[House Report 109-656]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-656

======================================================================



 
      NONDISCRIMINATORY TAXATION OF NATURAL GAS PIPELINE PROPERTY

                                _______
                                

 September 14, 2006.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 1369]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1369) to prevent certain discriminatory taxation of 
natural gas pipeline property, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                          PURPOSE AND SUMMARY

    H.R. 1369 prohibits certain types of discriminatory 
taxation of natural gas pipeline property by States and 
localities to the extent that such taxation interferes with 
interstate commerce. Specifically, H.R. 1369 prohibits States 
and political subdivisions thereof from imposing a higher ad 
valorem tax burden \1\ on interstate natural gas pipeline 
property than that placed on other commercial or industrial 
property. It also grants jurisdiction to the U.S. District 
Courts to hear claims of discriminatory taxation and provide 
relief to parties in the event discriminatory taxation is 
found.
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    \1\ An ad valorem tax is a tax levied on property in proportion to 
the valued determined by an assessment or appraisal. This tax is 
usually levied by States, counties and cities on different types of 
real estate or personal property.
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                BACKGROUND AND NEED FOR THE LEGISLATION

    H.R. 1369 was introduced by Representative Chris Cannon (R-
UT) on March 17, 2005. Legislation similar to H.R. 1369 was 
introduced and reported favorably by the Subcommittee on 
Monopolies and Commercial Law of the House Committee on the 
Judiciary in the 99th and 100th Congresses.\2\ In the 99th 
Congress, provisions of the bill were passed by the House of 
Representatives as part of the 1985 Budget Reconciliation 
Act,\3\ but they were dropped during House-Senate conference 
negotiations. In the 100th Congress, the legislation won a 
majority of votes on the House floor but failed to receive the 
two-thirds vote required under suspension of the rules.\4\ The 
legislation was reintroduced in the 101st Congress,\5\ and the 
Subcommittee held a hearing, but there was no further 
consideration of the bill prior to the conclusion of that 
Congress. In the 108th Congress, Representative John Carter (R-
TX) introduced similar legislation \6\ to prohibit certain 
discriminatory taxation of natural gas pipeline property. The 
bill was referred to the Subcommittee on Commercial and 
Administrative Law, but no further action was taken.
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    \2\ H.R. 2092, 99th Cong. (1985) (introduced by Representative 
James Howard (D-NJ)). The provisions dealing with the interstate 
natural gas pipeline property taxation were removed before H.R. 2092 
became Public Law No. 99-516); H.R. 2953, 100th Cong. (1987) 
(introduced by Representative William J. Hughes (D-NJ)).
    \3\ Consolidated Omnibus Budget Reconciliation Act of 1985, H.R. 
3128, 99th Cong. (1985).
    \4\ 134 Cong. Rec. H 9775 (daily ed. Oct. 6, 1988).
    \5\ H.R. 2378, 101st Cong. (1989) (Introduced by Representative 
Lawrence Smith (D-FL)).
    \6\ H.R. 4726, 108th Cong. (2004).
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Treatment of discriminatory taxation

    Currently there is no Federal prohibition against 
discriminatory taxation of property owned by interstate natural 
gas pipeline companies despite the fact that Congress has 
prohibited such treatment of property owned by other industries 
operating in interstate commerce. For example, Congress passed 
the Railroad Revitalization and Regulatory Reform Act of 
1976,\7\ which, in part, prohibited States from imposing 
discriminatory assessments on the property owned by railroads 
and authorized the railroad industry to seek injunctive relief 
in Federal court against such discriminatory State assessments. 
Currently, a State may not assess rail transportation 
property,\8\ motor carrier transportation property,\9\ or air 
carrier transportation property \10\ at a value that has a 
higher ratio to the true market value of the property than that 
of other commercial and industrial property in the same 
jurisdiction.
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    \7\ Pub. L. No. 94-210, 90 Stat. 31 ( 1976) (codified, as amended, 
at 45 U.S.C. ch. 17 (2000)).
    \8\ 49 U.S.C. Sec. 11501 (2000).
    \9\ Id. at Sec. 14502.
    \10\ Id. at Sec. 40116.
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    Natural gas pipelines lack this Federal protection against 
discriminatory taxation. Discriminatory taxation by a State, 
subdivision of a State, authority acting for a State or 
subdivision of a State, or any other taxing authority 
(including a taxing jurisdiction and a taxing district) can 
arise in a variety of ways. One approach consists of assessing 
the pipeline property at a substantially higher proportion of 
true market value than other commercial or industrial property. 
Another method consists of changing the treatment of personal 
and real pipeline property by excluding personal property from 
taxation for general commercial and industrial taxation but 
including such property for pipeline taxation. A third way 
involves subjecting the pipeline property to a higher tax rate 
than that applied to other commercial and industrial property.
    This discriminatory taxation is a form of tax exportation 
by States. When a State taxes property of an interstate natural 
gas pipeline, that tax is then included in the rates charged by 
the pipeline for transportation of natural gas, as authorized 
by the Federal Energy Regulatory Commission.\11\ This cost of 
transportation is then passed along to consumers in the form of 
higher charges for natural gas. Essentially, consumers within 
the State and throughout the country wind up paying these 
discriminatory taxes. Also, the nature of these taxes appears 
to have a regressive impact, i.e. it affects poor consumers to 
a much greater degree than consumers with higher incomes.\12\
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    \11\ Ad valorem taxes are incorporated as part of ``other taxes'', 
which are subsequently included in the ``cost of service'' calculation 
used to derive rates for the natural gas pipelines. See 18 C.F.R. pt. 
154 & 201.
    \12\ To Prevent Certain Discriminatory Taxation of Interstate 
Natural Gas Pipeline Property: Hearing on H.R. 1369 Before the Subcomm. 
on Commercial and Administrative Law of the H. Comm. on the Judiciary, 
109th Cong. 38, 47 (2005) (statement of Veronique de Rugy, Ph.D., 
Research Scholar, American Enterprise Institute for Public Policy 
Research).
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    Furthermore, discriminatory taxation by States on natural 
gas pipeline property candiscourage investment in new 
pipelines, especially if the discrimination involves the disparate 
treatment of natural gas pipeline property differently from other 
commercial and industrial property.\13\ Discouraging investment can 
create delays in the construction of necessary infrastructure for the 
transportation of natural gas. A study by The INGAA Foundation, Inc., a 
foundation formed by the Interstate Natural Gas Association of America, 
determined that a two-year delay in building natural gas infrastructure 
could cost consumers in the United States more than $200 billion by 
2020.\14\
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    \13\ Id. at 15 (statement of Veronique de Rugy, Ph.D.); see also 
Kevin Kemper, Firm Seeking Tax Formula Changes to Fuel $350 M Gas 
Pipeline Project, COLUMBUS BUSINESS FIRST, June 2, 2006, at A6 
(explaining the effects of the excessive taxation of pipeline property 
on a company trying to build an additional pipeline in Ohio to increase 
competition).
    \14\ Energy and Environmental Analysis, Inc., An Updated Assessment 
of Pipeline and Storage Infrastructure for the North American Gas 
Market: Adverse Consequences of Delays in the Construction of Natural 
Gas Infrastructure 10 (July 2004) available at http://www.ingaa.org/
Documents/Foundation%20Studies/Final%20Capacity%20Update.pdf. This cost 
is specifically for projects already identified, but not yet under 
construction. As our Nation begins to use more natural gas, this demand 
must be transported some way. As the demand increases, the cost will 
increase, specifically if there is a disincentive to build additional 
infrastructure.
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Jurisdiction for relief

