COMMONWEALTH EDISON CO. v. MONTANA
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
ORAL ARGUMENT OF WILLIAM P. ROGERS, ESQ., ON BEHALF OF THE APPELLANTS
Chief Justice Burger: We'll hear arguments next in Commonwealth Edison et al. v. Montana.
Mr. Rogers, I think you may now proceed whenever you wish.
Mr. Rogers: Mr. Chief Justice, and may it please the Court:
This is a challenge to a Montana tax based on the Commerce Clause and the Supremacy Clause.
The tax was enacted in 1975.
Prior to 1975 there was an array of taxes in Montana, including a net proceeds tax, a property tax, license tax, and a severance tax.
In addition, the state received royalties from the Federal Government to cover the impact of mining coal in Montana.
And the coal companies... mindful of the problems they had with Anaconda Copper and earlier, provided that the coal companies had to reclaim the land as they mined and they had to post substantial bonds to guarantee that the land would be properly reclaimed.
So presumably, the taxes on the books at that time were sufficient to meet the cost of the services provided by Montana.
In fact... and I point out that this tax was a 1975 tax... in 1973 the severance tax had been increased from 10 cents a ton, based on BTU, to approximately 34 cents a ton.
Shortly thereafter, the Arab oil embargo occurred and it became clear that the nation was facing a very serious energy crisis.
So Montana saw an opportunity.
Montana has more than 25 percent of the coal reserves in the United States and it started to plan how it could maximize its taxes.
The spirit in which it was done was exemplified by one of its sponsors in the House of Representatives when he said, the Arabs have the oil but we have the coal.
Most of this coal is shipped out of the state; 90 percent of it, in fact.
And the coal is leased under long-term contracts, so the discussion in the Legislature for the most part involved the question, how much would the market xx?
The Legislature was advised that the amount of the tax would not be subject to any judicial review.
Unidentified Justice: Well, Mr. Rogers, are you suggesting that the State of Montana could not have doubled its severance tax at any particular time?
Mr. Rogers: No, we're not.
We're claiming that, actually, Montana in this cases did not meet the tests of Complete Auto and Washington Stevedoring.
We don't claim that they're not entitled to tax.
We think that the tax because it was specifically tailored to fall on customers outside the state has to be fairly related to the services provided by Montana.
The result of this tax--
Unidentified Justice: In any event, there was no challenge to the lower rate periods?
Mr. Rogers: --None.
And I might say, parenthetically, there would not have been.
It was the amount of this tax that--
Unidentified Justice: According to the courts below, have you conceded that a 50 percent tax would be?
Mr. Rogers: --No, we have not, Your Honor.
That is a misstatement.
We said that we could not imagine that a tax, that a severance tax of 12-1/2 percent would ever be more than enough.
We think that probably in this case a tax... well, my studies show that no matter how they figured the cost of the services that might be necessary to provide for additional mining of coal, that it could never amount to more than 10 cents a ton additional.
Unidentified Justice: But then isn't that going to make it a case-by-case adjudication in every situation where the federal courts decide whether a tax is or is not?
Mr. Rogers: No, I would not think so, Your Honor.
We think that in a case like this... and I'll come to this in just a moment... that it was deliberately tailored to fall on people outside the state and it's under long-term contracts... the coal companies couldn't get out of those contracts... plus the fact that Montana has 25 percent of all the nation's coal resources and it has over 50 percent of the low sulfur coal in the United States.
Now, we say, under these circumstances, because it's a tailored tax and because it falls to a large extent... 90 percent of the tax is paid for by people in other states... that we are entitled to a trial to show that by no stretch of the imagination can Montana show that they need this money for the services that are provided by Montana.
Unidentified Justice: That's really all you want, is a chance to prove your case?
Mr. Rogers: That is all.
Now, it's interesting, too, that the... let me say before I get to that, so far this tax has amounted... this tax; not the other taxes; this tax... has amounted to about $200 million.
They expect the tax will amount to over a billion dollars in the next ten years and several billions of dollars in the next 20 years.
And we're prepared to prove these things.
We have had a comprehensive study made which showed to our satisfaction that there's no justification for this tax.
Unidentified Justice: But wouldn't the same have been true 20 or 30 or 40 years ago in Oklahoma or Texas with respect to a severance tax on oil?
