Jack Holt, Jr., Chief Justice.
The main issue in this case concerns the authority of the Department of Finance and Administration for the State of Arkansas (DFA) to tax the natural gas taken by the appellee, Arkla, Inc. (Arkla), from its interstate transmission pipelines located in Arkansas to fuel compressors at its compressor stations and Arkla’s entitlement to an exemption from such a tax.
Arkla is a Delaware corporation that has its principal places of business in Little Rock, Arkansas, and Shreveport, Louisiana. During the period of January 1, 1976, through February 28, 1987, Arkla was engaged in the business of producing, buying, transporting, and selling natural gas in the states of Arkansas, Louisiana, Kansas, Oklahoma, and Texas. Arkla bought natural gas in these states and transported it through its interstate transmission pipelines to points in those states where the gas was metered for sale to residential, industrial, and commercial customers.
To facilitate the transportation of the natural gas, Arkla maintained compressor stations to pump the gas along the interstate transmission pipeline. Three of these compressor stations are located in Arkansas and are at issue in this case because Arkla diverted some of the natural gas in the interstate pipeline to power the compressors at the stations.
In February 1979, Arkla filed a claim with the DFA for credit of the Arkansas sales tax ($31,222.18) that it had paid from January 1976 through December 1978 on this fuel. The DFA did not respond to Arkla’s claim, whereupon Arkla claimed the credit on its 1980 Arkansas sales tax report. Subsequently, Arkla did not report any state or local taxes attributable to the value of the natural gas consumed as compressor fuel at the three compressor stations.
The DFA audited Arkla’s Arkansas sales tax reports filed for the periods from January 1,1980, through February 28,1987, and proposed deficiency assessments of additional sales tax, penalties, and interest based on its determination that the compressor fuel was taxable.
Arkla protested the DFA’s proposed assessments to the DFA’s Hearing Board, which sustained the assessments. Arkla then paid, under protest, the amounts in controversy and filed this suit for refund in the Pulaski County Chancery Court. From the Special Chancellor’s judgment in favor of Arkla, the DFA appeals and asserts four points of error: 1) that the chancellor erred in finding that Arkla has shown its entitlement to an exemption beyond a reasonable doubt, 2) that the chancellor erred in allowing Arkla to take a credit without a showing that the statutory requirements of the Tax Procedure Act had been met, 3) that the chancellor erred in finding that the penalty assessed by the DFA was without basis, and 4) that the chancellor erred in its award of attorneys’ fees.
We agree that the chancellor erred in finding that Arkla has shown its entitlement to an exemption from the Arkansas Gross Receipts Tax Act of 1941 (Tax Act) beyond a reasonable doubt and reverse and remand.
In Ragland v. Dumas, 292 Ark. 515, 732 S.W.2d 118 (1987), we noted that the standard of review for tax exemption cases is trial de novo on the record, and we will not reverse the chancellor’s findings of fact unless they are clearly erroneous. Further, the party claiming an exemption from taxes has the burden of proving his entitlement beyond a reasonable doubt; tax exemptions must be strictly construed against exemption, and to doubt is to deny the exemption. (Citations omitted.)
Arkansas Code Ann. § 26-52-301 (Supp. 1991) addresses the tax levied under the Tax Act and provides in pertinent part that “[t]here is levied an excise tax of three percent (3 %) upon the gross proceeds or gross receipts derived from all sales to any person of the following: ... 2) Natural or artificial gas . . . .” Ark. Code Ann. § 26-52-103(a)(4) (Supp. 1991) defines the terms “gross proceeds” and “gross receipts” to include “the value of any goods, wares, merchandise, or property withdrawn or used from the established business or from the stock in trade of the established reserves for consumption or use in such business or by any other person.”
