# Amicus Curiae Brief — General Motors Corp. v. Tracy > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_1796%3A14 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1997 - **Citation:** 519 U.S. 278 ## Text _ GENERAL Motors Conronion ¢ “RocER Ww. TRACY, TAK ¢ COMMISSIONER OF OHIO, = Respondent. ee See : ? eee On Writ of Certiorari to Sta S. _ the re Sone of Obip #: BRIEF OF COLUMBIA GAS OF OHIO, INC. AS AMICUS CURIAE IN SUPPORT OF THE RESPONDENT ANDREW J. SONDERMAN KENNETH W. CHRISTMAN (Counsel of Record) 200 Civic Center Drive P O. Box 117 Columbus, Ohio 43216-0117 (614) 460-4655 Counsel for Amicus Curiae Columbia Gas of Ohio, Inc. EE eR -BESTAVAILABLE COPY! i TABLE OF CONTENTS Page SUUOCNICIOEY DIBUPNNONE i iid ki 5 ko ees as 1 SEUOCOEE GE ANNO COTIBG ono as cescecesicinnn 1 SUEY GE ARBUTNORE oo. 5 5 wc ccc ccc nces 5 PD 6 Oh 5 on 2 458 oa ks Oke A ok 6 A. Qhio’s comprehensive statutory scheme for taxing the sale and use of natural gas neither discriminates against nor burdens interstate commerce, and therefore does not violate the Commerce Clause of the United States (Rc ccadawitaagekincdec cae ees s 6 1. The complementary sales and use taxes imposed under §§ 5739.02 and 5741.02 of the Ohio Revised Code are facially neutral and exhibit no intent to discriminate against interstate commerce............. 7 2. The record fails to show that the Ohio statutory scheme has the effect of unduly burdening interstate commerce .......... 17 B. The Ohio statutory scheme does not violate the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution . 28 EIS PEI Ge ne ER 29 ii TABLE OF AUTHORITIES Cases Page Alaska v. Arctic Maid, See AE Se Gee 3a oe canbe 9, 10, 11, 12 Amerada Hess Corp. v. Director, Div. of Taxation, SO UE, GR Ee i oo oc ccerecees 7, 9, 10, 11, 12 14, 15, 17 Armco Inc. v. Hardesty, SEr Ui Ge Ce boc ko se ah ie even eae 8, 27 Associated Industries of Mo. v. Lohman, Sis BC es es sa 17, 23 Bacchus Imports, Ltd. v. Dias, GGB SAE. Ae Cas has $a seen denen 12 Boston Stock Exchange v. State Tax Commission, GFP Si Ge Re ho 6 ck a es ee eeasieeee 7,8 Chrysler Corp. v. Tracy, G52 PLEOG Tp Cee Ose ai a hdc. 12, 15 CTS Corp. v. Dynamics Corp. of America, Bi TD. GE Cee ac Vewiced sted basi ween ss 9 Dunbar-Stanley Studios v. Alabama, Sat Sd Se CED Ak vi bas CiNeneee 10, 11, 12 Fulton Corp. v. Faulkner, 306 SEA. Bee Gee a a os esac cea 23, 24, 25, 26 General Motors Corp. v. Tracy, G52 PCE 28 UBS Cie BGR) ok ccc ice icicns 7, 16 General Telephone Co. v. Public Utilities Comm., 181 N.E.2d 698 (Ohio 1962)............. 13 Gregg Dyeing Co. v. Query, ee UE; Sle A a a is Sado ns Mca as 17, 18, 28 Haefner v. City of Youngstown, OS U0.5.2e OS Cee Pee ok vec occu. Seanad 19, 27 iil TABLE OF AUTHORITIES (Cont'd) Page Halliburton Oil Well Cementing Co. v. Reily, ee OD SEES os oS bec cel use vs 9, 17-18, 23, 27 Henneford v. Silas Mason Co., Ea shia 6 wit orn COS 54% 8 Industrial Gas Co. v. Public Utilities Comm., pee Re 12 Interstate Busses Corp. v. Blodgett, NR pia a he na a Wide dle WO we'd « 18 Kraft General Foods v. Iowa Dept. of Revenue ome Somme, Due US. 71 (1992) ....... 2.2.6... 9 Maryland v. Louisiana, NN IED oe ova ne oe oo iho ec dele wu 27 New Energy Co. of Indiana v. Limbach, oe po page bob ale Snie Gidie's 7 Norton Co. v. Department of Revenue, Nk ds Lis Bde we % 17 Oregon Waste Systems v. Department of Environmental Quality, 114 S.Ct. 1345 (1994) ..... 27 Postal Telegraph Cable Co. v. Adams, RE, es os co kg hoo me oe bole Ki wie ws 24 Railway Express Agency v. Virginia, oa k's ob boo bie 860 8s 24, 25 Tyler Pipe Industries v. Washington State Dept. of te air ca ts) rs 27 Yankee Resources, Inc., Case No. 82-1086-GA-ARJ, Ohio Public Utilities Comm. (Sep. 9, 1982) (unreported)............. 12 Constitutional Provisions and Statutes U.S. Constitution, art. I, §8 ........... 6 and passim U.S. Constitution, amend. XIV, §1.............. 