State v. Phillips Pipe Line Co.

• Decision Date: 02 October 1936
• Docket Number: No. 34757.,34757.
• Parties: THE STATE, Appellant, v. PHILLIPS PIPE LINE COMPANY, a Corporation.
• Court: Missouri Supreme Court

97 S.W.2d 109

THE STATE, Appellant, v. PHILLIPS PIPE LINE COMPANY, a Corporation.

No. 34757.

Supreme Court of Missouri.

Court en Banc, October 2, 1936.^*

Appeal from Cole Circuit Court. — Hon. Nike G. Sevier, Judge.

REVERSED AND REMANDED (with directions).

Roy McKittrick, Attorney General, Harry G. Waltner, Jr., and George B. Strother, Assistant Attorneys General for appellant.

(1) The Missouri Corporation Franchise Tax is upon the privilege to be a corporation and to conduct business in corporate form whether that privilege is exercised or not and irrespective of the manner exercised. Secs. 4596, 4641, R.S. 1929; Graham Paper Co. v. Gehner, 59 S.W. (2d) 49; State ex rel. Crutcher v. Koeln, 61 S.W. (2d) 750; State ex rel. Wabash Railroad v. Williams, 284 Mo. 456; State ex rel. Mo. Pac. Railroad v. Danuser, 319 Mo. 799, 6 S.W. (2d) 907; Ashley v. Ryan, 153 U.S. 436, 38 L. Ed. 773. (2) Interstate commerce is a practical conception. Eureka Pipe Line Co. v. Halahan, 257 U.S. 265; Utah P. & L. Co. v. Pfost, 286 U.S. 165. (3) Respondent's acts constitute the doing of business in the State of Missouri. (a) The reduction of the pressure under which the transported products are held for the purpose of changing and altering such products and performing an essentially local function. East Ohio Gas Co. v. Ohio Tax Comm., 75 L. Ed. 1171. (b) In maintaining storage facilities and in storing large quantities of petroleum products. General Oil Co. v. Crain, 209 U.S. 211, 52 L. Ed. 754; State ex rel. Hays v. Robertson, 271 Mo. 475; Kid v. Pearson, 128 U.S. 1, 32 L. Ed. 346; Nashville, Cincinnati & St. Louis Railroad Co. v. Wallace, 288 U.S. 249, 77 L. Ed. 730. (c) In maintaining and operating a manufacturing plant wherein petroleum products are blended, compounded and manufactured into a finished and marketable article of commerce. Bayside Fish Flour Co. v. Gentry, 80 L. Ed. 522; American Mfg. Co. v. St. Louis, 238 Mo. 267, Id. 270 Mo. 40, 250 U.S. 459, 63 L. Ed. 1084; United States v. Knight Co., 156 U.S. 1, 39 L. Ed. 325; Capitol City Dairy Co. v. Ohio, 183 U.S. 238, 46 L. Ed. 171; Delaware L. & W. Railroad Co. v. Yurkonis, 238 U.S. 439, 59 L. Ed. 1397; Oliver Iron Min. Co. v. Lord, 262 U.S. 172, 67 L. Ed. 929; Hammer v. Dagenhart, 247 U.S. 251, 62 L. Ed. 1101; Murphy v. Arnson, 96 U.S. 131, 24 L. Ed. 773; Utah P. & L. Co. v. Pfost, 286 U.S. 165, 76 L. Ed. 1038; Fed. Compress & Warehouse Co. v. McLean, 291 U.S. 17, 78 L. Ed. 622; Arkadelphia Milling Co. v. St. Louis S.W. Railroad Co., 249 U.S. 134, 63 L. Ed. 517; General Ry. Signal Co. v. Virginia, 246 U.S. 500, 62 L. Ed. 854. (d) The fact that respondent's contract for the interstate shipment of petroleum products contemplated the performance of the local functions of manufacturing, blending and compounding, does not change the essential nature of the local transaction and cannot change that transaction from intrastate commerce to interstate commerce. Browning v. City of Waycross, 233 U.S. 16, 58 L. Ed. 828. (e) It is immaterial at what place or point of the transaction that the local functions of manufacturing, blending and compounding take place. It still remains essentially a local function of intrastate commerce and cannot be changed by the mere form of contract. Chicago, M. & St. Ry. Co. v. Iowa, 233 U.S. 334, 58 L. Ed. 988. (f) The building, maintaining, renting and repairing of houses, the production and distribution for domestic purposes of water, electricity and fuel constitute intrastate business separable from the interstate transmission of petroleum products. East Ohio Gas Co. v. Ohio Tax Comm., supra. (g) Appellant's Exhibits F and G constitute admissions of respondent that it transacted intrastate business. (b) The court erred in refusing appellant's offer to prove the use of the telephone and telegraph system of respondent by Phillips Petroleum Company within the State of Missouri, as such constituted intrastate business. (4) The application of the Missouri Franchise Tax Act and the assessment of the tax sued for do not contravene the due process clause of the Federal Constitution. Costillo v. McConnico, 168 U.S. 674, 42 L. Ed. 622; St. Louis-S.F. Railroad Co. v. Middlekamp, 256 U.S. 226, 65 L. Ed. 905.

R.H. Hudson, H.H. Booth, Stockard & Stockard, H.P. Robinson and Hilary D. Mahin for respondent.

