State v. Continental Oil Co.

The pipe-line facilities are adaptable to the shipment of approximately six different types of gasoline. Only one type can be pumped through at a time. Subsequent to its arrival at the Minnesota Transfer, the six original specifications of gasoline are further processed to produce 26 different specifications. The blending and mixing operations in connection therewith require the use of special equipment and tanks, all of which are owned by the pipe-line company with the exception of certain tanks owned by three of the defendants. For various reasons it is impractical for the pipe-line company to ship tenders of gasoline in other than substantial lots. None of the defendants have facilities either at the Minnesota Transfer or in their bulk plants of sufficient capacity to handle and store any one such shipment. In consequence, the pipe-line company maintains the large storage accommodations at the Minnesota Transfer.

The trial court in its findings determined:

That the receiving tanks and other equipment of the pipe-line company at the Minnesota Transfer were maintained incidental to the receipt of gasoline through the pipe line and its subsequent reshipment by rail, since it was not practical for the pipe-line company to transfer units of gasoline smaller in quantity than 20,000 barrels, and since such amounts far exceeded the capacity of any single bulk plant owned by any of the defendants or their customers here;

That the expansion of the six basic grades into the more numerous blends involved merely adding one or more materials such as dye, lubricant, natural gasoline, or lead, and that, while equipment therefor was maintained by defendants in their refineries in the Mid-Continent oil field, because transportation by the pipe-line company made it impractical and dangerous so to process the gasoline prior to its shipment over the pipe line, the pipe-line company maintained the equipment for and performed the processing and blending operations at the Minnesota Transfer solely in facilitation of its system as a common carrier of gasoline;

That it was intended by defendants that all gasoline upon arrival in Minnesota by pipe line should be delivered into the custody of connecting common carriers for further carriage by rail to bulk plants owned by defendants or their contract customers, and that all gasoline so delivered was actually so reshipped with the exception of approximately 1 1/4 percent, which was sold and reshipped by rail to "spot sale" customers in purchases not contemplated at the time of the original shipment;

That the pipe-line company maintained large tankage facilities and stored the gasoline upon arrival at the Minnesota Transfer to protect itself at all times against orders for reshipment until it was able again to move tenders of gasoline delivered to it by the defendants.

On the basis of such findings, as indicated, the trial court determined that the personal property taxes in question were unlawful and in violation of the federal constitution.

1. The fundamental question for determination here is whether the gasoline in the tanks of the pipe-line company at the Minnesota Transfer on May 1 of each of the years involved was still in transit in interstate commerce, or whether it had come to rest as a part of the general mass of property in the state and hence was subject to local taxation. This, in turn, would seem to be dependent upon whether there is sufficient evidence to sustain the trial court's findings (1) that said oil shipments had not reached their final destination at the Minnesota Transfer; (2) that the interruptions and delays at the Minnesota Transfer were for the facilitation of transportation and hence for the benefit of the carrier rather than the shipper; and hence that said shipments were not subject to local taxation at the time.

The principles governing the situation presented are concisely set forth in 15 C.J.S., Commerce, § 104, as follows:

"Property while actually in transit in interstate commerce is not taxable by the state of origin, the state of destination, or intermediate states, * * *. To be immune from local taxation the commodity must be in actual continuous transit in interstate commerce, the crucial question being continuity of transit, but the goods are not necessarily subject to localtaxation because of a temporary interruption or cessation ofmovement, such as a break in the continuity of the journey tofacilitate, or in the furtherance of, transportation. Whethergoods become subject to local taxation at the point where theirmovement has been interrupted must be determined from thesurrounding circumstances at the time, including variousfactors such as the intention of the owner and the occasion orpurpose of the interruption. It is not controlled by the natureof the billing or the lack of knowledge of the ultimatedestination at the time of shipment, or by the fact that the goods at the point of interruption may be under the control of the owner with power to withdraw or divert the goods. After reaching their destination, goods become subject to local taxation although intended for subsequent sale or shipment in interstate commerce." (Italics supplied.)

