Gross Income Tax Division v. Chicago District Electric Generating Corp.

139 N.E.2d 161, 236 Ind. 117, 1956 Ind. LEXIS 245

• Court: Indiana Supreme Court
• Decided: December 20, 1956
• Docket: 29,227
• Status: Published

Opinions

Bobbitt, J.

This appeal was commenced by appellee pursuant to the provisions of Acts 1947, ch. 370, §3, p. 1471, being §64-2614, Burns’ 1951 Replacement, for the recovery of gross income and bonus taxes paid under protest for the years of 1947 through 1952,¹ inclusive, and for the recovery of interest at the rate of 3 per cent per annum on the amount alleged to have been improperly charged and collected. From a judgment for plaintiff-appellee this appeal is prosecuted.

Appellee asserts that the imposition of the tax upon its income here in question violates Article 1, Section 8, Clause 3 of the Constitution of the United States; the Fourteenth Amendment thereto, and Section 6(a) of the Indiana Gross Income Tax Act, as amended (Acts 1955, ch. 291, §1 (a), p. 833, being §64-2606 (a), Burns’ 1951 Repl. (1955 Cum. Supp.)), because such income was derived from the sale of electrical energy in interstate commerce, and that the imposition of the Indiana Gross Income Tax thereon is an invalid burden upon such commerce.

Appellant denies these assertions and contends that the income producing activities herein are completed wholly within the State of Indiana and are purely local activities which are subject to Acts 1955, ch. 260, §1 (e), p. 682, being §64-2603 (e), Burns’ 1951 Repl. (1955 Cum. Supp.), which provides, in pertinent parts, as follows:

“With respect to that part of the gross income of every person received from producing, transmitting, furnishing, wholesaling, and/or retailing electrical energy; . . . the tax shall be equal to one per cent [1%] of such part of the gross income.”

Plaintiff-appellee is a corporation engaged exclusively in the production, transmission and sale of electrical energy. Its only plant is located on the shore of Lake Michigan at the north edge of the City of Hammond, Indiana, and is devoted exclusively to such purposes. The western line of plaintiff-appellee’s property on which said plant is located abuts the boundary line between the States of Indiana and Illinois.

Appellee has only two customers, Northern Indiana Public Service Company, an Indiana Corporation, whose principal office is located at Hammond, Indiana, and Commonwealth Edison Company, an Illinois corporation, whose principal office is located at Chicago, Illinois. The sale of electrical energy by appellee to Northern Indiana Public Service Company is not involved in this case.

The electrical energy with which we are here concerned is generated at appellee’s plant within Indiana and, upon demand therefor by Commonwealth Edison Company, is transmitted from such plant within Indiana across the Illinois State line to three transmission terminals of Commonwealth Edison Company, all located within the State of Illinois, at which transmission terminals the energy so received by Commonwealth Edison Company from the appellee is commingled with other energy, and is either reduced in voltage for distribution or transmitted to other terminals. There is no interruption in the transmission lines or in the flow of such energy between the point within the appellee’s plant in Indiana at which such transmission commences and the transmission terminals of Commonwealth Edison Company located in the State of Illinois.

The agreement under which electrical energy is supplied to Commonwealth Edison Company is a lengthy document, most of which is not pertinent to the question here under consideration, and we think to set it out here would serve no purpose except to unduly extend this opinion.

A careful examination of the entire agreement between appellee herein and Commonwealth Edison Company leads to the definite conclusion that it is essentially and simply a contract for the sale and purchase of electrical energy which appellee has produced, and is to produce, in the State of Indiana, for sale and transmission to Commonwealth Edison in the State of Illinois. Article II, §7 of the agreement which provides, in part, as follows: “The energy supplied hereunder shall be in the form of three-phase alternating current . . . Edison shall take delivery of such energy at the property line of State Line Station.”, (the Illinois State line) ; and Article III, which provides for the measuring of kilowatts and kilowatt-hours furnished under the agreement, are only a few of its provisions which effectively support this conclusion.

While not binding upon this court, nevertheless, the fact that the Federal Power Commission Docket No. IT-5500, in an order entered July 16, 1941, found that, “Respondent [appellee herein] is engaged in the business of transmitting and selling at wholesale electric energy in interstate commerce within the meaning of Section 201 of the Federal Power Act; it transmits and sells at wholesale in interstate commerce to EDISON for resale to consumers in the City of Chicago, Illinois, under present arrangements, approximately 80 per cent of the electric energy which it generates; . . . ,” has some persuasive effect in determining the nature of the agreement here before us.

As was the case in Utah Power & Light Co. v. Pfost (1932), 286 U. S. 165, 76 L. Ed. 1038, 52 S. Ct. 548, appellee herein is engaged in two activities. Insofar as it produces and generates electrical energy in Indiana its business is intrastate and a purely local activity, subject to State taxation and control. In transmitting electrical energy across the State line into Illinois, appellee is engaged in interstate commerce.

