State v. Pure Oil Co.

• Citation: 55 So.2d 843,256 Ala. 534
• Decision Date: 08 March 1951
• Docket Number: 6 Div. 86
• Parties: STATE v. PURE OIL CO.
• Court: Supreme Court of Alabama

Page 843

55 So.2d 843

256 Ala. 534

STATE v. PURE OIL CO.

6 Div. 86.

Supreme Court of Alabama.

March 8, 1951.

Rehearing Denied June 28, 1951.

Further Rehearing Denied Jan. 10, 1952.

A. A. Carmichael, Atty, Gen., and Wm. H. Burton, Jr., Asst. Atty. Gen., for appellant.

Lange, Simpson, Robinson & Somerville and Reid B. Barnes, of Birmingham, and Vinson Elkins & Weems, Houston, Tex. and Allen C. Hutcheson, Jr., of Chicago, Ill., for appellee.

BROWN, Justice.

The statute, § 634, Title 51, Code of 1940, levies a privilege tax on 'Each person, firm, corporation, or agency selling illuminating, lubricating, or fuel oils at wholesale, that is to say in quantities of twenty-five gallons or more,' in the amount of one-half of one percent 'on his gross sales for the preceding fiscal year,' and provides that such payment shall be made 'within two weeks from the beginning of the fiscal year' to the state department of revenue. Pure Oil Co. v. State, 244 Ala. 258, 12 So.2d 861, 148 A.L.R. 260; State v. Anglo-Chilean Nitrate Sales Corp., 225 Ala. 141, 142 So. 87.

Said department on December 20th, 1948, ascertained and fixed the amount of said tax to be paid by the appellee taxpayer to be $15,396.19, to which the taxpayer protested and said protest being overruled the assessment was made final from which the taxpayer appealed to the circuit court, in equity, and filed its bill challenging the validity of said assessment on the ground that said section of the code contravenes the Constitution of the State and of the United States, in that it denies to the taxpayer equal protection of the law under the Fourteenth Amendment of the Constitution and that the classification set up in the statute is arbitrary and unreasonable and levies said tax in an unequal and discriminatory manner as to persons in the same classification or business.

The bill further alleges in support of said stated contentions that the taxpayer 'is engaged in the business of selling, within the State of Alabama, petroleum, products, including illuminating, lubricating and fuel oils. Said products are sold to two general classes of customers. One such class is persons who purchase the same for resale, commonly termed wholesale sales. The other class is persons who purchase the same for their own use and not for resale either in the same form or as a component part of a manufactured product, commonly termed retail sales. The types of products and customers dealt with by Taxpayer are similar to those of other oil companies doing business in the State of Alabama. During the period in question in this proceeding, namely October 1, 1945 to September 30, 1946, Taxpayer made sales to purchasers for resale in the State of Alabama totaling $875,457.85, of which sales $350,464.16 were sales in quantities of less than twenty-five gallons and $524,993.69 were sales in quantities of twenty-five gallons or more. During said period Taxpayer made sales to purchasers for their own use and not for resale totaling $1,884,004.80 of which sales $67,939.25 were sales in quantities of less than twenty-five gallons and $1,816,065.55 were sales in quantities of twenty-five gallons or more. The assessment above referred to is levied on all such sales regardless of the type of purchaser involved and regardless of whether such sales were in quantities of more or less than twenty-five gallons, although said Section expressly exempts from the tax sales in quantities of less than twenty-five gallons. The said assessment is based on total sales during the period in question, both under and over twenty-five gallons, of $2,763,108.00, and the taxpayer does not deny that its total sales amounted to such figure. The breakdown of figures, above made and hereafter made, is based on an audit of invoices for the period totaling $2,759,462.65. The discrepancy amounting to $3,645.35 arises from invoices which have been lost or mislaid so that same could not be analyzed and segregated, and in the event the tax in question is upheld in whole or in part, Taxpayer will be willing that the amount of this discrepancy be included in taxable sales.

'The determining factor in whether the products here involved are sold in quantities of more or less than twenty-five gallons is one of chance and the nature of the product rather than any classification of the business involved.

