*1 my judgment majority In opinion that holds equity exception Act, has created an to the based concealment, fraudulent which is than broader any exception contained the 1881 Act. This court power presume exceptions without the to create or in a Legis- expressly provided statute none where are lature in the Act itself.

Furthermore, complaint affirmatively herein shows, face, on its this cause does not even come exception majority within the opinion which the creates. stated, For the reasons I above would affirm the judgment of the trial court. Reported in 188 E. 2d N.

Note. — Department Division, Gross Tax Income of State Chicago Revenue, v. District Elec- Generating Corporation. tric 29,227. Filed December [No. 1956.] *2 Steers, Attorney General, Edwin K. Carl M. Frances- Hutchinson, George Hall, chini, Lloyd F. and Charles C. General, Attorneys Rodgers, Deputy appellant. for D. McHale, Patrick, Welch, Indianapolis, Cook & for appellee. appeal J. This was commenced

Bobbitt, pursuant provisions §3, of Acts ch. p. 1471, being §64-2614, Replacement, Burns’ 1951 gross recovery income paid taxes bonus protest years through under 1952,1 for the of 1947 inclusive, recovery and for the of interest at the rate per of 3 per cent alleged annum on the amount to have charged improperly been judg- and collected. From a plaintiff-appellee ment for appeal prosecuted. Appellee imposition asserts that the question its income here in violates Article Section States; Clause 3 United Constitution thereto, 6(a) Fourteenth Amendment and Section Act, (Acts Indiana Gross Income Tax as amended *3 against By appellee proposed a notice of assessment issued 1937, Depart- 18, predecessor, appellant’s on the November the ques- Treasury Indiana, ment of of raised same of this respect years 1936, Upon through tion with to the inclusive. appellee’s protest presentation after and a hear- and of evidence ing, Department January 19, Treasury ruling in its 1940, taxability against in held favor of under receipts the Gross Income Tax Act of identical to those involved in this case. 1945, again 26, appellant pro- On December issued a notice posed the earlier involving assessment sales identical those involved in to proposed by appellee assessment and in this case years through 1944, Commonwealth Edison for the in- Again, protest by appellee, clusive. after the submission of hearing thereon, appellant’s ruling evidence and on administrative April 23, 1947, taxability denied the under the Gross Income proceeds Tax Act of of such sales. by appellant’s The same issue was raised for the third time proposed February 7, 1950, affecting notice of assessment of appellee’s during sales to Commonwealth Edison 1947 and 1948. Again, appellee protested proposed this but assessment after hearing thereon, appellant Sep- submission of evidence on 11, 1952, protest tember denied the and started in motion the series of events which culminated in law suit. rulings Department While the various of the are not decisive question us, during now before of interest to note that years Department ap- fourteen out of nineteen ruled that pellee’s subject income was not Indiana Gross Income tax. 291, 833, being (a), Burns’ (a), p. ch. §1 §64-2606 income Repl. (1955 Supp.)), because such Cum. inter- was derived from the sale of commerce, imposition of the Indiana state that the burden Income Tax is an invalid Gross thereon such commerce.

Appellant and contends denies these assertions completed producing herein are income activities wholly local purely are within the Indiana and State of (e), subject ch. activities which are to Acts §1 being Repl. (1955 (e), p. Burns’ 1951 §64-2603 pertinent parts, Supp.), provides, which Cum. follows: gross part income respect of the to that “With person producing, every transmit- received from retailing wholesaling,

ting, furnishing, elec- and/or energy; equal per . . be to one trical the tax shall gross part income.” cent of such of the [1%] engaged exclusively Plaintiff-appellee corporation is a production, in the and sale of electrical transmission energy. only plant of Lake Its is located on the shore edge Hammond, Michigan City at north exclusively purposes. and is devoted to such property plaintiff-appellee’s line of on western plant boundary said is located abuts the line Indiana and Illinois. between the States of customers, only Appellee Northern Indiana has two Corporation, Company, an Public Service Hammond, Indiana, principal located at office is whose Company, cor- Edison an Illinois and Commonwealth Chicago, principal office is located poration, whose *4 by energy appellee to The sale of electrical Illinois. Company is not in- Indiana Public Service Northern in this case. volved energy here con- with which we are plant generated appellee’s within is

