Commonwealth Edison Co. v. Montana
Encyclopedia
Commonwealth Edison Co. v. Montana, 453 U.S. 609 (1981) is a 6-to-3 ruling by the Supreme Court of the United States
that held that a severance tax
in Montana
does not violate the Commerce Clause
or the Supremacy Clause
of the United States Constitution
.
" with little economic development
whose natural resources would be extracted and the state left with severe environmental degradation, the Montana State Legislature
enacted a severance tax on each ton of coal mined in the state. Then-Governor Tom Judge
called the statute "the most significant piece of legislation enacted in Montana in this century." It was attacked in a RAND Corporation
study (partly financed by the National Academies of Science) as excessive. An amendment was proposed and adopted in 1976 requiring that at least one-fourth of the coal severance tax be deposited into a Permanent Coal Tax Trust Fund and that, after 1979, at least half the tax revenues be deposited into the fund. The fund could not be tapped unless three-fourths of each chamber of the state legislature voted to do so. The tax, levied on the cost "at the mine mouth," varied depending on the market value of the coal, the coal's energy content, and the method of extraction. Generally speaking, most sub-bituminous coal
was taxed at a rate of 30% and lignite coal
at 20%.
Coal producers
in Montana and 11 out-of-state utilities (including Commonwealth Edison
) challenged the constitutionality
of the severance tax, arguing it was invalid under the Commerce and Supremacy Clauses of the U.S. Constitution. The Montana state district court for Lewis and Clark County
dismissed the complaint in July 1979. Montana State Attorney General
Mike Greely hailed the decision, declaring "Montana will never again roll over and play dead when big outside interests decide to take our resources." The plaintiffs appealed to the Montana Supreme Court
. Additional Midwestern
utilities joined the suit, claiming that the state of Montana was acting like OPEC
and accusing Montanans of being "blue-eyed Arabs". The Montana Supreme Court upheld the tax's constitutionality on July 17, 1980. The utilities appealed, and the U.S. Supreme Court granted certiorari
in December 1980.
Thurgood Marshall
wrote the decision for the majority. He was joined by Chief Justice
Warren Burger and Associate Justices William J. Brennan, Jr.
, Potter Stewart
, Byron White
, and William Rehnquist
.
Justice Marshall addressed the Commerce Clause issue first. The majority agreed with Commonwealth Edison's claim that, even though a tax is imposed before the goods become interstate commerce, this does not mean the tax evades constitutional analysis. Rejecting the reasoning in Heisler v. Thomas Colliery Co., 260 U.S. 245 (1922), the majority "disapproved" of any distinction between intrastate and interstate commerce based on the idea that the Commerce Clause denies states the right to burden interstate commerce, and concluded that state severance taxes came under the jurisdiction of the Constitution's Commerce Clause. The respondents argued that the appropriate test for evaluating a tax under the Commerce Clause should be the four-prong test set forth in Complete Auto Transit, Inc. v. Brady
, 430 U.S. 274 (1977), and that the Montana tax violated the third prong of the Complete Auto Transit test by discriminating against out-of-state consumers of Montana's coal. But the majority concluded no discrimination existed, because the tax burden was borne equally by all out-of-state consumers. The appellants also argued the tax violated the fourth prong of the test because it was not "fairly related to the services provided by the State" (e.g., the amount of the tax collected exceeds the cost of services provided). But the majority disagreed: Commonwealth Edison had fundamentally misconstrued the Court's test in Complete Auto. The Montana Supreme Court had characterized the severance tax as intended for general government purposes, a finding the U.S. Supreme Court refused to dispute. Thus, there could be no "excessiveness" test. Nor was there any question that the state of Montana had the right to levy the tax for the purposes it did. Justice Marshall next identified how the fourth prong of the Complete Auto test should be interpreted:
The Court held that the Montana severance tax easily met this test. The Court refused to decide whether a tax could ever be "too high" under the Constitution, leaving this judgment expressly to the legislative branch.
Justice Marshall next addressed whether the tax violated the Supremacy Clause. The first contention was that the tax interfered with the purposes of the Mineral Lands Leasing Act of 1920, 30 U.S.C. §181 et seq., as amended by the Federal Coal Leasing Amendments Act of 1975, P.L. 94-377. But the Court observed that the Mineral Lands Leasing Act of 1920 expressly authorizes states to impose severance and excise taxes on coal mined from federal land, and that the Supreme Court had agreed with this interpretation of the law in Mid-Northern Oil Co. v. Walker, 268 U.S. 45 (1925). There was nothing in the legislative history of either the 1920 Act or the 1975 Amendments to indicate otherwise; indeed, if a state severance tax were found to interfere with federal leases, all such taxes (of any amount) would have to be enjoined—an outcome Congress clearly did not intend. Appellants had also argued that the Montana tax "frustrated" the broad goals of national energy policy, but the Court refused to agree on two grounds. First, the Court would not overturn a state act unless "the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained."
