Phillips v. Sinclair Refining Co.

1. 2. The overruling of the general demurrer, to which no exception was taken, left it incumbent upon the taxpayer, in order to recover the refund claimed, merely to prove that its pipeline department was a separate, distinct, unitary entity which would authorize the taxpayer to include two out of three phases of its business activities in applying the Three Factor Ratio formula provided for in the Code (Ann. Supp.) § 92-3113, in determining the taxable income to be apportioned to the State of Georgia for tax purposes. The evidence failed to sustain this allegation, but showed rather that all three phases, namely, manufacturing, marketing, and operating the pipeline, constituted a unitary business, and the court erred in permitting the application of the statutory formula to only the manufacturing and marketing phases in determining the taxable income apportionable to the State.

DECIDED OCTOBER 8, 1947. REHEARING DENIED OCTOBER 30, 1947. The Sinclair Refining Company brought an action in the Superior Court of Fulton County against J. Eugene Cook in his official capacity as State Revenue Commissioner, seeking to recover income taxes alleged to have been erroneously or illegally assessed and collected, after a claim for refund therefor had been denied. The material allegations of the petition are as follows: "4. Petitioner brings this action for the recovery of . . $7,340.11 principal, together with interest at the rate of 6% per annum from January 25, 1945, such sum being the amount paid by petitioner on the date just stated to the State of Georgia and collected by it as income taxes for the year 1941, which petitioner, for the reasons there and hereafter alleged contends was illegally collected from it. The petitioner shows that prior to bringing this suit it duly filed with the State Revenue Commissioner a claim for refund of the taxes alleged to have been illegally collected, which claim the commissioner has denied. 5. Sinclair Refining Company . . has been engaged for a number of years within the State of Georgia, in the business of marketing petroleum products, and that is the only business in which it is, or has ever been engaged in in this State. 6. Prior to August 31, 1936, Sinclair Prairie Pipeline Company, a corporation under the laws of the State of Delaware (hereinafter called the ``Prairie Company'), was engaged in the business of transporting crude oil, as a common carrier, by and through a system of pipelines. Its principal office and headquarters were located in Independence, Kansas, at which place this company kept its books and records and from which point it carried on and directed its corporate and business offices and activities. 7. The Prairie Company had no pipelines in the State of Georgia and transported no oil either through or into this State; it did not have any agents, employees or representatives in Georgia, nor did it do any business of any sort within this State. 8. On the date last mentioned the Prairie Company and your petitioner merged into a single corporation under the name of ``Sinclair Refining Company,' but the business of transporting crude oil, being the business theretofore engaged in by the Prairie Company, was carried on thereafter as a separate and distinct business by your petitioner, being operated as an autonomous department of the merged corporations, and as so conducted will be referred to as the ``Pipeline Department' or ``Department'. 9. The Pipeline Department is carried on, managed and directed from offices at Independence, Kansas. It has no offices, agents, or places of business in Georgia, and directions relative to the transportation of crude oil by pipeline neither originate, nor are they carried out, in Georgia. 10. As was the case with its predecessor, [petitioner] is a common carrier under the Interstate Commerce Act (Title 49, U.S.C.A. § 1 (3)), and also under the State laws where it operates. The Department, as such, files and publishes its tariffs covering its transportation charges with the Interstate Commerce Commission and with the different State bodies in the several States where it has pipelines. 11. The valuations of the Pipeline Department's property are those put upon it by the Interstate Commerce Commission and are fixed by the Commission. It keeps its own books and records in accordance with regulations of the Commission imposed upon it as a carrier subject to the Commission's orders. These books and records are kept at Independence, Kansas, and are entirely separate from the general books of your petitioner which are kept in the City of New York. No books, records or other documents pertaining to the business of the Pipeline Department are kept in Georgia. 12. Petitioner alleges that it is not necessary, in order to determine the profits of the Pipeline Department, to refer to any books or records kept in Georgia, or elsewhere than at Independence, Kansas, since the Department's books must, under the rules of the Interstate Commerce Commission, be so kept that its, the Department's profits can be determined therefrom without reference to the general books and records of your petitioner. 13. The Pipeline Department bears the salaries of executives and employees whose functions are concerned solely with the business carried on by the Department, i.e. the transportation of crude oil by pipeline. Conversely, no part of the salary of any other executives, and no part of the compensation of other employees of your petitioner is charged to the Pipeline Department. In the case of overhead expense, items relating solely to pipeline operations are included in the expense of the Pipeline Department, and there is no apportionment to general overhead. 