Jurisdictional Statement — Commonwealth Edison Co. v. Montana
Supreme Court brief1981
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80-5815
preme Court, U.S.
es ELIE »p
IN THE OCT 10 1980
Supreme Court of the ith, States
OcToBER TERM, 1980
—~—=
COMMONWEALTH EDISON COMPANY, CENTRAL ILLINOIS LIGHT COMPANY,
DAIRYLAND POWER COCPERATIVE, DETROIT EDISON COMPANY, INTER-
STATE POWER COMPANY, LAKE SUPERIOR DISTRICT POWER COMPANY,
LOWER COLORADO RIVER AUTHORITY/CITY OF AUSTIN, MINNESOTA
PoweR & LIGHT COMPANY, NORTHERN STATES POWER COMPANY, UPPER
PENINSULA GENERATING COMPANY, WISCONSIN POWER & LIGHT
COMPANY, DECKER COAL COMPANY, PEABODY COAL COMPANY,
WESTMORELAND RESOURCES, INC. and WESTERN ENERGY COMPANY,
Appellants,
—against—
STATE OF MONTANA, THOMAS L. JUDGE, GOVERNOR OF MONTANA, MARY
CRAIG, DIRECTOR OF THE STATE DEPARTMENT OF REVENUE, and DAVID
M. Lewis, DIRECTOR OF ADMINISTRATION AND STATE TREASURER,
Appellees.
ON APPEAL FROM THE SUPREME COURT OF THE STATE OF MONTANA
JURISDICTIONAL STATEMENT
WILLIAM J. CARL WILLIAM P. ROGERS
40 East Broadway Counsel of Record
Butte, Montana 59701 WILLIAM R. GLENDON
(406) 723-5421 STANLEY GODOFSKY
STEPHEN FROLING
James N. BENEDICT
Rogers & Wells
Of Counsel: 200 Park Avenue
New York, New York 10166
(212) 972-7000
Attorney for Appellant
Western Energy Company
GeEorGE J. MILLER
Dechert Price & Rhoads
717 Seventeenth Street Patrick F. Hooks
Denver, Colorado 80202 218 Broadway
(303) 623-1777 Townsend, Montana 59644
Attorney for Appellant (406) 266-3476
Westmoreland Resources, Inc. Attorneys for Appellants
except Western Energy
October, 1980 Company
IN THE
Supreme Court of the United States
OCTOBER TERM, 1980
Ne. GP ceeeee
>
COMMONWEALTH EDISON COMPANY, ef al.,
Appellants,
—against—
STATE OF MONTANA, ef al.,
Appellees.
ON APPEAL FROM THE SUPREME COURT OF THE STATE OF MONTANA
>
JURISDICTIONAL STATEMENT
QUESTIONS PRESENTED
In 1975, at a time of national energy crisis, Montana
imposed a severance tax of 30% on coal mined in the
state, including coal from federal reserves which
comprise three-quarters of the total. This new tax was
imposed on top of many other taxes and sources of
revenue already available to Montana. This action,
commenced by eleven midwestern and southwestern
electric utility companies which use coal mined in
Montana and by their Montana coal suppliers, seeks to
establish that the tax is excessive in amount and thereby
violates the Commerce and Supremacy Clauses of the
ii
_ United States Constitution. As the Montana Supreme
Court has said (Opinion 15; Apdx. 17a):*
No more important case on the power of states to levy
taxes can be imagined than is presented here.
We agree.
In particular, the following questions are presented:
1. Did the state court err in holding, in the face of a
challenge under the Commerce Clause, that the State of
Montana may, as a matter of law, tax the severance of
coal destined for immediate export to other states
without limit as to amount and without regard to the
substantial adverse effect the tax has on _ interstate
commerce?
2. Did the state court err in holding, as a matter of
law, that the Montana Coal Severance Tax does not
violate the Commerce Clause of the United States
Constitution because a tax imposed for the general
support of government is, as a matter of law and without
any limit as to amount, ‘‘fairly related’’ to the services
and protection provided by the state to the taxpayer?
3. Did the state court err in rejecting, out of hand,
plaintiffs’ claim that the Montana Coal Severance Tax
discriminates against interstate commerce notwithstand-
ing the fact that the tax was manifestly ‘‘tailored’’ to fall
on such commerce?
4. Did the state court err in rejecting plaintiffs’ claim
that the Montana Coal Severance Tax violates the
° ‘Opinion’ refers to the decision by the Supreme Court of
Montana. ‘‘Apdx.’’ refers to the Appendix to this Jurisdictional
Statement.
iii
Supremacy Clause of the United States Constitution,
despite plaintiffs’ allegation and proffer of proof that
the tax substantially frustrates the effectiveness of
federal statutes intended to encourage the production
and use of coal in general, and particularly western coal,
and despite defendants’ admission, for purposes of the
present proceeding, of the truth of the underlying facts?
5. Did the state court err in denying plaintiffs an
opportunity to prove at trial their claim that the
Montana Coal Severance Tax violates the Supremacy
Clause of the United States Constitution, despite
plaintiffs’ allegation and proffer of proof that the tax
substantially frustrates the national policy embodied in
the Mineral Lands Leasing Act of 1920 which reserved
federally-owned coal to the federal government and
allocated the revenu.s, as between the states and the
federal government, in a fixed proportion?
PARTIES TO THE PROCEEDINGS BELOW
All of the parties appearing in the Supreme Court of
the State of Montana are listed in the caption.
Vv
TABLE OF CONTENTS
QUESTIONS PRESENTED........05 es eeeeeees i
PARTIES TO THE PROCEEDINGS BELOW .. | iii
TABLE OF CONTENTS ......--seeeeeeeeeeees V
TABLE OF AUTHORITIES..........-eeeeeeee vii
DECISION OF THE COURT BELOW ......... l
JURISDICTIONAL BASIS OF THIS APPEAL . l
CONSTITUTIONAL PROVISIONS AND STAT-
UTES INVOLVED.........ce cece ereereeeces l
STATEMENT OF THE CASE.........--00+5-
eo eg oe eee
co ww N
The Proceedings Below..........+eeeeeees
THE QUESTIONS PRESENTED ARE SUB-
STATI ALS oid vec evice cds (ecekercscaena gens. 12
I. ANY RULE WHICH AUTHORIZES
ENERGY-RICH STATES TO IMPOSE UN-
LIMITED TAXES ON ENERGY RE-
SOURCES DESTINED FOR OTHER
STATES CAN ONLY LEAD TO A
BALKANIZATION OF THE NATION
CONTRARY TO THE FUNDAMENTAL
PURPOSE OF THE COMMERCE CLAUSE 12
Il. A STATE TAX ON AN ACTIVITY
WHICH ‘‘SUBSTANTIALLY AFFECTS”
INTERSTATE COMMERCE, BUT IS NOT
YET ‘IN’? INTERSTATE COMMERCE,
SHOULD BE EXAMINED UNDER THE
COMMERCE CLAUSE ........eeeeeeeees 15
PREVIOUS PAGE WAS BLANK
vi
PAGE
Ill. THE RESULT BELOW MISCONTRUES
RECENT DECISIONS OF THIS COURT
ON IMPORTANT ISSUES CONCERNING
THE CONSTITUTIONAL STANDARDS
TO BE APPLIED TO STATE TAXES.... 19
IV. THE BURDEN OF MONTANA’S SEVER-
ANCE TAX IS ‘‘TAILORED” TO FALL
ON RESIDENTS OF OTHER STATES
AND THEREFORE DESERVES SPECIAL
SUPE EEUE: ccccnespocecsccvecebsnssceuse 21
V. ASTATE TAX WHICH SUBSTANTIALLY
FRUSTRATES FEDERAL ENERGY POLI-
CIES SHOULD BE DECLARED INVALID
UNDER THE SUPREMACY CLAUSE.... 22
VI. ASTATE TAX WHICH SUBSTANTIALLY
FRUSTRATES THE FEDERAL STATU-
TORY DIVISION OF ROYALTIES FROM
FEDERAL COAL DEPOSITS SHOULD BE
HELD INVALID UNDER THE SUPREM-
IAT GRAAF oc eecdcccdeadssscasnetaces 25
CORINCLUIIIOIIN ov cians Be cccccesetussssccegsue 26
Pigg 2 Oe rrrrerr errr ere rr ry TT Pe la
Vii
TABLE OF AUTHORITIES
Cases PAGE
Austin v. New Hampshire, 420 U.S. 656 (1975) . 22
Budget Rent-a-Car of Wash. v. Multnomah Cty.,
287 Or. 93, 597 P.2d 1232 (1979) .....-++eee 20
Carter v. Carter Coal Co., 298 U.S. 238 (1936) . 16
Complete Auto Transit, Inc. v. Brady, 430 U.S.
yy 8). og) ee ree Ce ee 9, 10, 19, 20, 22
Exxon Corp. v. Wisc. Dep’t of Rev., 100 S. Ct.
2109 (1980)... .. ccc c cree e reese ceeeeceeeecees 19
Heisler vy. Thomas Colliery Co., 260 U.S. 245
CORI kbd cadet ecathwene sone nets senves d's 9, 15-18
Hill v. Florida, 325 U.S. 538 (1945) ......+++5+: 23
Hines v. Davidowitz, 312 U.S. 52 (1941).......-. 23
Hood & Sons v. Du Mond, 336 U.S. 525 (1949) 13
Hope Gas Co. v. Hall, 274 U.S. 204 (9587). .... 15
Hunt v. Washington Apple Advertising Comm Nn,
432 U.S. 3938 CISTI) oo. occ cccccccccccesecccce 18
Jones v. Rath Packing Co., 430 U.S. 519 (1977) 23
Labor Board v. Jones & Laughlin, 301 U.S. 1
(193BT). oc cccvcvcccccsscccvesscccsncscseceesss 17
Lewis v. BT Investment Managers, Inc., 100 S. Ct.
2009 (1980)... nccccccccccccsecccccessvcssoees 17
McLain v. Real Estate Bd. of New Orleans, 444
ik Me. 2), Sewer rrr rere re 17
Viii
PAGE
McGoldrick v. Berwind-White Co., 309 U.S. 33
I 8 kek RAE ERE E Oa ae) MORRO CRORE ROS 22
Merrion v. Jicarilla Apache Tribe, 617 F.2d 537
(10th Cir. 1980) (en banc), cert. granted, 49
ik, Wh. Tae Cet. GTS G oi cc ce cece. 14, 20
Michigan-Wisconsin Pipe Line Co. v. Calvert, 347
eee GT rawas. tates etl deaseweaurees 13
Mobil Oil Corp. v. Commissioner of Taxes of Vt.,
a eh, Be EE bce pa bad hekae eat conan 19
Nash vy. Florida Industrial Comm’n, 389 U.S. 235
RS Cee ae cen One Gee hark CeCe 23
Nippert v. Richmond, 327 U.S. 416 (1946)...... 18
Oliver Iron Co. v. Lord, 262 U.S. 172 (1923)...15, 16
Parker v. Brown, 317 U.S. 341 (1943).......... 18
Perez v. Campbell, 402 U.S. 637 (1971)......... 23
Philadelphia v. New Jersey, 437 U.S. 617 (1978). = 17
Pike v. Bruce Church, Inc., 397 U.S. 137 (1970) 18
Washington Rev. Dep’t v. Stevedoring Ass’n, 435
es Re NE oS cd hese Ge ebe thea ea nn 20, 22
Wickard v. Filburn, 317 U.S. 111 (1942)........ 17
Constitutions & Statutes
1979 Mont. Laws, CR. G96... cc cccsvccccccvcene 7
Clean Air Act of 1970, Pub. L. No. 91-604, 84
Stat. 1676, as amended, 42 U.S.C. § 1857 et seq. 1, 3
ix
PAGE
Emergency Petroleum Allocation Act of 1973,
Pub. L. No. 93-159, 87 Stat. 627 ....-.+-+++: |
Energy Policy and Conservation Act of 1975, Pub.
L. No. 94-163, 89 Stat. 871....-.-eeeeeeeeers 2
Energy Reorganization Act of 1974, Pub. L. No.
93-438, 88 Stat. 1233.......ceeeeeeeresereees 2
Energy Research and Development Administration
Act, Pub. L. No. 95-39, 91 Stat. WEP. cncnde oe 2
Energy Supply and Environmental Coordination
Act of 1974, Pub. L. No. 93-319, 88 Stat. 246 za
Federal Coal Leasing Amendments Act of 1975,
Pub. L. No. 94-377, 90 Stat. 1083 ......--+-: 2
Federal Nonnuclear Energy Research and Develop-
ment Act of 1974, Pub. L. No. 93-577, 88 Stat.
Mineral Lands Leasing Act of 1920, ch. 85, 41
ae ) erry mre re rer cee ry 2.4, 1, 2
Montana Code Annotated:
eh re Tere re renee se 6
15-6-139B(D) ..cccccccccccccscccucccsnecsess 6
15-31-10] Cf S€EG.. cs vccccvccccccvecsseceres 6
15-35-10] Cf SEG... ccecevececcceceseceveces |
15-35-101(e) ..... ce Lease e kh eeeee Saene 6
1 eR cccdavedctawatcentessetauenn 4
SOAS. ic cccbckanesdeehgeseussen sees 6
Mont. Const. art. IX, §5 2... cee ee cence ee eeees 7
PAGE
Natural Gas Policy Act of 1978, Pub. L. No. 95-
I ni ho 6 ond bdo vieled'd vec cece 2
Powerplant and Industrial Fuel Use Act of 1978,
Pub. L. No. 95-620, 92 Stat. 3289............ ie an
United States Code:
NN ne. cc oc tse. l
Es oo obec ccececen. 25
Ea 6
oS es l
ES aa ]
Other Authorities
Brown, The Open Economy: Justice Frankfurter
and the Position of the Judiciary, 67 Yale L.J.
Ee tiie ce ya déees 13
Coal Development and Government Regulation in
the Northern Great Plains: A Preliminary Report
(Rand Corporation, ee 2
T.O. Cohea, Coal Board Grants (January 11, 1978) 7
Developments in the Law, Federal Limitations on
State Taxation of Interstate Business, 75 Harv.
ee 13
W. Hellerstein, Constitutional Constraints on State
and Local Taxation of Energy Resources, 3}
Nat. Tax J. 245 (1979).................. ia, 85, 2!
Kalispell Representative Says Coal Tax Too Lo w,
The Missoulian, January Se eid gat. oo 2
xi
PAGE
Posner, Economic Analysis of Law (2d ed. 1977) 13
Robinson, Coal Impact and Coal Board Grants
(September 20, 1977) ...---+eeeeeererreerrsees 7
Surface Mining Control and Reclamation Act of
1977: Hearings on S. 7 Before the Senate
Subcommittee on Public Lands and Resources of
the Senate Committee on Energy and Natural
Resources, 95th Cong., Ist Sess. 629 (1977) ... 7
Towe, Explanation of Reasons for Montana’s Coal
Wet CITI i vba vance is eee arens ro 58 OE 8S 21
|
DECISION OF THE COURT BELOW
The decision of the Supreme Court of the State of
Montana, dated July 17, 1980, is not yet reported. It is
reprinted in the Appendix at pages la-40a.
JURISDICTIONAL BASIS OF THIS APPEAL
This is an appeal from a final judgment entered
pursuant to the decision of the Supreme Court of the
State of Montana holding that a state tax statute is valid.
In their Complaints, and throughout the proceedings in
the state courts, plaintiffs drew into question the validity
of that statute on the ground of its repugnance to the
Constitution and laws of the United States. Judgment
was deemed to have been entered on July 17, 1980, when
the decision of the court below was docketed by the
Clerk of the Supreme Court of the State of Montana.
Notices of Appeal were filed with the Clerk of that court
on October 2 and 6, 1980. This Court has jurisdiction of
this appeal by virtue of 28 U.S.C. § 1257 (2).
CONSTITUTIONAL PROVISIONS
AND STATUTES INVOLVED
This case raises questions concerning the validity of
the Montana Coal Severance Tax, Montana Code
Annotated §§ 15-35-101 ef seq., under the Commerce
and Supremacy Clauses of the United States Constitu-
tion, art. 1, § 8, cl. 3 and art. VI, cl. 2, respectively, and
many federal statutes encouraging, mandating or regulat-
ing the use of coal.' The text of these authorities, insofar
as presently pertinent, is set out in the Appendix.
l Clean Air Act of 1970, Pub. L. No. 91-604, 84 Stat. 1676, as
amended, 42 U.S.C. § 1857 et seq.; Emergency Petroleum Allocation
2
STATEMENT OF THE CASE
This case presents issues as old as the Republic and as
timely as tomorrow’s headlines. It involves an attempt by
one state, having an abvndant supply of a vital natural
resource—here low sulphur coal—to exact a tribute from
the inhabitants of her energy-poor sister states.
Montana’s policy has been described as one of ‘“‘OPEC-
like revenue maximization’, having no relationship to
any legitimate needs of the State.? As noted by one of its
principal sponsors, “‘[iJn the energy crunch today,
Montanans should remember that the Arabs have the oil
but Montana has the coal... .’”3
Montana does not own any significant portion of this
coal. Indeed, the record establishes that three-quarters of
the coal in Montana belongs to the federal government.
What Montana here seeks to do is to force the rest of the
country to pay Montana an excessive tax for the use of a
Act of 1973, Pub. L. No. 93-159, 87 Stat. 627; Energy Policy and
Conservation Act of 1975, Pub. L. No. 94-163, 89 Stat. 871; Energy
Reorganization Act of 1974, Pub. L. No. 93-438, 88 Stat. 1233;
Energy Research and Development Administration Act, Pub. L. No.
95-39, 91 Stat. 180; Energy Supply and Environmental! Coordination
Act of 1974, Pub. L. No. 93-319, 88 Stat. 246; Federal Coal Leasing
Amendments Act of 1975, Pub. L. No. 94-377, 90 Stat. 1083; Federal
Nonnuclear Energy Research and Development Act of 1974, Pub. L.
No. 95-577, 88 Stat. 1878; Mineral Lands Leasing Act of 1920, ch. 85,
41 Stat. 437; Natural Gas Policy Act of 1978, Pub. L. No. 95-621, 92
Stat. 3350; Powerplant and Industrial Fuel Use Act of 1978, Pub. L.
No. 95-620, 92 Stat. 3289.
2 Rand Corporation, Coal Development and Government Regulation
in the Northern Great Plains: A Preliminary Report 148 (August
1976).
3 Representative Ora Halvorson of Kalispell, Montana, Vice Chair-
man of the Montana “House Taxation Committee, quoted in The
Missoulian, January 11, 1975.
