Court Opinion

ID: 3445214
Source: CourtListenerOpinion
Date Created: 2016-07-05 20:17:29.651539+00
Date Added: 2024-06-11T13:51:47.946074
License: Public Domain

Believing that the majority opinion in this case arrives at a result never contemplated nor intended by the legislature, and that this result works a grave and unmerited injustice upon the oil producing industry of this state, I must respectfully dissent from that opinion.
From the record and from facts judicially known, we gather the following history of the events leading up to the passage of the oil production tax here in question, and of the events which succeeded its passage and which accompanied its interpretation by the administrative officers: Before the outbreak of the World War, oil production in this state had not amounted to very much, but with the coming of that catastrophe and the consequent increase in the price of crude oil, development became very rapid. With development came questions of taxation theretofore but of little, if any, importance. Just how were oil leases and producing wells to be assessed and taxed? Our assessors and taxing officials had had but scant experience with this class of property and they were much perplexed as to just what principle to adopt in such assessment and taxation. After several plans had been tried and rejected, finally an arbitrary method was agreed upon by which the wells and leases were assessed at so much per barrel on the daily production on assessment day. For instance, if the agreed valuation was $1,000.00 per barrel and the production from a particular lease was ten barrels per day on assessment day, the property was assessed at *Page 73 
$10,000.00. However, this plan was also not satisfactory because the lease which produced ten barrels on assessment day might in a short time thereafter become bone dry, or on the other hand, through further development, might produce one hundred barrels a day. And so the hunt for a satisfactory assessment principle continued until the legislature met in the special session of 1917, following the adoption of the amendment to section 171 of the Constitution providing for the classification of property for taxation and for the imposition of varying rates of taxation according to class — a new idea in our taxing laws.
This session of the legislature was devoted to revising the tax laws of the state. Among such laws proposed was one embraced in House Bill No. 49, which, with the change hereinafter mentioned, was later enacted into the law known now as the "oil production tax law of 1917." House Bill No. 49, as originally drafted, so far as pertinent, read:
    "Every person, firm, corporation or association, engaged in the business of producing oil in this state, by taking same from the earth, shall,  in addition to the other taxes on the wells producing said oil imposed by law, annually pay a tax for the right or privilege of engaging in such business in this state equal to one per centum of the market value of all oil produced in this state," etc.
In this form the bill passed the House. When it reached the Senate the oil producers of the state presented a protest to the committee which had the bill under consideration, contending that this tax added to the ad valorem tax, would impose a burden so heavy on the oil business as to destroy it. Out of the investigation developed by this protest, the principle that a tax on oil property measured by its actual production was the most satisfactory tax of all was evolved and it was thought that the amount of tax collected in this way and at this rate would fairly approximate the amount of a tax collected on a fair ad valorem assessment. This principle was agreeable to all concerned, including the Senate committee, which had the bill in charge, the then attorney general, the Honorable M.M. Logan, who was advising the legislature in its consideration of the various tax bills before it, and the oil producers. Accordingly House Bill No 49, then before the Senate, was amended *Page 74 
by striking out the words "in addition to the" which preceded the words "other taxes imposed by law," and substituting the words "in lieu of all," as that the tax imposed was "in lieu ofall other taxes on the wells producing said oil imposed by law." As thus amended the bill passed the Senate, and on its return to the House the amendment was concurred in and the bill as so amended became law. (Acts 1917, chapter 9). The act passed at the 1918 session of the legislature (Acts 1918, chapter 122), which superseded the 1917 act we have been considering and which is the act under which the oil production tax before us was collected, is, when fairly considered, but a re-enactment of the 1917 act, with the latter's administrative features changed so as to make the collection of the tax less burdensome and more assured. Like the 1917 act, its parent, the 1918 act, too, reads that the oil production tax is imposed "in lieu of all other taxes on the wells producing said crude petroleum."
After the adjournment of the 1917 special session of the legislature, the Hon. M.M. Logan, at the solicitation of the Governor of the Commonwealth, resigned his office of attorney general and accepted that of chairman of the State Tax Commission, created at this special session and entrusted with the administration of the newly enacted tax laws.