Arkla does not assail the nature of the tax, i.e. a sales rather than a use tax; it challenges the State’s authority to enforce such a tax on the basis that 1) U.S. Const, art 1, § 8, cl. 3 (the Commerce Clause) allows Congress to regulate commerce among the several states and thus prohibits the imposition of a sales tax by the State in this instance, and 2) it claims an exemption from the Tax Act under Ark. Code Ann. § 26-52-401(16) (Supp. 1991), which provides that there is specifically exempted from the tax imposed by the Tax Act “[g]ross receipts or gross proceeds derived from sales for resale which the state is prohibited by the Constitution and laws of the United States from taxing or further taxing, or which the state is prohibited by the Arkansas Constitution from taxing or further taxing.”
In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), a movement case that held that a state privilege tax on the business of moving goods in interstate commerce is not per se unconstitutional, the United States Supreme Court ruled that a state tax will be sustained against a commerce clause challenge when the tax 1) is applied to an activity with a substantial nexus with the taxing State, 2) is fairly apportioned, 3) does not discriminate against interstate commerce, and 4) is fairly related to the services provided by the State.
Later, the Supreme Court applied the Complete Auto factors, and reinforced its position, in Washington Rev. Dept. v. Stevedoring Assn., 435 U.S. 734 (1978), and determined in that case that the State of Washington’s business and occupation tax did not violate the Commerce Clause by taxing the interstate commerce activity of stevedoring within the state even though it was a direct tax on the privilege of conducting interstate business. The Court noted that “[a] 11 tax burdens do not impermissibly impede interstate commerce. The Commerce Clause balance tips against the tax only when it unfairly burdens commerce by exacting more than a just share from the interstate activity.”
Most recently, the Supreme Court of Utah in Questar Pipeline Co. v. Utah State Tax Comm’n, 817 P.2d 316 (Utah 1991), has held that the tax commission did not violate the commerce clause by applying a use tax to compressor-fuel gas that was diverted from the flowing gas in Questar’s interstate pipeline and consumed in fueling its compressors. Although the only prong of the Complete Auto test that was at issue in that case was the “substantial nexus” point, the court’s analysis of the constitutional issue and prior case law is persuasive:
One of the principle cases upon which Questar [and, in this case, Arkla] relies is Midwestern Gas Transmission Co. v. Wisconsin Dept. of Revenue, 84 Wis.2d 261, 267 N.W.2d 253 (1978).
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Jack Holt, Jr., Chief Justice.
The main issue in this case concerns the authority of the Department of Finance and Administration for the State of Arkansas (DFA) to tax the natural gas taken by the appellee, Arkla, Inc. (Arkla), from its interstate transmission pipelines located in Arkansas to fuel compressors at its compressor stations and Arkla’s entitlement to an exemption from such a tax.
Arkla is a Delaware corporation that has its principal places of business in Little Rock, Arkansas, and Shreveport, Louisiana. During the period of January 1, 1976, through February 28, 1987, Arkla was engaged in the business of producing, buying, transporting, and selling natural gas in the states of Arkansas, Louisiana, Kansas, Oklahoma, and Texas. Arkla bought natural gas in these states and transported it through its interstate transmission pipelines to points in those states where the gas was metered for sale to residential, industrial, and commercial customers.
To facilitate the transportation of the natural gas, Arkla maintained compressor stations to pump the gas along the interstate transmission pipeline. Three of these compressor stations are located in Arkansas and are at issue in this case because Arkla diverted some of the natural gas in the interstate pipeline to power the compressors at the stations.
In February 1979, Arkla filed a claim with the DFA for credit of the Arkansas sales tax ($31,222.18) that it had paid from January 1976 through December 1978 on this fuel. The DFA did not respond to Arkla’s claim, whereupon Arkla claimed the credit on its 1980 Arkansas sales tax report. Subsequently, Arkla did not report any state or local taxes attributable to the value of the natural gas consumed as compressor fuel at the three compressor stations.
The DFA audited Arkla’s Arkansas sales tax reports filed for the periods from January 1,1980, through February 28,1987, and proposed deficiency assessments of additional sales tax, penalties, and interest based on its determination that the compressor fuel was taxable.
