[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Rockies Express Pipeline, L.L.C. v. McClain, Slip Opinion No. 2020-Ohio-410.]




                                          NOTICE
      This slip opinion is subject to formal revision before it is published in an
      advance sheet of the Ohio Official Reports. Readers are requested to
      promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
      South Front Street, Columbus, Ohio 43215, of any typographical or other
      formal errors in the opinion, in order that corrections may be made before
      the opinion is published.


                           SLIP OPINION NO. 2020-OHIO-410
ROCKIES EXPRESS PIPELINE, L.L.C., APPELLANT, v. MCCLAIN,1 TAX COMMR.,
                                         APPELLEE.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Rockies Express Pipeline, L.L.C. v. McClain, Slip Opinion No.
                                      2020-Ohio-410.]
Taxation—Public-utility excise tax—R.C. 5727.33(B)(1)’s exclusion of “receipts
        derived wholly from interstate business” from a public utility’s computation
        of its taxable gross receipts does not apply to receipts earned by
        transporting gas solely within Ohio—Imposing such tax does not violate the
        Commerce Clause of the United States Constitution—Board of Tax
        Appeals’ decision affirmed.
   (No. 2018-0882—Submitted August 6, 2019—Decided February 11, 2020.)
              APPEAL from the Board of Tax Appeals, No. 2016-1144.
                                   _________________



1. Under S.Ct.Prac.R. 4.06(B), Jeff McClain, the current Ohio Tax Commissioner, is automatically
substituted for Joseph Testa, the former commissioner, as a party to this action.
                             SUPREME COURT OF OHIO




       FRENCH, J.
       {¶ 1} Ohio’s public-utility excise-tax statutes provide that “[a]ll receipts
derived wholly from interstate business” are excluded from a public utility’s
computation of its taxable gross receipts. R.C. 5727.33(B)(1). We conclude that
when, as here, a public utility transports natural gas for others through an interstate
pipeline, the exclusion does not apply to the class of receipts the utility earns by
transporting the gas solely within Ohio. We also conclude that imposing the tax on
this class of receipts does not violate the Commerce Clause.
                FACTS AND PROCEDURAL BACKGROUND
                                 Rockies’ operations
       {¶ 2} Appellant, Rockies Express Pipeline, L.L.C. (“Rockies”) is an
interstate pipeline used for transporting natural gas. Rockies does not gather or
process gas, and its incidental purchases and sales of gas are not at issue. The
pipeline is 42 inches in diameter, roughly 1,700 miles long, and crosses through
eight states, including Ohio. The pipeline’s westernmost termini are in Wyoming
and Colorado; its easternmost terminus is in Monroe County, which is located on
Ohio’s eastern border.      Rockies’ pipeline connects with 28 other interstate
pipelines; six of these interconnections are located in Ohio. Although Rockies
originally focused its operations on transporting gas from production areas in the
West to serve markets in the East, the discovery of large gas supplies in Ohio and
elsewhere prompted Rockies to modify its system to support bidirectional service.
Due to the interconnectedness of the interstate-pipeline grid and the transitory
nature of gas molecules, it is feasible for Rockies to receive gas from wells located
anywhere in the United States.
       {¶ 3} Rockies is regulated by the Federal Energy Regulatory Commission
(“FERC”), see 15 U.S.C. 717 et seq., and its customer dealings are governed by its
FERC-filed gas tariff, which prescribes Rockies’ schedule of rates and general
terms and conditions of service. The transactions at issue here involve Rockies’




