State v. Inland Empire Refineries, Inc.

• Decision Date: 26 April 1940
• Docket Number: 27852.
• Citation: 101 P.2d 975,3 Wn.2d 651
• Parties: STATE v. INLAND EMPIRE REFINERIES, Inc. (MONTANA HEADLIGHT OIL CO. et al., Interveners).
• Court: Washington Supreme Court

101 P.2d 975

3 Wn.2d 651

STATE v. INLAND EMPIRE REFINERIES, Inc. (MONTANA HEADLIGHT OIL CO. et al., Interveners).

No. 27852.

Supreme Court of Washington, En Banc.

April 26, 1940

Action by the State of Washington against the Inland Empire Refineries, Incorporated, to collect taxes alleged to be due on the distribution of fuel oil by defendant, wherein the Montana Headlight Oil Company and the Great Northern Railway Company intervened. From an adverse judgment, plaintiff appeals.

Affirmed.

BLAKE C.J., dissenting.

In state's action against a refinery to recover excise taxes imposed on distributors of fuel oil, a railway company which raised a constitutional question was properly permitted to intervene where company, under its contract with refinery was required to pay, in addition to a stated price per barrel for fuel oil, any tax lawfully found due. RCW 4.08.190; Laws 1939, p. 581.

Appeal from Superior Court, Thurston County; D. F Wright, judge.

G. W. Hamilton, Atty. Gen., and John E. Belcher and L. C. Brodbeck, both of Olympia, for appellant.

E. W. Anderson, of Olympia, Poe, Falknor, Emory & Howe, of Seattle, and Wallace G. Mills and Harold P. Troy, both of Olympia, amici curiae.

R. E. Lowe, of Spokane, for respondent.

Thomas Balmer, Edwin C. Matthias, and Anthony Kane, all of Seattle, for Intervener-respondent Great Northern Ry. Co.

MILLARD Justice.

This action was instituted by the state, under the provisions of chapter 186, p.

581, Laws of 1939 (which imposes, in addition to any other tax provided by law, an excise tax upon each distributor at the rate of one-fourth of one cent for each gallon of petroleum products withdrawn, sold, distributed or in any manner used by such distributor within this state, except as expressly exempted by section 15 of chapter 186), to collect from the Inland Empire Refineries, Inc., a domestic corporation, taxes alleged to be due on the distribution of fuel oil by that corporation.

There is no dispute as to the amount of the tax. The purpose of the action is to test the validity of the exemption embodied in subsection (e), section 15, chapter 186, Laws of 1939. It is the state's position that that subsection is invalid and must be discarded with the result that distributors of locally refined fuel oil would become subject to the tax.

Montana Headlight Oil Company, a corporation which is in all respects situated precisely as the Inland Empire Refineries, Inc., intervened. The Great Northern Railway Company also filed a complaint in intervention because of a certain contract with the Inland Empire Refineries, Inc., under which the latter supplies the railway company with a portion of its fuel oil within this state.

This action was consolidated for purposes of trial with the action of the Great Northern Railway Company v. Cohn, Acting Director of Licenses, Wash., 101 P.2d 985, for a declaratory judgment. In the action instituted by the railway company and in Weyerhaeuser Timber Company v. Cohn, Acting Director of Licenses, Wash., 101 P.2d 984, (which was brought to obtain a judgment declaratory of the rights of the timber company, under the fuel oil tax statute, chapter 186, p. 581, Laws of 1939, with respect to the exaction of a tax on fuel oil purchased by the timber company from two oil companies who were made parties defendant in the action), each plaintiff contended, in addition to insisting that it was not a distributor as defined by the statute, that the entire statute was invalid on the ground that the exemptions embodied in subsections (d), (e) and (f) of section 15, chapter 186, Laws of 1939 were in contravention of the equal protection clause of the Fourteenth Amendment to the federal constitution and the privileges and immunities clause (article I, section 12) of the state constitution.

The discussion in the opinion in Great Northern Railway Company v. Cohn, Acting Director of Licenses, Wash., 101 P.2d 985, is restricted to the question whether the railway company is a distributor of fuel oil under chapter 186, p. 581, Laws of 1939, or chapter 116, p. 459, Laws of 1937, if the latter act were held to be revived. The opinion in the case Before us, which is an appeal by the state from the judgment holding the entire act, chapter 186, Laws of 1939, unconstitutional, is addressed to the question whether chapter 186, Laws of 1939 is unconstitutional in its entirety. Those two opinions obviate necessity of discussion in Weyerhaeuser Timber Company v. Cohn, Acting Director of Licenses, Wash., 101 P.2d 984, of the two questions there raised.