14. The revenues of the Pipeline Department are solely those which it obtains from the furnishing of transportation of crude oil, as a common carrier, under filed tariffs. Neither the Department nor your petitioner own any of the oil which is the subject of this transportation. Such oil is carried for the account of shippers and is in part delivered to refineries of Sinclair Refining Company, and, in part, to refineries of other companies. In 1941 Sinclair Refining Company received 72.69% of the oil thus transported and other refineries received 27.31%. Such part of the crude oil so delivered to your petitioner was purchased by it f. o. b. its refineries, i.e., f. o. b. destination. At points where its own refineries are located petitioner receives oil from other pipelines as well as from pipelines operated by the Pipeline Department. Petitioner has no refineries in the State of Georgia. 15. Petitioner neither has, nor does it operate any pipelines other than those operated by the Pipeline Department in the manner herein set out. None of these pipelines is in the State of Georgia. . . 16. In the State of Georgia, Sinclair Refining Company is, and was in 1941, engaged solely in the business of marketing petroleum products as heretofore alleged. Outside of the State of Georgia, Sinclair Refining Company is, and during the year 1941 was, engaged in (1) the refining and marketing of crude petroleum, and (2) the business of transporting crude oil by pipeline in, into and through the states enumerated. . . 17. Neither the cost price to petitioner of the petroleum products which it markets, nor the selling price thereof, nor the profits realized from their sale, whether in Georgia or elsewhere, are affected, directly or indirectly, by the fact that petitioner carries on the business of transporting crude oil under filed tariffs. The two businesses are entirely disconnected. 18. On or about March 12, 1942 petitioner duly executed and filed with the Department of Revenue of Georgia its corporation income tax return for the calendar year 1941, and with such return your petitioner made payment of a tax of $2,825.55 based on 5 1/2% of net business revenue apportioned to Georgia of $51,373.56. On page 3, Schedule L of this return petitioner directed attention to the fact that the net income of the Pipeline Department, amounting to $9,357,541.85, was excluded in arriving at the net business income of $3,021,618.43 subject to apportionment to Georgia. The return also disclosed that the denominator of the apportionment fraction used in the allocation of net income to Georgia did not include tangible properties and gross receipts of the Pipeline Department. 19. Attached to and made a part of petitioner's Corporation Income Tax Return for 1941, there was a written statement explaining the division of petitioner's business into two separate and distinct ones. . . 20. Subsequent to the filing of its Corporation Income Tax Return for 1941, petitioner was notified by the State Revenue Commission, through a letter bearing date July 13, 1944, that he proposed to make certain adjustments in your petitioner's income tax liability for the year 1941, by adding thereto a tax of $8,971.69, plus interest of $1,300 or a total of $10,272.59. The Statement of the adjustments proposed, which, as Schedule No. 1, accompanied this notice from the Commissioner, showed that in the main the increased tax liability was rested upon the addition to petitioner's net income, as reported of $9,242,612.02. This figure represented the income received by petitioner from the operation of its separate pipeline business. . . 21. Thereafter petitioner filed a writing with the Commissioner complaining of and objecting to his proposed increase in your petitioner's taxes for the year 1941, which writing was a restatement and an elaboration of the matters and things set forth in the explanatory statement that was submitted with petitioner's original return. . . Thereupon there followed conferences with the Commissioner respecting the legality of his proposal to include in petitioner's taxable income the revenues arising from the operation of its pipeline. 22. On January 24, 1945, the State Revenue Commissioner through a letter dated that day, notified petitioner that he had redetermined the amount of income tax owing by it to the State of Georgia for the year 1941, and that the deficiency amounted to $6,327.13 plus $1,086.16 interest or a total of $7,413.29. 23. By reference to the Schedule attached to and made a part of the notice referred to in the foregoing paragraph hereof, it appeared that the Commissioner had concluded that 72.69% of the net revenue of petitioner received by it from operations of its Pipeline Department constituted business income taxable by the State of Georgia under the statutory apportionment formula, and accordingly had corrected his previous computation of the deficiency theretofore claimed, which had embraced 100% of this pipeline revenue, and had thus arrived at the figures stated in the last preceding paragraph of this petition. . . 24. Nevertheless, included in the recomputated tax as so determined by the Commissioner, and stated in his notice of January 24th, there was an item of $73.18 (which included interest) that petitioner acknowledged was due and owing by it as additional income tax, with interest thereon, for the year 1941. This item had no connection, directly or indirectly, with Pipeline Department revenue." The petition further alleged that the tax had been paid under protest, a claim had been filed with the commissioner for refund, and that the claim had been refused; and asked that the plaintiff be allowed to recover the sum of $7,340.11, together with interest thereon at the rate of 6% from January 25, 1945. The Revenue Commissioner answered the petition by either denying, or alleging that for lack of information he could neither admit nor deny, every paragraph of the petition. The Commissioner also demurred to the petition as setting forth no cause of action and as being insufficient in law and not stating facts which warranted a recovery of taxes previously paid by the petitioner. This demurrer was overruled and no exception to this ruling was taken.

