Coverdale v. Arkansas-Louisiana Pipe Line Company/Opinion of the Court
The question is whether a state statute imposing a privilege tax on the production of mechanical power contravenes the interstate commerce clause in so far as it is applied to an engine used to supply mechanical power to a compressor which increases the pressure of natural gas and thus permits it to be transported to purchasers in other states.

Act No. 6 of the Regular Session of 1932 of the Louisiana Legislature, with certain qualifications and exceptions not material here, provides for a license tax to be paid by every one engaged within the state in the business of manufacturing or generating electricity for heat, light or power (section 1), or of selling electricity not manufactured or generated by him or it (section 2). Section 3 provides that every person, firm, corporation, or association, engaged within the state in any business, which uses in the conduct of that business electrical or mechanical power of more than ten horsepower and does not procure all the power from a taxpayer subject to sections 1 or 2, 'shall be subject to the payment of an excise, license or privilege tax of One Dollar ($1.00) per annum for each horsepower of capacity of the machinery or apparatus, known as the 'prime mover' or 'prime movers,' operated by such person, firm, corporation or association of persons, for the purpose of producing power for use in the conduct of such business or occupation.'

Appellee is engaged within Louisiana, Arkansas, and Texas in the business of producing and buying, transporting and selling, natural gas. The gas is obtained from the Monroe and Richland fields in Louisiana, and transported through appellee's 20-inch pipe line, one of the largest in the Southwest, which extends from Sterlington, La., to Blanchard, La., where one branch goes west into Texas, and the other north into Texas and Arkansas up to Little Rock. Ninety-six and 6/10 per cent. of the gas transported through this line during the fiscal year ended July 31, 1933, was delivered outside the state of Louisiana.

The natural gas cannot be transmitted through this pipe line for these distances in amounts sufficient to meet the needs of appellee's customers, unless it is delivered into the pipe line at a pressure higher than that at which it comes from the wells. Accordingly, appellee maintains in Louisiana, at the point of intake into the line, its 'Munce Compressor Station,' where are located ten pumps, or natural gas compressors, which operate to increase the pressure of the gas to the required extent. These compressors are directly connected to ten four-cylinder 1,000 horsepower Cooper Bessemer internal combustion gas burning engines. There are also two 250 horsepower gas burning engines for general power service at the station. The tax is laid on the privilege of operating these twelve gas engines, known as 'prime movers,'  and is imposed at the rate of $1 per horsepower capacity of the engine-i.e., a total tax of $10,500.

Appellee's complaint, setting forth these facts, was filed in the District Court for Western Louisiana. It prayed that the tax be declared invalid and that the appellant, sheriff, be enjoined from selling appellee's property to enforce payment of $7,316, plus certain penalties and attorney fees, as the balance of the 'prime mover tax' due for the year ending July 31, 1933.  An ex parte temporary restraining order was issued. A statutory three-judge court was convened, and a preliminary injunction granted, D.C., 17 F.Supp. 34. The statute was held invalid for the reason, among others, that as applied to this case it imposed an unconstitutional burden on interstate commerce. On a rehearing, the court, with one dissent, determined again that it was invalid, with the violation of the commerce clause as the sole basis of decision, D.C., 17 F.Supp. 36.  After answer and submission of affidavits by both parties, the court granted a permanent injunction, 20 F.Supp. 676. The case was brought here on direct appeal. Judicial Code §§ 238(3), 266, as amended, 28 U.S.C.A. §§ 345(3), 380.

