Texas Gas Transmission Corp. v. Atkins

• Decision Date: 23 July 1954
• Citation: 1 McCanless 123,197 Tenn. 123,270 S.W.2d 384
• Parties: , 197 Tenn. 123 TEXAS GAS TRANSMISSION CORP. v. ATKINS.
• Court: Tennessee Supreme Court

Page 384

270 S.W.2d 384

1 McCanless 123, 197 Tenn. 123

TEXAS GAS TRANSMISSION CORP. v. ATKINS.

Supreme Court of Tennessee.

July 23, 1954.

Canada, Russell, Turner & Alexander, Memphis, for complainant.

Roy H. Beeler, Atty. Gen., Allison B. Humphreys, Jr., Sol. Gen., Nashville, and Milton P. Rice, Asst. Atty. Gen., for defendant.

SWEPSTON, Justice.

The original bills in the above numbered causes were filed for the purpose of recovering excise and franchise taxes paid under protest by complainant in the amount of $30,485.61, payable July 1, 1951, and $34,037.67, payable July 1, 1952.

These taxes were collected under the presumed authority of Code sec. 1248.143, which provides in substance, all corporations organized under the laws of Tennessee for profit and doing business in Tennessee, shall pay an annual privilege tax for the privilege of engaging in business in corporate form in this State and under section 1316, which provides in substance, that all corporations conducted for profit organized under the laws of Tennessee, and doing business in Tennessee, shall pay annually an excise tax equal to 3.75% of the net earnings for the next preceding year, from business done in Tennessee.

The Chancellor held that complainant was engaged wholly in interstate commerce, and therefore under the case of Spector Motor Service, Inc. v. O'Connor, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573 (March 26, 1951), it was not liable for these taxes. The State has appealed and assigned error in that it is said that the Chancellor erred in holding that the complainant is engaged entirely in the doing of an interstate business in Tennessee, whereas he should have held that it was engaged to a substantial extent, in intrastate business, and (2) it is said the Chancellor erred in holding that the excise tax and the franchise tax were levied upon complainant solely for the privilege of engaging in business in Tennessee, and thus was a tax for the privilege of engaging in interstate commerce and void, whereas he should have held that these taxes are for the privilege of engaging in business in Tennessee in corporate form, and that this privilege was granted to complainant by the State and was exercised by the complainant during all the years involved, and that the tax was valid.

We take up first the question whether complainant was engaged partly in intrastate commerce or activities.

Complainant is a Delaware corporation qualified to do business in Tennessee, and is successor to Memphis Natural Gas Company and Kentucky Natural Gas Company by merger in 1948. The general offices which before 1948 were in Memphis, are now in Owensboro, Kentucky, but otherwise, its activities are the same as formerly; it has in Tennessee, compressor stations, matermen and dispatchers, maintenance camps, material and supplies, rights-of-way, easements and permits to cross highways, etc., and all other facilities necessary for the operation of a gas pipe line.

It brings gas from Texas and Louisiana through Mississippi, Tennessee and Kentucky into Ohio. Its customers in Tennessee are: City of Memphis, Utility Division known as Memphis Light, Gas and Water Division, which takes gas at several points directly from complainant's interstate line, and moves it for distribution through lines which are neither owned nor controlled by complainant, and complainant has no financial interest in the sale of gas after it leaves its main line; T.V.A., which succeeded Memphis Generating Company in the contract of March 8, 1939, between the latter and the Memphis Natural Gas Company. T.V.A. uses large quantities of gas for boiler fuel in generating electricity sold to the City of Memphis, and in the electric systems in Arkansas and Mississippi. The gas taken from complainant's interstate line is sold directly to the consumer and is moved by the purchaser a distance of four miles through pipes owned by the City of Memphis, to the T.V.A. Generating Plant. Complainant has no interest in this line, and under the purchase contract, its responsibility ends with the delivery to this line; City of Dyersburg, which has two contracts. One is for gas it distributes to local customers just as the City of Memphis does. The other is for use as boiler fuel in the Dyersburg generating plant. Under the contract complainant delivers the gas from its main line into a line owned and wholly controlled by the City of Dyersburg; Union City, which buys gas for retail distribution, and sends it from complainant's line through a line wholly owned and controlled by Union City; West Tennessee Power and Light Company serves five West Tennessee cities and 52 rural customers, all being served by taps along complainant's interstate line and delivered over lines in which complainant has no interest.

