State Tax Commission v. Memphis Natural Gas Co.

Citation19 So.2d 477,197 Miss. 583
Decision Date09 October 1944
Docket Number35692.
CourtUnited States State Supreme Court of Mississippi
PartiesSTATE TAX COMMISSION v. MEMPHIS NATURAL GAS CO.

On Motion for Final Judgment Oct. 23, 1944.

In Banc.

W D. Conn, Jr., of Jackson, for appellant.

Green & Green, of Jackson, and Canada, Russell & Turner, of Memphis, Tenn., for appellee.

McGEHEE Justice.

The petition of the Memphis Natural Gas Company, a Delaware corporation, filed herein against the State Tax Commission seeks a judicial review of certain tax assessments levied by such Commission under the state income tax act (Chapter 120 Laws of 1934 and amendments thereto), on the net income of the petitioner for the years 1937-1941, inclusive attributable to the ownership and use of the property of such Gas Company within this state devoted exclusively to the business of interstate commerce, it being claimed that such imposition of taxes violated the commerce clause of the Federal Constitution, Article I, Section VIII thereof.

The petition concedes that if the petitioner is liable for the taxes levied and assessed by the State Tax Commission against it for said years, the amount of such net income taxes and the accrued interest thereon would aggregate the sum thus demanded; that the formula used by the taxing authorities in arriving at the net income of the petitioner attributable to its ownership of property in this State during each of said years, and in allocating the same, was a proper one; and that such assessment was duly and regularly made and is in all respects true and correct if any tax was due.

The State Tax Commission demurred to such petition for a judicial review of this assessment. The demurrer was overruled and the State Tax Commission having declined to plead further, a final judgment was rendered by the court below adjudicating that the petitioner was not liable for such taxes. From this judgment the State Tax Commission has prosecuted this appeal.

The net income on which the tax is claimed was derived from the sale of natural gas at wholesale to the Mississippi Power and Light Company, a non-resident corporation doing business in this State. The gas was delivered at various points in Mississippi along the pipe line of petitioner Memphis Natural Gas Company, which extends from the Monroe, Louisiana, gas field through Arkansas and Mississippi and then terminates at Memphis in the State of Tennessee. The gas thus sold by the petitioner was delivered to the said purchaser from the main pipe line at or near thirteen municipalities within this State under a contract made in a foreign state and was thereupon sold and distributed at retail by the purchaser to its own customers in such municipalities.

The main contentions of the appellee Gas Company are: First, that Chapter 120, Laws of 1934, and amendments thereto, was not intended to apply to foreign corporations doing an interstate business exclusively and whose presence or ownership of property in this State is wholly to further its interstate business. Second, that the State of Mississippi may not levy a tax, although nondiscriminatory, upon the net earnings of a foreign corporation attributable to its activities in this State and resulting from its ownership of property in this State, where the petitioner's property in this State is used exclusively in the furtherance of its interstate business, without violating the commerce clause of the Constitution, Article I, Section VIII thereof.

Section 3(1), Chapter 120, Laws of 1934, provides:

"There is hereby assessed and levied to be collected and paid as hereinafter provided for the calendar year 1934 and for each calendar year thereafter, upon the entire net income of every resident individual, corporation, association, trust or estate, in excess of the credits provided, a tax at the following rates: * * *."

The last paragraph of the same section then provides:

"A like tax is hereby imposed to be assessed, collected and paid annually at the rates specified in this section and as hereinafter provided upon and with respect to the entire net income, from all property owned and from every business, trade or occupation carried on in this state by individuals, corporations, partnerships, trusts or estates, not residents of the state of Mississippi."

Section 11(1) of the same act provides:

"In the case of foreign corporations or of a non-resident or citizen of a foreign country the following items of gross income shall be treated as income from sources within the state.

(a) * * * rentals or royalties from property or any interest in property within the state, and income from the operation, or ownership of any property within the state; * * *."

It will be readily seen that so far as the language of the statute is concerned there can be no question as to whether or not it is sufficient to impose the tax here involved, but it is urged by the appellee that it could not have been the intention of the legislature in enacting the said income tax law of 1934 to impose such taxes upon a foreign corporation engaged exclusively in interstate business in Mississippi, in view of the decisions of the State and Federal Supreme Courts at that time, as well as decisions of Federal District Judges composing a special court in three cases of litigation between the Interstate Natural Gas Company and the said State Tax Commission involving certain privilege and franchise taxes and the state income tax, respectively, under the Mississippi Code of 1930, as to whether or not such a tax would contravene the commerce clause of the Federal Constitution. In other words, the appellee invokes as a principle of construction that statutes are to be construed as they were intended to be understood when they were passed in the light of court decisions existing at such time.

Assuming for the purpose of this decision that, although the language employed in the above quoted sections of Chapter 120, Laws of 1934, is plain and unambiguous, we are entitled to resort to an examination of the court decisions existing at the time of the enactment of this statute to determine whether the legislature really intended to impose a tax on the net income of a foreign corporation engaged exclusively in interstate business in Mississippi, let us review what the courts had held at that time on the question of whether or not the imposition of such a tax would in fact contravene the commerce clause of the Federal Constitution here invoked.

