UNITED STATES v. PTASYNSKI

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ORAL ARGUMENT OF LAWRENCE G. WALLACE, ESQ., ON BEHALF OF THE APPELLANT

Chief Justice Burger: We'll hear arguments next in United States against Ptasynski.

Mr. Wallace, you may proceed when you're ready.

Mr. Wallace: Mr. Chief Justice, and may it please the Court:

On cross motions for summary judgment in this tax refund suit, the district court held the Crude Oil Windfall Profits Tax Act of 1980 unconstitutional and ordered refunds for taxable periods in the year 1980.

The district court held, contrary to our contention, that the act violates the uniformity clause of Article I, Section 8 of the Constitution, and rejected our further contentions that no refund should be available in any event in this suit because there was no oil extracted in 1980 that was subject to the exemption at issue, and our contentions regarding severability of the exemption at issue.

The district court stayed its judgment, and the United States appealed to this Court.

The act at issue was the product of many months, almost a year, of Congressional study and deliberations involving extensive hearings, staff studies, committee reports, floor debate, amendments, et cetera.

It was enacted in conjunction with the phaseout of domestic oil price controls.

The decontrol of domestic oil prices was undertaken to achieve two purposes.

One was to alleviate market disparities, distortions that had existed because of market disparities between the controlled domestic oil prices and the rising world prices subject to manipulation by the OPEC cartel.

And the second purpose was to encourage domestic exploration and development to make the United States less dependent on imported oil.

And it was recognized widely in Congress as a quid pro quo for the price increases that would be caused by decontrol this act was required if President Carter was going to go through with decontrol.

Actually, the phaseout was completed by President Reagan.

But we have cited in note 10 of page 14 of our reply brief a number of statements made on the floor by various members of Congress explicitly recognizing that this was a part of the decontrol program in the sense that the windfall tax was a quid pro quo for decontrol.

Now, the structure of the act is summarized in chart form in the appendix to the jurisdictional statement that we filed on page 3A, which is part of the district court's opinion.

The principal provisions of Title I of the act, which is the title that imposes the tax, are set forth there in chart form.

And our contention is that except for the first categories of exceptions, which are not at issue here and which were designed for other purposes because the revenues there were thought to be devoted to public purposes extraneous to the overall purposes of this act, the other provisions of the act, including the so-called provision for exempt Alaskan oil, all fit into a unified theme.

The act was intricately designed to tax what Congress said was the subject of the tax, the windfall profits that would result from the decontrol of domestic oil prices.

But those windfall profits were to be identified through various mechanisms in the act in a way that did not tax all of the decontrol revenues that would ensue, but only those that would be over and above the ones that served the purposes of decontrol, including the purpose to encourage domestic exploration and development of oil that might otherwise not occur.

It was sometimes put that way in the course of the legislative history, and sometimes stated as a corollary, that the act was designed to impose relatively high tax rates where production cannot be expected to respond very much to further increases in price and relatively low tax rates on oil whose production is likely to be responsive to price.

In other words, the windfall that Congress was seeking to identify was that portion of the decontrol revenues that were not needed for one of the purposes of decontrol, which was to stimulate domestic production.

And the mechanisms used included differences in the rate base and these various tiers of taxable rates, all intricately adjusted so as to identify what Congress was getting at, what it considered to be the windfall.

And as might be expected, the highest rate of tax would be on the so-called old oil, the existing oil production that obviously would not have been stimulated by the decontrol.

The windfall was only being taxed at these various rates.

It wasn't being entirely eliminated.

And other adjustments reflect various details such as the fact that heavy oil is more expensive to extract and produce.

There were special adjustments made for independent producers as against vertically integrated producers because they did not have what was referred to as downstream revenues and needed more in the way of return to encourage their further explorations.

These various factors were considered in great detail and painstakingly adjusted for insofar as it was practicable to do so in this rather elaborate statute.

And the exemption for so-called exempt Alaskan oil fits into this same pattern.

This was carefully drawn to identify those sources of oil in... because of extreme climatic and other conditions where no windfall was expected to accrue at all within the meaning of what Congress was getting at.

Now, this can be understood with reference to a map which is appended to the brief in our support, the amicus curiae brief of the State of Alaska.

Unidentified Justice: What color is it?

Mr. Wallace: That's a green brief, Mr. Justice.

There's no difference in the color code between amicus briefs in our support and amicus briefs in support of the appellees.

But it is a green brief submitted on behalf of the State of Alaska.

It has a foldout map at the back which indicates the scope of the exempt Alaskan oil.

And this particular exemption, I might say at the outset, is a rather strange subject for a holding of invalidity under the uniformity clause, which was, in its historical origins, designed to prevent combinations of states from discriminating in an oppressive way against minorities of states.

