Commonwealth Edison Co. v. State

No. 14982

I N THE SUPREME COURT O THE STATE OF M N A A
F OTN

1980

C M O W A T EDISON C M A Y e t a l . ,
O M N E LH O P N

P l a i n t i f f s and A p p e l l a n t s ,

VS .
STATE O M N A A e t a l . ,
F OTN

D e f e n d a n t s and R e s p o n d e n t s ,

and

L K SUPERIOR DISTRICT P W R C M A Y e t a l . ,
A E O E O P N

P l a i n t i f f s and A p p e l l a n t s ,

VS .
STATE OF M N A A e t a l . ,
OTN

D e f e n d a n t s and R e s p o n d e n t s .

Appeal from: D i s t r i c t Court of t h e F i r s t J u d i c i a l D i s t r i c t ,
Hon. P e t e r G . Meloy, D i s t r i c t C o u r t J u d g e

C o u n s e l o f Record:

For Appellants:

Hooks and B u d e w i t z , Townsend, Montana
J o h n C a r l a r g u e d , B u t t e , Montana
Rogers and W e l l s , N e w York, N.Y.
W i l l i a m P. Rogers a r g u e d and W i l l i a m R. Glendon a r g u e d ,
N e w York, N.Y.

F o r Amicus C u r i a e :

G a r r i t y , Keegan and Brown, H e l e n a , Montana
Hon. Mark White a r g u e d , A t t o r n e y G e n e r a l , A u s t i n , T e x a s

For R e s p o n d e n t s :

Hon, Mike G r e e l y , A t t o r n e y G e n e r a l , a r g u e d , H e l e n a , Montana
Mike McGrath a r g u e d , A s s i s t a n t A t t o r n e y G e n e r a l and Mike
M c C a r t e r a r g u e d , A s s i s t a n t A t t o r n e y G e n e r a l , H e l e n a , Montana
Cannon and G i l l e s p i e , H e l e n a , Montana
Ross Cannon a r g u e d , H e l e n a , Montana

F o r Amicus C u r i a e :

Leo F. J . W i l k i n g a r g u e d , S p e c i a l A s s i s t a n t A t t o r n e y G e n e r a l
f o r S t a t e Tax Commissioner, B i s m a r k , N o r t h Dakota

Submitted: April 21, 1980

Decided: IUL i - 1980
-L.
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.

This is an appeal from a judgment of the District
Court, First Judicial District, Lewis and Clark County,
Montana, the Hon. Peter G. Meloy presiding, upholding the
validity of Montana's coal severance tax.
Plaintiffs sought a declaratory judgment from the
District Court that the tax unconstitutionally burdens
interstate commerce, and unconstitutionally frustrates
federal policy. Commonwealth Edison Company and its coplaintiffs
brought one action for this purpose, and Lake Superior
District Power Company and its coplaintiffs brought a second
action. Because the issues are the same, the actions were
consolidated.
The District Court granted defendantst motions to
dismiss the complaints before trial, finding as a matter of
law that they did not state claims upon which relief could
be granted. Judgment was entered in each case in favor of
the defendants and the plaintiffs appealed.
Since each case comes to us on appeal from a judgment
of dismissal, we accept the facts which are well-pleaded in
the complaints as true. This was the rule before we adopted
)f
the Montana Rules of Civil Procedure, Heis er v. Severy
(1945), 117 Mont. 105, 111, 158 P.2d 501, 503, and is the
rule now. However, conclusions of law in the pleadings need
not be accepted by this Court as binding under a judgment on
a motion to dismiss. Allegations of conclusions of law

present no issuable facts. Waite v. Standard Accident
4 d<,i
Insurance Co. (1957), 132 Mont. 220, 315 P.2d484. If
therefore factual issues exist which should have been considered
by the District Court prior to granting judgment, the judgment
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must be reversed. Conversely, if as a matter of law, under
any view of the alleged facts, plaintiffs cannot prevail,
affirmance of the District Court is commanded.
We have fully considered the contentions of plaintiffs
on their appeal; we have examined the pleadings, and the
grounds of the motion to dismiss; we have looked at the
admitted factual matters which plaintiffs allege would
invalidate the tax; and we have concluded from the whole
record that the Montana Coal Severance Tax in its present
form is a lawful exercise of Montana's taxing authority
under our State and Federal Constitutions. Accordingly, we
affirm the District Court.
Three issues were raised by plaintiffs for our review:
1. Is the coal severance tax impermissible under the
Commerce Clause of the United States Constitution?
2. Is the coal severance tax impermissible under the
Supremacy Clause of the United States Constitution as
frustrating national policies and statutes?
3. Is the coal severance tax impermissible under the
Supremacy Clause of the United States Constitution as
frustrating national policies contained in the Mineral Lands
Leasing Act of 1920?
THE TAX AND ITS HISTORY
In 1975 and 1977, the Montana Legislature amended its
coal severance tax schedules, section 84-1314, R.C.M. 1947,
now section 15-35-103, MCA. It now contains these provisions:
"15-35-103. Severance - -- rates imposed --
tax
exemptions. (1) A severance tax is imposed
on each ton of coal produced in the state in
accordance with the following schedule:
 "Heating quality Surface Underground
(Btu per pound Mining Mining
of coal):
"Under 7,000 12 cents or 5 cents or
20% of value 3% of value
"7,000-8,000 22 cents or 8 cents or
30% of value 4% of value
"8,000-9,000 34 cents or 10 cents or
30% of value 4% of value
"Over 9,000 40 cents or 12 cents or
30% of value 4% of value
"'Value' means the contract sales price.
" (2) The formula which yields the-greater amount of tax
in a particular case shall be used at each point on this
schedule.
" (3) A person is not liable for any severance tax upon
20,000 tons of the coal he produces in a calendar year."
No issue is raised here that there is an unconstitutional
difference between the rate of taxes charged for strip-
mining of coal and for underground mining of coal.
Prior to 1975, the Montana tax on strip-mined coal
ranged from twelve to fourteen cents a ton, depending on BTU
content. The 1975 amendment was a response to the meteoric
increase in strip-mined coal entrepreneurs in the state in
the 1970's. From the 1940's until the mid-1960's activity
in coal strip-mining as well as in underground coal mining
remained fairly dormant in the state. The increase in gross

tonnage produced since 1971 from strip-mining is demonstrated
by the following figures taken from the records of the
Montana Department of Revenue, of which we have taken judicial
notice:
One Year
-- Gross Tons
 In the general election of 1976 the Montana voters
amended their state constitution by adding a new Section 5
to Article IX, 1972 Montana Constitution. In essence the
constitutional addition provides that from and after December
31, 1979, at least fifty percent of the severance tax collected
shall be dedicated to a trust fund, the principal of which
is to remain inviolate unless appropriated by a vote of
three-fourths of the members of each house of the legislature.
This Court notes in passing our impression that the
1975 coal severance tax provisions, and the 1976 constitutional
amendment, were in part responses to the historical experience
of Montana with respect to the inadequacy of earlier forms
of taxes on mineral production. In 1965, the Hon. James
Felt rose in the State Eouse of Representatives to complain
that the richest hill on earth (Butte) had paid not a dime
in net proceeds tax the previous year. Some modifications
in computation agreed to by the mining company ameliorated
that condition in subsequent years. Nevertheless, Montana's
experience had shown that its mineral wealth could be exhausted
and exported with little left in Montana to make up the loss
of its irreplaceable resources. Montana has been painfully
educated about the extreme economic jolts that follow when
the mine runs out, the oil depletes, or the timber saws come
still. We have a good many examples that teach us what
happens to our hills when the riches of our Treasure State
are spent. For these and other reasons, when strip coal
mining was beginning to burgeon, in 1975, the legislature
moved to fix a tax that would provide both for the present
and the future when the coal deposits were gone.
Since the commencement of the instant actions, the
plaintiffs have paid their coal severance taxes under protest.
Were the coal severance tax found to be invalid, presently
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some $87,000,000 and accrued interest in protested taxes

