United States v. Ptasynski, 82-1066

• Decision Date: 06 June 1983
• Docket Number: No. 82-1066,82-1066
• Citation: 462 U.S. 74,103 S.Ct. 2239,76 L.Ed.2d 427
• Parties: UNITED STATES, Appellant v. Harry PTASYNSKI et al
• Court: U.S. Supreme Court

462 U.S. 74

103 S.Ct. 2239

76 L.Ed.2d 427

UNITED STATES, Appellant

v Harry PTASYNSKI et al.

No. 82-1066.

Argued April 27, 1983.

Decided June 6, 1983.

Syllabus

The Crude Oil Windfall Profit Tax Act of 1980 grants an exemption from the tax of domestic crude oil defined as oil produced from wells located north of the Arctic Circle or on the northerly side of the divide of the Alaska-Aleutian Range and at least 75 miles from the nearest point on the Trans-Alaska Pipeline system.

Held: This exemption does not violate the Uniformity Clause's requirement that taxes be "uniform throughout the United States." Pp. 80-86.

(a) The Uniformity Clause does not require Congress to devise a tax that falls equally or proportionately on each State nor does the Clause prevent Congress from defining the subject of a tax by drawing distinctions between similar classes. Pp. 80-82.

(b) Identifying "exempt Alaskan oil" in terms of its geographic boundaries does not render the exemption invalid. Neither the language of the Uniformity Clause nor this Court's decisions prohibit all geographically defined classifications. That Clause gives Congress wide latitude in deciding what to tax and does not prohibit it from considering geographically isolated problems. Here, Congress cannot be faulted for determining, based on neutral factors, that "exempt Alaskan oil" required separate favorable treatment. Such determination reflects Congress' considered judgment that unique climatic and geographic conditions required that oil produced from the defined region be exempted from the windfall profit tax, which was devised to tax "windfalls" that some oil producers would receive as the result of the deregulation of domestic oil prices that was part of the Government's program to encourage the exploration for and production of oil. Pp. 84-86.

550 F.Supp. 549, reversed.

Lawrence G. Wallace, Washington, D.C., for appellant.

Stephen F. Williams, Boulder, Colo., for appellees.

Justice POWELL delivered the opinion of the Court.

The issue is whether excluding a geographically defined class of oil from the coverage of the Crude Oil Windfall Profit Tax Act violates the Uniformity Clause.

I

During the 1970s the Executive Branch regulated the price of domestic crude oil. See H.R.Rep. No. 96-304, pp. 4-5 (1979), U.S.Code Cong. & Admin.News 1980, p. 410. Depending on its vintage and type, oil was divided into differing classes or tiers and assigned a corresponding ceiling price. Initially, there were only two tiers, a lower tier for "old oil" and an upper tier for new production. As the regulatory framework developed, new classes of oil were recognized.¹

In 1979, President Carter announced a program to remove price controls from domestic oil by September 30, 1981. See id., at 5. By eliminating price controls, the President sought to encourage exploration for new oil and to increase production of old oil from marginally economic operations. See H.R.Doc. No. 96-107, p. 2 (1979). He recognized, however, that deregulating oil prices would produce substantial gains (referred to as "windfalls") for some producers. The price of oil on the world market had risen markedly, and it was anticipated that deregulating the price of oil already in production would allow domestic producers to receive prices far in excess of their initial estimates. See id., at 2. Accordingly, the President proposed that Congress place an excise tax on the additional revenue resulting from decontrol.

Congress responded by enacting the Crude Oil Windfall Profit Tax Act of 1980, 94 Stat. 229, 26 U.S.C. § 4986 et seq. (1976 ed., Supp. V). The Act divides domestic crude oil into three tiers ² and establishes an adjusted base price and a tax rate for each tier. See §§ 4986, 4989, and 4991. The base prices generally reflect the selling price of particular categories of oil under price controls, and the tax rates vary according to the vintages and types of oil included within each tier.³ See Joint Committee on Taxation, General Explanation of the Crude Oil Windfall Profit Tax Act of 1980, pp. 26-36 (Comm. Print 1981). The House Report explained that the Act is "designed to impose relatively high tax rates where production cannot be expected to respond very much to further increases in price and relatively low tax rates on oil whose production is likely to be responsive to price." H.R.Rep. 96-304, at 7; see S.Rep. No. 96-394, p. 6 (1979), U.S.Code Cong. & Admin.News 1980, p. 594.