28 IV TABLE OF AUTHORITIES (Cont’d) Page Ohio Rev. Code Ann. § 1723.01, CRDIGN TI sigs ood oo we wine biee ne ONE AS ae 13 Ohio Rev. Code Ann. Chapter 4905 (ASEOEII DE. 6k ik oo ke Sod KOA Wie be a hard od 12 Ohio Rev. Code Ann. § 4905.02 LANE FOOD cave nea yea ORR ih Se ee ee os 2 Ohio Rev. Code Ann. § 4905.03 | LAE BOER e's kok bewtos ree s CIS cece 2 Ohio Rev. Code Ann. § 4905.04 ( NOE Brea é arior cit Soa dees te SETS 2 Ohio Rev. Code Ann. § 4905.05 [ ANON Sed soos s bee veti scot a heas's 2 Ohio Rev. Code Ann. § 4905.06 (PORNO BN 5s kv viawic nace dienth creetodwn 2 Ohio Rev. Code Ann. § 4905.10 [AIRI SOE acc Rae oss des tah seess deen 19 Ohio Rev. Code Ann. § 4905.22 (ARIE TN 6 en F5 aE CUTE RR 13 Ohio Rev. Code Ann. § 4905.302 I Ses 4.6 ok oon ck dee eas tees 13 Ohio Rev. Code Ann. § 4905.32 Fo | ee eee rere carr e 13 | Ohio Rev. Code Ann. § 4905.92 (AMO TOs. ook Gee a 8S ev 0 HRS 27 Ohio Rev. Code Ann. Chapter 4909 | (AINE SHES 6s CRE iss SG sos tea Cen 12 Ohio Rev. Code Ann. § 4909.15 PR RS Choc nin That principle is directly relevant here. Despite the fact that natural gas utilities and natural gas marketers sell the same product to the same customers, they are engaged in fundamentally different businesses. Natural gas utilities are classified as public utilities, and their rates, services, and operations are therefore sub- ject to extensive regulation. See generally, Ohio Rev. Code Ann. Chapters 4905 and 4909. Natural gas marketers are not classified as public utilities, Chrysler Corp. v. Tracy, 652 N.E.2d 185 (Ohio 1995); Yankee Resources, Inc., Case No. 82-1086-GA-ARJ (Ohio Pub. Util. Comm. Sep. 9, 1982) (unreported) (Pet. Opp. 2a-5a), and face no similar regula- tory constraints. Natural gas utilities are legally obligated to serve the public, without discrimination, throughout their field of operations. Indus:rial Gas Co. v. Public Utilities Comm. , 21 N.E.2d 166 (Ohio 1939). Natural gas marketers are free to select their own customers. J.A. 199. Natural gas utilities may charge only those rates which have been found to be “just and reasonable” by the Ohio Public Utilities Commission, and cannot change those >In this regard, Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984), cited by Petitioner, is clearly distinguishable. The tax in that case discriminated among entities who were engaged in the same business, i.e., the sale of liquor at wholesale. 13 rates without formal regulatory approval. General Tele- phone Co. v. Public Utilities Comm., 181 N.E.2d 698 (Ohio 1962); Ohio Rev. Code Ann. §§ 4905.22, 4905.32, 4909.15, and 4909.17. Their rates are set using a statutory formula, which is based on the cost of providing service plus a “fair and reasonable” return on investment. Ohio Rev. Code Ann. § 4909.15. With respect to one major category of expense, the cost of obtaining natural gas supplies for their customers, natural gas utilities are limited to a dollar-for- dollar pass-through of those costs without any markup or profit. Ohio Rev. Code Ann. § 4905.302; Ohio Adm. Code Chapter 4901:1-14. Furthermore, the sales price charged by natural gas utilities must reflect a single, average cost of gas, irrespective of the customer’s size or usage character- istics. Jd. Natural gas marketers, on the other hand, are free to negotiate their prices and other contract terms on a case-by-case basis, J.A. 199-200, and may earn whatever profit the market allows. Natural gas utilities, like state and local governments, may use the power of eminent domain to appropriate pri- vate property where necessary to fulfill their public service obligations. Ohio Rev. Code Ann. § 1723.01. Natural gas marketers have no such power. J.A. 201. Natural gas utili- ties typically hold franchises granted by municipal govern- ments, which allow their pipelines and other facilities to occupy the streets and public rights-of-way. Natural gas marketers own no such facilities (J.A. 202), and hold no such franchises. Natural gas utilities must administer extensive social programs, such as the Percentage of Income Payment Plan, which help to assure continued service to low-income cus- tomers by limiting the utilities’ ability to disconnect service for nonpayment. Ohio Admin. Code Chapter 4901:1-18. 14 Natural gas marketers are free to terminate service in accordance with the terms of their contracts. In short, natural gas utilities are heavily regulated businesses with special rights and responsibilities that are not shared by the general business community. They face significant regulatory constraints on the manner in which they are permitted to sell natural gas to consumers. Natu- ral gas marketers, on the other hand, are essentially unreg- | ulated commodity merchants. By any reasonable measure, | these entities represent two very different types of busi- | nesses. As a result, there is absolutely nothing in the Com- merce Clause that requires Ohio to impose identical taxes upon such entities, and the exemption of natural gas com- panies from the Ohio use tax does not facially discriminate against interstate commerce. Any differences in the result- ing tax treatment result “solely from differences between the nature of their businesses, not from the location of their activities.” Amerada Hess Corp., 490 U.S. at 78.