Midwestern Gas Transmission Co. v. Wisconsin Dept. of Revenue, 76-106

• Decision Date: 30 June 1978
• Docket Number: No. 76-106,76-106
• Citation: 267 N.W.2d 253,84 Wis.2d 261
• Parties: MIDWESTERN GAS TRANSMISSION COMPANY, a Foreign Corporation, Respondent, v. WISCONSIN DEPARTMENT OF REVENUE, Appellant.
• Court: Wisconsin Supreme Court

Page 253

267 N.W.2d 253

84 Wis.2d 261

MIDWESTERN GAS TRANSMISSION COMPANY, a Foreign Corporation, Respondent, v. WISCONSIN DEPARTMENT OF REVENUE, Appellant.

No. 76-106.

Supreme Court of Wisconsin.

Argued June 6, 1978.

Decided June 30, 1978.

E. Weston Wood, Asst. Atty. Gen. (argued), with whom on the brief was Bronson C. La Follette, Atty. Gen., for appellant.

Wheeler, Van Sickle, Anderson, Norman & Harvey, S. C., Madison, on brief, for respondent; and Paul R. Norman, Madison, argued.

This is a state use tax case. The respondent, Midwestern Gas Transmission Co. (hereinafter taxpayer), owns and operates a pipeline through which it transports natural gas. The pipeline begins at the Manitoba-Minnesota border, and runs in a generally southwesterly direction to Marshfield, Wisconsin. The taxpayer purchases natural gas from a Canadian supplier and sells it to various customers, three of which tap the taxpayer's line at different points in Wisconsin. One of these is another pipeline company which takes the bulk of the gas brought into the state by the taxpayer.

The taxpayer consumes some gas at two compressor stations located in Wisconsin. The stations are necessary to increase the pressure of the gas in the pipeline in order to keep it flowing. At each station a small amount of gas is withdrawn from the pipeline, filtered or strained to remove foreign particles, metered, reduced in pressure and used to fuel engines which run the compressors. The gas taken from the pipeline never comes to rest before it is consumed.

In May, 1972, the appellant, Wisconsin Department of Revenue, issued a notice of sales and use tax assessment against the taxpayer on the gas consumed at its two Wisconsin pumping facilities during the period of September 1, 1969 to December 31, 1971. The value of the gas was stipulated and the tax, with interest, was set at $11,972.86. A petition for the redetermination of the assessment was denied by the department, and affirmed on appeal to the Commission. The taxpayer appealed to the circuit court where the Commission's order was reversed. The department appeals.

HANLEY, Justice.

The sole issue presented on this appeal is whether natural gas consumed at the taxpayer's Wisconsin compressor stations is subject to the Wisconsin use tax, sec. 77.54(1), Stats.

The department seeks to impose a tax on that amount of natural gas consumed by the taxpayer at its two pumping stations pursuant to sec. 77.53(1), Stats. This section provides:

"Imposition of use tax. (1) An excise tax is hereby levied and imposed on the storage, use or other consumption in this state of tangible personal property or taxable services described in s. 77.52 purchased from any retailer on or after February 1, 1962, at the rate of 3% of the sales price of the property or taxable services; but beginning on September 1, 1969 the rate of the tax hereby imposed shall be 4%."

The department does not claim that the tax is imposed on the taxpayer's storage of natural gas in this state, but rather claims that the taxpayer uses or consumes the gas within the meaning of the statute. Furthermore, neither party disputes the facial applicability of this taxing section to the taxpayer's use of natural gas except as it may be exempt from taxation under sec. 77.54(1), Stats. This section provides:

"General exemptions. There are exempted from the taxes imposed by this subchapter:

"(1) The gross receipts from the sale of and the storage, use or other consumption in this state of tangible personal property and services the gross receipts from the sale of which, or the storage, use or other consumption of which, this state is prohibited from taxing under the constitution or laws of the United States or under the constitution of this state."

After an administrative hearing to review the department's refusal to redetermine its assessment, the Commission concluded, inter alia, that the assessment was not "prohibited by Article I, Section 8, Clause 3 of the United States Constitution" and thus was not "exempt within the intent and meaning of sec. 77.54(1) of the Wisconsin Statutes." The circuit court, however, concluded that the tax violated the Commerce Clause and for that reason reversed the order of the Commission.

The resolution of the conflict between the constitutional protection of free interstate commerce and the states' reserved power to tax must be accomplished on a case-by-case basis, with the particular facts and statutory characteristics determining the outcome. Boston Stock Exchange v. State Tax Commission, 429 U.S. 318, 329, 97 S.Ct. 599, 50 L.Ed. 514 (1977).

