaching those to whom they
are due.” Fed. Power Comm’n v. Tennessee Gas Transmis-
18
Louisiana state court system,!? when the Constitution
provides the plaintiffs with an immediate, exclusive
access to a decision in this Court.
Finally, this action is in a very real sense a test case
critical to the nation’s economic health. If Louisiana is
allowed to impose its First Use Tax upon natural gas in
interstate commerce, legislatures in other seaboard
states will be encouraged to race to impose countervail-
ing measures on imported natural gas, oil, and other
products, and landbound states will seek to tax
comparable products while in transit within their
borders. At a time when our domestic economic health
cries out for inflationary restraint, and the energy crisis
cries out for a consistent, rational, federal energy
policy, this Court should stand as a guardian against
balkanization of the states, destructive internecine
warfare, and an unfortunate descent inte the very
interstate feudalism the Constitution was designed to
prevent.
IT.
THE LOUISIANA FIRST USE TAX RAISES IMPORTANT AND
SUBSTANTIAL FEDERAL QUESTIONS AND IS
IN CONFLICT WITH APPLICABLE
DECISIONS OF THIS COURT.
This case raises substantial federal questions. Plain-
tiffs argue that the Louisiana First Use Tax, with an
sion Co., 371 U.S. 145, 154-55 (1962) (footnote omitted).
Moreover, the six percent interest provided in the escrow
provisions of La. Rev. Stat. ANN. § 47:1576A (West Supp.
1978) will not adequately compensate the interstate pipelines
for the use of their money, a cost that may ultimately be
borne by consumers in the event it is found by FERC to be
just and reasonable under the Natural Gas Act.
17 Moreover, this action is not likely to raise many, if any,
disputed factual issues, making this Court’s original jurisdic-
tion particularly appropriate. Nor is there any possibility
that a narrowing statutory interpretation of the First Use
Tax by a state court would preserve the First Use Tax from
constitutional attack, a possibility that might otherwise
support abstention by this Court.
19
annual impact on natural gas consumers in the
hundreds of millions of dollars, offends multiple
provisions of the United States Constitution.
A. The Louisiana First Use Tax Constitutes An
Unconstitutional And Discriminatory Burden
Upon Interstate Commerce.
The grant of power to the Congress contained in the
commerce clause also constitutes a withdrawal of power
from the states, Boston Stock Exchange v. State Tax
Commission, 429 U.S. 318, 328 (1977), and the constitu-
tionality of a state tax on interstate commerce depends
upon its “practical effect.” Department of Revenue of
Washington v. Association of Washington Stevedoring
Companies, 435 U.S. 734, 750 (1978). Taxes will be
sustained “that are applied to activity with substantial
nexus with the State, that are fairly apportioned, that
do not discriminate against interstate commerce, and
that are fairly related to the services provided by the
State.” Id. The Louisiana First Use Tax — which is
designed to be, and unquestionably is, a tax upon
interstate commerce — fails all four tests.
1. The Louisiana First Use Tax Is A Tax On
Interstate Commerce.
In measuring the validity of a state tax against the
commerce clause, the threshold question to be an-
swered is, Does the tax reach interstate commerce? The
First Use Tax clearly does. The flow of natural gas in
pipelines to points outside the state constitutes inter-
state commerce. United Fuel Gas Co. v. Hallanan, 257
U.S. 277 (1921). Indeed, the transmission of natural gas
by high pressure pipelines is a national, not local,
activity, and constitutes interstate commerce whether
within or without the state. East Ohio Gas Co. v. Tax
Commission of Ohio, 283 U.S. 465, 470 (1931). Only
when natural gas passes into low pressure distribution
20
lines is the “original package” broken and the gas
becomes a part of local rather than interstate com-
merce. Id. at 470-71.
A state may not directly tax the flow of natural gas in
interstate commerce. In Michigan-Wisconsin Pipe Line
Co. v. Calvert, 347 U.S. 157 (1954), the Court held that a
state tax on gathering could not survive the commerce
clause test:
[A]s a basis for finding a separate local activity,
the incidence must be a more substantial economic
factor than the movement of the gas from a local
outlet of one owner into the connecting interstate
pipeline of another.
347 U.S. at 169.
More than three billion Mcf of natural gas from the
OCS enters Louisiana annually and is resold in
interstate commerce. The movement of this gas through
Louisiana is continuous and unbroken to the Louisiana
border. The gas remains at high pressure while inside
Louisiana.
The “uses” taxed by the First Use Tax are not
“separate local activities” that may permissibly be
taxed. The sale of the gas, or transfer of possession,
control, or title, does not take the gas out of interstate
commerce. East Ohio Gas Co. v. Tax Commission of
Ohio, 283 U.S. 465 (1931). Accord, Illinois Natural Gas
Co. v. Central Illinois Public Service Co., 314 U.S. 498,
503-04 (1942). Nor may the tax be levied upon the
transportation of the gas, or upon “other ascertainable
action.” Since the gas has not passed into the
distribution system for delivery to consumers, it may
not be taxed by the state.