° ae ern onc e oeN In addition, the Ohio statutes exhibit absolutely no evidence of discriminatory intent. The Ohio General As- | sembly could not have been motivated by any intent to discriminate against out-of-state gas marketers when it first exempted sales by natural gas companies from the use tax, because that exemption has existed since the sales and use taxes were first enacted in 1935, several decades before | the availability of gas transportation programs allowed 6 Although Petitioner maintains that the location of the exempt seller is the determinative factor for purposes of the sales and use taxes, Pet. Brief 19 (Fn.15), this is clearly not the case. If the location was determinative, the sales tax would not apply to sales by in-state natural gas marketers. That alone demonstrates that the determinative factor is the nature of the seller’s business, and not the seller’s location. ee 15 customers to purchase gas from marketers instead of natu- ral gas utilities. 116 Ohio Laws 41, 43-44, 101, 102-3 (1935). Nor is the exemption for natural gas utilities moti- vated by any desire to exert pressure on out-of-state mar- keters to conduct their business in Ohio, Amerada Hess, 490 U.S. at 77-78, since such sales would still be subject to an equal sales tax. The only way that out-of-state market- ers could avoid the imposition of the sales or use tax on the gas that they sell is to get into an entirely new line of business by becoming public utilities. Petitioner further argues that the taxability of a sale or purchase depends not on the character of the seller as a public utility, but on whether the seller owns distribution equipment and facilities within the state and uses such equipment and facilities to deliver gas to consumers. Pet. Brief 6. That argument misses the point, because the two are basically inextricable. Under Ohio law, it is the owner- ship or operation of such facilities, and the use of those facilities to deliver gas to consumers, that causes an entity to be characterized as a public utility. Chrysler Corp. v. Tracy, 652 N.E.2d 185 (Ohio 1995). Finally, Petitioner argues that the use tax exemption for natural gas utilities discriminates against goods which are delivered into the state by “common carriage” rather than by the seller’s own distribution network. Pet. Brief. 21-22. That argument also misses the point, because natu- ral gas is delivered through the same interstate pipelines and local distribution facilities whether it is sold by natural gas marketers or natural gas utilities. Since Petitioner has effectively conceded as much, Pet. Brief 25, that argument should be rejected. For the foregoing reasons, Columbia submits that the Ohio sales and uses taxes are facially neutral, that they 16 exhibit no discriminatory intent, and that the exemption for natural gas utilities is based solely upon the nature of their business, and not upon factors relating to interstate commerce. It was essentially upon this basis that the Ohio Supreme Court rejected Petitioner’s claim: We have before us purchases by GM of natural gas from a company that does not own any pro- duction, transportation, or distribution equip- ment. The commissioner claims that he would tax purchases from these persons whether they sold gas in-state or out-of-state. Thus, the commis- sioner’s application of the statute does not bene- fit in-state purchasers by favoring in-state vendors over out-of-state vendors; he treats purchases from both the same. 652 N.E.2d at 190 (emphasis supplied). In other words, the court found that the Ohio statutes did not discriminate against interstate commerce, because all similarly situated sellers were treated alike. Since the Constitution requires nothing more, the court’s judgement should be affirmed.’ 7 Petitioner and its supporting amici argue at great length that the Ohio Supreme Court improperly upheld the use tax, despite its discrimination against interstate commerce, because the tax also burdened a portion of intrastate commerce. Pet. Brief 11-17; Ami- cus Brief 10-11; Brief of Process Gas Consumers Group and Natu- ral Gas Supply Association 11-13. That mischaracterizes the court’s decision. What the court found was that the use tax did not discrim- inate against interstate commerce, and therefore, did not violate the Commerce Clause. 