UNITED FUEL GAS COMPANY, a Corporation v. G. THOMAS BATTLE, Tax Commissioner OF WEST VIRGINIA
(No. 12706)
Supreme Court of Appeals of West Virginia
Submitted April 30, 1968. Decided April 3, 1969.
Rehearing Denied June 24, 1969.
Concurring Opinion April 23, 1969.
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R. K. Talbott, Herbert W. Bryan, H. L. Snyder, for appellee.
Howard R. Klostermeyer, amicus curiae for E. I. du Pont de Nemours.
E. Glenn Robinson, amicus curiae for Kaiser Aluminum.
HAYMOND, JUDGE:
This is an appeal upon the application of the defendant, G. Thomas Battle, Tax Commissioner of the State of
The issues presented to the circuit court upon the appeal to that court from a reassessment made by the commissioner are set forth in an agreed stipulation and are designated as agreed issues Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14. By its final judgment the circuit court reversed the action of the commissioner on these agreed issues: Issue No. 1, dealing with free gas furnished the lessor by the plaintiff as lessee in certain oil and gas leases held by the plaintiff; Issues Nos. 2 and 3, relating to sales of gas in interstate commerce; Issue No. 10, relating to imported gas, supplied or furnished by the plaintiff under special industrial sales agreements to E. I. du Pont de Nemours and Company, Kaiser Aluminum and Chemical Corporation, and Elk Refining Company; Issues Nos. 12 and 13, relating to the penalties imposed by the commissioner, and affirmed the action of the commissioner on agreed Issues Nos. 4, 5 and 6, relating to gas produced in West Virginia and purchased and sold by the plaintiff to West Virginia customers; and Issues Nos. 7, 8 and 9, relating to certain sales of gas by plaintiff to certain industrial consumers.
The circuit court found that Issue No. 11 did not relate to any present claim or justiciable controversy but was merely indicative of possible future disputes and accordingly rendered no decision on that issue, and rejected the contention of the plaintiff on Issue No. 14 that the business and occupation taxes involved in this proceeding
By its final judgment the circuit court on Issues Nos. 4, 5 and 6 upheld the commissioner‘s levy of $3,209.84, on Issues Nos. 7, 8 and 9 upheld the commissioner‘s levy of $84,714.19, and on Issue No. 1, relating to certain free gas which the plaintiff concedes is taxable, the circuit court allowed $4,158.19 and on oil production, tank car rentals and royalties allowed $167.01, entered judgment upon the total of the foregoing levies in the amount of $92,249.23, and remitted all penalties imposed by the commissioner. The circuit court denied the motions of both parties to set aside the foregoing judgment and to rehear and reconsider its ruling upon the issues determined and also denied the motion of the commissioner to substitute in lieu of the judgment of $92,249.23, a judgment against the plaintiff for taxes in the sum of $971,167.37 and penalties in the sum of $353,186.02, aggregating the sum of $1,324,353.39. From the foregoing judgment this Court awarded this appeal and supersedeas upon the application of the commissioner. On this appeal the commissioner seeks reversal of the action of the circuit court on Issues Nos. 1, 10, 12 and 13, and the plaintiff, by cross-assignment of error, seeks reversal of the action of the circuit court upon Issues Nos. 4, 5, 6, 7, 8 and 9.
The statutes directly involved in this proceeding are
The plaintiff, a West Virginia corporation and a public utility subject to regulation by the Public Service Commission of this State and the Federal Power Commission, is primarily engaged in the production, transmission, distribution and sale of natural gas, both at wholesale and retail, in this State, and is also engaged in the sale and the leasing of certain tangible property. During the year 1961, which is the year stipulated by the parties as
After an audit of the business activities of the plaintiff in this State the defendant on December 10, 1963, issued an original assessment of business and occupation taxes against the plaintiff in the sum of $1,782,550.88 and imposed a penalty in the sum of $642,437.69 or a total of $2,424,988.57 for the period 1957 to 1961, inclusive. After the plaintiff was served with that assessment it filed a petition for a reassessment of the tax and penalty on January 9, 1964 and assigned numerous errors in such assessment. The defendant conducted an administrative hearing upon the petition and by a ruling of May 18, 1965 served upon the plaintiff on May 26, 1965, the defendant reduced the claim against the plaintiff for business and occupation taxes from $1,782,550.88 to $971,167.37 and imposed a penalty upon that amount of $353,186.02 or a total of taxes and penalties of $1,324,353.39 for the assessment period 1957 through 1961.
On June 24, 1965, the plaintiff appealed the ruling of the defendant to the Circuit Court of Kanawha County by serving the defendant with written notice of such appeal and filing the notice in the office of the Clerk of the Circuit Court, and in the notice assigned numerous errors in the rulings of the defendant. By his answer filed July 20, 1965, the defendant denied the allegations of error set forth in the notice. The facts and the issues
On April 30, 1968, this appeal was heard in this Court and this proceeding was submitted for decision upon the transcript of the record in the circuit court, including the pleadings, the written briefs as amici curiae by counsel for E. I. du Pont de Nemours and Company and by counsel for Kaiser Aluminum and Chemical Corporation, and the printed briefs and the oral arguments of attorneys in behalf of each of the parties.
The defendant assigns as error the action of the circuit court in deciding Issues Nos. 1, 10, 12 and 13 for the plaintiff and against the defendant, and in denying the motion of the defendant that the judgment for $92,249.23 be set aside, its motion for rehearing and reconsideration of the action of the circuit court upon Issues Nos. 1, 10, 12 and 13, and its motion for a new judgment for the amount of the taxes and the penalty claimed by the defendant.
