Opinion of the Justices, In re, 6865

• Decision Date: 20 March 1974
• Docket Number: No. 6865,6865
• Citation: 114 N.H. 174,317 A.2d 568
• Parties: In re OPINION OF THE JUSTICES. Request of House of Representatives,
• Court: New Hampshire Supreme Court

Page 568

317 A.2d 568

114 N.H. 174

In re OPINION OF THE JUSTICES.

Request of House of Representatives, No. 6865.

Supreme Court of New Hampshire.

March 20, 1974.

House of Representatives, by its attorney, Richard F. Upton, Esq., filed a memorandum of law and a supplemental memorandum of law for affirmative answers.

The following request of the house of representatives for an opinion of the justices was adopted on March 7, 1974, and filed in this court on March 8, 1974:

'Whereas, section 4 of House Bill 34 of the 1974 special session, as introduced, seeks to impose a tax of five cents per barrel on refined petroleum products produced in this state; and

'Whereas, questions have been raised as to the validity of such tax under the constitutions of the United States and the State of New Hampshire; and

'Whereas, the best interests of the state and its citizens will be served by consideration of legislation which if enacted will conform to constitutional requirements;

'Now Therefore Be It Resolved by the House of State of New Hampshire Assembled:

'That the justices of the Supreme Court be respectfully requested to give their opinion upon the following questions:

'1. Is the classification of refined petroleum products a legitimate classification of property under Article 6 of Part Second of the Constitution of New Hampshire?

'2. Is the exemption for refined petroleum products produced for distribution in New Hampshire a permissible exemption?

'3. Is the imposition of a barrel tax on refined petroleum products a valid exercise of the state's taxing powers?

'4. In all respects, other than those to which the preceding three questions relate, is the proposed statute constitutional upon its face?

'Be It Further Resolved:

'That the Speaker of the House transmit seven copies of this Resolution to the Clerk of the Supreme Court for consideration by said court.'

Another request of the house of representatives for an opinion of the justices was adopted on March 13, 1974, and filed in this court on the same day:

'Whereas the House of Representatives by resolution adopted March 7, 1974, referred to the New Hampshire Supreme Court certain questions of law for an advisory opinion concerning the taxation provisions contained in House Bill No. 34, An Act relative to energy facility evaluation, siting, construction and operations and providing for a tax on refined petroleum products;

'And Whereas it has come to the attention of the House that it is desirable to propound a supplementary question concerning said bill in order to obtain as comprehensive an advisory opinion as possible in the circumstances;

'Now Therefore be it resolved by the House of Representatives that Request No. 6865 now pending in the New Hampshire Supreme Court be supplemented by adding thereto the following additional question:

'3-a. Would it be a valid exercise of the state's taxing powers to amend the taxing provisions of the proposed statute so as to provide that the tax in question be levied as an ad valorem tax, namely, a reasonable and uniform percentage of the fair value per barrel of such refined petroleum products?

'Be It Further Resolved that the Speaker of the House transmit seven copies of this suppliementary resolution to the Clerk of the Supreme Court of consideration by said court.'

The following answers were returned: To the House of Representatives:

The undersigned justices of the supreme court submit the following reply to the inquiries contained in your resolution adopted March 7, 1974, as amended by your supplementary resolution adopted March 13, 1974.

House bill 34 is entitled 'An Act relative to energy facility evaluation, siting, construction and operations and providing for a tax on refined petroleum products.' The first part provides for the enactment of RSA ch. 162-H establishing a procedure for the review, approval, monitoring and enforcement of compliance in the planning, siting, construction and operation of energy facilities in this State including oil refineries. The second part (section 4 of the bill) would enact RSA ch. 78-c entitled 'Refined Petroleum Products Tax' to the provisions of which your questions appear to be directed.

Question No. 1 reads as follows: 'Is the classification of refined petroleum products a legitimate classification of property under Article 6 of Part Second of the Constitution of New Hampshire?

It is well established that our legislature has liberal powers with respect to the classification of taxable property. Opinion of the Justices, 111 N.H. 131, 134, 276 A.2d 817, 819 (1971). A reasonable classification which is sufficiently inclusive to constitute a distinctive class will be upheld. Opinion of the Justices, 97 N.H. 543, 544, 81 A.2d 851, 852 (1951). The property to be taxed under the proposed bill is refined petroleum products which include 'motor oil, kerosene, residual oil, fuel oil, gasoline, petroleum asphalts, road oils and other distillates and petrochemicals produced from crude petroleum by any person in this state.'