Mr. Rogers: Well, I really can't answer that question, Your Honor.
I can't imagine that any state would have attempted to do what they've done here.
Let me say, too, that Montana amended their constitution to provide a trust fund to put the money in, and they're putting one-half of all this money in a trust fund.
They don't make any real effort to claim that they need the money.
Unidentified Justice: Does a state have to make a claim that it needs the money in order to exercise the taxing power?
Mr. Rogers: Well, as we read Complete Auto, and Washington Stevedoring, the Court has held that there are four prongs to the test: one, the nexus test; one, the apportionment test, neither of which come into play here; third, the discrimination test, and this case clearly shows the discrimination here.
Let me just read what the Senator said who proposed the tax, if I can find it.
But anyway, he pointed out that... and this is in the legislative history, that this tax was going to be paid for initially by the coal companies but because of the contracts it would be immediately paid for by the utilities, who in turn under the law passed that on to the customers.
So, the tax is being paid for by the customers in Chicago, in Detroit, Minneapolis, and other cities and towns.
Unidentified Justice: Well, why isn't it being paid by Montana consumers too?
Mr. Rogers: Well, it is to some extent, of course, but it's... they get so much money back from the remainder of the tax, it's for... let me say this, Justice White.
This is the most popular tax in the history of Montana, believe me.
Unidentified Justice: Well, it's probably resulted in lowering of some other taxes or at least--
Mr. Rogers: It has--
Unidentified Justice: --they've had some increases?
Mr. Rogers: --It has resulted in considerable lowering of taxes, and they plan in the years ahead not to have to pay any taxes at all.
Now, if Complete Auto and Washington Stevedoring mean anything... and I think this Court intended those cases to mean something... it means for the state, once it decides to tax interstate commerce, has to do it in a nondiscriminatory way, in a way that's fairly related to the services of protection provided by the state.
We're prepared to show that this tax amounts to between $2 and $4 a ton and that the state by no stretch of the imagination can justify more than 20 cents a ton, if they take into account schools and roads and hospitals and everything else they might claim.
Furthermore, because of the trust fund, they know they can't establish that.
I mean, the papers in Montana are full of how do they spend the other 50 percent?
They haven't found out a way to spend the other 50 percent in any manner that's consistent with the--
Unidentified Justice: What if we agreed with you?
What would you contemplate we would say if we agreed with you?
Namely, that under Brady and the Auto case that that fourth category assumes that a tax can be too high on interstate commerce?
Mr. Rogers: --Yes.
Unidentified Justice: And that therefore you ought to have a chance to prove that it's too high?
Mr. Rogers: That's exactly right.
Unidentified Justice: But then, the premise for that is that it may be that 30 percent is too high.
We have to at least decide that.
Mr. Rogers: That's right.
Unidentified Justice: And how do we know that?
Mr. Rogers: Well, we'll--
Unidentified Justice: You're going to... you would convince the Court of that?
Mr. Rogers: --We're going to convince the Court of that.
Secondly, I don't think that the legislatures of the states will defy the standards established by this Court.
Unidentified Justice: Well, the question is, what standards can we establish?
Mr. Rogers: Oh, I think, Your Honor, that you have established a standard, a fairly related standard.
You say in Complete Auto that if a state... first, you say clearly that the state has the right to tax interstate commerce, and in Complete Auto you wipe away the distinctions about labels.
And you said, let's consider the practical effect of a tax, which seems to most lawyers, it's a very sensible position.
Now, the practical effects of this tax... and you don't have to take my word for it, you can look at the legislative history... is, in the first instance, to transfer the tax from people in Montana to out-of-state taxpayers who obviously were not part of the political process.
Unidentified Justice: There are people in Montana who are paying taxes.
Mr. Rogers: --Yes, of course, but they get back so much in the rest of it that, as I said, they've very happy to pay for it.
Unidentified Justice: Mr. Rogers, I agree with what I think you're arguing.
I mean, I thoroughly agree with you, but I don't know how I can sustain it, and that is that I can decide what the tax is going to be on me.
I mean, I'm for that, but I can't sustain it, and is that not what you are arguing?
Mr. Rogers: No, Your Honor--
Unidentified Justice: You want a hearing which will determine how much your tax is to be?
