Arkansas-Louisiana Pipe Line Co. v. Coverdale

• Decision Date: 24 May 1937
• Docket Number: No. 615.,615.
• Citation: 20 F. Supp. 676
• Parties: ARKANSAS-LOUISIANA PIPE LINE CO. v. COVERDALE, Sheriff and Tax Collector.
• Court: U.S. District Court — Western District of Louisiana

20 F. Supp. 676

ARKANSAS-LOUISIANA PIPE LINE CO. v. COVERDALE, Sheriff and Tax Collector.

No. 615.

District Court, W. D. Louisiana, Monroe Division.

May 24, 1937.

Blanchard, Goldstein, Walker & O'Quin, of Sheveport, La., for complainants.

A. L. Davenport, and J. B. Dawkins, both of Monroe, La., Gaston L. Porterie, Atty. Gen., and J. C. Daspit, Fred A. Blanche, and E. L. Richardson, all of Baton Rouge, La., for respondents.

Before FOSTER, Circuit Judge, and DAWKINS and BORAH, District Judges.

DAWKINS, District Judge.

The issues in this case have been stated in opinions heretofore handed down on the application for preliminary injunction.

On the original hearing a preliminary writ was granted on the finding that the statute assailed violated provisions of both the State and Federal Constitutions. Shortly thereafter, the State Supreme Court (181 La. 117, 158 So. 640) sustained its constitutionality under the state law and a rehearing was promptly granted by this court. On the rehearing a preliminary injunction was issued for the reason we concluded the act in question infringed the commerce clause of the Federal Constitution (article 1, § 8, cl. 3). The case has now been submitted on the merits.

The evidence before us is the same, except that respondent has offered additional affidavits to show the mechanical operation of the compressor station and its accessories, together with expert opinions of the witnesses as to the effects. The purpose was to sustain the contention of respondent that there is a distinct operation amounting to a manufacture of mechanical power before it is used to force the gas through the pipe lines and to thereby demonstrate that the case is parallel to that of Utah Power & Light Co. v. Pfost, 286 U.S. 165, 52 S.Ct. 548, 76 L.Ed. 1038, in which a similar tax was sustained. The further contention is made by defendant from these facts that the gas does not enter the stream of interstate commerce until it passes through the condensers into the 20-inch pipe line through which it is conveyed to points of sale in the states of Texas and Arkansas. There is no dispute as to the physical or mechanical nature of these operations, and we find these additional facts as described by the witnesses without, however, accepting the conclusions or opinions which they advance as to effect.

As the name indicates, the plaintiff's business is one of transporting natural gas by pipe line, more than 96 per cent. of which is done in interstate commerce, as conclusively as if it operated tank cars in transporting the kindred mineral, crude oil, into the other states for sale. Naturally, gas not being susceptible of commercial transportation by the latter method, it has to be pumped through pipe lines. In conducting its business, plaintiff has the right to use as a part thereof all of the usual accessories and instrumentalities reasonably incident to its operation. See Norfolk & Western R. R. Co. v. Pennsylvania, 136 U. S. 114, 10 S.Ct. 958, 34 L.Ed. 394; Ozark Pipe Line v. Monier, 266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439. It would seem, therefore, that it is entitled to use its compressor stations as a part of this business, free from improper state interference, equally with its pipe line. It was clearly held in State Tax Commission of Mississippi v. Interstate Natural Gas Company, 284 U.S. 41, 52 S.Ct. 62, 76 L.Ed. 156, that a similar excise tax could not be imposed based upon the size and mileage of the pipe line used in interstate commerce.

Does the plaintiff have any business or is it engaged commercially in doing anything other than transporting natural gas drawn from its own wells plus what it buys from others, 96 per cent. of which passes into and is sold in other states? If so, then under the doctrine of Utah Power & Light Co. v. Pfost, supra, that business or commercial operation we think may be taxed. The operation of its internal combustion engines is for the sole purpose of applying their power to the gas in drawing it from the wells through the gathering lines and forcing it through the main line to its destination outside of the state, just as the energy created by the burning of coal or oil in a locomotive furnishes the power to pull tank cars over a line of railroad. In the Utah Power Company Case it was shown that the taxpayer owned and operated a large power plant, in which, by applying the energy of falling water to a complete system of machines and accessories, a different valuable article of commerce was produced, to wit, electric power. It was this article or commodity so manufactured and produced which was conveyed over its lines. On the other hand, the plaintiff takes a natural product of the earth, and, except for passing it through machines for the elimination of refuse and impurities, by the same force, transports it from the wells into other states. The power produced or created by the mechanical operation of its internal combustion engines is exclusively for that purpose. None of it is sold or transported as such away from the point of its production. The distinction, we think, is made clear by the following expression of the Supreme Court in the cited case:

"We think, therefore, it is wholly inaccurate to say that appellant's entire system is purely a transferring device. On the contrary, the generator and the transmission lines perform different functions, with a result comparable, so far as the question here under consideration is concerned, to the manufacture of physical articles of trade and their subsequent shipment and transportation in commerce. Appellant's chief engineer, although testifying that generation is a part of the process of transferring energy, said on cross-examination that in the process of generation there is a `conversion of the mechanical energy in the turbine shaft into a different form of energy, that is electrical energy. It must be converted into electrical energy before it can be transmitted. * * * This process of transformation is complete at the generator, and you have a greater amount of energy there, capable of doing a greater amount of mechanical work, at the generator than you do after transmitting it into Utah.' The evidence amply sustains the conclusion that this transformation must take place as a prerequisite to the use of the electrical product, and that the process of transferring, as distinguished from that of producing, the electrical energy, begins not at the water fall, but definitely at the generator, at which point measuring appliances can be placed and the quantum of electrical energy ascertained with practical accuracy." Utah Power & Light Co. v. Pfost, 286 U.S. 180, 52 S.Ct. 548, 552, 76 L.Ed. 1038.

Our conclusion is that the attempted assimilation is metaphysical and that the business or operation cannot be dissected or torn apart so as to make of it distinct entities for the purpose of taxation, but that it must be treated as a unit and that entire unit is engaged almost exclusively in interstate commerce.

Passing now to the alternative contention of respondent, i. e., that, notwithstanding the engines may be instrumentalities of interstate commerce, they may nevertheless be taxed as here undertaken. It is well settled that a state may levy taxes which indirectly affect such commerce, such as ad valorem taxes upon the physical property situated therein, franchise taxes, occupational or license taxes, and on the net profits of a business part of which was derived from interstate commerce. Property physically in and having its situs within the state receives the same benefits of protection from its laws, whether used in one class of commerce or the other, and may be taxed accordingly where there is no discrimination. In similar fashion, a corporation doing business within the state and for the same reasons may be required to pay franchise taxes. So, too, may corporations or individuals, engaged in interstate commerce, be taxed for the privilege of carrying on their business or pursuing their occupations where they have a domicile or business situs in the state. However, all of these are indirect taxes, since they do not bear immediately upon the commerce itself or the instrumentalities by which it is carried on. On the other hand, wherever and whenever a tax...