21
2. The Louisiana First Use Tax Is Applied On
Certain Activities That Do Not Have A Sufficient
Nexus With Louisiana.
Many of the uses included in section 47:1302(8) are
not activities with a sufficient nexus to the State of
Louisiana to justify imposition of that state’s taxing
authority. A sufficient nexus is not established by
transportation to the inlet of a processing plant,'* or to
the inlet of any measurement or storage facility,!® or by
transfer of possession or relinquishment of control at a
delivery point in Louisiana.” And the basket category,
“other ascertainable action at a point within [Louisia-
naj,” is too vague to satisfy the constitutional nexus
test.
3. The Louisiana First Use Tax Is Not Fairly
Apportioned.
Contrary to the requirement of Department of
Revenue of Washington, the First Use Tax is not fairly
apportioned. It is not related to the taxpayer’s invest-
ment in facilities, actual business activities, gross
receipts, payroll, or other indicia of a concrete nexus
with Louisiana.”! The tax is a tax on the gas, not on
local activities.
The First Use Tax is also unconstitutional because it
exposes gas from the federally-controlled OCS and
imported natural gas to the burden of multiple taxation.
Northwestern States Portland Cement Co. v. Minne-
sota, 358 U.S. 450, 458 (1959). If Louisiana is permitted
\* Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S.
157 (1954).
19 State Tax Comm’n of Mississippi v. Interstate Natural
Gas Co., 284 U.S. 41 (1931).
2 Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S.
157 (1954).
21 Cf. Memphis Natural Gas Co. v. Stone, 335 U.S. 80, 88
(1948) (tax properly apportioned to investment in state).
a
22
to impose this tax, every subsequent state will be
invited to tax the volume of gas passing through its
territory. In Michigan-Wisconsin Pipe Line Co. uv.
Calvert, 347 U.S. 157, 170 (1954), this Court held a tax
on “gathering gas” unconstitutional for just this
reason. There the taxable incidence was the taking of
natural gas from the outlet of a processing plant, an
activity similar in nature to several of the “uses” that
trigger imposition of the First Use Tax. And many or
all of the “uses” taxed by Louisiana recur in other
states through which the same gas would pass.??
4. The Louisiana First Use Tax Discriminates
Against Interstate Commerce.
The third test is that a state tax not discriminate,
“either by providing a direct commercial advantage to
local business, ... or by subjecting interstate com-
merce. to the burden of ‘multiple taxation,’.. .”
Northwestern States Portland Cement Co. v. Minne-
sota, 358 U.S. 450, 458 (1959). The First Use Tax does
both. It exposes natural gas flowing in interstate
commerce to the threat of multiple taxation, and it
unfairly discriminates against interstate commerce in
three respects.
First, the tax is discriminatorily imposed only on gas
imported into Louisiana (whether from a sister state or
from outside the United States) and on gas produced
from the OCS. Such gas is moving in interstate or
foreign commerce at the time it is transported into
Louisiana, and continues in interstate commerce,
without interruption, until it is transported out of, or is
sold at wholesale for ultimate consumption within,
Louisiana. An equivalent tax is not imposed on gas
produced in Louisiana or on gas transported into
22 For example, there are measurement and storage
facilities in most states, and gas there is frequently
processed, exchanged, or subjected to analogous “uses.”
- 23
Louisiana from a state that imposes a severance tax.
Yet the post-production flow of such gas enjoys the
same protections and privileges, and subjects Louisia-
na’s environment to the same purported damages, as
OCS and imported gas. In practical effect, what
purports to be a tax on the “use” of natural gas within
Louisiana is in fact a tax on the privilege of transmit-
ting OCS and imported natural gas into and through
Louisiana in interstate commerce.?*
Second, the Louisiana Severance Tax Credit?‘ permits
taxpayers liable for the First Use Tax to credit that
liability, dollar-for-dollar, against their liability for
Louisiana’s severance tax, which is set at the same rate
of seven cents per Mcf,2° up to the amount of that
liability. The First Use Tax, applied in conjunction with
the Severance Tax Credit, discriminates against (and is
23 Although natural gas produced in Louisiana is subject to
a Louisiana severance tax at a comparable rate, the First Use
Tax is not .an added burden on interstate commerce that
“compensates for a like burden on in-state sales, [or]
neutralizes an economic advantage previously enjoyed by
[interstate commerce].” Boston Stock Exch. v. State Tax
Comm’n, 429 U.S. 318, 332 (1977). The severance tax is
intended to compensate the state for the depletion of its
natural resources, to which OCS and imported natural gas do
not contribute. Thus the severance tax is not a “like burden.”
Moreover, Louisiana exempts from the First Use Tax natural
gas subject to another state’s severance tax, which gas will
not be subject to any Louisiana tax.