What's involved here is an exemption from the tax for a small percentage of oil partially located in one state, but--

Unidentified Justice: Well, Mr. Wallace, is it your submission that the uniformity clause would have no application if one could show that somehow there was no discrimination against a minority of states?

Mr. Wallace: --That is not our submission, but I think--

Unidentified Justice: Then why do you make the point?

Mr. Wallace: --Because it... it... it puts in perspective what it is that we're dealing with here and why we believe that Congress acted consistently with respect to this oil production in keeping with the theme of the act as a whole, rather than in a way that should raise concerns under the uniformity clause.

Now, the... the exemption specifically excludes from the exempt coverage the oil being produced in the Sadlerochit reservoir, which is pictured at the very top.

That is the largest oil reservoir in Alaska, at least of discovered reservoirs, and it is currently producing more oil than is produced in any other state other than Texas as a whole.

That one reservoir is currently producing more oil than any other state as a whole.

The exemption also excludes the Cook Inlet oil and other oil that's been developed down in the area closer to Anchorage.

The dotted line, which identifies the beginning of the North Slope of the Alaska range and Aleutian range is the dividing line for the exemption, but the exemption excludes any oil within 75 miles of the Trans-Atlanta pipe... the Trans-Alaska Pipeline system until it reaches the Arctic Circle, and then the oil is included except for the Sadlerochit reservoir.

Now, the State of Alaska informs us in its amicus brief on pages 5 and 7 that currently approximately 5 percent of the oil being produced in Alaska is subject to the exemption.

It is estimated that during the latter years of the applicability of the windfall profits tax, which has a phaseout provision, that percentage may rise to about 10 or perhaps a little more than 10 percent, although much of the expected additional production would be in Outer Continental Shelf wells which are not part of the State of Alaska at all.

So that we're talking, since there was no production there for more than a year and a half after the act took effect at all, no exempt oil being produced, we're talking about what can on the average not be expected to be more than 10 percent of Alaskan production during the entire period of the act.

And this, in terms of the revenue disparity caused by the exemption, would be further discounted because the Sadlerochit oil and virtually all other Alaskan oil, the great bulk of the 90 percent, is subject to the highest rate of the tax under the statute, 70 percent, whereas the exempt oil would be subject to the rate for newly discovered oil, which at the time of the initial enactment was 30 percent, and in a 1981 amendment is being phased down from 30 to 15 percent on newly discovered oil throughout the United States.

So that we're talking in terms of the effect of the exemption in Alaska of a very small proportion of the revenues that would otherwise be generated from Alaska by this law.

Unidentified Justice: Well, what's that got to do with the uniformity clause?

I can see how you might have an argument about the severability clause.

Mr. Wallace: Well, it does bear on the severability clause, but it also bears on the contention being made by the appellees that this act favors Alaska as a price for getting political support from Alaskan representatives in Congress, and represents a coalition of Alaska with others who favored the act as against the states that would be more heavily taxed.

Actually, Alaska is one of the most heavily taxed states, and every member of the Alaska delegation who voted voted against the act.

But it bears on what is argued to be the legislative background of the act and the way it... it... an effort has been made to fit it into the historical purposes of the uniformity clause as showing an unfair coalition of states acting against the interests of other states.

And that is--

Unidentified Justice: Of course, the fact is that Congress used geographical terms, didn't they, when they might have used other terms that were not geographical.

Mr. Wallace: --That is correct.

Unidentified Justice: And that's your problem.

Mr. Wallace: And that... that... we think that... that what is reflected here is a finding of a unique combination of risks and costs in this area due to the climate, the geological factors, the... the special problems of the fragile environment caused by permafrost.

Many... these things are described in some detail in the brief amicus curiae of the State of Alaska.

But what they show is that because of the dangers of local flooding if the permafrost is disturbed during the warm weather... and all of this was brought out in hearings before Congress... the necessity is in these areas to operate during the winter months when the climate is very severe and when there is a great deal of darkness, in some areas no light for many weeks at a time; they're very remote from transportation, from sources of labor, sources of supply, so that supply and labor costs are many times what they are elsewhere in the United States.

Unidentified Justice: The argument is made in response that there are other areas... for instance, in some offshore drilling programs in cold areas... that present equally expensive problems, Mr. Wallace.

Mr. Wallace: Well, no showing has been made either before Congress or in the district court that that is true.

And Congress based its judgment on what it concluded to be unique problems in Alaska that eliminated the possibility of any windfall occurring there and--

Unidentified Justice: You said that they have very long winters in Alaska and very short days.

Of course, that wouldn't be true in Louisiana, would it?

That's certainly a difference.

Mr. Wallace: --Well, of course it's a difference.