3
vital natural resource fortuitously located within its
borders. While the tax is a severance tax in form, it is the
functional equivalent of an export duty in fact, since
virtually all of the coal is destined for interstate shipment
under contracts which provide, in effect, that the tax will
be passed along to ultimate consumers in other states.
Montana and its courts have taken the position that
the Constitution imposes no limits on the power of that
state to impose such taxes. According to Montana, a tax
equal to 100°, or even 1,000%, of the value of the coal
may be imposed, and neither the Commerce Clause nor
the Supremacy Clause can be invoked to prevent it.
This case thus presents fundamental questions of the
state’s power to impose taxes which cry for decision by
this Court. If ultimately upheld, Montana’s Coal
Severance Tax foreshadows a trend in state taxation of
energy resources which can only lead to the Balkaniza-
tion of this nation in the same way that OPEC’s efforts
have fragmented the world economy. In the end, the far-
reaching question presented by this appeal is whether the
United States Constitution limits ihe power of energy-
rich states to exact virtually unlimited tribute in the form
of taxes from the rest of the country, notwithstanding
the lack of need for such taxes and the adverse effects
such taxes may have on interstate commerce and on
national policies designed to meet the energy needs of the
nation.
Statement of Facts
In 1975, in response to increased demand for low
sulphur coal generated largely by the Clean Air Act of
1970 and in the aftermath of the 1973 Arab oil embargo,
Montana increased its severance tax on coal to
4
unprecedented levels. As a result, substantially all of the
coal now mined in the state is taxed at 30% of value.‘
This is, by far, the highest rate in the nation. Coal taxed
at the rate of 34 cents per ton prior to the 1975
amendment is now typically taxed at the rate of $2.08
per ton, with some taxpayers presently paying as much as
$4.63 per ton. On a percentage basis, the increases from
1975 to date thus amount to from 500% to 1,250%.
It is clear that the tax has a substantial effect on
interstate commerce and was always intended to do so.
As the Montana legislature well knew at the time this tax
was passed, the great bulk of coal mined in Montana is
immediately shipped out of state pursuant to long-term
coal purchase agreements which provide that the costs of
taxation will be passed along to the consuming utilities.
These utilities, in turn, must adjust the price of electricity
to their customers to reflect increased fuel costs. In 1979,
such out of state shipments aggregated 28 million tons of
coal, accounting for at least 90% of the value of
Montana’s entire production. Plaintiffs paid severance
taxes of about $60 million on these shipments. Under the
terms of existing contracts, they estimate that the
amount payable over the next two decades will reach
several billion dollars.
These facts loomed large in the adoption of the tax.
While the technical incidence of the tax is on the coal
producing plaintiffs in Montana, selection of coal as the
object of the extraordinary tax permitted the Montana
legislature to export the practical effect of the tax to
4 Value is defined as the ‘‘contract sales price,”’ i.e., the price of coal
when extracted and prepared for shipment f.o.b. mine, less
production taxes. § 15-35-102, M.C.A.
5
consumers in other states who are unable to vote in
Montana. For reasons such as these, the tax has enjoyed
unparalleled popularity within Montana. Since its
passage, there has been no substantial opposition to it.
It is equally clear that the tax may have a substantial
adverse effect on the many efforts of Congress to shift
this nation’s energy reliance away from foreign petro-
leum products and toward increased reliance upon coal.
The vast resources of coal found in the western United
States—much of it owned by the federal government—
are a cornerstone of these vital policies. If permitted to
do so, plaintiffs would be prepared to show at trial that
federal statutes have so encouraged the use of such coal,
particularly for electric utility purposes, as to virtually
mandate its use. The excessive costs imposed by this tax
manifestly tend to frustrate the central purpose of those
statutes. °
Montana finds itself able to exact taxes of this
magnitude because of its unique position with respect to
coal. One-quarter of our entire national reserves, and
over one-half of our national reserves of low sulphur
coal, are located in Montana. Montana and Wyoming
together contain 40% of this nation’s coal. But this is
not to say that the coal ‘‘belongs’’ to Montana and
Wyoming or comprises their exclusive ‘“‘birthright’’. To
the contrary, fully three-quarters of these reserves have
historically belonged to the federal government and still
belong to it.
5 In this connection, the State of Texas appeared as amicus in the
Court below in favor of plaintiffs. Its representations to this effect are
compelling.
6
The principal justification of the tax profferred by
defendants is that the tax revenues are necessary to meet
the impact costs of coal mining. This is simply not true.
Unhindered by the sorts of pressures which typically
restrain excessive taxes, the Montana legislature set the
rate of the tax with an eye toward revenue-maximization,
in the mold of the OPEC nations. In fact, legislative
findings preceding the Montana statute clearly emphasize
the ‘‘economic rents’’* to be obtained from the coal
mining activity, rather than the needs of the state. See
§ 15-35-101(e), M.C.A.; Apdx. 62a-63a. Because the case
was disposed of below on a motion to dismiss, plaintiffs
have never had an opportunity to make a full factual
record. Certain facts nevertheless show that the disparity
between needs and revenues is great.
1. Even without a severance tax, the costs of coal
mining which impact on the State of Montana would be
covered by other taxes’ and by federal revenue programs
which predated the severance tax.’ Indeed, Governor
Judge of Montana has testified that the federal revenues
6 The term ‘‘economic rents’’ is generally accepted to mean the
difference between the costs of production, including an acceptable
profit, and the market price of a commodity.
7 The State of Montana and its local subdivisions impose a number of
taxes on the mining of coal. For example, a resource indemnity trust
tax (15-38-104, M.C.A.); a gross proceeds tax (15-6-132, M.C.A.); a
property tax on mining equipment (15-6-138(b), M.C.A.); and a
corporate license tax (15-31-10! ef seq., M.C.A.).
8 As noted, roughly 75% of the coal in Montana is actually owned by
the federal government. Under the Mineral Lands Leasing Act of
1920, as amended, Montana is entitled to a direct rebate of 50% of all
federal royalties on mineral leases within its borders; additionally, the
federal government must use an additional 40% of such royalty
revenues on reclamation projects in the affected states. 30 U.S.C.
§191.
7
alone are now sufficient to cover all of the state’s impact
costs.’ If any further confirmation of this is necessary, it
need only be noted that since December 31, 1979, fully
50% of the entire coal tax revenues have been deposited
into a constitutional trust fund which may not be used
except upon a three-quarters vote of both houses of
future legislatures. Mont. Const. art. IX, § 5.
2. Experience now shows that legitimate needs have
already been met. This is confirmed by studies done by
the state, itself,'® and by the plaintiffs here. Moreover,
property tax rates in affected communities have dropped,
not risen, since the onset of large-scale coal mining, and
the state, itself, has adopted general tax relief measures
for its own citizens which were made possible because of
excessive coal tax revenues.''
In fact, while much has been made in public
discussions of the need for public funds for ‘‘boom-
towns,’’ reclamation and other legitimate costs, defen-
dants have admitted for purposes of a motion to dismiss
that the tax is not fairly related to the services and
protections provided by the state. (Complaint, 4 26;
Apdx. 55a). In support of this allegation, plaintiffs
expected to show that the legitimate local impact costs—
for schools, roads, police, fire and health protection, and
9 Surface Mining Control and Reclamation Act of 1977: Hearings on
S.7 Before the Senate Subcommittee on Public Lands and Resources
of the Senate Committee on Energy and Natural Resources, 95th
Cong., Ist Sess. 629 (1977).
10 T.O. Cohea, Coal Board Grants 15 (January 11, 1978); Robinson,
Office uf the Montana Legislative Fiscal Analyst, Coal Impact and
Coal Board Grants 25-26 (September 20, 1977).
11 E.g., 1979 Mont. Laws, ch. 698, amending §§ 15-30-112, 15-30-114,
15-30-122, and 15-30-142, M.C.A.
8
environmental protection and the like—might amount to
approximately 2¢ per ton, compared to present average
revenues of Severance Tax alone of over $2.00 per ton.
In sum, if they had not been precluded from doing so,
plaintiffs would have introduced evidence at trial which
would have demonstrated that revenues expected from
this tax were grossly disproportionate to the services and
protections provided by the state, however those services
and protections may be measured.
The Proceedings Below
In their Complaints, filed in June, 1978, in the
Montana District Court for the First Judicial District,
Lewis and Clark County, plaintiffs sought a refund of
over $5.4 million in taxes paid under protest, a
declaration that the tax was invalid under the Commerce
and Supremacy Clauses of the United States Constitu-
tion, and an injunction against its further collection. A
copy of the initial Complaint is reprinted in the
Appendix at pages 45a to 6la.'?
The defendants are the state, itself, and various public
officials who are responsible for collection or enforce-
ment of the tax. Defendants moved to dismiss all of the
claims for failure to state claims upon which relief could
be granted. Without any factual record before it, the
trial court granted defendants’ motion.
12 In each quarter since that time, plaintiffs have filed additional
Complaints seeking a refund of successive quarterly tax payments.
Additionally, Western Energy Company has filed separate Com-
plaints. In the aggregate, the total amount now in issue exceeds $120
million.
9
On appeal, the Montana Supreme Court passed on
these claims as follows:
1. In Count One of their Complaint, plaintiffs
asserted that the Coal Severance Tax substantially affects
interstate commerce in coal (Complaint, 4410, 22;
Apdx. 49a, 54a) and that it constitutes an undue burden
on commerce in that it (i) is not fairly related to services
and protection provided by the state (Complaint, { 26;
Apdx. 55a) and (ii) in fact, singles out an interstate
activity for tax and thereby discriminates against
interstate commerce (Complaint, 4 27; Apdx. 55a). See,
e.g., Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
(1977).
The Montana Supreme Court rejected these conten-
tions at the threshold, finding ‘‘that the severance of coal
here is a taxable event that precedes entry into interstate
commerce”’ and is ‘‘not an interstate activity’ and that,
in such circumstances, the Commerce Clause imposes no
limit on the power of the states to tax. (Opinion 15;
Apdx. 18a). To arrive at this conclusion, it seized upon a
series of decisions in this Court—all more than 50 years
old—discussing the power of the states to tax the
extraction of natural resources and related activities,
particularly relying on Heisler v. Thomas Colliery Co.,
260 U.S. 245 (1922). Citing those cases, the court below
argued that the Commerce Clause imposes no limit on
the power of the state to tax the severance of natural
resources, regardless of the impact the tax might have on
the interstate commerce in that commodity.
The principal legal question presented here is whether
Heisler and the other early cases may properly be used in
modern times to immunize a state severance tax from
scrutiny under the Commerce Clause.
10
In an alternative holding, the Montana Supreme Court
also found that the Montana tax meets the modern
Commerce Clause tests, if they apply. In particular, it
construed the ‘‘fairly-related’’ prong of the four prong
test set forth in Complete Auto Transit, Inc. v. Brady,
supra, in a way which would permit any state tax to meet
that test as a matter of law, holding that (Opinion 19;
Apdx. 22a-23a):
Taxes as here imposed for the general support of the
government are fairly related to that purpose by the mere
fact that a government is thereby maintained.
It further held (id.):
It is only when the taxpayer has an insufficient nexus to
the taxing state, or the tax is disproportionate to the
incidents of commerce being taxed, that the fair-relation
test applies.
2. In Count Two, plaintiffs asserted that the Coal
Severance Tax substantially frustrates national policies
reflected in a variety of federal statutes intended to
encourage the use of coal, and particularly western low-
suiphur coal, to meet national energy requirements.
(Complaint, 44 30-32; Apdx. 55a-56a). The decision of
the Montana Supreme Court rejected these contentions
without permitting plaintiffs the opportunity to prove
them. The court below ignored the precise holdings of
this Court to the contrary, and required that as a
prerequisite to finding preemption there must be a
showing that ‘‘Congress intended to nullify other
national, state, local or individual policies gr
(Opinion 28; Apdx. 33a). (Emphasis supplied).
3. In Count Three, plaintiffs asserted that the Coal
Severance Tax also substantially frustrates a national
11
policy reflected in the Mineral Lands Leasing Act of
1920, ch. 85, 41 Stat. 437, as from time to time
amended. (Complaint, 44 34-44; Apdx. 56a-59a). Under
that Act, Congress determined to retain mineral
resources in the western states for the people of the
entire nation, subject to payment of a share of royalties
to the states. (Complaint, ¢ 38; Apdx. 57a). As a result,
some three-quarters of the coal reserves in Montana
belong to the federal government. The essence of the Act
is a compromise which channels the revenues from this
mineral wealth to the federal government, in the first
instance, subject to later division with the states in a
fixed proportion.
Notwithstanding the federal policy set forth in this
basic compromise—on the existence of which the
Montana Supreme Court did not rule—it found that a
proviso in the Act continuing ‘‘any rights which [the
state] may have’’ to tax constituted ‘‘a clear expression
of federal policy’? which permitted state taxation,
without regard to the effect the tax might have on the
compromise itself. (Opinion 33; Apdx. 38a-39a). Thus,
the net effect of the Montana Coal Severance Tax is to
appropriate the ‘‘economic rents’’ from such reserves
directly to the state, before they can be secured by the
federal government in accordance with the Act. (Com-
plaint, 442; Apdx. 59a).
12
THE QUESTIONS PRESENTED ARE SUBSTANTIAL
I. ANY RULE WHICH AUTHORIZES ENERGY-
RICH STATES TO IMPOSE UNLIMITED TAXES
ON ENERGY RESOURCES DESTINED FOR
OTHER STATES CAN ONLY LEAD TO A
BALKANIZATION OF THE NATION CON-
TRARY TO THE FUNDAMENTAL PURPOSE
OF THE COMMEKCE CLAUSE.
The result announced by the court below foreshadows
grave practical consequences for this nation in that it can
only lead to serious division between those states which
have access to energy resources and those which do not.
In essence, the Montana Supreme Court held that the
Commerce Clause imposes no limit whatsoever on the
power of the individual states to extract taxes based on
the severance of energy resources destined for export to
other states. This position came into vivid focus when
defendants conceded that it would make no difference to
their analysis of the case if the tax were raised to 1,000%
or 2,000%.'* This contention was tacitly accepted by the
court below and inevitably follows from its decision.
Thus, in its view, the only limitation on the rate of a
state’s tax substantially affecting commerce is that set by
the state’s legislature. (Opinion 18; Apdx. 22a). This is a
dangerous view.
The availability of energy resources, and the price
which they command, is one of the most divisive issues
of our time. Armed with unfettered power and freed
from constitutional restraint, the self-interests of energy-
13 Counsel for defendants also argued that the Commerce Clause did
not come into play until a state’s tax imposed a de facto embargo
against exportation of coal or actually brought the commerce in coal
to a complete halt at the state’s borders.
13
rich states must come into conflict with those which lack
such resources and with the national interest in energy
issues. Any constitutional rule which permits states to
adopt ‘‘OPEC-like revenue maximization’’ policies
clearly cuts across the balance between state and federal
power lying at the heart of the Commerce Clause and
exposes the nation to Balkanization. Where a state tax
approaches a tax on exports——as this tax does'‘—it
offends the basic premise that this nation constitutes a
nationwide free trade area in which one state is not
permitted to throw up undue trade barriers at the
expense of its sister states. See, e.8., Hood & Sons v. Du
Mond, 336 U.S. 525, 538-39 (1949). In similar
circumstances, involving taxes which are functionally
indistinguishable from severance taxes, this Court has
not hesitated to act. E.g., Michigan-Wisconsin Pipe Line
Co. v. Calvert, 374 U.S. 157 (1954). No functional
distinction exists between severance taxes and other taxes
such as the foregoing and, accordingly, no valid policy
justifies the rule adopted here. See W. Hellerstein,
Constitutional Constraints on State and Local Taxation
of Energy Resources, 31 Nat. Tax J. 245, 248 (1979)
(hereinafter cited as ‘*Hellerstein’’).
Montana’s tax is a prime example of the abuses which
may flow from any rule which leaves the states with
unfettered power to tax. It was designed to shift billions
of dollars to Montana directly from the citizens of other
states by the end of the century and to use a substantial
14. See Developments in the Law, Federal Limitations on State
Taxation of Interstate Business, 75 Harv. L. Rev. 953, 970-71 (1962);
Brown, The Open Economy: Justice Frankfurter and the Position of
the Judiciary, 67 Yale L.J. 219, 232-33 (1957); Posner, Economic
Analysis of Law $10 (2d ed, 1977).
14
part of those billions to create a multi-billion trust fund
for future Montana citizens. To date, it has succeeded in
that intent. The potential for dissention and retaliation is
manifest,
Quite apart from the facts of this particular case, there
is a serious danger that other states will follow
Montana’s lead if the result below is permitted to stand.
Montana is the frontrunner in adopting excessive
severance taxes on coal, but many other states are
mindful of this proceeding and will surely measure their
taxing powers against the ultimate result here. Several
states have come to Montana’s defense, while many
Other states have publicly manifested opposition to the
Montana tax.
The importance of these issues was further under-
scored when this Court granted a writ of certiorari in
Merrion v. Jicarilla Apache Tribe, 617 F.2d 537 (10th
Cir. 1980) (en banc), cert. granted, 49 U.S.L.W. 3208
(Oct. 6, 1980). That case raises, among other things,
issues concerning the effect of the Commerce Clause on
the power of Indian Tribes to adopt severance taxes on
natural resources. On the pertinent point, the Tenth
Circuit sustained the tax on reasoning similar to that of
the Montana Supreme Court. See 617 F.2d at 545-46.
The instant case arises, however, in a context having
wider application, since it relates to the power of the
States, and with far greater financial consequences.
For these reasons, this case raises substantial questions
under the Commerce Clause on which this Court should
rule.
15
Il. A STATE TAX ON AN ACTIVITY WHICH
“SUBSTANTIALLY AFFECTS” INTERSTATE
COMMERCE, BUT IS NOT YET ‘‘IN”’ INTER-
STATE COMMERCE, SHOULD BE EXAMINED
UNDER THE COMMERCE CLAUSE.
The Montana Supreme Court arrived at its result
principally through its construction of a series of cases
decided by this Court in the 1920’s and 1930’s dealing
with the Commerce Clause implications of taxation of
mineral resources. Heisler v. Thomas Colliery Co., 260
U.S. 245 (1922); Oliver fron Co. v. Lord, 262 U.S. 172
(1923); Hope Gas Co. Vv. Hall, 274 U.S. 284 (1927).
Under those decisions, an activity not ‘tin’? commerce
was said to be wholly outside the scope of the Commerce
Clause.
Those decisions have not been reviewed directly in this
Court for over fifty years and, in the words of a leading
authority, now present ‘‘fertile soil for reconsideration
. 2’ (Hellerstein, supra, at 254). They are, we
submit, utterly inconsistent with constitutional doctrines
adopted since that time which clearly recognize the
Commerce Clause implications of acts which ‘‘substan-
tially affect’’ interstate commerce whether they are ‘‘in’”’
or ‘‘out’’ of such commerce. For this reason as well, the
issues raised here are deserving of review by this Court.
