Maryland et al. v. Louisiana
451 U.S. 725 (1981)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A state law violates the Supremacy Clause if it interferes with the authority of a federal regulatory agency. Additionally, a state tax violates the Commerce Clause if, through a scheme of exemptions and credits, it discriminates against interstate commerce by providing a direct commercial advantage to local interests.
Facts:
- Natural gas is extracted from the federally-owned Outer Continental Shelf (OCS) in the Gulf of Mexico.
- This gas is transported via pipeline to processing plants in coastal Louisiana, where it is 'dried' by removing liquefiable hydrocarbons.
- Approximately 98% of the OCS gas processed in Louisiana is then transported through interstate pipelines for consumption in over 30 other states.
- Louisiana enacted a 'First-Use Tax' on any natural gas imported into the state that had not been previously taxed by another state or the U.S.
- The tax primarily applied to gas produced in the federal OCS.
- The Louisiana law provided exemptions for OCS gas used for certain in-state purposes, such as manufacturing fertilizer or producing oil.
- The law also established a Severance Tax Credit, which allowed any taxpayer liable for the First-Use Tax to receive an equivalent credit against any severance tax owed for resource extraction within Louisiana.
- Further credits were provided to in-state utilities, gas distributors, and direct purchasers to shield Louisiana consumers from the economic impact of the tax.
Procedural Posture:
- Eight states filed a motion for leave to file a complaint against Louisiana directly in the U.S. Supreme Court, invoking the court's original jurisdiction.
- The Supreme Court granted the motion to file and appointed a Special Master to manage the case.
- The Special Master recommended, and the Court later approved, the intervention of the United States, the Federal Energy Regulatory Commission (FERC), and 17 pipeline companies as plaintiffs.
- The Special Master recommended that the Supreme Court deny Louisiana's motion to dismiss, which argued that the plaintiff states lacked standing and that the case was inappropriate for original jurisdiction.
- On the plaintiffs' motion for judgment on the pleadings, the Special Master recommended that the motion be denied and that the case proceed to evidentiary hearings.
- The plaintiffs and Louisiana filed exceptions to the Special Master's reports, which were then before the Supreme Court for a final decision.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does Louisiana's First-Use Tax on natural gas violate the Supremacy Clause by interfering with federal regulation of natural gas pricing, and does it violate the Commerce Clause by discriminating against interstate commerce?
Opinions:
Majority - Justice White
Yes, the Louisiana First-Use Tax is unconstitutional. Section 1303C of the Act violates the Supremacy Clause because it impermissibly interferes with the federal regulatory scheme. The Natural Gas Act grants the Federal Energy Regulatory Commission (FERC) exclusive authority to determine the proper allocation of costs for the wholesale sale of natural gas. By statutorily deeming the tax a 'cost associated with uses made by the owner in preparation of marketing' and mandating it be passed on to the purchaser, Louisiana usurped FERC's authority. The tax scheme also violates the Commerce Clause because its structure of exemptions and credits creates unconstitutional discrimination against interstate commerce. The various credits protect Louisiana consumers from the tax's burden and the Severance Tax Credit provides a direct commercial advantage to those who produce gas in Louisiana, meaning the principal effect of the tax is to burden gas moving out of the state. This is not a valid 'compensatory tax' because the 'first use' of OCS gas is not a substantially equivalent event to the severance of gas from Louisiana soil, and the scheme fails the core requirement of equal treatment for local and interstate commerce.
Dissenting - Justice Rehnquist
The Court should not have exercised its original jurisdiction in this case. The Court's original jurisdiction should be invoked sparingly and only in cases of the greatest 'seriousness and dignity,' not for run-of-the-mill claims where a state acts merely as a consumer. The claims asserted by the plaintiff States do not implicate their core sovereign interests, such as boundary or water rights disputes. Furthermore, an adequate alternative forum exists, as the pipeline companies were already challenging the tax's constitutionality on the very same grounds in Louisiana state courts. By hearing this case, the Court trivializes its original jurisdiction and opens the door to a deluge of similar lawsuits that should be handled by lower courts.
Concurring - Chief Justice Burger
While acknowledging the validity of the dissent's concerns about the expanding use of the Court's original jurisdiction, the majority's resolution of this case is sound and its opinion is joined.
Analysis:
This decision significantly reinforces the preemptive scope of federal regulatory authority, particularly FERC's control over natural gas cost allocation, preventing states from legislating in that sphere. It also provides a powerful precedent under the Commerce Clause, clarifying that courts will look beyond a tax's name to its 'practical operation' in conjunction with the state's entire tax system. The ruling establishes that a complex web of credits and exemptions shielding in-state interests while burdening out-of-state commerce constitutes unconstitutional discrimination, setting a high bar for states attempting to enact facially neutral taxes that effectively export their tax burdens.
Unlock the full brief for Maryland et al. v. Louisiana