Gurley v. Rhoden

• Decision Date: 28 January 1974
• Docket Number: No. 47371,47371
• Citation: 288 So.2d 868
• Parties: W. M. GURLEY, d/b/a Gurley Oil Company v. Arny RHODEN, Commissioner, Chairman of State Tax Commission.
• Court: Mississippi Supreme Court

Page 868

288 So.2d 868

W. M. GURLEY, d/b/a Gurley Oil Company v. Arny RHODEN, Commissioner, Chairman of State Tax Commission.

No. 47371.

Supreme Court of Mississippi.

Jan 28, 1974.

Rehearing Denied Feb. 18, 1974.

Thomas, Price, Alston, Jones & Davis, David H. Nutt, Jackson, Hubert A. McBride, Memphis, Tenn., for appellant.

Taylor Carlisle, Jackson, William G. Burgin, Jr., Columbus, for appellee.

RODGERS, Presiding Justice.

This is an appeal from the Chancery Court of the First Judicial District of Hinds County, Mississippi, by Gurley Oil Company. Gurley filed suit originally to recover state sales taxes allegedly collected improperly because of the inclusion of federal and state excise taxes within gross proceeds of sales. Subsequently, appellant brought another suit in the same court seeking to enjoin the State Tax Commission from collecting sales taxes on retail sales of gasoline made at certain nonowned retail grocery stores in this state. The two suits were consolidated for trial. Both parties stipulated the amounts recoverable, should the court rule in their favor. The chancellor entered a final decree on July 28, 1972, finding Gurley not to be entitled to the relief for which he prayed. The court ordered the prayer for refund dismissed and refused to enjoin the Tax Commission. Judgment was entered against the complainant, Gurley, in the amount of twenty-nine thousand one hundred thirty-one dollars and nineteen cents ($29,131.19), since that amount was stipulated to be the amount of tax due.

Gurley now appeals and assigns as error the following: The lower court erred as a matter of law in dismissing appellant's bill of complaint for sales tax refunds based upon its determination that the Mississippi excise tax on gasoline and the federal excist tax on gasoline were properly includable within the gross proceeds of sales upon which the Mississippi sales tax on gasoline is based.

These are the facts: W. M. Gurley, d/b/a Gurley Oil Company, operates as an importer, distributor and retailer of gasoline, diesel fuel, and petroleum products. His office and principal place of business is located in West Memphis, Arkansas. Gurley owns and operates five (5) retail service stations in Mississippi and also sells gasoline through several grocery store locations in Mississippi on a consignment basis. Gurley is qualified as a distributor of gasoline ith the Mississippi Motor Vehicle Comptroller. He imports into this state gasoline and diesel fuel which he purchases from producers in Arkansas and Tennessee, and distributes this fuel for sale at his retail stations and consignment locations.

The federal excise tax on the sale of gasoline (26 U.S.C.A. § 4081) is paid twice monthly by Gurley, based on the number of gallons sold in the time period involved.

The Mississippi excise tax on gasoline is paid by Gurley on a monthly basis, also calculated by a charge per number of gallons sold.

The State Tax Commission collected a five percent (5%) sales tax on the gross proceeds of sale from Gurley's retail stations on all merchandise sold, including gasoline and oil. Gurley then initiated this action against the State Tax Commission to recover a portion of the sales taxes, alleging that the federal and state excise taxes on the sale of gasoline were improperly included within the gross proceeds of sales for purposes of computing the sales tax.

The question presented is whether or not the federal and state excise taxes on the sale of gasoline are included as part of gross proceeds of sales for the purpose of computing sales tax liability of appellant on the retail sale of such gasoline. It is argued that the determinative issue is whether or not the federal and state excise taxes are imposed on the seller/ producer for the privilege of selling gasoline or whether or not the tax is upon the consumer in the nature of a use tax. It is said that if the taxes fall upon the consumer or the incidence of the sale by the retailer to the consumer, they should not be included as part of the retail sale price for computing the State's sales tax. If, on the other hand, the tax is imposed upon the producer at a time prior to the point of retail sale or other consumer transaction, it is an element of the cost of the property sold and should be included as part of the retail sale price for calculating the sales tax.

Although the federal and state excise taxes on gasoline are similar in form and purpose, they are more properly considered separately for purposes of discussion.

First-let us consider whether, under the provisions of the Mississippi Sales Tax Law, the federal excise tax on gasoline sold by appellant is properly includable as a part of the gross of sales. The Mississippi Sales Tax Law, Sections 10103 et seq., Mississippi Code 1942 Annotated (Supp.1972) (now Mississippi Code Annotated § 27-65-1 et seq. (1972)) imposes a tax equal to five percent (5%) of the gross proceeds of the retail sales of any business within the State of Mississippi selling any tangible personal property.

