The opinion of the court was delivered by: MCCURN
Defendants have moved for an order dismissing these three actions for lack of subject matter jurisdiction pursuant to 28 U.S.C. § 1341. Plaintiffs in each action have moved for an order granting summary judgment in their favor. The Court has concluded after full hearing and after consideration of the arguments of counsel on both motions, the memoranda submitted therewith, both in support and opposition, and the exhibits attached thereto, that the defendants' motion to dismiss should be denied and that plaintiffs' motions for summary judgment should be granted and has further concluded that in the interests of judicial economy and in fairness to the litigants, this Order should be issued forthwith with a Memorandum-Decision containing the Court's findings of fact and conclusions of law to follow, as to avoid the need for the hearing scheduled for September 10, 1980, on plaintiff New England Petroleum Corporation's application for a preliminary injunction with a consolidated hearing on the merits. It is therefore
ORDERED, ADJUDGED AND DECREED that:
1. The defendants' motion to dismiss the plaintiffs' complaints in these three actions is denied;
2. The plaintiffs' motions for summary judgment (a) declaring the anti-pass through provision of section 182(12)(a) of the New York Tax Law as added by L.1980 ch. 271, § 4, as amended by ch. 272, § 1, and ch. 272, § 2, invalid as pre-empted by the Emergency Petroleum Allocation Act, 15 U.S.C. §§ 751-760h and the Mandatory Petroleum Price Regulations, 10 C.F.R. Part 212, promulgated thereunder and thus void under the Supremacy Clause of the United States Constitution and (b) enjoining defendants, their delegates and successors in office from enforcing the anti-pass through provision against plaintiffs in these actions, are granted;
3. Entry of judgment in these actions is hereby stayed until September 17, 1980, and in the event that a Memorandum-Decision has not been issued by the Court by that time, the Court shall, upon notice to the parties, extend the stay until such time as a decision is issued and the defendants have had a reasonable time to seek a further stay from the United States Court of Appeals for the Second Circuit.
Plaintiffs in these actions seek (a) a declaration that section 182(12) of the New York Tax Law, as added by L.1980, ch. 271 § 4 and ch. 272 § 2, which prohibits the pass-through of the State's recently enacted two (2%) percent gross receipts tax on certain oil companies is unconstitutional and thus invalid and (b) a permanent injunction enjoining the defendants from enforcing the anti-pass through provision. Relief is sought on the grounds that the anti-pass through provision (1) establishes a state price control rule which conflicts with the Federal Emergency Petroleum Allocation Act of 1973, §§ 1-19, 15 U.S.C. § 751-760h as amended, (EPAA), and the Federal Mandatory Petroleum Price Regulations, 10 C.F.R. Part 212 (Price Regulations) promulgated thereunder, and is thus void under the Supremacy Clause of the United States Constitution (U.S.Const. Art. VI, cl. 2); (2) impermissibly burdens interstate commerce and thus is void under the Commerce Clause of the United States Constitution (U.S.Const. Art. I, § 8, cl. 3); and (3) contravenes the Due Process Clause of the Fourteenth Amendment to the United States Constitution. (U.S.Const. Amend. XIV, § 1).
Plaintiffs in all three actions assert jurisdiction under 28 U.S.C. §§ 1331 and 1337. In addition, plaintiffs in the Mobil Oil and Amerada Hess actions claim that exclusive original jurisdiction is vested in this Court by § 211 of the Economic Stabilization Act of 1970 (12 U.S.C. § 1904 note), as expressly incorporated by reference in § 5(a) of the EPAA (15 U.S.C. § 754(a)), and section 502(b) of the Department of Energy Organization Act, 42 U.S.C. § 7192(b).
The three actions are presently before the Court on the defendants' motion to dismiss pursuant to the Tax Injunction Act, 28 U.S.C. § 1341 and the plaintiffs' motions for summary judgment under Rule 56 of the Fed.R.Civ.P. on their respective pre-emption claims.
On June 18, 1980, the Governor of New York State signed into law two bills which impose an annual tax "upon every oil company equal to two per centum of its gross receipts from all sources, or the portion thereof allocated within the State as hereinafter provided ...." (L.1980, ch. 271, § 4).
The tax is imposed on each company "for the privilege of exercising its corporate franchise, or of doing business, or of employing capital, or of owning or leasing property in this state in a corporate or organized capacity or of maintaining an office in this state, for all or any part of its taxable years." Id. Pursuant to the statute the term gross receipts covers all receipts with the exception of "(receipts) received by reason of any sale of fuel oil (excluding diesel motor fuel) used for residential purposes" and "receipts from any sale for resale to a purchaser which is an oil company subject to tax under this section." Id.
