Mississippi State Tax Commission v. Tennessee Gas Transmission Co.

• Decision Date: 14 December 1959
• Docket Number: No. 41264,41264
• Citation: 116 So.2d 550,239 Miss. 191
• Parties: MISSISSIPPI STATE TAX COMMISSION v. TENNESSEE GAS TRANSMISSION COMPANY.
• Court: Mississippi Supreme Court

Page 550

116 So.2d 550

239 Miss. 191

MISSISSIPPI STATE TAX COMMISSION v. TENNESSEE GAS TRANSMISSION COMPANY.

No. 41264.

Supreme Court of Mississippi.

Dec. 14, 1959.

John E. Stone, Jackson, for appellant.

Wynn, Halter, Lake & Tindall, Greenville, John Brendel, Houston, Tex., for appellee.

ETHRIDGE, Justice.

This case involves the validity of an apportionment formula of a state franchise tax upon a multistate corporation, measured by an allocation to Mississippi of capital used, invested or employed withthe state. The chancery court held the statutory formula was void because in violation of the interstate commerce and due process clauses of the United States Constitution. However, we conclude that the statute is a valid exercise of the State's taxing power.

I.

The corporate franchise tax was originally enacted in 1984. Miss.Laws 1984, Chapter 121; Miss.Laws 1940, Chapter 115. Its amount was increased in 1955. Miss. Laws 1955, Ex. Sess, Chapter 118. In 1956 the Legislature substantially rewrote the franchise tax act. Miss. Laws 1956, Chapter 412. The provision under attack here was enacted in that year as Section 4, and is Miss.Code 1942, Recompiled, Section 9319:

"Multistate corporations.

"In the case of organizations doing business both within and without Mississippi, the value of the capital employed in this state shall be determined by first computing the ratio between (1) the real and tangible personal property owned or used in Mississippi and gross receipts from business carried on in Mississippi and (2) the total real and tangible personal property and gross receipts wherever located and from wherever received. Said ratio then shall be applied to the total capital stock, surplus, undivided profits and true reserves and the result of that application shall be the capital employed in this state. Provided, however, that the amount of the determined capital in Mississippi shall in no case be less than the assessed value of the property of the organization for the year preceding the year in which the return is due.

"For the purpose of is section, an organization which uses a formula method of apportionment in making income tax returns to this state shall determine its gross receipts from business carried on in Mississippi by applying to total unitary receipts the ratio achieved, or which would be achieved, by such formula and adding to the result of such application any nonunitary Mississippi receipts."

The tax is levied on both domestic corporations, Code Section 9813, and foreign corporations, Code Section 9314. It is measured by "the value of capital used, invested or employed within this state." Section 9314. The local incident, taxable basis or subject of the tax is "the benefit and protection of the government and laws of the state" received by the taxpayer, and as an exaction and recompense for protection of the local activities in maintaining, keeping in repair, and otherwise in manning the facilities of an interstate pipeline. Accordingly, the incident selected does not lend itself to repeated exactions in other states. And it is not discriminatory, when properly apportioned to the capital used, invested or employed in Mississippi. Stone v. Interstate Natural Gas Co., 5 Cir., 1939, 103 F.2d 544, affirmed per curiam in 308 U.S. 522, 60 S.Ct. 292, 84 L.Ed. 442 (1939), following Southern Natural Gas Corp. v. State of Alabama, 1936, 301 U.S. 148, 57 S.Ct. 696, 81 L.Ed. 970; Stone v. Memphis Natural Gas Co., 1947, 201 Miss. 670, 29 So.2d 268, affirmed in Memphis Natural Gas Co. v. Stone, 1947, 335 U.S. 80, 68 S.Ct. 1475, 92 L.Ed. 1832; Southern Package Corporation v. State Tax Commission, 1944, 195 Miss. 864, 15 So.2d 436, 16 So.2d 856; see also State Tax Commission v. Memphis Natural Gas Co., 1944, 197 Miss. 583, 19 So.2d 477, appeal dismissed in 323 U.S. 682, 65 S.Ct. 440, 89 L.Ed. 553 (apportioned net income tax on interstate gas pipeline company).