cerned and, upon by demand Edison therefor Commonwealth Company, is plant transmitted from In- such within diana across the Illinois State line to three transmission Company, terminals of Commonwealth all lo- Edison Illinois, cated within the State of at which transmission energy terminals so received Commonwealth commingled Company appellee Edison from the is with energy, voltage other and is either reduced in dis- tribution or transmitted to other terminals. There is interruption no in the or in the flow transmission lines energy point of such appellee’s between the within the plant in Indiana at which such transmission commences and the transmission terminals of Edi- Commonwealth Company son located in the State Illinois. agreement energy sup- under which electrical

plied to Company lengthy Commonwealth Edison is a document, question most which pertinent consideration, here under and we think to it out set purpose here unduly would serve except no extend opinion. A agreement careful examination of the entire be appellee tween herein and Edison Commonwealth Com

pany leads to the definite conclusion that it is essentially simply a contract for the sale purchase of electrical which produced, produce, has and is to in the State for sale and transmission to Commonwealth Edison in II, agreement the State of Illinois. Article of the §7 provides, energy sup part, which “The follows: plied three-phase be al hereunder shall in the form ternating delivery . . Edison shall take current property Station.”, at the such line State Line line) ; III, (the provides and Article which Illinois measuring for the fur kilowatts kilowatt-hours agreement, only are its nished under few of effectively provisions support this conclusion. *5 122 binding court, nevertheless,

While the fact that the Federal Power Commission Docket No. July 16, 1941,

IT-5500, in an order entered found that, engaged “Respondent [appellee is herein] selling transmitting in the business and energy commerce within wholesale electric in interstate Act; meaning the the 201 Federal Power Section in com it transmits and at wholesale interstate sells City the merce to resale consumers EDISON for arrangements, ap Chicago, Illinois, present under energy proximately it per of the electric 80 cent generates; ,” persuasive . effect in de . has some agreement termining before us. of the here nature Light Co. v. in Utah Power & As was case Pfost 548, (1932), 286 U. L. Ed. 52 S. Ct. S. 76 engaged Insofar appellee herein is in two activities. generates energy in Indiana produces electrical as and activity, purely a local is intrastate its business transmitting subject and control. In to State taxation Illinois, energy into line electrical across the State engaged in interstate commerce. is energy by appellee of electrical transmission solely for interstate sale Line is its State Station time, current, at that is not transmission and moving in, to, actually only but is committed generation and trans commerce. The interstate and simul continuous of electrical mission for use where transmission operation, and taneous points within a State made of the generated it is in which from State different com in interstate produced, is made such a transaction Hence, and sale transmission it follows merce. energy by appellee across State of electrical transactions constitutes Illinois into line Pipe Line commerce; Co. Panhandle Eastern interstate L. Ed. S. U. S. v. Calvert 396; Light Pfost, swpra; Ct. Utah Power & Co. v. gross receipts and the are not taxable under therefrom the Indiana Gross Income Tax Act. gross

A on transactions in interstate income from upon, commerce is an or inter unconstitutional burden among with, ference commerce States *6 prohibited 1, Article 8 the Constitu Section tion the United Tax States. Gross Income Div. Corp. (1953), 143, v. 100, Comb. 232 Ind. 111 Surface 50, (Cert. denied, 829, 830, E.N. 2d 346 98 L. U. S. Ed. v. L. 353, 51) ; Ayres 74 Ct. S. Gross Income Tax Div. S. (1954), 194, 480; & Co. 233 Ind. E. 2d 118 N. J. D. Co. v. Storen 82 L. Mfg. 307, (1938), Adams 304 U. S. 1365, 913, 429; Ed. 58 S. Ct. 117 A. L. R. Freeman v. (1947), 249, 265, Hewit 329 U. S. 91 Ed. L. 67 Ct. 274. S.

