State v. Transcontinental Gas Pipe Line Corp.
| Decision Date | 14 January 1960 |
| Docket Number | 3 Div. 865 |
| Citation | 123 So.2d 172,271 Ala. 329 |
| Parties | STATE of Alabama v. TRANSCONTINENTAL GAS PIPE LINE CORPORATION. |
| Court | Alabama Supreme Court |
MacDonald Gallion, Atty. Gen., Guy Sparks, Special Asst. Atty. Gen., and Wm. H. Burton, Asst. Atty. Gen., for appellant.
Johnston, McCall & Johnston and Samuel M. Johnston, Mobile, and Cabaniss & Johnston and E. T. Brown, Jr., Birmingham, for appellee.
The State Department of Revenue made an assessment for franchise taxes under the provisions of Sec. 348, Title 51, Code of 1940, as amended, covering the tax year 1956 against Transcontinental Gas Pipe Line Corporation, a corporation. From this final assessment the appellee appealed to the Circuit Court of Montgomery County, Alabama, in Equity, under the provisions of Title 51, Sec. 140, Code of Alabama of 1940. The case was submitted in the lower court on the bill of complaint and answer; a written stipulation and agreed statement of facts and exhibits thereto; the testimony of one witness and the oral arguments and briefs filed by counsel. From the final decree rendered in favor of Transcontinental Gas Pipe Line Corporation the State prosecutes this appeal.
The facts as found by the trial court are as follows: Appellee was in 1956 and prior thereto a corporation organized under the laws of Delaware. It was in 1956, and at all times has been, a natural gas company in interestate commerce within the meaning of the Act of Congress known as the Natural Gas Act, 15 U.S.C.A. §§ 717-717w, and subject to the jurisdiction of the Federal Power Commission, operating in Alabama and other states solely under certificates of public convenience and necessity issued by the Federal Power Commission. Appellee has never sought certificates of public convenience and necessity from, or approval of its rates and tariffs by, the State of Alabama or any other state, and the state of Alabama has never asserted any regulatory authority or jurisdiction over any of its rates or practices.
During 1956 appellee owned and operated an interstate natural gas transmission system extending approximately 3,087 miles from sources of gas supply in Texas and Louisiana through the States of Mississippi, Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania, and New Jersey to a terminus at New York City. Some 353 miles of this pipeline were located in Alabama.
As the gas transported by the appellee moved through the interstate transmission line, its pressure was gradually lost by friction, requiring the use of compressor stations located at intervals to increase the pressure so that the gas would continue to move. Three compressor stations were owned and operated by appellee in Alabama in 1956. Each compressor station was comprised of several buildings and facilities. At each appellee used gas from its main pipeline as fuel for compressor engines and for heating offices, shops and warehouse facilities and houses. The appellee used gas from its main lines to provide fuel for engines which generated electricity which was also used at its stations. It procured water from rivers, creeks, etc. close to each station in Alabama. It maintained one or more large tanks at each station for water for domestic and personal use at all buildings which were a part of the station, and at two of the stations maintained tanks for water necessary for the operation of the station.
In order to assure the operation of each compressor station, it was necessary for trained persons to be readily available for duty at all times. For this purpose appellee maintained houses at the various stations and required that the superintendent and repair foreman of each station occupy a house. The other houses were occupied by persons highly skilled in the operation of the station. The houses at the stations were occupied by employees of appellee who paid rent of $40 a month which was less than the annual depreciation. The appellee furnished without charge to each house electricity generated by it and gas and water from the domestic supply.