Mr. Rogers: --No, Justice Marshall, that is not.
My argument is that when a tax, as this one does, affects interstate commerce--
Unidentified Justice: Assuming that's true--
Mr. Rogers: --that it should be fairly related to the cost and services provided by the states, a rough equivalence.
We don't say that--
Unidentified Justice: --Will the Court be asked to fix a rate?
Mr. Rogers: --No, Your Honor, we think that--
Unidentified Justice: Well, will the Court be asked to fix a line?
Mr. Rogers: --Well, what we would expect, Your Honor, is as follows.
In this case the Legislature has no record--
Unidentified Justice: I'd love to have the right to fix my own rate of taxes.
Mr. Rogers: --I guess we all would.
Unidentified Justice: Mine would be on a scale of one to ten minus two.
Mr. Rogers: In this case there was no legislative history, no attempt by the Legislature, really, to justify the amount of the tax.
Secondly, they really tailored it, as I've said, to fall on people outside the state.
Third, they realized there was a national emergency and they could take advantage of the crisis.
Now, we would expect that if we tried the case we can show these things.
We would expect the Court merely to say that the Legislature had not followed the standards laid down by this Court, that in this kind of a case, where the facts are specifically tailored, there should be special scrutiny given--
Unidentified Justice: Isn't there some language in the Supreme Court's opinion about its fear of the consequences of strip mining and of the process of restoration?
Mr. Rogers: --Yes, but in this case, as I have said, the state has already provided for reclamation cost, plus the fact that the amount of land that's involved in this is very small.
Montana has 145,000 square miles.
The amount of land that's involved in this strip mining is five square miles.
Unidentified Justice: Well, a fair proportion of it doesn't belong to Montana anyway, does it?
Mr. Rogers: No, about 75 percent of this coal is federal coal.
Unidentified Justice: And so the restoration is performed under federal leases?
Mr. Rogers: Yes.
That's correct, Your Honor.
In other words, the fact is, Justice Rehnquist, there is no justification for this tax.
Now, we say that under those circumstances, constitutionally, that the taxpayers are entitled to a trial to prove that.
Unidentified Justice: You can say that under the Commerce Clause that the tax may well be invalid, but to say there's no "justification" for the tax strikes me as a misapplication of constitutional principles, to say they have to justify a tax.
Mr. Rogers: Maybe I should amend that to say that there was no justification made for it in the Legislature.
Maybe they can justify it at a trial, and we have no objection to that.
We intended to get discovery in this case and we were enjoined from any discovery.
So, if Montana has a justification, and I'm certainly prepared to accept that there is a possibility of it, they certainly didn't make it in the legislative history.
If they could justify it at a trial, fine, but I think the courts are too--
Unidentified Justice: Mr. Rogers, what sort of expenditures in your judgment would justify it?
What if they want to build a couple of hundred very large parks, municipal zoos, and all sorts of public things they never have done before, would that be justifiable?
Mr. Rogers: --Well, I think that because of the other taxes that they've already imposed on the mining of coal, the taxes would have to be in some way related to the impact of additional mining.
But we would be prepared to say that all direct costs, all indirect costs--
Unidentified Justice: You'd say that the limiting principle is that the tax revenues must somehow or other be related to the expenditures of the state that are fairly related to mining, but the tax may not support any other public purpose like unemployment compensation or public parks, environmental matters, or?
Mr. Rogers: --No, Justice Stevens, I would not say that.
I think that they would be entitled to consider those things but not such a large impact.
Montana has about 880 million people.
There are only 1,500 people involved in this mining.
Unidentified Justice: 880 thousand.
Mr. Rogers: What'd I say?
I'm thinking of government expenditures.
Unidentified Justice: That's how many people there'll be there if they can keep all this money.
Mr. Rogers: That's right.
So, there are only 1,500 people involved in this mining.
It's a very low labor intensive operation, so they have very few people connected with mining.
Now, certainly they should pay their share and even more than their share.
We'd be willing to concede ten times their share of libraries and hospitals and all the other indirect costs you can think of.
The difficulty Montana has with the case is they can't think of any reasons.
Now, we'd like to try it.
We don't want to try it here.
