Oklahoma Tax Commission v. Texas Co Oklahoma Tax Commission v. Magnolia Petroleum Co

• Citation: 336 U.S. 342,93 L.Ed. 721,69 S.Ct. 561
• Decision Date: 07 March 1949
• Docket Number: Nos. 40 and 41,s. 40 and 41
• Parties: OKLAHOMA TAX COMMISSION v. TEXAS CO. OKLAHOMA TAX COMMISSION v. MAGNOLIA PETROLEUM CO
• Court: United States Supreme Court

336 U.S. 342

69 S.Ct. 561

93 L.Ed. 721

OKLAHOMA TAX COMMISSION

v TEXAS CO.

OKLAHOMA TAX COMMISSION

v. MAGNOLIA PETROLEUM CO.

Nos. 40 and 41.

Argued Nov. 19, 1948.

Decided March 7, 1949.

Rehearing Denied April 25, 1949.

See 336 U.S. 958, 69 S.Ct. 887.

Mr. R. F. Barry, of Oklahoma City, Okl., for petitioner.

Mr. B. W. Griffith, of Tulsa, Okl., for The Texas Co.

Mr. Robert W. Richards, of Oklahoma City, Okl., for Magnolia Petroleum Co.

Mr. Justice RUTLEDGE delivered the opinion of the Court.

The principal question is whether a lessee of mineral rights in allotted and restricted Indian lands is immunized by the Constitution against payment of non-discriminatory state gross production taxes and state excise taxes on petroleum produced from such lands. In effect the issue is whether this Court's previous decisions in Howard v. Gipsy Oil Co., 247 U.S. 503, 38 S.Ct. 426, 62 L.Ed. 1239; Large Oil Co. v. Howard, 248 U.S. 549, 39 S.Ct. 183, 63 L.Ed. 416, and State of Oklahoma v. Barnsdall Refineries, 296 U.S. 521, 56 S.Ct. 340, 80 L.Ed. 366, invalidating such taxes as applied to like lessees, have been so undermined by later decisions, in particular Helvering v. Mountain Producers Corp., 303 U.S. 376, 58 S.Ct. 623, 83 L.Ed. 907, that they should now be overruled.

With certain exceptions,¹ the lands from which was extracted the petroleum sought to be taxed are held in trust by the United States, pursuant to allotments made under the General Allotment Act,² for various members of the Pottawatomie, Apache, Comanche, and Otoe and Missouria Tribes.³ All the lands are located within the State of Oklahoma and at all material times they were restricted⁴ against alienation by the Indian cestui owners without the consent of the Secretary of the Interior.⁵ He approved each of the leases now in question. The respondents Texas Company (No. 40) and Magnolia Petroleum Company (No. 41) acquired their leases before Oklahoma levied the assessments now in issue, either as original lessees or by assignment from non-Indians who were such lessees. The companies thus became owners of all right, title and interest in their respective leases, subject only to the one-eighth royalty interest reserved to the Indian lessors, and were such owners at the times of the respective assessments. It may be taken that they have operated the leases in conformity with the applicable regulations of the Department of the Interior⁶ and of the State of Oklahoma,⁷ except for the payment of the state taxes iin question.⁸

The Oklahoma gross production tax requires payment of five per cent of the gross value of production, including royalty interests. It is imposed on every person engaged in the production in Oklahoma of petroleum, crude oil or other mineral oil, and natural gas and casinghead gas. The tax is exacted in lieu of all taxes by the state and its political subdivisions on property rights in minerals and mineral rights, producing leases, machinery used in connection with any oil or gas well, the oil and gas during the tax year in which it is produced, and any investment in any leases, minerals, or other property. The statute authorizes the state board of equalization to raise or lower the rate of tax to equate the amount payable with the amount which would be payable if the general ad valorem property tax were assessed against the property of the producers subject to taxation. The board's rate changes are subject to review by the state supreme court.⁹ In consequence of these provisions, the tax has been construed consistently by the state courts to be a tax on the lessee's property, not an occupation or excise tax.¹⁰

The petroleum excise tax requires payment of one mill, formerly one-eighth of one cent,¹¹ per barrel on every barrel of petroleum produced in Oklahoma. The statute was enacted first in 1933 to defray the expenses of administering the state's newly adopted proration law¹² and has been reenacted at each subsequent session of the legislature.¹³ The tax, unlike the gross production tax, is construed by the Oklahoma Suprem Court as an excise tax on the production of oil. Barnsdall Refineries v. Oklahoma Tax Commission, 171 Okl. 145, 41 P.2d 918, affirmed, 296 U.S. 521, 56 S.Ct. 340, 80 L.Ed. 366.

