Pipe Line Co v. Calvert Panhandle Eastern Pipe Line Co v. Calvert

• Decision Date: 08 February 1954
• Docket Number: Nos. 198,200 and 201,199,MICHIGAN-WISCONSIN,s. 198
• Citation: 98 L.Ed. 583,347 U.S. 157,74 S.Ct. 396
• Parties: PIPE LINE CO. v. CALVERT et al. (two cases). PANHANDLE EASTERN PIPE LINE CO. v. CALVERT et al. (two cases)
• Court: U.S. Supreme Court

347 U.S. 157

74 S.Ct. 396

98 L.Ed. 583

MICHIGAN-WISCONSIN PIPE LINE CO.

v CALVERT et al. (two cases).

PANHANDLE EASTERN PIPE LINE CO.

v. CALVERT et al. (two cases).

Nos. 198, 199, 200 and 201.

Argued Jan. 5, 6, 1954.

Decided Feb. 8, 1954.

Rehearing Denied March 15, 1954.

See 347 U.S. 931, 74 S.Ct. 528.

[Syllabus from pages 157-158 intentionally omitted] Messrs. D. H. Culton, Amarillo, Tex., Samuel A. L. Morgan, Houston, Tex., for appellants.

Messrs. W. V. Geppert, John Ben Shepperd, Austin, Tex., for appellees.

Mr. Justice CLARK delivered the opinion of the Court.

The appellants, two natural gas pipeline companies, brought separate suits against Texas State officials, appellees here, in a state district court, seeking a determination that a Texas tax statute as applied to appellants violates the Commerce Clause of the Constitution of the United States, and seeking recovery of money paid under protest in compliance with the statute. The District Court sustained appellants' contentions and entered judgment in their favor. The Court of Civil Appeals reversed, holding that the tax statute as applied is constitutional. 255 S.W.2d 535. The Supreme Court of Texas 'refused' appellants' applications for writs of error.

By state statute and procedural rule, the docket notation 'refused' in denying application for writ of error signifies that the State Supreme Court deems the judgment of the Court of Civil Appeals a correct one and the principles of law declared in the opinion correctly determined. Appellants were uncertain whether appeal to this Court was properly from the Court of Civil Appeals or the Supreme Court of Texas, as 'the highest court of a State in which a decision could be had' within the meaning of 28 U.S.C. § 1257, 28 U.S.C.A. § 1257. Hence each appellant appealed from each of the courts.¹ We postponed to the hearing of the cases on the merits a determination of the jurisdictional question. 346 U.S. 805, 74 S.Ct. 44.

We think that appeals in these cases were properly from the Court of Civil Appeals. In American Ry. Exp. Co. v. Levee, 1923, 263 U.S. 19, 44 S.Ct. 11, 12, 68 L.Ed. 140, the Supreme Court of Louisiana had refused a writ of certiorari to the State Court of Appeal "for the reason that the judgment is correct." Mr. Justice Holmes, speaking for a unanimous Court, said:

'* * * (U)nder the Constitution of the State the jurisdiction of the Supreme Court is discretionary * * * and although it was necessary for the petitioner to invoke that jurisdiction in order to make it certain that the case could go no farther, * * * when the jurisdiction was declined the Court of Appeal was shown to be the highest Court of the State in which a decision could be had. Another section of the article cited required the Supreme Court to give its reasons for refusing the writ, and therefore the fact that the reason happened to be an opinion upon the merits rather than some more technical consideration, did not take from the refusal its ostensible character of declining jurisdiction. Western Union Telegraph Co. v. Crovo, 220 U.S. 364, 366, 31 S.Ct. 399 (400), 55 L.Ed. 498; Norfolk & Suburban Turnpike Co. v. Commonwealth of Virginia, 225 U.S. 264, 269, 32 S.Ct. 828 (830), 56 L.Ed. 1082. Of course the limit of time for applying to this Court was from the date when the writ of certiorari was refused.' 263 U.S. at pages 20—21, 44 S.Ct. at page 12.

In Lone Star Gas Co. v. State of Texas, 1938, 304 U.S. 224, 551, 58 S.Ct. 883, 82 L.Ed. 1304, with the present Texas procedural provisions in effect, this Court's mandate issued to the Court of Civil Appeals in a case where the State Supreme Court had 'refused' writ of error. See also United Gas Public Service Co. v. State of Texas, 1937, 301 U.S. 667, 57 S.Ct. 921, 81 L.Ed. 1332.

Accordingly the appeals in Nos. 199 and 201, from the Supreme Court of Texas, are dismissed. We proceed to consider Nos. 198 and 200.

