Stone v. Interstate Natural Gas Co., 9024.

• Decision Date: 05 June 1939
• Docket Number: No. 9024.,9024.
• Citation: 103 F.2d 544
• Parties: STONE, Commissioner of Franchise Tax, v. INTERSTATE NATURAL GAS CO. INTERSTATE NATURAL GAS CO. v. STONE, Commissioner of Franchise Tax.
• Court: U.S. Court of Appeals — Fifth Circuit

103 F.2d 544 (1939)

STONE, Commissioner of Franchise Tax, v. INTERSTATE NATURAL GAS CO. INTERSTATE NATURAL GAS CO. v. STONE, Commissioner of Franchise Tax.

No. 9024.

Circuit Court of Appeals, Fifth Circuit.

April 29, 1939.

Writ of Certiorari Granted June 5, 1939.

COPYRIGHT MATERIAL OMITTED

J. A. Lauderdale and Greek L. Rice, both of Jackson, Miss., for appellant A. H. Stone, Commissioner of Franchise Tax.

Garner W. Green, Marcellus Green, and Forrest B. Jackson, all of Jackson, Miss., William A. Dougherty, of New York City, and Maxwell Bramlette, of Woodville, Miss., for appellee Interstate Natural Gas Co.

Before SIBLEY, HUTCHESON, and HOLMES, Circuit Judges.

Writ of Certiorari Granted June 5, 1939. See 59 S.Ct. 1047, 83 L.Ed. ___.

SIBLEY, Circuit Judge.

These appeals are from a judgment in the District Court whereby Interstate Natural Gas Company recovered against "A. H. Stone, Commissioner of Franchise Tax, the sum of $4,565" with interest and costs for which execution is ordered to issue. The alleged cause of action was that Stone had forced the Gas Company to pay under protest franchise taxes for 1935, 1936 and 1937 under Chapter 121, Laws of 1934 of the State of Mississippi, but unlawfully, because the Gas Company was engaged only in interstate commerce in Mississippi, so that the tax could not be collected from it because of the Commerce Clause of the Constitution, U.S.C.A.Const. art. 1, § 8, cl. 3. It was also pleaded that the Gas Company's immunity from such a tax was res judicata because of the decree of Dec. 4, 1931, of a three-judge federal court which enjoined other tax officials of the State from collecting under a similar statute. A third contention was that the statute offends the uniformity provisions of Sect. 112 of the Constitution of Mississippi. On agreed facts the first stated contention was sustained and the last two denied in the court below.

The important agreed facts are that the Gas Company was incorporated in Delaware in 1926, and since has acquired gas properties in northeast Louisiana, the gas from which it transports by its pipe lines into Mississippi and for about seventy-five miles through Mississippi into southeast Louisiana, where it sells it. On the way it wholesales gas to three distributors in Mississippi who take about 2% of all that is transported, but the contracts on which deliveries to these distributors are made are entered into in the main office in New York, and collections and management are carried on from a branch office in Louisiana. The Gas Company has no office in Mississippi, and no bank account there. It owns and maintains in the State rights of way, a pipe line and telephone line, and other real estate and personal property necessary and useful in carrying on its pipe line activity. The value of these properties is nearly three million dollars, and ad valorem taxes are paid on them. As a foreign corporation it filed with the Secretary of State under other statutes as a prerequisite to doing business in Mississippi a copy of its charter, and paid a required fee of $500, and appointed an agent for service of process. The taxes collected were correct in amount if any were collectible. The record in the three-judge case was in evidence.

Considering first the cross-appeal, we think the privilege or excise tax Act here involved was in no conflict with Sect. 112 of the Mississippi Constitution, for the section relates only to property taxation. Southern Package Corporation v. State Commission, 174 Miss. 212, 164 So. 45. Although the tax is measured in this case by the value of property invested in the State the Gas Company is not taxed because it owns it, but as we shall see because it has come into and remains in Mississippi to use it.