Second, the Supreme Court found that during debates over recent national energy legislation Congress had been fully cognizant of the Montana tax and had refused to take action to pre-empt it or ameliorate its impact on other states.
In a brief concurrence, Justice White called the issues involved "troubling". Nonetheless, "Congress has the power to protect interstate commerce from intolerable or even undesirable burdens," he wrote, and "The constitutional authority and the machinery to thwart efforts such as those of Montana, if thought unacceptable, are available to Congress... . As I presently see it, therefore, the better part of both wisdom and valor is to respect the judgment of the other branches of the Government."
dissented, joined by Justices Lewis F. Powell, Jr. and John P. Stevens.
For Justice Blackmun, the issue was whether the Montana severance tax constituted a "tailored tax" in violation of the test in Complete Auto Transit. He was deeply troubled by the fact that Montana had control over one-quarter of the nation's coal reserves and nearly total control of the nation's low-sulfur coal reserves, and that most of these reserves lay under land controlled by the federal government. In addition, Blackmun argued there was a "tension" in the Court's ruling as to whether interstate commerce should be relatively unhindered from interference by state taxation and whether states should be allow to recoup costs associated with interstate commerce. Blackmun agreed with the majority that the tax was not discriminatory. But he disagreed that the tax did not burdern interstate commerce, characterizing the majority's ruling as making Montana free "to tax this coal at 100% or even 1,000% of value, should it choose to do so." Blackmun characterized the majority's decision as "mechanical," and claimed it was not in step with prior Court rulings on burdensome taxation. Blackmun further argued that the Montana severance tax was a "tailored tax" because it only taxed coal destined for interstate commence, and thus deserved stricter scrutiny under the Complete Auto test. Accordingly, given the economic conditions and importance of national energy policy, Blackmun would have remanded the case for trial for further determination of these issues. Blackmun agreed with the majority, however, that there was no Supremacy Clause issue.
The U.S. Supreme Court had a second occasion to address issues with the Montana coal severance tax in 1998. In 1904, the Crow Nation
ceded part of its tribal reservation back to the government of the United States. The federal government continued to hold the mineral rights under these lands in trust for the tribe. Montana's coal severance tax applied to coal mined on both the ceded federal land as well as land beneath the Crow Nation. The Crow Nation sued, claiming that the Montana tax impinged on their tribal sovereignty and was pre-empted by federal law. In the landmark Indian law case, Montana v. Crow Tribe of Indians, 523 U.S. 696 (1998), the U.S. Supreme Court disagreed on both counts, reversing the previous judgments of the Ninth Circuit.
Other legal scholars criticize the ruling for, in their view, undermining the importance of the fourth prong of the Complete Auto Transit test.
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
that held that a severance tax
Severance tax
Severance taxes are incurred when non-renewable natural resources are separated from a taxing jurisdiction. Industries that typically incur such taxes are oil and gas, coal, mining, and timber industries....
in Montana
Montana
Montana is a state in the Western United States. The western third of Montana contains numerous mountain ranges. Smaller, "island ranges" are found in the central third of the state, for a total of 77 named ranges of the Rocky Mountains. This geographical fact is reflected in the state's name,...
does not violate the Commerce Clause
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...
or the Supremacy Clause
Supremacy Clause
Article VI, Clause 2 of the United States Constitution, known as the Supremacy Clause, establishes the U.S. Constitution, U.S. Treaties, and Federal Statutes as "the supreme law of the land." The text decrees these to be the highest form of law in the U.S...
of the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
.
Background
In 1975, concerned that Montana was a "stereotypical colonial stateColonialism
Colonialism is the establishment, maintenance, acquisition and expansion of colonies in one territory by people from another territory. It is a process whereby the metropole claims sovereignty over the colony and the social structure, government, and economics of the colony are changed by...