Issue No. 1 involved the question of the taxability under
Prior to 1959 the plaintiff reported for taxation under
The plaintiff contends that the Triad Oil Company case applies to and relieves the free gas, produced and delivered prior to its measurement by meter by the lessee, from taxation under
Though the plaintiff now concedes that the free gas delivered by it after its measurement by meter is taxable production of gas, there is no merit in the contention of the plaintiff that the unmeasured free gas is owned by the lessors instead of the lessee and that because no sale was made of such gas it is not taxable under the foregoing statutory provisions. It is well established by numerous decisions of this Court that when a lessee under an oil and gas lease produces gas from the well the right to produce such gas becomes a vested right and when the gas is extracted the title to the gas vests in the lessee and the consideration or royalty paid for the privilege of search and production is rent for the leased premises. See Shearer v. Allegheny Land and Mineral Company, 152 W. Va. 616, 165 S. E.2d 369; Shearer v. United Carbon Company, 143 W. Va. 482, 103 S. E.2d 883; Engel v. Eastern Oil Company, 100 W. Va. 301, 130 S. E. 491; Campbell v. Lynch, 81 W. Va. 374, 94 S. E. 739, L. R. A. 1918B 1070; South Penn Oil Company v. Snodgrass, 71 W. Va. 438, 76 S. E. 961, 43 L. R. A., N. S. 848; McGraw Oil Company v. Kennedy, 65 W. Va. 595, 64 S. E. 1027, 28 L. R. A., N. S., 959; Headley v. Hoopengarner, 60 W. Va. 626, 55 S. E. 744; Urpman v. Lowther Oil Company, 53 W. Va. 501, 44 S. E. 433, 97 Am. St. Rep. 1027; Parish Fork Oil Company v. Bridgewater Gas Company, 51 W. Va. 583, 42 S. E. 655, 59 L. R. A. 566; Steelsmith v. Gartlan, 45 W. Va. 27, 29 S. E. 978, 44 L. R. A. 107; Crawford v. Ritchey, 43 W. Va. 252, 27 S. E. 220. See also McIntosh v. Vail, 126 W. Va. 395, 28 S. E.2d 607, 151 A. L. R. 804; Warren v. Boggs, 83 W. Va. 89, 97 S. E. 589. This Court has also held that free gas for the lessor is part of the consideration of a lease for oil and gas purposes, Kimble v. Wetzel Natural Gas Company, 134 W. Va. 761, 61 S. E.2d 728; Bassell v. West Virginia Central Gas Company, 86 W. Va. 198, 103 S. E. 116, 12 A. L. R. 1398; Harbert v. Hope Natural Gas Company, 76 W. Va. 207, 84 S. E. 770, L. R. A. 1915E 570; South Penn Oil Company v. Edgell, 48 W. Va. 348, 37 S. E. 596, 86 Am. St. Rep. 43; and that the covenant to furnish free gas runs with the land and may be enforced. Kimble v. Wetzel Natural Gas Company, 134 W. Va. 761, 61 S. E. 2d 728; Ketchum v. Chartiers Oil Company, 121 W. Va. 503, 5 S. E.2d 414; Bassell v. West Virginia Central Gas Company, 86 W. Va. 198, 103 S. E. 116, 12 A. L. R. 1398; Harbert v. Hope Natural Gas Company, 76 W. Va. 207, 84 S. E. 770, L. R. A. 1915E 570; Hall v. Philadelphia Company, 72 W. Va. 573, 78 S. E. 755. The question of the ownership of the gas when it is discovered and extracted, despite the argument of the plaintiff in support of the ownership by the lessor instead of the lessee of the unmetered and unmeasured free gas, is not important or controlling. Regardless of the ownership of such gas it is clear that all free gas involved in this proceeding is produced by the plaintiff as lessee in its various leases. It is the production of gas, not its ownership, which is subjected to taxation under
Issues Nos. 4, 5 and 6 relate to gas produced in West Virginia which is purchased and sold at wholesale by the plaintiff to other wholesale customers and is resold and transported by them to some consumers inside and to some consumers outside this State. Some of this gas is sold to Atlantic Seaboard Corporation, The Manufacturers Light and Heat Company, and Cumberland and Allegheny Gas Company and by those companies transported and sold for consumption both inside and outside this State.
Issue No. 5 deals with gas produced in West Virginia by other companies which is purchased by the plaintiff and transported by its pipelines to the point of sale by wholesale in West Virginia to wholesale customers who, after temporary underground storage of the gas in West Virginia, subsequently remove it from such storage and dispose of it in the same manner as is indicated in Issue No. 4. As between Issues Nos. 4 and 5 the difference is that the gas involved in sales in Issue No. 4 is transported by means of the pipelines of the plaintiff into Kentucky before it is sold in West Virginia and the gas in Issue No. 5 is transported by the plaintiff and sold to its customers in West Virginia.
Issue No. 6 deals with gas produced in West Virginia by other companies, which is purchased by the plaintiff, is commingled with imported gas in the pipelines of the plaintiff, is sold at wholesale to wholesale customers and is subsequently sold and delivered by them to consumers in West Virginia. The traffic of the gas begins and ends in this State and is for the purpose of taxation treated as an intrastate journey.
The question presented by Issues Nos. 4, 5 and 6, with respect to wholesale sales by the plaintiff of gas produced in this State to other wholesale customers, is whether
The plaintiff contends that the foregoing wholesale sales of West Virginia gas to wholesale customers and by them resold to consumers are transactions in interstate commerce and are not subject to the tax imposed by
It is clear that the transportation to Kentucky and then back to West Virginia of the West Virginia gas purchased by the plaintiff in West Virginia from other producers, before it is sold at wholesale to other wholesale customers, does not, for the purpose of taxation, constitute an interstate journey. The transportation of the gas began in West Virginia and after passing through Kentucky it ended in this State. Passage of the gas through Ken-
“* * *
“It should be remembered that the question does not arise as to the power of any other State than the State of termini, * * *, but it is simply whether, in the carriage of freight and passengers between two points in one State, the mere passage over the soil of another State renders that business foreign, which is domestic. We do not think such a view can be reasonably entertained, and
are of opinion that this taxation is not open to constitutional objection by reason of the particular way in which Philadelphia was reached from Mauch Chunk.”
The action of the court in Lehigh Valley Railroad Company case in considering carriage of freight and passengers between two points in one State to be local rather than foreign business is criticized in the opinion in the later case of Central Greyhound Lines, Inc. v. Mealey, 334 U. S. 653, 68 S. Ct. 1260, 92 L. Ed. 1633, in this language: “To call commerce in fact interstate ‘local commerce’ because under a given set of circumstances, as in the Lehigh Valley case, a particular exertion of State power is not rendered invalid by the Commerce Clause is to indulge in a fiction.” Notwithstanding this criticism, however, the Court, in the Mealey case agreed that the State tax under consideration in the Lehigh Valley Railroad Company case, as apportioned, even though it affected interstate commerce, was valid because it did “not burden interstate commerce in the constitutional sense.”
For the same reason that the sale of gas transported from West Virginia into Kentucky and back into West Virginia, before its sale by the plaintiff, is considered to be a domestic or an intrastate transaction and not a foreign or an interstate transaction, the sale of gas transported by the wholesale customer from this State for consumption in other States or returned to this State, after completion of the wholesale sale of such gas by the plaintiff, is likewise a domestic or an intrastate transaction and not a foreign or an interstate transaction.
