Standard Oil Co. v. McLaughlin
| Decision Date | 16 September 1933 |
| Docket Number | No. 6822.,6822. |
| Citation | 67 F.2d 111 |
| Parties | STANDARD OIL CO. v. McLAUGHLIN, Collector of Internal Revenue. |
| Court | U.S. Court of Appeals — Ninth Circuit |
F. D. Madison, Alfred Sutro, H. D. Pillsbury, Oscar Sutro, and Felix T. Smith, all of San Francisco, Cal., for appellant.
Geo. J. Hatfield, I. M. Peckham, and H. H. McPike, U. S. Attys., and Esther B. Phillips, Asst. U. S. Atty., all of San Francisco, Cal., for appellee.
Before WILBUR and SAWTELLE, Circuit Judges, and CAVANAH, District Judge.
The Standard Oil Company brought suit in the District Court of the United States for the Northern District of California against the defendant as collector of internal revenue, to recover taxes paid under protest to the collector for the years 1919, 1920, and 1921. From a judgment in favor of the defendant the Standard Oil Company has brought this appeal.
The appellant is a California corporation owning and operating its own pipe lines for the transportation of its own oil. It is not a common carrier of oil and transports no oil not owned by it. The Revenue Act of 1918 (40 Stat. 1057, 1102), under which the tax was collected, provides as follows:
It is admitted that there were neither "any actual bona fide rates or tariffs in existence from which the tax could be computed" nor "any basis of rates or tariffs of other pipe lines for like service or for pipe line movement like the movement of oil through the pipe lines of plaintiff." Under the statute (section 501 (d) (2) supra), therefore, the tax had to be computed on the "basis of a reasonable charge for such transportation" fixed by the commissioner. In accordance with Treasury Decision No. 2834, Regulation 49, art. 22, which required the taxpayer to notify the commissioner of cases coming under section 501 (d) (2), supra, the appellant reported these facts to the Commissioner of Internal Revenue on May 7, 1919, and requested him to fix the reasonable charge for transportation of oil by appellant. This determination was delayed and the time within which appellant should file its return was extended from time to time until September 28, 1920, when the commissioner certified an assessment of taxes in the sum of $467,853.74 covering taxes due from April 1, 1919, to May 31, 1920. Demand for payment was made by the collector in April, 1921, and on April 14, 1921, a claim for abatement was filed by appellant. On February 14, 1922, another assessment was certified covering taxes due from April 1, 1919, to September 30, 1921, in the sum of $2,333,042.17, and demand for payment thereof was made March 1, 1922, as to which assessment a claim for abatement was filed on March 10, 1922. A third assessment in the sum of $598,967.23, covering additional tax due for the period from April 1, 1919, to September 30, 1921, and also tax due from October 1, 1921, to December 31, 1921, was certified on December 27, 1922, demand for payment made by the collector on January 16, 1923, and a claim for abatement of the same filed by appellant on January 23, 1923. No determination was had as to any of the claims for abatement until July 24, 1924, when the sum of $853,710.22 was allowed by way of abatement on the second assessment, leaving a balance of $1,479,331.95, the claims as to the first and third assessments being allowed in full, the notice stating: "As your entire liability for the period covered by this assessment has been paid and credited against another assessment, the claim is allowed in full."
At the time when the formal notice of adjustment of the claim for abatement was given, the taxes abated had in fact been paid on a recomputation of which appellant received informal notice February 16, 1923, and formal notice June 27, 1923. Formal demand for payment of the recomputed tax was made March 19, 1924; the tax was paid under protest March 29, 1924, and negotiations for compromise of demands for penalty and interest at 1 per cent. per month were entered into. The penalty was compromised but the interest was not, and appellant finally paid under protest the interest at 1 per cent. per month from the time of formal notice of the recomputation (June 27, 1923) to the time when the tax was paid. A claim for refund having been duly made and denied this action was commenced to recover the taxes ($1,479,331.95) and interest paid ($139,811.16).