In addition, the burden of the First Use Tax and the
severance tax will not fall on similarly situated taxpayers.
Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 70
(1963). Louisiana law allows contract provisions that impose
the severance tax upon the producer. LA. Rev. Stat. ANN.
§ 47:633.1. Thus the buyer of Louisiana-produced gas may
contractually impose the severance tax burden upon the
producer, whereas the buyer of OCS gas is affirmatively
prevented from obtaining reimbursement from the producer.
24 First Use Tax on Natural Gas — Severance Tax Credit,
Act No. 436, 1978 La. Sess. Law Serv. 842 (West) (to be codified
as LA. Rev. Stat. ANN. § 47:647).
25 La. Rev. Stat. ANN. § 47:633(9) (West Supp. 1978).
|
>>
24
designed to discriminate against) interstate commerce
because it favors pipeline companies that produce
natural resources subject to the Louisiana severance
tax and burdens those that do not.
Third, the First Use Tax discriminates against
interstate commerce because it exempts from liability
for the tax volumes of natural gas, otherwise subject to
the tax, consumed in specified uses in Louisiana.
Volumes of natural gas subject to the tax consumed in
similar uses in other states are not given an equivalent
exemption. Louisiana has, therefore, favored certain in-
state uses, such as production within Louisiana of
sulphur, fertilizer, and anhydrous ammonia, to the
disadvantage of similar out-of-state uses.
5. The Louisiana First Use Tax Is Not Fairly Related
To Services Provided By Louisiana.
The First Use Tax fails the final test set forth in
Department of Revenue of Washington because it is not
fairly related to the services provided by the taxing
state.
The size of the First Use Tax, which if sustained by
this Court will return more than $225,000,000 annually
to the State of Louisiana, is utterly disproportionate to
the minimal burdens which the taxed activity places
upon Louisiana or to the minimal privileges and
protections afforded by Louisiana. This can be seen in
several ways.
First, the First Use Tax and the severance tax have
been set at equivalent rates, yet it is apparent that the
latter is intended to compensate the state for the loss of
its natural resource as the name, “severance,” implies,
a loss not present in the case of the “use” of gas
produced outside Louisiana.
Second, less than one quarter of the funds collected
by the tax will go to a “Barrier Islands Conservation
25
Account’’6 for financing capital improvement projects
designed to conserve, preserve and maintain barrier
islands, reefs and shores of the Louisiana coastline.
Third, and notwithstanding the disproportionate size
of the First Use Tax levy, the State of Louisiana
already receives substantial compensation for any
alleged damage to its coastal areas. For example,
Louisiana imposes other taxes upon interstate pipe-
lines, such as ad valorem property taxes on interstate
facilities, franchise taxes imposed as a condition of
doing business in Louisiana, properly-apportioned
income taxes, and sales and use taxes. These taxes
fairly and properly raise money to support the services
and protections provided by Louisiana.
More directly, the Federal Government, through the
Coastal Zone Management Act,?’ has already provided
for an assortment of grant programs, including a
Coastal Energy Impact Fund, to compensate states
harmed by OCS development activity. The expressed
rationale of the First Use Tax is untenable where the
Federal Government already provides for compensation
made necessary by the transmission of OCS gas
through Louisiana.?*
26 First Use Tax Trust Fund, Act No. 293, 1978 La. Sess. Law
Serv. 480 (West) (to be codified as La. Rev. STAT. ANN.
§ 47:1351), which is reproduced in the Appendix to this brief.
27 See 86 Stat. 1280-89, 16 U.S.C. § 1451-1464 (1976), and
especially 16 U.S.C. § 1456a, as amended by Outer Continental
Shelf Lands Act Amendments of 1978, Pub. L. No. 95-372, 92
Stat. 629 (1978). For example, 16 U.S.C. § 1464(a)(3) authorizes
$130,000,000 annually for grants under just part of this
program.
28 Moreover, Louisiana has enacted its own Coastal Zone
Management Act, Act No. 361, 1978 La. Sess. Law Serv. 704
(West) (to be codified as La. Rev. Stat. ANN. § 49:213.1-.21),
under which pipeline companies must obtain coastal use
permits.
7°
26
Finally, if the First Use Tax is intended to be fairly
related to the “services” provided by Louisiana through
damage to its waterbottoms, barrier reefs, and sensitive
shorelines, then the tax is seriously under-inclusive in a
discriminatory and impermissible manner. An equiva-
lent tax is not imposed on natural gas produced in
Louisiana or on gas which passes through Louisiana
but is produced in any other state that imposes a
severance or production tax. Substantial volumes of
natural gas produced in Louisiana and other states are
transported into and through Louisiana in the same
facilities used to transport OCS and imported gas, and
these volumes of gas traverse Louisiana’s waterbot-
toms, barrier reefs, and shorelines, creating similar
risks and doing equivalent “damage.” Yet these
volumes are not subject to the First Use Tax.
