GENERAL PETROLEUM CORPORATION v. United States

• Decision Date: 30 July 1938
• Docket Number: No. 7958-Y.,7958-Y.
• Court: U.S. District Court — Southern District of California
• Parties: GENERAL PETROLEUM CORPORATION OF CALIFORNIA v. UNITED STATES.

24 F. Supp. 285

GENERAL PETROLEUM CORPORATION OF CALIFORNIA v. UNITED STATES.

No. 7958-Y.

District Court, S. D. California, Central Division.

July 30, 1938.

Martin J. Weil and J. M. Jessen, both of Los Angeles, Cal., for plaintiff.

Ben Harrison, U. S. Dist. Atty., and E. H. Mitchell, Asst. U. S. Atty., both of Los Angeles, Cal., E. G. Sievers, Sp. Atty., Bureau Internal Revenue, of Washington, D. C., and Armond Monroe Jewell, Asst. U. S. Atty., of Los Angeles, Cal., for the United States.

YANKWICH, District Judge.

By this action, General Petroleum Corporation of California, a corporation, seeks to recover the sum of $6194.48 paid by its predecessor, General Pipe Line Company of California, between June 21, 1932, and December 31, 1934, as a tax on casing-head or natural gasoline transported by pipe line.

The payment was made under the Revenue Act of 1932, which imposed a tax "upon all transportation of crude petroleum and liquid products thereof by pipe line originating on or after the fifteenth day after the date of the enactment of this Act and before July 1, 1935." Sec. 731(a), Revenue Act of 1932, 26 U.S.C.A. note following section 1481.

The question we are to decide is whether casing-head or natural gasoline is a product of crude petroleum.

Words used in legislative enactments are to be given their natural significance. The sense to be attributed to them is that of the everyday speech of men. If words refer to articles of trade, they are to be interpreted in the sense in which they are understood by those in the trade. See Two Hundred Chests of Tea, Smith, Claimant, 1824, 9 Wheat. 430, 6 L.Ed. 128; Maillard v. Lawrence, 1853, 16 How. 251, 261, 14 L.Ed. 925; American Net & Twine Company v. Worthington, 1891, 141 U.S. 468, 12 S.Ct. 55, 35 L.Ed. 821; Robertson v. Salomon, 1889, 130 U.S. 412, 413, 9 S.Ct. 559, 32 L.Ed. 995; Burke v. Southern Pacific R. Co., 1914, 234 U.S. 669, 34 S.Ct. 907, 58 L.Ed. 1527; Takao Ozawa v. United States, 1922, 260 U. S. 178, 194, 43 S.Ct. 65, 67, 67 L.Ed. 199; United States v. Bhagat Singh Thind, 1923, 261 U.S. 204, 209, 43 S.Ct. 338, 339, 67 L.Ed. 616; City of Lincoln v. Ricketts, 1936, 297 U.S. 373, 376, 56 S.Ct. 507, 509, 80 L.Ed. 724.

These principles are a recognition of the democratic origin of language. Words do not become a part of language unless they get themselves accepted as a part of the everyday speech of man. Technical words, of course, are given the technical significance which their acceptance by a particular craft or group has conferred upon them.

The difficulty which confronts us here is traceable to the absence of agreement as to the meaning of the words "crude petroleum" and as to the derivation of casing-head gasoline.

Petroleum is a mineral consisting essentially of a complex mixture of hydrocarbons. Burke v. Southern Pacific R. Co., supra; Webster's New International Dictionary, 1937. Casing-head or natural gasoline is gasoline extracted from wet gas taken from an oil well, at the casing head, in a separator or trap, as the gas leaves the well. The different kinds of gasoline contain the same hydrocarbons in various proportions. But while there is agreement as to the method of extraction, the experts disagree as to the source of the particles of gasoline found in casing-head or wet gas. Some assert that it is a product of the gas. Others assert that even when extracted from a gas well, it originates in contact with crude oil in some subterranean stratum. We quote from the testimony of H. H. Cannon, a consulting engineer with long experience in the oil industry, who testified for the Government:

"The Court: Suppose you had a gas well but no liquid visible, at all, so far as you drill it. What would you consider the gasoline that came from that gas to be?

"The Witness: A petroleum product because, in my opinion, that gas has been in contact with a body of liquid petroleum somewhere.

"The Court: You don't know where that gas came in contact with the body of liquid petroleum?

"The Witness: That is right.

"The Court: In other words, the presence of the particles of these various things which constitute gasoline which are found in gas and extracted from it by separation, (are?) show clearly a petroleum product?

"The Witness: That is right." (Italics added.)

On the basis of testimony before him, Judge Williams in Twin Hills Gasoline Co. v. Bradford Oil Corp., D.C.Okl.1919, 264 F. 440, 441, arrived at a similar conclusion: "that wet gas exists only with oil. Therefore, casing-head gas is a component of oil."

Ordinarily, in instruments dealing with the products of oil, gas is used in juxtaposition with oil. So we speak ordinarily of "gas, oil and other hydrocarbon substances". Much of the legislation concerning oil and having the aim to conserve oil uses this terminology. See Oil and Gas Conservation Law of California, Act 4916, Gen.Laws of Cal.(1937) p. 2069; Laws of Texas, Vernon's Ann.Civ.St. Arts. 6014, 6023, 6029; Compiled Oklahoma Statutes, Secs. 7954-7963, 52 Okl.St.Ann. §§ 271-279. The words "petroleum" and "oil" are, technically, synonymous.