We'd like to have a trial and I can assure the Court, if the Court says, in effect that a state under these circumstances can tax without limit, then it's just a matter of time before the other states that have minerals would be right in line.
So we believe that there should be some standard, even if it's a rough equivalence, that a state has to use in passing statutes designed to tax people outside of the state.
As to the Supremacy Clause, we have made, I think, a substantial argument in the brief.
I don't have anything to add to that at the moment.
Unidentified Justice: Before you sit down, though, let me ask one other question.
What is your response to the Solicitor General's argument that the best arm of government to draft the right standard is Congress rather than this Court?
Mr. Rogers: Well, there are two arguments, I think, Justice Stevens.
One, although we recognize that Congress has a part to play, we think that the constitutional issue should be decided by the Court and secondly, if that was the rule, it would be very difficult for Congress to anticipate and preempt all the schemes that the states could dream up in advance.
Unidentified Justice: But don't you agree that if Congress passed a statute that specifically approved the Montana tax, that you would lose this case?
Suppose someone sent a message over today and it said that Congress has just passed a law and the President has just signed it approving the Montana tax?
Mr. Rogers: Yes, I sure wouldn't be here; yes.
But I can't imagine that Congress is going to--
Unidentified Justice: No, probably not.
Mr. Rogers: --Do you think so?
Unidentified Justice: But Congress can certainly eliminate the constitutional issue if it wants to.
Mr. Rogers: Oh, yes: surely, surely.
But what I'm saying is, it would be very difficult to eliminate the constitutional issues in advance, Justice White, and we don't think that's the way to do it.
As I say, one of the problems here was that the Legislature in Montana was advised that they would have no legal problems, that the courts would not challenge this tax, and if... I am satisfied that if the Legislature had been advised that this tax was going to be subject to judicial scrutiny, that we wouldn't be here today because the tax would have been much less.
When Montana imposed this tax was four times as large as any severance tax in the nation.
So this is an excessive, exorbitant tax, and we would like to have a trial to prove it.
Chief Justice Burger: Mr. Attorney General.
ORAL ARGUMENT OF MICHAEL T. GREELY, ESQ., ON BEHALF OF THE APPELLEES
Mr. Greely: Mr. Chief Justice, and may it please the Court:
I'd like to focus the Court's attention today on the actual allegations that the appellants declared in their complaint because there have been a lot of facts bandied about both in the briefs and suggested today by counsel for the appellants as to what the allegations were and what kind of facts the appellants could prove if they'd gone to trial.
First of all, I think it's important to note that basically under the Commerce Clause the appellants have alleged that the mined coal in Montana is destined for outside the state, that the coal is taxed at 20 to 30 percent of the value.
Actually the effective rate of the tax is 22 percent, since the production costs, the taxes on production costs are backed out before the severance tax applies.
And thirdly, they've alleged that the revenues that are anticipated by Montana in the fiscal years '78 and '79 are $34 and $40 million respectively for all coal, not just the coal that they're mining, but for all coal that will be mined in Montana in those years.
And then they say, therefore, that our tax is not fairly related to the services and protections provided by the State of Montana, but in their briefs and today in oral argument we hear that Montana's legitimate needs have already been met, and we hear that the local impact costs from appellants' activities only amount to two cents a ton whereas our tax amounts to $2 or more a ton.
And we also hear that the tax bears no relationship to the legitimate needs of the people of the State of Montana.
Unidentified Justice: Mr. Greely, does Montana follow the procedures of most federal civil rules for the states, all well-pleaded allegations in the complaint are deemed true on a motion to dismiss?
Mr. Greely: That's true, but that's the allegations in the complaint.
What I'm suggesting here is some of these things that have been made in statements but not alleged in the complaint.
Unidentified Justice: But you would have to concede that all of the allegations in the complaint well-pleaded are true since the--
Mr. Greely: All factual allegations--
Unidentified Justice: --Facts; facts.
Mr. Greely: --but not conclusions of law.
Essentially, what the district court held, as I would... under Montana law, would be that under the allegations in the complaint no facts that the plaintiffs could have proved would have given them a right for a trial under the Commerce Clause claims.
Unidentified Justice: Mr. Attorney General, let me put a hypothetical question to you.