And the... the problems of equipment being subjected to the severe weather problems, the need for delays in the severe weather when no work can be done at all, which requires very highly paid crews to stand by idly and to be housed and fed in these remote areas, these... these problems were detailed in the legislative history.

And the exemption really was put in in response to the suggestion made during the hearings by the Secretary of the Treasury which reflected that the exemption really served the same purposes and reflected the same standards as the other mechanisms in the act used to identify the windfall profit.

And we quoted this testimony by the Secretary of the Treasury early on in the hearing process that there are no windfalls that will be gained by the producers of the Alaskan crudes, confining the remarks to the exempt area.

And he went on to say it is easier to exempt Alaskan production from the tax than to require Alaskan producers to file tax returns solely for the purpose of showing that no liability has been incurred, because this is an expensive tax to administer.

And the exemption, in keeping with the overall purposes of the tax, was meant to encourage the development of these domestic oil resources.

And this brings us to... now, so, let me... before I get to Mr. Justice Blackmun's point, I just want to say that we think that this, because of the findings Congress made about the unique circumstances in Alaska, meets the established standard of this Court's cases under the uniformity clause: that the tax is uniform because it operates with the same force and effect in every place where the subject of it is found, because Congress isolated this area as one where windfall profits would not be found.

Unidentified Justice: Well, the tax is actually on oil production, isn't it?

Mr. Wallace: That is... well, it is designed to tax the windfall profit.

That is what Congress called it.

Unidentified Justice: But is... what is the task on?

That is what I was asking.

Mr. Wallace: It is on oil produced and sold or for which sale is imputed.

If it is stockpiled, if the sales price exceeds the base price specified in the act for the particular oil.

Chief Justice Burger: We'll resume at 1:00, Mr. Wallace.

You may continue, Mr. Wallace.

ORAL ARGUMENT OF LAWRENCE G. WALLACE, ESQ., ON BEHALF OF THE APPELLANT -- Resumed

Mr. Wallace: Thank you, Mr. Chief Justice, and may it please the Court:

If, as I contended before lunch, the act treats all persons similarly situated with regard to the subject matter of the act in a similar manner, then the question remains whether the fact that Congress used geographic terms in describing the scope of the exemption in some way adds an infirmity.

We think not.

We think the exemption... that the uniformity clause protects substantive rights and doesn't prevent Congress from using a clear and convenient means of expressing itself, even though that means happens to employ geographic terms.

They were not co-extensive in this case with any political boundaries at all.

And I think the point is best put--

Unidentified Justice: Well, they were co-extensive in the sense that only the State of Alaska was embraced within the exemption.

Mr. Wallace: --And offshore oil adjacent thereto, Mr. Justice.

Unidentified Justice: But outside the State of Alaska?

Mr. Wallace: Yes.

In the Outer Continental Shelf in the Bering Sea.

And I think the point is best made, if I may quote a sentence used by Judge Friendly in the In re: Penn Central Transportation Company case, a decision that was approved by this Court in the regional reorganization cases in 419 U.S., the way he put it was that since what Congress did was not in violation of the Constitution, we decline to hold its action to have constituted a breach of the uniformity clause there of the bankruptcy clause simply because it used words readily intelligible to its members in the public rather than circumlocutions that would have had exactly the same effect.

And there has been no showing that the effect itself, no showing either in Congress or in the Court below that the effect itself is not a permissible one.

Now, in the brief time remaining I would like to turn to the question of severability.

As in Zobel v. Williams last term, this is not a case in which the Court need speculate about what the Congressional intent was.

It is common ground here that the question of severability is a question of statutory interpretation, and the Congressional intent governs.

The question arose not in time to be included in the committee reports, but it nonetheless arose in the discussion on the conference report prior to the vote and was quite authoritatively addressed by the floor manager of the bill and chairman of the Finance Committee, Senator Long of Louisiana.

And what he said on the floor is:

"Mr. President, it is our intention that in the event the Court should find this favorable treatment for Alaska dictated by the very high production costs in that area should violate the conformity provision as it is there, the uniformity provision in the Constitution, that provision should be regarded as a nullity, and that Alaska will pay the same 30 percent tax on new oil as everybody else. "

"If that should be too much, Congress could consider it in the future. "

And then the next paragraph is the one reproduced on page 11 of our reply brief where he essentially repeats the same thing, emphasizing once again the intention that it is the exemption that would fall under the severability clause of the Internal Revenue Code.

And these views not only were uncontradicted on the floor, but they were supported by a memorandum from the Office of Legislative Counsel that Senator Long then had printed by unanimous consent into the record.

There is no other indication of Congressional intent on this subject.

And since everyone seemed to be satisfied by the reassurance of Senator Long, first that the uniformity clause was not violated, but even if it were, it would not endanger anything but the exemption itself, that is the only indication of Congressional intent we have and should govern.

