Cumberland Pipe Line Co. v. Commonwealth

• Decision Date: 15 March 1929
• Citation: 15 S.W.2d 280,228 Ky. 453
• Parties: CUMBERLAND PIPE LINE CO. et al. v. COMMONWEALTH ex rel. KENTUCKY STATE TAX COMMISSION et al.
• Court: Kentucky Court of Appeals

15 S.W.2d 280

228 Ky. 453

CUMBERLAND PIPE LINE CO. et al. v. COMMONWEALTH ex rel.

KENTUCKY STATE TAX COMMISSION et al.

Court of Appeals of Kentucky

March 15, 1929

Appeal from Circuit Court, Franklin County.

Proceeding by the Commonwealth of Kentucky, on the relation of the Kentucky State Tax Commission and others against the Cumberland Pipe Line Company and others. From an adverse judgment, the latter appeal. Affirmed.

Edw. C O'Rear, of Frankfort, and Crawford & Harris, of New York City, for appellants.

J. W Cammack, Atty. Gen., and James M. Gilbert, Asst. Atty. Gen for appellees.

DIETZMAN J.

The sole question presented by this appeal is whether chapter 122 of the Acts of 1918, hereinafter called the 1918 act violates the Federal Constitution or not. The title to that act is:

"An Act to amend and re-enact chapter 9 of the Acts of the extraordinary session of the General Assembly of 1917, which Act imposes a license or franchise on any person, firm, corporation, or association engaged in the production of crude petroleum in this State, and authorizing county officials to impose such tax for roads, schools and county purposes; providing methods of determining the amount of tax due and prescribing the manner of payment of State tax and imposing penalties for the violation of the Act."

The pertinent provisions of the act necessary to a solution of the issues raised are:

"Sec. 1. Every person, firm, corporation or association producing crude petroleum oil in this State, shall, in lieu of all other taxes on the wells producing said crude petroleum, annually pay a tax equal to 1 per centum of the market value of all crude petroleum so produced, and such tax shall be for State purposes, and, in addition, any county in the State may impose a like tax for road purposes, county purposes or school purposes not to exceed one-half of one per centum of the market value of all crude petroleum produced in such county, and the fiscal court of any county may levy said tax for county purposes and shall determine what fund or funds shall receive the taxes when collected, and, when crude petroleum is produced in any separate taxing district in a county, the fiscal court shall equitably distribute such taxes between the county and such taxing district. * * *

Sec. 3. The tax hereby provided for shall be imposed and attach when the crude petroleum is first transported from the tanks or other receptacles located at the place of production. * * *

Sec. 5. Every person, firm, corporation or association engaged in the transportation of crude petroleum in the State from the tanks or other receptacles located at the place of production in the State, shall for the purposes of this Act, be considered a transporter of crude petroleum, and every such transporter of crude petroleum shall make a monthly, verified report to the State Tax Commission, on or before the 20th day of the month succeeding the month in which the crude petroleum is so received for transportation, showing the quantity of each kind or quality of all crude petroleum so received from each county in the State and the market value of such crude petroleum on the first business day after the tenth day of the month in which such report is made and such report shall show any sales of such crude petroleum so received, in which event it shall show the quantity of crude petroleum in each sale, the date of each sale, and the market price of such crude petroleum on each date of sale for such preceding month, and said report shall be made upon blanks furnished and prescribed by the State Tax Commission.

Sec. 6. The State Tax Commission shall, upon receiving the reports provided for in Section 5 hereof, upon such reports and such other reports and information as it may secure, assess the value of all grades or kinds of crude petroleum so reported for each month, and, on or before the last day of the month in which such reports are required to be made, notify each transporter of crude petroleum so reporting of such assessment, and certify such assessment to the County Clerk of each county which has reported the levy of the county tax provided for in Section 2, for record, and such County Clerk shall immediately deliver a copy thereof to the Sheriff of such county for the collection of such county tax. The transporter so notified of the assessment shall have until the twentieth day of the month following such notice, in which to be heard by the State Tax Commission on any objection to such assessment, and the assessment shall become final on such twentieth day of the month and the tax be due and payable on that day. The State Tax Commission shall make the assessment of the value of the crude petroleum so reported by each transporter of crude petroleum as follows:

Where the report shows no sale of crude petroleum during the month covered by such report, then the market value of crude petroleum on the first business day after the tenth day of the month in which the report is made shall be fixed as the assessed value of all crude petroleum covered by such report.

