State v. Southern Natural Gas Corporation

• Citation: 233 Ala. 81,170 So. 178
• Decision Date: 11 June 1936
• Docket Number: 3 Div. 173
• Parties: STATE v. SOUTHERN NATURAL GAS CORPORATION.
• Court: Supreme Court of Alabama

170 So. 178

233 Ala. 81

STATE v. SOUTHERN NATURAL GAS CORPORATION.

3 Div. 173

Supreme Court of Alabama

June 11, 1936

Rehearing Denied Oct. 15, 1936

Appeal from Circuit Court, Montgomery County; Walter B. Jones Judge.

Appeal to the circuit court by the Southern Natural Gas Corporation from an assessment by the State Tax Commission for franchise taxes. From a decree setting aside the assessment, the State appeals.

Reversed and rendered.

A.A Carmichael, Atty. Gen., and Frontis H. Moore, Asst. Atty Gen., for the State.

Cabaniss & Johnston and Jos. F. Johnston, all of Birmingham, for appellee.

THOMAS Justice.

The appeal to the circuit court was from an assessment made by the state tax commission. Gen.Acts 1927, p. 181, § 66.

The insistence was that the items included in the computation of the assessment did not constitute capital employed in intrastate business within the state of Alabama and within the purview of section 232 of the Constitution of Alabama. The franchise tax for the year 1931, as provided by the Revenue Act of 1927 (Gen.Acts 1927, p. 176, § 54), was fixed by the state tax commission at $11,047.43, based upon capital employed in Alabama, found to amount to $5,523,715.

The submission for decision by the circuit court was upon an agreed statement of facts; the decision was for that appellant, and the state appealed to this court for a review of the adverse ruling of the circuit court. The agreed statement of facts is aided by exhibits which illustrate that pleading and are to be considered, in testing the correctness of the judgment rendered, as a part of the statement of facts. Grimsley v. First Ave. Coal & Lumber Co., 217 Ala. 159, 115 So. 90.

The record shows that appellee is a Delaware corporation qualified to do business in this state. Its original and amended charter was filed in its qualification under section 232 of the Constitution of Alabama. Its corporate powers are enumerated as follows:

"The charter in brief authorized it to store, transport, buy and sell, oil, gas, salt, brine, and other mineral solutions; to manufacture, acquire, distribute, use and sell artificial gas and to acquire, produce, use and sell the by-products and the residual products therefrom, and construct, maintain, operate, etc., all works necessary; to mine, produce, buy, acquire, use, sell, and distribute natural gas and its by-products and to acquire all works, equipment, and appurtenances necessary therefor; to produce, generate, buy, use and sell a mixture of artificial and natural gas to distribute the same and to construct such ways and works as necessary therefor; to construct, lay, purchase, acquire, maintain, and operate, sell, encumber or otherwise dispose of all necessary pipe lines, gas mains, plants and systems, for the use, sale and distribution of gas, over or under streets, alleys, etc., through private property and to acquire the same by eminent domain; to acquire, manufacture and deal in ice. Also an elaborate enumeration of powers connected with and incidental in the foregoing businesses including the right to sell stocks, bond, etc. ***

"From the date of the qualification of the Southern Natural Gas Corporation through and including the date of the assessment appealed from, the Corporation had been qualified to do business as a corporation in the State of Alabama and has had the right to use and enjoy all the powers as authorized by its charter; that it paid a permit fee annually and annually secured the right to do whatsoever it was legally authorized to do in the State of Alabama. (Italics supplied.)

"At the time of the assessment the corporation maintained its office and chief place of business in the City of Birmingham, Alabama; a majority of orders for gas were received by and cleared through the Birmingham office; all collections for sales were received and disbursements for expenses made or authorized at said office; that the entire management, control and conduct of the business was conducted from said office; the corporation owned and operated automobiles and motor trucks which were used in the maintenance of its pipe lines; the corporation maintains a bank account and has offices and office equipment in Birmingham; the contract under which gas is supplied by the corporation to the Birmingham Gas Company was made and approved in Birmingham; the contract with the Alabama Utilities Service Company was made and executed by the officers of the corporation in Atlanta, Georgia, and the contract under which gas is supplied to the Tennessee Coal, Iron and Railroad Company was made and executed by the officers of the corporation in the City of New York.

