Texas Co. v. Brown

delivered the opinion of the court.

This is a suit in equity by appellant, a corporation and citizen of Texas, against appellees, both individually and as officers of Georgia, to restrain enforcement of laws respecting fees for inspection of petroleum and petroleum-products, especially kerosene oil and gasoline, so far as concerns products brought by plaintiff from other States into Georgia and there disposed of.

; The laws in question, as.they stood when suit was commenced (March, 1920), comprise provisions, found in Georgia Civil Code, 1910, §§ 1800-1814, which originally referred only to illuminating oils; an amendatory Act of August 19, 1912 (Laws 1912, No. 570, p. 149), which extended the inspection system to gasoline; an amendatory Act of August 19, 1913 (Laws 1913, No. 258, p. 110); and certain sections of the Penal Code, 1910. They provide for. official state inspection of petroleum and petroleum products; prescribe tests relating to their fitness for use — a flash test for illuminating oils, a specific -gravity test for gasoline — and establish inspection fees dependent upon the quantity inspected but at a higher rate per gallon in small quantities than in large, the fees being fixed, however, upon a basis that has been found in practice to yield revenues substantially in excess of the cost of inspection. The officials, in charge of enforcement of the system, here made defendants, are the commis-. sioner of agriculture, .a general inspector of oils, and ,numerous local inspectors, whose duties are set forth in the cited code sections and in the Act of 1912. Among other provisions for rendering the acts effective, § 639 of the Penal Code makes it a misdemeanor to sell or offer for sale illuminating fluids in violation of the pertinent provisions of the Civil Code, and § 642, to sell or keep for sale, or in storage, crude or refined petroleum, naphtha, kerosene, etc;, without having the same inspected and approved by' an authorized inspector'.

Enforcement of the inspection fees was and is resisted upon the ground that they constitute an arbitrary and unreasonable exaction, not sustainable as a fair exercise of the taxing power but invalid as violative of the guarantee of due process of law contained in the sta,te constitution, as well' as that in the Fourteenth Amendment.

A more specific objection is that the imposition of the fees is in conflict with Art. 7, § 2, par. 1, of the state constitution, which provides: “All taxation shall be uniform upon the same 'class of subjects, and ad valorem on. all property subject to be taxed within the territorial limits of the authority levying thé tax, and shall be levied and' collected under general laws.”

But the contention most emphasized is rested upon the commerce clause of the Constitution of the United States, the insistence being that inspection fees exceeding the cost of inspection, as imposed upon plaintiff’s products, constitute a burden upon interstate commerce. As to this, defendants denied that the .laws in question by proper construction applied, or as enforced by the state officérs were made to apply, to plaintiff’s products while in interstate commerce; they averred that inspections were not required to be made, nor fees to be paid,'until after the products had arrived at destination in the State, and were held in storage by the consignee for the-purposes of sale in the State.

Upon amended bill and answer, and affidavits pro and con, an application for. interlocutory injunction was heard before three judges pursuant to - § 266 Judicial Code as amended March 4, 1913, c. 160, 37 Stat. 1013 , and . re-

The controlling facts are not in dispute. Plaintiff carries pn in Georgia an extensive business in the distribution and sale of illuminating oil and gasoline. Neither commodity is produced in Georgia, and all plaintiff’s supplies for that State are brought from points in other States, principally by rail in tank-cars oWned by plaintiff, having' a capacity of approximately 8,000 gallons each. Plaintiff has thirty-four local agencies or distributing stations at different points in the State,'- at which are stationary storage tanks for oil and gasoline respectively, pumps and other apparatus for . transfe. ring the products from tank-car to storage tank, and either a railroád siding, or (in a few cases) a private track iff proximity to the storage tanks.. Plaintiff also maintains wagons for the delivery of oil arid gasoline from the stationary tanks to its cus-tomers. ■. The' principal part of its products comés to the distributing stations consigned to plaintiff or its manager or agent. As a rule, and. as a part of.plaintiff’s own system,. as soon as one of the tank-cars is started from the point of origin outside the State, a request for inspection together with a check for. the inspection fees is forwarded by plaintiff to the local inspector nearest the point of destina-, tion, notifying him. that the shipment is en route and re

The majority ,of the judges held that the provisions for inspection of petroleum products were a permissible exercise of the State’s police power; that in so far as the fees yielded revenue in excess of the cost of inspection they were attributable to the taxing power of the State and not objectionable except as applied to interstate commerce, as to which they were invalid;, that they were not in conflict with the uniformity-clause of the state constitu-. tion; that so far as plaintiff’s products were indefinitely stored, within the State, or-sold there after breaking bulk or original packages, they were subject not only to inspection but to the tax imposed, as soon as the interstate' ■transportation was ended; and' that the State should be permitted to enforce the inspection fees so soon as the products passed out-of interstate commerce, although restrained with respect to products while in such commerce; citing Ratterman v. Western Union telegraph Co., 127 ‘ U. S. 411.