should have to be returned by the State to the taxpaying
producers, we were informed in oral argument.
EFFECT OF THE COMMERCE CLAUSE
Before we discuss the commerce clause contentions, we
look at the relationship of the various plaintiffs to the
coal tax which is being attacked. The true taxpayers before
us in this case are the producers of the coal. The Montana
coal severance tax is levied at the time the coal is separated
by the producer from the realty in Montana, and at its value
when sold by the producer in Montana. Section 15-35-103,
MCA. Thus in this case, only the coal producing plaintiffs
are actually paying taxes, they being Decker Coal Company,
Peabody Coal Company, Westmoreland Resources, Inc., and
Western Energy Company. The remaining plaintiffs are
utilities to whom the producers, by contract or indirectly,
may have passed on the coal severance tax as a part of the
price of Montana coal. To contend that the utility plaintiffs
are the true plaintiffs because by contract or indirectly
they have assumed the coal severance taxes would seem also
to argue that the coal producers have no real issue at stake
here. Nevertheless the coal producers have the only vital
stake in this case because they and not the utility companies
are in fact the taxpayers. It is the producers to whom the
protested taxes would be returned should the tax be found
unlawful. In deciding this case therefore, we look to the
status in Montana of the producing taxpayers to determine
whether the coal, at the time it is severed by the producers,
is subject to the present Montana state taxation.
The United States Constitution provides in Article I,
Section 8, that Congress shall have the power "to regulate
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Commerce with foreign Nations, and among the several States,
and with the Indian Tribes."
The principal contention of the plaintiffs in this case
is that the holdings of the United States Supreme Court in
Heisler, Oliver --and - - - infra, no longer
Iron Co., Hope Gas Co.,
have any force. The plaintiffs do not allow that Montana
can tax a purely local event such as the severance of coal
from a seam or deposit. They insist that the commerce
clause reaches even into the very severance of the coal, and
that the only issue for the District Court to have decided
here was whether the coal severance tax had impact enough to
hamper or obstruct interstate commerce. The plaintiffs
concede that the state can levy some tax, perhaps twelve and
a half to fifteen percent of the value of the coal. Therefore,
by inference, the plaintiffs contend that at some point not
specified, between fifteen to thirty percent of the value of
the coal, Montana's coal severance tax butts into the lintel
of federal impermissibility.
In essence, the plaintiffs' argument under the commerce
clause reduces to this: Montana has no inherent right to
tax the intrastate severance of coal which may eventually
enter interstate commerce except by federal sufferance; such
sufferance ceases when the tax can be construed to hamper or
obstruct commerce between the states.
The law on state taxation of production of goods, it

seems to us, has been settled by the United States Supreme
Court since the 1920's. Leading cases on manufacturing
(American Mfg. Co. v. St. Louis (1919), 250 U.S. 459, 39
S.Ct. 522, 63 L.Ed. 1084); producing (Hope Gas Co. v. Hall
(1927), 274 U.S. 284, 47 S.Ct. 639, 71 L.Ed. 1049); and
extracting (Oliver Iron Co. v. Lord (1923), 262 U.S. 172, 43
S.Ct. 526, 67 L.Ed. 929); Heisler v. Thomas Colliery Co.
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(1922), 260 U.S. 245, 43 S.Ct. 83, 67 L.Ed. 237); established
a common theme: production of personal property within a
state is a local activity which precedes the entry of the
property into interstate commerce, and is therefore subject
to state regulation and taxation.
Yet we have found no United States Supreme Court case,
and none has been cited to us, which implicitly or directly
overthrows the rule that the several states have the reserved
power to tax intrastate manufacturing, extraction, and
production of goods. It is true that some cases have used
language which seems to assail this reserved power. Not-
withstanding, it must be concluded after an analysis of the
cases bearing on the subject that the United States Supreme
Court continues to recognize the taxing power of the states
in these intrastate fields.
The plaintiffs' attack against the coal severance tax
under the commerce clause is based upon the premise that the
United States Supreme Court has moved away from its holdings
in - - - Oliver -- and Heisler, supra.
Hope Gas Co., Iron Co., The
cases on which plaintiffs rely for this contention may be
summarized as follows:
(1) Labor Board v. Jones & Laughlin (1937), 301 U.S. 1,
57 S.Ct. 615, 81 L.Ed. 893, upholding the NLRA against a
constitutional attack; Wickard v. Filburn (1942), 317 U.S.
111, 63 S.Ct. 82, 87 L.Ed. 122, upholding a federal program
of acreage allotments for wheat production; Parker v. Brown
(1943), 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, which
upheld a California state statute that fixed prices and
restricted sales of raisins grown in California but which
contains language seeming to reject the mechanical test of
Heisler; Freeman v. Hewit (1946), 329 U.S. 249, 67 S.Ct.
-8-
274, 91 L.Ed. 265, holding unconstitutional the application
of an Indiana gross income tax act to the sales of securities
by brokers in New York; the securities being assets of an
Indiana estate, and incidentally, applying the commerce
clause to intangibles as well as to tangibles; Nippert v.
Richmond (1946), 327 U.S. 416, 66 S.Ct. 586, 90 L.Ed. 760,
striking down a municipal tax on solicitors in Richmond,
Virginia; Pike v. Bruce Church, Inc. (1970), 397 U.S. 137,
90 S.Ct. 844, 25 L.Ed.2d 174, striking down an Arizona state
regulation concerning the packing of cantaloupes grown in
Arizona; Hunt v. Washington Apple Advertising Comm'n. (19771,
432 u.S. 333, 97 S.Ct. 2434, 53 L.Ed.2d 383, striking down a
North Carolina statute which prescribed the labeling oC
containers in which apples were to be sold in that state;
A. & P. Tea Co. v. Cottrell (1976), 424 U.S. 366, 96 S.Ct.
923, 47 L.Ed.2d 55, holding unconstitutional the application
of a Mississippi regulation that milk and milk products
could be sold in Mississippi from another state only if the
other state had reciprocal provisions for ~ississippimilk,
where a Louisiana producer was refused a permit from Miss-
issippi; Complete Auto Transit, Inc. v. Brady (1977), 430
U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326, reh.den. 430 U.S.
976, which we will discuss more in detail hereafter; Washington
Rev. Dept. v. Stevedoring Assn. (1978), 435 U.S. 734, 98
S.Ct. 1388, 55 L.Ed.2d 682, also discussed hereafter.
Plaintiffs have cited a number of other cases, but
their full recitation here would only be cumulative.
The District Court, in ruling on the motions to dismiss,
determined that the cases relied on by the plaintiffs from
the United States Supreme Court fell into four categories,
which we here set forth together with some examples:
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 (1) When Congress h a s a s s e r t e d i t s r e g u l a t o r y powers

under c o n g r e s s i o n a l a c t s . Labor Board v. J o n e s & Laughlin,

s u p r a ; P a r k e r v. Brown, s u p r a .

