New Energy Co. of Indiana v. Limbach

• Decision Date: 02 September 1987
• Docket Number: No. 86-784,86-784
• Parties: NEW ENERGY COMPANY OF INDIANA, Appellant, v. LIMBACH, Tax Commr., et al., Appellees.
• Court: Ohio Supreme Court

Page 206

32 Ohio St.3d 206

513 N.E.2d 258

NEW ENERGY COMPANY OF INDIANA, Appellant, v. LIMBACH, Tax Commr., et al., Appellees.

No. 86-784.

Supreme Court of Ohio.

Sept. 2, 1987.

Probable Jurisdiction Noted Dec. 14, 1987.

See 108 S.Ct. 500.

Syllabus by the Court

R.C. 5735.145 is neither protectionist nor unreasonably burdensome on interstate commerce. It does not give an advantage solely to Ohio producers, and does not interfere with the flow of ethanol into Ohio by out-of-state suppliers.

ON REHEARING. ¹

The sole issue before this court is the constitutionality of R.C. 5735.145 which provides a tax credit for Ohio producers of ethanol, and R.C. 5735.145(B) which grants the tax credit to out-of-state producers of ethanol if their state grants a reciprocal tax credit, exemption or refund for Ohio-produced ethanol.

Ohio requires motor vehicle fuel dealers to pay a tax on all motor vehicle fuel sold. R.C. 5735.145 grants a tax credit to fuel dealers who distribute and sell gasoline to which has been added ten percent by volume of ethanol, commonly referred to as "gasohol." The tax credit is twenty-five cents per gallon of ethanol used, thus making the cost of a gallon of gasohol two and one-half cents cheaper.

Appellant, New Energy Company of Indiana, produces ethanol at its plant in South Bend, Indiana. New Energy brought this action to enjoin the Tax Commissioner from implementing or enforcing R.C. 5735.145 on the grounds that it improperly burdened interstate commerce. New Energy claimed that since Indiana does not have a reciprocal ethanol tax credit, it does not benefit from the tax credit under R.C. 5735.145(B), and thus it cannot compete in the Ohio market. New Energy contended the statute discriminates against out-of-state producers, is an unreasonable burden on interstate commerce, and is an attempt at forced reciprocity.

Appellee South Point Ethanol, Ohio's only producer of ethanol, was granted leave to intervene. The trial court denied New Energy the relief it sought, and New Energy appealed to the court of appeals, which affirmed.

The cause is now before this court upon the allowance of a motion for rehearing.

Murphey, Young & Smith Co., L.P.A., David J. Young, Kevin R McDermott, Columbus, and Herman Schwartz, for appellant.

Anthony J. Celebrezze, Jr., Atty. Gen., and Richard C. Farrin, Columbus, for appellees Tax Com'r and Treasurer of State.

Jones, Day, Reavis & Pogue and David C. Crago, Columbus, for appellee South Point Ethanol.

Patricia M. Wilson, Findlay, urging reversal for amicus curiae Marathon Petroleum Co.

GREY, Judge.

A state may enact valid legislation which promotes some local interest, and which affects interstate commerce within its borders, but it may not discriminate against interstate commerce or impose unreasonable restrictions on it. The problem in almost all of these kinds of cases is in deciding where to draw the line. In Boston Stock Exchange v. State Tax Comm. (1977), 429 U.S. 318, 97 S.Ct. 599, 50 L.Ed.2d 514, the United States Supreme Court in discussing the Commerce Clause stated, at 329:

" * * * the Clause is a limit on state power. Defining that limit has been a continuing task of this Court."

Commerce Clause cases generally involve four types of cases and problems: those directly barring out-of-state goods; those favoring local business over out-of-state goods; those which have the practical effect of barring out-of-state goods; and those which force reciprocity on sister states.

Cases of an outright bar on out-of-state goods are rare, and inapplicable here since R.C. 5735.145 does not bar ethanol produced outside the state.

An issue is presented, however, on whether the statute favors in-state producers, i.e., whether it is a form of economic protectionism. The Supreme Court has regularly and consistently struck down state laws which have as their purpose the protection of local economic interests. In Baldwin v. G.A.F. Seelig, Inc. (1935), 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032, New York enacted a statute which prohibited the sale of milk produced out of state unless it was sold there at the minimum price set by New York. Seelig, Inc. bought milk in Vermont at a lower price and shipped it to New York, but was threatened with prosecution for violation of the New York statute. The United States Supreme Court struck down the statute, holding that its only purpose was to protect New York milk producers from out-of-state price competition.