(1) A state cannot lay a tax on interstate commerce in any form. State Freight Tax Case, 15 Wall. 232, 21 L. Ed. 146; Robbins v. Shelby Taxing Dist., 120 U.S. 489, 30 L. Ed. 694; Philadelphia & S. Mail S.S. Co. v. Pennsylvania, 122 U.S. 326, 30 L. Ed. 1200; Leloup v. Mobile, 127 U.S. 640, 32 L. Ed. 311; McCall v. California, 136 U.S. 104, 34 L. Ed. 391; Brennan v. Titusville, 153 U.S. 289, 38 L. Ed. 719; Galveston, H. & S.A. Railroad Co. v. Texas, 210 U.S. 217, 52 L. Ed. 1031; Western U. Telegraph Co. v. Kansas, 216 U.S. 1, 54 L. Ed. 355; Pullman Co. v. Kansas, 216 U.S. 56, 54 L. Ed. 378; Meyer v. Wells, F. & Co., 223 U.S. 298, 56 L. Ed. 445; Crenshaw v. Arkansas, 227 U.S. 389, 57 L. Ed. 565; Simpson v. Shepard, 230 U.S. 352, 57 L. Ed. 1511; Lemke v. Farmers' Grain Co. of North Dakota, 258 U.S. 50, 66 L. Ed. 458. (2) The protection against the imposition of burdens upon interstate commerce is practical and substantial and extends to whatever is necessary to the complete enjoyment of the rights protected. Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 69 L. Ed. 439; New Jersey Bell Tel. Co. v. State Board of Taxes & Assessment, 280 U.S. 338, 74 L. Ed. 463. (3) The mere fact that the charter of respondent gives it the right to engage in business in Missouri does not give the State power to impose a franchise tax on respondent where in fact said right is never exercised. Sec. 4641, R.S. 1929; Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 69 L. Ed. 439; Anglo-Chilean Nitrate Sales Corp. v. Alabama, 288 U.S. 218, 77 L. Ed. 710. (4) The exercise of the right of eminent domain by virtue of a license from the State of Missouri to engage in business in that state does not constitute doing business so as to subject an interstate carrier to the Missouri Franchise Tax. Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 69 L. Ed. 439; State ex rel. Cities Service Gas Co. v. Pub. Serv. Comm., 85 S.W. (2d) 890. (5) Interstate commerce, once begun, continues to the point of ultimate destination as intended by the parties, and any interruption in the continuous flow of such commerce, brought about by change in the form of carriage for the benefit of the carrier, does not break the continuity of interstate commerce. State, Detmold & Cox, v. Engle, 34 N.J.L. 425; General Oil Co. v. Crain, 209 U.S. 211, 52 L. Ed. 754; Champlain Realty Co. v. Brattleboro, 260 U.S. 366, 67 L. Ed. 309; Southern Pac. Term. Co. v. Interstate Commerce Comm., 219 U.S. 498, 55 L. Ed. 310; Railroad Comm. of Ohio v. Worthington, 225 U.S. 101, 56 L. Ed. 1004.

Neale & Newman amicus curiae.

In a suit on a tax bill, it may be shown in defense that the taxing authorities did not have jurisdiction to assess the tax. State ex rel. Morris v. Cunningham, 153 Mo. 642, 55 S.W. 251; State ex rel. Koeln v. Title Guar. Trust Co., 261 Mo. 448, 169 S.W. 29; Crone v. Dawson, 19 Mo. App. 214; Wyeth Hardware Co. v. Lang, 54 Mo. App. 152; McLean v. Jephson, 25 N.E. 409, 9 L.R.A. 492; Elmhurst Fire Co. v. New York, 213 N.Y. 87, 106 N.E. 920; People ex rel. v. State Tax Comm., 246 N.Y. 322, 158 N.E. 884; Consumers' Ice Co. v. State, 33 Atl. 427; Moffitt v. Reed, 246 N.W. 853; State ex rel. Koeln v. Lesser, 237 Mo. 310, 141 S.W. 888.

COLLET, J.

This is an action brought by the Attorney General on behalf of the State of Missouri to collect corporation franchise taxes for the year 1934 in the amount of $1117.71 from the defendant Phillips Pipe Line Company. The respondent is a Delaware corporation authorized, on its application, to transact business in the State of Missouri as a foreign corporation. With the exception of three qualifying shares of a total of 1000 shares of capital stock it is wholly owned by the Phillips Petroleum Company. The Attorney General contends that Sections 4596 and 4641, Revised Statutes 1929, read together impose a privilege tax upon all corporations authorized to transact business within this State regardless of whether intrastate business is actually engaged in. He asserts further that even if the statute is not properly susceptible to that construction still respondent is actually engaged in intrastate business and is estopped to deny that fact. Respondent takes sharp issue with the Attorney General's construction of Sections 4641 and 4596, supra, insisting that these statutes contemplate a tax only upon corporations actually engaged in intrastate business. It further denies that its business is in any respect intrastate in character or that it is estopped to assert and maintain that position and asserts that the imposition of the tax would constitute a burden upon interstate commerce in violation of the commerce clause of the Federal Constitution, and would further constitute a denial of respondent's rights under the "due process" clause of the Federal and State Constitutions.

The respondent operates an underground pipe line from Borger, Texas to East St. Louis, Illinois, with a branch line from Paola, Kansas, to Kansas City, Kansas. Petroleum products are introduced into the pipe line at Borger, Texas, Eldorado, Kansas, Paola, Kansas, and Kansas City, Kansas, and delivered at terminal points located at Wichita, Kansas, Jefferson City, Missouri, and East St. Louis, Illinois. Pumping stations are maintained at intervals along the line to maintain sufficient pressure to propel the product being transported. During the year 1934 the pipe line was devoted to the transportation of five commodities — butane, twenty-six-pound natural gasoline, straight run refinery gasoline, cracked gasoline and twelve-pound natural gasoline. None of these alone constitutes a satisfactory motor fuel but combined...