(2) When t h e S t a t e engages i n r e g u l a t o r y a c t i v i t y of

i n t e r s t a t e commerce. P i k e v. Bruce Church, I n c . , supra;

A. & P. T e a Co. v. C o t t r e l l , supra.

(3) When t h e s t a t e imposes a t a x on i n t e r s t a t e commerce

activity. N i p p e r t v . Richmond, s u p r a ; Complete Auto T r a n s i t , I n c .

v. Brady, s u p r a .

(4) When t h e s t a t e imposes a t a x on an a c t i v i t y which

i s n o t i n commerce. H e i s l e r v. Thomas C o l l i e r y Co., supra;

A l a s k a v. A r c t i c Maid ( 1 9 6 1 ) , 366 U.S. 199, 81 S.Ct. 929, 6

L.Ed. 227.

The D i s t r i c t C o u r t d e t e r m i n e d t h a t t h e c o a l s e v e r a n c e

t a x i n i s s u e h e r e f e l l i n t o t h e f o u r t h category. The D i s t r i c t

C o u r t f u r t h e r found t h a t t h e c a s e s i n t h e f o u r t h c a t e g o r y

involved a l o c a l i n c i d e n t s u b j e c t t o t h e state's reserved

power o f t a x a t i o n on goods which p r e c e d e d t h e i r e n t r y i n t o

i n t e r s t a t e commerce. W e agree.

I t i s f a i r j u d i c i a l policy f o r us not t o regard a s

c o n t r o l l i n g h e r e d i c t a found i n cases i n which t h e U n i t e d

S t a t e s Supreme C o u r t h a s upheld t h e r e g u l a t o r y powers of

Congress under t h e commerce acts. S e e , f o r example o f

d i c t a , Labor Board v. J o n e s & Laughlin, supra; Parker v.

Brown, s u p r a .

I t i s l i k e w i s e f a i r j u d i c i a l p o l i c y f o r us n o t t o f e e l

bound h e r e by d i c t a found i n c a s e s i n v o l v i n g s t a t e s which

have engaged i n r e g u l a t i o n of i n t e r s t a t e commerce. Again,

see P i k e v. Bruce Church, I n c . , supra; Philadelphia v d New

J e r s e y ( 1 9 7 8 ) , 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475.

Nor do w e f e e l bound o r c o n t r o l l e d by d i c t a found i n c a s e s

d e c i d e d by t h e U n i t e d S t a t e s Supreme C o u r t i n v o l v i n g s t a t e s

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o r m u n i c i p a l i t i e s which have imposed a t a x on an i n t e r s t a t e

commerce a c t i v i t y . F o r example, N i p p e r t v. Richmond,

s u p r a ; Complete Auto T r a n s i t , I n c . v. Brady, s u p r a . We

r e l y i n s t e a d o n t h o s e cases where t h e U n i t e d S t a t e s Supreme

Court has d i r e c t l y upheld s t a t e t a x a t i o n of production,

e x t r a c t i o n o r manufacturing.

While t h e p l a i n t i f f s have contended t h a t t h e t r e n d o f

t h e U n i t e d S t a t e s Supreme C o u r t d e c i s i o n s h a s been t o move

away from t h e h o l d i n g s i n Heisler, O l i v e r - -
I r o n Co., and

Hope G a Co.,
- -s- s u p r a , w e do n o t f i n d t h a t c o n t e n t i o n s u p p o r t e d

i n cases i n v o l v i n g s t a t e t a x e s . I n d e e d , i f w e c a n r e a d t h e

t r e n d o f t h e d e c i s i o n s , i t h a s been t h e p o l i c y o f t h e Supreme

C o u r t t o ' o p e n up and t o a l l o w , n o t t o p r e v e n t , s t a t e t a x a t i o n

o f i n t e r s t a t e commerce t r a n s a c t i o n s . What h a s o c c u r r e d i n

t h o s e d e c i s i o n s i s t h a t t h e Supreme C o u r t h a s moved away

o v e r t h e c o u r s e o f y e a r s from t h e "immunity p e r s e w r u l e

which p r e v e n t e d s t a t e t a x a t i o n o f i n t e r s t a t e commerce,

LeLoup+,v. P o r t o f Mobile ( 1 8 8 7 ) , 127 U.S. 640, 8 S.Ct.

1380, 32 L.Ed. 311, t o a r u l e o f r ~ c o m m o d a t i o nwhich r e c o g n i z e s

t h a t i n t e r s t a t e commerce, i n u t i l i z i n g t h e s e r v i c e s and

p r o t e c t i o n s o f a s t a t e i s r e q u i r e d t o "pay i t s way". See

Western L i v e S t o c k v. Bureau ( 1 9 3 8 ) , 303 U.S. 250, 58 S.Ct.

546, 82 L.Ed. 823. For t h i s r e a s o n t h e Supreme C o u r t h a s

u p h e l d s t a t e t a x a t i o n which i n t r u d e s upon i n t e r s t a t e commerce

b u t where t h e r e e x i s t l o c a l i n c i d e n t s which j u s t i f y s t a t e

taxation nevertheless. G e n e r a l Motors v. Washington (19641,

377 U.S. 436, 84 S.Ct. 1564, 12 L.Ed.2d 430; Norton C o .

v. Dept. o f Revenue ( 1 9 5 1 ) , 340 U.S. 534, 71 S.Ct. 377, 95

L.Ed. 517. Local i n c i d e n t s which are s e v e r a b l e from i n t e r s t a t e

commerce b u t o c c u r w i t h i n a s t a t e , s u c h t h a t m u l t i p l e

t a x a t i o n by o t h e r s t a t e s on t h e same a c t i v i t y i s n o t a

t h r e a t , p r o v i d e a b a s i s which h a s b r o u g h t a b o u t t h e s t a n d a r d s
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announced by the Supreme Court in Complete Auto Transit,
Inc. v. Brady, supra, to find constitutional permissibility
for state taxes on interstate commerce.
-
A most recent case demonstrating the tendency of the

United States Supreme Court to encourage and allow state
taxation of interstate commerce can be found in Exxon
Corp. v. Wisconsin Dept. of Revenue (1980), U.S. I

100 S.Ct. 2109, L.Ed.2d . Exxon had filed income
tax returns in Wisconsin using a geographical system of
accounting which reflected only its Wisconsin marketing
operations and which showed a loss for each year, resulting
in no taxes being due. Exxon kept its accounts in three
major functional departments: exploration, refining, and
marketing. Transfers of products and supplies among the
three functional departments were theoretically based on
competitive prices. Exxon had no exploration, production or
refining operations in Wisconsin in the taxable years in
question. Only marketing in Wisconsin was carried on by
Exxon. Nonetheless, Wisconsin treated Exxon as a unit, and
apportioned its income in such manner that a tax was produced,
for which Wisconsin made demand upon Exxon. The United
States Supreme Court held that Wisconsin was not prevented
from applying its statutory apportionment formula to appellants

total income under the due process clause of the Fourteenth
Amendment. It held that the unitary business principle was
a proper basis for apportioning state income tax upon an
interstate enterprise when its income can be reasonably
related to the activities of the corporation within the
taxing state. The Wisconsin tax was held valid even though
its statutory apportionment formula indirectly taxed income
derived from extraction or refinement of oil and gas located

outside the state. The Supreme Court found nexus, proper
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apportionment, and a rational relationship between the
income attributed to the state and the interstate values of
the enterprise. (Compare Mont. Dept. of Rev. v. Am. Smelting
& Refining (1977), 173 Mont. 316, 567 P.2d 901.)
Mobile Oil Corp. v. Com'r. of Taxes of Vermont (19801,

