Court Opinion

ID: 3894338
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:25:41.659074+00
Date Added: 2024-06-11T13:56:20.334145
License: Public Domain

I am constrained to dissent. It is clear and I think, in effect, recognized on the briefs of the State and in the opinion of the majority, that the flow of the gas in question is continuous across State lines into Tennessee to the points of delivery, without having come previously to a stop, to (1) Memphis Power  Light Company and (2) West Tennessee Power 
Light Company, intrastate *Page 600 
distribututors of the gas. As I understand the holding of liability is rested on the theory and finding that the interstate seller and shipper and the intrastate buyer and distributors are copartners, jointly interested in the business of gas distribution to consumers locally, the parties operating under a profit sharing plan — and that, therefore, the tax applies to all of the product conveyed through its pipe lines into this State from its wells in Louisiana. (This liability is held to apply not only to the gas sold and delivered to the Memphis Power  Light Company, whose relations with the Memphis Natural Gas Company are construed to have the effect above stated, but extended to the gas sold and delivered to the West Tennessee Company also.)
While this theory is stated forcefully and plausibly, I am unable to accept it. At last, upon analysis, the arrangement between these companies, conceded to be legally distinct corporate entities, held to constitute, in effect, a partnership, relates alone to the method and measure of the compensation which the interstate seller and shipper receives for its product from the intrastate buyers and distributors.
No authority is cited for the adoption of the method or extent of payment by a buyer of goods shipped interstate, as a factor determining the taxability of the product. The opinion of HUGHES, C.J., in Southern Natural Gas Corporation v. State ofAlabama, 301 U.S. 148, 57 S.Ct., 696, 698, 81 L.Ed., 970, cited and quoted from in the majority opinion, does not adopt or discuss this theory of partnership profit sharing, or joint enterprise. Liability was predicated in this case on a finding that the gas company itself, not through another, "carried on in Alabama activities of an intrastate character," *Page 601 
— taking orders and making sales and maintaining service lines to various and sundry consumers, etc. The majority opinion concedes that in that case "there was no association between Seller and Buyer."
Not only do I find no case where such an "association" of the buyer and seller has been dealt with, but I am impressed that the opinion of Mr. Justice CARDOZO in People ex rel. PennsylvaniaGas Co. v. Saxe et al., 229 N.Y. 446, 128 N.E. 673, 674, announces the correct principle to the effect that the liability for taxes to a state on goods shipped into a state, does not turn on, and is not to be determined by, the amount, measure or method of compensation; and that a plan of payment under which the amount of compensation is determined by the profits earned by the buyer distributing the product does not deprive the interstate seller of the exemption inuring under the commerce clause. In that case the compensation of the interstate shipping company was based on the gross receipts of the local distributor. The contracts were what is known as "requirement" contracts, that is, the amount delivered was determined by the requirements from time to time of the distributors. CARDOZO, J., writing the opinion for the Court, said, "We think the interstate character of the relator's business is untouched by these arrangements." Further, "the sale does not cease to be one in interstate commerce because the price is to be measured by the purchaser's recipts." I think the arrangement in the instant case was a sales contract between the parties, with provisions — somewhat complicated — for regulation and adjustments of the price to be paid for the natural gas. I think the illustration suggested on the brief of counsel for the Natural Gas Company of the modernly common landlord and tenant lease *Page 602 
contracts presents an apt analogy, the rental being based on the volume of business and incidental profits of the tenant. Here is a profit sharing compensation plan of fixing compensation, but the independence of the status of the parties is otherwise maintained, and the taxes, or other obligations of the parties, are not affected. Another simple illustration: A, a seller, in Dakota, contracts with B, a Tennessee buyer, to sell and ship wheat in such volume as the buyer may require through a given season. The price to be paid A is based on a fixed minimum sum per bushel, plus fifty per cent of any excess realized by the buyer from his sales of the wheat. Does this profit sharing arrangement defeat the interstate commerce immunity of the interstate shipment? I think not.
Since, as above indicated, I construe the holding of the majority opinion to be rested on the partnership in profits theory, I confine this brief comment to this theory. However, I have examined the opinion in Southern Natural Gas Corporation
v. State of Alabama, and I think the facts so differ from those of the instant case as to distinguish determinatively the cases. In the Alabama case, as said in the opinion, "under its contract with the Tennessee Company, which bought for consumption by itself and its subsidiaries in industrial plants, appellant agreed not simply to install metering stations, for measuring the amount of gas delivered, but to establish the requisite service lines running to the described plants in order that the gas might be furnished in a manner suited to the consumers' needs. The gas was supplied through these service lines on the orders received from time to time at the Birmingham office."
The Tennessee Company had a large number of these plants scattered over the State to which the Southern *Page 603 
Natural Gas Company delivered gas through service lines which it owned and maintained, upon orders received and filled from its Birmingham office from time to time. Nearly six hundred miles of its pipes covered the State and carried gas for allotment as required for distribution to these numerous consumer plants. I do not understand that the Memphis Natural Gas Company owned or maintained any service lines, but that the local companies tapped the main pipe line of the Natural Gas Company. The "distinction between the transportation of gas into a State and the furnishing of the gas . . . to consumers within the State," to quote the Alabama opinion, appears to have been preserved — as it was not in that case. Many activities may be carried on within the State without subjecting the interstate transportation to the State taxing power, so long as these activities are merely incidental to the doing of the interstate business. Ozark Pipe LineCorporation v. Monier, 266 U.S. 555, 45 S.Ct., 184, 186, 69 L.Ed., 439. In that case it was said: "The business actually carried on by appellant was exclusively in interstate commerce. The maintenance of an office, the purchase of supplies, employment of labor, maintenance and operation of telephone and telegraph lines and automobiles, and appellant's other acts within the state, were all exclusively in furtherance of its interstate business, and the property itself, however extensive or of whatever character, was likewise devoted only to that end. They were the means and instrumentalities by which that business was done and in no proper sense constituted, or contributed to, the doing of a local business."
I do not find that the Memphis Natural Gas Company conducted any business in Tennessee which was not incident *Page 604 
to, and in furtherance of, its interstate deliveries. These, briefly stated, being my views, I think the decree of the Chancellor should be affirmed. *Page 605