The case, by agreement, was tried by the court without the intervention of a jury, and upon an agreed statement of facts together with evidence adduced on the trial. The agreed statement of facts follows: "Except as the context indicates otherwise, all facts herein are with reference to the year 1941. 1. Sinclair Refining Company, the petitioner (hereafter called ``Sinclair Company'), is a corporation organized and existing under the laws of the State of Maine. 2. In the conduct of its Georgia business it maintains its principal office in Fulton County, Georgia, which is also the county in which its chief corporate officer, resident in the State, maintains his office. 3. Sinclair Company has been engaged for a number of years within the State of Georgia in the business of marketing petroleum products. 4. Prior to August 31, 1936, Sinclair Prairie Pipeline Company, a corporation under the laws of the State of Delaware (hereinafter called the ``Prairie Company') was engaged in the business of transporting crude oil, as a common carrier, by and through a system of pipelines. Its principal office and headquarters were located in Independence, Kansas, at which place this company kept its books and records and from which point it carried on and directed its corporate business and activities. 5. The Prairie Company has no pipelines in the State of Georgia and transported no oil either through or into this State; it did not have any agents, employees or representatives in Georgia, nor did it do any business of any sort within this State. 6. On August 31, 1936, the Prairie Company and Sinclair Company merged into a single corporation under the name ``Sinclair Refining Company' (now petitioner), but the business of transporting crude oil, being the business theretofore engaged in by the Prairie Company, was carried on and operated thereafter by Sinclair Company as an autonomous department of the merged corporation, and as so conducted will hereafter be referred to as the ``Pipeline Department' or the ``Department'. 7. The Pipeline Department is carried on, managed and directed from offices at Independence, Kansas. It has no offices, agents, or places of business in Georgia, and directions relative to the transportation of crude oil by pipeline neither originate nor are they carried out, in Georgia. 8. As was the case with its predecessor, the Prairie Company, the Pipeline Department, as such, is a common carrier under the Interstate Commerce Act (Title 49 § 1 (3) U.S.C.A.), and also under the laws of the States where it operates. 9. The Department, as such, files and publishes its tariffs covering its transportation charges with the Interstate Commerce Commission and with the different state bodies in the several States where it has pipelines. 10. The valuations of the Pipeline Department's property are those put upon it by the Interstate Commerce Commission, and are fixed by the Commission. It keeps its own books and records in accordance with regulations of the Commission imposed upon it as a carrier subject to the Commission's orders. These books and records are kept at Independence, Kansas. General books of Sinclair Company are kept in the City of New York. No books, records, or other documents pertaining to the business of the Pipeline Department are kept in Georgia. 11. It is not necessary to determine the profits of the Pipeline Department to refer to any books or records kept in Georgia or elsewhere than at Independence, Kansas, since the Department's books must, under rules of the Interstate Commerce Commission be so kept that its, the Department's, profits can be determined therefrom without reference to the general books and records of Sinclair Company. 12. The revenues of the Pipeline Department are solely those which it obtains from the furnishing of transportation of crude oil as a common carrier, under field tariffs. In 1941 Sinclair Company received 72.69% of the oil thus transported and other refineries received 27.31%. 13. Sinclair Company has no refineries in the State of Georgia. 14. Sinclair Company neither has, nor does it operate, any pipelines other than those operated by the Pipeline Department in the manner herein set out. None of these pipelines are in the State of Georgia. . . 15. In the State of Georgia, Sinclair Company is, and in 1941 was, engaged in the business of marketing petroleum products. Outside of the State of Georgia Sinclair Company is, and during the year 1941 was, engaged in (1) the business of refining and marketing of petroleum and petroleum products, and (2) the business of transporting crude oil by pipeline in, into and through the States heretofore enumerated [States omitted]. 16. The facts alleged in paragraphs 18 through 27 inclusive of the petition filed in this case are true, and the allegations made in those paragraphs, so far as they state facts and not conclusions are admitted. Paragraph 23 of the petition is amplified as follows: ``The State in its schedule referred to in Exhibit "C" of the petition allowed 100% of tangible property (pipeline) in denominator tangible property factor, and also 100% of salaries and wages in the denominator of salary and wages factor, but only used 72.69% of the pipeline gross revenue in the denominator of the sales factor."