Revenue collected through the imposition of this new tax is earmarked to go into the "regional transportation operating and capital assistance fund", created by the legislation (L.1980, ch. 271 §§ 2, 11), and is to be used to provide operating and capital assistance to New York State's mass transportation system.
An additional provision of the State's new revenue raising plan prohibits the pass-through of the tax in the prices charged to consumers for products sold by the oil companies in New York State. The anti-pass through provision, which is set forth in subsection 12(a) of the new section 182 of the New York Tax Law, provides that:
The tax imposed by this section and any penalty which may be assessed under this subdivision shall be a liability of the oil company, shall be paid by such company and shall not be included, directly or indirectly, in the sales price of its products sold in this state.
L.1980, ch. 271, § 4(12)(a).
Under the new law, each oil company subject to the tax is required to file an annual report with the Commission of Taxation and Finance "certifying, under oath, that it has not included, directly or indirectly, in the sales price of its products sold in this state the tax imposed by this section." L.1980, ch. 271, § 4. Companies which are found to have passed on the cost of the new tax through increased product costs or who are found to have filed false reports in violation of the certification requirement are subject to a penalty equal to one hundred (100%) percent of the tax imposed for the year in which the violation occurs. L.1980, ch. 271, § 4(12)(b)(2).
The plaintiffs in these actions are oil companies within the meaning of the legislation involved in this litigation and are, therefore, subject to the gross receipts tax. Each, in the normal course of business, would generally pass on the cost of the new tax through increased petroleum product prices to customers in the taxing jurisdiction.
None of the plaintiffs challenges the imposition of the gross receipts tax itself. Rather, they challenge only the anti-pass through provision of § 182(12)(a), which is now in effect. As previously indicated, the plaintiffs' motions for summary judgment which are before the Court are limited to the pre-emption claims.
Analysis of the pre-emption claims shall necessitate a careful examination of the Federal EPAA and the Mandatory Price Regulations promulgated thereunder. However, since the need for a determination on the preemption issue would disappear should the Court grant the defendants' motion to dismiss, that motion should be addressed and disposed of first.
Defendants contend that the Tax Injunction Act, 28 U.S.C. § 1341, divests the Court of jurisdiction in these actions. Plaintiffs disagree. Section 1341 provides that:
The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.
The defendants' argument for application of the Tax Injunction Act in these cases is basically as follows. Plaintiffs are challenging the validity of the anti-pass through provision of the new oil company franchise tax legislation. If plaintiffs are successful in having the anti-pass through invalidated, the gross receipts tax, by the terms of the New York legislation "shall cease to be in force and effect." L.1980, ch. 271, § 12, as amended by L.1980, ch. 272, § 5. Thus, according to the defendants, the plaintiffs' attack on the anti-pass through provision is in reality an attack on the tax itself. Since a decision by this Court striking down the anti-pass through provision would by virtue of the statutory mandate, effectively "enjoin, suspend or restrain the assessment, levy or collection of (a) tax under State law," defendants conclude that the Court is without jurisdiction pursuant to 28 U.S.C. § 1341.
Plaintiffs challenge the defendants' conclusion as to the applicability of 28 U.S.C. § 1341 in these actions and disagree as well with defendants' assertion of the availability to plaintiffs of a "plain, speedy and efficient remedy" in the Courts of New York State. In disputing the existence of a State Court remedy acceptable under 28 U.S.C. § 1341, plaintiffs argue that exclusive jurisdiction over their pre-emption claim rests in federal district court by virtue of § 211 of the Economic Stabilization Act of 1970 (12 U.S.C. § 1904 note), which as previously pointed out was expressly incorporated by reference in § 5(a) of the EPAA, 15 U.S.C. § 754(a). Thus, according to plaintiffs there is no state court remedy available.
Since, for reasons to be discussed below, the Court does not find the Tax Injunction Act, 28 U.S.C. § 1341, applicable to these actions, it will not be necessary to reach plaintiffs' exclusive jurisdiction claim.
The Tax Injunction Act embodies long-standing principles of equity and federalism which recognize "the imperative need of a State to administer its own fiscal operations."
Tully v. Griffin, 429 U.S. 68, 73, 97 S. Ct. 219, 222, 50 L. Ed. 2d 227 (1976). Quoting from the decision of the Supreme Court in Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 298, 63 S. Ct. 1070, 1073, 87 L. Ed. 1407 (1943), the Court in Tully stressed that:
"Interference with state internal economy and administration is inseparable from assaults in the federal courts on the validity of state taxation, and necessarily attends injunctions, interlocutory or final restraining collection of state taxes.
