UNITED STATES OF AMERICA, APPELLANT V. HARRY PTASYNSKI, ET AL. No. 82-1066 In the Supreme Court of the United States October Term, 1982 On Appeal From the United States District Court for the District of Wyoming On appeal from the United States District Court for the District of Wyoming TABLE OF CONTENTS Opinion below Jurisdiction Constitutional provisions and statutes involved Statement A. The statute B. The proceedings below The questions are substantial 1. The background of the Alaska oil exemption 2. The uniformity clause 3. The separability clause Conclusion Appendix OPINION BELOW The memorandum opinion of the district court (App. A, infra, 1a-11a) is not yet officially reported. JURISDICTION Several of the appellees brought these suits in the United States District Court for the District of Wyoming, seeking a refund of windfall profit taxes, a declaratory judgment that the Crude Oil Windfall Profit Tax Act of 1980, Pub. L. No. 96-223, 94 Stat. 229 et seq., is unconstitutional, and injunctive relief restraining the further assessment and collection of such taxes. On November 4, 1982, the district court entered a judgment directing that appellees recover windfall profit taxes plus interest for the taxable periods in question in unspecified amounts to be later determined by the parties (App. B, infra, 12a-13a). On November 12, 1982, the district court entered an amended order awarding judgment in favor of appellees in the amounts sought in the pleadings, with interest as provided by law, and also specifically setting forth the court's holding that the Crude Oil Windfall Profit Tax Act of 1980 is unconstitutional (App. C, infra, 14a-15a). On November 15, 1982, the district court entered a further amended judgment order limiting its ruling of unconstitutionality to the provisions of Title I of the Crude Oil Windfall Profit Tax Act (26 U.S.C. (Supp. V) 4986 to 4998 and related administrative provisions) (App. D, infra, 16a-17a). On November 18, 1982, the United States filed a notice of appeal from all three judgment orders (App. E, infra, 18a). The jurisdiction of this Court rests on 28 U.S.C. 1252, which authorizes a direct appeal to this Court from an interlocutory or final judgment of a court of the United States holding an Act of Congress unconstitutional in a civil action to which the United States is a party. /1/ CONSTITUTIONAL PROVISIONS AND STATUTES INVOLVED Article I, Section 8, Clause 1 of the United States Constitution is set forth at Appendix F, infra, 19a. Title I of the Crude Oil Windfall Profit Tax Act of 1980, Pub. L. No. 96-223, 94 Stat. 229, and Section 7852(a) of the Internal Revenue Code of 1954 (26 U.S.C.) are set forth at Appendix G, infra, 20a-63a. QUESTIONS PRESENTED 1. Whether the exclusion of certain categories of Alaskan oil (26 U.S.C. 4991(b)(3)) from the coverage of the Crude Oil Windfall Profit Tax Act of 1980, violates the Uniformity Clause (Article I, Section 8, Clause 1) of the Constitution, which requires that "Duties, Imposts and Excises shall be uniform throughout the United States." 2. Assuming the answer to Question No. 1 is in the affirmative, whether the constitutionality of the remaining provisions of Title I of the Crude Oil Windfall Profit Tax Act should be upheld, pursuant to the separability clause of Section 7852(a) of the Internal Revenue Code of 1954. STATEMENT A. The Statute On April 2, 1980, the President signed the Crude Oil Windfall Profit Tax Act of 1980. Title I of that Act, 94 Stat. 230 et seq., added Sections 4986 through 4998 to the Internal Revenue Code of 1954 (26 U.S.C. (& Supp. V)) together with related administrative provisions. /2/ Under Title I of the Act, an excise tax is imposed (subject to certain exemptions) on the "windfall profit" derived from the production of domestic crude oil after February 29, 1980 (Sections 4986(a) and 4991(a)). The "windfall profit" subject to the tax is determined (on a per barrel basis) by reference to the difference between the "removal price" (generally the price at which the oil is sold at the wellhead) and an "adjusted base price" reflecting, with certain adjustments, the price at which such oil would have been sold in 1979, under varying assumptions applicable to different categories of oil (Sections 4988(a), 4988(c) and 4989)). /3/ An offset, however, is allowed for state severance taxes attributable to the value of the oil in excess of its "adjusted base price" (Sections 4988(a)(2) and 4996(c)). Finally, in no event can the taxable "windfall profit" exceed 90 percent of the net income attributable to the oil (Section 4988(b)). The rate of the tax varies between 30 percent and 70 percent of the "windfall profit" so determined. The rate depends upon the particular category of the oil (Section 4987(a)). The lowest rate (as well as the most favorable "base price" (see note 3, supra)) is applicable to "tier 3 oil" (which includes "newly discovered oil," "heavy oil" and "incremental tertiary oil" (Sections 4991(e) and 4993)). /4/ The 30 percent rate also applies to "independent producer oil" (Section 4992) that also qualifies as "tier 2 oil" (which is oil from "stripper well properties" and from economic interests in National Petroleum Reserves held by the United States (Section 4991(d)). The highest rate (as well as the least favorable "base price") applies to "tier 1 oil" (which includes all nonexempt domestic oil other than "tier 2" or "tier 3 oil" (Section 4991(c)) that does not qualify as "independent producer oil." "Tier 1 oil" that qualifies as "independent producer oil" and "tier 2 oil" that does not qualify as "independent producer oil" are taxable at the intermediate rates of 50 and 60 percent, respectively. Section 4991(b) exempts certain classes of oil from the tax. The exempt categories are: (1) oil from "qualified governmental interest(s)" (Section 4994(a)); (2) oil from "qualified charitable interest(s)" (Section 4994(b)); (3) certain oil from interests held by or for Indian tribes or their members or produced by corporations organized under the Alaska Native Claims Settlement Act, 43 U.S.C. 1601 et seq. (Section 4994(d)); (4) "front-end tertiary oil" (Section 4994(c)); and (5) "exempt Alaskan oil" (Section 4994(e)). The latter category includes certain oil produced "(1) from a reservoir from which oil has been produced in commercial quantities through a well located north of the Arctic Circle, or (2) from a well located on the northerly side of the divide of the Alaska-Aleutian Range and at least 75 miles from the nearest point on the Trans-Alaska Pipeline System" (Section 4994(e)). Exempt Alaskan oil does not include, however, "Sadlerochit oil," defined as "crude oil produced from the Sadlerochit reservoir in the Prudhoe Bay oilfield" (Section 4996(d)(3)). /5/ The liability for the windfall profit tax is ultimately placed on the "producer" of the oil (Section 4986(b)), defined generally as "the holder of the economic interest with respect to the crude oil" (Section 4996(a)(1)). Section 4995, however, requires that the tax be withheld from the hase price by the first purchaser of the oil, and further provides that the producer shall thereafter be treated as having paid the amount so withheld. /6/ B. The Proceedings Below Five of the appellees are independent domestic oil producers and/or royalty holders who alleged that they were subject to the windfall profit tax. /7/ They brought this action seeking: (1) a declaratory judgment that the Aslaskan oil exemption from the windfall profit tax violates the Uniformity Clause of Article I, Section 8 of the Constitution, and that the tax