In support of the contention of the plaintiff that the wholesale sales involved in Issues Nos. 4, 5 and 6 constitute transactions in interstate commerce and for that reason are not subject to the tax imposed by
A State, by appropriate legislation, may impose a privilege tax upon a person engaged in both interstate and intrastate commerce if such tax is imposed solely upon its intrastate business and such business can be separated and distinguished from its interstate business. See State ex rel. Battle v. The Baltimore and Ohio Railroad Company, 149 W. Va. 810, 143 S. E.2d 331, certiorari denied, 384 U. S. 970, 86 S. Ct. 1859, 16 L. Ed. 2d 681; American Barge Line Company v. Koontz, 136 W. Va. 747, 68 S. E.2d 56; Dravo Contracting Company v. James, 114 F.2d 242; Cooney v. Mountain States Telephone and Telegraph Company, 294 U. S. 384, 55 S. Ct. 477, 79 L. Ed. 934; East Ohio Gas Company v. Tax Commission of Ohio, 283 U. S. 465, 51 S. Ct. 499, 75 L. Ed. 1171; Sprout v. City of South Bend, 277 U. S. 163, 48 S. Ct. 502, 72 L. Ed. 833, 62 A.L.R. 45; Air-Way Electric Appliance Corporation v. Day, 266 U. S. 71, 45 S. Ct. 12, 69 L. Ed. 169; Allen v. Pullman‘s Palace Car Company, 191 U. S. 171, 24 S. Ct. 39, 48 L. Ed. 134; Ratterman v. Western Union Telegraph Company, 127 U. S. 411, 8 S. Ct. 1127, 32 L. Ed. 229; Bowman v. Continental Oil Company, 256 U. S. 642, 41 S. Ct. 606, 65 L. Ed. 1139. As the amount of the gas produced in this State which is commingled with the imported gas, though not measured, can be determined with reasonable accuracy, the wholesale sale by the plaintiff of such gas to its wholesale customers is subject to the tax at the rate provided by
Whether the transportation by the plaintiff of West Virginia gas into Kentucky and back into West Virginia before it made a wholesale sale of the gas in West Virginia to a wholesale customer or the transportation by a wholesale customer of West Virginia gas outside West Virginia and then back into West Virginia after the wholesale sale of the gas by the plaintiff in West Virginia to such wholesale customer is considered to be a transaction in intrastate or interstate commerce is not controlling in the determination of the validity of the tax imposed on such wholesale sale for the reason that the transportation of the gas by the plaintiff of the West Virginia produced gas into Kentucky and back into West Virginia, had ended at the point of sale before the sale was made, and the sale of the gas purchased by the wholesale customer which it transported outside this State and then back into this State and resold for consumption in this State was completed before such gas was transported from
The wholesale sales by the plaintiff, involved in Issue No. 6, of gas produced in West Virginia by other companies, to wholesale purchasers, which was commingled by them with imported gas and transported to a point in West Virginia where it is sold and delivered to West Virginia consumers, is a local and not an interstate transaction. Its transportation with the commingled imported gas began and ended in West Virginia and the amount of the gas sold at wholesale by the plaintiff and transported and delivered in West Virginia by the wholesale customer is subject to the wholesale tax imposed by
Issue No. 7 relates to sales by the plaintiff of gas to industrial consumers in this State under special contracts between the plaintiff and such industrial consumers. Fourteen such contracts with industrial customers are described in connection with Issue No. 7. The points of delivery under these contracts are all located in plaintiff‘s utility traffic service area and the gas delivered to special contract industrial consumers is metered and measured by regulation equipment of the plaintiff located on the premises of each industrial consumer. Eleven of these consumers are served by the pipelines in the distribution system of the plaintiff and three such special contract industrial consumers, E. I. du Pont de Nemours and Company, Elk Refining Company and Kaiser Aluminum and Chemical Corporation, are served by the transmission pipelines of the plaintiff. The gas furnished to these three consumers under special industrial contracts is dealt with specifically in Issue No. 10 and the gas furnished by the plaintiff to the eleven special contract industrial consumers is dealt with in Issue No. 7.
The plaintiff contends that special contracts are private, unregulated business, authorized by the Public Service Commission in an exercise of its reviewable discretion, and that such contracts are taxable only at the wholesale rate provided by
In opposition to the contentions of the plaintiff the defendant insists that the gas furnished industrial consumers under special industrial contracts is the supplying of public services as provided by
The circuit court held that the gas sold and furnished to industrial consumers under the special contracts involved in Issue No. 7 constituted the supplying of public services within the meaning of
Thе plaintiff furnishes gas to numerous industrial consumers with which it does not have special contracts and the price for the gas which it sells to its nonspecial in
Though the Public Service Commission has not regulated the special industrial contracts here under consideration or the rates provided by such contracts which are fixed by agreement of the parties to such contracts, the commission has the power and authority to do so in its discretion, and the absence of such regulation does not deprive it of its power and authority to regulate, modify or terminate such contracts in circumstances which justify such action. In Preston County Light and Power Company v. Renick, 145 W. Va. 115, 113 S. E.2d 378 (1960), this Court held in point 2 of the syllabus that “The public service commission of this State has authority to supervise, regulate, modify or approve a contract between public utilities subject to its jurisdiction which affects the service rendered to the public or the rate charged for such service.” In the opinion this Court said: “Though as a general rule public utilities have the right to enter into contracts between themselves or with others, free from the control or supervision of the state, so long as such contracts are not unconscionable or oppressive and do not impair the obligation of the utility to discharge its public duties, the principle is firmly established that all contracts made by a utility relating to the public service must be deemed to be entered into in contemplation of the exercise by the
It is clear that the plaintiff, as a public utility, is engaged in the service of the public in furnishing gas to its consumers, individual and industrial, in its service territory and that in furnishing gas to its industrial consumers under special industrial contracts it is engaged in the business of supplying public service within the meaning of
Issue No. 8 presents the question whether the equal protection clause of the
The plaintiff contends that discrimination in the different rates provided by the foregoing two sections is unconstitutional in that nonutility suppliers of the same industrial consumers are taxed under
The tax provided by
The law confers certain privileges and imposes certain duties upon a рublic utility which are distinct from those conferred or imposed by law upon a nonutility. The paramount duty of a public utility is to serve all the public within its utility service territory; a nonutility is subject to no such duty. A public utility enjoys protection from competition within its field, is entitled to a fair return upon its investment used and useful in its public service business, and possesses the right of eminent domain. No such advantages are enjoyed by a nonutility. The differences in the rights and duties of a public utility and a nonutility justify the separate classification in which each is included. In Arslain v. Alderson, 126 W. Va. 880, 30 S. E.2d 533 (1944), this Court used this language: “Unless the power of the Legislature over a subject matter is negatived by the Constitution, the Legislature has plenary power. * * *. We know of no provision of the Constitution which requires that the same rate be applied to all classes of businesses and callings on which privilege taxes are assessed. The Legislature may prescribe rates for different businesses and callings, but the rate of taxation must be uniform and equal within the classification and, if so, we see no constitutional objection thereto.” In Appalachian Electric Power Company v. Koontz, 138 W. Va. 84,
It is well established that a state by its legislature may make reasonable classifications in enacting statutes provided the classifications are based on some real and substantial relation to the objects sought to be accomplished by the legislation, and a person who assails any such classification has the burden of showing that it is essentially arbitrary and unreasonable. State ex rel. Heck‘s, Inc. v. Gates, 149 W. Va. 421, 141 S. E.2d 369 (1965). In that case this Court in the opinion used this pertinent language: “The necessity for and the reasonableness of a classification are primarily questions for the legislature and if any state of facts can be reasonably conceived to support the classification such state of facts at the time of the enactment of a statute must be assumed. The presumption is that the classification is reasonable and appropriate and that the act is constitutional unless illegality appears on its face. Mandell v. Haddon, 202 Va. 979, 121 S. E.2d 516 (1961). The Equal Protection Clause of the
Wholesale sales of natural gas by a public utility to industrial consumers within its utility service territory under special industrial contracts constitute the supplying of public service within the meaning of
Issue No. 9 involves the effect of the tax commissioner‘s Regulation BOT-32 on the wholesale sales of gas by the plaintiff to its industrial consumers under special industrial contracts, dealt with in Issue No. 7, which sales this Court, in resolving Issue No. 7 has held to constitute the supplying of public services within the meaning of
The circuit court, in considering Issue No. 9, decided that issue adversely to the plaintiff. The sales of gas by the plaintiff to its industrial consumers under the special industrial contracts involved in Issue No. 7 having been herein determined to be the supplying of public service by a utility and not to be nonutility sales, the action of the circuit court in deciding Issue No. 9 adversely to the contention of the plaintiff will not be disturbed on this appeal.
