Title: Brady v. Getty Oil Co.

State: mississippi

Issuer: Mississippi Supreme Court

Document:

376 So. 2d 186 (1979) Charles R. BRADY, Jr., Chairman, Mississippi State Tax Commission v. GETTY OIL COMPANY. No. 51438. Supreme Court of Mississippi. September 26, 1979. Rehearing Denied November 14, 1979. William N. Lovelady, Jr., James H. Haddock, Joe D. Gallaspy, Jackson, for appellant. Gerald, Brand, Watters, Cox & Hemleben, Walker L. Watters, Justin L. Cox, William S. Painter, Jackson, for appellee. Before SMITH, LEE, and BOWLING, JJ. LEE, Justice, for the Court: The State Tax Commission, State of Mississippi, [Tax Commission] made an assessment against Getty Oil Company [Getty] for sales taxes in the amount of thirty-five thousand two hundred sixteen dollars seventeen cents ($35,216.17). A hearing was held before the Board of Review for reconsideration of the assessment, and it was approved. On January 19, 1977, Getty petitioned the Tax Commission for a review before the Full Commission. The Tax Commission affirmed the assessment on June 8, 1977. Thereupon, Getty paid the tax under protest and filed a bill of complaint in the Chancery Court of the First Judicial District of Hinds County, Mississippi (Honorable James Arden Barnett presiding), seeking a refund of the taxes. After hearing, the chancellor entered a decree December 4, 1978, ordering the said taxes and interest be refunded to Getty. The Tax Commission appeals and assigns four (4) errors in the judgment of the trial court. Three (3) of the assigned errors overlap, but the questions presented are: (1) whether or not the gross proceeds received by Getty from oil field services rendered as co-owner/operator for other co-owners of various oil and gas properties throughout the state are subject to Mississippi sales tax under Mississippi Code Annotated Section 27-65-23 (1972); (2) whether or not Getty is chargeable with sales taxes on only those activities wherein a profit was made, or whether the tax is properly levied on the gross proceeds derived from a particular activity regardless of the profit factor; (3) whether a subactivity within the framework of a taxpayer's main business activity may be subjected to the Mississippi sales tax, particularly here, where Getty performs oil field services which are taxable under Section 27-65-23, but where Getty's *187 main business activity is that of exploring for, producing and marketing oil and gas, and (4) whether or not the promulgation of Rule 72 of Mississippi's Sales and Use Tax Rules and Regulations by the Chairman of the State Tax Commission to establish a clear policy with regard to the taxability of oil field services so rendered, was a proper interpretation of the legislature's intent in taxing all "services performed in connection with geophysical surveying, exploring, developing, drilling, producing, distributing, or testing of oil, gas, water and other mineral resources." During the period of the assessment, from November 1, 1975 through September 30, 1976, Getty engaged in the business of the exploration, production and marketing of gas, oil and other mineral resources within and without the State of Mississippi. It had entered into approximately thirty-five (35) joint operating agreements with co-interest owners in various oil and gas well units throughout the state. Getty was permitted to charge the other co-owners for their proportionate share of the cost incurred in providing oil field services, including a reasonable fee for supervision. Those are the charges and fees on which the Tax Commission has levied the tax. There are three (3) sections of the sales tax statute which are pertinent to the present case and which must be considered in order to determine whether Getty is a business operating under, and covered by, said sections. Mississippi Code Annotated Section 27-65-9 (1972) defines "business" as follows: Mississippi Code Annotated Section 27-65-13 (1972) provides for the levy of the tax: The "sections" referred to in Section 27-65-13 above are six (6) in number and, among them is Mississippi Code Annotated Section 27-65-23 (1972), which provides: Getty contends that it has made no profit on the activity of operating the co-owner/operator business of providing oil field services in producing and marketing the oil and gas; that the co-owners have simply reimbursed it pro rata for expenses incurred; that it has paid substantial severance taxes in the developing and producing of oil, gas and other minerals; and that the legislature did not intend that the sales tax in question be imposed on such operations. Getty further contends that its primary business is the finding, developing and marketing of oil, gas and minerals, not to engage in providing oil field services. The thirty-five operations in which Getty engages as a co-owner/operator are those wherein Getty owns the greatest interest. It admits that, if an independent operator contracted to perform the same work which Getty