Gulf Refining Co. v. Stone , 197 Miss. 713 ( 1945 )

PARTIALLY DISSENTING OPINION. I agree that the tax in question is valid as to the Gulf Refining Company itself, but not for the reasons stated in the majority opinion. For centuries the term "land" has included not only the surface of the soil but everything beneath it in its natural state. This includes all minerals under the surface. Fox v. Pearl River Lumber Co., 80 Miss. 1, 31 So. 583; Moss v. Jourdan, 129 Miss. 598, 92 So. 689; Stern v. Great Southern Land Co., 148 Miss. 649, 114 So. 739; Federal Land Bank of New Orleans v. Cooper, 190 Miss. 490, 200 So. 729; Pace v. State ex rel. Rice, 191 Miss. 780, 4 So.2d 270; Merrell Engineering, etc., Co. v. Capital Nat. Bank, 192 Miss. 378, 5 So.2d 666; Wight v. Ingram Day Lumber Co., 195 Miss. 823, 17 So.2d 196. That has always been the rule in this state and as to other jurisdictions it was said in the Merrell case, supra [5 So.2d 670]: "Moreover, it is well settled by the great weight of authority from other jurisdictions that until brought to the surface and reduced to possession, oil or gas constitute an interest in real estate and not personal property." 1 Summers Oil Gas, Perm. Ed., sec. 21, p. 26. When a landowner pays taxes on his land he has paid the taxes on all the minerals in place thereunder, whether such minerals are known or not. If this were not true no landowner would ever know he had paid his taxes. No person knows, without exploration, what is under the surface of a particular tract of land. If lack of knowledge of the substance of the under-earth prevents the under-earth from being taxed, then the landowner is liable for reassessment and repayment of taxes every time later developments disclose some information not known to the tax assessor when he made the assessment. The original opinion says, "No man knows whether there is any oil under a particular tract of land, or if so how much and the quality thereof." Neither does he know the existence, quantity, and quality of rock, ore, lime, coal, bauxite, or any other material thereunder. It will indeed be confusion confounded if landowners who have paid the tax assessments on their lands are liable to reassessment each time some unknown material thereunder is later brought to light. Again, when oil is discovered it is then known as a fact it does exist under that tract, and the payment of ad valorem taxes on that land is payment on the oil thereunder. In other words, if the oil is there, the taxes thereon have been paid.

Nor does the nature of oil call for a different rule. Oil is and must needs be confined in pools. It does not percolate or run like water under the earth. It is confined and imprisoned in a folded stratum. It cannot escape from this natural reservoir because of impenetrable rock and it is held there under great pressure. "From the very nature of the conditions under which it has been formed, under which it is preserved, its migrating movements are checked and hindered in almost all directions." 1 Summers Oil Gas (Perm. Ed.), sec. 4, p. 12. It is because of this pressure that the oil comes to the top of the earth when the overlying rock which has confined it is penetrated. Of course, this pool may cover a considerable area but the migration is confined to the pool and to the rock enclosure about it.

But regardless of this, it is settled with certainty in Mississippi that oil is taxable in place. This Court has many times held that the fee in realty may be horizontally severed into (1) the timber above the surface, (2) the surface, and (3) the minerals beneath. In the timber, the surface and the minerals separate fees may exist. See Mississippi cases cited above, especially the Pace and Wight cases. Indeed, the legislature itself has settled that question. By section 3146, Code 1930 (Section 9770, Code 1942), it is provided that whenever ". . . mineral, gas [coal], oil, timber or similar interests in real estate, . . . are owned separately and apart from . . ." the ownership of the surface, "all of such interests shall be assessed and taxed separately from such surface rights and interests in said real estate, and shall be sold for taxes in the same manner and with the same effect as other interests in real estate are sold for taxes." If oil rights are not assessable, then the state is under duty to repay every dime which it has received as taxes under such assessments.

However, as stated, I agree that the tax is valid as to the Gulf Refining Company, not for the reason stated, but because this is a privilege or occupation tax, and the legislature had the right and power to impose such tax for the privilege of engaging in the oil business in this state. The Act itself designates the tax as an "annual privilege tax upon every person engaging . . . in the business of producing, or severing oil . . . from the soil . . ." Sec. 2. The bill, in this case, alleges that the Refining Company "is engaged in the business of discovering, producing, and marketing crude oil."