In Michigan-Wisconsin Pipe Line Co. v. Calvert, 347 U.S. 157, 165, 74 S.Ct. 396, 400, 98 L.Ed. 583 (1954), the Court stated generally, "Under the Commerce Clause interstate commerce and its instrumentalities are not totally immune from state taxation, absent action by Congress." Rather, the Court continued, "It is now well settled that a tax imposed on a local activity related to interstate commerce is valid if, and only if, the local activity is not such an integral part of the interstate process, the flow of commerce, that it cannot realistically be separated from it." Michigan-Wisconsin Pipe Line Co. v. Calvert, supra at 166, 74 S.Ct. at 401.

The department asserts that "the tax imposed is non-discriminatory and has not been shown to be unreasonable in its exaction in relation to the benefits granted by the government of this state." (A. Brief at 8). This is essentially true. Nowhere does the taxpayer claim that the use tax imposed by sec. 77.53, Stats., discriminates against interstate commerce in favor of local enterprise. Nor has the taxpayer demonstrated that the tax is unreasonably disproportionate to benefits derived from the state. What the taxpayer does claim, however, is that the tax, as applied to the facts of this case, is an improper burden upon an activity which is an integral and inseparable part of the interstate flow of its natural gas. In support of this claim, the taxpayer relies principally on Helson and Randolph v. Kentucky, 279 U.S. 245, 49 S.Ct. 279, 73 L.Ed.2d 683 (1929) (hereinafter Helson ).

In Helson, the taxpayers, citizens and residents of Illinois, were in the business of operating a ferry on the Ohio River between Illinois and Kentucky. The taxpayers purchased gasoline to fuel the vessel's engines in Illinois, although seventy-five percent of it was consumed within the limits of Kentucky. Kentucky, which taxed all gasoline sold or used within the state, sought to impose the tax on that portion of the ferry's fuel consumed in Kentucky waters. The Supreme Court found the tax violative of the Commerce Clause, stating:

"The tax is exacted as the price of the privilege of using an instrumentality of interstate commerce. It reasonably cannot be distinguished from a tax for using a locomotive or a car employed in such commerce. A tax laid upon the use of the ferry boat, would present an exact parallel. And is not the fuel consumed in propelling the boat an instrumentality of commerce no less than the boat itself? A tax, which falls directly upon the use of one of the means by which commerce is carried on, directly burdens that commerce. If a tax cannot be laid by a state upon the interstate transportation of the subjects of commerce, as this Court definitely has held, it is little more than repetition to say that such a tax cannot be laid upon the use of a medium by which such transportation is effected. 'All restraints by exactions in the form of taxes upon such transportation, or upon acts necessary to its completion, are so many invasions of the exclusive power of Congress to regulate that portion of commerce between the States.' Gloucester Ferry Co. v. Pennsylvania, supra, 114 U.S. 196, p. 214, 5 S.Ct. 826, 29 L.Ed.2d 158." Helson and Randolph v. Kentucky, supra at 252, 49 S.Ct. at 281.

In 1936, Helson was expressly followed by the Court in invalidating a state tax imposed upon the use of motor fuel to effect the movement of buses in interstate commerce. Bingamen v. Golden Eagle Western Lines, Inc., 297 U.S. 626, 56 S.Ct. 624, 80 L.Ed.2d 928 (1936).

State courts have more recently applied the rule in the Helson case to situations similar to the one presented here. In Texas Gas Transmission Corp. v. Benson, 223 Tenn. 279, 444 S.W.2d 137 (1969), the object of the state use tax was that amount of natural gas diverted from the taxpayer's main transmission lines to fuel compressor engines. Characterizing the taxing statute as imposing tax liability on goods which are stopped or brought to rest within the state for sale, use, consumption, distribution or storage, the Tennessee Supreme Court found that the fuel gas did not come to rest within the state but was a part of a continuous flow and "a necessary and integral part of the (taxpayer's) interstate operation." Texas Gas Transmission Corp. v. Benson, supra 444 S.W.2d at 139. The court thereupon applied the Helson rule to hold that the taxpayer's use of gas was exempt from the use tax. The same result was also reached by the Michigan Court of Appeals in Michigan Wisconsin Pipe Line Co. v. State, 58 Mich.App. 318, 227 N.W.2d 334 (1975), wherein the taxpayer's use of natural gas tapped from a main transmission line to power compressor engines was held, under authority of Helson and Texas Gas Transmission Corp., to be exempt from a use tax statute which imposed a levy on the "privilege of using, storing and consuming tangible property brought from out of the State after it has come to rest." Michigan Wisconsin Pipe Line Co. v. State, 227 N.W.2d at 335-37.

The department concedes that if the Helson case is still valid, it would require an affirmance in the instant case. The department, however, argues that the Helson decision has been modified by subsequent Supreme Court decisions so as to change the rule prohibiting the imposition of a state use tax on a substance used to fuel interstate...