And, indeed, even by a process of inductive reasoning, since this was a revenue measure reported out of Ways and Means and Senate Finance and one in which the conference report emphasized the amount of revenue that was expected, $227.7 billion over a 12-year period, and pointed to other titles of the act which involved tax credits and aid to needy families and the like as... with the clear implication that these were justified by the revenue intake.

And the fact that the exemption is a very minor part of this overall picture... we're talking about less than ten percent, as I explained, of the proceeds to be expected from one state... and the fact that they pointed to other possible means of subsidizing production if necessary, which of course would not be subject to the uniformity clause, which applies only to taxation measures, it's clear that this, in context, very small tail should not be wagging the dog and abrogating this major revenue measure.

And beyond that, the stopping point, if any of the revenue measure were to be invalidated, should have been only the tax on newly discovered oil, one of the categories being taxed, because the Alaskan exemption applied only to newly discovered oil, and this is a relatively very small part of the revenues produced by the tax.

In 1981, calendar 1981, for example, the first full year that the act was in effect, of 20... more than $26.5 billion in revenues, less than $1.5 billion were from newly discovered oil.

So that even in that way a great deal of the act and its revenue production could have been saved, which is the cardinal principle, particularly in revenue measures.

I'd like to reserve the balance of my time, please.

Chief Justice Burger: Very well, Mr. Wallace.

Mr. Williams.

ORAL ARGUMENT OF STEPHEN F. WILLIAMS, ESQ., ON BEHALF OF THE RESPONDENT

Mr. Williams: Mr. Chief Justice Burger, and may it please the Court:

The uniformity clause of the Constitution requires that excise taxes be uniform throughout the United States.

The crude oil windfall profit tax of 1980 imposes an excise tax on the production and removal of crude oil, and that tax applies, according to the terms of the statute, in 49 states and one-quarter of Alaska.

It's depicted I think very clearly in the map attached to our brief.

The tax quite clearly violates the terms of the Constitution, and accordingly should be found in invalid.

I might say that the Government in its reply brief at page 4 suggests that Congress has taxed such profits, windfall profits, in every place where it has determined them to exist.

You should understand, Your Honors, that the statute has a formula for the computation of windfall profit... that is to say, removal price minus suggested base price... and pursuant to that formula, the oil in the exempt portions of Alaska would be taxable.

Second, following up a few points by Mr. Wallace, there's nothing deminimis about this exception.

Confining ourselves to the Kuparuk River field, which is already in production, you're talking about a field which, if it were a single state, would rank seventh among all oil-producing states in the United States.

As historically understood, the uniformity clause has acted a restraint on regional preferences and upon regional jealousies.

It has done so entirely without any need for the Court to get into questions of tax policy or to get into questions of legislative motivation.

It's been a clear, bright line, understandable to all, and obeyable by all, including Congress.

There's no need after 200 years of a successful operation of this clause to suddenly abandon it in favor of an ill-described formula suggested by the government.

Unidentified Justice: Mr. Williams, would you concede that the Congress could exempt from taxation oil produced in certain described geographical... described climatic conditions, for example?

Mr. Williams: Yes.

I think that Congress probably could have some sort of formula which one would then apply to the ground, and in areas where the climatic standards were met, that formula would govern.

The defense... excuse me.

Unidentified Justice: Well, is it prohibited from giving a shortcut description by reference to a geographical area then?

Mr. Williams: Yes.

First, let me say that despite the references to cold climate, there's no serious contention that this exactly parallels a cold climate, any definition of cold climate.

The point is made by the government and stressed by the Atlantic Richfield amicus brief that one is talking of some combination of factors which result in high production costs.

But the... and so that we seem to be near Judge Friendly's observation that Congress should be forced into circumlocutions.

But the concern of the act as developed in Congress and as developed in this litigation for cost is simply in order to ensure that there are the appropriate and necessary incentives for the production of oil.

Now, for those purposes, cost in the abstract is not of interest to someone interested in investing in the production of oil.

What he is interested in is cost in relation to the product, let's say how many barrels of oil for cost.

When you look at it in that light, Your Honor, the Court, it turns out that in fact the production in Alaska is much less costly than in the lower 48 states.

In fact, the ratio is approximately 20 to 1.

That is to say, the return in terms of barrels of oil produced per dollar of drilling costs in Alaska is less than 6 percent of the return per dollar invested in drilling in the lower 48.

If one is thinking seriously about using some kind of geographic line as a shorthand for high production costs, that factor would... would point towards exempting the lower 48 and not exempting Alaska.

Let me say further that there are perfectly good ways to deal with high production costs, let's say to address the question of high production costs as such.

