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GMC v. Tracy

Supreme Court of the United States

October 7, 1996, Argued ; February 18, 1997, Decided

No. 95-1232.

Opinion

 [*281]  [**816]  [***769]    JUSTICE SOUTER delivered the opinion of the Court.

 The State of Ohio imposes its general sales and use taxes on  [***770]  natural gas purchases from all sellers,  [****9]  whether in-state or  [*282]  out-of-state, except regulated public utilities that meet Ohio's statutory definition of a "natural gas company." The question here is whether this difference in tax treatment between sales of gas by domestic utilities subject to regulation and sales of gas by other entities violates the Commerce Clause or Equal Protection Clause of the Constitution. We hold that it does not.

During the tax period at issue, 1 Ohio levied a 5% tax on the in-state sales of goods, including natural gas, see Ohio Rev. Code Ann. §§ 5739.02, 5739.025 (Supp. 1990), and it imposed a parallel 5% use tax on goods purchased out-of-state for use in Ohio. See § 5741.02 (1986). Local jurisdictions were authorized to levy certain additional taxes that increased these sales and use tax rates to as much as 7% in some municipalities. See § 5739.025 (Supp. 1990); Reply Brief for Petitioner 13, n. 11.

 [****10]  Since 1935, when Ohio's first sales and use taxes were imposed, the State has exempted natural gas sales by "natural gas compan[ies]" from all state and local sales taxes. § 5739.02(B)(7). 2 Under Ohio law, "any person . . . is a natural gas company when engaged in the business of supplying natural gas for lighting, power, or heating purposes to consumers within this state." § 5727.01(D)(4) (1996); see also § 5727.01 (E)(4) (Supp. 1990); § 5727.01(E)(8) (1986). It is undisputed that natural gas utilities (generally termed "local distribution companies" or LDC's) located in Ohio satisfy this definition of "natural gas company." The Supreme Court of Ohio has, however, interpreted the statutory term to exclude non-LDC gas sellers, such as producers and independent marketers, see Chrysler Corp. v. Tracy, 73 Ohio St. 3d 26, 652 N.E.2d 185 [*283]  (1995), and the State has accordingly treated their sales as outside the exemption and so subject to the tax.

 [****11]  The very question of such an exclusion, and consequent taxation of gas sales or use, reflects a recent stage of evolution in the structure of the natural gas industry. Traditionally, the industry was divisible into three relatively distinct segments: producers, interstate pipelines, and LDC's. This market structure was possible largely because the Natural Gas Act of 1938 (NGA), 52 Stat. 821, 15 U.S.C. § 717 et seq., failed to require interstate pipelines to offer transportation services to third parties wishing to ship gas. As a result, "interstate pipelines [were able] to use their monopoly power over gas transportation to create and maintain monopsony power in the market for the purchase of gas at the wellhead and monopoly power in the market for the sale of gas to LDCs." Pierce, The Evolution of Natural Gas Regulatory Policy, 10 Nat. Resources & Env't 53, 53-54 (Summer 1995) (hereinafter Pierce). For the most part, then, producers sold their gas to the pipelines, which resold it to utilities, which in turn provided local distribution to consumers. See, e. g., Associated Gas Distributors v. FERC,  [***771]  263 U.S. App. D.C. 1, 824 F.2d 981, 993 (CADC 1987), cert. denied, 485 [****12]  U.S. 1006, 99 L. Ed. 2d 698, 108 S. Ct. 1468 (1988); Mogel & Gregg, Appropriateness of Imposing Common Carrier Status on Interstate Natural Gas Pipelines, 4 Energy L. J. 155, 157 (1983).

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519 U.S. 278 *; 117 S. Ct. 811 **; 136 L. Ed. 2d 761 ***; 1997 U.S. LEXIS 692 ****; 65 U.S.L.W. 4086; 97 Cal. Daily Op. Service 1070; 97 Daily Journal DAR 1597; 10 Fla. L. Weekly Fed. S 263

GENERAL MOTORS CORPORATION, PETITIONER v. ROGER W. TRACY, TAX COMMISSIONER OF OHIO

Prior History:  [****1]  ON WRIT OF CERTIORARI TO THE SUPREME COURT OF OHIO, Reported at: 1995 Ohio LEXIS 1924.

Disposition: 73 Ohio St. 3d 29, 652 N. E. 2d 188, affirmed.

CORE TERMS

natural gas, regulation, marketers, Commerce, consumers, sales, exemption, interstate, pipelines, customers, in-state, dormant commerce clause, out-of-state, captive, state regulation, bundled, interstate commerce, transportation, discriminates, industrial, taxation, sellers, entities, electric, facially, monopoly, franchises, producers, differential, compete

Civil Procedure, Justiciability, Standing, General Overview, Energy & Utilities Law, Taxation Issues, Tax Law, State & Local Taxes, Natural Resource Taxes, Preliminary Considerations, Constitutional Law, Case or Controversy, Congressional Duties & Powers, Commerce Clause, Transportation Law, Interstate Commerce, Federal Powers, Business & Corporate Compliance, Transportation Law, State Powers, Natural Gas Industry, Distribution & Sale, Dormant Commerce Clause, Marketing & Transportation, Pipelines & Transportation, Natural Gas Transportation, International Trade Law, Carrier Duties & Liabilities, Embargos, Equal Protection, Judicial Review, Standards of Review