McLeod, Comm'r of Rev. v. Memphis Nat. Gas Co. , 207 Ark. 879 ( 1944 )

The business of the Memphis Natural Gas Company in Arkansas is either (1) intra-state, or (2) interstate. Let us examine to see the result in either event.

I. Intrastate Argument. It cannot be successfully urged that the business is intra-state, because in the case of Illinois Natural Gas Co. v. Central Illinois Public Service Co., 314 U.S. 498, 62 S. Ct. 384, 86 L. Ed. 371, the United States Supreme Court held such a business was interstate; and the facts in the reported case were much stronger for intra-state business than are the facts in the case at bar. The holding of the United States Supreme Court in the Illinois Gas case is a definite block to any attempt by the State of Arkansas to subject the Memphis Gas Company to income tax on the theory of intra-state business. The majority opinion quotes a portion of sub-section (c) of 3 of Act 118 of 1929 regarding ownership of property in the state as a justification for sustaining the tax. If, by that quotation, the majority meant to claim any semblance of intra-state business, then the majority opinion is at war with the Illinois Gas case.

II. Interstate Argument. If the business of the Memphis Gas Company in Arkansas is interstate, as I believe it is, then the holding of the Arkansas Supreme Court in Temple v. Gates (1933), 186 Ark. 820, 56 S.W.2d 417, is a definite block to this attempt by the State of Arkansas to subject the Memphis Gas Company to tax on income arising from interstate commerce; because, in Temple v. Gates, this court, in considering the same section of the same Income Tax Act as here involved, said:

"The statute has no relation whatever to profits gained from interstate transactions by a corporation conducting a business in another state. In order to subject a foreign corporation to the payment of the income tax imposed by the statute in question, the business transacted by it in this state must be of such nature and character as to warrant the inference that the corporation has subjected itself to the local jurisdiction.' Sillin v. Hessig-Ellis Drug Company, 181 Ark. 386, 26 S.W.2d 122."

The Arkansas Income Tax Act is Act No. 118 of 1929. In 1933 this court, in Temple v. Gates, in a unanimous opinion, held that, since the transactions were interstate, the statute did not apply, and that the statute had no relation to profits of a foreign corporation gained from interstate transactions. This case constitutes a judicial interpretation and declaration that the Arkansas Income Tax Act of 1929 did not apply to income of a foreign corporation from interstate business. The Arkansas legislature has had six regular sessions since the opinion and holding in Temple v. Gates, and has never seen fit to amend the 1929 Income Tax Act to make it apply to income from interstate transactions. So, it seems reasonable to say that the legislature has acquiesced in the judicial interpretation, and that the 1929 Act here under consideration was not intended to tax income received by foreign corporations from interstate transactions.

To avoid the effect of Temple v. Gates, the majority pursue two courses:

(a) There is the attempt to distinguish it from the case at bar; but I can see no sound line of distinction. Temple v. Gates quoted from both subdivisions (b) and (c) of 3 of the Act 118 of 1929, and then made the positive statement:

". . . in order to subject a foreign corporation to the payment of the income tax imposed by the statute in question, the business transacted by it in this state must be of such nature and character as to warrant the inference that the corporation has subjected itself to local jurisdiction."

A few lines later in the opinion the court emphasized that the foreign corporation had never qualified to do business in this state. The same situation applies to the Memphis Natural Gas Company in the case at bar. Temple v. Gates cannot be distinguished. It stands like a wall against any attempt to tax income derived by a foreign corporation from interstate business.

(b) The majority opinion cites many cases holding that a state may tax income from interstate business. Some of these cases are: McGoldrick v. Berwind-White Coal Mining Co., 309 U.S. 33, 60 S. Ct. 388,84 L. Ed. 565, 128 A.L.R. 876; Western Live Stock v. Bureau,303 U.S. 250, 58 S. Ct. 546, 82 L. Ed. 823, 115 A.L.R. 944; Memphis Natural Gas Co. v. Beeler, 315 U.S. 649,62 S. Ct. 857, 86 L. Ed. 1090. These cases, from the Supreme Court of the United States, were all decided since 1933, the year the Arkansas Supreme Court rendered its opinion in Temple v. Gates, supra. These opinions from the Supreme Court of the United States would sustain a tax on interstate commerce if we had such a tax in Arkansas. But the fact that a state has the power to levy a tax does not prove that the power has been exercised. I think it is well within the power of the Arkansas legislature to broaden the Arkansas Income Tax Act to subject the Memphis Natural Gas Company to such tax as is here sought to be collected; but I contend that the Arkansas legislature has not exercised that power. Temple v. Gates and the intervening 11 years of legislative inaction constitute my reason for so stating. The situation here is very similar to the situation before this court in the case of McLeod v. Dilworth, 205 Ark. 780, 171 S.W.2d 62, in which the argument was made that a use tax could be sustained. Our answer was that the state had not yet levied such a tax; and that view was sustained by the Supreme Court of the United States in McLeod v. J. E. Dilworth Co., 205 Ark. 780, 171 S.W.2d 62. In the case at bar the state could impose an income tax on net profits accruing to a foreign corporation from interstate business, but Temple v. Gates emphatically states that the state has not done so.

Neither does the holding of the Supreme Court of Mississippi in the case of State Tax Commission v. Memphis Natural Gas Co., 19 So. 2d 477, aid the majority, because the Mississippi Supreme Court did not have to circumvent a case like Temple v. Gates. The Supreme Court of Mississippi held it was the intention of the Mississippi legislature to levy a tax on interstate commerce, and sustained the tax. In the case at bar, the majority of this court are sustaining a tax in the face of Temple v. Gates, which held that there was no intention to levy such a tax. In short, Temple v. Gates is a definite block to any attempt by the State of Arkansas to subject the Memphis Natural Gas Company to income tax on the theory of interstate business.

Therefore, either interstate or intra-state, the result is the same: there is no tax. I, therefore, respectfully dissent from the majority holding in the case at bar; and I am authorized to state that Mr. Justice FRANK G. SMITH concurs in this dissent.