The issue here is not, and never has been, whether the
states have the power to tax the severance of natural
resources to meet legitimate needs. Plaintiffs have
consistently recognized that power. They fully recognize
that wide latitude must be given to state legislatures to
assess those needs and to fix appropriate means to raise
revenues. Instead, the issue is whether the state’s power
is exclusive, absolute and free from any constraint under
16
the Commerce Clause, notwithstanding the actual or
potential effects of the tax on interstate commerce.
Under the broad rationale of older cases—adopted and
applied here by the Montana Supreme Court—all
Commerce Clause questions could be decided by a
‘“*mechanical test’’ which was expressed most clearly in
this Court’s decision in Carter v. Carter Coal Co., 298
U.S. 238 (1936). There, the majority derived the
following rule from Heisler, Oliver Iron and other like
cases (pages 302-03):
One who produces or manufactures a commodity,
subsequently sold and shipped by him in interstate
commerce, whether such sale and shipment were
originally intended or not, has engaged in two distinct
and separate activities. So far as he produces or
manufactures a commodity, his business is purely local.
So far as he sells and ships, or contracts to sell and ship,
the commodity to customers in another state, he engages
in interstate commerce. Jn respect of the former, he is
subject only to regulation by the state; in respect of the
latter, to regulation only by the federal government.
(Emphasis supplied).
But this has not been the law since 1937.
This case presents a clear choice between the foregoing
“mechanical test’? and a modern test which requires the
courts to examine the practical effect of activities,
including state taxes, which ‘‘substantially affect’’
interstate commerce.
The Montana Supreme Court decided the case by
applying the older rule, despite the fact that the law
concerning the scope of the Commerce Clause has
changed entirely in the last forty years. The rationale of
Heisler and like cases has been altogether undermined
17
and the results of modern cases are completely
irreconcilable with its rationale. Labor Board v. Jones &
Laughlin, 301 U.S. 1 (1937), clearly broke with the
Heisler test. It held (page 37):
Although activities may be intrastate in character when
separately considered, if they have such a close and
substantial relation to interstate commerce that their
control is essential or appropriate to protect that
commerce from burdens and obstructions, Congress
cannot be denied the power to exercise that control.
Wickard v. Filburn, 317 U.S. 111 (1942), underscored
the departure from the earlier rule, extending the
commerce power to those ‘‘activities intrastate which so
affect interstate commerce. . . as to make regulation of
them appropriate. ... Id. at 127. (Emphasis sup-
plied). It made specific reference to Heisler and related
cases as ‘‘earlier pronouncements’? which no _ longer
accurately reflected the law, even in 1942. Jd. at 127, n.
21.
Since 1937, this Court has consistently held that
activities which ‘‘substantially affect’’ interstate com-
merce raise Commerce Clause considerations of the same
type as those activities which are ‘‘in’’ interstate
commerce under the older rules. E.g., McLain v. Real
Estate Bd. of New Orleans, 444 U.S. 232, 241-42 (1980);
Wickard v. Filburn, 317 U.S. 111 (1942). This is equally
true when the Court has considered the ‘‘negative
implications’’ of the Clause—i.e., its restraints on the
power of the states—as when it considered its affirmative
grant of power to Congress. E.g., Lewis v. BT
Investment Managers, Inc., 100 Sup. Ct. 2009, 2016-17
(1980); Philadelphia v. New Jersey, 437 U.S. 617, 622-23
(1978). The claim that a state’s tax or regulation only
18
affects a ‘‘local’’ or intrastate activity no longer serves to
immunize it from Commerce Clause scrutiny. E£.g.,
Nippert v. Richmond, 327 U.S. 416, 424 (1946); Pike vy.
Bruce Church, Inc., 397 U.S. 137, 140 (1970); Hunt v.
Washington Apple Advertising Comm’n, 432 U.S. 333,
349-50 (1977). See also Parker v. Brown, 317 U.S. 341,
362 (1943),
The Montana Supreme Court did not dispute—and, in
fact, tacitly conceded—that this Court’s opinions over
the years since 1937 have consistently rejected mechani-
cal tests such as that employed in Heisler in favor of
Commerce Clause tests looking to the practical ‘‘sub-
stantial effects’? of particular activities on commerce.
(Opinion 9-10; Apdx. 11a-12a). It merely held that the
rationale of the modern cases had not yet been extended
to the precise question of a state’s power to tax natural
resources and that it did not feel bound by ‘‘dicta’”’ in
Other cases. It offered no express rationale for
distinguishing those cases.
Such a distinction cannot be supported in principle.
An artificial distinction between matters which are
exclusively ‘‘federal’’ and those which are exclusively
“‘local’’—the precise distinction On which the court
below premised its decision—could readily lead to
retaliation of state against state and to a breakdown in
the national economy.
For the foregoing reasons, the instant case squarely
presents a fundamental question under the Commerce
Clause which ought to be determined by this Court.
19
Ill. THE RESULT BELOW MISCONSTRUES RE-
CENT DECISIONS OF THIS COURT ON IM-
PORTANT ISSUES CONCERNING THE CON-
STITUTIONAL STANDARDS TO BE APPLIED
TO STATE TAXES.
In the past decade, this Court has enunciated a series
of principles relating to the power of states to tax
activities which are in or affect interstate commerce. This
effort has been directed at rationalization of constitu-
tional principles along lines which give predominant
weight to the practical effect of taxes, not to labels and
artificial distinctions. See Mobil Oil Corp. v. Commis-
sioner of Taxes of Vt., 100 S. Ct. 1223, 1234 (1980), and
cases cited.
Among other things, this Court has announced a
substantive Commerce Clause test of general application
to state taxes affecting interstate-commerce. See, e.g.,
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274
(1977). As most recently articulated, that test requires the
Court to examine:
the ‘‘practical effect’’ of the tax to determine whether it
‘* tis applied to an activity with a substantial nexus with
the taxing State, is fairly apportioned, does not
discriminate against interstate commerce, and is fairly
related to the services provided by the State.’ ”’
Exxon Corp. v. Wisc. Dep’t of Rev., 100 S. Ct. 2109,
2122 (1980). The Montana Supreme Court readily
assented to the expansion of state powers articulated in
Complete Auto and like decisions (Opinion 13; Apdx.
15a-16a), but gave short shrift to these corresponding
limitations. In addition to rejecting the claim that the
Commerce Clause applies to a state severance tax, it also
reached conclusions which raise important questions
20
concerning the appropriate construction of the ‘‘{airly
related’’ and ‘‘discrimination’”’ prongs of the foregoing
Commerce Clause test.
1. The court below held that the ‘“‘fairly related’’
branch of the foregoing test may be determined as a
matter of law, without any factual inquiry, holding that
the test was satisfied simply because Montana provided
the benefits of government. (Opinion 19; Apdx. 22a).'°
This holding essentially writes the ‘‘fairly related’’ test
out of the law, since every state provides governmental
benefits of some type. If the test is to have any meaning
at all, it must raise factual issues on which proof should
be taken. Cases in this Court make clear that the test is
factual. E.g., Washington Rev. Dep’t v. Stevedoring
Ass'n, 435 U.S. 734, 750-51 (1978); Complete Auto
Transit, Inc. v. Brady, 430 U.S. 274, 287 (1977). Cases
in lower courts so state. Merrion v. Jicarilla Apache
Tribe, 617 F.2d 537, 545 n.4 (10th Cir. 1980) (en banc),
cert. granted, 49 U.S.L.W. 3208 (Oct. 6, 1980). Budget-
Rent-a-Car of Wash. v. Multnmah Cty., 287 Or. 93, 597
P.2d 1232, 1239 (1979). The contrary holding of the
Supreme Court of Montana raises a serious Commerce
Clause question which ought to be examined here.
2. The Montana Supreme Court discarded “‘the fair
relation’’ test in another way, holding that it did not
come into force unless a tax violates another prong of
the test as well, i.e., insufficient nexus or faulty
apportionment. (Opinion 19; Apdx. 22a). There is no
Suggestion in the opinions of this Court that the ‘‘fair
15 In doing so, it rejected the reasoning of the trial court, which
squarely held that if it reached this question, it ‘‘would necessarily
have to deny the motion to dismiss and proceed to a factual
determination. . . .’’ (District Court Order, dated July 27, 1979, at
5).
21
relation’ test does not stand on its own. The contrary
holding of the Supreme Court of Montana raises another
question which ought to be considered here.
3. The Montana Supreme Court did not expressly pass
on plaintiffs’ contentions that the tax was adopted
hecause it would shift an extraordinary burden to other
states and thereby discriminates against interstate com-
merce. This claim, too, raises a serious question which
ought to be examined here. Hellerstein, supra, at 249.
* + * * *
Each of these questions is of importance, not only to
clarify the law for the guidance of the lower courts, but
also because each construction adopted by the Montana
Supreme Court emasculates one of the Commerce Clause
tests enunciated by this Court and thus frees the states
from any practical constraint under those tests. In each
instance, the construction given to the tests by the
Montana Supreme Court leaves the state with unfettered
power to tax. That is precisely the vice of the tax in issue
here.
IV. THE BURDEN OF MONTANA’S SEVERANCE
TAX IS “TAILORED” TO FALL ON RESI-
DENTS OF OTHER STATES AND THEREFORE
DESERVES SPECIAL SCRUTINY.
Plaintiffs claim of discrimination is closely tied to
another argument made by plaintiffs and rejected by the
Montana Supreme Court. The Montana tax was
manifestly ‘‘tailored’’ to fall on interstate commerce and
on out-of-state residents. The Montana legislature was
fully aware that the burden of this tax would fall
principally on non-residents. Towe, Explanation of
Reasons for Montana’s Coal Tax 4 (1976).
7
—
22
As this Court said in Complete Auto Transit, Inc. v.
Brady, 430 U.S. 274, 288-89 n.15 (1977):
Any tailored tax of this sort creates an increased danger
of error in apportionment, of discrimination against
interstate commerce, and of a lack of relationship to the
services provided by the State. See Freeman v. Hewit, 329
U.S., at 265-266, n. 13 (concurring opinion). A tailored
tax, however accomplished, must receive the careful
scrutiny of the courts to determine whether it produces a
forbidden effect on interstate commerce. (Emphasis
supplied).
This case brings into sharp focus the danger posed by
such taxes, for here the burden of the tax ‘‘is not likely
to be alleviated by those political restraints which are
normally exerted on legislation where it affects adversely
interests within the state.’’ McGoldrick v. Berwind White
Co., 309 U.S. 33, 46 n.2 (1940). In such circumstances,
courts generally, and this Court in particular, have a
special burden to apply rigorous standards of review.
Austin v. New Hampshire, 420 U.S. 656, 662-63 (1975).
Vv. A STATE TAX WHICH SUBSTANTIAL'Y
FRUSTRATES FEDERAL ENERGY POLICIES
SHOULD BE DECLARED INVALID UNDER
THE SUPREMACY CLAUSE.
In recent years, Congress has enacted a series of laws
intended to implement a national policy designed to
encourage the use and production of coal in lieu of oil
and natural gas. In some cases, these statutes expressly
or practically require electric utilities and certain
industrial users to use coal instead of these scarcer fuels.
See, e.g., Powerplant and Industrial Fuel Use Act of
1978, Pub. L. No. 95-620, 92 Stat. 3289, and other
23
statutes cited at pages 1-2, supra. Although their
legislative history makes it clear that these statutes were
intended to encourage and foster the greater use of coal,
the court below seized upon the fact that these federal
laws do not specifically prohibit state severance taxes.
The effect of the decision is to permit the Montana
legislature to undermine important federal policies by
increasing the cost of coal, while Congress is attempting
to encourage its use.
The court below arrived at this result by ignoring the
many decisions in this Court which establish that ‘‘any
state legislation which frustrates the full effectiveness of
federal law’’ or ‘‘stands as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress’’ is rendered invalid by the
Supremacy Clause. Perez v. Campbell, 402 U.S. 637, 652
(1971); Hines v. Davidowitz, 312 U.S. 52, 67 (1941).
Under the decided cases, a finding of substantial
frustration may be based on an interference which is not
apparent on the face of a statute. Indeed, on many
occasions this Court has evaluated the practical effect of
state laws on the implementation of federal policies, and
has struck them down even though no direct conflict
with federal law existed. E.g., Nash v. Florida Industrial
Comm’n, 389 U.S. 235 (1967); Hill v. Florida, 325 U.S.
538 (1945). See also Jones v. Rath Packing Co., 430 U.S.
519, 540-43 (1977).
The effect of the decision below was to deprive
plaintiffs of an opportunity to prove their claims.
Plaintiffs were prepared to prove the extent to which
implementation of the policies expressed in the cited
statutes depends on production of coal from Montana
and that the tax has already had, and will continue to
24
have, a substantial adverse effect on that production.
Plaintiffs were prepared to proffer expert testimony
(based on extensive studies and computations) designed
to show (i) that without the tax, production of Montana
coal would rise an additional 20 million tons annually by
1990, and (ii) because of the tax, planned mines in
Montana have not opened, existing mines are operating
below capacity, coal contracts have been cancelled, and
new contracts for Montana coal have dropped off
precipitously.
The decision below severely restricts the scope of the
Supremacy Clause, by limiting the preemptive effect of
federal laws to only those instances where a state law
specifically and directly conflicts with a provision of a
federal statute. This is not, and should not be, the law.
In order for our national government to function
effectively, it is imperative that the 50 individual states
not be permitted to enact separate laws which have the
practical effect of frustrating the effectiveness of federal
law. Congress is not, and should not be, required to
anticipate all of the myriad ways in which states may
frustrate the effectiveness of its laws. Given the wide
scope of federal legislation today, this would be an
impossible task and would render the effectiveness of the
Supremacy Clause a virtual nullity.
For the foregoing reasons, the instant case squarely
presents fundamental questions under the Supremacy
Clause which ought to be determined by this Court.
25
VI. A STATE TAX WHICH SUBSTANTIALLY
FRUSTRATES THE FEDERAL STATUTORY
DIVISION OF ROYALTIES FROM FEDERAL
COAL DEPOSITS SHOULD BE HELD INVALID
UNDER THE SUPREMACY CLAUSE.
The Montana Supreme Court also dismissed Count
Three of the Complaint because, in its view, the Mineral
Lands Leasing Act of 1920, ch. 85, 41 Stat. 437, did not
specifically prohibit states from imposing severance taxes
on federally-owned coal. (Opinion 31-33; Apdx. 37a-
39a). In doing so, the court clearly overlooked, without
discussion, important federal rights which were at the
heart of that Act. Under the Act, federal interests in
mineral deposits under western lands were retained by
the federal government. It was determined that the
national government would have the right to lease these
mineral deposits and to receive revenues from them,
subject to a division of royalties with the states in which
the deposits were located. This is the essential compro-
mise set out in the Act, a compromise reached after years
of debate in Congress over proper disposition of these
mineral rights.
By absorbing—or attempting to absorb—all of the
“economic rents’? on such coal in Montana, the
severance tax will necessarily reduce the royalties and
other revenues received by the federal government and
thereby substantially frustrate the compromise which lies
at the heart of the Act. It is not an answer to the
foregoing that the Act recognized the right of states to
impose severance taxes, without expressly limiting the
amount of permissible taxation, because that proviso did
not grant the states an unfettered right to impose
severance taxes on federally-owned coal, but only
permitted them to ‘‘exercise any rights which they may
26
have... .’’ 30 U.S.C. § 189. No state has ever had a
right to tax to the extent that it substantially frustrates
the effectiveness of federal law.
For the reasons previously discussed in connection
with Count Two of the Complaint, the Montana
Supreme Court’s decision dismissing Count Three raises
fundamental questions under the Supremacy Clause
which should be reviewed by this Court.
CONCLUSION
For each of the reasons set forth above, this Court
should note probable jurisdiction to review the opinion
and judgment of the court below.
Respectfully submitted,
WILLIAM J. CARL
40 East Broadway
Butte, Montana 59701
(406) 723-5421
Attorney for Appellant
Western Energy Company
Of Counsel:
GEORGE J. MILLER
Dechert Price & Rhoads
717 Seventeenth Street
Denver, Colorado 80202
(303) 623-1777
Attorney for Appellant
Westmoreland Resources, Inc.
October, 1980
WILLIAM P. ROGERS
Counsel of Record
WILLIAM R. GLENDON
STANLEY GODOFSKY
STEPHEN FROLING
JAMES N. BENEDICT
Rogers & Wells
200 Park Avenue
New York, New York 10166
(212) 972-7000
PATRICK F, Hooks
218 Broadway
Townsend, Montana 59644
(406) 266-3476
Attorneys for Appellants
except Western Energy
Company
APPENDIX
TABLE OF CONTENTS
Documents PAGE
Opinion of the Supreme Court of Montana in
Commonwealth Edison Co., et al. v. State of
Montana, et al. and Lake Superior District
Power Co., et al. v. State of Montana, et al.--
July 17, 1980... .. cece cece eee eeeeeeeenneens la
Notices of Appeal in the Supreme Court of
Montana—October 2. and 6, 1980.........55+: 4la
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978...... 45a
Montana Statutes
Montana Coal Severance Tax, §§ 15-35-101 ef seq.,
Montana Code Annotated (excerpts) .......+.: 62a
Constitutional Provisions
Article 1, §8, cl. 3 of the United States
oe rere ye Terre er eee 70a
Article VI, cl. 2 of the United States Constitution 70a
Federal Statutes
Clean Air Act of 1970, Pub. L. No. 91-604, 84
Stat. 1676, as amended, 42 U.S.C. 1857 et seq.
(EXCEFPtS). oc ccccccccccccvccsececcvcceveesons Tla
Emergency Petroleum Allocation Act of 1973,
Pub. L. No. 93-159, 87 Stat. 627 (excerpts)... 8la
Energy Policy and Conservation Act of 1975, Pub.
L. No. 94-163, 89 Stat. 871 (excerpts) .......- 83a
ii
Energy Reorganization Act of 1974, Pub. L. No.
93-438, 88 Stat. 1233 (excerpts)............05-
Energy Research and Development Administration
Act, Pub. L. No. 95-39, 91 Stat. 180 (excerpts)
Energy Supply and Environmental Coordination
Act of 1974, Pub. L. No. 93-319, 88 Stat. 246
I wis 8 ous oe Ck wabhla Oe iis bobiese bc bas
Federal Coal Leasing Amendments Act of 1975,
Pub. L. No. 94-377, 90 Stat. 1083 (excerpts) ..
