Natural Gas Pipeline Co. of America v. State Commission of Revenue and Taxation

• Decision Date: 12 July 1947
• Docket Number: 36904.
• Citation: Natural Gas Pipeline Co. of America v. State Commission of Revenue and Taxation, 163 Kan. 458, 183 P.2d 234 (Kan. 1947)
• Parties: NATURAL GAS PIPELINE CO. OF AMERICA v. STATE COMMISSION OF REVENUE AND TAXATION et al.
• Court: Kansas Supreme Court

183 P.2d 234

163 Kan. 458

NATURAL GAS PIPELINE CO. OF AMERICA v. STATE COMMISSION OF REVENUE AND TAXATION et al.

No. 36904.

Supreme Court of Kansas

July 12, 1947

Rehearing Denied Sept. 15, 1947.

Appeal from District Court, Shawnee County, Division No. 1;C. A Magaw, Judge.

Appeal from District Court, Shawnee County, Division No. 1;C. A Magaw, Judge.

Action by Natural Gas Pipeline Company of America against the State Commission of Revenue and Taxation of Kansas and others for a declaratory judgment interpreting certain provisions of the Kansas Compensating Tax Act, Gen.St.Supp.1945, 79-3701 to 79-3711.From an adverse judgment, the plaintiff appeals.

PARKER and BURCH, JJ., dissenting.

Syllabus by the Court.

In an action for a declaratory judgment the plaintiff, a public utility whose business and commerce is conceded to be interstate in character, contends that, under the provisions of the Kansas Compensating Tax Act and in particular G.S.1945 Supp. 79-3704(a), it is exempt from payment of the compensating tax on certain tangible personal property, fully described in the petition, brought into the state by it with the design and purpose of incorporating such property into its transportation system as an integral part thereof, by way of repair, maintenance, construction, reconstruction replacement, addition or extension thereto as a necessary incident and requirement for the operation thereof.Held, (1) that such property is not brought into the state by plaintiff'for consumption in interstate commerce' as that term is used in section 79-3704(a) of the Compensating Tax Act and is not exempt from payment of taxes imposed thereon by the provisions of G.S.1945 Supp. 79-3703, and (2) that Rule 18 of the Kansas Compensating Tax Rules and Regulations, inasmuch as it does not deprive plaintiff of any exemption to which it is entitled under provisions of the Compensating Tax Act, is a lawful and valid regulation.

James D. Dye, of Wichita, for appellant.

Mason Mahin, of Smith Center (Paul H. Edgar, of Topeka, on the brief), for appellees.

C. J. Putt, T. M. Lillard, and John E. DuMars, all of Topeka, and W. F. Lilleston, of Wichita, amici curiae.

PARKER Justice.

This action was instituted under the declaratory judgment law to obtain judicial interpretation of certain provisions of the Kansas Compensating Tax Act.It was submitted in the court below upon the pleadings and stipulations of fact.The plaintiff appeals from a judgment construing the involved provisions of the Act in accord with the construction placed thereon by the defendants.

Plaintiff, a Delaware corporation, owns and operates an interstate pipe line system and is engaged in the business of transporting natural gas from a point in the state of Oklahoma to points in the state of Kansas, Nebraska, Iowa and Illinois.In the transaction of its business it sells and delivers such commodity to distributors and consumers in those states.The defendants are state agencies and officials, charged by statute with the administration and enforcement of the Kansas Compensating Tax Actas amended byChapter 370, Laws of Kansas 1945, nowG.S.1945 Supp. 79-3701 to 79-3711, inclusive.

Inasmuch as certain sections of the Act are essential to a proper understanding as well as the determination of the issue raised by the pleadings they will be set forth before further reference is made to the factual situation upon which that issue depends.

G.S.1945 Supp. 79-3702 defines terms used in the Act and so far as pertinent, reads:

'(c) The word 'use' means and includes the exercise within this state by any person of any right or power over tangible personal property incident to the ownership of that property, except that it shall not include processing, or the sale of the property in the regular course of business, and except storage as hereinafter defined.

'(d)'Storage' includes any keeping or retention in this state for any purpose except sale in the regular course of business or subsequent use solely outside this state of tangible personal property purchased from a retailer.'