                                          2
                                       January Term, 2020




transportation of natural gas to four types of delivery locations: (1) other interstate
pipelines, (2) one industrial end-use customer, AK Steel, (3) two local distribution
companies,2 and (4) two hub pooling points.3
                         Proceedings before the tax commissioner
         {¶ 4} Rockies reported to the tax commissioner on its 2015 Annual
Statement of Gross Receipts that it generated $699,018,936 in gross receipts for
transporting natural gas. Rockies assigned this entire amount to interstate-business
activities and reported no taxable gross receipts. Based on that assignment, Rockies
reported the minimum tax liability of $50. After Rockies reported its statement, an
agent for the tax commissioner asked Rockies to provide additional information on
its within-Ohio deliveries. Rockies submitted information pertaining to 36 discrete
transactions in which it charged a total of $2,084,426 to transport natural gas solely
within Ohio. Of these transactions, 94.1 percent were deliveries to other interstate
pipelines, 1.9 percent were to local distribution companies, 2.8 percent were to
industrial end users, and 1.2 percent were to hub pooling points.
         {¶ 5} After reviewing Rockies’ information, the tax commissioner assessed
Rockies a tax liability of $139,011.26 on gross receipts of $2,084,426—in other
words, the commissioner assessed Rockies on transactions in which natural gas
entered and exited Rockies’ pipeline within Ohio. Rockies paid the tax and
petitioned the tax commissioner for reassessment under R.C. 5727.47, arguing that
its receipts derived wholly from interstate business and thus were eligible for
exclusion under R.C. 5727.33(B)(1).

2. Local distribution companies receive natural gas from a pipeline company’s transmission system
and deliver the gas to the end user. Columbia Gas Transm. Corp. v. Levin, 117 Ohio St.3d 122,
2008-Ohio-511, 882 N.E.2d 400, ¶ 27.

3. According to Rockies, a hub pooling point is not a specific physical location but a virtual delivery
point where multiple interconnections are treated as one delivery point, or hub. Hub pooling points
facilitate market liquidity by permitting shippers to designate the delivery of gas to a virtual pooling
point rather than a precise location.




                                                   3
                             SUPREME COURT OF OHIO




       {¶ 6} The tax commissioner issued a final determination upholding the
assessment. The commissioner rejected Rockies’ reliance on R.C. 5727.33(B)(1)’s
exclusion of interstate-business receipts because, he reasoned, receipts earned from
shipments that start and end in Ohio are best understood as derived from
intrastate—not interstate—business. The commissioner also disagreed with the
contention that taxing Rockies’ receipts violated the Commerce Clause.
                   Proceedings before the Board of Tax Appeals
       {¶ 7} The Board of Tax Appeals (“BTA”) affirmed the tax commissioner’s
final determination, concluding as a statutory matter that Rockies’ receipts were
not eligible for exclusion. The BTA declined to address whether imposition of the
tax exceeded any constitutional limits on Ohio’s taxing power. Rockies then
appealed the BTA’s decision to the Tenth District Court of Appeals. While that
appeal was pending, Rockies filed a transfer petition with this court and asked us
to accept jurisdiction over the appeal.
                                Questions presented
       {¶ 8} We granted Rockies’ petition, 153 Ohio St.3d 1486, 2018-Ohio-3867,
108 N.E.3d 83, which presents two propositions of law. The first involves a matter
of statutory construction: whether the gross receipts earned by a public utility for
the transportation of natural gas flowing through an interstate pipeline should be
excluded from taxation under R.C. 5727.33(B)(1) as “receipts derived wholly from
interstate business” when those receipts relate solely to within-Ohio trips. In its
second proposition of law, Rockies argues that Ohio’s imposition of a tax on such
gross receipts violates the Commerce Clause of the United States Constitution. We
address each proposition in turn.
                                    ANALYSIS
             The interstate-business exclusion in R.C. 5727.33(B)(1)
       {¶ 9} Subject to certain exceptions, Ohio imposes on “each public utility
* * * an annual excise tax * * * for the privilege of owning property in this state or




                                          4
                                 January Term, 2020




doing business in this state * * *.” R.C. 5727.30(A). The term “public utility”
includes a “pipe-line company,” R.C. 5727.01(A), “engaged in the business of
transporting natural gas * * * through pipes or tubing, either wholly or partially
within this state,” R.C. 5727.01(D)(5). The tax generally extends to “the entire
gross receipts actually received from all sources for business done within this state
* * *.” R.C. 5727.33(A). Certain categories of gross receipts are excluded from
this general rule. The exclusion at issue in this appeal provides:


                       (B) In ascertaining and determining the gross
                receipts of each public utility subject to this section,
                the following gross receipts are excluded:
                       (1) All receipts derived wholly from
                interstate business.