17 2. The record fails to show that the Ohio statutory scheme has the effect of unduly burdening interstate commerce. Even if a tax is facially neutral, it may be deemed to violate the Commerce Clause if it has a discriminatory effect which unduly burdens interstate commerce. Amer- ada Hess Corp. v. Director, Div. of Revenue, 490 U.S. 66, 75 (1989). Since it is actual, and not hypothetical, discrimina- tion that violates the Commerce Clause, Associated Indus- tries of Mo. v. Lohman, 114 S.Ct. 1815, 1824 (1994), this is essentially a question of fact, upon which the Petitioner has the burden of proof. Norton Co. v. Department of Revenue, 340 U.S. 534, 537 (1951) (“[A] taxpayer claiming immunity from a tax has the burden of establishing his exemption.”); Gregg Dyeing Co. v. Query, 286 U.S. 472, 481 (1932) (“Ap- pellants had the burden of showing an injurious discrimi- nation against them because they bought their gasoline outside the State.”) Petitioner has clearly failed to sustain that burden. The major flaw in Petitioner’s analysis is that it fo- cuses exclusively on the Ohio use tax, while virtually ignor- ing the other Ohio taxes which are occasioned by the sale and consumption of natural gas. The use tax cannot be viewed in isolation. As the Court held in Gregg Dyeing Co. v. Query, 286 U.S. 472, 480: There is no demand in [the] Constitution that the State shall put its requirements in any one stat- ute. It may distribute them as it sees fit, if the result, taken in its totality, is within the State’s constitutional power. A proper analysis, therefore, “must take the whole scheme of taxation into account,” Halliburton Oil Well Cementing 18 Co. v. Reily, 373 U.S. 64, 69 (1963) (internal quotation marks omitted), including taxes which are imposed upon natural gas utilities in lieu of the use tax. Petitioner, moreover, cannot “establish discrimina- tion by showing merely that the [different taxing] statutes are different in form or adopt a different measure or method of assessment .. . ” Interstate Busses Corp. v. Blodgett, 276 U.S. 245, 251 (1928). This Court is “not con- cerned with what the tax is called but with what the statute does.” Gregg Dyeing Co., 286 U.S. at 478. Furthermore, the Court’s ultimate decision is “not dependent upon the form of a taxing scheme, or upon the characterization of it by the state court.” Jd. at 476. Instead, “the controlling test is found in the operation and effect of the statute as applied and enforced by the State.” Jd In other words, for pur- poses of the Commerce Clause, the critical consideration is the bottom-line economic impact upon taxpayers. As the Court explained more recently in Halliburton Oil Well Ce- menting Co. v. Reily, 373 U.S. 64, 70, “equality for the purposes of competition and the flow of commerce is mea- sured in dollars and cents, not legal abstractions.” It is therefore essential to evaluate the Ohio use tax in the context of all state taxes which are occasioned by the retail sale and consumption of natural gas. As previously explained, a customer who purchases natural gas from a natural gas marketer will pay either the sales or use tax, depending upon whether the sale occurred within or outside the state. If, on the other hand, the customer purchases gas from a natural gas utility, the sales and use taxes do not apply, but the state imposes three different taxes upon the “gross receipts” derived from that sale: (1) a public utility excise tax (Ohio Rev. Code Ann. §§ 5727.30, 5727.38); (2) a PUCO maintenance tax, to fund 19 the operations of the Ohio Public Utilities Commission (Ohio Rev. Code Ann. § 4905.10); and an OCC mainte- nance tax, to fund the operations of the Ohio Office of Consumers’ Counsel (Ohio Rev. Code Ann. § 4911.18) (hereinafter collectively “the gross receipts taxes”) . It has long been clear, moreover, that these gross receipts taxes are imposed in lieu of the sales and use taxes, and vice versa. As the Ohio Supreme Court explained in Haefner v. City of Youngstown, 68 N.E.2d 64 (Ohio 1946): A reason for exempting sales by public utilities [from the sales and use taxes] is found in the fact that their gross receipts are subject to a state excise tax... [T]he whole legislative course shows an intent to avoid double taxation of receipts whether they come from sales proper or are the “gross re- ceipts”’ of utilities that are subject to the excise Oe aie « 