violates the Due Process and Taking Clauses of the Fifth Amendment to the Constitution; (2) an adjudication that all such taxes were illegally assessed and collected; and (3) an order directing the government to refund all such taxes. /8/ On cross motions for summary judgment, the district court concluded that the "exempt Alaskan oil" provision of the Windfall Profit Tax Act is unconstitutional under the Uniformity Clause. /9/ It reasoned that "(t)he Act, on its face, says that one state, Alaska, is not subject to the same tax, at the same rate as all the other states. This is a clear violation of the constitutional requirement of uniformity" (App. A, infra, 7a). In so holding, the court rejected the government's argument that a rational justification for the Alaskan oil exemption supported its validity. As the court saw the matter, "(l) egitimate exemptions from tax can exist, but the exemption must be one which is not constitutionally forbidden. The Constitution has unequivocally set forth a limitation on indirect taxation -- uniformity -- which has been narrowly, but precisely defined by the judiciary. Distinctions based on geography are simply not allowed" (ibid). /10/ The court further rejected the government's alternative contention that, at all events, the remaining provisions of the Act should be held valid and effective, pursuant to the "separability clause" set forth in Section 7852(a) of the Internal Revenue Code of 1954, with respect to all domestic oil production not subject to other valid exemptions. In so ruling, the court stated that it would have given more "deferential consideration" to a separability clause written into the Windfall Profit Tax Act itself, but held that Section 7852(a) of the Internal Revenue Code of 1954 (to which the windfall profit tax provisions were added) did not provide a basis for sustaining the remaining tax provisions (App. A, infra, 8a). In the district court's view, it was "clear that the Alaska exemption was the result of negotiations and compromise, and that the Act as it exists today would not have been passed without the invalid Alaska provision" (App. A, infra, 9a). Hence, it concluded that applying the "separability clause" of Section 7852(a) in such a way as to extend the tax to Alaskan oil would require the court to engage in impermissible judicial legislation (App. A, infra, 7a-10a). /11/ THE QUESTIONS ARE SUBSTANTIAL In holding unconstitutional the windfall profit tax provisions added to the Internal Revenue Code of 1954 by the Crude Oil Windfall Profit Tax Act of 1980, the district court has invalidated an important federal tax statute that Congress enacted as an integral part of the decontrol of domestic oil pricing. The amounts at stake are of enormous magnitude. It is estimated that the net windfall profit tax revenues from the inception of the tax through the end of the 1982 fiscal year are in excess of $26 billion, and that the net revenues during the next five years will be approximately $50 billion. /12/ This Court should note probable jurisdiction in order to resolve the important constitutional questions presented and to resolve definitively the validity of the windfall profit tax provisions of the Internal Revenue Code. 1. The Background of the Alaska Oil Exemption. Congress enacted the windfall profit tax in response to President Carter's decision in April 1979, to begin phasing out the price controls that had been imposed on domestic oil since 1971. Oil price controls had been extended and made mandatory through May 31, 1979, by the Energy Policy and Conservation Act of 1975, Pub. L. No. 94-163, 89 Stat. 871. That Act gave the President discretionary authority to extend such controls from May 31, 1979, through September 30, 1981. At the time domestic crude oil prices were first frozen in 1971, the price of crude oil had risen from a prevailing price of about $2.90 per barrel during the prior decade, to $3.39 per barrel. By June 1979, the uncontrolled world price for oil (including transportation costs to the United States) had risen to nearly $20 per barrel, with "spot market" prices occasionally exceeding $30 per barrel. At the same time, the average controlled price of domestic "old oil" was $5.86 per barrel, and the average controlled price of domestic "new oil" was $13.06 per barrel. President Carter's announcement indicated that existing controls would be phased out over a period beginning in January 1980, and ending on October 1, 1981, the effective date of expiration of the President's authority under the Energy Policy and Conservation Act of 1975. See H.R. Rep. No. 96-304, 96th Cong., 1st Sess. 4-7 (1980). /13/ The President proposed the windfall profit tax as an integral part of his plan to phase out existing price controls "(i)n order to prevent oil producers from reaping excessive profits from decontrol * * * ." H.R. Doc. No. 96-107, 96th Cong., 1st Sess. 1 (1979). The President noted that the gradual removal of price controls on domestic oil would encourage exploration and production, eliminate inequities and inefficiencies under the existing system of controls, reduce United States dependency on foreign oil, and reduce the adverse balance of payments attributable to the importation of oil. He further concluded, however, that "deregulation of domestic oil prices will also provide enormous windfall gains for domestic producers of oil" as domestic oil prices rise to the prevailing world price, which had been drastically affected and could continue to be affected by actions taken by the nations participating in the "OPEC cartel" (id. at 1-2). In favorably reporting on the proposed legislation, the House Ways and Means Committee similarly noted that decontrol of domestic oil prices would lead not only to "limited increases in production," but also to increases in profits to oil producers "far in excess of what most of them originally anticipated when they drilled their wells and in excess of what they might now be expected to invest in energy production." H.R. Rep. No. 96-304, supra, at 7. Thus, it agreed that "the additional revenues received by oil producers and royalty owners, both as a result of decontrol of oil prices and as a result of increases in world oil prices substantially prevailing in 1978, are an appropriate object of taxation" (ibid.). See also S. Rep. No. 96-394, 96th Cong., 1st Sess. 27 (1979). /14/ As we have noted (pages 3-4, supra), the tax that Congress ultimately adopted is imposed at varying rates, and the "windfall profit" subject to the tax is computed on varying bases, depending on the type of oil produced, /15/ the nature of the producer, /16/ the circumstances and manner under which the oil is produced, /17/ and the time such oil was discovered and went into production. /18/ While the pattern of classifications and exemptions was modified in certain respects as the proposed legislation was considered by both houses of Congress, the primary objective remained "to impose relatively high tax rates where production cannot be expected to respond very much to further increases in price and relatively low tax rates on oil whose production is likely to be responsive to price." H.R. Rep. No. 96-304, supra, at 7. See also S. Rep. No. 96-394, supra, at 7, 9. Because of the unique climatological difficulties in oil extraction in the "North Slope" areas of Alaska, Congress recognized from the outset that oil produced in that distinct region presented a special case with respect to both the existence of "windfall profits" and the determination of the appropriate tax to be imposed. Under the original