The U.S. Supreme Court has upheld an Ohio tax that exempts natural gas bought from local distribution companies (LDCs) while taxing gas purchases from independent marketers.
General Motors Corp. had appealed the case, arguing that the tax unfairly discriminates against interstate commerce. The Natural Gas Supply Association filed an amicus curiae brief supporting GM's position.
Producers and marketers are concerned that other states also might tax LDCs and marketers differently, giving the former an advantage in selling gas to industrial customers.
NGSA view
Nicholas Bush, NGSA president, said, "While it is important to recognize the rights of an individual state over its businesses, it is difficult to achieve a prosperous national economy without consistent and fair rules for interstate commerce. This decision does not further the development of a national, competitive marketplace for natural gas."
The high court ruled 8-1 in the case, GM vs. Tracy. The 63-year old Ohio law exempted gas sold by LDCs from a 5-7% sales and use tax.
GM, which buys gas for its Ohio plants, argued the law discriminated against sales by independent marketers, including out-of-state marketers, and impeded interstate trade. It said LDC and independent marketer gas sales should be treated the same.
Ohio said LDCs could receive different tax treatment because, unlike marketers, they must offer service to all buyers and pay a gross receipts tax.
The Ohio Supreme Court had upheld the tax, saying it did not discriminate against interstate commerce because both in and out-of-state independent marketers had to pay it.
Supreme Court view
U.S. Supreme Court Justice David Souter agreed with the Ohio Supreme Court.
In the majority opinion, he wrote that the differing tax treatment for LDCs and independent marketer sales does not unfairly discriminate against interstate commerce on its face, and there was a rational basis for Ohio's distinction for the two types of sales.
He observed that the tax applies to independent producers whether they are based in or out of state and that the independent markers are not subject to the property taxes that LDCs must pay.
Souter said Congress could legislate to standardize state taxation of natural gas sales if necessary.
Justice John Paul Stevens dissented. He said the regulation of LDCs does not justify giving them preferential treatment in their competition with independent marketers.
In a separate case, Robinson vs. Shell Oil Co., the Supreme Court ruled employers may not retaliate against former employees who had filed job discrimination complaints.
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