Unidentified Justice: Well, what do you suppose... what do you suppose this exemption... why did it even come into being, or do you know, or do you care?

It seems... it certainly couldn't be because Alaska outlobbied all the rest of the country.

Mr. Williams: I can't rule that out, Your Honor.

[Laughter]

Unidentified Justice: Well, there are some powerful Senators from that state, that's true, but they only have two votes.

Mr. Williams: They only have two votes, but--

Unidentified Justice: And they voted against it.

Mr. Williams: --They voted against it, but they also withdrew the or ceased the delaying tactics in which they had been engaged up until December 14.

Unidentified Justice: Well, what... so I'll ask my question again.

What did prompt Congress to do this?

Mr. Williams: Your Honor, it's hard to... they certainly thought, or at least many of them must have thought that this was a sensible dealing with the problem of special high production costs.

Unidentified Justice: Yes.

So they were just... you say they were just wrong.

Mr. Wallace: Well, we say that if you look at high production costs--

Unidentified Justice: Well, let's assume they were right, absolutely right.

You'd still be here making this argument.

Mr. Williams: Yes, we would, Your Honor, but I think the point is that in view of the facts that I have mentioned, even if the rational basis test suggested by the Government were applicable, what you're looking at is a... is a trial which would be very difficult and which it would be very difficult to justify the line actually drawn by Congress.

Unidentified Justice: Well, would you say the exemption would be invalid if they exempted all oil produced above the Arctic Circle, and it turned out that the only oil produced was offshore on the Continental Shelf?

Mr. Williams: Well, the two... insofar as they drew the geographic line and insofar as any part of any state was covered by that line, it seems to me it clearly violates the requirement of the uniformity clause.

Now, on the question of production, the suggestion of the Government that the validity of this clause should flicker on and off like a lightbulb in accordance with whether or not there is actual production seems to us most unsound.

You are talking about a statute which from its inception collected tax revenue from oil producers in the lower 48 states and which drew an express legal line between their tax liability and those in Alaska.

Unidentified Justice: Is there any place below... and you call them the lower 48 states... where for long periods of time annually large numbers of workers are unable to work and yet have to be paid?

Mr. Williams: No, Your Honor.

We... we--

Unidentified Justice: Well, that is a difference, isn't it?

Mr. Williams: --We acknowledge that the operating conditions are extremely hostile in Alaska, so that the costs are high, but the costs per barrel are low.

And in terms... in the very terms in which Congress framed its purposes in this statute, that is the relevant kind of cost.

Let me say a word about... in the first place, Congress in this very act addressed the problem of high production costs in the net income limitation.

In the areas where that limitation applies one must simply... one must show the existence of one's costs and compare them to the revenue.

But the Alaskan producer is able to have exempt oil without any reliance whatsoever on what his cost and revenues are.

In terms of the cases, the Government has relied heavily on Head Money Cases, and it has quoted the language of the Court there that the tax applied to all ports alike.

You cannot frame a comparable sentence about this tax.

It does not apply to all oil wells alike or to all newly discovered alike.

It is simply not comparable to the Head Money Cases.

Second, the Government relies on language in the Head Money Cases and in Nicol v. Ames, suggesting that presence of reasonable grounds is enough to justify a tax.

But the language in those cases making that reference essentially is attributable to the fact that before 1900 this Court suggested that the uniformity clause had two dimensions: one, requirement of geographic uniformity; second, a requirement of intrinsic uniformity, which meant that any classification of a tax by Congress was subject to review under the uniformity clause.

And it is in that connection that the Court in those two cases made that explanation by way of justification of the tax.

In 1900 in Melvin v. Ames it completely removed the concept of intrinsic uniformity from the tax, and after 1900 you do not see that language appearing in uniformity clause cases under the tax power.

Finally, the case of Downes v. Bidwell involved a tax, special tax on Puerto Rico clearly different from taxes imposed in the continental United States.

The Court said unless Puerto Rico can be treated as different because it is not a territory of the United States, this tax will have to be struck down.

I want to stress, Your Honor, that this clause has operated successfully, without inquiries in a tax policy and without scrutiny of legislative purpose, for 200 years.

Let me turn, if I may, to the question of remedy.

Unidentified Justice: Before you do that, Mr. Williams, may I ask one question about your theory?

In some of the briefs they suggest there might be a distinction between physical geography and political geography.

Would you make the same argument if... would you take the position that you could never comply with the uniformity clause if you described an exempt area by meets and bounds, say, instead of by political boundaries?

Mr. Williams: Essentially so.

One can imagine some deminimis exception, but... but this is not deminimis.

Unidentified Justice: Well, but... but you would say, for example, all coal mined above 5,000 or something would be equally subject to--

Mr. Williams: That wouldn't seem to me a meets and bounds description.