First. The character of the tax act under consideration is clear. It is a revenue measure obtaining funds by levying a privilege tax on those generating or selling electricity in Louisiana. Sections 1 and 2. Presumably to protect this source of revenue against tax-free competition, section 3,  with broad exemptions not assailed here, subjects the users of electrical or mechanical power, not procured from those subject to sections 1 or 2, to a tax of one dollar per annum for each horsepower of capacity of the machinery operated by the taxpayer for the purpose of producing this power. The state court has held that section 3, here in question, does not lay a tax on those who own the machines but on those who use them in the conduct of their business, State ex rel. Porterie v. H. L. Hunt, Inc., 182 La. 1075, 1079-1080, 162 So. 777, 103 A.L.R. 9, a decision accepted, so far as the incidence of the tax is concerned, as a matter of local law conclusive on us. St. L.S.W.R. Co. v. Arkansas, 235 U.S. 350, 362, 35 S.Ct. 99, 59 L.Ed. 265; Storaasli v. Minnesota, 283 U.S. 57, 62, 51 S.Ct. 354, 355, 75 L.Ed. 839. We regard the tax as one upon the privilege of producing the power.

Second. The language of the state statute makes it quite certain that this privilege tax falls alike on those engaged in interstate or in intrastate commerce, or in both. While a privilege tax by a state for engaging in interstate business has frequently met the condemnation of this Court as a regulation of commerce,  privilege taxes for 'carrying on a local business,' even though measured by interstate business, have been sustained. American Mfg. Co. v. St. Louis, 250 U.S. 459, 39 S.Ct. 522, 63 L.Ed. 1084; Ficklen v. Shelby County Taxing District, 145 U.S. 1, 12 S.Ct. 810, 36 L.Ed. 601.  Cf. Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823, decided February 28, 1938. The present case falls well within the line of state tax authority.

Taxation by the states of the business of interstate commerce is forbidden only because it is deemed an interference with that commerce, the uniform regulation of which is necessarily reserved to the Congress. Minnesota Rate Cases, 230 U.S. 352, 400, 33 S.Ct. 729, 57 L.Ed. 1511, 48 L.R.A.,N.S., 1151, Ann.Cas.1916A, 18. As this source of revenue, even if treated in a nondiscriminatory manner, is withdrawn from local reach by inference from the delegated grant, the exemption of those engaged in interstate commerce from the taxation others bear should not be extended beyond the necessity of keeping that commerce free from interference. Consequently, property taxes on the instrumentalities or net income taxes on the proceeds of interstate commerce are upheld. Cudahy Packing Co. v. Minn., 246 U.S. 450, 38 S.Ct. 373, 62 L.Ed. 827; United States Glue Co. v. Oak Creek, 247 U.S. 321, 38 S.Ct. 499, 62 L.Ed. 1135, Ann.Cas.1918E, 748.

Privileges closely connected with the commerce may be regarded as distinct for purposes of taxation. So, local privilege taxes on storage in transit, compressing or dealing in cotton, already moving in its interstate journey from plantation to mill, are validated as imposed upon operations in connection with a commodity withdrawn from the transportation movement. Federal Compress & Warehouse Co. v. McLean, 291 U.S. 17, 21, 54 S.Ct. 267, 268, 78 L.Ed. 622; Chassaniol v. Greenwood, 291 U.S. 581, 54 S.Ct. 541, 78 L.Ed. 1004; cf. State of Minnesota v. Blasius, 290 U.S. 1, 54 S.Ct. 34, 78 L.Ed. 131. And similar taxes are upheld for the privilege of mining ores or producing gas, notwithstanding the 'practical continuity' of the taxed productive operation and the interstate movement. Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 43 S.Ct. 526, 67 L.Ed. 929; Hope Natural Gas Co. v. Hall, 274 U.S. 284, 47 S.Ct. 639, 71 L.Ed. 1049. In Utah Power & Light Co. v. Pfost, 286 U.S. 165, 52 S.Ct. 548, 76 L.Ed. 1038, an Idaho statute taxing the generation of electricity at so much a kilowatt hour was upheld because a difference was perceived between the conversion of the mechanical energy of falling water into electrical energy and the transportation of the latter. The tax here imposed on the operation of the machinery is of the same type.

The power used by the appellee is obtained from internal combustion engines which transform the potential energy of natural gas into mechanical power, transmitted by piston and piston-rod from the combustion chamber of the engine to the compression chamber of the compressor. While the engine and compressor units are assembled on a common bed plate, their functions are thus seen to be as completely separate as if they operated through belting. The engine is the 'prime mover' of the tax act, producing power to drive the compressor. While the use of the engine for the production of power synchronizes with the transmission of that power to the compressor, production occurs prior to transmission. It is just as much local as the generation of electrical power.

