Ohio Oil Co. v. Conway, 19129.

• Decision Date: 06 August 1928
• Docket Number: No. 19129.,19129.
• Citation: 34 F.2d 47
• Parties: OHIO OIL CO. v. CONWAY, Supervisor of Public Accounts.
• Court: U.S. District Court — Eastern District of Louisiana

34 F.2d 47 (1928)

OHIO OIL CO. v. CONWAY, Supervisor of Public Accounts.

No. 19129.

District Court, E. D. Louisiana.

August 6, 1928.

R. L. Benoit, Thigpen, Herold, Lee & Cousin, Pugh, Grimmet & Boatner, Chas. H. Blish, Blanchard, Goldstein & Walker, Tinsley Gilmer, and J. S. Atkinson, all of Shreveport, La., for plaintiff.

Percy Saint, Atty. Gen. of Louisiana, for defendant.

Before FOSTER, Circuit Judge, and DAWKINS and BORAH, District Judges.

On Final Hearing.

FOSTER, Circuit Judge.

In this case plaintiff filed a bill seeking interlocutory and final injunctions to prevent the collection of certain taxes, levied under the provisions of Act No. 5 of 1928 of the Louisiana Legislature, on the ground that the taxes imposed by said act are unreasonable, discriminatory, and would deprive it of the equal protection of the laws, in contravention of the Fourteenth Amendment of the Constitution of the United States, and also on the ground that the Legislature exceeded its authority under the Constitution of Louisiana in adopting the said act.

On a former hearing an interlocutory injunction was denied. Ohio Oil Co. v. McFarland (D. C.) 28 F.(2d) 441. On appeal from that decision the Supreme Court reached the conclusion that the questions of fact presented could not be satisfactorily determined from the affidavits presented, and, as there was danger of irreparable injury to the plaintiff, an interlocutory injunction on terms should have been granted, pending a hearing on the merits. Ohio Oil Co. v. Conway, 279 U. S. 813, 49 S. Ct. 256, 73 L. Ed. ___, decided March 5, 1929. The material allegations of the pleadings and the provisions of the law complained of are set out in detail in the opinion above referred to and need not be repeated. Stated as briefly as possible, the case is this:

Section 21 of article 10 of the Constitution of Louisiana of 1921 authorizes the levying of taxes on the natural resources of the state severed from the soil or water, provides that such natural resources may be classified for purposes of taxation, and that such taxes may be predicated upon either the quantity or value of the product, at the time and place where it is severed. Act No. 140 of 1922, adopted to carry into effect the above-quoted article of the Constitution, imposed a tax on oil and gas of 3 per centum of the gross market value of the production thereof. By Act No. 5 of 1928, the act of 1922 was amended, with the intention of imposing severance taxes on natural resources by quantity rather than by value. This last act divides oil into six classes, according to gravity, and taxes it at different rates per barrel, beginning with oil of 28 gravity and below, taxed at 4 cents, and ending with oil above 43 gravity, taxed at 11 cents.

Plaintiff is engaged in producing crude oil solely in certain oil fields in North Louisiana, to wit, the Urania field, in La Salle parish, the Haynesville field, in Claiborne parish, the Pine Island field, in Caddo parish, and the Cotton Valley field, in Webster parish. The oil produced in the Urania field is below 28 in gravity; in the Haynesville field, it runs from 30 to 35.9 gravity; in the Pine Island field, from 30 to 39.9 gravity; and in the Cotton Valley field, from 31 to 52 gravity. In the year 1927 in round numbers 19,000,000 barrels of oil were produced in North Louisiana and 5,000,000 in South Louisiana fields, a total of 23,000,000 barrels. Later statistics are not in evidence. Plaintiff produces about 1,200,000 barrels per annum, say about 6.7 per centum of the total in North Louisiana, and about 5.2 per cent. of the total in the state.

Crude oils vary greatly as to base, having a paraffin, asphalt, or mixed base, and in chemical content and gravity. The term "gravity," as applied to oil, does not mean specific gravity, as the lighter the oil the higher the gravity. The higher gravity oils usually have a paraffin base, and are more valuable for the extraction of gasoline and other burning oils, while the lower gravity oils usually have an asphalt base, and are more valuable for the making of lubricating oils and gas oil, a substance from which gasoline may be extracted by a process known as cracking. However, the value of the lower gravity oils for the making of lubricating oil depends a great deal upon the amount of sulphur contained; the more sulphur the less value. The gravity of oil is easily determined by the use of a hydrometer, marked according to the Baumé or some similar scale. All oil is tested for gravity at the well when delivered to the pipe line companies, and the gravity grade is shown on the run tickets.

It appears from the price lists printed in the accredited trade journals, which are taken from those posted by the various oil companies, and also from the report of the Louisiana conservation commission for the years 1926-1928, all filed in evidence, that in all oil fields throughout the country oil is listed according to gravity, and usually the price is higher for higher gravities, although oils of the same gravity in different fields vary somewhat in price.

In North Louisiana fields oil varies in gravity from below 28 to above 43. In the South Louisiana fields, until recently, oil varied in gravity from below 28 to about 30. Now a new well has been brought in at a depth of 5,000 to 6,000 feet, and produces oil of about 40...