R.C. 5727.33.
       {¶ 10} The exclusion in R.C. 5727.33(B)(1) dates back to 1910 and has not
changed since its original enactment. Then, as now, a “pipe line company” could
exclude from its gross receipts “all receipts derived wholly from interstate business
* * *.” See H.B. No. 68, 101 Ohio Laws 399, 409, 411.
       {¶ 11} Rockies posits that all of its gross receipts in tax year 2015 are
“derived wholly from interstate business” and therefore fall within the exclusion.
As with any matter of statutory interpretation, we begin with the text of the
enactment. State v. Hanning, 89 Ohio St.3d 86, 91, 728 N.E.2d 1059 (2000). We
must construe strictly any claimed exemption from taxation, and the taxpayer bears
the burden of establishing its entitlement to the exemption. A. Schulman, Inc. v.
Levin, 116 Ohio St.3d 105, 2007-Ohio-5585, 876 N.E.2d 928, ¶ 7. We conclude
that the plain text of R.C. 5727.33(B)(1) does not support Rockies’ argument.




                                           5
                             SUPREME COURT OF OHIO




       {¶ 12} In our view, the scope of the exclusion turns largely on the meaning
of the word “interstate.” In the absence of a statutory definition, we rely on the
“common, ordinary, and accepted meaning” of a word. State v. Black, 142 Ohio
St.3d 332, 2015-Ohio-513, 30 N.E.3d 918, ¶ 39; R.C. 1.42. The ordinary meaning
of the words the General Assembly used at the time of enactment also guides our
determination of legislative intent. See Volz v. Volz, 167 Ohio St. 141, 146, 146
N.E.2d 734 (1957). In 1910, the word “interstate” meant “[b]etween two or more
states; between places or persons in different states; concerning or affecting two or
more states politically or territorially.” Black’s Law Dictionary 651 (2d Ed.1910).
The meaning of the word has not changed materially in the intervening decades.
See Webster’s New International Dictionary 1300 (2d Ed.1953) (defining
“interstate” as “[p]ertaining to the mutual relations of states; existing between, or
including, different states”); Black’s Law Dictionary 948 (10th Ed.2014)
(“interstate” means “[b]etween two or more states or residents of different states;
involving different states, esp. in the United States”).
       {¶ 13} The word “interstate,” as understood since 1910, refers to matters
existing or occurring between two states. Applying this meaning, we conclude that
Rockies’ tax-year-2015 receipts do not bear an interstate character. The state does
not seek to tax any receipts generated from transporting gas from Ohio to another
state. Rather, the tax commissioner seeks to tax only those receipts that are derived
from the transportation of gas that entered Rockies’ pipeline in Ohio and exited the
pipeline at a delivery point in Ohio. We view the receipts derived from Rockies’
transportation of gas within Ohio as taxable receipts generated from “business done
within this state,” R.C. 5727.33(A).
       {¶ 14} Rockies does not offer an alternative meaning of the word
“interstate,” nor does it dispute that the receipts at issue involve transactions in
which Rockies received and delivered gas within Ohio. Rather, it argues that the
phrase “interstate business” is interchangeable with “interstate commerce” and that




