Coverdale v. Arkansas-Louisiana Pipe Line Co.

Background

A company that produces, transports, and sells natural gas in Louisiana, Texas, and Arkansas operates a large 20-inch pipeline moving gas from Monroe and Richland fields. At its Louisiana intake the company runs a Munce Compressor Station with ten 1,000-horsepower gas engines and two 250-horsepower engines that raise gas pressure so it can travel long distances; 96.6% of the gas in one year was delivered outside Louisiana. Louisiana law (Act No. 6 of 1932) levies a $1 per horsepower privilege tax on users of mechanical power not buying all power from taxed sellers, and the company was assessed $10,500.

Reasoning

The Court considered whether the tax unlawfully burdened interstate commerce. It treated the charge as a tax on the local privilege of producing mechanical power rather than on the interstate movement of the gas. The engines convert fuel into local mechanical power before that power is transmitted to compressors, so production occurs prior to interstate transmission. The tax applies equally to in-state and out-of-state commerce, is non-discriminatory, and is not the same as a prohibited tax on interstate commerce or its instrumentalities, so increased costs alone did not make it invalid.

Real world impact

The Court reversed the lower court and allowed Louisiana to collect the horsepower-based privilege tax on the compressor engines. Pipeline operators who produce power locally at intake stations may be subject to similar state privilege taxes, which can raise operating costs. This decision leaves open the possibility that other states could tax local power production along a pipeline route.

Dissents or concurrances

Justice McReynolds dissented and would have affirmed the lower court’s injunction against the tax.