After the interlocutory decree and pending.the appeal, evidently in view of the controversy raised in this case, the general assembly passed an Act, approved August 17, 1920 (Ga. Laws 1920,- No. 800, p. 163), declaring'that the laws relating to inspection and tests, and prescribing, the fees' therefor and the duties of the Commissioner of Agriculture:

In view of the provisions of this act we need spend no time in discussing whether the j.udgés were right in following the' rule of practical separability in administration, applied by this court to a taxing law single on its face in Ratterman v. Western Union Telegraph Co., 127 U. S. 411 , a case followed, since the decision below, in Bowman v. Continental Oil Co., 256 U. S. 642 . Any question whether, the same or a different rule ought to be applied to an inspection law employed for the purpose of revenue taxation, based upon doubt as to the intent of the state legislature to permit the system to remain in force with respect to products stored within the State or sold in domestic commerce, when determined to be unenforceable as to the like goods while in interstate commerce, is set at rest by the new act, which under the circumstances must be accepted as manifesting an intent that the system shall remain in effect as to products that are subject to the taxing power of the State, as clearly as it declares a contrary purpose as to products still remaining in interstate commerce. ■ Although passed after the decree below, this act .must be given .effect in deciding the appeal, since the casé involves only relief by injunction, and this, operates wholly in futuro. Duplex Printing Press Co. v. Deering, 254 U.S. 443 , 464.

'That a State is. within, its governmental powers in, éq' -ing inspection, including .tests as to quality, as a

Plaintiff makes' the broad contention .that inspection, charges amounting in effect to taxation cannot be imposed even' upon that part of its product which has come to rest within the State,.or is disposed of in domestic trade, in view of the fact that all of it has come from other. States. But American Steel & Wire Co. v. Speed, 192 U. S. 500 , 520, settles the principle that goods brought into a State, not from a foreign country but from another ' State, having reached their destination and being held in storage awaiting sale and distribution, enjoying the protection which the laws of the State afford, may without violation of the commerce clause be subjected to nondiscriminatory state taxation, even though still contained

Appellant insists that Standard Oil Co. v. Graves, 249 U. S. 389 , is inconsistent with the imposition of inspection fees on a revenue basis upon goods brought from another. State, however' held or disposed of in Georgia. That. decision, however, extended the exemption from such fees of goods brought from State to State, no further than “while the same are in the original receptacles or containers in which they are brought into the State ” (pp. 394-395); and so it was interpreted in Askren v. Continental Oil Oil 252 U. S. 444 , 449.

Brown v. Houston, and American Steel & Wire Co. v. Speed, supra, sustain the power of a State to impose property taxes upon goods brought from another State, after they have come to rest in the taxing State. But this carries equally the power to tax, without discrimination, domestic sales made of personal property similarly freed from interstate commerce, as is illustrated in Woodruff v. Parham, 8 Wall. 123 , 140; Wagner v. City of Covington, 251 U. S. 95 , 102-103, and eases there cited. The fact that no goods of the like kind are produced within the taxing State, and that necessarily all have come from other States, is not of itself sufficient to show a discrimination against interstate commerce. The precise point was dealt with in Askren v. Continental Oil Co., supra, in that part of the opinion which treated of. the excise tax imposed by New Mexico upon retail sales of gasoline, respecting which the court said (pp. 449-450): “A business of this sort, although the gasoline was brought into the State in interstate commerce, is properly taxable by the laws of the State. Much is made of the fact that New Mexico

Something should be said as to the inspection of plaintiff’s products, involving liability for fees, while the products yet remain in the' tank-cars. A like question raised in Pure Oil Co. v. Minnesota, 248 U. S. 158 , concerning the oil inspection law of that State, was unnecessary then to be decided (p. 164); the court having found the inspection fees there imposed were not shown to be so largely,in excess of the cost of inspection as to amount to a tax inadmissible as applied to subjects still in interstate commerce, and hence that they might.be imposed while the products remained in such commerce. In this case, the fees concededly being a source of revenue, the> question of so adjusting their application as to avoid taxing interstate commerce becomes important.

The practice, uniformly followed with plaintiff’s consent, indeed at its request and for its convenience, has been to inspect .the oil and gasoline arriving at its distributing stations while remaining in the tank-cars, with resulting immediate liability for the fees; otherwise as to direct deliveries to its customers buying in tank-car lots. In the normal course of the business, , as shown by this record, the tank-cars are not only the vehicles but-the original containers for interstate transportation, as well with respect to products consigned to plaintiff’s own stations as to deliveries made direct to other interstate consignees. Ordinarily, unless a loaded car be used for indefinite- storage,- or as a distributing tank for local sales

The evidence strongly tends to show that it may be more convenient to plaintiff that-inspection before unloading of tank-cars, as heretofore practiced, be continued; and there is no legal objection to this, if done with plaintiff’s free consent.. Aside' from this, the authority of defendants to tax the products or their storage or sale .commences when they have come to rest; ordinarily when transferred from the tank-car to the storage tank and added to plaintiff’s stockrin-trade kept therein for local distribution and sale.

