Eastern Air Transport v. South Carolina Tax Commission

• Decision Date: 03 September 1931
• Citation: 52 F.2d 456
• Court: U.S. District Court — District of South Carolina
• Parties: EASTERN AIR TRANSPORT, Inc., v. SOUTH CAROLINA TAX COMMISSION et al.

52 F.2d 456 (1931)

EASTERN AIR TRANSPORT, Inc., v. SOUTH CAROLINA TAX COMMISSION et al.

District Court, E. D. South Carolina.

September 3, 1931.

Cuthell, White, Hotchkiss & Mills, of Washington, D. C., and Benet, Shand & McGowan, of Columbia, S. C., for complainant.

J. Fraser Lyon, of Columbia, S. C., for defendant.

Before PARKER, Circuit Judge, and ERNEST F. COCHRAN and GLENN, District Judges.

PARKER, Circuit Judge.

This is a suit to restrain the collection of the South Carolina gasoline tax with respect to gasoline sold to complainant, Eastern Air Transport, Inc., on the ground that as to such gasoline the tax imposes a burden upon interstate commerce in violation of the Commerce Clause of the Constitution of the United States. Const. art. 1, § 8, cl. 3. An interlocutory injunction restraining the collection of the tax is asked; and a court of three judges has been convened pursuant to section 266 of the Judicial Code (28 USCA § 380).

Complainant is a Delaware corporation operating air transport lines in interstate commerce across the state of South Carolina. Its planes stop at Greenville, Spartanburg, Florence, and Charleston in that state, but do not carry freight or passengers between these cities, practically its entire business in South Carolina being interstate in character. At these points, however, it purchases gasoline from the Standard Oil Company for the use of its planes; and that company charges complainant 6 cents per gallon more for same than it otherwise would because it is required by the state of South Carolina to pay a dealers' license tax of that amount. The suit is instituted against the members of the South Carolina tax commission to enjoin them from collecting this tax from the Standard Oil Company with respect to the gasoline sold complainant, on the theory that, as complainant is engaged in interstate commerce and uses the gasoline purchased in carrying on same, the tax is a burden on interstate commerce which may not be imposed by the state. Although complainant is not required to pay the tax itself, the burden of same falls upon it, and the doctrine laid down in Station WBT, Inc., v. Poulnot (D. C.) 46 F.(2d) 671, is invoked as sustaining the right of complainant to maintain the suit. There is no question but that the jurisdictional amount is involved.

The South Carolina statute imposing the tax is Act No. 102, approved March 16, 1929, S. C. Acts 1929 (36 St. at Large), pp. 107-113. The pertinent portion thereof is as follows: "That every oil company, person, firm or corporation doing domestic or intrastate business within this State, and engaging in the business of selling, consigning, using, shipping, or distributing for the purpose of sale within this State, any gasoline or any substitute therefor, or combination thereof, for the privilege of carrying on such business shall be subject to the payment of a license tax, which tax shall be measured by and graduated in accordance with the volume of sales of such oil company within the State. Every such oil company shall pay to the State an amount of money equal to six (6) cents per gallon on all gasoline, combinations thereof, or substitutes therefor, sold or consigned, used, shipped or distributed for the purpose of sale within the State." Section 1.

It may be well to note that the Act approved April 4, 1930 (Acts 1930 36 St. at Large pp. 1390-1392), imposing a tax of 6 cents per gallon on all persons importing gasoline into the state which is "intended to be stored or used for consumption in this State" (section 1), has no application to the case at bar. Complainant is not importing or storing gasoline for use in the state of South Carolina and is in no wise affected by that statute, whether it be constitutional or not. It is affected by the gasoline tax statutes only with respect to its purchases from the Standard Oil Company, and, as to these, only because that company is taxed on the basis of its sales and passes the tax on to its customers through an increase in the price charged them. The sole question in the case, therefore, is the validity of the tax imposed by the act of 1929 upon the Standard Oil Company when measured by its sales of gasoline which the purchaser intends to use and does use in carrying on interstate commerce. We think that the tax is valid.

