Pan American Refining Corp. v. United States

• Decision Date: 08 December 1953
• Docket Number: Civ. No. 1475.
• Citation: 119 F. Supp. 698
• Parties: PAN AMERICAN REFINING CORP. v. UNITED STATES.
• Court: U.S. District Court — Southern District of Texas

119 F. Supp. 698

PAN AMERICAN REFINING CORP. v. UNITED STATES.

Civ. No. 1475.

United States District Court, S. D. Texas, Galveston Division.

December 8, 1953.

Armstrong, Bedford & Lambdin (F. G. Bedford), Galveston, Tex., for plaintiff.

Brian S. Odem, U. S. Atty., and Wm. R. Eckhardt, Asst. U. S. Atty., Houston, Tex., for defendant.

CONNALLY, District Judge.

The action is one by Pan American Refining Corporation to recover transportation taxes assessed and collected for the years 1946, 1947, and a portion of 1948, for the transportation by plaintiff of crude oil or its products by pipe line, pursuant to Sec. 3460 of the Internal Revenue Code, Title 26, U.S.C.A. The facts, while somewhat involved, are largely without dispute. In the main, they are covered by a full stipulation of the parties, to which I refer and which I adopt. There remains primarily for the Court the question of applying to the admitted facts the terms of Sec. 3460(c) "Exempt Transportation",¹ and a determination whether the several types of movement of oil and its products, as hereafter described, are movements "within the premises of a refinery", as used within the aforementioned section, and hence exempt from tax.

The facts of this case are strikingly similar to those presented by Republic Oil Refining Co. v. Granger, D.C., 98 F. Supp. 921, affirmed 3 Cir., 198 F.2d 161, wherein the taxpayer there, being the plaintiff's immediately adjacent neighbor, contested the imposition of the transportation tax upon similar movements of oil. By reason of this geographical and factual similarity, I refer to the opinion of Chief Judge Gourley of the Western District of Pennsylvania for an extended discussion of some of the questions upon which I do not consider it necessary to dwell at length. That case, in my opinion, applied the correct rule of statutory interpretation and I expect to follow it in that regard. However, I am not in entire accord with other phases of the opinion.

A careful examination of Exhibits "2" and "4", being maps of the area involved, is necessary for an understanding of the questions presented. In the early 1930's, the officers of plaintiff corporation cast about for a site for the construction of a refinery. They were primarily interested in securing a location from which the company could serve the eastern seaboard markets feasibly and economically. The availability of deep water to the site selected was of primary and controlling importance. These considerations, with others, resulted in the acquisition of the properties hereinafter described upon which the refinery was constructed.

In 1933, several tracts of land were purchased (as reflected in detail by the stipulation and by Exhibit "4"), aggregating some 400 to 500 acres. This property, together with later acquired properties which were necessary to accommodate the expanding operations, and which at all times pertinent hereto have constituted a contiguous block, is located from one and one-half to two and one-half miles from the Harbor Line at the Texas City water front. This property, throughout the trial, has been referred to as the "fee property". Contemporaneously with the initial purchases of fee property in 1933, and as a necessary and integral part of its program to construct and operate a refinery, plaintiff acquired a fifty year lease on a tract of 1.01 acres abutting the Harbor Line. This leasehold estate was acquired for the location of loading and unloading docks, and throughout the trial was referred to as the "dock site". Likewise as part of its program, plaintiff acquired right-of-way easements from its fee property to the dock site (as reflected by Exhibits "2" and "4") for placing of oil lines, water lines, power lines, telephone and telegraph lines, etc. This property interest is referred to as the "easement corridor". It should be understood that the acquisition of such right-of-way easements was not in the least unusual; for the entire area wherein plaintiff's properties are located, is now, and was then to a lesser extent, highly industrialized; with various pipe lines, railroad trackage and other facilities there present making direct access to deep water available to those industries which are located in the vicinity.²

After the acquisitions above referred to (1933), plaintiff began the construction of its refinery proper and its related facilities. These were all planned, designed, and constructed to operate as a single functional unit.

Upon the fee property, the plaintiff erected its stills and cracking units, where, by the application of heat, pressures, and other procedures, the chemical changes in the composition of the product are accomplished. Likewise on the fee property, plaintiff constructed many tanks for the storage, mixing, and blending of its raw material, its finished products, and its products in various stages of completion. Several pump houses were located at strategic points, in each of which a number of pumps were installed. These pumps were used to transfer the liquids by means of a veritable maze of pipe lines between the various facilities, storage and mixing tanks, etc. These pumps were likewise used, as hereinafter more fully discussed, in moving the refined products from the fee property through pipe lines along the easement corridor.

On the leasehold estate (dock site), plaintiff constructed a substantial dock adequate in size to accommodate two seagoing tankers and some five barges contemporaneously. Certain pumps were installed to be used to unload those barges which did not have suitable pumping equipment. There likewise were installed the necessary complexities of pipes and valves incident to receiving crude oil from the vessels at the dock, and to loading the refined liquid petroleum products onto vessels at the docks.

Along the easement corridors the plaintiff installed a series of pipe lines (three along the northern corridor; eight along the southern corridor) for the movement of crude oil, fuel oil, furnace oil, gasoline, kerosene, etc., between the fee property and the dock site.³

The fourth property or type of property, the location of which is of prime importance, is that referred to as the "Stone Property".

For a number of years prior to April 1, 1948 (thus, during most, but not all, of the period in issue) this tract of 24.304 acres, located to the northeast of plaintiff's fee property at a distance of some 2,000 feet, was owned by Stone Oil Company, where that concern operated its refinery. Under contract between Stone Oil Company and plaintiff, certain of the refining processes were performed by Stone for plaintiff upon plaintiff's crude. This oil was transmitted to Stone by pipe lines connecting the Stone refinery with plaintiff's easement corridor pipe lines; and thereafter such oil or the partially refined products therefrom were returned via such pipe lines to plaintiff's fee property where the refining operations were completed. On April 1, 1948, plaintiff purchased the Stone property from Stone Oil Company and since that date has operated the facilities there in conjunction with and as an integral part of its own refinery operations.

The movements by pipe line upon which the Government has imposed and collected the tax, and which the plaintiff here contests, are of four types.

First, there is the movement of crude oil from the dock site to the fee property through the easement corridor. This crude oil is plaintiff's raw material; and about twenty percent of the refinery's total consumption is received in this fashion.⁴ By agreement with the shipping concerns, plaintiff accepts delivery of such crude oil where plaintiff's hose (attached to its pipe line along the easement corridor) attaches by a flange to a similar connection on board the vessel. The vessel's pumps propel the crude oil through the pipe lines the distance of some two miles and into the storage tanks upon the fee property.

The second type movement involved is a similar movement of the finished products from the fee property through the pipe lines along the easement corridor to the waiting vessel at the dock site. Delivery is made by plaintiff to the vessel at the flange. About ninety-five percent of plaintiff's finished products move in this fashion.⁵ Pumps located on the fee property furnish the propelling force.

The third type movement involving a rather small quantity of oil results from those instances wherein the plaintiff has sold and delivered either crude oil or its refined products to some neighboring refinery (the evidence reflects certain sales of this type to the Richardson Refining Company). In these cases, the petroleum or petroleum product was transmitted from plaintiff's fee property along the easement corridor to a point (referred to in the evidence as a "jump over point") where a pipe line leading to the refinery of the purchaser intersected and tied into that of the plaintiff, through which such petroleum or its product was diverted into the hands of the purchaser.

The fourth type...