1. A tax on a foreign corporation for the privilege of doing
local business, and measured on its property owned in the State, is
not invalid because a part of that property is used by it in
interstate commerce, there being no direct burden on interstate
commerce, and the effect thereon being incidental and remote. P.
301 U. S.
156.
2. An Alabama law imposes on foreign corporations doing business
in the State an annual "franchise tax" of $2.00 on each $1,000 of
the capital employed in the State.
Held consistent with
the commerce clause and valid as applied to a Delaware corporation
qualified to do business in Alabama and maintaining its commercial
domicile there, and whose business consisted in purchasing natural
gas in Louisiana and Mississippi gas fields, transporting it
through its pipeline system, part of which was in Alabama, and
selling it in Alabama and other States. The gas moved continuously
from the gas fields under natural pressure to the points of
delivery. Of the gas delivered in Alabama, part went to public
utility distributors, but the rest was sold for consumption in
divers industrial plants, delivery to them being made upon orders,
as required, through service lines installed and maintained by the
corporation, after it had reduced the pressure of the gas and had
metered it. P.
301 U. S.
153.
233 Ala. 81, 170 So. 178, affirmed.
Appeal from a judgment sustaining a tax and reversing the state
circuit court, which had held otherwise on an appeal from the
assessment.
Page 301 U. S. 149
MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.
This case presents the question of the validity of a franchise
tax assessed pursuant to a statute of the State of Alabama upon the
Southern Natural Gas Corporation. The imposition of the tax was
assailed as a direct burden upon interstate commerce and as also
depriving the corporation of its property without due process of
law and denying it the equal protection of the laws contrary to the
Fourteenth Amendment of the Federal Constitution. The Supreme Court
of the State sustained the tax (170 So. 178), and the case comes
here on appeal.
The statute, enacted in pursuance of § 232 of the State
Constitution, is § 54 of Act No. 163, General Acts of Alabama 1927,
page 176, provides:
"That every corporation organized under the laws of any other
state, nation, or territory, and doing business in this State,
except strictly benevolent, educational, or religious corporations,
shall pay annually to the State an annual franchise tax of Two
Dollars ($2.00) on each One Thousand Dollars of the actual amount
of capital employed in this State."
The assessment was made by the State Tax Commission for the year
1931 in the sum of $11,047.43, and was said to be based upon
capital employed in Alabama amounting to $5,523,715. Appellant
resisted the assessment upon the ground that it was not doing
business and did not propose to do business in the State of Alabama
except in interstate commerce, and that the property by which the
tax was measured was used exclusively in interstate commerce.
The case was submitted upon an agreed statement from which the
following facts appear:
Appellant was organized prior to May 12, 1928, under the laws of
Delaware, and, on that date, it qualified to do
Page 301 U. S. 150
business in Alabama. It named a statutory agent and filed in the
office of the Secretary of State a copy of its charter, which
covered a wide range of activities. [
Footnote 1] It has paid annually the required permit fee.
At the time of the assessment in question, appellant maintained its
office and chief place of business in the city of Birmingham,
Alabama. The entire management, control, and conduct of its
business was conducted from that office.
Appellant is engaged in the transmission and distribution of gas
which it purchases from the producers in the Louisiana and
Mississippi fields. In May, 1929, it began the construction of its
pipelines, and, by January, 1931, it had constructed its main lines
from the Louisiana fields to Atlanta and Columbus, Georgia, the
Columbus line turning south from the Atlanta line at a point near
Tuscaloosa, Alabama. In 1931, appellant owned approximately 564
miles of pipe and various items of real and personal property
located within Alabama, all constituting part of its general
transmission system. It was agreed that, in the event that it
should be held that all of appellant's property located in the
State was subject to the assessment of a franchise tax, the value
of that property as of January 1 to May 13, 1931, the date of the
final assessment, was $5,500,000.
