Memphis Natural Gas Company v. Stone/Opinion of the Court

The Memphis Natural Gas Company is a Delaware corporation which owns and operates a pipe line for the transportation of natural gas. The line runs from the Monroe Gas Field in the State of Louisiana through the states of Arkansas and Mississippi to Memphis and other points in the State of Tennessee. Approximately 135 miles of the pipe line lie within Mississippi; at two points within that state there are compressing stations. It is stipulated that the Gas Company has never engaged in any intrastate commerce in Mississippi; that it has only one customer within the state, the Mississippi Power and Light Company, to which it sells gas from its interstate line at wholesale from several delivery points; that the Gas Company has never qualified under the laws of Mississippi to do intrastate business within that state; that it has no agent for the service of process and that it has no office within the state; and that its only employees and representatives in Mississippi are those necessary to maintain the pipe line and its auxiliary appurtenances.

The Gas Company has paid all ad valorem taxes assessed against its property in Mississippi pursuant to the state law. In addition to the ad valorem taxes, Mississippi imposes a 'franchise or excise tax' upon all corporations 'doing business' within the state. For the purpose of the Act, 'doing business' is defined '(to) mean and (to) include each and every act, power or privilege exercised or enjoyed in this State, as an incident to, or by virtue of the powers and privileges acquired by the nature of such organization.' The tax is 'equal to $1.50 for each $1,000.00 or fraction thereof of the value of capital used, invested or employed' within the state.

The Gas Company filed a peition for review by the State Tax Commission of Mississippi of the franchise tax assessed against it for the years 1942, 1943 and 1944 by the State Tax Commissioner. In this petition the Gas Company argued that the imposition of the tax by the state was an act prhibited by the Commerce Clause of the Federal Constitution. Art. 1, § 8, cl. 3. From an order of the Tax Commission approving the action of the Commissionr, the Gas Company appealed to the Circuit Court of Hinds County, Mississippi. That court reversed the Tax Commission, but was itself reversed by the Supreme Court of Mississippi. The Supreme Court said that Mississippi had made 'no attempt to tax interstate commerce as such, but the levy is an exaction which the State requires as a recompense for its protection of lawful activities carried on in this State by the corporation, foreign or domestic, activities which are incidental to the powers and privileges possessed by it by the nature of its organization-here the local activities in maintaining, keeping in repair, and otherwise in manning the facilities of the system throughout the 135 miles of its line in this State.' 201 Miss. 670, 29 So.2d 268, 270. It argued that the state tax did not bear directly upon interstate commerce and that any burden imposed upon that commerce was remote and unsubstantial. It concluded that the local tax was not unconstitutional and ordered that the taxes in question, plus penalties, be paid by the Gas Company. A petition for certiorari, under § 237(b), Judicial Code, 28 U.S.C.A. § 344(b), was filed in this Court by the Gas Company on May 17, 1947. It presented the question as to whether the judgment violated the Commerce Clause by requiring a foreign undomesticated corporation, engaged in interstate commerce, to pay the tax. That petition was granted June 16, 1947. 331 U.S. 802, 67 S.Ct. 1736, 91 L.Ed. 1825.

The suggestion is made that by the stipulation of facts in the trial court, Mississippi concedes the truth of an allegation of the challenged petition before the State Tax Commission reading as follows: 'To carry on interstate commerce is not a franchise or a privilege granted by the state; it is a right which every citizen of the United States is entitled to exercise under the constitution and laws of the United States; and the accession and possession of mere corporate facilities, as a matter of convenience in carrying on their business, cannot have the effect of depriving it of such right, unless congress should see fit to interpose some contrary regulation. Your Petitioner obtains no protection from the State of Mississippi and acquires no powers or privileges in its interstate activity other than the protection afforded your Petitioner by virtue of the payment of an ad valorem tax on the property used by the Company wholly in interstate commerce.'