B. The Louisiana First Use Tax Violates The
Supremacy Clause.
Where federal legislation has preempted a field of
enterprise, state law, whether or not in direct conflict
with federal regulation, is void as a violation of the
supremacy clause.2? And a state law that directly
conflicts with applicable federal statutes and regula-
tions violates the supremacy clause whether or not the
field has been fully preempted.
The Natural Gas Act, the Natural Gas Policy Act of
1978,*! and the Outer Continental Shelf Lands Act,*?
constitute a comprehensive scheme duly adopted by the
Congress for the regulation, enforcement and promo-
tion of the production of natural gas and the sale,
29 Where, as here, the affected area involves interstate
commerce, state legislation in the area preempted by federal
regulation also violates the commerce clause.
% 52 Stat. 821-33, 15 1'.S.C. §§ 717-717w (1976).
31 92 Stat. 3350, Pub. L. No. 95-621 (1978).
382 67 Stat. 462-70, 43 U.S.C. §§ 1331-1343 (1976).
27
transportation and pricing of interstate gas. Prior
decisions of this Court make it clear that this federal
legislation has preempted state regulation of all gas in
interstate commerce, whether occurring before, during,
or after transmission by an interstate pipeline. This
legislation, in fact, was intended to plug the gap
resulting from earlier judicial decisions prohibiting
state regulation of the interstate natural gas business.**
Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672, 682-
83 (1954). Accord, Northern Natural Gas Co. v. State
Corporation Commission, 372 U.S. 84 (1963).
Moreover, the First Use Tax has been preempted by
federal regulation as well as by statute. The attempt of
the tax is to reach, and coincidentally to regulate, gas
that is dedicated to interstate markets by contracts
and/or FERC certificates of public convenience and
necessity issued pursuant to the Natural Gas Act.
More specifically, the First Use Tax violates the
supremacy clause in two respects. First, it declares
contractual provisions requiring reimbursement by
producers of costs incurred by pipelines (including
taxes) “to be against public policy and unenforceable to
that extent.” § 47:1303C. Section 7(c) of the Natural Gas
Act,*4 however, provides that no person may sell or
transport natural gas in interstate commerce for resale
without first obtaining a certificate of public conven-
ience from the Commission. These certificates generally
are made in full recognition of, and incorporate the
terms and conditions of, the underlying contract for the
sale of natural gas. Numerous contracts contain
provisions requiring the producer or gatherer selling
natural gas to an interstate pipeline to reimburse the
pipeline for all costs (including any taxes) incurred as a
result of extracting natural gas, liquids or other
33 See, e.g., Missouri ex rel. Barrett v. Kansas Natural Gas
Co., 265 U.S. 298 (1924).
34 56 Stat. 83, 15 U.S.C. § 717£(c) (1976).
28
' treatment of the gas. The First Use Tax, by purporting
to abrogate such provisions, conflicts with the federal
regulatory scheme and violates the supremacy clause.
Second, Section 4 of the Outer Continental Shelf Lands
Act*® provides that “{S]tate taxation laws shall not apply
to the outer Continental Shelf.” Notwithstanding the
label given to it in the statute, the First Use Tax is in
economic effect a tax on gas produced from the OCS. No
amount of drafting semantics should permit Louisiana to
thwart the explicit federal policy of developing OCS
resources without state interference. Numerous federal
statutes, and numerous decisions of this Court, have
drawn a clear line vf demarcation between the Federal
Outer Continental Shelf and the state waters closer to
shore. Louisiana should not be permitted to eradicate that
historic line of demarcation.
C. The Louisiana First Use Tax Is An Uncon-
stitutional Impost Or Duty On Imports.
Article I, section 10, clause 2 of the Constitution states:
No State shall, without the Consent of the Congress,
lay any Imposts or Duties on Imports or Exports,
except what may be absolutely necessary for
executing its inspection Laws...
The purpose of the import-export clause are three:
[T]he Federal Government must speak with one
voice when regulating commercial relations with
foreign governments, and tariffs, which might affect
foreign relations, [cannot] be implemented by the
States consistently with that exclusive power;
import revenues [are] to be the major source of
revenue of the Federal Government and should not
be diverted to the States; and harmony among the
States [may] be disturbed unless seaboard States,
with their crucial ports of entry, [are] prohibited from
levying taxes on citizens of other States by taxing
35 67 Stat. 462, 43 U.S.C. § 1333(a)(2) (1976).
29
goods merely flowing through their ports to the other
States not situated as favorably geographically.
Michelin Tire Corp. v. Wages, 423 U.S. 276, 285-86 (1976) -
(footnotes omitted).