Administration proposal, all oil produced from wells north of the Arctic Circle would have been exempt from the tax. H.R. 3919, 96th Cong., 1st Sess. Section 2 (1979). At that time, because of the extraordinary transportation costs involved, Alaskan oil was selling for a wellhead price that was far below what eventually became the lowest "base price" for computing the taxable "windfall profit." Moreover, it was expected that the Alaskan wellhead price would remain $8 to $9 less per barrel than the uncontrolled price of oil in the lower 48 states. H.R. Rep. No. 96-304, supra, at 30. See also Staff of Joint Comm. on Taxation, 96th Cong., 1st Sess., The Design of a Windfall Profit Tax 21 (Comm. Print 1979). Accordingly, the Secretary of the Treasury expressed the view that "there are no windfalls that will be gained by the producers of Alaskan crude." Windfall Profits Tax and Energy Trust Fund: Hearings Before the House Comm. on Ways and Means, 96th Cong., 1st Sess. 27 (1979) ("House Hearings"). As the Secretary explained, "(i)t is easier to exempt Alaskan production from the tax than to require Alaskan producers to file tax returns solely for the purpose of showing that no liability has been incurred." House Hearings, supra, at 19. /19/ The House Committee, and the House itself, agreed to the concept of exempting "new oil" produced from wells north of the Arctic Circle, but proposed to exclude "Sadlerochit oil" -- which had already gone into production -- from the scope of that exemption. The bill as reported by the Senate Finance Committee would have eliminated the necessity of providing such a specific exemption for new North Slope oil by proposing to exempt all "newly discovered oil" from the scope of the tax. S. Rep. No. 96-394, 96th Cong., 1st Sess. 2, 42-43 (1979). /20/ A floor amendment proposed by the Majority Leader Senator Robert Byrd, and approved by the Senate, however, provided for the imposition of a 10 percent tax on the "windfall profit" from "newly discovered oil (other than newly discovered oil produced north of the Arctic Circle)." 125 Cong. Rec. S18564-S18568, S18863 (daily ed. Dec. 14 and 17, 1979). /21/ Thus, while the bills passed by the House and the Senate differed on a number of points, both ultimately provided for taxing "newly discovered oil," but on a favorable basis and subject to an exemption for new oil (i.e., oil other than Sadlerochit oil) produced north of the Arctic Circle. The legislation thereafter took its final form in the version approved by the conferees assembled to reconcile the differences between the Senate and House bills. The conference version expanded the scope of the Alaskan exemption to include oil that might be produced in areas south of the Arctic Circle, but north of the divide of the Alaskan-Aleutian mountain range, if produced from a well that is at least 75 miles from the nearest point on the Trans-Alaskan Pipeline System. The conference report noted that this exemption "reflects the concern of the conferees that taxation of this production would discourage exploration and development of reservoirs in areas of extreme climatic conditions." H.R. Conf. Rep. No. 96-817, 96th Cong., 2d Sess. 103 (1980). The conference version was approved without further change, by the House by a vote of 302 to 107 (126 Cong. Rec. H1861 (daily ed. Mar. 13, 1980)) and by the Senate by a vote of 66 to 31 (126 Cong. Rec. S3151 (daily ed. Mar. 27, 1980)). 2. The Uniformity Clause. a. Prior to the decision below, no taxing statute had ever been held invalid on the ground that it violated the Uniformity Clause of Article I, Section 8 of the Constitution. In ruling that the windfall profit tax violated that clause, the district court concluded that "(d)istinctions based on geography are simply not allowed" (App. A, infra, 7a). Thus, it ruled that the "exempt Alaskan oil" provisions of Sections 4991(b)(3) and 4994(e) of the 1954 Code rendered the tax unconstitutional per se without regard to any rational justification that might exist for the exempt classification. The court's ruling rests upon a literal application of this Court's statement in the Head Money Cases, 112 U.S. 580, 594 (1884), that a "tax is uniform when it operates with the same force and effect in every place where the subject of it is found." But the district court's conclusion that an excise tax is not uniform and therefore violates Article I, Section 8 where any geographical considerations are employed in the definition of the "subject" of or exemptions from the tax, is not supported by the actual holding of the Head Money Cases. Nor do the underlying purposes of the Uniformity Clause compel such a per se rule against taking any geographic considerations into account in taxing statutes. As Joseph Story explained in his classic constitutional text: The answer to the * * * (uniformity requirement) may be given in a few words. It was to cut off all undue preferences of one state over another, in the regulation of subjects affecting their common interests. Unless duties, imposts and excises were uniform, the grossest and most oppressive inequalities vitally affecting the pursuits and employments of the people of different states might exist. J. Story, Commentaries on the Constitution of the United States, Section 957, at 673 (2d ed. 1851). In short, the Uniformity Clause was designed to prevent "combinations" that might, through the exercise of the taxing power, strike at the "vital interests" of one region. Ibid. See also Warren, The Making of the Constitution 587-588, 726-727 (2d ed. 1937). Quite the opposite happened here, where substantial congressional majorities recognized and chose to accommodate special circumstances confined to a limited geographical area. The role of judicial review in our constitutional system ordinarily would not be thought to be at its zenith where the claim is, at bottom, that the representative institutions of the federal government should be restrained from discriminating against 49 states in favor of one. 2. It is well established that the Uniformity Clause does not require what might be termed "intrinsic" uniformity. Rather, it requires no more than a geographic uniformity. See Fernandez v. Weiner, 326 U.S. 340, 359 (1945); Brushaber v. Union Pac. R.R., 240 U.S. 1, 24 (1916); Flint v. Stone Tracy Co., 220 U.S. 107, 175 (1911); Knowlton v. Moore, 178 U.S. 41, 83-109 (1900). See also Florida v. Mellon, 273 U.S. 12, 17 (1927). Moreover, it is likewise settled that the framers did not intend to require that "duties, imposts or excises" fall equally on the various states or their populations. /22/ Knowlton v. Moore, supra, 178 U.S. at 104. Thus, Congress' broad power to choose the appropriate subjects of taxation encompasses the power to choose subjects that do not exist uniformly throughout the United States. Knowlton v. Moore, supra, 178 U.S. at 108; Head Money Cases, supra, 112 U.S. at 595. Assuming the subject chosen by Congress for taxation (or exemption) itself represents a permissible classification, the Uniformity Clause is not violated simply because that subject occurs only in a few states, or indeed only a single state. "If the classification be proper and legal, then there is the requisite uniformity in that respect" (Nicol v. Ames, 173 U.S. 509, 521 (1899)). To be sure, where no other distinction can properly be drawn between a "subject" as it exists in different states, the Uniformity Clause may require the same treatment in each instance. See, e.g., Fernandez v. Wiener, 326 U.S. 340, 361 (1945); Steward Machine Co. v. Davis, 301 U.S. 548, 583 (1937); South