G.S.1945 Supp. 79-3703 relates to the tax imposed.It provides:

'There is hereby levied and there shall be collected from every person in this state a tax or excise for the privilege of using, storing, or consuming within this state any article of tangible personal property purchased subsequent to June 30, 1945.Such tax shall be levied and collected in an amount equal to the purchase price paid by the taxpayer multiplied by the rate of two percent.All transactions involving compensating tax or use tax prior to July 1, 1945, shall be administered under the law as it exists prior to that date.'

G.S.1945 Supp. 79-3704 exempts certain persons from laibility for payment of the tax levied by virtue of the preceding section.It reads:

'The provisions of this act shall not apply:

'(a) In respect to the use, storage or consumption of any article of tangible personal property brought into the state of Kansas by a nonresident who is within the state for not to exceed sixty days for his or her use or enjoyment while within the state; or by a railroad or public utility for consumption or movement in interstate commerce;'.

The first six paragraphs of plaintiff's petition relate to the capacity of the parties, the nature of plaintiff's business, the manner which it is carried on, and other formal matters, none of which are in controversy or need be related.Paragraph 7 states:

'That plaintiff has exercised and will exercise, within the state of Kansas the privilege of using, storing or consuming articles of tangible personal property purchased and to be purchased subsequent to June 30, 1945, which property is and wil be of the following descriptions; transmission pipeline of various dimensions, casing, flanges, coupling, headers, tees, valves, compressor engines, generators, meters, regulators, tanks, separators, pumps, motors, oilers, structural and building materials, piping for water system, water well equipment, telephone wire, poles, cross-irons and appurtenances, radios, aerials and appurtenances, miscellaneous materials and supplies, and sundry equipment and machinery pertinent to the operation of an integrated interstate natural gas pipeline system; all of which articles were brought into the state of Kansas with the design and purpose of incorporating the same into the transportation system owned by plaintiff as an integral part thereof, by way of repair, maintenance, construction, reconstruction, replacement, addition or extension thereto as a necessary incident and requirement for the operation thereof.That plaintiff intends, in the future, to bring into the state of Kansas items of tangible personal property of like description and nature for the same purpose.That all of such property heretofore or hereafter brought into the state of Kansas has been or will be used according to such design and purpose.'

Then such pleading alleges the defendants have made demand for and are about to assess and collect compensating taxes against plaintiff in respect to all property of the kind and nature described in paragraph 7 brought into the state by it prior to or after the institution of the action for the uses and purposes therein described.

In conclusion it states that although plaintiff is ready and willing to pay any and all use or compensating taxes lawfully assessed against it, or that may be collectable from it, under and by reason of the Kansas Compensating Tax Act the items of tangible personal property described in paragraph 7 were and will be brought into the State of Kansas by it as a 'public utility for consumption or movement in interstate commerce' and charges that under the provisions of Section 4(a) of the Act it is exempt from payment of such tax in respect to all such articles of property and that defendants have no lawful right to assert, assess, demand or collect, use or compensating taxes against it by reason of its use, storage or consumption within the state of Kansas.

Defendants in their answer concede plaintiff's business is interstate in character.They admit they have advised plaintiff it is liable under the Act for the use or compensating tax in respect to all articles of tangible personal property described in paragraph 7 of the petition and assert that they intend to and will collect taxes thereon unless the Act is judicially construed to exempt it from payment thereof.They then specifically deny that such property was or will be brought into the state by plaintiff as a public utility for consumption or movement in interstate commerce and charge that it is taxable under the law and the rule and regulation set forth in paragraph 9 of their answer.

The rule and regulation referred to in paragraph 9 of the answer is identified therein as Rule No. 18 of the Compensating Tax Rules and Regulations.It was promulgated by the Director of Revenue, approved by the Commission, and has been filed with the Revisor of Statutes, as provided for and required by G.S.1945, Supp. Chapter 77, Art 4.So far as applicable to the issue involved it reads:

'a.All pipe lines engaged in the transportation of property shall be deemed to be a public utility within the meaning of the term 'public utility' as used in Section 79-3704(a) of the act.

'b.All tangible personal property purchased out of the state and brought into the state of Kansas for use, storage, or consumption by pipelines is subject to the tax in the same manner as is tangible personal property brought into the state by other firms, persons, or corporations, except as exempted herein.

'c.Charges for electrical energy, gas, motor fuels, distillate, etc., sold to pipeline companies, and

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