Hope Natural Gas Co. v. Hall

• Decision Date: 21 September 1926
• Docket Number: (No. 5735)
• Citation: 102 W.Va. 272
• Parties: Hope Natural Gas Company v. Grant P. Hall, State Tax Commissioner of West Virginia et al.
• Court: West Virginia Supreme Court

102 W.Va. 272

Hope Natural Gas Company

v.Grant P. Hall, State Tax

Commissioner of West Virginia et al.

(No. 5735)

Supreme Court of Appeals of West Virginia.

Submitted September 2, 1926.

Decided September 21, 1926.

1. Commerce Constitutional Law Taxation Statute Tax-

ing Mineral Products Held Not to Violate Commerce Clause of Federal Constitution; Statute Taxing Mineral Products Held Not to Deny Equal Protection of Law; Statute Taxing Mineral Products Does Not Violate Constitutional Requirement of Equality and Uniformity of Taxation (Acts W. Va, Ex. Sess. 1925, c. 1; Const. U. S. Art. 1, § 8; Const W. Va, Art. 10, § 1; Const U. S. Amend. 14). Chapter 1 of the Acts of the Legislature of West Virginia, passed at the Extraordinary Session, 1925, violates neither the State nor the Federal Constitution, (p. 276.)

2. Constitutional Law Within Reasonable Limits, State Leg-

islature May Classify Various Occupations for Taxation and Impose different Specific Taxes, if Enactment Applies Alike to All Within Each Class (Comst. U. S. Amend. 14).

Within reasonable limits the State Legislature may classify various occupations for taxation and may impose different specific taxes thereon, provided the enactment applies alike to all within each class, (p. 277.)

3. Commerce State Legislature May Not, Under Any Formula,

Lay Direct Tax on Gross Proceeds of Interstate Commerce, Except Where it is in Lieu of all Other Taxes and Amounts to No More Than Ordinary Tax on Property (Const. U. S. Art. 1, § 8).

The Legislature may not under any formula or characterization lay a direct tax on the gross proceeds of interstate commerce, except where such tax is in lieu of all other taxes and amounts to no more than the ordinary tax on property, (p. 278.)

4. Same State May Take Into Consideration Gross Proceeds of

Commodity Produced Therein and Sold in Another State, But Only to Determine Its Value Within State (Acts W. Va, Ex. Sess. 1925, c, 1, § 2a; Const. U. S. Art. 1, § 8).

Under Section 2a, Chater 1, supra, the State may take into consideration the gross proceeds of a commodity produced in this State and sold in another State, but only for the purpose of determining the value of such commodity within the State and before it enters interstate commerce, (p. 279.)

Woods, Litz, Judges, Dissent.

Appeal from Circuit Court, Kanawha County.

Suit by the Hope Natural Gas Company against Grant P. Hall, State Tax Commissioner, and others for an injunction. From a judgment affirming a judgment for plaintiff, defendants appeal.

Affirmed in part; reversed in part.

Howard B. Lee, Attorney General, B. Dennis Steed and R. A. Blessing, Assistant Attorneys General, John T. Simms, Counsel for State Tax Commissioner, T. C. Townsend and Fred 0. Blue, for appellants.

H. D. Rummel, Charles Powell, Kemble White, Anthony F. McCue, S. E. W. Burnside, Edward M. Borger and Arthur E. Young, for appellee.

Hatcher, Judge:

The Bill in this case was filed in the Common Pleas Court of Kanawha County in October, 1925. That court, sustaining the contention of plaintiff in part, held that Section 2a of Chapter 1, of the Acts of the Legislature of West Virginia, passed at the Extraordinary Session, 1925, "when tested by its practical operation and effect, substantially burdens and interferes with interstate commerce", and accordingly enjoined defendants from enforcing the said Act against the plaintiff, as to the gas sold by it in other states.

The judgment of that court was upheld by the circuit court of Kanawha County, and the case is here on the appeal of defendants.