Tully v. Griffin, supra, 429 U.S. at 73, 97 S. Ct. at 222. See also Matthews v. Rodgers, 284 U.S. 521, 525-526, 52 S. Ct. 217, 219, 76 L. Ed. 447 (1932).
Section 1341 has been found to apply equally to actions for declaratory or injunctive relief. Houston v. Standard-Triumph Motor Co., 347 F.2d 194, 198 (5th Cir. 1965); Helmsley v. City of Detroit, 320 F.2d 476, 478 (6th Cir. 1963); First United Methodist Church v. City of Syracuse, 489 F. Supp. 185 (N.D.N.Y.1980).
The Tax Injunction Act has served as the basis for dismissal on jurisdictional grounds of actions directly challenging the validity of a state tax, See e.g. American Commuters Ass'n. v. Levitt, 279 F. Supp. 40 (S.D.N.Y.1967) aff'd. 405 F.2d 1148 (2d Cir. 1969); 57th St. Management Corp. v. City of New York, 456 F. Supp. 286 (S.D.N.Y.1978); actions attacking particular aspects of state taxing schemes, which bore a direct relationship to the successful assessment and collection of the tax, See e.g. Mandel v. Hutchinson, 336 F. Supp. 772 (C.D.Cal.1971) aff'd; 494 F.2d 364 (9th Cir. 1974); and lawsuits challenging the procedures and methods employed in the levy or collection of a state tax. See e.g. Czajkowski v. State of Ill., 460 F. Supp. 1265, 1271-74 (N.D.Ill.1977), aff'd mem., 588 F.2d 839 (7th Cir. 1978); Kimmey v. H. A. Berkheimer, Inc., 376 F. Supp. 49, 54-55 (E.D.Pa.1974), aff'd. mem., 511 F.2d 1394 (3d Cir. 1975).
Section 1341 has, on occasion, been found inapplicable in cases involving an aspect of a state taxing scheme. In Hargrave v. McKinney, 413 F.2d 320 (5th Cir. 1969), the Court found that § 1341 did not require dismissal of an action in which the plaintiffs sought the collection and disbursement of certain county tax monies rather than an injunction on collection of taxes.
The Second Circuit in Wells v. Malloy, 510 F.2d 74 (2d Cir. 1975), refused to apply the Tax Injunction Act where the plaintiff challenged a Vermont statute which suspended the driver's licenses of individuals in default in payment of the state motor vehicle purchase and use tax. Writing for the Court, Judge Friendly stated that in enacting the Tax Injunction Act
Congress was thinking of cases where taxpayers were repeatedly using the federal courts to raise questions of state or federal law going to the validity of the particular taxes imposed upon them (footnote references omitted)-not to a case where a taxpayer contended that an unusual sanction for non-payment of a tax admittedly due violated his constitutional rights .... (Emphasis supplied)
There is no question but that the gross receipts tax on oil companies would cease to be in effect at a statutorily ordained time after a determination by the Courts that the anti-pass through provision now under attack is invalid. Nonetheless, this Court as previously stated, does not believe that these cases fall within the jurisdictional proscription of the Tax Injunction Act.
The plaintiffs are not challenging the validity of the gross receipts tax nor are they attacking the statutorily prescribed administrative procedure for assessing, levying or collecting the tax. In fact, but for the "self-destruct" mechanism included in the legislation, a determination by this Court invalidating the anti-pass through provision would have absolutely no affect on the "assessment, levy or collection" of the gross receipts tax. 28 U.S.C. § 1341.
Defendants describe the tax and the anti-pass through provision as a "single entity", with the latter provision being merely a "rule of tax incidence".
Plaintiffs, on the other hand, argue that the anti-pass through provision is a state price control measure separate from the tax itself. The Court, having carefully reviewed the statutory language of S-10188 and 10261 agrees that the anti-pass through provision is a price control measure, rather than a rule of tax incidence. See Schirtzinger v. Dunlop, 489 F.2d 1307, 1310 (Em.App.1973) (treating pass-through regulations as a form of price control), and is of the opinion that the "self-destruct" mechanism contained in the legislation indicates an intent on the part of the state legislature to impose the gross receipts tax on oil companies only if it can in addition impose controls on the prices charged by the companies for products sold in New York State. The statement of legislative findings and declaration of purpose, following discussion of the State's mass transit fiscal crisis, provides that:
It is also found that oil companies are currently reaping historically high profits. These increased profits do not result from the application of normal management techniques and strategies which any business uses to maximize profits, but rather result from the market conditions prevailing within the international oil industry, which are artificially inflating the price of petroleum products. In view of the high cost of petroleum, the importance of energy conservation and New York's dependence upon foreign energy suppliers, oil companies have become businesses clothed with a public interest. (Emphasis supplied)
The statement goes on to indicate an awareness on the part of the Legislature of the problems involved in supporting a mass transportation system in light of the "economic recession" and "inflationary cycle". Id. The Legislature, having determined that it did not wish to contribute to the "inflationary spiral" or "contribute to further increases in the price of petroleum products to consumers" expressed the following legislative intent:
The legislature hereby determines and declares that it is the public policy of the state to tax the gross receipts of oil companies and at the same time to prevent such gross receipts tax from fueling inflation by prohibiting the pass through of such tax to the consumers of this state.
