Smith v. Ajax Pipe Line Co.

• Decision Date: 22 January 1937
• Docket Number: No. 10414.,10414.
• Citation: 87 F.2d 567
• Parties: SMITH et al. v. AJAX PIPE LINE CO.
• Court: U.S. Court of Appeals — Eighth Circuit

87 F.2d 567 (1937)

SMITH et al. v. AJAX PIPE LINE CO.^*

No. 10414.

Circuit Court of Appeals, Eighth Circuit.

January 22, 1937.

Nat W. Benton, of Springfield, Mo. (Roy McKittrick, Atty. Gen., of Missouri, and James L. Hornbostel, Asst. Atty. Gen., of Missouri, on the brief), for appellants.

Charles F. Newman, of Springfield, Mo. (L. G. Owen, of Tulsa, Okl., and Ben M. Neale, of Springfield, Mo., on the brief), for appellee.

Before STONE, SANBORN, and THOMAS, Circuit Judges.

STONE, Circuit Judge.

This is an appeal by the county collector of revenue and the prosecuting attorney of Greene county, Mo., from a decree enjoining recovery of a property tax assessed against appellee.

The regularity of the procedure by which this tax was assessed is not attacked. The challenge is that this property is not subject to taxation in Missouri (1) because not situated there; (2) because to lay a tax thereon would be a violation of the Commerce Clause of the Constitution (article 1, § 8, cl. 3); and (3) because the state has no provision for taxation of such property. The trial court based its decree upon a finding that the property had no situs in the state.

In addition to the above issues on the merits, appellants urge two matters. First, appellants urge that their motion to dismiss the petition, ruled on before any hearing on the merits, should have been sustained because:

"The bill conceded the general authority of the commission to make assessments and disclosed due notice and hearing, that the exhibits attached to the bill (tax commission's find) and the board of equalization's order of assessment showed on their face an assessment of property `located in Greene county, Missouri,' and that the evidence heard upon such motions (which was the same as here) established a taxable situs of the credit in question and so disclosed jurisdiction over the property assessed."

While the petition does not challenge the regularity of the procedure of the state tax commission, yet it was not conceded but denied, in the petition, that the property was subject to such taxation and the bare fact that the commission determined that the property was "located in Greene County, Missouri," was in nowise conceded to be accurate, but the contrary was the very crux of the petition.

The second such matter urged by appellants is that relief should be denied because appellee comes with "unclean hands." The argument is that the evidence shows this property was not returned in any other state and that such failure was because appellee considered the situs not in another state and, therefore, it should have been returned for taxation in Missouri. If, as matter of law, this property has its situs in another state and was not there returned for taxation, we may readily concede such conduct to be wrongful but that situation does not affect the state of Missouri. Nor would the belief of appellee, if it existed, that the situs was in Missouri be controlling. The doctrine of "unclean hands" as a bar to equitable relief is not for the purpose of punishing wrong-doing but for the purpose of protecting the court and the parties from having the powers of the court used to bring about an inequitable result in litigation before it.

Situs of Property.

The property here involved is a deposit of $1,296,581.49 existing in the Chase National Bank of New York City, on June 1, 1932. The fact situation as to situs is not in dispute and is as follows: Appellee is a Delaware corporation. Its business is the transportation, for hire, of crude oil. This it did in two pipe lines from Oklahoma through Missouri into Illinois. All such oil is received into the lines in Oklahoma and all is delivered in Illinois to the pipe lines of others for further transportation. The pipe lines which made final delivery to the consignee collected for the entire carriage and deposited appellee's share of the total charge in the Chase National Bank in New York City to its credit. On June 1, 1932, which is the tax return date in Missouri, the general offices of appellee were located in Greene county, Mo., at Springfield. There was no other operating or general office. All of the general officers (the vice president, secretary, treasurer, and general manager) except possibly the president¹ then lived in Springfield. Four of the above general officers were directors in a board of seven. None of the directors were stockholders. The corporate direction, in so far as general policies, seems to have been by a holding company. All meetings of the board of directors were held at Springfield. All operations were conducted from there except no contracts for nor collections for carriage of oil were made there nor did the men there "shape the internal policy" of appellee. The only books, records, or papers of appellee not kept at Springfield were those "papers as to the corporate existence * * * and the records of the holding company" (a separate corporation which held stock in appellee). All operating expenses were paid from Springfield. In fact, all payments by appellee, including dividends, were made by checks of the treasurer on funds deposited in a trust company in Springfield — dividends being drawn only on special order. Such funds were obtained by drafts of the treasurer at Springfield upon the Chase National Bank. The treasurer had authority to draw on the Chase National Bank for any amount at any time needed for operating outlay and, also necessarily, for dividends. The treasurer had no other control over the funds in the Chase National Bank. Also, there was a limit of $15,000 placed upon him as to daily balances in the trust company at Springfield. On numerous occasions, this daily balance was exceeded but such excess seems to be explained by outstanding checks. The pay roll was paid semimonthly and large drafts were drawn on the Chase National Bank to provide funds therefor at the Springfield Trust Company.