Helson v. Kentucky, 279 U.S. 245, 49 S.Ct. 279, 73 L.Ed. 683; State Tax Commission v. Interstate Natural Gas Co., Inc., 284 U.S. 41, 52 S.Ct. 62, 76 L.Ed. 156; and Cooney v. Mountain States T. & T. Company, 294 U.S. 384, 55 S.Ct. 477, 79 L.Ed. 934, are pressed upon us as controlling authorities for the invalidation of the tax. We think they belong to the category of cases which construe the state tax acts involved as taxes on interstate commerce and its instrumentalities rather than on operations closely connected with but distinct from that commerce. In the Interstate Case and the Cooney Case taxes levied on the business of engaging in interstate commerce were held invalid. Likewise, in the Helson Case, this Court concluded that the tax on gasoline brought into the state and used on an interstate ferry was analogous to a tax on the use of the ferry itself in transit and therefore within the rule prohibiting state taxes on commerce. A narrow distinction in fact exists between the tax held invalid in the Helson Case and the valid tax considered in Nashville, Chattanooga & St. Louis Ry. Co. v. Wallace, 288 U.S. 249, 53 S.Ct. 345, 77 L.Ed. 730, 87 A.L.R. 1191, where a tax on gasoline brought into the state, stored and then used to drive engines in interstate transportation, was held valid. The storage and withdrawal was an intrastate, taxable event. See, also, Edelman v. Boeing Air Transport, 289 U.S. 249, 252, 53 S.Ct. 591, 592, 77 L.Ed. 1155; Gregg Dyeing Co. v. Query, 286 U.S. 472, 479, 52 S.Ct. 631, 634, 76 L.Ed. 1232, 84 A.L.R. 831.

Third. To determine whether this challenged state tax enactment is invalid as an interference with interstate commerce under the decisions of this Court, the connection of the privilege taxed with interstate commerce has been considered. Other factors also show that the tax here does not interfere with interstate commerce. The tax is without discrimination in form or application as between inter and intra state commerce and it cannot be imposed by more than one state. The course of interstate commerce is clogged by taxes designed or applied so as to hamper its free flow. Section three, however, bearing equally on all use, is only complementary to the taxes of sections 1 and 2. Henneford v. Silas Mason Co., 300 U.S. 577, 584, 57 S.Ct. 524, 527, 81 L.Ed. 814. It bears generally on all use of power and is not discriminatory. It obviously adds to the cost of the interstate commerce. But increased cost alone is not sufficient to invalidate the tax as an interference with that commerce. Western Live Stock v. Bureau of Revenue, 303 U.S. at 250, 58 S.Ct. 546, 82 L.Ed. 823, supra.

It was held by the District Court that this is a tax which may be levied by other states and so is invalid, and that a state's desire to save gas for its citizens may induce it to raise the privilege tax to prohibitory rates. It is true that each state through which a pipe line passes could lay a tax on the use of engines for the production of power but that would not be multiple taxation 'merely because interstate commerce is being done,' as discussed in Western Live Stock v. Bureau of Revenue, 303 U.S. at 256, 58 S.Ct. 546, 549, 82 L.Ed. 823, supra, and the authorities there cited. It would not be a tax on the same activity, either in form or in substance. Like a property tax on the pipes or equipment in different states, it would be a different tax, on a different and wholly separate subject matter, with no cumulative effect caused by the interstate character of the business. It would not be multiple taxation for each state to tax the 'booster station' ad valorem as property. Neither is it prohibited multiple taxation to have the possibility of other privilege taxes on the production of power. It is length of line, not interstate commerce, which makes another tax possible.

The decree of the District Court is reversed.

Mr. Justice McREYNOLDS is of the opinion the decree should be affirmed.

Mr. Justice CARDOZO took no part in the consideration or determination of this case. 

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