                                           6
                                  January Term, 2020




we should examine Commerce Clause cases decided around the time of the statute’s
enactment to determine what the General Assembly intended to exclude from
taxation as interstate commerce.
       {¶ 15} “If a statute is ambiguous,” we may consider factors such as “[t]he
circumstances under which the statute was enacted” to determine legislative intent.
(Emphasis added.)     R.C. 1.49(B).     We have stated, however, that resort to
extraneous sources of legislative intent is improper without an initial finding of
ambiguity. Jacobson v. Kaforey, 149 Ohio St.3d 398, 2016-Ohio-8434, 75 N.E.3d
203, ¶ 8, quoting Dunbar v. State, 136 Ohio St.3d 181, 2013-Ohio-2163, 992
N.E.2d 1111, ¶ 16 (“Without ‘an initial finding’ of ambiguity, ‘inquiry into
legislative intent, legislative history, public policy, the consequences of an
interpretation, or any other factors identified in R.C. 1.49 is inappropriate.’ ”).
Compare State v. Sinito, 43 Ohio St.2d 98, 100-102, 330 N.E.2d 896 (1975)
(considering United States Supreme Court precedent and the historical
circumstances of an enactment only after finding the statute unclear on its face). A
statute is ambiguous only if its language is susceptible of more than one reasonable
interpretation. Dunbar at ¶ 16.
       {¶ 16} We see no ambiguity—and Rockies makes no contention of any
ambiguity—in the phrase “interstate business,” as used in R.C. 5727.33(B)(1). As
we explained, the word “interstate” has a clear and definite meaning. At the time
of the enactment, the word “business” meant “everything about which a person can
be employed. That which occupies the time, attention, and labor of men for the
purpose of a livelihood or profit.” (Citation omitted.) Black’s Law Dictionary 158
(2d Ed.1910). The excise tax here captures only Rockies’ “business” within the
state—i.e., its livelihood or profits derived from transporting gas from one point in
Ohio to another point within Ohio. Given the plain and unambiguous language of
the statute, we see no basis for examining the historical underpinnings of the
exclusion in R.C. 5727.33(B)(1).




                                          7
                             SUPREME COURT OF OHIO




       {¶ 17} Rockies also relies on Columbia Gas Transm. Corp. v. Levin, 117
Ohio St.3d 122, 2008-Ohio-511, 882 N.E.2d 400, to argue that its transportation of
natural gas to each of the delivery points at issue constitutes movement through
interstate commerce and therefore falls within the exclusion in R.C. 5727.33(B)(1).
Our holding in Columbia Gas, however, does not address or warrant reversal of the
excise tax imposed here on Rockies.
       {¶ 18} In Columbia Gas, a public utility challenged its designation as an
interstate-pipeline company for the purpose of determining the tax assessment on
its personal property. Columbia, a federally regulated interstate-pipeline company,
was required to pay property tax at a higher rate than state-regulated local
distribution companies. Columbia argued that this disparate tax treatment violated
the Commerce Clause. Id. at ¶ 50. Columbia attempted to show that interstate
pipelines and local distribution companies directly compete with each other
because local distribution companies own significant amounts of transmission
pipeline (as identified by the diameter and pressure strength of the pipeline). Id. at
¶ 60-61. We noted, however, that FERC does not rely on pipeline diameter and
pressure as controlling for purposes of distinguishing between interstate
transportation and local distribution of natural gas. Id. at ¶ 62. Rather, FERC
defines interstate transportation as “beginning at the point where the interstate
pipeline receives gas from the gathering or production area and ending at the point
where the interstate pipeline delivers gas into the [local distribution company’s]
distribution facility (commonly known as the ‘city gate’).”           Id.   We also
acknowledged that under federal law, “the transportation of natural gas by an
interstate pipeline directly to an end user constitutes transportation in interstate
commerce, not local distribution.” Id. at ¶ 63. We therefore rejected Columbia’s
constitutional claim because it could not make a threshold showing that interstate-
pipeline companies and local distribution companies are similarly situated or
compete for the same customers. Id. at ¶ 58, 65.