The Louisiana First Use Tax, which unquestionably
reaches imports,®* offends two of the three above-cited
policy considerations. First, the First Use Tax prevents
the Federal Government from dealing uniformly with
foreign trade. Second, the First Use Tax disturbs the
harmony among the states by exploiting Louisiana’s
favorable seaboard location. Each “offense” is sufficient
to render the tax unconstitutional.*”
1. The Louisiana First Use Tax Reaches Imports.
By its terms the First Use Tax applies to imported
natural gas “which is not subject to the levy of any import
tax or tariff by the United States as an import from a
foreign country.” § 47:1303A. The United States does not
36 Of course, the constitutional prohibitions against state
taxation will not apply after imported goods lose their status as
imports. Michelin, supra at 286-87.
37 In addition, the First Use Tax fits within the category the
status of which was explicitly reserved in Dep’t of Revenue of
Washington v. Ass’n of Washington Stevedoring Companies,
435 U.S. 734 (1978). There this Court decided that an otherwise
_unobjectionable tax is not made objectionable because it
applies to goods in transit, so long as the tax does not fall on the
goods themselves, but reserved “the question of the applicabili-
ty of the Michelin approach when a State directly taxes imports
or exports in transit.” 435 U.S. at 757 n.23.
The First Use Tax is such a tax. It applies to natural gas in
transit — indeed, two of the definitions of “use” refer explicitly
to transportation. And it is a direct tax on volume — it is
measured simply by the volume of gas subject to the taxed uses.
Therefore, even if this Court were to sustain the First Use Tax
under the Michelin criteria, a traditional analysis should void
the tax as an unconstitutional direct tax upon imports in
transit.
30
now impose “any import tax or tariff’ on natural gas
imported into the United States.**
Moreover, the First Use Tax is imposed upon, inter alia,
the sale, transportation, transfer of possession or control,
“or other ascertainable action at a point within the state.”
§ 47:1302(8). In this way the First Use Tax “intercepts the
import, as an import, in its way to become incorporated
with the general mass of property, and denies it the
privilege of becoming so incorporated until it shall have
contributed to the revenue of the state.” Brown uv.
Maryland, 25 U.S. (12 Wheat.) 419, 443 (1827). Only when
natural gas passes into the local distribution system, is
no longer at high pressure, and is divided into the many
small streams that connect to consumption outlets, is the
“original package” broken, East Ohio Gas Co. v. Tax
Commission of Ohio, 283 U.S. 465, 470-71 (1931), and the
gas sufficiently “incorporated with the general mass of
property” to lose its status as an import. Brown, 25 U.S.
(12 Wheat.) at 443.
2. The Louisiana First Use Tax Would Complicate The
Federal Government’s Foreign Trade Policy.
The first prong of the Michelin test is whether the First
Use Tax offends the requirement that this country havea
consistent foreign trade policy: “The Federal Govern-
ment must speak with one voice when regulating
commercial relations with foreign governments.” 423
U.S. at 285. The First Use Tax fails this test.
In contrast to the ad valorem tax assessed in a non-
discriminatory manner against inventory, which was
upheld in Michelin, the First Use Tax does “create special
. . . preferences for certain domestic goods” — namely,
for natural gas produced in Louisiana — and its
application will discourage importation of a product
38 Natural gas is imported into the United States free of any
customs duties, 76 Stat. 72, 19 U.S.C. § 1202, Schedule 4, Part 10,
Item 475.15 (1976).
31
governed by federal regulation in a manner inconsistent
with that regulation. Michelin, 423 U.S. at 286. If the
Louisiana First Use Tax is applied to imported natural.
gas, seaboard states, and states bordering on Canada
and Mexico — for other states will be free to follow — will
be “allowed to exercise their own initiative in the
regulation of foreign affairs.”” Youngstown Sheet & Tube
Co. v. Bowers, 358 U.S. 534, 556 (1959).89
3. The Louisiana First Use Tax Would Dieta The
Harmony Among The States.
The third prong of the Michelin testis whether the First
Use Tax offends the need for interstate harmony:
[Hjarmony among the States [may] be disturbed
unless seaboard States, with their crucial ports of
entry, [are] prohibited from levying taxes on citizens
of other States by taxing goods merely flowing
through their ports to the other States not situated as
favorably geographically.
423 U.S. at 285-286. By imposing the First Use Tax,
Louisiana, a seaboard state, has attempted to do just
that. As this Court noted in Department of Revenue of
Washington v. Association of Washington Stevedoring
Companies, 435 U.S. 734, 754 (1978), “the desire to
prevent interstate rivalry and friction does not vary
significantly from the primary purpose of the Com-
merce Clause.” Thus the tests are similar; a tax passes
constitutional muster under the import-export clause “if
the tax falls upon a taxpayer with reasonable nexus to
the State, is properly apportioned, does not discrimi-
nate, and relates reasonably to services provided by the
39 For example, in addition to current imports of substantial
quantities of natural gas from Canada, the possible importa-
tion of natural gas from Mexico is now the subject of delicate
negotiations at the federal level. See, e.g., N.Y. Times, Mar. 19,
1979, § D, at 5, col. 5. The First Use Tax may pose a serious
threat to those very real negotiations.
