Continental Oil Co. v. Jones

• Decision Date: 26 June 1940
• Docket Number: No. 1938.,1938.
• Citation: 113 F.2d 557
• Parties: CONTINENTAL OIL CO. v. JONES, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Tenth Circuit

113 F.2d 557 (1940)

CONTINENTAL OIL CO. v. JONES, Collector of Internal Revenue.

No. 1938.

Circuit Court of Appeals, Tenth Circuit.

June 26, 1940.

D. A. Richardson, of Oklahoma City, Okl. (A. L. Hull, of Ponca City, Okl., and Hayes, Richardson, Shartel & Gilliland, of Oklahoma City, Okl., on the brief), for appellant.

Milford S. Zimmerman, Sp. Asst. to Atty. Gen. (Charles E. Dierker, U. S. Atty., of Oklahoma City, Okl., Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and J. L. Monarch, Sp. Assts. to Atty. Gen., on the brief), for appellee.

Before PHILLIPS, BRATTON, and HUXMAN, Circuit Judges.

BRATTON, Circuit Judge.

This is a suit at law instituted by Continental Oil Company, a corporation organized under the laws of Delaware, hereinafter called Continental, against the Collector of Internal Revenue for the District of Oklahoma, to recover excise taxes in the sum of $699,131.82, plus interest, exacted and paid under protest on (1) 33,693,179 gallons of gasoline and 5,185,633¼ gallons of lubricating oil transferred on June 20, 1932, to Continental Oil Company, a corporation organized under the laws of Nevada, hereinafter called Nevada, (2) 18,407,760 gallons of gasoline transferred on the same day to Conoco Oil Company, a corporation organized under the laws of Delaware, hereinafter called Conoco, and (3) 8,307,600 gallons of gasoline transferred to Conoco on June 14, 1933; the tax being exacted upon the subsequent sale of such gasoline and oil to others. Trial by jury was waived and the cause submitted to the court. The collector prevailed, 26 F.Supp. 694, and Continental appealed.

Section 601(c) of the Revenue Act of 1932, 47 Stat. 169, 259, 26 U.S.C.A.Int.Rev. Acts, page 604, imposed an excise tax of four cents per gallon on lubricating oil sold in the United States by the manufacturer or producer, or imported into the United States, to be paid by such manufacturer or producer, or importer; section 617(a), 26 U.S.C.A.Int.Rev.Acts, page 616, imposed a like tax of one cent per gallon on gasoline sold by the producer or importer; section 617(c) defined the term "producer" to include a refiner, compounder, or blender, and a dealer selling gasoline exclusively to producers of gasoline, as well as a producer; and section 629, 26 U.S.C.A.Int.Rev.Acts, page 624, provided that Title IV, which included sections 601 and 617, should take effect on the fifteenth day after the date of the enactment of the act. The act was approved June 6, and therefore sections 601 and 617 became effective on June 21. And section 211 of the Act of June 16, 1933, 48 Stat. 195, provided that as of the day following the date of the enactment of the act, the tax on gasoline should be increased to one and one-half cents per gallon.

