Ohio Oil Co. v. McFarland

• Decision Date: 17 September 1928
• Docket Number: No. 19129.,19129.
• Parties: OHIO OIL CO. v. McFARLAND, supervisor of Accounts.
• Court: U.S. District Court — Eastern District of Louisiana

28 F.2d 441 (1928)

OHIO OIL CO. v. McFARLAND, supervisor of Accounts.

No. 19129.

District Court, E. D. Louisiana, New Orleans Division.

September 17, 1928.

R. L. Benoit, J. S. Atkinson, Blanchard, Goldstein & Walker, Pugh, Grimmet & Boatner, and Thigpen, Herold, Lee & Cousin, all of Shreveport, La., for complainant.

Percy Saint, Atty. Gen., M. M. Irwin, Asst. Atty. Gen., and Huey P. Long, of Shreveport, La., for respondent.

Before FOSTER, Circuit Judge, and ESTES and DAWKINS, District Judges, as a statutory court.

On Motion to Dismiss.

DAWKINS, District Judge.

Complainant, a citizen of the state of Ohio, attacks the validity of Act No. 5 of the Legislature of Louisiana, passed at its 1928 session, levying severance taxes upon natural resources, in so far as the same applies to crude oil or petroleum. The supervisor of public accounts, who is charged by the act with the duty of collecting the taxes, is made party defendant.

Complainant alleges that said act discriminates against and denies to it equal protection under the law, in violation of the Fourteenth Amendment to the federal Constitution, for the following reasons:

"(a) Because the burden laid by said act upon the production of oil by your complainant from the fields in which it operates in the state of Louisiana is grossly in excess of that laid upon and paid by producers of oil in other fields in the state of Louisiana.

"(b) Because the burden laid by the said act upon the production of oil by other persons and corporations engaged in identically the same occupation, and under the same circumstances, is made by said act to vary according to arbitrary standards, so that the occupation of complainant is subjected by said act to a burden of taxation more than twice as great as that of other persons engaged in identically the same occupation.

"(c) Because the standard fixed in said act, levying the severance tax according to the gravity of the product severed, results in gross and unreasonable discrimination, in that such standard entirely ignores the market value of the oil produced, which varies widely in the different oil fields of the state of Louisiana; the net result thereof being to impose upon the oil produced by complainant a burden grossly excessive and discriminatory as compared with that laid by the statute upon oil produced from other fields in the state of Louisiana.

"(d) Because the attempted classification of oil for the purpose of taxation in the said statute, to wit, that of gravity, is wholly arbitrary, has no reasonable relation whatever to any ground of difference having a fair and substantial relation to the value of oil produced in the various fields of the state of Louisiana, and results in grossly discriminatory treatment as against complainant with respect to other persons similarly circumstanced.

"(e) That said Act No. 5 of 1928 discriminates arbitrarily in favor of producers of oil in South Louisiana and against producers of oil in North Louisiana; that the burden imposed by it upon the business of complainant and other producers of oil in North Louisiana is grossly excessive and discriminatory, as compared with the burden imposed by it upon the production of oil in South Louisiana; and

"(f) That said act is based upon discrimination of a most unusual character, which particularly operates against this complainant, in that under the said statute it is compelled to pay a tax in respect of oil produced by it, the burden of which is grossly in excess of that paid by other producers of oil of identically the same gravity."

Complainant further charges that the said act is void, for the reason that "it does not purport to levy a severance tax predicated upon either the quantity or the value of the product at the time of the severance, and therefore violates section 21 of article 10 of the Constitution of the state of Louisiana."

Respondent has moved to dismiss, upon the ground (a) that this court is without jurisdiction rationæ materiæ; (b) the suit is premature; and (c) the bill does not disclose a cause or right of action.

At the same time respondent answered, admitting formal allegations, but denying the charges of discrimination, as well as the material allegations of fact upon which the conclusions of law are based. He further admitted that he would proceed to collect the taxes due under the act, which will accrue for the first quarter ending September 1st, and that the complainant is required to make its return thereon within 30 days following, or by October 1, 1928.

In direct contradiction to the allegations of the bill respondent avers:

"That while the said state of Louisiana is not required to particularly respect classifications on basis of value, that, however, as a rule, to which there is slight, if any, exception, the gravity of oil severed from the soil is almost wholly controlling on the question of its value."

