Court Opinion

ID: 9776405
Source: CourtListenerOpinion
Date Created: 2023-08-29 19:34:07.74016+00
Date Added: 2024-06-11T07:32:38.452348
License: Public Domain

CRESON, Justice
(dissenting).
I must disagree with the majority. The instant case is before us on appeal from the Chancery Court of Davidson 'County, Part I. The Chancellor held that appellee was entitled to recover certain monies paid in satisfaction of a sales tax obligation as*911sessed by appellant. The payment was made under protest, and the present suit instituted to recover the same pursuant to T.C.A. § 67-2303 et seq.
In this opinion the parties will be referred to as they appeared in the trial court; that is, Texas Eastern Transmission Corporation, as complainant, and Thomas Benson, Commissioner of Revenue for the State of Tennessee, as defendant.
In its original bill complainant avers that it is engaged in the operation of natural gas pipelines in interstate commerce; that in order to maintain sufficient pressure in the pipelines to propel the gas to its points of distribution in the northeastern part of the United States complainant maintains compressor stations; that these compressor stations are an integral part of the interstate transmission system; that complainant purchases electricity from the Tennessee Valley Authority to operate these compressor stations; and that the electricity was taken “directly off . . . transmission grid lines in interstate commerce.” Complainant further avers that defendant assessed a tax against complainant for the period from June 1, 1963, to December 31, 1966, which was paid under protest and that such assessment and collection was in violation of the statutes of this State and the Constitution of the United States for various reasons.
These reasons are: (1) that the tax is in contravention of the provisions of T.C.A. § 67-3007; (2) that the tax is a “direct burden upon interstate commerce within the prohibition of Article I, Section 8, Clause 3 (the Commerce Clause) of the Constitution of the United States . . . ” ; (3) that the tax is a discriminatory burden upon interstate commerce in that “manufacturers” within the State of Tennessee are taxed at the lower rate of one per cent or are totally exempt from taxation for their use of electricity pursuant to T.C.A. § 67-3003(g), while complainant is taxed at a rate of three per cent, all of which is in violation of the Commerce Clause and the Fourteenth Amendment of the Federal Constitution; (4) that defendant has construed the provisions of Title 67, Chapter 30 of Tennessee Code Annotated so that other “transportation companies” similarly situated are granted a “discriminatory use tax exemption” in violation of the Fourteenth Amendment to the Constitution of the United States.
Defendant, meeting the averments interposed against him, denies that the electricity is in interstate commerce, but rather affirmatively alleges that the “electricity is never in interstate commerce but is sold and delivered from a Tennessee vendor to a Tennessee vendee, with both sale and delivery taking place wholly within Tennessee.” In addition defendant alleges that the tax was imposed upon the sale of the electricity which was a “local event” and that since the vendor, as an agency of the Federal Government is immune from state taxation, the tax in the instant case was collected “from the one secondarily liable”, the vendee. Defendant furthermore denies that the tax is a burden upon interstate commerce or that the provisions of the Sales Tax Act and the construction of these provisions by defendant contravenes the Due Process and Equal Protection Clauses of the Fourteenth Amendment.
The evidence presented below, which consists of the testimony of witnesses and the stipulation of the parties, is as follows:
Complainant is a Delaware corporation qualified to do business in the State of Tennessee. Complainant operates pipelines that transport natural gas from the states of Texas and Louisiana to points of destination in the states of New York and New Jersey. Part of the pipeline system is located in the State of Tennessee.
In connection with this transmission system complainant maintains compressor stations. The function of these compressor stations is to increase the pressure of the natural gas so that it will be propelled to the points of destination in the northeast. Without the compressor stations, the gas would not have sufficient pressure to pass *912through the transmission system. In other words, the repressurization of the gas at the stations is essential and indispensable in the operation of the pipeline system.
In Tennessee, complainant operates two compressor stations. These are at Glade-ville and Mount Pleasant. Both of these stations are equipped with centrifugal compressors which raise the pressure of the gas. The “energy fuel” used to power the centrifugal compressors is electricity purchased from the Tennessee Valley Authority. The electricity is taken iron TVA’s high voltage transmission lines and goes through a “step down transformer” to reduce the voltage to a usable level. There was testimony by one of complainant’s witnesses that the electricity is consumed immediately upon entering the station and that it never comes to rest within Tennessee.
Complainant also introduced evidence that the TVA system operates in interstate commerce. The electricity used to power the Mount Pleasant compressor station was generated at Wheeler Dam in Alabama, while Davidson County, where the Glade-ville Station is located, is primarily supplied electricity from Paradise Generating Station in Kentucky.
It has been stipulated by the parties that TVA is immune from state taxation for its sales of. electrical power. TVA does make certain payments in lieu of taxes to the states in which it operates. See 16 U.S.C. A. §831(1).