But where the report shows sales of crude petroleum during the month covered by such report, if it shows that all crude petroleum so reported has been sold, then the market price of such crude petroleum on each day of such sale or sales shall be the assessed value of all crude petroleum sold on such date of sale and the total amount of the tax to be reported as the assessment on such report shall be the total of the assessment or assessments made on such sale or sales; but if such report shows that any part of the crude petroleum so reported remains unsold, then as to such portion remaining unsold the market price of the crude petroleum on the first business day after said tenth day of the month following the month covered by such report, shall be fixed as the assessed value of such portion of the crude petroleum unsold, and the total amount of the tax to be reported as the assessment on such report shall be the total of the assessments made on such sold and unsold crude petroleum.

The State Tax Commission in making its assessments shall take into consideration transportation charges.

Sec. 7. Every person, firm, corporation or association required to make report as provided in Section 5 hereof, shall be responsible and liable for the taxes as herein set forth on all crude petroleum so received by it, and shall collect from the producer in either money or crude petroleum the taxes imposed under the provisions of this act; but, if collection is in crude petroleum, such transporter is authorized and empowered to sell the same, and pay said taxes by check or cash to the State Tax Commission or sheriff, as provided in this Act."

By a stipulation as to facts, the parties agree:

"The methods employed in connection with the receipt and transportation of crude oil by the Cumberland Pipe Line Company with in and through the State of Kentucky are as follows:

The producer pumps the oil from his well into his own tank. These tanks, which are sometimes of wood and sometimes of iron, vary greatly in size, but most of them are relatively small, containing, when full, less than one hundred barrels of crude oil. * * * The Pipe Line Company attaches its pipe to the tank a few inches above its bottom and controls the flow by a stop-cock in the pipe. * * *

The producer notifies the Company that he desires the latter to take oil from a certain tank, but it is not known beforehand just how much oil is in the tank, nor does the producer usually name a definite amount which he wishes withdrawn. In a general way, the Pipe Line Company expects, and is expected, to take all of the good oil which it can safely remove from the tank at the moment. * * * (The oil is gauged by the gauger of the Pipe Line Company.) The stopcock is then turned and the oil is allowed to run from the tank into the pipe until the surface of the oil in the tank has fallen to a point which the gauger considers safe, when the stop-cock is closed. * * * The actual oil as it leaves the tank passes immediately into and through the Company's pipes and joins the stream of oil which is moving through the State, and a large part of which (from 60 to 98 percent during the past ten years) goes, and has always gone, across the State line into other States. * * *

The oil which remains in the State is not separated in any way from that which goes out of the State until the former is withdrawn from the stream at the point of delivery. The passage of the oil through the pipes of the Cumberland is substantially continuous from the instant that it is received until it either crosses the State line or is delivered at some point within the State.

While the foregoing are the facts as to the actual oil, the business transaction is as follows:

As soon as practicable after the oil is received into the Cumberland line, the run clerk computes from the gaugers' reports the amount of oil which was withdrawn from the tank. An account is kept with the State, with each County and with each party interested in the production. One per cent. (1%) of the amount withdrawn from the tank is credited to the State on the books of the Company; then one-half of one per cent. (1/2%) is credited to the County in which the oil is produced, provided the County has informed the Company that they are to collect the tax. * * * The remaining 98 1/2% or 99%, as the case may be, is then divided and credited on the books of the Company to each of the several owners as indicated by the division order on file with the Company. The above accounts are all known as credit balances. From this time forward, all the business is carried on through such credit balances. While the actual oil may have long since gone out of ...