We are of opinion that all of these transactions are controlled by what was held in Memphis Natural Gas Co. v. McCanless, 180 Tenn. 688, 177 S.W.2d 841, wherein it was held that the Memphis Natural Gas Company was not engaged in intrastate operation. The case was decided upon the factual situation existing after the termination of the joint enterprise contract referred to in Memphis Natural Gas Co. v. Pope, 178 Tenn. 580, 161 S.W.2d 211, and Memphis Natural Gas Company v. Beeler, 315 U.S. 649, 62 S.Ct. 857, 86 L.Ed. 1090, in which cases it was held that the Memphis Natural Gas Company was engaged in a joint adventure with the then privately owned Memphis Power & Light Company, and it was held liable for the tax. See page 693 of 180 Tenn., page 843 of 177 S.W.2d.

Also the Court distinguished Southern Natural Gas Corp. v. Alabama, 301 U.S. 148, 57 S.Ct. 696, 81 L.Ed. 970, on the fact that complainant had nothing to do with the delivery and distribution of gas, whereas in the Alabama case the complainant did have control of delivery and distribution.

The remarks of Judge Green at the end of the paragraph, that one sale did not make the company a distributor was simply an additional reason why the company was not liable, regardless of whether it was engaged in interstate or intrastate operations.

The State relies also upon State of Missouri ex rel. Barrett v. Kansas Natural Gas Co., 265 U.S. 298, 44 S.Ct. 544, 68 L.Ed. 1027, and East Ohio Gas Co. v. Tax Commission, 283 U.S. 465, 51 S.Ct. 499, 75 L.Ed. 1171.

These two cases are among those listed by Judge Green on page 692 of 180 Tenn., on page 843 of 177 S.W.2d in the above mentioned case, and in summary of all of the cases listed, he said in part:

'It was understood from them that the transportation of natural gas from another State and its sale at the carrier's pipe to another was interstate commerce. But that the distribution of gas through service pipes in a particular locality and sale at the burner tips was intrastate commerce.' (Our Italics.)

In the Kansas case there were sales to distributors only, which was clearly interstate commerce, whereas in the Ohio case, the Company delivered the gas through its local pipes to the burner tips, which was clearly intrastate commerce.

Another activity is urged by the State as being intrastate; complainant purchases gas from Tennessee Gas Transmission Company under a contract of January 23, 1948, made by its predecessor, Kentucky Natural Gas Corp. It appears that Tennessee Natural Gas Company is a wholly separate corporation with a line coming from the Gulf States across Tennessee through Kentucky into Indiana and Illinois. The line passes through Middle Tennessee. Complainant's predecessor, Kentucky Natural Gas Corporation, constructed a line from what is now complainant's main line to Mitchellville, in Sumner County, to connect with Tennessee Natural Gas line in Middle Tennessee; this connecting line lies five miles below the Kentucky-Tennessee border and is used to supply gas to complainant to be sold in Kentucky. None of the gas is sold in Tennessee, although naturally it augments the supply going from a point above any of complainant's Tennessee customers into Kentucky.

The Chancellor held, and we think correctly, that this purchase being in furtherance of complainant's interstate transmission of gas was interstate commerce. Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439.

Hence we hold that complainant was not engaged in intrastate commerce in Tennessee.

The next question is whether the excise and franchise taxes were validly levied and collected.

Complainant relies upon the Spector Motor Service, Inc., case, supra, and if that case is controlling, of course the taxes are not valid; on the other hand, if that case is not controlling, the taxes are valid.

Both sides have submitted full and excellent briefs which we have read with interest, as well as the cases relied upon by the respective parties.

We do not deem it necessary to quote at length from the Spector case because it should be read in its entirety in order to be understood.

It is our conclusion that the crux of the Spector case is that the Supreme Court accepted as its basic predicate the construction placed upon the statute involved by the highest Court of Connecticut, which held that the tax was levied upon the right to do interstate business. The right to do business in corporate form was not involved in the case.

The Tennessee franchise tax, however, is imposed upon 'the...