Opinion
No. 2113
September 27, 1939
SELECTIVE SALES TAX — SALE OF GAS FOR MANUFACTURING — PUBLIC UTILITY CORPORATION — "WHOLESALE SALE" — TAX EXEMPTION.
1. The sale of natural gas by oil company to another oil company which was used by purchaser at its field electric plant and for other fuel purposes was a "sale for purpose of manufacturing" within Selective Sales Tax Act, exempting such sale from taxation as a "wholesale sale," where purchaser contracted with seller to put gas through a process of manufacture (Laws 1937, c. 102, § 2(f)). 2. An oil company selling natural gas to another oil company for use at purchaser's field electric plant and for other fuel purposes was not a "public utility corporation" within Selective Sales Tax Act, and hence sale was not taxable (Laws 1937, c. 102, § 4(b)).
ERROR to District Court, Laramie County; SAM M. THOMPSON, Judge.
Suit by the Argo Oil Corporation against the State Board of Equalization of the State of Wyoming, to review certain rulings of the Board under the Selective Sales Tax Act of 1937. To review a judgment reversing the rulings of the Board, the Board brings error.
Heard before Riner, Chief Justice; Kimball, Justice; and Burgess, District Judge.
For the plaintiff in error, the cause was submitted on the brief of Ray E. Lee, Attorney General; Thos. F. Shea, Deputy Attorney General; and Wm. C. Snow, Assistant Attorney General, all of Cheyenne.
The agreed statement of facts will be found on page 30 of the Bill of Exceptions. It will be noted that all the State Board of Equalization undertakes to tax is the dry residue gas used at the Field electric plant and for other fuel purposes. The objections to the tax are: (1) That there was no sale of tangible personal property. A sufficient answer to this objection is that a sale has occurred and that dry residue gas is tangible property as defined by the Sales Tax Act, Section 2, Sales Tax Law 1937. (2) The produce used becomes a component part of tangible personal property manufactured for sale by the purchaser. Our contention is that the dry gas used at the Field electric plant and for other fuel purposes is taxable. The purchaser acquires the wet gas as it comes from the well and separates it by compression into gasoline and dry gas. It sells the gasoline and uses the dry gas for its own purpose. It is contended by defendant in error that it is a manufacturer and exempt under Section 2(f) Sales Tax Act of 1937. It is not with the Argo Oil Corporation that we are concerned, but rather with the Stanolind Oil and Gas Company. It is the latter corporation which is entitled to the exemption, if any. It is the Stanolind, not the Argo, that must be engaged in the business of manufacturing in order to come under this exemption provision of Section 2(a) Sales Tax. We do not believe that the Stanolind Company, because of its limitations as a corporation, can be denied the right to show that it is engaged in the business of manufacturing as to its processing of wet gas. It might be suggested that if the Stanolind Company is a common carrier, it would not be permitted to engage in manufacturing. Article 10, Secs. 6 and 7 of the State Constitution. But, as we have before noted, the manufacturing process of Stanolind Company is restricted to gasoline made from wet gas. The dry residue is used by the Stanolind Company for its own private use. (3) If any sale occurs, it is an exempt sale under Section 2(f) of the Act as a purchase of fuel made by a person engaged in the business of manufacturing and consumed directly in manufacturing. The wet gas is delivered by the Argo to the Stanolind under a contract. The contract provides that after separation of the wet gas into gasoline and dry residue gas, the Stanolind pays for the gasoline at an agreed price and pays for the dry residue which it uses privately for fuel. In order to come under the tax exemption of Section 2(f) of the Sales Act, it must be shown that the Stanolind is engaged in the business of manufacturing and that the fuel shall be used directly either as power or fuel in manufacturing. (4) The amount paid is not received by any public utilities, gas, electric and heat corporations as defined by Chapter 94, Wyoming Revised Statutes, 1931. This objection is apparently based on Section 4(b) 2 of the Act. The law, as we interpret it, levies a tax of two per cent on all sales to consumers of gas, electricity and heat, whether sold by public utilities or by others, exempting purchases of fuel or power by one engaged in the business of manufacturing, and consumed directly in manufacturing. (5) Any tax on this transaction impairs the obligation of contracts as prohibited by both the United States and the Wyoming Constitutions. So far as appears of record, the transaction in question was in pursuance of a contract made with full knowledge of the Sales Tax Act. It is finally contended by defendant in error that (1) No sale of tangible property is involved, and (2) The amount paid is not received by any public utilities, gas, electric and heat corporations, as defined by Chapter 94, Wyoming Revised Statutes 1931. Our answer to these objections are the same as made supra in considering assessment "a".