Carolina v. United States, 199 U.S. 437, 450-451 (1905); Heitsch v. Kavanagh, 200 F.2d 178, 180 (6th Cir. 1952), cert. denied, 345 U.S. 939 (1953). But while classifications that operate only in certain areas might be subject to special scrutiny in light of the purposes of the Uniformity Clause, we submit that the inquiry cannot be separated from the question whether the tax classifications drawn by Congress are supported by rational considerations showing that they are not intended, and do not operate, either as an "undue preference" in favor of, or an "oppressive" discrimination against, the affected states. b. Contrary to the conclusion of the court below, the holding of this Court in the Head Money Cases affirmatively supports the power of Congress to take geographical considerations into account in drawing legitimate tax classifications. At issue there was the constitutionality of a duty levied against transportation companies on foreign passengers entering the United States by vessel. The Court squarely rejected the contention that the duty violated the Uniformity Clause on the ground that it did not operate with strict geographical uniformity since, by its terms, it could apply only in states having sea ports (a matter necessarily determined by considerations of their geography) and not in landlocked states where foreign passengers might arrive by railroad or other inland mode of conveyance. The Court noted that "the evil to be remedied by this legislation" did not exist on the inland borders, and that "substantial uniformity within the meaning and purpose of the Constitution" was achieved by the uniform application of the statute in those quarters in which that "evil" was found to exist. Head Money Cases, supra, 112 U.S. at 595. Thus, the Court confirmed that Congress' broad power to pick and choose appropriate subjects of taxation includes the power to choose subjects that, as a matter of geographical considerations alone, exist only in certain states, and to leave untaxed similar "subjects" existing in other states. The ultimate question, in the Court's view, was whether Congress had a reasonable basis for distinguishing between the activity that was taxed in coastal states and the similar activity that was untaxed in inland states. Similarly, in construing the analogous uniformity proviso applicable to the exercise of the bankruptcy power, /23/ this Court, citing the Head Money Cases, concluded that the uniformity requirement "does not deny Congress power to take into account differences that exist between different parts of the country, and to fashion legislation to resolve geographically isolated problems." Regional Rail Reorganization Act Cases, 419 U.S. 102, 159 (1974). Here, as in the Head Money Cases and the Regional Rail Reorganization Act Cases, the validity of the "Alaskan oil exemption" from the windfall profit tax should not turn, as the district court concluded, simply on the fact that Congress took geographical considerations into account, but on whether the classification based on those geographical considerations is justified in terms of the relationship of those considerations to the "subject" of the regulation or tax. Put another way, the question is whether in fashioning the tax, Congress could, on the one hand, favor generally "newly discovered oil" over "old oil" and accord the most favorable treatment to "newly discovered oil" located in certain areas (Section 4494(e)). There can, of course, be no dispute that the exemptions here at issue are geographically defined so as to exclude oil located in all of the 50 states except portions of Alaska. /24/ It is almost equally beyond dispute, however, that Congress had a rational basis for drawing such a classification. Obviously, this is not an instance in which "combinations" have drawn taxing legislation in such a way as to grant an "undue preference" in favor of their own states or to impose an "oppressive" discrimination against a minority. Rather, it is an instance of a broad-based congressional majority (including many members from other oil-producing states) granting an exemption applicable to only a portion of the oil production that might be derived in the future from certain areas that include a part of a single state. Nor could these provisions be characterized as an "undue preference" in favor of Alaskan producers. Indeed, the benefit of the exemption falls on the owners of economic interests in that oil wherever they might reside or be incorporated. Moreover, the "subject" of the tax in question is not the production of crude oil, per se, but the enjoyment of a "windfall profit" by the holders of such economic interests as a result of the removal of price controls on domestic oil and concomitant increase in the selling price of such oil to the prevailing world price. The various classifications adopted with regard to this tax demonstrate that Congress' belief that the existence and extent of such "windfall profits," as well as the appropriate tax to be levied, would vary on the basis of a number of factors including the nature and type of the oil in question, the nature of the producer and the quality of his interest in the oil, and the circumstances under which the oil is produced. As the legislative history of the Act makes clear, Congress sought to draw tax classifications that would not deter producers from fully exploiting existing properties or from exploring and developing new properties. See H.R. Rep. No. 96-304, supra, at 7, 14; S. Rep. No. 96-394, supra, at 2, 6-7. /25/ The critical question therefore is whether Congress could carve out a portion of the "newly discovered oil" that might be produced in areas north of the Arctic Circle or in areas located north of the Alaska-Aleutian Range and more than 75 miles from the Trans-Alaska Pipeline System and accord such oil even more favorable treatment. /26/ We submit that this exemption serves the legitimate purposes of the legislation in question, and that it does not violate the Uniformity Clause, despite the fact that it is defined in terms of the geographic location of such oil. Congress had substantial grounds for concluding that North Slope oil -- particularly North Slope oil that had not yet gone into production -- presented a special case, distinct from domestic oil found elsewhere (including other oil found in Alaska). First, North Slope oil that was in production at the time the tax was under consideration brought a substantially lower price at the wellhead than did equivalent oil produced in other locations of the United States because of its distance from existing markets and the necessity of transporting it over the newly constructed Trans-Alaska Pipeline. Indeed, the price of such North Slope oil was only about half the applicable ceiling price for such oil. H.R. Rep. No.96-304, supra, at 5, 30. Moreover, Congress anticipated that the wellhead price for such oil would continue, in the foreseeable future, to be $8 to $9 less than the prevailing wellhead prices in other producing states. Second, during the legislative debates, the point was repeatedly made, without contradiction, that because of its remote location, fragile environment, and extreme climatic conditions, the production of North Slope oil involved risks and costs that were far greater than the risks and costs of developing domestic oil properties elsewhere. See, e.g., 125 Cong. Rec. S16327 (daily ed. Nov. 8, 1979), S17422 (daily ed. Nov. 28, 1979), and S17478-S17480 (daily ed. Nov. 29, 1979) (comments of Senators Gravel and Stevens). Accordingly, Congress had substantial