                                          8
                                January Term, 2020




       {¶ 19} Rockies relies on the above language from Columbia Gas to argue
that its deliveries to other interstate pipelines, to local distribution companies, and
to an industrial end user all constitute interstate commerce and thus fall under the
interstate-business exclusion in R.C. 5727.33(B)(1). But the federal authorities we
invoked in Columbia Gas addressed whether a matter fell under FERC’s exclusive
jurisdiction under the Natural Gas Act. See Columbia Gas, 117 Ohio St.3d 122,
2008-Ohio-511, 882 N.E.2d 400, at ¶ 62, citing Midwestern Gas Transm. Co., 87
F.E.R.C. ¶ 61169, 61674 (May 12, 1999) (concluding that FERC has exclusive
jurisdiction over the construction and operation of a proposed interstate
transportation facility); id. at ¶ 63, citing Oklahoma Natural Gas Co. v. Fed. Energy
Regulatory Comm., 906 F.2d 708, 710 (C.A.D.C.1990) (affirming FERC
jurisdiction over transportation of gas from interstate pipeline to single end user).
A determination that an activity falls within FERC’s regulatory authority as a
matter of interstate commerce does not foreclose every other form of state
regulation affecting that activity. See Oneok, Inc. v. Learjet, Inc., 575 U.S. 373,
135 S.Ct. 1591, 1600, 191 L.Ed.2d 511 (2015) (FERC’s exclusive jurisdiction over
interstate-pipeline wholesale rates did not preempt state antitrust law and would not
foreclose state enforcement of tax laws). Our holding in Columbia Gas does not
preclude the tax commissioner here from taxing the intrastate business receipts of
an interstate pipeline under R.C. 5727.33.
       {¶ 20} Rockies also argues that the tax commissioner lacked any basis to
tax its deliveries to hub pooling points because they are virtual locations and not
physical facilities. But R.C. 5727.33 does not impose a tax on the act of making a
physical delivery in Ohio. It imposes a tax on “receipts actually received from all
sources for business done within this state.” R.C. 5727.33(A). As reported by
Rockies, its deliveries to hub pooling points in Ohio generated $24,664 in business
receipts in tax year 2015. Whether characterized as virtual or physical deliveries,




                                          9
                             SUPREME COURT OF OHIO




these transactions constitute business within the state that generated taxable
receipts.
        {¶ 21} We adhere to the unambiguous language enacted by the General
Assembly and conclude that Rockies has not met its burden of showing that its
receipts fall under the exclusion in R.C. 5727.33(B)(1) as “receipts derived wholly
from interstate business.” We find that the gross receipts earned by Rockies for tax
year 2015 from transporting natural gas solely within Ohio constitute taxable
receipts “actually received from all sources for business done within this state,”
R.C. 5727.33(A).
                              The Commerce Clause
        {¶ 22} Rockies argues in its second proposition of law that if we decide that
the interstate-business exclusion does not apply, then imposing the tax under these
circumstances would violate the Commerce Clause. We disagree.
        {¶ 23} The United States Constitution empowers Congress “[t]o regulate
Commerce * * * among the several States.” Article I, Section 8, cl. 3. Although
written as an affirmative grant of power to Congress, the Commerce Clause has
long been understood to “prohibit[] state laws that unduly restrict interstate
commerce.” Tennessee Wine & Spirits Retailers Assn. v. Thomas, __ U.S. __, 139
S.Ct. 2449, 2459, 204 L.Ed.2d 801 (2019).          This “dormant” feature of the
Commerce Clause serves as a bulwark against “protectionist measures” enacted by
the States “and thus preserves a national market for goods and services.” Id.
        {¶ 24} In Complete Auto Transit, Inc. v. Brady, the United States Supreme
Court articulated the standard for analyzing the validity of a state tax under the
Commerce Clause. 430 U.S. 274, 279, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977).
Under this four-part test, a tax is valid if it is “applied to an activity with a
substantial nexus with the taxing State, is fairly apportioned, does not discriminate
against interstate commerce, and is fairly related to the services provided by the
State.” Id. Rockies challenges the substantial-nexus prong.