32
State.”’ As has been shown in the preceding section, the
First Use Tax does not satisfy any of these tests.
D. The Louisiana First Use Tax Unconstitutionally
Impairs The Obligation Of Contracts.
Article I, section 10, clause 1, of the United States
Constitution states: “No State shall. ..pass any...
Law impairing the Obligation of Contracts... .”
Traditionally, in determining consistency with the
contracts clause, the analysis has focused on ‘“‘whether
the legislation is addressed to a legitimate end and the
measures taken are reasonable and appropriate to that
end.” Home Building & Loan Association v. Blaisdell,
290 U.S. 398, 438 (1934).
Allied Structure Steel Co. v. Spannaus, ___. U.S. ___.,
57 L. Ed. 2d 727 (1978), decided last term, set forth four
considerations that allow a state law to survive a
contracts clause challenge. First, the law should “deal
with a broad, generalized economic or social problem.”
Second, it should “operate in an area already subject to
state regulation at the time the company’s contractual
obligations were originally undertaken.” Third, it
should “effect simply a temporary alteration of the
contractual relationships of those within its coverage.”
Finally, it should be aimed broadly and not at a narrow
class of persons. 57 L. Ed. 2d at 740.
The First Use Tax declares unenforceable contractual
provisions that otherwise would apply to provide
reimbursement by producers to pipelines for taxes
imposed by operation of state law. §47:1303C. The
effect of this nullification will be to increase the cost of
natural gas to plaintiff states and their citizens above
the level permissible by contract. Whether it is analyzed
under traditional legal principles or under the more
recent Spannaus criteria, the nullification clause
cannot be sustained.
ey
33
Under the traditional test, it is clear that the
nullification clause does not address a “legitimate end.”
There is simply no social or economic reason for a-
provision that impairs reimbursement provisions in
existing contracts. It does not increase the revenue
raised by the tax; a reirabursement provision would
redistribute the tax burden but leave revenues to the
state unaffected. If the tax is truly intended to protect
Louisiana’s environment and compensate its citizens
for damage done to waterbottoms, barrier reefs, and
shorelines, that purpose will be served just as well by
monies collected from producers as by monies from
pipelines. Of course, local political realities may have
dictated the need for a nullification provision insulating
the producers from the effects of the tax,’ but that is
not such a “legitimate end” as to justify the impairment
of contracts.
Applying the Spannaus criteria, the nullification
clause similarly fails to pass constitutional muster.
First, it does not “deal with a broad, generalized eco-
nomic or social problem” — in fact, the nullification clause
does not purport to deal with any generalized problem
at all, other than the existence of reimbursement
provisions. Second, the reimbursement of costs and
taxes is clearly not “an area already subject to state
regulation at the time the company’s contractual
obligations were originally undertaken,” because the
area of rate and cost regulation has been preempted by
the federal government. (See Section B, supra.) Third,
40 Because federal regulation imposes statutory ceilings
upon the price of natural gas, the large oil producers that
produce natural gas in the OCS may not be able to pass along
fully the increased costs that would be occasioned by imposi-
tion of the First Use Tax upon producers (by virtue of
reimbursement clauses in their contracts with pipeline com-
panies). Moreover, there is no certainty that a proceeding under
the Natural Gas Act would result in a fully-passed-on cost. This
is yet another illustration of how the First Use Tax interferes
with the federal regulatory system, and why the tax must be
declared to be unconstitutional.
>
34
the nullification clause does not temporarily alter
contractual relationships, but works a “severe, perman-
ent, and immediate change in those relationships —
irrevocably and retroactively.” Finally, the nullification
clause is aimed only at a narrow class of persons, the
pipeline companies. Spannaus, 57 L. Ed. at 740.
E. The Louisiana ‘First Use Tax Denies Equal
Protection Of The Laws.
An otherwise valid tax will be struck down if it
deprives taxpayers of equal protection of the laws
guaranteed under the fourteenth amendment to the
United States Constitution. Wheeling Steei Corp. v.
Glander, 337 U.S. 562 (1949). The First Use Tax does
precisely that.
By its Severance Tax Credit, Louisiana permits any
taxpayer liable for the payment of the First Use Tax to
credit such payments against any severance taxes owed
by the taxpayer to Louisiana. § 47:647A. The Severance
Tax Credit further provides that the credit against
severance taxes is not allowed if the taxpayer “has an
enforceable right to reimbursement from a third party.”
§ 47:647B. The First Use Tax only applies to those
taxpayers who have no liability under Louisiana’s
severance tax law.