From an agreed statement of facts, it appears that plaintiff is the owner of leases on 860, 750 acres of oil and gas territory situated in twenty-five counties in the state of West Virginia; that on this territory it now has 3178 producing gas wells from which it secured 23, 194, 711, 000 cu. ft. of gas for the year ending June 1, 1925; that it purchased from other producers of gas in the state of West Virginia during that period 25, 456, 947, 000 cu. ft. of gas, making a total of 48, 651,-658, 000 cu. ft. of gas produced and purchased by it during that year; that it owns and operates several thousand miles of gathering lines of pipe which range from 2 to 6 ins. in diameter, and approximately 1300 miles of marketing or trunk lines ranging from 8 to 20 ins. in diameter; that the gas is kept continuously moving through plaintiff's pipe lines by means of 42 compressing stations; that more than 80% of the gas it produces and purchases is transported through its pipe line system to the states of Ohio and Pennsylvania; that the gas, in the language of the Stipulation, "continues to flow in an uninterrupted and unbroken stream from the time it leaves the wells of the plaintiff or reaches its gathering lines from the wells or lines of the producers from whom it purchases such gas, until it is delivered to the final point of consumption either upon plaintiff's lines or the lines connected with its system"; that for the year 1925 the plaintiff paid taxes as follows: property tax $670,718.62, corporation tax (on capital stock year ending' Jnne 30, 1925) $5,440.00, public service commission assessment $5,062.50, gross sales tax to June 30, 1925, $22,513.27, corporation license tax, Parkersburg, $10.50, franchise tax, Parkersburg, $7,542.77, and total of $711,287.66; that the rate of levy for state purposes in the year 1925 was 14c on the $100.00 valuation, and that of the $670,718.62 property tax, the sum of $51,187.50 was collected for exclusive State purposes; that the average price paid by plaintiff for the gas purchased by it during the period beginning January 1, 1925 and ending October 1, 1925, was approximately 17c per 1000 cu. ft.; that the average price received by it for the gas which it sold within the state of West Virginia during that period approximated 30c per 1000 cu. ft.; and that the average price which it was receiving for gas in the states of Ohio and Pennsylvania at the time this suit was instituted was approximately 36c per 1000 cu. ft.

The plaintiff's main contentions are, that this Act purports to tax interstate commerce and violates Art. 1, Sec. 8 of the Federal Constitution; that the Act denied to plaintiff the equal protection of the law and violates the Fourteenth Amendment of the Federal. Constitution, and that the taxes sought to be imposed by the Act are not equal and uniform, and are in violation of Art. 10, Sec. 1, of the Constitution of West Virginia.

Section 2a of the Act is as follows:

"Upon every person engaging or continuing within this state in the business of mining and producing for sale, profit, or use, any coal, oil, natural gas, limestone, sand or other mineral product, or felling and producing timber for sale, profit or use, the amounts of such tax to be equal to the value of the articles produced as shown by the gross proceeds derived from the sale thereof by the producer (except as hereinafter provided), multiplied by the respective rates as follows: Coal, forty-two onehundreths of one per cent; oil, one per cent; natural gas, one and seventeen-twentieths of one per cent; limestone, sand or other mineral product, nine-twentieths of one per cent; timber, nine-twentieths of one per cent. The measure of this tax is the value of the entire production in this state, regardless of the place of sale or the fact that deliveries may be made to points outside the state."

By the terms of the statute the tax is to be calculated on the value of the article produced, and that value is to be shown by the gross proceeds of its sale. Art. 1, Sec. 8, of the Federal Constitution as interpreted by Federal decisions, denies to a state the right to impose a direct tax on the gross proceeds of interstate commerce, except as hereinafter noted. A large per cent of the commodities named in the statute is sold in other states. The plaintiff contends that as the Act contains no exception it indicates a plain intention to tax the gross proceeds of sales in interstate commerce. There is a presumption, however, that the Legislature did not intend to violate any provision of the Federal Constitution. Pipe Line Co. v. Hallanan, 87 W. Va. 396; St. Louis S. W. By. Co. v. Arkansas, 235 U. S. 350. In fact it has been declared our duty to "restrain the operation of a statute within narrower limits than its words import", when satisfied that a literal interpretation will include cases not intended by the Legislature. By. Co. v. Conley, 67 W. Va. 129 (pt. 28 syl.). Consequently, we are warranted in presuming that the Legislature did not mean to include, as an element of value, so much, of the gross proceeds of the sale of an article in interstate commerce, as is represented by the cost of transportation, and we restrain the operation of the statute accordingly. This presumption and this limitation are strengthened by the concluding sentence of the statute, whereby the measure of the tax is declared to be the value of the product in this state, regardless of place of sale or delivery outside of state. If the sale of a commodity produced in this state imposes on the seller delivery in another state, then the sale price necessarily includes the cost of the delivery. Such sale price would not reflect the worth of the commodity in the state, but the worth within the state plus the cost of transportation. If the taxation value of the products named in the statute be limited to their value in the state, and before they enter interstate com- merce, the statute does not manifest a purpose to violate Art. 1 of the Federal Constitution, and we so hold. Am. Mfg. Co. v. St. Louis, 250 U. S. 459.

In Bell's Gap Br. Co. v. Perm., 134 U. S. 232, the same contention that plaintiff now advances here was made against the validity of a Pennsylvania taxation Act. But the Supreme Court held: '' The provision in the XIV Amendment, that no state shall deny to any person within its jurisdiction the equal protection of the laws, was not...