135 S.E. 582 | W. Va. | 1926
Lead Opinion
The Bill in this case was filed in the Common Pleas Court of Kanawha County in October, 1925. That court, sustaining the contention of plaintiff in part, held that Section 2a of Chapter 1, of the Acts of the Legislature of West Virginia, passed at the Extraordinary Session, 1925, "when tested by its practical operation and effect, substantially burdens and interferes with interstate commerce", and accordingly enjoined defendants from enforcing the said Act against the plaintiff, as to the gas sold by it in other states.
The judgment of that court was upheld by the circuit court of Kanawha County, and the case is here on the appeal of defendants.
From an agreed statement of facts, it appears that plaintiff is the owner of leases on 860,750 acres of oil and gas territory situated in twenty-five counties in the state of West Virginia; that on this territory it now has 3178 producing gas wells from which it secured 23,194,711,000 cu. ft. of gas for the year ending June 1, 1925; that it purchased from other producers of gas in the state of West Virginia during that period 25,456,947,000 cu. ft. of gas, making a total of 48,651,658,000 cu. ft. of gas produced and purchased by it during that year; that it owns and operates several thousand miles of gathering lines of pipe which range from 2 to 6 ins. in diameter, and approximately 1300 miles of marketing or trunk lines ranging from 8 to 20 ins. in diameter; that the gas is kept continuously moving through plaintiff's pipe lines by means of 42 compressing stations; that more than 80% of the gas it produces and purchases is transported through its pipe line system to the states of Ohio and Pennsylvania; that the gas, in the language of the Stipulation, "continues to flow in an uninterrupted and unbroken stream from the time it leaves the wells of the plaintiff or reaches its gathering lines from the wells or lines of the producers from whom it purchases such gas, until it is delivered to the final point of consumption either upon plaintiff's lines or the lines connected with its system"; that for the year 1925 the plaintiff paid taxes as follows: property tax $670,718.62, corporation tax (on *275 capital stock year ending June 30, 1925) $5,440.00, public service commission assessment $5,062.50, gross sales tax to June 30, 1925, $22,513.27, corporation license tax, Parkersburg, $10.50, franchise tax, Parkersburg, $7,542.77, and total of $711,287.66: that the rate of levy for state purposes in the year 1925 was 14c on the $100.00 valuation, and that of the $670,718.62 property tax, the sum of $51,187.50 was collected for exclusive State purposes; that the average price paid by plaintiff for the gas purchased by it during the period beginning January 1, 1925 and ending October 1, 1925, was approximately 17c per 1000 cu. ft.; that the average price received by it for the gas which it sold within the state of West Virginia during that period approximated 30c per 1000 cu. ft.; and that the average price which it was receiving for gas in the states of Ohio and Pennsylvania at the time this suit was instituted was approximately 36c per 1000 cu. ft.
The plaintiff's main contentions are, that this Act purports to tax interstate commerce and violates Art. 1, Sec. 8 of the Federal Constitution; that the Act denied to plaintiff the equal protection of the law and violates the Fourteenth Amendment of the Federal Constitution, and that the taxes sought to be imposed by the Act are not equal and uniform, and are in violation of Art.
Section 2a of the Act is as follows:
"Upon every person engaging or continuing within this state in the business of mining and producing for sale, profit, or use, any coal, oil, natural gas, limestone, sand or other mineral product, or felling and producing timber for sale, profit or use, the amounts of such tax to be equal to the value of the articles produced as shown by the gross proceeds derived from the sale thereof by the producer (except as hereinafter provided), multiplied by the respective rates as follows: Coal, forty-two one-hundreths of one per cent; oil, one per cent; natural gas, one and seventeen-twentieths of one per cent; limestone, sand or other mineral product, nine-twentieths of one per cent; timber, nine-twentieths of one per cent. The measure of this tax is *276 the value of the entire production in this state, regardless of the place of sale or the fact that deliveries may be made to points outside the state."
The charge that the statute imposes double taxation is also not well founded. "Double taxation in a legal sense does not exist unless the double tax is levied upon the same property within the same jurisdiction. Plaintiffs in error pay one tax with respect to property, another with respect to the privilege *278
or occupation: hence the taxation is not double." Ohio TaxCases,
The foregoing decisions uphold the right of the legislature to classify the subjects of taxation. When the right to classify is conceded, it necessarily follows that the legislature has the right to select the differences upon which the classification will be based. Citizens Tel. Co. v. Fuller,supra. No proof is offered that the classification of the statute is unreasonable. The statute makes no discrimination in favor of one as against another of the same class. We therefore see no repugnance in the statute to the Fourteenth Amendment.
