Cumberland Pipe Line Co. v. Commonwealth ex rel. Sheriff of Estill County

• Decision Date: 21 December 1934
• Citation: Cumberland Pipe Line Co. v. Commonwealth ex rel. Sheriff of Estill County, 79 S.W.2d 366, 258 Ky. 90 (Ky. Ct. App. 1934)
• Parties: CUMBERLAND PIPE LINE CO. et al. v. COMMONWEALTH ex rel. SHERIFF OF ESTILL COUNTY.
• Court: Kentucky Court of Appeals

79 S.W.2d 366

258 Ky. 90

CUMBERLAND PIPE LINE CO. et al. v. COMMONWEALTH ex rel. SHERIFF OF ESTILL COUNTY.

Court of Appeals of Kentucky

December 21, 1934

Rehearing Denied March 22, 1935.

Appeal from Circuit Court, Estill County.

Action by the Commonwealth, on the relation of the Sheriff of Estill County, against the Cumberland Pipe Line Company and others.Judgment for plaintiff, and defendants appeal.

Reversed.

Crawford & Harris, of New York City, E. C. O'Rear and Allen Prewitt, both of Frankfort, Crawford, Middleton, Milner &amp Seelbach, of Louisville, E. L. McDonald and George W. Vaughn both of Lexington, and Jouett & Metcalf, of Winchester, for appellants.

H. D Kremer, of Lexington, for appellee.

STANLEY Commissioner.

This suit is by the commonwealth, on relation of the sheriff of Estill county, to recover taxes on crude petroleum in certain tanks which was not assessed in that county for the years 1925 to 1930, both inclusive.

Judgment was rendered against the appellants, Cumberland Pipe Line Company, the Standard Oil Company of Kentucky, the Ashland Refining Company, the Tri-State Refining Company, the New Domain Oil & Gas Company, and McEldowney and Bowser.The major part of the judgment is against the Pipe Line Company and is based upon its relation as bailee in possession.The Cumberland Pipe Line Company, by its charter and the statutes(section 3766b-1b, Ky. St.), is a common carrier engaged in the transportation of oil.It has in this state approximately 200 miles of main line and 200 miles of parallel or double line.In connection with the lines of pipe are numerous tanks for gathering oil at the wells, thence to be carried into larger tanks from which it goes into transmission.During the time involved the company served five oil fields with about 6,000 wells, and its lines passed through fourteen counties of the state and many lesser taxing districts.Close to 17,000,000 barrels of oil were handled by this company during the six years.The flow or transportation was altogether toward the east and northeast from Estill county.By far the greater part of the oil was received from wells along the line east of that county, and it was as a matter of fact never in that county.But the company had at Fitchburg, Estill county, five large tanks with an aggregate capacity of 195,000 barrels, into which it had run oil from wells in Estill and Jackson counties south and west of the tanks.The quantity there on each of the taxing dates was as follows: July 1, 1925, 79455.67 barrels; July 1, 1926, 75933.54 barrels; July 1, 1927, 75456.63 barrels; July 1, 1928, 106864.84 barrels; July 1, 1929, 125728.58 barrels; and July 1, 1930, 188661.91 barrels.

It will be observed that during the first three years the contents were about the same.Between the first and last taxing dates there was actually withdrawn only 8,057 barrels.Deducting that from the quantity at the beginning of the period, 79,455 barrels, it may well be said that 71,398 barrels of the same oil were there throughout the period and on each of the assessing days.On each of the last three dates there was a large increase in the quantity.The trial court held that oil in the "working tanks," which appear to have been intermediate of the gathering tanks and the trunk line and also connected with these larger tanks, had only a temporary situs in the county and was not assessable.Influenced by the tariff and rule of the Pipe Line Company with respect to making a charge for delay of 60 days and more in calling for delivery of oil committed to it (which appellee maintains was a storage charge), the trial court held that oil there on July 1st must have been in the tanks at least the whole of June and a portion of May in order to have established a taxable situs of July 1st.Upon this hypothesis and eliminating the working tanks, the following quantities and values were adjudged taxable:

66.228 barrels at $2.45 a barrel, as of July 1, 1925.

62,313 barrels at $2.50 a barrel, July 1, 1926.

60,190 barrels at $1.50 a barrel, July 1, 1927.

91,488 barrels at $1.55 a barrel, July 1, 1928.

108,981 barrels at $1.80 a barrel, July 1, 1929.