    Under current law, rail, motor carrier and air carrier 
transportation taxpayers may file an action alleging unlawful 
discriminatory taxation in Federal court.\15\ To prevail, the 
taxpayer must establish that other commercial and industrial 
taxpayers are assessed at lower rates. The natural gas pipeline 
industry, however, is relegated to a lengthy, expensive, 
laborious and often uncertain State appeal process. The Tax 
Injunction Act \16\ prohibits Federal courts from enjoining, 
spending or restraining taxes or levies under State law if 
there is a plain, speedy and efficient remedy, unless the 
Federal courts have specifically been authorized to hear such 
matters by Federal law. The courts have interpreted this 
statute to bar Federal intervention in a State tax matter if 
there is any remedy, either pre-deprivation or post-
deprivation, available under State law.\17\ In addition, 
litigants are often denied access to Federal courts in matters 
of State taxation based upon the principle of comity.\18\ Last 
year, the Subcommittee on Commercial and Administrative Law 
received testimony from witnesses that emphasized the lengthy, 
protracted and unwieldy process for appealing tax decisions in 
the State courts.\19\
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    \15\ 49 U.S.C. Sec. Sec. 11501, 14502 & 40116 (2000).
    \16\ 28 U.S.C. Sec. 1341 (2000).
    \17\ See J&M Autobody v. Gavin, 27 F. Supp. 2d 115 (D. Conn. 1989). 
See generally Rosewell v. La Salle National Bank 450 U.S. 503 (1981); 
Capitol Industries-EMI, Inc. v. Bennett, 681 F.2d 1107 (9th Cir. 1982); 
Axelrod v. Earhart, 565 F. Supp. 549 (N.D. Ill. 1983).
    \18\ Under the principle of comity the courts of one State or 
jurisdiction generally give effect to the laws of another jurisdiction 
based on mutual respect and deference. BLACK'S LAW DICTIONARY 267 (6th 
ed. 1990).
    \19\ To Prevent Certain Discriminatory Taxation of Interstate 
Natural Gas Pipeline Property: Hearing on H.R. 1369 Before the Subcomm. 
on Commercial and Administrative Law of the H. Comm. on the Judiciary, 
109th Cong. 7-11 (2005) (statement of Mark C. Schroeder, Vice President 
and General Counsel, CenterPoint Energy, Inc. Gas Pipeline Group).
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                                HEARINGS

    The Subcommittee on Commercial and Administrative Law 
conducted a hearing on H.R. 1369 on October 6, 2005. Testimony 
was received from the following witnesses: Veronique de Rugy, 
Ph.D., Research Fellow at the American Enterprise Institute for 
Public Policy Research; Mark Schroeder, Vice-President and 
General Counsel for CenterPoint Energy Gas Transmission 
Company; Harley Duncan, Executive Director of the Federation of 
Tax Administrators; and Laurence Garrett, Senior Counsel for El 
Paso Company, on behalf of the Interstate Natural Gas 
Association of America.

                        COMMITTEE CONSIDERATION

    On June 15, 2006, the Subcommittee on Commercial and 
Administrative Law met in open session and ordered favorably 
reported the bill, H.R. 1369, by a voice vote, a quorum being 
present. On July 12, 2006, the Committee met in open session 
and ordered favorably reported the bill H.R. 1369, by voice 
vote, a quorum being present.

                         VOTE OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee notes that there 
were no recorded votes during the Committee's consideration of 
H.R. 1369.

                      COMMITTEE OVERSIGHT FINDINGS

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               NEW BUDGET AUTHORITY AND TAX EXPENDITURES

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 1369, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                                     July 19, 2006.
Hon. F. James Sensenbrenner, Jr.,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1369, a bill to 
prevent certain discriminatory taxation of natural gas pipeline 
property.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Lisa Ramirez-
Branum (for the state and local impact) and Barbara Edwards 
(for federal revenues).
            Sincerely,
                                          Donald B. Marron,
                                                   Acting Director.
    Enclosure.

H.R. 1369--A bill to prevent certain discriminatory taxation of natural 
        gas pipeline property

    Summary: H.R. 1369 would prohibit state, local, and tribal 
governments from imposing taxes that discriminate against the 
property of natural gas pipelines.
    CBO estimates that enacting H.R. 1369 would increase 
federal revenues by $45 million in 2007, by $214 million over 
the 2007-2011 period, and by $371 million over the 2007-2016 
period. The bill would have no other impacts on the federal 
budget.
    By prohibiting state, local, and tribal governments from 
levying discriminatory taxes on the property of natural gas 
pipelines, the bill would impose intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). CBO 
estimates that those governments initially would lose revenues 
that exceed the threshold established in UMRA for 
intergovernmental mandates ($64 million in 2006, adjusted 
annually for inflation). Over time, we expect those governments 
likely would change their tax policies to offset at least some 
of those losses.
    This bill contains no new private-sector mandates as 
defined in UMRA.
    Estimated effect on the Federal Government: The estimated 
budgetary impact of H.R. 1369 is shown in the following table.

----------------------------------------------------------------------------------------------------------------
                                                     By fiscal year, in millions of dollars--
                                 -------------------------------------------------------------------------------
                                   2007    2008    2009    2010    2011    2012    2013    2014    2015    2016
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Estimated revenues..............      45      51      47      39      33      32      32      31      31      31
----------------------------------------------------------------------------------------------------------------

    CBO expects that enacting H.R. 1369 would reduce payments 
of state and local property taxes by corporations. These lower 
payments, would, in turn, reduce deductions made by 
corporations for federal income taxes and raise taxable income. 
State and local governments are expected to adjust their 
finances as a result of these lost revenues. These adjustments 
would likely be a combination of reduced spending and higher 
taxes and fees--both deductible and non-deductible. This 
response by state and local governments would mute, but not 
eliminate, the revenue gain to the federal government. CBO 
estimates that, on balance, H.R. 1369 would increase federal 
revenues by $45 million in 2007, by $214 million over the 2007-
2011 period, and by $371 million over the 2007-2016 period.
    Intergovernmental mandates contained in the bill: H.R. 1369 
would prohibit state, local, and tribal governments from 
imposing taxes that discriminate against the property of 
natural gas pipelines. Specifically, the bill would prohibit 
those governments from:
           Assessing the value of property owned by 
        pipelines at ratios, relative to true market value, 
        that are higher than the ratio for other commercial and 
        industrial property in the same jurisdiction;
           Setting tax rates for pipeline properties 
        that are higher than the rates applied to other 
        commercial or industrial properties in the same 
        jurisdiction; or
           Imposing any other discriminatory tax on 
        natural gas pipelines that provide transportation or 
        storage of natural gas.