It is conceded as defendants assert, that mining (when considered apart from transportation) is not interstate commerce. It is immaterial, for the purpose of this discussion, whether plaintiff's pipe line system is a mere incident to its business, as defendants contend, or an integral part thereof, as plaintiff maintains. The important factor is that by means of this system, whether it be incidental or integral, plaintiff's gas becomes a subject of interstate commerce. "In order that property in transit may be exempt from local taxation as a subject of interstate commerce it is not essential that it be in *280
charge of some common carrier engaged in that class of business." Oil and Gas Co. v. Ehrhardt,
It may be admitted, as defendants contend, that the "incidental facility of transportation" increases the value of the gas before it enters the pipe lines. Such an admission, however, in no wise disturbs the fact that the average price received by plaintiff for gas sold without the state is approximately six cents higher than the average (not the occasional or exceptional) price of gas sold by plaintiff within the state. Neither does the admission alter the fact that it necessarily costs plaintiff something to transmit the gas from the place of production or purchase to the state line, and that the cost of transmission is included in the sales price. "The gas carried outside the state is sold for more than that used therein, but this naturally would be so, considering the additional pipe lines, compressors, and labor employed in the longer transmission." Penn v. W. Va., supra.
In Wallace v. Hines,
Throughout a century of attempted municipal encroachment on Federal authority, the Supreme Court has trumpeted the inhibition that a state cannot lay a direct tax on the gross proceeds derived from interstate commerce, except where such tax is in lieu of all other taxes and amounts to no more than the ordinary tax on property. Postal Tel. Co. v. Adams,
There is a line of cases, including Home Ins. Co. v. N YState
"The distinction between a direct and an indirect burden by way of tax or duty was developed, and it was shown that an income tax laid generally on net incomes, not on income from exportation because of its source or in the way of discrimination, but just as it was laid on other income, and affecting only the net receipts from exportation after all expenses were paid and losses adjusted and the recipient of the income was free to use it as he chose, was only an indirect burden. The difference in effect between a tax measured by gross receipts and one measured by net income, recognized by our decisions, is manifest and substantial, and it affords a convenient and workable basis of distinction between a direct and immediate burden upon the business affected and a charge that is only indirect and incidental. A tax upon gross receipts affects each transaction in proportion to its magnitude and irrespective of whether it is profitable or otherwise."
In determining whether a tax is a direct burden on interstate commerce, the Supreme Court has also repeatedly held that it would regard the effect and operation of the exaction, and disregard the manner in which the taxing scheme was characterized. Western Union Tel. Co. v. Kansas,
The cases of Oliver Mining Co. v. Lord, supra, and Am. Mfg.Co. v. St. Louis, supra, relied on so confidently by defendants, do not support their contention. In the Mining Co. case the statute under consideration limited the value of the ore for taxation to its worth "at the place where the same is brought to the surface", and even permitted the cost of mining the ore to be subtracted from that value. In the second case, a tax was upheld which measured the value of goods manufactured in a local factory, by sales made from warehouses without the state. The statute in that case was levied against "each one thousand dollars, or fractional part thereof, of sales made by", etc. The measure of the value of the manufactured article was therefore its sales price and not the grossreceipts from its sale. No mention is made in the opinion offreight paid, or of the gross proceeds of the sales. We are warranted in assuming that the city did not attempt to include for taxation as a part of the sales price, the freight on the merchandise to the foreign warehouse. The reason impelling the decision is: "In the outcome the tax is the same in amount as if it were measured by the sale value of the goods, but imposed upon the completion of their manufacture". Consequently, the question of the validity of attempting to tax gross proceeds of the sales of articles delivered by the producer or manufacturer in a foreign state, did not arise and was not decided in either the Mining Co. or the Mfg. Co. case.
In Pipe Line Co. v. Hallanan, supra, the same argument now made by defendants here, was advanced and condemned as sophistical and amounting merely to a "confusion of terms". "If it can be said that the legislature has the power to tax the privilege of engaging in a particular kind of intrastate commerce in the state, and then measure that tax by the amount of interstate commerce done, as well as by the amount of intrastate commerce, it would accomplish by indirection what, by the uniform holdings, it could not accomplish directly. It could under the guise of taxing the privilege of doing intrastate commerce take a part of the interstate commerce. It seems to us that the reasoning which seeks to *284 justify the adoption of the measure of the tax sought to be applied in this case is sophistical and amounts to simply a confusion of terms, the result being exactly the same as if the tax had been laid upon the privilege of engaging in interstate commerce. The courts do not look at the form which may be adopted to accomplish a particular purpose, but where it appears that the necessary effect of the procedure contended for is to produce a result which necessarily imposes a burden beyond the power of the legislature, the form will be disregarded."
We therefore hold, under the facts in this case, that the defendants may not treat the gross proceeds of plaintiff's sales outside the state as the worth of its gas within the state, but that they may enforce the Act upon the value thereofwithin the state, and before it enters interstate commerce. The injunction herein will be accordingly so modified.
Affirmed in part; reversed in part.
