Rockies Express Pipeline, L.L.C. v. McClain
| Citation | 159 Ohio St.3d 302,2020 Ohio 410,150 N.E.3d 895 |
| Decision Date | 11 February 2020 |
| Docket Number | No. 2018-0882,2018-0882 |
| Court | United States State Supreme Court of Ohio |
| Parties | ROCKIES EXPRESS PIPELINE, L.L.C., Appellant, v. MCCLAIN, Tax Commr., Appellee. |
Taft, Stettinius & Hollister, L.L.P., and W. Stuart Dornette, Cincinnati, J. Donald Mottley, Columbus, and Philip D. Williamson, Cincinnati; MBGallTax and Maryann B. Gall ; and Van Ness Feldman, L.L.P., and Paul Korman, for appellant.
Dave Yost, Attorney General, and Benjamin M. Flowers, State Solicitor, Zachery P. Keller, Deputy Solicitor, and Daniel W. Fausey and Zachary J. Stackhouse, Assistant Attorneys General, for appellee.
French, J. {¶ 1} Ohio's public-utility excise-tax statutes provide that "[a]ll receipts derived wholly from interstate business" are excluded from a public utility's computation of its taxable gross receipts. R.C. 5727.33(B)(1). We conclude that when, as here, a public utility transports natural gas for others through an interstate pipeline, the exclusion does not apply to the class of receipts the utility earns by transporting the gas solely within Ohio. We also conclude that imposing the tax on this class of receipts does not violate the Commerce Clause.
FACTS AND PROCEDURAL BACKGROUND
Rockies' operations
{¶ 2} Appellant, Rockies Express Pipeline, L.L.C. ("Rockies") is an interstate pipeline used for transporting natural gas. Rockies does not gather or process gas, and its incidental purchases and sales of gas are not at issue. The pipeline is 42 inches in diameter, roughly 1,700 miles long, and crosses through eight states, including Ohio. The pipeline's westernmost termini are in Wyoming and Colorado; its easternmost terminus is in Monroe County, which is located on Ohio's eastern border. Rockies' pipeline connects with 28 other interstate pipelines; six of these interconnections are located in Ohio. Although Rockies originally focused its operations on transporting gas from production areas in the West to serve markets in the East, the discovery of large gas supplies in Ohio and elsewhere prompted Rockies to modify its system to support bi-directional service. Due to the interconnectedness of the interstate-pipeline grid and the transitory nature of gas molecules, it is feasible for Rockies to receive gas from wells located anywhere in the United States.
{¶ 3} Rockies is regulated by the Federal Energy Regulatory Commission ("FERC"), see 15 U.S.C. 717 et seq., and its customer dealings are governed by its FERC-filed gas tariff, which prescribes Rockies' schedule of rates and general terms and conditions of service. The transactions at issue here involve Rockies' transportation of natural gas to four types of delivery locations: (1) other interstate pipelines, (2) one industrial end-use customer, AK Steel, (3) two local distribution companies,2 and (4) two hub pooling points.3
Proceedings before the tax commissioner
{¶ 4} Rockies reported to the tax commissioner on its 2015 Annual Statement of Gross Receipts that it generated $699,018,936 in gross receipts for transporting natural gas. Rockies assigned this entire amount to interstate-business activities and reported no taxable gross receipts. Based on that assignment, Rockies reported the minimum tax liability of $50. After Rockies reported its statement, an agent for the tax commissioner asked Rockies to provide additional information on its within-Ohio deliveries. Rockies submitted information pertaining to 36 discrete transactions in which it charged a total of $2,084,426 to transport natural gas solely within Ohio. Of these transactions, 94.1 percent were deliveries to other interstate pipelines, 1.9 percent were to local distribution companies, 2.8 percent were to industrial end users, and 1.2 percent were to hub pooling points.
{¶ 5} After reviewing Rockies' information, the tax commissioner assessed Rockies a tax liability of $139,011.26 on gross receipts of $2,084,426—in other words, the commissioner assessed Rockies on transactions in which natural gas entered and exited Rockies' pipeline within Ohio. Rockies paid the tax and petitioned the tax commissioner for reassessment under R.C. 5727.47, arguing that its receipts derived wholly from interstate business and thus were eligible for exclusion under R.C. 5727.33(B)(1).
{¶ 6} The tax commissioner issued a final determination upholding the assessment. The commissioner rejected Rockies' reliance on R.C. 5727.33(B)(1)'s exclusion of interstate-business receipts because, he reasoned, receipts earned from shipments that start and end in Ohio are best understood as derived from intrastate—not interstate—business. The commissioner also disagreed with the contention that taxing Rockies' receipts violated the Commerce Clause.
