Maryland v. Louisiana

1981-05-26

Headline: Ruling blocks Louisiana’s new First-Use gas tax, finding it invalid for interfering with federal gas regulation and discriminating against out-of-state buyers, halting collection and affecting pipeline companies and many consumers.

Holding: § 1303C of Louisiana’s First-Use Tax is invalid under the Supremacy Clause and the Tax is unconstitutional under the Commerce Clause, so the Court enjoined further collection and invalidated the state rule.

Real World Impact:

Blocks further collection of Louisiana's First-Use Tax while Court retains jurisdiction.
Protects federal authority to allocate gas processing and transport costs.
Affects pipeline companies and millions of gas consumers across states.

Topics: natural gas taxation, interstate commerce, federal vs state power, energy regulation

Summary

Background

Several States, the United States, and pipeline companies sued Louisiana over a 1978 "First-Use Tax" of seven cents per thousand cubic feet on natural gas first used in Louisiana, mainly gas from the Outer Continental Shelf. The law treated the tax as a processing cost for owners (§1303C), barred many contractual cost allocations, and provided exemptions and credits favoring in-state users. Plaintiffs asked the Court to declare the tax unconstitutional under the Supremacy Clause and the Commerce Clause and to stop its collection.

Reasoning

The Court first rejected Louisiana’s motion to dismiss and held the States had standing as large purchasers and as parens patriae. On the Supremacy Clause, the Court concluded §1303C intruded on the Federal Energy Regulatory Commission’s role under the Natural Gas Act to allocate processing and transportation costs, so the state provision must yield. On the Commerce Clause, the Court found the tax scheme, with exemptions and credits, discriminated against gas shipped out of Louisiana in interstate commerce. The Court therefore granted judgment invalidating §1303C and the First-Use Tax and enjoined further collection.

Real world impact

The ruling stops further collection of the First-Use Tax and prevents Louisiana from enforcing its cost-allocation rule that shifted processing expenses onto consumers. Pipeline companies and gas consumers in over 30 States are directly affected, and the decision protects federal authority to set rates and allocate costs under the Natural Gas Act. The Court retained jurisdiction for any follow-up proceedings.

Dissents or concurrances

Chief Justice Burger joined the opinion. Justice Rehnquist dissented, arguing the Court should have declined original jurisdiction because the States’ claims resemble private consumer complaints and adequate state forums existed.