State Tax Com. v. Petroleum Exploration
| Decision Date | 13 March 1934 |
| Citation | 253 Ky. 119 |
| Parties | State Tax Commission et al. v. Petroleum Exploration. |
| Court | United States State Supreme Court — District of Kentucky |
2. Constitutional Law. — Respecting franchise tax, when Legislature has declared public use, presumption favors its action, and burden is on person asserting contrary.
3. Taxation. — Company conveying gas through pipe line and selling gas to companies reselling to consumers performs public service and has power of eminent domain and is "pipe line company" within statute taxing its franchise (Ky. Stats., secs. 3766b-1, 4077; Constitution Ky. Bill of Rights; Constitution U.S. Amend. 14).
4. Taxation. — Legislature intended to tax franchise of all companies mentioned and all engaged in businesses named in statute (Ky. Stats., sec. 4077).
5. Taxation. — Statutes taxing pipe line companies' "franchise" imposes tax on intangible estate springing from privilege of public service, power of eminent domain, and other conceivable rights; technical franchise being unnecessary (Ky. Stats., sec. 4077).
Ky. Stats. sec. 4077, imposing tax on franchise, does not mean that special license or permission to transact business, which is usually denominated "franchise," must have been previously acquired from some governmental agency.
6. Taxation. — As usually used, "franchise tax" is tax on intangible values inhering to business and added value given to tangible property, being "ad valorem" as distinguished from "excise" or "privilege" tax (Ky. Stats., sec. 4077).
Appeal from Franklin Circuit Court.
BAILEY P. WOOTTON, Attorney General, and S.H. BROWN, Assistant Attorney General, and HARRY D. KREMER for appellants.
E.C. O'REAR and ALLEN PREWITT for appellee.
Reversing.
In an action brought for the purpose of testing the question, the Franklin circuit court adjudged that the Petroleum Exploration, a corporation, was not liable for a franchise tax. The state tax commission and the other defendants appeal.
The facts pleaded and admitted by the demurrer which was overruled, are these: The Petroleum Exploration is a Maine corporation, and is authorized by its charter to carry on the business of developing and operating oil and gas lands, and of transporting and marketing the products therefrom. About 90 per cent. of its property and business is in Kentucky. It has several gas wells in Owsley county, and markets the gas by means of an 8-inch main, or pipe, about 63 miles in length. The main passes near, but not within, the towns of Irvine, Ravenna, and Richmond. At these points the gas is sold and delivered wholesale to the Eastern Kentucky Natural Gas Company, in which appellee has no financial interest, which in turn sells and distributes the gas to the inhabitants of those towns. The main also extends to the gates of the city of Lexington, where it is sold wholesale by private contract to the Central Kentucky Natural Gas Company, in which appellee has no financial interest, and which sells and distributes the gas to the inhabitants of that city. Appellee does not transport gas for others, and does not sell directly to the public. At first appellee condemned several tracts of land for its pipe line, but, conceiving that it did not have the power, it ceased condemnation proceedings, and thereafter secured its right of way by purchase.
ection 4077, Kentucky Statutes, reads in part as follows:
"Every railway company or corporation, gas company, water company, ferry company, bridge company, street railway company, express company, electric light company, electric power company, telegraph company, press dispatch company, telephone company, bus line company, palace car company, dining car company, sleeping car company, chair car company, tank car company, coal car company, pipe line company, and every other like company, corporation or association, also every other corporation, company or association having or exercising any special or exclusive privilege or franchise not allowed by law to natural persons, or performing any public service, shall, in addition to the other taxes imposed on it by law, annually pay a tax on its franchise to the state, and a local tax thereon to the county, incorporated city, town, and taxing district, wherein its franchise may be exercised."
Section 3766b-1, Kentucky Statutes, is as follows:
"All corporations or companies organized for the purpose of constructing, maintaining or operating oil or gas well or wells or pipe line or lines for conveying, transporting or delivering oil or gas, or both oil and gas, are hereby vested with the right and power to condemn lands and material in this Commonwealth or the use and occupation of so much thereof as may be necessary for constructing, maintaining and operating such pipe line, or lines, and all necessary machinery, pumping stations, appliances and fixtures, including tanks, telephone and telegraph lines, for use in connection therewith, together with rights of ingress and egress to examine, alter, repair, maintain and operate or remove such pipe line or lines, all such being hereby declared to be a public use; and when any such corporation or company desires to construct oil or gas pipe line or lines, or both, for the purpose of conducting, transporting or delivering oil or gas, or both, over the lands of others, shall be unable to contract or agree with the owner or owners, of land or material necessary for its use for said purposes, it may in the mode prescribed for the condemnation of land for railroads, condemn the use of so much of said land as may be necessary for the purpose of constructing, maintaining and operating such pipe line or lines, and all necessary machinery, pumping stations, appliances and fixtures, including necessary tanks, telephone and telegraph lines, and including rights of ingress and egress to examine, alter, repair, maintain and operate or remove the same."
Appellee's position may be summarized as follows: Section 4077, Kentucky Statutes, supra, applies only to corporations engaged in public service or having some special or exclusive privilege not allowed by law to natural persons, and does not apply to ordinary commercial or private trading corporations. Louisville Tobacco Warehouse v. Commonwealth, 106 Ky. 165, 49 S. W. 1069, 20 Ky. Law Rep. 1747, 57 L.R.A. 33; Commonwealth v. Louisville Transfer Co., 181 Ky. 305, 204 S.W. 92. The commonly understood meaning and the technical meaning of "gas company" or "pipe line company" is public utility gas company or public carrier pipe line company. Humphreys v. Central Kentucky Natural Gas Co., 190 Ky. 733, 229 S.W. 117, 21 A.L. R. 664; Hall v. Cumberland Pipe Line Co., 193 Ky. 728, 237 S.W. 405. It is argued that appellee is neither a gas company nor pipe line company within the meaning of the statutes, because it does not transport gas belonging to others, but transports only its own gas, which it does not sell to the public, but sells by private contract to two companies in which it has no financial interest. The further point is made that, if it be held that the foregoing statutes apply to appellee, they will violate our Bill of Rights and the due process and equal protection clauses of the Fourteenth Amendment to the Federal Constitution, by arbitrarily making appellee a public utility...
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