Issue No. 10 relates to three special industrial contracts for the sale and delivery of gas through the transmission pipelines of the plaintiff to E. I. du Pont de Nemours and Company at its plant at or near Belle in Kanawha County, to Elk Refining Company at its refinery at or near Falling Rock in Kanawha County, and to Kaiser Aluminum and Chemical Corporation at its plant near Ravenswood in Jackson County. Each of these contracts between the plaintiff and each company covers a long period of time and calls for the continuous delivery of large minimum supplies of gas. The issue presents the question whether the gas involved is transported in interstate commerce and whether the income derived from its sale is taxable or is excluded from taxation under
The gas involved in this issue, which consists entirely or almost entirely of gas produced in Louisiana and Texas, referred to as southwestern gas, and in Kentucky and Virginia and obtained by the plaintiff from Tennessee Gas Transmission Company or from Columbia Gulf Transmission Company and transported by large transmission lines for sale and delivery by the plaintiff to its special
The sales of gas to E. I. du Pont de Nemours and Company, sometimes referred to as du Pont, began late in 1956 after the execution of the special industrial sales agreement dated November 8, 1956 and after the Federal Power Commission issued a Certificate of Public Convenience and Necessity which authorized the plaintiff to build and operate facilities consisting, in part, of 17.7 miles of 12 3/4 inch pipeline, capable of delivering a maximum of 35,000 Mcf per day. Plaintiff‘s long term arrangements with Tennessee Gas Transmission Company and the gas acquisition program of that company with its southwestern lessors and independent producers were all based, in part, on plaintiff‘s contractual obligation to meet du Pont‘s gas requirements at its Belle, West Virginia, plant. The gas delivered to du Pont was 100% southwestern gas purchased by the plaintiff from Tennessee Gas Transmission Company in Kanawha County and then transported southerly by the plaintiff to the Kanawha County point of delivery to du Pont by the transmission lines of the plaintiff. In the summer period the gas flowed continuously from the various producing wells in Louisiana and Texas to du Pont‘s main line tap near the end of the transmission line in Belle without injection into or withdrawal from any underground storage field, and
The sales of gas to Elk Refining Company, sometimes referred to as Elk, began as early as 1938 and before the enactment of the National Gas Act, but the operation by the plaintiff of the necessary facilities has been under a certificate from the Federal Power Commission for all preexisting jurisdictional facilities. The present contract between the plaintiff and Elk was entered into on September 1, 1957. The normal flow of the gas to Elk for the summer period of 1961 was 117,168 Mcf and consisted
The sales of gas to Kaiser Aluminum and Chemical Corporation, sometimes referred to as Kaiser, began after the execution of the special industrial sales agreement dated October 1, 1957 and after the Federal Power Commission issued a Certificate of Public Convenience and Necessity which authorized the plaintiff to build and operate facilities, consisting, in part, of six miles of 10 inch transmission pipeline capable of delivering a maximum of 5500 Mcf per day which maximum, by subsequent contract dated October 1, 1957, was increased to 13,000 Mcf per day and was authorized by the Federal Power
The defendant contends that the sales under these special industrial contracts were not transactions in interstate commerce but he also states in his brief that even though such transactions should be “technically considered to be interstate commerce,” they were not so connected with interstate commerce that taxation under
The circuit court found that the sales under the three special industrial contracts with du Pont, Elk and Kaiser were sales in interstate commerce; that
The finding of the trial court upon the undisputed facts that the sales of the imported gas to du Pont, Elk and Kaiser, under the special contracts, is entitled to
The conclusion of the writer of this opinion is to affirm the judgment of the circuit court on Issue No. 10 and it is supported by the immediately following reasons and citations of authority. That conclusion, however, is not concurred in by the majority of this Court whose ruling is to reverse on that issue and the opposite conclusion of the majority is set forth in the later paragraph of this opinion in which Issue No. 10 is dealt with and determined.
It is well established by numerous decisions of the Supreme Court of the United States that transportation of natural gas from one state to another for sale and consumption in the state where the transportation ends is interstate commerce. The Pipe Line Cases, 234 U. S. 548, 34 S. Ct. 956, 58 L. Ed. 1459 (1914); Pennsylvania Gas Company v. Public Service Commission, 252 U. S. 23, 40 S. Ct. 279, 64 L. Ed. 434 (1920); United Fuel Gas Company v. Hallanan, 257 U. S. 277, 42 S. Ct. 105, 66 L. Ed. 234 (1921); Pennsylvania v. West Virginia, 262 U. S. 553, 43 S. Ct. 658, 67 L. Ed. 1117, 32 A.L.R. 300 (1923); Missouri ex rel. Barrett v. Kansas Natural Gas Company, 265 U. S. 298, 44 S. Ct. 544, 68 L. Ed. 1027 (1924); East Ohio Gas Company v. Tax Commission of Ohio, 283 U. S. 465, 51 S. Ct. 499, 75 L. Ed. 1171 (1931); State Tax Commission of Mississippi v. Interstate Natural Gas Company, Inc., 284 U. S. 41, 52 S. Ct. 62, 76 L. Ed. 156 (1931); Illinois Natural Gas Company v. Central Illinois Public Service Company, 314 U. S. 498, 62 S. Ct. 384, 86 L. Ed. 371 (1942); Panhandle Eastern Pipe Line Company v. Public Service Commission of Indiana, 332 U. S. 507, 68 S. Ct. 190, 92 L. Ed. 128; Memphis Natural Gas Company v. Stone, 335 U. S. 80, 68 S. Ct. 1475, 92 L. Ed. 1832 (1948); Panhandle Eastern Pipe Line Company v. Michigan Public Service Commission, 341 U. S. 329, 71 S. Ct. 777, 95 L. Ed. 993 (1951). In the first cited Panhandle Eastern Pipe Line Company case the court, considering the scope of the Natural Gas Act of Congress, held that it did not prevent the state from regulating certain interstate sales of gas which were not covered by the Act but also held that the sales involved in that case of imported natural gas by an interstate pipeline carrier direct to industrial consumers were sales in interstate commerce. In the other cited Panhandle Eastern Pipe Line Company case, the gas company, which was engaged in the transportation of natural gas by pipeline from other states into Michigan and which was subject to regulation by the Federal Power Commission under the Natural Gas Act, sought to make direct sales of natural gas to large industrial consumers in Michigan. An order of the Michigan Public Service Commission required appellant to obtain from that commission a Certificate of Public Convenience and Necessity before selling natural gas direct to its industrial consumers in the Detroit area. In a proceeding to enjoin the enforcement of the order of the commission, the Supreme Court of the United States held that the direct sale to industrial consumers by the gas company of gas transported by it from other states into Michigan was clearly interstate commerce and that as the Natural Gas Act applied only to sales of gas in interstate commerce that were for resale and did not apply to interstate sales made direct to consumers the Natural Gas Act left such direct sales to state regulation. The decision in these two Panhandle Eastern Pipe Line Company cases establishes the proposition that the direct sales of gas imported from another state to industrial consumers is interstate commerce, and the recognition of the regulatory power of a state over such sale, because they are not covered by the Natural Gas
In Panhandle Eastern Pipe Line Company v. Public Service Commission of Indiana, 332 U.S. 507, 68 S. Ct. 190, 92 L. Ed. 128, the plaintiff transported natural gas from Texas and Kansas fields into and across intervening states, including Indiana, to Ohio and Michigan. In Indiana Panhandle sold large amounts of its imported gas direct to large industrial consumers, one of which was Anchor-Hocking Glass Company and another was du Pont in that state. It intended to transport and deliver such imported gas directly to such large industrial consumers. Headnote 1 to that case states that “Sales of imported natural gas by an interstate pipeline carrier direct to industrial consumers are sales in interstate commerce, even though the gas leaves the main transmission line within the state and is piped to the consumers through branch lines or laterals at reduced pressure.” In the opinion, with reference to such sales to industrial consumers, the court said “Nor do we question that these sales are interstate transactions.” The court also used this language “Neither practical common sense nor constitutional sense would tolerate holding that reduction in pressure makes the industrial sales to Anchor-Hocking wholly intrastate for purposes of local regulation while deliveries at similar pressures to utility companies remain exclusively interstate. Variations in main pressures are not the criterion of the states’ regulatory powers under the commerce clause. Cf. Interstate Gas Co. v. Power Comm‘n., 331 U.S. 680, 689. The sales here were clearly in interstate commerce.”
