Opinion
No. 45678.
January 3, 1944.
Raymond M. Myers, of Dallas, Tex. (Homer Hendricks, of Washington, D.C., on the brief), for plaintiff.
J.W. Hussey, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
Action by the Magnolia Petroleum Company against the United States of America to recover taxes paid upon the transportation by pipe line of crude petroleum and refined products thereon.
Petition dismissed in accordance with opinion.
This case having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. The plaintiff is a Texas corporation, with its principal place of business at Dallas, Texas. During the periods involved in this proceeding it was, and is now, engaged in the business of producing, refining, and marketing petroleum and petroleum products. It had refineries at Beaumont, Corsicana, Fort Worth, and Luling, Texas, and its marketing operations were conducted in Texas, New Mexico, Oklahoma, Arkansas, and Louisiana. Under its charter, plaintiff could operate no pipe line, and it was not a common carrier; but plaintiff wholly owned the Magnolia Pipe Line Company which was a common carrier pipe-line transportation company and which had the same officers and management as plaintiff.
2. Federal pipe-line transportation taxes were assessed against the plaintiff on the conveyance or transportation of its own oil (both crude and refined) from its own tanks on its own premises through its own lines of pipes into vessels on the river adjoining a and b below, and into barges on the canals within c below, and in sums, as follows:
a. Beaumont Refinery in Texas — (1) Taxes and interest paid on the conveyance of refined products into vessels ....................... $ 74,883.50 (2) Taxes and interest on the conveyance of crude oil into vessels .......... 10,793.10
b. Magpetco Terminal in Texas — (3) Taxes and interest on the conveyance of refined products from the Beaumont refinery to the Magpetco terminal (a distance of 9 miles) and loading the same into vessels ....................... 9,531.74 (4) Taxes and interest on the conveyance of crude oil into vessels .......... 17,456.03
c. Cameron Meadows Lease in Louisiana — (5) Taxes and interest on the conveyance of crude oil into barges ........... 2,030.63 ___________ Total ........................... 114,695.00
3. The aforesaid taxes were assessed for the calendar years 1933-1936, inclusive, and for the portion of the year 1937 ending April 30. The taxes and interest were paid by plaintiff as follows:
September 16, 1936 .......................... $ 938.72 March 5, 1938 ............................... 76,600.81 March 18, 1938 .............................. 36,594.10 August 5, 1938 .............................. 561.37 __________ Total .................................... 114,695.00
4. November 1, 1939, the plaintiff filed with the Collector of Internal Revenue at Dallas, Texas, its claim for refund in the amount of $114,695. By letter of March 20, 1941, the claim for refund was rejected in toto by the Commissioner of Internal Revenue.
5. Among plaintiff's facilities at each of the three places named in finding 2, there were oil tanks and there were pipes through which the oil was carried from tanks into ships and barges. At Beaumont and Magpetco pumps were used to transfer the oil from tanks into ships. At the Cameron Meadows lease the oil flowed from the tanks through pipes into barges by gravity.
The Neches River formed the north boundary of plaintiff's refinery at Beaumont and the wharf from which the products in question were loaded at Beaumont was on land owned by plaintiff.
Beaumont Refinery
6. Plaintiff had a refinery located on the outskirts of Beaumont, Texas, on the banks of the Neches River, which is a navigable stream flowing into the Gulf of Mexico. During the period involved the plant occupied 750 acres. It was a complete refinery at which all the principal petroleum products were manufactured, including gasoline, kerosene, distillate fuel, residual fuel, lubricating oils, and waxes. On the north boundary of the plant is the Neches River, which has a wharf 1,500 feet long with berth space for three vessels. The tanks from which the crude petroleum and refined products were loaded onto vessels at the wharf at Beaumont and at the terminal at Magpetco were about 50 in number. They were arranged in rows of from 4 to 7 tanks each. The closest row was about 400 feet from the wharf and the farthest row was about 2,400 feet from the wharf. They were nine miles from the Magpetco terminal.
7. The crude oil was received at the refinery by pipe line, by barge, and by railroad tank cars. The greater part of the oil was received by pipe line. As the oil arrived it was stored in tanks throughout the refinery according to the location which best controlled its future treatment. It was available for use in the refinery or for sale in its crude state. The crude petroleum sold from these tanks had been in them for varying periods up to a period of as much as several months. The oil was sucked or pumped from tank to still, from tank to tank, from still to tank, to treat, to finish, to mix, to blend, etc., depending on what the finished products were to be. When the desired products had been produced they went to the group of tanks mentioned above.