In No. 40 the Oklahoma Tax Commission, petitioner here, assessed both gross production and petroleum excise taxes against the Texas Company for production, less royalties to the Indian lessors,¹⁴ during September, Oc- tober and November, 1942. In No. 41 the commission likewise assessed both taxes, less royalties, on the Magnolia Company's production for various periods between June 1, 1942, and March 1, 1946. The orders were entered after the cases were consolidated for hearing before the commission and were thus heard by it.

In No. 40 the Texas Company paid the taxes under protest and brought suit to recover them in an Oklahoma trial court. After hearing, that court sustained the commission's demurrer to the company's amended petition and ordered it dismissed. Appeal was duly taken to the state supreme court. In No. 41, following a different statutory procedure, the Magnolia Company appealed from the assessments against it directly to that court.

In both cases the Supreme Court of Oklahoma, with one judge dissenting, held the assessments invalid. The decisions rested flatly on the ground that the lessee was an instrumentality of the Federal Government and as such, under prior and controlling decisions of this Court, particularly in the Large Oil, Gipsy Oil, and Barnsdall Refineries cases, supra, not subject to the taxes in question.¹⁵ In the Texas Company case the court expressly distinguished Helvering v. Mountain Producers Corp., supra, on the ground that the decision in that case related to income taxes assessed against the lessee there situated as were the lessees here. The opinion, indicating the writer's personal view that reconsideration of the earlier decisions well might be sought, nevertheless stated:

'But it is thought beyond the power of this court to now engage in such reconsideration, in view of the cited decisions of the higher authority which thus far wholly sustain the claim of (the Texas Company) to immunity from the tax here involved.

'Upon questions of federal law, citizens and their attorneys have the right to rely upon decisions of the Supreme Court of the United States, and upon such questions it is our fixed duty to follow such decisions, leaving to the United States Congress or or Supreme Court the making of the necessary changes in such legal rules.'

From the state supreme court's decisions¹⁶ the Oklahoma Tax Commission filed appeals in this Court. We dismissed the appeals for want of jurisdiction. But treating them as applications for certiorari,¹⁷ we granted the writs and consolidated the cases for argument. 333 U.S. 870, 68 S.Ct. 906, 907. The Solicitor General was requested to file a brief as amicus curiae.

I.

But for the course of decision here from Choctaw, O. & G.R. Co. v. Harrison, 235 U.S. 292, 35 S.Ct. 27, 59 L.Ed. 234, decided in 1914, to State of Oklahoma v. Barnsdall Refineries, 296 U.S. 521, 56 S.Ct. 340, 80 L.Ed. 366, decided in 1936, the problems of taxation and intergovernmental immunity these cases present would seem subject to solution on well-settled or fairly obvious legal principles.

It has long been established that property owned by a private person and used by him in performing services for the Federal Government is subject to state and local ad valorem taxes.¹⁸ And the oil and gas produced is, of course, subject to such taxation. Indian Territory Illuminating Oil Co. v. Board of Equalization of Tulsa County, Okl., 288 U.S. 325, 53 S.Ct. 388, 77 L.Ed. 812. Both by the substance of the statute's explicit provisions and by the consistent construction of the Oklahoma Supreme Court,¹⁹ that state's so-called gross production tax in its presently applicable form is a tax on the lessee's property used in carrying out its contractual obligations with the Federal Government and on the oil and gas during the tax year in which it was produced. The tax is levied expressly in lieu of all property taxes which the state might constitutionally impose in ad valorem form, the gross production levy being a tentative measure for the value of that property. To guard against that measure's being utilized to lay in effect a tax not actually of that character, the state board of equalization is authorized, indeed is required upon complaint, to equate the amount payable with what would be payable if the general ad valorem tax were assessed against the property of the producing lessees subject to taxation, with provision for judicial review of the board's action.

Unembarrassed by some of this Court's prior decisions, therefore, Oklahoma's so-called gross production tax would seem to be sustained by the well-established line of decisions cited above.²⁰

Moreover, even if the status of respondents as federal instrumentalities, in the sense in which they use the term, were fully conceded, it seems difficult to imagine how any substantial interference with performing their functions as such in developing the leaseholds could be thought to flow from requiring them to pay the small tax Oklahoma exacts to satisfy their shares of the state's expense in maintaining and administering its proration program. That system works for respondents' benefit in performing their producing function, as it does for the benefit of all other producers, by stabilizing production, eliminating waste, and preventing runaway competition in an industry notorious for those evils in the absence of some such control. Cf. Railroad Commission of Texas v. Rowan & Nichols Oil Co., 310 U.S. 573, 60 S.Ct. 1021, 84 L.Ed. 1368; Republic Natural Gas Co. v. Oklahoma, 334 U.S. 62, dissenting opinion Part III, 89, 68 S.Ct. 972, 987. Indeed respondents do not claim they are exempt from the plan's regulatory features. They claim only that they are...