Large Oil Co. v. Howard
| Citation | 63 Okla. 143,163 P. 537,1917 OK 162 |
| Decision Date | 27 February 1917 |
| Docket Number | Case Number: 8452 |
| Parties | LARGE OIL CO. v. HOWARD, State Auditor. * |
| Court | Supreme Court of Oklahoma |
¶0 1. Taxation-- Exemption--Agencies of Federal Government. Agencies of the federal government are only exempt from state taxation so far as such taxation may interfere with or impair their efficiency in performing the functions by which they serve the government.
2. Same. The exemption of federal agencies from state taxation is dependent, not upon the nature of the agents, or upon the mode of their constitution, or upon the fact, that they are agents, but upon the effect of the tax; that is, upon the question whether the tax does in truth deprive them of power to serve the government as they were intended to serve it, or does hinder the efficient exercise of their power. A tax upon their property has no such necessary effect. It leaves them free to discharge the duties they have undertaken to perform. A tax upon their operations is a direct obstruction to the exercise of federal powers.
3. Same--Oil Company--Authority of Secretary of Interior--"Tax on Property"-- State Statute. The act of the Legislature of May 14, 1916 (Sess. Laws 1916, pp. 102-110), imposing a tax, "equal to three per centum of the gross value of the production of petroleum or other crude or mineral oil and of natural gas, less the royalty interest," and which provides that the payment thereof "shall be ill full and in lieu of all taxes by the state, counties, cities, towns, townships, school districts and other municipalities upon any property rights attached to or inherent in the right to said minerals, upon leases for the mining * * * for petroleum or other crude oil or other mineral oil or for natural gas upon the mining rights and privileges for the minerals aforesaid belonging or appertaining to land, upon the machinery, appliances and equipment used in and around any well producing petroleum or other crude or mineral oil or natural gas * * * and actually used in the operation of such well; * * * and also upon the oil, gas, * * * during the tax year in which the same is produced, and upon any investments in any of the leases, rights, privileges, minerals or property hereinbefore in this paragraph mentioned or described"--is not subject to the objection that, because the business was carried on and the production brought about through the instrumentality of a federal agency, the state is without power to impose a tax. The tax is not upon the agency or the means employed by the producer, but upon the production of oil and gas, hence is a "tax on property" as such and is valid, without regard to the agency employed in its production.
4. Same--Mineral Leases -- Indian Treaty Rights. Said act of the Legislature does not impose a tax upon the operations of the company, or upon its right to engage or continue in business, but upon the commodity which it produces, and which is made in full and in lieu of certain of its other property, and as a substitute therefor. It does not impair the treaty rights of the Osage Indians, for whom the federal government lawfully undertakes to act, and is too remote and indirect to be regarded as an interference with a federal agency, or a direct burden upon its free exercise.
5. Same. The act does not purport to tax the lease or the investment therein or the rights or privileges appertaining thereto; nor does it in fact do so. The tax is payable upon the gross value of the oil and gas produced without regard to the value of the other enumerated property of the producer, in lieu of which the tax is imposed.
6.Same--Constitutional Provisions--Amount--"Tax on an Ad Valorem Basis." The tax imposed is not, because of its amount, repugnant to section 9, art. 10, of the Constitution, providing that the state levy on an ad valorem basis shall not exceed in any one year 31/2 mills on the dollar. While the tax is based upon the gross value of the production of oil and gas, it is not such a tax as is levied generally on property throughout the state on an "ad valorem basis," within the meaning and subject to the limitations of said section.
7.Same--Special Tax--Production of Oil Company-- Constitutional Provisions. The act imposes a special tax on oil and gas in lieu of and as a substitute for the general ad valorem tax on certain property of the producer, and is levied pursuant to sections 13 and 22, art. 10, of the Constitution, by which the state may select its subjects of taxation, and classify and value property so selected by means and methods different from that commonly employed in the assessment, levy, and collection of taxes by county and other municipal authorities. Brennan, Kane & McCoy, John H. Burford, J.