                                         10
                                 January Term, 2020




        {¶ 25} The substantial-nexus inquiry “simply asks whether the tax applies
to an activity with a substantial nexus with the taxing State.” South Dakota v.
Wayfair, Inc., __ U.S. __, 138 S.Ct. 2080, 2099, 201 L.Ed.2d 403 (2018),
overruling Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d
91 (1992) and Natl. Bellas Hess, Inc. v. Dept. of Revenue of Illinois, 386 U.S. 753,
87 S.Ct. 1389, 18 L.Ed.2d 505 (1967). When a taxpayer “ ‘avails itself of the
substantial privilege of carrying on business,’ ” in the state, substantial nexus is
established. Id., quoting Polar Tankers, Inc. v. Valdez, 557 U.S. 1, 11, 129 S.Ct.
2277, 174 L.Ed.2d 1 (2009).
        {¶ 26} In Crutchfield Corp. v. Testa, we addressed the concept of
substantial nexus in the context of Ohio’s commercial-activity tax, which is a form
of business-privilege tax measured by gross receipts. 151 Ohio St.3d 278, 2016-
Ohio-7760, 88 N.E.3d 900. We held that “physical presence in the state may
furnish a sufficient basis for finding a substantial nexus.” Id. at ¶ 42. We then went
on to hold that physical presence is not necessary if the “privilege tax is imposed
with an adequate quantitative standard that ensures that the taxpayer’s nexus with
the state is substantial.” Id.
        {¶ 27} The first part of our holding from Crutchfield decides the
constitutional question at issue here: Rockies has substantial nexus with Ohio based
on its physical presence within the state. That physical presence manifests itself in
the interstate pipeline that Rockies installed across the width of Ohio—a pipeline
that enables it to transport natural gas for its customers.       By installing and
transporting natural gas through that pipeline, Rockies has availed itself of the
privilege of carrying on business in Ohio.
        {¶ 28} Rockies argues that “[t]he application of a state tax on interstate
commerce cannot depend upon which interstate route the goods take.” But in
concentrating on the movement of the gas, Rockies has ignored its Ohio-sited




                                         11
                               SUPREME COURT OF OHIO




pipeline.   Rockies’ theory, if accepted, would seemingly defeat a finding of
substantial nexus in every state in which its pipeline is located.
       {¶ 29} Big Boy’s Toy, Ltd. v. Limbach, 64 Ohio St.3d 448, 597 N.E.2d 76
(1992), a case that Rockies cites, does not require a different result. Big Boy’s Toy
was a use-tax case in which we reversed the BTA for applying the wrong
substantial-nexus standard in evaluating the taxability of transient property,
namely, a boat. This case, in contrast, does not involve the tax commissioner’s
attempt to tax the use of transient property. The public-utilities excise tax is a form
of privilege tax, R.C. 5727.30(A), and the measure of that privilege stems from
Rockies’ gross receipts, R.C. 5727.33(A). To be sure, Rockies earns its gross
receipts from transporting gas, which is a transient commodity; however, the gas
itself is not being taxed. See Ohio Grocers Assn. v. Levin, 123 Ohio St.3d 303,
2009-Ohio-4872, 916 N.E.2d 446, ¶ 17 (“we have long recognized a distinction
between a tax upon a certain factor and a tax upon a privilege measured by that
factor” [emphasis deleted]).
                                  CONCLUSION
       {¶ 30} For the foregoing reasons, we affirm the BTA’s decision and
conclude that Rockies’ gross receipts for tax year 2015 from the transportation of
natural gas within the state of Ohio are not excluded from taxation under
R.C. 5727.33(B)(1) as “receipts derived wholly from interstate business.” We also
hold that taxation on such gross receipts does not violate the Commerce Clause of
the United States Constitution.
                                                                     Decision affirmed.
       O’CONNOR, C.J., and DONNELLY and STEWART, JJ., concur.
       DEWINE, J., concurs, with an opinion joined by KENNEDY and FISCHER, JJ.
                                _________________




                                          12
                                 January Term, 2020




       DEWINE, J., concurring.
       {¶ 31} I agree with the majority that R.C. 5727.33(B)(1) allows the tax
commissioner to collect taxes on gas transport with starting and ending points in
Ohio. But my analysis differs.
       {¶ 32} At issue here is the proper interpretation of the exemption in
R.C. 5727.33(B)(1), which excludes from taxation “[a]ll receipts derived wholly
from interstate business.” The statute was adopted in 1910 and the majority rightly
looks to the meaning of the provision at that time. See H.B. No. 68, 101 Ohio Laws
399. But it reaches the conclusion that the disputed receipts are taxable based on a
plain-meaning analysis guided by definitions contained in period dictionaries. In
many cases, that may be a sensible way to undertake the inquiry. But that approach
sometimes fails to adequately situate a phrase in the relevant historical and legal
context. See In re Sinclair, 870 F.2d 1340, 1342 (7th Cir.1989) (Easterbrook, J.).
And in this case that context is relevant to the statute’s meaning. As I explain, the
phrase “interstate business” is best understood to have a technical legal meaning
that is responsive to a specific set of legal issues that were prominent at the time
the statute was passed. Still, I think the majority gets to the right result because
once the phrase is situated in its historical and legal context, it is evident that the
disputed receipts are properly subject to the tax.
       {¶ 33} What was the relevant historical and legal context? In a series of
cases from the end of the nineteenth and the beginning of the twentieth century, the
United States Supreme Court held that the Commerce Clause limited a state’s
authority to tax rail and pipeline companies transporting goods in interstate
commerce. As will be apparent shortly, to call the rules from that era arcane would
be something of an understatement—and by the end of the 1970s, the court had
rejected the entire approach. See Complete Auto Transit, Inc. v. Brady, 430 U.S.
274, 289, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). But in 1910 that rather arcane