171,384 barrels at $1.30 a barrel, July 1, 1930.

It was ordered that these assessments should be made, and judgment was rendered against the defendants for the state and county school district taxes for each year, plus 6 per cent. interest and 20 per cent. penalty.

The judgment rests upon the idea that in respect to this oil the Pipe Line Company was a warehouseman and liable for the taxes as a bailee in possession, and with the conception that all owners of the oil throughout its entire system were tenants in common and as such owned a proportionate part.Since the quantities owned by the five defendants were disclosed, it was ascertained what fractional part of the whole volume each owned, and that ratio was applied to the quantity in the Fitchburg tanks to measure each company's share of it.Deducting that owned by these five companies, the balance was assessed against the Pipe Line Company.

It would appear necessary for an understanding of the difficulties encountered in making an assessment of this property for taxation, of the division of the tax among the defendants, and to some extent as a reason for our conclusion respecting the whole matter, that a brief general outline should be given of the methods by which the oil was handled by the Pipe Line Company.

The means and facilities of transportation are by force pumps, pipe, and tanks.From the wells the oil went into tanks belonging to the producers.It was there measured and recorded on a "run ticket."There was first deducted the state and county production tax (section 4223c-1 et seq.), and the balance was credited proportionately to the owners of the royalty and operating owners or others having an interest in the oil as had been reported to the company.From the producers' tanks the oil was gathered into one or more relatively small "working tanks," out of which it was pumped through the lines in the course of normal transportation.Upon receipt of the "run ticket" at the office of the company, each of the owners of the oil or an interest therein was credited on the books with his share.When notified of a sale by him, his account was charged and his purchaser was given the credit.The balance to the owner's credit was designated as a "credit balance."There were from 2,800 to 3,500 of these accounts on what was called the "Producer's Oil Books."These sales by producers, i. e., those among whom the "run tickets" were divided, were evidenced by a form called "sales orders" or "purchase order forms."They were usually signed in blank and undated.When the purchaser desired a transfer of the oil made to his account, he would fill in the amount and date the certificate.Sometimes he would communicate with the Pipe Line Company to ascertain what the seller had to his credit on a particular date.It appears that these certificates were floating around in the market, being passed by assignment.Upon the receipt of such an order, a transfer of the credit balance was then made on the books of the company.In a large number of instances these "sales orders" were received days and weeks later.So it was not possible, because of this practice or custom of the trade, for the company's books to show on July 1st, or any other given date, who were the owners of these "credit balances," the aggregate of which represented the oil in its possession.These various division orders or signed directions for distribution of the oil received from the producer's tanks, as evidenced by the run tickets, and those evidences of quantity, together with the tariffs of the company, filed with and approved by the Interstate Commerce Commission, in the main constituted the contracts between the Pipe Line Company and its patrons.

When oil is delivered to the Pipe Line Company, it is by necessity mingled with other oil so that the specific commodity cannot be returned or delivered.The owner is only entitled to receive oil of like kind and quality from the common stock.No consignee is named when the oil is delivered to the Pipe Line Company, and, as we have stated, the certificates of ownership passes by assignment, of which the carrier knows nothing until they are presented to be honored by delivery of the oil.The oil is pumped from one tank to another and from one county to another without consulting the owners.Consequently, nobody knows where his identical oil or his undivided portion of the whole is located.The system or method of transportation is for the owner of a credit balance when he wishes delivery to give to the Pipe Line Company what is styled a "shipping order," or, in interstate transportation, a "tender of shipment."This instrument calls for delivery of the designated quantity at some point on the line.All this is in accordance with the contract for transportation, particularly with the tariffs.The carrier is compelled to accept oil for transportation (at least to the extent of its reasonable facilities) and to deliver it upon the order of the consignor (unless prevented by order of court), and may be subject to damages or perhaps a criminal penalty for refusal.Section 3766b-1a, Kentucky Statutes;L. & N. R. Co. v. Higdon,149 Ky. 321, 148 S.W. 26, affirmed234 U.S. 592, 34 S.Ct. 948, 58 L.Ed. 1484;Hall v. Cumberland Pipe Line Co.,193 Ky. 728, 237 S.W. 405;Willis' Thornton on Oil & Gas, § 754.

Our scheme of government demands that all property shall pay its fair share of the government cost, save only that which is expressly exempt because it is public or quasi public property or serves the general welfare.The Constitution, § 172, requires that.Section 4020,...