Those prohibitions constitute intergovernmental mandates as 
defined in UMRA.
    The bill's application to tribal governments is uncertain. 
Without specific language to exclude those governments from 
complying with the mandates contained in the bill, however, CBO 
assumes that they would be required to comply.
    Estimated direct costs of mandates to state and local 
governments: Currently as many as 15 states and their local 
jurisdictions, and several tribal governments, engage in 
practices that would be prohibited by this bill. In total, 
those jurisdictions collect a total of nearly $500 million 
annually from pipeline property. CBO estimates more than $250 
million of those collections result from tax policies that 
would be prohibited by the bill, amounts that would be lost in 
the short run if this bill is enacted. A significant portion of 
those revenues are collected by city and county governments 
including local school districts.
    Over time, we expect that these governments would change 
their tax policies to mitigate at least some, if not all, of 
those losses. Such changes would take time to implement, 
however. On balance, we estimate that losses in the first year 
after enactment likely would exceed the threshold established 
in UMRA for intergovernmental mandates ($64 million in 2006, 
adjusted annually for inflation).
    Basis of estimate for intergovernmental mandates costs: CBO 
relied on information from a variety of sources to prepare this 
estimate. Using data from states, the Federation of Tax 
Administrators, the National Governors Association, tribal 
organizations, and industry sources, CBO calculated the taxes 
currently collected from the pipeline industry (as noted above, 
about $500 million) and estimated potential losses ($250 
million) based on current tax policies in the states most 
likely to be affected by the bill.
    There are several state tax practices that would no longer 
be allowed under H.R. 1369, resulting in a reduction in 
property taxes currently levied on natural gas pipeline. Ten 
states, for example, have statutes that authorize the 
differential classification of property for the purpose of 
establishing assessment values and tax rates. Montana 
classifies property into 13 classes, each of which has 
different assessment and tax rates. As a result of this bill, 
Montana expects that they would have to reclassify pipeline 
property, which is currently in class 9 (public utilities) to 
class 12 (railroads and airline property), with an estimated 
decrease in annual property taxes collections totaling $24 
million. Other states, such as Ohio, would no longer be able to 
tax such items as the tangible personal property of pipeline 
companies. Ohio estimates that this prohibition would result in 
a reduction of annual property tax collections totaling $46 
million.
    How quickly state, local, and tribal governments would be 
able to mitigate losses would depend on how quickly they could 
enact legislative or administrative changes to their tax 
policies. CBO estimates that such changes would take at least 
several months to implement and that net losses to states in at 
least the first year after the bill's enactment would exceed 
the threshold for intergovernmental mandates.
    Estimated impact on the private sector: The bill contains 
no new private-sector mandates as defined in UMRA.
    Estimate prepared by: Impact on state, local, and tribal 
governments: Lisa Ramirez-Branum; Federal revenues: Barbara 
Edwards; Impact on the private sector: Craig Cammarata.
    Estimate approved by: Pete H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                    PERFORMANCE GOALS AND OBJECTIVES

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
1369, protects consumers of natural gas by requiring that 
States not impose higher taxes on interstate natural gas 
pipelines than they do for other types of commercial or 
industrial property in the State. This bill is intended to 
prohibit the discriminatory taxation of natural gas pipeline 
property to the extent the tax interferes with interstate 
commerce.

                   CONSTITUTIONAL AUTHORITY STATEMENT

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in the Fourteenth Amendment and article I, 
section 8 of the Constitution.

               SECTION-BY-SECTION ANALYSIS AND DISCUSSION

    The following discussion describes the bill as reported by 
the Committee.

Section 1. Limitation on discriminatory taxation of natural gas 
        pipeline property

    Subsection 1(a) sets forth the operative definitions of the 
Act. These definitions mirror those found in the Railroad 
Revitalization and Regulatory Reform Act of 1976 (49 U.S.C. 
Sec. 11501), with the addition of a definition for public 
utility property and natural gas pipeline property. Natural gas 
pipeline property is defined as all property, real, personal, 
and intangible, owned or used by a natural gas pipeline 
providing transportation or storage of natural gas, subject to 
the jurisdiction of the Federal Energy Regulatory Commission. 
This definition is similar to the definition of rail 
transportation property (as defined in 49 U.S.C. Sec. 11501), 
motor carrier transportation property (as defined in 49 U.S.C. 
Sec. 14502), and air carrier transportation property (as 
defined in 49 U.S.C. Sec. 40116). Public utility property is 
defined as property (excluding natural gas pipeline property) 
solely used for public service purposes and owned or used by an 
entity that performs a public service and is regulated by any 
governmental agency.
    Subsection 1(b) describes four acts that constitute an 
unreasonable burden and discrimination against interstate 
commerce. These acts are:
          (1) assessing natural gas pipeline property at a 
        value that has a higher ratio to its true market value 
        than the ratio used to assess other commercial and 
        industrial property in the same assessment 
        jurisdiction;
          (2) levying or collecting a tax on such higher 
        assessment;
          (3) levying or collecting an ad valorem property tax 
        on natural gas pipeline property at a rate that exceeds 
        the rate applicable to commercial and industrial 
        property in the same assessment jurisdiction; or
          (4) imposing any other tax that discriminates against 
        a natural gas pipeline providing transportation of 
        natural gas subject to the jurisdiction of the Federal 
        Energy Regulatory Commission.
    The provisions apply only to States, subdivisions of 
States, or other entities granted taxing authority by State 
law.

Section 2. Jurisdiction of courts; Relief

    Subsection 2(a) grants jurisdiction to the United States 
Federal courts, concurrent with the jurisdiction of the State 
courts to hear actions seeking relief under Section 1.
    Subsection 2(b) provides specified relief for 
discriminatory taxation of natural gas pipeline property 
claims.