The First Use Tax as intertwined with the Severance
Tax Credit thus establishes a classification treating
differently taxpayers who are solely engaged in
interstate OCS natural gas activity from taxpayers who
are also engaged in in-state production of natural
resources. This classification is unreasonable and
irrelevant to the purported purposes of the First Use
Tax and results in a denial of equal protection of the
law, in contravention of fourteenth amendment. This
Court should not uphold a state tax having an unequal
impact on interstate commerce where there is no
35
political check against unduly burdensome state action.
Raymond Motor Transportation, Inc. v. Rice, 434 U.S.
429, 444 n.18 (1978).
CONCLUSION
As has been demonstrated above, plaintiffs have
raised serious issues relating to whether the Louisiana
First Use Tax is an unconstitutional discrimination
against and burden upon interstate commerce, a
violation of the supremacy clause, an unconstitutional
impost or duty on imports, an unconstitutional impair-
ment of contracts, and a denial of equal protection. For
these reasons, and because this case presents substan-
tial federal questions the prompt resolution of which are
critical to the national development of domestic energy
and economic policy, it is respectfully submitted that
leave should be granted to file the proposed Complaint
invoking the original jurisdiction of this Court.
Respectfully submitted,
STATE OF MARYLAND STATE OF ILLINOIS
StepHEN H. SAcHs WituiaM J. Scotr
Attorney General Attorney General
Davin H. FELDMAN 500 South Second
Assistant Attorney General Springfield, Illinois 62706
Chief of Litigation :
1400 One South Calvert Building ag ater Atco ney
Baltimore, Maryland 21202 — locates Gamarel
Joun K. KEANE, JR.
People’s Counsel of Maryland THOMAS J. SWABOWSKI
State Office Building Assistant Attorney General
301 West Preston Street, #900 160 North La Salle Street
Baltimore, Maryland 21201 Chicago, Illinois 60601
36
STATE OF RHODE ISLAND AND
PROVIDENCE PLANTATIONS
STATE OF INDIANA
THEODORE L. SENDAK
Attorney General
DoNALD P. BOGARD
Chief Counsel
Rosert B. WENTE
Deputy Attorney General
219 State House
Indianapolis, Indiana 46204
COMMONWEALTH OF
MASSACHUSETTS
FRANCIS X. BEeLLoTT!
Attorney General
MICHAEL B. MEYER
GARRICK COLE
ALAN D. MANDL
Assistant Attorneys General
One Ashburton Place
Boston, Massachusetts 02108
STATE OF MICHIGAN
FRANK J. KELLEY
Attorney General
Ropert A. DERENGOSKI
Solicitor General
525 West Ottawa Street
Lansing, Michigan 48913
ARTHUR E. D’Honpt
Don L. KESKEY
Assistant Attorneys General
DENNIS J. RoBerts II
Attorney General
Providence County Courthouse
Providence, Rhode Island 02903
WILLIAM GRANFIELD Bropy
Assistant Attorney General
250 Benefit Street
Providence, Rhode Island 02903
STATE OF WISCONSIN
BRONSON C. LA FOLLETTE
Attorney General
CHARLES A. BLECK
Assistant Attorney General
114E State Capitol
Madison, Wisconsin 53702
STEVEN M. ScuHurR,
Chief Counsel
Wisconsin Public Service
Commission
4802 Sheboygan Avenue
Madison, Wisconsin 53702
1000 Long Boulevard
Suite 11
‘Lansing, Michigan 48910
STATE OF NEW YORK
RoBERT ABRAMS
Attorney General
#2 World Trade Center
New York, New York 10047
EDWARD BERLIN
FRED W. GELDON
Leva, HAwWEs, SYMINGTON,
MartTIN & OPPENHEIMER
815 Connecticut Avenue, N.W.
Washington, D.C. 20006
(202) 298-8020
Special Counsel to Plaintiffs
la
APPENDIX
First Use Tax Trust FuND
ACT NO. 293
HOUSE BILL NO. 767
An Act to amend Subtitle II of Title 47 of the Louisiana
Revised Statutes of 1950 by adding thereto a new
Chapter to be designated Chapter 16 thereof to
contain a Part II containing Section 1351, to create
and provide for the First Use Tax Trust Fund in the
state treasury as a special and irrevocable trust fund
for the proceeds to be derived from a first use tax and
any new or alternate tax on the same resources; to
establish certain accounts within said trust fund to be
used for state debt retirement, redemption of outstand-
ing debt, capital improvements of the barrier islands,
reefs, and shores of the coastline; and to provide for
reimbursement to the general fund for certain tax
credits.
