Opinion ID: 1475158
Heading Depth: 1
Heading Rank: 2

Heading: The interpretation of the taxing statute.

Text: The statute here under consideration imposes two distinct taxes; one a production tax, and the other a sales tax. Subsections (a) and (b) of section 1 (Code S.C. 1932, § 2558 (a, b) impose a tax of five-tenths of a mill per kilowatt hour upon each kilowatt hour of electric power manufactured or generated within the state of South Carolina; and subsection (c) (Code S.C. 1932, § 2558 (c) imposes a tax of five-tenths of a mill upon each kilowatt hour of electric power sold within the state, with provision that there shall be credited against the sales tax the amount of the production or generation tax already paid to the state on the same current. [3] It is argued by appellants that the purpose of the act is to impose the same tax on current produced and current sold within the state; that the tax imposed on sales is on the net current delivered to the consumer after station and line or system loss has been sustained; that it is unreasonable to assume that the Legislature intended to impose the production tax upon this system loss; and that, in assessing the production tax, a proper construction of the act requires that the system loss, amounting to approximately 20 per cent. of the current generated, be eliminated from the current taxed. We were much impressed with this position upon oral argument; but, upon more mature consideration, we do not think that it can be sustained. The trouble with the position is that, under the act in question, the generation or production tax as levied is in nowise dependent upon the sales tax, but is imposed upon each kilowatt hour of electric power manufactured or generated, without reference to whether it is subsequently sold or lost in the operations of the producer. The system loss results in part from stepping the current up and down with transformers to different voltages and in part from loss of current from the line where transported over considerable distances. The Legislature presumably knew that these losses must occur, but did not see fit to make any allowance for them in the tax which it imposed. It did not tax producers only on the current sold by them, or on the current produced for sale, as it might have done, but on current manufactured or generated, without provision for any deduction whatever, on account of line or system loss or anything else. The fact that the act taxed sales of current at the same rate as it taxed current manufactured or generated is not controlling. The Legislature might have taxed sales at a higher rate or might not have taxed them at all, as it saw fit; and there is no ground for construing the act as taxing current produced at a less rate than the act specifies, or for exempting a part of the current produced from any taxation at all, merely because the sales tax is fixed at the same rate as the production tax. The language of the statute is clear and does not admit of construction, the office of which is to resolve and not to create ambiguity. There is much force in the argument that the Legislature would not intend a greater tax on power generated within the state, than on power brought from without, which is measured as it comes to the customer. On the other hand, as was pointed out in the first South Carolina Power Tax Case (South Carolina Power Co. v. S. C. Tax. Comm.), 52 F.(2d) 515, 519, (D.C.); Broad River Power Co. v. Query, 288 U. S. 178, 179, 53 S.Ct. 326, 77 L.Ed. 685, the purpose of the Legislature in the imposition of the tax was primarily to tax the generation of electric current by the hydroelectric companies which utilize the water power in the rivers of South Carolina, one of the great natural resources of that state. The Legislature may well have intended to tax the use made of these great natural resources at the rate specified in the act, without reference to the loss of current which would be sustained in transforming it to high voltage and sending it out of the state. In imposing its production tax, it was no more bound to consider that line loss on current brought in from without the state would not be reached by its sales tax, than it was bound to consider, in imposing its sales tax, that current brought in from without the state might already have been subjected to a production tax in the state of its origin. Appellants rely upon Utah Power & Light Co. v. Pfost, 286 U.S. 165, 188, 52 S. Ct. 548, 555, 76 L.Ed. 1038. In that case, however, the purpose of the statute of Utah, as manifested by its title, was to levy a tax on electric current produced for barter, sale or exchange. The Supreme Court based its interpretation of the statute upon the limitation contained in the title and upon the fact that the act itself in terms applies to those engaged in the production of electricity and electrical energy in the state of Idaho `for barter, sale or exchange.' The