As previously suggested, the questions involved appear to be questions of fact rather than law (see Railroad Comm. v. Worthington, 225 U.S. 101, 32 S. Ct. 653, 56 L. ed. 1004), and hence we are governed by the well-established rule that if there is evidence sufficient reasonably to sustain the findings referred to the judgments of the trial court must be affirmed.

2. An examination of the record indicates that there is ample evidence to sustain the trial court's finding that the oil shipments were interstate in character and were destined for a point beyond the Minnesota Transfer. The fact that at the time of the original shipment the ultimate destination of the oil was unknown to the shippers except in a general way did not necessarily result in the termination of the interstate character thereof at the Minnesota Transfer. Carson Petroleum Co. v. Vial, 279 U.S. 95, 49 S. Ct. 292, 73 L. ed. 626; Texas N. O. R. Co. v. Sabine Tram Co. 227 U.S. 111, 33 S. Ct. 229,57 L. ed. 442; G. C. S. F. Ry. Co. v. Mathis (Tex.Civ.App.)194 S.W. 1135; Missouri Pac. R. Co. v. Schnipper (D.C.)51 F.2d 749, affirmed (7 Cir.) 56 F.2d 30.

Defendants presented substantial testimony that the Minnesota Transfer was not intended as the final destination of the gasoline in question, but that it was ultimately intended for their bulk plants or those of their contract customers beyond said terminal, and that this was known to the representatives of the pipe-line company at the time the oil was tendered for shipment. This was corroborated by evidence of a long course of practice by defendant shippers with reference to such pipe-line shipments which established that all of them continued beyond the Minnesota Transfer. As to the specific oil stocks here in question, the evidence clearly established that all of them were subsequently reshipped from the Minnesota Transfer to the bulk plants with the exception of about 1 1/4 percent thereof, which was sold at the Minnesota Transfer in "spot sales" not previously contemplated. This small amount would not necessarily affect the character of the entire shipment. Railroad Comm. v. Worthington, 225 U.S. 101,32 S. Ct. 653, 56 L. ed. 1004, supra.

The record contains some 600 pages of printed testimony, presented for the most part by defendants, a substantial portion of which relates directly to the question of the intent of the shippers to continue the oil stocks in question beyond the Minnesota Transfer. This testimony appears sufficient to sustain the trial court's finding that the oil stocks here involved had not reached their final destination when they arrived at the Minnesota Transfer, but that they were destined for a point beyond the Transfer.

3. It has frequently been held that interruption of an interstate shipment for purposes of transportation does not necessarily subject the shipment to local taxation, nor does the power of the owner to divert a shipment after the inauguration of its journey necessarily take it out of the class of interstate commerce. Carson Petroleum Co. v. Vial,279 U.S. 95, 49 S. Ct. 292, 73 L. ed. 626, supra. On the other hand, it has been determined that if such interruption is for the benefit of the shipper rather than the carrier, the property may become subject to local taxation even though the merchandise in question may be subsequently reshipped in accordance with the original intent of the shipper. Susquehanna Coal Co. v. City of South Amboy, 228 U.S. 665, 33 S. Ct. 712,57 L. ed. 1015.

From this it would seem that we again have a fact question for review, and that we must determine here whether the evidence reasonably tends to sustain the trial court's finding that the delay at the Minnesota Transfer was to facilitate transportation, and hence was for the benefit of the carrier rather than the shipper. This presents somewhat more difficulty than the finding first considered here. Careful examination of the voluminous testimony indicates that the trial court might have found that such delays and interruptions were for the benefit of the shipper rather than the carrier and hence that the oil stocks were subject to local taxation. On the other hand, there is substantial evidence reasonably to sustain the finding that the delays at the Minnesota Transfer were to facilitate transportation. Testimony was presented that numerous specifications in small amounts could not be shipped over the pipe line because of the high rate of contamination resulting when small shipments were made, and that it was practical, therefore, for the pipe-line company to handle only large shipments of 20,000 barrels or more; that this factor limited pipe-line shipments to six or seven specifications, which the carrier subsequently raised to 26 at the Minnesota Transfer by the mixing and blending processes it conducted there. It would seem a matter of little concern to the shipper whether the additional specifications were created before shipment or at the Minnesota Transfer, so long as it received oil of the quantity and quality tendered and specified for shipment and delivery. It follows that the mixing and blending operations could well have been for the benefit of the carrier and to enable it to accept for shipment numerous specifications which it would otherwise have to reject because of the added expense and loss entailed in small quantity shipments.

