Standard Oil Co. v. Howe

• Decision Date: 05 May 1919
• Citation: 257 F. 481
• Parties: STANDARD OIL CO. v. HOWE et al. (No. 3248.)
• Court: U.S. Court of Appeals — Ninth Circuit

257 F. 481

STANDARD OIL CO. v. HOWE et al. (No. 3248.)

United States Court of Appeals, Ninth Circuit.

May 5, 1919

Rehearing Denied June 6, 1919.

The Standard Oil Company, a California corporation, has appealed from a decree of the District Court of Arizona denying appellant's prayer for a temporary injunction and sustaining the appellee's motion to dismiss its bill of complaint. The question presented involves the validity of the action of the state board of equalization of Arizona in ordering the assessed value of the property of the Standard Oil Company for the year 1917 to be increased from $342,706 as fixed by the county assessing and equalizing authorities to $2,019,597.64. The facts as substantially stated by the complaint are these:

The Standard Oil Company owns real estate, motor trucks, sales stations, and like property in various counties in the state of Arizona. The full cash value of the property on January 1 1918, was $342,706. California is the state of corporate domicile, and the corporation owns, within the state of California, pipe lines, refineries, oil wells, and properties of the value of more than $40,000,000. It manufactures gasoline, engine distillate, lubricating oil, and by-products of petroleum in California, and sells and disposes of such products in California and other states and territories in interstate commerce. The Arizona board of equalization determined that appellant's net profits on its Arizona sales for 1917 were $727,649.41. It proceeded then to capitalize those earnings at 25 per cent., and thus produced a total value of $2,910,597.64. From this last-named sum the amount of $342,646, or the value that had been put upon the properties by the county authorities, was deducted, and the difference became the increase complained of in this proceeding. The state board ordered the increase upon all of appellant's property en masse, without any specific increase as to any particular piece or item or class of property.

The complaint alleges that it was not found or determined by the board that any particular item or class had been undervalued by the county authorities, or that any increase in valuation was necessary for any purpose for equalizing taxes or valuation. In a communication to appellant, the board stated that intangible property was made assessable in Arizona, and the method of arriving at the intangible value of the property of the Standard Oil Company was by deducting the net income for 1917 in Arizona, as per the sworn report of the corporation, and deducting therefrom the federal tax paid which would leave the true net business of the company in Arizona for 1917 as $727,649.41. The board also wrote as follows: 'Assuming that this class should earn 25 per cent. net on its assessed valuation, and capitalizing the above true net income at 25 per cent., the total valuation shown, both tangible and intangible, is $2,910,597.64. Deducting from this figure the total amount of your assessments in the several counties, amounting to $342,646, leaves a balance of $2,567,951.64, the amount of the raise. ' The board advised the company that other oil companies and classes of property were similarly treated, and after specification of certain itemized classifications the letter continued: 'From the above table you will note that oil companies are placed in the highest classification and are allowed to earn 25 per cent. on their assessed value, while railroads are only allowed 8 per cent., banks 12 1/2 per cent., and producing mines and smelters 15 per cent.'

After arriving at the valuation as outlined, the board effected a distribution of this valuation increase among the 13 counties of the state. The method employed was to require the corporation to segregate its gross sales made in the several counties, respectively, and upon the basis of such segregation it was ordered that the total increase be divided among the counties in the proportion of their several contributions to the corporation's gross sales, without reference to actual value of the properties involved. The board then directed the various county authorities to enter the increase upon their assessment rolls, respectively, and to use this language: 'Tangible and intangible valuation on property above enumerated, as set forth in section 4847, Revised Statutes of Arizona 1913, Civil Code, based on excessive earnings. ' County authorities conformed to the order of the state board, and the state board proceeded to levy taxes for 1917, and fixed the rate for state purposes at 39 cents for each $100 of assessed valuation. The county authorities in turn proceeded to complete and make the levies accordingly for county, school, and municipal purposes. The state board, however, failed to instruct the county board how to distribute the increase among the several incorporated towns, cities, school districts, and local assessment districts within their several limits. As a result the county authorities extended the raise upon the assessment roll in gross, without division or distribution thereof among or between appellant's real estate or improvements thereon, or personal property, leaving such real and personal property listed and assessed for state and county purposes at the valuation originally placed thereon by the county authorities, adding thereto, however, the form of entry specified by the state board and heretofore quoted. In the distribution of the increase for town, city, and other local assessment purposes, the county authorities split up and distributed the raise among such subdivisions in a manner devised to suit themselves, and as a result it is said to be impossible to ascertain the total valuation intended to be placed or the amount of taxes actually levied upon any article, part, piece, or parcel of appellant's property, whether real or personal, and whether for state, county, municipal, school, or other local uses.

The actual figures used by the state board in making up the increase were taken from a financial report filed by the Standard Oil Company with the state tax commission on May 1, 1918, as authorized by section 4829, subdivision 6, Revised Statutes of Arizona 1913. That report shows a total income from gross sales of $5,299,168.65, made up of sales of fuel oil, $2,164,631.63, gasoline, $2,129,008.36, and other products, $1,005,528.66. All of the fuel oil was sold and delivered by appellant pursuant to contracts negotiated with the purchasers outside of the state of Arizona and was loaded and delivered by it to the purchasers on cars at appellant's distributing points in California, and thence transported by common carriers direct to the consignee in Arizona, without being handled by any of appellant's Arizona branches or agencies. All of the gasoline and other products, except as stated in the complaint, were refined and produced by appellant in California, and were shipped to Arizona to be there sold and delivered direct to purchasers and consumers. Part of the gasoline and other products, of the value of $217,453.52, were loaded and delivered by appellant to purchasers thereof on board cars at appellant's plants and distributing points in California, and were transported directly by common carriers to the purchasers in Arizona, pursuant to sales negotiated in Arizona, but without passing through or being handled by any of appellant's branches or agencies. A large part of the gasoline and of the other products were sold and distributed by appellant in Arizona in the original packages and containers in which the same had been placed by it at its plants and manufactories in California. The item of $951,378.82, net income from operations shown on the report of the corporation, represents the net profit derived by the corporation from its plants, properties, and equipment in the production, purchase, transportation, refining, and manufacture of products in California, and includes the profits accruing to appellant through the operation of its sales plants and agencies, both in California and Arizona.

The corporation alleges that the action of the board was willful, arbitrary, and constructively fraudulent; that the order for the increase was made upon an assumed earning capacity, which includes the earnings and income produced in California, as well as in Arizona; and that the effect of the action of the board is to tax in Arizona property situate in California, as well as to tax the appellant's transaction of interstate commerce business.

Appellant appeared before the state board of equalization and protested against the raise complained of, but the increase was ordered.

The corporation alleges that, if it should pay the taxes assessed, it would have no remedy at law for the recovery of any money so paid; that, if remedy is available, it would have to prosecute suits against many counties, towns, and cities, all of which would depend upon a common question of law arising upon the same facts as are here set forth by appellant; that payment under duress of threatened distraint would involve the payment of interest, costs, and penalties not thereafter recoverable in any proceeding, and that upon failure to pay the taxes here involved they would become delinquent, and the county officials would proceed to enforce the tax liens, with interest, costs, and penalties, and appellant would suffer great damage and be subjected to many suits. Appellant tenders taxes upon the cash value of appellant's properties in Arizona, and prays that, being without adequate remedy at law, the increase complained of be decreed to be void and in contravention of the federal Constitution.

A clear understanding of the issues requires reference to the Arizona statutes concerning taxation. The Constitution of the state (section 12,...