APPEAL FROM THE SUPREME COURT OF NEW MEXICO.
Stewart, J., delivered the opinion of the Court, in which Burger, C. J., and Brennan, Marshall, Blackmun, Powell, and Stevens, JJ., joined. Rehnquist, J., filed an opinion concurring in the judgment, in which White, J., joined, post, p. 151.
MR. JUSTICE STEWART delivered the opinion of the Court.
New Mexico has imposed a tax on the privilege of generating electricity within its borders. The question in this case is whether that tax conflicts with federal law, statutory or constitutional.
The Four Corners power plants, located in New Mexico's desert northwest, are owned by the appellants, five public utilities companies.*fn1 Most of the electricity generated at the plants is ultimately sold to out-of-state consumers.*fn2 New
Mexico imposes a 4% gross receipts tax on retail sellers of electricity,*fn3 but since the bulk of the appellants' sales are made to consumers in other States, they do not incur significant liability for this tax. In 1975, New Mexico enacted the Electrical Energy Tax Act, the law at issue in this case.*fn4 That Act imposes a tax on the privilege of generating electricity at the rate of 4/10 of a mill on each net kilowatt hour of electricity generated. This is roughly equivalent to a 2% tax on the retail value of the electricity. The tax is imposed on all companies generating electricity within the State. Section 9 of the Act, however, provides that this electrical energy tax may be fully credited against the company's gross receipts tax liability.
The Act and the regulations implementing it insure that the electrical generating company will receive full credit for the
tax even if it does not itself make retail sales of electricity. This result is accomplished by requiring the generating company to assign its "potential credit" to the retailer, who in turn is required to reimburse the generating company for the value of this credit.*fn5 The consequence is that a generating
company's 2% tax is completely offset by the credit against the 4% retail sales tax when its electricity is sold within New Mexico. But to the extent that the electricity generated in New Mexico is not sold at retail in the State, there is no gross receipts tax liability against which to offset the electrical energy tax liability of the generating company.
In 1976, the State of Arizona, as a consumer of electricity and parens patriae for its citizens, sought to invoke this Court's original jurisdiction by a motion for leave to file a bill of complaint against New Mexico, asking for a declaratory judgment invalidating this New Mexico tax. The litigation now before us had already been initiated in the New Mexico courts by the present appellants, seeking essentially the same relief. This Court denied Arizona leave to file its complaint, concluding:
"[The] pending state-court action provides an appropriate forum in which the issues tendered here may be litigated. If on appeal the New Mexico Supreme Court should hold the electrical energy tax unconstitutional, Arizona will have been vindicated. If, on the other hand, the tax is held to be constitutional, the issues raised now may be brought to this Court by way of direct appeal under 28 U. S. C. § 1257 (2)." Arizona v. New Mexico, 425 U.S. 794, 797.
One of the alternative scenarios foreseen in our 1976 opinion has now eventuated. The New Mexico Supreme Court has upheld the validity of this energy tax against federal statutory and constitutional attacks, Arizona Public Serv. Co. v. O'Chesky, 91 N. M. 485, 576 P. 2d 291, and the issues have been brought to ...