The tax which impose the State of Indiana seeks upon appellee upon herein is license tax the generation

manufacture, production or of elee tricity within the the State as was situation Light (1932), Utah Power & Co. v. 286 Pfost 165, 1038, 548, supra; U. S. 76 L. Ed. 52 Ct. S. nor is excise, it an license, privilege tax production or the on power and sale of electric within the the State as was case in South Carolina Power v.Co. South Carolina Tax (affirmed, Commission 2dF. 286 U. S. 525, 494), 1268, L. Ed. 52 S. Ct. rather is a tax but gross upon receipts the from the sale of electrical energy. imposed by 260,

The tax §l(e), Acts ch. 682, being p. (e), Repl. (1955 Burns’ 1951 §64-2603 Supp.), gross upon Cum. is levied the income received “producing, transmitting, furnishing, from wholesaling, retailing energy; electrical . . and is not and/or purely upon activity producing based local or generating same; nor is it a tax or fee license privilege engaging any of such activities. impose a

In case at bar the State seeks gross producing, not on the from trans income received mitting, wholesaling retailing furnishing, and/or but within gross receipts from its rather sale act not commerce. Such an transmission in interstate being 8BB, §l(a), p. only Acts ch. violates Repl. (1955 Supp.), §64-2606(a), Burns’ 1951 Cum. Act, supra, Tax but also Article Gross Income United 8 of the Constitution States. Section assignment an has filed of cross-errors. judgment However, of the trial court must be since the assign- by appellant’s presented on the affirmed issues error, necessary ques- ment of it is not consider the by the cross-errors. tions raised judgment of trial court is affirmed. Landis, JJ., concur. Emmert and Achor, J., opinion. with C. dissents Arterburn, J., opinion. dissents with

Dissenting Opinion following the J. I in this case for C. dissent Achor, initially opinion the majority describes reasons: engaged “Plaintiff-appellee (as) corporation ex- is clusively production, and sale of in the transmission energy.” appellee it a fact that is If is electrical engaged of electrical in the sale and transmission (an corporation), then the Illinois Edison to subject tax, to and not receipts from sale are such However, upon it majority is opinion is correct. the disagreement the premise I am in with that this basic majority the of court. en- my appellee Edison are not opinion the and

In energy. purchase gaged of in the and sale type contractual of different a distinct and Theirs is which, relationship by craftsmanship with skillful and care, contracting parties meticulous the the avoided and, vendor-vendee relationship purpose with de- sign, whereby entered into a contract in minute detail engaged appellee’s Edison and contracted facilities pay expenses production delivery all the and the for True, electricity. of its own provided the contract that energy accepted by appellee measured as to kilo- be watt purpose hours but such measurement was for the prorating of the “actual of cost the coal” consumed the manufacture of the current delivered Edison. Payment electricity was not made itself. Thus my it is firm payment appellee conviction that which production electricity received was for the which wholly Therefore, was within the State of Indiana. legitimate why appellee, enjoys there is no reason which government, all services our state should not bear just government by paying its share cost such imposed. the tax here problem with which we here is are concerned

contractual. At the outset our attention is called to the fact that transaction between the previously Edison has ruled been Federal July 16, 1941, Power Commission in its order of which is hereafter referred to. In that order the Federal Power found Commission that “the electrical supplied generated Edison is in Indiana and transmitted point to the Illinois-Indiana state line it is However, appellee delivered and sold to Edison.” ruling quick binding upon admit that this suggests persuasive our court but be should To decision this case. what extent is the order persuasive Federal Power Commission issue (b) in this case? The Federal Power Act in *8 §201 (c) A., (Title (b) (c)), thereof 16 U. S. C. and §824 provides as follows: 824-824h “(c) purpose of sections For title, energy trans- be held to be electric shall if transmitted from in interstate commerce mitted thereof; any point outside a State consumed foregoing statute the powers of the

Under broad jurisdiction ap- Federal Power Commission had over regardless pellee, capacity in which produced since current was by appellee consump- transmitted into another state for whether or Under this statute it is not material tion. not there was a sale of the electrical so trans- mitted. may, regulatory pur a