The following testimony of the Assistant Comptroller of the Sinclair Refining Company, E. L. Wagon, was taken by deposition: ". . . I am familiar with the broad phases of the present litigation, and testify that the pipeline department bears the salary of executives and employees whose functions are concerned solely with the business carried on by the department; that is, the transportation of crude oil by the pipeline. The pipeline department of Sinclair Refining Company does not bear any salary of any employees or officers, or any other expense except with respect to those employees and those items that are solely concerned with operations of the pipeline department. There is no distribution of any overhead or any so-called New York expense against the pipeline department. The books and accounts of the pipeline department are maintained entirely separate and apart from the account and records of Sinclair Refining Company. That is mandatory by reason of the fact that the pipeline is governed by accounting regulations, by evaluation regulations and by statute to the Interstate Commerce Commission. These books and records of the pipeline department are kept in Independence, Kansas, while the general books of the Sinclair Refining Company are kept in New York City. It is factually that none of the expenses are prorated to the pipeline department. None of the expenses, such as salaries of officers, payments to employees and compensation to them is charged to the pipeline department, and conversely no part of the salaries of pipeline department executives or compensation to its employees is charged to the Sinclair Refining Company's operations. No overhead expense of the pipeline department or any part thereof is prorated or charged to the Sinclair Refining Company, and conversely no part of the overhead of the Sinclair Refining Company is charged to the pipeline department. There is no apportionment of general overhead expenses. In Georgia, Sinclair Refining Company is engaged only in the business of marketing petroleum products. Outside Georgia, it has refineries located at Wellsville, New York; Marcus Hook, Pennsylvania; East Chicago, Indiana; Kansas City, Kansas; Coffeeville, Kansas; Sand Springs, Oklahoma; Fort Worth, Texas; Houston, Texas, and Sinclair, Wyoming. That is a complete list of the refineries as of 1941, and all of my evidence is directed to that year unless otherwise indicated. All of the refineries above mentioned receive crude oil transported by pipeline and tanker. In the case of Wellsville, New York, crude oil is delivered into the plant by a pipeline company known as the Messer Pipeline Company, and also by a gathering line system which is a plant facility of the Wellsville refinery. This gathering system is not a part of Sinclair Refining Company's pipeline department, and Sinclair Refining Company has no interest whatever in the Messer Pipeline Company. The East Chicago refinery gets most of its crude oil from the Buckeye Pipeline Company in which Sinclair Refining Company has no interest. The Kansas City plant received most of its crude oil from a pipeline operated by the pipeline department. Part came in over Stanolind Pipeline Company in which latter company Sinclair had no interest. Coffeeville, Kansas refinery received its crude oil via the pipeline department lines, while at Sand Springs, Oklahoma, crude oil is delivered through Consolidated Pipeline Company, in which Sinclair Refinery Company has no interest. All of the crude oil delivered to the Fort Worth refinery is delivered by the pipeline department. The Houston refinery received crude oil delivered in part by the pipeline department and in part by the Texas-New Mexico Pipeline Company, the latter company in which Sinclair Refining Company has no interest. The refineries which send their refined products into Georgia for sale show that approximately 95% originate in the Houston refinery, about 4% in the Wellsville refinery, and about 1% in other plants. That takes care of all the Georgia products. The shipper owns the oil shipped over the pipeline and the oil is purchased for the use of the refineries f. o. b. the refinery. Title to the oil passes upon delivery at the refinery and Sinclair Refining Company did not own any of the oil that was transported through its pipeline department in 1941. No subsidiary wholly owned or controlled by the Sinclair Refining Company