Gulf Refining Co. v. Stone

Griffith, J., delivered the opinion of the court. By Secs. 1 and 2, Chap. 134, Laws 1944, there is levied an annual privilege tax upon every group', acting as a *739 unit, engaged in the business of producing or severing oil for commercial purposes, the tax being six cents per barrel, or &% of the value, whichever is greater. The severance tax is expressly defined by the Act as a business or occupation tax, and we accept the definition without pause to inquire whether it is rather an excise tax more nearly like an income, or sales, tax., And Sec. l(i) expressly provides further that the taxed activity ‘ ‘ shall include any person owning any royalty or other interest in any oil or its value, whether produced by him, or by some other person in his behalf, either by lease contract or otherwise.” By Sec. 11 it is enacted that: “All oil produced or under the ground on producing properties . . . and all producing oil equipment, including wells, connections, pumps, derricks and other appurtenances actually owned by . . . the producer, and all leases in production, including mineral rights in producing properties, shall be exempt from all ad valorem taxes,” etc. Appellant is a lease holder, and in its operations in the production of oil under its leases it had extracted oil which amounted in severance taxes to $3,740.33, and this sum was paid, including that part assessed to the royalty holder, to the State Tax Commissioner under protest, and this action is to recover it from the state, on the complaint that the tax imposed is not a lawful charge — that the Act is unconstitutional. Appellant’s contention are in brief - (1) that oil under the land is the property of the landowner or his transferee; that a tax upon its severance is a property tax and, for that reason, violates Sec. 112, Constitution of 1890, citing Thompson v. McLeod, 112 Miss. 383, 73 So. 193, L. R. A. 1918C, 893, Ann. Cas. 1918A 674. (2) That the exemptions contained in Sec. 11 of the Act evidence that the entire Act is an effort to levy a severance tax in lieu of an ad valorem tax, which appellant insists cannot be done, citing Chicago, R. I. & P. P. Co. v. Robertson, 122 *740 Miss. 417, 84 So. 449, and that (3) even if the severance tax is valid as an occupation tax it cannot be imposed in part on the royalty holder who takes no personal part in the severance occupation. It is apparent, upon mature consideration, that unless appellant’s points (1) aiid (2) may find foundation in Sec. 112, Const., it has, so far as it is concerned, no case. The pertinent provisions of Sec. 112 are that taxation shall he uniform and equal throughout the state, and that property shall be assessed for taxes under general laws and by. uniform rules according, and in proportion, to its true value. We are of the opinion that, with the exception hereinafter mentioned, Sec. 112 has no application to the taxation of oil and gas, as separate property. In order that property may be taxable under that section it must be capable of assessment, which means that when corporeal property is involved it must be capable (1) of inspection, and after inspection of estimate and appraisal, and (2) of being made subject to a tax lien, and to a sale and delivery of the identical property, and not some other, to make the tax money in case of default in payment. No man knows whether there is any .oil under a particular tract of land, or if so how much and the quality thereof. To attempt to separately assess oil under the surface, or to add the supposed value thereof to a land assessment, would be to embark upon a pure speculation, and the rule that judgments may not be based upon conjecture applies as well to a judgment in an approved assessment roll as to any other. It is not until the oil is brought to the surface, and being severed becomes personal property, that any opportunity of inspection and appraisal is afforded, and even then the oil seeks to escape so that it must be confined, wherefore, it goes immediately from the well through a pipe which conducts it to a pipeline, or to a temporary reservoir for speedy loading into tank cars, or directly to a local refinery or some other immediate local *741 consumption, or else to a storage tank awaiting sale, where for the first time it attains any such a state of permanency that it may be made the subject of. an ad valorem tax, and of a lien for the payment thereof. But when that state has been reached all, or practically all, the activities for which the tax here involved is imposed have been performed, and even then only a part of the product ever finds a resting place in a storage tank for the length of time requisite to the ad valorem process. As a matter of fact no oil has been held in this state in storage tanks. ’There is no present statute by which an ad valorem tax could be enforced against oil as separate property until it ha's reached a resting place of appreciable permanency in a storage tank, and we can think of no practicable plan by which it could be reached by the ad valorem process prior to that time; and as already mentioned, only a part of the product of the well ever comes to a permanent rest in a storage tank, and none has been so stored in this state. Constitutional and statutory provisions do not require to be done that which is impossible or thoroughly impracticable, Boyd v. Coleman, 146 Miss. 449, 463, 111 So. 600, which is another way of saying that what is impossible or thoroughly impracticable is not within a constitutional or statutory requirement. It follows, therefore, that Sec. 112, Const., presents no impediment to the imposition of the occupation tax here involved — not intimating that it forms an impediment to such a tax upon other business occupations, but dealing only with the precise situation before us — and that Thompson v. McLeod and Chicago R. I. & P. R. Co. v. Robertson, supra, based as they are on See. 112, are not in point on our present inquiry. And for the same reason it follows that questions of ad valorem exemptions, and several others of the interesting matters discussed in the arguments, are not here material. There is left, however, the stated contention under the foregoing numeral (3). In support of the contention in *742 behalf of the royalty bolder appellant relies chiefly on the recent case, Ohio Oil Co. v. Wright, 386 Ill. 206, 53 N. E. (2d) 966. This subject was fully considered in Texas in Group No. 1 Oil Corporation v. Sheppard (Tex. Civ. App.), 89 S. W. (2d) 1021, and Trustees of Cook’s Estate v. Sheppard (Tex. Civ. App.), 89 S. W. (2d) 1026, under a statute substantially similar to ours as regards the royalty holder, and there, as well as in Barwise v. Sheppard, 299 U. S. 33, 57 S. Ct. 70, 81 L. Ed. 23, the courts rejected the contention now made by appellant, and we concur in and follow those cases. It is only by means of the activities of the lessee in raising the oil to the surface that the royalty holder gets anything from the oil, and being thus essentially associated with the activities in the proceeds thereof, he is not to disassociate himself from the state’s exactions in the identical operations by which the proceeds are realized. The protection to these operations afforded by the laws of the state, and their enforcement, extends to the benefit of the royalty holder as well as the operator himself. And inasmuch as the legislative declaration that the'’ royalty holder shall share in the burden of the tax is based upon reason, it •is not subject to rejection by a court on the contention that it is an arbitrary legislative fiat. There is not to be gathered from what has been said herein that an oil or gas lease is not separately assessable, ad valorem. Such a lease or conveyance with the right of entry is an estate in land, subject to ad valorem taxation, but not including the oil or gas as a separate item of valuation. Nor are we saying, the question not being before us, that the cash value of land or leases for assessment purposes is to be reduced because the owners and others generally, in estimating its value, take into consideration its oil prospects. We may note, however, that the possible, as well as the probable, use to which it may be put in the future is always an imporant consideration in arriving at an appraisal of the over-all present value of any property, even though it is presently well known *743 that it may turn out that the property may never be used for any such contemplated purpose. We may take light in this regard from the formula laid down for assessment purposes by Sec. 9759, Code 1942 — as it has been for more than fifty years — as follows: “It shall be the duty of each person fixing the value of his property to estimate the same at its cash value at the time of valuation, and not what it might sell for at a forced sale, but what he would be willing and would expect to accept for it if he were disposed to sell it.” See also Sec. 9769, Code 1942. What we are saying is that any supposed quantity or quality oil under the surface is not to be taken into consideration as a specific item of valuation such for instance as is done with visible improvements on the land under the section last cited. Affirmed.