McKeever v. Fontenot

• Citation: 104 F.2d 326
• Decision Date: 06 June 1939
• Docket Number: No. 9027.,9027.
• Parties: McKEEVER et al. v. FONTENOT, Collector of Internal Revenue.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

104 F.2d 326 (1939)

McKEEVER et al. v. FONTENOT, Collector of Internal Revenue.

No. 9027.

Circuit Court of Appeals, Fifth Circuit.

June 6, 1939.

Lloyd J. Cobb and Morris Wright, both of New Orleans, La., and David Paine and George Koegler, both of New York City, for appellants.

Courtnay C. Hamilton and Sewall Key, Sp. Assts. to Atty. Gen., Jas. W. Morris, Asst. Atty. Gen., and Rene A. Viosca, U. S. Atty., and Leon D. Hubert, Jr., Asst. U. S. Atty., both of New Orleans, La., for appellee.

Before SIBLEY, HUTCHESON, and HOLMES, Circuit Judges.

HOLMES, Circuit Judge.

This appeal is from judgments for the defendant in three actions for the recovery of taxes collected for the transportation of petroleum products by pipe line, under the provisions of Section 731 of the Revenue Act of 1932, 47 Stat. 169, 275, 26 U.S.C.A. end c. 20. The transportation involved in each action being in the same system of pipes, and the only differences involved being the dates, parties, and amounts, the three cases were consolidated and tried as one. D.C., 25 F.Supp. 366.

Appellants were the owners of a large refinery at Destrehan, Louisiana, at the time of the movement for which each item of the tax was assessed. The refinery was located on a body of land belonging to the taxpayers, bordering on the Mississippi River. Petroleum was brought to the refinery in tank vessels or barges, and transferred therefrom to storage tanks located on the premises. Thereafter, it was processed by the refinery, and the finished products were stored on the premises. There were three methods of moving the finished products to market; by tank wagons, by tank cars and by tank ships or barges on the river. All movements of petroleum or petroleum products into, out of, or within the plant were performed by pumping through a system of pipes connecting the refinery, the tanks, the loading racks for cars and wagons, and the wharf where ships and barges were served. In addition to the function of transportation, whether as a plant facility in connection with the refinery or otherwise, the pipes were sometimes used to blend different grades of petroleum products to meet certain specifications, the different grades being brought together from their respective receptacles at a T or manifold, and forced to flow together in one pipe for a considerable distance into a common receptacle.

All of the movements on which the tax has been levied were of finished petroleum products from storage tanks to vessels at the wharf. In some instances the blending process, mentioned above, was performed while the movement was in progress. It is conceded that the pipes in question were of the kind and character employed by pipe-line carriers. The tanks from which the products were moved, being thirty-seven in number, were located from 3,600 to 5,500 feet from the wharf. The same pipes were used for movements into and out of the plant, and for petroleum and its finished products.

Section 731 of the Revenue Act of 1932 imposes a tax equivalent to 4% of the amount paid for the transportation of crude petroleum or the liquid products thereof by pipe line. It further provides that in case no charge is made, either by reason of ownership of the commodity transported or for any other reason, a tax equivalent to 4% of a fair charge shall be paid. Treasury Regulations 42, promulgated under the Act of 1932, Article 26,¹ provides that the term "all transportation" shall include transportation by private owner whenever the movement is substantially similar to movements which pipe-line carriers usually undertake and perform, if the movement is not merely local or incidental to another business or related business engaged in by the person so transporting, such as the producing or refining of said oil. Under this administrative interpretation of the act, it is conceded that, for the movements here involved to be subject to the tax, they must have been substantially similar to movements which pipe-line carriers usually undertake and perform. Brewster v. Gage, 280 U.S. 327, 336, 50 S.Ct. 115, 74 L.Ed. 457; Massachusetts Mutual Life Ins. Co. v. U. S., 288 U.S. 269, 53 S.Ct. 337, 77 L.Ed. 739; U. S. v. Dakota-Montana Oil Co., 288 U.S. 459, 466, 53 S.Ct. 435, 77 L.Ed. 893; Helvering v. R. J. Reynolds Tobacco Co., 305 U.S. ___, 59 S.Ct. 423, 83 L.Ed. 370.

The district court found as a fact that the movements taxed were substantially similar to movements which pipe-line carriers usually...