- U.S. , 100 S.Ct. 1223, 63 L.Ed. 510, likewise approved
such apportionment, finding a nexus is established if the
corporation avails itself of the substantial privilege of
carrying on business within the state.
These recent cases buttress our statement that plaintiffs
have misread the trend of the United States Supreme Court
cases. That trend lies in the direction of allowing states
to tax products in interstate commerce, once a nexus with
the taxing state is established.
The intent and portent of the United States Supreme
Court in these cases is not to overturn the holdings of
Heisler, Oliver - -Co., and - - - supra.
Iron Hope Gas Co., Indeed
the Court has consistently recognized the vitality of those
holdings on production and extraction. In Freeman v. Hewit,
supra, Justice Frankfurter expressed the distinction between
permissible and prohibited taxes as follows:
". . . aseller State has various means of obtaining
legitimate contribution to the cost of its government,
without imposing a direct tax on interstate sales.
While these permitted taxes may in an ultimate sense
come out of interstate commerce, they are not, as
would be a tax on gross receipts, a direct imposition
on that very freedom of commercial flow which for
more than 150 years has been the ward of the commerce
clause." 329 U.S. at 256, 67 S.Ct. at 278, 91 L.Ed.
274.
In like manner, state taxation of manufacturing within a
state has also been upheld, though manufacturing of goods
destined for commerce may be thought to present a weaker
case than the production or extraction of goods. Adams Mfg.
Co. v. Storen (1938), 304 U.S. 307, 58 S.Ct. 913, 82 L.E~.
 The intent of the United States Supreme Court to
preserve these fields for state taxation as preliminary to
interstate commerce and within the reserved taxing powers of
the states is manifest. In Alaska v. Arctic Maid, supra,
for example, the court found that Alaska's taxing of the
gathering and freezing of fish taken from Alaska's territorial
waters by ships was a "preliminary local business'', to be
compared with Oliver -- supra, as its "first cousin";
Iron Co.,
this, even though the ships eventually took their frozen
cargo directly from the seas to the State of Washington for
canning. From that evident intent of the Supreme Court, we
find this portent: there is no indication by the United
States Supreme Court that its historical judicial sanction
of state taxation on production, extraction and manufacturing
is in jeopardy.
Indeed, the very inference of such a threat in a Supreme
Court opinion would have raised such a clamor that the case
would be a benchmark. We find none, and can only conclude
that the Supreme Court will be as consistent in this area
in the future as it has been in the past.
See Federal Compress Co. v. McLean (1934), 291 U.S. 17,
54 S.Ct. 267, 78 L.Ed. 622; and Chassaniol v. Greenwood
(1934), 291 U.S. 584, 54 S.Ct. 541, 78 L.Ed. 1004; referred
to with approval in Pike v. Bruce Church, Inc., supra. Also
Caskey Baking Co. v. Virginia (1941), 313 U.S. 117, 61 S.Ct.
881, 85 L.Ed. 1223.
The importance of these reserved fields of taxation to
the states cannot be overstated. The State of Texas, whose
attorney general appears before us as amicus opposing Montana's
tax, will realize $980 million in oil and gas production
taxes this year. The State of Alaska has sufficient revenues

from the severance of oil and gas within its borders that its
-14-
1980 l e g i s l a t u r e , b e f o r e i t s r e c e n t adjournment, p r o v i d e d

$900 m i l l i o n i n an i n v i o l a t e t r u s t , n o t u n l i k e Montana's,

from t h o s e r e v e n u e s . Such examples o f l o c a l t a x e s c o u l d be

added t o a l m o s t s t a t e by s t a t e . No more i m p o r t a n t c a s e on

t h e power o f s t a t e s t o l e v y t a x e s c a n b e imagined t h a n i s

presented here. r a t e of t a x
For i f t h e --- - on a l o c a l a c t i v i t y ,

as h e r e , c a n b e found t o v i o l a t e t h e commerce c l a u s e , t h e n
c e r t a i n l y t h e amount - - r a i s e d by a s t a t e on a l o c a l
of t a x

a c t i v i t y i s i n t h e same jeopardy. Were w e o r t h e U n i t e d S t a t e s

Supreme C o u r t t o r e a c h t h a t r e s u l t , t h e n w e s h o u l d see, i n

t h e words of t h e o l d s p i r i t u a l t h a t " t h e w a l l s came a - t u m b l i n '

down. '"
P l a i n t i f f s ' a t t a c k h e r e i s a n o t h e r i n a series t h a t s e e k s

t o a s s a i l and o v e r t u r n t h e r e c o g n i z e d power of s t a t e s i n t h e s e

regards. I n B e 1 O i l C o r p o r a t i o n v . Roland ( 1 9 6 2 ) , 242 La.

498, 137 So.2d 308, a p p e a l d i s m i s s e d 371 U.S. 2, t h e s t a t e

c o u r t upheld t h e v a l i d i t y o f a s e v e r a n c e t a x on t h e e x t r a c t i o n

of n a t u r a l gas i n Louisiana. I n I n d u s t r i a l Uranium Co. v .

S t a t e Tax Commission ( 1 9 6 3 ) , 95 A r i z . 1 3 0 , 387 P.2d 1013, a n

Arizona p r i v i l e g e t a x on mining was u p h e l d . I n P o s t Oak O i l

Company v. Oklahoma Tax Com'n. (Okla. 1 9 7 8 ) , 575 P.2d 9 6 4 , a

s t a t e e x c i s e t a x on t h e s e v e r a n c e o f n a t u r a l g a s i n Oklahoma

w i t h s t o o d a commerce c l a u s e a t t a c k . A l l of t h e s e c o u r t s

r e l i e d , as w e d o , on t h e c o n t i n u e d a d h e r e n c e by t h e U n i t e d

S t a t e s Supreme C o u r t t o i t s s t e a d y c o u r s e o f s a n c t i o n i n t h e s e

fields.