Unidentified Justice: --Well, I understand that--

Mr. Williams: A meets and bounds description in this act draws a geographic line--

Unidentified Justice: --Well, I understand.

But if you view it without meets and bounds, what if you did it by altitude then, say, another geographic way, another physical geographic boundary?

Mr. Williams: --I don't think there would be any problem with that, Your Honor.

Unidentified Justice: That would be permissible.

Mr. Williams: I believe so, Your Honor.

Unidentified Justice: But meets and bounds would not.

Mr. Williams: Yes, Your Honor.

Unidentified Justice: Or by depth of oil... oil well.

Mr. Williams: Yes, Your Honor.

I think that would be all right.

We have such legislation, although not in tax legislation.

Unidentified Justice: Yes.

Mr. Williams: On the question of remedy, Your Honor, there are three central vices in the Government's proposal that this tax be extended to Alaska.

It'd be wrong for this Court to impose a tax on investors with respect to investment that... investments that Congress deliberately decided to exempt.

It would be especially wrong where such a tax would be retroactive.

It would be wrong for this Court to impose a tax which jeopardizes production, which might jeopardize production in an area where Congress was particularly concerned that production not be jeopardized.

And finally, it would be wrong to violate the precept laid down by Justice Brandeis in the Iowa-Des Moines National Bank case, discussed at pages 35 and 36 of our brief, in which he said that the victim of an illegal... illegally discriminatory tax should not be reduced to asking that that tax... the taxes of other parties be increased.

Unidentified Justice: Well, Mr. Williams, do those observations suggest that we shouldn't in this case, if we were to agree with you on the substantive law issue, follow the practice that we generally have of trying to figure out what Congress would have intended had--

Mr. Williams: No, Your Honor.

No.

We... we... we agree with the Government that the basic test is congressional intent, but we believe that the concept in the... in discerning congressional intent, one has to be wary of judicial imposition of taxes that Congress did not decide to impose.

If there were an expressed provision in the statute that in the event of unconstitutionality of the Alaska provision, the remedy should be to tax Alaska, that would control--

Unidentified Justice: --Is judicial imposition of taxes that Congress didn't intend to impose any worse than judicial relief from taxes elsewhere that Congress did intend to impose?

Mr. Williams: --Yes, Your Honor.

The imposition of a tax, taking of property from a person is something which, according to the Constitution, should not happen without an act of Congress.

And the burden, it seems to us, should be very strongly in the first instance upon the... anyone seeking extension of the tax to show that indeed Congress made such a decision.

Now, here the indirect evidence... one may call it that... as to congressional willingness to tax Alaska is all our way.

There's an overwhelming record showing that Congress did not intend to tax Alaska, the exempt portions of Alaska.

This exemption was in President Carter's bill.

An exemption, similar exemption was in the House bill.

The Senate Finance Committee bill had a broader exception, one for newly discovered oil; and on the floor of the Senate the... that exemption was changed as a result of extremely heavy negotiations, as a result of which the newly discovered oil exemption was dropped and an exemption for Alaskan oil substituted in its place.

That was a package transaction, Your Honor.

It would seem to us extremely inappropriate to take one-half of the package, the tax on Alaska oil, and... I'm sorry... to discard the exemption for Alaskan oil and to retain the tax on newly discovered oil.

Now, this great alliance by the government in terms of direct evidence on Senator Long's statements in the Senate on March 26th, 1980, the first point about those is that they occurred nearly two weeks after the House had finally approved the conference report.

Let us say all action by the House on this bill was complete at the time that Senator Long made his statement.

Therefore, it seems to me inconceivable that the House action could be said in any way to reflect Senator Long's views.

Second, of course Senator Long was one Senator, a distinguished one and very much involved in the passage of the act, but nonetheless only one Senator, and there's no echo from any other Senator in support of him on this.

Finally, even Senator Long's statement indicates that in the terms in which this Court has framed the separability issue, the... he would not want separability.

That is to say, he said that the... in the event of extension of the tax to Alaska, it would be necessary for Congress to go back and make adjustments to correct it.

In Williams v. Standard Oil this Court said that the separation is possible only when Congress would have been satisfied with what remains after the separation.

And it's clear that even Senator Long himself would not have been satisfied with what remains after severance of the Alaska exemption.

The Government also relies heavily on the case of Utah Power and Light.

That, of course, has only a dictum.

The Court had no need whatever to reach the question of separability in that case.

Second, the case is distinguishable in that the record there involved no suggestion whatever that the Idaho legislature was particularly concerned about this exemption.

By contrast, of course, here we have an exemption to which Congress showed a continuous commitment over the entire period through which the legislation was considered.

And I may say the unified theme and the painstaking carving out of the legislation by the Congress, to which Mr. Wallace has alluded is and was involved in that.

