Arizona Public Service Co. v. Snead

Background

Five utility companies owned and ran power plants in northwest New Mexico and sold most of that electricity to customers in other States. In 1975 New Mexico enacted an "electrical energy tax" on generation and allowed a credit against a separate 4% gross receipts tax for electricity consumed inside New Mexico. The law required generators to assign the credit to in-state retailers, so only electricity sold out of state bore the net tax.

Reasoning

The Court examined a provision of the Tax Reform Act of 1976 (15 U.S.C. §391) that forbids a State from imposing a tax on generating or transmitting electricity that results in a heavier tax burden on electricity sent out of state. The Court found Congress had targeted New Mexico’s law and held the electrical energy tax unlawfully discriminated against electricity sold interstate. Because the federal statute governs, the Court invalidated the state tax and did not decide the separate constitutional claims.

Real world impact

The ruling prevents New Mexico from enforcing the generation tax as written against electricity exported to other States. Utility companies that had to pay the tax on power sent out of state can no longer be singled out by this scheme. The decision also signals that Congress may prohibit state taxes that shift costs to out-of-state consumers.

Dissents or concurrances

A concurring opinion agreed the tax must fall under the federal statute but explained the statutory question was somewhat close based on the statute’s language and history. The concurrence nonetheless joined the judgment invalidating the tax.