Mississippi State Tax Commission v. Murphy Oil USA, Inc., No. 2003-CA-00325-SCT (MS 10/13/2005), 2003-CA-00325-SCT.
| Decision Date | 13 October 2005 |
| Docket Number | No. 2003-CA-00325-SCT.,2003-CA-00325-SCT. |
| Parties | MISSISSIPPI STATE TAX COMMISSION v. MURPHY OIL USA, INC. |
| Court | United States State Supreme Court of Mississippi |
ATTORNEYS FOR APPELLANT: SAMUEL T. POLK, GARY WOOD STRINGER
ATTORNEYS FOR APPELLEE: JAMIE G. HOUSTON, W. TERRELL STUBBS
EN BANC.
ON MOTION FOR REHEARING
¶1. The motion for rehearing is granted. The prior opinions are withdrawn, and this opinion is substituted therefor.
¶2. In 1999, the Mississippi State Tax Commission ("Commission") examined the Mississippi Combined Income and Franchise tax returns of Murphy Oil U.S.A., Inc. ("Murphy") for the following tax years: 1995, 1996, and 1997. As a result of this examination, on September 30, 1999, the Commission assessed additional franchise taxes and interest against Murphy in the amount of $87,952.00. After two internal agency appeals, Murphy sought judicial review in the Chancery Court of Simpson County pursuant to Miss. Code Ann. § 27-13-45 (Rev. 2003). On January 17, 2003, the chancellor ordered that the additional franchise tax assessment made by the Commission "shall not be allowed." The Commission filed a timely appeal to this Court.
¶3. This Court has specifically rejected the Destination Sales Theory and instead looks to the volume of business actually conducted in this state. Miss. State Tax Comm'n v. Chevron U.S.A., Inc., 650 So. 2d 1353 (Miss. 1995). We also find that the franchise tax imposed does not violate the commerce or due process clauses of the United States Constitution. Thus, we reverse and render.
¶4. Murphy is a Delaware corporation with its principal place of business located in El Dorado, Arkansas, and is authorized to do business in the State of Mississippi. Murphy is in the business of refining and marketing petroleum products for wholesale and retail purposes. As part of its operations, Murphy owned and operated a refinery in Meraux, Louisiana, and refined products produced at this refinery were shipped through tank trunks, by barge or through a pipeline known as the Collins Pipeline located in Collins, Mississippi. In addition to refining and selling products at wholesale, Murphy also owned and operated service stations in Mississippi to sell products at retail.
¶5. The Collins Pipeline starts at Meraux, Louisiana, and terminates at the T&M terminal located in Collins, Mississippi. From 1995 to the present, a corporation by the name of Collins Pipeline Company owns Collins Pipeline. During the tax years in issue, Collins Pipeline Company was owned by Murphy and Chalmette Refining, Inc. The facility at which this pipeline terminates, T&M Terminal, is owned by T&M Terminal Company. T&M Terminal Company, during the years in question, was also owned by Murphy and Chalmette.
¶6. The T&M terminal at which the Collins Pipeline terminates consists of ten tanks, referred to as "breakout tankage" where products shipped on the pipeline can be stored. Additionally, at the T&M terminal, there are pipes, valves and other equipment that connect that facility to both Colonial Pipeline and Plantation Pipeline to allow for the injection of product from the T&M terminal into either of these pipelines. Colonial Pipeline begins at Pasadena, Texas, and terminates in New Jersey, with numerous terminals and facilities along its pipeline system in Texas, Louisiana, Mississippi, Alabama, Tennessee, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, and New Jersey. Plantation Pipeline begins in Baton Rouge, Louisiana, and terminates in Washington, D.C., with numerous terminals and facilities along its pipelines in Louisiana, Mississippi, Alabama, Tennessee, Georgia, South Carolina, North Carolina, Virginia, and the District of Columbia.
¶7. The sales by Murphy, which the auditor reclassified as Mississippi sales resulting in the assessment of additional franchise taxes, were sales made by Murphy where title and control of the property sold was transferred to the purchaser at Collins, Mississippi. The amount of these sales for each of the tax years in issue is as follows: (1) tax year 1995 = $156,826,131.00; (2) tax year 1996 = $199,285,823.00; and (3) tax year 1997 = $155,652,973.00. The negotiations of these sales began with traders in El Dorado, Arkansas, determining what product being manufactured in Meraux is available for sale. Based upon a review of the market conditions, a trader would determine which pipeline would give Murphy the greatest return on its sale. After this was determined, the trader would attempt to market the product to potential buyers who were willing to purchase the product using the pipeline selected.