Pursuant to the law as all understood it at the time it was passed, the State Tax Commission proceeded to tax the various oil leases over the state with the oil production tax above mentioned and did not levy any ad valorem taxes on producing property. This state of affairs continued until 1918, when the board of supervisors of Estill county undertook to assess forad valorem taxes certain oil leases of one Raydure. This they did by assessing the acreage in the lease less five acres surrounding each producing well. On the wells and the surrounding five acres no assessment was made nor tax levied. The right of Estill county so to assess the Raydure leases was promptly challenged. Up to this time no interpretation had been put by the courts on either the 1917 or 1918 act. By these acts, the oil production tax was imposed "in lieu of all other taxes on the wells producing the oil." Estill county took the stand that this law did not exempt the entire lease from advalorem taxes but only "the wells" which, by fair interpretation, meant so much of the surrounding acreage as was necessary to support that well. It had been decided in Wolfe County v. *Page 75 
Beckett, 127 Ky. 252, 105 S.W. 447, that oil leases as such were subject to the ad valorem tax. It now became necessary to determine to what extent, if any, they were relieved from such taxation by the oil production tax law. And so the matter came to this court in the case of Raydure v. Board of Supervisors of Estill County, 183 Ky. 84, 209 S.W. 19. After disposing of some preliminary questions not here pertinent, this court, in that case, next took up the oil production tax law of 1918. Raydure based his defense on this law and the position he took is thus stated by the court:
    "In other words, the argument rested on this statute is that when a producing well is found by the lessee of an oil lease the tax on the oil produced from the well exempts from further or other taxation the lease, not only on the particular premises that may be said to be included in the well, but the remainder of the lease, and, of course, if this argument is sound, the leases here sought to be and that were taxed in the lower court are wholly exempt from taxation, although they might have a large value on account of the exclusive privilege conferred by the leases to drill for and produce oil in other parts of the leased premises not reached by the producing wells."
After thus stating appellant's position, the court further said:
    "It would also necessarily follow, if the position of counsel is well taken, that the production tax would be substituted for and take the place of the ad valorem or property tax that we have held the oil leases subject to.
    "In considering this contention the first question that naturally suggests itself is, was it the purpose of the legislature in the enactment of this production tax statute that the tax imposed should be in lieu of the ad valorem or property tax to which the oil lease covering the producing territory was subject, and, if such was the intention of the legislature, did it, under the Constitution, have the power to provide that a production tax might be in lieu of a property tax to which the property would be subject except for the production tax?"
Considering the questions thus propounded, the court first took up the power of the legislature to substitute *Page 76 
a license tax for an ad valorem tax and decided that under our Constitution the legislature had no such power. In this, I entirely agree. The court should have stopped there, because that was all that was necessary to dispose of the case. But having decided that the legislature had no power to substitute the license tax for the ad valorem tax, the court proceeded to the perfect non sequitur of "ergo, the legislature did not intend to make such substitution;" and this on the principle that it is the duty of the court to sustain the constitutionality of legislative acts where possible and to presume that the legislature intended a constitutional rather than an unconstitutional result. The history of this legislation as I have outlined it is in my judgment a reductioad absurdum of the application of such principle to the facts of this case.
It is stated, however, that be this as it may, nevertheless as the court did base its decision on this latter ground it must be considered as binding authority on the proposition now before us. Although I will show shortly that the court itself did not so regard its reasoning in this connection, yet I also believe that this proposition advanced is a strained extension of the doctrine of stare decisis. This doctrine is based upon the principle that certainty in law is preferable to reason and correct legal principles. But there is no uncertainty in the administration of law when those seemingly affected by its application have not conducted their affairs in accordance with its so-called mandate but in direct defiance thereto. Such is the case here, as I will shortly show. The reason for the rule failing, the rule should not be applied.
As stated though, the court itself did not regard its decision as a binding declaration of the constitutionality of this oil production tax law, for after finishing its discussion of the abstract power of the legislature to levy a license tax on oil production, in which abstract discussion I concur, the court said:
    "It follows from what has been said that the production tax on the oil produced is separate and distinct from the ad valorem tax to which the leases are subject, and cannot operate to exempt them from the property tax.
    "It will be noticed that, according to the agreed state of facts, the taxing authorities of Estill county, in determining the value of the leases, excluded from the territory covered by the wells five *Page 77 
acres surrounding each producing well, and only estimated the value of the leases as covering the remainder of the leased premises. Whether the board of supervisors had the authority under the statute to make this exemption of five acres or any number of acres, or whether more acreage should be exempted, we do not feel called on to determine in this case, as it does not appear from the agreed statement of facts that Raydure is complaining of the action of the board in exempting five acres surrounding each well."