It is said that because of this concession Mississippi cannot exact a tax from petitioner as the state 'affords nothing to this petitioner for which it could ask recompense by way of a tax.' The pertinent part of the stipulation reads: 'That all of the facts stated in said petition are true and no proof of the same shall be required in this cause.' No contention as to the concession is presented to us by the petition for certiorari, assignment of errors or brief. Petitioner's contention is that the tax levied against it is invalid under the Commerce Clause. Petitioner's failure to raise the question alone would justify a refusal here to consider the contention. See Connecticut R. Co. v. Palmer, 305 U.S. 493, 496, 59 S.Ct. 316, 319, 83 L.Ed. 309; Kessler v. Strecker, 307 U.S. 22, 34, 59 S.Ct. 694, 700, 83 L.Ed. 1082. The answer to the suggestion, however, seems to us clear. The argument is that the Supreme Court of Mississippi must be reversed because the tax before us 'is a tax on the privilege of engaging in the doing of interstate business within the State, and such a tax is * *  * invalid under the Commerce Clause.' This conclusion seems to be reached by the following analysis. The stipulation between the Company and the State Tax Commission is read as if the phrase 'in its interstate activity' modified only the words 'powers' and 'privileges' and not the word 'protection.' If that is a proper construction of this stipulation, then the parties have agreed that the Company has obtained by the tax 'no protection from the State * *  * other than the protection afforded *  *  * by virtue of the payment of an ad valorem tax *  *  * .' The dissent then concludes that the imposition of the ad valorem taxes 'exhausted' the state's taxing power and, consequently, that the tax 'is a tax on the privilege of engaging in interstate business' and, as such, 'invalid under the Commerce Clause.'

The state Supreme Court construed the tax as 'an exaction * *  * as a recompense for *  *  * protection of *  *  * the local activities in maintaining, keeping in repair, and otherwise in manning the facilities of the system throughout the 135 miles of its lines in this State.' As we are bound by the construction of the state statute by the state court, it is idle to suggest that the tax is on 'the privilege of engaging in interstate business.' Nor can this result be changed by the suggestion tha the tax cannot be on any local incidents 'because they have already been fully taxed.' The local incidents, spoken of by the Supreme Court of Mississippi, were not the taxable events selected for the imposition of the ad valorem tax. These local incidents were the basis for the franchise or excise tax now in controversy. No reason is perceived why Mississippi cannot exact this different tax for the same protection. It is as though the ad valorem rate had been increased. The power to levy such a new tax is not and could not be questioned except as an interference with commerce. The legal question remains as to whether a state can exact a tax on those activities under the Commerce Clause.

The facts of this case present again the perennial problem of the validity of a state tax for the privilege of carrying on, within a state, certain activities admittedly necessary to maintain or operate the interstate business of the taxpayer. This transportation by pipe line with deliveries within the state at wholesale only is interstate business. Panhandle Eastern Pipe Line Co. v. Comm'n, 332 U.S. 507, 513, 68 S.Ct. 190, 193, and cases cited. Notwithstanding the power granted to Congress by the Commerce Clause to regulate the taxation of interstate commerce, if it so desires, that body generally has left the determination to the courts of what state taxes on or affecting commerce were permissible and what impermissible under the Commerce Clause. The states have sought by taxation to collect from the instrumentalities of commerce compensation for the protection and advantages rendered to commerce by state governments. The federal courts have sought over the years to determine the scope of a state's power to tax in the light of the competing interests of interstate commerce, and of the states, with their power to impose reasonable taxes upon incidents connected with that commerce. See Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 441, 59 S.Ct. 325, 328, 83 L.Ed. 272. We continue at that task, characterized long ago as an area of 'nice distinctions.' Galveston, Harrisburg & S.A.R. Co. v. Texas, 210 U.S. 217, 225, 28 S.Ct. 638, 639, 52 L.Ed. 1031.

There is no question here of Due Process. The Gas Company's property is in the taxing state where the taxable incidents occurred. McLeod v. Dilworth Co., 322 U.S. 327, 329, 64 S.Ct. 1023, 1025, 88 L.Ed. 1304. See Nippert v. City of Richmond, 327 U.S. 416, 423, 66 S.Ct. 586, 589, 90 L.Ed. 760, 162 A.L.R. 844. Nor is the measure used to calculate the amount of the tax challenged. That measure is $1.50 on each thousand dollars of capital employed within Mississippi. Southern Gas Corp. v. Alabama, 301 U.S. 148, 156, 57 S.Ct. 696, 699, 81 L.Ed. 970, Third. The attack on the Mississippi statute is that it violates the Commerce Clause by putting a tax on the commerce itself.

