451 U.S. 725 (1981)
The lands beneath the Gulf of Mexico contain large reserves of oil and natural gas.1 In 1938 the first drilling rig was constructed off the coast of Louisiana, and with new technologies offshore drilling became commonplace.2 Most of the gas extracted from the Outer Continental Shelf is piped to refining plants in coastal Louisiana where it is dried and the liquefiable hydrocarbons are removed before distribution to consumers in over thirty states.3 It is estimated that 98 percent of this OCS gas processed in Louisiana is eventually sold to out-of-state consumers.4
In 1978 the Louisiana Legislature enacted a tax of seven cents per thousand cubic feet on the first use within the state of any natural gas not previously subjected to taxation by another state or the United States.5 The tax is owed by the owner of the gas at the time the first taxable use occurs and is precisely equal to the severance tax Louisiana imposes on its own producers.6 The Act defined taxable uses to include sale, processing, transportation, treatment, and other ascertainable actions within the state.7
The Act declared that the tax shall be deemed a cost associated with uses made by the owner in preparation of marketing of the natural gas.8 Any contract which attempted to allocate the cost of the Tax to any party except the ultimate consumer was declared to be against public policy and unenforceable to that extent.9 The Act provided several exemptions and credits.10
A severance tax credit allowed any taxpayer subject to the First-Use Tax to receive a direct credit against Louisiana severance taxes owed on in-state production.11 Municipal or state-regulated electric generating plants and natural gas distributors in Louisiana, as well as direct purchasers consuming the gas in the state, received credits on other Louisiana taxes upon showing increased fuel costs from OCS deliveries.12 Gas used for drilling oil or gas within Louisiana was exempted entirely.13 As a result Louisiana consumers of OCS gas for the most part are not burdened by the Tax, but it does uniformly apply to gas moving out of the State.14 Louisiana estimated it would receive at least $150 million in annual receipts from the First-Use Tax.15
On March 29, 1979, eight States filed a motion for leave to file a complaint in the Supreme Court under its original jurisdiction.16 The complaint sought declaratory and injunctive relief against the tax on Commerce Clause, Supremacy Clause, Import-Export Clause, Contracts Clause, and Equal Protection grounds, plus a refund of taxes already collected.17 The United States, the Federal Energy Regulatory Commission, and seventeen pipeline companies later intervened as plaintiffs.18 Louisiana moved to dismiss, contending the plaintiff States lacked standing and that the case was inappropriate for original jurisdiction because of pending state-court actions.19
Several lawsuits were already pending in Louisiana state courts when the original action was filed.20 Louisiana had sued the pipeline companies for a declaratory judgment that the tax is constitutional.21 The pipeline companies had filed refund suits after paying the tax under protest, with receipts held in escrow at six percent interest. The FERC had filed a separate federal action that was stayed.22 None of the plaintiff States, the United States, nor the FERC is a named party in any of the state actions.23 A Special Master was appointed and issued two reports recommending denial of the motion to dismiss and further evidentiary hearings on the merits.24
Whether the plaintiff States have standing to challenge Louisiana's First-Use Tax under the Court's original jurisdiction?25
The Supreme Court possesses original and exclusive jurisdiction over controversies between two or more States under Article III and 28 U.S.C. § 1251(a).26 A proper controversy exists when the complaining State has suffered a wrong through the action of another State or asserts a right susceptible of judicial enforcement under common law or equity principles.27 Standing is satisfied when the alleged injury is fairly traceable to the defendant's challenged action rather than the independent action of a third party.28
Yes. The plaintiff States are substantial consumers of natural gas whose costs have increased directly because of the First-Use Tax.29 Although the tax is formally imposed on pipeline companies, the statute declares the tax a cost of preparing gas for market and forbids allocation to any party other than the ultimate consumer.30 The FERC approved the pass-through of the tax to customers, and the plaintiff States have experienced aggregate annual cost increases in the millions of dollars.31
This direct economic injury to the States as purchasers satisfies the traceability requirement and supports standing in an original action.32
The plaintiff States possess standing to maintain this original action challenging the First-Use Tax.33
Related opinions on this issue
Justice Rehnquist filed a dissenting opinion arguing that the plaintiff States had not established the strictest necessity for invoking the Court's original jurisdiction.34 He contended that the States' claims were essentially those of consumers and lacked the sovereign or quasi-sovereign character required for parens patriae standing in original actions.35 In his view, requiring a tangible relation to sovereign interests would prevent the trivialization of original jurisdiction and avoid creating a separate litigation system for state consumer claims.36