B. A. Robertson, and Roy Hoffman, for plaintiff in error.
S. P. Freeling, Atty. Gen., and Smith C. Matson, Asst. Atty. Gen., for defendant in error.
¶1 This case involves the important question of the power of the state to impose and collect the special tax provided for in chapter 39, Sess. Laws 1916, where the owner of the property sought to be taxed is engaged under authority of the Secretary of the Interior in the production of oil and gas in what formerly constituted the tribal lands of the Osage Nation of Indians in Oklahoma Territory, now Osage county, Okla. The question arises upon the sufficiency of the petition of plaintiff in error, to which the trial court sustained a demurrer. Two grounds for a reversal of the judgment are urged: (1) That the act in question is an attempt to levy a privilege or occupation tax, and hence is invalid as to oil and gas produced through the operations of a federal agency; (2) that the oil and gas obtained or secured from lands within the Osage Nation is exempt from the operations of the tax imposed by said act of the Legislature. The two questions may properly be considered in the same connection. It must be received as a postulate that the means or agencies provided or selected by the federal government, as necessary or convenient to the exercise of its functions, cannot be subjected to the taxing power of the state. This rule was announced in the leading case of McCullough v. Maryland, 4 Wheat. 316, 4 L. Ed. 579, where the state of Maryland had imposed a tax upon an issue of notes by a branch bank of the United States, doing business in that state. The Bank of the United States was incorporated by Congress for the purpose of aiding in the fiscal operations of the government, and for the issuance of bank notes, to be used as currency. In declaring the tax unconstitutional, Chief Justice Marshall laid down the following principles, long since uncontroverted, and recognized as established law: That the taxing power of a state extends to every person and thing in its jurisdiction; that it does not extend to persons and things not within the state jurisdiction; that the government of the United States is supreme within its sphere; that in carrying out its enumerated powers the federal government has power to employ and create such agencies as it sees fit; that these agencies are not within the state jurisdiction (although operating in the state territory); and that to allow to the state any power to impede or burden by taxation the agencies of the federal government would be to allow them to nullify the powers granted to the federal government, since the power to tax involves the power to tax to the point of destruction, and by taxing the agencies of the federal power to that point the states would be able to defy and render nugatory the power itself. The limits of the decision, however, were carefully pointed out, and it was said that the rule announced: did not deprive the states of any resources which they originally possessed; that it did not extend to a tax upon the real property of the bank, in common with other real property within the state, nor to a tax imposed on the interest which a citizen of Maryland might hold in the bank in common with other property of the same description throughout the state. On the general principle above stated, the states are precluded from taxing without federal permission United States bonds issued under the constitutional power of Congress to borrow money for governmental purposes, or the premium or excess above the value of such bonds; certificates of indebtedness issued for money or supplies; bills of credit issued for circulation; revenue stamps, issued by the federal government, and held by individuals; treasury notes issued and circulating as money; the salaries or emoluments of national officers; or the messages of the government sent by telegraph. On the other hand, the state may tax the property of federal agencies with other property in the state, and as other like property is taxed, when no law of Congress forbids, and when the effect of the taxation will not be to defeat or hinder the operations of the national government. A different rule, it has been well said, "would remove from the reach of state taxation all the property of every agent of the government." Thomson v. Union Pacific R. Co., 9 Wall. 579, 591, 19 L. Ed. 792. And the effect would be to embarrass and injure the state to the benefit of individuals, rather than of the nation. Union Pacific R. Co. v. Peniston, 18 Wall. 5, 21 L. Ed. 787. It is not open to question that the plaintiff in error and a large number of the oil producers in this state, alike situated, are to be deemed and considered in the discharge of the functions imposed upon them by the general government as a federal agent or instrumentality, through which the government discharges its duty to a considerable class of the Indians of the state, including the Osage Indians. Choctaw, O. & G. R. Co. v. Harrison, 235 U.S. 292, 35 S. Ct. 27, 59 L. Ed. 234; Indian Territory Illuminating Oil Co. v. Oklahoma, 240 U.S. 522, 36 S. Ct. 453, 60 L. Ed. 779. The former case involved the gross revenue tax imposed by the act of May 26,...
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