As the experts are in disagreement as to the relationship between gasoline, especially casing-head gasoline, and petroleum, so are the courts. Some hold that gasoline and casing-head gasoline are a part of crude oil or petroleum. See Kings County Fire Ins. Co. v. Swigert, 1882, 11 Ill.App. 590, 598; Poe v. Humble Oil & Refining Co., Tex.Civ.App.1926, 288 S.W. 264; Gilbreath v. States Oil Corp., 5 Cir., 1925, 4 F.2d 232; Connellee v. Magnolia Petroleum Co., Tex.Civ.App.1926, 279 S.W. 597; Locke v. Russell, 1915, 75 W.Va. 602, 84 S.E. 948; Wemple v. Producers' Oil Co., 1919, 145 La. 1031, 83 So. 232; Livingston Oil Corp. v. Waggoner, Tex.Civ.App.1925, 273 S.W. 903. Others hold that they are neither oil nor gas. Clymore Production Co. v. Thompson, D.C.Tex.1936, 13 F.Supp. 469; Hammett Oil Co. v. Gypsy Oil Co., 1921, 95 Okl. 235, 218 P. 501, 34 A.L.R. 275; Ludey v. Pure Oil Co., 1932, 157 Okl. 1, 11 P.2d 102; Broswood Oil Co. v. Sand Springs Home, 1936, 178 Okl. 550, 62 P.2d 1004; Hopkins v. Texas Co., 10 Cir., 1933, 62 F.2d 691; applying Oklahoma decisions; Lone Star Gas Co. v. Harris, Tex.Civ.App. 1932, 45 S.W.2d 664.

With this divergence in the opinion of experts and of courts, the meaning of the words is to be determined in the light of the circumstances attending their use in the particular legislation. What militates in favor of construing casing-head gasoline as a product of crude oil or petroleum is the fact that the wet gas from which it is extracted is never found except with oil. The coupling of the words "crude" and "petroleum" is, from a strictly scientific standpoint, tautological. For the word "petroleum" conveys all the meaning which the words "crude petroleum" do. Yet we find that the phrase has been used in legal instruments and in legislation and has received judicial definition. In Kings County Fire Insurance Co. v. Swigert, 11 Ill.App. 590, 598, it is defined as follows: "Crude petroleum consists of a number of different oils, all more or less volatile, which are separated from each other by a process of distillation, and of these, gasoline, being the most volatile, and consequently the most explosive, is the one driven off at the lowest temperature." See 48 Corpus Juris, 1953.

When they occur, as they often do, in various tariff acts, the words are given a broad interpretation. See United States v. R. F. Downing & Co., 2 Cir., 1906, 146 F. 56; United States v. Swan & Finch Co., 2 Cir., 1909, 169 F. 108; United States v. F. A. Marsily & Co., 1 Cir., 1908, 165 F. 186.

The legislative history of the section under consideration shows that the object sought to be attained by the 1932 enactment was the taxation of gasoline transported by pipe line. The Revenue Acts of 1917 and 1918, 40 Stat. 300, 315, § 500(d), 40 Stat. 1057, 1102, § 501(d), taxed the transportation of "oil by pipe line". Article 91 of Regulation 49, promulgated under the 1918 Act, defined the word oil as "crude petroleum and such of its products as may be transported by pipe line." The tax on pipe line transportation was repealed in 1921. It was the object of the 1932 Act to restore it. The Act as it reached the Senate Finance Committee retained the word "oil". It was changed in Committee to the present wording. The Committee, in its Report, stated the object of the change to be as follows:

"Part IV Tax on Transportation of Oil by Pipe Line. The rate under section 731 on transportation of oil by pipe line has been reduced from 8 to 3 per cent. The word `oil' has been changed to `crude petroleum and liquid products thereof.' This will make transportation of gasoline as well as crude oil taxable. Amendments have been made to impose the tax on the pipe line rather than the person paying for the transportation." 1932 C.C.H. Paragraph 2541-b, Special Bulletin, May 31, 1932. (Italics added.)

The Conference Report on the Bill stated the object of the amendment as follows: "Sec. 731(a) Tax on transportation of oil by pipe line. Amendment No. 232: This amendment (addition of words `crude petroleum and liquid products thereof' following `transportation of' in first line) makes the tax under the House bill on transportation by pipe line applicable to crude petroleum and its liquid products, instead of to oil only. The House recedes." 1932 C.C.H. Paragraph 2547-J, Special Bulletin, June 10, 1932. (Italics added.)

The deliberate substitution of the words "crude petroleum" for "oil" indicates an intention to avoid the possible effect of decisions which had declined to consider gasoline as a derivative of oil. The use of the phrase "instead of to oil only" in the Report, shows plainly that the new terminology was to reach more products than the old one. If, as contended by the plaintiff, the words "crude petroleum" mean nothing more than "crude oil", then the change was a useless gesture. Yet the conference committee says...