The local incidents covered by the definition of doing business hereinbefore set out, § 9312, Mississippi Code, supra, were said by the Supreme Court in this case to be 'the local activities in maintaining, keeping in repair, and ote rwise in manning the facilities of the system' in Mississippi. 201 Miss. 670, 29 So.2d 268. The cases just cited in the note show that, from the viewpoint of the Commerce Clause, where the corporations carry on a local activity sufficiently separate from the interstate commerce state taxes may be validly laid, even though the exaction from the business of the taxpayer is precisely the same as though the tax had been levied upon the interstate business itself. But the choice of a local incident for the tax, without more, is not enough. There are always convenient local incidents in every interstate operation. Nippert v. City of Richmond, supra, 327 U.S. at 423, 66 S.Ct. 589, 90 L.Ed. 760. The incident selected should be one that does not lend itself to repeated exactions in other states. Otherwise intrastate commerce may be preferred over interstate commerce. Again, where there is a state exaction for some intrastate privilege that discriminates against interstate commerce, it is invalid even though it is sufficiently disconnected from the commerce to be taxable otherwise.

The Mississippi tax under consideration is not discriminatory. It is levied, in addition to ad valorem taxes, on corporations created under Mississippi laws, those admitted to do business in Mississippi and those operating in the state without any authority from the state. See note 1, supra. Petitioner operated local compressor stations. We have heretofore held that the generation of electric energy for the operation of such stations was subject to state taxation withou violation of the Commerce Clause. Coverdale v. Arkansas-Louisiana Pipe Line Co., 303 U.S. 604, 58 S.Ct. 736, 82 L.Ed. 1043. A glance at the activities, named above, listed by the Supreme Court of Mississippi, shows that there is no possibility of multiple taxation through the same exactions by other states. The amount of the tax is reasonable. It is properly apportioned to the investment in Mississippi.

However, a state tax upon a corporation doing only an interstate business may be invalid under our decisions because levied (1) upon the privilege of doing interstate business within the state, or (2) upon some local event so much a part of interstate business as to be in effect a tax upon the interstate business itself. Petitioner asserts that the Mississippi statute so offends.

First. This Court has drawn the distinction in the field of pipe line taxation between state statutes on the privilege of doing business where only interstate business was done and those upon appropriate local incidents. In Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439, the Ozark Pipe Line Corporation operated an oil pipe line from Oklahoma, through Missouri to a point in Illinois. Oil was neither received nor delivered in Missouri. This was interstate transportation. Interstate Natural Ga Co. v. Power Comm'n, 331 U.S. 682, 689, 67 S.Ct. 1482, 1486, 91 L.Ed. 1742, and cases cited at note 12. It had its principal office in Missouri. It had a license from Missouri authorizing it to engage "exclusively in the business of transporting crude petroleum by pipe line." 266 U.S. Page 561, 45 S.Ct. 184, 185, 69 L.Ed. 439. The state tax was an apportioned franchise tax. It was construed by this Court as a tax 'upon the privilege or right to do business,' 266 U.S. Page 562, 45 S.Ct. 185, 69 L.Ed. 439. Virginia v. Imperial Coal Co., 293 U.S. 15, 20, 55 S.Ct. 12, 14, 79 L.Ed. 171. As such a tax upon a corporation doing only an interstate business, it was held invalid under the Commerce Clause.

In State Tax Commission v. Interstate Natural Gas Co., 284 U.S. 41, 52 S.Ct. 62, 76 L.Ed. 156, a pipe line ran from Louisiana through Mississippi and back to Louisiana. Two local Mississippi distributors took gas in that state from the respondent. Mississippi sought to tax the respondent under a privilege tax law that required the pipe line company to get a license to exercise the privilege desired, that is, to operate an interstate pipe line. This Court held that the entire business of the respondent was interstate despite a claimed local activity by the reduction of pressure to deliver gas to the Mississippi distributors. It followed that the state license for the privilege of engaging in the business of operating a pipe line was an invalid burden under the Commerce Clause.

