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June 9, 1981

Fred D. LEWIS, et al., Plaintiffs,
Ronald REAGAN, et al., Defendants

The opinion of the court was delivered by: GASCH


This is a suit for declaratory and injunctive relief against the President of the United States, the Secretary of the Treasury, the Treasurer of the United States, and the United States Department of the Treasury. The plaintiffs are two individuals who own part of a one-eighth royalty interest in an oil well in Claiborne Parish, Louisiana. The income from this royalty interest has been taxed under the Windfall Profit Tax on Domestic Crude Oil (hereinafter "WPT"). I.R.C. §§ 4986-4998. Alleging that the application of the WPT to their royalty interest deprives them of property without due process of law, the plaintiffs seek a permanent injunction against enforcement of the tax and restitution of amounts already withheld from them under the WPT. The case is before the Court on the defendants' motion to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief may be given. *fn1"


 The WPT is an excise tax paid by producers of crude oil on the "windfall profit" *fn2" that resulted when President Carter decided to implement phased decontrol of domestic crude oil in April 1979. See I.R.C. § 4986. The provisions of the tax are extremely complex, in part because they incorporate the rules promulgated by the Department of Energy under price controls *fn3" and in part because they were originally tied to the gradual decontrol of crude oil prices. *fn4" See generally Burke & Bowhay, Income Taxation of Natural Resources 3102-3110 (1981).

 Basically the "windfall profit" is calculated by taking the "removal price" *fn5" of a barrel of crude oil and subtracting from it the "adjusted base price" of that barrel of oil and any state severance taxes that qualify under section 4996(c). See I.R.C. § 4988(a). However, the total amount of the tax on a barrel may not exceed 90% of the net taxable income attributable to that barrel. Id. § 4988(b).

 The tax must be paid by the "producer" of the oil, id. § 4986(b), who is defined as "the holder of the economic interest with respect to the crude oil." Id. § 4996(a)(1)(A). The tax rate generally ranges between 70% and 30%, id. § 4987(b)(1), although there is a special lower rate of between 50% and 30% for certain "independent producers" who qualify under section 4992. Id. § 4987(b)(2). There are also several categories of exempt oil. Id. § 4991(b).

 The most complex part of the tax is the determination of the adjusted base price of the oil. The adjusted base price is calculated by taking a "base price" and adding an adjustment for inflation. Although the base price of a barrel of oil depends mainly on the "tier" *fn6" of the oil and the price for which the oil would have sold prior to decontrol, the tax provides for adjustments for grade, quality, and location. I.R.C. § 4989(d)(1).

 Administration of the tax is also complicated. Most producers do not pay the tax directly to the government. Rather, the "first purchaser" of the oil withholds the tax from the amount due the producer. I.R.C. § 4995(a)(1)(A). The tax is calculated quarterly by the first purchaser, id. § 4995(a)(6), based on information supplied by the producer. Id. § 4995(a)(2). These calculations do not take into account the 90% net income limitation, which is calculated on a yearly basis when the producer files his tax return. Id. § 4988(b)(2)(B). As a consequence of this bifurcated process, the potential exists for a large number of complex refund claims. However, this complex collection process, which applies to numerous small royalty holders, such as the plaintiffs in this case, does not apply to the large integrated oil companies. Id. § 4995(b).

 The plaintiffs in this case admit that they hold an economic interest in the oil well but contend that the government does not constitutionally have the power to tax them as "producers" because they do not fit the definition of producers under the law of Louisiana, the state in which the well exists. Alternatively, they argue that imposition of the tax on them violates the fifth amendment because they have not received any "windfall" from ownership of the royalty interest.

 It is unclear how much tax the plaintiffs have paid. Lossie Mae Lewis holds .003563 of the one-eighth royalty, and Fred Lewis holds .005349 of the same royalty. A check from the well operator shows a deduction of $ 6.17 for WPT from a gross royalty payment of $ 20.06 for production during November 1980. The plaintiffs claim that the amount generally deducted is approximately 30%, which, if true, would put them in the lowest taxable category under the WPT.

 The question presented to the Court is whether this suit is barred by the Anti-Injunction Act, I.R.C. § 7421(a), despite the plaintiffs' amendment of their complaint to allege jurisdiction under 28 U.S.C. §§ 1361, 1651, 2201, and 2202.


 A. The Anti-Injunction Act.

 The Anti-Injunction Act, I.R.C. § 7421(a), prohibits any "suit for the purpose of restraining the assessment or collection of any tax ... in any court by any person...." The Supreme Court tends to give section 7421(a) "almost literal effect." Bob Jones University v. Simon, 416 U.S. 725, 737, 94 S. Ct. 2038, 2046, 40 L. Ed. 2d 496 (1974). As the Court noted in Bob Jones University, the statute's language "could scarcely be more explicit." Id. at 736, 94 S. Ct. at 2045. The principal purposes of the statute are to protect the government's need for expeditious tax collection and to require that disputes over ...

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