The pertinent exemption provisions of section 15, chapter 186, Laws of 1939, read as follows:

'Sec. 15. The distributor shall be exempt from the tax herein imposed upon the following:

* * *

* * *

'(d) Withdrawal, sale or distribution of petroleum products by a distributor to any vessel engaged in foreign commerce.

'(e) Withdrawal, sale or distribution by a distributor of all petroleum products derived from the refining within this state of crude petroleum or crude oil.

'(f) Withdrawal, sale or distribution of petroleum products by a distributor to any person who is subject to tax under title V, chapter 180, Laws of 1935, and amendments thereto, and who purchases such petroleum products for the purpose of converting and who does actually convert the same into manufactured gas for distribution to the public.'

The Fourteenth amendment to the constitution of the United States provides that: '* * * No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.'

Article I, section 12, of the state constitution provides: 'No law shall be passed granting to any citizen, class of citizens, or corporation, other than municipal, privileges or immunities which, upon the same terms, shall not equally belong to all citizens or corporations.'

True, the legislature has broad powers respecting the classification of property for excise tax purposes, yet the foregoing provisions of the federal and state constitutions forbid an arbitrary classification. The legislature may constitutionally classify persons with reference to their business, occupation or inheritance, with a view of exaction from them of excise or privilege taxes differing in amount, or differing in that one class shall be taxed and another class shall be exempted, so long as there may be some reasonable basis for such classification and so long as all in each class shall be taxed or exempted alike. State v. Hart, 125 Wash. 520, 217 P. 45.

We stated in State ex rel. Bacich v. Huse, 187 Wash. 75, 59 P.2d 1101, that to comply with the equal protection clause of the federal constitution and the privileges and immunities clause of our state constitution, legislation involving classification must apply alike to all persons within the designated class and reasonable ground must exist for making a distinction between those who are brought within the class and those who are excluded therefrom.

In refusing to sustain a tax upon the gross receipts of corporations operating taxicabs, when the tax was not imposed upon individuals and partnerships engaged in the same business, the supreme court of the United States said in Quaker City Cab Co. v. Pennsylvania, 277 U.S. 389, 48 S.Ct. 553, 554, 72 L.Ed. 927: 'The equal protection clause does not detract from the right of the state justly to exert its taxing power or prevent it from adjusting its legislation to differences in situation or forbid classification in that connection, 'but it does require that the classification be not arbitrary, but based on a real and substantial difference having a reasonable relation to the subject of the particular legislation.''

See, also, Ohio Oil Company v. Conway, 281 U.S. 146, 50 S.Ct. 310, 74 L.Ed. 775.

The tax imposed by chapter 186, laws of 1939 upon distributors at the rate of one-fourth cent for each gallon of petroleum products withdrawn, sold, distributed or in any manner used by such distributor amounts to approximately eleven per cent on the purchase price. Fuel oil and solid fuels such as coal, wood, sawdust and coke, together with the mechanical contrivances incidental to their use such as oil burners, coal stokers and sawdust burners are marked in competition with each other.

Chapter 186, Laws of 1939, violates the requirement that reasonable ground must exist for making a distinction between those who fall within the class and those who do not. No reasonable ground exists for making a distinction between those who fall within the classification of distributors of fuel subject to tax and distributors of fuel not subject to tax. That is, a distributor of fuel oil is required to pay a tax of approximately eleven per cent for the privilege of distributing fuel oil while there is no comparable tax upon the distributors of coal, wood, sawdust, coke, gas and electricity. All purchasers of fuel oil as well as purchasers of coal, sawdust, wood and coke are subjected to a compensating tax for the privilege of using in this state tangible personal property purchased at retail or produced or manufactured for commercial use. The result of the imposition of the fuel oil tax and the compensating tax is that users of fuel oil pay a tax of approximately thirteen per cent upon the fuel consumed by them while users of the other fuels pay only the compensating tax of two per cent.

In Person v. Seattle, 199 Wash. 217, 90 P.2d 1020, we held that a city ordinance which imposed a license fee for revenue purposes, although ostensibly for...