¶8. The product to be sold belonged to Murphy while it was being shipped from Meraux to Collins on the Collins Pipeline and while it was in the breakout tankage at the T&M terminal. The product would remain in the breakout tankage at T&M terminal for a few hours up to several days. The length of this time the product is stored in Collins, Mississippi depends on quantity and product cycle requirements of the pipelines. Many times, Murphy would already have a buyer for the product before it left the refinery in Meraux, Louisiana. At other times, Murphy would not have a buyer for the product until after the product had left the refinery and at times, even after it had been placed in the breakout tankage at the T&M terminal. Under the terms of the sales at issue, title, possession and control of the product passed from Murphy to the purchaser when the product was injected from the T&M terminal into either the Colonial Pipeline or the Plantation Pipeline in Collins, Mississippi. Title actually passed as the product was being metered when it was injected into the pipelines. This metering of the injection of the product into Colonial or Plantation Pipeline was used by Murphy to bill its purchaser for payment. Upon receipt of the report of this metering that took place in Collins, Mississippi, Murphy would bill its customers who would then pay Murphy by wire transfer.
¶9. Upon injection into Colonial or Plantation Pipelines, Murphy had no knowledge of the whereabouts of the product or where the product is ultimately offloaded. Murphy contends that these sales are not Mississippi sales for determining its Mississippi sales factor. Furthermore, Murphy had not included these sales as sales in any other state in determining the sales factors.
¶10. The Commission examined the Mississippi Combined Income and Franchise Tax Returns of Murphy for tax years 1995, 1996 and 1997. As a result of this examination, an assessment of additional Mississippi franchise tax and interest was issued against Murphy on September 30, 1999. Murphy, pursuant to Miss. Code Ann. § 27-13-43, appealed this assessment to the Board of Review of the Commission for a hearing on this matter. After proper notice and a hearing before the Board of Review on March 9, 2000, the Board entered its order affirming the assessment in the original amount of $87,952.00. Following this decision by the Board of Review, Murphy appealed to the full Mississippi State Tax Commission for a hearing on the decision of the Board of Review to affirm the tax in question. A hearing before the full Commission was held on June 21, 2000. On December 6, 2000, the full Commission affirmed the assessment in issue. Murphy was ordered to pay to the Commission the entire assessment of $87,952.00 plus up to date interest.
¶11. Following the decision of the full Commission, Murphy timely filed a petition for judicial review in the Chancery Court of Simpson County. After discovery and trial, the chancellor signed a final judgment wherein he ordered "that the additional assessments made by the Mississippi State Tax Commission shall not be allowed and that the sales for the years in question shall be those that were, in fact, downloaded in the state of Mississippi for final destination in the state of Mississippi." The Commission timely filed its appeal with this Court.
I. Whether the Destination Sales Theory Should Be Applied for Franchise Tax Purposes.
II. Whether the Franchise Tax Violates of the Commerce or Due Process Clauses of the United States Constitution.
¶12. The chancery court reviewed this matter in a full evidentiary hearing, complete with a full record. In Tenneco, Inc. v. Barr, 224 So. 2d 208, 211 (Miss. 1969), this Court held that "[i]t is manifest, from the express provisions of [Mississippi Code 1942 Annotated] § 9220-31, that the Legislature has made it the public policy of this state to provide a full evidentiary judicial hearing in cases of the character now under consideration." Section 9220-31 is the predecessor to the applicable current Miss. Code Ann. §§ 27-7-73 (income tax—judicial review) and 27-13-45 (franchise tax—judicial review). In Tenneco, as well as in the present matter, "the chancellor heard evidence and determined the cause as in `other cases' as provided by the statute." 224 So. 2d at 210. Thus, in accordance with Tenneco the chancellor in this case reviewed evidence and determined the cause under the authority of §§ 27-7-73 and 27-13-45. Therefore, this Court must now ascertain whether or not the chancery court arrived at the proper determination.
¶13. Murphy argues that the chancellor's ruling should be affirmed because § 27-7-23 (c)(3) (Rev. 1991) provides for the application of the Destination Sales Theory to determine those "sales" assignable to Mississippi for purposes of any formula in which a sales factor is included regardless of ownership, title, control or risk of loss.
¶14. This Court has rejected the Destination Sales Theory as a way to account for Mississippi receipts for franchise tax purposes. However, Murphy indicates that § 27-7-23(c)(3) (Rev....
To continue reading
Request your trial