Hope Natural Gas Co v. Hall State Tax Comm'r

Decision Date21 September 1926
Docket Number(No. 5735.)
Citation135 S.E. 582
Partieshope NATURAL GAS CO. v. HALL, State Tax Commissioner, et al.
CourtWest Virginia Supreme Court

Rehearing Denied Nov. 12, 1926.

(Syllabus by the Court.)

Woods, J., dissenting in part

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. Modified and affirmed in part, and reversed in part.

Howard B. Lee, Atty. Gen., R. Dennis Steed and R. A. Blessing, Asst. Attys. Gen., John T. Simms, Counsel for State Tax Com'r, of Charleston, and T. C. Townsend and Fred O. Blue, both of Charleston, for appellants.

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

HATCHER, J. 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 Kanawhn 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 S60.750 acres of oil and gas territory situated in 25 counties in the state of West Virginia; that on this territory it now has 3, 178 producing gas wells from which it secured 23, 191, 711, 000 cubic feet 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, 456 917.000 cubic feet of gas, making a total of 48, 651, 658.000 cubic feet 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 inches in diameter, and approximately 1, 300 miles of marketing or trunk lines ranging from 8 to 20 inches in diameter; that the gas is kept continuously moving through plaintiff's pipe lines by means of 42 compressing stations; that more than SO per cent, 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 plaintiffs 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 June 30, 1925) $5.440, public service commission assessment $5,062.50, gross sales tax to June 30, 1925, $22,513.27, corporation license tax, Parkers-burg, $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 14 cents on the $100 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 Jan. 1, 1925, and ending Oct. 1, 1925, was approximately 17 cents per 1, 000 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 30 cents per 1, 000 cu. ft.; and that the average price which it was receiving for gas in the states of Ohio and Pennyslvania at the time this suit was instituted was approximately 36 cents per 1, 000 cu. ft.

The plaintiff's main contentions are that this act purports to tax interstate commerce and violates article 1, § 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 article 10, § 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 (he respective rates as follows: Coal, forty-two one hundredths 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."

1. 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. Article 1, § 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, 105 S. E. 506; St. Louis S. W Ry. Co. v. Arkansas, 235 U. S. 350, 35 S. Ct. 99, 59 L. Ed. 265. 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. Ry. Co. v. Conley, 67 W. Va. 129, 67 S. E. 613 (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 he limited to their value in the state, and before they enter interstate commerce, the statute does not manifest a purpose to violate article 1 of the federal Constitution, and we so hold. Am. Mfg. Co. v. St. Louis, 250 U. S. 459, 39 S. Ct. 522, 63 L. Ed. 1084.

2. In Bell's Gap R. Co. v. Pennsylvania, 134 U. S. 232, 10 S. Ct. 533, 33 Ik Ed. S92, 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 Fourteenth Amendment, that no state shall deny to any person within its jurisdiction the equal protection of the laws, was not intended to prevent a state from adjusting its system of taxation in all proper and reasonable ways. * * * It may impose different specific taxes upon different trades and professions, and may vary the rates of excise upon various products; it may tax real estate and persona] property in a different manner; it may tax visible property only, and not tax securities for payment of money; it may allow deductions for indebtedness, or not allow them. All such regulations, and those of like character, so long as they proceed within reasonable limits and general usage, are within the discretion of the state Legislature or the people of the state in framing their Constitution. * * * We think that we are safe in saying that the Fourteenth Amendment was not intended to compel the state to adopt an iron rule of equal taxation."

This doctrine has been repeatedly affirmed. Express Co. v. Seibert, 142 U. S. 339, 12 S. Ct. 250, 35 L. Ed. 1035; Clark v. Titusville, 184 U. S. 329, 22 S. Ct. 382, 46 L. Ed. 569; Armour Packing Co. v. Lacy, 200 U. S. 226, 26 S. Ct. 232, 50 L. Ed. 451; Citizens' Tel. Co. v. Puller, 229 U. S. 322, 33 S. Ct. 833, 57 L. Ed. 1206; Mich. Cent. R. Co. v. Powers, 201 U. S. 245, 26 S. Ct 459, 50 L. Ed. 744; Heisler v. Thomas Col. Co., 260 U. S. 245, 43 S. Ct. 83, 67 L. Ed. 237.

"The selection of all who are engaged within the state in mining ore or producing ores on their own account, * * * as the subjects of an occupation tax, is permissible." Oliver Iron Co. v. Lord, 262 U. S. 172, 43 S. Ct. 526, 67 L. Ed. 929.

The charge that the statute imposes double taxation is also not well founded.

"Double taxation in a legal sense does not exist unless the double tax is levied upon the same property within. the same jurisdiction. Plaintiffs in error pay one tax with respect to...

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