Second, the... the dictum in Utah Power and Light was ill considered.

Clearly the issue had not been thoroughly litigated.

The Court makes no reference whatever to the decision of Iowa-Des Moines National Bank, which was at that time and remains the leading case on the proper remedy for a tax which illegally discriminates.

And since the... under the... as the Court was discussing the matter in Utah Power and Light, what was at issue was an illegal discrimination.

The controlling case at that time was Iowa... the Iowa-Des Moines National Bank case.

Moreover, the Utah Power and Light dictum occurs in 1932.

In 1946 this Court in the Township of Hillsborough case said that the Iowa-Des Moines... not only said that the Iowa-Des Moines National Bank case was good law, but it applied it, saying that a state providing a remedy for illegal discrimination which limited the taxpayer to seeking extension of the tax to others was not providing an adequate remedy, and that, therefore, federal jurisdiction was available.

There is also reliance by the Government on the general separability clause of the Internal Revenue Code, Section 7852(a).

The difficulty with that clause, from the Government's point of view, is that the invalid provision, reading the statute in its natural way, is the tax, not the exemption.

There is nothing invalid, quite clearly, about failing to tax particular producers in Alaska.

What is invalid is the combination of taxing people in the other 49 states and, in combination with that, failing to tax similar production in Alaska.

I may say that the very naturalness of that reading is evident to us in Judge White's concurring opinion in the Minneapolis Star case where finding the exemption illegal, he concluded automatically and naturally that the tax was therefore illegal.

In addition, the... it seems to us that Section 7852(a) must be construed in the light of the law then prevailing and now prevailing... that is to say, the decision in Iowa-Des Moines National Bank, and that is to say, treating the problem of remedying an illegal discrimination in taxes as a special kind of remedial problem.

In the absence of any indication that Congress in the... in adopting Section 7852(a) was aiming at overruling the established law on that point, it would seem to me the natural conclusion is that it had no intention at all to undercut the then prevailing rule on the matter.

The only... I may say that the only lower court interpretation of Section 7852(a) that deals with the problem... that interprets the clause in the context of a tax that illegally discriminates is the Moritz case from the Tenth Circuit, and there the Court construed it in the way that we have suggested here; that is to say, to extend relief to the taxpayer who had been discriminated against rather than burdening taxpayers who had been illegally benefitted.

I may say that the... if I may return to Utah Power and Light, the Government argues that that is a case which can be completely disregarded... I'm sorry... which is not at all in conflict with Iowa-Des Moines National Bank because Iowa-Des Moines National Bank did not involve separability.

It is quite true that in Iowa-Des Moines National Bank separatibility per se was not at stake; that is to say, the problem was not the remedying a statute which discriminated illegally.

The discrimination arose because a county auditor had illegally made certain decisions to the benefit of the complaining taxpayer.

There is that... there is that nominal distinction.

The impact of that distinction, it seems to us, Your Honor, cuts entirely our way.

It was perfectly clear in Iowa-Des Moines National Bank what the legislature wanted.

The legislature wanted both sides of discrimination to be taxed at the higher rate.

The county auditor had illegally in violation of statute produced lower rates for a certain set of taxpayers, and despite the obvious intent of the legislature there, the Court said that the remedy must be equalization of taxes by lowering the adversely affected taxpayers' taxes to the level of or to the rate which had been applied to those who had illegally benefitted.

Your Honor, the Court... the remedies suggested by the Government have in common that... the... the Government has suggested a variety of remedies throughout this litigation: one, that the tax be extended to Alaska: second, that the tax be invalidated only insofar as it applies to newly discovered oil; and third, a position adopted in the district court and apparently not pressed here, that the Court itself carve out some sort of exemption for cold climate, distance from markets and things of that sort.

The... all of these... the very multiplicity of proposals by the Government suggests to us the highly legislative character of its remedial suggestions.

The choice between these different proposals obviously involves very different trade-offs between revenue collection for the government, between the problem of persons who have invested in reliance on a particular status quo, and the problems of disincentive to production.

And those trade-offs are surely legislative nature and ones to be made by Congress.

In addition, within the remedies proposed by the Government there are legislative decisions to be made.

The... whether or not if Alaskan oil should be taxed the TAPS adjustment, a special provision, the details of which I needn't give you, should be applied to that oil is a question which would be open if the Court should extend the tax to Alaska.

How the... the revenues from the exempt portions of Alaska should affect the computation of the phaseout provisions, which the phaseout is supposed to start after $227 billion in net revenues have been collected, how those provisions should be adjusted to reflect extension to Alaska are clearly legislative ones and do not seem appropriate for the Court.

Let me say a brief word about the question of ripeness, Your Honors.