Suppose the Legislature passed an act declared on its face to be a substitute, in terms of revenue, for all other taxes levied in the state... state income taxes, state real estate taxes, sales taxes, so that the locals would pay no taxes at all, and all of it would, all the cost of government would be put on one category of taxpayers.
Do you think the courts could inquire into that?
Mr. Greely: Are you talking about a state tax as a substitute for all other state taxes?
I think there's broad discretion in the Legislature as to how to raise money.
I think the constitutional challenge to that type of a tax would be the same that we have on other areas, whether there is a due process question or whether there was a Commerce Clause, possibly a Commerce Clause question.
I think the fact that the Legislature decides to have one tax is not by itself significant.
Unidentified Justice: But one tax on just one category of taxpayers.
That's the thrust of--
Mr. Greely: Well, assuming there was no other discriminations or anything else, I think that that would be something that could feasibly, if that was the decision of the legislature, could feasibly be upheld.
It depends upon what the constitutional challenge was.
Unidentified Justice: --Well, the courts can inquire into it.
Could there be some judicial inquiry into whether this was a discriminatory tax aimed at one category of people?
Mr. Greely: Oh, I suppose that that's possible, certainly.
I guess it depends on what the basis for the challenge would be.
Certainly if it was suggested that the distinction, the taxpayer distinction, the class distinctions were not proper, it might be an equal protection question or something which the courts could certainly take a look at.
Unidentified Justice: Well, it would be not an abnormal process for legislators of a state, particularly, to say, let's put as much as the traffic will bear on the outsiders and relieve the local citizens of our state.
And my hypothetical is an extreme one but they are relieved of all taxes because of the windfall they would get out of taxing one particular industry or one particular category of taxpayers.
Mr. Greely: Well, that's true.
And certainly if that was done on just on one industry there may be a question.
But if you're suggesting that this tax is such a tax, the severance tax in Montana applies equally to any coal that's mined in Montana whether it's to be consumed in Montana or without of Montana, there's no Commerce Clause discrimination question about the severance tax on our coal since it applies equally.
Unidentified Justice: In other words, in that respect it's different from the case that was argued previously, where there's a difference in the tax on the material taken out of the state?
Mr. Greely: Yes, absolutely.
That sounds... if that's the factual situation in that case, there could be a commerce clause discrimination problem which I don't believe is present here in this case.
Unidentified Justice: Well, Mr. Attorney General, under the Complete Auto case, would a tax be subject to judicial review of any kind at some point as it got larger and larger and larger?
What if this were twice as large as it is?
Mr. Greely: It's understandable that the Complete Auto test and the Commerce Clause test have nothing to do with the rates of the tax, and we have contended, as we did in the lower courts, that we could tax 100 percent, 1,000 percent, not because we want to or that that would be an intelligent thing to do, because obviously there's market limitations and there's other limitations.
What we're talking about is as a Commerce Clause matter that the rate of a tax is not important.
There could be some point when the tax, for instance, will quit--
Unidentified Justice: Is that because you--
Mr. Greely: --bringing in revenue... quit bringing in revenue and actually maybe precluded the activity, where you might possibly have a due process clause.
Unidentified Justice: --But you think this is just a local activity that you then--
Mr. Greely: Absolutely.
Unidentified Justice: --and that Complete Auto isn't even implicated because this isn't a tax on commerce?
Mr. Greely: Well, if Complete Auto is--
Unidentified Justice: Yes.
Mr. Greely: --Yes, that's essentially correct.
That's our position, where we're relying on Heisler.
Unidentified Justice: But if we disagreed with you on that, as... I take it the United States doesn't agree with you on that.
Mr. Greely: Well, we're citing Heisler for the proposition that essentially that a severance tax which is a local activity is not a burden on interstate commerce.
Obviously, at that time there was a per se rule that has possibly been somewhat eroded to date, but the basic holding there was that mining because of the nature of the activity was not a burden on interstate commerce.
Unidentified Justice: The United States suggests that Complete Auto does apply but the test is just satisfied.
Mr. Greely: Well, I think if you apply the facts of our case to Complete Auto, that we meet the tests of Complete Auto, in fact, the appellants have conceded that; for the fact that they say that we do meet that test, and that our rate, if we had a rate, a lower rate, that there wouldn't be a problem whatsoever.