Federal Nonnuclear Energy Research and Develop-
ment Act of 1974, Pub. L. No. 93-577, 88 Stat.
Se Es ee ee
Mineral Lands Leasing Act of 1920, ch. 85, 41
re a ee eat ay
Natural Gas Policy Act of 1978, Pub. L. No. 95-
621, 92 Stat. 3350 (excerpts) ............c000:
Powerplant and Industrial Fuel Use Act of 1978,
Pub. L. No. 95-620, 92 Stat. 3289 (excerpts) ..
PAGE
93a
95a
100a
103a
llla
11Sa
la
Opinion of the Supreme Court of Montana in
Commonwealth Edison Co., et al. v. State of
Montana, et al. and Lake Superior District Power
Co., et al. v. State of Montana, et al.—July 17, 1980
IN THE
SUPREME COURT
OF THE STATE OF MONTANA
1980
> —
COMMONWEALTH EDISON COMPANY ef al.,
Plaintiffs and Appellants,
vs.
STATE OF MONTANA ef al.,
Defendants and Respondents,
and
LAKE SUPERIOR DISTRICT POWER COMPANY, et al.,
Plaintiffs and Appellants,
vs.
STATE OF MONTANA ef al.,
Defendants and Respondents.
>
Appeal from:
District Court of the First Judicial District,
Hon. Peter G. Meloy, District Court Judge
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Opinion of the Supreme Court of Montana
Counsel of Record:
For Appellants:
Hooks and Budewitz, Townsend, Montana
John Carl argued, Butte, Montana
Rogers and Wells, New York, N.Y.
William P. Rogers argued and William R.
Glendon argued, New York, N.Y.
For Amicus Curiae:
Garrity, Keegan and Brown, Helena, Montana
Hon. Mark White argued, Attorney General,
Austin, Texas
For Respondents:
Hon. Mike Greely, Attorney General, argued,
Helena, Montana
Mike McGrath argued, Assistant Attorney
General and Mike McCarter argued, Assist-
ant Attorney General, Helena, Montana
Cannon and Gillespie, Helena, Montana
Ross Cannon argued, Helena, Montana
For Amicus Curiae:
Leo F. J. Wilking argued, Special Assistant
Atiorney General for State Tax Commis-
sioner, Bismark, North Dakota
—~<>
Submitted: April 21, 1980
Decided: July 17, 1980
Filed:
Thomas J. Kearney
Clerk
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Opinion of the Supreme Court of Montana
[2] Mr. Justice John C. Sheehy delivered the Opinion of
the Court.
This is an appeal from a judgment of the District
Court, First Judicial District, Lewis and Clark County,
Montana, the Hon. Peter G. Meloy presiding, upholding
the validity of Montana’s coal severance tax.
Plaintiffs sought a declaratory judgment from the
District Court that the tax unconstitutionally burdens
interstate commerce, and unconstitutionally frustrates
federal policy. Commonwealth Edison Company and its
coplaintiffs brought one action for this purpose, and
Lake Superior District Power Company and its coplain-
tiffs brought a second action. Because the issues are the
same, the actions were consolidated.
The District Court granted defendants’ motions to
dismiss the complaints before trial, finding as a matter of
law that they did not state claims upon which relief could
be granted. Judgment was entered in eack. case in favor
of the defendants and the plaintiffs appealed.
Since each case comes to us on appeal from a
judgment of dismissal, we accept the facts which are
well-pleaded in the complaints as true. This was the rule
before we adopted the Montana Rules of Civil
Procedure, Heisler v. Severy (1945), 117 Mont. 105, 111,
158 P.2d 501, 503, and is the rule now. However,
conclusions of law in the pleadings need not be accepted
by this Court as binding under a judgment on a motion
to dismiss. Allegations of conclusions of law present no
issuable facts. Waite v. Standard Accident Insurance Co.
(1957), 132 Mont. 220, 315 P.2d 984. If therefore factual
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Opinion of the Supreme Court of Montana
issues exist which should have been considered by the
District Court prior to granting judgment, the judgment
[3] must be reversed. Conversely, if as a matter of law,
under any view of the alleged facts, plaintiffs cannot
prevail, affirmance of the District Court is commanded.
We have fully considered the contentions of plaintiffs
on their appeal; we have examined the pleadings, and the
grounds of the motion to dismiss; we have looked at the
admitted factual matters which plaintiffs allege would
invalidate the tax; and we have concluded from the
whole record that the Montana Coal Severance Tax in its
present form is a lawful exercise of Montana’s taxing
authority under our State and Federal Constitutions.
Accordingly, we affirm the District Court.
Three issues were raised by plaintiffs for our review:
1. Is the coal severance tax impermissible under the
Commerce Clause of the United States Constitution?
2. Is the coal severance tax impermissible under the
Supremacy Clause of the United States Constitution as
frustrating national policies and statutes?
3. Is the coal severance tax impermissible under the
Supremacy Clause of the United States Constitution as
frustrating national policies contained in the Mineral
Lands Leasing Act of 1920?
THE TAX AND ITS HISTORY
In 1975 and 1977, the Montana Legislature amended
its coal severance tax schedules, section 84-1314, R.C.M.
1947, now section 15-35-103, MCA. It now contains
these provisions:
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Opinion of the Supreme Court of Montana
‘615.35-103. Severance tax—rates imposed—
exemptions. (1) A severance tax is imposed on each
ton of coal produced in the state in accordance with
the following schedule: [4]
‘‘Heating quality Surface Underground
(Btu per pound Mining Mining
of coal):
‘‘Under 7,000 12 cents or 5 cents or
20% of value 3% of value
**7 000-8 ,000 22 cents or 8 cents or
30% of value 4% of value
**8 000-9,000 34 cents or 10 cents or
30% of value 4% of value
*““Over 9,000 40 cents or 12 cents or
30% of value
4% of value
‘* ‘Value’ means the contract sales price.
‘<(2) The formula which yields the greater amount
of tax in a particular case shall be used at each point
on this schedule.
(3) A person is not liable for any severance tax
upon 20,000 tons of the coal he produces in a
calendar year.’’
No issue is raised here that there is an unconstitutional
difference between the rate of taxes charged for strip-
mining of coal and for underground mining of coal.
Prior to 1975, the Montana tax on strip-mined coal
ranged from twelve to fourteen cents a ton, depending
on BTU content. The 1975 amendment was a response to
the meteoric increase in strip-mined coal entrepreneurs in
the state in the 1970’s. From the 1940’s until the mid-
1960’s activity in coal strip-mining as well as in
underground coal mining remained fairly dormant in the
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Opinion of the Supreme Court of Montana
State. The increase in gross tonnage produced since 1971
from strip-mining is demonstrated by the following
figures taken from the records of the Montana
Department of Revenue, of which we have taken judicial
notice:
One Year Gross Tons
1971 6,983,186
1972 8,224,118
1973 10,678,058
1974 14,116,625
1975 22,160,236
1976 26,347,923
1977 27,340,905
1978 26,516,481
1979 32,545,071
[5] In the general election of 1976 the Montana voters
amended their state constitution by adding a new Section
5 to Article IX, 1972 Montana Constitution. In essence
the constitutional addition provides that from and after
December 31, 1979, at least fifty percent of the severance
tax collected shall be dedicated to a trust fund, the
principal of which is to remain inviolate unless
appropriated by a vote of three-fourths of the members
of each house of the legislature.
This Court notes in passing our impression that the
1975 coal severance tax provisions, and the 1976
constitutional amendment, were in part responses to the
historical experience of Montana with respect to the
inadequacy of earlier forms of taxes on mineral
production. In 1965, the Hon. James Felt rose in the
State House of Representatives to complain that the
richest hill on earth (Butte) had paid not a dime in net
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Opinion of the Supreme Court of Montana
proceeds tax the previous year. Some modifications in
computation agreed to by the mining company amelio-
rated that condition in subsequent years. Nevertheless,
Montana’s experience had shown that its mineral wealth
could be exhausted and exported with little left in
Montana to make up the loss of its irreplaceable
resources. Montana has been painfully educated about
the extreme economic jolts that follow when the mine
runs out, the oil depletes, or the timber saws come still.
We have a good many examples that teach us what
happens to our hills when the riches of our Treasure
State are spent. For these and other reasons, when strip
coal mining was beginning to burgeon, in 1975, the
legislature moved to fix a tax that would provide both
for the present and the future when the coal deposits
were gone.
Since the commencement of the instant actions, the
plaintiffs have paid their coal severance taxes under
protest. Were the coal severance tax found to be invalid,
presently [6] some $87,000,000 and accrued interest in
protested taxes should have to be returned by the State
to the taxpaying producers, we were informed in oral
argument.
EFFECT OF THE COMMERCE CLAUSE
Before we discuss the commerce clause contentions, we
look at the relationship of the various plaintiffs to the
coal tax which is being attacked. The true taxpayers
before us in this case are the producers of the coal. The
Montana coal severance tax is levied at the time the coal
is separated by the producer from the realty in Montana,
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Opinion of the Supreme Court of Montana
and at its value when sold by the producer in Montana.
Section 15-35-103, MCA. Thus in this case, only the coal
producing plaintiffs are actually paying taxes, they being
Decker Coal Company, Peabody Coal Company,
Westmoreland Resources, Inc., and Western Energy
Company. The remaining plaintiffs are utilities to whom
the producers, by contract or indirectly, may have passed
on the coal severance tax as a part of the price of
Montana coal. To contend that the utility plaintiffs are
the true plaintiffs because by contract or indirectly they
have assumed the coal severance taxes would seem also
to argue that the coal producers have no real issue at
stake here. Nevertheless the coal producers have the only
vital stake in this case because they and not the utility
companies are in fact the taxpayers. It is the producers
to whom the protested taxes would be returned should
the tax be found unlawful. In deciding this case
therefore, we look to the status in Montana of the
producing taxpayers to determine whether the coal, at
the time it is severed by the producers, is subject to the
present Montana state taxation.
The United States Constitution provides in Article I,
Section 8, that Congress shall have the power ‘‘to
regulate Commerce with foreign Nations, and among the
several States, and with the Indian Tribes.’’
The principal contention of the plaintiffs in this case is
that the holdings of the United States Supreme Court in
Heisler, Oliver Iron Co., and Hope Gas Co., infra, no
longer have any force. The plaintiffs do not allow that
Montana can tax a purely local event such as the
severance of coal from a seam or deposit. They insist
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Opinion of the Supreme Court of Montana
that the commerce clause reaches even into the very
severance of the coal, and that the only issue for the
District Court to have decided here was whether the coal
severance tax had impact enough to hamper or obstruct
interstate commerce. The plaintiffs concede that the state
can levy some tax, perhaps twelve and a half to fifteen
percent of the value of the coal. Therefore, by inference,
the plaintiffs contend that at some point not specified,
between fifteen to thirty percent of the value of the coal,
Montana’s coal severance tax butts into the lintel of
federal impermissibility.
In essence, the plaintiffs’ argument under the com-
merce clause reduces to this: Montana has no inherent
right to tax the intrastate severance of coal which may
eventually enter interstate commerce except by federal
sufferance; such sufferance ceases when the tax can be
construed to hamper or obstruct commerce between the
states.
The law on state taxation of production of goods, it
seems to us, has been settled by the United States
Supreme Court since the 1970’s. Leading cases on
manufacturing (American Mfg. Co. v. St. Louis (1919),
250 U.S. 459, 39 S.Ct. 522, 63 L.Ed. 1084); producing
(Hope Gas Co. v. Hall (1927), 274 U.S. 284, 47 S.Ct.
639, 71 L.Ed. 1049); and extracting (Oliver Iron Co. v.
Lord (1923), 262 U.S. 172, 43 S.Ct. 526, 67 L.Ed. 929);
(Heisler v. Thomas Colliery Co. [8] (1922), 260 U.S. 245,
43 S.Ct. 83, 67 L.Ed. 237); established a common theme:
production of personal property within a state is a local
activity which precedes the entry of the property into
interstate commerce, and is therefore subject to siate
regulation and taxation.
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Opinion of the Supreme Court of Montana
Yet we have found no United States Supreme Court
case, and none has been cited to us, which implicitly or
directly overthrows the rule that the several states have
the reserved power to tax intrastate manufacturing,
extraction, and production of goods. It is true that some
cases have used language which seems to assail this
reserved power. Notwithstanding, it must be concluded
after an analysis of the cases bearing on the subject that
the United States Supreme Court continues to recognize
the taxing power of the states in these intrastate fields.
The plaintiffs’ attack against the coal severance tax
under the commerce clause is based upon the premise
that the United States Supreme Court has moved away
from its holdings in Hope Gas Co., Oliver Iron Co., and
Heisler, supra. The cases on which plaintiffs rely for this
contention may be summarized as follows:
(1) Labor Board v. Jones & Laughlin (1937), 301 U.S.
1, 57 S.Ct. 615, 81 L.Ed. 893, upholding the NLRA
against a constitutional attack; Wickard v. Filburn
(1942), 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122,
upholding a federal program of acreage allotments for
wheat production; Parker v. Brown (1943), 317 U.S.
341, 63 S.Ct. 307, 87 L.Ed. 315, which upheld a
California state statute that fixed prices and restricted
sales of raisins grown in California but which contains
language seeming to reject the mechanical test of Heisler;
Freeman v. Hewit (1946), 329 U.S. 249, 67 S.Ct. [9] 274,
91 L.Ed. 265, holding unconstitutional the application of
an Indiana gross income tax act to the sales of securities
by brokers in New York; the securities being assets of an
Indiana estate, and incidentally, applying the commerce
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Opinion of the Supreme Court of Montana
clause to intangibles as well as to tangibles; Nippert v.
Richmond (1946), 327 U.S. 416, 66 S.Ct. 586, 90 L.Ed.
760, striking down a municipal tax on solicitors in
Richmond, Virginia; Pike v. Bruce Church, Inc. (1970),
397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174, striking
down an Arizona state regulation concerning the packing
of cantaloupes grown in Arizona; Hunt v. Washington
Apple Advertising Comm’n. (1977), 432 U.S. 333, 97
S.Ct. 2434, 53 L.Ed.2d 383, striking down a North
Carolina statute which prescribed the labeling of
containers in which apples were to be sold in that state;
A.& P. Tea Co. v. Cottrell (1976), 424 U.S. 366, 96 S.Ct.
923, 47 L.Ed.2d 55, holding unconstitutional the
application of a Mississippi regulation that milk and milk
products could be sold in Mississippi from another state
only if the other state had reciprocal provisions for
Mississippi milk, where a Louisiana producer was
refused a permit from Mississippi; Complete Auto
Transit, Inc. v. Brady (1977), 430 U.S. 274, 97 S.Ct.
1076, 51 L.Ed.2d 326, reh.den. 430 U.S. 976, which we
will discuss more in detail hereafter; Washington Rev.
Dept. v. Stevedoring Assn. (1978), 435 U.S. 734, 98
S.Ct. 1388, 55 L.Ed.2d 682, also discussed hereafter.
Plaintiffs have cited a number of other cases, but their
full recitation here would only be cumulative.
The District Court, in ruling on the motions to
dismiss, determined that the cases relied on by the
plaintiffs from the United States Supreme Court fell into
four categories, which we here set forth together with
some examples:[10]
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Opinion of the Supreme Court of Montana
(4) When Congress has asserted its regulatory powers
under congressional acts. Labor Board v. Jones &
Laughlin, supra; Parker v. Brown, supra.
(2) When the State engages in regulatory activity of
interstate commerce. Pike v. Bruce Church, Inc., supra;
A. & P. Tea Co. v. Cottrell, supra.
(3) When the state imposes a tax on _ interstate
commerce activity. Nippert v. Richmond, supra; Com-
plete Auto Transit, Inc. v. Brady, supra.
(4) When the state imposes a tax on an activity which
is not in commerce. Heisler v. Thomas Colliery Co.,
supra; Alaska v. Arctic Maid (1961), 366 U.S. 199, 81
S.Ct. 929, 6 L.Ed. 227.
The District Court determined that the coal severance
tax in issue here fell into the fourth category. The
District Court further found that the cases in the fourth
category involved a local incident subject to the state’s
reserved power of taxation on goods which preceded
their entry into interstate commerce. We agree.
It is fair judicial policy for us not to regard as
controlling here dicta found in cases in which the United
States Supreme Court has upheld the regulatory powers
of Congress under the commerce acts. See, for example
of dicta, Labor Board v. Jones & Laughlin, supra;
Parker v. Brown, supra.
It is likewise fair judicial policy for us not to feel
bound here by dicta found in cases involving states which
have engaged in regulation of interstate commerce.
Again, see Pike v. Bruce Church, Inc., supra; Phila-
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Opinion of the Supreme Court of Montana
delphia v. New Jersey (1978), 437 U.S. 617, 98 S.Ct.
2531, 57 L.Ed.2d 475. Nor do we feel bound or
controlled by dicta found in cases decided by the United
States Supreme Court involving states [1 1] or municipali-
ties which have imposed a tax on an interstate commerce
activity, For example, Nippert v. Richmond, supra;
Complete Auto Transit, Inc. Vv. Brady, supra. We rely
instead on those cases where the United States Supreme
Court has directly upheld state taxation of production,
extraction or manufacturing.
While the plaintiffs have contended that the trend of
the United States Supreme Court decisions has been to
move away from the holdings in Heisler, Oliver Iron
Co., and Hope Gas Co., supra, we do not find that
contention supported in cases involving state taxes.
Indeed, if we can read the trend of the decisions, it has
been the policy of the Supreme Court to open up and to
allow, not to prevent, state taxation of interstate
commerce transactions. What has occurred in those
decisions is that the Supreme Court has moved away
over the course of years from the ‘immunity per se’’
rule which prevented state taxation of interstate com-
merce, LeLoupe v. Port of Mobile (1887), 127 U.S. 640,
8 S.Ct. 1289, 32 L.Ed. 311, to a rule of accommodation
which recognizes that interstate commerce, in utilizing
the services and protections of a state is required to ‘‘pay
its way’. See Western Live Stock v. Bureau (1938), 303
U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823. For this reason the
Supreme Court has upheld state taxation which intrudes
upon interstate commerce but where there exist local
incidents which justify state taxation nevertheless.
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Opinion of the Supreme Court of Montana
General Motors v. Washington (1964), 377 U.S. 436, 84
S.Ct. 1564, 12 L.Ed.2d 430; Norton Co. v. Dept. of
Revenue (1951), 340 U.S. 534, 71 S.Ct. 377, 95 L.Ed.
517. Local incidents which are severable from interstate
commerce but occur within a state, such that multiple
taxation by other states on the same activity is not a
threat, provide a basis which has brought about the
standards [12] announced by the Supreme Court in
Complete Auto Transit, Inc. v. Brady, supra, to find
constitutional permissibility for state taxes on interstate
commerce.
