Continental Oil Co. v. Jones

• Decision Date: 16 February 1939
• Docket Number: No. 6287.,6287.
• Citation: 26 F. Supp. 694
• Parties: CONTINENTAL OIL CO. v. JONES, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Oklahoma

26 F. Supp. 694

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

No. 6287.

District Court, W. D. Oklahoma.

February 16, 1939.

Wm. H. Zwick and A. L. Hull, both of Ponca City, Okl., for plaintiff.

Milford S. Zimmerman, Sp. Asst. to Atty. Gen., and Wade H. Loofbourrow, Asst. U. S. Dist. Atty., of Oklahoma City, Okl. (Andrew D. Sharpe and Larkin H. Jennings, Jr., Sp. Assts. to Atty. Gen., and Wm. C. Lewis, U. S. Dist. Atty., of Oklahoma City, Okl., on the brief), for defendant.

VAUGHT, District Judge.

The plaintiff has instituted this action against the defendant as Collector of Internal Revenue, and in the petition alleges that on the 21st day of June, 1932, there became effective the Revenue Act of 1932 which provided for the imposition of a tax of one cent per gallon on gasoline and four cents per gallon on lubricating oils manufactured, produced or imported into the United States, and that said tax would be imposed upon all gasoline and lubricating oils owned by manufacturers, producers or importers on said date of June 21, 1932; that said Act was amended by the Act of June 16, 1933, by increasing the tax of one cent a gallon on gasoline to one and a half cents; that on the 14th day of August, 1935, the defendant made an assessment against the plaintiff for the tax on the amount of gasoline and oils which defendant claimed was owned by the plaintiff on June 21, 1932, and on June 16, 1933, respectively; that this assessment was vigorously protested by the plaintiff and certain refunds were allowed, and the tax was finally paid, under protest, in accordance with the defendant's assessment, less the refunds, which sum together with interest paid by the plaintiff amounts to $699,131.82 and for which this action is brought.

The plaintiff alleges that the basis of this tax was certain stocks of gasoline and lubricating oils which defendant contends plaintiff had in its possession, as a manufacturer and producer, on the dates that the acts hereinbefore referred to became effective.

The plaintiff alleges that said entire sum was illegally, erroneously and wrongfully assessed and collected, and prays judgment, accordingly.

The defendant has answered, admits the assessment was made and collected but denies that said assessment and collection were wrongfully, erroneously and illegally made, and alleges in its answer that on the dates said Revenue Acts became effective, said plaintiff had in its possession, as a manufacturer and producer, and was the owner of the stocks of gasoline and lubricating oils upon which the assessment was actually made in accordance with the provisions of said acts of Congress, and prays that the plaintiff be denied any relief.

This case was tried to the court and has been carefully briefed. The court has had an opportunity to re-examine the entire record and to give careful consideration to the briefs filed. There is really little conflict as to the evidence in this case. There has been no attempt on the part of the plaintiff to conceal any fact connected with this transaction.

The record discloses the following state of facts:

The Revenue Act of 1932, Chap. 209, 47 Stat. 169, 259, 266, provides in part as follows:

"Sec. 601. * * * (c) There is hereby imposed upon the following articles sold in the United States by the manufacturer or producer, or imported into the United States, a tax at the rates hereinafter set forth, to be paid by the manufacturer, producer, or importer:

"(1) Lubricating oils, 4 cents a gallon; but the tax on the articles described in this paragraph shall not apply with respect to the importation of such articles." 26 U.S. C.A. end of c. 20.

"Sec. 617. Tax on Gasoline.

"(a) There is hereby imposed on gasoline sold by the importer thereof or by a producer of gasoline, a tax of 1 cent a gallon, except that under regulations prescribed by the Commissioner with the approval of the Secretary the tax shall not apply in the case of sales to a producer of gasoline.

"(b) If a producer or importer uses (otherwise than in the production of gasoline) gasoline sold to him free of tax, or produced or imported by him, such use shall for the purposes of this title be considered a sale.

"(c) As used in this section —

"(1) the term `producer' includes a refiner, compounder, or blender, and a dealer selling gasoline exclusively to producers of gasoline, as well as a producer.

"(2) the term `gasoline' means gasoline, benzol, and any other liquid the chief use of which is as a fuel for the propulsion of motor vehicles, motor boats, or aeroplanes." 26 U.S.C.A. end of c. 20.

Said Section 617 was amended by the National Industrial Recovery Act of 1933, Chap. 90, 48 Stat. 195, 206, as follows: "Sec. 211. (a) Effective as of the day following the date of the enactment of this Act, section 617(a) of the Revenue Act of 1932 is amended by striking out `1 cent' and inserting in lieu thereof `1½ cents'."