            CHANGES IN EXISTING LAW BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, the Committee notes H.R. 1369 
makes no changes to existing law.
                           MARKUP TRANSCRIPT



                            BUSINESS MEETING

                        WEDNESDAY, JULY 12, 2006

                          House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:45 a.m., in 
Room 2141, Rayburn House Office Building, the Honorable F. 
James Sensenbrenner, Jr. (Chairman of the Committee) presiding.
    Chairman Sensenbrenner. The Committee will be in order. A 
working quorum is present.
    [Intervening business.]
    Chairman Sensenbrenner. The next item on the agenda is the 
adoption of H.R. 1369, to prevent certain discriminatory 
taxation of natural gas pipeline property.
    [The bill, H.R. 1369, follows:]

    
    
    Chairman Sensenbrenner. The Chair recognizes Mr. Cannon 
from Utah, the Chairman of the Subcommittee on Commercial and 
Administrative Law, for a motion.
    Mr. Cannon. Thank you, Mr. Chairman.
    The Subcommittee on Commercial and Administrative Law 
reports favorably the bill H.R. 1369 and moves its favorable 
recommendation to the full House.
    Chairman Sensenbrenner. Without objection, H.R. 1369 will 
be considered as read and open for amendment at any point.
    The Chair recognizes Mr. Cannon for 5 minutes to explain 
the bill.
    Mr. Cannon. Thank you, Mr. Chairman.
    H.R. 1369 has two purposes: first, to prevent States from 
imposing a higher ad valorem tax burden on interstate natural 
gas pipeline property than on other commercial and industrial 
property in the same assessment area; and secondly, to grant 
U.S. District Courts jurisdiction concurrent with State courts 
in order to prevent the imposition of taxes violating this 
proposed law.
    The bill is not a new idea. It has been introduced at least 
twice before in similar bills and had the support of Members 
from both sides of the aisle. The natural gas pipeline industry 
is not the real victim when its property is subject to 
discriminatory taxation. The real victims are the consumers of 
natural gas who are forced to pay what amounts to arbitrarily 
inflated transit taxes to States and localities thousands of 
miles away where they have no representation.
    These discriminatory taxes are included in the rate base 
and are passed on to these consumers. States that impose 
discriminatory taxes are essentially exporting their tax burden 
to the natural gas consumers well outside their State. It is 
important to note that H.R. 1369 does not mandate what State 
tax rates should be, and it does not dictate how the State 
should assess property in their States. It merely requires them 
to treat natural gas pipeline property in a similar way to 
their commercial and industrial property when assessing taxes.
    H.R. 1369 also provides for concurrent Federal 
jurisdiction. It would not remove State court jurisdiction. 
Plaintiffs may still seek redress in State courts if they 
choose, but the Federal courts are available to assure an 
alternative that facilitates and assures uniform compliance.
    I urge my colleagues to support H.R. 1369, and I yield 
back.
    Mr. Berman. Would the gentleman yield for a question?
    Mr. Cannon. I would be happy to yield.
    Mr. Berman. I am curious, hearing your description of the 
bill. What if a State has a split level? It has one level of 
taxation for residential property and a different level of 
taxation for commercial property?
    Mr. Cannon. The way the bill deals with that is that it is 
perfectly acceptable to have different levels or tiers of 
taxation for different kinds of property, but like property 
needs to be assessed in a like manner, so commercial property, 
intrastate pipelines, all need to be taxed at the same rate 
that a pipeline that transits though the State.
    Mr. Berman. Oh, this is discrimination between intrastate 
pipelines and pipelines that go interstate.
    Mr. Cannon. That is ``intra'' and ``inter.''
    Mr. Berman. That is the discrimination you are trying to 
deal with?
    Mr. Cannon. Right. Exactly.
    Ms. Waters. Will the gentleman yield?
    Mr. Cannon. I would be happy to yield to the gentlelady 
from California.
    Ms. Waters. Yes. I am sorry. Who owns the pipelines? Are 
these pipelines owned by companies we would recognize?
    Mr. Cannon. Yes. They are all the national pipeline 
companies.
    Ms. Waters. Such as?
    Mr. Cannon. You have Williams and Company. You have got--
there are a half-dozen or dozen of the major companies that 
have pipelines around the country. So they are the pipelines 
that deliver, gather gas at the well-heads, and deliver it to 
other parts of the country.
    Ms. Waters. Are these pipelines owned by the big companies 
that we normally associate with natural gas?
    Mr. Cannon. Yes, natural gas and oil.
    Ms. Waters. And oil? Thank you.
    Mr. Cannon. That is only natural gas, not oil.
    Mr. Nadler. Would the gentleman yield for a question?
    Mr. Cannon. Yes, I yield to the gentleman from New York.
    Mr. Nadler. Thank you.
    Mr. Cannon, I am not sure I heard your answer correctly to 
the question from the gentleman from California. Did you say 
that what we are trying to get at here is discrimination 
between intrastate and interstate gas lines? As I understand 
the bill, what the bill is trying to get at is discrimination 
against gas lines whether intrastate or interstate, as opposed 
to other types of property.
    Mr. Cannon. It is both things. On the one hand, it is 
discrimination between ``intra'' and ``inter,'' but also 
pipelines within the State, intrastate pipelines need to be 
commercial property and not different.
    Mr. Nadler. If the gentleman will continue to yield, I 
thought the bill said that you cannot have a heavier assessment 
to full value ratio of a gas line as opposed to other types of 
commercial property. That is an interesting bill. I am not sure 
whether I support it or not, but there is a certain rationale 
for that. I don't see how you interpret this bill or that 
statement as dealing between intrastate and interstate.
    Chairman Sensenbrenner. The gentleman's time has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Watt, who is the Ranking Member of the Subcommittee, for 5 
minutes.
    Mr. Watt. Thank you, Mr. Chairman.
    Mr. Chairman, if an entity is subjected to a truly 
discriminatory tax, we should examine ways to eliminate those 
taxes. Having said that, I believe that in general the 
pipelines have not demonstrated a need for this legislation, 
and certainly not in its current form. The primary 
justification they appear to offer is that railroads, motor 
carriers, and airlines have similar protections. Therefore, 
they should have that same treatment.
    In short, the proponents of this bill argue that pipelines 
are being treated differently than some other property 
taxpayers, and that Congress should grant them a favored status 
among all other property taxpayers. The circumstances that 
surround congressional relief to, for example, the railroads, 
however, may be very different than those we face today. The 
railroads were facing bankruptcy. There is no indication that 
the pipelines face the same situation.
    Under today's economic climate, passage of the bill would 
cause the property tax burden to shift from pipelines to other 
taxpayers in a number of States. In some cases, the shifts may 
be substantial, upwards of $35 million in Louisiana and nearly 
$45 million in Kansas. Similar shifts are projected to occur in 
the other Gulf region States devastated by Katrina and Rita 
hurricanes. As those States, Alabama, Mississippi, and 
Louisiana, struggle to rebuild in the aftermath of the 
hurricanes, Congress should not take action that would 
frustrate those goals.
    In addition, I believe that H.R. 1369 will undo State 
constitutional provisions endorsed by the voters in about 10 
States, and will generate litigation seeking relief in a number 
of others. H.R. 1369 will establish a standard for one type of 
taxes, property taxes, but ignore situations in which pipelines 
are the beneficiaries of tax benefits under other taxes in a 