The record is long, but the disputed questions of fact are not in broad compass. Continental was engaged on an extensive scale in the production, refinement and sale of gasoline and lubricating oil at wholesale and retail, and had many wholly or partially owned subsidiary corporations. Nevada and Conoco were wholly owned subsidiaries. Nevada was incorporated in 1929 for the primary purpose of protecting the name of Continental in certain states where Continental was not qualified to do business. Its authorized capital stock consisted of twenty shares of $100 each, but only five shares with a par value of $500 had been issued, and they were owned by Continental. Prior to June 20, 1932, it had never owned any gasoline or lubricating oil, and it did not have any facilities for marketing gasoline or oil. Aside from earned surplus slightly in excess of $25,000, its assets consisted of capital stock in other subsidiary companies which it had acquired on open account from Continental, and its function had been confined to that of a small holding company, organized to protect the Continental name in certain states. Conoco was also organized in 1929, because another company had pre-empted the name of Continental in Illinois, Indiana, and Kentucky. It did business in those states and in Michigan, Minnesota, Ohio, and Wisconsin. It sold to jobbers, retailers and consumers, and had storage facilities at about seventy-five places where it received tank car shipments; it had offices in Chicago from which its business and marketing operations were conducted; it owned real and personal property in the states in which it did business; it owned service stations, trucks and other equipment, all bearing its name; it had bank accounts into which money derived from sales was deposited; it transferred money to Continental at fairly regular intervals of two or three times a week; it paid the salaries of its employees and the taxes on its properties from its Chicago offices; its accounts receivable ledgers, bills payable ledgers, merchandise ledgers, and personnel records were kept in Chicago; but its general policies were determined by its officers and directors in Ponca City, its general books were kept in Ponca City, the same employees who conducted the accounting department of Continental performed the physical work of keeping its accounting records, and it reimbursed Continental for its portion of their salaries and administrative expense in the doing of that work; and the trade name "Conoco", as applied to their products, was used by both Continental and Conoco. Continental subsequently acquired the right to use its name in Illinois, Indiana and Kentucky, and Conoco was dissolved in 1935. The manager of Conoco became manager of Continental in Chicago, there was little or no change in personnel or facilities, and the operations were substantially the same. From its incorporation to its dissolution, all of the capital stock of Conoco was owned by Continental. The officers and directors of the three companies were practically the same; they had the same treasurer and the same general counsel; and the main offices of all three were in the office building of Continental in Ponca City, Oklahoma. Great Lakes Pipe Line Company, hereinafter referred to as Great Lakes, was a common carrier engaged in the main in serving its proprietary companies in the transportation and storage of gasoline products. Continental, Mid-Continent Petroleum Corporation, Phillips Petroleum Company, Barnsdall Corporation, Skelly Oil Company, Pure Oil Company, The Texas Company, and Sinclair Refining Company owned its capital stock. On June 21, 1932, Continental owned about 31.2 per cent of such stock; the president of Continental was also president of Great Lakes; the vice-president and general manager of Great Lakes had been connected with a subsidiary of Continental; and the secretary and treasurer of Great Lakes had been an employee of Continental for a short time.

It was discovered that by the terms of sections 601 and 617 of the act a tax was levied upon sales of gasoline and lubricating oil made by producing dealers but that no tax was levied upon sales made by nonproducing dealers. The Assistant Secretary of the Treasury recommended that the sections be amended before their effective date in such manner that the tax would be levied alike on both classes of dealers. After discussion among its officials and with executives of one or two other major producing companies in the Mid-Continent area, Continental determined to and did lend aid in the effort being exerted to secure passage of such an amendment. A joint resolution designed to effect the desired change passed the House of Representatives on June 16, but on June 20 an effort to secure its passage in the Senate failed. From June 6 to June 20, the officers of Continental, Nevada and Conoco conducted negotiations respecting the sale of gasoline and lubricating oil. Growing out of such negotiations a special meeting of the directors of Nevada was held on June 20, the day on which the joint resolution failed of passage in the Senate, and the day before sections 601 and 617 of the act were to become effective, at which a resolution was adopted authorizing the officers of the corporation to purchase from Continental stocks of gasoline and lubricating oil estimated at 33,500,000 and 5,000,000 gallons respectively, and further authorizing such officers to enter into an agreement with Continental for the use of its facilities in marketing such gasoline and oil, and to pay therefor a price per gallon of the products marketed that in their judgment would be fair and equitable. Following that meeting, and on the same day, Continental executed and delivered to Nevada a bill of sale reciting that for one dollar and other good and valuable consideration, it conveyed the gasoline and oil described in detail in the schedule or schedules thereto attached. No schedule was attached at that time because an inventory of the stocks in bulk plants, warehouses and service stations was not available. But it was subsequently attached, and it showed 33,693,179 gallons of gasoline and 5,185,653.25 gallons of oil. Contemporaneously with the execution of the bill of sale, Continental and Nevada entered into a written contract which recited that Continental agreed to permit Nevada to use the facilities, service stations and employees then owned, operated and employed by Continental for the sale and distribution of such gasoline and oil, and to handle and collect the accounts arising out of and incident to such sale, and that Nevada agreed to pay Continental for the use of such facilities and employees the sum of four and three-fourths cents per gallon for all gasoline and oil sold and distributed. By amended agreement entered into the next day, the amount to be paid Continental was increased to six cents per gallon, the increase being intended to cover overhead expenses and depreciation. Upon the execution and delivery of the bill of sale Nevada was credited on the books of Continental with the inventories and was charged with the purchase price thereof, and Continental was charged with such inventories on the books...