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Maryland v. Louisiana, 451 U.S. 725, 101 S.Ct. 2114, 68 L.Ed.2d 576, 40 P.U.R.4th 1

Facts

The case arose from Louisiana's enactment of a tax on the 'first use' of natural gas brought into the state, particularly from the federal Outer Continental Shelf (OCS). This tax primarily affected pipeline companies, which passed the cost onto consumers, leading to increased prices for natural gas in several states. The plaintiff states argued that the tax was unconstitutional as it imposed an unfair burden on interstate commerce and conflicted with federal regulations governing natural gas pricing.

The ownership and control of these large reserves of natural gas have been much disputed. In 1978, the Louisiana Legislature enacted a tax of seven cents per thousand cubic feet of natural gas on the 'first use' of any gas imported into Louisiana which was not previously subjected to taxation by another State or the United States.

Issue

The main legal issues were whether Louisiana's 'first-use' tax was constitutional under the Supremacy Clause and the Commerce Clause, and whether the states had standing to challenge the tax.

The primary effect of the tax, which is imposed on pipeline companies, is on gas produced in the federal Outer Continental Shelf (OCS) and then piped to processing plants in Louisiana and, for the most part, eventually sold to out-of-state consumers.

Rule

The Supreme Court applied principles from the Supremacy Clause, which establishes that federal law takes precedence over state law, and the Commerce Clause, which prohibits states from enacting laws that discriminate against interstate commerce.

The section of the Louisiana statute providing that the amount of the Louisiana tax is deemed a cost associated with uses made by the owner in preparation of marketing the natural gas is inconsistent with the Natural Gas Act section giving to the Federal Energy Regulatory Commission the authority to determine pipeline and producer costs, and, therefore, the Louisiana tax violates the supremacy clause.

Analysis

The Court found that the 'first-use' tax imposed by Louisiana was unconstitutional as it discriminated against interstate commerce by favoring local interests. The tax was deemed a cost that would ultimately be passed on to consumers in other states, thus affecting a significant number of consumers and implicating serious federalism concerns. The Court also noted that the tax conflicted with the federal authority granted to the Federal Energy Regulatory Commission (FERC) to regulate natural gas pricing.

The First-Use Tax is unconstitutional under the Commerce Clause. The flow of gas from OCS wells, through processing plants in Louisiana, and through interstate pipelines to the ultimate consumers in over 30 States, constitutes interstate commerce and, even though 'interrupted' by certain events in Louisiana, is a continual flow of gas in interstate commerce.

Conclusion

The Supreme Court ruled that Louisiana's 'first-use' tax was unconstitutional, violating both the Supremacy Clause and the Commerce Clause. The exceptions to the special master's report were sustained in part and overruled in part.

Exceptions to special master's report sustained in part and overruled in part.

Who won?

The prevailing party was the group of states, the United States, and the pipeline companies, as the Court found Louisiana's tax unconstitutional and detrimental to interstate commerce.

The plaintiff States, as major purchasers of natural gas whose cost has increased as a direct result of imposition of the tax, are directly affected in a 'substantial and real' way so as to justify the exercise of this Court's original jurisdiction.

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