                                          13
                             SUPREME COURT OF OHIO




approach was alive and well, and it is against that backdrop that the exclusion in
R.C. 5727.33(B)(1) must be understood.
       {¶ 34} The basic principles were fairly straightforward. At the end of the
nineteenth century, it was well established that states could not tax interstate
commerce directly, though they could tax the property of interstate carriers within
the state. See Galveston, Harrisburg, & San Antonio Ry. Co. v. Texas, 210 U.S.
217, 225, 28 S.Ct. 638, 52 L.Ed. 1031 (1908). Of course, states had a free hand in
taxing wholly intrastate commerce directly. Ratterman v. W. Union Tel. Co., 127
U.S. 411, 425, 8 S.Ct. 1127, 32 L.Ed. 229 (1888).
       {¶ 35} But the principle that states could tax the property of interstate
carriers though not interstate commerce itself raised the question of how to value
that property. And around the turn of the century, the court allowed states to impose
a tax based on the percentage of receipts in proportion to the percentage of a route
that was within the taxing state, even if the route crossed state lines. Maine v.
Grand Trunk Ry. Co., 142 U.S. 217, 228-229, 12 S.Ct. 121, 35 L.Ed. 994 (1891).
But such taxes based on the gross receipts of interstate transport were upheld only
insofar as they truly functioned as a proxy for taxing the value of the privilege of
doing business within the state; states could not tax interstate commerce directly.
Grand Trunk at 229; see also United States Express Co. v. Minnesota, 223 U.S.
335, 347, 32 S.Ct. 211, 56 L.Ed. 459 (1912).
       {¶ 36} Confronted with this legal backdrop, the Ohio legislature enacted the
disputed exclusion in 1910. See Ohio Tax Cases, 232 U.S. 576, 591-592, 34 S.Ct.
372, 58 L.Ed. 737 (1914). As recounted by the Ohio Tax Cases court, the exclusion
was passed in response to the United States Supreme Court’s 1908 Galveston
decision.   Id. at 592.    The decision in Galveston led to doubts about the
constitutionality of Ohio’s tax scheme, which included a tax calculated by first
determining a company’s average gross receipts per mile of line and then
multiplying that number by the number of miles in Ohio. Id.; see also Galveston




                                         14
                                January Term, 2020




at 227-228.    So, “anticipat[ing] that the [prior] law would probably be held
unconstitutional,” the General Assembly enacted the current version of the
exclusion limiting the tax to what constitutionally could be taxed: earnings from
intrastate transport. Ohio Tax Cases at 592.
       {¶ 37} Given this history, in 1910, it would have been plain to all concerned
that for purposes of the exemption, “interstate business” had a technical legal
meaning informed by the Commerce Clause jurisprudence of the era. Thus, in Ohio
Tax Cases, the United States Supreme Court construed the phrase “excluding
therefrom all earnings derived wholly from interstate business” to mean that the tax
applied only to earnings from intrastate commerce that the state could tax without
offending the prevailing understanding of the Commerce Clause. Id. at 591.
       {¶ 38} Indeed, this is the approach that Rockies asks us to take. They argue
that at the time the statute was passed, “interstate business” would have been
understood to include intrastate segments of the transport of goods otherwise
moving in interstate commerce. In other words, Rockies invites us to treat its
transport of gas wholly within Ohio as interstate business because that gas may
have originated in another state or ultimately be destined for another state.
       {¶ 39} This line of argument presents something of a puzzle (and also
shows why the statute is not as unambiguous as the majority presumes). Consider
a case in which a company transports goods from Cincinnati to Cleveland and
another company picks up the goods in Cleveland and takes them to Pittsburgh. Is
the transfer from Cincinnati to Cleveland an intrastate transfer because the starting
and ending points for the contract of delivery are within the same state? Or is it
better to conceive of that trip as a portion of an interstate transfer of goods because
the goods are ultimately destined to move across state lines? In short, the puzzle is
how to determine the starting and ending points for the transport of goods so that
one can decide whether that transport is interstate or intrastate.