does, the tax would be properly imposed. *188 Getty argues that, under the Unitization Act in Mississippi, pooling is required, the co-owner/operator relationship is necessary under such act, and, there again, the legislature did not intend that a sales tax be levied for something it was required to do by law. The purpose of the Unitization Act was to facilitate the production of oil, gas and minerals in an efficient, less costly and less wasteful manner. We may assume the oil and gas industry was influential in the enactment of such legislation, since it is recognized that the statute is beneficial to that industry. We again refer to Section 27-65-9 which defines "business" as meaning "all activities or acts engaged in ... for benefit or advantage, either direct or indirect, and not exempting activities in connection therewith." (Emphasis added). Getty argues that its main business is discovering, producing and marketing oil, gas and minerals and that its services as an operator in conjunction with co-owners is incidental to its main business, that it is not permitted to make a profit on said operation, and makes none. It says that, therefore, its relationship with the other co-owners is an activity which the legislature did not intend to impose a sales tax on. However, Getty receives a benefit in its operation as co-owner/operator in that it is able to develop, produce and market oil, gas and minerals in an efficient operation, which involves less expense and less waste to it. That benefit and advantage comes within the definition stated above. In Bank of America National Trust & Savings Assn. v. State Board of Equalization, 209 Cal. App. 2d 780, 26 Cal. Rptr. 348 (1963) the court considered a use tax assessment upon a bank's sale of personalized checks to its customers where the taxpayer complained that it was not in the business of selling checks but was merely rendering a service to its customers, the said service resulting in a loss to the bank. The court stated: Getty cites Stone v. Martin Veneer Corp., 183 Miss. 712, 184 So. 435 (1938), Stone v. Allis-Chalmers Manufacturing Co., 193 Miss. 294, 8 So. 2d 228 (1942), and M.L. *189 Virden Lumber Co. v. Stone, 203 Miss. 251, 33 So. 2d 841 (1948). However, those cases may be distinguished from the case sub judice and are not in point. We are of the opinion that the tax was properly imposed upon the business activity of Getty in providing oil field services as co-owner/operator for itself and other co-owners and in collecting expenses therefor (Getty was not taxed on its own part of the operation). The questions presented in (1), (2) and (3) stated at the outset are resolved in favor of the Tax Commission. Mississippi Code Annotated Section 27-65-93 (1972) authorizes the Tax Commission to make regulations which set forth the policy of the commission in levying and collecting taxes. It provides, in part: Acting pursuant to the authority granted by said section, the Tax Commission adopted Rule 72 of the Sales and Use Tax Rules on November 1, 1975, in order to clarify the commission's policy with relation to oil field services. Rule 72 follows: *190 Getty does not attack the above rule on the ground that the Tax Commission lacked authority to adopt and promulgate it, but contends that the Tax Commission has not imposed a sales tax on such activities in twenty-five (25) years and that failure to do so amounts to a construction of the statute that the tax does not apply to Getty's activity. Further, Getty argues that such failure, or construction, expressed the legislative intent not to impose the tax, particularly since the act had been amended or re-enacted approximately eight (8) times without expressing a different intent.[1] 2 Am.Jur.2d Administrative Law § 236, at 63 (1962) states: In Monaghan v. Jackson Casket Company, 242 Miss. 840, 136 So. 2d 603 (1962), the taxpayer contended, as does Getty, that the Tax Commission had failed to tax a particular activity in the past and that it should be estopped from assessing a tax on that particular activity. The Court said: Five (5) years later in Barr v. Delta & Pineland Company, 199 So. 2d 269 (Miss. 1967), the Court said: Since the Rule 72 was adopted, the Mississippi Legislature has met in every year and has not changed or altered the law or regulation with regard to the taxability of oil field services. Such is an inference the legislature intended that those activities be liable for the sales tax. We are of the opinion that the tax is not an unwarranted extension of the Sales Tax Law and that question (4) should be answered in favor of the Tax Commission. The judgment of the lower court is reversed and judgment is entered here for the Mississippi State Tax Commission. REVERSED AND RENDERED. PATTERSON, C.J., SMITH and ROBERTSON, P. JJ., and SUGG, WALKER, BROOM, BOWLING and COFER, JJ., concur. [1] In 1978 the legislature enacted the statute again which expressed the intent set forth in Tax Commission Rule 72.