GREAT LAKES PIPE LINE COMPANY v. United States

• Decision Date: 21 March 1963
• Docket Number: Civ. A. No. 12705-4.
• Citation: 216 F. Supp. 181
• Parties: GREAT LAKES PIPE LINE COMPANY, a corporation, Plaintiff, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Missouri

216 F. Supp. 181

GREAT LAKES PIPE LINE COMPANY, a corporation, Plaintiff, v. The UNITED STATES of America, Defendant.

Civ. A. No. 12705-4.

United States District Court W. D. Missouri, W. D.

March 21, 1963.

Swanson, Midgley, Jones, Blackmar & Eager, by Ralph M. Jones, Kansas City, Mo., for plaintiff.

F. Russell Millin, by Calvin Hamilton, First Asst. U. S. Atty., Kansas City, Mo., for defendant.

BECKER, District Judge.

This is an action to recover Federal excise taxes in the sum of $340,461.05 and interest thereon brought by an operator of an interstate pipeline company in the business of transporting petroleum products. The taxes were collected during the period between July 1, 1953, and July 1, 1957 inclusive, under the provisions of Section 3460 of the Internal Revenue Code of 1939 and Section 4281 of the Internal Revenue Code of 1954. These taxing statutes are substantially identical in wording, which is as follows:

"There is hereby imposed upon all transportation of crude petroleum and liquid products thereof by pipeline a tax equivalent to 4½ percent of the amount paid for such transportation. If no charge for transportation is made (either by reason of ownership of the commodity transported or for any other reason), or if the payment for transportation is less than the fair charge therefor (other than in the case of an arm's length transaction), such tax shall be imposed on the fair charge for such transportation. The tax imposed by this section is to be paid by the person furnishing such transportation."

The point at issue is a very narrow one, but one not wholly free of difficulty. The defendant claims that it properly collected the taxes in question under the statutes quoted above, providing for a tax equivalent to 4½ percent of the amount paid for transportation of crude petroleum, and liquid products thereof, by pipeline.

The plaintiff claims that the taxes in question were unlawfully collected because the transaction which was taxed is exempted under the first sentence of Section 4283 of Title 26 U.S.C.A., which reads as follows:

"For the purposes of section 4281, the term `transportation' shall not include any movement through lines of pipe within the premises of a refinery, a bulk plant, a terminal, or a gasoline plant, if such movement is not a continuation of a taxable transportation." (Emphasis added.)

Section 3460(c) of the 1939 I.R.C. is identical in substance.

In the stipulation of fact, upon which this cause was originally submitted, it was agreed in Paragraph 43 thereof as follows:

"The plaintiff received a flat five cents (5¢) per barrel for billing and loading tank trucks and tank cars and this flat rate of five cents (5¢) per barrel was in addition to the transportation rate which the shipper paid and which varies with the distance between the refinery originating point and the various terminal destination storage points."

It was further agreed therein that by letter ruling of June 1, 1949, the Commissioner of Internal Revenue allocated one-half of the five cents (5¢) per barrel charge for billing and loading tank trucks and cars to the clerical work in filling out bills of lading (not subject to tax on transportation of oil by pipeline), and one-half to the loading process. The one-half allocated to the loading process was subjected to tax at the rate of 4½ per cent under Title 28 U.S.C.A. § 4281, and the earlier sections of the I.R.C. of 1939.

In defense of this action to recover the tax, the defendant asserts that the loading service in question is a "continuation of the taxable transportation" within the meaning of Title 28 U.S.C.A. § 4283 and the earlier identical section, Section 3460(c) of the 1939 Internal Revenue Code. At the outset it should be noted that in an action of this nature for the recovery of taxes allegedly illegally assessed and collected, the determination made by the Commissioner of Internal Revenue is presumptively correct, and that the plaintiff has the burden of proving all facts necessary to establish the illegality of the collection. Helvering v. Taylor, 293 U.S. 507, l. c. 515, 55 S.Ct. 287, 290, 79 L.Ed. 623; Old Mission Portland Cement Co. v. Helvering, 293 U.S. 289, l. c. 294, 55 S.Ct. 158, 161, 79 L.Ed. 367; Welch v. Helvering, 290 U.S. 111, l. c. 115, 54 S.Ct. 8, 9, 78 L.Ed. 212; Niles Bement Pond Co. v. United States, 281 U.S. 357, l. c. 361, 50 S.Ct. 251, 252, 74 L.Ed. 901.