The only thing that distinguishes this from Complete Auto is that it has a much higher rate.
And then in addition to that they say, okay, the fair relation test.
Well, I guess the question we're saying is that I'm not absolutely certain what the fair relation test means but I know what it doesn't mean and I know it doesn't mean what the plaintiffs say it does.
And that is that under a fairly related test under Complete Auto that the courts will somehow adjudicate the rate of our tax and put a dollar-to-dollar figure.
In other words, the courts are supposed to add up our trained work force, the number of roads we have in the state, especially those that may be applying to the appellants at the mine sites; that we figure out how much fire protection, we figure out what the social consequences will be.
It seems to me that this is a mammoth judicial undertaking and all the cases essentially say, this is a legislative prerogative, this is a political question.
Unidentified Justice: Mr. Greely, couldn't a state decide in connection with purely local activity not to actually forbid it, but that it simply didn't like the activity and taxed it, say, at a rate of 75 percent?
Mr. Greely: I think that certainly taxes are a way of discouraging activities.
I think the Magnano case that had to do with oleomargarine and the Pittsburgh parking case, I think that there are cases in which taxes are used to discourage activities.
But I don't think it becomes a Commerce Clause question unless the activities actually stop or the product is prohibited from being distributed.
Unidentified Justice: In Complete Auto, the tax there was a state tax imposed... as I remember, and you correct me if I'm mistaken... upon what was concededly an instrumentality of interstate commerce.
Mr. Greely: Correct.
Unidentified Justice: And the question was the constitutional permissibility of any tax at all, was it not?
Mr. Greely: It was a question of whether or not the states could tax involving interstate commerce.
Unidentified Justice: Tax it at all, at all.
Mr. Greely: Right.
Unidentified Justice: And here, as I understand it, the petitioner concedes the constitutional power of the state to impose a severance tax.
Mr. Greely: --That's correct.
Unidentified Justice: And the question is how much.
Mr. Greely: That's the question they're asking this Court to determine.
Unidentified Justice: And it's a different question or maybe--
Mr. Greely: But they're asking this Court to determine that question.
And the courts, to my knowledge, have never done that because to tax is an assessment of benefits, and there's no cases that I'm aware of that say that you have to have a quid pro quo tax... that the amount of the activities of the plaintiffs in the State of Montana and their mining activities, whatever damage they're doing.
And the problem we have, of course, with even going to trial on that is that the damages that they are doing and could be done could be things that we couldn't make a factual determination on: the esthetic value, what's going to happen to the wildlife, what's going to happen 30 years from now, at what point in time do we start adding up all these things?
Do we wait for a few years and see what happens or do we do it now?
And what we're saying is, is that the Commerce Clause does not require any such quid pro quo tax, that a tax is an assessment of benefits; that if a corporation doesn't have school children, it doesn't mean that they don't have to pay school bonds.
Unidentified Justice: --General Greely, let me just take a step further the question the Chief Justice asked you.
Supposing your opponent's assessment is generally correct, that this is an extremely profitable tax in a way for the state and after you win this case, assuming you do, you then reassess your budgetary consideration and decide you don't need any other taxes at all, you repeal all your other taxes and leave your present tax standing in effect.
Would that raise any constitutional question in your judgment?
Mr. Greely: I don't know.
I guess it would depend on how that particular tax which... I'm assuming that the tax would be constitutional if there were no other taxes.
The fact that you would repeal all other taxes and just leave one, I don't see how that by itself could be a constitutional question.
I guess I don't know what the challenge to that would be.
Assuming that it's otherwise constitutional--
Unidentified Justice: Well, it would be precisely the same challenge here, that under the last prong of the Complete Auto Transit case that there is some integrity, that requirement of some relationship between the tax and something the state does and I don't know exactly what that prong means either, but if it means something--
Mr. Greely: --Yes, in answer to your question, I think that even though we can't say maybe exactly what it means, I don't think that it would be a meaningless test.
For instance, the Court could have intended by that that the states must impose, if they impose taxes they must allow the taxpayers to avail themselves of the services, and the appellants in this case haven't alleged that they don't... that they're not capable of benefiting from the services that Montana provides.
