Jun 20: In the U.S. Court of Appeals, Fourth Circuit, Case No. 10-1882. Appealed from the United States District Court for the District of Maryland, at Greenbelt. The Appeals Court explains that the question in the case is whether a Montgomery County, Maryland exaction on carbon dioxide emissions, levied only upon GenOn Mid-Atlantic's electricity-generating facility, is a tax or a fee. After holding that the carbon charge was a tax, the district court determined that the Tax Injunction Act deprived it of jurisdiction to hear GenOn's challenge. The Appeals Court ruled, "We think, however, that because the charge was levied upon a single 'taxpayer' and formed part of a wide-ranging regulatory program, the district court had jurisdiction over GenOn's claims. We accordingly reverse and remand for further proceedings.
By way of background in the case, the Montgomery County Council enacted Expedited Bill 29-10 on May 19, 2010 to impose a levy on large stationary emitters of carbon dioxide within the county. The County Executive signed the bill on May 28. Bill 29-10 imposes what it terms an 'excise tax' of $5 per ton of carbon dioxide emitted, but only on emitters that end up exceeding 1 million tons of carbon dioxide in a year. For those large emitters, the $5 per ton charge applies to every ton emitted. The revenue generated by the levy is to be deposited in the Montgomery County general fund, with 50% earmarked for funding greenhouse gas reduction programs such as mass transit and 50% available for the County's general use. The County projects that the levy will raise annual revenue between $11.7 and $17.6 million.
GenOn operates an electricity plant in Montgomery County that emits carbon dioxide. As the only entity in Montgomery County expected to exceed 1 million tons of carbon dioxide emissions annually, GenOn is the only entity likely to be subject to the $5/ton levy on its entire volume of emissions. After consulting with the County's electricity service provider, the Council determined that GenOn would not be able to pass the cost of the carbon charge on to its Montgomery County customers because its power is sold via competitive auction.
Four days after Bill 29-10 was signed into law, GenOn sought to enjoin enforcement on the ground that it violates the United States and Maryland Constitutions. The district court noted that the charge had some indicia of a regulatory fee, but ultimately concluded that it was more like a tax for purposes of the Tax Injunction Act. The court then dismissed GenOn's suit without prejudice.
The Appeals Court said, "The chief problem with Montgomery County's carbon charge is that the burden falls on GenOn alone. But the whole idea of a tax is that it is, to some extent, a burden generally borne. Thus, an 'assessment imposed upon a narrow class' is less likely to be a tax than an 'assessment imposed upon a broad class of parties.' Bidart Bros. v. Cal. Apple Comm'n, 73 F.3d 925, 931 (9th Cir. 1996). The fact that this charge affects the narrowest possible class is compelling evidence that it is a punitive fee rather than a tax. . . In addition to its punitive scope, Montgomery County's carbon charge falls outside the ambit of the Tax Injunction Act because of its plainly regulatory purpose. . ."
Finally, the Appeals Court concludes, "Of course we do not resolve this case on the merits, nor do we suggest that one party or the other should prevail on remand. We do not at all begrudge Montgomery County its regulatory purpose here, and there is much to be said for the worthy office of environmental stewardship. All we hold is that the Tax Injunction Act is no bar to federal jurisdiction in this case. We accordingly reverse the judgment of the district court and remand for consideration of GenOn's claims."
Access the complete opinion (click here). [*Climate, *Air, CA4]
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