The uses and storage of such products are regulated by law because they are highly inflammable and constitute a hazard to the public safety unless handled with care. RSA 153:14 (Supp.1973); RSA 339:22-26 (Supp.1973). Products of this class are generally recognized as subjects of taxation. Opinion of the Justices, 88 N.H. 500, 505, 190 A. 801, 805 (1937). See also Tirrell v. Johnston, 86 N.H. 530, 536, 171 A. 641, 644 (1934). The method of their manufacture is distinctive and the end products are markedly different from all other kinds of fuel and energy. The incidence of the tax would depend upon a characteristic event not common to other property. Havens v. Attorney General, 91 N.H. 115, 119, 14 A.2d 636, 638 (1940).

We are of the opinion that refined petroleum products constitute a legitimate classification of property under N.H.Cconst. pt. II. art. 6. Havens v. Attorney General, 91 N.H. 115, 14 A.2d 636 (1940); Opinion of the Justices, 94 N.H. 506, 52 A.2d 294 (1947); Opinion of the Justices, 111 N.H. 131, 134, 276 A.2d 817, 819 (1971). The answer to question No. 1 is 'Yes'.

Question No. 2 is the following: 'Is the exemption for refined petroleum products produced for distribution in New Hampshire a permissible exemption?' It has been stated that under our constitution '(t)he power of the legislature to classify property into taxable and non-taxable groups includes power to grant reasonable exemptions from taxation. . . . 'If the distinction made is a reasonable one, in the sense that it may be deemed to be just, it is sufficient' (citation omitted). The resulting inequality or discrimination against unexempted property is not fatal to the constitutionality of the exemption.' Opinion of the Justices, 87 N.H. 490, 491 178 A. 125, 126 (1935); Opinion of the Justices, 97 N.H. 533, 536, 81 A.2d 845, 848 (1951). The exemption of refined petroleum products produced for distribution and consumption within this State is intended to insure an adequate supply of these products thus promoting the State's general welfare. This constitutes a just reason for the exemption. Opinion of the Justices, 88 N.H. 500, 511, 190 A. 801, 808 (1937); Opinion of the Justices, 112 N.H. 32, 34, 287 A.2d 756, 757 (1972).

We must take judicial notice that there is no oil refinery presently operating in this State. Hence the volume of petroleum products to be produced by a future refinery, and the porportion to be sold here or in interstate commerce, must necessarily be conjectural. It is well-established federal law that State taxation, whatever its form, which discriminates against interstate commerce is invalid. The crude oil received from outside New Hampshire will have ceased to be in interstate commerce at the time of its refining in this State which is the taxable event, and will not then have reentered the stream of interstate commerce. Coe v. Errol, 116 U.S. 517, 6 S.Ct. 475, 29 L.Ed. 715 (1886); Uniter Air Lines, Inc. v. Mahin, 410 U.S. 623, 630, 93 S.Ct. 1186, 1191, 35 L.Ed.2d 545 (1973). Thus no burden upon interstate commerce will result from the tax. See Coe v. Errol, 62 N.H. 303 (1882). The substantial services which this State will provide the refinery such as police and fire protection and public access roads, may rationally be considered to justify limiting the tax to products destined to be sold outside of New Hampshire. United Air Lines, Inc. v. Mahin supra; see Northeast Airlines, Inc. v. Aeronautics Comm'n, 111 N.H. 5, 273 A.2d 676 (1971). However, the determination of whether the exemption in question would render the tax on such products discriminatory against interstate commerce is within the jurisdiction of the federal courts in the last instance.

It follows that our answer to question No. 2 is 'Yes' the proposed exemption is permissible under our constitution. However we cannot state unequivocally that it is also permissible under the Federal Constitution.

Your question No. 3 asks: 'Is the imposition of a barrel tax on refined petroleum products a valid exercise of the state's taxing power?' The bill proposes a tax at a flat rate of five cents per barrel of petroleum products produced. The absence of a refinery in this State again renders necessary the making of certain assumptions on which to base an answer. If two refineries should locate in this State and produce various petroleum products each having a different value, the flat rate of five cents per barrel would result in a tax at different...