The U.S. Supreme Court in late February ruled that it is constitutional for Ohio to impose a 5-percent use tax on purchases of natural gas from an out-of-state natural gas marketer, when the same purchases would have been exempt from tax had the purchaser bought the gas from an in-state local distribution company.
Nicholas Bush, Natural Gas Supply Association president, expressed disappointment with the decision and called it a setback for development of a national, competitive natural gas marketplace. "While it is important to recognize the rights of an individual state over its businesses, it is difficult to achieve a prosperous national economy without consistent and fair rules for interstate commerce."
General Motors had challenged the constitutionality of the tax exemption for local distribution companies, alleging the exemption discriminates against interstate commerce by encouraging purchases from the distribution companies rather than from out-of-state competitors (General Motors Corp. v. Tracy, Tax Commissioner of Ohio, No. 95-1232).
The Supreme Court disagreed with General Motors, ruling 8-1 in favor of Ohio on Feb. 18. Justice Souter wrote in an opinion that the local distribution companies' bundled products reflected the demand of a core market. This core market is typified by residential customers that could on rate stability and gas supply, and "that is neither susceptible to competition by the interstate sellers, nor likely to be served except by regulated natural monopolies," he wrote.