United Fuel Gas Co. v. Battle
| Citation | 153 W.Va. 222,167 S.E.2d 890 |
| Decision Date | 24 June 1969 |
| Docket Number | No. 12706,12706 |
| Parties | UNITED FUEL GAS COMPANY, a corporation v. G. Thomas BATTLE, Tax Commissioner of West Virginia. |
| Court | Supreme Court of West Virginia |
Syllabus by the Court
1. When a lessee under an oil and gas lease produces gas from the well the right to produce such gas becomes a vested right and when the gas is extracted the title to the gas vests in the lessee and the consideration or rental paid for the privilege of search and production is rent for the leased premises.
2. All free gas produced by the lessee and furnished by the lessee to the lessor, pursuant to a covenant in an oil and gas lease, whether the amount of such gas is measured by meter or is otherwise determined, is taxable at the rate provided by Section 2a, Article 13, Chapter 11, Code, 1931, as amended, upon the basis of the value of such free gas at the well at which such gas is produced.
3. Wholesale sales in this State by a public utility to wholesale customers of gas produced in this State by other producers, after such gas has been transported by such utility to Kentucky and then returned to this State for transportation and sale by such wholesale customers to consumers within or without this State are not a subject of interstate commerce but instead are local or intrastate transactions and as such are taxable at the rate provided by Section 2c, Article 13, Chapter 11, Code, 1931, as amended, for wholesale sales of gas produced in this State; and wholesale sales in this State by such utility to wholesale customers of gas produced in this State by other producers before such gas has been transported by such wholesale customers from this State to any other state for sale to consumers in that state or for sale to consumers in this State are not a subject of interstate commerce but instead are local or intrastate transactions and as such are taxable at the rate provided by Section 2c for wholesale sales of gas produced in this State. With respect to such sales the transportation of the gas had ended or had not occurred at the time such sales were made.
4. Wholesale sales by a public utility in this State to wholesale customers of gas produced in this State, the quantity of which can be determined with reasonable accuracy, and which by such wholesale customers is commingled with imported gas and transported by their pipelines from one point to another point in this State for sale and consumption in this State are not sales in interstate commerce but instead are local or intrastate transactions and as such are taxable at the rate provided by Section 2c, Article 13, Chapter 11, Code, 1931, as amended, for the wholesale sale of such gas.
5. A state by its legislature may make reasonable classifications in enacting statutes provided the classifications are based on some real and substantial relation to the objects sought to be accomplished by the legislation, and a person who assails any such classification has the burden of showing that it is essentially arbitrary and unreasonable.
6. Wholesale sales of natural gas by a public utility to industrial consumers within its utility service territory under special industrial contracts constitute the supplying of public service within the meaning of Section 2d, Article 13, Chapter 11, Code, 1931, as amended, and the taxation of such sales at a higher rate than is imposed by Section 2c of the same article and chapter upon an unregulated nonutility which makes the same kind of wholesale sales to industrial consumers is not violative of the equal protection clause of the Fourteenth Amendment to the Constitution of the United States or of Article X, Section 1 of the Constitution of West Virginia.
7. The transportation of southwestern gas produced from wells in Texas and Louisiana, purchased by a utility operating in this State, part of which gas is transferred to such utility in its high pressure transmission lines at a point in this State and the other part of which gas is transferred to such utility in its high pressure transmission lines at a point outside this State, and all of which gas is transported direct from such points, after temporary delay in some instances in underground storage fields, to the plant of the consumer in this State where it is used and consumed, is not a transaction in interstate commerce. The sale of such gas to such consumer constitutes a local or intrastate transaction, is taxable by this State, and is not excluded from taxation by Section 2d, Article 13, Chapter 11, Code, 1931, as amended, which provides that the measure of such tax shall not include gross income derived from commerce between this State and other states of the United States or between this State and foreign countries. (By the majority of the Court; Judge Haymond dissents.)
8. When, upon appeal, the taxpayer shows reasonable cause for his failure to return or to pay the proper amount of the tax assessed against him and the tax commissioner refuses to waive any penalties imposed by him, the appellate court, in the exercise of its jurisdiction to hear and determine such appeal, may set aside and vacate any penalties imposed by the tax commissioner.