compensatory tax arrangement.
    If the Committee intends to approve the bill, it should be 
amended to remove Section 2 granting jurisdiction over 
controversies arising under the bill to the Federal District 
Courts, and I will be offering an amendment to that effect.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Cannon. Would the gentleman yield?
    Mr. Watt. I yield to the gentleman from Utah.
    Mr. Cannon. Thank you. Just a couple of points here.
    The real problem here is that the bill deals with the 
distinction between gas pipelines and other commercial 
property, whether it is intrastate or interstate. The problem 
that we are having is that States are taxing pipelines that are 
interstate at a much higher rate, and therefore exporting their 
taxes to other States.
    It is true that the pipelines are not in bankruptcy. The 
issue that is compelling this is not the financial pain of the 
companies that don't own, but transport gas. The problem is the 
export of a tax from one State to consumers in other States. We 
have done the same thing, as the gentleman pointed out, for 
railroads. We have also done the same thing for airlines and 
trucking and busing, so this is about the only area of 
interstate transportation that we haven't created the same 
playing ground, the same rules for. Therefore, I----
    Mr. Conyers. Would the gentleman from North Carolina yield 
to me when he finishes?
    Mr. Cannon. Certainly, if I could just finish one other 
point.
    We have done a remarkable amount of good for Louisiana. It 
is absolutely true that Louisiana is the principal taker of 
taxes from places like Michigan and other areas around the 
country, and those are high costs that are being passed on.
    So we will deal, I guess, with the issue of jurisdiction of 
Federal courts at the time Mr. Watt introduces his amendment, 
but I would just like to say that this is not unique, not 
different, and it is an area where we have significant abuse by 
the States and it is appropriate for this Committee's 
jurisdiction----
    Mr. Watt. Reclaiming my time.
    Mr. Cannon. Thank you. I yield.
    Mr. Watt. I yield to Mr. Conyers.
    Mr. Conyers. Could I just ask the gentleman from North 
Carolina, this looks like we are looking for a problem to fix. 
The airlines and the railroads were in bankruptcy. They were in 
desperate condition. The oil and gas companies in the 21st 
century are not at all. I think the Katrina circumstance really 
has to be considered by all the Members.
    Chairman Sensenbrenner. The time of the gentleman has 
expired.
    Without objection, all Members may place opening statements 
in the record at this point.
    Are there amendments? For what purpose does the gentleman 
from California, Mr. Berman, seek recognition?
    Mr. Berman. I move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Berman. I am just having trouble with the concept. 
There is nothing in the bill that says this is about intrastate 
pipelines versus interstate pipelines.
    This is a bill to say you can't tax pipelines at a higher 
rate than you tax other property, and the principle, I guess, 
to say that a State shouldn't be able to decide that is the 
principle that you shouldn't be able to raise costs that 
consumers in other States would have to pay. But if California 
decided it wanted to keep a 1 percent ceiling on residential 
property, on property taxes to total valuation, but raise to 
1.2 percent evaluation of commercial property including----
    Mr. Cannon. Would the gentleman yield?
    Mr. Berman. Let me just finish the sentence--of 
manufacturing property, a lot of that manufactured goods is 
exported. The higher cost to the manufacturer is going to be 
reflected under economic principles and Republican doctrine in 
the final cost to consumers. And we are saying the State can't 
make this decision? Maybe it is a stupid decision, maybe it is 
not, but why are we saying the State can't make that decision?
    Mr. Cannon. If the gentleman would yield?
    Mr. Berman. I yield.
    Mr. Cannon. The distinction is not between commercial 
property and manufacturing property. It is between commercial 
property, so you can't tax some commercial property at one 
rate, and pipelines at another. The distinction on pipelines in 
the bill is those that are already regulated by the Federal 
Energy Regulatory Commission, intrastate or interstate.
    So we are trying to be consistent on definitions and 
regulatory authority that already exists. And just prohibiting 
California not from burdening its manufacturers, which it does 
exceedingly, and Utah is very grateful for that, but also to 
create an environment where a State, like California can't 
export. And California does not do this, by the way, but can't 
export its costs or its taxes to consumers in other States, 
which is what happens with pipelines that transit some States 
where their taxes are.
    Mr. Berman. Just reclaiming my time, it happens with all 
kinds of processes. If one State's taxes are higher than 
another's, then in effect the price of that product is going to 
be higher because of those additional taxes. That may be a 
stupid decision or it may not be, but that is just a general 
principle of economics, and one of the arguments against higher 
taxes.
    But I don't understand why we at the Federal level----
    Mr. Cannon. That is an argument again--if the gentleman 
would yield, the gentleman states the argument eloquently about 
why taxation is hurtful to the economy. This is not about how a 
State taxes its manufacturers or its consumers, but rather how 
it taxes consumers in other States, which I think is patently 
unfair.
    Mr. Berman. I don't understand, just to reclaim my time. It 
is users of natural gas in the State. It is users of natural 
gas outside the State. I don't understand why that isn't a 
State decision. In every other place, it is a State decision.
    Mr. Cannon. If the gentleman would yield, this is a 
taxation imposed on Detroit and Michigan by Louisiana, which 
has a pipeline that goes through Louisiana and takes gas to 
Detroit and Michigan.
    Mr. Berman. And Louisiana doesn't use the gas that they 
produce?
    Mr. Cannon. They also charge their own consumers, and that 
is their right. We agree on that point. The question is, should 
people have to pay a disproportionate tax or a disproportionate 
gas bill in Michigan because they get their gas coming through 
Louisiana?
    Mr. Berman. But if Michigan has a higher rate than some 
other State on the property on which automobile manufacturing 
plants are located, the costs of that higher rate are passed on 
to purchasers of cars in other States. What is the difference?
    Mr. Cannon. That is exactly the case you made a moment ago, 
and that is the State's prerogative to do stupid things. All 
States, in fact sometimes do----
    Mr. Berman. Except in the case----
    Mr. Cannon. But in the case of----
    Mr. Berman [continuing]. Of natural gas, they are not going 
to let them do it.
    Mr. Nadler. Would the gentleman yield?
    Mr. Cannon. Actually it is Mr. Berman's time.
    Mr. Nadler. Would Mr. Berman yield? Thank you.
    I wondered if the case, Mr. Cannon, isn't that in the case 
of natural gas, unlike the manufacturing case that Mr. Berman 
propounds, the natural gas may be produced in Louisiana, sold 
in Michigan, and traverses Missouri. Missouri uses none of it, 
but affects the price in Michigan by taxing it.
    Mr. Cannon. That is exactly the case. I am not sure that it 
is Missouri that adds taxes.
    Mr. Nadler. Whoever.
    Mr. Cannon. But it is whoever.
    Mr. Nadler. Someone in between.
    Mr. Cannon. Once the pipeline is in place, then there is no 
alternative to that capital investment, and so taxes----
    Mr. Nadler. But what if they have higher gas taxes?
    Chairman Sensenbrenner. The time of the gentleman from 
California has expired.
    Are there amendments?
    The gentleman from North Carolina, Mr. Watt.
    Mr. Watt. Mr. Chairman, I have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. ``An amendment to H.R. 1369 offered by Mr. Watt 
of North Carolina. Strike Section 2.''
    [The amendment by Mr. Watt follows:]

