Reeves v. Island Creek Fuel & Transp. Co.

• Decision Date: 17 March 1950
• Citation: 230 S.W.2d 924,313 Ky. 400
• Court: United States State Supreme Court — District of Kentucky
• Parties: REEVES v. ISLAND CREEK FUEL & TRANSPORTATION CO.

Page 924

230 S.W.2d 924

313 Ky. 400

REEVES v. ISLAND CREEK FUEL & TRANSPORTATION CO.

Court of Appeals of Kentucky.

March 17, 1950.

As Modified on Denial of Rehearing June 2, 1950.

Henry M. Johnson, Louisville, Lucian L. Johnson, Louisville, Woodward, Hobson & Fulton, Louisville, Tilford & Wetherby, Louisville, Stanley C. Moebus, County Atty. Campbell County, Newport, Charles H. Riedinger, County Atty. Lewis County, Vanceburg, James McGarry, County Atty. Kenton County, Covington, John H. Clarke, Jr., County Atty. Mason County, Maysville, for appellant.

Will H. Fulton, Louisville, for Campbell County.

Henry J. Tilford, Louisville, for Lewis, Kenton and Mason Counties.

Henry J. Tilford, Louisville, amicus curiae.

L. W. Scott, Newport, Rolla D. Campbell, Huntington, W. Va., F. A. MacDonald, Huntington, W. Va., Waite, Schindel & Bayless, Cincinnati, Ohio, Doolan, Helm, Stites & Wood, Louisville, for appellee.

James W. Stites, Louisville, amicus curiae.

LATIMER, Justice.

Pursuant to KRS 132.330, omitted tax assessment proceedings were instituted by the Commonwealth on relation of the Commissioner of Revenue, against appellee, Island Creek Fuel and Transportation Company.

Appellee sought, in the Franklin Circuit Court, and obtained an injunction, permanently enjoining Clyde Reeves, as Commissioner of Revenue, his successors, agents, and attorneys, from prosecuting the omitted tax assessment proceedings in the County Courts of Boyd, Greenup, Lewis, Mason, Bracken, Pendleton, Campbell, and Kenton Counties. From that judgment, this appeal is prosecuted.

The question before us, therefore, is whether or not the Transportation Company's towboats and barges are subject to assessment in the manner proposed by the counties above.

The Island Creek Fuel and Transportation Company, a subsidiary of the Island Creek Coal Company, is a Maine corporation. It operates two towboats and a fleet of barges on the Ohio River, principally between Huntington, West Virginia and Cincinnati, Ohio. Its business, almost entirely, is the transportation of coal for the parent company. It has no published schedule of rates or charges. It does not hold itself out generally to transport coal or any other commodity for anyone except the parent company, and rarely performs towing or any service for others than the parent company, and then only by special contract. Approximately 500,000 tons of coal are handled annually by appellee, whose parent organization controls distribution outlets in Cincinnati. Appellee's principal office and place of business is located at Huntington, West Virginia, where extensive loading facilities are maintained. It has extensive docking and unloading installations, including cranes and elevators at Cincinnati. It also maintains mooring facilities at Coal Haven, Campbell County, Kentucky, which are used when the exigencies of navigation require. The tows and barges have never been in Maine, the domiciliary state. The appellee does not pay an ad valorem tax on the craft in issue, and has never paid any such tax to any jurisdiction. It has never been authorized to do business in Kentucky, but within the years involved has made 116 calls at Kentucky ports, delivering 154 barges.

The proceedings herein were brought to assess omitted ad valorem taxes for 1938 to 1942, inclusive. During the years above appellee operated a fleet of river craft consisting of approximately 54 barges and 2 towboats. In each of the original proceedings to assess the omitted taxes, a statement was filed alleging that the Company habitually and continuously operated its boats and barges along a regular route between Huntington, West Virginia and Cincinnati, Ohio, of which route 94.6% was in Kentucky and 5.4% in West Virginia; that the aliquot part of 94.6% of the Company's boats and barges, therefore, had a taxable situs in Kentucky, and proportionate fractions of that aliquot part, determined by mileage, had a taxable situs in the various counties and school districts.