Perhaps the Court meant that the tax must somehow be related to the activities of the taxpayer in the state.
And I think clearly that's the case when you attach the tax to the percentage of the value of the mined coal.
Now, I suppose... another thing, they suggested that all the states could meet this test, and I suggest to this Court that that's probably true, because I think most of the state taxes, certainly those that are a severance tax, would meet this kind of a fairly related test and that unless the Court were to find, for instance, that Montana taxed the net federal income of the coal companies as opposed to anything that relates to coal, maybe that wouldn't be related to what the activities were.
But getting back to our main point, the fact is that the fairly related test does not require a balancing of benefits and burdens of providing certain services for the taxpayers other than the ones that they would generally be entitled to by living in the State of Montana.
Unidentified Justice: --Suppose... hypothetically, again... it could be shown that the entire cost of the services which the state gave to five taxpayers engaged in extracting natural resources was $500,000 and that the taxes imposed on them were $100 million.
Do you think there could be some judicial curiosity about that?
Mr. Greely: There possibly could be judicial curiosity but I don't believe that that factual a situation would require a striking of the tax under the Commerce Clause.
It wouldn't require a striking of the tax under the Commerce Clause.
Unidentified Justice: Well, what about--
Mr. Greely: And no tax, to my knowledge... I mean, there's general, this is a general excise tax, this is for the general... there's no, there has been no indication by the state Legislature that the reason for this tax is just to take care of those dangerous things that may happen to the State of Montana because of the impact of coal mining.
Clearly, that is one of the factors that was considered.
It's also to raise general revenue for the State of Montana.
Their concern about the impacts... we're still concerned about the impacts of strip mining in the State of Montana, but that's not the only purpose of the tax.
We use some of it for general fund, we use some of it for general education, alternative energy sources, and so forth.
Unidentified Justice: --Then add to my hypothetical what Mr. Justice Stevens suggested, that all other taxes on all other residents of Montana were repealed and Montanans paid no tax and all the tax was thrust upon five companies or six companies engaged in extracting coal and oil.
Any judicial inquiry then, on any clause?
Not just the Commerce clause.
Mr. Greely: Well, I would suggest that if the tax could not otherwise be questioned, when all the rest of the taxes... I don't believe that by eliminating other taxes that you suddenly make one tax unconstitutional; I don't know exactly what the connection would be.
Unidentified Justice: You might have an Equal Protection Clause problem.
Mr. Greely: Possibly.
Possibly, that you're going to ask one group of taxpayers to shoulder the burden of taxes throughout the state.
However, it's not necessarily... in the Carmichael case, for instance, the corporations who happened to have full employment were, in essence were paying a tax that they didn't need to benefit from, because they kept their employees on the job.
But some of the other corporations who had to pay less of the tax because they had some of their people were unemployed, so then they did it on the basis of how many workers you had in your plant, actually ended up benefiting because they paid less tax but their unemployed people got more benefits.
I think the key thing here is that this tax is not benefits-burdens or a tit-for-tat quid-pro-quo tax.
The fairly related test doesn't require this.
A tax is a general assessment, it's for the common good government.
I think if this Court were to look into rates of taxes under the Commerce Clause, that you would be going against the fundamental proposition as I understand the taxing laws and the ability of the state to tax, and that is that they raise taxes for the common good, and that the courts don't normally go into an inquiry as to what the Legislature based its decision on.
Unidentified Justice: General Greely, help me out on one detail.
I take it that this tax flows into the general coffers of the state; it is not allocated to the various counties and districts as is true, say, in Alaska.
Mr. Greely: There is a... we have what we call the Coal Board, which is a Board appointed by the Governor, and they have authority to distribute a certain amount of money, and applications are made from the local governments in the area where the strip mining takes place, and those applications for grant monies are determined by the Board and money would be given to those localities for various things such as schools, fire and police protection, education, or whatever.
But there is no direct grant.
There is a percentage of the fund that's set aside for local impacts, and that percentage is 8.75 percent.
I believe my time has expired.
Chief Justice Burger: No, your time has not expired, Mr. Attorney General, but this is your... Mr. Rogers.
ORAL ARGUMENT OF WILLIAM P. ROGERS, ESQ., ON BEHALF OF THE APPELLANTS -- REBUTTAL
Mr. Rogers: Well, I'll just take a minute.