8. All the crude oil was stored on the refinery premises until the salt and water therein had settled, and until it was required for refining or for sale in its crude state. Some of the crude oil received at the refinery was loaded as such into vessels through the same facilities and over the same wharf as was used for the loading of refined products.
9. The above-mentioned tanks were connected with lines of pipes to a pump house. From the pump house to the wharf there were about a dozen discharge lines, a line for each type of product handled. Each discharge line was connected to a loading rack located on the wharf. From each loading rack there was a rubber hose from 38 to 40 feet long to carry the oil from the rack into the vessel.
Magpetco Terminal
10. Magpetco was located down the Neches River south about nine miles from the Beaumont refinery. There was an 8-inch pipe line running from the Beaumont refinery to the Magpetco terminal. The terminal consisted of storage tanks, pipes connecting tanks, pumps, and wharf for the loading of oil from tanks into vessels. The 8-inch pipe line from Beaumont to Magpetco was used exclusively for the transportation of refined products from the refinery to the terminal for storage and for subsequent loading into vessels. The operation of loading oil from tanks into vessels at Magpetco was the same as at Beaumont.
The crude oil which was loaded at Magpetco was received by pipe line from four States in which the plaintiff produced oil. Before being shipped out it had remained in the storage tanks for varying periods up to as much as four or five months. The Magpetco terminal and the Beaumont refinery were under the same management and were operated together as a part of the same business.
Cameron Meadows Lease
11. The Cameron Meadows lease was located in southern Louisiana in swampy country. The lease was reached by means of canals. The canals were used for the movement by barge of oil produced from the wells. The oil as it came from the wells was placed into settling tanks, where the oil was treated. From the settling tanks the oil was moved by line of pipes to stock tanks, some of which were several thousand feet away. From the stock tanks the oil was transferred to barges through pipes and rubber hose at distances of 150 to 400 feet.
12. The Magnolia Pipe Line Company, plaintiff's subsidiary, had no terminal facilities. Its pipes ended in the one case at plaintiff's refinery at Beaumont, and in the other at plaintiff's terminal at Magpetco. The Magnolia Pipe Line Company having no terminal facilities did not render the service of loading the oil into vessels. This service was rendered by plaintiff, when required of it, for which it made a charge of 1½ cents per barrel. This service consisted in transporting the oil from its tanks by pipe line and rubber hose into the holds of the vessels.
Other pipe line companies operating in the Beaumont and Magpetco areas made a charge for loading of from 1½ to 2½ cents per barrel.
Pipe line companies operating in the neighborhood of plaintiff's Cameron Meadows lease made a charge for loading of 2½ cents per barrel.
Plaintiff sues to recover the sum of $114,695, the amount of taxes paid upon the transportation by pipe line of crude petroleum and the refined products thereof, plus interest. Transportation at three places was involved. One was from its storage tanks at its refinery at Beaumont, Texas into vessels at its wharves on the Neches River, which was the north boundary of its plant; another was from its storage tanks at its refinery at Beaumont to its terminal at Magpetco, nine miles down the river from Beaumont; and the third was from its storage tanks on the Cameron Meadows lease in Louisiana into barges. The transportation from the storage tanks at Beaumont was of both refined products and of crude oil. The transportation from the storage tanks at Cameron Meadows was of crude petroleum only.
Section 731 of the Revenue Act of 1932, 47 Stat. 169, 275, 26 U.S.C.A. Int.Rev. Acts, page 636, levies a tax "upon all transportation of crude petroleum and liquid products thereof by pipe line." The tax is to be paid "by the person furnishing such transportation." In amount it equals 4 percent of the charge made for the transportation or, if the owner of the petroleum products furnishes his own transportation, then the tax is 4 percent of the charge a pipe-line company makes for like service.
The transportation upon which the tax was levied in this case was from the plaintiff's storage tanks into the holds of vessels. The charge on which the tax was assessed was 1½ cents per barrel where the transportation was from the tanks on the refinery grounds at Beaumont into vessels at the wharf contiguous to the refinery ground, 2½ cents per barrel where the transportation was from the storage tanks on the refinery grounds to vessels at the wharf at Magpetco, and 2½ cents per barrel where the transportation was from the storage tanks at the Cameron Meadows lease to the vessels in the canal contiguous to the lease.