'Lubricating oils are sold principally to customers who purchase for resale. When sold for resale, the sales are principally in quantities under twenty-five gallons. When lubricating oils are sold for the customer's own use, the sales are principally in quantities over twenty-five gallons. Lubricating oils are sold to customers who purchase for resale; are largely sold in one quart cans, purchased in case lots of twenty-four quarts or six gallons. It is entirely a matter of chance whether such a customer orders more than four cases at once or makes successive purchases of four cases or less; therefore, the imposition of the tax on such sales depends on chance and a method of doing business. Customers who purchase lubricating oils from Taxpayer at retail for their own use, do so largely in drums containing more than twenty-five gallons. During the period here in question Taxpayer made sales of lubricating oils to customers for resale totaling $446,065.00, of which sales $288,569.32 were in quantities of less than twenty-five gallons and $157,495.68 were in quantities of twenty-five gallons or more. Sales of lubricating oils to customers for their own use during the same period totaled $195,274.83, of which sales $44,554.22 were in quantities of less than twenty-five gallons and $150,720.61 were in quantities of twenty-five gallons or more.

'Fuel oil is sold by Taxpayer largely to customers who purchase the same for their own use for heating or power. The nature of the use and the product is such that such sales are almost entirely in quantities of more than twenty-five gallons. During the period in question Taxpayer's sales of fuel oil to purchasers for resale totaled only $117,407.85, of which $51.48 were sales in quantities of less than twenty-five gallons and $117,356.37 were in quantities of twenty-five gallons or more. On the other hand, during this period Taxpayer's sales of fuel oil to customers for their own use totaled $1,585,348.94, of which sales $503.00 were in quantities of twenty-five gallons or less and $1,584,845.94 were in quantities of twenty-five gallons or more. All such sales to customers for their own use were subjected to the Retail Sales Tax of Alabama and such taxes were paid thereon.

'Greases, like lubricating oils, are sold by Taxpayer both in small lots and in bulk, the size of the purchase depending largely on chance. During the period in question Taxpayer made sales of greases to customers for resale totaling $67,166.12, of which $47,659.05 were in quantities of less than twenty-five gallons and $19,507.07 were in quantities of twenty-five gallons or more. During the same period Taxpayer's sales of greases to ultimate consumers totaled $70,996.14, of which sales $21,546.70 were in quantities of less than twenty-five gallons and $49,449.44 were in quantities of twenty-five gallons or more.

'Kerosene, being principally a domestic illuminating oil, is sold largely by Taxpayer to purchasers who purchase for resale and in quantities of more than twenty-five gallons. During the period in question Taxpayer made sales of kerosene to purchasers for resale totaling $244,818.88, of which $14,184.31 were in quantities of less than twenty-five gallons and $230,634.57 were in quantities of twenty-five gallons or more. During the same period Taxpayer's sales of kerosene to consumers for their own use totaled only $32,384.89, of which sales $1,335.33 were in quantities of less than twenty-five gallons and $31,049.56 were in quantities of twenty-five gallons or more. * * *'

The bill prays in short that the ascertainment of the amount of the tax should be voided in toto or limited to such oils sold in quantities of twenty-five gallons or more.

In the course of the proceedings in the circuit court the original bill was finally abandoned and a substituted bill filed to which the state demurred on the grounds that the bill was wanting in equity and numerous other specific grounds addressed to said substituted bill. The court overruled the demurrer and the state has appealed.

The appellee renewed the contentions stated in said substituted bill but the state contends that said statute is a valid exercise of legislative power under both the Constitution of Alabama and the Fourteenth Amendment of the Federal Constitution and that the levy is sound. The appellee's objection to the levy assumes that the tax imposed by said statute is a tax on the sales of fuel oils. That assumption is not true. As stated at the outset of this opinion the tax is a privilege tax and not a sales tax.

It has been repeatedly held that 'In levying a privilege or license tax as to trades, businesses or occupations, the legislature may not discriminate between members of the same class, and the tax must not be so exorbitant as to prohibit or unreasonably restrain or oppress legitimate and useful trades, businesses or occupations, that are not productive of disorder or injurious to the public. In applying the tax the classification or reclassification cannot be arbitrary, fanciful or capricious, but must have a substantial basis as distinguished from a mere fictitious or fanciful basis. Aside from these restrictions, the legislative power is unrestrained. Republic Iron & Steel Co. v. State, 204 Ala. 469, 86 So. 65, 69; State v. Downs, 240...