In East Ohio Gas Company v. Tax Commission of Ohio, 283 U.S. 465, 51 S. Ct. 499, 75 L. Ed. 1171, the court held that the transportation of natural gas from wells outside of a state by the pipelines of producing companies to the state line, and thence, by means of the distributing com
“It is elementary that a State can neither lay a tax on the act of engaging in interstate commerce nor on gross receipts therefrom. Pullman Co. v. Richardson, 261 U.S. 330, 338. New Jersey Tel. Co. v. Tax Board, 280 U.S. 338, 346. And, while a State may require payment of an occupation tax by one engaged in both intrastate and interstate commerce, the exaction in order to be valid must be imposed solely on account of the intrastate business without enhancement because of the interstate business done, and it must appear that one engaged exclusively in interstate business would not be subject to the imposition and that the taxpayer could discontinue the intrastate business without withdrawing also from the interstate business. Sprout v. South Bend, 277 U.S. 163, 170-171, and cases cited.
“The transportation of gas from wells outside Ohio by the lines of the producing companies to the state line and thence by means of appellant‘s high pressure transmission lines to their connection with its local systems is essentially national—not local—in character and is interstate commerce within as well as without that State. The mere fact that the title or the custody of the gas passes while it is en route from State to State is not determinative of the question where interstate commerce ends. Public Utilities Comm. v. Landon, 249 U.S. 239, 245. Missouri v. Kansas Gas Co., 265 U.S. 298, 307-309. Peoples Gas Co. v. Pub. Serv. Comm., 270 U.S. 550, 554. Pub. Util. Comm. v. Attleboro Co., 273 U.S. 83, 89.”
In Illinois Natural Gas Company v. Central Illinois Public Service Company, 314 U.S. 498, 62 S. Ct. 384, 86 L. Ed. 371, the court said: “That appellant and Panhandle Eastern are engaged in interstate commerce in the purchase and sale of the natural gas which moves in a continuous stream from points without the state into appellant‘s pipes within the state seems not to be open to question. Missouri v. Kansas Gas Co., 265 U.S. 298; Ozark Pipe Line Corp. v. Monier, 266 U.S. 555; Peoples Gas Co. v. Public Service Commission, 270 U.S. 550; State Tax Commission v. Interstate Gas Co., 284 U.S. 41. Pursuant to the mutual agreement of the two companies, the gas is transported in continuous movement through the pipe line into the state and through the appellant‘s pipes to the service lines of the distributors, where appellant delivers it to them. In such a transaction the particular point at which the title and custody of the gas pass to the purchaser, without arresting its movement to the intended destination, does not affect the essential interstate nature of the business. See Peoples Gas Co. v. Public Service Commission, supra, 554; Pennsylvania v. West Virginia, 262 U.S. 553, 587; United Fuel Gas Co. v. Hallanan, 257 U.S. 277, 280-281.”
Whether the title to or the custody of the imported gas sold by the plaintiff to its industrial consumers, du Pont, Elk and Kaiser, passed to the plaintiff when it entered its pipeline or to its industrial purchasers from the plaintiff, at or before, or after its delivery to them at their plants, is immaterial and did not in any wise affect, alter or terminate the interstate transportation of the gas in a continuous stream from points outside this State to the place of delivery within this State. See The Pipe Line Cases, 234 U.S. 548, 34 S. Ct. 956, 58 L. Ed. 1459; East Ohio Gas Company v. Tax Commission of Ohio, 283 U.S. 465, 51 S. Ct. 499, 75 L. Ed. 1171; Illinois Natural Gas Company v. Central Illinois Public Service Company, 314 U.S. 498, 62 S. Ct. 384, 86 L. Ed. 371.
Here there was no intrastate transportation after the interstate journey ended at the plants of du Pont, Elk and Kaiser where the gas was used or consumed. In this
In the Gambino case one of the questions involved was whether railroad shipment of a car of agricultural lime from Basic Lime Company, a lime sales company located near Cleveland, Ohio, to the railroad station at Pennsboro, in Ritchie County, West Virginia, for the defendant, the purchaser, and the transportation of portions of the lime by the defendant by truck from the railroad station to various local farmers who had ordered lime from the defendant, was an interstate journey from the point of origin in Ohio to the point of delivery to the various purchasers of the lime from the defendant, or whether the interstate character of the transportation ended at the railroad station. On that question this Court held that the interstate transportation began in Ohio and ended at the railroad station, which was the point at which the parties intended that the movement of the carload of lime consigned to the defendant should finally end and that the delivery by truck by the defendant from the railroad station to the purchasers of the lime from him was intrastate commerce. In point 2 of the syllabus this Court said that interstate commerce continues as such until the goods shipped therein reach the point where the parties originally intended that the movement should finally end and that the further local movement by the consignee of the goods in furtherance of a valid business conducted by him constitutes intrastate commerce. The
“Here there was no intent that the lime was to be transported from Basic Lime Company to the ultimate consumer. As heretofore noted, Basic Lime had no knowledge of whom the ultimate consumer would be. The final destination of the lime from Basic Lime Company was the depot at Pennsboro, where it was consigned to Jackson. That being so, there was no stoppage from its origin to its intended destination.
“* * *. ‘In order for local transportation of goods to constitute interstate or foreign commerce, there must be such continuity of movement as to show that shipment to the ultimate destination was within the original contеmplation of the shipper and that stoppage or change of carriers is merely incidental to the shipment. Mere uninterrupted movement of goods will not necessarily constitute the local transportation a part of an interstate or foreign shipment; in order to make the local carriage interstate or foreign commerce, it must be shown that the shipper, when he made the original shipment, intended or had within his contemplation transportation to a point outside the state if the local transportation preceded the interstate or foreign traffic or, if it succeeded it, to the final local destination.’