reason to question whether North Slope oil (other than that produced from the Sadlerochit reservoir) would, in fact, generate a "windfall profit" to the same extent as the other categories of oil subject to this tax, and to conclude that the imposition of even the relatively small windfall profit tax burden applicable in the case of other "newly discovered oil" might deter further exploration and development of North Slope properties. There was no showing either in Congress or in the court below that domestic production elsewhere would involve similar developmental costs and risks or transportation-related disparities. /27/ In sum, Congress should be free to draw an exemption provision based, in general terms, on the distance of newly-discovered domestic oil from existing transportation systems and markets, and on unusual development costs incurred as a result of extreme climatic and environmental conditions, even though those conditions might be found to exist only in limited areas and, perhaps, only within a single state. For example, if Congress had cast the exemption for North Slope oil in terms of a location in which the average temperature did not exceed a particular level, there could be no quarrel with such a provision under the Uniformity Clause. An exemption provision that is designed to achieve precisely the same result and that is justified by precisely the same considerations, should not be rendered unconstitutional on the ground that Congress chose to define the scope of the exemption not in terms of the underlying conditions themselves, but rather in terms of the only geographic location in which Congress had reason to believe that those conditions existed, viz., the North Slope of Alaska. The purpose of the Uniformity Clause, after all, is to provide substantive protection to the states, rather than to require mere niceties of congressional draftsmanship. Cf. Head Money Cases, supra, 112 U.S. at 594; Regional Rail Reorganization Act Cases, supra. /28/ 3. The Separability Clause. Even on the assumption that the "Alaskan oil exemption" provisions of Sections 4991(b)(3) and 4994(e) violate the Uniformity Clause, the district court erred in holding that the entire tax was thereby rendered invalid. Section 7852(a) of the Internal Revenue Code of 1954 (App. G, infra, 63a), provides that "(i)f any provision of this title (26 U.S.C.), or the application thereof to any person or circumstances, is held invalid, the remainder of the title, and the application of such provision to other persons or circumstances, shall not be affected thereby." Such a provision has been included in the tax laws in terms virtually identical to those of Section 7852(a) since the Revenue Act of 1921, ch. 136, Section 1403, 42 Stat. 227. By means of this clause, Congress intended to preserve as much of the internal revenue laws as possible in the event any particular provision was held to be invalid. Assuming the "exempt Alaskan oil" provisions are barred by the Uniformity Clause, the court should have applied the "separability clause" of the tax statute to strike the invalid provisions, but to preserve the tax with respect to the windfall profits derived from all oil production (including that from within the area described in Section 4994(e)) that is not subject to other, valid exemption provisions. At a minimum, the clause should have applied so as to preserve all of the taxing provisions that are unaffected by the "exempt Alaskan oil" provisions. The district court, however, declined to apply the "separability clause." It first ascribed significance to the fact that this clause was set forth only in the Internal Revenue Code and not in the Windfall Profit Tax Act itself. It went on to express the belief that Congress would not have enacted the windfall profit tax without the Alaskan oil exemption, and that it would be engaging in impermissible judicial legislation to apply the "separability clause" in such a way as to deny the benefit of an invalid exemption that Congress had included in the statute. But contrary to the district court's initial rationale, there was simply no need for Congress to add an independent "separability clause" to the Windfall Profit Tax Act because those provisions were directly added to the Internal Revenue Code. The separability clause that is part of the Code is applicable to amendments to the 1954 Code as well as to provisions that were included in the original 1954 recodification of the internal revenue laws. See Sipes v. United States, 321 F.2d 174, 178 (8th Cir.), cert. denied, 375 U.S. 913 (1963) (amended provision of the 1954 Code); United States v. Castro, 413 F.2d 891, 894 (1st Cir. 1969) (original provision of the 1954 Code). Thus, once the windfall profit tax provisions of Sections 4986 through 4998 were added to the Code, each of those provisions became fully subject to the "separability clause" of Section 7852(a) to the same extent any other provision of the Code would be. To be sure, the existence of a separability clause is not conclusive as to whether a statute will be held invalid as a whole or invalid only as to those specific provisions that directly offend a limitation imposed by the Constitution. Rather, the courts must examine the legislative intention underlying the statute in question to determine whether and to what extent the statute was intended to operate in the absence of the invalid provisions. See, e.g., Dorchy v. Kansas, 264 U.S. 286, 290 (1924). Nevertheless, the existence of such a separability clause creates, at the minimum, a strong presumption that Congress intended to save as much of a statute as possible. As this Court observed in Carter v. Carter Coal Co., 298 U.S. 238, 312-313 (1936): Under the statutory rule, the presumption (of validity of the remaining portions of the statute) must be overcome by considerations which establish "the clear probability that the invalid part being eliminated the legislature would not have been satisfied with what remains," Williams v. Standard Oil Co., 278 U.S. 235, 241 et seq.; or as stated in Utah Power & L. Co. v. Pfost, 286 U.S. 165, 184-185, "the clear probability that the legislature would not have been satisfied with the statute unless it had included the invalid part." See also Champlin Refining Co. v. Corporation Commission of Oklahoma, 286 U.S. 210, 234 (1932). /29/ Despite the district court's assertion that the "legislative history and spirit remains somewhat of an enigma in this case" (App. A, infra, 9a), the legislative history indicates that Congress was specifically aware of the possibility that the Alaskan oil exemption might be challenged under the Uniformity Clause and understood that the "separability clause" set forth in Section 7852(a) of the Code would apply if that exemption were held invalid. Reservations as to the constitutionality of the tax were expressed by a number of Senators. 126 Cong. Rec. S2771, S2773-S2774 (daily ed. Mar. 20, 1980); S2825-S2828 (daily ed. Mar. 21, 1980), and S2854-S2855 (daily ed. Mar. 24, 1980) (comments and submissions of Senators Boren, Stevens, and Schmitt). In response, Senator Long, then Chairman of the Finance Committee and the floor manager of the bill in the Senate, expressed the view that the bill satisfied the requirements of the Uniformity Clause. 