Arkla protested the DFA’s proposed assessments to the DFA’s Hearing Board, which sustained the assessments. Arkla then paid, under protest, the amounts in controversy and filed this suit for refund in the Pulaski County Chancery Court. From the Special Chancellor’s judgment in favor of Arkla, the DFA appeals and asserts four points of error: 1) that the chancellor erred in finding that Arkla has shown its entitlement to an exemption beyond a reasonable doubt, 2) that the chancellor erred in allowing Arkla to take a credit without a showing that the statutory requirements of the Tax Procedure Act had been met, 3) that the chancellor erred in finding that the penalty assessed by the DFA was without basis, and 4) that the chancellor erred in its award of attorneys’ fees.
We agree that the chancellor erred in finding that Arkla has shown its entitlement to an exemption from the Arkansas Gross Receipts Tax Act of 1941 (Tax Act) beyond a reasonable doubt and reverse and remand.
In Ragland v. Dumas, 292 Ark. 515, 732 S.W.2d 118 (1987), we noted that the standard of review for tax exemption cases is trial de novo on the record, and we will not reverse the chancellor’s findings of fact unless they are clearly erroneous. Further, the party claiming an exemption from taxes has the burden of proving his entitlement beyond a reasonable doubt; tax exemptions must be strictly construed against exemption, and to doubt is to deny the exemption. (Citations omitted.)
Arkansas Code Ann. § 26-52-301 (Supp. 1991) addresses the tax levied under the Tax Act and provides in pertinent part that “[t]here is levied an excise tax of three percent (3 %) upon the gross proceeds or gross receipts derived from all sales to any person of the following: ... 2) Natural or artificial gas . . . .” Ark. Code Ann. § 26-52-103(a)(4) (Supp. 1991) defines the terms “gross proceeds” and “gross receipts” to include “the value of any goods, wares, merchandise, or property withdrawn or used from the established business or from the stock in trade of the established reserves for consumption or use in such business or by any other person.”
Arkla does not assail the nature of the tax, i.e. a sales rather than a use tax; it challenges the State’s authority to enforce such a tax on the basis that 1) U.S. Const, art 1, § 8, cl. 3 (the Commerce Clause) allows Congress to regulate commerce among the several states and thus prohibits the imposition of a sales tax by the State in this instance, and 2) it claims an exemption from the Tax Act under Ark. Code Ann. § 26-52-401(16) (Supp. 1991), which provides that there is specifically exempted from the tax imposed by the Tax Act “[g]ross receipts or gross proceeds derived from sales for resale which the state is prohibited by the Constitution and laws of the United States from taxing or further taxing, or which the state is prohibited by the Arkansas Constitution from taxing or further taxing.”
In Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), a movement case that held that a state privilege tax on the business of moving goods in interstate commerce is not per se unconstitutional, the United States Supreme Court ruled that a state tax will be sustained against a commerce clause challenge when the tax 1) is applied to an activity with a substantial nexus with the taxing State, 2) is fairly apportioned, 3) does not discriminate against interstate commerce, and 4) is fairly related to the services provided by the State.
Later, the Supreme Court applied the Complete Auto factors, and reinforced its position, in Washington Rev. Dept. v. Stevedoring Assn., 435 U.S. 734 (1978), and determined in that case that the State of Washington’s business and occupation tax did not violate the Commerce Clause by taxing the interstate commerce activity of stevedoring within the state even though it was a direct tax on the privilege of conducting interstate business. The Court noted that “[a] 11 tax burdens do not impermissibly impede interstate commerce. The Commerce Clause balance tips against the tax only when it unfairly burdens commerce by exacting more than a just share from the interstate activity.”