The facts must be determined from the stipulation of agreed statement of facts and the subsequently introduced evidence received at a hearing ordered by the Court on October 8, 1962, because of references by the Government to a published tariff of the plaintiff which was not identified or referred to in the stipulation of fact. Because of this extra-record reference and because of the desire of the Court to secure additional information concerning the exact nature of the operations which the billing and loading charge of five cents per barrel was intended to cover, the original submission was set aside and oral and documentary evidence was received at a formal hearing.

STIPULATION OF FACTS

The facts which were agreed upon in the stipulation and which are accepted by both parties and the Court are as follows:

"1. During the period here in question, and insofar as applicable here, the plaintiff was in the business of transportation by pipe line of various grades of gasoline, distillate, and other refined petroleum products from refineries located principally within the states of Oklahoma and Kansas to terminal destination storage points on its system located within the states of Kansas, Nebraska, South Dakota, North Dakota, Iowa, Minnesota, and Illinois, or to connecting pipe line carriers for further transportation by such connecting carriers by pipe line. (Exhibit B—System Map)

"2. During the period here in question, the plaintiff owned and operated fifteen pipe line storage terminals connected to its pipe line system, located in the states listed in paragraph 1 hereof. Plaintiff also delivered refined petroleum products through metering stations into storage terminals owned by certain shippers. (Exhibit B—System Map)

"3. The fifteen storage terminals referred to in paragraph 2 hereof are owned by plaintiff in fee and, for purposes of the issue herein, each constitutes a single tract of land upon which all structures, tankage, piping, and equipment are located, and all terminal operations herein considered occur within the premises of each storage terminal.

"4. Petroleum products delivered to connecting pipe line carriers for further transportation or delivered through metering stations into storage tanks owned by certain shippers and connected to the plaintiff's system do not require billing and loading by plaintiff, and thus are not directly involved in the issue in this case.

"5. At the refinery, the originating shipper consigns to one or more of the terminal storage destination points on the plaintiff's system, and not beyond. (Exhibit C-Form 274 M, Notice of Shipment, and Exhibit D—Form 1, Receipt for Shipment)

"6. The Notice of Shipment and Receipt for Shipment are the only shipping papers. There are no through bills of lading issued by the originating shipper for transportation beyond the terminal destination storage point specified in these documents.

"7. The minimum quantity of a particular product which will be accepted for transportation from the refinery, in single tenders or combinations of tenders, is normally 25,000 barrels (1,050,000 gallons).

"8. The only transportation intent of the originating shipper is to maintain a supply of petroleum products at the terminal storage points adequate to meet its market demands.

"9. No sale of a specific shipment (e. g. 25,000 barrels) of a petroleum product to a customer at a point beyond the terminal destination storage point is identified at the originating point.

"10. The movement of the various grades and kinds of products through the trunk lines from the refineries to the consigned terminal destination storage points are controlled by the dispatchers in the General Office of the plaintiff at Kansas City, Missouri. This movement is performed by main line engines exceeding 1000 h. p. in capacity. (Exhibits E and E1—Photographs)

"11. Shipments through the pipe line system from originating points are commingled in transit with loss of identity of ownership, as petroleum products are fungible.

"12. No storage tank at terminal destination points owned by plaintiff is assigned to any shipper or consignee, as petroleum products are fungible and identity of ownership is lost in transit.

"13. At the destination terminal storage point, the particular kind and grade of product arriving through a trunk line is routed through terminal piping into storage in a tank with similar product.

"14. The product in any given tank may have arrived through separate trunk lines from different originating points.

"15. Storage tanks at the terminal storage destination points each vary in size up to 80,000 barrels, or 3,360,000 gallons, in capacity.

"16. The storage tanks are equipped with devices for circulating the contents from time to time to maintain a uniform and proper blend, color, and grade of product to enable the consignees to meet state specifications and market requirements. This is performed by a low pressure one-stage pump, varying in capacity from 30 h. p. to 75 h. p., located at each storage tank. (Exhibit F—Photograph)

"17. A consignment made by a shipper to a terminal destination point may remain in storage tanks for an indefinite period, varying from a few days to several months, depending on the market demands of the various consignees marketing the particular products.

"18. The low pressure one-stage tank pumps are also used to move products through terminal piping from one storage tank to another for consolidation of products of the same kind and grade and for mixing and blending.

"19. ...