Sheppard v. Owl Refining Co., 8093.

• Court: Court of Appeals of Texas
• Citation: 68 S.W.2d 1101
• Docket Number: No. 8093.,8093.
• Parties: SHEPPARD et al. v. OWL REFINING CO. et al.
• Decision Date: 07 February 1934

Page 1101

68 S.W.2d 1101

SHEPPARD et al. v. OWL REFINING CO. et al.

No. 8093.

Court of Civil Appeals of Texas. Austin.

February 7, 1934.

Rehearing Denied February 21, 1934.

Appeal from District Court, Travis County; C. A. Wheeler, Judge.

Proceeding by the Owl Refining Company and others against George H. Sheppard, comptroller, and another. From an interlocutory order temporarily enjoining defendants, defendants appeal.

Order appealed from set aside, and temporary injunction dissolved.

James V. Allred, Atty. Gen., and R. G. Waters and Willis E. Gresham, Asst. Attys. Gen., for appellants.

Wm. J. Gerron, of Tyler, and J. W. Wheeler and Ghent Sanderford, both of Austin, for appellees.

McCLENDON, Chief Justice.

Appeal from an interlocutory order granted without notice, temporarily enjoining the comptroller and Attorney General from enforcing the permit and bond requirements (Vernon's Ann. Civ. St. arts. 7065a—3, 7065a —6) of the Motor Fuel Tax Law (chapter 44, p. 75, Gen. Laws, Reg. Sess. 43d Leg., 1933 [Vernon's Ann. Civ. St. arts. 7065a—1 to 7065a—18; Vernon's Ann. P. C. art. 141a—1]), against Owl Refining Company; and from instituting or prosecuting criminal proceedings against its officers for violations of the penal provisions of the act.

The validity of the tax imposed by the act is not questioned; but the constitutionality of its permit and bond requirements is attacked upon several grounds:

Since the act is a revenue measure only, taxing a lawful business not affected with a public interest, it is urged that the requirement of a permit as a prerequisite to engaging in the business violates the due process of law provisions of the state and Federal Constitutions (Const. Tex. art. 1, § 19; Const. U. S. Amend. 14).

This asserted invalidity is predicated upon the decision of the Supreme Court of the United States in New State Ice Co. v. Liebmann, 285 U. S. 262, 52 S. Ct. 371, 76 L. Ed. 747, and other decisions of like tenor holding invalid as violative of the due process of law provision of the Fourteenth Amendment of the Federal Constitution, statutes requiring a certificate of convenience and necessity as a prerequisite to engage in a business which is not affected with a public interest. No such certificate is required under the act in question. It is concededly purely a revenue measure, and the requirement of a permit is manifestly an enforcement regulation which every one complying with the provisions of the act is entitled as a matter of right to receive upon application, and which the comptroller has no discretion to deny where the statutory prerequisites have been complied with. There is no analogy between this requirement and the requirement of a certificate of convenience and necessity, the purpose and effect of which is to limit the number of those engaged in a particular business, and to vest in some official or board the power to withhold such certificate in the public interest. No authority is cited by appellees, and our research has disclosed none which denies to the state the power to require a permit as a regulation to facilitate the collection of a tax which it is conceded the state has the right to impose.

The bond requirement is assailed for a like reason; and for a like reason we uphold it. It is an enforcement measure designed to secure the state in the collection of its revenues derived from a tax which, from its very nature, is peculiarly subject to evasion and to fraudulent defeat in its collection.

While a number of cases may be found in which liability upon bonds of this character has been enforced (see State v. Rodecker, 145 Mo. 450, 46 S. W. 1083; State v. Lumber Co., 161 Mo. 664, 61 S. W. 869), the power of the state to exact the bond as a prerequisite to engaging in a business not subject to police regulation as being affected with a public interest appears to have been rarely questioned. In the well considered case of State v. Harrington, 68 Vt. 622, 35 A. 515, 34 L. R. A. 100, a requirement of itinerant vendors as a prerequisite to a license to deposit $500.00 with the State Treasurer, to be returned on surrender of the license, less the amount of any fines and costs that might have been imposed, was held not to be violative of the due process of law provision of the Federal Constitution. There are many decisions which uphold the requirement of a bond to protect creditors or others dealing with individuals or corporations engaged in businesses which afford unusual opportunity for imposition upon the public through fraud, breach of trust, and the like. See case notes in 3 A. L. R. page 1271 et seq., and 48 A. L. R. page 449 et seq.

