Barwise v. Sheppard
| Decision Date | 09 November 1936 |
| Docket Number | No. 10,10 |
| Citation | 81 L.Ed. 23,299 U.S. 33,57 S.Ct. 70 |
| Parties | BARWISE et al. v. SHEPPARD, Comptroller of Texas, et al. * |
| Court | U.S. Supreme Court |
Appeal from the Court of Civil Appeals, Third Supreme Judicial District, State of Texas.
Mr. Wm. R. Watkins, of Fort Worth, Tex., for appellants.
Messrs. Wm. McCrew, Atty. Gen., and Scott Gaines, Llewellyn Duke and H. Grady Chandler, all of Austin, Tex., for appellees.
A statute of the State of Texas imposing a tax on the production of oil is here challenged as violating the contract clause of the Constitution of the United States and the due process of law clause of the Fourteenth Amendment.
The appellants own lands from which oil is produced under a lease given in 1925. The lease is in the usual form of an oil lease; invests the lessee with the right to explore for and produce oil; shows that the production is to be for the mutual benefit of the lessor and lessee fixes the lessor's proportion, or royalty interest, at 'the equal 1/8 part of all oil produced'; and requires the lessee to deliver that proportion to the lessor's credit, 'free of cost, in the pipe line' to which the wells are connected.
When the lease was given and up to 1933 a law of the State imposed on the lessee alone, as the active producer, a tax on all oil produced,1 and that tax was paid and borne by the lessee so long as that law remained in force.
By an act of 19332 a substituted tax on oil production was imposed with an accompanying provision that the tax 'shall be borne ratably by all interested parties including royalty interests' and with other provisions designed to secure prompt and certain payment of the full tax as by charging the active producer, or the purchaser of the oil where sold in the pipe line, with a primary duty to pay the full tax, and authorizing and requiring him to withhold from royalty or purchase money due interested parties the proportionate tax due from them.3
For about a year after the act of 1933 became effective the purchaser of the oil produced under the lease paid the full tax and deducted the appellants' proportion from what was due to them on the purchase of their share of the oil. The payment of this part of the tax was accompanied by written protests of the appellants and the purchaser.
The present suit was brought by the appellants against the Comptroller and Treasurer of the State to secure a refund of the taxes paid under protest and an injunction against the collection of further taxes in respect to appellants' interest in the production. In the court of first instance there was a decree for the defendants, which the Court of Civil Appeals affirmed after sustaining the taxing act against appellants' before mentioned challenge to its validity. 4 The Supreme Court of the State declined to take the case on writ of error, and an appeal to this Court was sought and allowed.
We come first to the contention that, as applied to the appellants, who are not actively engaged in the production of oil but are lessors having a royalty interest, the act is an arbitrary fiat, in contravention of fundamental principles of private right and distributive justice, and therefore denies to appellants the due process of law guaranteed by the Fourteenth Amendment.
The taxing act calls the tax an 'occupation tax' and a 'gross production tax.' The Court of Civil Appeals applies to it both of these designations, and also characterizes it as a 'tax levied on the business or occupation of producing oil.' In discussing appellants' claim that they are not engaged in such a business or occupation and that the act nevertheless includes them among those on whom the tax is laid, the court expresses the view that, for the purposes of such a tax, 'the legislature may validly declare the owners of royalty or other interests in the oil produced to be engaged in the occupation or business of producing oil.' The designations applied to the tax and the view just noticed are stressed by counsel for the appellants and relied upon as supporting the contention that the taxing act is essentially an arbitrary fiat.
But when mere characterizations of the tax are put aside and attention is given to the substance of the court's opinions in this and a companion case, 5 it unmistakably appears that the court regarded the tax as an excise laid on the production of oil, measured by the extent of the production, and charged ratably against all who have an interest in the oil produced. True, the court speaks of the tax as laid on the 'occupation or business' of producing oil, but its opinions plainly show that these terms are used in the sense of a 'planned undertaking' or 'mining venture' and as comprehending all who have a direct and beneficial interest in the oil being produced, whether they be owners conducting oil operations on their own lands, or lessees operating under leases from owners and sharing the oil with the latter, or owners who have leased their lands for oil operations and share the oil with the lessees. As illustrating the actual decision and the reasons underlying it we quote from the opinions:
'The legislative intent to levy the tax ratably against all interested parties in the oil produced is also clearly evidenced by the language that 'the purchaser of oil shall pay the tax on all oil purchased and deduct tax so paid from payment due producer or other interest holder,' and 'withhold from any payment due interested parties, the proportionate tax due.' Vernon's Ann.Civ.St. art. 7057a, § 2, subds. 3, 6. These provisions do not levy the tax against the purchaser. He is merely made the agent of the state to collect from the producer or other interest holders the total amount of the tax due; and he is authorized to charge their respective accounts with 'the proportionate tax due.' That is, the purchaser withholds from the producer only as an interest holder and only to the extent of his interest. Likewise the purchaser withholds from other royalty or interest holders the amount of the tax due on their royalty or other interests. The act, therefore, designates the parties against whom the tax is levied. The amount of the tax due by each is also defined or measured by the extent of interest in the oil produced, or the amount paid because it was produced. * * *
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