South Carolina Power Co. v. South Carolina Tax Commission, 1634.

• Decision Date: 07 September 1931
• Docket Number: No. 1634.,1634.
• Citation: 52 F.2d 515
• Parties: SOUTH CAROLINA POWER CO. v. SOUTH CAROLINA TAX COMMISSION et al. BROAD RIVER POWER CO. v. QUERY et al., South Carolina Tax Commission. LEXINGTON WATER POWER CO. v. SAME.
• Court: U.S. District Court — District of South Carolina

52 F.2d 515 (1931)

SOUTH CAROLINA POWER CO. v. SOUTH CAROLINA TAX COMMISSION et al.

BROAD RIVER POWER CO. v. QUERY et al., South Carolina Tax Commission.

LEXINGTON WATER POWER CO. v. SAME.

No. 1634.

District Court, E. D. South Carolina.

September 7, 1931.

Hagood, Rivers & Young, of Charleston, S. C., and Martin, Thompson & McWhorter, of Birmingham, Ala., for South Carolina Power Co.

Elliott, McLain, Wardlaw & Elliott, of Columbia, S. C., and Travis, Paxson, Wallace & Philbin, of New York City (W. C. McLain, of Columbia, S. C., and George M. LePine, of New York City, on the brief), for Broad River Power Co. and Lexington Water Power Co.

John M. Daniel, Atty. Gen. of South Carolina, and J. Fraser Lyon, of Columbia, S. C., for defendants.

Before PARKER and NORTHCOTT, Circuit Judges, and ERNEST F. COCHRAN, District Judge.

PARKER, Circuit Judge.

These are three independent suits instituted to enjoin the enforcement of the South Carolina statute imposing a tax on the production and sale of electric power. An interlocutory injunction is asked in each, and a court of three judges has been convened pursuant to section 266 of the Judicial Code (28 USCA § 380), and the cases have been heard together. Each suit involves an amount largely in excess of what is required for purposes of jurisdiction; and jurisdiction in equity is not controverted and unquestionably exists for the purpose of avoiding a multiplicity of suits.

The statute in question is entitled, "An Act to Raise Revenue for the Support of the State Government by the Imposition of an Excise Tax Upon Electric Power Generated and Sold Within This State" (Act S. C. May 9, 1931 37 St. at Large, p. 357); and the pertinent provisions thereof are as follows:

"Section 1. Be it enacted by the General Assembly of the State of South Carolina: (a) That in addition to all other taxes of every kind now imposed by law, every person, firm or corporation engaged in the business of manufacturing or generating hydroelectric power in the State of South Carolina shall be subject to the payment of an excise, license or privilege tax of five-tenths of one mill upon each kilowatt hour of hydro-electric power manufactured or generated, and said tax shall be paid to and collected by South Carolina Tax Commission.

"(b) That in addition to all other taxes of every kind now imposed by law, every person, firm or corporation engaged in the business of manufacturing or generating electric power by the use of steam power in the State of South Carolina shall be subject to the payment of an excise, license, or privilege tax of five-tenths of one mill upon each kilowatt hour of electric power so manufactured or generated and said tax shall be paid to and collected by South Carolina Tax Commission.

"(c) That in addition to all other taxes of every kind now imposed by law, every person, firm or corporation engaged in the business of selling electric power within the State of South Carolina shall be subject to the payment of an excise, license, or privilege tax of five-tenths of one mill upon each kilowatt hour of electric power sold in the State of South Carolina and said tax shall be paid to and collected by South Carolina Tax Commission: Provided, That if such seller procures electric power which has been subject to the payment of the excise, license or privilege tax hereinbefore provided a credit on said tax to the amount of the excise tax already required to be paid by the person, firm or corporation generating the same within this State shall be allowed: Provided, further, That the provisions of this Act shall not apply to the electric power manufactured or generated in another State and brought into this State until such power has lost its interstate character and immunities: Provided, further, That the provisions of this Act shall not apply to any person, firm or corporation owning and operating an electric manufacturing or generating plant of ten horse power or less, nor shall the provisions of this Act apply to industrial plants manufacturing or generating power for its own use, or for use upon its own premises by its bona fide operatives or employees but the tax shall be paid upon so much thereof as may be sold to other than its employees: Provided, further, That the provisions of this Act shall not apply to municipalities manufacturing or generating electricity for the use of its customers. * * *

"Section 6. For the year 1931 the revenue produced under this Act shall reduce the 1931 property levy for State purposes to the full amount raised under the terms of this Act: Provided, further, That for the year 1932 and thereafter, the revenue derived under the provisions of this Act shall be turned into the State Treasury for the support of the State Government."