Proceedings before the Board of Tax Appeals
{¶ 7} The Board of Tax Appeals ("BTA") affirmed the tax commissioner's final determination, concluding as a statutory matter that Rockies' receipts were not eligible for exclusion. The BTA declined to address whether imposition of the tax exceeded any constitutional limits on Ohio's taxing power. Rockies then appealed the BTA's decision to the Tenth District Court of Appeals. While that appeal was pending, Rockies filed a transfer petition with this court and asked us to accept jurisdiction over the appeal.
Questions presented
{¶ 8} We granted Rockies' petition, 153 Ohio St.3d 1486, 2018-Ohio-3867, 108 N.E.3d 83, which presents two propositions of law. The first involves a matter of statutory construction: whether the gross receipts earned by a public utility for the transportation of natural gas flowing through an interstate pipeline should be excluded from taxation under R.C. 5727.33(B)(1) as "receipts derived wholly from interstate business" when those receipts relate solely to within-Ohio trips. In its second proposition of law, Rockies argues that Ohio's imposition of a tax on such gross receipts violates the Commerce Clause of the United States Constitution. We address each proposition in turn.
ANALYSIS
The interstate-business exclusion in R.C. 5727.33(B)(1)
{¶ 9} Subject to certain exceptions, Ohio imposes on "each public utility * * * an annual excise tax * * * for the privilege of owning property in this state or doing business in this state." R.C. 5727.30(A). The term "public utility" includes a "pipe-line company," R.C. 5727.01(A), "engaged in the business of transporting natural gas * * * through pipes or tubing, either wholly or partially within this state," R.C. 5727.01(D)(5). The tax generally extends to "the entire gross receipts actually received from all sources for business done within this state." R.C. 5727.33(A). Certain categories of gross receipts are excluded from this general rule. The exclusion at issue in this appeal provides:
{¶ 10} The exclusion in R.C. 5727.33(B)(1) dates back to 1910 and has not changed since its original enactment. Then, as now, a "pipe line company" could exclude from its gross receipts "all receipts derived wholly from interstate business." See H.B. No. 68, 101 Ohio Laws 399, 409, 411.
{¶ 11} Rockies posits that all of its gross receipts in tax year 2015 are "derived wholly from interstate business" and therefore fall within the exclusion. As with any matter of statutory interpretation, we begin with the text of the enactment. State v. Hanning , 89 Ohio St.3d 86, 91, 728 N.E.2d 1059 (2000). We must construe strictly any claimed exemption from taxation, and the taxpayer bears the burden of establishing its entitlement to the exemption.
A. Schulman, Inc. v. Levin , 116 Ohio St.3d 105, 2007-Ohio-5585, 876 N.E.2d 928, ¶ 7. We 3conclude that the plain text of R.C. 5727.33(B)(1) does not support Rockies' argument.
{¶ 12} In our view, the scope of the exclusion turns largely on the meaning of the word "interstate." In the absence of a statutory definition, we rely on the "common, ordinary, and accepted meaning" of a word. State v. Black , 142 Ohio St.3d 332, 2015-Ohio-513, 30 N.E.3d 918, ¶ 39 ; R.C. 1.42. The ordinary meaning of the words the General Assembly used at the time of enactment also guides our determination of legislative intent. See Volz v. Volz , 167 Ohio St. 141, 146, 146 N.E.2d 734 (1957). In 1910, the word "interstate" meant "[b]etween two or more states; between places or persons in different states; concerning or affecting two or more states politically or territorially." Black's Law Dictionary 651 (2d Ed.1910). The meaning of the word has not changed materially in the intervening decades. See Webster's New International Dictionary 1300 (2d Ed.1953) (defining "interstate" as "[p]ertaining to the mutual relations of states; existing between, or including, different states"); Black's Law Dictionary 948 (10th Ed.2014) ("interstate" means "[b]etween two or more states or residents of different states; involving different states, esp. in the United States").
{¶ 13} The word "interstate," as understood since 1910, refers to matters existing or occurring between two states. Applying this meaning, we conclude that Rockies' tax-year-2015 receipts do not bear an interstate character. The state does not seek to tax any receipts generated from transporting gas from Ohio to another state. Rather, the tax commissioner seeks to tax only those receipts that are derived from the transportation of gas that entered Rockies' pipeline in Ohio and exited the pipeline at a delivery point in Ohio. We view the receipts derived from Rockies' transportation of gas within Ohio as taxable receipts generated from "business done within this state," R.C. 5727.33(A).
{¶ 14} Rockies does not offer an alternative meaning of the word "interstate," nor does it dispute that the receipts at issue involve transactions in which Rockies received and delivered gas within Ohio. Rather, it...
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