In re Gross Prod. Tax of Wolverine Oil Co.

• Decision Date: 12 October 1915
• Docket Number: Case Number: 7426
• Parties: In re GROSS PROD. TAX OF WOLVERINE OIL CO.
• Court: Oklahoma Supreme Court

1915 OK 792
154 P. 362
53 Okla. 24

In re GROSS PROD. TAX OF WOLVERINE OIL CO.

Case Number: 7426

Supreme Court of Oklahoma

Decided: October 12, 1915

¶0 1. COURTS--Jurisdiction of Supreme Court--Taxation. The only questions properly determinable by this court in the exercise of the exclusive and original jurisdiction conferred by Act March 11, 1915 (Laws 1915, c. 107, art. 2, subd. A) sec. 1, are those involved in an action instituted to determine the validity of the act, and not those that may arise in the administration of the law, or that concern the application or distribution of the revenues collected.

2. LICENSES--Petroleum Tax--Occupation Tax--Statute--"Property Tax." The gross production tax imposed by subdivision A of the act of March 11, 1915, is not a property tax, but, instead, is a tax on the business or occupation named therein, the amount of which is determined by the value of the gross production of petroleum and other commodities named, produced during the last preceding quarter annual period. Such tax the Legislature may provide for by section 12, art. 10, of the Constitution.

3. TAXATION--Occupation Tax--Exemption--Nature of Statute. That portion of the act which provides that the tax levied shall be "in lieu of any other taxes that might be levied and collected upon an ad valorem basis upon the equipment and machinery in and around any well producing natural gas or petroleum or other mineral oil, and used in actual operation of such producing well from which a gross production tax is collected as herein provided," is not an exemption from taxation as prohibited in sections 46, 46U, 50, art. 5, of the state Constitution, but a substitution of one form of taxation for another upon the conditions named in the act.

4. TAXATION--Subjects of Taxation--Selection by Legislature--Power. Section 13, art. 10, of the Constitution gives to the Legislature authority to select the subjects of taxation.

5. TAXATION--Classification of Subjects--Reasonableness. The power of the Legislature to distinguish, select, and classify subjects of taxation has a wide range of discretion. While the classification must be reasonable, and not arbitrary, there is no precise application of the rule of reasonableness, and there cannot be an exact exclusion or inclusion of persons or things. This right is expressly recognized in section 22, art. 10, of the Constitution, which provides that nothing therein shall be held or construed to prevent the classification of property for purposes of taxation and the valuation of different classes by different means or methods.

6. TAXATION -- Classification -- Review by Courts. To justify judicial interference, the right to classify being a legislative function, the classification adopted must be based on an invidious and unreasonable distinction with reference to the subject of the tax. Unless this appears, the court will not declare the classification void, though it may not approve its terms, or may question the wisdom of its enactment.

7. TAXATION--Uniformity--Gross Production Tax. The act imposing a gross production tax equal to one-half of 1 per centum of the gross value of ores bearing lead, zinc, jack, gold, silver, or copper, or asphalt, 2 per centum of the gross value of the production of petroleum or other mineral oil or natural gas, and which omits to impose such production tax on coal, is not repugnant to section 5, art. 10, of the Constitution, providing that taxes shall be uniform upon the same class of subjects.

8. TAXATION--Uniformity--Production Tax. The imposition of a gross production tax, based on the gross value of the production of petroleum or other mineral oil or natural gas, as provided by section 1 of subdivision A of the act of March 11, 1915, but which provides that, whenever the mining of said commodity is so carried on and conducted through a federal agency, the state has no authority to impose and collect therefrom such tax, and provides that property of those so engaged shall be taxed on an ad valorem basis, and not be subject to the gross production tax provided to be levied in the act, is not in conflict with section 5, art. 10, of the Constitution, requiring that taxes shall be uniform upon the same class of subjects.

9. TAXATION--Production Tax--Validity of Statute--Ad Valorem Tax. The production tax imposed by the act not being an ad valorem tax on property, the statute is not repugnant to section 8, art. 10, of the Constitution, requiring that all property which may be taxed ad valorem shall be assessed for taxation at its fair cash value, estimated at the price it would bring at a fair and voluntary sale.

10. TAXATION--Statute Imposing Tax--Statement of Purpose--Gross Production Tax. The act sufficiently states the purpose of the tax levy, and is not, therefore, repugnant to the provisions of section 19, art. 10, of the Constitution, requiring that every law enacted by the Legislature levying a tax shall specify distinctly the purpose for which the tax is levied.