court said: The producer is required to render a statement and pay a license `on all such electricity and electrical energy so generated, manufactured or produced, measured at the place of production.' Considering these provisions and, in connection therewith, the title and the general scope and purpose of the act, the intent to impose the tax only in respect of energy generated for barter, sale, or exchange is sufficiently clear. Neither the title nor the body of the act before us contains any language limiting the tax to current produced for barter, sale or exchange; and we know of no principle which would justify us in reading this language into it. An excise tax can manifestly be measured by production; and the Legislature need not, although it has the power to do so, limit such tax to such part of the product as may be sold, or provide for deduction on account of such product as may be lost pending sale. We are strengthened in the interpretation which we place upon the act by the fact that this was the interpretation placed upon it in the first South Carolina power tax case, by a court of three judges composed of two members of this court and the late Judge Ernest F. Cochran of the Eastern District of South Carolina. South Carolina Power Co. v. South Carolina Tax Commission (D.C.) 52 F.(2d) 515; Id. (D. C.) 60 F.(2d) 528. In that case the court said (52 F.(2d) 515, at page 521): If current produced as well as sold within the state were subjected to the sales tax, such current would rest under a double burden of taxation. To avoid this and at the same time to preserve the system of taxing at the source, current which is produced within the state is taxed at the time of generation but is relieved of the sales tax, which is equal in amount, with the result that all current sold within the state, whether produced there or brought in from another state, pays exactly the same tax. If there is any discrimination, it is in favor of the current brought in; for such current does not pay tax upon the `line loss,' whereas the generation tax does not make provision for this loss. (Italics ours.) It is argued that the question before us was not raised in the first South Carolina power tax cases. This is true; but the fact that it was not raised by any of the able counsel of the three power companies then before the court, and that it did not occur to the court, is a strong argument against its validity. The case was twice heard, and arguments were presented challenging the validity of the act from three different angles under the Constitutions of the United States and of the state of South Carolina. It was interpreted by the court for the purpose of testing it under constitutional provisions; and we do not think that we should lightly disregard the interpretation which was thus solemnly placed upon it and which was before the Supreme Court of the United States when that court, without questioning the interpretation, upheld its validity. And we are further strengthened in our interpretation by the fact that this is the interpretation which has been placed upon the act from the beginning by the South Carolina tax commission, the administrative agency charged with its enforcement, and whose regulations in the performance of this duty are given the force of law by the act itself. See section 2 of the act (Code S.C.1932, § 2559). For nearly five years the act has been thus interpreted and enforced by the tax commission; and its interpretation has not been questioned in the courts of South Carolina or by the Legislature of that state, although the Legislature has for four times since been in annual session. Under such circumstances we ought not place a different interpretation upon the act unless satisfied that the one adopted by the tax commission is clearly wrong. As said by Mr. Justice Cardozo in Fox v. Standard Oil Co. of New Jersey, 294 U.S. 87, 93, 55 S.Ct. 333, 337, 79 L.Ed. 780: Reinforcing this token [the rejection of an amendment by the state senate] is the contemporaneous interpretation of the statute by the tax commissioner of the state, the administrative agent charged with its enforcement. Fawcus Machine Co. v. United States, 282 U.S. 375, 378, 51 S.Ct. 144, 75 L.Ed. 397. We give to such construction `respectful consideration,' though we have power to disregard it. United States v. Moore, 95 U.S. 760, 763, 24 L.Ed. 588; Fawcus Machine Co. v. United States, supra. The complainant was at liberty to maintain a suit in the state courts, where the meaning of the statute could have been determined with finality. It chose to have recourse to the courts of the nation. In such circumstances we are charged with a duty of independent judgment (Siler v. Louisville & Nashville R. Co., 213 U.S. 175, 194, 29 S. Ct. 451, 53 L.Ed. 753; Hurn v. Oursler, 289 U.S. 238, 243, 53 S.Ct. 586, 77 L.Ed. 1148), but, in default of other tests, we lean to an agreement with the agents of the state.