State v. Reed Oil Co.

• Court: Tennessee Supreme Court
• Writing for the Court: COOK, Justice. COOK, Judge.
• Citation: State v. Reed Oil Co., 137 S.W.2d 292, 176 Tenn. 10 (Tenn. 1926)
• Decision Date: 10 July 1926
• Parties: STATE v. REED OIL CO.

137 S.W.2d 292

176 Tenn. 10

STATE v. REED OIL CO.

Supreme Court of Tennessee.

July 10, 1926

Designated for Publication March 2, 1940.

Appeal from Chancery Court, Davidson County; John R. Aust Chancellor.

Action by the State against the Reed Oil Company to recover inspection fees and privilege taxes on petroleum products. From a decree for plaintiff, defendant appeals.

Decision in accordance with opinion.

Frank M. Thompson, Atty. Gen., and Charles C. Trabue, Sr., and William L. Granbery, both of Nashville, for complainant.

Crabtree & Crabtree, of Memphis, for defendant.

COOK Justice.

This appeal involves the validity of Chapter 33, Pub. Acts of 1917, and related Statutes levying inspection fees on coal oil and gasoline, and Chapter 54, Pub. Acts of 1925, imposing a privilege tax on petroleum products on which the inspection fees are not paid. A proviso of the Act excludes from taxation products on which inspection fees have been paid. The privilege tax imposed by the latter Act is slightly higher than the fees paid under the former Acts.

The Reed Oil Company was engaged in the sale of petroleum in Tennessee and from July 1, 1924, to December 31, 1925 refused to pay any inspection fees. From April 11, 1925, to December 31, 1925, it refused to pay the privilege tax. It insisted that the inspection fees are so excessive as to render the Statutes providing for the inspection of such products void, and that the Act imposing the privilege tax makes an arbitrary classification which renders it void.

The Chancellor sustained both Acts and upon the admission of Reed Oil Company that if the State was entitled to recover inspection fees the recovery should be $16,704.90, he gave a decree for that sum with interest. The inspection fees allowed by the Chancellor covered the entire period for which the State could claim a privilege tax and no recovery was allowed under the latter Act because the Company could not be held for both inspection fees and the privilege tax.

It is said by the Company that the Statutes providing for the inspection of petroleum products in this State and the payment of the charge provided in Section 2, Chapter 33, Pub. Acts of 1917, produces fees so greatly in excess of the cost of the inspection as to render the Act void, and that it is void because it constitutes a burden on interstate commerce. It is insisted that Chapter 54, Pub.Acts of 1925, is void because of its arbitrary classification contrary to Article 1, Sec. 8, and Article 11, Sec. 8, of the State Constitution and the Fourteenth Amendment to the Federal Constitution, U.S.C.A.

It appears from the record that products of the Reed Oil Company are all produced in another State and are shipped to this State where they are sold and distributed. It also appears that Reed Oil Company does not reship nor transport any of its products after their arrival here to another State for any purpose. A stipulation in the record shows:

"1. Defendant, Reed Oil Company, is a corporation, and was organized in 1922 and has since been engaged in business as a dealer, both as wholesaler and jobber, in petroleum products in Davidson and Madison Counties, Tennessee.

"2. Defendant paid the coal oil and gasoline inspection fees on all products sold by it up to July 1, 1924, since which time it has failed and refused to pay such inspection fees; but it then and has since offered to pay, and has been ready, able and willing to pay, its proportionate part of the expense to the State of making inspection.

"3. Said defendant has likewise wholly failed and refused to pay the one-half cent tax prescribed by chapter 54 of the Acts of 1925.

"4. The number of gallons of oil and gasoline sold by said defendant from July 1, 1924, to December 31, 1925, inclusive, upon which it has paid neither inspection tax nor one-half cent gasoline tax is as shown in Exhibit A to the bill in the cause Rule No. 37413.