owned any of the oil transported in the pipeline, but such oil was carried for the account of the shipper." By way of summary, Mr. Wagon testified on the trial in person as follows: The cost price to the Sinclair Refining Company or the selling price to the customer of the petroleum products which have markets in Georgia is not affected by the fact that the Sinclair Refining Company, rather than some other pipeline carrier, carries on the business of transporting crude oil by pipeline under filed tariffs. The profits which the Sinclair Refining Company realizes from the petroleum products are not affected by the fact that the Sinclair Refining Company conducts the business of transporting crude oil by pipeline; that he as well as several of the top flight executives of the Sinclair Refining Company devoted a certain amount of time to the supervision and policy-making activities of the pipeline department, some part of whose salaries might well be justified as an expense against the pipeline department as well as some small amount of office rental, overhead, and tax on the total capital stock which was paid by the Sinclair Refining Company. The ratio of time and effort required to earn the $9,257,241.85 net profit for the pipeline department as compared with that required to earn a net profit of $3,021,618.43 for the Sinclair Refining Company through manufacturing and marketing the petroleum products was a ratio of 5% to 95%. In order to earn the net profit which the Sinclair Refining Company finally received from the pipeline department it was necessary to correlate the three phases of activity. No pipeline operations could be run entirely and distinctly apart from the other branches of the company except for one feature and he did not know that that really destroyed the separateness, that is more the matter of supply of oil. Otherwise the pipeline today with the exception of oil supply runs entirely as a unit. It would not have affected the Sinclair Refining Company's profit for 1941 whether the Sinclair Refining Company had used the pipeline department's lines for transporting its oil on another company's lines, but as a matter of fact the pipeline did transport 72.68% of Sinclair's crude oil and earned 9-1/4 million dollars net profit which was available to the Sinclair Refinery Company; that that sum was paid by various shippers, and Sinclair was not a shipper, although Sinclair Refining Company received 72.69% of the crude oil and undoubtedly paid the cost of this transportation indirectly when it paid the shippers a delivered price on the crude oil, and this cost was of course added to the cost of sales coming into Georgia; there is no doubt that Sinclair Refining Company in 1941 made a greater profit because it operated the pipeline. The delivered price includes pipeline cost of transportation not paid by the refining company but paid by the shippers to the carrier. The pipeline transportation is an entirely separate operation governed by line tariffs. He did not consider that any part of the profit made by the pipeline department had any relationship to the cost of the products in Georgia. Sinclair's cost of transportation would be the same if the pipeline was owned by an outsider. All net profit made by the pipeline department is available to the Sinclair Refining Company. The total tariff charges do go into the cost of the products which are finally sold in Georgia. The fact that the profit from the tariff rate accrues to the Sinclair Refining Company would not affect the selling price of the finished product in Georgia as he saw it. It might have an effect on the aggregate amount of corporate net income but it does not affect the cost of the product in Georgia. It is necessary to have the pipeline in order to be able to supply the refinery and to supply the retail outlets. Sinclair had to have retail outlets in order to make a profit since its profit is eventually made by selling merchandise to the public and it is necessary to have retail outlets to make this profit. Sinclair Refining Company does not keep a subsidiary report showing the net profits derived from each State's business. No such record or analysis is kept. It has no way of knowing the amount of net profit the taxpayer takes out of the State of Georgia during the taxable year, and the pipeline profits were distributed just as profits from the other departments were distributed.

