FOX V. STANDARD OIL CO. OF NEW JERSEY

• Decision Date: 14 January 1935
• Citation: 294 U. S. 87
• Court: U.S. Supreme Court

Fox v. Standard Oil Company of New Jersey

No. 69

Argued November 9, 1934

Decided January 14, 1935

294 U.S. 87

APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES

FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA

Syllabus

1. Filling stations and distribution plants where gasoline, other petroleum products, and automobile accessories are sold are "stores" within the meaning of the West Virginia Chain Store License Tax Act, defining the term store as including any mercantile establishment in which goods, wares, or merchandise of any kind are sold, etc. P. 95.

2. The legislative history of this Act and contemporaneous interpretation by the agent charged with its enforcement help to confirm the above-stated conclusion. P. 96.

3. Although administrative constructions of state statutes by state officials are not binding in cases coming from federal tribunals, this Court will lean to an agreement with them. P. 96.

4. A chain of gasoline stations maintained in a single ownership, held constitutionally subject to a different measure of taxation from stations in separate ownership. State Board of Tax Commissioners v. Jackson, 283 U. S. 527; Liggett Co. v. Lee, 288 U. S. 517. P. 97.

5. Graduated state taxes on a chain of gasoline stations in single ownership held valid against objections that the accumulated exactions were so oppressive and disproportionate to benefits as to amount to arbitrary discrimination and confiscation repugnant to the Fourteenth Amendment. P. 99.

6. A chain of stores is a distinctive business species, with its own capacities and functions; broadly speaking, its opportunities and powers become greater with the number of the component links, and the greater they become, the more far-reaching are the economic and social consequences. P. 100.

7. For that reason, the State may tax large chains more heavily, upon a graduated basis, and it may make the tax so heavy as to discourage multiplication of units and, by the incidence of the burden, develop other forms of industry. P. 100.

8. The graduated tax law being uniform in its application to chains of gasoline stations and chains of other stores, the fact that the tax

Page 294 U. S. 88

burden falls very largely on the former chains, because of the great multiplication of their units, does not render the classification arbitrary. P. 101.

9. The West Virginia graduated tax on stores does not violate § 1 of Art. 10 of the West Virginia Constitution, which requires that taxation shall be equal and uniform throughout the State. P. 102.

6 F.Supp. 494 reversed.

Appeal from a decree of the District Court, constituted of three judges, enjoining the Tax Commissioner of West Virginia from paying into the state treasury a sum of money exacted by him, and paid to him under protest, as license taxes on a chain of filling stations owned by the plaintiff Oil Company. The decree also commanded that the money be repaid to the plaintiff.

Page 294 U. S. 91

MR. JUSTICE CARDOZO delivered the opinion of the Court.

The controversy hinges upon the meaning and validity of the chain store license tax of West Virginia in its application to distributing plants and service stations for the sale of gasoline and kindred products.

On March 8, 1933, the Legislature of West Virginia passed a law whereby all persons and corporations operating or maintaining a store as therein defined were required to obtain an annual license from the state tax commissioner. The license fee was graduated according to the number of stores. Upon one store, the fee was to be ; upon two stores or more, but not to exceed five, the fee was to be for each additional store; upon six or more, but not to exceed ten, for each additional store; upon each store in excess of ten, but not to exceed fifteen, ; upon each in excess of fifteen, but not to exceed twenty, ; upon each in excess of twenty, but not to exceed thirty, ; upon each in excess of thirty, but not to exceed fifty, 0; upon each in excess of fifty, but not to exceed seventy-five, 0, and upon each in excess of seventy-five, 0.

Appellee, complainant in the court below, is a Delaware corporation, engaged in the business of refining, transporting, and distributing petroleum products. It owns or controls in West Virginia 949 service or filling

Page 294 U. S. 92

stations, and 54 bulk plants, a total of 1,003. Of the 949 stations, there are 101 which are described as "company owned;" these are both owned and operated by the complainant itself. "Leased outlets," 388 in number, and "vending privilege outlets," 460 in number, are leased by the complaint and operated by agents under commission contracts. By concession, its control over these outlets is so complete as to amount to operation within the meaning of the statute. Finally, there are 54 "bulk or distributing plants," maintained chiefly for the storage of petroleum products to be distributed to the stations, but in part as a source of supply from which deliveries are made to buyers.

