Gulf Oil Corp. v. McGoldrick , 9 N.Y.S.2d 544 ( 1939 )

Untermyer, J.

(dissenting). So many questions are involved in the disposition of the appeal that it is impossible, without unduly extending the discussion, to give them all separate consideration. I will, therefore, content myself with a brief statement of the reasons which cause me to dissent.

If the fuel oil on which the tax has been imposed had been sold from a refinery not bonded under section 311 of the Tariff Act of 1930, though under all the other conditions which existed here, I think it could hardly be disputed that the transaction would be taxable by the city of New York under the power delegated to the city by the State. The fuel oil then would not be exempt from State taxation as an export (Swan & Finch Co. v. United States, 190 U. S. 143; United States v. Chavez, 228 id. 525), nor would it constitute a tax upon foreign commerce merely because the fuel oil was destined for consumption in the operation of the vessel to which it was delivered. (Eastern Air Transport v. Tax Commission, 285 U. S. 147.) It would not be exempt from State taxation by section 630 of the Revenue Act of 1932, which exempts fuel supplies and ships’ stores from taxation by the United States “ under this title,” nor, in my opinion, would Congress have had power to exclude such transactions from taxation by the States. It is not accurate to say that Congress had declared such sales of fuel oil to constitute “ exports ” or that it has attempted to exempt them from State taxation (assuming that it had such power), for both in section 309 of the Tariff Act of 1930 (19 U. S. Code, § 1309), subdivision (b), and by section 630 of the Revenue Act of 1932 that declaration is expressly limited, in the one case to “ the drawback provisions of this Act,” and in the other “ for the purposes of section 601 (b) ” of that act.

The transaction here is not exempted from taxation by article 942 of the Customs Regulations (1931), which provides that “ imported goods in bonded warehouses are exempt from taxation under the general laws of the several States ” (again assuming that Congress had such power). The tax here was not levied upon the fuel oil while in any “ bonded warehouses,” and did not attach until the oil, under contract of sale, had left the warehouse and was delivered to the ship. It seems to have been recognized that fuel oil should be subject to State taxation when withdrawn from bonded warehouses and delivered to vessels operating in foreign commerce. (Eastern Air Transport v. Tax Commission, supra.) The many safeguards which are established in order to insure delivery of fuel oil to the vessel are designed only to prevent evasion of the Federal tax or duty which is imposed on crude petroleum imported for domestic consumption. These measures do not suggest that Congress has asserted the power to exclude local taxation on local sales of fuel oil after it has left “ bonded warehouses ” and is delivered to the vessel.

The only theory, therefore, on which a claim for exemption can conceivably be made is that the oil was continuously in foreign commerce from Venezuela to the point of delivery at the dock and that at no time throughout all the processes of manufacture and sale did it have a taxable situs in this State. That conclusion involves consequences which are so far-reaching and so dangerous as to require close examination of its premises. For it means that raw material may be imported into the several States to be there manufactured on private property and sold by private corporations, and that, if destined for export or even for transportation to another State, both the raw material and the finished product are exempt from State taxation. It cannot be said that the crude oil imported from Venezuela was not subjected to manufacture by refining, since it is the undisputed fact that its character was completely changed by the elaborate processes through which it passed. (Baltimore & Ohio R. Co. v. United States, 15 F. Supp. 674; Missouri Pacific R. Co. v. Schnipper, 56 F. [2d] 30; State v. Phillips Pipe Line Co., 339 Mo. 459; 97 S. W. [2d] 109; affd., 302 U. S. 642; United Mills Co., Inc., v. Tax Commission of Ohio, 54 Ohio App. 1; 5 N. E. [2d] 940. See, also, East Ohio Gas Co. v. Tax Commission, 283 U. S. 465.) The imported crude oil was converted as completely as ore which is imported from abroad and exported as steel, or as logs imported from abroad and exported as lumber. In the process of refining, several of the constituent ingredients of the crude oil were withdrawn and sold here for domestic use, the residue only constituting the bunker fuel oil which is the subject of this proceeding. The refining of the crude oil here was not a mere incident for convenience in transportation, as was the case in the decisions on which the petitioner relies. The only purpose for the importation of the crude oil into the United States was the refining and sale here. If, then, property having a situs within the State for the purposes both of manufacture and sale may be withdrawn from State taxation because the finished product is destined, however irrevocably, for use elsewhere, transactions of great magnitude which have heretofore been regarded as subject to local taxation will be exempt, to the great detriment of the States. The fact that the oil was manufactured in bond not to be sold for domestic use does not affect that question. Property thus isolated is none the less taxable. (Carstairs v. Cochran, 193 U. S. 10.)

It is true that it is the policy of the Federal government to exempt such importations of fuel oil from Federal taxation. That purpose is disclosed by the elaborate provisions for manufacture in bonded warehouses. But that furnishes no reason for also exempting from State taxation property which has a situs in the State and to which, furthermore, if I am correct, Congress has not attempted to grant such an immunity. The argument would seem to amount to this, that the States may not tax property which the Federal government, on grounds of public policy, has exempted from Federal taxation. That argument is manifestly untenable. To my mind it is incongruous to hold that a transaction concluded in this State for the sale of property situated and manufactured here is exempt from taxation by the State under whose protection all these operations have occurred.

The determination of the comptroller of the city of New York should in all respects be confirmed.

Glennon, J., concurs.

Determination annulled to the extent indicated in opinion of Townley, J., with fifty dollars costs and disbursements to the petitioner. Settle order on notice.