Be it enacted by the Legislature of Louisiana:
Section 1. Part II of Chapter 16 of Subtitle II of Title 47
of the Louisiana Revised Statutes of 1950 containing
Section 1351 is hereby enacted to read as follows:
Part II. Use PROCEEDS
SUBPART A. FIRST USE TAX TRUST FUND
§ 1351. Creation
A. (1) The First Use Tax Trust Fund is hereby created in
the state treasury as a special and irrevocable trust fund
for the deposit of the proceeds, and investment income
derived therefrom, of the first use tax imposed by law in
1978 or thereafter and any new or alternative tax
hereafter imposed by law on uses of those resources
subject to any such tax. Out of the first proceeds of the
first use tax the treasurer shall pay into the State General
Fund such amounts as are determined by the secretary of
the Department of Revenue and Taxation to be necessary
to fully reimburse the State General Fund for monies lost
to that fund by reason of the tax credits granted by law
2a
which are related to the imposition of the first use tax. The
remainder of such tax proceeds shall be credited to the
following accounts, which are hereby created within the
First Use Tax Trust Fund, and shall not be deposited in
the Bond Security and Redemption Fund or the State
General Fund.
(2) Distribution; debt accounts. Seventy-five percent of
the proceeds, and all investment earnings derived
therefrom, shall be deposited in the Initial Proceeds
Account and the Debt Retirement and Redemption
Account, which are hereby created, in the following
manner:
(a) Initial Proceeds Account. From this portion of the
proceeds of the tax, amounts shall be credited to the
Initial Proceeds Account until the sum of five hundred
million dollars has been so credited. The sum of five
hundred million dollars credited to this account from the
proceeds of the tax shall be maintained in that amount at
ali times and, except for investment and except as
provided in Paragraph C of this Section, monies in the
Initial Proceeds Account shall not be used for any
purpose. Monies in this account shall be invested, in
accordance with law, and the investment earnings shall
accrue to that account.
(b) Debt Retirement and Redemption Account. All
proceeds of this portion of the tax over and above the
amount required to be credited to and be maintained in
the Initial Proceeds Account shall be credited to the Debt
Retirement and Redemption Account. Monies in this
account shall be invested, and the investment earnings
shall accrue to that account. Except for investment,
monies in the Debt Retirement and Redemption Account
shall be used solely to purchase, in advance of maturity,
on the open market any outstanding obligations of the
state, or to call, pay, or redeem in advance of maturity any
outstanding bonds, notes, or other evidences of state debt,
or both. No purchase or redemption of state debt shall be
made unless the purchase or redemption results in
interest savings to the state. The methods by which this
3a
Section shall be implemented shall be determined by the
state treasurer, with concurrence of two-thirds of the
members of the State Bond Commission, acting in open
session.
(3) Distribution conservation account. Twenty-five
percent of the proceeds, and all investment earnings
derived therefrom, shall be deposited in the Barrier
Islands Conversation Account. The monies in the Barrier
Islands Conservation Account shall be invested and the
investment earnings shall accrue to that account. Except
for such investment, monies in this account shall be used
exclusively to fund capital improvement projects de-
signed to conserve, preserve, and maintain the barrier
islands, reefs, and shores of the coastline of Louisiana.
Only such capital improvements as are contained in the
comprehensive capital budget adopted by the legislature
each year shall be so funded.
B. The state treasurer shall invest all monies in the
accounts created by Subsection A hereof in accordance
with the laws governing the investment of idle funds of
the state.
C. If the state treasurer determines that the best
interest of the state would be served, but only if the Debt
Retirement and Redemption Account is not funded or for
any reason is depleted, the treasurer, with concurrence of
two-thirds of the members of the State Bond Commission,
acting in open session, may expend such portion of the
investment earnings in the Initial Proceeds Account as
are not necessary to provide the balance of five hundred
million dollars in the Initial Proceeds Account required
by Subsection A hereof for any purpose tor which the
Debt Retirement and Redemption Account may be used.
D. The funds deposited in the First Use Tax Trust Fund
shall be considered escrowed and shall not be used for any
of the purposes enumerated herein until the proceeds of
the first use tax are determined to be available for such
uses by the treasurer, with concurrence of two-thirds of
the members of the State Bond Commission acting in
open session. If by final action of a court of last resort the
4a
tax held in escrow in the state treasury is held to be
invalid as to any taxpayer who paid the tax, the taxes
paid, with interest accrued thereon, shall be repaid to the
taxpayer.
E. The secretaries of the Department of Wildlife and
Fisheries, the Department of Natural Resources, and the
Department of Transportation and Development shall
meet and annually make recommendations to the
governor as to capital improvement projects designed to
conserve, preserve, restore, and maintain the barrier
islands, reefs, and shores of the coastline of the state. The
governor shall place such of those projects as he deems to
be in the best interest of the state in the comprehensive
capital budget for cunsideration by the legislature. Only
those projects approved by the legislature shall be
funded. be
Section 2. If any provision or item of this Act or the
application thereof is held invalid, such invalidity shall
not affect other provisions, items, or applications of this
Act which can be given effect without the invalid
provisions, items, or applications, and to this end the
provisions of this Act are hereby declared severable.
Section 3. All laws or parts of laws in conflict here-
with are hereby repealed.
Section 4. The provisions of this Act shall remain in
full force and effect unless expressly repealed.
Approved July 6, 1978.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.