Texas Eastern Transmission Corp. v. Benson

• Decision Date: 03 April 1972
• Citation: 480 S.W.2d 905
• Parties: TEXAS EASTERN TRANSMISSION CORPORATION, Appellee-Complainant, v. Thomas BENSON, Commissioner of Revenue, Appellant-Defendant.
• Court: Tennessee Supreme Court

Page 905

480 S.W.2d 905

TEXAS EASTERN TRANSMISSION CORPORATION, Appellee-Complainant, v. Thomas BENSON, Commissioner of Revenue, Appellant-Defendant.

Supreme Court of Tennessee.

April 3, 1972.

Petition to Rehear Denied June 5, 1972.

Harris A. Gilbert, John D. Whalley, Nashville, for appellee-complainant.

David M. Pack, Atty. Gen., Milton P. Rice, Deputy Atty. Gen., State of Tennessee, Nashville, for appellant-defendant.

OPINION

DYER, Chief Justice.

This case is before us on appeal from the Chancery Court of Davidson County. The chancellor held appellee was entitled to recover certain monies paid under protest and in satisfaction of a sales tax assessed by appellant.

In this opinion the parties will be referred to as they appeared in the trial court; that is, Texas Eastern Transmission Corporation as complainant, and Thomas Benson, Commissioner of Revenue for the State of Tennessee, as defendant.

In its original bill complainant avers that it is engaged in the operation of natural gas pipelines in interstate commerce; that in order to maintain sufficient pressure in the pipelines to propel the gas to its points of distribution in the northeastern part of the United States, complainant maintains compressor stations; that these compressor stations are an integral part of the interstate transmission system; that complainant purchases electricity from the Tennessee Valley Authority to operate these compressor stations; and that the electricity was taken 'directly off . . . transmission grid lines in interstate commerce.' Complainant further avers that defendant assessed a tax against complainant for the period from June 1, 1963, to December 31, 1966, which was paid under protest and that such assessment and collection was in violation of the statutes of this State, and the Constitution of the United States, for various reasons.

These reasons are: (1) that the tax is in contravention of the provisions of T.C.A. § 67--3007; (2) that the tax is a 'direct burden upon interstate commerce within the prohibition of Article I, Section 8, Clause 3 (the Commerce Clause) of the Constitution of the United States . . .;' (3) that the tax is a discriminatory burden upon interstate commerce in that 'manufacturers' within the State of Tennessee are taxed at the lower rate of one per cent, or are totally exempt from taxation for their use of electricity pursuant to T.C.A. § 67--3003(g); while complainant is taxed at a rate of three per cent, all of which is in violation of the commerce clause and the Fourteenth Amendment of the Constitution of the United States; (4) that defendant has construed the provisions of Title 67, Chapter 30, of Tennessee Code Annotated, so that other 'transportation companies' similarly situated are granted a 'discriminatory use tax exemption' in violation of the Fourteenth Amendment to the Constitution of the United States.

Defendant rebuts the averments by denying that the electricity is in interstate commerce, and affirmatively alleges that the 'electricity is never in interstate commerce but is sold and delivered from a Tennessee vendor to a Tennessee vendee, with both sale and delivery taking place wholly within Tennessee.' In addition, defendant alleges that the tax imposed upon the sale of the electricity which was a 'local event' and that since the vendor, as an agency of the Federal Government is immune from state taxation, the tax in the instant case was collected 'from the one secondarily liable,' the vendee. Defendant furthermore denies that the tax is a burden upon interstate commerce or that the provisions of the Sales Tax Act and the construction of these provisions by defendant contravenes the due process and equal protection clauses of the Fourteenth Amendment.

The evidence presented below, which consists of the testimony of witnesses and the stipulation of the parties, is as follows:

Complainant is a Delaware corporation qualified to do business in the State of Tennessee. Complainant operates pipelines that transport natural gas from the states of Texas and Louisiana to points of destination in the states of New York and New Jersey. Part of the pipeline system is located in the State of Tennessee.

Natural gas lacks an inherent capability of self-propulsion through the pipeline which necessitates the complainant to repressurize the gas by a series of compressor stations located throughout the transmission system. The function of these compressor stations is to increase the pressure of the natural gas so as to assure a continuous flow to the points of designation in the northeast.