68 N.E.2d. at 66, 67. The public utility excise tax is imposed at a nominal rate of 4.75% (Ohio Rev. Code Ann. § 5727.38), while the PUCO and OCC maintenance taxes fluctuate from year to year, depending upon the amounts appropriated by the Ohio General Assembly to fund the activities of those agencies. The current rate of the PUCO maintenance tax is .1299% (for the 1995 tax year) and the current rate of the OCC maintenance tax is .0310%. During the audit period under review in this case (1986-90), the PUCO mainte- nance tax ranged from a low of .1031% in 1986 to a high of .1230 % in 1989, while the OCC tax ranged from a low of .0286% in 1986 to a high of .0344% in 1988. The specific 20 rates for each year in the audit period are set forth in the margin.§ At first glance, it might appear that the use tax is still more burdensome, because the total current rate of the gross receipts taxes (4.91%) is still less than the 5% base rate for the use tax. It is important, however, to distinguish between the nominal rates of these taxes and the actual, effective rates as they apply to specific taxpayers. There are three major factors that alter the effective rates. The first is the “tax on tax” effect that one encounters with any revenue-based tax, which serves to increase the effective rate of the gross receipts taxes. Although this concept may seem somewhat esoteric, it can be illustrated with a fairly straightforward example. If Petitioner were to purchase one hundred dollars worth of natural gas from a natural gas marketer in Texas for ultimate consumption at its manufacturing plants in Ohio, a 5% use tax ($5.00) would be assessed as a result of the transaction (assuming that local governments had not levied any additional taxes). When the $5.00 was paid, the transaction would be complete, and Petitioner would owe no further tax. If, on the other hand, Petitioner purchased the same quantity of gas from a gas utility, such as Columbia, at the same price ($100.00), the State would assess gross receipts taxes totaling 4.91% (at current tax rates) on the revenues collected by the utility for that sale, and the utility would 8 The PUCO and OCC maintenance tax rates (in percentages) for the audit period were as follows: 1986 1987 1988 1989 1990 et eee 1031 1171 .1224 .1230 = .1191 Se tsk ees 0286 .0320 .0344 .0333 .0343 in eaicanasiianaiadaniasininianaeetiniaaaaatiiainiiaiitel 21 owe the State $4.91 in tax. However, when the utility col- lected the additional $4.91 from Petitioner in order to cover that tax expense, that $4.91 would itself become part of the utility’s taxable gross receipts, and the utility would then owe an additional 4.91% of that $4.91, or $.24. In order to make the utility whole and permit it to recover the total tax expense incurred in providing service, the total amount of revenue collected for the sale ($100.00) must be increased by an amount equal to the original gross receipts ($100.00) multiplied by the quantity of 1/1-T, where T equals the nominal rate of the gross receipts taxes (4.91%). Although this process may seem complex, this is precisely how the Ohio Public Utilities Commission sets utility rates in order to allow utilities to recover the various gross re- ceipts taxes from their customers. In this particular in- stance, the calculation produces an effective rate of the gross receipts taxes of 5.16%, which exceeds the base rate of the use tax imposed by the State on gas supplied by out- of-state gas marketers. One can make similar calculations for each year in the audit period. The lowest effective rate was 5.13% for 1986, which still exceeds the base rate for the use tax.9 The second such factor involves the base upon which the various taxes are calculated. When utilities sell gas to 9 The calculation of the 5.16% effective rate of the gross receipts taxes can be mathematically verified as follows, assuming an origi- nal purchase price of $100.00: Total Amount Collected from Customer (assuming 5.16% effective tax rate) 105.16 PUCO Tax (.001299 x .105.16) —.14 OCC Tax (.000310 x 105.16) — .03 Pub. Util. Excise Tax (.0475 x 105.16) —4.99 Original Purchase Price (unadjusted for taxes) 100.00 22 consumers, they do so on a “bundled” basis, which means that the sales price includes all costs of obtaining and delivering that gas to the utility, including the transporta- tion charges of interstate pipeline companies. Ohio Ad- min. Code Rule 4901:1-14-01(I). The gross receipts taxes apply to