Commonwealth v. National Oil Co., Ltd.

• Citation: 157 Pa. 516,27 A. 374
• Decision Date: 02 October 1893
• Docket Number: 23
• Parties: Commonwealth v. National Oil Company, Ltd., Appellant
• Court: United States State Supreme Court of Pennsylvania

27 A. 374

157 Pa. 516

Commonwealth v. National Oil Company, Ltd., Appellant

No. 23

Supreme Court of Pennsylvania

October 2, 1893

Argued June 2, 1893

Appeal, No. 23, May T., 1893, by defendant, from judgment of C.P. Dauphin Co., March T., 1892, No. 172, for plaintiff, on appeal from tax settlement.

Appeal from tax settlement. Before McPHERSON, J.

The case was tried by the court without a jury, the facts being found as follows:

"1. The defendant is a limited partnership, organized in April 1887, under the limited partnership act of 1874, for the purpose of 'manufacturing refined oils from crude petroleum and the manufacture of the commercial products of crude petroleum produced or purchased by the association for those purposes, and the acquisition of such necessary lands leases, rights, tanks, stills, pipes, patent rights, devices and appliances for use in such business, and for receiving, conveying, storing and care of crude petroleum for the purpose of manufacturing and sale of manufactured products." It has a capital of $300,000.

"2. During the tax year ending the first Monday of November 1890, it declared dividends amounting to six per cent, and a tax of three mills was accordingly laid upon its whole capital under the twenty-first section of the revenue act of 1889. On December 4, 1891, it paid $450 to the state treasurer on account of the tax now claimed.

"3. During said year $150,000 of its capital was invested in the manufacturing of refined oil and $150,000 in oil producing property, and in the business of mining and transporting crude petroleum. It does not appear whether all of the crude petroleum produced by the defendant was used or intended to be used by itself or whether some of it was sold to others.

"4. The defendant can conduct its business of refining more economically and safely if it does not depend upon others for its supply of crude petroleum, but produces and transports for itself as much as it may need. From the evidence before us, however, we are unable to find as a fact that it is necessary for a refiner of petroleum to be also a producer and transporter. It is no doubt convenient and desirable, but it has not been shown to be essential.

"CONCLUSIONS OF LAW.

"For the purposes of this case the character of the defendant is to be determined by an inspection of its articles of association, and not by an examination of the business in which it is actually engaged. If its articles give it manufacturing powers and no others, it is exclusively organized for manufacturing purposes within the meaning of the revenue act of 1889; and this would be so, even if a part of its capital was employed in a business which it had no corporate power to conduct: Commonwealth v. William Mann Company, 150 Pa. 64. But if its articles contain powers which are neither manufacturing nor necessarily incident to manufacturing, it is not exclusively organized for manufacturing purposes, and its whole capital is taxable, although all of it may be actually employed in a strictly manufacturing business: Commonwealth v. Westinghouse Electric and Manufacturing Company, 151 Pa. 265. (See also the opinion, filed herewith, in Com. v. Thomas Iron Co., No. 464, June term, 1892, Dauphin C.P.) Tried by this test, the defendant is not organized exclusively for manufacturing purposes. Its articles of association give it two distinct powers, one of them a manufacturing power, namely: to produce refined oil and other commercial products from crude petroleum; and the other, a mining and transporting power, namely: to buy and lease land, to mine for and produce crude petroleum therefrom, and to transport the same to its refineries. Clearly, this is more accurately described as mining than as manufacturing. In a qualified sense, oil is a mineral, Stoughton's Appeal, 88 Pa. 198; Dunham v. Kirkpatrick, 101 Pa. 43; and to search for it, to liberate it after it has been found, and to transport it to customers, is not a process of manufacture, whether the scope of this word be looked for in the dictionaries or be collected from an examination of particular acts of assembly. In the language of a very recent case, the production of petroleum is 'the mere appropriation of an article that is furnished by nature:' Commonwealth v. Northern Electric L. and P. Co., 145 Pa. 117. If, therefore, the defendant had been merely an oil producing association, there would be no doubt as to its liability to taxation upon its whole capital.

"Being also an oil refining association, however, and, therefore, in part a manufacturer, this question alone remains: Is its oil producing power necessarily incident to its manufacturing power? If not, if the two are only united for business convenience, or for the sake of economy or prudence, their union is the union of two independent franchises, and prevents the defendant from successfully claiming to be exclusively organized for manufacturing purposes.

"It is a question of fact, depending upon the evidence before us, why and to what end this union exists; but after the facts have been found to be as above stated in paragraph 4, it has been authoritatively decided that the one power is not necessarily incident to the other. In Commonwealth v. Lackawanna Iron & Coal Co., 129 Pa. 357, a closely analogous case, the court, speaking of the union of mining, quarrying and manufacturing powers, say: 'Strictly speaking, both of these (namely, coal property and ore property) pertain to mining, rather than to manufacturing corporations. Neither of them has any necessary connection with the latter. True, they are sources from which corporations engaged in manufacturing iron necessarily draw their chief supply of raw materials, but those materials always may be, and frequently are, obtained from parties or corporations independently engaged in mining and supplying the same to manufacturers of iron and others. It is doubtless a great convenience and advantage for an iron manufacturing company to own and operate its own coal and iron ore mines, but the fact that such corporation is also specially authorized to do so, is no reason why so much of its capital as is invested in such mining operations should enjoy the benefit of exemption from state tax designed to relieve manufacturing, as contra-distinguished from mining corporations, from a burden they were supposed to be illy able to bear.

"'A company incorporated for the exclusive purpose of manufacturing steel rails, for example, is not authorized by its charter to own and operate coal mines, iron ore mines or limestone quarries, and would of course be obliged to procure its supplies of raw material from outside sources. Such mining and quarrying operations are not legally incident to the business of manufacturing, that is to say, they do not necessarily depend upon it, although as a matter of fact, the supplying such raw materials is in one sense incident to the process of manufacturing. If the business of mining and supplying such raw materials is not necessarily incident to a strictly manufacturing franchise, it cannot become so because that franchise is exercised concurrently with the separate franchises of mining and quarrying. As we have seen, the corporation appellee is of a fourfold character. It is a coal mining company, a quarrying company, an iron ore mining company, and a manufacturing company, specifically invested with the distinct rights and privileges pertaining to each, and exercising all of them. In the exercise of its manufacturing franchise, it finds it convenient and profitable to become in the main the consumer of products resulting from the exercise of the other three. In other words, the mining and quarrying departments, so to speak, find a convenient customer in the manufacturing department. But how can it be inferred from this that the capital employed in the mining and quarrying departments of the business in relieved from state tax, because capital employed in manufacturing happens to be exempt? Such a conclusion would be as unjust as it is illogical. It relieves from taxation capital which the legislature never intended to exempt, merely because it happens to belong to a corporation which owns and controls other capital which for a special reason the legislature has seen fit to exempt.'

"In our opinion this is decisive, and requires us to hold that upon the facts as we have found them the defendant's oil producing power is not necessarily incident to its power to refine.

"If we were at liberty to apportion this tax we would gladly do so, but the case is precisely within the ruling of Commonwealth v. Westinghouse Electric and Manufacturing Company, supra, and we must therefore sustain the settlement upon the...