Appellant had contracts for the delivery of natural gas in
Alabama to only four purchasers. Three were intrastate utilities in
Alabama, the Alabama Natural Gas Corporation, the Southern Cities
Public Service Company,
Page 301 U. S. 151
and the Birmingham Gas Company. These companies were not
consumers, but were engaged, either directly or through
subsidiaries, in the distribution of natural gas as public
utilities in the State of Alabama. The fourth purchaser was the
Tennessee Coal, Iron & Railroad Company, a subsidiary of the
United States Steel Corporation, which purchased gas for itself and
affiliated companies operating steel and industrial plants in the
Birmingham district and which were not public utilities, but
consumers. A majority of orders for gas were received by and
cleared through the Birmingham office; all collections for sales
were received and disbursements for expenses were made or
authorized at that office. The sales to the Tennessee Company and
its affiliates were made from time to time upon orders given by the
Birmingham office as the needs of the purchasers required.
The gas sold to the above-named purchasers was delivered in
continuous movement from the gas fields in Louisiana or
Mississippi, without break or interruption, to the point where it
was delivered,
viz., the meter house at which the gas so
sold was measured for the purpose of payment. The gas was moved
under unregulated gas pressure, as produced by the natural pressure
of the gas wells, to the designated points of delivery. The
stipulation of facts also states that, in the sales to the
Tennessee Company and its affiliates, the pressure is reduced at
the point of delivery for the accommodation of the purchaser to
meet its needs and requirements. The general practice is thus
described in appellant's brief:
"All gas delivered in Alabama moved under main line pressure in
continuous movement from the wells in Louisiana to the immediate
point of delivery in Alabama, where it was reduced in pressure and
measured for the sole purpose of effecting delivery. [
Footnote 2] "
Page 301 U. S. 152
The agreed statement set forth appellant's contracts with the
Alabama Natural Gas Corporation and the Tennessee Company,
respectively. These contained detailed provisions as to delivery,
pressure, measurement, etc. In the contract with the Tennessee
Company, provision was made for the establishment of service lines
to the consuming plants as follows, appellant being described as
"Seller":
"Seller shall, at its own expense, provide in advance of the
initial delivery date of March 1, 1930, service lines of suitable
size to a point mutually agreed upon on the property of Buyer's
Bessemer plant. To reach Buyer's Fairfield Plant, Seller shall
provide a service line that will cross Buyer's Ensley property and
run in a southwesterly direction on the property of Buyer to some
point mutually agreed upon on Buyer's Fairfield premises. Buyer
agree that it will make no charge for right of way for any part of
the service lines traversing its property. A suitable meter will be
provided for metering gas that may be used in the Bessemer plant,
in the Ensley plant, and in the Fairfield plant, of the Buyer, and
the plants of other subsidiary companies."
These plants, the state court said, were "widely separated." The
contract also provides:
"The natural gas shall be delivered at a pressure of not less
than 30 pounds gauge at some mutually satisfactory location or
locations upon the premises of Buyer, and Seller shall there
furnish, install, operate, and maintain, at its own expense,
regulating and measuring station or stations properly equipped with
orifice meters and recording gauges or other type of meter or
meters of standard
Page 301 U. S. 153
style as may be mutually agreed upon conformable to the current
recommendations of Gas Measurements Committee of American Gas
Association, the measurement by which shall fix the total amount of
natural gas delivered by Seller to Buyer."
"The measuring equipment so installed by Seller, together with
any building erected by it for such equipment, shall be and remain
its property."
First. -- The statute, which is challenged as here
applied, was under consideration in
Anglo-Chilean Nitrate Sales
Corp. v. Alabama, 288 U. S. 218. In
the light of the decisions of the Supreme Court of the State, this
Court concluded that the tax was laid "not upon the authorization,
right, or privilege to do business in Alabama, but upon the actual
doing of business."
Id., p.
