Shell Co. of California v. State

• Decision Date: 05 January 1921
• Docket Number: 16104.
• Citation: 194 P. 835,113 Wash. 632
• Court: Washington Supreme Court
• Parties: SHELL CO. OF CALIFORNIA v. STATE.

194 P. 835

113 Wash. 632

SHELL CO. OF CALIFORNIA v. STATE.

No. 16104.

Supreme Court of Washington

January 5, 1921

Department 1.

Appeal from Superior Court, Thurston County; D. F. Wright, Judge.

Action by the Shell Company of California against the State of Washington. From a judgment for plaintiff, the State appeals. Reversed and remanded, with instructions.

L. L Thompson, of Olympia, for the State.

Tucker & Hyland, of Seattle, for respondent.

Farrell Kane & Stratton, of Seattle, amicus curiae.

MACKINTOSH J.

The Shell Company of California seeks by its second cause of action to recover from the state of Washington the sum of $15,973.34, the amount of the fees paid by it for oil inspection under the provisions of chapter 192, Laws 1907, p 413, for the three years prior to the commencement of its suit. The complaint alleges that the Shell Company is engaged in the state of California in producing and buying crude petroleum oil and in refining and manufacturing it and shipping the products from California to Washington, where the same are sold in large quantities; that none of the products are manufactured by the oil company in the state of Washington; that the company maintains in this state buildings and machinery and the necessary equipment for receiving, selling, and disposing of its products; that chapter 192, Laws of 1907, p. 413, provides that these products before being sold or offered for sale shall be inspected by the state oil inspector, and a certificate issued, and the barrel or receptacle which contains the product shall be labeled; that the act further provides a schedule of fees to be paid for inspection, and makes it a misdemeanor for any one to sell or attempt to sell any of the products without inspection; that the state oil inspector sought to enforce this act as it related to the respondent's products and similar products of other companies; that from June 30, 1905, to December 31, 1914, there were collected in fees for inspection the sum of $335,776.30; that there was disbursed in expenditures concerning the inspection the sum of $80,103.37, the state deriving a net revenue from the operation of the act in the sum of $255,672.93. The complaint further alleged that this act violates article, 1, § 8, of the federal Constitution, and that the respondent was required to pay the illegal oil inspection charges, which payments were made under protest, and seeks recovery of the amount so paid. To the complaint the appellant demurred. The demurrer was overruled, and judgment was entered in accordance with the prayer of the complaint.

Chapter 192, Laws of 1907, p. 413, is not a stranger to this court. Its constitutionality was passed on by the Supreme Court of this state in the case of Standard Oil Co. v. Graves, 94 Wash. 291, 162 P. 558, where it was held that the act was not unconstitutional as interfering with the commerce clause of the federal Constitution, and that the act is not a tax upon property, but only 'upon the privilege of selling or disposing of such property. Whether it is called an occupation tax, a tax upon the right to sell, or an excise tax, is immaterial.' Section 3 of the act is as follows:

'All gasoline, benzine, distillate or other volatile product of petroleum intended for use or consumption in this state for illuminating, manufacturing, domestic or power purposes, before being sold or offered for sale by any firm, corporation, manufacturer, dealer, vendor or other person, shall first be inspected and tested for its specific gravity, and, after having been so inspected and tested, the state oil inspector, or his deputies, shall issue a certificate of inspection thereof and shall cause every package, barrel, cask or other receptacle thereof to be labeled or branded with its exact specific gravity over his official signature.