In Tennessee complainant operates two compressor stations. These are at Gladeville and Mount Pleasant. Both of these stations are equipped with centrifugal compressors which raise the pressure of the gas. The 'energy fuel' used to power the centrifugal compressors is electricity purchased from the Tennessee Valley Authority. The electricity is taken from TVA's high voltage transmission lines and goes through a 'step down transformer' to reduce the voltage to a usable level. There was testimony by one of complainant's witnesses that the electricity is consumed immediately upon entering the station and that it never comes to rest within Tennessee.

Complainant also introduced evidence that the TVA system operates in interstate commerce. The electricity used to power the Mount Pleasant compressor station was generated at Wheeler Dam in Alabama, while Davidson County, where the Gladeville Station is located, is primarily supplied electricity from Paradise Generating Station in Kentucky.

It has been stipulated by the parties that TVA is immune from state taxation for its sales of electrical power. TVA does make certain payments in lieu of taxes to the states in which it operates. See 16 U.S.C.A. § 831L.

The chancellor in his memorandum opinion felt that there was no difference between the facts of the instant case and those of our recent decision in Texas Gas Transmission Corporation v. Benson, 223 Tenn. 279, 444 S.W.2d 137 (1969). However, the two cases are distinguishable on strong facts. The tax sought to be imposed in the Texas Gas case was a use tax on the interstate pipelines and gas 'used' to propel the compressors in furtherance of the main stream's interstate journey. In the instant case the event sought to be taxed is a sale of electricity between the supplier of current, TVA, amd the complainant.

The complainant states the first issue to be decided in the following language:

May Tennessee assess a sales tax on electricity where a natural gas pipeline company engaged solely in interstate commerce purchases in Louisiana from the Tennessee Valley Authority electricity to be used in a number of states, and such electricity, being part of interstate commerce, is transmitted directly from the interstate transmission into the compressors which are furnishing power to the flow of natural gas in interstate commerce, where the electricity does not stop or come to rest?

Under this question the complainant relies upon T.C.A. § 67--3007, which statute reads as follows:

It is not the intention of this chapter to levy a tax upon articles of tangible personal property imported into this state or produced or manufactured in this state for export; nor is it the intention of this chapter to levy a tax on bona fide interstate commerce. It is, however, the intention of this chapter to levy a tax on the sale at retail, the use, the consumption, the distribution, and the storage to be used or consumed in this state of tangible personal property after it has come to rest in this state and has become a part of the mass of property in this state.

While this provision is a recognition by the Legislature that there are constitutional limitations upon the power of a state to levy a tax upon goods moving in interstate commerce, it presumably intended to extend the taxing power of the State of Tennessee to the fullest extent allowed under the Commerce Clause.

Complainant, construing T.C.A. § 67--3007 in para materia with the taxing statute, T.C.A. § 67--3003, argues as follows: That it was the intention of the Legislature to levy a tax on Sale at retail, or the Use, or the Consumption, or the Distribution, or the Storage of tangible personal property After it had come to rest in this State and had become a part of the mass of the property in this State. That the electricity used by complainant is not taxable since it comes into the state by interstate commerce, and at no time comes to rest in this state or becomes a part of the mass of the property in this state.

As noted above, T.C.A. § 67--3003 levies a tax on 'tangible personal property.' T.C.A. § 67--3002(l) describes 'tangible personal property' as meaning and including 'personal property which may be seen, weighed, measured, felt or touched . . ..' Under this definition electricity would be included as it can be measured and/or felt. Also, the sales tax as originally enacted in this State exempted 'electric power' by an exemption section, now T.C.A. § 67--3012. By Chapter 38, Public Acts of 1963, the Legislature removed 'electric power or energy' from this exemption section. It is clear the Legislature intended to levy a tax on electricity for sale at retail or use, consumption, distribution or storage thereof.

The difficulty here arises from the nature of electric power. The same difficulty was presented in Utah Power and Light Co. v. Pfost, 286 U.S. 165, 52 S.Ct. 548, 76 L.Ed. 1038 (1932). In Utah the taxpayer was a utility operating a plant in the State of Idaho to generate, transmit and distribute electric power in interstate commerce. The State of Idaho levied a license tax on production of electricity and electrical energy within the state, when such was for sale, Barter or exchange; also, made statutory provisions for measuring the electrical energy at the point of production, the tax being based on kilowatt hours produced. The issue was made that...