288 U. S. 223.
The tax was held invalid as applied to a foreign corporation whose
sole business in the State consisted in the landing, storage, and
sale in the original packages of goods imported from abroad. In the
instant case, the Supreme Court of the State has reviewed its
rulings and has expounded the meaning of the statute. The state
court holds that the tax is a franchise tax laid "upon the right to
do business." It is a tax levied "on foreign corporations as a
prerogative to the right of exercise of its corporate functions in
the state." It "is not on any basis a tax on business," but is
laid
"on the exercise of corporate functions, or on the privilege of
exercising corporate functions within the State and its employment
of its capital in Alabama."
By compliance with the statute appellant, obtained the privilege
of engaging within the State in any of the activities which its
charter authorized.
Second. -- Appellant made Birmingham, Alabama its
headquarters for the transaction of business. The "entire
management" was conducted from its principal office at that place.
There, as the state court said, was "the control of the business in
all of its aspects." There, orders
Page 301 U. S. 154
for deliveries of gas under its contracts and all collections
from sales were received and all disbursements were made or
authorized. While Delaware was the state of incorporation,
appellant's commercial domicile was in Alabama.
Wheeling Steel
Corp. v. Fox, 298 U. S. 193,
298 U. S.
211.
From the agreed facts, we are unable to conclude that the
business thus conducted in Alabama was entirely an interstate
business. While the gas which appellant sold was brought into the
State from Louisiana, it appears that appellant carried on in
Alabama activities of an intrastate character. We had occasion in
East Ohio Gas Co. v. Tax Commission, 283 U.
S. 465,
283 U. S. 470,
to consider the distinction between the transportation of gas into
a State and the furnishing of the gas so transported to consumers
within the State. We observed in that case that,
"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 companies,"
its volume is expanded, and it is divided into the smaller
streams that enter the service lines connecting such mains with the
pipes on the consumer's premises. In that case, the Ohio Company
furnished gas to consumers in municipalities by means of
distribution plants, and that activity was held to be not
interstate commerce, but a business of purely local concern
exclusively within the jurisdiction of the State. The Court quoted
with approval the statement in
Missouri v. Kansas Natural Gas
Co., 265 U. S. 298,
265 U. S. 309,
that
"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. "
Page 301 U. S. 155
While the facts of the two cases are not the same, there is a
clear analogy. For here, under its contract with the Tennessee
Company, which bought for consumption by itself and its
subsidiaries in industrial plants, appellant agreed not simply to
install metering stations for measuring the amount of gas
delivered, but to establish the requisite service lines running to
the described plants in order that the gas might be furnished in a
manner suited to the consumers' needs. The gas was supplied through
these service lines on the orders received from time to time at the
Birmingham office. We perceive no essential distinction in law
between the establishment of such a local activity to meet the
needs of consumers in industrial plants and the service to
consumers in the municipalities which was found in the Ohio case to
constitute an intrastate business. As was said in that case:
"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."
The facts thus distinguish the instant case from that of
Ozark Pipe Line Corp. v. Monier, 266 U.
S. 555. There, the corporation operated a pipeline
extending from Oklahoma through Missouri to a point in Illinois.
Missouri sought to tax the privilege of doing business within the
State. But nothing was done in Missouri except in furtherance of
transportation. Oil was neither received nor delivered in that
State. The business actually carried on "was exclusively in
interstate commerce," and whatever was done within Missouri in the
maintenance of an office or otherwise was "all exclusively in
furtherance of its interstate business."
Id., p.
266 U. S. 565.
In
Missouri v. Kansas Natural Gas Company, supra, as noted
above, the distinction was pointed out. There, "the transportation,
sale, and delivery" of the gas constituted an "unbroken chain,
fundamentally interstate from beginning to end." So
Page 301 U. S. 156
the case of
State Tax Commission v. Interstate Natural Gas
Co., 284 U. S. 41,
rested upon the conclusion that what was done was wholly incidental
to interstate commerce between Louisiana and Mississippi. There
were no such local activities as are present here to carry the
transactions of the company into the field of state authority.