The fact that transaction jurisdiction agency poses, a be under the Federal deprive power part tax that a does state may entirely or occurs such transaction which be local entirely taxing within the of the state. boundaries Company v. Tax South Carolina Power South Carolina 515, 1930, (1931), 2d affirmed 52 F. Commission 525; Albuquerque Broadcasting U. Co. v. Bureau S. 281 P. 2d 350 U. Revenue 59 N. M. S. 217, appeal (advance), p. L. No. dis Ed. question. Federal for want a substantial missed stated, problem are with which we As heretofore though and, even is contractual here concerned whereby lengthy, it can there is no method contract considering provision its essential construed be without thereto. the evidence relative by appellee with Common- into entered contract Company other evidence of Illinois and wealth Edison are, bearing question as follows: on the which has organized existing corporation, under Appellee is a such, and, operates owns and the laws generating at the plant located extreme an electrical The western of Indiana. corner of northwest *9 boundary boundary property line be- line of its is the Appellee was tween the of Illinois. states Indiana and organized generating, trans- purpose of in 1926 for the mitting selling energy. At time it and electric was operations appellee started business the stock of corporations, Edison owned four Commonwealth Company, Illinois, Company of Illi- Public Service both corporations, Company nois of Interstate Public Service Company, and Northern Indiana Public Service being the latter corporations. two The contracts generat- provided companies, the above allocated ing capacity appellee’s pay appellee plant, from were to respective charges appellee’s their shares of fixed based appellee’s on plant capital invested in facilities. Each company’s proportionate part share was the of the total generating net capacity generating appellee’s company assigned production to the of for each receiving of companies. payment In addition to the proportionate of charges, shares of fixed each of such agreed companies said pay appellee pro- to its portionate part appellee’s operating expenses. Such operating expenses apportioned (1) so included man- agement general expenses; (2) and operating labor expenses; (3) expenses operating excluding supplies, fuel; (4) expenses repairs, of maintenance and includ- ing materials; charges (5) labor and reasonable on benefits, including employee’s account of proportionate charges savings funds, (6) entities service and charge representing a fuel the cost of fuel consumed generating operation. in the agreements January made,

On 1939 new were under which Edison and Northern Indiana Public Serv- Company, NIPSCO, ice hereinafter referred to as con- generating tracted capacity appellee’s for the entire plant. acquired Edison at that time and now owns 100 per voting appellee. changes cent stock Other agreements July 1, 1939, the two were made

agreements January 1, were made effective as

During period the Federal Power Commission investigation opera an into the contracts and instituted appellee tions Edison and between NIPSCO. As hearing, a result such the Federal Power Commission July, an 1941 for its issued order reduce base, capital investment and to reduce the rate of return capital per on said investment base from 11½ 5½ *10 cent. to order the Federal Power Com Pursuant of mission, appellee a contract with Edison entered into NIPSCO, July 1, is the as of 1941. This effective litigation. subject of this contract now in force and the stated, express purpose of this con As heretofore readjust “to Edison tract was basis under which generating capacity . shall . obtain in the hereafter provides ap Line This contract State Station.” 252,000 pellee of total allocate to Edison kilowatts generating capacity appellee’s net of facilities which (The 90,000 aggregated 342,000 other kilo kilowatts. NIPSO.) capacity net was allocated to of the total watts regard “generating capacity” payment to for such With among things, provides, that Edison contract other electricity pay month —not to each shall for following charges: transmitted, sold and but equal charge to general 1. A investment 1/12 part proportionate (252/342) per cent of Edison’s 5½ investment, general (b) (a) work appellee’s net (c) spe ing capital and investment and investment etc.), (transformers, which were used cial facilities exclusively benefit. for Edison’s cent, (a) depreciation charge per general of 3

A 2. appellee’s proportionate part of in- on Edison’s based solely by Edison. special used facilities vestment appellee’s general proportionate share of Edison’s charge special facilities charge full tax exclusively used for Edison’s benefit. expense plus the proportionate part,

4. Edison’s full exclusively for Edi- operating special used facilities son’s benefit. general part of a proportionate

5. Edison’s fuel charge follows: defined and calculated as for such “(a) be determined There shall first Line fuel burned State month the actual cost of fuel burned (appellee). actual cost of Station Such relating the fuel re- expenses to shall include all pro- quired produce for the utilized steam chargeable energy, fuel in properly duction accordance with the pre- of account classification Chicago scribed for It include District. shall also of, the net cost from, there- or there shall be deducted disposal the net amount realized from of ashes. (b) The actual for cost such month of fuel burned at Line State Station shall be divided total output number of kilowatthours of net during Line quotient Station such month. The charge shall be the State Line fuel for month. such (c) general charge Edison’s fuel such

month shall be the net total number kilowatt- supplied by Chicago hours (appellee) District *11 Edison in such month from allotted Edison’s surplus capacity multiplied by such State Line charge fuel for such month.” charges, Revenue tax any, payable if “gross for

revenue, sales, or other directly similar applicable taxes charges to the payable agreement.” . . under this 7. The provided contract that, further in event pay any Edison failed to agree- bill rendered under the ment days, within appellee right had the to discon- supplying tinue energy giving after days’ Edison 30 notice, writing, in and the energy discontinuance of the discharge would making not monthly pay- Edison from charges ments of all the provided agreement, for in the just the same as Edison had received the electrical if energy. agreement,” “the