A most recent case demonstrating the tendency of the
United States Supreme Court to encourage and allow
State taxation of interstate commerce can be found in
Exxon Corp. v. Wisconsin Dept. of Revenue (1980),
See's owe fF lL | le
Exxon had filed income tax returns in Wisconsin using a
geographical system of accounting which reflected only
its Wisconsin marketing operations and which showed a
loss for each year, resulting in no taxes being due. Exxon
kept its accoutns in three major functional departments:
exploration, refining, and marketing. Transfers of
products and supplies among the three functional
departments were theoretically based on competitive
prices. Exxon had no exploration, production or refining
operations in Wisconsin in the taxable years in question.
Only marketing in Wisconsin was carried on by Exxon.
Nonetheless, Wisconsin treated Exxon as a unit, and
apportioned its income in such manner that a tax was
produced, for which Wisconsin made demand upon
Exxon. The United States Supreme Court held that
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Opinion of the Supreme Court of Montana
Wisconsin was not prevented from applying its statutory
apportionment formula to appellants’ total income under
the due process clause of the Fourteenth Amendment. It
held that the unitary business principle was a proper
basis for apportioning state income tax upon an
interstate enterprise when its income can be reasonably
related to the activities of the corporation within the
taxing state. The Wisconsin tax was held valid even
though its statutory apportionment formula indirectly
taxed income derived from extraction or refinement of
oil and gas located outside the state. The Supreme Court
found nexus, proper [13] apportionment, and a rational
relationship between the income attributed to the state
and the interstate values of the enterprise. (Compare
Mont. Dept. of Rev. v. Am. Smelting & Refining
(1977), 173 Mont. 316, 567 P.2d 901.)
Mobile Oil Corp. v. Com’r. of Taxes of Vermont
(1980), ___. U.S. ___, 100 S.Ct. 1223, 63 L.Ed. 510,
likewise approved such apportionment, finding a nexus is
established if the corporation avails itself of the
substantial privilege of carrying on business within the
state.
These recent cases buttress our statement that
plaintiffs have misread the trend of the United States
Supreme Court cases. That trend lies in the direction of
allowing states to tax products in interstate commerce,
once a nexus with the taxing state is established.
The intent and portent of the United States Supreme
Court in these cases is not to overturn the holdings of
Heisler, Oliver Iron Co., and Hope Gas Co., supra.
Indeed the Court has consistently recognized the vitality
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Opinion of the Supreme Court of Montana
of those holdings on production and extraction. In
Freeman v. Hewit, supra, Justice Frankfurter expressed
the distinction between permissible and prohibited taxes
as follows:
**. , . a Seller State has various means of obtaining
legitimate contribution to the cost of its govern-
ment, without imposing a direct tax on interstate
sales. While these permitted taxes may in an
ultimate sense come out of interstate commerce,
they are not, as would be a tax on gross receipts, a
direct imposition on that very freedom of commer-
cial flow which for more than 150 years has been the
ward of the commerce clause.’’ 329 U.S. at 256, 67
S.Ct. at 278, 91 L.Ed. 274.
In like manner, state taxation of manufacturing within a
state has also been upheld, though manufacturing of
goods destined for commerce may be thought to present
a weaker case than the production or extraction of
goods. Adams Mfg. Co. v. Storen (1938), 304 U.S. 307,
58 S.Ct. 913, 82 L.Ed. 1365. [14]
The intent of the United States Supreme Court to
preserve these fields for state taxation as preliminary to
interstate commerce and within the reserved taxing
powers of the states is manifest. In Alaska v. Arctic
Maid, supra, for example, the court found that Alaska’s
taxing of the gathering and freezing of fish taken from
Alaska’s territorial waters by ships was a ‘‘preliminary
local business’’, to be compared with Oliver Iron Co.,
supra, as its ‘‘first cousin’’; this, even though the ships
eventually took their frozen cargo directly from the sea
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Opinion of the Supreme Court of Montana
to the State of Washington for canning. From that
evident intent of the Supreme Court, we find this
portent: there is no indication by the United States
Supreme Court that its historical judicial sanction of
state taxation on production, extraction and manufac-
turing is in jeopardy.
Indeed, the very inference of such a threat in a
Supreme Court opinion would have raised such a clamor
that the case would be a benchmark. We find none, and
can only conclude that the Supreme Court will be as
consistent in this area in the future as it has been in the
past.
See Federal Compress Co. v. McLean (1934), 291 U.S.
17, 54 S.Ct. 267, 78 L.Ed. 622; and Chassaniol v.
Greenwood (1934), 291 U.S. 584, 54 S.Ct. 541, 78 L.Ed.
1004; referred to with approval in Pike v. Bruce Church,
Inc., supra. Also Caskey Baking Co. v. Virginia (1941),
313 U.S. 117, 61 S.Ct. 881, 85 L.Ed. 1223.
The importance of these reserved fields of taxation to
the states cannot be overstated. The State of Texas,
whose attorney general appears before us as amicus
opposing Montana’s tax, will realize $980 million in oil
and gas production taxes this year. The State of Alaska
has sufficient reveues from the severance of oil and gas
within its borders that its [15] !980 legislature, before its
recent adjournment, provided $900 million in an
inviolate trust, not unlike Montana’s, from those
revenues. Such exampies of local taxes could be added to
almost state by state. No more important case on the
power of states to levy taxes can be imagined than is
presented here. For if the rate of tax on a local activity,
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Opinion of the Supreme Court of Montana
as here, can be found to violate the commerce clause,
then certainly the amount of tax raised by a state on a
local activity is in the same jeopardy. Were we or the
United States Supreme Court to reach that result, then
we should see, in the words of the old spiritual that ‘‘the
walls came a-tumblin’ down.”’
Plaintiffs’ attack here is another in a series that seeks
to assail and overturn the recognized power of states in
these regards. In Bel Oil Corporation v. Roland (1962),
242 La. 498, 137 So.2d 308, appeal dismissed 371 U.S. 2,
the state court upheld the validity of a severance tax on
the extraction of natural gas in Louisiana. In Industrial
Uranium Co. v. State Tax Commission (1963), 95 Ariz.
130, 387 P.2d 1013, an Arizona privilege tax on mining
was upheld. In Post Oak Oil Company v. Oklahoma Tax
Com’n. (Okla. 1978), 575 P.2d 964, a state excise tax on
the severance of natural gas in Oklahoma withstood a
commerce clause attack. All of these courts relied, as we
do, on the continued adherence by the United States
Supreme Court to its steady course of sanction in these
fields.
On the basis that the severance of coal here is a
taxable event that precedes entry into interstate com-
merce, we rule without hesitation that plaintiffs cannot
prevail on their claims under count I of their complaints,
because Montana’s coal severance tax does not violate
the commerce clause. The severance of coal by mining is
not an interstate activity. [16]
In oral argument, the plaintiffs asked us to give them
a straight up-and-down decision on whether the coal
severance tax was governed by the commerce clause. We
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Opinion of the Supreme Court of Montana
have done that in the foregoing paragraphs. However,
we feel compelled to remark that even if the commerce
clause in this case obtained, plaintiffs could not have
prevailed and the motion dismissing the complaints
would hav- been properly granted in any event.
In making their commerce clause argument, the
plaintiffs have contended that we were bound to apply
the tests set forth in Complete Auto Transit, Inc., supra.
In that case, the United States Supreme Court considered
the constitutionality of a Mississippi tax on the
‘‘privilege of doing business in that state.’’ The earlier
case of Spector Motor Service v. O’Connor (1951), 340
U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573, had adopted a
formalistic test to the effect that taxes on the ‘‘privilege”’
of doing interstate business violated the commerce
clause. The United States Supreme Court in Complete
Auto Transit, Inc. overruled Spector stating that state
taxes affecting interstate commerce must be viewed as to
their practical effect and must be examined in light of a
four-pronged test of that practical effect:
(1) Whether the tax is applied to an activity with a
substantial nexus with the taxing state,
(2) Whether it is fairly apportioned,
(3) Whether the tax does not discriminate against
interstate commerce and,
(4) Whether the tax is fairly related to the services
provided by the state. 430 U.S. at 277-8, 97 S.Ct. at
1078, 51 L.Ed.2d at 330.
Washington Rev. Dept. v. Stevedoring Assn., supra,
[17] upheld this four-pronged test and further recognized
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Opinion of the Supreme Court of Montana
that a state had a significant interest in exacting from
interstate commerce its fair share of the cost of state
government. 435 U.S. at 748, 98 S.Ct. at 1398, 55
L.Ed.2d at 695.
Complete Auto Transit, Inc. is a good example of our
earlier assertion that the United States Supreme Court,
instead of intruding upon the reserved fields of taxation
allowed the state on local activities, has been moving
toward a permissive or accomodating position allowing
State taxation of interstate commerce under certain
conditions,
Applying the Complete Auto Transit, Inc. four-
pronged test, for the sake of argument, to the case at
bar, plaintiffs could not prevail as a matter of law.
Surely there can be no argument here that a substantial,
in fact, the only nexus of the severance of coal is
established in Montana. There can be no discussion of
apportionment, because the severance can occur in no
other state. There is no danger of multiple taxation, for
no other state can tax the severance. See, Chassaniol,
supra; compare, Mich.-Wis. Pipeline Co. v. Calvert
(1954), 347 U.S. 157, 74 S.Ct. 396, 98 L.Ed. 583.
There would remain, if Complete Auto Transit, Inc.
applied, only the fourth test, whether the tax is fairly
related to the services provided by the state.
The taxpayers here, the coal producers, have the right
to and the availability of all the governmental comforts
and protection which this state provides. Since the
United States Supreme Court is tending toward the
position that interstate commerce must pay its way in the
2la
Opinion of the Supreme Court of Montana
respective states affected thereby, it is with logic of great
force that Montana can require strip-coal mining to
assume its just share for the cost of the state government
that it [18] enjoys, and for the governmental cost that
has occurred, is now occurring, and will in the future
occur as the direct result of such strip-coal mining. Here
Montana meets the test set out in General Motors v.
Washington, supra, 377 U.S. at 441, 84S.Ct. at 1568, 12
L.Ed.2d at 435:
‘‘For our purposes the decisive issue turns on the
operating incidents of the tax. In other words, the
question is whether the State has exerted its power in
proper proportion to appellant’s activities within the
state and to appellant’s consequent enjoyment of the
opportunities and protections which the State has
afforded. . .”’
It is impossible for any court to foot up the dollar cost
of the governmental benefits received and to be received
by the taxpayers here. Aptly the state points out the
heart of plaintiffs’ complaint is the rate of the tax. The
state further contends that no United States Supreme
Court opinion invalidating a state levy has turned on the
rate of a tax. No summation of the cost of governmental
benefits has ever been required by any court in
determining the validity of a rate of levy in a general
excise, property or income tax imposed by a state. It is
said:
‘A tax is not an assessment of benefits. It is, as we
have said, a means of distributing the burden of the
cost of government. The only benefit to which the
22a
Opinion of the Supreme Court of Montana
taxpayer is constitutionally entitled is that derived
from his enjoyment of the privileges of living in an
organized society, established and safeguarded by
the devotion of taxes to public purposes . . . . Any
other view would preclude the levying of taxes
except as they are used to compensate for the
burden on those who pay them, and would involve
the abandonment of the most fundamental principle
of government—that it exists primarily to provide
for the public good.’’ Carmichael v. Southern Coal
Co. (1937), 301 U.S. 495, 522-523, 57 S.Ct. 868,
878-879, 81 L.Ed. 1245, 1260-1261.
The rate of tax is a determination for the legislature to
make, not a court. Montana’s legislature has determined
that its coal severance tax is fairly related to the
governmental services Montana provides, and to the
benefits of a trained [19] work force and the advantages
of a civilized society. See, Japan Line, Ltd. v. County of
Los Angeles (1979), 441 U.S. 434, 99 S.Ct. 1813, 60
L.Ed.2d 336; Washington Rev. Dept. v. Stevedoring
Assn., supra. We are not talking here about ‘‘user’’
charges or like fees imposed for the use of state facilities
where the charge for the service must bear some fair
relation to the service or property provided for use. Such
““user’’ charges are capable of being determined. See
Evansville Airport v. Delta Airlines (1972), 405 U.S. 707,
92 S.Ct. 1349, 31 L.Ed.2d 620. Taxes as here imposed
for the general support of the government are fairly
related to that purpose by the mere fact that a
government is thereby maintained. It is only when the
taxpayer has an insufficient nexus to the taxing state, or
23a
Opinion of the Supreme Court of Montana
the tax is disproportionate to the incidents of commerce
being taxed, that the fair-relation test applies. See, e.g.
National Bellas Hess, Inc. v. Dept. of Revenue (1967),
386 U.S. 753, 756, 758, 87 S.Ct. 1389, 18 L.Ed.2d 505.
Complete Auto Transit, Inc., is intended to apply to
situations where a state or local taxing authority adopts a
tax that intrudes upon, hampers or obstructs in some
fashion interstate commerce. It has no application in this
case to the intrastate severance of coal by mining. But
even if Compete Auto Transit, Inc. applied, as we have
shown, plaintiffs could not prevail here as a matter of
law.
We note that a tax of thirty percent of the coal’s value
at the time of its severance is not any indication of the
impact of the severance tax as to the cost of coal at its
final destination, in-state of out-of-state. The attorney
general of Texas, appearing here as amicus, informed us
in oral argument that Montana coal destined for Texas is
now [20] purchased at $7 per ton at the mine, resulting in
a severance tax in Montana of $2.10 per ton; however,
the coal at destination in Texas cost $30 per ton. Most of
the added price comes from the cost of transportation of
the coal to Texas, which costs, the attorney general
informed us, have increased from $8 per ton to $20 per
ton in a short time. Demonstrably therefore, as to Texas,
the interstate impact of the Montana coal severance tax
is no greater than that of federal and state taxes on
gasoline at the pump (before the recent price increases)
or the state and city sales taxes on goods and services
found in most localities. On the same tack, when we
consider the customers of the utilities who are appearing
24a
Opinion of the Supreme Court of Montana
in this case, it is obvious without argument or proof that
coal costs are only a portion of total generating costs of
electricity. Although plaintiffs have contended that
Montana’s coal tax is passed on to the utility consumers,
it must be admitted that this is because of the particular
terms of the coal contracts of purchase entered into by
the utility-plaintiffs. It would be strange indeed if the
legality of a tax could be made to depend on the vagaries
of the terms of contracts. We do not assume that in the
broad picture all of the Montana coal tax is passed on to
consumers because Montana does not have a monopoly
in the production of coal. Montana coal must compete in
the market with coal produced in Wyoming, North
Dakota, and other sources of supply. Under those
circumstances, economic factors will determine whether
the producers will shoulder all or part of the tax, or pass
it on in the form of increased prices.
The argument therefore that Montana is ‘‘exporting its
coal tax’’ to out-of-state users has no more force in
reality [21] when applied to Montana coal than to any
other type of lawful tax on goods or products eventually
moving in interstate commerce. Certainly, taxes paid on
goods and products from origin to the eventual
consumer are a factor in the final price to the consumer;
that is an economic fact of our lives. In that sense, every
state or locality that levies a tax on goods or products
Originating therein or manufactured therein is exporting
its tax. No sane rule of law can or should be developed
that would make a local tax illegal solely because it is a
factor in the cost the eventual consumer pays. Such a
rule would make state government taxation of goods and
products a judicial morass.
25a
Opinion of the Supreme Court of Montana
It is for these reasons that we have determined, as we
have stated earlier, to look at the status of the true
taxpayers in this case, the producers of the coal. The
Montana severance tax is levied at the time the coal is
separated by the producer from the realty in Montana at
its value when sold in Montana. In that light we have no
difficulty in finding that Montana has the power as a
state to tax the severance of coal within its borders.
Plaintiffs contended in oral argument that because the
coal bought by the utilities from the producers was
already under contract for sale when mined, that the
instant the coal was severed, it was in_ interstate
commerce. We do not have to address that argument
because the taxable event, as far as Montana is
concerned is the act of severance itself. The event of
severance necessarily precedes the instant when the coal
ceases to be part of the realty and becomes part of the
mass personality in Montana. We are not required here
to determine whether the mined coal should not be
considered a part of interstate commerce until the
moment when the producer hands the coal over to the
buyer, or its transporter [22] for the account of the
buyer. There is no need to concern ourselves with such
fine points here. The severance itself is a taxable event
and the Montana statutes here tax that event in advance
of any entry of the coal into commerce. In other words,
the coal is produced and that production is taxed.
Montana’s coal severance tax is therefore ahead of and
preliminary to the sweep of the power of Congress to
regulate commerce. If this be not so, Montana and all
other states would have to concede that any power of a
state to tax the production of products which may
|»
26a
Opinion of the Supreme Court of Montana
eventually enter into interstate commerce is at the whim
or forbearance of the federal government. Neither the
United States Supreme Court nor any other court has so
held, and well enough, for such a decision would shatter
the shield of judicially-approved states’ rights in this
field.
When it is realized that the coal producing plaintiffs
are the real and only taxpayers of the Montana tax, the
“‘exported tax’’ theory falls. With it falls the notion that
there is no political check on the Montana legislature to
limit the tax. Experience shows the producer plaintiffs
are a vigorous presence at any session of the Montana
legislature. Records of the Montana Secretary of State,
of which we take judicial notice, Rule 202(b),
M.R.Evid., show the number of lobbyists registered for
the coal industry in recent sessions, sections 5-7-103 and
5-7-201, MCA, and their participation before legislative
committees on matters affecting the coal industry.
Finally, with respect to the commerce clause, plaintiffs
have continued to assert an argument which does not
raise a substantive issue or one material to our decision
in this case, but nonetheless requires a comment lest our
silence be considered an admission of its substance. [23]
The nonissue raised by plaintiffs is that since a good
deal of the coal being mined by plaintiffs or potentially
to be mined (in oral argument it was said 75% of the
coal) underlies federal leases, this coal therefore is not
Montana’s ‘‘birthright’’ but belongs to the nation as a
whole. The argument is intended to have us believe that
Montana is taxing here not the coal producers, but the
people of the United States themselves.
27a
Opinion of the Supreme Court of Montana
Montana, in common with many of the states, has a
substantial portion of its surface area under federal
ownership. In addition, the federal government reserved
to itself coal and other minerals in many of its patents or
deeds of grant. We assume this situation gives rise to the
nonissue raised by the plaintiffs.