The plaintiff is engaged in the production, manufacture and sale of gasoline, lubricating oils and other petroleum products. It is a Delaware corporation with its principal place of business in Ponca City, Oklahoma. Its officers and directors as of June, 1932, were as follows:

President: Dan Moran; Vice-Presidents: W. W. Bruce, W. H. Ferguson, Walter Miller, E. J. Nicklos, E. S. Karstedt; Secretary: J. J. Cosgrove; Treasurer: G. F. Smith; Directors: Dan Moran, W. W. Bruce, W. H. Ferguson, Arthur B. Lawrence, Carl H. Forscheimer, W. B. Griffin, George Whitney, W. C. Potter, Thomas E. Lamont.

The Continental Oil Company of Nevada was a wholly owned subsidiary of the plaintiff. It had an authorized capitalization of twenty shares of stock at $100 per share par value but of this capital stock only five shares were issued, they having been issued to the plaintiff. The Continental Oil Company of Nevada was incorporated on October 28, 1929, and its officers and directors in June, 1932 were as follows:

President: W. W. Bruce; Vice-Presidents: B. H. Markham, G. F. Smith; Secretary: A. C. Frazer; Treasurer: G. F. Smith; Asst. Secretary: R. A. Onstat; Directors: W. W. Bruce, G. F. Smith, B. H. Markham.

Conoco Oil Company of Delaware was organized in 1929 under the laws of Delaware. The principal reason for its incorporation was that another company had already registered the name "Continental" in Illinois, Kentucky, and Indiana and the plaintiff had attempted to purchase the name "Continental" in those states but was unsuccessful. From the time of its organization in 1929 until its dissolution in 1935, Conoco's outstanding stock was owned entirely by the plaintiff. Its officers and directors in June, 1932 were as follows:

President: Dan Moran; Vice-Presidents: W. W. Bruce, E. S. Karstedt, G. F. Smith, George A. Wood; Secretary: A. C. Frazer; Treasurer: G. F. Smith; Asst. Secretaries: N. P. Farr, J. E. Harvey; Asst. Secretary and Asst. Treasurer: R. E. Onstat; Directors: W. W. Bruce, E. S. Karstedt, W. H. Ferguson, Dan Moran, G. F. Smith.

In this opinion the plaintiff, Continental Oil Company of Delaware, will be referred to as "Continental"; the Continental Oil Company of Nevada will be referred to as "Nevada"; and, the Conoco Oil Company of Delaware will be referred to as "Conoco".

On the 20th day of June, 1932, the day before the Revenue Act of 1932 became effective, Continental transferred to Nevada, 33,693,179 gallons of gasoline and 5,185,633¼ gallons of lubricating oils at a total price of approximately $3,500,000. On the same date, June 20, 1932, Continental transferred to Conoco, 18,407,760 gallons of gasoline, the total price being approximately $1,243,000. The Revenue Act of 1932 was passed by Congress on the 6th of June, 1932, with the provision that it become effective on the 21st day of June, 1932.

On June 17, 1933, immediately prior to the effective date of the amendment to the Revenue Act providing for an increase of tax of one-half cent per gallon on sales of gasoline by producers, Continental transferred to Conoco about 8,000,000 gallons of gasoline and it is stipulated that the circumstances surrounding this latter transfer were similar to the circumstances surrounding the transfers of June 20, 1932.

The transfers of gasoline from Continental to Nevada and Conoco on the 20th of June, 1932, were by bills of sale by Continental to the subsidiary companies, respectively.

The record further discloses that Nevada was organized as a holding company and to protect Continental in the use of its name in certain western states. It had never had any gasoline or oil inventories; it did not have any facilities for marketing gasoline or oil; it had no assets of any description except certain stocks which Continental had transferred to it on open account and the purchase price for which was charged to Nevada upon the books of Continental. The transfer of June 20, 1932, to Nevada was the first and only instance of its kind since Nevada had never received any gasoline or oil inventory before that date.

It will be noted that the officers and boards of directors were practically the same in all three of these corporations. The same officers performed almost identically the same service for all of the companies. All three had the same treasurer and the same general attorney. The main offices of all of these companies were in the office of Continental at Ponca City, Oklahoma.

The Great Lakes Pipe Line Company, hereinafter referred to as "Great Lakes", is a common carrier serving principally proprietary companies in the transportation and storage of gasoline products. In June, 1932, Continental owned approximately thirty-one per cent of the stock of Great Lakes, and Dan Moran, the president of Continental and Conoco, was also president of Great Lakes. The vice-president and general manager, and the secretary and treasurer were former employees of Continental.

The record discloses that there was a meeting of Nevada's Board of Directors on the 20th of June, 1932, and...