New Mexico has imposed an energy tax on the privilege of generating electricity within the State. This tax applies to all utility companies generating electricity within the State and may be credited against the New Mexico gross receipts tax liability for electricity sold at retail within New Mexico. But where the electricity is transmitted to other States for sale and consumption, there is no gross receipts tax liability against which to offset energy tax liability. A federal statute, 15 U.S.C. 391, prohibits a State from imposing a tax on the generation or transmission of electricity which discriminates against out-of-state consumers, and further provides that a tax is discriminatory if it "results, either directly or indirectly, in a greater tax burden on electricity" generated and transmitted in interstate commerce than on electricity generated and transmitted in intrastate commerce. Appellant utility companies, owners of New Mexico power plants at which most of the electricity generated is ultimately sold to out-of-state consumers, brought action in a New Mexico state court seeking to have the energy tax invalidated on the ground, inter alia, that it violated the federal statute, but the New Mexico Supreme Court, affirming the trial court, upheld the tax.
The New Mexico energy tax is invalid under the Supremacy Clause by reason of the federal statute. Because the tax itself, through operation of the tax-credit provisions, indirectly but necessarily discriminates against electricity sold outside New Mexico, it violates that statute. The federal statute does not exceed the permissible bounds of congressional action under the Commerce Clause, since Congress had a rational basis for finding that a tax such as New Mexico's interfered with interstate commerce, and selected a reasonable method to eliminate that interference. Pp. 146-151.
91 N. M. 485, 576 P.2d 291, reversed.
STEWART, J., delivered the opinion of the Court, in which BURGER, C. J., and BRENNAN, MARSHALL, BLACKMUN, POWELL, and STEVENS, JJ., joined. [441 U.S. 141, 142] REHNQUIST, J., filed an opinion concurring in the judgment, in which WHITE, J., joined, post, p. 151.
Daniel J. McAuliffe argued the cause for appellants. With him on the briefs were Richard N. Carpenter, Mark Wilmer, and William C. Schaab.
Jan E. Unna, Special Assistant Attorney General of New Mexico, argued the cause for appellees. With him on the brief were Toney Anaya, Attorney General, and John P. Frank. *
[ Footnote * ] A brief of amici curiae urging reversal was filed by the Attorneys General for their respective States as follows: Louis J. Lefkowitz for New York, Francis B. Burch for Maryland, John Degnan for New Jersey, William J. Brown for Ohio, and Marshall Coleman for Virginia.
MR. JUSTICE STEWART delivered the opinion of the Court.
New Mexico has imposed a tax on the privilege of generating electricity within its borders. The question in this case is whether that tax conflicts with federal law, statutory or constitutional.
The Four Corners power plants, located in New Mexico's desert northwest, are owned by the appellants, five public utilities companies. 1 Most of the electricity generated at the plants is ultimately sold to out-of-state consumers. 2 New [441 U.S. 141, 143] Mexico imposes a 4% gross receipts tax on retail sellers of electricity, 3 but since the bulk of the appellants' sales are made to consumers in other States, they do not incur significant liability for this tax. In 1975, New Mexico enacted the Electrical Energy Tax Act, the law at issue in this case. 4 That Act imposes a tax on the privilege of generating electricity at the rate of 4/10 of a mill on each net kilowatt hour of electricity generated. This is roughly equivalent to a 2% tax on the retail value of the electricity. The tax is imposed on all companies generating electricity within the State. Section 9 of the Act, however, provides that this electrical energy tax may be fully credited against the company's gross receipts tax liability.
The Act and the regulations implementing it insure that the electrical generating company will receive full credit for the [441 U.S. 141, 144] tax even if it does not itself make retail sales of electricity. This result is accomplished by requiring the generating company to assign its "potential credit" to the retailer, who in turn is required to reimburse the generating company for the value of this credit. 5 The consequence is that a generating [441 U.S. 141, 145] company's 2% tax is completely offset by the credit against the 4% retail sales tax when its electricity is sold within New Mexico. But to the extent that the electricity generated in New Mexico is not sold at retail in the State, there is no gross receipts tax liability against which to offset the electrical energy tax liability of the generating company.
