Mid-Northern Oil Co. v. Walker
| Decision Date | 18 December 1922 |
| Docket Number | 5079. |
| Parties | MID-NORTHERN OIL CO. v. WALKER, STATE TREASURER, ET AL. |
| Court | Montana Supreme Court |
Appeal from District Court, Lewis and Clark County; A. J. Horsky Judge.
Suit by the Mid-Northern Oil Company against J. W. Walker, State Treasurer, and others, for an injunction. Judgment for plaintiff, and defendants appeal. Reversed and remanded, with directions.
See also, 207 P. 1117.
W. D Rankin, Atty. Gen., and A. H. Angstman, Asst. Atty. Gen., for appellants.
Donald Campbell, of Forsyth, for respondent.
By chapter 266, Laws of 1921 (sections 2397-2408, Rev. Codes 1921), every person engaged in producing petroleum or other mineral or crude oil within this state is required to pay to the state annually a license tax equal to 1 per centum of the gross value of the oil so produced during the year. The Mid-Northern Oil Company is a domestic corporation actively engaged in the production of crude petroleum within this state, but claims exemption from the operation of the statute above. It refuses to pay the tax, and, to avoid a multiplicity of suits, and as well the penalty provided by the act for a refusal to pay, instituted this suit to secure an injunction restraining the members of the State Board of Equalization from enforcing the statute against it. The trial court renderd and had entered a judgment granting to plaintiff the relief sought, and the defendants appealed.
The essential facts involved here are these: Pursuant to the terms of the Federal Oil and Gas Leasing Law (Act Feb. 25, 1920, 41 Stat. 437), the government of the United States executed and delivered to certain individuals leases under the terms of which the respective lessees were given the exclusive right to explore for, extract, and dispose of oil and gas in lands covered by homestead entries for which patents had not issued. The plaintiff is the owner, in whole or in part, of these leases by assignments which have been duly approved by the Land Department, and in the production of oil its operations are confined exclusively to the lands mentioned in the leases.
There cannot be any controversy over the character of the tax involved. The statute declares that it is imposed "for engaging in and carrying on such business" and that the tax, when collected, shall become a part of the general fund of the state. The tax is not in any sense a property tax, and neither is it exacted for regulatory purposes under the police power. The statute is a revenue measure, and the exaction is a license or occupation tax. State v. Camp Sing, 18 Mont. 128, 44 P. 516, 32 L. R. A. 635, 56 Am. St. Rep. 551; Northwestern Mutual Life Ins. Co. v. Lewis and Clark County, 28 Mont. 484, 72 P. 982, 98 Am. St. Rep. 572; State v. Hammond Packing Co., 45 Mont. 343, 123 P. 407; Id., 233 U.S. 331, 34 S.Ct. 596, 58 L.Ed. 985; Equitable Life Assurance Co. v. Hart, 55 Mont. 76, 183 P. 1062.
We enter upon our investigation of this subject confronted by the declaration of our state Constitution that the Legislative Assembly may impose a license tax upon persons and corporations doing business in the state (section 1, art. 12), and by the principle well-nigh universally recognized "that taxation is the rule and exemption the exception." Cruse v. Fischl, 55 Mont. 258, 175 P. 878. Since plaintiff is doing business in this state, the burden is upon it to show that it comes within some definite exception to the general rule. The right to impose an occupation tax upon it is denied by the plaintiff upon the theory that in carrying out its leases it acts as an agent for or instrumentality of the United States in the disposition of the public lands. In McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579, decided in 1819, the Supreme Court of the United States held that a state may not exact a tax upon the operations of a branch of the United States bank no matter how reasonable or universal or undiscriminating the tax may be. The decision had its foundation in the entire absence of power on the part of the state to interfere with or control a governmental instrumentality of the United States. That doctrine has been reiterated in numerous cases down to and including Johnson v. Maryland, 254 U.S. 51, 41 S.Ct. 16, 65 L.Ed. 126, decided in 1920. In this last case it was held that a postal employee in the discharge of his duties delivering mail by means of a government owned motor truck cannot be required to procure a motor vehicle license from the state after demonstrating his competency to operate the machine and the payment of a prescribed fee. See, also, Farmers' Bank v. Minnesota, 232 U.S. 516, 34 S.Ct. 354, 58 L.Ed. 706. Whatever difference of opinion may have been entertained upon the question heretofore, we think it may be accepted as settled now that a state may not, without the consent of the Congress, impose a tax upon the operations of any means, agency, or instrumentality of the United States through which the government performs its public functions, and that the character of the tax or the extent of the burden it imposes is altogether immaterial. The distinction between a tax upon the operations of an agency of government and a property tax is to be kept in mind. That the state may impose a general ad valorem tax upon the private property of an agency of the government has been declared so often that it has become axiomatic.
