1. A state can neither lay a tax on the act of engaging in
interstate commerce nor on gross receipts therefrom. P.
283 U. S.
470.
2. While a state may require payment of an occupation tax by one
engaged in both intrastate and interstate commerce, the exaction,
in order to be valid, must be imposed solely on account of the
intrastate business, without enhancement because of the interstate
business done, and it must appear that one engaged exclusively in
the interstate business would not be subject to the imposition, and
that the taxpayer could discontinue the intrastate business without
withdrawing also from the interstate business.
Id.
3. The transportation of natural gas from wells outside of a
state by the pipelines of producing companies to the state line,
and thence, by means of the distributing company's high pressure
transmission lines, to their connections with its local systems is
essentially national -- not local -- in character, and is
interstate commerce within as well as without the state.
Id.
4. The mere fact that the title or the custody of the gas passes
while it is en route from state to state is not determinative of
the question where interstate commerce ends.
Id.
5. Natural gas, purchased by an Ohio corporation for supply to
its local consumers, was piped into, and distributed within, the
state at high pressures. When it reached the company's local supply
mains, the pressure was greatly reduced and the volume of the gas
was greatly expanded. It there divided into many thousands of
relatively tiny streams that entered the small service lines
connecting the service mains with the pipes on the consumers'
premises, and, so segregated in those lines and pipes, it remained
in readiness, or moved forward, to serve as needed.
Held:
(1) That the treatment and division of the large compressed
volume of gas is like the breaking of an original package, after
shipment in interstate commerce, in order that its contents may be
treated, prepared for sale, and sold at retail. P.
283 U. S.
471.
(2) The furnishing of the gas to the consumers in this way is
not interstate commerce, but a business of purely local concern
exclusively
Page 283 U. S. 466
within the jurisdiction of the state, which may constitutionally
be subjected to a excise tax based on the gross receipts.
Id.
6. Opinion in
Pennsylvania Gas Co. v. Public Service
Comm'n, 252 U. S. 23,
disapproved to the extent that it is in conflict with the decision
here. P.
283 U. S.
472.
43 F.2d 170 affirmed.
Appeal from a decree of the District Court of three judges
refusing a preliminary injunction and dismissing the bill, in a
suit to restrain collection of a state tax.
MR. JUSTICE BUTLER delivered the opinion of the Court.
Appellees, acting under the tax laws of Ohio, assessed against
appellant additional excise taxes for 1927, 1928, and 1929. The
latter brought this suit to restrain collection on the ground that,
when construed to cover the amounts demanded, the state legislation
is repugnant to the commerce clause of the federal Constitution.
Plaintiff applied to the court, consisting of three judges, for a
temporary injunction, and, pursuant to stipulation made at the
hearing, the case was submitted for final determination upon an
agreed statement of facts. The court announced an opinion, 43 F.2d
170, sustaining the state enactments, and entered its decree
dismissing the complaint.
Under the Ohio Code, every corporation engaged in the business
of supplying to consumers within the state natural gas for light,
heat, or power is a natural gas company, § 5416, and is required to
report to the tax commission, § 5470. The latter is directed
annually to determine the entire gross receipts of such company,
for the year ending on the then next proceeding first day of May,
excluding
Page 283 U. S. 468
therefrom all receipts "derived wholly from interstate
business," § 5475, and to certify the amount so determined to the
auditor of state, § 5481. He is directed to charge each such
company
"a sum in the nature of an excise tax, for the privilege of
carrying on its intrastate business, to be computed on the amount
so fixed and reported by the commission as the gross receipts of
such company on its intrastate business . . . by taking one and
thirty-five one-hundredths percent of all such gross receipts. . .
."
§ 5483.