For the defendant in error, the cause was submitted on the brief of Harold D. Roberts of Denver, Colorado, and Hagens Wehrli of Casper, Wyoming.
By stipulation of counsel, the points of law and fact covered by the briefs filed in cases numbered 2114, 2115 and 2116 may be considered in this case by reference, without repetition, whenever applicable, and we desire that our said brief be so considered.
The gas produced by defendant in error in the Salt Creek Field was delivered to the Stanolind Oil and Gas Company, from which it made (1) casing head gasoline, and (2) a vaporous gas, known as dry or residue gas. The Stanolind Company paid the Argo Company for casing head gasoline thus extracted and a certain amount per thousand feet for dry gas which it used for fuel. The casing head gas thus manufactured would be exempt from sales tax under Section 2(f) of the Sales Tax Act. The word "manufacture" is defined by Section 112-101, W.R.S. 1931. 38 C.J. 966; State v. Ernst, 40 Wyo. 64. The Stanolind Company sold this casing head gas to the Standard Oil Company of Indiana. It is our contention that gas is not tangible personal property within the definition of the Sales Act. The Argo Company did not own or operate a manufacturing plant and was not a public utility within the provisions of Chapter 94 of Wyoming Revised Statutes 1931. What was paid to the Argo Company was not paid to a public utility and is not taxable within the meaning of Section 4(b) 2 of the Act. The same principle applies to sales of fuel gas in the Lance Creek Oil Field for use by occupants of a camp, and sales of gas in the Hamilton Dome Field to the Empire State Oil Company and the Columbus Oil Company for use as fuel, it not being tangible personal property taxable within the meaning of Section 4(a) of the Act. Also it was not sold to a public utility within the meaning of the provisions of Section 4(b) of the Act. Moreover, the gas was all used in the business of producing oil. The purchase price of the gas became a part of the cost and sale price of the crude oil produced, and this crude oil in turn became a part of the gasoline and other petroleum products manufactured therefrom, upon which the ultimate consumer finally pays the tax. A tax upon the sale of the gas would therefore be double taxation. The imposition of the tax is illegal and void and the judgment of the district court should be affirmed.
This cause was submitted as a companion case with Case No. 2116, The State Board of Equalization of the State of Wyoming, plaintiff in error, v. Stanolind Oil and Gas Company, a Delaware corporation, defendant in error. It also is a proceeding in error to review a judgment of the district court of Laramie County, in this instance rendered in favor of the Argo Oil Corporation, a Delaware corporation, authorized to transact business as a foreign corporation in the State of Wyoming, hereinafter generally mentioned as the "Argo Company" or as the "defendant in error." The proceeding was instituted by The State Board of Equalization of the State of Wyoming, usually hereinafter referred to as the "Board," and involves the disposition by said district court of an appeal from certain rulings of the Board under the "Selective Sales Tax Act" of 1937 (Chapter 102, Laws of Wyoming, 1937).
In this litigation there were three stated transactions, all occurring during the month of April, 1937, which the Board decided should be subject to the tax imposed by the Act aforesaid. Objections were made before that body by the Argo Company to the imposition of the tax on said transactions; the Board ruled adversely to such objections; an appeal was taken by the Argo Company to the court aforesaid and the cause being submitted upon pleadings filed and an agreed statement of facts, was tried de novo, as directed by Section 13 of the chapter hereinabove mentioned. The district court adjudged the assessments invalid. Pertinent provisions of the Act, so far as they are needful to be examined here, will not be repeated at this time, as they are detailed in our cause numbered 2116, supra, except as may be done for convenience sake.
The first item or transaction described in the Argo Company's petition filed in the Laramie County district court is:
"Sale of dry residue gas in the Salt Creek Field during the month of April, 1937, by Argo Oil Corporation to Stanolind Oil and Gas Company, and used at field Electric plant and for other fuel purposes."