The question presented is whether the Commerce Clause is infringed by a Texas tax on the occupation of 'gathering gas,' measured by the entire volume of gas 'taken,' as applied to an interstate natural gas pipeline company, where the taxable incidence is the taking of gas from the outlet of an independent gasoline plant within the State for the purpose of immediate interstate transmission. In relevant part the tax statute² provides that 'In addition to all other licenses and taxes levied and assessed in the State of Texas, there is hereby levied upon every person engaged in gathering gas produced in this State, an occupation tax for the privilege of engaging in such business, at the rate of 9/20 of one cent per thousand (1,000) cubic feet of gas gathered.' Using a beggared definition of the term 'gathering gas,' the Act further provides that 'In the case of gas containing gasoline or liquid hydrocarbons that are removed or extracted at a plant within the State by scrubbing, absorption, compression or any other process, the term 'gathering gas' means the first taking or the first retaining of possession of such gas for other processing or transmission whether through a pipeline, either common carrier or private, or otherwise after such gas has passed through the outlet of such plant.' It also prohibits the 'gatherer' as therein defined from shifting the burden of the tax to the producer of the gas, and provides that the tax shall not be levied as to gas gathered for local consumption if declared unconstitutional as to that gathered for interstate transmission.

Michigan-Wisconsin Pipe Line Company and Panhandle Eastern Pipe Line Company, appellants, are Delaware corporations and are natural gas companies holding certificates of convenience and necessity under the Natural Gas Act of 1938, 15 U.S.C. § 717 et seq., 15 U.S.C.A. § 717 et seq., for the transportation and sale in interstate commerce of natural gas. The nature of their activities has been stipulated.

Michigan-Wisconsin has constructed a pipeline extending from Texas to Michigan and Wisconsin. At points in these two States and in Missouri and Iowa it sells gas to distribution companies which serve markets in those areas.³ It sells no gas in Texas. The company produces no gas; it purchases its supply from Phillips Petroleum Company in Texas, under a long-term contract. Phillips collects the gas from the wells and pipes it to a gasoline plant, where certain liquefiable hydrocarbons, oxygen, sulphur, hydrogen sulphide, dust and foreign substances are removed preparatory to the transmission of the residue. As this residue gas leaves the absorbers it flows through pipes owned by Phillips for a distance of 300 yards to the outlet of its gasoline plant, at the boundary between property of Phillips and property of Michigan-Wisconsin. Phillips has installed gas meters in its pipes at this point. The gas emerging from the outlet flows directly into two 26-inch pipelines of Michigan-Wisconsin. It is this 'taking' that is made the taxable incidence of the statute. After the gas has been taken into the Michigan-Wisconsin pipes it flows a distance of approximately 1,215 feet to a compressor station owned and operated by Michigan-Wisconsin at which station the pressure of the gas is raised from about 200 pounds to some 975 pounds to facilitate movement to distant markets. In the course of its flow through this station the gas is compressed, cooled, scrubbed and dehydrated and then passes into a 24-inch pipeline which carries it 1.74 miles to the Oklahoma border and thence to markets outside Texas. Additional motive power is furnished by 15 other compressor stations in other states through which the gas is transported.

The entire movement of the gas, from producing wells through the Phillips gasoline plant and into the Michigan-Wisconsin pipeline to consumers outside Texas, is a steady and continuous flow. All of Michigan-Wisconsin's gas is purchased from Phillips for transportation to points outside Texas, and is in fact so transported.

Exclusive of the tax in question, Michigan-Wisconsin pays an ad valorem tax on the value of all its facilities and leases within the State. The State also levies on producers a tax of 5.72% of the value at the well of all gas produced in the State and a special tax to cover expenses in enforcing the conservation and proration laws.

The appellees place much emphasis upon the fact that Texas through these conservation and proration measures has afforded great benefits and protection to pipeline companies. It is beyond question that the enforcement of these laws has been not only in the public interest but to the commercial advantage of the industry. But, though this be an appealing truth, these benefits are relevant here only to show that essential requirements of due process have been met sufficiently to justify the imposition of any tax on the interstate activity. No challenge is made of the validity of the tax under the Due Process Clause, the appellants basing their objections only on the Commerce Clause, and when we proceed to examine the tax under the latter its validity 'depends upon other considerations of constitutional policy having reference to the substantial effects, actual or potential, of the particular tax in suppressing or burdening unduly the commerce.' Nippert v. City of Richmond, 1946, 327 U.S. 416, 424, 66 S.Ct. 586, 590, 90 L.Ed. 760. We proceed, therefore, to discuss only those relevant factors involved in the testing of the tax under the Commerce Clause.

The tax here assailed applies equally to gas moving in intrastate and interstate commerce. It is levied in addition to all other licenses and taxes and is denominated an occupation tax for the privilege of engaging in the 'gathering of gas.' Obviously appellants are not engaged in 'gathering gas' within the meaning of that term in its ordinary usage; but the tax statute gives the term a transcendent scope; as to appellants' operations it is defined as 'the first taking * * * of possession of such gas...