O n t h e b a s i s t h a t t h e s e v e r a n c e of c o a l h e r e i s a

t a x a b l e e v e n t t h a t p r e c e d e s e n t r y i n t o i n t e r s t a t e commerce,
w e r u l e w i t h o u t h e s i t a t i o n t h a t p l a i n t i f f s c a n n o t p r e v a i l on

t h e i r claims under c o u n t I of t h e i r c o m p l a i n t s , b e c a u s e

Montana's c o a l s e v e r a n c e t a x d o e s n o t v i o l a t e t h e commerce

clause. The s e v e r a n c e o f c o a l by mining i s n o t a n i n t e r s t a t e

activity.
 In oral argument, the plaintiffs asked us to give them
a straight up-and-down decision on whether the coal sev-
erance tax was governed by the commerce clause. We have
done that in the foregoing paragraphs. However, we feel
compelled to remark that even if the commerce clause in this
case obtained, plaintiffs could not have prevailed and the
motion dismissing the complaints would have been properly
granted in any event.
In making their commerce clause argument, the plaintiffs
have contended that we were bound to apply the tests set
forth in Complete Auto Transit, Inc., supra. In that case,
the United States Supreme Court considered the constitution-
ality of a Mississippi tax on the "privilege of doing
business in that state". The earlier case of Spector Motor
Service v. O'Connor (1951), 340 U.S. 602, 71 S.Ct. 508, 95
L.Ed. 573, had adopted a formalistic test to the effect that
taxes on the "privilege" of doing interstate business
violated the commerce clause. The United States Supreme
Court in Complete Auto Transit, Inc. overruled Spector
stating that state taxes affecting interstate commerce must
be viewed as to their practical effect and must be examined
in light of a four-pronged test of that practical effect:
(1) Whether the tax is applied to an activity with a
substantial nexus with the taxing state,
(2) Whether it is fairly apportioned,
(3) Whether the tax does not discriminate against
interstate commerce and,
(4) Whether the tax is fairly related to the services
provided by the state. 430 U.S. at 277-8, 97 S.Ct. at 1078,
51 L.Ed.2d at 330.
Washington Rev. Dept. v. Stevedoring Assn., supra,
-16-
upheld this four-pronged test and further recognized that a
state had a significant interest in exacting from interstate
commerce its fair share of the cost of state government.
435 U.S. at 748, 98 S.Ct. at 1398, 55 L.Ed.2d at 695.
Complete Auto Transit, Inc. is a good example of our
earlier assertion that the United States Supreme Court,
instead of intruding upon the reserved fields of taxation
allowed the state on local activities, has been moving
toward a permissive or accomodating position allowing state
taxation of interstate commerce under certain conditions.
Applying the Complete Auto Transit, Inc. four-pronged test,
for the sake of argument, to the case at bar, plaintiffs
could not prevail as a matter of law. Surely there can be
no argument here that a substantial, in fact, the only nexus
of the severance of coal is established in Montana. There
can be no discussion of apportionment, because the severance
can occur in no other state. There is no danger of multiple
taxation, for no other state can tax the severance. See,
Chassaniol, supra; compare, Mich.-Wis. Pipeline Co. v.
Calvert (1954), 347 U.S. 157, 74 S.Ct. 396, 98 L.Ed. 583.
There would remain, if Complete Auto Transit, Inc.
applied, only the fourth test, whether the tax is fairly
related to the services provided by the state.
The taxpayers here, the coal producers, have the right
to and the availability of all the governmental comforts and
protection which this state provides. Since the United
States Supreme Court is tending toward the position that
interstate commerce must pay its way in the respective
states affected thereby, it is with logic of great force
that Montana can require strip-coal mining to assume its
justshare for the cost of the state government that it
-17-
enjoys, and for the governmental cost that has occurred, is
now occurring, and will in the future occur as the direct
result of such strip-coal mining. Here Montana meets the
test set out in General Motors - Washington, supra, 377
v.
U.S. at 441, 84 S.Ct. at 1568, 12 L.Ed.2d at 435:
"For our purposes the decisive issue turns on the
operating incidents of the tax. In other words, the
question is whether the State has exerted its power
in proper proportion to appellant's activities
within the state and to appellant's consequent
enjoyment of the opportunities and protections which
the State has afforded. . ."
It is impossible for any court to foot up the dollar
cost of the governmental benefits received and to be received
by the taxpayers here. Aptly the state points out the
heart of plaintiffs' complaint is the rate of the tax. The
state further contends that no United States Supreme Court
opinion invalidating a state levy has turned on the rate of
a tax. No summation of the cost of governmental benefits
has ever been required by any court in determining the
validity of a rate of levy in a general excise, property or
income tax imposed by a state. It is said:
"A tax is not an assessment of benefits.
It is, as we have said, a means of distributing
the burden of the cost of government. The
only benefit to which the taxpayer is constitutionally
entitled is that derived from his enjoyment of the
privileges of living in an organized society,
established and safeguarded by the devotion of
taxes to public purposes . . ..Any other view would
preclude the levying of taxes except as they are used
to compensate for the burden on those who pay them, and
would involve the abandonment of the most fundamental
principle of government--that it exists primarily to
provide for the public good." Carmichael v.
Southern Coal Co. (1937), 301 U.S. 495, 522-523,
57 S.Ct. 868, 878-879, 81 L.Ed. 1245, 1260-1261.
The rate of a tax is a determination for the legislature to
make, not a court. Montana's legislature has determined
that its coal severance tax is fairly related to the governmental
services Montana provides, and to the benefits of a trained
work force and the advantages of a civilized society. See,
Japan Line, Ltd. v County of Los Angeles (1979), 441 U.S.
.
434, 99 S.Ct. 1813, 60 L.Ed.2d 336; Washington Rev. Dept.
v. Stevedoring Assn., supra. We are not talking here about
"user" charges or like fees imposed for the use of state
facilities where the charge for the service must bear some
fair relation to the service or property provided for use.
Such "user" charges are capable of being determined. See
Evansville Airport v. Delta Airlines (1972), 405 U.S. 707,
92 S.Ct. 1349, 31 L.Ed.2d 620. Taxes as here imposed for
the general support of the government are fairly related to
that purpose by the mere fact that a government is thereby
maintained. It is only when the taxpayer has an insufficient
nexus to the taxing state, or the tax is disproportionate to
the incidents of commerce being taxed, that the fair-relation
test applies. See, e.g. National Bellas Hess, Inc. v. Dept.
of Revenue (1967), 386 U.S. 753, 756, 758, 87 S.Ct. 1389,
18 L.Ed.2d 505.
- Transit,
Complete Auto -- Inc., is intended to apply to
situations where a state or local taxing authority adopts a
tax that intrudes upon, hampers or obstructs in some fashion
interstate commerce. It has no application in this case to
the intrastate severance of coal by mining. But even if
Complete Auto Transit, Inc. applied, as we have shown,
plaintiffs could not prevail here as a matter of law.
We note that a tax of thirty percent of the coal's
value at the time of its severance is not any indication of
the impact of the severance tax as to the cost of coal at
its final destination, in-state or out-of-state. The attorney
general of Texas, appearing here as amicus, informed us in
oral argument that Montana coal destined for Texas is now
-19-
purchased at $7 per ton at the mine, resulting in a sev-
erance tax in Montana of $2.10 per ton; however, the coal at
destination in Texas costs $30 per ton. Most of the added
price comes from the cost of transportation of the coal to
Texas, which costs, the attorney general informed us, have
increased from $8 per ton to $20 per ton in a short time.
Demonstrably therefore, as to Texas, the interstate impact
of the Montana coal severance tax is no greater than that of
federal and state taxes on gasoline at the pump (before the
recent price increases) or the state and city sales taxes on
goods and services found in most localities. On the same
tack, when we consider the customers of the utilities who
are appearing in this case, it is obvious without argument
or proof that coal costs are only a portion of total generating
costs of electricity. Although plaintiffs have contended
that Montana's coal tax is passed on to the utility con-
sumers, it must be admitted that this is because of the
particular terms of the coal contracts of purchase entered
into by the utility-plaintiffs. It would be strange indeed
if the legality of a tax could be made to depend on the
vagaries of the terms of contracts. We do not assume that in
the broad picture all of the Montana coal tax is passed on
to consumers because Montana does not have a monopoly in the
production of coal. Montana coal must compete in the market
with coal produced in Wyoming, North Dakota, and other
sources of supply. Under those circumstances, economic
factors will determine whether the producers will shoulder
all or part of the tax, or pass it on in the form of in-
creased prices.
The argument therefore that Montana is "exporting its