The agreed facts relative to the matter are substantially these: That the Argo Company produced a quantity of natural gas which it delivered to the Stanolind Oil and Gas Company in the Salt Creek Oil Field in Natrona County, Wyoming; that that company owns and operates one or more compressor plants in said Field; that this gas was delivered to the Stanolind Oil and Gas Company under contract, whereby the latter agreed to take said gas and to "put it through a process of manufacture" from which the "resultant manufactured products were: (1) casing head gasoline, and (2) a vaporous gas commonly known as dry or residue gas"; that by said contract the parties agreed also that the Stanolind Oil and Gas Company, aforesaid, should retain the casing head gasoline as its own property and should devote the residue dry gas to certain stated uses connected with field operation, part of it being used as fuel for operating an electric plant, camps and pipe lines in said Field; that the Stanolind Oil and Gas Company paid the Argo Company a stated sum of money per gallon for all casing head gasoline so resultant and a specified sum of money also, per thousand feet, for the dry or residue gas used by it as fuel, as stated above; that the parties agreed, also, that the Stanolind Oil and Gas Company might use the residue gas, aforesaid, for the operation of its compression plants and inject the rest of it, as required, into its own wells to stimulate production; that the agreed value of the residue gas derived from the natural gas received from the Argo Company, used for fuel for its field electric plant and other field purposes, was a stated sum of money.
The second item or transaction aforesaid is thus described in plaintiff's pleading:
"Sales of fuel gas in the Lance Creek Field for use by occupants of camp."
The stipulated facts as to this item are briefly: That the Argo Company sold and delivered gas in the Lance Creek Oil Field in Wyoming to various persons and corporations for camp use for a stated sum of money; that said gas was purchased and used by them for oil well camp purposes; that such camps were operated by such purchasers for the purpose of drilling for and producing oil for marketing; that said gas was purchased by oil producers in said Field; the price paid by them for such gas entered into and became a part of the cost and sale price of the crude oil produced and of the gasoline and other petroleum products manufactured therefrom; that said crude oil was sold to refiners and manufacturers of gasoline and other petroleum products who manufactured and refined said oil in this state into gasoline and other petroleum products which were sold on the market in the ordinary course of their business.
A third transaction, decided by the Board to be taxable, is described in plaintiff's petition as:
"Sales of gas in Hamilton Dome Field to Empire State Oil Company and to Columbus Oil Company for use as field fuel."'
The agreed facts relating thereto are in substance: That the Argo Company sold and delivered gas in the Hamilton Dome Oil Field to the companies named in said item for the conduct of their operations in said Field, in consideration of a stated sum of money; that these companies bought and used said gas as fuel for pumping and producing oil from the oil wells they owned and operated in that Field, and that said gas price entered into and became a part of the cost and sale price of the crude oil produced and the gasoline and other petroleum products manufactured therefrom by refiners and manufacturers thereof to whom it was sold.
It was also stipulated relative to the Argo Company's business generally that it never has and does not now operate or control any plant or facility for the "generation, transmission, distribution, sale or furnishing" for the public of electricity for light, heat or power, or for the "manufacture, distribution, sale or furnishing" for the public natural or manufactured gas for light, heat or power, or for the "production, transmission, conveyance, delivery or furnishing" for the public of steam or other substances for heat or power, nor for the "transportation or conveyance to or for the public of oil or gas by pipe line."
As to Item No. 1, counsel for the Board, referring to Section 2(f) of the Sales Tax Act, aforesaid, where it is provided that "each purchase of tangible personal property or product made by a person engaged in the business of manufacturing, compounding for sale, profit or use, any article, substance or commodity which directly enters into and becomes an ingredient or component part of the tangible personal property or product which he manufactures or compounds, * * * shall be exempt from taxation under this Act," as a wholesale sale, present the contention that the Stanolind Oil and Gas Company was not engaged in the business of manufacturing and that "nothing appears in the record in this Argo case showing what the nature of the business is in which the Stanolind is engaged." An all sufficient answer to this claim is, we think, that the agreed facts are otherwise. As we have seen, the Stanolind Oil and Gas Company in its contract with the Argo Company undertook to put the natural gas it obtained from the latter "through a process of manufacture," which would appear to settle the point adversely to the Board's contention. Additionally, it appears from the submitted facts that the Argo Company is not, and never has been, a public utility corporation, and for the reasons stated in the opinion in our Case numbered 2116, supra, the sale is not taxable.
As to items numbered 2 and 3, supra, we consider it sufficient to say, as already remarked concerning item No. 1, that the Argo Company is not a public utility and hence these sales were for that reason exempt from taxation.
The judgment of the district court of Laramie County will accordingly be affirmed.
Affirmed.
KIMBALL, J., and BURGESS, D.J., concur.