United Gas Corp. v. Fontenot

• Decision Date: 24 April 1961
• Docket Number: No. 45030,45030
• Citation: 129 So.2d 748,241 La. 488
• Parties: UNITED GAS CORPORATION v. Rufus W. FONTENOT, Collector of Revenue, State of Louisiana.
• Court: Louisiana Supreme Court

Page 748

129 So.2d 748

241 La. 488

UNITED GAS CORPORATION v. Rufus W. FONTENOT, Collector of Revenue, State of Louisiana.

No. 45030.

Supreme Court of Louisiana.

April 24, 1961.

Rehearing Denied May 30, 1961.

Chapman L. Sanford, Emmett E. Batson, Richard Alsina Fulton, Frederick S. Haygood, Levi A. Himes, Baton Rouge, for defendant-appellant.

Wilkinson, Lewis, Madison & Woods, Shreveport, Breazeale, Sachse & Wilson, Baton Rouge, for plaintiff-appellee.

FOURNET, Chief Justice.

This action was instituted by the United States Gas Corporation to recover $237,620.46, with interest, the amount paid by it under protest to the State of Louisiana as income tax for the year 1949, and, from a judgment ordering the refund of this amount as prayed, the state prosecutes this appeal.

According to the record is appears that at the time and in the manner required by law appellee--a corporation chartered under the laws of Delaware with the designation therein of Dover, Delaware, as its domicile, its principal place of business being maintained at Shreveport, Louisiana--filed with are derived on the following bases: * * * report of its income for the year 1949 showing the total amount of tax due the which such customers are located. (3) paid. A subsequent audit of this return by the office of the Collector of Revenue revealed the corporation failed to include therein and pay for that year tax on the following items of income: (1) $5,852,819.49, profit received from the sale of stock it owned in the Mississippi River Fuel Corporation, (2) $137,599.60, received as dividends on this stock, and (3) $178,668.79, which the corporation received during 1949 as interest from the Federal government on a refund of income taxes paid by it for the year 1936. The Collector, pursuant to the provisions of Section 64 of Act 354 of 1948--the portions thereof pertinent to a decision here being identical with Section 47:243 of the Revised Statutes of 1950 and will be thus cited in future reference--therefore levied a deficiency tax assessment against the corporation on these items of income, computing the additional amount of tax due the state for the year 1949 to be $188,400.76, which, with accrued interest of $49,216.70, totalled $237,620.46.

The corporation paid this amount under protest and, within the time prescribed by law, instituted this suit for its recovery, the principal contention being that these items constitute intangible assets of a nonresident corporation that, under Louisiana law, can only be included in the computation of allocable items from Louisiana sources for income tax purposes where they have acquired a 'business situs' in this state by reason of their use here in connection with the taxpayer's business: consequently, it is asserted, since these assets never acquired such a situs in this state, the Collector's interpretation of R.S. 47:243, ¹ subjecting them to the income tax laws of Louisiana on the theory the corporation has a 'commercial domicile' here, is arbitrary, unreasonable, and beyond the taxing power or jurisdiction of Louisiana, constituting (1) an unlawful burden on interstate commerce in violation of Section 8 of Article I of the Constitution of the United States, (2) a taking of the property of the corporation without due process of law in violation of Section 2 of Article I of the Constitution of Louisiana and the Fourteenth Amendment to the Constitution of the United States, and, further (3), is discriminatory in that it taxes the intangible assets of a non-resident corporation on a different basis than that used in taxing like assets of non-resident individuals, in contravention of the equal protection guarantee of the Fourteenth Amendment to the Constitution of the United States. In the alternative, it is contended that should the court conclude the intangibles in question did acquire a situs in Louisiana for any reason, then the income from the sale of the Mississippi River Fuel Corporation stock constituted a capital gain as a result of an interstate sale, and the allocation of the entire gain from such transaction to Louisiana for income tax purposes is a burden on interstate commerce, in violation of Section 8 of Article I of the Constitution of the United States. ²

