Memphis Natural Gas Co. v. McCanless

• Court: Supreme Court of Tennessee
• Writing for the Court: Green
• Citation: 177 S.W.2d 843
• Decision Date: 05 February 1944
• Parties: MEMPHIS NATURAL GAS CO. v. McCANLESS (EXCISE TAX CASE).

177 S.W.2d 843 MEMPHIS NATURAL GAS CO.
v.
McCANLESS (EXCISE TAX CASE). Supreme Court of Tennessee. February 5, 1944.

Page 844

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

Suit by Memphis Natural Gas Company against George F. McCanless, Commissioner, etc., to recover excise taxes and penalties paid under protest. From a decree dismissing the bill, the complainant appeals.

Modified, and as modified, affirmed.

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

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

GREEN, Chief Justice.

This suit was filed to recover excise taxes and penalties collected from complainant under Chapters 99 and 176 of the Public Acts of 1937 and paid under protest for the years July 1, 1939-July 1, 1942. The bill was dismissed by the chancellor and the complainant has appealed.

The case may be described as an aftermath of Memphis Natural Gas Co. v. Pope, 178 Tenn. 580, 161 S.W.2d 211, the decree in which was affirmed by the Supreme Court of the United States in Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 62 S.Ct. 857, 86 L.Ed. 1090, in which the same complainant unsuccessfully resisted the collection of excise taxes for the years July 1, 1936-July 1, 1938, imposed by § 1316 of the Code.

The nature of complainant's organization and of its business is described generally in Memphis Natural Gas Co. v. McCanless, Tenn.Sup., 177 S.W.2d 841, (the Gross Receipts Tax Case) just decided. For a fuller description see the opinions of this Court and the Supreme Court of the United States in the case first above cited. It should be repeated here that the complainant is a Delaware corporation and has a stock transfer office in New York City. No general business, however, is transacted at either of these offices. Practically all the business of the corporation is transacted from its office at Memphis, which city is its commercial domicile.

The contention of the complainant is that since 1939 when it ceased its participation in the distribution of natural gas in Memphis as mentioned in the opinion in the Gross Receipts Tax Case, its business in Tennessee has been altogether interstate; that the Public Acts of 1937 under which the excise taxes involved were collected do not include interstate business, or if interstate business is reached thereby, the statutes run counter to the commerce clause of the Federal Constitution, Article 1, § 8, cl. 3. The State contends that a part of complainant's business is of local character, intrastate, and further contends that the Public Acts of 1937 are valid and applicable to complainant's business even if that business be entirely of an interstate character.

This Court has not heretofore undertaken to determine the full scope of Chapters 99 and 176 of the Public Acts of 1937. The statutes are referred to in WDOD Broadcasting Corp. v. Walter Stokes, Jr., Commissioner, Tenn.Sup., 177 S.W.2d 837.

Page 845

In that case it was found that the greater part of the taxpayer's business was intrastate in character and clearly a business of that sort was reached by the statutes. Reference is made to State ex rel. McCanless, Commissioner, v. Cincinnati Southern Ry., 178 Tenn. 328, 157 S.W.2d 833, 834. But § 1316 of the official Code of 1932 was there under consideration. It is true that the opinion cited "Williams' Code, Sections 1316 et seq.," but the reference was to § 1316 in the first edition of Williams Code. The opinion was handed down January 17, 1942. The Replacement Volume of Williams Code in which Chapters 99 and 176 of the Public Acts of 1937 appear as § 1316 was not issued until 1943.

The scope of Chapters 99 and 176 of the Public Acts of 1937 can be more readily understood by a comparison of those Acts with § 1316 of the official Code, which is: "All corporations and joint stock associations organized under the laws of the State of Tennessee, other than those organized for general welfare and not for profit and all corporations and joint stock associations organized under the laws of any other state or country for profit and doing business in Tennessee, shall, without exception, pay to the state comptroller annually an excise tax, in addition to all other taxes, equal to three per cent. of the net earnings for their preceding fiscal year of such corporations and joint stock associations, arising from business done wholly within the state, excluding earnings arising from interstate commerce. Tennessee insurance companies shall pay on net earnings proportioned to premiums on policies on persons and property in this state."

Chapter 99 of the Public Acts of 1937, amending § 1316 of the Code, contains the following:

"Tax Imposed — All corporations, co-operatives conducted for profit, joint stock associations and business trusts, organized under the laws of the State of Tennessee, other than those organized for general welfare and not for profit, and all such entities organized under the laws of any other state or country for profit and doing business in Tennessee, shall, without exception, pay to the Commissioner of Finance and Taxation annually an excise tax, in addition to all other taxes, equal to four (4%) per cent of the net earnings for their next preceding fiscal or calendar year, from business done within the State.

"In the case of corporations, co-operatives, joint stock associations and business trusts doing business in Tennessee and elsewhere, the net earnings shall be apportioned as hereinafter set forth and the net earnings thus apportioned to Tennessee shall be deemed to be the earnings arising from business done within the State and shall be the measure of this tax. Such method of apportionment shall be as follows."

Chapter 176 of the Public Acts of 1937, also amending § 1316 of the Code, merely fixes the tax rate at 3.75% instead of 4%.

It will be observed that § 1316 of the Code bases the excise tax on net earnings "arising from business done wholly within the state, excluding earnings arising from interstate commerce." Chapter 99 of the Public Acts of 1937 bases the tax on net earnings "from business done within the State." The change of phraseology in the amendatory statute is too significant to be escaped. By the failure of the Act of 1937 to exclude earnings "arising from interstate commerce," which were expressly excluded in the Code sections before re-written, it must be concluded that the lawmakers intended to include earnings from interstate commerce as far as they could. And again the Code section based the tax on earnings from businesss done wholly within the State, while the amendatory Act based the tax on business done within the State. The omission of wholly in this connection cannot be ignored in undertaking to arrive at the meaning of the amendment.

Section 1316 of the official Code of 1932 was founded on Chapter 21 of the Public Acts of 1923 and...