" with little economic development
Economic development
Economic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
whose natural resources would be extracted and the state left with severe environmental degradation, the Montana State Legislature
Montana State Legislature
The Montana State Legislature is the state legislature of the U.S. state of Montana. It is composed of the 100-member Montana House of Representatives and the 50-member Montana Senate....
enacted a severance tax on each ton of coal mined in the state. Then-Governor Tom Judge
Thomas Lee Judge
Thomas Lee Judge was an American politician.Judge was born in Helena, Montana. He served in the Montana House of Representatives from 1961 to 1967 and in the Montana Senate from 1967 to 1969, and as Lieutenant Governor of Montana from 1969 to 1973. Judge was the 18th Governor of Montana from 1973...
called the statute "the most significant piece of legislation enacted in Montana in this century." It was attacked in a RAND Corporation
RAND
RAND Corporation is a nonprofit global policy think tank first formed to offer research and analysis to the United States armed forces by Douglas Aircraft Company. It is currently financed by the U.S. government and private endowment, corporations including the healthcare industry, universities...
study (partly financed by the National Academies of Science) as excessive. An amendment was proposed and adopted in 1976 requiring that at least one-fourth of the coal severance tax be deposited into a Permanent Coal Tax Trust Fund and that, after 1979, at least half the tax revenues be deposited into the fund. The fund could not be tapped unless three-fourths of each chamber of the state legislature voted to do so. The tax, levied on the cost "at the mine mouth," varied depending on the market value of the coal, the coal's energy content, and the method of extraction. Generally speaking, most sub-bituminous coal
Sub-bituminous coal
Sub-bituminous coal is a type of coal whose properties range from those of lignite to those of bituminous coal and are used primarily as fuel for steam-electric power generation.- Properties:...
was taxed at a rate of 30% and lignite coal
Lignite
Lignite, often referred to as brown coal, or Rosebud coal by Northern Pacific Railroad,is a soft brown fuel with characteristics that put it somewhere between coal and peat...
at 20%.
Coal producers
Coal mining
The goal of coal mining is to obtain coal from the ground. Coal is valued for its energy content, and since the 1880s has been widely used to generate electricity. Steel and cement industries use coal as a fuel for extraction of iron from iron ore and for cement production. In the United States,...
in Montana and 11 out-of-state utilities (including Commonwealth Edison
Commonwealth Edison
Commonwealth Edison is the largest electric utility in Illinois, serving the Chicago and Northern Illinois area...
) challenged the constitutionality
Constitutionality
Constitutionality is the condition of acting in accordance with an applicable constitution. Acts that are not in accordance with the rules laid down in the constitution are deemed to be ultra vires.-See also:*ultra vires*Company law*Constitutional law...
of the severance tax, arguing it was invalid under the Commerce and Supremacy Clauses of the U.S. Constitution. The Montana state district court for Lewis and Clark County
Lewis and Clark County, Montana
-National protected areas:* Flathead National Forest * Helena National Forest * Lewis and Clark National Forest * Lolo National Forest * Rocky Mountain Front Conservation Area -Demographics:...
dismissed the complaint in July 1979. Montana State Attorney General
Montana State Government
As established and defined by the Montana Constitution, the government of the State of Montana is composed of three branches, the Executive, Judicial, and Legislative...
Mike Greely hailed the decision, declaring "Montana will never again roll over and play dead when big outside interests decide to take our resources." The plaintiffs appealed to the Montana Supreme Court
Montana Supreme Court
The Montana Supreme Court is the highest court of the Montana state court system in the U.S. state of Montana. It is established and its powers defined by Article VII of the 1972 Montana Constitution...
. Additional Midwestern
Midwestern United States
The Midwestern United States is one of the four U.S. geographic regions defined by the United States Census Bureau, providing an official definition of the American Midwest....
utilities joined the suit, claiming that the state of Montana was acting like OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...
and accusing Montanans of being "blue-eyed Arabs". The Montana Supreme Court upheld the tax's constitutionality on July 17, 1980. The utilities appealed, and the U.S. Supreme Court granted certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
in December 1980.
Majority
Associate JusticeAssociate Justice of the Supreme Court of the United States
Associate Justices of the Supreme Court of the United States are the members of the Supreme Court of the United States other than the Chief Justice of the United States...
Thurgood Marshall
Thurgood Marshall
Thurgood Marshall was an Associate Justice of the United States Supreme Court, serving from October 1967 until October 1991...
wrote the decision for the majority. He was joined by Chief Justice
Chief Justice of the United States
The Chief Justice of the United States is the head of the United States federal court system and the chief judge of the Supreme Court of the United States. The Chief Justice is one of nine Supreme Court justices; the other eight are the Associate Justices of the Supreme Court of the United States...
Warren Burger and Associate Justices William J. Brennan, Jr.