                                          15
                              SUPREME COURT OF OHIO




        {¶ 40} Suffice it to say, courts from the era were aware of this puzzle and
they had a partial solution—but not the one that Rockies argues for here. The
seminal case on this issue is Coe v. Errol, 116 U.S. 517, 6 S.Ct. 475, 29 L.Ed. 715
(1886). There, the court had to assess whether logs sent from New Hampshire
forests to a New Hampshire way station were taxable, notwithstanding the fact that
they would be later sent on to Maine. The court held that they were taxable.
Interstate commerce, the court explained, commenced when the goods “are
committed to the common carrier for transportation out of the State to the State of
their destination, or have started on their ultimate passage to that State.” Id. at 525.
Until the goods are actually put into the custody of a carrier destined for some out-
of-state location, they are still subject to state taxation, because until that time they
“may never be exported.” Id. at 526.
        {¶ 41} The relevant principles were further elaborated in 1907 when the
United States Supreme Court was asked to decide whether goods transferred from
Texarkana, Texas, to Goldthwaite, Texas, were in interstate commerce because
before arriving in Texarkana, the goods had been shipped from Hudson, South
Dakota. Gulf, Colorado, & Santa Fe Ry. Co. v. Texas, 204 U.S. 403, 411, 27 S.Ct.
360, 51 L.Ed. 540 (1907). The court concluded that this segment of the shipment
was intrastate commerce, despite the origin of the goods, because the goods had
been shipped from South Dakota to Texarkana under one contract of shipment and
from Texarkana to Goldthwaite under a separate contract of shipment. Id. at 412-
413. Thus, the court adopted the principle that the contract of shipment could be
used to determine the starting and ending point for assessing whether a transfer of
goods is interstate or intrastate. Id. at 413. And the court emphasized that the
further intentions of the owner of the goods were immaterial. Id.
        {¶ 42} The principle that can be derived from these cases is that as it would
have been understood in 1910, goods were in intrastate commerce, and therefore
subject to taxation by the state, if the contract for transport was between two points




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in the same state. That the goods might be sent out of state after reaching the
destination under the contract doesn’t change that fact. Applied here, that means
that Rockies is subject to the tax for any shipments with starting and ending points
within Ohio, regardless of the further movement of the goods after they leave
Rockies’ pipeline. What the tax commissioner taxed was only those contracts of
shipment with starting and ending points in Ohio. Hence, I agree with the majority
that the tax imposed comported with the statute.
       {¶ 43} Thus, on the first question presented—whether the transactions at
issue are exempt from taxation under R.C. 5727.33(B)(1)—I agree with the
majority that the statutory exclusion does not exempt the transactions at issue from
taxation, but my reasoning differs. The second question presented asks whether the
imposition of such a tax violates the Commerce Clause of the United States
Constitution. On this question, I agree both with the majority’s conclusion that the
imposition of the tax does not violate the Commerce Clause and also with its
reasoning.
       KENNEDY and FISCHER, JJ., concur in the foregoing opinion.
                               _________________
       Taft Stettinius & Hollister, L.L.P., and W. Stuart Dornette, J. Donald
Mottley, and Philip D. Williamson; MBGallTax, and Maryann B. Gall; and Van
Ness Feldman, L.L.P., and Paul Korman, for appellant.
       Dave Yost, Attorney General, and Benjamin M. Flowers, State Solicitor,
Zachery P. Keller, Deputy Solicitor, and Daniel W. Fausey and Zachary J.
Stackhouse, Assistant Attorneys General, for appellee.
                               _________________




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