The transmission of electrical energy by appellee to its State Line Station is solely for interstate sale and transmission and the current, at that time, is not only actually committed to, but is moving in, interstate commerce. The generation and transmission of electrical energy is a continuous and simultaneous operation, and where the transmission for use of the electrical energy is made to points within a State different from the State in which it is generated and produced, such a transaction is made in interstate commerce. Hence, it follows that the transmission and sale of electrical energy by appellee across the Indiana State line into the State of Illinois constitutes transactions in interstate commerce; Panhandle Eastern Pipe Line Co. v. Calvert (1954), 347 U. S. 157, 98 L. Ed. 583, 74 S. ; Utah Power & Light Co. v. Pfost, swpra; and the gross receipts therefrom are not taxable under the Indiana Gross Income Tax Act.

A tax on gross income from transactions in interstate commerce is an unconstitutional burden upon, or interference with, commerce among the States as prohibited by Article 1, Section 8 of the Constitution of the United States. Gross Income Tax Div. v. Surface Comb. Corp. (1953), 232 Ind. 100, 143, 111 N. E. 2d 50, (Cert. denied, 346 U. S. 829, 830, 98 L. Ed. 353, 74 S. Ct. 51) ; Gross Income Tax Div. v. L. S. Ayres & Co. (1954), 233 Ind. 194, 118 N. E. 2d 480; J. D. Adams Mfg. Co. v. Storen (1938), 304 U. S. 307, 82 L. Ed. 1365, 58 S. Ct. 913, 117 A. L. R. 429; Freeman v. Hewit (1947), 329 U. S. 249, 91 L. Ed. 265, 67 S. Ct. 274.

The tax which the State of Indiana seeks to impose upon appellee herein is not a license tax upon the manufacture, generation or production of eleetricity within the State as was the situation in Utah Power & Light Co. v. Pfost (1932), 286 U. S. 165, 76 L. Ed. 1038, 52 S. Ct. 548, supra; nor is it an excise, license, or privilege tax on the production and sale of electric power within the State as was the case in South Carolina Power Co. v. South Carolina Tax Commission (1931), 52 F. 2d 515 (affirmed, 286 U. S. 525, 76 L. Ed. 1268, 52 S. Ct. 494), but rather is a tax upon the gross receipts from the sale of electrical energy.

The tax imposed by Acts 1955, ch. 260, §l(e), p. 682, being §64-2603 (e), Burns’ 1951 Repl. (1955 Cum. Supp.), is levied upon the gross income received from “producing, transmitting, furnishing, wholesaling, and/or retailing electrical energy; . . . and is not based upon the purely local activity of producing or generating the same; nor is it a tax or license fee for the privilege of engaging in any of such activities.

In the case at bar the State seeks to impose a tax not on the gross income received from producing, transmitting, furnishing, wholesaling and/or retailing electrical energy within the State of Indiana, but rather upon the gross receipts from its sale and transmission in interstate commerce. Such an act not only violates Acts 1955, ch. 291, §l(a), p. 8BB, being §64-2606(a), Burns’ 1951 Repl. (1955 Cum. Supp.), supra, of the Gross Income Tax Act, but also Article 1, Section 8 of the Constitution of the United States.

The appellee has filed an assignment of cross-errors. However, since the judgment of the trial court must be affirmed on the issues presented by appellant’s assignment of error, it is not necessary to consider the questions raised by the cross-errors.

The judgment of the trial court is affirmed.

Emmert and Landis, JJ., concur.

Achor, C. J., dissents with opinion.

Arterburn, J., dissents with opinion.

1 . By a notice of proposed assessment against appellee issued on November 18, 1937, the appellant’s predecessor, the Department of Treasury of the State of Indiana, raised this same question with respect to the years 1933 through 1936, inclusive. Upon appellee’s protest and after presentation of evidence and a hearing, the Department of Treasury in its ruling of January 19, 1940, held in favor of appellee and against the taxability under the Gross Income Tax Act of receipts identical to those involved in this case.

On December 26, 1945, appellant again issued a notice of proposed assessment involving sales identical to those involved in the earlier proposed assessment and in this case by appellee to Commonwealth Edison for the years 1942 through 1944, inclusive. Again, after protest by appellee, the submission of evidence and a hearing thereon, appellant’s administrative ruling on April 23, 1947, denied the taxability under the Gross Income Tax Act of proceeds of such sales.

The same issue was raised for the third time by appellant’s notice of proposed assessment of February 7, 1950, affecting appellee’s sales to Commonwealth Edison during 1947 and 1948. Again, appellee protested this proposed assessment but after submission of evidence and hearing thereon, appellant on September 11, 1952, denied the protest and started in motion the series of events which culminated in this law suit.

While the various rulings of the Department are not decisive of the question now before us, it is of interest to note that during fourteen out of nineteen years the Department ruled that ap-pellee’s income was not subject to the Indiana Gross Income tax.