William J. Brennan, Jr.
William Joseph Brennan, Jr. was an American jurist who served as an Associate Justice of the United States Supreme Court from 1956 to 1990...
, Potter Stewart
Potter Stewart
Potter Stewart was an Associate Justice of the United States Supreme Court. During his tenure, he made, among other areas, major contributions to criminal justice reform, civil rights, access to the courts, and Fourth Amendment jurisprudence.-Education:Stewart was born in Jackson, Michigan,...
, Byron White
Byron White
Byron Raymond "Whizzer" White won fame both as a football halfback and as an associate justice of the Supreme Court of the United States. Appointed to the court by President John F. Kennedy in 1962, he served until his retirement in 1993...
, and William Rehnquist
William Rehnquist
William Hubbs Rehnquist was an American lawyer, jurist, and political figure who served as an Associate Justice on the Supreme Court of the United States and later as the 16th Chief Justice of the United States...
.
Justice Marshall addressed the Commerce Clause issue first. The majority agreed with Commonwealth Edison's claim that, even though a tax is imposed before the goods become interstate commerce, this does not mean the tax evades constitutional analysis. Rejecting the reasoning in Heisler v. Thomas Colliery Co., 260 U.S. 245 (1922), the majority "disapproved" of any distinction between intrastate and interstate commerce based on the idea that the Commerce Clause denies states the right to burden interstate commerce, and concluded that state severance taxes came under the jurisdiction of the Constitution's Commerce Clause. The respondents argued that the appropriate test for evaluating a tax under the Commerce Clause should be the four-prong test set forth in Complete Auto Transit, Inc. v. Brady
Complete Auto Transit, Inc. v. Brady
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 , is a case decided by the Supreme Court of the United States regarding the Commerce Clause and sales tax.-Background:...
, 430 U.S. 274 (1977), and that the Montana tax violated the third prong of the Complete Auto Transit test by discriminating against out-of-state consumers of Montana's coal. But the majority concluded no discrimination existed, because the tax burden was borne equally by all out-of-state consumers. The appellants also argued the tax violated the fourth prong of the test because it was not "fairly related to the services provided by the State" (e.g., the amount of the tax collected exceeds the cost of services provided). But the majority disagreed: Commonwealth Edison had fundamentally misconstrued the Court's test in Complete Auto. The Montana Supreme Court had characterized the severance tax as intended for general government purposes, a finding the U.S. Supreme Court refused to dispute. Thus, there could be no "excessiveness" test. Nor was there any question that the state of Montana had the right to levy the tax for the purposes it did. Justice Marshall next identified how the fourth prong of the Complete Auto test should be interpreted:
The relevant inquiry under the fourth prong of the Complete Auto Transit test is not, as appellants suggest, the amount of the tax or the value of the benefits allegedly bestowed as measured by the costs the State incurs on account of the taxpayer's activities. Rather, the test is closely connected to the first prong of the Complete Auto Transit test. Under this threshold test, the interstate business must have a substantial nexus with the State before any tax may be levied on it. See National Bellas Hess, Inc. v. Illinois Revenue Dept., 386 U.S. 753 (1967). Beyond that threshold requirement, the fourth prong of the Complete Auto Transit test imposes the additional limitation that the measure of the tax must be reasonably related to the extent of the contact, since it is the activities or presence of the taxpayer in the State that may properly be made to bear a "just share of state tax burden," Western Live Stock v. Bureau of Revenue, 303 U.S., at 254. See National Geographic Society v. California Board of Equalization, 430 U.S. 551 (1977); Standard Pressed Steel Co. v. Washington Revenue Dept., 419 U.S. 560 (1975).
The Court held that the Montana severance tax easily met this test. The Court refused to decide whether a tax could ever be "too high" under the Constitution, leaving this judgment expressly to the legislative branch.
Justice Marshall next addressed whether the tax violated the Supremacy Clause. The first contention was that the tax interfered with the purposes of the Mineral Lands Leasing Act of 1920, 30 U.S.C. §181 et seq., as amended by the Federal Coal Leasing Amendments Act of 1975, P.L. 94-377. But the Court observed that the Mineral Lands Leasing Act of 1920 expressly authorizes states to impose severance and excise taxes on coal mined from federal land, and that the Supreme Court had agreed with this interpretation of the law in Mid-Northern Oil Co. v. Walker, 268 U.S. 45 (1925). There was nothing in the legislative history of either the 1920 Act or the 1975 Amendments to indicate otherwise; indeed, if a state severance tax were found to interfere with federal leases, all such taxes (of any amount) would have to be enjoined—an outcome Congress clearly did not intend. Appellants had also argued that the Montana tax "frustrated" the broad goals of national energy policy, but the Court refused to agree on two grounds. First, the Court would not overturn a state act unless "the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained."