In 1976, the State of Arizona, as a consumer of electricity and parens patriae for its citizens, sought to invoke this Court's original jurisdiction by a motion for leave to file a bill of complaint against New Mexico, asking for a declaratory judgment invalidating this New Mexico tax. The litigation now before us had already been initiated in the New Mexico courts by the present appellants, seeking essentially the same relief. This Court denied Arizona leave to file its complaint, concluding:
The appellants contend that the New Mexico tax is invalid under a specific federal statute as well as under the Commerce, Due Process, and Import-Export Clauses of the constitution. Because we conclude that under the Supremacy Clause 6 the tax is invalid by reason of this federal statute, we do not reach the substantive constitutional issues.
When Congress enacted the Tax Reform Act of 1976 it included a provision relating to state taxes on electricity. Section 2121 (a) of the Act, 90 Stat. 1914, codified at 15 U.S.C. 391, provides:
The appellees concede that this statutory provision was aimed directly at the New Mexico Electrical Energy Tax Act. They contend, however, that the definition of a discriminatory tax was so defused in the Conference Committee that Congress in the law as enacted failed to hit its mark. Specifically, they point out that a discriminatory tax, defined in the Senate Committee's original draft as one that results in "the payment of a higher gross or net tax," became in the statute as enacted one which results in "a greater tax burden" on electricity transmitted out of state than that sold within the State.
We are told that the statutory definition was redrafted in the Conference Committee to allay the concerns of Senators from States with somewhat similar taxes. That Committee's Report gave no reason, however, for the change in language. The Report merely stated:
The Act prohibits "a tax on or with respect to the generation or transmission of electricity" which "results, either directly or indirectly, in a greater tax burden on electricity" consumed outside of New Mexico than that consumed in the State. The appellees urge that this statutory provision is no more than a prohibition of a tax that is invalid under the constitutional test of the Commerce Clause. That test, they say, requires examination of New Mexico's total tax structure to determine whether the State in fact imposes a greater tax burden on electricity sent out of state. See Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 69 . And the tax in question, they say, clearly survives such an examination. Power sold within New Mexico, they argue, is subject to a 4% tax: 2% from the electrical energy tax and 2% from the gross receipts tax. By contrast, New Mexico subjects electricity sent out of state only to its 2% generation tax. The appellees contend, therefore, that if there is any discrimination in New Mexico's taxing structure, it is discrimination against electricity consumed within the State.
But, whatever the validity may be of the Commerce Clause test advanced by the appellees, the federal statutory provision is directed specifically at a state tax "on or with respect to the generation or transmission of electricity," not to the entire tax structure of the State. The tax imposed by New Mexico's Electrical Energy Tax Act is concededly a tax on the generation of electricity. The tax-credit provisions of the Act itself insure that locally consumed electricity is subject to no tax burden from the electrical energy tax, while the bulk of the electricity generated in New Mexico by the appellants is subject to a 2% tax, since it is sold outside the State. To look [441 U.S. 141, 150] narrowly to the type of tax the federal statute names, rather than to consider the entire tax structure of the State, is to be faithful not only to the language of that statute but also to the expressed intent of Congress in enacting it. Because the electrical energy tax itself indirectly but necessarily discriminates against electricity sold outside New Mexico, it violates the federal statute. 7
The appellees also argue that if the federal statute is construed to invalidate the New Mexico tax, it exceeds the permissible bounds of congressional action under the Commerce Clause. In view of the broad power of Congress to regulate interstate commerce, this argument must be rejected. See Wickard v. Filburn, 317 U.S. 111 ; Katzenbach v. McClung, 379 U.S. 294 . Here, the Congress had a rational basis for finding that the New Mexico tax interfered with interstate commerce, and selected a reasonable method to eliminate that interference. The legislation thus was within the constitutional power of Congress to enact. See Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 258 -259; United States v. Wrightwood Dairy Co., 315 U.S. 110, 119 .