126 Cong. Rec. S3055-S3057 (daily ed. Mar. 26, 1980). Senator Long further noted, however, that the windfall profit tax amendments would be subject, in any event, to the "separability clause" set forth in the Internal Revenue Code itself, and stated that "it is our intention that in the event the courts should find this favorable treatment for Alaska * * * should violate the (uni)formity provision in the Constitution, that provision should be regarded as a nullity and that Alaska will pay the same 30-percent tax on new oil as everybody else." Id. at S3056. /30/ No contrary views were expressed as to the applicability or the intended operation of Section 7852(a) by any proponent or opponent of this legislation in either the House or the Senate. Thus, there is solid evidence that Congress intended the separability clause of Section 7852(a) to apply. Moreover, even apart from this explicit statement as to the applicability of the general "separability clause" provided by the Code itself, there is no basis for the district court's speculation that Congress would not have imposed the windfall profit tax in the absence of an Alaskan oil exemption. As the legislative history of these provisions makes clear, the adoption of the tax was the quid pro quo for the decontrol of domestic oil prices. There is no doubt, of course, that Congress was concerned that the general imposition of a windfall profit tax with respect to all "newly discovered oil" could have a deterrent effect on the future discovery and development of new North Slope oil. There is no indication in the legislative history, however, that this was such a critical consideration that Congress would have entirely foregone the adoption of this tax, and the $227.3 billion in revenues it was estimated to produce over a 12 to 15-year period, if it could not have provided an exemption for North Slope Alaska Oil. /31/ Nor, we submit, could a court be considered to be engaging in impermissible judicial legislation in holding the exemption, but not the tax itself, invalid. Indeed, such a result calls for no judicial "re-writing" of the statute, but precisely accords with the specific statutory directive provided by Section 7852(a) to give effect to all provisions that are not themselves invalid. In applying such separability clauses, the question is always one of carrying out the intentions of the Congress. There may, to be sure, be instances in which it would be inappropriate, and inconsistent with the apparent legislative intent, to deny an exemption or other preferential treatment to a group intended to be benefited thereby. But there is no strict rule against applying a separability clause in such a way as to impose a tax on a class granted the benefit of an invalid exemption. Thus, in Utah Power & L. Co. v. Pfost, 286 U.S. 165 (1932), a state tax statute that contained a "separability clause" was challenged on the ground that an exemption provision was unconstitutional. The Court squarely rejected the contention that any defect in the exemption provisions would render the entire taxing statute invalid. In this respect, the Court stated (286 U.S. at 185): The primary object of the statute, under review, plainly, is to raise revenue. The exemption * * * and the provisions for carrying that exemption into effect are secondary. We find no warrant for concluding that the legislature would have been content to sacrifice an important revenue statute in the event that relief from its burdens in respect of particular individuals should become ineffective. On the contrary, it seems entirely reasonable to suppose that if the legislature had expressed itself specifically in respect of the matter, it would have declared that the tax, being the vital aim of the act, was to be preserved even though the specified exemptions should fall for lack of validity. Field v. Clark, 143 U.S. 649, 696-697; People ex rel, Alpha P.C. Co. v. Knapp, 230 N.Y. 48, 60-63; 129 N.E. 202. The same conclusion as to the "vital aim" of the windfall profit tax, if anything, finds even stronger support in the legislative history. Therefore, even if it is assumed that the Alaskan oil exemption is barred by the Uniformity Clause, the "separability clause" of Section 7852(a) should save the remaining provisions of the Act. /32/ CONCLUSION Probable jurisdiction should be noted. Respectfully submitted. LAWRENCE G. WALLACE Acting Solicitor General /*/ JOHN F. MURRAY Acting Assistant Attorney General STUART A. SMITH Assistant to the Solicitor General GARY R. ALLEN WILLIAM S. ESTABROOK Attorneys DECEMBER 1982 /1/ Although the judgment order of November 4, 1982, appears to have been interlocutory insofar as it did not, by its terms, determine the amount of taxes to be refunded and it did not pass on all claims for relief, the orders of November 12 and November 15, 1982 were final judgments because they determined the specific amounts of the refunds sought in the pleadings and they contained the requisite determination that there is no just reason for delay in the entry of final judgment on the claim addressed. See Fed. R. Civ. P. 54(b). At all events, all three orders are appealable to this Court under 28 U.S.C. 1252. See United States v. Clark, 445 U.S. 23, 25-26 n.2 (1980). /2/ Title II of the Act, 94 Stat. 256 et seq., provides for various energy expenditure and investment credits, unconventional fuel production credits, energy related uses of tax-exempt bonds, and special income tax deductions for "tertiary injectant expenses." Title III of the Act, 94 Stat. 288 et seq. provides for energy assistance for certain low income households, and Title IV provides for a number of miscellaneous amendments to unrelated provisions of the Internal Revenue Code of 1954 and other statutes. /3/ In the case of "tier 1 oil" -- i.e., oil that does not qualify for the more favorable treatment accorded "tier 2" or "tier 3" oil -- the base price reflects the applicable ceiling price (less 21 cents) for such oil if it had been sold as "upper tier" oil in May 1979, prior to the beginning of the phase out of the oil price controls provided for under the Energy Policy and Conservation Act of 1975, Pub. L. No. 94-163, 89 Stat. 871. Such "upper tier" prices under the then applicable regulations averaged $13.02 per barrel. H.R. Conf. Rep. No. 96-817, 96th Cong., 2nd Sess. 92 (1980). The "base price" of "tier 2" and "tier 3 oil" is equal to the price at which such oil would have been sold in December 1979 on the assumptions (1) that the price of all domestic crude oil was then uncontrolled; and (2) that the average prices for domestic crude oil were than $15.20 per barrel for "tier 2 oil" or $16.55 for "tier 3 oil". Section 4989(c) and (d). /4/ Section 602 of the Economic Recovery Tax Act of 1981, Pub. L. No. 97-34, 95 Stat. 337, amended Section 4987(b) to reduce the applicable tax rate in the case of "newly discovered oil" from 30 percent to 15 percent, in gradual steps during the period 1982-1986. /5/ Further exemptions were provided for certain oil produced by independent producers from "stripper well propert(ies)" and specified portions of a "qualified royalty owner's qualified royalty production," under amendments made to Sections 4991(b) and 4994 by Section 601 of the Economic Recovery Tax Act of 1981, (95 Stat. 336-337). /6/ The tax is deductible, for income tax purposes, by the producer under Section 164(a)(5) of the 1954 Code, as added by Section 101(b) of the Crude Oil Windfall Profit Tax Act of 1980, 94 Stat. 230. Certain holders of royalty interests, however, are entitled to treat up to $1,000 of windfall profit taxes paid with respect to their "qualified royalty production" for 1980 as a creditable or refundable "overpayment." Section 6429 of the Internal Revenue Code of 1954, as added by Section 1131 of the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2599. These provisions were extended