Standard Oil Co. of California v. United States

• Decision Date: 11 June 1941
• Docket Number: No. 21327-R.,21327-R.
• Citation: 39 F. Supp. 180
• Court: U.S. District Court — Northern District of California
• Parties: STANDARD OIL CO. OF CALIFORNIA v. UNITED STATES.

39 F. Supp. 180

STANDARD OIL CO. OF CALIFORNIA v. UNITED STATES.

No. 21327-R.

District Court, N. D. California, S. D.

June 11, 1941.

Pillsbury, Madison & Sutro and Felix Smith, all of San Francisco, Cal., for plaintiff.

Frank Hennessy, U. S. Atty., and Esther B. Phillips, Asst. U. S. Atty., both of San Francisco, Cal., and J. W. Hussey, Sp. Asst. to Atty. Gen., for defendant.

ROCHE, District Judge.

In this action, plaintiff seeks to recover a refund on taxes paid for the period January 1, 1934 to December 31, 1936, on the transportation of natural gasoline by pipe line.¹ Plaintiff made its payments in accordance with the provisions of Section 731(a) of the Revenue Act of 1932, 47 Stat. 169, 275, 26 U.S.C.A. Int.Rev.Acts, page 636, which imposed a tax "upon all transportation of crude petroleum and liquid products thereof by pipe line."

It is plaintiff's contention that natural gasoline does not come within the scope of this statute, that the tax was mistakenly imposed, and that a refund must be made. The Government alleges that plaintiff's product was properly taxable under Section 731(a) as a liquid product of crude petroleum. The question for decision is whether natural gasoline is a product of crude petroleum.

Plaintiff has presented evidence which shows that crude petroleum means crude oil to those engaged in the industry. Both terms are applied to settled, merchantable pipe line oil. Testimony of plaintiff's expert witnesses discloses that crude oil — and thus, crude petroleum — is not the source of natural gasoline, which arises from "wet" natural gas, a product of petroleum (see below for definition). It is plaintiff's contention that since natural gasoline is not produced from crude oil, it does not come within the provisions of Section 731 (a) as "crude petroleum or the products thereof".

The evidence before the Court shows that crude petroleum and crude oil are considered interchangeable terms by oil men; but it also reveals that the term "crude petroleum" is seldom used by those in the oil industry. Text writers, according to plaintiff's witnesses, frequently employ crude petroleum in the sense of crude oil. On the other hand, these same writers, in the same books, sometimes use the term in a different and a broader sense so that it means "petroleum" (see below for definition). Neither amongst the trade nor amongst early writers on the subject of oil production is there a well established meaning for the term crude petroleum. Therefore, it is proper for the Court to examine the history of the 1932 Revenue Act in order to ascertain what Congress meant by its use of the term. In this way, it will be possible to determine whether natural gasoline is a product of crude petroleum, and taxable as such.

In the case of General Petroleum Corporation of California v. United States, D. C. S.D.Cal.1938, 24 F.Supp. 285, 288, the court made a careful study of the legislation which is now applicable. The following statements throw light on the state of mind of Congress in selecting the term "crude petroleum":

"The legislative history of the section under consideration shows that the object sought to be attained by the 1932 enactment was the taxation of gasoline transported by pipe line. The Revenue Acts of 1917 and 1918 * * * taxed the transportation of `oil by pipe line'. Article 91 of Regulation 49, promulgated under the 1918 Act, defined the word oil as `crude petroleum and such of its products as may be transported by pipe line.' The tax on pipe line transportation was repealed in 1921. It was the object of the 1932 Act to restore it. The Act as it reached the Senate Finance Committee retained the word `oil'. It was changed in Committee to the present wording. The Committee, in its report, stated the object of the change to be as follows: * * *

"The word `oil' has been changed to `crude petroleum and liquid products thereof.' This will make transportation of gasoline as well as crude oil taxable. * * * 1932 C.C.H. Paragraph 2541-b, Special Bulletin, May 31, 1932."

The Conference Report of the Bill contained similar statements (1932 C.C.H. Par. 2547-J, Special Bulletin, June 10, 1932), which were quoted by the court. Its review of the history of Section 731(a) of the 1932 Revenue Act then continued:

"The deliberate substitution of the words `crude petroleum' for `oil' indicates an intention to avoid the possible effect of decisions which had declined to consider gasoline as a derivative of oil. The use of the phrase `instead of to oil only' in the Report, shows plainly that the new terminology was to reach more products than the old one. If, as contended by the plaintiff, the words `crude petroleum' mean nothing more than `crude oil', then the change was a useless gesture. Yet the conference committee says that they sought words of a broader meaning because they aimed to reach, by the change, products not reached by the old law. * * *

"When words existing in a prior enactment which it is sought to revive are changed, the inference is that the old words proved inadequate for the matters which the legislation sought to reach. When added to that is the fact, expressed specifically by the legislative body, that the substitution of wording aimed to achieve a certain result, there is no room for speculation. And when the aim is obvious, the literal or even scientific meaning of a word must be disregarded in order to achieve it. * * * It is conceded by the plaintiff that the tax applied to straight-run gasoline, i. e., gasoline extracted by various processes directly from the oil. The object of the Congress being to tax gasoline in general, without...