Chains for the sale of gasoline have units many times more numerous than chains for other purposes. The longest "general commodity" chain is that of the Great Atlantic & Pacific Tea Company, with 198 stores within the boundaries of West Virginia. Not only are the gasoline units more numerous, but the sales from any one unit are, comparatively speaking, small, as must always be the case when subdivision is so minute. The result is to cast upon the complainant and upon competing chains in the same business a burden much heavier, both absolutely and relatively to earnings, than any that is borne by others. This is brought out clearly through statistical tables in the record. The store license fees from all sources during the year 1933 amounted to 9,693. Of this total, stores other than gasoline stations contributed ,525 (single stores ,723, and multiple stores ,802). Single gasoline stations, maintained by independent dealers, 2,000 in number, contributed ,000, and chain gasoline stations 1,168, or 84.46% of the whole. Five oil companies, including the complainant, paid 6,171, or 83.5%, and the complainant alone paid 0,173, or 42.16%. Other tables supply the data for a comparison between the business done by the gasoline chains and that

Page 294 U. S. 93

of chains for other purposes. If we look to the year 1932, the latest year for which complete figures are forthcoming, 2,453 gasoline chain stations did an aggregate business of ,198,638, or 4.6% of the total chain business of the state, yet they would have paid 84.46% of the tax if the law had been in force during that year; 1,889 general retail stores in chain organizations did a total business of ,454,257, or 22.9% of the whole, and would have paid 10.7% of the tax, this because the number of the units was relatively small. In 1932, the average gross revenue of the complainant's gasoline stations was ,822 for each of the company-owned stations, and ,892 for each of the agency stations, the company owned stations making by far the better showing. During the same year, the average net income for company stations was ,782.78 (it had been more than double in 1931), and for agency stations only .75. Upon that basis, a tax of 0 would have left a profit for the one group, but a loss for the other. In the computation of this loss, a word may be of use as to the bookkeeping methods in vogue in the complainant's business. The complainant's practice has been to bill the gasoline to its stations at the current market prices, as if there were a sale to strangers. Such a mode of segregation, unless corrected by other data, will give at times a partial picture of the economic situation. If the price at which the oil is billed includes a reasonable profit for refining and transporting, the business may show a gain when viewed in all its parts, though the later work of marketing is carried on at cost or less. Stations scattered far and wide address a mass appeal to customers, and thus stimulate them to buy at the sign that has made itself familiar. True, the complainant lost money in the process of refining from 1930 to 1933, but, for anything that is shown, the loss had its origin in the general economic depression prevailing in those years. Even so, there can be no denial that service filling stations, when organized

Page 294 U. S. 94

in chains, bear a heavier and harsher burden than chains whose units are fewer and yet individually larger.

Impatient of that burden, the complainant brought this suit in June, 1933, to restrain the state tax commissioner from paying into the treasury of the state the sum of 0,173.50 paid under protest as the license taxes of the year. The reason for resort to equity was the uncertainty as to the existence of any remedy at law for the recovery of the taxes when once the moneys were deposited in this treasury, and subjected thereby to the state's ownership and power. In its bill of complaint, the complainant took the ground that the exactions were illegal, first, because the gasoline stations were not stores within the meaning of the statute, and, second, because, even though they were, the imposition of taxes was a denial to the complainant of immunities secured by the equal protection clause and the due process clause of the Fourteenth Amendment, and also by provisions of the Constitution of the state. A District Court of three judges, organized in accordance with § 266 of the Judicial Code (28 U.S.C. § 380), heard the complainant's application for interlocutory and permanent relief. The court decided, after a careful review of the West Virginia statutes, that there was an imperfect remedy at law which made permissible resort to equity. In that conclusion, we concur. The court decided also that the operation of the tax in its application to chains of gasoline stations was so much harsher and heavier than the operation of the tax when applied to other chains as to constitute a denial to the complainant of the equal protection of the laws. Finally, the court decided...