C. Donald Robertson, Atty. Gen., William F. Carroll, Asst. Atty. Gen., Charleston, for appellant.
R. K. Talbott, Herbert W. Bryan, H. L. Snyder, Charleston, for appellee.
Howard R. Klostermeyer, Charleston, amicus curiae for E. I. duPont de Nemours.
E. Glenn Robinson, Charleston, for Kaiser Aluminum.
This is an appeal upon the application of the defendant, G. Thomas Battle, Tax Commissioner of the State of West Virginia, hereinafter sometimes referred to as tax commissioner or commissioner, from the final judgment of the Circuit Court of Kanawha County rendered April 21, 1967, which affirmed in part and reversed in part certain business and occupation tax levies imposed by the defendant against the plaintiff, United Fuel Gas Company, a corporation, hereinafter sometimes referred to as United Fuel. The taxes levied by the commissioner amounted to $971,167.37 and the penalties imposed amounted to $353,186.02, or a total amount of taxes and penalties of $1,324,353.39.
The issues presented to the circuit court upon the appeal to that court from a reassessment made by the commissioner are set forth in an agreed stipulation and are designated as agreed issues Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13 and 14. By its final judgment the circuit court reversed the action of the commissioner on these agreed issues: Issue No. 1, dealing with free gas furnished the lessor by the plaintiff as lessee in certain oil and gas leases held by the plaintiff; Issues Nos. 2 and 3, relating to sales of gas in interstate commerce; Issue No. 10, relating to imported gas, supplied or furnished by the plaintiff under special industrial sales agreements to E. I. duPont de Nemours and Company, Kaiser Aluminum and Chemical Corporation, and Elk Refining Company; Issues Nos. 12 and 13, relating to the penalties imposed by the commissioner, and affirmed the action of the commissioner on agreed Issues Nos. 4, 5 and 6, relating to gas produced in West Virginia and purchased and sold by the plaintiff to West Virginia customers; and Issues Nos. 7, 8 and 9, relating to certain sales of gas by the plaintiff to certain industrial consumers.
The circuit court found that Issue No. 11 did not relate to any present claim or justiciable controversy but was merely indicative of possible future disputes and accordingly rendered no decision on that issue, and rejected the contention of the plaintiff on Issue No. 14 that the business and occupation taxes involved in this proceeding covering the five year period 1957 to 1961 were barred by the provisions of Section 19a, Article 2, Chapter 55, Code, 1931, as amended.
By its final judgment the circuit court on Issues Nos. 4, 5 and 6 upheld the commissioner's levy of $3,209.84, on Issues Nos. 7, 8 and 9 upheld the commissioner's levy of $84,714.19, and on Issue No. 1, relating to certain free gas which the plaintiff concedes is taxable, the circuit court allowed $4,158.19 and on oil production, tank car rentals and royalties allowed $167.01, entered judgment upon the total of the foregoing levies in the amount of $92,249.23, and remitted all penalties imposed by the commissioner. The circuit court denied the motions of both parties to set aside the foregoing judgment and to rehear and reconsider its ruling upon the issues determined and also denied the motion of the commissioner to substitute in lieu of the judgment of $92,249.23, a judgment against the plaintiff for taxes in the sum of $971,167.37 and penalties in the sum of $353,186.02, aggregating the sum of $1,324,353.39. From the foregoing judgment this Court awarded this appeal and supersedeas upon the application of the commissioner. On this appeal the commissioner seeks reversal of the action of the circuit court on Issues Nos. 1, 10, 12 and 13, and the plaintiff, by cross-assignment of error, seeks reversal of the action of the circuit court upon Issues Nos. 4, 5, 6, 7, 8 and 9.
The statutes directly involved in this proceeding are Sections 2, 2a, 2c and 2d, Article 13, Chapter 11, Code, 1931, as amended.
The plaintiff, a West Virginia corporation and a public utility subject to regulation by the Public Service Commission of this State and the Federal Power Commission, is primarily engaged in the production, transmission, distribution and sale of natural gas, both at wholesale and retail, in this State, and is also engaged in the sale and the leasing of certain tangible property. During the year 1961, which is the year stipulated by the parties as the typical year to illustrate the layout, structure and facilities of the plaintiff, the plaintiff served an average of 118,458 residential, commercial and...
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