Texas Co v. Brown, 126

• Decision Date: 17 April 1922
• Docket Number: No. 126,126
• Parties: TEXAS CO. v. BROWN, Commissioner of Agriculture of Georgia, et al
• Court: U.S. Supreme Court

258 U.S. 466

42 S.Ct. 375

66 L.Ed. 721

TEXAS CO.

v BROWN, Commissioner of Agriculture of Georgia, et al.

No. 126.

Argued October 13 and 14, 1921.

Decided April 17, 1922.

Messrs. John M. Slaton, of Atlanta, Ga., and Harry T. Klein, of New York City, for appellant.

[Argument of Counsel from pages 467-469 intentionally omitted] Mr. Mark Bolding, of Atlanta, Ga., for appellees.

Mr. Justice PITNEY delivered the opinion of the Court.

This is a suit in equity by appellant, a corporation and citizen of Texas, against appellees, both individually and as officers of Georgia, to restrain enforcement of laws respecting fees for inspection of petroleum and petroleum products, especially kerosene oil and gasoline, so far as concerns products brought by plaintiff from other states into Georgia and there disposed of.

The laws in question, as they stood when suit was commenced (March, 1920), comprise provisions found in Georgia Civil Code 1910, §§ 1800-1814, which originally referred only to illuminating oils; an amendatory Act of Sugust 19, 1912 (Acts 1912, No. 570, p. 149), which extended the inspection system to gasoline; an amendatory Act of August 19, 1913 (Acts 1913, No. 258, p. 110); and certain sections of the Penal Code, 1910. They provide for official state inspection of petroleum and petroleum products; prescribe tests relating to their fitness for use—a flash test for illuminating oils, a specific gravity test for gasoline—and establish inspection fees dependent upon the quantity inspected, but at a higher rate per gallon in small quantities than in large; the fees being fixed, however, upon a basis that has been found in practice to yield revenues substantially in excess of the costs of inspection. The officials in charge of enforcement of the system, here made defendants, are the commissioner of agriculture, a general inspector of oils, and numerous local inspectors, whose duties are set forth in the cited Code sections and in the Act of 1912. Among other provisions for rendering the acts effective, section 639 of the Penal Code makes it a misdemeanor to sell or offer for sale illuminating fluids in violation of the pertinent provisions of the Civil Code, and section 642, to sell or keep for sale, or in storage, crude or refined petroleum, naphtha, kerosene, etc., without having the same inspected and approved by an authorized inspector.

The federal jurisdiction was invoked both because of diverse citizenship and because the suit arose under the Constitution of the United States. Upon the merits, questions of state law were and are raised, as they may be (Greene v. Louisville & Interurban R. Co., 244 U. S. 499, 508, 37 Sup. Ct. 673, 61 L. Ed. 1280, Ann. Cas. 1917E, 88), in addition to federal crestions.

Enforcement of the inspection fees was and is resisted upon the ground that they constitute an arbitrary and unreasonable exaction, not sustainable as a fair exercise of the taxing power, but invalid as violative of the guaranty of due process of law contained in the state Constitution, as well as that in the Fourteenth Amendment.

A more specific objection is that the imposition of the fees is in conflict with article 7, § 2, par. 1, of the state Constitution, which provides:

'All taxation shall be uniform upon the same class of subjects, and ad valorem on all property subject to be taxed within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.'

But the contention most emphasized is rested upon the commerce clause of the Constitution of the United States, the insistence being that inspection fees exceeding the cost of inspection, as imposed upon plaintiff's products, constitute a burden upon interstate commerce. As to this, defendants denied that the laws in question by proper construction applied, or as enforced by the state officers were made to apply, to plaintiff's products while in interstate commerce; they averred that inspections were not required to be made, nor fees to be paid, until after the products had arrived at destination in the state and were held in storage by the consignee for the purposes of sale in the state.

Upon amended bill and answer, and affidavits pro and con, an application for interlocutory injunction was heard before three judges pursuant to section 266, Judicial Code, as amended March 4, 1913, 37 Stat. 1013, c. 160 (Comp. St. § 1243), and resulted in a decision June 28, 1920 (one judge dissenting), pursuant to which an injunction pendente lite was granted restraining the collection of inspection fees in respect to kerosene oil, gasoline, or other petroleum products of plaintiff brought into the state of Georgia from other states and intended to be sold in the original packages, and so sold; but injunction was refused, and restraining orders theretofore granted were dissolved, as to products brought in for indefinite storage within the state, or for sale after breaking the original package, after completion of the interstate transportation. 266 Fed. 577. An appeal was taken by plaintiff direct to this court, as authorized by section 266, Judicial Code.