The Act exempts certain classes of oil from the tax,⁴ 26 U.S.C. § 4991(b), one of which is "exempt Alaskan oil," § 4991(b)(3). It is defined as:

"any crude oil (other than Sadlerochit oil) which is produced

(1) from a reservoir from which oil has been produced in commercial quantities through a well located north of the Arctic Circle, or

(2) from a well located on the northerly side of the divide of the Alaska-Aleutian Range and at least 75 miles from the nearest point on the Trans-Alaska Pipeline System." § 4994(e).

Although the Act refers to this class of oil as "exempt Alaskan oil," the reference is not entirely accurate. The Act exempts only certain oil produced in Alaska from the windfall profit tax. Indeed, less than 20% of current Alaskan production is exempt.⁵ Nor is the exemption limited to the State of Alaska. Oil produced in certain offshore territorial waters—beyond the limits of any State—is included within the exemption.

The exemption thus is not drawn on state political lines. Rather it reflects Congress' considered judgment that unique climactic and geographic conditions require that oil produced from this exempt area be treated as a separate class of oil. See H.R.Conf.Rep. No. 96-817, p. 103 (1980). As Senator Gravel explained, the development and production of oil in arctic and subarctic regions is hampered by "severe weather conditions, remoteness, sensitive environmental and geological characteristics, and a lack of normal social and industrial infrastructure." ⁶ 125 Cong.Rec. S16327 (Nov. 8, 1979). These factors combine to make the average cost of drilling a well in Alaska as much as 15 times greater than that of drilling a well elsewhere in the United States. See 126 Cong.Rec. S2630 (Mar. 19, 1980) (remarks of Sen. Gravel).⁷ Accordingly, Congress chose to exempt oil produced in the defined region from the windfall profit tax. It determined that imposing such a tax "would discourage exploration and development of reservoirs in areas of extreme climatic conditions." H.R.Conf.Rep. No. 96-817, at 103, U.S.Code Cong. & Admin.News 1980, p. 656.

Six months after the Act was passed, independent oil producers and royalty owners filed suit in the District Court for the District of Wyoming, seeking a refund for taxes paid under the Act. On motion for summary judgment, the District Court held that the Act violated the Uniformity Clause, Art. I, § 8, cl. 1.⁸ 550 F.Supp. 549, 553 (1979). It recognized that Congress' power to tax is virtually without limitation, but noted that the Clause in question places one specific limit on Congress' power to impose indirect taxes. Such taxes must be uniform throughout the United States, and uniformity is achieved only when the tax " 'operates with the same force and effect in every place where the subject of it is found.' " Id., at 553 (quoting Head Money Cases, 112 U.S. 580, 594, 5 S.Ct. 247, 252, 28 L.Ed. 798 (1884)).

Because the Act exempts oil from certain areas within one State, the court found that the Act does not apply uniformly throughout the United States. It recognized that Congress could have "a rational justification for the exemption," but concluded that "[d]istinctions based on geography are simply not allowed." 550 F.Supp., at 553. The court then found that the unconstitutional provision exempting Alaskan oil could not be severed from the remainder of the Act. Id., at 554. It therefore held the entire windfall profit tax invalid. Id., at 555.

We noted probable jurisdiction, --- U.S. ----, 103 S.Ct. 1180, 75 L.Ed.2d 429 (1983), and now reverse.

II

Appellees advance two arguments in support of the District Court's judgment. First, they contend that the constitutional requirement that taxes be "uniform throughout the United States" prohibits Congress from exempting a specific geographic region from taxation. They concede that Congress may take geographic considerations into account in deciding what oil to tax. Brief for Taxpayer Appellees 6-7. But they argue that the Uniformity Clause prevents Congress from framing, as it did here, the resulting tax in terms of geographic boundaries. Second, they argue that the Alaskan oil exemption was an integral part of a compromise struck by Congress. Thus, it would be inappropriate to invalidate the exemption but leave the remainder of the tax in effect. Because we find the Alaskan exemption constitutional, we do not consider whether it is severable.

A

The Uniformity Clause conditions Congress' power to impose indirect taxes.⁹ It provides that "all Duties, Imposts and Excises shall be uniform throughout the United States." Art. I, § 8, cl. 1. The debates in the Constitutional Convention provide little evidence of the Framers' intent,¹⁰ but the concerns giving rise to the Clause identify its purpose more clearly. The Committee of Detail proposed as a remedy for interstate trade barriers that the power to regulate commerce among the States be vested in the national government, and the Convention agreed. See 2 M. Farrand, The Records of the Federal Convention of 1787, p. 308 (rev. ed. 1937); C. Warren, The Making of the Constitution 567-570 (1928). Some States, however, remained apprehensive that the regionalism that had marked the Confederation would persist. Id., at 586-588. There was concern that the national government would use its power over commerce to the disadvantage of particular States. The Uniformity Clause was proposed as one of several measures designed to limit the exercise of that power. See...