Since appellee, Tennessee Gas Transmission Company, contends that Section 9319 is unconstitutional, certain established principles of judicial review should be noted. In determining the constitutionality of a statute, the courts should proceed with the greatest possible caution, and should never declare it void unless invalidity is established beyond a reasonable doubt. They should adopt a construction which will bring the act into harmony with the Constitution, whenever necessary in order to uphold its constitutionality and to carry its provisions into effect. Every intendment is in favor of constitutionality, unless its repugnancy to that document clearly appears. The presumption is in favor of its validity. The propriety, wisdom and expediency of the act is a question for the Legislature and not the courts. It will be presumed that the Legislature considered the effect of the statute, and that it acted with an intent to comply with constitutional provisions and a desire to be fair and equitable. Russell Investment Corp. v. Russell, 1938, 182 Miss. 385, 419, 178 So. 815, 182 So. 102.

These same principles are uniformly applied to judicial review of a legislative apportionment formula for the assessment of a tax. Recently in Stapling Machines Co. v. Monaghan, 1958, 232 Miss. 484, 99 So.2d 649, 650, 101 So.2d 359, this Court reiterated them. The company, engaged in interstate and intrastate commerce, sued to recover income tax. The Commission used an apportionment formula which was affirmed by this Court, stating: "In the case of Butler Bros. v. McColgan, the Supreme Court of the United States in 315 U.S. 501-510, 62 S.Ct. 701-705, 86 L.Ed. 991-997, held that one who attacks a formula of apportionment carries a distinct burden of showing by dear and cogent evidence that it results in extraterritorial values being taxed, and in the same case the Supreme Court of the United States discussed at length the question of the correct apportionment formula and held that if the statute as calling for a method of allocation which is fairly calculated to assign to California that part of the net income reasonably attributable to the business done there, any constitutional question arising from the Fourteenth Amendment is at an end."

This Court again followed the authoritative statement of Butter Brothers v. McColgan, in McWilliams Dredging Company v. McKeigney, 1956, 227 Miss. 730, 86 So.2d 672, 677, 678.

51 Am.Jur., Taxation, Sections 862-863, comments as follows about apportionment of state franchise taxes: " * * * it appears to be well established that such a tax is not invalid where it is imposed upon or measured by only the business of the taxpayer transacted within the state, by means of some reasonable formula for apportioning the exaction to such business." See also 84 C.J.S. Taxation 453.

In short, the issue is whether appellee sufficiently met its "distinct burden of showing by clear and cogent evidence than it (the Mississippi franchise tax measured by the apportionment formula of Section 9319) results in extraterritorial values being taxed." We do not think appellee met that burden of proof. On the contrary, the statute calls for a method of allocation of capital employed in Mississippi which is fairly calculated to assign to Mississippi its just proportion.

II.

Tennessee Gas Transmission Company is incorporated under the laws of the State of Delaware. Its principal office and place of business is Houston, Texas. It and its predecessor have been qualified to do business in Mississippi since July 1947. Appellee's books and records are kept in its home office in Houston, and all contracts entered into by appellee are executed in Houston. Appellee owns and operates through the State of Mississippi natural gas transmission pipelines, through which it transmits natural gas gathered in the States of Texas and Louisiana through the States of Arkansas, Mississippi and Tennessee and on into destinations in northern states.

Appellee maintains in Mississippi natural gas transmission pipelines. In connection with them it has compressor and meter stations. It maintains employees in Mississippi. During the two franchise tax years in question in this case, 1956 and 1957, appellee owned and operated approximately 925 miles of pipelines within the State of Mississippi. It also has in this State four compressor stations and eighteen meter stations. During this period it owned and operated in Mississippi approximately 45 automobiles, trucks and trailers. Appellee also owned dwelling houses on its four compressor station properties used by its operating and maintenance employees.

During the franchise tax years of 1956 and 1957, appellee made no direct retail sales or deliveries of gas in Mississippi, but delivered wholesale quantities of gas in the state. The company has a partial interest in thirteen oil wells in the State, none of which it operates. The gas pipeline transmission system is conducted separately from its oil holdings in Mississippi. The gross revenue from appellee's oil holdings in the state for the two years in question was $66,253 and $69,318, respectively. Appellee received rental revenue from its dwelling houses on compressor station properties used by its employees in the sum of $6,136 and $7,981 for the tax years for 1956 and 1957. Appellee's pipeline operations are regulated by the Federal Power Commission. Power used to operate the company's gas transmission compressor stations in Mississippi is generated from gas taken from its gas transmission lines in its four pumping stations within the State. Appellee has invoked the statutory grant of eminent domain provided by the laws of Mississippi in the state courts in several eminent domain suits. The company paid to the state and political subdivisions ad valorem taxes. The assessed value of its property in the state for 1956 was $19,115,150 and for 1957, $21,250,000. All of the aforesaid property of the taxpayer received the protection of the laws of the State of Mississippi....