The order of the Federal Power Commission granting appellee its certificate of public convenience and necessity provided that 'Transcontinental is authorized to transport and sell natural gas in interstate commerce' to certain companies and communities including some in Alabama, and that 'Transcontinental shall not transport or sell natural gas to or for any customer except as authorized herein'. From time to time the F.P.C. ordered appellee to serve additional municipal corporations in Alabama. During 1956 appellee sold gas in Alabama to no person, firm or corporation except thirteen municipalities. The sale of gas to each was pursuant to and in conformity with orders of the F.P.C. entered in response to petitions of the purchasers or their official representatives seeking mandates directing the sales, and facilities used for deliveries were constructed pursuant to and in conformity with orders of the F.P.C. Orders of the F.P.C. forbade the delivery by appellee of gas to the buyer at a pressure less than 50 pounds per square inch gauge. At no time was gas delivered at a pressure less than 50 pounds per square inch gauge, but was always delivered at a pressure substantially higher than 50 pounds per square inch gauge. In order to be usable it was necessary to reduce the pressure substantially from the pressure at which it was delivered by appellee.
During 1956 appellee owned and operated 12 meter stations designed to measure gas delivered to municipalities located in Alabama. Every meter station was as near the main pipeline as prudent engineering, reasonable accessibility and accepted safety practices would permit. All but three of such meter stations were within 100 feet of the pipeline, and the remaining ones were within 210 feet. All facilities to the point of delivery were owned by appellee. All facilities after the point of delivery were owned by the purchaser.
The gas purchased in 1956 by each municipal corporation in Alabama was purchased primarily for resale with small quantities of it being used and consumed by each purchaser. No municipal corporation used more than 2% of the gas purchased.
It was necessary for each municipality purchasing gas from appellee to reduce the pressure of the gas below the pressure at delivery before using it or reselling it.
All other activity of appellee in 1956 was found by the trial court to be an integral and necessary part of either the construction or maintenance of its interstate transmission system. It maintained an integrated VHF mobile and microwave radio-telephone communication system in this regard; it rented buildings to house work equipment; it rented for approximately two weeks a small office in connection with its authorized construction; it stored pipe which was used in the construction; it maintained small bank accounts in each of four banks in Alabama in connection with the construction of its transportation system.
In 1952 the F.P.C. at the instance of appellee and Southern Natural Gas Company, a Delaware corporation, issued certificates of public convenience and necessity to each corporation authorizing Southern and appellee to construct and operate facilities for the exchange or sale or delivery of natural gas between Southern's pipeline system and appellee's pipeline system. These facilities were, in the language of the F.P.C. order 'proposed to be used in the transportation and sale of natural gas for resale in interstate commerce'. The two companies entered into contracts whereby each agreed to sell or buy gas from the other. During 1956 appellee sold no gas to Southern in Alabama. During the period from May 17, 1956 and ending May 19, 1956, and the period beginning June 29, 1956 and ending June 30, 1956, Southern, pursuant to the aforesaid contract, sold gas to appellee in Alabama. Appellee purchased gas from Southern in May and June, 1956, due to a temporary shutdown of its transmission system west of Alabama on account of construction or relocation of its system. During these periods Southern sold appellee a total of 148,242 MCF of natural gas for which appellee paid $31,068. All of the natural gas sold in Alabama in 1956 by Southern to appellee was produced in states other than the State of Alabama and brought into Alabama from such other states by Southern's pipeline system. The pressure of the gas was not reduced in the course of the delivery from Southern's system to appellee's system.
The trial court found that appellee has never maintained any general or corporate office in Alabama, nor has it any personnel located in this state who are authorized to solicit business, accept contracts for purchase or sale of gas, settle or adjust accounts, determine managerial policy, or otherwise perform management functions other than those relating solely to the operation, construction, and maintenance of its transmission system.
All records kept by appellee in Alabama during 1956 were found to be only those records pertaining to its interstate transmission system. All employees of appellee were those engaged solely and directly in the service of constructing, maintaining or operating its interstate system.
Appellee paid all ad valorem taxes assessed by proper state authorities on its property located in Alabama, income taxes to the State of Alabama on its net income allocated to business done in Alabama, sales or use taxes on all tangible personal property purchased or used in its interstate activities in Alabama, and unemployment compensation taxes with respect to its employees in Alabama.
The questions involved in this case are:
1. Does The Alabama Foreign Corporation Franchise Tax apply to a foreign corporation engaged solely in interstate commerce in Alabama?
2. If the tax is applicable to a foreign corporation doing solely an interstate business in this state, is it violative...
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