The tax in the instant case was levied pursuant to the provisions of T.C.A. § 67-3003. The pertinent part of this statute is:
“Levy of tax — Rate.—It is declared to be the legislative intent that every person is exercising a taxable privilege who engages in the business of selling tangible personal property at retail in this state, or who uses or consumes in this state any item or article of tangible personal property as defined in this chapter, irrespective of the ownership thereof or any tax immunity which may be enjoyed by the owner thereof, or who is the recipient of any of the things or services taxable under this chapter, or who rents or furnishes any of the things or services taxable under this chapter, or who stores for use or consumption in this state any item or article of tangible personal property as defined in this chapter, or who leases or rents such property, either as lessor or lessee, within the state of Tennessee.”
The legislative intent to exempt interstate commerce from the provisions of Chapter 30 of Title 67 is set forth in T.C. A. § 67-3007. It is:
“Interstate commerce exempt. — It is not the intention of this chapter to levy a tax upon articles of tangible personal property imported into this state or produced or manufactured in this state for export; nor is it the intention of this chapter to levy a tax on bona fide interstate commerce. It is, however, the intention of this chapter to levy a tax on the sale at retail, the use, the consumption, the distribution, and the storage to be used or consumed in this state of tangible personal property after it has come to rest in this state and has become a part of the mass of property in this state.”
Article I, Section 8, Clause 3 of the United States Constitution, commonly called the Commerce Clause, provides:
"Powers of congress. — The congress shall have power ... to regulate commerce with foreign nations, and among the several states, and with the Indian tribes; . . .”
The sole question presented in this case is whether or not complainant was legally obligated to pay the sales tax for the purchases of electricity in view of T.C.A. § 67-3007 and the decisions of the United States Supreme Court construing the Commerce Clause.
*913Defendant earnestly insists that T.C.A. § 67-3007 is a recognition by the Legislature that there are constitutional limitations upon the power of a State to levy a tax upon goods moving in interstate commerce, but the provisions should be construed to extend the taxing power of the State of Tennessee to the fullest extent allowed under the Commerce Clause. Assuming but without deciding that this was the intention of the General Assembly, we think that the tax imposed in the instant case is beyond the permissible reach of state power.
The rule is well established that a state may not levy a tax upon property moving in interstate commerce. The taxing power of a state does not attach to property unless it has left the stream of commerce and become a part of the “mass of property within the State”. Independent Warehouses v. Scheele (1946) 331 U.S. 70, 67 S.Ct. 1062, 91 L.Ed. 1346; State of Minnesota v. Blasius (1933) 290 U.S. 1, 54 S.Ct. 34, 78 L.Ed. 131. The purpose of this rule is to exonerate interstate commerce from the burden of having to pay taxes in every state through which it passes or pauses on its interstate journey.
From the abovementioned rule a corollary follows in reason and logic. It is that while a state may tax local activities that are pursued in connection with interstate commerce, the Commerce Clause forbids the imposition of a tax upon an activity which is an integral, inseparable part of the movement in commerce itself. Michigan-Wisconsin Pipe Line Co. v. Calvert (1954) 347 U.S. 157, 74 S.Ct. 396, 98 L.Ed. 583. A privilege tax upon an integral, inseparable part of the process of interstate commerce is no less interdicted than a tribute exacted from the commerce itself.
In determining whether a tax unduly interferes with the flow of commerce so as to amount to a regulation thereof, we must take a very practical approach. Railway Express Agency, Inc. v. Commonwealth of Virginia (1954) 347 U.S. 359, 74 S.Ct. 558, 98 L.Ed. 337. The tax in the instant case does not fall upon a local or intrastate activity collaterally associated with interstate commerce, but rather the impact of the assessment is on the transmission of natural gas in interstate commerce. Defendant has attempted to extend the taxing power of this state to the very activity which the Commerce Clause seeks to protect.
Chancellor Lentz’ memorandum opinion aptly stated:
“Upon reading the pleadings, I could not see any difference in this case and the other gas transmission cases heretofore decided by this Court and affirmed by our Supreme Court. At the beginning of the hearing counsel for the parties were asked what is the difference between the present case and the gas transmission cases previously decided. A very short reply by counsel for the complainant was ‘There is no difference.’ After hearing proof, argument and considering the briefs of both parties, I am of the opinion that when counsel for the complainant stated there was ‘no difference’ he was absolutely correct.”
The trial judge is both quite perceptive and well experienced in the field of cases of this character. He invariably approaches and reaches decisions in them with a laudable, discriminating and balanced composure.
In addition, the opinion of Mr. Justice Chattin in Texas Gas Transmission Corp. v. Benson, Commissioner of Revenue of the State of Tennessee (1969) 223 Tenn. 279, 444 S.W.2d 137, states, in a highly creditable manner, what, in my judgment, is the law of Tennessee applicable to the instant case.
Both during the oral argument of this case and in close reading of the Commissioner’s brief, we had a somewhat uneasy felling that there was considerable hairsplitting in the air, even to the point of obscuring the more substantial elements present in both the facts of this case and *914the principles heretofore enunciated by the United States Supreme Court and this Court, which lead inevitably to the conclusion that the taxpayer’s position is sound and should be sustained. It simply will not do to permit tax liabilities or litigations concerning them to be determined in a contest of semantics; and this Court should not do so.
I would affirm the judgment below.