The statute is attacked from different angles by the complainants in the various suits. The Broad River Power Company generates, sells, and uses current within the state of South Carolina; and it attacks both the production and the sales tax of the statute as being violative of the due process and equal protection clauses of the Fourteenth Amendment and similar provisions in the Constitution of South Carolina (article 1, § 5). The Lexington Power Company generates current within the state of South Carolina which is sold to another company and transmitted to other states; and it attacks the production tax as a burden upon interstate commerce as to current transmitted to other states, as well as being in violation of the Fourteenth Amendment and similar provisions of the South Carolina Constitution. The South Carolina Power Company, in addition to generating and selling current within the state of South Carolina, brings in from the state of Georgia current which it sells in South Carolina; and in addition to attacking both the generation tax and the sales tax under the Fourteenth Amendment and the Constitution of South Carolina, it attacks the sales tax in so far as it affects electricity brought into the state for sale therein both as burdening interstate commerce and as discriminating against such commerce. The Lexington Power Company and the South Carolina Power Company, in addition to their other positions, contend that their power plants for the generation of electricity, which are maintained in navigable rivers under authority granted by the federal government, are agencies of the federal government in aid of navigation and are not subject to taxation at the hands of the state. The following questions, therefore, are raised by the cases before us: (1) Whether the statute violates the fundamental guaranties of due process and equal protection contained in the Fourteenth Amendment and in the Constitution of South Carolina; (2) whether it violates the commerce clause of the Constitution with respect to electric current generated within the state and transmitted to other states or with respect to current brought in from other states and sold within the state; and (3) whether it constitutes a burden upon a means or agency of the federal government with respect to those companies which are maintaining power plants in navigable streams under authority given them by Congress and the Federal Power Commission. We shall consider these questions in the order named.

Questions under the Fourteenth Amendment and the Constitution of South Carolina.

Complainants contend that the statute amounts to a denial of due process and equal protection: (1) Because it does not tax generation of electricity by the use of oil or internal combustion engines and does not tax persons furnishing gas to the public for light, heat, or power; (2) because it exempts from its operation industrial plants generating power for their own use or the use of their employees, and municipalities generating electricity for the use of their customers; (3) because it exempts from the sales tax electric current upon which the generation tax has already been paid; (4) because it is said that the statute is indefinite and fails to provide means for determining the tax on current brought from without and sold within the state; and (5) because it is said that, as to the tax imposed for the year 1931, the statute taxes power companies for the benefit of persons paying the general property tax levied by the state of South Carolina. None of these positions, we think, can be sustained.

As to the failure to tax gas companies and the generation of electricity by oil or the use of internal combustion engines, it is elementary that, in levying a tax, a state need not cover the whole field of possible taxation, but that it may classify for that purpose so long as the classification has a reasonable basis. State Board of Tax Com'rs of Indiana v. Jackson, 283 U. S. 527, 51 S. Ct. 540, 75 L. Ed. 1248, 73 A. L. R. 1464; Alward v. Johnson, 282 U. S. 509, 51 S. Ct. 273, 75 L. Ed. 496; Brown-Forman Co. v. Kentucky, 217 U. S. 563, 30 S. Ct. 578, 54 L. Ed. 883; Bell's Gap R. Co. v. Pennsylvania, 134 U. S. 232, 10 S. Ct. 533, 33 L. Ed. 892. If not palpably arbitrary the classification is valid. Metropolis Theater Co. v. Chicago, 228 U. S. 61, 62, 33 S. Ct. 441, 57 L. Ed. 730; Toyota v. Hawaii, 226 U. S. 184, 33 S. Ct. 47, 57 L. Ed. 180. And it is the duty of the court to sustain it if any state of facts can be conceived of upon which the classification may reasonably rest. Rast v. Van Deman & Lewis Co., 240 U. S. 342, 36 S. Ct. 370, 60 L. Ed. 679, L. R. A. 1917A, 421, Ann. Cas. 1917B, 455; Wampler v. Le Compte, 282 U. S. 172, 51 S. Ct. 92, 75 L. Ed. 276; State Board of Tax Commissioners of Indiana v. Jackson, supra, 283 U. S. 527, 51 S. Ct. 540, 543, 75 L. Ed. 1248, 73 A. L. R. 1464.

In the case last cited, which involved the Indiana chain store tax, the rule is thus stated by Mr. Justice Roberts: "The principles which govern the decision of this cause are well settled. The power of taxation is fundamental to the very existence of the government of the states. The restriction that...