In the case of State ex rel. Knox v. Gulf, M. & N. R. Co., 138 Miss. 70, 104 So. 689, 693, decided by this Court in March 1925, it was said:

"The income of the Gulf, Mobile & Northern Railroad Company is derived from both inter and intrastate commerce, and its contention is that a tax by the state on that portion of its income derived from interstate commerce is a burden on such commerce within the meaning of this clause of the federal Constitution. If the tax were on gross income a serious question would here be presented, but it is not on gross, but on net, income, and a tax on net income, derived in whole or in part from interstate commerce, is not a burden thereon within the meaning of this clause of the federal Constitution, as pointed out by the Supreme Court of the United States in [United States] Glue Co. v. Oak Creek, 247 U.S. 321, 38 S.Ct. 499, 62 L.Ed. 1135, Ann.Cas.1918E, 748; Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 41 S.Ct. 45, 65 L.Ed. [165], 169; Shaffer v. Carter, 252 U.S. 37, 40 S.Ct. 221, 64 L.Ed. 445; Atlantic Coast Line R. Co. v. Daughton, 262 U.S. 413, 43 S.Ct. 620, 67 L.Ed. 1051."

At the time of the decision of this Court in the Knox Case, supra, the Supreme Court of the United States had said in the case of United States Glue Co. v. Oak Creek [247 U.S. 321, 38 S.Ct. 500, 62 L.Ed. 1135, Ann.Cas.1918E, 748], cited in our court's opinion, that:

"Stated concisely, the question is whether a state, in levying a general income tax upon the gains and profits of a domestic corporation, may include in the computation the net income derived from transactions in interstate commerce without contravening the commerce clause of the Constitution of the United States."

Thereupon, the Court undertook to lay down the basis of distinction between direct and indirect burdens on interstate commerce, after citing the case of Peck & Co. v. Lowe, 247 U.S. 165, 38 S.Ct. 432, 62 L.Ed. 1049, as its authority therefor, and said:

"The distinction between a direct and an indirect burden by way of tax or duty was developed (in the Peck & Co. v. Lowe case), and it was shown that an income tax laid generally on net incomes, not on income from exportation because of its source or in the way of discrimination, but just as it was laid on other income, and affecting only the net receipts from exportation after all expenses were paid and losses adjusted and the recipient of the income was free to use it as he chose, was only an indirect burden.

The difference in effect between a tax measured by gross receipts and one measured by net income, recognized by our decisions is manifest and substantial, and it affords a convenient and workable basis of distinction between a direct and immediate burden upon the business affected and a charge that is only indirect and incidental. A tax upon gross receipts affects each transaction in proportion to its magnitude and irrespective of whether it is profitable or otherwise. Conceivably it may be sufficient to make the difference between profit and loss, or to so diminish the profit as to impede or discourage the conduct of the commerce. A tax upon the net profits has not the same deterrent effect, since it does not arise at all unless a gain is shown over and above expenses and losses, and the tax cannot be heavy unless the...

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5 cases
  • Mississippi State Tax Commission v. Tennessee Gas Transmission Co.
    • United States
    • Mississippi Supreme Court
    • 14 Diciembre 1959
    ...Package Corporation v. State Tax Commission, 1944, 195 Miss. 864, 15 So.2d 436, 16 So.2d 856; see also State Tax Commission v. Memphis Natural Gas Co., 1944, 197 Miss. 583, 19 So.2d 477, appeal dismissed in 323 U.S. 682, 65 S.Ct. 440, 89 L.Ed. 553 (apportioned net income tax on interstate g......
  • Southwestern Gas & Elec. Co. v. Oklahoma Tax Com'n, 34143
    • United States
    • Oklahoma Supreme Court
    • 10 Febrero 1953
    ...Court for want of a substantial federal question. Memphis Natural Gas Co. v. State Tax Comm., 323 U.S. 682, 65 S.Ct. 440, ; Id., Miss., 19 So.2d 477; Parke Davis & Co. v. Cook, 323 U.S. 681, 65 S.Ct. 436 ; Id., 198 Ga. 457, 31 S.E.2d 728, 156 A.L.R. 1360. (Emphasis ours.) West Publishing Co......
  • McLeod v. Memphis Natural Gas Company
    • United States
    • Arkansas Supreme Court
    • 6 Noviembre 1944
    ... ... do business in Arkansas, owns and operates a gas pipe line, ... originating in the State of Louisiana, and running through ... the southeast corner of the State of Arkansas, crossing the ... Mississippi River near Greenville, ... appellee subject to the income tax law of that state, in the ... case of State Tax Commission v. Memphis Natural ... Gas Co., 19 So.2d 477. Appellee's operations in ... Mississippi are no different from its operations in this ... state, ... ...
  • McLeod v. Memphis Natural Gas Co.
    • United States
    • Arkansas Supreme Court
    • 6 Noviembre 1944
    ...Supreme Court of Mississippi held this same appellee subject to the income tax law of that state, in the case of State Tax Commission v. Memphis Natural Gas Co., 119 So.2d 477. Appellee's operations in Mississippi are no different from its operations in this State, except it has two compres......
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