Commonwealth Edison Co. v. State

• Decision Date: 17 July 1980
• Docket Number: No. 14982,14982
• Citation: 615 P.2d 847,189 Mont. 191,37 St.Rep. 1192
• Parties: COMMONWEALTH EDISON CO. et al., Plaintiffs and Appellants, v. STATE of Montana et al., Defendants and Respondents. LAKE SUPERIOR DIST. POWER CO. et al., Plaintiffs and Appellants, v. STATE of Montana et al., Defendants and Respondents.
• Court: Montana Supreme Court

Page 847

615 P.2d 847

189 Mont. 191

COMMONWEALTH EDISON CO. et al., Plaintiffs and Appellants, v. STATE of Montana et al., Defendants and Respondents.

LAKE SUPERIOR DIST. POWER CO. et al., Plaintiffs and Appellants, v. STATE of Montana et al., Defendants and Respondents.

No. 14982.

Supreme Court of Montana.

Submitted April 21, 1980.

Decided July 17, 1980.

Hooks & Budewitz, Townsend, John Carl, argued, Butte, Rogers & Wells, New York City, William P. Rogers, argued, and William R. Glendon, argued, New York City, for appellants.

Garrity, Keegan & Brown, Helena, Mark White, Atty. Gen., argued Austin, Tex., for amicus curiae.

Mike Greely, Atty. Gen., argued, Helena, Mike McGrath and Mike McCarter, Asst. Attys. Gen., argued, Helena, Cannon & Gillespie, Ross Cannon, argued, Helena, for respondents.

Leo F. J. Wilking, Sp. Asst. Atty. Gen., argued, for State Tax Commissioner, Bismarck, N.D., for amicus curiae.

SHEEHY, Justice.

This is an appeal from a judgment of the District Court, First Judicial District, Lewis and Clark County, Montana, the Hon. Peter G. Meloy presiding, upholding the validity of Montana's coal severance tax.

Plaintiffs sought a declaratory judgment from the District Court that the tax unconstitutionally burdens interstate commerce and unconstitutionally frustrates federal policy. Commonwealth Edison Company and its coplaintiffs brought one action for this purpose, and Lake Superior District Power Company and its coplaintiffs brought a second action. Because the issues are the same, the actions were consolidated.

The District Court granted defendants' motions to dismiss the complaints before trial, finding as a matter of law that they did not state claims upon which relief could be granted. Judgment was entered in each case in favor of the defendants and the plaintiffs appealed.

Since each case comes to us on appeal from a judgment of dismissal, we accept the facts which are well-pleaded in the complaints as true. This was the rule before we adopted the Montana Rules of Civil Procedure, Heiser v. Severy (1945), 117 Mont. 105, 111, 158 P.2d 501, 503, and is the rule now. However, conclusions of law in the pleadings need not be accepted by this Court as binding under a judgment on a motion to dismiss. Allegations of conclusions of law present no issuable facts. Waite v. Standard Accident Insurance Co. (1957), 132 Mont. 220, 315 P.2d 989. If therefore factual issues exist which should have been considered by the District Court prior to granting judgment, the judgment must be reversed. Conversely, if as a matter of law, under any view of the alleged facts, plaintiffs cannot prevail, affirmance of the District Court is commanded.

We have fully considered the contentions of plaintiffs on their appeal; we have examined the pleadings, and the grounds of the motion to dismiss; we have looked at the admitted factual matters which plaintiffs allege would invalidate the tax; and we have concluded from the whole record that the Montana Coal Severance Tax in its present form is a lawful exercise of Montana's taxing authority under our State and Federal Constitutions. Accordingly, we affirm the District Court.

Three issues were raised by plaintiffs for our review:

1. Is the coal severance tax impermissible under the Commerce Clause of the United States Constitution?

2. Is the coal severance tax impermissible under the Supremacy Clause of the United States Constitution as frustrating national policies and statutes?

3. Is the coal severance tax impermissible under the Supremacy Clause of the United States Constitution as frustrating national policies contained in the Mineral Lands Leasing Act of 1920?

THE TAX AND ITS HISTORY

In 1975 and 1977, the Montana Legislature amended its coal severance tax schedules, section 84-1314, R.C.M.1947, now section 15-35-103, MCA. It now contains these provisions:

"15-35-103. Severance tax rates imposed exemptions. (1) A severance tax is imposed on each ton of coal produced in the state in accordance with the following schedule:

                "Heating quality       Surface  Underground
                (Btu per pound          Mining       Mining
                of coal)
                "Under 7,000      12 cents or   5 cents or
                                  20% of value  3% of value
                "7,000-8,000      22 cents or   8 cents or
                                  30% of value  4% of value
                "8,000-9,000      34 cents or   10 cents or
                                  30% of value  4% of value
                "Over 9,000       40 cents or   12 cents or
                                  30% of value  4% of value
                

" 'Value' means the contract sales price.