Plaintiffs’ argument is addressed to emotion and not
to law. As long as the federal coal remains in deposit
under federal ownership, it is ‘‘our’’ coal in the sense
that it belongs to the people through the federal
government. Once mined under a federal lease or permit,
title to the coal is vested as personal property in the
lessee or permittee as soon as it is mined and removed
from its original place, subject only the royalty rights of
the lessor, Olson v. Pedersen (1975), 194 Neb. 159, 231
N.W.2d 310, the same as with oil and gas. De Mik v.
Cargill (Okla. 1971), 485 P.2d 229. Montana may impose
taxes on the private lessees of federal lands. 30 U.S.C.
§ 189; Oklahoma Tax Comm'n. v. Texas Co. (1949), 336
U.S. 342, 69 S.Ct. 561, 93 L.Ed. 721; reh.den. (1949),
336 U.S. 958, 69 S.Ct. 887, 93 L.Ed. 1111.
The coal being taxed here therefore is not ‘‘our’’ coal,
but the personal property of the plaintiffs who produced
it under lease or permit. When the coal is mined, the
federal government is in no different position as a lessor
than a private lessor who grants a mining lease or
permit. [24]
THE SUPREMACY CLAUSE
“This [federal] Constitution and the Laws of the
United States which shall be made in Pursuance
28a
Opinion of the Supreme Court of Montana
thereof,’’ states U.S. CONST., Art. VI, Cl. 2,
‘*. , . Shall be the supreme Law of the Land... .”’
Here plaintiffs contend that Montana’s coal severance
tax is preempted because it ‘‘frustrates and impairs’’
implementation of federal policy; that tire District Court
misconceived the national policies involved here; that the
overall national energy policy is to encourage a greatly
expanded production and use of western coal; and that
the question of substantial frustration is one of fact
which cannot be determined on the pleadings.
Montana responds that the plaintiffs have failed to
allege or to identify any ‘“‘Laws of the United States”’
which the coal severance tax could frustrate or impair;
and that the general policy considerations and goa's
alleged by plaintiffs are not ‘‘laws of the United States’’
which are declared to be the ‘‘supreme Law of the
Land.”’
The motion to dismiss made by the State in the
District Court challenged the legal sufficiency of the
supremacy clause claim of the plaintiffs.
It is conceded by the plaintiffs that Congress has not
expressly preempted or limited the authority of the State
to levy the coal severance tax, nor ‘‘clearly and
unmistakably’’ required the conclusion that Congress
intended to prohibit or limit the tax. Rather the plaintiffs
contend, as their complaints allege:
**32. That the coal severance tax, on its face, and as
applied, substantially frustrates and impairs fulfill-
ment of national policies and purposes of certain
acts of Congress.’’ (App. 27) [25]
29a
Opinion of the Supreme Court of Montana
Under this argument plaintiffs contend that proof of
‘substantial frustration’? does not require plaintiffs to
show a specific Congressional intent to preempt the field
(Pl. Brief at 60).
In fine, plaintiffs have contended that it is not the tax,
but the rate of the tax which constitutes an obstacle to
federal policy and which requires a determination of fact
as to whether such obstacle exists.
By their argument, plaintiffs seek to bring themselves
within the coverage of statements made by the United
States Supreme Court in Ray v. Atlantic Richfield Co.
(1978), 435 U.S. 151, 158, 98 S.Ct. 988, 55 L.Ed.2d 179;
Jones v. Rath Packing Company (1977), 430 U.S. 519,
525-526, 97 S.Ct. 1305, 51 L.Ed.2d 604; reh.den. (1977),
431 U.S. 925, 97 S.Ct. 2201, 53 L.Ed.2d 240; De Canas
v. Bica (1976), 424 U.S. 351, 357 n. 5, 96 S.Ct. 933, 47
L.Ed.2d 43; and Perez v. Campbell (1971), 402 U.S. 637,
652, 91 S.Ct. 1704, 29 L.Ed.2d 233. Plaintiffs claim to
be inheritors of the decision in M’Culloch v. Maryland
(1819), 17 U.S. 415 (4 Wheat. 316), 4 L.Ed. 579.
In making its determination on the preemption issue,
the District Court examined the following acts of
Congress submitted or cited to the District Court as acts
which defined the federal policies in the field:
Powerplant and Industrial Fuel Use Act of 1978
Pub. Law No. 95-620, 92 Stat. 3289
Natural Gas Policy Act of i978 Pub. Law No. 95-
621, 92 Stat. 3351
Energy Conservation and Production Act Pub. Law
No. 94-385, 90 Stat. 1125
30a
Opinion of the Supreme Court of Montana
Energy Policy and Conservation Act Pub. Law No.
94-163, 89 Stat. 871
Federal Nonnuclear Energy Research and Develop-
ment Act of 1974 Pub. Law No. 93-577, 88 Stat.
1878 [26]
Energy Reorganization Act of 1974 Pub. Law No.
93-438, 88 Stat. 1233
Energy Supply and Environmental Coordination Act
of 1974, Pub. Law No. 93-319, 88 Stat. 246
Emergency Petroleum Allocation Act of 1973, Pub.
Law No. 93-159, 87 Stat. 627
Clean Air Amendments of 1970 Pub. Law No. 91-
604, 84 Stat. 1676
From those acts, the District Court determined that
there was a national policy to provide incentives to
increase the use of other sources of energy, including
coal, so as to decrease our dependence on oil. The
District Court also determined from those acts, and from
the cases it examined relating the subject, that ‘‘Congress
has not and did not intend to prec! +e the State of
Montana from imposing a tax on minin, activities within
the State. . .’”’ App. at 240. It is in this conclusion of
law that the plaintiffs now contend on appeal that the
District Court erred: The plaintiffs do not claim that the
federal acts submitted to the District Court establish a
national policy which prevents Montana from levying
some tax on the severance of coal. Instead, plaintiffs
contend that the District Court should have allowed a
factual hearing to determine whether the rate of
3la
Opinion of the Supreme Court of Montana
Montana’s coal severance tax substantially frustrates
national policy; and that the order of the District Court
precluded plaintiffs from proving what the national
energy policy was.
Some seventy or eighty years ago it used to be argued
that the Constitution of the United States followed the
flag. Here, plaintiffs in reality are contending that the
Constitution follows the Dow-Jones average.
In examining the whole of the District Court’s
memorandum in support of its order, we think it implicit
in the District Court’s opinion not only that Montana is
not prohibited [27] by federal enactments and policy
from levying a coal severance tax but also that the
amount of Montana’s coal severance tax is not
prohibited. In any event, we find the latter conclusion is
a necessary result as a matter of law under the
preemption argument.
Out of the welter of cases which has been cited to us
on this issue by the parties, we, upon examination of
such authorities, find it safe to say that no state excise
tax has ever been struck down unless it had clearly
conflicted with an act of Congress in the field
(M’Culloch v. Maryland, supra); and likewise, that no
state excise tax is likely to be held by the United States
Supreme Court to be limited as to its amount unless it is
expressly or by necessary implication shown to be
prohibited or that the amount interferes with a power
assumed or delegated to the United States.
The essence of the rule upon which we rely here, and
of the rule which we think inheres in any of the United
r
32a
Opinion of the Supreme Court of Montana
States Supreme Court decisions on the subject is set out
in Penn Dairies v. Milk Control Comm’n. (1943), 318
U.S. 261, 275, 63 S.Ct. 617, 623-24, 87 L.Ed. 748, 756-
ore
“‘An unexpressed purpose of Congress to set aside
statutes of the states regulating their internal affairs
is not lightly to be inferred and ought .ot to be
implied where the legislative command, read in the
light of its history, remains ambiguous. Considera-
tions which lead us not to favor repeal of statutes by
implication, United States v. Borden Co, 308 U.S.
188, 198-9; United States v. Jackson, 302 U.S. 628,
631; Posadas v. National City Bank, 296 U.S. 497,
503-5, should be at least as persuasive when the
question is one of the nullification of state power by
Congressional legislation.
‘“*. . . Courts should guard against resolving these
competing considerations of policy by imputing to
Congress a decision which quite clearly it has not
undertaken to make. Furthermore we should be
slow to strike down legislation which the state
concededly had power to enact, because of its
asserted burden on the federal government. For the
State is powerless to remove the ill effects of our
decision, while the national government, which has
the ultimate power, remains free to remove the
burden.’’ [28]
The mere statement by the plaintiffs that the Montana
coal severance tax substantially frustrates a national
policy for the use of western coal is not a sufficient basis
to trigger a factual determination in the District Court.
33a
Opinion of the Supreme Court of Montana
The scope and substance of national policy are matters
of statutory interpretation. This is a matter of law not
requiring the taking of testimony. Again, of course, for
purposes of a motion to dismiss, a District Court is not
required to accept plaintiffs allegations of law and legal
conclusions as true. Newport News Co. v. Schauffler
(1938), 303 U.S. 54, 58 S.Ct. 466, 82 L.Ed. 646; Mitchell
vy. Archibald and Kendall, Inc. (7th Cir. 1978), 573 F.2d
429, 432; Kadar Corporation v. Milbury (ist Cir. 1977),
549 F.2d 230, 233; Blackburn v. Fisk University (6th Cir.
1971), 443 F.2d 121, 124. |
Whether we agree here with plaintiffs that the decision
of the District Court was only to the effect that no
federal enactments prohibited any coal tax is of no
moment. The reason for the district judge making that
finding was that he could find no federal enactment of
specific policy with respect to which the Montana coal
severance tax conflicted. For the same reason, when we
examine plaintiffs’ contention that the amount of the tax
constitutes a substantial frustration of federal policy,
that argument must also fall because of plaintiffs’ failure
to establish a federal enactment with which the amount
of Montana tax conflicts or which is substantially
frustrated.
We find ourselves in agreement with the District Court
that the federal statutes cited do not establish domestic
energy policies wherein Congress intended to nullify
other national, state, local or individual policies or
interests which may increase the cost of coal production
in use. [29] Stated another way, we do not find a
national domestic energy policy or congressional enact-
ments predicated upon a Montana coal severance tax of
34a
Opinion of the Supreme Court of Montana
fifteen percent or less. Indeed, the federal enactments
point in other directions. There are incentives for the
development of underground coal mines. 42 U.S.C.
§ 6211. There is a provision for export restrictions. 42
U.S.C. § 6212. Miners of low sulfur coal are not
exempted from costly environmental strip mining regula-
tions. 30 U.S.C. § 1251, et seq. Health and safety
requirements are enforced upon strip coal miners. 30
U.S.C. § 801, et seq. Royalties on federal lands are
payable under the Mineral Lands Leasing Act of 1920 as
amended. 30 U.S.C. § 181, et seq. Congress seems to
prefer underground coal mining. 30 U.S.C. § 1201, et
seq. As the District Court found, to the distaste of the
plaintiffs, Congress favors and encourages the produc-
tion and use of high sulfur eastern and midwestern coal,
rather than low sulfur western coal, the latter of which is
to be used principally by existing facilities for which
technological upgrading of air pollution control equip-
ment is impractical or not feasible. 42 U.S.C. §§ 7411
and 7425. Indeed, § 7411, as amended in 1977, requires
users Of low sulfur coal nevertheless to install the ‘‘best
technological system of continuous emission reduction’’
required for all stationary sources, even though such
systems may be unnecessary because the low-sulfur coal
meets the emission standards. See, U.S. Code Congres-
sional and Administrative News, 95th Congress, 1977
Session, Vol. II, at 1245. Congress would rather that
eastern and midwestern plants used ‘‘local coal,’’ even
coal with higher sulfur content than western low-sulfur
coal.
How then can any court determine that the effect of
Montana’s coal severance tax is to frustrate national
35a
Opinion of the Supreme Court of Montana
policy, [30] when no national policy can be discerned as
a matter of law?
The federal constitutional prohibition, under the
supremacy clause, is against state laws which contravene
‘‘the laws of the United States which shall be made in
pursuance of [the federal constitution].’”’ What is
wanting in plaintiffs’ argument is any federal enactment,
constitutionally adopted, which is clearly, substantially
frustrated by Montana’s coal severance tax.
The taxing power of the state is an essential power of
its sovereignty. Weston v. City Council of Charleston
(1829), 27 U.S. 171, 174 (2 Peters 449), 7 L.Ed. 481.
This power cannot be set aside or limited on weightless
statements that a federal policy is being substantially
frustrated.
Contrary to the contention of plaintiffs, De Canas v.
Bica, supra, was not sent back by the Supreme Court for
a factual determination, but rather for a construction by
the California courts of California statutory law. De
Canas v. Bica, supra, 424 U.S. at 363-364, 96 S.Ct. at
940, 47 L.Ed.2d at 53-54. In Exxon Corp. v. Governor
of Maryland (1978), 437 U.S. 117; 98 S.Ct. 2207, 57
L.Ed.2d 91, reh.den. 439 U.S. 884, the United States
Supreme Court rejected a contention that a broad
general national policy can preempt state laws which
have some indirect effect upon national policy. The court
said in Exxon:
‘‘Appellants point out. . . the . . . basic national
policy favoring free competition, and argue that the
Maryland statute ‘undermine[s]’ the competitive
balance that Congress struck between the Robinson-
36a
Opinion of the Supreme Court of Montana
Patman and Sherman Acts. This is just another way
of stating that the Maryland statute will have an
anticompetitive effect. In this sense, there is a
conflict between the statute and the central policy of
the Sherman Act—our ‘charter of economic liberty.’
Northern Pacific R. Co. v. United States, 356 U.S.
1, 4. Nevertheless, [31] this sort of conflict cannot
itself constitute a sufficient reason for invalidating
the Maryland statute. For if an adverse effect on
competition were, in and of itself, enough to render
a state statute invalid, the States’ power to engage in
economic regulation would be effectively destroyed.
We are, therefore, satisfied that neither the broad
implications of the Sherman Act nor the Robinson-
Patman Act can fairly be construed as a congres-
sional decision to pre-empt the power of the
Maryland Legislature to enact this law.’’ 437 U.S. at
133-134, 98 S.Ct. at 2217-2218, 57 L.Ed.2d at 104-
105.
Again, under this preemption contention, a large
number of cases are cited by the parties. Recitation of
their holdings and effect would be cumulative here.
Plaintiffs have attacked the decision of the District Court
upon the ground that no court case was relied on by it to
find that Montana’s coal severance tax did not contradict
a federal national policy. On this point, plaintiffs are
stoking the same furnace as did the District Court.
Plaintiffs have led us to no decision invalidating a state
excise tax based on its rate as in contravention of federal
policy.
We conclude that from any viewpoint, whether as a
question of the power of the State of Montana to levy
37a
Opinion of the Supreme Court of Montana
any tax, or its power to levy a tax at the rate here set
forth, there has been no preemption by the federal
government in the field of coal severance taxation, Or
any national policy derived from Congressional enact-
ments pursuant to the Constitution with which the
Montana coal severance tax is in conflict.
THE FEDERAL MINERAL LANDS LEASING ACT
OF 1920
Here, plaintiffs assert that the severance tax violates
the Supremacy Clause of the United States Constitution
on the ground that the tax grossly distorts the
‘‘“compromise’’ between the federal government and the
states expressed in the Mineral Lands Leasing Act of
1920, Chapter 85, 41 Stat. 437, as amended by the
Federal Coal Leasing Amendments Act of 1975, Pub.
Law No. 94-377, 90 Stat. 1083. [32]
Plaintiffs contend the federal le,islation is a result of a
longstanding debate concerning the ownership, disposi-
tion and use of federally owned mineral reserves in the
western territories and states. The result, claim plaintiffs,
is that the federal government retained the minerals for
the people of the nation, subject to the payment of a
share of the mineral royalties to the states in which the
minerals were located.
Under the Act of 1920, as amended, fifty percent of
amounts received by the federal government from sales,
bonuses, royalties and rental of public lands thereuncer
are returned to the respective states wherein the leased
lands or deposits are located, for uses specified in the
Act. Plaintiffs claim Montana is without power, because
38a
Opinion of the Supreme Court of Montana
it substantially frustrates national policy, to tax the
*feconomic rents’’ remaining over and above the rents
and royalty payments. ‘‘Economic rents’’ are defined as
the difference between the costs of production, including
an acceptable profit, and the price which the products
could obtain in the market place. Plaintiffs state that
Montana has appropriated the ‘‘economic rents’’, which
plaintiffs find to be a fundamental frustration of federal
policy.
Here again, plaintiffs argue that they are not required
to show an express prohibition under federal law; rather
they contend that substantial frustration of the fulfill-
ment of national policy is sufficient to render the state
law unconstitutional under the supremacy clause.
The principal factor militating against plaintiffs’
position on this part of their complaint is that Congress
specifically allowed state taxation under the Mineral
Lands Leasing Act of 1920. The Act contains this
provision (30 U.S.C. § 189): [33]
‘*. . . Nothing in this chapter shall be construed or
held to affect the rights of the States or other local
authority to exercise any rights which they may
have, including the right to levy and collect taxes
upon improvements, output of mines, or other
rights, property, or assets of any lessee of the United
States.’’
If indeed, a ‘‘compromise’”’ was reached with respect
to the leasing of federally-owned mineral interests in
public lands, that compromise included, under 30 U.S.C.
§ 189, the right of states to tax the ‘‘output of mines’’.
39a
Opinion of the Supreme Court of Montana
This indeed is a clear expression of federal policy and
Montana’s coal severance tax is within that policy.
In Mid-northern Oil Co. v. Montana (1925), 268 USS.
45, 45 S.Ct. 440, 69 L.Ed. 841, affirming Mid-northern
Oil Co. v. Walker (1922), 65 Mont. 414, 211 P. 353, the
Supreme Court said:
«| [A]lthough the act deals with the letting of
public lands and the relations of the government to
the lessees thereof, nothing in it shall be so
construed as to affect the rights of the states, in
respect of such private persons and corporations, to
levy and collect taxes as though the government
were not concerned.’’ 268 U.S. at 49, 45 S.Ct. at
441, 69 L.Ed. at 843.
The Supreme Court also said:
‘‘No doubt, what Congress immediately had in mind
was the necessity of making it clear that, notwith-
standing the interest of the government in leased
lands, the rights of the states to tax improvements
thereon and output thereof should not be in
doubt. . . . We think the proviso plainly discloses
the intention of Congress that persons in corpora-
tions contracting with the United States under the
act, should not, for that reason, be exempt from any
form of state taxation otherwise lawful.’’ 268 U.S.
at 50, 45 S.Ct. at 441, 169 L.Ed. at 843.
Again the District Court was correct in dismissing
plaintiffs complaints under count 3 as a matter of law,
for no justiciable controversy is presented by such count.
40a
Opinion of the Supreme Court of Montana
CONCLUSION
The judgment of the District Court in dismissing the
plaintiffs complaints is affirmed.
