City of St. Louis v. Mississippi River Fuel Corp.

• Decision Date: 27 October 1944
• Docket Number: No. 2566.,2566.
• Parties: CITY OF ST. LOUIS v. MISSISSIPPI RIVER FUEL CORPORATION.
• Court: U.S. District Court — Eastern District of Missouri

57 F. Supp. 549

CITY OF ST. LOUIS v. MISSISSIPPI RIVER FUEL CORPORATION.

No. 2566.

District Court, E. D. Missouri, E. D.

October 27, 1944.

COPYRIGHT MATERIAL OMITTED

Joseph F. Holland and Oliver Senti, both of St. Louis, Mo., and H. H. Hamilton, of New York City, for plaintiff.

Sullivan, Finley & Lucas, Wilder Lucas, and William G. Marbury, all of St. Louis, Mo., for defendant.

HULEN, District Judge.

Facts.

Plaintiff's petition seeks to recover from the defendant a five per cent gross receipts tax on defendant's sales of gas in the city of St. Louis for the period commencing July 1, 1938, and ending June 30, 1943, inclusive, by virtue of its Ordinance No. 41325. The petition is in ten counts, each count covering a six months' period, and (after giving the defendant credit for the amount which it paid as a merchant's tax) seeks a judgment of $217,953.06.

The defendant, a Delaware corporation, during the period involved in this case was engaged in the business of purchasing natural gas from producers in gas fields located in the State of Louisiana, and transporting and selling the gas, through pipe lines owned by it, running from near the gas fields into and through the States of Arkansas, Illinois and Missouri. Defendant's pipe lines and all branches to customers are laid upon right-of-ways privately acquired from landowners. The defendant does not own any tanks or holders for the storage of gas. The gas, on being received into defendant's line, moves northward, under pressure, and is distributed to certain utilities and industries located in Arkansas, Illinois and Missouri. No gas is sold to casual or temporary customers. Sales are on the basis of written contracts made in advance with each particular customer. Defendant's customers located in St. Louis executed their contracts in St. Louis after they had been negotiated by representatives of the St. Louis office. The billing and collecting for the gas is performed in the city of St. Louis. The contracts provide that the place of delivery of the gas shall be the outlet of the meter, set by the defendant to measure the gas delivered to the particular customer. At Meramec Junction in Missouri, defendant's transmission line is divided, one division crossing the Mississippi River into Illinois, and extending through the industrial district on that side of the river, and terminating in the city of Alton, and the other division running into the city of St. Louis. The defendant has field employees who visit the customers' plants in the city of St. Louis and elsewhere to observe what appliances are in use, and extent of gas requirements. A dispatcher's office is maintained at Meramec Junction, with telegraphic and telephonic connection with its various compressor stations along the lines, including the original one receiving the gas in the Louisiana field.

The delivery of gas to defendant's customers is through a lateral line. This lateral line is constructed from the transmission line or division line to the point of delivery on the premises of the customer. There is a meter installed to measure the gas as it passes from defendant's line into that of the customer. These meters record the volume of gas passing through the meters, and these charts are installed daily by the defendant, whether the meter is owned by the defendant or the customer. Flow of gas to the customer is regulated automatically. Gas in the defendant's main transmission line is in constant motion, and likewise in the lateral lines, except when the customer is not taking gas. The gas moves through the defendant's transmission lines in bulk, there being no segregation for a particular customer until delivery through the meter at the customer's receiving line.

Defendant was engaged during the period covered by the petition in the sale of gas for industrial purposes and in sales to public utilities for resale. With rare exception, defendant's product was used in the manufacture of products for resale. Some gas was used for heating purposes in the manufacturing plants of defendant's customers. Total sales of defendant to its customers from the last half of 1938 to the first half of 1943 were $4,525,192.94, and it was estimated gas used for space heating during the same period amounted to $92,545.79.