           Amendment to H.R. 1369 Offered by Mr. Watt (N.C.)

    Strike Section 2.

    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Watt. Mr. Chairman, the pipelines complain that they 
have been treated differently than other property taxpayers and 
that Congress should grant them a favored status among property 
taxpayers. If the pipelines believe that State and Federal 
guarantees are being violated, they have complete and 
unfettered access to the State court system to seek redress of 
their grievances.
    Therefore, my amendment removes Section 2, which stacks the 
deck further by granting jurisdiction over controversies 
arising under this bill to the Federal courts only. Under my 
amendment, the pipelines will still obtain the vast majority of 
the relief they seek. The bill would have the effect of 
overriding State constitutional classification systems that may 
tax pipelines at a higher rate than other commercial and 
industrial property, and establish clear guidelines for States 
to apply to the stricter than the constitutional standards now 
in place.
    In other words, the pipelines can get the relief they seek 
from the State courts because of a legislative standard 
established by the bill. Removing the Federal court 
jurisdiction will enable State courts to deal with the pipeline 
issues in a manner that is consistent with the manner in which 
other State tax and property tax matters are handled, and avoid 
setting up differential and competing systems for handling 
disputes.
    As currently written, the pipelines can simply engage in 
forum shopping until they get a court that they like the result 
from. And I don't think they should be allowed to do that. They 
should be required to go to the State courts just like anybody 
else has to go to the State courts.
    With that, I ask my colleagues to support the amendment, 
which strikes the provision that grants exclusive jurisdiction 
to the Federal courts under this bill. I yield back the balance 
of my time.
    Chairman Sensenbrenner. For what purpose does the gentleman 
from Utah seek recognition?
    Mr. Cannon. To strike the requisite number of words.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Cannon. Thank you.
    I urge my colleagues to oppose this amendment. The 
legislation only allows for concurrent jurisdiction. It doesn't 
mandate Federal jurisdiction, so we are not removing 
jurisdiction from the State courts. The State courts, on the 
other hand, have not provided plain, speedy and efficient 
relief. So why should we oppose the kind of appropriate and 
quick relief that I think is necessary here?
    Let me give you an example of a procedural quagmire that 
occurred. In 1994, between 1994 and 1999, a company paid taxes 
owed to the State and then brought a challenge into the 
Louisiana State court. State statute required disputes to be 
initiated at the administrative level first. After a lengthy 
administrative procedure, the administrative commission 
dismissed the protest. The company appealed in the State 
district court. The court determined the company's claims had 
expired due to limitations imposed by the statute.
    The company appealed, and the appeals court reversed the 
district court finding and allowed the company to actually 
bring the case. In 2005, after almost 10 years, the case 
finally came to trial. The court found that the State had 
intentionally discriminated against the company without ever 
reaching the issue of whether there was discrimination against 
interstate pipelines. The court found the State's tax scheme 
was flawed under the constitutional equal protection clause, 
and the remedy was that the company should be assessed at the 
same percentage as the interstate pipelines paid for the years 
in question.
    Instead of using assessments already in place in those 
years, the court required each locality to go back and reassess 
the property. Now, the company has to work with numerous 
different localities to re-determine their assessments for the 
property. The company still has no relief. This process does 
not seem plain, speedy or efficient. It is convoluted and 
inefficient. Providing for an alternative jurisdiction and 
means to a remedy will help alleviate some of these problems 
and hopefully inject judicial efficiency into the system.
    This is just fairness. In fact, that is the reason we have 
a Federal court system. So I urge my colleagues to oppose this 
amendment.
    Ms. Jackson-Lee. Will the gentleman yield?
    Mr. Cannon. I am pleased to yield to the gentlelady from 
Texas.
    Ms. Jackson-Lee. I am like Mr. Berman. I would like to just 
inquire. I am trying to understand the scheme of the underlying 
legislation.
    What are you--interstate and intrastate pipelines, which 
would certainly go through our region, particularly Louisiana 
and Texas. We have heard from the distinguished gentleman from 
North Carolina that this possibly undermines a State that has 
experienced a horrific natural disaster, Hurricane Katrina.
    What is the scheme? Are you trying to equalize the 
taxation? Or are you trying to make one less than the other? 
What is the underlying scheme of the bill?
    Mr. Cannon. The purpose of the bill is to require States to 
tax like property in a like fashion, rather than exporting the 
tax burden. In fact, Louisiana is only an issue here because 
they are one of the States that does the most extraordinary 
discrimination in their taxes.
    Ms. Jackson-Lee. They tax which higher? The interstate?
    Mr. Cannon. The interstate, that is pipelines that go 
through Louisiana into other States, at a higher rate.
    Ms. Jackson-Lee. Right. Than the intrastate?
    Do you continue to yield?
    Mr. Cannon. My understanding is that the intrastate 
taxation is 15 percent; the interstate State tax is 25 percent, 
so it is a much higher rate.
    Ms. Jackson-Lee. I understand that, and I think there is 
reason to that, but do you have some relief for a State like 
Louisiana? You are causing them to lose money. What is the 
relief for them that actually need this money?
    Mr. Cannon. Is your question for Louisiana, what is the 
relief for the State that now needs money because of----
    Ms. Jackson-Lee. No, no. This legislation, though it has an 
underlying premise that is reasonable, which is to equalize, 
but it causes a State to lose money. Do you have any relief in 
your bill on that issue?
    Mr. Cannon. Is that relief for Louisiana?
    Ms. Jackson-Lee. Yes, or any other State.
    Mr. Cannon. No. It is just a prohibition on the incremental 
taxes that they are charging.
    Ms. Jackson-Lee. So if it is 15 percent intrastate, you 
want it to be 15 percent interstate.
    Mr. Cannon. Exactly.
    Ms. Jackson-Lee. I yield back. Thank you.
    Chairman Sensenbrenner. The gentleman's time has expired.
    Let me ask if other Members wish to speak on this 
amendment? If not, the Chair will put the question.
    The question is on agreeing to the Watt amendment. Those in 
favor will say ``aye.''
    Those opposed, ``no.''
    The noes appear to have it. The noes have it, and the 
amendment is not agreed to.
    There are three votes that are pending at the present time. 
This looks like a----
    Mr. Cannon. Mr. Chairman, I don't think there are any other 
amendments.
    Chairman Sensenbrenner. Okay. Are there any? Well, then, 
without objection, the Committee is recessed until 1:30.
    Question? Okay. The gentleman from New York, for what 
purpose?
    Mr. Nadler. Thank you.
    First of all, I would ask two questions of the gentleman.
    Number one, the bill says that you cannot assess it at a 
higher ratio to full value than commercial, than the ratio of 
commercial and industrial property in the jurisdiction. What 
would the bill do if the jurisdiction has several different 
sub-classifications for commercial and industrial property? 
Would it be the highest?
    Mr. Cannon. Pardon me just a moment. Let me take a look at 
that.
    On page 4 of the bill, you have a process for a random 
sampling method known as a sales assessment ratio study to be 
carried out under the statistical principles applicable to such 
a study. So I think we have provided for a process whereby that 
could be evaluated within the State.
    Mr. Nadler. And the second question--thank you. The second 
question I have is, I am tempted, if this is a problem, why is 
it that we have heard nothing from any consumer group about 
higher gas prices as a result of this? Or from any Government, 
at the end of the pipeline, where the gas prices are higher 
than they should be?
    Mr. Cannon. I think this bill was first passed in 1988, 
sponsored by Bill Hughes of this Committee. It has been a burr 
under the saddle since or before then. If the gentleman hasn't 
heard complaints it is because people sometimes accept a burr 
and just suffer with the consequences for a very long period of 
time.
    Mr. Nadler. I appreciate that.
    Mr. Cannon. There are a number of consumer groups that are 
concerned about this.
    Mr. Nadler. I appreciate the candor of the gentleman.
    Chairman Sensenbrenner. Does the gentleman yield back.
    Mr. Cannon. I yield back.
    Chairman Sensenbrenner. Are there further amendments?
    If there are no further amendments, a reporting quorum is 
present. The question occurs on the motion to report the bill, 
H.R. 1369, favorably.
    All those in favor will say ``aye.''
    Opposed, ``no.''
    The ayes appear to have it. The ayes have it, and the bill 
is reported favorably.
    Without objection, the staff is directed to make any 
technical and conforming changes. And all Members will be given 
2 days as provided by the House rules in which to submit 
additional dissenting, supplemental or minority views.
    We have two down. We have two more bills to go. Please be 
prompt in returning. And, without objection, the Committee is 
recessed until 1:30 p.m.
    [Intervening business.]
    Chairman Sensenbrenner. This concludes the business that is 
on the agenda. And without objection, the Committee stands 
adjourned.
    [Whereupon, at 2:30 p.m., the Committee was adjourned.]