The court expressly not deciding whether or not Estill county had the authority under the oil production tax law to make the exemption of five acres it did, how can it be said that the court held this license tax to be valid and binding although its imposition would not carry with it the exemption from thead valorem tax? As the oil production tax law merely exempted the well it cannot be said that the taxing on an ad valorem
basis of so much of the lease as was not fairly included within the term "well" raised any question concerning the validity of the exemption of the well and what was fairly included within that term from ad valorem taxation.
The ratio decidendi of the Raydure case then may be fairly stated as this: The oil production tax is not a substitute for an ad valorem tax to the extent of exempting from taxation so much of an oil lease as exceeds five acres surrounding each producing well. In this ratio decidendi I concur.
The history of events following the decision in the Raydure case supports my view, for the taxing authorities headed by the able ex-attorney general in obedience to the court's mandate proceeded to assess for ad valorem taxation oil leases but continued to exempt from such taxation the oil wells and five acres surrounding each of them. They did even this with apologies to the oil industry for what was regarded as a breach of faith.
Two legislatures passed without any action being taken by the lawmaking bodies on the result of the Raydure case. This does not mean that these legislatures concurred in any idea which the court may have entertained that the legislature did not intend by the oil production tax law to substitute the license tax for the ad valorem tax because the substitution had continued to be *Page 78 
made by the taxing authorities since then, only the substitution had been partial and not total, i. e., only to the extent of the wells and five surrounding acres. Probably after all, this was a fair interpretation of the 1918 act because that act did not exempt the lease but only the well and what "the well" meant was a matter of interpretation. And the way this court left the discussion in the Raydure case fairly lent color to the proposition that after all it simply decided that the oil leases outside of the five acres surrounding each well were subject to the ad valorem tax, which decision did not necessarily and expressly did not at all carry with it a decision that the wells and five acres were also subject to such tax. With the matter in this shape the passive position of the legislatures cannot be fairly said to be more than a concurrence in what was being done by the taxing authorities under the Raydure case, which was the exempting from ad valorem
taxation of wells and their five surrounding acres.
In 1924, after the legislative session of that year had adjourned, the case of Associated Producers Company v. Board of Supervisors of Estill County, 202 Ky. 538, 260 S.W. 335, was decided. In this case the question of the exemption from advalorem taxation of the five surrounding acres was presented, and this court rightly held, in my judgment, that the legislature had no right to exempt from ad valorem taxation any part of an oil lease because of the payment of the oil production license tax. But this court in its short opinion did not discuss the validity of the oil production tax per se and rather curiously withdrew as inapt that part of the Raydure case which, in my judgment, not only was apt but was exactly what the court was called upon to determine. The part of the Raydure case withdrawn in the Associated Producers case marked off the limits, in negative fashion, of the court's decision. I cannot regard the Associated Producers case as an authority for the validity of the oil production license tax.
As soon as this case was decided, consternation reigned in the camp of the oil people, for unless the oil production license tax be invalid, they were subject to the double tax which the 1917 legislature had expressly declined to impose on them because of the unwarranted burden. Whereupon this suit was promptly brought to test that question. *Page 79 
I believe the results reached in the Raydure and the Associated Producers cases to be right, but by them it is only decided that the legislature had no authority to substitute an oil production license tax for in ad valorem tax. Whatever its authority, nevertheless this is exactly what the legislature tried to do and did do. It is shown that when the 1917 act was up for consideration, the legislature actually abandoned the idea of levying both a license and an ad valorem tax as it had started out to do because of the unwarranted burden which would result for the oil industry. We now by judicial decision arrive at just this result which the legislature wished to avoid. I believe it to be demonstrated that the legislature did not mean to place this double burden on the oil industry, and that its imposition of the license tax is so interwoven with the exemption from ad valorem taxation that the one would not have been imposed but for the exemption from the other. As we have held that it was unconstitutional to so exempt, the license tax must then fall, because it cannot be separated from the exemption without doing violence to the legislative intent. Deferring to the ability and learning of those with whom I disagree, I have felt it necessary to express at this length my reasons for dissenting from the majority opinion by this court on the cross-appeal.
On the original appeal, I concur in its affirmance on the authority of Barriger v. Louisville Gas  Electric Co., 196 Ky. 268,  244 S.W. 690.