The federal excise tax on gasoline is found in 26 U.S.C.A. § 4081: 'There is hereby imposed on gasoline sold by the producer or importer thereof, or by any producer of gasoline, a tax of 4 cents a gallon.'

The precise issue is whether or not the federal excise taxes collected pursuant to § 4081, supra, are subject to sales tax by the State of Mississippi.

The appellant's position is that the federal excise tax is intended to be a use tax with the incidence of the tax falling on the consumer/purchaser. It is argued that the congressional intent behind the Excise Tax Reduction Act of 1965 supports this position.

There seems to be a division of authorities as to whether or not the federal excise tax is a use tax with the incidence falling on the purchaser of gasoline, or whether or not it is to be considered as a part of the cost of the merchandise.

Some of the courts hold that the tax is not on the gasoline itself, nor on the producer/manufacturer, nor part of the cost or gross receipts of the seller, but falls upon the buyer/consumer. ¹ On the other hand, other courts have concluded that the federal excise tax must be included in the gross receipts as a part of the cost base of the merchandise for the purpose of determining the amount of the state sales tax. ²

Second-let us now consider whether or not the Mississippi excise tax falls on the producer or the customer/consumer under our Mississippi law. Section 10013-06, Mississippi Code 1942 Annotated (Supp.1972) was effective until January 1, 1970, but at this time Section 10076-05, Mississippi Code 1942 Annotated (Supp.1972) was enacted so as to increase the amount of excise tax to eight cents (8cents) per gallon. The foregoing tax was brought forward into the Mississippi Code 1972 Annotated as § 27-55-11. The first and last paragraphs of this section are as follows:

'Any person in business as a distributor of gasoline, or who acts as a distributor of gasoline, as defined in this article, shall pay for the privilege of engaging in such business or acting as such distributor an excise tax equal to eight cents per gallon on all gasoline stored, sold, distributed, manufactured, refined, distilled, blended, or compounded in this state or received in this state for sale, use on the highways, storage, distribution, or for any purpose.

With respect to distributors or other persons who bring, ship, have transported, or have brought into this state gasoline by means other than through a common carrier, the tax accrues and the tax liability attaches on the distributor or other person for each gallon of gasoline brought into the state at the time when and at the point where such gasoline is brought into the state.' Miss.Code Ann. § 27-55-11 (1972).

A study of the state excise tax indicates that it, like the federal excise tax, has undergone a vacillating travail.

In the case of Panhandle Oil Company v. Mississippi ex rel. Knox, 277 U.S. 218, 48 S.Ct. 451, 72 L.Ed. 857 (1928), the State of Mississippi attempted to collect excise taxes for the sale of gasoline to the United States for its operation of the United States Coast Guard fleet and the Veterans Hospital. The case was appealed to the United States Supreme Court, and in a 4 to 3 decision, that Court held that the state excise tax was on the consumer and since the federal government was the consumer, the State could not collect this tax.

Mr. Justice Holmes wrote a strong dissent in which he asserted that the incidence of the tax was on the seller.

The Panhandle case, supra, was apparently overruled in the case of Alabama v. King and Boozer, 314 U.S. 1, 62 S.Ct. 43, 86 L.Ed 3 (1941). ³ In this case, the respondents King and Boozer sold lumber on the order of 'cost-plus-a-fixed-fee' contractors for their use in constructing an army camp for the United States.

The issue there was whether or not the Alabama sales tax, with which the seller was chargeable, but which he was required to collect from the buyer, infringed any constitutional immunity of the United States from state taxation. The Supreme Court held that the contractors and not the United States were the purchaser of the lumber. The reasoning in the Panhandle case was considered by the Supreme Court in the Alabama case, supra, and was found to be no longer tenable. See United States v. Sharp, D.C., 302 F.Supp. 668 (1969).

Appellant argues, however, that Panhandle was reinstated by the United States Supreme Court in the case of Kern-Limerick Inc. v. Scurlock, 347 U.S. 110, 74 S.Ct. 403, 98 L.Ed. 546 (1954), an Arkansas case.

The facts in Kern-Limerick, supra, are somewhat similar to the King and Boozer case, supra, but the property purchased in the Arkansas case became the property of the United States. A contractor purchased tractors for use in constructing an ammunition dump for the United States. The question for decision was whether the contractor or the United States was the...