"5. Almost all petroleum products sold in Tennessee are manufactured in other parts of the United States and shipped into Tennessee, and this was true of all products handled by defendant, Reed Oil Company. Such products were and are brought in by dealers in various forms, quantities and containers; some are in barrels and casks, which are then by dealers resold to their customers in the original unbroken containers. Also a portion of such commodities were and are shipped to dealers in railroad tank cars, and in instances are resold to customers in such tank cars without being unloaded or broken, while in other instances the cars are unloaded and the contents transferred to the dealers' storage tanks; in other instances products are sold to consumers on orders taken before shipment and shipped from other states direct to purchaser. The greater portion of the products are stored in storage tanks of dealers and delivered to customers and consumers by tank wagons or service station pumps. No distinction is made by the State's inspectors between any of said commodities, and no claim until now has been made by any dealer that any particular portion of his commodity is exempt from payment of inspection fees. This particular defendant does not reship or transport any of its products to other states.

"6. The following shows the aggregate inspection fees collected by the state and also the cost thereof to the state, including salaries and expenses, for the several periods from 1915 to 1925, inclusive:

Amount Cost to

Collected State

For the biennial period from 1922 to 1924 .. $769,725.03 $38,784.79

For the biennial period from 1920 to 1922 ... 645,455.93 36,229.52

For the biennial period from 1918 to 1920 ... 401,468.53 24,321.85

For the biennial period from 1917 to 1918 ... 317,912.75 27,783.71

For the biennial period from 1915 to 1917 ... 163,948.10 24,364.79

"7. There are approximately 100 wholesale dealers and jobbers in Tennessee who are engaged in the same business that defendant, Reed Oil Company, is engaged in. Many of them have, like said defendant, failed and refused to pay inspection fees since August 1, 1924, and the 1/2 cent privilege tax since its passage in April, 1925. Others have paid the inspection fees falling due, and such as have paid inspection fees have not and will not be required to pay the 1/2 cent privilege tax under chapter 54, Pub.Acts 1925.

"8. The quantity of gasoline reported by the State inspectors as having been inspected in 1924 was 2,066,455 gallons less than the quantity upon which the 2 cent privilege tax under Acts 1923 was paid through the Excise Tax Department in that year.

"9. As shown in Section 4 hereof, the number of gallons sold by defendant from July 1, 1924, to December 31, 1925, upon which no inspection fees have been paid in 4,008,513; and if the defendant is liable for said fees, then the amount of its liability for the period from July 1, 1924, up to December 31, 1925, would be $16,704.90 exclusive of interest and costs.

"10. As shown in section 4 hereof, the number of gallons of oil and gasoline sold by said defendant from and after the taking effect of the one-half cent privilege tax on April 11, 1925, up to and including December 31, 1925, is 2,507,749, and if defendant is held bound to pay the one-half cent tax, then the amount of its liability for that tax from April 11, 1925, to December 31, 1925, would be $12,538.75 exclusive of interest and costs.

"11. Defendant denies in its answer that the petroleum products involved have been inspected by the state as required by its inspection laws. This stipulation shall not be construed as admitting inspection, but that issue is left as made by the pleadings, and either party may take such proof pertaining thereto as desired within thirty days from this date; three days' notice of time and place of taking depositions shall be sufficient for either party to give the other."

Defendant states in its answer that a large and undeterminable portion of the petroleum products that are shipped into Tennessee is interstate commerce, and that the inspection fees levied thereon by the State constitutes a burden upon, and an attempt to regulate interstate commerce in violation of the commerce clause of the Federal Constitution, U.S.C.A. Const. art. 1, § 8, cl. 3. Whether this statement in the answer refers to such products generally, or is intended to apply to the defendant's business does not clearly appear from the answer. It does appear from the stipulation that the greater portion of the products that Reed Oil Company sends in the State is placed in the storage tanks of dealers and delivered to consumers by tank wagons or service station pumps.

Numerous depositions were taken, but this evidence is confined altogether to the diligence and activity of the State's inspectors. It does appear, however, from the deposition of Mr. H. G. Buchanan that he is the warehouseman for the Reed Oil Company in Nashville, Tennessee, having charge of the Company's stock and of the unloading of all cars, and that he also has supervision of loading oil into tank wagons and the distribution of the products of Reed Oil Company in Tennessee. The record is silent as to the quantity of the defendant's products, if any delivered directly upon orders to customers in this...