“Further demonstrating this point is the following language: ‘Interstate commerce ordinarily continues as such until it reaches the point where the parties originally intended that the movement should finally end.’ 15 Am. Jur. 2d, Commerce, § 59. See also Binderup v. Pathe Exchange, 263 U.S. 291, 68 L. Ed. 308, 44 S. Ct. 96; Southern Pac. Co. v. State of Arizona, 249 U.S. 472, 63 L. Ed. 713, 30 S. Ct. 313; Western Union Telegraph Company, et al. v. Foster, 247 U.S. 105, 62 L. Ed. 1006, 38 S. Ct. 438, 1 A.L.R. 1278; Pittsburgh and Southern Coal Company v. Bates, 156 U.S. 577, 39 L. Ed. 538, 15. S. Ct. 415; Danciger v. Cooley, 248 U.S. 319, 63 L. Ed. 266, 39 S. Ct. 119; Rosenberger v. Pacific Express Company, 241 U.S. 48, 60 L. Ed. 880, 36 S. Ct. 510; and United States v. Freeman, 239 U.S. 117, 60 L. Ed. 172, 36 S. Ct. 32.”
In this proceeding it is clear that transportation of the southwestern gas from points in Louisiana and Texas continued in unbroken flow into Kentucky or West Virginia in the transmission lines of the plaintiff direct to its intended destination at the plants of du Pont, Elk and Kaiser where it was delivered and consumed by those industrial consumers, except for temporary storage of portions of the gas which, as previously indicated, did not alter or terminate the direct transportation of the gas to its intended final destination. This continuous journey of the gas, from its points of origin outside this State to its intended final destination at the plants of du Pont, Elk and Kaiser in this State in substance duplicates the interstate transportation of the carload of lime in the Gambino case to its intended final destination at the railroad station at Pennsboro and, like the shipment in the Gambino case, the foregoing transportation of the gas constituted interstate commerce.
It is reasonably clear from the record, and it is not disputed, that the plaintiff purchased the southwestern gas for the express purpose of furnishing it to du Pont, Elk and Kaiser, and that it was the intention of the plaintiff and du Pont, Elk and Kaiser, the industrial purchasers, that the gas should be transported direct, as it was, from points outside West Virginia to the plants of du Pont, Elk аnd Kaiser in this State. The transportation of the gas in each instance, which originated outside this State, was intended by the plaintiff and the seller to it of such gas to continue in uninterrupted movement to each of the special industrial contract consumers at its plant and such gas was, in fact, transported in a continuous stream to its intended destination.
The temporary storage of that portion of the gas that passed through underground fields on its way to the
In Standard Oil Company v. Federal Trade Commission, 340 U.S. 231, 71 S. Ct. 240, 95 L. Ed. 239, the petitioner obtained gasoline from fields in Kansas, Oklahoma, Texas and Wyoming, refined it in Indiana, and distributed it in fourteen middle western states. The gasoline sold by it in the Detroit area was transported by carrier tankers on the Great Lakes from Indiana to petitioner‘s marine terminal at River Rouge, Michigan. Enough of the gasoline was accumulated there during each navigation season to make a winter supply available from the terminal. The gasoline remained there or in nearby bulk storage stations for varying periods. While there the gasoline was owned by the petitioner and was en route from its refinery in Indiana to its market in Michigan. Although the gasoline was not brought to River Rouge pursuant to orders already taken, the demands of the Michigan territory were fairly constant, and the demands of petitioner‘s customers could be estimated accurately. The gasoline sold to customers in Detroit was taken from the gasoline stored at the terminal. The Supreme Cоurt of the United States held that sales of such gasoline were interstate commerce and that they were not deprived of their inter
In Railroad Commission of Ohio v. Worthington, 225 U.S. 101, 32 S. Ct. 653, 56 L. Ed. 1004, lake-cargo coal, destined for delivery to points in the northwest, was transported by railroad from the No. 8 Coal Field in eastern Ohio to the lake ports of Huron and Cleveland, Ohio, on Lake Erie for carriage from those points to the northwest by lake vessels. At those lake ports were dock facilities and machinery and appliances for unloading coal into vessels during the season of navigation. The operator of the dock facilities notified the railroad company that at a certain time a vessel would be at the port to load a given number of tons of coal. The railroad then picked up such cars of coal as were necessary to fill the cargo, moved them on the dock beside the vessel, and loaded the vessel with the coal and furnished the shipper with a cargo statement showing the car number and weight, and the total number of tons of coal in the vessel. The court held that such transportation of the coal was interstate commerce. See Stafford v. Wallace, 258 U.S. 495, 42 S. Ct. 397, 66 L. Ed. 735, 23 A. L. R. 229; Walling v. Jacksonville Paper Company, 317 U.S. 564, 63 S. Ct. 332, 87 L. Ed. 460; Wilcox v. Illinois Commerce Commission, 23 Ill. 2d 432, 178 N. E.2d 873, 42 P. U. R. 3d 231; West Virginia Pipe Line Company v. State, 95 W. Va. 285, 120 S. E. 759.
In the West Virginia Pipe Line Company case this Court held in point 1 of the syllabus that “Oil purchased at producers’ stock tanks in this state by a pipe line company, and in transit through its pipe line system to purchasers in another state, is in interstate commerce and therefore not legally subject to personal property tax in this state.“; and in point 2 of the syllabus that “This is true, though as incidental to such commerce, quantities of the oil accumulated temporarily in collecting tanks which are part of the pipe line system.” In the opinion this Court, in discussing the status of oil tem
Though the defendant makes formal denial that the transportation of the imported southwestern gas to du Pont, Elk and Kaiser is in interstate commerce, he seeks to sustain the levy of the tax upon the gross income from the sale of such gas on the ground that the transportation of such gas, even if interstate commerce, is subject to the tax imposed because the tax does not constitute an unreasonable burden on interstate commerce. Numerous cases cited and relied on by the defendant sustain a tax on interstate commerce if such tax does not operate as a burden on interstate commerce but is merely an incident to such commerce. See General Motors Corporation v. Washington, 377 U.S. 436, 84 S. Ct. 1564, 12 L. Ed. 2d 430, rehearing denied, 379 U.S. 875, 85 S. Ct. 14, 13 L. Ed. 2d 79; Panhandle Eastern Pipe Line Company v. Public Service Commission of Indiana, 332 U.S. 507, 68 S. Ct. 190, 92 L. Ed. 128; McGoldrick v. Berwind-White Coal Mining Company, 309 U.S. 33, 60 S. Ct. 388, 84 L. Ed. 565, 128 A.L.R. 876; Southern Natural Gas Corporation v. Alabama, 301 U.S. 148, 57 S. Ct. 696, 81 L. Ed. 970; Wiloil Corporation v. Pennsylvania, 294 U.S. 169, 55 S. Ct. 358, 79 L. Ed. 838. In some of the cases cited and relied on by the defendant it was held that the transportation of gas from one state to another, as in the case at bar, was interstate commerce which could not be subjected to a
The view hereinabove expressed with respect to Issue No. 10 and the approval of the ruling of the circuit court on that issue represent the opinion of the writer of this opinion who, as previously indicated, would affirm the action of the circuit сourt on that issue. With that view, however, Judges Browning, Calhoun and Caplan disagree. They are of the opinion that the transportation and delivery of the imported southwestern gas to du Pont, Elk and Kaiser are not interstate commerce, that the sales of such gas are local or intrastate transactions, and that the income derived from those sales is subject to the taxation provided by
Issues Nos. 12 and 13 relate to the penalties imposed by the defendant in the amount of $353,786.02, which the circuit court set aside and vacated. Issue No. 12 presents the question whether the failure of the plaintiff to remit the proper amount of the tax was due to reasonable cause within the meaning of
In resolving Issue No. 12, the circuit court held that consideration by the predecessors of the defendant of many transactions similar to the transactions here under consideration which were not subjected to the same kind of taxes as the taxes here involved and the re-assessment by the defendant of the taxes originally levied against the plaintiff constituted reasonable cause for the defendant, in the exercise of the discretion vested in him, to waive the penalty for failure to remit the taxes assessed against the plaintiff, and that the imposition of the condition that the taxes be paid within thirty days upon which the waiver of the defendant was based, amounted to an abuse of discretion by the defendant.