On the other hand, in Interstate Natural Gas Co. v. Stone, 308 U.S. 522, 60 S.Ct. 292, 84 L.Ed. 442, we affirmed per curiam a judgment of the Fifth Circuit in Stone v. Interstate Natural Gas Co., 103 F.2d 544, on the authority of Southern Gas Corporation v. Alabama, supra, 301 U.S. at 153, 156, 157, 57 S.Ct. 699, 700, 81 L.Ed. 970. The tax in question in the 308 U.S. case was exacted by the same Mississippi statute employed here. This differs from the Mississippi statute in the Interstate case in 284 U.S. The Interstate case in 308 U.S. differed from this present case, § far as is material, only in the fact that the foreign corporation filed a copy of its charter as a prerequisite to doing business in Mississippi and appointed an agent for the service of process. The page references in the Stone citation of the Southern Gas case show that this Court considered the Mississippi tax in the Stone case as one not on business but "on the privilege of exercising corporate functions within the State and its employment of its capital in (Mississippi)." Southern Gas Corp. v. Alabama, supra, 301 U.S. 153, 57 S.Ct. 698, 81 L.Ed. 970. In the Southern Gas case, 301 U.S. page 155, 57 S.Ct. 699, 81 L.Ed. 970, the company did intrastate business but in the Stone case, no intrastate business was done. Thus the local event of qualifying for intrastate business which occurred in both Sourthern Gas and Stone, brought a different result from that in the Ozark case and in Interstate, 284 U.S., where the privilege or right to do interstate business was protected. Mississippi, through its Supreme Court, had declared that there is no attempt to tax the privilege of doing an interstate business or to secure anything from the corporation by thi statute except compensation for the protection of the enumerated local activities of 'maintaining, keeping in repair and otherwise in manning the facilities.' 201 Miss. 670, 29 So.2d 268. Under § 9314, quoted in note, 1, in the light of that statute's definition of 'doing business' set out 68 S.Ct. 1475 supra, this is a reasonable meaning to give the taxing statute. We must accept the state court's interpretation. We therefore conclude that the Mississippi statute here involved is not upon the privilege of doing an interstate business.

Second. We come now to the second question. That is whether the challenged excise for carrying on within the state the aforementioned activities of maintenance, repair and manning by a corporation engaged solely in interstate commerce may be taxed. The answer on this point depends upon whether these activities are so much a part of the interstate business as to be under the protection of the Commerce Clause as this Court has construed it. In this case the local activities are those involved in the maintenance of the pipe line. This tax is not an unapportioned tax on gross receipts from the commerce itself. It is measured by a proportion of the capital employed within the state. It cannot be duplicated in other states. Compare Western Live Stock v. Bureau, 303 U.S. 250, 255, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944. In Ozark Pipe Line v. Monier, supra, this Court, 266 U.S. at page 565, 45 S.Ct. 186, 69 L.Ed. 439, spoke of such activities as set out below. If it was intended to say that such in-the-state activities as there described could not be taxed, we disagree with that conclusion. We are inclined to the view that the fact that the tax there under consideration was considered a tax 'upon the privilege or right to do business,' led the Court to point out that as the local activities were essential to that business, they were not taxable activities. The pipe line itself and all appurtenances are essential, yet an ad valorem tax can be laid.

In taxation, we do not have the problems raised by many decisions on state regulations alleged to impede the free flow of commerce when not nationally uniform. Southern Pacific Co. v. Arizona, 325 U.S. 761, 65 S.Ct. 1515, 89 L.Ed. 115. Regulations may be imposed by the state on commerce. Panhandle Eastern Pipe Line Co. v. Public Service Comm'n, supra; Bob-Lo Excursion Co. v. Michigan, 333 U.S. 28, 68 S.Ct. 358. When state taxation of activities or property within a state is involved, different considerations control. It is no longer a question of actual interruption of the operation of commerce. Kelly v. Washington, 302 U.S. 1, 14, 58 S.Ct. 87, 82 L.Ed. 3. Rather a prohibited tax exaction is one beyond the power of the state because the taxable event is outside its boundaries, McLeod v. Dilworth Co., supra, or for a privilege the state cannot grant. See note 10, supra. Is it bad because a tax on the commerce itself? We have sustained a fee for the privilege of using state courts, exacted by the state from a business licensed by the United States to handle customs charges. Union Brokerage Co. v. Jensen, 322 U.S. 202, 64 S.Ct. 967, 88 L.Ed. 1227. Likewise a special privilege tax upon an interstate automobile transportation company for the use of the state roads has been approved. Aero Mayflower Transit Co. v. Board of Railroad Comm'rs, 332 U.S. 495, 68 S.Ct. 167.

The Mississippi excise has no more effect upon the commerce than any of the instances just recited. The events giving rise to this tax were no more essential to the interstate commerce than those just mentioned or ad valorem taxes. We think that the state is within its constitutional rights in exacting compensation under this statute for the protection it affords the activities within its borders. Of course, the interstate commerce could not be conducted without these local activities. But that fact is not conclusive. These r e events apart from the flow of commerce. This is tax on activities for which the state, not the United States, gives protection and the state is entitled to compensation when its tax cannot be said to be an unreasonable burden or a toll on the interstate business.

Affirmed.

Mr. Justice BLACK, concurs in the judgment.