I think that this discussion has focused on the issue, and that is whether the Complete Auto test and the Washington Stevedoring test have any meaning.
It's our position that they do have meaning, and that the Court intended that they have meaning.
This, it seems to us, is a classic case because we've been denied a trial and the position of Montana and the Solicitor General both is that there is no limit to the tax that Montana may impose.
As the Attorney General said today, that they may impose, that they would be entitled constitutionally to impose a tax of 1,000 percent, and in the Montana court it was argued that the tax would be without limit.
So, this is a situation where 75 percent of this coal is owned by the Federal Government.
Montana could not impose a tax on that coal without running into the Supremacy Clause, so it has taxed 30 percent allegedly on the severance of the coal.
And I think it's admitted by... as Justice Rehnquist pointed out, by the Solicitor General, that Heisler does not apply here.
The Supreme court of Montana rested its case on Heisler.
So, we believe that we are entitled to a trial.
I think the questions that the Chief Justice and Justice Stevens asked were most appropriate because the fact is that because the tax revenues are so great as a result of this tax, that other taxes are being reduced, and as the taxes continue to grow and as this trust fund continues to grow, it already has $200 million, so the interest on... I don't mean the trust fund has; I mean the tax is $200 million, so the trust fund is getting up, $100 million, as as time goes on it will be in the billions, and Montana won't need any other taxes.
This tax already is amounting to almost, it's approaching 20 percent of the total tax revenues of the state, so it's only a matter of time that there will be no necessity for taxes in Montana.
And under these circumstances, if Complete Auto means anything... and we think it does... in Washington Stevedoring case the Court pointed out that there was no trial, that the appellants had not made their claim of not-fairly-related.
So we think the Complete Auto test requires a trial, and in this case, when it was so clearly tailored to fall on taxpayers outside the state, we believe that we are entitled to a trial.
If the Court should decide in favor of Montana, that we are not entitled to a trial, that means that under these circumstances in the future any state could tax without limit, and I think the without-limit concept would have the effect of balkanizing this nation.
There are mineral resources and there are timber resources and all kinds of resources, and if each state may tax without limit, disregarding the needs of the nation and that the only remedy will be to go to Congress each time and ask for Congress to preempt the tax, it will be very difficult.
We don't think that this Court would want to create that type of result.
We believe that after a trial that Montana will realize that this tax is excessive.
Already the people in Montana... I notice some Senators are saying the tax is excessive, and I think once this Court lays down some general guidelines for the states, that the state legislatures will tend to comply with those guidelines.
We do not suggest that the courts, any courts, set the tax.
We say the tax should be set by the state legislatures, but they should be fairly related to the services and protection provided to the taxpayer by the state.
Thank you very much.
Unidentified Justice: Mr. Rogers, may I ask you a question before you conclude?
You haven't had a chance to introduce evidence but are there public records that would show which states have the minerals that are essential to the operation of our country?
For example, how many states have uranium?
Mr. Rogers: Well, I don't know the answer specifically to uranium but the answer to your question is, yes, there are records.
For example, Montana and Wyoming together have 40 percent of the coal reserves of the total country.
Unidentified Justice: How many states control the copper of the United States?
Mr. Rogers: I don't happen to know that, but they are not so many.
There are a few states that control the copper.
I think they're--
Unidentified Justice: What about sulfur?
Mr. Rogers: --mostly western states; Nevada and Utah and a few others like that.
But it would be a small number of states.
Unidentified Justice: What about sulfur?
Mr. Rogers: I would think the same thing is true in the case of sulfur.
Unidentified Justice: Texas and Louisiana?
Mr. Rogers: Yes.
Unidentified Justice: What is the basic purpose of the Commerce Clause, Mr. Rogers?
Mr. Rogers: The basic purpose of the Commerce Clause is to permit a free market for goods in commerce so that no state may impose an undue burden on that commerce, and that the Federal Government should guard against states imposing undue burdens on that commerce.
And we believe that in this case that's exactly what Montana has done.
Thank you very much.
Chief Justice Burger: Thank you, gentlemen.
The case is submitted.
Unidentified Justice: The Honorable Court is now adjourned until tomorrow at ten o'clock.