John C. Sheehy
Justice
We Concur:
Frank I. Haswell
Chief Justice
Gene B. Daly
John Conway Harrison
Daniel J. Shea
Justices
4la
Notice of Appeal in the Supreme Court
-of Montana—October 2, 1980
IN THE
SUPREME COURT
OF THE STATE OF MONTANA
No. 14982
——_
COMMONWEALTH EDISON COMPANY, CENTRAL ILLINOIS
LIGHT COMPANY, DAIRYLAND POWER COOPERATIVE,
DETROIT EDISON COMPANY, INTERSTATE POWER COM-
PANY, LAKE SUPERIOR DISTRICT POWER COMPANY,
LOWER COLORADO RIVER AUTHORITY/CITY OF AUS-
TIN, MINNESOTA POWER & LIGHT COMPANY,
NORTHERN STATES POWER COMPANY, UPPER PENIN-
SULA GENERATING COMPANY, WISCONSIN POWER &
LIGHT COMPANY, DECKER COAL COMPANY, PEABODY
COAL COMPANY and WESTMORELAND RESOURCES,
INC.,
Plaintiffs-Appellants,
STATE OF MONTANA, THOMAS L. JUDGE, GOVERNOR OF
MONTANA, RAY DorE, DIRECTOR OF THE STATE
DEPARTMENT OF REVENUE, and VERA S. FRESEMAN,
STATE TREASURER,
Defendants-Appellees.
>
LAKE SUPERIOR DISTRICT POWER COMPANY, NORTHERN
STATES POWER COMPANY, UPPER PENINSULA GEN-
ERATING COMPANY, WISCONSIN POWER & LIGHT
COMPANY, and WESTERN ENERGY COMPANY,
Plaintiffs-Appellants,
—_
42a
Notice of Appeal
STATE OF MONTANA, RAY DorRE, DIRECTOR OF THE STATE
DEPARTMENT OF REVENUE, and VERA S. FRESEMAN,
STATE TREASURER,
Defendants-A ppellees.
—»—
NOTICE OF APPEAL TO THE SUPREME COURT
OF THE UNITED STATES
NOTICE IS HEREBY GIVEN that each and all of the
Plaintiffs and Appellants above-named, except Western
Energy Company, hereby appeals to the Supreme Court
of the United States from that final decision of the
Supreme Court of the State of Montana, rendered [2] on
July 17, 1980, affirming the decision and order of the
Lower Court dismissing plaintiffs’ claims against the
defendants.
This appeal is taken pursuant to Title 28, United States
Code, Section 1257, subparagraph 2.
Dated this 2nd day of October, 1980.
ROGERS & WELLS
200 Park Avenue
New York, N.Y. 10017
Hooks & BUDEWITZ
218 Broadway
Townsend, MT 59644
Of Counsel BY /s/ Patrick F. Hooks
DECHERT PRICE & RHOADS
3400 Centre Square West
1500 Market Street
Philadelphia, PA 19102
43a
Notice of Appeal in the Supreme Court
of Montana—October 6, 1980
IN THE
SUPREME COURT
OF THE STATE OF MONTANA
No. 14982
>_>
COMMONWEALTH EDISON COMPANY, CENTRAL ILLINOIS
LIGHT COMPANY, DAIRYLAND POWER COOPERATIVE,
DETROIT EDISON COMPANY, INTERSTATE POWER COM-
PANY, LAKE SUPERIOR DISTRICT POWER COMPANY,
LOWER COLORADO RIVER AUTHORITY/CITY OF AUS-
TIN, MINNESOTA POWER & LIGHT COMPANY,
NORTHERN STATES POWER COMPANY, UPPER PENIN-
SULA GENERATING COMPANY, WISCONSIN POWER & °
LIGHT COMPANY, DECKER COAL COMPANY, PEABODY
COAL COMPANY and WESTMORELAND RESOURCES,
INC.,
Plaintiffs-Appellants,
—Vs— |
STATE OF MONTANA, THOMAS L. JUDGE, GOVERNOR OF
MONTANA, RAY DorRE, DIRECTOR OF THE STATE
DEPARTMENT OF REVENUE, and VERA S. FRESEMAN,
STATE TREASURER,
Defendants-Appellees.
a
LAKE SUPERIOR DISTRICT POWER COMPANY, NORTHERN
STATES POWER COMPANY, UPPER PENINSULA GEN-
ERATING COMPANY, WISCONSIN POWER & LIGHT
COMPANY, and WESTERN ENERGY COMPANY,
Plaintiffs-Appellants,
44a
Notice of Appeal
STATE OF MONTANA, RAY DORE, DIRECTOR OF THE STATE
DEPARTMENT OF REVENUE, and VERA S. FRESEMAN,
STATE TREASURER,
Defendants-Appellees.
>
NOTICE OF APPEAL TO THE SUPREME COURT
OF THE UNITED STATES
NOTICE IS HEREBY GIVEN that the Plaintiff and
Appellant above-named, Western Energy Company,
hereby appeals to the Supreme Court of the United
States from that final decision of the Supreme Court of
the State of Montana, rendered on July 17, 1980,
affirming the decision and order of the Lower Court
dismissing Plaintiffs’ claims against the Defendants. [2]
This appeal is taken pursuant to Title 28, United States
Code, Section 1257, subparagraph 2.
DATED this 6th day of October, 1980.
/s/__JOHN CARL
JOHN CARL
40 East Broadway Street
Butte, Montana 59701
Attorney for Western Energy Company
Of Counsel
DECHERT PRICE & RHOADS
3400 Centre Square West
1500 Market Street
Philadelphia, PA 19102
45a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
IN THE
DISTRICT COURT OF THE FIRST JUDICIAL
DISTRICT OF THE STATE OF MONTANA
IN AND FOR THE COUNTY OF LEWIS AND CLARK
>
COMMONWEALTH EDISON COMPANY, CENTRAL ILLINOIS
LIGHT COMPANY, DAIRYLAND POWER COOPERATIVE,
DETROIT EDISON COMPANY, INTERSTATE POWER COM-
PANY, LAKE SUPERIOR DISTRICT POWER COMPANY,
LOWER COLORADO RIVER AUTHORITY/CITY OF AUS-
TIN, MINNESOTA POWER & LIGHT COMPANY,
NORTHERN STATES POWER COMPANY, UPPER PENIN-
SULA GENERATING COMPANY, WISCONSIN POWER &
LIGHT COMPANY, DECKER COAL COMPANY, PEABODY
COAL COMPANY, and WESTMORELAND RESOURCES,
Plaintiffs,
—against—
STATE OF MONTANA, THOMAS L. JUDGE, GOVERNOR OF
MONTANA, RAY DORE, DIRECTOR OF THE STATE
DEPARTMENT OF REVENUE, and VERA S. FRESEMAN,
STATE TREASURER,
Defendants.
i an
COMPLAINT FOR REFUND OF TAXES PAID
UNDER PROTEST AND FOR DECLARATORY AND
INJUNCTIVE RELIEF
46a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
Plaintiffs, by their undersigned attorneys, allege the
following causes of action against defendants State of
Montana (‘‘Montana’’), Thomas L. Judge, individually
and as Governor of the State of Montana (‘‘Judge’’),
Ray Dore, individually and as Director of the State
Department of Revenue (‘‘Dore’’), and Vera S. Frese-
man, individually and as State Treasurer (‘‘Freseman’’).
PARTIES
([2]1. Utility Plaintiffs. The following plaintiffs are
sometimes hereinafter referred to as “Utility Plaintiffs’’:
1.1 Commonwealth Edison Company (‘‘Common-
wealth Edison’’) is a corporation organized and existing
pursuant to the laws of the State of Illinois.
1.2 Central Illinois Light Company (‘‘Central IIli-
nois Light’), is a corporation organized and existing
pursuant to the laws of the State of Illinois.
1.3 Dairyland Power Cooperative (‘‘Dairyland’’) is
a cooperative organized and existing pursuant to the laws
of the State of Wisconsin.
1.4 Detroit Edison Company (‘‘Detroit Edison’’) is
a corporation organized and existing pursuant to the
laws of the States of New York and Michigan.
1.5 Interstate Power Company (‘‘Interstate’’) is a
corporation organized and existing pursuant to the laws
of the State of Delaware.
1.6 Lake Superior District Power Company (‘‘Lake
Superior’) is a corporation Organized and existing
pursuant to the laws of the State of Wisconsin.
47a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
1.7 Lower Colorado River Authority (‘‘LCRA’’)/
City of Austin (‘‘Austin’’) is a joint venture of LCRA,
an agency of the State of Texas, and Austin, an
incorporated municipality organized and existing pur-
suant to the laws of the State of Texas.
1.8 Minnesota Power & Light Company (‘‘Minne-
sota P&L’’) is a corporation organized and existing
pursuant to the laws of the State of Minnesota.
[3] 1.9 Northern States Power Company
(‘Northern States’) is a corporation organized and
existing pursuant to the laws of the State of Minnesota.
1.10 Upper Peninsula Generating Company (‘‘Up-
per Peninsula’’) is a corporation organized and existing
pursuant to the laws of the State of Michigan.
1.11 Wisconsin Power & Light Company (‘‘Wiscon-
sin P&L’’) is a corporation organized and existing
pursuant to the laws of the State of Wisconsin.
2. Coal Producing Plaintiffs. The following plaintiffs
are sometimes hereinafter referred to as ‘‘Coal Produc-
ing Plaintiffs’’:
2.1 Decker Coal Company (‘‘Decker’’) is a joint
venture company with principal offices at Sheridan,
Wyoming. Its joint venturers are Wytana, Inc., a
corporation organized and existing pursuant to the laws
of the State of Delaware, and Western Minerals, Inc., a
corporation organized and existing pursuant to the laws
of the State of Oregon.
48a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
2.2 Peabody Coal Company (‘‘Peabody’’) is a
corporation organized and existing pursuant to the laws
of the State of Delaware.
2.3 Westmoreland Resources (‘‘Westmoreland’’), as
used herein, refers to a certain partnership organized and
existing under that name pursuant to the laws of the
State of Montana and to its anticipated successor-in-
interest, Westmoreland Resources, Inc., a corporation to
be organized and to exist pursuant to the laws of the
State of Delaware. The partners of the partnership have
been Kewanee Industries, Inc., Morrison-Knudsen Com-
pany, Inc. and Westmoreland Coal Company, all [4]
being corporations organized and existing pursuant to
the laws of the State of Delaware, and Penn-Virginia
Corporation, a corporation organized and existing
pursuant to the laws of the State of Virginia.
3. Defendants. The following defendants are some-
times hereinafter referred to as ‘‘defendants’’:
3.1 Defendant Montana is a sovereign state of the
United States of America.
3.2 Defendant Judge is Governor of Montana.
3.3 Defendant Dore is the Director of the Montana
State Department of Revenue.
3.4 Defendant Freseman is the State Treasurer of
Montana.
4. There exists between the parties an actual con-
troversy, justiciable in nature and within the jurisdiction
of this Court, in respect of which the Court can render
49a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
an adequate and effective judgment that will advance the
interests of justice.
5. Chapter 525 of the Montana Laws of 1975 purports
to impose a tax upon the severance of coal extracted in
Montana. The said Chapter 525, as from time to time
amended, is codified at Chapter 13 of Title 84 of the
Revised Codes of Montana of 1947 and is hereinafter
referred to as the ‘‘Coal Severance Tax.”’
6. Each Coal Producing Plaintiff and a non-party
Western Energy Company (‘‘Western Energy’’), 4
corporation which, on information and belief, is
organized and existing pursuant to the laws of the State
of Montana, has operated and continues to operate one
or more coal mines within Montana.
7. During the first calendar quarter of 1978, each Coal
Producing Plaintiff and Western Energy extracted from
such [5] mines large quantities of coal which, upon
information and belief, are subject to the Coal Severance
Tax.
8. All or substantially all of the coal extracted by the
Coal Producing Plaintiffs in Montana is shipped by it to
customers, including the Utility Plaintiffs, outside
Montana. :
9. A large proportion of the coal extracted by Western
Energy in Montana is shipped to customers, including
one or more Utility Plaintiffs, outside Montana.
10. Severance, extraction and shipment of coal by the
Coal Producing Plaintiffs and by Western Energy for use
rey
50a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
by the Utility Plaintiffs are activities in and which
substantially affect interstate commerce.
11. The coal severed, extracted and shipped by the
Coal Producing Plaintiffs and Western Energy plays an
important role in enabling the Utility Plaintiffs to
comply with the current regulations issued by agencies of
the United States Government and by agencies of the
various states’ under mandate of the United States
Government.
12. Each Utility Plaintiff is a public utility which has
operated and continues to operate electrical generation
and distribution facilities in the following states and
which has sold and continues to sell electrical power to
consumers in such states:
12.1 Commonwealth Edison serves customers in
Illinois.
12.2 Central Illinois Light serves customers in
Illinois.
12.3 Dairyland serves customers in Illinois, Iowa,
Minnesota and Wisconsin.
12.4 Detroit Edison serves customers in Michigan.
[6] 12.5 Interstate serves customers in Iowa, Min-
nesota and Illinois.
12.6 Lake Superior serves customers in Wisconsin
and Michigan.
12.7 LCRA/Austin serves customers in Texas.
S5la
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
12.8 Minnesota P&L serves customers in Minnesota
and Wisconsin.
12.9 Northern States serves customers in Minnesota,
Wisconsin, North Dakota and South Dakota.
12.10 Upper Peninsula serves customers in Michi-
gan.
12.11 Wisconsin P&L serves customers in Wiscon-
sin.
13. Each Utility Plaintiff is obligated, pursuant to one
or more written agreements, to purchase substantial
quantities of coal extracted in Montana from one or
more of the Coal Producing Plaintiffs or Western
Energy, to wit:
13.1 Commonwealth Edison is obligated to pur-
chase coal from Decker pursuant to certain written
agreements dated January 14, 1971 and June 20, 1974.
13.2 Central Illinois Light is obligated to purchase
coal from Westmoreland pursuant to a certain written
agreement dated January 1, 1975, as from time to time
amended.
13.3 Dairyland is obligated to purchase coal from
Westmoreland pursuant to a certain written agreement
dated June 15, 1972.
13.4 Detroit Edison is obligated to purchase coal
from Decker pursuant to a certain written agreement
dated August 14, 1973, as from time to time amended.
52a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
13.5 Interstate is obligated to purchase coal [7]
from Westmoreland pursuant to a certain written
agreement dated June 15, 1972.
13.6 Lake Superior is obligated to purchase coal
from Western Energy pursuant to a certain written
agreement dated January 1, 1974.
13.7 LCRA/Austin is obligated to purchase coal
from Decker pursuant to a certain written agreement
dated October 24, 1974.
13.8 Minnesota P&L is obligated to purchase coal
from Peabody pursuant to a certain written agreement
dated July 29, 1968, as from time to time amended.
13.9 Northern States is obligated to purchase coal
from Western Energy and Westmoreland pursuant to
certain written agreements dated August 16, 1972 and
June 15, 1972, respectively, as from time to time
amended.
13.10 Upper Peninsula is obligated to purchase coal
from Western Energy and Westmoreland pursuant to
certain written agreements dated February 16, 1977 and
January 1, 1977, respectively.
13.11 Wisconsin P&L is obligated to purchase coal
from Western Energy and Westmoreland pursuant to
certain, written agreements dated October 4, 1972 and
June 15, 1972, respectively.
14. Each agreement identified in paragraphs 13
through 13.11, as from time to time amended, remains in
full force and effect.
53a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
15. On or about April 27, 1978, within sixty days
preceding commencement of this action, the Coal
Producing Plaintiffs and Western Energy made payments
in respect of the Coal Severance Tax allegedly due and
owing for the period from [8] January 1, 1978, to March
31, 1978. These payments equalled or exceeded the
following amounts: |
15.1 Decker paid $2,763,188.00 in such taxes.
15.2 Peabody paid $569,198.00 in such taxes.
15.3 Westmoreland paid $1,243,582.00 in such
taxes.
15.4 Western Energy paid $2,443,737.56 in such
taxes.
15.5 Pursuant to the Revised Codes of Montana,
the payments identified in paragraphs 15 through 15.4 of
the Complaint were made under protest, except that only
$899,407.88 of the amount referred to in paragraph 15.4
was so paid.
16. From time to time hereafter, the Coal Producing
Plaintiffs and Western Energy will be required to make
additional payments of the Coal Severance Tax.
Plaintiffs respectfully ask leave to amend this Complaint
at the time of trial to recover all sums so paid.
17. Pursuant to the agreements identified in para-
graphs 13 through 13.11 of this Complaint, the Utility
Plaintiffs are obligated to reimburse the Coal Producing
Plaintiffs and Western Energy for the tax payments
identified in paragraphs 15 through 15.4 and 16 of this
Complaint.
54a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
18. The ultimate burden of tax payments identified in
paragraphs 15, 16 and 17 of this Complaint falls upon
the Utility Plaintiffs and upon their customers in the
States identified in paragraphs 12 through 12.11 of this
Complaint.
FIRST CAUSE OF ACTION
(BURDEN ON INTERSTATE COMMERCE—
FAIR SHARE)
19. Plaintiffs repeat and reallege each and every [9]
allegation set forth in paragraphs 1 through 18, and each
subparagraph thereof, inclusive.
20. At the time each Coal Producing Plaintiff extracts
coal from its mines in Montana, the ultimate destination
of such coal is fixed and is known to be a destination
outside Montana.
21. At the time Western Energy extracts coal from its
mine in Montana for any Utility Plaintiff, the ultimate
destination of such coal is fixed and is known to be a
destination outside Montana. _
22. From at least the time of severance from the earth
until arrival and delivery of such coal at an ultimate
destination outside Montana, such coal is and continues
to be in and to substantially affect interstate commerce.
23. The Coal Severance Tax imposes taxes on strip
mined coal, such as that mined by the Coal Producing
Plaintiffs and Western Energy, ranging from 20% of
value to 30% of value (but not less than 12 cents per
ton), depending on heating quality.
5Sa
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
24. All or substantially all of the coal shipped to the
Utility Plaintiffs is taxed at 30% of value.
25. On information and belief, Montana anticipates
that its revenues from the Coal Severance Tax will be not
less than $34,099,000 in fiscal year 1978 ending June 30,
1978 and not less than $40,000,000 in fiscal year 1979
ending June 30, 1979.
26. The Coal Severance Tax is not fairly related to the
services and protection provided by Montana.
27. The Coal Severance Tax discriminates against
interstate commerce.
[10] 28. The Coal Severance Tax is unconstitutional
under Article I, Section 8, Clause 3 of the United States
Constitution in that its provisions unduly burden
interstate commerce.