Under terms and conditions energy a product was there a from “sale” of electric appellee property Edison? there “a transfer Was price” generat- pay for a or does Edison for the ing capacity produc- expenses and other incident to the which, energy admittedly, tion of the electric it received appellee’s plant? from us, I

From this contract and the evidence before that, although opinion am of the Edison receives elec- energy appellee, pay for tric from it does not electric Rather, capacity generating pays itself. for appellee’s plant production of within and for the by production exclusively plant, that was within Therefore, paid appellee the State of Indiana. the sum (e), subject to under Burns’ Edison is tax §64-2603 (1955 Supp.). Repl. analogy presented by a simplified A more would be generator A where owned a hand circumstance use crank the B contracted with A for A to and C generate them, thereby current machine and gen- agreement being the entire that A would allocate erating equally B and capacity between of his machine equal C, pay A fixed an rental and that each would pay B and would of the machine. That C for the use expended (comparable to wages energy he A for the they coal”) proportion “the actual cost these cir- actually from him. Under current received buying cumstances, electric current B and were C employee an price per A kilowatt-hour. was A at a from generating paying They him for B were and C. energy. production of electric capacity and the case Utah existed comparable A situation Light v. U. S. Co. Power & Pfost levy of a license 182. That case involved generation production electricity manufacture, or Light Power & of Idaho. Utah the State within *12 upon the Company hydro-electric plant owned a applied. plant tax was connected license was facili- distribution interstate transmission lines with Injunction proceedings ties situated outside the state. tax on were instituted the collection the restrain ground generation the and transmission that the com- operation in interstate was a continuous merce; generator instrumentality of that the was an that, therefore, the tax was a interstate commerce and however, sup- court, upon burden that commerce. said, ported validity pages on of the and 182: satisfied, a upon “We are consideration generation case, is process of as whole though essentially energy were local as electrical thing; physical a apply, and to that must situation we general controlling, as rule that com- begin finished, merce does not until manufacture is and hence the clause commerce of the Constitution prevent exercising does the state from exclu- sive control . . manufacture. regard apparent continuity “Without to the of in movement, appellant, effect, engaged activities, only.

two not in pro- one far So duced Idaho, its business is purely intrastate, subject to state taxation control.” my opinion, In therefore, the decision of the trial contrary court was to law and should be reversed.

Dissenting Opinion primary J. The right issue here Arterburn, state taxing power, exercise its and whether against we should a take stand further federal en- croachment sovereignty. state We it to owe sovereign state taxpayers, its and citizens take stand where our convictions are sincere.

Stripped many confusing unimportant de- *13 right case,

tails in this the of the State of Indiana to taxing power point exercise its turns on the of whether gross or not the imposed state income tax 1% upon utility gener by the income received a for ating delivering energy a electrical in this case commerce, thereby burden on interstate encroaches jurisdiction. an of that area federal We believe manufacturing entirely energy the of electrical done part commerce, in Indiana is and is interstate case, not a sale in In the interstate commerce. this energy recipient electrical to a transmission the manufacture, a line after a feet from state but few its line, part the same state is such infinitesimal an transaction, say that char the that feature whole commerce, interstate acterizes the whole transaction as tax, the exempts make it is to and thus from state dog. gross paid, wag and re income was tail manufacturing production primarily ceived entirely place in process. the State Since took this by gross paid tax be a income thereon should any manufac same other such manufacturer v. Pub. Co. Guide turer in Indiana. Indiana Farmers 781; 2d 29 E. Dept. (1940), N. Treas. 217 Ind. Treasury 322 Dept. (1944), H. International Co. v. 1030; Dept. 88 L. Ct. U. S. Ed. S. Co. Treasury Harvester v. International 416, N. E. 2d 150. Ind. a transac-