That authority was held to be properly exerted in the case of
Atlantic Lumber Co. v. Commissioner, 298 U.
S. 553. The corporation was organized in Delaware, but
it did not "function there," but in Massachusetts. There it
established its office for the exercise of its corporate powers.
That was the headquarters for salesmen who solicited orders in that
and other states. There orders were accepted and remittances
received. The corporation was engaged in the wholesale lumber
business, and owned practically all the stock of three
subsidiaries, two of which were engaged in cutting timber and
manufacturing lumber in other states, and a third held title to
timber lands in Louisiana. The court said that, if appellant did
nothing but transact interstate business, the excise tax sought to
be levied with respect to the doing of business in Massachusetts
could not stand, but, in view of the activities conducted in
Massachusetts and the corporate functions there exercised, the
Court decided that the privilege tax was valid, and that the effect
upon interstate commerce, so far as there was any, was "remote and
incidental." Because of the local activities, the decision in the
Ozark case was held to be inapplicable.
Third. -- As Alabama was competent to lay a franchise
tax upon appellant for the privilege of doing an intrastate
business, it was competent to measure the tax by the capital
employed within the State provided the tax was not so laid as to
discriminate against interstate commerce or otherwise lay a direct
burden upon it.
Postal Telegraph Cable Co. v. Adams,
155 U. S. 688,
155 U. S. 696;
St. Louis
Southwestern
Page 301 U. S. 157
Ry. Co. v. Arkansas, 235 U. S. 350,
235 U. S.
364-367;
Underwood Typewriter Co. v.
Chamberlain, 254 U. S. 113,
254 U. S.
119-120;
St. Louis-San Francisco Railway Co. v.
Middlekamp, 256 U. S. 226,
256 U. S. 231;
Hump Hairpin Mfg. Co. v. Emmerson, 258 U.
S. 290,
258 U. S. 294;
International Shoe Co. v. Shartel, 279 U.
S. 429,
279 U. S. 433;
Western Cartridge Co. v. Emmerson, 281 U.
S. 511,
281 U. S.
513-514;
Atlantic Lumber Co. v. Commissioner,
supra.
There is here no attempt to tax property that is beyond the
boundaries of the State. The tax was laid only upon property
employed within the State, and enforcement is left to the ordinary
means of collecting taxes. The rule was thus stated in
International Shoe Co. v. Shartel, supra:
"A franchise tax imposed on a corporation, foreign or domestic,
for the privilege of doing a local business, if apportioned to
business done or property owned within the state, is not invalid .
. . because a part of the property or capital included in computing
the tax is used by it in interstate commerce."
There is no showing of any direct burden upon interstate
commerce, the effect upon that commerce being incidental and
remote, not differing in this respect from the effect of ordinary
ad valorem taxation of property within the State.
Postal Telegraph Cable Co. v. Adams, supra; St. Louis
Southwestern Railway Co. v. Arkansas, supra.
The judgment of the Supreme Court of Alabama is
Affirmed.
[
Footnote 1]
The charter authorized appellant to store, transport, buy and
sell oil, gas, salt, brine, and other mineral solutions; to
manufacture, acquire, distribute, use, and sell artificial gas,
with byproducts; to mine, produce, buy, use, sell, and distribute
natural gas, with byproducts; to produce, buy, use, sell, and
distribute a mixture of artificial and natural gas; to construct,
acquire and operate all works and all pipelines, mains, plants,
systems, etc., for the above purposes, with the power of eminent
domain; to acquire, manufacture, and deal in ice.
[
Footnote 2]
Appellant makes an explanatory statement in a footnote as
follows:
"It is a matter of general knowledge that long distance
transmission of natural gas (appellant's system comprising about
1,000 miles) moves under line pressure of approximately 400 pounds,
greatly in excess of the requirement or required tensile strength
of the distribution pipes of the utility or other purchasers from
the long distance transportation company."