Memphis Natural Gas Co. v. McCanless

• Decision Date: 05 February 1944
• Parties: MEMPHIS NATURAL GAS CO. v. McCANLESS (GROSS RECEIPTS TAX CASE).
• Court: Tennessee Supreme Court

177 S.W.2d 841

MEMPHIS NATURAL GAS CO. v. McCANLESS (GROSS RECEIPTS TAX CASE).

Supreme Court of Tennessee.

February 5, 1944.

Appeal from Chancery Court, Davidson County; Wm. J. Wade, Chancellor.

Suit by Memphis Natural Gas Company against George F. McCanless, Commissioner, etc., to recover tax paid under protest. From a decree for complainant, the Commissioner appeals.

Affirmed.

Canada, Russell & Turner, of Memphis, for complainant.

William F. Barry, Sol. Gen., of Nashville, Roy H. Beeler, Atty. Gen., and Thomas H. Malone, III, Asst. Atty. Gen., for the State.

GREEN, Chief Justice.

This suit was brought by Memphis Natural Gas Company to recover taxes alleged to have been illegally exacted of it by the Commissioner of Finance and Taxation and paid under protest. There was decree in favor of complainant by the chancellor, from which the commissioner has appealed.

The tax involved is known as the gross receipts tax and is levied by Chapter 108 of the Public Acts of 1937, art. 2, § 2, Item G, and by the Amendatory Act of the same year, Chapter 192, Section 19. The relevant sections of the two statutes are as follows:

Chapter 108, art, 2, § 2, Item G:

"Each person engaged in the business of furnishing or distributing gas, water, or electric current, whether to dealer, consumer, municipality or other customer, shall, for the privilege of doing such business, pay to the State for State purposes an amount equal to three (3%) per cent of the gross receipts derived from intrastate business in the State.

* * * * *

"It is the intention of this Item to levy a tax for the privilege of engaging in intrastate commerce carried on wholly within this State and not a part of interstate commerce."

Chapter 192, § 19:

"Be it further enacted, That the said Act be amended in Item B[G] (Gas, Water, Electric Power and Light Companies) by adding thereto at the conclusion of the first paragraph thereof, to be a part of the said paragraph the following sentence: `Persons engaged in the business of manufacturing gas or of distributing manufactured gas or natural gas shall, in lieu of the foregoing, pay an amount equal to one and one-half (1½%) per cent of the gross receipts derived from intrastate business in this State, which payment shall be subject to the same provisions, restrictions and credits hereinafter provided in this Item."

It will be observed with respect to natural gas that the tax is only levied on "distributing * * * natural gas." The case before us, therefore, is in a narrow compass, a determinative question being whether the complainant is distributing natural gas or is a distributor of that commodity in Tennessee.

The complainant maintains a pipe line from Louisiana through Arkansas and Mississippi to the outskirts of the City of Memphis, in Tennessee. From Memphis it has other and smaller pipe lines passing through Shelby County which reach Brownsville, Humboldt, Jackson and other Tennessee towns. At various points along complainant's lines it is tapped by service lines which carry gas to the homes and business places of customers in Memphis, Shelby County, and elsewhere. None of these service pipes, however, belong to the complainant, nor has the complainant any control of them.

Gas in Memphis was formerly delivered by the complainant to Memphis Power and Light Company and distributed by that concern. Later the City of Memphis, through a subsidiary corporation, acquired the properties of Memphis Power and Light Company and the new concern now distributes gas to customers in Memphis, Shelby County, and some points out of Shelby County. West Tennessee Power and Light Company is the distributing agency at other points in Tennessee.

The gas moves in a continuous flow from Louisiana to the points in Tennessee where the service pipes of the distributing agencies connect with the pipes of the complainant. Pressure is reduced at those points and the gas entering the service pipes of the other concerns measured at such places. The distributing agencies pay the complainant for the gas taken by them at these various connections and the complainant has nothing to do with the distribution and sale of the gas by such agencies.

Upon these facts we do not think it can be said that the complainant is distributing natural gas or is a distributor of natural gas in Tennessee. The Supreme Court of the United States has had frequent occasion in recent years to consider the tax liability to the...