The defendant is not a public utility, but sells gas only under special contract with certain utilities and selected industries. It sells no gas for domestic use. It has never claimed the power of eminent domain, nor has it ever sought any franchise from any authority to distribute natural gas or any other product, as a public utility. Defendant holds a Certificate of Convenience and Necessity from the Federal Power Commission under Section 7 of the Natural Gas Act, 15 U.S.C.A. § 717f, authorizing it to carry on its operations in interstate commerce under the terms of the Natural Gas Act, and defendant is required to file its contracts with the Federal Power Commission. Defendant files no schedules of rates with the Public Service Commission in Missouri, but holds a license from the Secretary of State of Missouri to engage in business in the State of Missouri of transportation, sale and delivery in interstate commerce of natural gas purchased and sold by it, under private contract, and not as a public utility.

This case was submitted on an agreed statement of facts, with the exception of three witnesses offered by the defendant on the meaning in the gas industry of certain language used in the ordinance in question.

Beginning in 1930 and continuing to and including the year 1943, the License Collector of the City of St. Louis annually served a notice on the defendant which contained copy of ordinances and forms for making a return as a merchant, under the Merchant License Ordinance of the city of St. Louis. Beginning with the year 1939 the notice read as follows:

"You are hereby notified that every merchant is required by law to furnish the License Collector: First, a statement of the value of the largest amount of all goods, wares and merchandise which he had in his possession or under his control, whether owned by him or consigned to him for sale by other parties, at any one time between the first Monday of March and the first Monday of June, 1939. Second, a statement of the aggregate amount of all sales made by him (except interstate sales) during the year next preceding the first Monday of June, 1939."

The language in the notice "except interstate sales" was inserted for the first time beginning with the year 1939, and the defendant was unaware of this insertion until July 18, 1944.

In compliance with the demands in the notices, the defendant annually from 1930 to 1943 inclusive returned a statement of its sales of gas in St. Louis for the period specified and the Collector of plaintiff annually demanded the payment of the merchant's tax of $1.25 per thousand on sales, which payments were made by the defendant on receipt of demand therefor from the plaintiff. These payments were made under Sections 1395 to 1400, inclusive, of the Revised Code of the City of St. Louis. A notice and demand was served on the defendant in 1943 and defendant tendered its check in payment for the year 1943, but on August 14, 1943, the City returned defendant's check and notified the defendant, for the first time, that it should make returns and pay the taxes on sales "required by Ordinance No. 41325." Defendant refused to make the payments demanded under Ordinance No. 41325. This suit is to force compliance by defendant.

Prior to the passage of Ordinance No. 41325 there had existed for a number of years a controversy between the Laclede Gas Light Company (a public utility operating in the city of St. Louis) and the plaintiff, involving rates to be charged to consumers in the city of St. Louis, and the validity of an ordinance of the city, by virtue of which the city was making certain demands on the utility. On February 11, 1938 plaintiff and the Laclede Gas Light Company signed an agreement settling their mutual claims and certain litigation then pending. This agreement, among other things, provided:

"7. The City, with the approval and consent of the Company, agrees to recommend to the Board of Aldermen the enactment of a 5% Gross Receipts Tax upon the sale of artificial, mixed or natural gas, which proposed ordinance shall be in a form agreeable to both the Company and the City. The Company agrees that after the effective date of said proposed ordinance the Company will pay the aforesaid tax as same accrues."

Prior to the execution of the agreement between the City and the Laclede Gas Light Company, the Mayor of the City of St. Louis made a formal announcement of the details of the agreement as of December 20, 1937. The terms of the proposed agreement, as contained in the Mayor's announcement, are as follows:

"2. The Company agrees to the payment to the City of a tax of 5% upon its gross receipts. The payment of such a tax is being contested by The Laclede Gas Light Company in a case set for trial this morning in the United States District Court. An ordinance levying a tax of 5% upon the Company's gross receipts in a form which the Company has agreed to accept will be introduced in the Board of Aldermen immediately. Such a tax will produce approximately $350,000.00 additional revenue for the City annually."

In accord, if not compliance, with the agreement between the City of St. Louis and the Laclede Gas Light Company, Ordinance No. 41325 was passed and became effective May 17, 1938. That part of Ordinance No. 41325 involved in this proceeding reads as follows:

"Section One.—Every person, firm or corporation now or hereafter engaged in the business of selling or distributing natural, artificial, or mixed natural and artificial, gas for heating, lighting, power and refrigeration in the City of St. Louis shall pay to the City of St. Louis, as a license tax, a sum equal to five per cent (5%) of the...