                DISSENTING VIEWS TO ACCOMPANY H.R. 1369

    We strongly oppose H.R. 1369, ``To Prevent Discriminatory 
Taxation of Natural Gas Pipeline Property,'' legislation that 
would restrict the state and local taxation of interstate 
natural gas pipelines. While proponents of H.R. 1369 maintain 
that federal legislation is needed to limit taxation and to 
minimize litigation, this legislation could have the opposite 
effect. In fact, enactment of H.R. 1369 would result in 
increased litigation that would be needed to determine its 
meaning and impact. This legislation is strongly opposed by the 
National Governors Association, the Federation of Tax 
Administrators, the Louisiana Tax Commission and the Montana 
Department of Revenue.
    H.R. 1369 is problematic for several reasons. First, the 
property tax systems to which the pipelines and other property 
tax are subject to do not violate state constitutions or state 
laws. Second, H.R.1369 would provide new ground for litigation. 
Third, the legislative measure would unwisely grant federal 
courts jurisdiction over action arising under the legislation. 
Finally, this legislation would have a grave impact on tax 
revenues.

                     DESCRIPTION OF THE LEGISLATION

    H.R. 1369 would prohibit states from assessing interstate 
pipeline property taxes at a high ratio to true market value 
(the normal standard for assessing property), or at a higher 
tax rate than is the case for other commercial and industrial 
property. It also contains a provision that prevents 
``discrimination'' in ``any other tax'' that might be levied on 
interstate pipelines. Finally, the bill provides that pipelines 
can pursue their claims under the Act in federal district 
court, rather than being required to pursue claims in state 
court and provides for specified relief for claims of 
discriminatory taxation of natural gas pipeline property.