Transportation from storage tanks into the holds of vessels is a transportation service rendered by pipe-line carriers, and they charge for it rates varying from 1½ cents per barrel to 2½ cents per barrel. They call this a charge for "loading." Presumably the rate from 1½ cents per barrel to 2½ cents per barrel depends upon the distance from the storage tanks to the vessel. If the distance is short a charge of 1½ cents per barrel is made, but if the distance is longer the rate go up to as much as 2½ cents per barrel.
The storage tanks at the Beaumont refinery from which the products were transported to the vessels were about 50 in number. They were arranged in rows of from 4 to 7 tanks. These rows were from about 400 feet to 2,400 feet from plaintiff's wharf. They were about nine miles from the Magpetco terminal. Plaintiff ran its own pipe lines through its own property from the storage tanks to the loading racks at its wharf at Magpetco.
Plaintiff says that no pipe-line company ever runs its lines into the refinery grounds of another company and, therefore, no pipe-line company ever renders the service taxed in this case; but all pipe-line companies do make a charge for loading vessels from storage tanks, and this is the transportation upon which the tax was levied in this case. The tax was levied on the charge pipe-line companies make for such transportation. This is in accordance with the Act (Sec. 731(b).
It was plainly the purpose of Congress to tax movements through privately owned facilities as well as those over common carrier pipe lines, partly for the purpose of avoiding giving advantage, by way of exemption from the tax, to persons owning their own facilities. This was the view of the Fifth Circuit Court of Appeals in McKeever v. Fontenot, 104 F.2d 326. The movements there involved were identical with the movements here, that is, from the refinery into the holds of vessels through private facilities on the property of the person owning the oil. The court sustained the tax because it was levied on a transportation service furnished by pipe-line carriers, for which published rates were charged.
In 1942, Congress passed an Act exempting from the tax "movement * * * within the premises of a refinery, a bulk plant, a terminal, or a gasoline plant" (Sec. 616, Revenue Act of 1942, 26 U.S.C.A. Int.Rev. Code, § 3460(c), but this Act was not in effect during the time in question.
Plaintiff says that some of the movements in this case were incidental to the refining of the crude petroleum and that all of them were incidental to the transportation of products by water, and that therefore they should not be subjected to the tax. It bases this argument on the provisions of Article 26 of Regulations 42, promulgated under the Revenue Act of 1932. This article reads in part: "* * * It also includes the transportation by private owner whenever the movement is substantially similar to movements which pipe-line carriers usually undertake and perform, if the movement is not merely local or incidental to another business or a related business engaged in by the person so transporting, such as the producing or refining of oil. Thus, where a refiner maintains a trunk line or a gathering line from a refinery to an oil field or pool, the services which the refiner performs for himself are similar to those which pipe-line carriers would otherwise render. The refiner, therefore, should pay the tax as though he had in fact employed the services of a carrier. If, on the other hand, the movement is from storage tanks to stills which are a part of the same manufacturing unit, or from wells to flow tanks or storage tanks situated in the immediate vicinity, the movement is not such as a pipe-line carrier would normally render and consequently is not subject to the tax imposed under Section 731. * * *"
Although this regulation seeks to exempt from the tax a transportation which is incidental to a business engaged in by the owner of the oil, it is seen that the basic test established by it is whether or not the transportation service upon which the tax is levied is such as is customarily performed by a pipe-line carrier. There can be no doubt under the proof that all pipe-line carriers do charge for a loading service, that is, the transportation of the oil from storage tanks to vessels.
Refineries located away from a navigable stream which had no pipe line from the refinery to the vessel and which had to secure the services of a pipe-line carrier having such facilities would have to pay not only for the transportation from the storage tanks to the water, but also for the loading of the oil into the vessels. A loading charge is made in addition to the charge for transporting up to the point of loading into the vessel. If plaintiff were exempted from this charge it would derive an advantage over other refineries not so favorably located.
The transportation at the Cameron Meadows lease was also from storage tanks to vessels. Tariffs on file in the case show that at least one pipe-line company operating in this vicinity makes a charge of 2½ cents per barrel for this service. The tax was assessed on this charge.
Plaintiff also says the charge upon which the tax was assessed was not a fair charge, that a much smaller charge would have yielded a fair return on the investment. This argument is of no avail because the tax was assessed on the charge established by bona fide tariffs. It is only in the absence of tariffs that the Commissioner is authorized to determine what would be a reasonable charge (Sec. 731(b). See National Pipe Line Co. v. United States, 48 F. Supp. 655, 99 Ct.Cl. 180, 190 et seq.
Plaintiff's petition will be dismissed. It is so ordered.
JONES, Judge, took no part in the decision of this case.