coal tax" to out-of-state users has no more force in reality
-20-
when applied to Montana coal than to any other type of
lawful tax on goods or products eventually moving in inter-
state commerce. Certainly, taxes paid on goods and products
from origin to the eventual consumer are a factor in the
final price to the consumer; that is an economic fact of our
lives. In that sense, every state or locality that levies a
tax on goods or products originating therein or manufactured
therein is exporting its tax. No sane rule of law can or
should be developed that would make a local tax illegal
solely because it is a factor in the cost the eventual
consumer pays. Such a rule would make state government
taxation of goods and products a judicial morass.
It is for these reasons that we have determined, as we
have stated earlier, to look at the status of the true
taxpayers in this case, the producers of the coal. The
Montana severance tax is levied at the time the coal is
separated by the producer from the realty in Montana at its
value when sold in Montana. In that light we have no
difficulty in finding that Montana has the power as a state
to tax the severance of coal within its borders. Plaintiffs
contended in oral argument that because the coal bought by
the utilities from the producers was already under contract
for sale when mined, that the instant the coal was severed,
it was in interstate commerce. We do not have to address
that argument because the taxable event, as far as Montana
is concerned is the act of severance itself. The event of
severance necessarily precedes the instant when the coal
ceases to be part of the realty and becomes part of the
mass of personalty in Montana. We are not required here to
determine whether the mined coal should not be considered a
part of interstate commerce until the moment when the
producer hands the coal over to the buyer, or its transporter
-21-
for the account of the buyer. There is no need to concern
ourselves with such fine points here. The severance itself
is a taxable event and the Montana statutes here tax that
event in advance of any entry of the coal into commerce. In
other words, the coal is produced and that production is
taxed. Montana's coal severance tax is therefore ahead of
and preliminary to the sweep of the power of Congress to
regulate commerce. If this be not so, Montana and all other
states would have to concede that any power of a state to
tax the production of products which may eventually enter
into interstate commerce is at the whim or forbearance of
the federal government. Neither the United States Supreme
Court nor any other court has so held, and well enough, for
such a decision would shatter the shield of judicially-
approved states' rights in this field.
When it is realized that the coal producing plaintiffs
are the real and only taxpayers of the Montana tax, the
"exported tax" theory falls. With it falls the notion that
there is no political check on the Montana legislature to
limit the tax. Experience shows the producer plaintiffs are
a vigorous presence at any session of the Montana legis-
lature. Records of the Montana Secretary of State, of which
we take judicial notice, Rule 202(b), M.R.~vid., show the
number of lobbyists registered for the coal industry in
recent sessions, sections 5-7-103 and 5-7-201, MCA, and
their participation before legislative committees on matters
affecting the coal industry.
Finally, with respect to the commerce clause, plaintiffs
have continued to assert an argument which does not raise a
substantive issue or one material to our decision in this
case, but nonetheless requires a comment lest our silence be
considered an admission of its substance.
-22-
 The nonissue raised by plaintiffs is that since a good
deal of the coal being mined by plaintiffs or potentially to
be mined (in oral argument it was said 75% of the coal)
underlies federal leases, this coal therefore is not Montana's
"birthright" but belongs to the nation as a whole. The
argument is intended to have us believe that Montana is
taxing here not the coal producers, but the people of the
United States themselves.
Montana, in common with many of the states, has a
substantial portion of its surface area under federal
ownership. In addition, the federal government reserved to
itself coal and other minerals in many of its patents or
deeds of grant. We assume this situation gives rise to the
nonissue raised by the plaintiffs.
Plaintiffs' argument is addressed to emotion and not to
law. As long as the federal coal remains in deposit under
federal ownership, it is "our" coal in the sense that it
belongs to the people through the federal government. Once
mined under a federal lease or permit, title to the coal is
vested as personal property in the lessee or permittee as
soon as it is mined and removed from its original place,
subject only to the royalty rights of the lessor, Olson v.
Pedersen (1975), 194 Neb. 159, 231 N.W.2d 310, the same as
with oil and gas. De Mik v. Cargill (Okla. 1971), 485 P.2d
229. Montana may impose taxes on the private lessees of
federal lands. 30 U.S.C. 5189; Oklahoma Tax Comrn'n. v.
Texas Co. (1949), 336 U.S. 342, 69 S.Ct. 561, 93 L.Ed. 721;
reh.den. (1949), 336 U.S. 958, 69 S.Ct. 887, 93 L.Ed. 1111.
The coal being taxed here therefore is not "our" coal,
but the personal property of the plaintiffs who produced it
under lease or permit. When the coal is mined, the federal
government is in no different position as a lessor than a
private lessor who grants a mining lease or permit.
-23-
 THE SUPREMACY CLAUSE
"This [federal] Constitution and the Laws of the
United States which shall be made in Pursuance thereof",
states U.S. CONST.. Art. VI, C1. 2, ". . . shall be the
supreme Law of the Land . . .."
Here plaintiffs contend that Montana's coal severance
tax is preempted because it "frustrates and impairs" im-
plementation of federal po1icy;that the District Court
misconceived the national policies involved here; that the
overall national energy policy is to encourage a greatly
expanded production and use of western coal; and that the
question of substantial frustration is one of fact which
cannot be determined on the pleadings.
Montana responds that the plaintiffs have failed to
allege or to identify any "Laws of the United States" which
the coal severance tax could frustrate or impair; and that
the general policy considerations and goals alleged by
plaintiffs are not "laws of the United States" which are
declared to be the "supreme Law of the Land".
The motion to dismiss made by the State in the District
Court challenged the legal sufficiency of the supremacy
clause claim of the plaintiffs.
It is conceded by the plaintiffs that Congress has not
expressly preempted or limited the authority of the State to
levy the coal severance tax, nor "clearly and unmistakably"
required the conclusion that Congress intended to prohibit
or limit the tax. Rather the plaintiffs contend, as their
complaints allege:
"32. That the coal severance tax, on
its face, and as applied, substantially frustrates
and impairs fulfillment of national policies and
purposes of certain acts of Congress." (App. 2 7 )
 Under this argument plaintiffs contend that proof of
"substantial frustration" does not require plaintiffs to
show a specific Congressional intent to preempt the field
(Pl. Brief at 60).
In fine, plaintiffs have contended that it is not the
tax, but the -
rate of - -
- the tax which constitutes an obstacle
to federal policy and which requires a determination of fact
as to whether such obstacle exists.
By their argument, plaintiffs seek to bring themselves
within the coverage of statements made by the United States
Supreme Court in Ray v. Atlantic Richfield Co. (1978), 435
U.S. 151, 158, 98 S.Ct. 988, 55 L.Ed.2d 179; Jones v. Rath
Packing Company (1977), 430 U.S. 519, 525-526, 97 S.Ct.
1305, 51 L.Ed.2d 604; reh-den. (1977), 431 U.S. 925, 97 S.Ct.
2201, 53 L.Ed.2d 240; De Canas v. Bica (1976), 424 U.S. 351,
357 n. 5, 96 S.Ct. 933, 47 L.Ed.2d 43; and Perez v. Campbell
(1971), 402 U.S. 637, 652, 91 S.Ct. 1704, 29 L.Ed.2d 233.
Plaintiffs claim to be inheritors the decision in