the entire amount, including those transportation charges. Marketers, on the other hand, have the option of delivering gas to a customer at a receipt point outside Ohio, allowing title to pass at that point, and then having the customer to contract directly with the interstate pipe- lines for delivery of the gas. J.A. 141-42, 210-11. The rec- ord shows that Petitioner and its suppliers have, in fact, utilized that option; Petitioner has purchased gas from marketers; taken title to the gas outside the State of Ohio; and contracted directly with interstate pipelines for the delivery of that gas. Id. see also, J.A. 23-4, 30. In those instances, the “price” of the gas, upon which the use tax is calculated, would not include the interstate pipeline trans- portation charges, because it does not include delivery charges incurred after title has passed to the purchaser. Ohio Rev. Code Ann. § 5739.01(H); Ohio Admin. Code Rule 5703-9-26. While the exact effect of this exclusion cannot be calculated from the record in this case, it obvi- ously serves to decrease the effective rate of the use tax, vis-a-vis the gross receipts taxes. The third such factor is the “manufacturers’ use ex- emption,” which also serves to decrease the effective rate of the use tax. If Petitioner were to purchase its gas sup- plies from a gas utility, such as Columbia, the gross receipts taxes would apply to all revenues derived from those sales, irrespective of how Petitioner used the gas. The use tax, on the other hand, does not apply to any gas which Petitioner uses “primarily in a manufacturing operation to produce tangible personal property for sale.” Ohio Rev. Code Ann. 23 §§ 5739.01(E)(9), 5739.011(B)(8), and 5741.02(C)(2); J.A.73. Although Petitioner characterizes this exemption as “a minor exception not relevant to this case,” Pet. Brief 6, the evidentiary record indicates that the volume of gas subject to this exemption is “[p]robably the majority” of Petitioner’s usage. J.A. 74. If one conservatively estimates that 50% of Petitioner’s gas usage is subject to the manu- facturers’ use exemption, the effective rate of its use tax would not exceed 3.5%, even if additional taxes imposed by local governments produced a nominal use tax rate of 7%, which Petitioner concedes to be the maximum permit- ted by Ohio law. Pet. Brief 5. Since an effective rate of 3.5% is considerably lower than even the nominal rate of the public utility excise tax (4.75%), it is apparent that the use tax does not discriminate against sales of gas by out-of- state marketers, and therefore does not burden interstate commerce. !0 Petitioner essentially argues that the various gross re- ceipts taxes imposed upon natural gas utilities cannot be considered in this analysis, because they fail to qualify as “compensatory taxes” under the test enunciated in Fulton Corp. v. Faulkner, 116 S.Ct. 848 (1996). Pet. Brief 17-18. That argument should be rejected. 10 Columbia is aware of the Court’s reluctance to engage in detailed examinations of relative tax burdens, especially where it requires complex economic analyses. Fulton Corp. v. Faulkner, 116 S. Ct. 848, 859 (1996); Associated Industries of Mo. v. Lohman, 114 S. Ct. 1815, 1825 (Fn. 5) (1994). The analysis presented here, however, can be performed using only the existing tax rates, the evidence in the record, and some basic arithmetic. Such an analysis is essential, moreover, if the ultimate decision is to be based upon “dollars and cents,” and not “legal abstractions.” Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 70 (1963). 24 To begin with, the Fulton test is not applicable to the facts of this case, because it applies only where a state tax facially discriminates against interstate commerce. In cases such as this, where the challenged tax is not facially dis- criminatory (or even arguably not so), but where taxes on interstate commerce are imposed in lieu of taxes on intra- state commerce, the Court applies a “somewhat different standard.” Fulton, 116 S.Ct. at 854 (Fn. 2). Under that standard, the challenged tax is upheld if it constitutes the “just equivalent” of the tax in lieu of which it is imposed. Railway Express Agency v. Virginia, 358 U.S. 434, 436 (1959); Postal Telegraph Cable Co. v. Adams, 155 U.S. 688, 696-97 (1895); see also, W. Hellerstein, Complementary Taxes as a Defense to Unconstitutional State Tax Discrimina- tion, 39 Tax Lawyer 405, 420-22 (1986). In Railway Express Agency, for example, this Court upheld a Virginia franchise tax on express companies en- gaged in interstate commerce that had been imposed “in lieu of all other property taxes on intangibles and rolling stock.” 