Western Pipe Line Constructors, Inc. v. Dickinson

• Decision Date: 06 February 1958
• Citation: 7 McCanless 248,203 Tenn. 248,310 S.W.2d 455
• Parties: , 203 Tenn. 248 WESTERN PIPE LINE CONSTRUCTORS, Inc. v. J. M. DICKINSON, Commissioner of Finance and Taxation for the State of Tennessee, and Roy H. Beeler, Attorney General of the State of Tennessee, both residents of Nashville, Davidson County, Tennessee.
• Court: Tennessee Supreme Court

Page 455

310 S.W.2d 455

7 McCanless 248, 203 Tenn. 248

WESTERN PIPE LINE CONSTRUCTORS, Inc. v. J. M. DICKINSON, Commissioner of Finance and Taxation for the State of Tennessee, and Roy H. Beeler, Attorney General of the State of Tennessee, both residents of Nashville Davidson County, Tennessee.

Supreme Court of Tennessee.

Feb. 6, 1958.

Sims Crownover, Thomas G. Watkins and Tom Stewart, Nashville, for appellant.

George F. McCanless, Atty. Gen., Allison B. Humphreys, Solicitor General, Nashville, and Milton P. Rice, Asst. Atty. Gen., for appellees.

NEIL, Chief Justice.

The complainant is a Delaware corporation engaged in the business of constructing oil and gas pipe lines across the State of Tennessee. These pipe lines are constructed on behalf of different concerns transmitting oil and gas to customers by means of such pipe lines. During the period from March 1, 1951, through February 29, 1952, the complainant completed several contracts with the Tennessee Gas Transmission Company.

The complainant's duties in performing its contracts required the clearing of rights of way across the countryside, the digging of ditches, stringing of pieces of pipe beside the ditches and welding them together, the cleaning, coating and wrapping of the pipe, and, after lowering the pipes into the ditches, to clearing away all debris necessary to the restoration of the land to its former condition.

The complainant seems to be specially qualified to construct these pipe lines and lower them beneath rivers and streams.

Under the terms of the complainant's contract with the Tennessee Gas and Transmission Company, the latter was obligated to furnish all pipe, castings, valves, sleeves and all necessary coating and wrapping materials, while the complainant was required to furnish all oxygen, acetylene torches, welding rods, explosives, timber, sand, gravel, cement, etc. In no case was the complainant a buyer or seller to the public of any merchandise. Nor did it pretend to own any real estate in Tennessee, where any articles were manufactured for sale. Its operations required the use of specialized equipment and skilled labor, all of which was furnished by the complainant. With the few exceptions noted herein all property necessary to the work of completing the pipe lines, and also the lines themselves, belonged to the Tennessee Gas and Transmission Company, or other similar contractees.

The complainant was thus liable for taxes as a foreign corporation according to the statutory formula prescribed for doing business in this State, the same being a 'franchise and excise tax', and apportioned to its local business engagements. It filed a tentative franchise and excise tax return with the Commissioner of Finance and Taxation for the fiscal year ending February 29, 1952. This return was based on the formula set forth in Sections 67-2707 and 67-2913, T.C.A., which formulae are applicable to foreign corporations engaged in the business of manufacturing, collecting, assembling or processing goods or materials. The complainant was later advised that its return should apportion its net worth and net income to Tennessee in accordance with the formulae as set forth in Sections 67-2710 and 67-2916, T.C.A., the same being applicable to corporations whose principal Tennessee business is 'other than the manufacture or sale of tangible property'. In response to the foregoing request the tax return was so filed and an additional sum of $9,588.28 was paid to the Commissioner under protest.

Thereupon this suit was filed to recover the aforesaid sum of money on the theory that it was illegally exacted.

The Commissioner's answer to the bill was that the complainant was liable under the formulae as prescribed in 67-2710 and 67-2916, T.C.A., and that liability attached pursuant to these Sections of the Code.

The Chancellor heard the cause and found in favor of the defendant's contention. From this decree the complainant appealed and assigned errors.

The assignments of error singly and collectively complain that the Chancellor 'should have adjudged that said appellant was engaged either in manufacturing in its broad and comprehensive sense, or in some form of collecting, assembling or processing of materials and hence was entitled to compute its tax liability either as a manufacturer assembler or processor of materials,' citing 67-2707 and 67-2913, T.C.A. (Emphasis supplied.)

The Chancellor by decree, sustaining the Commissioner's assessment, held that the Legislature 'did not intend to create a new classification of taxpayers whose principal business was other than that of 'manufacturing", etc. It was thus provided in the decree:

'And it further appears to the Court and the Court finds from the entire record in this cause that complainant's principal business is neither manufacturing nor manufacturing consisting of collecting, assembling, or processing of goods or materials, and it, therefore was not entitled to compute its tax liability as a manufacturer or a collector, assembler or processor of goods or materials, under the provisions of Sections 67-2707 and 67-2913 T.C.A.; but that the defendant Commissioner correctly assessed complainant with said additional tax liability under the provisions of Sections 67-2707 and 67-2912 T.C.A.'

The last mentioned Code Sections in the decree, to wit, 67-2707 and 67-2913, is an erroneous citation because the defendant Commissioner correctly assessed complainant with said additional tax liability under Sections 67-2710 and 67-2916, which formulae are applicable to corporations whose principal business is 'other than the manufacture or sale of tangible property'.

In support of its assignment of error the complainant's counsel argues that the assessment was properly made in the first instance, that is, under the 'manufacturing' formula.

The complainant is, as its corporate name implies, a 'construction' company. In considering the overall scope of the complainant's business, as heretofore stated in this opinion, as well as its contractual obligations, there seems to be no basis for holding that its principal business is that of a 'manufacturer of goods or materials'.

When these and related Code Sections are thoughtfully analyzed the tax return of a construction company, engaged in a limited manufacturing activity, such as we have here, must be under the Code Sections held to be applicable by the Commissioner, to wit, 67-2710 and 67-2916, T.C.A.

We are not unmindful of the general rule of construction of tax statutes; it must be liberal in favor of the taxpayer. Burns v. Johnson, 174 Tenn. 615, 618, 130 S.W.2d 89, 123 A.L.R. 1022, and other cases cited. But words employed by the Legislature in the enactment of such statutes are to be taken in their natural and ordinary sense. Sanford Realty Co. v. City of Knoxville, 172 Tenn. 125, 110 S.W.2d 325; Hedges v. Shipp, 166 Tenn. 451, 62 S.W.2d 49; and Tobin v. Estes, 168 Tenn. 403, 79 S.W.2d 550.

The authorities are in conflict as to whether construction work constitutes manufacturing.

'It is sometimes difficult to determine with legal exactness what is or is not manufacturing since the subject is a large one and there is considerable conflict in the decisions, and since the determination frequently depends on the purpose or object of a statute or instrument.' 55 C.J.S. Manufactures § 3, p. 680.

'When 'manufacture' is defined as referring to goods, wares, and merchandise, to the making of articles of commerce which ordinarily may be the subject of barter and sale, the term does not ordinarily include the building of outdoor structures.' 55 C.J.S. Manufactures § 4, p. 690.

But there are cases holding that 'in view of other definitions, there are decisions holding that the term 'manufacturing' is applicable where the article...