Appellant, an Ohio corporation, is engaged as a public utility
in the business of furnishing natural gas to consumers in more than
50 municipalities in that state. During the years in question, it
obtained approximately 25 percent of its supply from its own Ohio
wells, 72 percent from the Hope Natural Gas Company of West
Virginia, and 3 percent from the People's Natural Gas Company of
Pennsylvania. The West Virginia gas is gathered to a station in
that state, there freed from gasoline vapors, and pumped at a
pressure of from 200 to 300 pounds per square inch into
transmission lines which connect at the boundary between the
states, with appellant's high-pressure transmission lines. By means
of these, the gas is transmitted to a station in Stark County,
whence it is taken by other lines to pressure reducing stations.
The lines there connect with distribution lines in which is
maintained pressure of from 30 to 50 pounds per square inch and
which are a part of the distribution system in each municipality
served. From the latter, the gas enters the local supply mains,
wherein pressure is reduced to that necessary -- a few ounces per
square inch -- to carry the gas through the service pipes extending
to the premises of consumers and suitably to supply their burners.
The consumers control the flow of gas on their premises. The
Pennsylvania gas is collected, treated, compressed for
transmission, delivered to appellant at the state line,
Page 283 U. S. 469
and by it transported, relieved of pressure and conducted
through such mains and service pipes to consumers' appliances
precisely as is West Virginia gas. The Ohio gas is gathered and
conducted from the fields in that state to the high-pressure
distribution lines, and thereafter treated and brought to
consumers, as is the gas brought from the other states. Appellant's
contracts with consumers do not specify any source from which it is
to obtain gas. To an extent not disclosed by the record, appellant
collects minimum charges for service and charges for readiness to
serve without regard to the quantity of gas consumed. It furnishes
to some communities exclusively gas from outside the state, to some
only that from Ohio, and to others a mixture of that from West
Virginia and Ohio.
In accordance with the statute, as then construed by the
Attorney General, appellant, in its reports to the Tax Commission
for the years in question, returned as receipts from interstate
business all sums collected from customers receiving only gas from
wells outside Ohio, treated as intrastate earnings the receipts
from those using only Ohio gas and apportioned between intrastate
and interstate business, on the relation of the quantity of each to
the total receipts from those served by a mixture of Ohio and other
gas. The commission accepted that classification, and the taxes
were computed and paid on that basis. In 1930, appellees,
construing the laws to require the inclusion of all receipts,
without regard to the source of the gas furnished, applied the
prescribed rate to the amounts theretofore treated as receipts from
interstate business, and demanded from appellant payment of the
sums so arrived at, together with penalties prescribed for failure
to pay excise taxes when due.
The question is whether the state statute, construed to include
the amounts reported as receipts from interstate business, operates
directly to regulate or burden interstate commerce.
Page 283 U. S. 470
Admittedly, the exaction is not a tax on property, nor in lieu
of a property tax. The statute calls it, and in fact it is, a tax
for the privilege of carrying on intrastate business. Receipts from
interstate business are expressly excluded from the calculation. It
is elementary that a state can neither lay a tax on the act of
engaging in interstate commerce nor on gross receipts therefrom.
Pullman Co. v. Richardson, 261 U.
S. 330,
261 U. S. 338.
New Jersey Tel. Co. v. Tax Board, 280 U.
S. 338,
280 U. S. 346.
And, while a state may require payment of an occupation tax by one
engaged in both intrastate and interstate commerce, the exaction,
in order to be valid, must be imposed solely on account of the
intrastate business, without enhancement because of the interstate
business done, and it must appear that one engaged exclusively in
interstate business would not be subject to the imposition, and
that the taxpayer could discontinue the intrastate business without
withdrawing also from the interstate business.
Sprout v. South
Bend, 277 U. S. 163,
277 U. S.
170-171, and cases cited.
The transportation of gas from wells outside Ohio by the lines
of the producing companies to the state line, and thence by means
of appellant's high pressure transmission lines to their connection
with its local systems, is essentially national -- not local -- in
character, and is interstate commerce within, as well as without,
that state. The mere fact that the title or the custody of the gas
passes while it is en route from state to state is not
determinative of the question where interstate commerce ends.
Public Utilities Comm'n v. Landon, 249 U.