"That the subsidiary of the United States Steel Corporation hereinafter referred to is principally the Tennessee Coal, Iron and Railroad Company and other affiliated companies operating steel and industrial plants in the Birmingham district and which are not public utilities but which consume the gas in their own right.

"That the sales to the Tennessee Company and its affiliates are made from time to time upon orders given by the Birmingham office as the needs of such purchasers require; that the gas purchased by these companies is transported into the State through the high pressure transmission system of Southern Natural Gas Corporation, which is made up of the main high pressure line and its numerous laterals, which deliver natural gas to its various customers at the border line of their premises; that in the sales to the Tennessee Company and its affiliates the pressure is reduced at the point of delivery for the accommodation of the purchaser to meet their needs and requirements. The exact quantities of gas required by the corporation's customers in the State are purchased by the corporation from the producers in the Louisiana and Mississippi fields each day."

The agreed statement of facts further recites:

"Beginning in, to-wit, May, 1929, appellant began the construction of its pipe line for the transmission of natural gas as aforesaid, and by January 1, 1931, appellant had constructed its main lines from the Louisiana fields to Atlanta, Georgia, and Columbus, Georgia, the Columbus line turning South from the Atlanta line at a point near Tuscaloosa, Alabama.

"Appellant has from the outset made use of said transmission line solely for the purpose of transmitting natural gas, originally from the natural gas fields known as the Monroe field and the Richland field in northeast Louisiana, and subsequently (beginning in the Spring of 1931) including a small proportion of gas from the natural gas fields in the vicinity of Jackson, Mississippi.

"Since organization, appellant's business had been the transmission of said gas from the Louisiana and Mississippi fields above-mentioned for sale in the several states mentioned, other than the State of Louisiana, in which no sales were made."

Its contracts for sales are thus stated:

"On January 1, 1931, and thereafter up to and beyond May 13, 1931 (the date of the final assessment herein appealed from), appellant entered into and held no contract for the delivery of natural gas to any person, firm, or corporation within the State of Alabama, except to the following corporations, viz.:

"(a) Alabama Natural Gas Corporation, This corporation was not a consumer of gas. It was throughout the year 1931 and prior thereto engaged in the distribution of natural gas purchased from appellant, said Alabama Natural Gas Corporation being a public utility doing business in Alabama in intrastate commerce and subject to regulation by the Alabama Public Service Commission.

"A copy of the contract with Alabama Natural Gas Corporation is hereto attached marked Exhibit A and made a part hereof.

"(b) Southern Cities Public Service Company, a holding company which entered into contract with appellant for the supply of the subsidiary distributing companies of Southern Cities Public Service Company, doing business as public utilities in the State of Alabama, viz.: Alabama Utilities Service Company, Tri-Cities Gas Company, and Mobile Gas Company. None of said corporations were consumers of gas. All were and are distributors.

"(c) Birmingham Gas Company and subsidiary or affiliated company (Industrial Gas Corporation), both utilities or distributing companies and not consumers.

"(d) Subsidiaries of the United States Steel Corporation, viz.; Tennessee Coal, Iron & Railroad Company and Universal-Atlas Cement Company, which purchased gas at their respective meter stations and distributed same by their own lines to their several points of operation.

"A copy of the contract with the Tennessee Coal, Iron and Railroad Company is hereto attached marked Exhibit 'B' and made a part hereof."

The delivery of gas is declared and to have been made by appellant to all of said purchasers under the following conditions:

"The gas sold to the said purchasers was gas delivered in continuous movement from the gas fields in Louisiana or Mississippi without break or interruption, to the point where it was delivered to and received by the purchaser, viz.: the meter house at which the gas so sold was measured for the purpose of payment.

"In cases of all deliveries made by appellant, the gas was moved under unregulated gas pressure, as produced by the natural pressure of the gas wells, to the designated points of delivery; in all cases in continuous flow from the Louisiana or Mississippi gas fields without cessation from the beginning of movement outside of the State of Alabama until delivery."

The industrial activities of the company as affecting its future deliveries are thus indicated:

"The foregoing statement is correct as of January 1, 1931, the accrual date of the tax assessed for such...