The controlling facts are not in dispute. Plaintiff carries on in Georgia and extensive business in the distribution and sale of illuminating oil and gasoline. Neither commodity is produced in Georgia, and all plaintiff's supplies for that are brought from points in other states, principally by rail in tank cars owned by plaintiff, having a capacity of approximately 8,000 gallons each. Plaintiff has 34 local agencies or distributing stations at different points in the state, at which are stationary storage tanks for oil and gasoline respectively, pumps and other apparatus for transferring the products from tank car to storage tank, and either a railroad siding, or (in a few cases) a private track in proximity to the storage tanks. Plaintiff also maintains wagons for the delivery of oil and gasoline from the stationary tanks to its customers. The principal part of its products comes to the distributing stations consigned to plaintiff or its manager or agent. As a rule, and as a part of plaintiff's own system, as soon as one of the tank cars is started from the point of origin outside the state a request for inspection, together with a check for the inspection fees, is forwarded by plaintiff to the local inspector nearest the point of destination, notifying him that the shipment is en route, and re questing him to give it immediate attention upon arrival. Upon its arrival the local agent notifies the inspector, who thereupon, in compliance with the previous request, inspects the oil or gasoline by taking a sample from the tank car, after which its contents are conveyed to and into the storage tank, and then distributed and sold to patrons, either directly from the tank or by means of the delivery wagons. In some instances, involving substantial quantities but only a small proportion of the whole—less than 5 per cent.—plaintiff sells tank cars of gasoline and kerosene direct to its customers in Georgia, making interstate shipment direct to customer's address.

The majority of the judges held that the provisions for inspection of petroleum products were a permissible exercise of the state's police power; that in so far as the fees yielded revenue in excess of the cost of inspection they were attributable to the taxing power of the state and not objectionable except as applied to interstate commerce, as to which they were invalid; that they were not in conflict with the uniformity clause of the state Constitution; that so far as plaintiff's products were indefinitely stored within the state, or sold there after breaking bulk or original packages, they were subject, not only to inspection, but to the tax imposed, as soon as the interstate transportation was ended; and that the state should be permitted to enforce the inspection fees so soon as the products passed out of interstate commerce, although restrained with respect to products while in such commerce, citing Ratterman v. Western Union Tel. Co., 127 U. S. 411, 8 Sup. Ct. 1127, 32 L. Ed. 229.

After the interlocutory decree and pending the appeal, evidently in view of the controversy raised in this case, the General Assembly passed an act, approved August 17, 1920 (Ga. Laws 1920, No. 800, p. 163), declaring that the laws relating to inspection and tests, and prescribing the fees therefor and the duties of the Commissioner of Agriculture and general oil inspector and local inspectors, as set forth in sections 1800 to 1814, both inclusive, of the Civil Code, and in Act of August 19, 1912, and the penalties provided in sections 639 and 642 of the Penal Code, 'shall never be held or construed to apply to oils and gasoline, benzine, or naphtha, or other articles mentioned in said laws, imported into this state in interstate commerce and intended to be sold in the original and unbroken tank cars or other original receptacles or packages, and so sold, while the same are in interstate commerce.' Sec. 1.

In view of the provisions of this act we need spend no time in discussing whether the judges were right in following the rule of practical separability in administration, applied by this court to a taxing law single on its face in Ratterman v. Western Union Tel. Co., 127 U. S. 411, 8 Sup. Ct. 1127, 32 L. Ed. 229, a case followed, since the decision below, in Bowman v. Continental Oil Co. (June 6, 1921) 256 U. S. 642, 41 Sup.Ct. 606, 65 L. Ed. 1139. Any question whether the same or a different rule ought to be applied to an inspection law employed for the purpose of revenue taxation, based upon doubt as to the intent of the state Legislature to permit the system to remain in force with respect to products stored within the state or sold in domestic commerce, when determined to be unenforceable as to the like goods while in interstate commerce, is set at rest by the new act, which under the circumstances must be...