Second, the Supreme Court found that during debates over recent national energy legislation Congress had been fully cognizant of the Montana tax and had refused to take action to pre-empt it or ameliorate its impact on other states.
In a brief concurrence, Justice White called the issues involved "troubling". Nonetheless, "Congress has the power to protect interstate commerce from intolerable or even undesirable burdens," he wrote, and "The constitutional authority and the machinery to thwart efforts such as those of Montana, if thought unacceptable, are available to Congress... . As I presently see it, therefore, the better part of both wisdom and valor is to respect the judgment of the other branches of the Government."
Dissent
Associate Justice Harry BlackmunHarry Blackmun
Harold Andrew Blackmun was an Associate Justice of the Supreme Court of the United States from 1970 until 1994. He is best known as the author of Roe v. Wade.- Early years and professional career :...
dissented, joined by Justices Lewis F. Powell, Jr. and John P. Stevens.
For Justice Blackmun, the issue was whether the Montana severance tax constituted a "tailored tax" in violation of the test in Complete Auto Transit. He was deeply troubled by the fact that Montana had control over one-quarter of the nation's coal reserves and nearly total control of the nation's low-sulfur coal reserves, and that most of these reserves lay under land controlled by the federal government. In addition, Blackmun argued there was a "tension" in the Court's ruling as to whether interstate commerce should be relatively unhindered from interference by state taxation and whether states should be allow to recoup costs associated with interstate commerce. Blackmun agreed with the majority that the tax was not discriminatory. But he disagreed that the tax did not burdern interstate commerce, characterizing the majority's ruling as making Montana free "to tax this coal at 100% or even 1,000% of value, should it choose to do so." Blackmun characterized the majority's decision as "mechanical," and claimed it was not in step with prior Court rulings on burdensome taxation. Blackmun further argued that the Montana severance tax was a "tailored tax" because it only taxed coal destined for interstate commence, and thus deserved stricter scrutiny under the Complete Auto test. Accordingly, given the economic conditions and importance of national energy policy, Blackmun would have remanded the case for trial for further determination of these issues. Blackmun agreed with the majority, however, that there was no Supremacy Clause issue.
Further developments and rulings
Beginning in 1987, Montana reduced its tax on bituminous coal to 15% and on lignite coal to 10%, and exempting the first 20,000 tons (later, 50,000 tons) of coal mined from any tax whatsoever. In 1992, the state legislature created a "Treasure State Endowment Trust Fund" under the Permanent Coal Tax Trust Fund, and diverted money from the Permanent Fund into the Endowment Fund for the purposes of supporting local government. A 1999 state law subsequently enacted a "licensing fee" equal to 50% of the severance tax, and allowed each coal mining company to apply up to 101% of the license against the severance tax (effectively halving the tax on coal mined in the state). A coalitions of citizens sued, arguing this illegally diverted funds from the Permanent Trust. In Montanans for the Coal Trust v. State, 2000 Mont. 13 (2000), the Montana Supreme Court agreed and enjoined the licensing law.The U.S. Supreme Court had a second occasion to address issues with the Montana coal severance tax in 1998. In 1904, the Crow Nation
Crow Nation
The Crow, also called the Absaroka or Apsáalooke, are a Siouan people of Native Americans who historically lived in the Yellowstone River valley, which extends from present-day Wyoming, through Montana and into North Dakota. They now live on a reservation south of Billings, Montana and in several...
ceded part of its tribal reservation back to the government of the United States. The federal government continued to hold the mineral rights under these lands in trust for the tribe. Montana's coal severance tax applied to coal mined on both the ceded federal land as well as land beneath the Crow Nation. The Crow Nation sued, claiming that the Montana tax impinged on their tribal sovereignty and was pre-empted by federal law. In the landmark Indian law case, Montana v. Crow Tribe of Indians, 523 U.S. 696 (1998), the U.S. Supreme Court disagreed on both counts, reversing the previous judgments of the Ninth Circuit.
Assessment
Commonwealth Edison Co. v. Montana has been criticized by legal scholars for overturning Heisler v. Thomas Colliery Co. and subsequent rulings.Other legal scholars criticize the ruling for, in their view, undermining the importance of the fourth prong of the Complete Auto Transit test.