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Miss. River Fuel Corp. v. Hoffman





APPEAL from the Circuit Court of St. Clair County; the Hon. QUINTEN SPIVEY, Judge, presiding.


Rehearing denied January 18, 1955.

This is an appeal from a decree of the circuit court of St. Clair County enjoining Elmer J. Hoffman, State Treasurer, and Richard J. Lyons, Director of the Department of Revenue, from paying into the State Treasury moneys collected from the appellee, Mississippi River Fuel Corporation, under the supposed authority of section 2 of the Gas Revenue Tax Act. Ill. Rev. Stat. 1953, chap. 120, par. 467.17.

That act imposes upon persons engaged in the business of distributing, supplying, furnishing or selling gas to persons for use or consumption and not for resale, a tax at the rate of 3 per cent of the gross receipts from such business, after June 30, 1945. It provides further: "However, such taxes are not imposed with respect to any business in interstate commerce, or otherwise to the extent to which such business may not, under the constitution and statutes of the United States, be made the subject of taxation by this State."

The amount here involved, $1,100,700.44, covering a period of something over a year, was paid by the appellee under written protest, after which appellee filed its complaint, asking for a temporary and a permanent injunction, restraining the predecessors in office of the defendants above named from paying the money over into the State Treasury. On December 8, 1952, the trial court issued a restraining order as prayed, without notice.

Appellants' motion to vacate this order was denied December 24, 1952. Thereafter, after hearing, the trial court, on October 30, 1953, entered the decree here appealed from, by which decree it restrained appellants from paying into the State Treasury the funds so collected and from making any further attempt to assess or collect from the appellee any tax claimed to be due under the statute above referred to.

Appellee, Mississippi River Fuel Corporation, is a Delaware corporation organized in 1928 for the purpose, among other things, of transporting natural gas from gas fields near Monroe, Louisiana, to the St. Louis, Missouri, area. In 1929 it constructed a pipeline west of and approximately parallel to the Mississippi River, from a point near Monroe, Louisiana, to point in Missouri somewhat south of the city of St. Louis, from which latter point the line was extended easterly across the Mississippi River into Illinois and thence northerly to a point opposite the northern part of the city of St. Louis, from which latter point two lines were extended westerly across the Mississippi River into St. Louis for delivery of natural gas to Laclede Gas Company, which serves gas in that city. Appellee's pipeline, for the most part, is 22 inches in diameter, dropping down to 18 inches and 16 inches as it extends northerly in Illinois.

In 1947 a second line was built across the Mississippi River into Randolph County, Illinois. This line turns in a northerly direction, somewhat east of the city of East St. Louis, and connects with the original line, at a point south of the city of Alton, Illinois.

From these two lines gas is sold to 23 industrial customers, whose plants are located along the lines and who buy the gas for their own use. In addition, appellee sells, and delivers from these lines, natural gas to two Illinois public utility companies, Illinois Power Company and Union Electric Power Company, which resell most of the gas to the general public in Madison and St. Clair Counties in Illinois, retaining some of it for their own use as boiler fuel. The sales by appellee to these public utility companies are involved in the present dispute only to the extent that they purchase some of the gas for use under their own boilers. Appellee asserts that these sales are made in interstate commerce and are not taxable by this State. Appellants, on the other hand, contend that the sales to the industrial customers are not sales in interstate commerce, but are intrastate in character, and as such, are subject to taxation under the statute referred to. In the alternative, they contend, somewhat less aggressively, that, even if the sales are in interstate commerce, the tax is not discriminatory and is not an undue burden upon that commerce, and hence is valid.

All of the gas is sold by the appellee to these customers under written contracts, which are in evidence. As to some of it, appellee is firmly obligated to make delivery; as to a very considerable part of the gas, appellee reserves the right to interrupt delivery under conditions provided in the contracts.

There is some conflict of statement between the parties as to the exact nature of the things done in Illinois by appellee. We find appellants asserting, apparently by way of emphasizing the local character of appellee's activities, that, in addition to selling and delivering the gas to the industrial customers in question, appellee in some way "prepares" and "transforms" the gas in Illinois for delivery to its Illinois customers. This appellee denies. There is no basis for appellants' assertion. We have examined the evidence in the record on this point, and we find the testimony to be uncontradicted to the effect that the gas is delivered in the same form in which it is transported through appellee's pipelines from the fields, and that at the point of delivery, the gas is not reduced by appellee to such a pressure as to make it usable by the customer. The industrial customers receive the gas at 25 to 150 pounds pressure per square inch, which, as the record shows, is much in excess of the pressure at which it can be utilized. Such pressure reduction as is necessary to make the gas usable is done in every case by the customer.

Appellants devote a considerable part of their argument to a discussion of an attempt which is being made by appellee to create a gas storage field in Illinois in an exhausted gas field in Monroe County. It is enough to say that even if appellee had fully succeeded in this endeavor and if some of the gas sold to its industrial customers had for a time been held in storage in the places mentioned, it would not, in our opinion, detract in any way from the interstate character of the whole transaction. A freight train carrying an interstate shipment may pause for a long time at a railroad siding in the course of the shipment without changing the interstate character of the whole act. It is well known, at least to those acquainted with the natural gas pipeline industry, that in several parts of the country such gas storage fields exist, and it has never been supposed that the existence and use of this method of underground storage has in any way detracted from or minimized the interstate character of the business of such pipeline companies.

There are other irrelevancies in appellants' argument. It is unimportant, as we view it, that appellee furnishes to some of its customers apparatus for burning fuel other than natural gas. The interruptible gas service which appellee renders presupposes that other fuels will be used during periods of such interruption, and for the protection of its interstate gas business, appellee is entirely justified in facilitating the use of such other fuels by the means mentioned.

The same considerations apply to appellants' argument that appellee's business is in some way reduced to a local intrastate one by reason of the fact that appellee sometimes finds it advisable to "pack" gas in its pipelines at higher than normal pressure. Such "packing" is treated by appellants as identical with "storage." What we have said above with respect to underground storage of gas as a proper and useful part of interstate commerce disposes of this question of "packing." We may point out, however, that the record shows that ...

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