The... this is... the ripeness claim here is different from any other that one is familiar with.

Here one has a tax which from its start has led to the taxpayers in the lower 48 states paying taxes.

In addition, the line illegally drawn by the statute is one which had its effects immediately in terms of attracting capital to the exempt areas of Alaska which otherwise producers in the lower 48 states might have attracted.

The Government's proposal that the constitutionality be dependent on production suggests this continual on and off possibility, which has no precedent in your ripeness jurisprudence.

And, finally, the cases which have overcome ripeness and dealt with a statute which has not taken effect, which, of course... and ours has taken effect in terms of forcing the collection of revenue... cases dealing with that have never said that the illegality will begin only when the effect begins.

They have spoken of the act being unlawful at the time of the adjudication even though the effect is only anticipated.

In Pierce v. Society of Sisters, for example, the Court talks about the proper role of an equity court to give relief before the... to give relief immediately for unlawful action, referring to the statute as passed.

There's continual reference to the enormous sums at stake in the event that the government's... in the event that the taxpayers' proposed remedy is adopted.

It seems to me that that need not be a concern, that the Congress has within its power curative measures and that there is no need to shy off from giving the natural remedy despite the presence of those... despite the fact that the immediate result would be the invalidation of a statute which on its face involves large sums.

Your Honor, I want to emphasize that here we have a clause which has worked effectively to restrain regional preferences and jealousies without the courts being concerned with tax policy or legislative motivation.

There is no reason in view of the case with which Congress can handle the problems which are alleged by the Government to exist without drawing geographic lines, there is no need to adopt some substitute test, the testing... the proof of which would be extremely complex.

As far as remedy is concerned, the extension of a tax to investors that Congress decided to exempt, to production that it was concerned to preserve, and leaving taxpayers in a situation where they had no remedy but to increase the taxes of others would not be wrong... would not be right or consistent with the prevailing cases on remedy.

Unidentified Justice: You mean it might--

Mr. Williams: Beg pardon?

Unidentified Justice: --Raise their costs to what others... that your message is that they were a lower cost producer anyway.

Mr. Williams: That is true.

Lower cost in relation to the--

Unidentified Justice: And if you add--

Mr. Williams: --Productivity.

Unidentified Justice: --And if you add the tax, it may not hurt them at all.

Mr. Williams: It may not, but whether--

Unidentified Justice: Except for the amount of the tax--

Mr. Williams: --Whether... whether this Court should take the risk of imposing a tax that Congress decided not to impose is another matter.

Thank you, Your Honor.

Chief Justice Burger: Do you have anything further, Mr. Wallace?

You have three minutes remaining.

ORAL ARGUMENT OF LAWRENCE G. WALLACE, ESQ., ON BEHALF OF THE APPELLANT -- Rebuttal

Mr. Wallace: Yes, Mr. Chief Justice.

Professor Williams has spent much of his time on the question of severability, but our principal contention in this case is that there is no violation of the uniformity clause.

And as I understand his argument in the Appellees' brief, they concede that Congress could have achieved precisely the result it achieved here if it had used different language in drafting the exemption provision at issue.

That means to us that no one is being subjected to taxation that Congress is prohibited by the Constitution from imposing, or in other words that the uniformity... the protection afforded by the uniformity clause, which is substantive protection, is not being violated here.

There have been references to the cost per barrel of producing oil in Alaska.

Of course, the oil being produced costs less per barrel to produce in Alaska than oil elsewhere because you have to add on such enormous transportation costs.

The only reservoirs being developed, particularly in these remote regions, are the ones where you can efficiently produce it because you're getting a wellhead price of $8 to $10 less than the wellhead price that you can get elsewhere.

And that has a great deal to do with why Congress concluded that the Sadlerochit Reservoir should be taxed and taxed at the highest rate.

The exemption was designed to nurture production elsewhere.

And Footnote 26 on page 19 of our brief shows how a slight decline in the price of oil during 1982 was shown to have resulted in a slowdown of development in the Kuparuk River field precisely because of this problem.

One of the things that distinguishes the exempt area from the rest of the United States is the extreme remoteness from refineries and markets that results in very substantial transportation costs.

And below the Arctic Circle the exempt area excludes anything within 75 miles of the Trans-Alaska Pipeline system.

The exemption is carefully tailored to isolate those places where Congress had ample reason to conclude that no windfall would result in terms of what they were trying to reach.

And certainly the theme that is as consistent as the theme that an exemption for this would fit into the scheme of the act is the theme equally in every version of the bill that a very substantial tax would be imposed.

That is as consistent a theme as the exemption theme and was certainly the principal purpose of the act, to have revenues resulting from the windfall that was going to result from decontrol.

Chief Justice Burger: Thank you, gentlemen.

The case is submitted.