Court Opinion

ID: 7825025
Source: CourtListenerOpinion
Date Created: 2022-09-07 18:04:51.206144+00
Date Added: 2024-06-11T16:30:50.146160
License: Public Domain

Tom Glaze, Justice, dissenting. The majority decision raises more questions than it answers. Basically it relies upon the cases of Complete Auto Transit, Inc. v. Brady, 430 U.S. 244 (1977), and Questar Pipeline Co. v. Utah State Tax Comm’n, 817 P.2d 316 (Utah 1991), to reverse the trial court’s holding that Arkansas could not constitutionally impose a sales tax on the fuel consumed in Arkla’s compressor stations. In reaching its result, the majority opinion fails to mention three cases cited by Arkla that were decided before and after Complete Auto and appear to go contrary to this court’s decision. See Midwestern Gas Transmission Co. v. Wisconsin Department of Revenue, 84 Wis. 2d 261, 267 N.W.2d 253, cert. denied, 439 U.S. 997 (1978), (a case that presented a factual situation similar to the one here and where the Wisconsin Supreme Court held Wisconsin’s attempt to impose a use tax upon natural gas consumed as compressor fuel at the pipeline’s interstate compressor stations in Wisconsin was prohibited by the Commerce Clause); see also similar use tax on compressor fuel cases predating Complete Auto, Texas Gas Transmission Corp. v. Benson, 444 S.W.2d 137 (Tenn. 1969), and Michigan Wisconsin Pipeline Co. v. State, 58 Mich. App. 318, 227 N.W.2d 334 (Mich. App. Div. 2 1975). Also, the Questar decision cited by the majority is not embraced by Arkla or the state. In fact, the state recognizes the weakness of Questar, stating that “if [this] court chooses to follow the rationale of the Utah Supreme Court in the Questar decision, legal and factual distinctions between the cases should be clearly outlined.” The majority opinion ignores the state’s request. The state’s point in distancing itself from Questar is, like the three cases cited above by Arkla, the Utah decision involved a use tax, not a sales tax. Why the distinction? The state is aware of Arkansas law, Ark. Code Ann. § 26-53-106 (Supp. 1991), and this court’s decisions construing it. That statute provides in pertinent part as follows: (a) There is levied and there shall be collected from every person in this state a tax or excise for the privilege of storing, using, distributing, or consuming within this state any article of tangible personal property purchased for storage, use, distribution, or consumption in this state at the rate of three percent (3 %) of the sales price of the property. (b) This tax will not apply with respect to the storage, use, distribution, or consumption of any article of tangible personal property purchased, produced, or manufactured outside this state until the transportation of the article has finally come to rest within this state or until the article has become commingled with the general mass of property of this state. (Emphasis added.) In interpreting the foregoing statute, we have said that if the goods have not “come to rest” within the state, they are still in the stream of interstate commerce, and a tax may not be levied. Martin v. Riverside Furniture Co., 292 Ark. 399, 730 S.W.2d 483 (1987). In the present case, the evidence stands unrefuted that the fuel involved has not (and would never) “come to rest." Being cognizant of this fact, the state is aware it is unable under Arkansas law to levy a tax on Arkla’s fuel unless it can do so under a theory other than one pertaining to use tax. Consequently, it contends the Arkla fuel is subject to Arkansas’s sales tax, which does not necessarily depend upon the fuel coming to rest in this state. The state argues the standard in a sales tax case is “did the sale occur in Arkansas?” It then suggests that, under Ark. Code Ann. § 26-52-103(a)(4) (Supp. 1991), the sale here occurred when Arkla withdrew its gas from its pipeline for its own consumption. The state cites Georgia Pacific Corp. v. Larey, Commr., 242 Ark. 428, 413 S.W.2d 868 (1967), and theorizes that, while no actual transfer or sale is made by Arkla to a buyer, Arkla, in withdrawing the small amount of fuel here, is actually transferring that fuel from “Arkla the Interstate Shipper” to “Arkla the Consumer of Natural Gas.” The state’s argument is ingenious, but ignores the record in this case. At each compressor station along Arkla’s interstate transmission line, Arkla diverts a small amount of natural gas from the gas in transit and burns that gas only to power the compressors that work to continue the gas in route to destinations in other states. Arkansas cases such as Georgia Pacific are authority for imposing a sales tax on property withdrawn from a company’s stock when the withdrawn property is utilized for the company’s own personal use. Again, the evidence reflects that the small amount of fuel diverted for compressor purposes is constantly flowing and is consumed within no more than three minutes of its being diverted from the mass of gas being transported in the interstate transmission pipeline. The compressor fuel is not withdrawn for Arkla’s personal or domestic use. The diverted gas is never metered in Arkansas or regulated by the Arkansas Public Service Commission. Instead, such gas is regulated and controlled entirely by the Federal Energy Regulatory Commission. In conclusion, the majority opinion attempts to sidestep the issue bearing on the state’s authority under Arkansas law to impose a tax by stating Arkla never assailed the nature of the tax, i.e., sales versus use. In making such statements, the majority court conveniently ignores the state’s own argument which is predicated upon the fact that it imposed a sales rather than a use tax on Arkla’s compressor fuel. As mentioned above, the state, in view of the evidence presented in this case, cannot justify a use tax under Arkansas law because the fuel had never “come to rest” within the state. For this and other reasons, the state insisted below, and in this appeal, that the nature of the tax imposed is significant. To reiterate, the state emphasized that, if this court relies upon Utah’s Questar case, (which the majority cites), the court should clearly outline why. The state’s reason for making such a request is because the court in Questar appeared to justify the Utah tax as a use tax on compressor-fuel gas, which differs significantly from the sales tax theory the state asserts here. The state wishes to accept the result reached in the Questar decision, but it cites not one case involving compressor-fuel where a court has upheld a tax, as a sales tax, on such fuel.1 The Questar case reaches the result the state here seeks, but the use tax rationale that underpins that decision creates other potential problems for the state which I have already described above. I agree with the majority opinion that the Commerce Clause does not necessarily forbid a state from imposing a tax on interstate activity. However, that is not the threshold issue in this case. Under the facts and Arkansas law here, Arkansas clearly is unauthorized to impose a sales or use tax. The state’s characterization of Arkla’s burning of its compressor fuel as a withdrawal, transfer, or sale falls short of the requirements and express purposes of Arkansas’s Gross Receipts Law, § 26-52-103(a) (4). Nor can a use tax be assessed when the fuel in question has never come to rest in this state. The decision reached by the trial court is correct and should be affirmed. For the foregoing reasons, I respectfully dissent. Corbin, J., joins this dissent.   The recent case of Tennessee Gas Pipeline Co. v. Marx, 90-CC-1253 (Miss. February 5, 1992) (decided after the present case was submitted and argued on appeal), upheld Mississippi’s imposition of a use and excise tax on compressor fuel that was used by the Tennessee Company for the same purposes and in the same manner Arkla used its compressor fuel, viz., to propel natural gas through an interstate pipeline. This Mississippi decision seems to be consistent with the Questar holding.