We interpret the decree below as permitting no interference by defendants with the right of . plaintiff freely to carry on its interstate commerce under the Constitution of the'United States, as that right is here stated.

That the legislature intended the effect of. the tax to fall upon the ultimate consumer is evident, not only from the obviously inevitable result of requiring its payment, ordinarily, by the first domestic seller, but from the specific’provisions of the amendatory Act of 1913, that the 1912 Act “ shall apply not only to gasolines, benzines and naphthas sold or offered for sale in the State of Georgia, but likewise to all such commodities that may be sold elsewhere and brought into the State of Georgia, for consumption or use. Where such commodities or any of them may be purchased within the State, or without the State and brought into, the State, by any person, firm or corporation, not for the purpose of selling or offering the same for sale, but for the purpose óf usé or consumption by .the purchaser in manufacturing or other lawful uses, either as fuel or otherwise, the inspections herein prescribed shall 'be made, and the fees above fixed shall be paid therefor, except that no such purchaser shall be re-1 quired to pay more than twelve hundred dollars per year for-, the inspection of all such commodities used or consiimed by him as aforesaid, and such payments may, in the discretion, of- the Commissioner of Agriculture, be .divided into equal monthly payments of one hundred dollars each.”

, No case.is shown for the application of this act; the judges below-found no occasion to pass upon'it, plaintiff’s products not being brought .in for its own consumption. In this court there has been .no discussion as to.its proper .construction,’plaintiff’s counsel insisting merely, that it shows the inspection fees are not imposed as a privilege tax for the conduct of .any particular kind of business.

We are unable to see in Article 7, § 2, paragraph 1, of the state constitution anything to prevent the application of these statutes to plaintiff’s business. ’ The requirement of uniform valuation upon all property subject to be taxed, manifestly refers to property • taxes imposed by reason of ownership, which this is not. The clauses requiring that all taxation shall be uniform upon the same class of subjects, and levied and collected under general laws, are not violated by the tax in question. Classification is in terms permitted, and a law based on' reason-. able classification must be deemed a general law, in the sense of the constitution.'

The decisions of the Supreme Court of Georgia hold that, while property taxes must be strictly on an ad valorem basis — without variance even as between1 real and personal property (Verdery v. Village of Summerville, 82 Ga. 138 ; Mayor v. Weed, 84 Ga. 683 , 687;)—other subjects of taxation may be resorted to, and the taxes adjusted according to reasonable methods of classification. Atlanta National Association v. Stewart, 109 Ga. 80 , 87. Thus, inheritance taxes, being not a tax upon property but an excise upon the privilege of transfer upon death of an owner, were held valid although not ad valorem, in Farkas v. Smith, 147 Ga. 603 , 612.

The peculiar qualities of illuminating oils and gasoline seem to us a sufficient warrant for putting them in a class by themselves for excise taxation upon their sale or use. So we held, in Bowman v. Continental Oil Co., supra, with respect to an excise upon the sale or use of gasoline, under

While some of the Georgia decisions indicate a -rather-strict view of the uniformity required (Johnston v. Mayor, etc., of Macon, 62 Ga. 645 ; Beckett v. Mayor, etc., of Savannah, 118 Gar 58;) we have found none going so far as it would be necessary to go in order to' overthrow the inspection tax nqw in-question. That it is imposed, as a rule, -only upon the dealer- who .makes the -first domestic, sale, not upon those who may make subsequent sales, is consistent with the nature of the tax and the purpose to distribute its burden.among those who--ultimately consume the product- ■' To impose a like tax each time the commodity changed hahds in retail trade might place so heavy, a burden upon those purchasing other than at first hand as to render it impossible for the retailer to compete and thus seriously obstruct general distribution. The. graduation of /the inspection charges according to the quantity that may be inspected at one time — % cent per gallon in lots of 400 -.gallons and upwards, 1 cent in’quantities between 200 and 400 gallons, 1% cents in quantities less than 20.0 gallons — speaks for itself, and plainly is sustainable on the'ground that the travel, cafe, and responsibility .of the inspector may be greater than uniform fees per gallon .would compensate in the case of the smaller lots.' The only other diversity we have noticed in the operation' of. the tax is that which may arise out of the Act of 1913 entitling a purchaser who buys not for resale but for his own use or consumption, to a limitation of inspéction fees to $1,200 per-annum. No point is made of this, but a rather obvious ground of classification suggests itself, in that the purchaser for his own use or consumpr ■tion has no opportunity to make- a profit out of resale, as plaintiff and other .dealers who pay the full inspection fees ^may do..

The decree of the District Court must be, and it is

Affirmed.