S. 236,
249 U. S. 245;
Missouri v. Kansas Gas Co., 265 U.
S. 298,
265 U. S.
307-309;
People's Gas Co. v.Pub. Ser. Comm'n,
270 U. S. 550,
270 U. S. 554;
Pub. Util. Comm'n v. Attleboro Co., 273 U. S.
83,
273 U. S. 89.
But, when the gas passes from the distribution lines into the
supply mains, it necessarily is relieved of nearly all the pressure
put upon it at the stations of the producing
Page 283 U. S. 471
companies, its volume thereby is expanded to many times what it
was while in the high pressure interstate transmission lines, and
it is divided into the many thousand relatively tiny streams that
enter the small service lines connecting such mains with the pipes
on the consumers' premises. So segregated, the gas in such service
lines and pipes remains in readiness or moves forward to serve as
needed. The treatment and division of the large compressed volume
of gas is like the breaking of an original package, after shipment
in interstate commerce, in order that its contents may be treated,
prepared for sale, and sold at retail.
State v. Flannelly,
96 Kan. 372, 383-384, 152 P. 22;
W.Va. & Md. Gas Co. v.
Public Serv. Comm'n, 134 Md. 137, 143-145, 106 A. 265.
Cf.
Atlantic Coast Line v. Standard Oil Co., 275 U.
S. 257,
275 U. S. 269;
Brown v.
Maryland, 12 Wheat. 419;
Leisy v. Hardin,
135 U. S. 100. It
follows that the furnishing of gas to consumers in Ohio
municipalities by means of distribution plants to supply the gas
suitably for the service for which it is intended is not interstate
commerce, but a business of purely local concern exclusively within
the jurisdiction of the state.
Appellant relies on
Pennsylvania Gas Co. v. Public Service
Comm'n, 252 U. S. 23.
There, the question was whether the New York commission had
jurisdiction to prescribe the rates to be charged local consumers
of gas transported to that state from Pennsylvania. This Court,
following the findings of the highest court of New York (225 N.Y.
397, 403-404, 122 N.E. 260), held that the entire movement of the
gas was interstate commerce, and that, in the absence of contrary
regulation by the Congress, the state commission had jurisdiction
to prescribe such rates. The theory on which that conclusion was
reached is not wholly consistent with the views expressed in
Public Utilities Comm'n v. Landon, supra, and in
Missouri v. Kansas Gas Co., supra. In the former, the
Court
Page 283 U. S. 472
said at
249 U. S. 245:
"Interstate movement [of natural gas being transported from state
to state] ended when the gas passed into local mains." In the
latter, it was said (p.
265 U. S.
308):
"With the delivery of the gas [transported from one state to
another] to the distributing companies . . . , the interstate
movement ends. Its subsequent sale and delivery by these companies
to their customers at retail is intrastate business, and subject to
state regulation. . . . In such case, the effect on interstate
commerce, if there be any, is indirect and incidental. . . . [P.
265 U. S. 309]. The business
of supplying, on demand, local consumers is a local business, even
though the gas be brought from another state and drawn for
distribution directly from interstate mains, and this is so whether
the local distribution be made by the transporting company or by
independent distributing companies. In such case, the local
interest is paramount, and the interference with interstate
commerce, if any, indirect, and of minor importance."
It does not appear that there were presented, in
Pennsylvania Gas Co. v. Public Service Comm'n, to the
state court or here, the considerations on which it is held that
interstate commerce ends and intrastate business begins when gas
flowing through pipelines from outside the state passes into local
distribution systems for delivery to consumers in the
municipalities served. But, however that may be, the opinion in
that case must be disapproved to the extent that it is in conflict
with our decision here.
The Ohio statute does not purport to affect interstate commerce.
The specified excise taxes are laid for the privilege of carrying
on intrastate business. The amounts were calculated on gross
receipts derived wholly from appellant's intrastate business,
notwithstanding the gas used had moved in interstate commerce.
Decree affirmed.