Under the provisions of
It is evident, from the undisputed facts disclosed by the record, that the plaintiff, in failing to pay the tax levied by the commissioner and in challenging the correctness and the validity of the taxes upon some of the various activities of the plaintiff by its appeal from the re-assessment by the commissioner to the circuit court and in prosecuting this appeal, was at all times acting in good faith. It is also manifest that the validity of the presently levied taxes on some of the transactions engaged in by the plaintiff had been rendered uncertain by the different positions of some of the predecessors of the defendant
In Walter Butler Building Company v. Soto, 142 W. Va. 616, 97 S. E.2d 275, this Court said: “In a declaratory judgment proceeding the taxpayer institutes a suit against the State Tax Commissioner to determine the validity of an assessment of a tax against the taxpayer and his liability to pay the tax. In taking the appeal provided
The action of the circuit court in upholding the tax levied and involved in Issues Nos. 4, 5, 6, 7, 8 and 9 is
Judge Berry, deeming himself disqualified, did not participate in the consideration or decision of this case.
Affirmed in part; reversed in part; remanded with directions.
CALHOUN, JUDGE, concurring:
I agree with the Court‘s decision in this case. The four judges who participated in the decision were in agreement on all questions presented for decision except, as the Court‘s opinion states, Judge Haymond was unable to agree with the three other judges in relation to Agreed Issue No. 10. He, as the author of the Court‘s opinion, has ample precedent among prior decisions of the Court for his having stated in the opinion the basis of his disagreement. Nevertheless, I deem it wise and proper to
Agreed Issue No. 10, formulated while the case was in the trial court, is as follows:
“Does
Tax Section 2d , in providing inter esse that ‘The measure of this tax shall not include gross income derived from commerce between this state and other states of the United States.‘, thereby exclude from taxation under any Tax Section of the statute United Fuel‘s gross income from sales of gas under special industrial contracts directly from United Fuel‘s transmission pipelines to—
- E. I. du Pont de Nemours and Company,
- Elk Refining Company, and
- Kaiser Aluminum & Chemical Corporation
—in view of the particular facts, including the role of underground storage, involved in the sales and deliveries to each?”
By the brief filed in behalf of United Fuel Gas Company (which hereafter in this opinion may be referred to as United Fuel) and by the amici curiae brief, as well as by oral argument of counsel by whom such briefs were filed, it has been vigorously urged that the stipulated issue in question is not concerned with the question whether the tax involves the Commerce Clause of
The Court‘s opinion makes clear that Agreed Issue No. 10 does not involve the constitutional question, but that it involves only the validity of the tax when considered in relation to the provisions of
Notwithstanding the narrow character of the question presented for decision by the language of Agreed Issue No. 10, the trial court, in its written opinion, held that the tax was in violation of the statutory provision and also that, under the decision in State ex rel. Battle v. The Baltimore and Ohio Railroad Company, 149 W. Va. 810, 143 S. E.2d 331, “the statute must be literally applied to exclude from the computation of the taxes, not only sales in interstate commerce which would, if taxed, clearly constitute an unreasonable burden thereon under the Constitution, but all gross income from any transaction in interstate commerce.” I am of the opinion, as apparently was the trial court, that if it were held that the tax here in question represents a tax upon gross income derived from interstate commerce under the statute, it might with some reason be argued that, under the Baltimore and Ohio Railroad Company case, the tax is, as a matter of course, violative of the Commerce Clause. Nevertheless, the counsel for the taxpayers earnestly urge that the tax is in contravention of the statutory provision and yet strenuously insist that, in considering the validity of the tax, the Commerce Clause is not material in any sense or degree.
In relation to Agreed Issue No. 10, it is stated in the Court‘s opinion that the “finding of the trial court upon the undisputed facts” in this case is entitled to the same weight as the verdict of a jury and cannot be disturbed on this appeal “unless the evidence plainly and decidedly preponderates against such finding.” The State Road Commission of West Virginia v. Oakes, 150 W. Va. 709, 149 S. E.2d 293 and a prior case are cited in the Court‘s opinion in support of that proposition. I believe that this well-settled principle of law is not applicable to this case for the reason that the trial court‘s “finding” was based upon a stipulated, agreed state of facts and for the additional reason that the trial court‘s decision embodied purely a legal proposition arising from the construction of the statute and its application to the undisputed facts. Dunning v. Barlow & Wisler, Inc., 148 W. Va. 206, 211, 133 S. E.2d 784, 788; Lusher v. Sparks, 146 W. Va. 795, 805, 122 S. E.2d 609, 615; Rhinehart & Dennis Co., Inc. v. McArthur, 123 Va. 556, pt. 15 syl., 96 S. E. 829; 5 Am. Jur. 2d, Appeal and Error, Section 825, page 267 and Section 826, page 268.
“In considering and deciding the constitutionality of a tax imposed and collected by this state, in the light of a provision of the Constitution of the United States, this Court is bound by applicable decisions of the Supreme Court of the United States, even though such decisions are inconsistent with prior decisions of this Court.” State ex rel. Battle v. B. D. Bailey & Sons, Inc., 150 W. Va. 37, pt. 2 syl., 146 S. E.2d 686. In deciding the question presented by Agreed Issue No. 10, we are not restricted by the legal proposition embraced in the quotation appearing immediately above, for the reason that this issue does not involve a constitutional question, but rather the application and effect of the clear language of the statute. 20 Am. Jur. 2d, Courts, Section 225, page 556; 21 C.J.S., Courts, Section 205, page 360. Decisions of the Supreme Court of the United States, therefore, are not directly in point, but are at most persuasive upon the question whether the business operations of United Fuel involved in Agreed Issue No. 10 are local in character and the question whether, in delivering and selling gas to the three industrial customers, United Fuel is earning “gross income derived from commerce between this state and other states of the United States * * *”
It is undisputed that the three industrial consumers here in question are all located within the area of this state in which “United Fuel has always been a natural gas company engaged in business in this State as a public utility subject to regulation and in fact regulated by the Public Service Commission of West Virginia * * *.”
