Commonwealth Edison Co. v. Montana

1981-08-28

Headline: Court upholds Montana’s percentage-based coal severance tax, allowing the State to keep collecting the levy even though most coal is shipped out of State and federal preemption claims are rejected.

Holding: The Court held that Montana’s coal severance tax does not violate the Commerce Clause and is not preempted by federal energy statutes because it meets the Complete Auto Transit four-part test and conflicts were not shown.

Real World Impact:

Allows Montana to keep collecting percentage-based coal severance taxes affecting out-of-state buyers.
Affirms states’ ability to tax production on federal leases without clear federal preemption.
Signals Congress, not courts, as primary forum to limit state severance tax rates.

Topics: coal taxes, state taxation, interstate commerce, federal energy law

Summary

Background

Four Montana coal producers and eleven out-of-state utility customers sued after Montana adopted a severance tax on coal, measured as a percentage of contract sales price and reaching up to 30%. Much Montana coal lies on federal land; the plaintiffs sought refunds and a bar on further collection. Montana courts upheld the tax, and the case reached the United States Supreme Court for review.

Reasoning

The Court framed the central question in everyday terms: does Montana’s coal tax unlawfully burden interstate commerce or conflict with federal law? The majority disapproved an older rule that automatically protected taxes imposed before goods entered interstate commerce and instead applied the four-part Complete Auto Transit test. The Court found the tax met each requirement: the tax is tied to coal mined in Montana, it is fairly apportioned, it does not facially discriminate by destination because the same formula applies to all coal, and its percentage measure is reasonably related to the in-State activity. On Supremacy Clause claims, the Court concluded federal statutes (including the Mineral Lands Leasing Act and later energy laws) do not preempt Montana’s tax, noting an express provision that States may tax federal lessees.

Real world impact

The ruling lets Montana continue collecting large severance revenues (with at least half directed into a permanent trust under the State constitution). The decision affects coal producers, utilities, and consumers in other States who often bear the tax cost under contracts. The Court emphasized that Congress, not the courts, is the appropriate body to set national limits if federal action is desired.

Dissents or concurrances

Justice White reluctantly joined but warned Congress could and perhaps should address the burden; Justice Blackmun (joined by Powell and Stevens) dissented, arguing a trial was needed to test whether the tax effectively exports an excessive burden to out-of-state consumers.