M'Culloch v. Maryland (1819), 17 U.S. 415 (4 Wheat. 316),

In making its determination on the preemption issue,
the District Court examined the following acts of Congress
submitted or cited to the District Court as acts which
defined the federal policies in the field:
Powerplant and Industrial Fuel Use Act of 1978
Pub. Law No. 95-620,92 Stat. 3289
Natural Gas Policy Act of 1978 Pub. Law No. 95-
621, 92 Stat. 3351
Energy Conservation and Production Act Pub. Law
No. 94-385, 90 Stat. 1125
Energy Policy and Conservation Act Pub.
Law No. 94-163, 89 Stat. 871
Federal Nonnuclear Energy Research and Develop-
ment Act of 1974 Pub. Law No. 93-577, 88 Stat. 1878
 Energy Reorganization Act of 1974 Pub. Law No.
93-438, 88 Stat. 1233
Energy Supply and Environmental Coordination Act
of 1974, Pub. Law No. 93-319, 88 Stat. 246
Emergency Petroleum Allocation Act of 1973, Pub.
Law No. 93-159, 87 Stat. 627
Clean Air Amendments of 1970 Pub. Law No. 91-
604, 84 Stat. 1676
From those acts, the District Court determined that
there was a national policy to provide incentives to increase
the use of other sources of energy, including coal, so as to
decrease our dependence on oil. The District Court also
determined from those acts, and from the cases it examined
relating to the subject, that "Congress has not and did not
intend to preclude the State of Montana from imposing a tax
on mining activities within the State. . ." App. at 240.
It is in this conclusion of law that the plaintiffs now
contend on appeal that the District Court erred: The
plaintiffs do not claim that the federal acts submitted to
the District Court establish a national policy which prevents
Montana from levying some tax on the severance of coal.
Instead, plaintiffs contend that the District Court should
have allowed a factual hearing to determine whether the
rate of Montana's coal severance tax substantially frustrates
national policy; and that the order of the District Court
precluded plaintiffs from proving what the national energy
policy was.
Some seventy or eighty years ago it used to be argued
that the Constitution of the United States followed the
flag. Here, plaintiffs in reality are contending that the
Constitution follows the Dow-Jones average.
In examining the whole of the District Court's memoran-
dum in support of its order, we think it implicit in the
District Court's opinion not only that Montana is not prohibited
-26-
by federal enactments and policy from levying a coal
severance tax but also that the amount of Montana's coal
severance tax is not prohibited. In any event, we find
the latter conclusion is a necessary result as a matter of
law under the preemption argument.

Out of the welter of cases which has been cited to
us on this issue by the parties, we, upon examination of
such authorities, find it safe to say that no state excise
tax has ever been struck down unless it had clearly conflicted
with an act of Congress in the field (M'Culloch v. Maryland,
supra); and likewise, that no state excise tax is likely to
be held by the United States Supreme Court to be limited as
to its amount unless it is expressly or by necessary implication
shown to be prohibited or that the amount interferes with a
power assumed or delegated to the United States.
The essence of the rule upon which we rely here, and of
the rule which we think inheres in any of the United States
Supreme Court decisions on the subject is set out in Penn
Dairies v. Milk Control Comm'n. (1943), 318 U.S. 261, 275,

"An unexpressed purpose of Congress to set aside
statutes of the states regulating their internal
affairs is not lightly to be inferred and ought
not to be implied where the legislative command,
read in the light of its history, remains ambiguous.
Considerations which lead us not to favor repeal
of statutes by implication, United States - Borden
v.
Co., 308 U.S. 188, 198-9; United States v. Jackson,
302 U.S. 628, 631; Posadas v. National --
-- city Bank,
296 U.S. 497, 503-5, should be at least as persuasive
when the question is one of the nullification of
state power by Congressional legislation.
". . . Courts should guard against resolving these
competing considerations of policy by imputing to
Congress a decision which quite clearly it has not
undertaken to make. Furthermore we should be slow
to strike down legislation which the state concededly
had power to enact, because of its asserted burden
on the federal government. For the state is power-
less to remove the ill effects of our decision, while
the national government, which has the ultimate power,
remains free to remove the burden."
 The mere statement by the plaintiffs that the Montana
coal severance tax substantially frustrates a national
policy for the use of western coal is not a sufficient basis
to trigger a factual determination in the District Court.
The scope and substance of national policy are matters of
statutory interpretation. This is a matter of law not
requiring the taking of testimony. Again, of course, for
purposes of a motion to dismiss, a District Court is not
required to accept plaintiffs allegations of law and legal
conclusions as true. Newport News Co. v. Schauffler (1938),
303 U.S. 54, 58 S.Ct. 466, 82 L.Ed. 646; Mitchell v.
Archibald and Kendall, Inc. (7th Cir. 1978), 573 F.2d 429,
432; Kadar Corporation v. Milbury (1st Cir. 1977), 549 F.2d
230, 233; Blackburn v. Fisk University (6th Cir. 1971), 443
F.2d 121, 124.
Whether we agree here with plaintiffs that the decision
of the District Court was only to the effect that no
federal enactments prohibited - coal tax is of no moment.
any
The reason for the district judge making that finding was
that he could find no federal enactment of specific policy
with respect to which the Montana coal severance tax con-
flicted. For the same reason, when we examine plaintiffs'
contention that the amount of the tax constitutes a substantial
frustration of federal policy, that argument must also fall
because of plaintiffs' failure to establish a federal enact-
ment with which the amount of Montana tax conflicts or which
is substantially frustrated.
We find ourselves in agreement with the ~istrictCourt
that the federal statutes cited do not establish domestic
energy policies wherein Congress intended to nullify other
national, state, local or individual policies or interests
which may increase the cost of coal production in use.
-28-
Stated another way, we do not find a national domestic
energy policy or congressional enactments predicated upon a
Montana coal severance tax of fifteen percent or less.
Indeed, the federal enactments point in other directions.
There are incentives for the development of underground coal
mines. 42 U.S.C. 86211. There is a provision for export
restrictions. 42 U.S.C. 86212. Miners of low sulfur coal
are not exempted from costly environmental strip mining
regulations. 30 U.S.C. 81251, et seq. Health and safety
requirements are enforced upon strip coal miners. 30 U.S.C.
8801, et seq. Royalties on federal lands are payable under
the Mineral Lands Leasing Act of 1920 as amended. 30 U.S.C.
8181, et seq. Congress seems to prefer underground coal
mining. 30 U.S.C. 81201, et seq. As the District Court
found, to the distaste of the plaintiffs, Congress favors
and encourages the production and use of high sulfur eastern
and midwestern coal, rather than low sulfur western coal,
the latter of which is to be used principally by existing
facilities for which technological upgrading of air pollution
control equipment is impractical or not feasible. 42
U.S.C. 88 7411 and 7425. Indeed, 87411, as amended in
1977, requires users of low sulfur coal nevertheless to
install the "best technological system of continuous emission
reduction" required for all stationary sources, even though
such systems may be unnecessary because the low-sulfur coal
meets the emission standards. See, U.S. Code ~ongressional
and Administrative News, 95th Congress, 1977 Session, Vol.
11, at 1245. Congress would rather that eastern and mid-
western plants used "local coal", even coal with higher
sulfur content than western low-sulfur coal.
How then can any court determine that the effect of
Montana's coal severance tax is to frustrate national policy,
-29-
when no national policy can be discerned as a matter of
law?
The federal constitutional prohibition, under the
Supremacy clause, is against state laws which contravene
"the laws of the United States which shall be made in
pursuance of [the federal constitution]." What is wanting
in plaintiffs argument is - federal enactment, constitu-
any
tionally adopted, which is clearly, substantially frustrated
by Montana's coal severance tax.