Herbert Moffett, income-tax agent for the Department of Revenue, testified at length to many technical details illustrating that the Sinclair Refining Company had failed to employ the statutory formula correctly. Briefly it was his opinion that since the taxpayer had excluded the net income from the pipeline and thrown the general overhead and administrative expenses against the marketing and refining departments the net income apportioned to Georgia was decreased and reduced the taxable income to Georgia.

Counsel for the Sinclair Refining Company admit that the statutory formula is perfectly reasonable and works no undue hardship on the taxpayer, but contend that it merely is not applicable to the taxpayer's situation.

Upon the close of the case the court made findings of fact and conclusions of law. The court found: "The management and operation of the pipeline department is maintained and carried on separate and distinct from the refining and marketing activities of the taxpayer, and the books and records of the company show that the salaries, wages and overhead expense in the operation of the pipeline department are kept in Kansas and are separate and distinct from the books and records of the taxpayer in New York, where the records there kept show that the salaries and wages and overhead for the operation of the taxpayer as to refining and marketing petroleum products are separately borne from the income of the taxpayer for refining and marketing petroleum products. . . The net income from the pipeline department was earned by the taxpayer from a separate and autonomous department of its business carried on outside of the State of Georgia and was not derived in part from property owned or business done in the State of Georgia, and the Commissioner erroneously, in applying the Three Factor Ratio, computed the net income from the operation of the pipeline department as being subject to the payment of income tax to the State of Georgia other than the part which the taxpayer concedes could be properly apportioned under the Salaries and Wage Ratio."

The commissioner filed a motion for a new trial which, as amended, was overruled and he excepts. The several grounds of the amended motion concern only the questions raised by the general grounds and all will be treated generally.

1. As stated, the general demurrer to the petition for refund was overruled and no exception was taken to it. Therefore, if the taxpayer has proved his allegations, under the law of the case, he would be entitled to recover, even though the ruling was erroneous for the reason that unless a taxpayer can show directly what profits accrued to it in the State of Georgia, and does not get permission to use a formula which he contends more accurately ascertains the profits realized in Georgia, he is only authorized to use the formula prescribed in Code, § 92-3113 (Ann. Supp.), and use it as prescribed. In this case the taxpayer used the formula but did not use it as prescribed. It included the refining business, which is not in Georgia, in the formula, but did not use the pipeline business or pipeline property. The ruling which this court made in Mexican Petroleum Corp. v.Head, 64 Ga. App. 529 (13 S.E.2d 887), has no bearing whatever on this case. That case simply holds that if profits in Georgia can be ascertained without the use of the formula, the formula cannot be used. It did not hold that where you cannot directly determine profits in Georgia you can use the formula by including only part of the total business of the taxpayer. It will be noted that the taxpayer does not rest its case on a substitute formula which it received permission to use in lieu of the statutory formula. It seems to have based its claim on a misconception of the case cited above and others of similar import.