It is true the Act exempts from ad valorem taxes certain property owned by the Refining Company. Whether it, as a beneficiary of the exemption, is, or is not, thereby precluded from challenging the validity of the law on the ground of the exemption (see Dunn et al. v. Love, 172 Miss. 342,155 So. 331, 92 A.L.R. 1323; City of Jackson v. Mississippi Fire Ins. Co., 132 Miss. 415, 95 So. 845; Miller v. Lamar Life Ins. Co.,158 Miss. 753, 131 So. 282), the Act is not, in my opinion, unconstitutional because of it, since the legislature had the power to impose the tax without the exemption.

However, I cannot agree that the tax is valid as to the lessor — land, or royalty, owner, whom I will call the owner. Under no theory can such owner be liable for this tax.

If the tax here levied is considered a property tax, as is claimed by the appellant Refining Company and denied by appellee, then, as shown above, the taxes have already been paid and this levy, as to the owner, is double taxation on such property.

If it is a privilege tax, as the Act so designates it, then the legislature has no power to tax the owner for the privilege of producing the oil from his own land. In the case of Thompson v. McLeod, 112 Miss. 383, 73 So. 193, 194, L.R.A. 1918C, 893, Ann. Cas. 1918A, 674, this Court held that a law undertaking to impose an annual privilege tax upon a person extracting turpentine from standing timber on his own land was invalid. The Court said: "This act strikes down the inherent right of the property owner to lay hand upon his own property. Every owner of a pine tree enjoys the same natural right to extract gum from the tree as the owner of a vineyard has to pluck his own grapes. It would be the same thing to require a privilege tax as a precedent right of the owner to pull the ripe pecans from his pecan orchard or to enjoy a drink of pure water from the cool spring of the old homestead." To this might be added, that if this tax is valid, the legislature has the same right to tax a landowner for the privilege of picking and ginning the cotton grown upon his land for the purpose of sale, or for the privilege of cutting and baling his hay for such purpose. As was well said in Thompson v. Kreutzer, 112 Miss. 165, 72 So. 891, "Ownership is not a privilege conferred by government, but is one of the rights which governments were organized to protect." See also Dawson v. Kentucky Distillery Warehouse, 255 U.S. 288, 41 S.Ct. 272, 65 L.Ed. 638; State ex rel. Knox v. Gulf, M. N.R. Co., 138 Miss. 70, 104 So. 689; Barnes v. Jones, 139 Miss. 675,103 So. 773, 43 A.L.R. 673; Stone v. General Contract Purchase Corporation, 193 Miss. 301, 7 So.2d 806, 140 A.L.R. 1029; Ohio Oil Co. v. Wright, 386 Ill. 206, 53 N.E.2d 966; State v. Stiles, 137 La. 540, 68 So. 947; Hixon v. School Dist. of Marion,187 Ark. 554, 60 S.W.2d 1027; Jensen v. Henneford, 185 Wn. 209, 53 P.2d 607. This tax is not to be confused with a sales tax.

The McLeod case, supra, is much stronger in support of the validity of the tax than the case at bar. In that case there is no question that the landowner was himself engaged in the business of extracting the turpentine for sale on the market. In the case at bar the owner admittedly is not himself actually engaged in the oil business. If he is so engaged, it is because the Refining Company is either his agent or there is a joint enterprise.

There is no agency. The landowner has no control or power whatever over the method, manner, or means of production. To constitute the Refining Company his agent, he must have such power or authority. The lessee simply agrees that for his lease he will deliver to the owner on the premises one eighth of the oil produced. This is payment for the lease. The Refining Company furnishes all machinery and equipment and labor and produces the oil in its own way, under its own methods, and by its own means. The owner has no say-so whatever. Can it be said that if the Refining Company negligently caused the death of an employee during such operation that the owner would be liable for such negligence? Suppose the owner died leaving as his only heir a child just born. Is that child engaged in the oil business? It is clear to me the oil company is not the agent of the owner.

Nor are they engaged in a joint enterprise. It is one of the absolute essentials of such enterprise that all members thereof have mutual control and authority over the operations. Sample v. Romine, 193 Miss. 706, 8 So.2d 257, 9 So.2d 643, 10 So.2d 346. It is not claimed in this case that the owner has any control or authority over the method, means, or manner of producing the oil.

In my opinion the case should be affirmed as to the Refining Company, but reversed and judgment here as to the owner.