The taxing power of the state is an essential power of
its sovereignty. Weston v. City Council of Charleston
(1829), 27 U.S. L (2 Peters 449), 7 L.Ed.
w 481. This
power cannot be set aside or limited on weightless state-
ments that a federal policy is being substantially frustrated.
Contrary to the contention of plaintiffs, De Canas v.
Bica,supra, was not sent back by the Supreme Court for a
factual determination, but rather for a construction by the
California courts of California statutory law. De Canas v.
Bica, supra, 424 U.S. at 363-364, 96 S.Ct. at 940, 47 L.Ed.2d
at 53-54. In Exxon Corp. v. Governor of Maryland (1978),
437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91, reh.den. 439
U.S. 884, the United States Supreme Court rejected a con-
tention that a broad general national policy can preempt
state laws which have some indirect effect upon national
policy. The court said in Exxon:
"Appellants point out . .. the ... basic
national policy favoring free competition, and
argue that the Maryland statute 'undermine[sI1
the competitive balance that Congress struck
between the Robinson-Patman and Sherman Acts.
This is just another way of stating that the
Maryland statute will have an anticompetitive
effect. In this sense, there is a conflict
between the statute and the central policy of
the Sherman Act -- our 'charter of economic
liberty.' Northern Pacific R. Co. v.
United States, 356 U.S. 1, 4. Nevertheless,
 this sort of conflict cannot itself con-
stitute a sufficient reason for invalidating
the Maryland statute. For if an adverse
effect on competition were, in and of itself,
enough to render a state statute invalid, the
Statest power to engage in economic regulation
would be effectively destroyed. We are, therefore,
satisfied that neither the broad implications
of the Sherman Act nor the Robinson-Patman Act
can fairly be construed as a congressional decision
to pre-empt the power of the Maryland Legislature
to enact this law." 437 U.S. at 133-134, 98 S.Ct.
at 2217-2218, 57 L.Ed.2d at 104-105.
Again, under this preemption contention, a large number
of cases are cited by the parties. Recitation of their
holdings and effect would be cumulative here. Plaintiffs
have attacked the decision of the District Court upon the
ground that no court case was relied on by it to find that
Montana's coal severance tax did not contradict a federal
national policy. On this point, plaintiffs are stoking the
same furnace as did the District Court. Plaintiffs have
led us to no decision invalidating a state excise tax based
on its rate as in contravention of federal policy.
We conclude that from any viewpoint, whether as a
question of the power of the State of Montana to levy any
tax, or its power to levy a tax at the rate here set
forth, there has been no preemption by the federal government
in the field of coal severance taxation, or any national
policy derived from Congressional enactments pursuant to the
Constitution with which the Montana coal severance tax is in
conflict.
-
THE FEDERAL MINERAL LANDS LEASING ACT OF --
- - 1920

Here, plaintiffs assert that the severance tax violates
the Supremacy Clause of the United States Constitution on
the ground that the tax grossly distorts the "compromise"
between the federal government and the states expressed in
the Mineral LandsLeasing Act of 1920, Chapter 85, 41 Stat.
437, as amended by the Federal Coal Leasing Amendments Act
of 1975, Pub. Law No. 94-377, 90 Stat. 1083.
of a longstanding debate concerning the ownership, dis-
position and use of federally owned mineral reserves in the
western territories and states. The result, claim plaintiffs,
is that the federal government retained the minerals for the
people of the nation, subject to the payment of a share of
the mineral royalties to the states in which the minerals
were located.
Under the Act of 1920, as amended, fifty percent of
amounts received by the federal government from sales,
bonuses, royalties and rental of public lands thereunder
are returned to the respective states wherein the leased
lands or deposits are located, for uses specified in the Act.
Plaintiffs claim Montana is without power, because it
substantially frustrates national policy, to tax the
"economic rents" remaining over and above the rents and
royalty payments. "Economic rents" are defined as the difference
between the costs of production, including an acceptable
profit, and the price which the products could obtain in
the market place. Plaintiffs state that Montana has approp-
riated the "economic rents", which plaintiffs find to be a
fundamental frustration of federal policy.
Here again, plaintiffs argue that they are not required
to show an express prohibition under federal law; rather
they contend that substantial frustration of the fulfillment
of national policy is sufficient to render the state law un-
constitutional under the Supremacy clause.
The principal factor militating against plaintiffs'
position on this part of their complaint is that Congress
specifically allowed state taxation under the Mineral Lands
Leasing Act of 1920. The Act contains this provision (30
U.S.C. 5189):
 ". . . Nothing in this chapter shall be construed
or held to affect the rights of the States or
other local authority to exercise any rights which
they may have, including the right to levy and
collect taxes upon improvements, output of mines,
or other rights, property, or assets of any lessee
of the United States."
If indeed, a "compromise" was reached with respect to
the leasing of federally-owned mineral interests in public
lands, that compromise included, under 30 U.S.C. 8189, the
right of states to tax the "output of mines". This indeed
is a clear expression of federal policy and Montana's coal
severance tax is within that policy.
In Mid-northern Oil Co. v. Montana (1925), 268 U.S.
45, 45 S.Ct. 440, 69 L.Ed. 841, affirming id-hrthern Oil
,>
; fl ! / , ,
1 - 4 . . \
Co. v. Walker (1922), 65 Grit. 414, 211 P. 353, the Supreme
Court said:
.
". . [Allthough the act deals with the letting of
public lands and the relations of the government
to the lessees thereof, nothing in it shall be
so construed as to affect the rights of the states,
in respect of such private persons and corporations,
to levy and collect taxes as though the government
were not concerned." 268 U.S. at 49, 45 S.Ct. at
441, 69 L.Ed. at 843.
The Supreme Court also said:
"No doubt, what Congress immediately had in mind
was the necessity of making it clear that, not-
withstanding the interest of the government in
leased lands, the rights of the states to tax
improvements thereon and the output thereof
should not be in doubt . . ..
We think the proviso
plainly discloses the intention of Congress that
persons in corporations contracting with the United
States under the act, should not, for that reason,
be ~xemptfrom any form of state taxation otherwise
lawful." 268 U.S. at 50, 45 S.Ct. at 441, 469 L.Ed.
at 843.
Again the District Court was correct in dismissing
plaintiffs complaints under count 3 as a matter of law, for
no justiciable controversy is presented by such count.
CONCLUSION
The judgment of the District Court in dismissing the
plaintiffs complaints is affirmed.
 Justice
W e Concur:

'ir,tAL-4.&4
Chief J u s t i c e