The appellant contends that the statute as applied to it is unconstitutional, (1) because it is a direct tax which is not apportioned according to census, as required by article 1, § 9, clause 4 of the Constitution; (2) because, if it should be held to be an excise tax, it is not uniform, as required by article 1, § 8, cl. 1, of the Constitution; (3) because there is a delegation of legislative power to the commissioner to fix the basis upon which the tax is computed; and (4) because the act violates the due process clause of the 5th Amendment to the Constitution, in that the taxpayer has no opportunity to be heard as to the reasonableness of the charges fixed by the commissioner.
The contention of appellant that the tax is a direct tax is based upon two grounds: (1) That it was impossible for it to use its own property without incurring the tax; and (2) as the law was administered the tax could not be passed on to the consumer and hence was a direct and not an indirect tax. In Motter v. Derby Oil Co. (C. C. A.) 16 F. (2d) 717, a case where the taxpayer owned and used its own pipe line for transporting oil, the identical statute was attacked as unconstitutional because it was a direct tax. The Circuit Court of Appeals for the Eighth Circuit there held that the statute did not impose a direct tax but that it imposed an excise tax on the employment of pipe line facilities for the transportation of oil, which the court held was clearly within the power of Congress to impose. The court also held that the delegation of power to the commissioner to fix a reasonable charge was not a delegation of legislative power where the rate is fixed with reference to the charges of similar transportation companies. In Meischke-Smith v. Wardell, 286 F. 785, 793 (under § 501 (d) (1), supra), this court, speaking through Judge Morrow, held that a similar provision of the war Revenue Act of 1917, § 501 (40 Stat. 315), was constitutional as applied to a pipe line owned and used by an oil company for transporting its own oil. It is claimed that this determination was not involved in the case, but it was directly involved and decided although the court might have rested with the holding that the two companies, the producing and the transportation companies, were not identical. This court also held in that case that the act of 1917, supra, applied to private pipe lines used by the owner and not dedicated to a common use. A similar tax was upheld under the Revenue Act of 1918, now under consideration, by the Circuit Court of Appeals of the Fifth Circuit in Dixie Oil Co. v. U. S., 24 F.(2d) 804, although it does not appear that the constitutionality of the statute was considered, although the court cited Motter v. Derby Oil Co. (C. C. A.) 16 F.(2d) 717, with approval.
In view of our own decision in Meischke-Smith v. Wardell, supra, and the more recent decision by the Circuit Court of Appeals of the Eighth Circuit in Motter v. Derby Oil Co., 16 F.(2d) 717, in which certiorari was denied by the Supreme Court, 273 U. S. 762, 47 S. Ct. 477, 71 L. Ed. 879, we feel that it is unnecessary to discuss the numerous authorities cited by the appellant on the subject of a direct tax. We agree with the trial court that the tax imposed was an excise tax and was not required by the Constitution to be apportioned to the states in accordance with the census. See Bromley v. McCaughn, 280 U. S. 124, 50 S. Ct. 46, 74 L. Ed. 226. It is not a necessary incident of an excise tax that it can be shifted to the ultimate consumer. Knowlton v. Moore, 178 U. S. 41, 20 S. Ct. 747, 44 L. Ed. 969, citing Nicol v. Ames, 173 U. S. 509, 19 S. Ct. 522, 43 L. Ed. 786.
If the tax is held to be an excise tax, appellant then contends the statute is unconstitutional because the tax is not uniform in that while the percentage of 8 per cent. named in the law remained fixed, the effective tax was not 8 per cent. of any definite figure, but simply a figure to be named by the commissioner as the reasonable charge for the transportation service. In Billings v. United States, 232 U. S. 261, 34 S. Ct. 421, 424, 58 L. Ed. 596, Chief Justice White, speaking for the court, said: ...
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Caminol Co. v. United States
...the Commissioner of Internal Revenue to fix reasonable charges as a basis of taxation have been held constitutional. Standard Oil Co. v. McLaughlin, 9 Cir., 67 F.2d 111; Motter v. Derby Oil Co., 8 Cir., 16 F.2d 717; Meischke-Smith v. Wardell, 9 Cir., 286 F. 785, 786. Was the action of the c......