As an example, there is copied from the Oil Weekly, the posted prices for oil in the Homer, Haynesville, Caddo, Eldorado, De Soto, Crichton, and Cotton Valley oil fields of the state of Louisiana, as of May 25, 1928, which are prices offered by the said plaintiff company, et al., as of May 25, 1928, to wit:

                  Below 28 gravity ..................... $ .91
                  28 to 28.9 gravity ...................   .96
                  29 to 29.9 gravity ...................  1.01
                  30 to 30.9 gravity ...................  1.06
                  31 to 31.9 gravity ...................  1.11
                  32 to 32.9 gravity ...................  1.16
                  33 to 33.9 gravity ...................  1.19
                  34 to 34.9 gravity ...................  1.22
                  35 to 35.9 gravity ...................  1.25
                  36 to 36.9 gravity ...................  1.28
                  37 to 37.9 gravity ...................  1.31
                  38 to 38.9 gravity ...................  1.34
                  39 to 39.9 gravity ...................  1.37
                  49 to 49.9 gravity ...................  1.40
                        (s/b 40 to 40.9)
                  41 to 41.9 gravity ...................  1.43
                  42 to 42.9 gravity ...................  1.46
                  43 to 43.9 gravity ...................  1.49
                  44 to 44.9 gravity ...................  1.52
                  45 to 45.9 gravity ...................  1.55
                  46 to 46.9 gravity ...................  1.58
                  47 to 47.9 gravity ...................  1.61
                  48 to 48.9 gravity ...................  1.64
                  49 to 49.9 gravity ...................  1.67
                  50 to 50.9 gravity ...................  1.70
                  51 to 51.9 gravity ...................  1.73
                  52 and above .........................  1.76
                

Motion to Dismiss.

Nothing has been submitted to sustain the contention that the court is without jurisdiction of the subject-matter. It appears beyond question that the amount involved will exceed $3,000, and the bill assails the validity of the sections of the statute in question under the Fourteenth Amendment to the federal Constitution. There is also diversity of citizenship, complainant being a citizen of Ohio and respondent of this state. We therefore see no basis for this contention. Neither do we think there is anything in the claim of prematurity, for the reason that it is admitted the respondent will promptly proceed under the statute to enforce collection of the tax, which will be payable about October 1st. A litigant does not have to wait until the alleged injury has been accomplished, but may have relief by injunction, if the danger is imminent, as it appears to be in this case. Pierce v. Society of Sisters, 268 U. S. 510, 45 S. Ct. 571, 69 L. Ed. 1070, 39 A. L. R. 468; Pennsylvania v. West Virginia, 262 U. S. 592, 43 S. Ct. 658, 67 L. Ed. 1117, 32 A. L. R. 300.

The question of whether the bill discloses a cause of action will be disposed of along with the merits of the application for a preliminary injunction.

On the Merits.

The state Constitution deals specifically with severance taxes, and in section 21 of article 10 (Constitution 1921) provides:

"Section 21. Taxes may be levied on natural resources severed from the soil or water, to be paid proportionately by the owners thereof at the time of severance. Such natural resources may be classified for the purpose of taxation and such taxes predicated upon either the quantity or value of the product at the time and place where it is severed. No severance tax shall be levied by any parish or other local subdivision of the state.

"No further or additional tax or license shall be levied or imposed upon oil or gas leases or rights, nor shall any additional value be added to the assessment of land, by reason of the presence of oil or gas therein or their production therefrom: Provided, that until the Legislature shall have enacted laws carrying into effect the provisions of this section, all existing laws relating to severance taxes or licenses, and to the assessment and taxation of land producing oil or gas shall be and remain in full force and effect. Notwithstanding any legislative appropriation heretofore made or any allocation in this Constitution made, the Legislature shall allocate a portion of the severance tax on oil or gas not less than one-fifth of the amount collected therein to the parish from within which such tax is collected; provided, that the amount thus allocated shall not exceed two hundred thousand ($200,000) dollars, to any parish in any one year.

"The Legislature shall provide for the distribution of the funds allocated to the parishes under this provision among the governing authorities having jurisdiction over the territory from within which such resources are severed and tax collected."

Similar taxes have been imposed under provisions of previous Constitutions and statutes, and the Legislature at its regular session in 1922, following the adoption of the Constitution of 1921, passed Act No. 140 of that year, imposing a tax of 3 per cent. upon the value of all oil or other natural resources severed from the soil or water. However, at the recent session of the Legislature, in pursuance to a policy advocated by the present Governor in his campaign for election, Act No. 5...