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United States v. Maryland

ELR Citation: 9 ELR 20517
Nos. No. H-78-1063, 471 F. Supp. 1030/13 ERC 1252/(D. Md., 06/12/1979)

Granting defendants' motion for summary judgment, the court holds that agencies of the federal government which purchase electricity from utility companies within the State of Maryland must pay an exaction imposed by state law and termed an "environmental surcharge." The environmental surcharge, as imposed by MD. ANN. CODE art. 78, §54B, is a surcharge on electric energy generated within the state. Electric companies are authorized to add the full amount of the surcharge to their customers' bills, and what is not collected from the customers is deemed a cost of generation. Revenues from the surcharge are placed in an Environmental Trust Fund to be used to underwrite a power plant environmental research and site evaluation and acquisition program. The federal government, whose agencies in Maryland have the surcharge added to their bills, claimed that it represented an unconstitutional state tax upon federal agencies.

The court first rejects defendants' argument that the environmental surcharge is a utility rate or fee and not a tax. The surcharge is an involuntary exaction by the state of money from the electric utilities intended to benefit the general public. The court however, upholds the constitutionality of the surcharge, as applied to purchases of electricity by federal agencies, because the surcharge is imposed upon the electric companies and not their customers. The right of the federal government to be free of direct taxation by the state does not mean that it has immunity from paying added costs resulting from the taxation of a supplier of goods or services. In determining where the legal incidence of a tax falls, the taxing statute must be considered in light of all relevant circumstances. It is not controlling either that an entity other than a federal agency is required to pay the tax or that the economic burden of the tax may ultimately fall upon a federal agency. The court concludes that the Maryland legislature does not require the surcharge to be passed on to customers; therefore, the exactions are valid and constitutional. So long as the tax is not directly laid on the federal government, it is valid if not discriminatory. The court concludes that the state legislature did not intend the environmental surcharge to be a mandatory tax on the customers of the electric companies.

The full text of this opinion is available from ELR (18 pp. $2.25, ELR Order No. C-1168).

Counsel for Plaintiff
William L. Shraberg
Tax Division
Department of Justice, Washington DC 20530
(202) 724-6635

Edward M. Norton Jr., Ass't U.S. Attorney
405 U.S. Courthouse, 111 N. Calvert St., Baltimore MD 21202
(301) 539-2940

Counsel for Defendants
Gerald Langbaum, Ass't Attorney General
Treasury Bldg., Annapolis MD 21401
(301) 269-2808

John B. Gontrum
Public Service Commission
301 W. Preston St., Baltimore MD 21201
(301) 383-2374

Philip S. Shapiro, Ass't People's Counsel
900 State Office Bldg., Baltimore MD 20201
(301) 383-2375

Harvey, J.