However, this is even if we assume commerce, still, the tax before tion interstate to be must be shown prohibited Constitution com- with such that it the extent burden to interferes argument. appel- The facts here belie merce. power generates and electrical furnishes corporation lee through the Northern consumers to Indiana across to consumers Company, and also Public Service through the Commonwealth line in Illinois the state Company. majority opinion Edison As a result of the case, utility will Illinois and its customers receive electrical in Indiana free manufactured of the tax utility while the Indiana and its customers just pay across the state line will the tax. In have fact, exemption Corporation of the and its Illinois gives competitive from ad- customers them a vantage over Indiana consumers of coming result, from the same source. Such a instead of eliminating commerce, a so-called burden on interstate inequality and, burden, creates an anything, it adds a if undeniably interstate commerce. affects *14 recognize We Supreme the United States Court has said that manufacture and transmission is a “seamless webb.” many Such fine words times are used to avoid thinking. more exact We further know how sensitive that court any burden, seems to be apparent, real or on interstate commerce. (1947), Freeman v. Hewit 249, 329 265, U. 91 274; S. L. Ed. 67 S. Ct. United Fuel (1921), Gas Co. v. 277, Hallanan 257 U. S. 66 L. Ed. 234, 105; 42 Michigan-Wisconsin S. Ct. P. L. Co. v. (1954), Calvert 157, 583, 347 U. S. 98 L. Ed. 74 S. Ct. 396.

On the hand, other we find this same court views with little concern the encroachment and burdens federal taxation placed which are on the state’s sov- ereign A functions. federal income tax which taxes all wages paid salaries and by government a state and its beginning instrumentalities at not less than 18% not considered a burden on functioning of state government by that court. payroll thereby state has by been increased not less than The tax burden 18%. of the state could be accordingly reduced were it not imposition by government. this the Federal Neither expense making is the and task of the deductions from salaries, such bookkeeping, and remittance of funds

134 therewith, any in connection admitted be burden government imposed by the Federal on This the state. sovereign process degree has a continued to where collecting agency state is made a tax for the Federal government under the fiction that and the col taxes Helvering v. lection thereof burden. Gerhardt no 969; (1938), 405, 1427, 82 Ed. 58 Ct. U. S. L. S. Ed. U. 83 L. New York S. Graves v. A. L. 1466. 59 S. R. Ct. paid are a state or its instrumentalities Salaries Congress may taxes, yet ex- exempt federal not from type empt taxes under some federal from state salaries on reasoning a burden that one tax is not of twisted government. the other is on the Federal state while Taxes, §§59, 60, ; Jur., Income Ind. L. Am. J. 476 27 pp. have never the Constitution could framers perversion power in of federal over

conceived of such riding sovereignty independent As states. among many examples of how absurd another become, Supreme can the United States encroachment condemn, may government has held Federal Court by a its instru property owned state or and take over hand, may But, on other states mentalities. though property not used for federal even take over *15 only proprietary function, governmental in a but used Phillips Guy v. F. Atkinson rel. Oklahoma ex sense. 1487, 508, 61 Ed. Ct. (1941), 313 85 L. S. U. Co. S. 230, 1050; (1947), 329 U. Carmack S. United States v. L. 252; & Power Co. L. Ed. Ct. Utah S. v. Ed. 61 L. 243 U. States S. United 387; 29 Ind. L. J. Note: Ct. S. reasoning Supreme of the United States Court

The impossible follow, practically is difficult is government overreaching the Federal predict. sovereignty has domain state become so any stultify myself attempt bizarre that I will not reasoning upon it to follow is based. by appears “burden” created state 1% insignificant compared

to us to be so and nebulous when with burden the federal income tax long worthy states that not As consideration. government Federal maintains the assess- (of ment and collection of the federal income tax not 18%) state, paid less than on salaries a and that imposed upon the collection thereof a state is no bur- government, den on I state then shall maintain a 1% gross income tax is no burden on interstate commerce. The citizens of Indiana are entitled con- fair and interpretation sistent of the Constitution without dis- government crimination between the State and Federal in the area of taxation. What is not an encroachment and burden for one an encroachment and burden for the other. Reported in 139 N. E. 2d 161.

Note. — on Relation of The Citizens Superior National v. Bank Court of Madison Judge. County, Schrenker, 29,374. [No. Filed December 1956.]