Therefore, it is the intent of the legislative that the gross receipts tax shall cease and terminate if such tax shall be permitted, either by judicial adjudication or by any formal opinion or ruling or in any other manner, to be included either directly or indirectly in the sales price of the products of the oil company.
The foregoing language suggests to the Court that the Legislators anticipated that the anti-pass through provision of the legislation might be challenged, apart from any attack on the tax itself, and that it might be struck down by the Courts with no threat to the continued collection of the tax. The fact that the State chose to make the taxes' survival dependent upon the survival of a provision which constitutes an exercise of the State's police power rather than taxing power does not, in the opinion of this Court, justify the application of the Tax Injunction Act.
The Court does not question the State's authority to enact a taxing statute, the survival of which is inextricably linked to the survival of legislation constituting an exercise of the State's police power. However, it does not accept the defendants' argument that the question of constitutionality of such an exercise of police power can be insulated from Federal judicial scrutiny through a legislatively imposed linkage with a state taxing measure.
Therefore, the Court finds that it has jurisdiction in these actions under 28 U.S.C. §§ 1331, 1337, 2201 and 2202 and hereby denies the defendants' motion to dismiss pursuant to the Tax Injunction Act.
Plaintiffs seek judgment invalidating the anti-pass through provision on the grounds that it is pre-empted by the EPAA and the price control regulations promulgated thereunder and is thus void under the Supremacy Clause of the Constitution.
The Supremacy Clause provides that "... the Laws of the United States ... shall be the supreme Law of the Land, ... any thing in the Constitution or Laws of any State to the contrary notwithstanding." (U.S.Const. Art. VI, cl. 2).
The Supreme Court has frequently cautioned that in cases such as these involving a challenge to a State's police power under the Supremacy Clause that the Court must "start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 98 S. Ct. 988, 994, 55 L. Ed. 2d 179 (1978), quoting from Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 1152, 91 L. Ed. 1447 (1947). See also Jones v. Rath Packing Co., 430 U.S. 519, 525, 97 S. Ct. 1305, 1309, 51 L. Ed. 2d 604, reh'g denied 431 U.S. 925, 97 S. Ct. 2201, 53 L. Ed. 2d 240 (1977).
There are two recognized grounds for finding pre-emption of state legislation by federal law.
The first is where Congress has chosen to completely occupy the field, to the exclusion of the states, in which case states may not regulate within the field even when the regulation is in harmony with the federal scheme. Jones v. Rath Packing Co., supra, 430 U.S. at 525, 97 S. Ct. at 1309. The second is where, although Congress has not completely foreclosed state legislation in a particular area, the state law conflicts with a valid federal statute. Ray v. Atlantic Richfield Co., supra, 435 U.S. at 158, 98 S. Ct. at 994.
Congressional intent to totally occupy a particular field, precluding any state regulation may be "explicitly stated in the (federal) statute's language or implicitly contained in its structure and purpose." Jones v. Rath Packing Co., supra, 430 U.S. at 525, 97 S. Ct. at 1309. See also City of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 633, 93 S. Ct. 1854, 1859, 36 L. Ed. 2d 547 (1973).
The Supreme Court in Rice v. Santa Fe Railroad, supra, 331 U.S. at 230, 67 S. Ct. at 1152, explaining that an implied congressional intent could be "evidenced in several ways", stated that:
The scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for States to supplement it. (Citations omitted) Or the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject. (Citations omitted) Likewise, the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose.
Under the second form of pre-emption, conflict voiding a state statute will be found:
"where compliance with both federal and state regulations is a physical impossibility ...," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S. Ct. 1210, 1217, 10 L. Ed. 2d 248 (1963), or where the state "law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941); Jones v. Rath Packing Co., supra, 430 U.S. at ...