Broad River Power Co. v. Query

Background

These cases challenged a South Carolina law that imposed a tax on the production and sale of electric power. Business owners, including a company operating a water-powered plant on the Saluda River, sued to stop the tax. The lower three-judge District Court sustained the tax and dismissed the complaints. The challengers argued the law denied equal treatment because it taxed hydroelectric and steam-generated power but not small plants using internal combustion engines or industrial plants generating power for their own use; one company also argued it was effectively a federal agency because it operated under a federal license.

Reasoning

The Court accepted the lower court’s factual findings that only a few small internal-combustion plants existed and that those operations were comparatively insignificant. The Court agreed the legislature plainly intended to tax companies that sell power produced from rivers, a major state resource, and to tax steam production because it competes with hydroelectric power. Regarding the company operating under a Federal Water Power Act license, the Court held that having federal permission did not make the company an agent of the Government. The tax is on the company’s production and sale of electricity for its own profit, not on any government function or on the federal license itself. The Court relied on earlier decisions saying property and local business activities remain taxable even when a federal privilege has been granted.

Real world impact

The decision lets states impose taxes on companies that produce and sell electricity from hydroelectric and steam sources. Federally licensed power firms remain subject to state taxes on their production and sales. The ruling leaves smaller internal-combustion producers and industrial self-generation largely outside this tax classification.