In relation to Agreed Issue No. 7, United Fuel has contended that its sales of gas to all the special contract industrial consumers, including the three industrial consumers involved in Agreed Issue No. 10, constituted private, unregulated business authorized by the Public Service Commission of West Virginia in an exercise of a reviewable discretion and hence does not constitute “the supplying of public services” within the meaning of the statute; and that the measure of the tax prescribed by the statute for the business of “the supplying of public services” includes only gross income derived from utility services rendered under an official utility tariff. These contentions have been unanimously rejected by the Court in the decision of Agreed Issue No. 7. Ac
Counsel for United Fuel correctly assert that the language of Agreed Issue No. 10 involves only the provisions of the statute, but they rely solely on a single isolated sentence in that statute which is negative in character and at all times, in relation to that issue, they have avoided reference to the sentence following immediately thereafter whiсh is affirmative in character. These two sentences are as follows: “The measure of this tax shall not include gross income derived from commerce between
The first of the two sentences quoted above, the sole language of the statute upon which United Fuel rests its case in relation to Agreed Issue No. 10, merely represents, in my opinion, a legislative purpose to recognize fully the inhibition imposed upon the states by the Commerce Clause of the Constitution of the United States. Although United Fuel made a vigorous effort, under Agreed Issue No. 7, to escape the force of the second sentence quoted above, this Court, in deciding Agreed Issue No. 7 adversely to United Fuel, unanimously held that its sales of gas under special contracts to industrial consumers located within its utility service territory, to be used by such consumers in their several businesses, constituted a supplying of a public service within the meaning of the statute which, in clear and mandatory language, states that the measure of a tax under the statute “shall” include gross income received from “the supplying of public services.” The phrase, “commerce between this state and other states“, cannot be isolated and considered out of context. In seeking to determine the legislative intent, the statute here in question must be read and considered in its entirety.
In my judgment, United Fuel as a natural gas company engaged in business in this state as a public utility, does not earn a single dime as “gross income derived from commerce“, either interstate or intrastate, in the sales of gas to these three industrial consumers. It is not engaged in any business by which it earns or undertakes to earn a gross income from engaging in commerce as such. It is a public utility engaged in the sale of gas to consumers for a profit. This represents the source of its “gross income“, irrespective of the type of pipeline by
State ex rel. Battle v. The Baltimore and Ohio Railroad Company, 149 W. Va. 810, 143 S. E.2d 331, involved a railroad corporation which, of course, is engaged in the business of transporting goods for a profit in both interstate and intrastate commerce. That corporation, therefore, clearly receives “gross income derived from commerce between this state and other states“. Eureka Pipe Line Company v. The Public Service Commission of West Virginia, 148 W. Va. 674, 137 S. E.2d 200, involved a public utility engaged in the business of transportation of petroleum by pipeline. That public utility also obviously received “gross income derived from commerce“. These two business operations are, by their nature, character and purpose, clearly distinguishable from the business in which United Fuel is engaged. Its gross earnings here in question are not derived from commerce. On the contrary, its gross earnings, so far as Agreed Issue No. 10 is concerned, are derived from its business as a public utility engaged in the sale of natural gas to consumers within this state.
“Where a person claims an exemption from a law imposing a tax, such law must be construed strictly against the person claiming the exemption.” Owens-Illinois Glass Company v. Battle, 151 W. Va. 655, pt. 3 syl., 154 S. E.2d 854. The statute here in question is intended to impose a tax upon “any person engaging or continuing within this state in any public service or utility business,” with the exception of certain businesses therein defined. United Fuel clearly is not in the category of any of the types of public utilities excepted from the application of
The essence of United Fuel‘s claim is, I believe, that the gas in question was received into United Fuel‘s pipeline and storage facilities as a consequence of its previous transportation in interstate cоmmerce; and that the interstate character of the transportation was not changed or interrupted before the sale of such gas and the delivery thereof by transportation to and upon the premises of the three several industrial consumers through United Fuel‘s pipeline facilities. After delivery of the gas by United Fuel through its own pipelines which extended to and upon the premises of the three several industrial consumers, it was there metered by means of facilities belonging to United Fuel. There, upon the premises of each of the three several consumers, the gas was delivered, metered and sold. The gas belonged to United Fuel until it passed over the consumer‘s premises in each case and the sale and delivery of the gas was there finally consummated after the volume of gas had been determined by metering facilities owned by United Fuel. Transportation of the gas, or “commerce“, was there terminated.
From the time and place gas was delivered into United Fuel‘s pipeline facilities, whether in this state or at a nearby point in Kentucky, the sale thereof to United Fuel had been fully consummated. Thereafter the gas was subject to its exclusive possession, control and ownership. From any of the points of delivery to United Fuel of gas which had reached such points as a consequence of prior interstate commerce, United Fuel, in the three instances here in question, was simply transporting its
“Interstate commerce continues as such until the goods shipped therein reach the point where the parties originally intended that the movement should finally end, and the further local movement by the consignee of the goods in furtherance of a valid business conducted by him constitutes intrastate commerce.” Gambino v. Jackson, 150 W. Va. 305, pt. 3 syl., 145 S. E. 2d 124. The obligation of the prior shipper of the gas in interstate commerce was to deliver it to United Fuel, the consignee and purchaser of the gas. The subsequent transportation of the gas for sale to the three industrial consumers was a mere incident of United Fuel‘s local, intrastate business. The initial shipper or shippers of the gas to United Fuel had no privity of contract with the three industrial consumers.
The tax here in question has no relation to the sale and delivery of the gas to United Fuel by interstate commerce. The tax is not directed at prior transportation, sale and delivery of gas to United Fuel. The tax here in question is upon United Fuel‘s privilege of making sales of gas to consumers on a local, intrastate basis in West Virginia. The measure of the tax is based on gross income earned by United Fuel from sale of gas to consumers within this state in carrying on its local, intrastate business. This local transportation ends when the gas is delivered to each of the three industrial consumers for
Taxes of this general character, imposed upon taxpayers doing business in this state, have been upheld notwithstanding the fact that interstate commerce is in some measure involved incidentally in the primary function of performance within this state of a business which is local and intrastate in character. A wholly incidental and minor involvement of interstate commerce does not destroy or alter the primary character of the performance of a business which is local and intrastate in its nature and purpose. Gambino v. Jackson, 150 W. Va. 305, 145 S. E.2d 124; State ex rel. Battle v. B. D. Bailey & Sons, Inc., 150 W. Va. 37, 146 S. E.2d 686; Norfolk and Western Railway Company v. Field, 143 W. Va. 219, 100 S. E.2d 796; Arslain v. Alderson, 126 W. Va. 880, 30 S. E.2d 533.
For reasons stated, I am of the opinion that the gross income received by United Fuel from sales of gas to the three industrial consumers in question, under the stipulated facts of this case, does not involve “gross income derived from commerce between this state and other states of the United States“; that the income thus received by United Fuel is “gross income received from supplying public services“, on a local, intrastate basis; and that, therefore, the tax in question was legally assessed by the defendant tax commissioner.
I have been authorized by Judge Browning and Judge Caplan to state that they agree with the views expressed in this concurring opinion.