                               BACKGROUND

    Some states (probably a majority) mostly in the western 2/3 
of the country value pipelines (and certain other interstate 
transportation and traditional public utility property, e.g., 
electric and gas utilities, telephone companies, railroads and 
airlines) on a ``unit valuation'' basis. In unit valuation, the 
entity being assessed is valued in its entirety or as an 
ongoing enterprise as opposed to valuing individual pieces of 
real estate, individual pieces of machinery or individual 
buildings of the enterprise. In unit valuation, an appraiser 
will look at several ways of arriving at value, e.g., an income 
approach, cost approach, market value or sales approach (if 
data are available) and the like. The valuation of other 
commercial and industrial property primarily looks at the cost 
approach and sales figures if available and concentrates on the 
value of individual parcels rather than the value of the 
enterprise.
    Pipeline owners argue that the manner in which they are 
assessed for property tax purposes in some states causes them 
to be valued higher (in relation to market value) than other 
commercial property. They contend this unit valuation approach 
tends to capture certain intangible values (e.g., good will, 
patents, etc.) and to lead to higher valuations than for other 
property. H.R. 1369 would provide protection from these higher 
taxes.
    Conversely, State and local governments and tax groups 
perceive H.R. 1369 as an effort by the pipeline industry to 
secure a set of protections comparable to those provided to the 
railroad industry in the Railroad Revitalization and Regulatory 
Relief (4-R) Act of 1976.\1\ The situations leading to the 
enactment of the legislation, however, are not comparable. 
Specifically, the unit valuation of property does not 
inherently lead to higher valuations of property than other 
forms of property valuation, so there is no certainty that the 
commercial property will be higher than other property tax. 
Indeed, the pipelines have not offered any specifics about 
states, statistical studies, or concrete evidence that can be 
investigated regarding higher valuation. Properly applied, unit 
valuation should reach fair market value. The issue of 
intangibles is really an issue of state law and whether it 
allows the valuation of intangibles in the unit value. Several 
states that use unit value specifically allow intangibles to be 
excluded to the degree that a value can be placed on them.
---------------------------------------------------------------------------
    \1\ In that instance, the railroad industry was in grave danger and 
regulations were needed to keep the industry solvent.
---------------------------------------------------------------------------
I. The current taxation system does not pose constitutional or state 
        law violations
    While proponents of the legislation claim that the property 
taxes are discriminatory in nature, it is clear that the 
property tax systems which apply to the pipeline and other 
property tax payers do not violate state constitutions or state 
law. Those tax systems have been approved by the citizens of 
the states and have been found constitutionally valid when 
challenged. To enact this legislation would effectively 
overturn taxation decisions made by voters and state elected 
officials.
    Further, the property tax system poses no federal 
constitutional violations. The difference in property taxation 
ratios is the result of a state created taxation system adopted 
through the normal legislative process. As the varied tax 
classification system was fully vetted, there was no violation 
of Due Process or Equal Protection provisions. In addition, as 
the tax is only upon property within the state, there is no 
encroachment upon the Commerce clause. Finally, all opportunity 
is afforded to the pipelines to bring forth their grievances 
before the state court.
II. H.R. 1369 could provide new ground for litigation
    If enacted, this legislation would spawn a myriad of 
litigation as to how it should be applied in individual states. 
Although the legislation is based on 4-R legislation which has 
already been enacted, there is still a degree of vagueness 
surrounding the legislation. In fact, there is certain to be a 
great deal of controversy and resulting litigation challenging 
the assessment ration of commercial and industrial property in 
states and the application of the legislation. The 4-R Act, 
which was similar to this legislation, generated quite a number 
ofchallenges to state and local tax practices. Further, that 
legislation brought forth cases challenging the constitutionality of 
the bill, whether it was constitutional, whether it constituted an 
abrogation of the sovereignty immunity of the states, the techniques to 
determine the assessment ratio of various types of property, and other 
matters. It is likely that H.R. 1369 will create the same amount of 
confusion, objections and lawsuits.

III. The legislation would unwisely grant federal courts jurisdiction 
        over actions arising under the litigation

    Granting federal courts the authority to hear matters that 
arise under this legislation is both unnecessary and 
unwarranted. First, under the Federal Tax Injunction (28 U.S.C. 
Sec. 1341) federal courts should demur from hearing state 
taxation cases where there is a ``plain, speedy and efficient'' 
remedy available at the state level. In these matters, the 
state is more than capable of handling their judicial 
responsibility. There is no evidence that the state judiciary 
was unable to handle the state taxation matters. Further, each 
state has a variety of avenues to resolve the property tax 
administration matters including the state judicial systems, 
administrative review bodies, and the state legislature.\2\
---------------------------------------------------------------------------
    \2\ In fact, the Louisiana Legislature considered legislation 
(House Bill 643) in the 20006 Regular Session, which would have 
reclassified public service pipelines as ``other property'' subject to 
assessment by local assessors at 15% of fair market value. The 
legislature chose to make no changes to existing Louisiana law.
---------------------------------------------------------------------------
    Additionally, by allowing direct access to federal courts 
when challenging state and local property tax, this section of 
the legislation creates a certain group of litigants that will 
forgo the traditional state or local judicial or administrative 
review process. It is well known that the federal courts do not 
weigh tax matters in the same manner as states will, but must 
always consider the issues in the context of state 
constitutions, state laws, and the state tax system as a whole. 
The federal courts use a separate manner of precedent and 
reasoning that would create a disparity between litigants with 
access to the federal courts and those without access. State 
court management of these cases allows open access regarding 
tax matters and allows state taxation matters to be decided by 
state law experts.\3\
---------------------------------------------------------------------------
    \3\ It is important to note that * * *.
---------------------------------------------------------------------------
    Finally, access to the federal court system could 
potentially disrupt the financial condition and threaten the 
financial integrity of affected local governments. Under this 
legislation, taxpayers would be able to withhold disputed taxes 
while the case moves forward. Thus would make it very difficult 
for local government to determine its tax base and to make 
decisions according or to received preliminary payment of taxes 
until years after they are due.

IV. H.R. 1956 reduces states tax revenue affecting the states ability 
        to provide traditional state and local government services and 
        is an unfunded mandate

    As a policy matter we would note that State and local 
governments work with the federal government, both providing 
essential government services like education and 
transportation. However, states are restricted from providing 
these services if their power of taxation is truncated or 
interfered with. Furthermore, it will be state officials and 
not Congress who will be held accountable if public services 
are reduced or personal income or property taxes are increased 
to compensate for the reduction in tax revenue resulting from 
the enaction of this legislation.
    H.R. 1369 would also create an enormous unfunded mandated 
resulting in a several billion dollar loss for state revenues. 
According to the Federation of Tax Administrators, this 
legislative proposal would cost Louisiana approximately $37 to 
$40 million dollars, Montana, over $22.5 million and Kansas 
would lose nearly $45 million. As state governments, unlike the 
federal government, are required to balance their budget, the 
lost of such a significant amount of revenue must be replaced 
by either increasing taxes or cutting programs. Without the 
necessary state tax revenues, states would suffer a devastating 
financial blow.

                               CONCLUSION

    H.R. 1369 is poorly drafted legislation that would provide 
unnecessary tax exemptions resulting in a huge revenue loss to 
states. In an era when our states are in desperate need of 
revenue for the protection of our citizens, it seems 
irresponsible that should we enact legislation that would 
reduce their funds. We should not pass special interest 
legislation that would pander to companies at the expenses of 
thousands of citizens.

                                   John Conyers, Jr.
                                   Maxine Waters.

           ADDITIONAL DISSENTING VIEWS OF REP. MELVIN L. WATT

    I do not believe there is a demonstrated need for this 
federal legislation. Particularly at a time when the States in 
the Gulf region are struggling to repair the devastation left 
by Hurricanes Katrina and Rita, I believe the pipeline industry 
and the proponents of this bill must justify measures that 
would retard those efforts.
    In addition, the provision granting access to federal 
district courts represents another effort by this Congress to 
steer specific matters away from the states. The normal path 
for contesting state and local tax claims is through the state 
courts. Pipelines have full access to state courts, there are 
well-established procedures for challenging assessments as not 
reflecting true market value and for challenging the treatment 
of one type of property versus another type of property. Absent 
a sufficient showing that there is not a ``clear, speedy and 
efficient remedy'' at the state level to justify allowing 
federal court jurisdiction, I believe this provision is 
unnecessary and disruptive. For these reasons, I respectfully 
dissent.

                                            Melvin L. Watt.

                                  
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