SECOND CAUSE OF ACTION
(PREEMPTION BY NATIONAL ENERGY
AND CLEAN AIR POLICIES)
29. Plaintiffs repeat and reallege each and every
allegation set forth in paragraphs 1 through 18, and each
subparagraph thereof, inclusive.
30. From time to time, the United States Congress has
enacted legislation which declares it to be the national
policy of the United States to stimulate and encourage
production of coal to satisfy the energy requirements of
the entire United States.
31. Congress has further enacted legislation which, in
order to satisfy national policies with respect to air
56a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
quality and other environmental concerns, encourages or
requires use throughout the United States of low-sulphur
coal such as that mined by the Coal Producing Plaintiffs,
Western Energy and others within Montana.
32. The Coal Severance Tax, on its face and as
applied, substantially frustrates and impairs fulfillment
of the foregoing national policies and, in particular,
frustrates and impairs the purposes of the aforemen-
tioned Acts of Congress.
33. The Coal Severance Tax is unconstitutional under
Article VI, Clause 2, of the United States Constitution in
that its provisions conflict with and are preempted by the
aforementioned federal statutes. [11]
THIRD CAUSE OF ACTION
(PREEMPTION OF FEDERAL COAL RESERVES
BY STATUTES REGULATING
PROCEEDS THEREFROM)
34. Plaintiffs (except Westmoreland) repeat and real-
lege each and every allegation set forth in paragraphs 1
through 18, and each subparagraph thereof, inclusive.
35. A substantial portion of the coal mined by the
Coal Producing Plaintiffs (except Westmoreland) and by
Western Energy and delivered to the Utility Plaintiffs is
and continues to be mined pursuant to leases issued by
the United States of America.
36. The Congress of the United States has heretofore
considered at length the right to receive the economic
rents to be derived from ownership and taxation of
federal coal deposits in, among other places, Montana.
57a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
37. In or about 1920, Congress enacted the Mineral
Lands Leasing Act of 1920 (41 Stat. 437).
38. Among other things, the Mineral Lands Leasing
Act of 1920 effected a compromise between the federal
government and the states by providing:
(a) that mineral and coal deposits theretofore
owned by the United States would be retained by the
United States for the benefit of the citizens of the
entire country and not solely for the benefit of
citizens of the particular states in which such
deposits were located;
(b) that such deposits would be leased upon terms
set by the Secretary of the Interior in a manner and
at royalty rates which would encourage development
thereof (30 U.S.C. § 201, et seq.); and
(c) that a certain percentage of royalties received
by the United States from such leases would be [12]
directly or indirectly paid over to the states in which
such coal was located for the use and benefit of such
states (30 U.S.C. § 191).
39. In or about 1976, Congress amended the afore-
mentioned Mineral Lands Leasing Act of 1920 by
enacting the Federal Coal Leasing Amendments Act of
1975 (90 Stat. 1083).
40. Among other things, the Federal Coal Leasing
Amendments Act of 1975 provided:
(a) that minimum royalties on federally owned
coal be increased (30 U.S.C. § 207);
58a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
(b) that the proportion -of revenues received by
the United States and paid over to the individual
States in which leases were issued be increased (3C
U.S.C. § 191); and
(c) that such revenues as may be paid to the states
are *‘to be used by such State and its subdivisions,
as the legislature of the State may direct giving
priority to those subdivisions of the State socially or
economically impacted by development of minerals
leased under this Act, for (i) planning, (ii)
construction and maintenance of public facilities,
and (iii) provision of public service... .” (30
U.S.C. § 191).
41. By the aforementioned federal statutes, Congress
intended to, and did, establish the following federal
policies, among others:
(a) that federally-owned coal in Montana and
elsewhere was to be held in trust for the benefit of
the citizens of the entire country; and
(b) that the economic rents attributable to the
extraction of federally-owned coal were to be
collected, in [13] the first instance, by the federal
government through the instrumentality of coal
leases entered into under the authority of the
Secretary of the Interior upon terms to be negotiated
and fixed by him, and thereafter divided between
the federal government and the state in which such
coal was located in the proportions provided by
federal law.
59a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
42. By the enactment of the Coal Severance Tax,
Montana intended to, and did, in violation of the
aforesaid federal policies, appropriate to itself the
economic rents attributable to the extraction of federally-
owned coal from land in Montana.
43. The Coal Severance Tax grossly distorts the
compromises between the federal government and the
states, as contemplated in the Mineral Lands Leasing Act
of 1920, and substantially frustrates and impairs the
purposes of the aforementioned Acts of Congress.
44. The Coal Severance Tax is unconstitutional under
Article VI, Clause 2, of the United States Constitution in
that its provisions conflict with and are preempted by the
aforementioned federal statutes.
FOURTH CAUSE OF ACTION
(IMPOUNDMENT OF FUNDS
PAID UNDER PROTEST)
45. Plaintiffs repeat and reallege each and every
allegation set forth in paragraphs 1 through 18, and each
subparagraph thereof, inclusive.
46. Pursuant to Section 84-4502 of the Revised Codes
of Montana, entitled ‘‘Payment of Taxes under Pro-
test—Action to Recover,’’ the officer receiving payments
of the Coal Severance [14] Tax under protest is required
to deposit the same to the credit of a special fund to be
designated as a protest fund; to invest the same in
interest-bearing deposits; and to retain such protest fund
until the final determination of any suit or action to
recover same.
oa aaa
60a
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
47. On information and belief, defendants Dore and
Freseman acting individually, and all defendants acting
on behalf of Montana, have transferred certain funds
paid to them under protest by plaintiffs in violation of
Section 84-4502 of the Revised Codes of Montana, and
now threaten to transfer other such funds in violation of
that section.
48. On information and belief, defendant Judge,
acting individually and on behalf of defendant Montana,
has caused, permitted or directed the other defendants to
do the acts described in paragraph 47 in violation of
Section 84-4502 of the Revised Codes of Montana.
WHEREFORE, plaintiffs pray that:
1. Defendants, and each of them, be required to repay
to plaintiffs, as their respective interests may appear, the
sums paid by the Coal Producing Plaintiffs and Western
Energy identified in paragraphs 15 through 15.4 and 16
of this Complaint together with interest to the date of
such repayments;
2. The Coal Severance Tax, as a whole and as to each
provision thereof, be declared unconstitutional on its
face and as applied to plaintiffs;
3. Defendants be enjoined, pendente lite and per-
manently, from relying upon or enforcing any provisions
of the Coal Severance Tax against any plaintiff, [15]
4. Defendants be enjoined, pendente lite and per-
manently, from disbursing funds collected under the
Coal Severance Tax except to repay the same, with
interest; and
6la
Complaint in Commonwealth Edison Co., et al. v.
State of Montana, et al.—June 20, 1978
5. Plaintiffs be granted their costs and disbursements
of this action, together with such other and further relief
as this Court deems just and proper.
Dated: June 20, 1978
PATRICK F. HOOKS
/s/Patrick F. Hooks
218 Broadway
Townsend, Montana 59644
(406) 266-3476
ROGERS & WELLS
By /s/William P. Rogers
200 Park Avenue
New York, New York 10017
(212) 972-7000
Attorneys for Plaintiffs
Of Counsel:
Dechert Price & Rhoads
3400 Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102
(215) 972-3400
Attorneys for Westmoreland Resources
62a
MONTANA STATUTES
CHAPTER 35 OF THE MONTANA CODE ANNO-
TATED (EXCERPTS)
COAL SEVERANCE TAX
PART 1
GENERAL PROVISIONS
15-35-101. Legislative findings and declarations of
purpose. (1) The legislature finds that while coal is
extracted from the earth like metal minerals, there are
differences between coal and metal minerals such that
they shoulc. be classified in different categories for
taxation purposes. The legislature finds that while coal
can be utilized like petroleum products, there are
differences between coal and petroleum such that they
should be classified in different categories for taxation
purposes. The legislature further finds that:
(a) coal is the only mineral which can supply energy
while being easily found in abundance in Montana;
(b) coal is the only mineral which is so often
marketed through sales contracts of many years’
duration;
(c) coal, unlike most minerals, varies widely in
composition and consequent value when marketed;
(d) coal in Montana is subject to regional and
national demands for development which could affect
the economy and environment of a larger portion of the
state than any other mineral development has done;
(e) coal in Montana, when subbituminous and
recoverable by strip mining, is in sufficient demand that
63a
Montana Coal Severance Tax
at least one-third of the price it commands at the mine
may go to the economic rents of royalties and production
taxes;
(f) coal in the lignite form is in less demand and
producers of lignite are able to pay lesser amounts of
royalty and production tax than producers of subbitumi-
nous can pay;
(g) coal produced in underground mines has higher
production costs and underground producers are able to
pay lesser amounts of royalty and production tax than
strip-mine producers can pay;
(h) coal production in Montana has been subject to
an uncoordinated array of taxes which overlap one
another and yield revenue in an_ inconsistent and
unpredictable manner.
(2) The legislature declares that the purposes of this
chapter are to:
(a) allow the severance taxes on coal production to
remain a constant percentage of the price of coal;
(b) stabilize the flow of tax revenue from coal mines
to local governments through the property taxation
system;
(c) simplify the structure of coal taxation in Mon-
tana, reducing tax overlap and improving the predictabil-
ity of tax projections; and
(d) accomplish the foregoing purposes by establishing
categories of taxation which recognize the unique
character of coal as well as the variations found within
the coal industry.
64a
Montana Coal Severance Tax
15-35-102. Definitions. As used in this chapter, the
following definitions apply:
(1) ‘‘Contract sales price’? means either the price of
coal extracted and prepared for shipment f.o.b. mine,
excluding that amount charged by the seller to pay taxes
paid on production, or a price imputed by the
department under 15-35-107.
(2) ‘*Department’’ means the department of revenue.
(3) ‘‘Energy conversion process’ includes any
process by which coal in the solid state is transformed
into slurry, gas, electric energy, or any other form of
energy.
(4) ‘*Produced’’ means severed from the earth.
(5) ‘‘Strip mining’’ or ‘‘surface mining”’ is defined in
82-4-203.
(6) ‘‘Taxes paid on production’’ includes any tax
paid to the federal, state, or local governments upon the
quantity of coal produced as a function of either the
volume or the value of production and does not include
any tax upon the value of mining equipment, machinery,
or buildings and lands, any tax upon a person’s net
income derived in whole or in part from the sale of coal,
or any license fee.
(7) ‘‘Ton’’ means 2,000 pounds.
(8) ‘‘Underground mining’? means a coal mining
method utilizing shafts and tunnels and as further
defined in 82-4-203.
65a
Montana Coal Severance Tax
15-35-103. Severance tax—rates imposed—exemp-
tions. (1) A severance tax is imposed on each ton of coal
produced in the state in accordance with the following
schedule:
Heating quality Surface Underground
(Btu per pound Mining Mining
of coal):
Under 7,000 12 cents or 5 cents or
20% of value 3% of value
7,000-8 ,000 22 cents or 8 cents or
30% of value 4% of value
8,000-9,000 34 cents or 10 cents or
30% of value 4% of value
Over 9,000 40 cents or 12 cents or
30% of value 4% of value
‘Value’? means the contract sales price.
(2) The formula which yields the greater amount of
tax in a particular case shall be used at each point on this
schedule.
(3) A person is not liable for any severance tax upon
20,000 tons of the coal he produces in a calendar year.
15-35-104. Quarterly statement and payment of tax.
Each coal mine operator shall compute the severance tax
due on each quarter-year’s worth of production on forms
prescribed by the department. The statement shall
indicate the tonnage produced, the average Btu value of
the production, the contract sales price received for the
production, and such other information as the depart-
ment may require. The completed form in duplicate,
66a
Montana Coal Severance Tax
with the tax payment, shall be delivered to the
department not later than 30 days following the close of
the quarter. The form shall be verified by an officer of
the coal mine operator. A person Operating more than
one coal mine in this state may include all of his mines in
one statement. The department may grant a reasonable
extension of time for filing statements and payment of
taxes due upon good cause shown therefor.
15-35-105. Penalty for delinquent tax. The depart-
ment shall add to the amount of all delinquent severance
taxes a penalty of 10% of the delinquent amount plus
interest at the rate of 1% per month or fraction thereof
computed on the total amount of severance tax and
penalty. Interest shall be computed from the date the
severance tax was due to the date of payment. The
department shall mail to the person required to file a
quarterly report and pay any severance tax, a letter
setting forth the amount of tax, penalty, and interest
due, and the letter shall further contain a statement that
if payment is not made within 15 days, a lien may be
filed as set forth in 15-23-704. The penalty amount may
be waived by the department if reasonable cause for the
failure or neglect to file the quarterly statement is
provided to the department.
* * *” * *
15-35-107. When value of coal may be imputed—
procedure. (1) The department may impute a value to the
coal which approximates market value f.o.b. mine in a
case where:
(a) the operator of a coal mine is using the produced
coal in an energy-conversion or other manufacturing
process;.
67a
Montana Coal Severance Tax
(b) a person sells coal under a contract which is not
an arm’s-length agreement; or
(c) a person neglects or refuses to file a statement
and tax return under this chapter.
(2) When imputing value, the department may apply
the factors used by the federal government under 26
U.S.C., section 613, or that provision as it may be
labeled or amended, in determining gross income from
mining or the department may apply any other or
additional criteria it considers appropriate. Each subject
taxpayer shall upon request by the department furnish a
copy of its federal income tax return, with any
amendments, filed for the year in which the value of coal
is being imputed and copies of the contracts under which
it is selling coal at the time. When the department’s
estimate of market value is contested in any proceeding,
the burden of proof is on the contesting party.
15-35-108. Disposal of severance taxes. Severance
taxes collected under the provisions of this chapter are
allocated as follows:
(1) To the trust fund created by Article LX, section 5,
of the Montana constitution, 25% of total collections a
year. After December 31, 1979, 50% of coal severance
tax collections are allocated to this trust fund. The trust
fund moneys shall be deposited in the fund established
under 17-6-203(5) and invested by the board of
investments as provided by law.
(2) Coal severance tax collections remaining after
allocation to the trust fund under subsection (1) are
allocated in the following percentages of the remaining
balance:
68a
Montana Coal Severance Tax
(a) to the county in which coal is mined, 2% of the
severance tax paid on the coal mined in that county until
January 1, 1980, for such purposes as the governing
body of the county may determine;
(b) 2%% until December 31, 1979, and thereafter
5% to the earmarked revenue fund to the credit of the
alternative energy research development and demonstra-
tion account;
(c) 26%% until July 1, 1979, and thereafter 374%
to the earmarked revenue fund to the credit of the local
impact and education trust fund account;
(d) for each of the 2 fiscal years following June 30,
1977, 13% to the earmarked revenue fund to the credit
of the coal area highway improvement account;
(e) 10% to the earmarked revenue fund for state
equalization aid to public schools of the state;
(f) 1% to the earmarked revenue fund to the credit
of the county land planning account;
(g) 2%% to the sinking fund to the credit of the
renewable resource development bond account;
(h) 5% to the earmarked revenue fund to the credit
of a trust fund for the purpose of parks acquisition or
management, protection of works of art in the state
capitol, and other cultural and aesthetic projects. Income
from this trust fund shall be appropriated as follows:
(i) % for protection of works of art in the state
capitol and other cultural and aesthetic projects; and
(ii) % for the acquisition of sites and areas described
in 23-1-102 and the operation and maintenance of sites
sO acquired;
>. af
69a
Montana Coal Severance Tax
(i) 1% to the earmarked revenue fund to the credit of
the state library commission for the purposes of
providing basic library services for the residents of all
counties through library federations and for payment of
the costs of participating in regional and national
networking;
(j) all other revenues from severance taxes collected
under the provisions of this chapter to the credit of the
general fund of the state.
* * * * *
15-35-110. Penalties for neglect or false statement. A
person who fails, neglects, or refuses to file any
statement required under this chapter or who makes a
false statement commits a misdemeanor. A_ person
convicted under this section shall be fined not to exceed
$1,000 or be imprisoned in the county jail for any term
not to exceed 6 months, or both.
15-35-111. Rulemaking authority. The department of
revenue may adopt rules necessary for the taxation of
property under this chapter.
70a
CONSTITUTIONAL PROVISIONS
ARTICLE I, SECTION 8, CL. 3 OF THE UNITED
STATES CONSTITUTION
Section 8. The Congress shall have Power
* * *
To regulate Commerce with foreign Nations, and
among the several States, and with the Indian
ae *.* @
ARTICLE VI, CL. 2 OF THE UNITED STATES
CONSTITUTION
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 the Constitution or Laws of
any State to the Contrary notwithstanding.
Tla
FEDERAL STATUTES
Note: The federal statutes on which appellants rely are
voluminous. We reprint extracts which have particular
pertinence to the issues raised by the Jurisdictional
Statement.
The Clean Air Act of 1970, as amended, 42 U.S.C. 1857
et seq.' (excerpts)
TITLE I—AIR POLLUTION PREVENTION AND
CONTROL
PART A—AIR QUALITY AND EMISSION LIMITA-
TIONS
FINDINGS AND PURPOSES
Sec. 101. (a) The Congress finds—
(1) that the predominant part of the Nation’s
population is located in its rapidly expanding metro-
polita.. and other urban areas, which generally cross
the boundary lines of local jurisdictions and often
extend into two or more States;
l Clean Air Act (42 U.S.C. 1857 et seq.) includes the Clean Air Act
of 1963—P.L. 88-206, and amendments made by the Motor Vehicle
Air Pollution Control Act—P.L. 89-272 (October 20, 1965), the Clean
Air Act Amendments of 1966—P.L. 89-675 (October 15, 1966), the
Air Quality Act of 1967—P.L. 90-148 (November 21, 1967), the Clean
Air Amendments of 1970—P.L. 91-604 (December 31, 1970), the
Comprehensive Health Manpower Training Act of 1971—P.L. 92-157
(November 18, 1971), the Energy Supply and Environmental
Coordination Act of 1974—P.L. 93-319 (June 22, 1974), Clean Air
Act Amendments of 1977—P.L. 95-95 (August 7, 1977), and Safe
Drinking Water Act of 1977—P.L. 95-190 (November 16, 1977).
72a
The Clean Air Act, as amended, 42 U.S.C. 1857 et seq.
(excerpts)
(2) that the growth in the amount and complexity
of air pollution brought about by urbanization,
industrial development, and the increasing use of
motor vehicles, has resulted in mounting dangers to
the public health and welfare, including injury to
agricultural crops and livestock, damage to and the
deierioration of property, and hazards to air and
ground transportation;
(3) that the prevention and control of air pollution
at its source is the primary responsibility of States and
local governments; and
(4) that Federal financial assistance and leadership
is essential for the development of coop
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