Magnolia Pipe Line Co. v. Oklahoma Tax Commission

• Decision Date: 02 April 1946
• Docket Number: 31884.
• Citation: 167 P.2d 884,196 Okla. 633,1946 OK 113
• Parties: MAGNOLIA PIPE LINE CO. v. OKLAHOMA TAX COMMISSION.
• Court: Oklahoma Supreme Court

167 P.2d 884

196 Okla. 633, 1946 OK 113

MAGNOLIA PIPE LINE CO. v. OKLAHOMA TAX COMMISSION.

No. 31884.

Supreme Court of Oklahoma

April 2, 1946

Appeal from Oklahoma Tax Commission.

Proceeding by the Magnolia Pipe Line Company against the Oklahoma Tax Commission involving the assessment of additional income taxes against the company for the years 1939 and 1940. From an order assessing the additional income taxes, the company appeals.

Reversed and case remanded.

Syllabus by the Court.

1. The rule that tax statutes will be construed most strongly against the state and in favor of the taxpayer is inapplicable in a case where the question is which of tow formulae the Legislature has made applicable to an industry and the selection of either will operate to the advantage of some taxpayers and to the disadvantage of others.

2. Where there are two reasonable interpretations of an income tax statute, a taxpayer may not relieve himself of all further liability by selecting one of such interpretations and filing his return thereunder.

3. In construing ambiguous tax statutes it is the duty of the courts to ascertain and declare the intention of the Legislature, and the statute as thus construed must be applied uniformly to all taxpayers within its purview.

4. The intention of the Legislature in amending a statute may be either to effect a change in existing law or to clarify that which was previously doubtful, and in determining the purpose intended in a particular case the courts may properly consider whether the statute, before amendment, was clear or ambiguous.

5. In construing statutes the courts should not presume that the Legislature has intended to unjustly discriminate between different cases of the same kind, but should adopt that construction which will insure the uniform operation of the statute.

6. In construing ambiguous tax statutes the court should adopt that interpretation which lays the burden of the tax uniformly on all those similarly situated.

7. The 'traffic unit' formula provided by the 5th paragraph of Sec. 8(f) H. B. 192, S.L.1935, as amended by H. B. 603 S.L.1939, does not constitute a complete formula for allocating a proportion of the income of pipeline companies to this state for income tax purposes, but provides a method for determining the third or gross revenue factor of the 'three-factor' formula contained in Section 8(e)(3) of said Act.

8. Under Sec. 9, H. B. 192, S.L.1935, as amended by H. B. 603, S.L.1939, in the absence of proof that credit therefor will be allowed in other states, a taxpayer, whose income is derived from interstate business, must be allowed as a deduction from the amount of his income taxable in Oklahoma, the full amount of taxes which he has paid in this State.

Robert W. Richards, of Oklahoma City, and Walace Hawkins, Dallas, Tex., for plaintiff in error.

E. L. Mitchell, W. F. Speakman, and A. L. Herr, all of Oklahoma City, for defendant in error.

HURST Vice, Chief Justice.

This is an appeal by the Magnolia Pipe Line Company from an order of the Oklahoma Tax Commission assessing additional income taxes against it for the years 1939 and 1940.

The taxpayer is a corporation engaged in the transportation of oil in interstate commerce, whose income, for the years in question, was derived from sources partly within and partly without the State of Oklahoma. The questions for determination are: (1) The proper formula to be applied in allocating a proportion of such income to the State of Oklahoma for income tax purposes, and (2) the proper method of deducting Oklahoma taxes in computing such income. The answer to these questions depends upon the construction of the applicable statutes, and each will be discussed separately.

1. It is conceded that for the years in question it was impractical to make a direct allocation of the taxpayer's income as provided for by Sec. 8(d) of the Oklahoma Income Tax Law of 1935, as amended by H. B. 603, c. 66, art. 10, S.L.1939 (see Appendix, 68 O.S.A.), and that the proper formula to be applied is contained in either Sec. 8(e)(3) or Sec. 8(f) of said Act. Sec. 8(e)(3) (herein referred to as the 'three factor formula') provides that the income, where direct allocation is impracticable:

'* * * shall be allocated by taking the arithmetical average of the following factors:

'(1) The ratio of the average accumulated investment at the beginning and close of the taxable year of the total real and tangible personal property owned and used in connection with the business carried on within this State to the average of the accumulated investment at the beginning and close of the taxable year of the total real and tangible personal property owned and used in connection with the business carried on everywhere;

'(2) The ratio of the total cost of manufacturing (including collecting, assembling, processing, or operating) or selling, depending upon the particular type of business, properly attributable to the business carried on within this State during the taxable year, to the total of such costs in connection with business transacted everywhere during the taxable year. * * *

'(3) The ratio of the gross sales or gross revenue in connection with the business transacted partly within and partly without this State during the taxable year * * * to the gross sales or gross revenue from business transacted everywhere during the taxable year; * * *.'

Sec. 8(f) of the Act provides that in the case of interstate transportation and transmission companies, including oil pipe line companies,

'* * * the rules of allocation provided by paragraph (3) of subdivision (e) of this Section may be subject to the following provisions and/or exceptions;

'Railroad and Interurban Railway Companies: (1) All operating revenues shall be allocated to this State in accordance with the allocation of operating revenues to States as prescribed by the Interstate Commerce Commission; (2) Where the actual investment within Oklahoma is not separately shown on the books and records of the company, there shall be substituted therefor the valuation as fixed by the Interstate Commerce Commission, plus additions and betterments, less retirements.

'Airline, Truck and Bus Companies: (1) The Oklahoma proportion of the investment at the beginning and end of the year shall be determined by taking the Oklahoma proportion of the investment of all real and tangible personal property having a fixed situs, and that proportion of the investment in transportation equipment, including aeroplanes, trucks and buses and their appurtenances, as reflected by the Oklahoma proportion, for the twelve months period immediately preceding, of the mileage traveled everywhere; (2) The Oklahoma proportion of gross receipts and gross revenue derived from interstate business shall be determined by taking the proportion of mileage traveled in Oklahoma to the mileage traveled everywhere.

'Freight Car and Equipment Companies: (1) The Oklahoma proportion of investment at the beginning and end of the taxable year, shall be determined by taking the investment of all real and tangible personal property having a fixed situs, and that proportion of the investment in transportation equipment as reflected by the Oklahoma proportion, for the twelve months period immediately preceding, of the car mileage traveled in Oklahoma to the car mileage traveled everywhere; (2) The Oklahoma proportion of gross receipts or gross revenues from the rental, use or operation of freight cars shall be determined by taking the proportion of car mileage traveled in Oklahoma to the car mileage traveled everywhere.

'Oil Gasoline and Gas Pipe Line Companies: The proportion of revenue derived from interstate business, shall be determined by taking the Oklahoma proportion of traffic, units to total traffic units. 'Traffic Units' of oil pipe lines is hereby defined to be the transportation of one barrel of oil for a distance of one mile. * * *

'Telephone and Telegraph Companies: (1) Where the actual investment within Oklahoma is not separately shown on the books and records of the company, there shall be substituted therefor the valuation as fixed by the Interstate Commerce Commission, plus additions and betterments, less retirements; (2) The Oklahoma proportion of revenues, shall be determined by taking the Oklahoma proportion of wire mileage to the system land plant wire mileage.' (Emphasis ours.)

It will be noted that the fifth paragraph of Sec. 8(f), relating to pipe line companies, provides that 'the proportion of revenue derived from interstate business, shall be determined by taking the Oklahoma proportion of traffic units to total traffic units.' It is over the meaning of this paragraph that the parties disagree.

The taxpayer contends that this paragraph constitutes an exception to the 'three-factor' formula contained in Sec. 8(e)(3) and establishes a complete and exclusive formula for determining the proportion of its income allocable to Oklahoma. This formula is referred to as the 'traffic unit' formula.

On the other hand the Tax Commission contends that the paragraph merely furnishes a yardstick, so far as pipe line companies are concerned, for the determination of the Oklahoma proportion of gross revenue, the third of the three factors contained in Sec. 8(e)(3), and that the gross revenue factor, when so ascertained, is to be averaged with the two other factors (investments and operating costs) in determining the proportion of income allocable to Oklahoma.

Under the 'traffic unit' formula alone, approximately 8.37 per cent of the taxpayer's total income for 1939 and 1940 is allocable to Oklahoma for tax purposes. Under the 'three-factor' formula (because of a larger proportion of investments and...