Court Opinion

ID: 4004240
Source: CourtListenerOpinion
Date Created: 2016-07-06 11:05:29.425413+00
Date Added: 2024-06-11T14:19:05.058814
License: Public Domain

The question to be decided is: as between Section 2c *Page 756 
of Article 13, Chapter 11, of the Code, and Section 2i of the same article, which applies more aptly to the situation created by Koppers Coal Company's executing a coal lease upon a number of tracts of land owned by it in fee, to Imperial Colliery Company, granting for the period of thirty years the exclusive right of removing all of the coal for the payment "as rent" of a "royalty" of eight to seventeen cents a gross ton, the amount differing in the various tracts? Section 2c applies to persons engaging within this State "in the business of selling any tangible property whatsoever, real or personal," and Section 21 to persons engaging within this State "in the business of collecting incomes from the use of real or personal property or of any interest therein". The first section imposes a tax of fifteen one-hundredths of one per cent of the gross income of the business, and the second a tax of one per cent, so that it naturally follows that if the two sections appear to apply equally to the transaction in question, the admittedly established rule of construing doubtful or ambiguous tax statutes favorably to the taxpayer requires the application of Code, 11-13-2c. That rule of construction requires no citation of authority to justify its statement.
It seems perfectly plain to my mind that what is commonly called a coal lease has as its one purpose the complete or partial removal of the irreplaceable corpus of the estate or land involved, and if that be so, it is rather difficult to see how it can, particularly as against the contention of a taxpayer, be treated as "the use of real or personal property" (underscoring supplied) as distinguished from its complete disposition by sale.
But the appellant points to two questions that he believes should be controlling: first, that Koppers has executed a lease in which was reserved "a royalty", expressly named in a qualifying clause of Section 2i, that could be paid as "rent"; and, second, that the grantors in coal mining leases in West Virginia have uniformly exercised the rights of a landlord and resorted to the *Page 757 
remedies accorded to a person who had leased real property.
Dealing first with the second question, it need only be said that the remedies accorded a landlord in West Virginia are almost entirely statutory, and therefore the practice thereunder does not affect the application of the statutes now before the Court.
As a prelude to the first question, it is plain to my mind that the terms used by the taxpayer in a contract to which he is a party cannot determine the nature of the transaction for his benefit. That being so, I believe the terms should not, in collateral matters of taxation, fix the nature of the transaction to his harm.
The broad and commonly understood distinction between a sale and a rental is that a sale has as its outstanding element a transfer of title, and a rental, being compensation for a permitted use, does not. A reserved royalty originally was a part of the thing removed, the owner not parting with the title thereto, but granting to the operator the bulk of the thing to be removed, less the reserved royalty. To that extent the grant was a conveyance. It was not an actual sale in place, because the operator parted with nothing at the time. Upon the performance of his promised labor, he took in exchange and upon severance the principal part of the article severed. On the other hand, it was not a rental for there was nothing paid for any use. As a matter of fact, the term "royalty" originated from the exercise of a royal prerogative, and I think sheds very little light on the present problem. We must remember that the word "royalty" is not used as primarily descriptive in the section under consideration which imposes an occupation tax upon "the business of collecting incomes from the use of real or personal property, or of any interest therein * * * ". This is an occupation tax: not an income tax. Consequently, the word "royalty" is used to name certain general characteristics of the occupations included in the section. Under the well known maxim ejusdem generis (of the same class), a general term is not permitted *Page 758 
to enlarge the meaning of a preceding specific term to which it relates. Certainly a taxpayer may invoke that rule in construing a tax statute.
Another very good reason for the use of the word "royalty" is to prevent contractual terminology from controlling the effect of the statute. It is common knowledge that the sales tax was in part circumvented by nonresident manufacturers who "leased" patented machinery of various sorts for a rental that quickly totalled the sales price. Section 2i may have been intended to prevent like practices.
I cannot agree with the discussion of the meaning of the word "royalty" as concluded in the following part of the majority opinion:
    "The very word itself, therefore, embodies, historically and theoretically, not principally the element of transferring title to the mineral, but rather the basic idea of payment for the use of the mine or of the premises, with the acquisition of title to the severed mineral as incidental".
I cannot see how the use of the word "royalty", if that is its meaning, could in any way operate to expand the definitions of the occupations included in Section 2i to embrace the business of what is usually called "leasing" coal land, because in a so-called coal lease "the acquisition of title to the severed mineral" is by no means a mere incident. It is the principal, if not the sole, purpose of the contract; all else is secondary.
The Attorney General stresses the fact that a coal lease necessarily involves the use of real estate and that for that reason Section 2i can be made to apply. That can be said truthfully in varying degrees of all human occupations. But not disregarding the fact that the removal of coal does necessarily involve, as a more or less minor incident, use of real property in a proportion which, to my mind, is entirely insufficient to permit that fact to weigh in determining the nature of the transaction, it is to be iterated that to reverse it is not enough to construe Section 2i in a manner that will cause its *Page 759 
provisions to cover the transaction in question, but that beyond that it must be determined that the wording of that section more nicely fits the transaction now before us than does the wording of Section 2c, because if doubt exists as to which covers it more aptly, that doubt must be resolved in favor of Koppers, the taxpayer.
Looking then to Section 2c, we have no difficulty in finding that its terms do cover "the business of selling". It strikes me as quite plain that the marked distinction to be drawn between that business and "the business of collecting incomes from the use of real or personal property" is that the result of the first is the diminishment of the stocks on hand, or corpus, while the latter is based upon keeping intact the body of the property, its control, and ownership. In the first case, the property of the taxpayer is being disposed of for a price, and in the second it is being used and returned intact for a price. True, the articles sold in many instances are replaceable, but if that distinction is to be drawn it certainly favors the placing of a coal mine lease in the selling category because coal when once removed is obviously not replaceable.
For the foregoing reasons I have concluded that the general distinction the Legislature wished drawn between Section 2c and Section 2i is based primarily upon whether the transaction or transactions in question involve a reduction or depletion of the corpus, or capital, or whether they involve only its use and return intact. To my mind there is little doubt that Section 2c as applied to the quite lengthy so-called lease now before us fits more aptly than does Section 2i. I therefore believe that in applying Section 2i the majority has erred.
I do not believe that the general character of what is usually called a coal mining lease under the decided cases is particularly enlightening, since we are concerned only with its legal nature under the two sections of the statute now sought to be applied.
I regard it as quite unfortunate that at this time, when fuel is the backbone of war production, its disposition *Page 760 
by the owner is to be treated as a use, and discouraged by having the more burdensome of two doubtful tax levies placed thereon. The speculation advanced by the Attorney General that the conservation of natural resources lay behind the legislative purpose palls when the practical exigencies with which this Nation is now confronted are considered.