Panhandle Oil Co v. State of Mississippi Knox, 288

• Decision Date: 14 May 1928
• Docket Number: No. 288,288
• Citation: 277 U.S. 218,72 L.Ed. 857,48 S.Ct. 451
• Parties: PANHANDLE OIL CO. v. STATE OF MISSISSIPPI ex rel. KNOX, Atty. Gen
• Court: U.S. Supreme Court

277 U.S. 218

48 S.Ct. 451

72 L.Ed. 857

PANHANDLE OIL CO.

v STATE OF MISSISSIPPI ex rel. KNOX, Atty. Gen.

No. 288.

Argued March 5, 1928.

Decided May 14, 1928.

Mr. George Butler, of Jackson, Miss., for plaintiff in error.

Mr. J. L. Byrd, of Jackson, Miss., for defendant in error.

[Argument of Counsel from page 219 intentionally omitted] Mr. Justice BUTLER delivered the opinion of the Court.

Chapter 116 of the Laws of Mississippi of 1922 provided that 'any person engaged in the business of distributor of gasoline, or retail dealer in gasoline, shall pay for the privilege of engaging in such business, an excise tax of 1¢ (one cent) per gallon upon the sale of gasoline, * * *' except that sold in interstate commerce or purchased outside the state and brought in by the consumer for his own use. Chapter 115, Laws of 1924, increased the tax to three cents, and chapter 119, Laws of 1926, made it four cents per gallon. Since some time in 1925 petitioner has been engaged in that business. The State sued to recover taxes claimed on account of sales made by petitioner to the United States for the use of its Coast Guard fleet in service in the Gulf of Mexico and its Veterans' Hospital at Gulfport. Some of the sales were made while the act of 1924 was in force and some after the rate had been increased by the act of 1926. Accordingly the demand was for three cents a gallon on some and four cents on the rest. Petitioner defended on the ground that these statutes, if construed to impose taxes on such sales, are repugnant to the federal Constitution. The court of first instance sustained that contention and the State appealed. The Supreme Court held the exaction a valid privilege tax measured by the number of gallons sold; that it was not a tax upon instrumentalities of the federal government, and that the United States was not entitled to buy such gasoline without payment of the taxes charged dealers. 147 Miss. 663, 112 So. 584.

The United States is empowered by the Constitution to maintain and operate the fleet and hospital. Article 1, § 8. That authorization and laws enacted pursuant thereto are supreme (article 6); and, in case of conflict, they control state enactments. The states may not burden or interfere with the exertion of national power or make it a source of revenue or take the funds raised or tax the means used for the performance of federal functions. McCulloch v. Maryland, 4 Wheat. 316, 425, et seq., 4 L. Ed. 579; Dobbins v. Commissioners of Erie County, 16 Pet. 435, 448, 10 L. Ed. 1022; Ohio v. Thomas, 173 U. S. 276, 19 S. Ct. 453, 43 L. Ed. 699; Choctaw, O. & G. R. R. v. Harrison, 235 U. S. 292, 35 S. Ct. 27, 59 L. Ed. 234; Indian Oil Co. v. Oklahoma, 240 U. S. 522, 36 S. Ct. 453, 60 L. Ed. 779; Johnson v. Maryland, 254 U. S. 51, 41 S. Ct. 16, 65 L. Ed. 126; Clallam County v. United States, 263 U. S. 341, 344, 44 S. Ct. 121, 68 L. Ed. 328; Northwestern Mutual Life Ins. Co. v. Wisconsin, 275 U. S. 136, 48 S. Ct. 55, 42 L. Ed. 202; New Brunswick v. United States, 276 U. S. 547, 48 S. Ct. 371, 72 L. Ed. 693. The strictness of that rule was emphasized in Gillespie v. Oklahoma, 257 U. S. 501, 505, 42 S. Ct. 171, 66 L. Ed. 338. The right of the United States to make such purchases is derived from the Constitution. The petitioner's right to make sales to the United States was not given by the State and does not depend on state laws; it results from the authority of the national government under the Constitution to choose its own means and sources of supply. While Mississippi may impose charges upon petitioner for the privilege of carrying on trade that is subject to the power of the State, it may not lay any tax upon transactions by which the United States secures the things desired for its governmental purposes.

The validity of the taxes claimed is to be determined by the practical effect of enforcement in respect of sales to the government. Wagner v. City of Covington, 251 U. S. 95, 102, 40 S. Ct. 93, 64 L. Ed. 157. A charge at the prescribed rate is made on account of every gallon acquired by the United States. It is immaterial that the seller and not the purchaser is required to report and make payment to the State. Sale and purchase constitute a transaction by which the tax is measured and on which the burden rests. The amount of money claimed by the State rises and falls precisely as does the quantity of gasoline so secured by the government. It depends immediately upon the number of gallons. The necessary operation of these enactments when so construed is directly to retard, impede, and burden the exertion by the United States of its constitutional powers to operate the fleet and hospital. McCulloch v. Maryland, supra, 436; Gillespie v. Oklahoma, supra, 505 (42 S. Ct. 171); Jaybird Mining Co. v. Weir, 271 U. S. 609, 613, 46 S. Ct. 592, 70 L. Ed. 1112. To use the number of gallons sold the United States as a measure of the privilege tax is in substance and legal effect to tax the sale. Telegraph Co. v. Texas, 105 U. S. 460, 26 L. Ed. 1067; Frick v. Pennsylvania, 268 U. S. 473, 494, 45 S. Ct. 603, 69 L. Ed. 1058, 42 A. L. R. 316. And that is to tax the United States-to exact tribute on its transactions and apply the same to the support of the State.

The exactions demanded from petitioner infringe its right to have the constitutional independence of the United States in respect of such purchases remain untrammeled. Osborn v. United States Bank, 9 Wheat. 738, 867, 6 L. Ed. 204; Telegraph Co. v. Texas, supra. Cf. Terrace v. Thompson, 263 U. S. 197, 216, 44 S. Ct. 15, 68 L. Ed. 255. Petitioner is not liable for the taxes claimed.

Judgment reversed.

Mr. Justice HOLMES (dissenting).

The State of Mississippi in 1924 and 1926 imposed upon distributors and retail dealers of gasoline, for the privilege of engaging in the business, an excise tax of three cents and four cents respectively per gallon sold in the State. The Supreme Court of the State declares it to be a privilege tax but points out that whether this tax is on the privilege or on the property it is imposed before the gasoline has left the dealer's hands. The plaintiff in error, a dealer, was sued by the State for certain sums that were due under the statutes. It pleaded that the sales in respect of which the tax was demanded were sales to the United States for the use of its Coast Guard and Veterans' Hospital, that these being instrumentalities of the government it did not include the amount of the tax in the price charged, and that the statute did not and could not tax the dealer for them consistently with the Constitution of the United States. The Supreme Court of the State upheld the tax and pointed out the extreme consequences to which a different...