11. CONSTITUTIONAL LAW--Uniformity of Taxation--Equal Protection. The provision of the Fourteenth Amendment to the Constitution of the United States that no state shall deny to any person the equal protection of the law does not prevent a state, in the exercise of its sovereign right, from adjusting its system of taxation in all proper and reasonable ways, nor compel the states to adopt an invariable rule of uniform taxation. The amendment intends only that the equal protection and security shall be given to all under like circumstances, and that no greater burdens should be laid upon one than are laid upon others in the same situation.

Original action between the State Board of Equalization and E. B. Howard, as State Auditor, and the Wolverine Oil Company, to determine the validity of portions of the act of March 11, 1915, as provided for by said act, and pursuant to section 5303, Rev. Laws 1910. Validity affirmed.

Ames, Chambers, Lowe & Richardson, for Wolverine Oil Company.

Sherman, Veasey & Davidson, Rice & Lyons, Carroll & Mason, A. A. Richards, Randolph, Haver & Shirk, E. H. Chandler, C. W. Grimes, John M. Chick, and C. C. Magee, amici curiae.

S. P. Freeling, Atty. Gen., and Smith C. Matson, and J. H. Miley, Asst. Attys. Gen., for the State Board of Equalization and E. B. Howard, State Auditor.

SHARP, J.

¶1 The importance of the legal questions presented by the present controversy is readily apparent, when it is known that there is involved many provisions of the state Constitution, both conferring power and containing limitations upon the Legislature in the exercise of the taxing power of the state; also the right of the state constitutionally to impose taxes of certain kinds, due to the fact that a considerable portion of the oil and gas production of the state is carried on through the instrumentality of a federal agency; also there is presented the question whether the tax levy denies to the producers, or certain of them, the equal protection of the laws of the state, which the Fourteenth Amendment to the federal Constitution guarantees shall not be abridged by state action. The portions of the act the constitutional validity of which is attacked will appear throughout the course of the opinion. Many of the legal questions presented are new in the jurisprudence of the state, and are somewhat difficult in their application to the anomalous conditions under which the oil and gas industry in the state is carried on.

¶2 The nature and character of the tax provided for in section 7464, Rev. Laws 1910, as amended by section 1, art. 2, subd. A, of the act of March 11, 1915 (1915 Sess. Laws, pp. 150-153), first demands our attention; for upon a proper construction of the statute in the particulars named must largely rest our conclusions. Section 7464 does not materially differ from section 6 of the act of May 26, 1908 (Laws 1908, c. 71, art. 2), authorizing the levy and collection of a gross revenue tax from persons, firms, corporations, or associations engaged in the production of petroleum or other mineral oil, or natural gas, and which act was amended by act March 27, 1909 (Laws 1909, c. 38, art. 2), sec. 1. Construing the amended statute in McAlester-Edwards Coal Co. et al. v. Trapp, 43 Okla. 510 , 141 P. 794 , it was held that the tax intended to be assessed and collected thereby was upon the value of the property owned by plaintiffs, and not upon the agency or the means used by the federal government in its intercourse and dealings with the Indian tribes. The same conclusion was reached by the District Court of the United States for the Eastern District of the state, in Choctaw, O. & G. R. Co. v. Harrison, not reported. A different result was arrived at by the District Court for the Western District in Missouri, K. & T. Ry. Co. v. Meyer, 204 F. 140, where it was said, under the facts in that case, that the tax imposed was in effect a tax upon the business of mining. From the decision of Judge Campbell in the Harrison Case an appeal was prosecuted direct to the Supreme Court of the United States, where the judgment of the trial court was reversed, and it was said that the act, in effect, prescribed an occupation tax. Choctaw, O. & G. R. Co. v. Harrison, 235 U.S. 292, 35 S. Ct. 27, 59 L. Ed. 234. Section 6 of the act of May 26, 1908, having thus been construed and characterized as being an occupation tax, and not a tax on property as such, it becomes important to note wherein the act under review differs from the one condemned. In the beginning of the amendment to section 7464, supra, it is provided that:

"For the purpose of estimating the value of any property rights attached to or inherent in the right to mineral in this state after the same is segregated from the ore in place, and in lieu of any other method of taxing the same and in lieu of any other taxes that might be levied and collected upon an ad valorem basis upon the equipment and machinery in and around any well producing

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