The generation of electricity in the Four Corners region undoubtedly also generates environmental and other problems for New Mexico. There is no indication that Congress intended to prevent the State from taxing the generation of [441 U.S. 141, 151] electricity to pay for solutions to these problems. But the generation of electricity to be sent to Phoenix causes no more problems than the generation of electricity to be sent to Albuquerque. Congress required only that New Mexico, if it chooses to tax the generation of electricity for consumption in either city, tax it equally for each.
The judgment is reversed.
[ Footnote 2 ] Arizona Public Service Co. makes some minor retail sales of electricity in New Mexico. El Paso Electric makes retail sales in a significant portion of southern New Mexico and is the only one of the appellants regulated [441 U.S. 141, 143] by New Mexico as a public utility. El Paso Electric also sells electricity at wholesale in the Republic of Mexico. In 1975, the five appellants generated nearly a billion kilowatt hours of electricity in New Mexico.
[ Footnote 3 ] N. M. Stat. Ann. 7-9-1 through 7-9-80 (1978).
[ Footnote 4 ] The critical sections of the Electrical Energy Tax Act are 3 and 9. They provide in relevant part as follows:
[ Footnote 5 ] The relevant sections of the regulations provide:
[ Footnote 6 ] "[T]he Laws of the United States which shall be made in Pursuance [of the Constitution] . . . shall be the supreme Law of the Land . . . ." U.S. Const., Art. VI, cl. 2.
[ Footnote 7 ] This is not a case where the State has imposed an evenhanded tax on the generation of electricity and has lowered the gross receipts or sales tax on the sale of electricity. Although New Mexico argues that such is the practical result of its tax structure, the credit provisions of the Electrical Energy Tax Act itself shift the legal incidence of the gross receipts tax credit directly to the generating utility.
The amici in this case have pointed to several similar state taxes on the generation of electricity. Pa. Stat. Ann., Tit. 72, 8101 (Purdon Supp. 1978-1979); Wash. Rev. Code 82.16.020, 82.16.050 (1976); W. Va. Code 11-13-2d, 11-13-2m (Supp. 1978). None of these States, however, has adopted precisely the scheme used by New Mexico, and we express no opinion as to the validity of these or any other state tax laws.
MR. JUSTICE REHNQUIST, with whom MR. JUSTICE WHITE joins, concurring in the judgment.
I concur in the judgment of the Court because I agree that the tax imposed by New Mexico's Electrical Energy Tax Act on the generation of electricity within its borders is forbidden by 2121 (a) of the Tax Reform Act of 1976, codified at 15 U.S.C. 391.
I think that the statutory question is somewhat closer than the Court intimates, both as to the meaning of the actual language of 391 and as to its legislative history. As the Court indicates and as appellees concede, the debate on the floor of the Senate makes it clear that the original version of 391 was aimed at New Mexico's energy tax. See ante, at 147-148; Brief for Appellees 14. New Mexico argues here that the original provision was redrafted in conference in order to "save" somewhat similar tax statutes in other States and that, as redrafted, 391 is "sterile" legislation: It accomplishes no more than the Commerce Clause of the Constitution would accomplish of its own force. See ante, at 149; Brief for Appellees 11, 16, 24. Congress is vested with the legislative power of the United States, and not the judicial power, and therefore it may be unrealistic to assume automatically that Congress never passes a "sterile" law, in the sense that the provision does no more than the Constitution would have done had Congress never enacted the law. But, in my view, the laws enacted by Congress certainly are entitled to a presumption [441 U.S. 141, 152] to that effect. Since the effect of 391 is not entirely clear from its language and legislative history, I would give some weight to that presumption in reaching the conclusion that 391 extends beyond the requirements of the Commerce Clause * and outlaws the New Mexico energy tax here at issue.
[ Footnote * ] There is no question in my mind that if 391 were coextensive with the Commerce Clause, New Mexico's energy tax would be valid for substantially the same reasons advanced by appellees. Ante, at 149; see Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 69 -70 (1963); Gregg Dyeing Co. v. Query, 286 U.S. 472, 480 (1932); Public Utility Dist. No. 2 v. State, 82 Wash. 2d 232, 239-240, 510 P.2d 206, 210-211, appeal dismissed for want of substantial federal question, 414 U.S. 1106 (1973). [441 U.S. 141, 153]