Johnson Oil Refining Co. v. State of Oklahoma Ex Rel. Mitchell, County Attorney (Three Cases)

Background

An Illinois company that refines oil in Cleveland, Pawnee County, Oklahoma, owned a fleet of tank cars used to ship refined products around the United States. Pawnee County assessed property taxes on the company’s entire fleet for several years. The county treasurer’s assessments were upheld in one case, a district court reduced another assessment to match the average daily number of cars in the county, and the Oklahoma Supreme Court sustained taxation of the entire fleet. The company argued under the Fourteenth Amendment’s due process clause that the cars did not have their taxable location (situs) in Oklahoma.

Reasoning

The core question was whether Oklahoma could treat every car as located there for taxation. The Court reviewed undisputed facts: the cars moved almost continuously in interstate commerce, each car typically made about 1.5 trips every 30 days, and on average only about 16% of the cars were physically in Pawnee County on a given day. The Court explained that where rolling stock is habitually used in several States, no single State may tax the entire fleet. Instead, a State may tax its fair share by reference to the average number of cars physically present. Applying that rule, the Court reversed the Oklahoma Supreme Court and sent the cases back for further proceedings consistent with this holding.

Real world impact

The decision limits a State’s power to tax movable equipment used interstate and requires local officials to measure the average number of cars actually present when assessing property taxes. Oklahoma may still tax the portion of the fleet habitually in the State, but not the entire nationwide fleet; the cases were remanded for assessment consistent with this rule.