Most recently, the Supreme Court of Utah in Questar Pipeline Co. v. Utah State Tax Comm’n, 817 P.2d 316 (Utah 1991), has held that the tax commission did not violate the commerce clause by applying a use tax to compressor-fuel gas that was diverted from the flowing gas in Questar’s interstate pipeline and consumed in fueling its compressors. Although the only prong of the Complete Auto test that was at issue in that case was the “substantial nexus” point, the court’s analysis of the constitutional issue and prior case law is persuasive:
One of the principle cases upon which Questar [and, in this case, Arkla] relies is Midwestern Gas Transmission Co. v. Wisconsin Dept. of Revenue, 84 Wis.2d 261, 267 N.W.2d 253 (1978). In that case, the taxpayer, a foreign corporation, was an interstate pipeline company that purchased natural gas from outside the state and sold it to customers within the state. The pipeline operations included two compressors located within Wisconsin that, as in this case, took gas from the pipeline stream in order to fuel the compressors. Id. 267 N.W.2d at 253-54. The Midwestern Gas court found that there was not sufficient nexus to justify taxation. Id. at 258. Although at first glance the facts of Midwestern Gas and this case appear similar, we conclude that this court must reach a different result for the following reasons.
First, in declaring the pipeline company’s consumption nontaxable, the Midwestern Gas court relied in part on the “comes to rest” doctrine. See id. at 255-56. That doctrine has subsequently been discredited by the Supreme Court as no longer applicable or relevant under the Complete Auto test. See D.H. Holmes Co. v. McNamara, 486 U.S. 24 (1988). Further, there are some significant factual differences between Midwestern Gas and this case. Here, some of the gas originates within the state of Utah, which was not the case in Midwestern Gas. Also, Questar is not a foreign corporation; its operations are based in Utah. Under the reasoning of National Geographic, Questar’s operations as a whole have a much clearer nexus with the state of Utah than the taxpaper had with Wisconsin in Midwestern Gas.
In this case, Questar is a Utah corporation with corporate offices in the state. It owns and operates an extensive network of pipelines throughout the state and conducts transportation, sales, and storage activities here. Without the activity taxed — the direct diversion of gas from Questar’s pipeline to fuel the compressors — the entire operation would cease to function. We affirm the Commission’s conclusion that Questar, through its activities in conducting the operations of the pipeline and compressors, does have a substantial nexus with the state and the gas used to fuel those compressors is subject to Utah’s use tax ....
Applying the Complete Auto factors and Washington Rev. Dept. v. Stevedoring Assn., supra, rationale to this case, we note that Arkla has presented no facts that would justify invalidation of the sales tax. The obvious nexus between Arkla and the State of Arkansas is supported by the fact that some of the gas in Arkla’s pipeline originates in Arkansas and, although Arkla is a Delaware corporation, one of its two stated principal places of business is in Little Rock, Arkansas. Also, as in Questar, Arkla owns and operates an extensive network of pipelines throughout Arkansas in which it produced, bought, transported, and sold natural gas. Consequently, there is a substantial nexus between Arkla and Arkansas to satisfy the first point of the Complete Auto test.
Next, in determining that the tax is fairly apportioned, we find it significant that the gas at issue is actually consumed in Arkansas; only that gas consumed in the state is subject to the tax, and no other state will tax the withdrawn gas once it is consumed.
In assessing the third factor, we find that Arkla has not shown how the tax at issue discriminates against interstate commerce.
Finally, the State of Arkansas provides numerous services to Arkla, and there is nothing in this record which suggests that Arkla doesn’t avail itself of all of the amenities provided by the State to businesses operating within the state, i.e. police and fire protection, access to roads, etc. Therefore, nothing in the record suggests that the tax is not fairly related to the services and protection provided by the state.
Accordingly, for the foregoing reasons, we find that the elements encompassed in the Complete Auto test have been satisfied, and, consistent with Complete Auto, supra, and Washington Rev. Dept. v. Stevedoring Assn., supra, the imposition of a sales tax on the fuel consumed in Arkla’s compressor stations is not constitutionally impermissible and that Arkla is not entitled to an exemption under section.26-52-401 (16). Consequently, we need not address the DFA’s remaining three arguments, and the judgment of the trial court is reversed and remanded.
Glaze and Corbin, JJ., dissent.