In the event this court concludes these items are taxable as income attributable to Louisiana for the year 1949 without violence being done to any of these constitutional provisions, it is then pleaded--although these contentions have apparently been abandoned as they were never argued in this court either orally or in brief--that the state erred (1) in finding the cost basis of the stock in the Mississippi River Fuel Corporation sold in 1949 to be the same as that used for computation of Federal income taxes for that year, or $8,864,952, resulting in a gain or profit from the sale of this capital asset of $5,852,819.49, contending (a) that since this stock was never used in connection with plaintiff's business within Louisiana and never physically present in this state until April 30, 1945, the cost basis should be the value of the stock at that time, which was $7,642,200, or (b) its value as of July 24, 1937, the day on which the plaintiff was first authorized to do business in Louisiana--$7,525,426; and (2) inasmuch as the interest paid plaintiff by the United States was in connection with a refund of Federal income taxes collected from plaintiff in 1936, at which time it was not doing business in Louisiana, the Collector was without right or authority to treat this interest as Louisiana income for 1949, even though paid it by the Federal government during that year, particularly since the refund was authorized under a Federal statute enacted in 1942 eliminating taxes on undistributed profits of any company in a deficit position in the year for which such tax had been collected.

The location of property is commonly known in law as its 'situs.' It may be said that in general, for purposes of due process within the meaning of the Fourteenth Amendment, it is necessary for a state to have jurisdiction over the property for it to be there subjected to taxation. In determining this taxation 'jurisdiction,' or 'situs,' two opposed considerations--place of ownership and place of property location--have, from the beginning, given rise to legal difficulties. If the property is realty, the solution has been fairly simple. In respect to determination of the place of 'jurisdiction' of personalty, the difficulties have been more real and complex, and have resulted in a cleavage between rules of law applicable to tangibles and intangibles attributable to the fact that as to tangibles they possess a form or substance that permits one place to exert dominion over them to the exclusion of others.

Because by their very nature intangible assets and property rights have no physical location, even though represented by paper evidences such as stock certificates, being merely relationships between persons that the law recognizes by attaching to them certain sanctions enforceable in the courts (Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 905, 83 L.Ed. 1339), ³ the problem of determining their 'situs,' or the state having jurisdiction to tax them, has presented even more complex difficulties--particularly under rapidly changing economic and business conditions developing during this industrialized age--involving considerations that are partially theoretical, logical, practical, and legal, and which turn, eventually, not only on the particular provisions of a statute, if one is involved, but also on the jurisprudence and the facts, primarily the latter. However, because these intangibles do constitute valuable property rights and should, therefore, bear their just burden of the cost of government, a situs has been ascribed to them for taxation purposes through a fiction of the law that is easily traceable to the first part of the ancient Roman maxim 'mobilia sequuntur personam, immobilia situa' (movable things, or movables, follow the person; immovable, their locality).

This meant, simply, that tangible, or movable, property was regarded as being located at the legal domicile of the owner for the purpose of applying the law of that place to it in many situations, of which taxation was but one, although the property might, actually, be located elsewhere. From the standpoint of taxation, this fiction as originally applied permitted the state of the owner's legal domicile to impose a tax on his personalty wherever located under the theory it had jurisdiction over such property because it had there acquired a 'situs' since it followed the owner and was, consequently, attached to his person at his legal domicile. However, the application of this fiction by the courts to the taxation of Tangible personalty was not unassailable, and, being a court made rule designed to work out practical justice, where the reason for its existence no longer obtained and it became evident the facts of the case could not justify a strict adherence thereto, there was a deviation or departure from its application, as, for example, where the facts showed the location of the personalty had such permanence in another state it was regarded as a part of the property of that state, which alone had jurisdiction over it, physical location and permanency being the determinative features that led to the development of the exception to the mobilia rule that permitted a state other than the legal domicile of the owner to tax the Tangible property in the foreign state. See, for example, City of St. Louis v. Wiggins Ferry Co., 11 Wall. 423, 20 L.Ed. 192; Morgan v. Parham, 16 Wall. 471, 21 L.Ed. 303; Union Refrigerator Transit Co. v. Commonwealth of Kentucky, 199 U.S. 194, 26 S.Ct. 36, 50 L.Ed. 150; Frick v. Commonwealth of Pennsylvania, 268 U.S. 473, 45 S.Ct. 603, 69 L.Ed. 1058; Curry v. McCanless, supra; Smith v. Ajax Pipe Line Co., 8 Cir., 87 F.2d 567, and the...