"(2) The formula which yields the greater amount of tax in a particular case shall be used at each point on this schedule.

"(3) A person is not liable for any severance tax upon 20,000 tons of the coal he produces in a calendar year."

No issue is raised here that there is an unconstitutional difference between the rate of taxes charged for strip-mining of coal and for underground mining of coal.

Prior to 1975, the Montana tax on strip-mined coal ranged from twelve to fourteen cents a ton, depending on BTU content. The 1975 amendment was a response to the meteoric increase in strip-mined coal entrepreneurs in the state in the 1970's. From the 1940's until the mid-1960's activity in coal strip-mining as well as in underground coal mining remained fairly dormant in the state. The increase in gross tonnage produced since 1971 from strip-mining is demonstrated by the following figures taken from the records of the Montana Department of Revenue, of which we have taken judicial notice:

                One Year  Gross Tons
                --- ----  ----- ----
                  1971     6,983,186
                  1972     8,224,118
                  1973    10,678,058
                  1974    14,116,625
                  1975    22,160,236
                  1976    26,347,923
                  1977    27,340,905
                  1978    26,516,481
                  1979    32,545,071
                

In the general election of 1976 the Montana voters amended their state constitution by adding a new Section 5 to Article IX, 1972 Montana Constitution. In essence the constitutional addition provides that from and after December 31, 1979, at least fifty percent of the severance tax collected shall be dedicated to a trust fund, the principal of which is to remain inviolate unless appropriated by a vote of three-fourths of the members of each house of the legislature.

This Court notes in passing our impression that the 1975 coal severance tax provisions, and the 1976 constitutional amendment, were in part responses to the historical experience of Montana with respect to the inadequacy of earlier forms of taxes on mineral production. In 1965, the Hon. James Felt rose in the State House of Representatives to complain that the richest hill on earth (Butte) had paid not a dime in net proceeds tax the previous year. Some modifications in computation agreed to by the mining company ameliorated that condition in subsequent years. Nevertheless, Montana's experience had shown that its mineral wealth could be exhausted and exported with little left in Montana to make up the loss of its irreplaceable resources. Montana has been painfully educated about the extreme economic jolts that follow when the mine runs out, the oil depletes, or the timber saws come still. We have a good many examples that teach us what happens to our hills when the riches of our Treasure State are spent. For these and other reasons, when strip coal mining was beginning to burgeon, in 1975, the legislature moved to fix a tax that would provide both for the present and the future when the coal deposits were gone.

Since the commencement of the instant actions, the plaintiffs have paid their coal severance taxes under protest. Were the coal severance tax found to be invalid, presently some $87,000,000 and accrued interest in protested taxes should have to be returned by the State to the taxpaying producers, we were informed in oral argument.

EFFECT OF THE COMMERCE CLAUSE

Before we discuss the commerce clause contentions, we look at the relationship of the various plaintiffs to the coal tax which is being attacked. The true taxpayers before us in this case are the producers of the coal. The Montana coal severance tax is levied at the time the coal is separated by the producer from the realty in Montana, and at its value when sold by the producer in Montana. Section 15-35-103, MCA. Thus in this case, only the coal producing plaintiffs are actually paying taxes, they being Decker Coal Company, Peabody Coal Company, Westmoreland Resources, Inc., and Western Energy Company. The remaining plaintiffs are utilities to whom the producers, by contract or indirectly, may have passed on the coal severance tax as a part of the price of Montana coal. To contend that the utility plaintiffs are the true plaintiffs because by contract or indirectly they have assumed the coal severance taxes would seem also to argue that the coal producers have no real issue at stake here. Nevertheless the coal producers have the only vital stake in this case because they and not the utility companies are in fact the taxpayers. It is the producers to whom the protested taxes would be returned should the tax be found unlawful. In deciding this case therefore, we look to the status in Montana of the producing taxpayers to determine whether the coal, at the time it is severed by the producers, is subject to the present Montana state taxation.

The United States Constitution provides in Article I, Section 8, that Congress shall have the power "to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes."

The principal contention of the plaintiffs in this case is that the holdings of the United States Supreme Court in Heisler, Oliver Iron Co., and Hope Gas Co., infra, no longer have any force. The plaintiffs do not allow that Montana can tax a purely local event such as the severance of coal from a seam or deposit. They insist that the commerce clause reaches even into the very severance of the coal, and that the only issue for the District Court to have decided here was whether the...