Appellee insists that the attempted assessments are illegal because: (1) They are not only unauthorized by the Constitution of Kentucky or any Kentucky Statute, but are contrary thereto; (2) The Transportation Company's boats and barges would not be taxable by the Commonwealth, or any of its subdivisions, even if such taxation were specifically authorized by the Constitution or Statute; (3) The taxation of Transportation Company's boats and barges in the manner proposed would violate the laws and Constitution of the United States, and particularly the Ordinance of 1787 and the Virginia-Kentucky Compact.

It is apparent that if appellee is correct in any one of its contentions, the judgment of the lower court is proper. All points and propositions raised and discussed by appellant are directed to a converse view and must necessarily be included in a consideration of appellee's contentions. We shall, therefore, discuss the above contentions of appellee. Attention is directed, first, to contention (2) above. This seems to be the logical beginning point. A finding that the property sought to be assessed herein has not acquired a tax situs in Kentucky would obviate a consideration of the other propositions.

It appears that the application of the principle mobilia sequuntur personam, which precluded the taxing of property belonging to a nonresident owner, has given way to the more modern rule that the actual situs of visible tangible personal property, and not the domicile of the owner, determines the place of taxation, and that tangible personal property may be taxed in the state where it is physically located. For purposes of taxation, rights in tangibles are regarded as localized at the place where the tangible itself is located. Such property is subject to taxation by the state of its actual situs regardless of the domicile of the owner, and is not affected by the fact that the property is employed in interstate transportation either by water or by land.

Appellee strongly insists that these tugs and barges have not acquired a taxable situs in Kentucky in that they are only transiently present and that the essential element of permanency is lacking. It is insisted that there are no termini; no particular destination or regular port of call in Kentucky; and that the time spent by appellee's barges and tugs in transit through Kentucky waters is sporadic and irregular. In one of the briefs it is said: 'To acquire such a situs the boats and barges must be permanently situated in the non-domiciliary State and permanently means continuously throughout the year, not a fraction thereof, whether days or weeks.' True, the factors above mentioned do enter into the determination of taxable situs. The idea of permanency, with respect to personal property, seems generally to be, that for such property to acquire a taxable situs, it must have a more or less permanent location as distinguished from a transient or temporary one. However, permanency in the sense that it must be fixed like real property is not essential to the establishment of a taxable situs for personal property. It seems to be sufficient, when in the ordinary course of business, that property is present and being used and employed with a consistent continuity and not spasmodically and temporarily.

Following this concept there seems to have evolved the idea of estimating, by some reasonable method of aliquot division, the situs of any particular part of a mass of property whenever the mass is being used in interstate business and it is impossible to assign a situs at large to it in entirety. Such method of determining the share of an interstate mass has been applied to a fleet of steamships, lines of railroad, and the mass of railroad cars. See Union Tank Line v. Wright, 249 U.S. 275, 39 S.Ct. 276, 63 L.Ed. 602; City of Covington v. Pullman Co., 121 Ky. 218, 89 S.W. 116; and Baltimore & O. S. W. R. Co. v. Com., 177 Ky. 566, 198 S.W. 35.

It now appears that courts generally adhere to the rule that property sent into a state by a nonresident, to be used or employed permanently there, must bear its fair share of the burden of taxation, although no one unit of such property is ever more than temporarily located within the taxing state. It follows then that where the specific and individual items of property used and employed in the state are not continuously the same, but are constantly changing according to the exigencies of business, the tax should be fixed by an appraisement and valuation of the average amount of the property thus habitually used and employed.

In Commonwealth v. Union Pacific Railroad Company, 214 Ky. 339, 283 S.W. 119, 121, 49 A.L.R. 1091, in elaborating upon this concept, it was said: 'As we have seen, chattels 'transiently present in the transactions of commercial operations,' or but temporarily located within the state, do not as a general proposition acquire a situs for taxation within such state. However, if the resident of one state brings or sends his property into another state to use and employ it permanently there, it is settled that such property must bear its fair share of the burden of taxation, although no one unit of such property is ever more than temporarily located within the taxing state. The shifting units but take the place of each other, and the property as a whole receives the state's protecting care. Even as the hive is the hive, though the bees of the spring have long since been replaced by the bees of the summer and these by the bees of the fall, so the property is the property, though its units have changed many times in the course of the year. But, in the nature of things, there must be some cohesive principle which brings together the changing and shifting units so that we see the whole and not its parts. We have seen that the mere temporary presence of the chattel does not give the state the power to tax it. What is it that makes the mass of which it is a part,...