We attach no importance to the fact that the tax is described in the statute as a privilege or license tax; for, where such tax is measured by sales, it is in effect a sales tax, whatever it may be called. Panhandle Oil Co. v. Mississippi, 277 U. S. 218, 222, 48 S. Ct. 451, 72 L. Ed. 857, 56 A. L. R. 583. And, although not a property tax within the meaning of the South Carolina Constitution, but an excise tax (Gregg Dyeing Co. v. Tax Commission S. C. ___ S. E. ___¹), it must be treated as in effect a tax upon the property sold for determining questions arising under the federal Constitution. Kehrer v. Stewart, 197 U. S. 60, 25 S. Ct. 403, 49 L. Ed. 663; Welton v. Missouri, 91 U. S. 275, 23 L. Ed. 347; Brown v. Maryland, 12 Wheat. 425, 6 L. Ed. 678. But the rule is that the right of a state to tax property within its borders or transactions therein occurring is practically unlimited, except that it may not tax interstate commerce or burden such commerce by taxing the instrumentalities used in carrying it on or violate other constitutional provisions not here material. The sale, being completed within the state of South Carolina, is, of course, not a transaction in interstate commerce. The question in the case, then, comes to this, whether at the time of the sale, which is the transaction by which the tax is measured, the gasoline which is the subject of the sale can be regarded as an instrumentality of such commerce. We think this question must be answered in the negative. The gasoline assumes the character of such an instrumentality only because of the use made of it after the sale is complete.

The question arises whether the fact that, at the time of the sale, the purchaser intends that the gasoline shall be used in carrying on interstate commerce and buys it for that purpose, affects the right of the state to tax the sale. The answer to this is that the criterion by which the right of the state is to be judged is not the intention of the purchaser but the status of the property at the time of the transaction. As said by Mr. Justice McKenna in Heisler v. Thomas Colliery Co., 260 U. S. 245, 259, 43 S. Ct. 83, 86, 67 L. Ed. 237: "If the possibility, or indeed certainty, of exportation of a product or article from a state determines it to be in interstate commerce before the commencement of its movement from the state, it would seem to follow that it is in such commerce from the instant of its growth or production, and in the case of coals, as they lie in the ground. The result would be curious. It would nationalize all industries, it would nationalize and withdraw from state jurisdiction and deliver to federal commercial control the fruits of California and the South, the wheat of the West and its meats, the cotton of the South, the shoes of Massachusetts and the woolen industries of other states at the very inception of their production or growth, that is, the fruits unpicked, the cotton and wheat ungathered, hides and flesh of cattle yet `on the hoof,' wool yet unshorn, and coal yet unmined, because they are in varying percentages destined for and surely to be exported to states other than those of their production."

In Oliver Iron Co. v. Lord, 262 U. S. 172, 43 S. Ct. 526, 529, 67 L. Ed. 929, the state of Minnesota had imposed a tax on the business of mining iron ore measured by a percentage of the value of the ore mined or produced. Substantially all of the ore when mined was loaded on cars and shipped into other states to satisfy existing contracts. In holding that the tax on production was not a burden on interstate commerce, though the ore was destined for transportation in such commerce even before it was mined, the court, speaking through Mr. Justice Van Devanter, said: "The ore does not enter interstate commerce until after the mining is done, and the tax is imposed only in respect of the mining. No discrimination against interstate commerce is involved. The tax may indirectly and incidentally affect such commerce, just as any taxation of railroad and telegraph lines does, but this is not a forbidden burden or interference."

The same holding has been made with respect to the production tax on gas (Hope Natural Gas Co. v. Hall, 274 U. S. 284, 47 S. Ct. 639, 71 L. Ed. 1049); a tax on coal prepared and "ready for shipment or market" and destined for a market in other states (Heisler v. Thomas Colliery Co., supra); and a manufacturing tax upon goods sold in interstate commerce (American Mfg. Co. v. St. Louis, 250 U. S. 459, 39 S. Ct. 522, 63 L. Ed. 1084). A state has the same right to tax sales that it has to tax the production of gas, the mining of coal, or the manufacture of merchandise; and, if destination of the product for use or shipment in interstate commerce does not affect the power of the state to tax in these cases, there...