We conclude also that the judgment in the three-judge case of Dec. 4, 1931, is no estoppel. It does not appear to be between the same parties. The Gas Company is plaintiff in both suits but Stone, the present defendant who is sought to be bound by the former judgment, was not a party to it. This suit against him is a personal suit and the judgment rendered is a personal judgment. Execution on it would run against him. The reference to him as Commissioner is descriptio personae. Smietanka, Collector, v. Indiana Steel Co., 257 U.S. 1, 42 S.Ct. 1, 66 L.Ed. 99. The three-judge suit was against other individuals, who though officers were enjoined from what they were about to do on the ground that the law of their office did not justify them. The State of Mississippi for whom they tried to act was not a party, though her Attorney General was among those sued. She could not under the Eleventh Amendment, U.S.C.A.Const. have been sued. How officers who act for their government under an unconstitutional authority may be sued, and yet their governments not be bound by the judgment, is fully explained in United States v. Lee, 106 U.S. 196, 222, 1 S.Ct. 240, 27 L.Ed. 171. See also Sage v. United States, 250 U.S. 33, 39 S.Ct. 415, 63 L. Ed. 828; Hussey v. Crane, 222 U.S. 88, 93, 32 S.Ct. 33, 56 L.Ed. 106; Carr v. United States, 98 U.S. 433, 25 L.Ed. 209; Stanley v. Schwalby, 162 U.S. 255, 16 S.Ct. 754, 40 L.Ed. 960. Stone can now justify his collection of these taxes as fully as the State of Mississippi could do if she were now sued; and as she is not bound by the former judgment against her officers, he is not.

But the judgment would be no estoppel if the parties were the same, for the tax here involved is under a new and different law. The taxes imposed are similar, but the Legislature made the substitution in order to accomplish changes, especially a new and strange definition of "doing business" discussed below, and the changes are sufficient to require a new determination.

We come thus to interpret the Act of 1934 and to determine whether it may be applied to this Gas Company. The Supreme Court of Mississippi has not construed it or its predecessor of 1930; so we must make our own construction. Chapter 89 of the Acts of 1930 (Code of Mississippi of 1930, § 4199), which the present Act repealed, levied "a franchise tax upon every corporation doing business in the state of Mississippi, not herein specifically exempted. Such tax shall be a tax for continuance of enjoyment of all rights granted corporations under the corporate form of existence, if incorporated under the laws of this state, or by reason of any act of domestication, if incorporated under the laws of another state." "Doing business" was not defined, and probably meant that a corporation was not subject to the tax unless or until it carried on an active business of the kind named in its charter. So also a foreign corporation might be supposed not subject if it merely qualified to "do business" by filing copy of its charter with the Secretary of State under § 4164 and appointed an agent for service under § 4140, but did not become "domesticated" under §§ 4161 and 4162. The Act of 1934 does not confine itself to corporations but (Sect. 1) extends to associations, joint-stock companies and "every form of organization for pecuniary gain, having capital stock represented by shares, * * * having privileges not possessed by individuals or partnerships." * * * "`Doing business' * * * shall mean and include each and every act, power or privilege exercised or enjoyed in this state, as an incident to, or by virtue of the powers and privileges acquired by the nature of such organization." There is imposed (Sect. 2) an annual "franchise tax or excise tax" upon each such organization existing in this State or hereafter organized under its laws. The same tax (Sect. 3) is then imposed on every such organization organized and existing by virtue of the laws of some other State or country "now, or hereafter doing business within this state, as hereinbefore defined." As to each class of organizations the tax is $1 per thousand dollars of "capital used, invested or employed * * * within this state," and it is explained that the tax is required in the case of domestic organizations "for the right granted by the laws of this state to exist as such organization, and enjoy, under the protection of the laws * * * the powers, rights, privileges," etc., Section 2, and in the case of foreign organizations for "the benefit and protection of the government and laws of the state" received by the capital which measures the tax. Section 3. Payment of the tax is made a condition precedent to the continued existence of domestic organizations and "to the right to continue business in this state, if not organized under the laws of Mississippi." Section 4. "Continue business" we construe to mean "continue to do business" in the new sense. There is a formula for measuring the tax to be paid which may not always be the assessed value of the property owned in the State, but the latter is the measure in the present case.

We think the tax is laid on a domestic organization because of its mere existence capitalized and ready to carry on its corporate activities. It need not do anything to incur it. The capital which is to measure the tax need not be actively employed, for the words are "used, invested or employed"; and the declaration is that the tax is payment for the mere right to exist and enjoy protection. In order to treat the foreign organization in as nearly the same manner as possible, the tax is applied to it so soon as it "does business" in the State. Under the common and natural meaning of these words a commercial activity would be understood, but the Legislature assigns a very artificial meaning to them, which includes not only any and every corporate act, but the exercise or enjoyment in the State of any power...