In Hunt v. Washington State Apple Advertising Comm. (1977), 432 U.S. 333, 97 S.Ct. 2434, 53 L.Ed.2d 383, a similar protectionist statute was voided. Washington had a system of inspecting and grading its apples, equivalent of, or superior to, the federal grades and standards. North Carolina enacted a law which prohibited the sale of apples in containers using the Washington grading system. Under the North Carolina statute applies could be identified only by the federal grade or standard. The clear intent of the statute was to protect North Carolina apple growers from the heavily advertised Washington apple logo, and its reputation for quality. Again, the Supreme Court struck down this attempt at economic protectionism.

R.C. 5735.145 is not protectionist in either its purpose or effect. The tax credit is available to all producers, those in-state and those in states outside Ohio which provide a reciprocal tax credit. To be sure, appellant New Energy is adversely affected by Ohio tax credit policy, but mere adverse effect on the business of one competitor is not sufficient to have a valid statute declared unconstitutional. Minnesota v. Clover Leaf Creamery Co. (1981), 449 U.S. 456, 101 S.Ct. 715, 66 L.Ed.2d 659, and Exxon Corp. v. Governor of Maryland (1978), 437 U.S 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, are representative of the Supreme Court's decisions.

In Exxon, Maryland enacted a statute which prohibited a producer or refiner of petroleum products from also operating retail gas stations. The Maryland Legislature felt that during the 1973 oil shortage the refiners favored the company-owned stations over independent retailers. Exxon sued claiming the statute was a burden on interstate companies who were being forced to divest themselves of their retail operations. The Supreme Court disagreed, and pointed out that in-state independent dealers would have no competitive advantage over out-of-state dealers.

The court made the point succinctly:

"If the effect of a state regulation is to cause local goods to constitute a larger share, and goods with an out-of-state source to constitute a smaller share, of the total sales in the market--as in Hunt, 432 U.S., at 347 , and Dean Milk [v. Madison (1951) ], 340 U.S. , at 354 [71 S.Ct. 295, at 298, 95 L.Ed. 329],--the regulation may have a discriminatory effect on interstate commerce. But the Maryland statute has no impact on the relative proportions of local and out-of-state goods sold in Maryland and, indeed, no demonstrable effect whatsoever on the interstate flow of goods. The sales by independent retailers are just as much a part of the flow of interstate commerce as the sales made by the refiner-operated stations." Id. at 126, fn. 16, 98 S.Ct. at 2214, fn. 16.

In Clover Leaf Creamery Co., the United States Supreme Court cited and followed Exxon, 449 U.S. at 474, 101 S.Ct. at 729:

"In Exxon Corp. v. Governor of Maryland, 437 U.S. 117 [98 S.Ct. 2207, 57 L.Ed.2d 91] (1978), we upheld a Maryland statute barring producers and refiners of petroleum products--all of which were out-of-state businesses--from retailing gasoline in the State. We stressed that the Commerce Clause 'protects the interstate market, not particularly interstate firms, from prohibitive or burdensome regulations.' Id., at 127-128 . A non-discriminatory regulation serving substantial state purposes is not invalid simply because it causes some business to shift from a predominantly out-of-state industry to a predominantly in-state industry. Only if the burden on interstate commerce clearly outweighs the State's legitimate purpose does such a regulation violate the Commerce Clause."

In Clover Leaf Creamery Co. the state of Minnesota adopted a law banning the sale of milk in nonreturnable, nonrefillable plastic containers, i.e., the ubiquitous gallon jug. The debate in the legislature centered around which container, plastic or paper, was the more environmentally sound. The Minnesota Supreme Court in holding the statute to be unconstitutional, found, " * * * in effect, that the legislature misunderstood the facts." Id., 449 U.S. at 469, 101 S.Ct. at 726.

This same point is raised by New Energy, and by amicus Marathon, i.e., that Ohio's ethanol tax credit program is not founded on a rational and legitimate state interest. Both conceded that removing lead from gasoline, and thus from the environment, is a desirable health goal, but urge that ethanol is not the only solution. This argument is put clearly by Marathon:

"Quite simply, it is Marathon's position that if today no consensus has yet been reached within the industry as to the health aspects of ethanol, it is implausible to say that the Ohio legislature arrived at such a consensus when it enacted the general ethanol subsidization statute, R.C. 5735.145."

We believe that Marathon and appellant make the same mistake that was made by the Minnesota Supreme Court. The United States Supreme Court noted, in Clover Leaf Creamery Co., at 469, 101 S.Ct. at 726:

"The Minnesota Supreme Court may be correct that the Act is not a sensible means of conserving energy. But we reiterate that 'it is up to legislatures, not courts, to decide on the wisdom and utility of legislation.' Ferguson v. Skrupa, 372 U.S. 726, 729 [83 S.Ct. 1028, 1030, 10 L.Ed.2d 93] (1963)."

This court makes no decision on the wisdom of R.C. 5735.145, but we do find that its enactment is rationally related to a legitimate state interest. The statute is not "simply protectionism," ...