The evidence further disclosed that the blending and mixing operations were for the most part rather simple; that the dye or coloring matter added to the gasoline is required by state law where tetraethyl lead is added to the gasoline and that the adding of such dye is accomplished simply by dumping a handful of coloring matter into the tank after the arrival of the gasoline at the terminal; that the other mixing processes are equally simple, with the exception of that involving the addition of tetraethyl lead, which requires more equipment and is somewhat more complicated.

With reference to this operation, testimony was presented that the carrier, without difficulty, could have performed such operation prior to shipment except for the fact that it was of the opinion that after lead had been added to gasoline it became dangerous to anyone coming in contact with it and that it lead were added before shipment some 100 additional employes of the carrier would become exposed to the risk of infection therefrom; and hence, as a matter of convenience and safety, that the lead was not added until the gasoline arrived at the Minnesota Transfer.

Further testimony was presented that gasoline was shipped in large quantities for the additional reason that it was necessary for the pipe-line company to have on hand at the Minnesota Transfer sufficient quantities at all times to meet orders of the shippers for delivery of gasoline previously tendered but not yet received here because the carrier was required to await additional tenders to permit shipments in the large volumes previously referred to.

The blending or mixing processes do not in themselves result in altering the interstate character of shipments. The manufacturing or concentration of an interstate or foreign shipment en route may be but an incident in the transshipment, and does not necessarily change the interstate or foreign character thereof. See, Southern Pac. Terminal Co. v. I.C.C.219 U.S. 498, 31 S. Ct. 279, 55 L. ed. 310.

As previously stated, since the purpose of the delay constitutes a question of fact, and since, as above summarized, there is substantial evidence to sustain the trial court's finding that the purpose here was to facilitate transportation and for the benefit of the carrier, I feel the trial court's determination should be affirmed. Southern Pac. Terminal Co. v. I.C.C. supra; Western Oil Refining Co. v. Lipscomb,244 U.S. 346, 37 S. Ct. 623, 61 L. ed. 1181; Eureka Pipe Line Co. v. Hallanan, 257 U.S. 265, 42 S. Ct. 101, 66 L. ed. 227; Champlain Realty Co. v. Town of Brattleboro, 260 U.S. 366, 43 S. Ct. 146,67 L. ed. 309, 25 A.L.R. 1195; Carson Petroleum Co. v. Vial,279 U.S. 95, 49 S. Ct. 292, 73 L. ed. 626, supra; West Virginia Pipe Line Co. v. State, 95 W. Va. 285, 120 S.E. 759; Berwind White Coal Co. v. Jersey City, 75 N.J.L. 76, 67 A. 181; State ex rel. Hirschi v. Empire O. R. Co. 171 Okla. 138,42 P.2d 127.

The authorities relied upon by the state may be distinguished from the case at hand. In State v. Phillips Pipe Line Co.

339 Mo. 459, 468, 97 S.W.2d 109, 113, affirmed, 302 U.S. 642,58 S. Ct. 53, 82 L. ed. 499, the court stated:

"We are unable to find support in this record for the conclusion that the blending operations and the storage of the finished products were a part of the transportation as necessary incidents thereto."

Here, as previously suggested, there is evidence reasonably sustaining the finding that the blending operations were incident to the transportation and for the benefit of the carrier.

In Minnesota v. Blasius, 290 U.S. 1, 54 S. Ct. 34,78 L. ed. 131, the shipper had no intention of transporting the cattle beyond South St. Paul. At that point the original shipment terminated and title passed to Blasius, who was taxed prior to his reshipment of the cattle. The original shipment had ended at South St. Paul. Here, the original shipment was not intended to terminate at the Minnesota Transfer but beyond that point in the bulk plants indicated.