A summation of the situation of appellee as shown by the above facts is that of a Delaware corporation doing an interstate oil pipe line business across Missouri and having its corporate officials, only general office and its business books and records located in Missouri, from which office all active operations were conducted except the making of contracts for transportation of oil and the collection and deposit of money therefor. Does such a situation create a situs for taxation in Missouri?

Appellants contend the taxation situs of the bank deposits in New York is in Missouri because such deposits are intangibles and the "business situs" of appellee is in Missouri. Appellee contends that if the deposits are tangible property their situs is in New York while if they are intangible property their situs is in Delaware, which is the domicile of appellee. Bank deposits are not physical — tangible — property but choses in action — indebtedness — intangible property. Wheeling Steel Corp. v. Fox, 298 U.S. 193, 214, 215, 56 S.Ct. 773, 778, 779, 80 L.Ed. 1143; Virginia v. Imperial Coal Co., 293 U.S. 15, 19, 20, 55 S.Ct. 12, 13, 14, 79 L.Ed. 171; Baldwin v. Missouri, 281 U.S. 586, 591, 593, 50 S.Ct. 436, 437, 438, 74 L.Ed. 1056, 72 A. L. R. 1303; Fidelity & Columbia Trust Co. v. Louisville, 245 U.S. 54, 58, 38 S.Ct. 40, 62 L.Ed. 145, L.R.A.1918C, 124. Therefore, the issue presented by appellee that the taxation situs of these deposits is in New York is eliminated. The only issue is whether the tax situs of these intangibles is in Delaware or in Missouri.

Within the Fourteenth Amendment, it is necessary for a state to have jurisdiction over property in order to subject it to ad valorem taxation. Wheeling Steel Corp. v. Fox, 298 U.S. 193, 208, 209, 56 S.Ct. 773, 776, 80 L.Ed. 1143. This requirement attaches to land, to tangible personalty (Wheeling Steel Corp. v. Fox, 298 U.S. 193, 209, 56 S.Ct. 773, 776, 80 L. Ed. 1143; Frick v. Pennsylvania, 268 U.S. 473, 489, 492, 45 S.Ct. 603, 604, 605, 69 L. Ed. 1058, 42 A.L.R. 316) and to intangible personalty (Wheeling Steel Corp. v. Fox, 298 U.S. 193, 209, 56 S.Ct. 773, 776, 80 L.Ed. 1143; First National Bank v. Maine, 284 U.S. 312, 323, 52 S.Ct. 174, 175, 76 L.Ed. 313, 77 A.L.R. 1401).

In determining this taxation "jurisdiction," or situs, two opposed considerations — place of ownership and place of property location — have caused the legal difficulties. In respect to realty, the solution has been simple. In the respect to personalty, the difficulty has been and is very real. This difficulty arises from the common-law rule of mobilia sequuntur personam which is broadly applied in many legal situations of which taxation is but one. But that legal principle is not unassailable. It is a court made rule designed to work out practical justice. Safe Deposit & Trust Co. v. Virginia, 280 U.S. 83, 92, 93, 50 S.Ct. 59, 60, 61, 74 L.Ed. 180, 67 A.L. R. 386; Frick v. Pennsylvania, 268 U.S. 473, 492, 493, 45 S.Ct. 603, 605, 69 L.Ed. 1058, 42 A.L.R. 316. Being such, it is pushed no further than the reason for its existence justifies and where justice requires a departure therefrom exceptions are made, both in other fields of law and in taxation. Wheeling Steel Corp. v. Fox, 298 U.S. 193, 209, 210, 56 S.Ct. 773, 776, 80 L.Ed. 1143; First National Bank v. Maine, 284 U.S. 312, 323, 52 S.Ct. 174, 175, 76 L.Ed. 313, 77 A.L.R. 1401; Farmers' Loan & Trust Co. v. Minnesota, 280 U.S. 204, 50 S.Ct. 98, 74 L.Ed. 371, 65 A.L.R. 1000; Safe Deposit & Trust Co. v. Virginia, 280 U.S. 83, 92, 94, 50 S.Ct. 59, 60, 61, 74 L.Ed. 180, 67 A.L.R. 386; Liverpool, etc., Ins. Co. v. Orleans Assessors, 221 U.S. 346, 354, 31 S.Ct. 550, 55 L.Ed. 762, L.R.A.1915C, 903; Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 207, 208, 26 S.Ct. 36, 50 L.Ed. 150, 4 Ann. Cas. 493; Green v. Van Buskirk, 7 Wall. 139, 150, 19 L.Ed. 109. In the field of taxation, these exceptions are the result of changed economic and business conditions (Wheeling Steel Corp. v. Fox, 298 U.S. 193, 210, 56...