to encompass "qualified royalty production" for the year 1981, and the amount allowable as a credit for that year was increased to $2,500, by Section 601 of the Economic Recovery Tax Act of 1981. /7/ The remaining appellees are 30 trade associations whose members are alleged to be oil producers or royalty holders subject to the tax, and the States of Texas and Louisiana, which were permitted to intervene in the case. See note 8, infra. Two other individual producers withdrew from the suit. /8/ The original complaint did not allege that any of appellees filed administrative refund claims with respect to the taxes. However, appellees filed two amended complaints alleging that the producers and royalty holders had filed refund claims covering taxes paid for one of more taxable periods in calendar year 1980. The amended complaints also sought an order restraining the further assessment or collection of windfall profit taxes. In response to the government's motion to dismiss, urging, inter alia, that several trade associations lacked standing to join the action as plaintiffs, the district court dismissed the associations as plaintiffs but permitted them to remain as permissive intervenors. Moreover, over the government's objection, the district court permitted the States of Texas and Louisiana to intervene in the litigation urging that the windfall profit tax violates the Tenth Amendment as well as the Uniformity Clause (App. A, infra, 2a). Finally, a subsequent suit that was filed by appellee John Partridge, after filing a new refund claim covering all taxable periods in calendar year 1980, and which sought identical relief was consolidated with the original action (App. A, infra, 2a). /9/ The district court first ruled that the question of the constitutionality of the windfall profit tax was ripe for decision despite the fact that there had been no production of "exempt Alaskan oil" during the periods in suit (see pages 20-21 note 28, infra). /10/ Although its ruling that the Windfall Profit Tax Act violated the Uniformity Clause obviated the necessity for consideration of appellees' claim that the Act was barred by the Due Process Clause of the Fifth Amendment, the court concluded that "(t)he Fifth Amendment challenge to the windfall profits tax is unfounded, and without merit * * * " (App. A, infra, 10a). /11/ In its final amended judgment, the district court noted that its ruling was restricted to the provisions added by Title I of the Crude Oil Windfall Profit Tax Act of 1980 (26 U.S.C. (Supp. V) 4986-4998), and that it did not intend to hold the remaining provisions invalid as a result of its conclusion that the "exempt Alaskan oil" provisions could not be severed from the remaining provisions of the Act (App. D, infra, 16a). The district court stayed the effect of its order (App. D, infra, 17a). Hence, no refunds have been issued to appellees and the windfall profit tax continues to be collected pendente lite. Accordingly, the government's arguments that appellees' suit for injunctive and declaratory relief is barred by the Anti-Injunction Act (26 U.S.C. (Supp. V) 7421(a)) and the tax exception to the Declaratory Judgment Act (28 U.S.C. 2201) are not before the Court. /12/ The gross revenues from the windfall profit tax through the end of fiscal year 1982 are estimated to be $50 billion. The windfall profit tax, however, is deductible for federal income tax purposes, under Section 164(a)(5) of the 1954 Code, and the windfall profit taxes attributable to economic interests owned by the United States reduce proprietary receipts. Accordingly, the net budgetary impact of the statutory provisions in question is smaller than the gross liability, but nevertheless substantial. /13/ The phase-out of price controls on domestic crude oil was actually completed by Exec. Order No. 12287, 3 C.F.R. 124, issued by President Reagan on January 28, 1981. /14/ Under Section 4990, the windfall profit tax is to be phased out over a 33-month period, beginning with the later of January 1988, or the first month (not later than January, 1991) after the Secretary of the Treasury estimates that the aggregate net revenues from the tax will exceed $227.3 billion as of the end of that month. Under Section 102(a) and (b) of the Act, 94 Stat. 255, revenues collected in the interim are required to be allocated to a separate account in the Treasury for the following uses: (1) income tax reductions (60 percent); (2) low-income assistance (25 percent); and (3) energy and transportation programs (15 percent). /15/ See, e.g., Section 4991(e)(1)(B) and (e)(3), placing "heavy oil" in the favorable category of "tier 3 oil". /16/ See,e.g., Section 4987(b)(2), providing for reduced tax rates in the case of "independent producer oil" as defined by Section 4992. /17/ See, e.g., Section 4991(d)(1)(A) and (e)(1), providing that oil from "stripper well" properties and "incremental tertiary oil," as defined in Section 4993, are to be favorably treated as "tier 2 oil" and "tier 3 oil," respectively. /18/ See Section 4991(e)(1)(A), providing that "newly discovered oil" is to be favorably treated as "tier 3 oil." /19/ As the Joint Committee staff study indicated, (House Hearings, supra, at 21), the world price of oil would have to rise (as it ultimately did) to at least $22 per barrel (or the tariff rate for the Trans-Alaska Pipeline would have to be correspondingly reduced) in order for the price of the Alaskan oil to rise to its then applicable ceiling price. The staff study also indicated, (id. at 22) that the exemption was intended "to eliminate the possibility of creating a disincentive for the production of Alaskan oil." Although it concluded that there was relatively little risk that a tax on Sadlerochit oil would discourage production, it noted that production costs for the other two known Prudhoe Bay reservoirs would be higher. Id. at 22. /20/ The Finance Committee proposal, like the provision ultimately enacted (Section 4991(e)(2)), provided that the term "newly discovered oil" has the same meaning that the term had in the June 1979 energy regulations. Under that definition, the term would encompass all oil from properties from which no crude oil was produced in calendar year 1978. See 10 C.F.R. 212.79(b), 44 Fed. Reg. 25828, 25832 (1979). As the committee noted, this definition of "newly discovered oil" would exclude Sadlerochit oil. S. Rep. No. 96-394, supra, at 42-43. /21/ Amendments previously offered by Senators Ribicoff and Bradley would have taxed the "windfall profit" from "newly discovered oil" at a rate of 20 percent, but also would have exempted "newly discovered oil" produced north of the Arctic Circle. 