We see no valid reason for withholding from the state the power to secure in this manner its revenues which are of such character as to afford ready opportunity for evasion and defeat unless protected by reasonable and proper safeguards.

It may also be noted, that while in a strict legal sense the distributor is not a fiduciary, collecting and holding the tax in trust for the state, the act itself in effect passes the tax on to the consumer in the provision (section 2 (g), Vernon's Ann. Civ. St. art. 7065a—2 (g) that "the tax herein imposed shall be posted separately from the price of the motor fuel, wherever sold in this State." The state might have imposed upon the distributor the duties and obligations of a fiduciary; in which event its right to exact security could hardly be questioned. Its right to exact security even though the tax obligation be only a simple debt, is supported by equally cogent reasoning when considered in the light of the opportunity which the nature of the business affords for evasion and fraud.

It is stated in the petition that the amount of bond required "tends to create a monopoly for those known and called the Major Oil Companies similarly engaged by forcing out of the business such Independents and Plaintiffs herein." This is a mere general allegation which is not otherwise supported by any factual statement. The mere fact that a regulation otherwise reasonable and appropriate to the enforcement of a valid tax may operate harshly or oppressively upon some who are engaged in the affected business would not of necessity invalidate the regulatory requirement. However, there is no showing that such would in fact be the effect of the regulation, other than the bare statement thereof. The minimum bond required is $1,000. Provision is also made for the deposit of cash or approved securities in lieu of the bond; and the comptroller is also authorized to require a proportionately less bond where, in his judgment, returns might properly be allowed for shorter periods than the calendar month. The minimum bond would cover a tax on 25,000 gallons of gasoline. The act requires return and payment on the 20th day of each month for the previous calendar month. In so far as appellee corporation is concerned, the petition alleges that it distributes more than 1,000,000 gallons per month; the tax on which would amount to upwards of $40,000. It is not alleged that it could not comply with the bond or deposit provisions of the act; and it is hardly conceivable that a concern doing this amount of business would be seriously hampered even if it were required to furnish the maximum security, which would fall short by upwards of $15,000 of securing the amount of tax it would monthly owe the state. It should also be noted in this connection that the act itself provides (section 2(e), Vernon's Ann. Civ. St. art. 7065a—2(e) that "one per cent (1%) of the taxable gallonage shall be deducted by the distributor to cover losses and the expense of complying with the provisions hereof." The manifest purpose of this provision is to relieve the distributor of the cost entailed by compliance with the act, including the cost of obtaining the requisite security, and to impose such expense, as cost of administration upon the state in the form of a deduction from the tax.

The further point is made with reference to the bond requirement that it vests an arbitrary, uncontrolled, and unreviewable discretion in the comptroller in fixing the amount of the bond. It is insisted in this regard that no criteria are prescribed in the act to govern the comptroller in fixing the amount. This contention, we think, is unsound. Numerous statutes vesting discretion of like character in administrative officers have been upheld. See case note V., 48 A. L. R. page 454.

The act provides for "a good and sufficient" bond. "Good" manifestly has reference to the solvency and ability to respond of the surety; while "sufficient" relates to the amount and is referable to the purposes for which the bond is given, namely, to secure the state in the payment of its tax.

In the recent case of New York Central Securities Corp. v. United States, 287 U. S. 12, 53 S. Ct. 45, 48, 77 L. Ed. 138, an Act of Congress which conferred power upon the Interstate Commerce Commission to authorize control by one carrier of another where the commission should find that such "will be in the public interest," was attacked on the ground "that the stated criterion is uncertain." In disposing of this objection, the court, speaking through Chief Justice Hughes, say:

"That criterion is the `public interest.' It is a mistaken assumption that this is a mere general reference to public welfare without any standard to guide determinations. The purpose of the Act, the requirements it imposes, and the context of the provision in question show the contrary. Going forward from a policy mainly directed to the prevention of abuses, particularly those arising from excessive or discriminatory rates, Transportation Act [February 28] 1920 (41 Stat. 456), was designed better to assure adequacy in transportation service. This Court, in New England Divisions Case [Akron, C. & Y. R. Co. v. United States], 261 U. S. 184, 189, 190, 67 L. Ed. 605, 609, 43 S. Ct. 270, 273, adverted to that purpose, which was...