2. The overruling of the demurrer eliminates all questions but one, and that is, did the taxpayer sustain by proof the allegations of the petition for refund? Paragraph 17 of the petition alleged: "Neither the cost price to petitioner of the petroleum products which it markets, nor the selling price thereof, nor the profits realized from their sale, whether in Georgia or elsewhere, are affected, directly or indirectly, by the fact that petitioner carries on the business of transporting crude oil under filed tariffs. The two businesses are entirely disconnected." The ruling on the demurrer poses a distinct issue; if the pipeline business is separate and distinct the taxpayer is authorized to include two out of three of the phases of business in which it is engaged instead of all as required by the statute; if it is not separate and distinct it was not authorized to use the formula as it did and was not entitled to a refund. We think the evidence fails to show that the whole business of the taxpayer was not unitary in character and fails to show that the pipeline department was separate and distinct. The fact that the taxpayer owned a pipeline and transported oil for the public under rates filed by the taxpayer with the Interstate Commerce Commission, and transported oil to its own refineries for the owners of the oil and collected transportation charges from the owners of the oil is not conclusive. The taxpayer may well be said to have known in advance what oil it would purchase. The plan adopted amounted to no more than the taxpayer's purchasing the oil at the well, transporting it, and paying itself the transportation charges. The transportation charge is a part of the cost of the oil at the refinery and the cost of the finished product at the retail outlet. The argument that the transportation cost to the taxpayer forms a part of the cost price of the finished product when it transports oil which it buys just as much as it would if the taxpayer paid the transportation to a third party is fallacious because one entity cannot say that a nine million dollar profit on transportation is cost of goods sold by it. If it made a profit of nine million dollars, the cost to it was not nine million dollars. The fact that if Sinclair had transported oil for third parties, none of which it bought and refined and sold, the pipeline business could have been a unitary business, does not alter the unescapable conclusion that the pipeline was not a unitary business under the facts of this case. If it had not bought and refined and sold any of the oil which it transported through its pipelines, then the question whether the cost of such transportation entered into the cost of products sold in Georgia would not be involved. Moreover, the very fact of owning refineries and sales outlets was responsible for the large profits in transportation even if Sinclair could have made the same profit hauling oil for others which it did not purchase. On this point Mr. Wagon, Assistant Comptroller, testified on cross-examination: "It is true that the Sinclair Refining Corporation would not carry or purchase 72.69% of all the oil transported over the pipeline unless it had manufacturing and retail outlets over the country. Likewise, it would not make that profit unless it kept the pipeline running at full speed for some shipper. However, begin a public utility we carried oil for all shippers who desired our services in 1941 and the figure shows that only something like 27% of the amount of oil carried was transported for private shippers. It is necessary for us to have retail outlets in order for the pipeline to make the nine and one-fourth million dollars net profit or conversely, it is necessary to have the pipeline in order to be able to supply the retail outlets. We have to have retail outlets in order to make a profit since our profit eventually is made by selling merchandise to the public. It is necessary to have retail outlets in order to make this profit. . . Q. Therefore, the fact that you had an outlet or where you could dispose of 72 percent of the crude oil shipped over that pipeline, therefore, necessarily greatly increased the profit of the pipeline department? A. It is well known, Mr. Shaw, that particularly with respect to pipeline operations that you get a bigger percentage of return net to gross the higher you put the capacity of the line; your expense don't increase so greatly even though your volume does." The fact that for every dollar of pipeline income 48.83% was profit, while for every dollar of income from manufacturing and sales 1.30% was profit, and the fact that the taxpayer received 46.82% return on its investment on pipeline properties and .02% on manufacturing and sales investment shows the disparity between the profits credited to the various departments. The taxpayer does not propose to suggest what would be a reasonable profit to be credited to the pipeline department in order to show an excessive tax laid on business outside of Georgia. If the taxpayer could have and did own a private pipeline or other transportation system and saved nine million dollars as transportation charges, it certainly could not add that savings to the cost of goods sold. In this case the basic enterprise is manufacturing and selling and profits are captured in sales. The three departments insofar as oil transported and sold is concerned are of one cloth and cannot be separated in an income-tax return which requires the use of a formula. The proof does not sustain the allegation of separateness of businesses of the pipeline department and no evidence shows that the formula is arbitrary, unreasonable, or for any reason unjust as applied to this taxpayer. No shifting of profits was involved in the case of Hans Rees' Sons v. North Carolina, 283 U.S. 123 (51 Sup. Ct. 385, 75 L. ed. 879). That case, as well as nearly all the others cited bearing on the question, conceded that ordinarily a corporation which manufactures and sells its manufactured product is a unitary business and that all the factors in the enterprise are essential to the realization of profits. In that case it was simply held that a formula could not be employed which showed that about 80% of a taxpayer's total income came from business done in a certain State, when the evidence showed that the average income having its source in that State was 17% of the total for the year in question. It holds also that even if the business is unitary in character the use of a formula, not intrinsically arbitrary, cannot grossly overtax business done outside a state.

Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113 (41 Sup. Ct. 45, 65 L. ed. 165), treats such a business as is here involved, namely, manufacturing and selling, as a unitary business. The same is true of Maxwell v. Kent-Coffey Co.,204 N.C. 365 (168 S.E. 397). In that case the court said: "Conceding that a unitary business may produce an income which must be allocated to two or more States in which its activities are carried on, such a business may not be split up arbitrarily and conventionally in applying the tax laws. It would seem to be necessary that there should be some logical reference to the production of income; the distinction should be founded on a corresponding difference in apportionment of productive capital, investment, or employment, within the unitary business. . . The mere statement of a witness as to the income separately derived from purchase, from manufacture, and from sale, without supporting data, showing the influence of each factor in producing profit, gain or income from the separate operations — such as should be allocated to it independently — is merely an arbitrary guess. The bare fact of sale produces no income. It is merely the act by which the income is captured; the capital, the organization, or efforts which produce the sale, are the things to be considered in ascertaining the amount of income to be credited to the sale. Certainly, in a unitary business, we must look further back than to the sale itself or the activities which actually produced it."

Other cases are cited by the taxpayer in line with the Georgia case of Mexican Petroleum Corporation v. Head, supra, to the effect that "theories of allocation can have no place in the inquiry, if net income within the State stands on its own footing unmixed with outside business." These cases have no bearing on this case because the taxpayer could not separate the Georgia profits and it used the formula improperly. Under the ruling on the general demurrer the taxpayer could use the formula as it did provided it proved the business to be not a unitary business as a whole, and proved the pipeline department itself and alone a unitary business. This we have held it did not do. We do not mean to say that it is not possible for one corporation to engage in two businesses, even manufacturing and selling, as separate businesses. We simply hold that the taxpayer was not so engaged under the facts of this case.

In view of this ruling it is unnecessary to rule in detail on the various findings of the court below. As a finding against the taxpayer was demanded under the law and the evidence, it is unnecessary to make any rulings on any of the other questions presented.

The court erred in favor of the refund and in overruling the motion for a new trial.

Pursuant to the act of the General Assembly, approved March 8, 1945 (Ga. L. 1945, p. 232), requiring that the whole court consider any case in which one of the judges of a division may dissent, this case was considered and decided by the court as a whole.

Judgment reversed. MacIntyre, P. J., and Gardner andTownsend, JJ., concur. Parker, J., concurs specially. Sutton C.J., dissents.