358 U.S. at 435. The taxpayer argued that the new franchise tax, which amounted to $139,739.66, was not the “just equivalent” of the tax in lieu of which it was imposed, because that tax, which applied only to rolling stock and cash, would have yielded just $679.77. The Court rejected that argument on the grounds that the new franchise tax was “not only in lieu of the previous tax on rolling stock and cash on hand,” but also reached “intangible rights of great value .. . ” 358 U.S. at 445. In doing so, moreover, the Court made it clear that precise mathematical equiva- lence was not required: {W]e will not inquire into the exactitudes of the formula where appellant has not shown it be so baseless as to violate due process. peeeeeeenneael 25 358 U.S. at 436. Under that standard, the Ohio use tax clearly constitutes the “just equivalent” of the gross re- ceipts taxes, and the use tax should therefore be sustained. Assuming, however, for the sake of argument, that the Fulton test applies, the Ohio gross receipts taxes clearly satisfy the requirements of that test. In Fulton, the Court held that even a facially discriminatory tax may survive Commerce Clause scrutiny if it is truly a “compensatory” tax designed to make interstate commerce bear a burden already borne by intrastate commerce. 116 S.Ct. at 854. The Court then outlined the three conditions necessary for a valid compensatory tax. First, the state must identify the intrastate tax burden for which it is attempting to compen- sate. Second, the tax on interstate commerce must “roughly approximate,” but not exceed, the tax on intra- state commerce. And third, the taxes must be imposed on “substantially equivalent” events. Jd., at 854-55. Petitioner first argues that the public utility excise tax fails the second prong of the Fulton test because it is im- posed at a nominal rate of 4.75%, while the use tax, which applies to gas sold by out-of-state marketers, is imposed at a higher base rate of 5% (with a possible addition of up to 2% by local governments). Pet. Brief 17-18. That argument (which completely ignores both the PUCO and OCC maintenance taxes) fails to recognize the difference be- tween the nominal and effective tax rates. As previously explained, the effective rate of the gross receipts taxes significantly exceeds the effective rate of the use tax (under the facts shown on the record of this case), even if a local government were to increase the use tax by the maximum amount permitted by law. Petitioner also argues that the public utility excise tax fails the third prong of the Fulton test, because the excise 26 and use taxes are imposed upon different entities (the customer in the case of the use tax; the utility in the case of the public utility excise tax), and therefore cannot fall on substantially equivalent events. Pet. Brief 17-18. Although actual incidence upon the same class of taxpayers is essen- tial to a finding that two taxes are complementary, the Court has recognized that there are instances in which the nominal and actual incidences of a tax fall upon different entities. Fulton Corp., 116 S.Ct. at 858. The most obvious example occurs where a “nominal taxpayer can pass [the tax] through to other parties, like consumers.” Jd. That is precisely the situation here. As two noted authorities have explained, “[w]here public utilities are concerned . . . the tax burden is shifted to consumers through the rates charged for service. This results from the fact that regulatory law and commission practice require taxes payable to be recognized as proper costs of service.” P. Garfield and W. FE. Lovejoy, Public Utility Economics 392 (1964). Under Ohio law, the gross receipts taxes are included in utility rates along with other operating ex- penses, and any increases in tax expense resulting from increases in the public utility excise tax rate may be recov- ered by utilities through a separate tariff filing outside the normal rate case process. Ohio Rev. Code Ann. $§ 4909.15 and 4909.161. This is clearly enough to shift the actual incidence of these taxes from the utility to the consumer, and to satisfy the third prong of the Fulton test by showing that the “real taxpayers are within the same class... ” 116 S.Ct. at 858. Moreover, it is abundantly clear, from a practical standpoint, that the sales and use taxes and the gross re- ceipts taxes fall upon substantially equivalent events: the 27 purchase and consumption of natural gas by retail custom- ers. In all cases, these taxes are applied to the receipts from retail sales of natural gas, “whether they come from the sales proper or are the ‘gross receipts’ of utilities that are subject to the excise tax . . . ” Haefner v. City of Youngs- town, 68 N.E. 2d. at 67.1! To suggest otherwise is to ignore economic reality (since the customer ultimately pays the tax in all cases) and to base one’s determination on “legal abstractions,” rather than “dollars and cents.” Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 70.12 There- fore, if the Court finds that the Fulton test is applicable to the facts of this case, it should likewise find that both the public utility excise tax and the other gross receipts taxes assessed upon public utilities are “compensatory taxes” that fully satisfy the requirements of that test. 11 In this regard, the Ohio gross receipts and use taxes are clearly distinguishable from the taxes challenged in other recent cases, which applied to events that were not substantially equivalent, such as earning income and disposing of waste, Oregon Waste Systems v. Department of Environmental Quality, 114 S.Ct. 1345 (1994), manu- facturing and wholesaling tangible goods, Tyler Pipe Industries v. Washington State Dept. of Revenue, 483 U.S. 232 (1987), Armco Inc. v. Hardesty, 467 U.S. 638 (1984), and the severance of natural resources from the soil and the use of resources imported from other states. Maryland v. Louisiana, 451 U.S. 725 (1981). 12 To assure comparability, Columbia has deliberately limited this analysis to transaction-based taxes which are occasioned by the purchase and consumption of natural gas. Columbia has not, for instance, addressed the state’s general property tax (which is as- sessed upon gas utilities at a rate which is more than three times the rate assessed upon other, non-utility businesses) (Ohio Rev. Code Ann. § 5727.111(C)), or other taxes, such as the assessment used to fund the state’s pipeline safety operations (Ohio Rev. Code Ann. § 4905.92), which applies to natural gas utilities but not to natural gas marketers or other businesses that do not own or operate pipeline facilities. 28 In conclusion, Petitioner has failed to sustain its bur- den of showing that “whatever distinction there existed in form, there was any substantial discrimination in fact.” Gregg Dyeing Co. v. Query, 286 U.S. at 482. There is no basis, on the record of this case, for concluding that the existing Ohio statutory scheme discriminates against out- of-state gas marketers or in favor of local natural gas utili- ties. If anything, it does just the opposite. Since there is no basis in the Commerce Clause for invalidating a tax which discriminates against an intrastate entity, Petitioner’s Com- merce Clause claim should be rejected. B. The Ohio statutory scheme does not violate the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. Petitioner also claims that the Ohio use tax violates the Equal Protection Clause of the Fourteenth Amend- ment. This argument, like Petitioner’s Commerce Clause claim, is predicated upon the contention that the use tax discriminates against out-of-state marketers and in favor of “local” public utilities. Assuming, arguendo, that Petitioner has standing to assert such a claim (even though Petitioner is clearly not an out-of-state marketer, and is therefore not a member of the supposedly disadvantaged class), that argument also fails for the reasons set forth in the preceding section. Petitioner has failed to show that the existing Ohio statu- tory scheme, as applied to the facts of this case, either discriminates against out-of-state gas marketers or in favor of natural gas utilities. The Ohio Supreme Court properly rejected that argument, and its judgement should be affirmed. 29 CONCLUSION For the foregoing reasons, Columbia urges the Court to reject the arguments presented by Petitioner and its supporting amici, and affirm the judgement of the Ohio Supreme Court. Respectfully submitted, ANDREW J. SONDERMAN KENNETH W. CHRISTMAN (Counsel of Record) 200 Civic Center Drive P. O. Box 117 Columbus, Ohio 43216-0117 (614) 460-4655 Counsel for Amicus Curiae Columbia Gas of Ohio, Inc. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_1796%3A14. Public record. Not legal advice.