He would have granted Louisiana's motion to dismiss the complaint.37
Whether this case is an appropriate one for the exercise of the Court's original jurisdiction given pending state-court actions?38
Although the Court has original and exclusive jurisdiction over controversies between States, it exercises that jurisdiction only in appropriate cases.39 Appropriateness turns on the seriousness and dignity of the claim.40 The availability of another adequate forum is also relevant, as is whether the issues can be fully litigated elsewhere with appropriate relief.41 The inquiry is conducted case by case and compares the pending state proceedings to the federal interests at stake.42
Yes. The pending Louisiana state-court actions do not provide an adequate alternative forum.43 None of the plaintiff States or the United States is a party to those proceedings, and Louisiana law precludes interim injunctive relief while the tax is paid into escrow at only six percent interest.44 The anticipated annual receipts of at least $150 million affect consumers in more than thirty States and implicate unique federalism concerns arising from the taxation of OCS gas subject to paramount federal rights.45
These factors distinguish the case from Arizona v. New Mexico and render the exercise of original jurisdiction appropriate.46
This case is an appropriate one for the exercise of the Court's original jurisdiction.47
Related opinions on this issue
Chief Justice Burger filed a concurring opinion. He acknowledged that there is much validity in Justice Rehnquist's dissenting opinion and that the dissent should keep the Court alert to any effort to expand the use of original jurisdiction. Nevertheless, Burger was satisfied that the Court's resolution of this particular case was sound.
He therefore joined the Court's opinion in full.48
Justice Rehnquist would have dismissed the action as inappropriate for original jurisdiction.49 He emphasized that the plaintiff States' claims are essentially those of consumers and that alternative forums exist in the pending Louisiana refund suits.50 The absence of limiting principles would risk flooding the Court with similar consumer-based original actions.51
He stressed that the Court should exercise its original jurisdiction sparingly to avoid bypassing ordinary trial courts and to preserve its role as an appellate tribunal.
Whether section 1303C of the Louisiana First-Use Tax Act violates the Supremacy Clause by interfering with federal regulation under the Natural Gas Act?52
Under the Supremacy Clause a state statute is invalid to the extent it conflicts with federal law.53 This occurs either because compliance with both is physically impossible or because the state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress.54 The Natural Gas Act grants the FERC exclusive authority to determine the proper allocation of costs associated with the production, processing, and transportation of natural gas in interstate commerce.55
Yes. Section 1303C declares the First-Use Tax a cost of preparing gas for market and renders unenforceable any contract allocating that cost to any party other than the ultimate consumer.56 This statutory directive directly interferes with the FERC's authority to allocate processing costs between pipelines and the owners of extractable hydrocarbons.57 Louisiana has attempted to usurp the FERC's role in regulating cost structures that ultimately affect wholesale rates paid by consumers in other States.58
The provision therefore creates an imminent collision with federal regulatory authority and must yield.59
Section 1303C of the First-Use Tax Act violates the Supremacy Clause.60
Whether the First-Use Tax discriminates against interstate commerce in violation of the Commerce Clause?61
A state tax affecting interstate commerce must satisfy four requirements: substantial nexus with the State, fair apportionment, nondiscrimination against interstate commerce, and fair relation to services provided by the State.62 The fundamental principle is that no State may impose a tax that discriminates against interstate commerce by providing a direct commercial advantage to local business.63 Discrimination is assessed by the actual economic effect of the tax in conjunction with the State's overall tax scheme.64
Yes. The First-Use Tax discriminates against interstate commerce through its pattern of credits and exemptions.65 The severance tax credit allows owners paying the First-Use Tax to offset equivalent amounts against Louisiana severance taxes on in-state production, thereby favoring those who both transport OCS gas and produce gas within Louisiana.66 Additional credits protect in-state electric utilities, gas distributors, and direct consumers from the tax's impact.67
As a result, OCS gas consumed in Louisiana is largely relieved of the tax burden while gas moving out of the State to consumers in more than thirty other States bears the full seven-cent-per-thousand-cubic-feet levy.68 This structure cannot be justified as a compensatory tax because Louisiana possesses no sovereign interest in taxing severance from federal OCS lands, and the credits destroy equality of treatment between local and interstate commerce.69
The First-Use Tax unconstitutionally discriminates against interstate commerce in violation of the Commerce Clause.70