With these principles before us, our attention is concentrated upon the decisive question presented by this appeal: Is the Mid-Northern Oil Company, in the execution of its leases, such an agency or instrumentality of the United States as that this state may not exact of it an occupation tax? Plaintiff insists that the question has been set at rest by the recent decisions of the Supreme Court of the United States in the Oklahoma cases, and a brief review of those cases will serve to illustrate the contention.
In Choctaw O. & G. R. Co. v. Harrison, 235 U.S. 292, 35 S.Ct. 27, 59 L.Ed. 234, there was drawn in question the right of the state of Oklahoma to collect from the railroad company an occupation tax computed upon the gross sales of coal mined by the railroad company from unallotted lands belonging to the Choctaw and Chickasaw Indian tribes, under leases authorized by Congress. The court held that the agreement between the United States and the Indians imposed upon the former a definite duty in respect to opening and operating the coal mines upon the Indian lands, and held further that the railroad company "is the instrumentality through which this obligation is being carried into effect," and that "such an agency cannot be subjected to an occupation or privilege tax by a state."
In Indian Territory Illuminating Oil Co. v. Oklahoma, 240 U.S. 522, 36 S.Ct. 453, 60 L.Ed. 779, the facts appeared to be that the oil company, by approved assignment from the original lessee, became the owner of a lease from the Osage Indians to prospect for and produce petroleum and natural gas in lands belonging to the Indians in the Osage Reservation. The state of Oklahoma undertook to subject that lease, and subleases held by the oil company, to general taxation for state, county, and other purposes, either as a specie of property or as the measure of the value of property subject to taxation. The court held that the state could not tax property under the protection of the federal government and that the leases in question "have the immunity of such protection." Concluding its opinion the court said:
"It follows from these views that the assessment against the oil company, so far as it included the leases, whether as separate objects of taxation or as represented or valued by the stock of the company, is invalid."
The same principle was applied to gross production taxes in Howard v. Gypsy Oil Co., 247 U.S. 503, 38 S.Ct. 426, 62 L.Ed. 1239, and in Large Oil Co. v. Howard, 248 U.S. 549, 39 S.Ct. 183, 63 L.Ed. 416.
Finally, in Gillespie v. Oklahoma, 257 U.S. 501, 42 S.Ct. 171, 67 L.Ed. 338, decided January 30, 1922, there was presented the contention by the state of Oklahoma that it might exact a tax from a lessee of Indian lands based upon the net income derived from his operations under leases similar to those involved in Choctaw O. & G. R. Co. v. Harrison and in Indian Territory Illuminating Oil Co. v. Oklahoma, above, but its claim was denied. The court said:
"The same considerations that invalidate a tax upon the leases invalidate a tax upon the profits of the leases, and, stopping short of theoretical possibilities, a tax upon such profits is a direct hamper upon the effort of the United States to make the best terms that it can for its wards."
As we understand these decisions, the exemption in each instance was based solely upon the peculiar character of the lease involved, and not upon the fact that the individual or corporation benefited was a lessee of the government. In other words, the court did not hold that every individual or corporation having a lease upon public land is ipso facto an agent or instrumentality through which the government executes its power to dispose of the public lands, but it did hold that the fiduciary relationship existing between the United States and the particular Indian wards imposed upon the government a positive duty to lease the Indian lands and to secure for the Indians the most advantageous terms available; that in the discharge of its duty the government approved the leases in question and chose the lessee in each instance as its agent or instrumentality through which it carried its leases into execution, and thereby discharged its public duty.
It cannot be contended that every individual or corporation having a contract with the United States is by force of that fact...
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