In Superior Oil Co. v. Mississippi ex rel. Knox,280 U.S. 390, 396, 50 S. Ct. 169, 170, 74 L. ed. 504, 508, the court held that after gasoline had come into the hands of the purchaser it had come to rest. As the court stated, there was not the "great universal stream * * * from the state of purchase to a market elsewhere," which might "affect the legal conclusion by showing the manifest certainty of the destination."

In Prairie Oil Gas Co. v. Jefferson County (5 Cir.)76 F.2d 545, the court held that as to the oil detained for the purpose of enabling the owner to avail itself of the opportunity to sell before further delivery for interstate transportation, there was a break in the continuity which made the same subject to local taxation.

In Atlantic Coast Line R. Co. v. Standard Oil Co.275 U.S. 257, 269, 48 S. Ct. 107, 111, 72 L. ed. 270, 275, where the controlling factor subjecting the shipments to local taxation was the intent on the part of the shippers to terminate the interstate character of the shipments at the Florida seaboard and there to rearrange for sales and further deliveries after the interstate movement had terminated, the court stated: "There is nothing to indicate that the destination of the oil is arranged for or fixed in the minds of the sellers beyond the primary seaboard storages."

In Susquehanna Coal Co. v. City of South Amboy,228 U.S. 665, 33 S. Ct. 712, 57 L. ed. 1015, a specific finding that the delay in shipment was for the benefit of the shipper rather than the carrier was sustained by the evidence and controlled the court's decision. Therein it was pointed out that the delay resulted in benefits to the shipper and was not for the facilitation of commerce.

In State ex rel. Railroad Commrs. v. Seaboard Air Line Ry. Co. 92 Fla. 61, 77, 109 So. 656, 662, certiorari dismissed,275 U.S. 577, 48 S. Ct. 141, 72 L. ed. 435, the court found evidence that the oil had come to rest in accordance with the original intent of the shippers, and "that storage * * * is for their convenience and subsequent disposition of the commodity; that all, or any portion, of it may be resold in fact and diverted from the original destination of it; that it is held there for the profit of the companies by sales of a large portion, or all of it, to customers with whom at the time of the original shipment they have no contract." In the instant case, on the contrary, the shippers' original intent was to ship beyond the Minnesota Transfer to their own bulk stations or to their contract purchasers.

4. Plaintiff urges that, notwithstanding the status of the gasoline which was processed and reshipped, there were here involved certain stocks of natural gasoline used exclusively for blending purposes, and that as to these stocks the evidence was conclusive that their interstate character had terminated and they had come to rest at the Minnesota Transfer so as to be subject to the tax levied against them. The amount thereof is relatively small compared with the remaining gasoline here involved. It would seem, however, that, since it was contemplated by the shippers that this natural gasoline would ultimately be added to the other gasoline and thereafter reshipped with it, it likewise can be said that such gasoline had not as yet come to rest or reached the destination ultimately intended for it.

Under the authorities cited and on the basis of the evidence here presented, I am of the opinion that the trial court's findings have sufficient foundation in the evidence and that the judgments should be affirmed. Shipment of oil by pipe line cannot readily be compared with shipments of oil or other merchandise by either rail or water. Facts and circumstances which require delay in rail or water transportation ordinarily indicate that such delay is for the convenience of the shipper rather than the carrier. The very nature of oil transportation by pipe line would normally seem to require delays, storage, and additional processing for the carrier's benefit to eliminate liability for loss by reason of contamination incident to shipment in small quantities, and to eliminate the danger to health and safety in connection with the various mixing processes required in obtaining the different specifications offered or required for transport by the shippers. The imposition of a state tax before the final culmination of the journey in the midst of delays necessary to facilitate this method of transportation would seem to place thereon unnecessary burdens and restrictions retarding its development and increasing to the shipper and ultimately the consumer the cost of this otherwise convenient and economical method of oil carriage.