Concurrence Opinion
I concur in the opinion of the Court upholding the constitutionality of the statute, and am inclined also to the view expressed by Judge WOODS that the levy of the tax on sales of gas by the plaintiff does not contravene the commerce clause of the Federal Constitution. The opinion seems to question the right of States to levy any tax which would affect or burden interstate commerce. The decisions of the United States Supreme Court consistently hold that the States may by appropriate taxation indirectly burden interstate commerce. As pointed out by Judge WOODS, the case of American Manufacturing Company v.St. Louis apparently goes farther than is necessary to uphold the statute under consideration, given a liberal interpretation.
Dissenting Opinion
This dissent from my brethren goes only to their conclusion that the law in its practical operation burdens unduly interstate commerce, and to the resultant relief thereby afforded the petitioner.
This Court holds, and rightly so, that the tax sought to be imposed here is an occupation tax. This fact being established, in logical sequence is the question of the mode and ascertainment of the value thereof. The reference by the statute to the gross receipts and to a certain percentage of the same, in determining the amount of the tax, is simply to ascertain the value of the business done by the corporation, and thus obtain a guide to a reasonable conclusion as to the amount of the occupation tax which should be levied. This reason finds support in Maine v. Railway Co.,
Our Legislature adopted what it considered the most practicable way of determining the value of the business of the corporation in the state whose occupation was sought to be taxed. There was no measurement of the volume of gas at the mouth of the well obtainable. It adopted the only method left open by the petitioner under its plan by which its gas is produced to obtain the value thereof. Might not the state, therefore, urge that the corporation, since it chooses to combine local business and interstate business in such a way that the value of the former cannot be determined, cannot complain that the only method by which such value can be determined must necessarily include receipts from interstate commerce? No constitutional objection lies in the way of a legislative body prescribing any mode of measurement to determine the amount it will charge for the privilege it bestows. Home Insurance Co. v. New York,
In interpreting the federal statute imposing a tax on any firm, corporation, or person carrying on or doing business of refining sugar, etc., based upon the gross annual receipts of such business, the court said, in Spreckels Sugar Refining Co. *286
v. McClain,
Ficklen v. Shelby County Taxing District, supra, has not been overruled. (31 Harvard L. Rev., 763, note 156.) This decision makes it possible for the Supreme Court to permit taxes on taxable occupations to be measured in part by receipts not themselves directly taxable. It is contended that this decision was shaken by the latter decision of Crew Levick Co. v.Commonwealth,
Our Supreme Court held, in Suttle v. Hope Natural Gas Co.,
If the tax under § 2a affects interstate commerce, it does so only incidently, and therefore is not a regulation of, a burden on, or interference with, such commerce, and is not invalid on account of such incidental effect. As heretofore stated, the Supreme Court of the United States has repeatedly held that the consequential burden of proper local taxation on interstate relations and transactions, including sales, transportation and everything else that enters into such commerce, is incidental, not direct, hence not an invasion by the state of the domain of interstate commerce. American Manufacturing Co. v. City of St.Louis,
The two last mentioned cases are the most recent pronouncements of the court of last resort on the question under discussion. In the Oliver Iron Mining Company case, Minnesota had imposed a tax on persons engaged in the business of mining or producing iron ore, the amount of the tax being equal to six per centum of the valuation of all ores mined or produced in addition to all other taxes. The tax was assailed as being in conflict with the commerce clause of the federal Constitution. The court there said: "Plainly the facts do not support the contention. Mining is not interstate commerce, but, like manufacturing, is a local business, subject to local regulation and taxation. * * * Its character in this regard is intrinsic, is not affected by the intended use or disposal of the product, is not controlled by contractual engagements, and persists even though the business be connected with interstate commerce. * * * The ore does not enter interstate commerce until after mining is done, and the tax is imposed *288
only in respect to the mining. No discrimination against interstate commerce is involved. The tax may indirectly and incidentally affect such commerce, just as any taxation of railroad and telegraph lines does, but this is not a forbidden burden or interference." The determinative question here is answered in the American Manufacturing Company Case. The Supreme Court of Missouri in that case (
The conclusion, as I view it, to be drawn from a consideration and analysis of the cases of the Supreme Court of the United States in point, is that the states will be permitted to indirectly encroach on federal authority by their taxing powers. In a federal system there must be reciprocal give and take between the whole and the several parts. If there be any interference with interstate commerce in the practical application of the statute in this case it is only such an indirect and incidental burden as is sanctioned by the federal decisions. The question of whether the state has imposed unduly a burden by the method of imposition of this tax upon interstate commerce being the only question with which I am at variance with my brethren, and the effects flowing from an affirmative holding thereon, I content myself with the statement that, after due consideration of all questions involved in the appeal, my conclusion is that the statute under consideration, without being limited in its operation as interpreted by the Court, violates no provision of either state or federal Constitutions, *290 and therefore it becomes our duty to uphold and enforce it.
