The Supreme Court yesterday ordered the state of Louisiana to refund a natural gas tax charged to out-of-state consumers. The decree could mean about $700 million to consumers in more than 30 states.
In the Washington area, the refunds are likely to total more than $4.5 million -- about $6.50 for the average residential heating customer, according to a spokesman for Washington Gas Light Co., the area's sole gas distributor. The refunds eventually will appear as a credit on a customer's gas bill, and their timing depend on Louisiana's speed in starting the refund process.
The court ruled on May 26 that it was unconstitutional for Louisiana to impose a special tax on off-shore natural gas passing through the state in pipelines, as the state had been doing since 1979. The court ruled that states rich in natural resources cannot make out-of-state consumers pay higher prices for them, but the opinion was silent on the matter of how refunds would be paid.
"This latest ruling goes 20 miles further thanthe opinion on May 26," said Maryland Assistant Attorney General David Feldman. "One way or another we would have gotten refunds down the line, but it was entirely possible there would have been longer waits and less money."
Legal officers of eight states, led by Maryland Attorney General Stephen Sachs, challenged the tax, saying it was a flagrant violation of the Constitution, the equivalent of a duty charged by a foreign nation. The justices agreed, 7 to 1, and asked the challenging states to suggest how the money should be refunded.
Sachs sought a refund of the actual taxes, plus all the interest earned on those funds through investments made by the state of Louisiana. The money, invested in various securities, has been held in escrow pending the Supreme Court decision.
The court sided with Sachs rather than with the Louisiana officials who argued that consumers were entitled only to interest at 6 per cent on the funds, the amount set by Louisiana courts in such cases, according to Feldman. That would have meant about $27 million less to consumers than under the Supreme Court decree, he said.
The court also ordered Louisiana to begin making the refunds within 30 days. The state may hold back money invested in securities that have not matured, but must pay those funds as they become available.
Louisiana enacted the tax of 7 cents per thousand cubic feet on natural gas imported into the state from offshore wells on federal property. It is called a "first-use" tax because it is paid by the companies that first handle the gas on Louisiana territory. In most cases these are the pipeline companies that pump it to the rest of the country. The tax burden, however, is passed on to the individual gas companies serving homeowners, industries and governments. It is these customers who ultimately have been paying the tax.
The tax is imposed on all gas, including that meant for use within Louisiana. But Louisiana users get various tax credits and exemptions, which offset the "first-use" tax. That left the approximately 30 other states to bear what Sachs estimated to be more than a $600 million burden in the past two years. In Maryland alone, consumers paid about $10 million since the tax was instituted.
It was that discrimination between in-state and out-of-state consumers that violated the Constitution's clause protecting free commerce among the states, Justice Byron R. White wrote for the court in the May 26 opinion that paved the way for yesterday's decision.