125 Cong. Rec. S18141 (daily ed. Dec. 10, 1979). Concerns with respect to the high costs and risks involved in producing North Slope oil and the disincentive to further exploration and development that would be imposed by subjecting that oil to tax had been expressed by both Senator Gravel (125 Cong. Rec. S16327 (daily ed. Nov. 8, 1979)), and Senator Stevens (125 Cong. Rec. S17422, S17478-S17480 (daily ed. Nov. 28 and 29, 1979)). /22/ By contrast, "(d)irect taxes," such taxes on property or capitation taxes, are required to be apportioned among the states on the basis of their respective populations. Article I, Section 9, Clause 7. The Sixteenth Amendment eliminated the apportionment requirement for taxes on income that would be classified, under Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, on reargument, 158 U.S. 601 (1895), as "direct taxes" imposed upon the source from which the particular type of income is derived. Two amici curiae in the court below (the American Farm Bureau Federation and the Wyoming Farm Bureau Federation) contended that the windfall profit tax was a direct tax that had to comply with the Apportionment Clause. We submit, however, that this tax is properly classified and imposed as an "excise" because it is not imposed on the ownership of property per se but upon the activity of mineral extraction. See Stanton v. Baltic Mining Co., 240 U.S. 103 (1916). At all events, since it is imposed on the income that is derived from the exploitation of economic interests in oil, the Sixteenth Amendment would permit its imposition without apportionment even assuming the tax were classified as a "direct" tax under Pollock. To the extent that the tax is a direct tax, the Uniformity Clause would be inapplicable. /23/ Article I, Section 8, Clause 4 of the Constitution grants Congress power to establish "uniform laws on the subject of Bankruptcies throughout the United States." /24/ In describing the exemption (App. A, infra, 4a) the district court characterized it as encompassing "certain oil found only in Alaska." In fact, it would apply to any oil, including offshore oil, that might be produced from wells located north of the Arctic Circle. Offshore oil found farther than three miles from Alaska's coastline and located on the Outer Continental Shelf is subject to the exclusive jurisdiction and control of the United States. Submerged Lands Act, 43 U.S.C. (& Supp. IV) 1301-1315; see Maryland v. Louisiana, 451 U.S. 725, 730 (1981). /25/ Thus, "newly discovered oil" is accorded the most favorable treatment of all non-exempt categories in terms of both the "adjusted base price" and the tax rate. /26/ The definition of "newly discovered oil" would apply to all "exempt Alaskan oil" since Sadlerochit oil is excluded from the scope of that exemption and since no other oil was being produced from the areas described by Section 4994(e) prior to 1981 (see page 20, note 28, infra). /27/ In addition, the Alaskan exemption was granted, in part, because of Congress' concern that a disproportionate part of the tax would otherwise fall on Alaskan oil. As Senator Stevens noted (125 Cong. Rec. S17478 (daily ed. Nov. 29, 1979)), there are no "independent producers" operating on the North Slope, nor would any of that oil (including Sadlerochit oil, which represented the largest of the known reservoirs) fall within any of the other favorably taxed categories that are found elsewhere. Thus, Senator Long indicated that the Alaskan exemption was adopted in order to make the tax apply with a greater degree of intrinsic uniformity. 126 Cong. Rec. S3056 (daily ed. Mar. 26, 1980). Though it is settled that intrinsic uniformity is not required under the Uniformity Clause,the framers of the Constitution could hardly have intended that the Uniformity Clause would impede Congress' attempts to distribute the burden of a tax more equitably among the states. /28/ Even on the assumption that the Uniformity Clause prohibits Congress from drawing a distinction between North Slope "newly discovered oil" and other domestic "newly discovered oil," there was still no violation of the Uniformity Clause during the periods properly in question here. It was uncontested that there was, in fact, no production of "exempt Alaskan oil" during the periods covered by any of the refund claims in issue. Characterizing the government's contention on this point as one directed to the "ripeness" of the uniformity question for decision, the district court concluded that the fact that production ultimately did occur (starting in December, 1981) rendered it appropriate to resolve that question (App. A, infra, 4a-5a). But the question is not simply one of ripeness, as such, but whether, assuming the district court's reading of the Uniformity Clause is correct, the Act could be deemed to violate the Clause when, in fact, during the only periods for which the legality of the tax can be questioned in this refund suit, the taxing provisions operated with precisely the "same force and effect in every place where the subject * * * (was) found." Put another way, all oil falling into each taxable category established by the Act (including "newly discovered oil") was subject to tax during these periods on the same basis wherever it was found. Since the assertedly defective provisions remained wholly inoperative during the period for which the taxes in question were collected, there was not simply "substantial uniformity," but strict geographical uniformity with respect to the imposition of those taxes during those periods. /29/ Indeed, a presumption in favor of separability would be appropriate in the case of general revenue measures even without such a clause. As this Court noted in Field v. Clark, 143 U.S. 649, 696-697 (1892): Unless it is impossible to avoid it, a general revenue statute should never be declared inoperative in all its parts because a particular part relating to a distinct subject may be invalid. A different rule might be disastrous in the financial operations of the government, and produce the utmost confusion in the business of the entire country. /30/ Senator Long also expressed the view that, in the event the Alaskan exemption were held unconstitutional and the "separability clause" employed in this manner, Congress might then attempt to devise other relief, framed in non-geographical terms, for high-risk, high-transportation cost production. Id. at S3055. /31/ Indeed, while the district court took pains to make clear its view that its holding would not affect any of the remaining provisions of the Act not directly related to the imposition of the windfall profit tax, what is far more questionable is whether Congress would have intended to confer the benefits of the energy conservation and production measures provided by Title II of the Act, the low-income energy assistance provided for by Title III or, indeed, possibly any of the relief measures provided by Title IV of the Act, if the revenues to be generated by Title I would not be forthcoming. /32/ Even if the district court was justified in refusing to apply the separability clause of Section 7852(a) to impose the tax against holders of economic interests in North Slope oil encompassed by Section 4994(e), it should have applied the "separability clause" to preserve both that exemption and, at the same time, so much of the tax as would be uniformly applied throughout the United States with or without that exemption. This could have been accomplished by upholding the provisions imposing the tax on "old oil" and exempting all "new oil" including North Slope Alaska oil. There is no doubt that Congress would have imposed a tax upon all oil with respect to which the "windfall profit" element was most apparent even if the opponents of taxing new oil had ultimately prevailed. See Welsh v. United States, 398 U.S. 333, 361-367 (1970) (Harlan, J., concurring): "Where a statute is defective because of underinclusion there exist two remedial alternatives: a court may either declare it a nullity and order that its benefits not extend to the class that the legislature intended to benefit, or it may extend the coverage of the statute to include those who are aggrieved by exclusion. Cf. Skinner v. Oklahoma, 316 U.S. 535 (1942); Iowa-Des Moines National Bank v. Bennett, 284 U.S. 239 (1931)." There is no requirement, however, that the benefit be extended to include those who are not directly aggrieved by the improper classification. /*/ The Solicitor General is disqualified in this case. Appendix Omitted