'It shall also be the duty of said state oil inspector, or his deputies, to examine and test the quality of all illuminating oils offered for sale for consumption within this state, and to reject for illuminating purposes all oils which will take fire and burn at a temperature less than 120 degrees Fahrenheit thermometer. The quantity of oil used in making such test shall not be less than one-half pint, and the oil tester adopted and used shall be the open cup Taglibue electric spark, or one similar in construction and result. If the oil so inspected shall meet such requirement he shall brand or label each and every package, barrel, cask or other receptacle containing the same with the word 'approved,' and the date of such inspection, over his official signature. Should oil so tested or examined be contained in tank cars, upon finding the oil so contained to meet the requirements hereinbefore specified, he shall furnish the owner or person in charge of such oil with a certificate stating the number and letters or other marks of designation of the tank car inspected, the number of gallons of oil contained in it, the date of inspection, the name of the owner, the city or town in which such tank was inspected, the temperature at which such oil took fire and burned and that such oil is approved. Upon each barrel, cask or other receptacle, drawn from such tank car and offered for sale, shall be fixed the same brand or device as is required for oil inspected in barrels or casks.

'If the oil or other petroleum product so tested shall not meet said requirements the state oil inspector, or his deputies, shall mark in plain letters on the package, barrel or cask, the word 'rejected' over his official signature, and if any oil or other petroleum product contained in tank car shall fail to meet said requirements it shall be rejected by the state oil inspector or his deputy, and a written notice, stating the number and letters or other marks of designation of the tank car so rejected, the date and place of inspection, and that the oil or other petroleum product has been rejected, which notice, signed by the state oil inspector, or his deputy, shall be placed in the hands of the person owning or in charge of such oil or other petroleum product.

'All illuminating oils, gasoline, benzine, distillate or any volatile product of petroleum, manufactured or refined in this state shall be inspected before being removed from the manufactory or refinery.

'Whenever complaint is made to the oil inspector in regard to the illuminating qualities of illuminating oil that may have been so inspected, it shall be his duty to secure a sample of such oils complained of which shall be turned over to the chemist of the State University who shall thoroughly analyze and test said oils for their illuminating qualities. If upon such analysis and test the chemist of the State University shall decide that although the oil be of the required test it is of inferior illuminating quality then the oil inspector, upon receipt of the chemist's report, shall brand such oil: 'State of Washington. Rejected. Quality inferior,' with the date of inspection over his official signature. Such report of the state chemist shall be prima facie evidence of the character and quality of the oil or other petroleum product so analyzed and tested.'

The Supreme Court of the United States was called upon to review the Graves Case, supra, in Standard Oil Co. v. Graves, 249 U.S. 389, 39 S.Ct. 320, 63 L.Ed. 662, and held the act to be unconstitutional, declaring that the inspection fees were so grossly in excess of the cost of inspection that they amounted to a direct burden upon interstate commerce. In the Graves Case, it was not necessary for the Supreme Court to, nor did it, consider the question of whether the act was valid as a charge upon property not in interstate commerce.

In the case of Askren v. Continental Oil Co., 252 U.S. 444, 40 S.Ct. 355, 64 L.Ed. 654, decided by the Supreme Court of the United States on April 19, 1920, this question, however, was presented. In the Askren Case it appears that the state of New Mexico passed an act which was entitled, 'An act providing for an excise tax upon the sale or use of gasoline and for a license tax to be paid by distributors, retail dealers, thereof,' etc. Laws 1919, c. 93. The act provided that every distributor and retail dealer in gasoline should pay an annual license tax, and an excise tax of 2 cents per gallon was charged against the gasoline used or sold in the state; the act providing a penalty for failure to comply with its terms. The Supreme Court of the United States held that the New Mexico act was not an inspection act merely, and said:

'Considering its provisions and the effect of the act, it is a tax upon the privilege of dealing in gasoline in the state of New Mexico.'

The Continental Oil Company was engaged in the buying and selling of gasoline outside of the state of New Mexico and shipping it thereto. Some of these shipments were in tank cars, barrels, and packages; the whole of the contents thereof being sold to a single customer before the container in which the gasoline had been shipped was broken. Another method of dealing in gasoline was for the company to ship it in tank cars, barrels, and packages, selling such gasoline from the containers as the purchaser might require. The Supreme Court said:

'As to the gasoline brought into the state in the tank cars, or in the original packages, and so sold, we are unable to discover any difference in plan of importation and sale between

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