Alexander v. Cosden Pipe Line Co.

Background

A pipeline company in Oklahoma, owned by the same interests as a nearby refinery, sued to recover excise taxes it says were wrongfully collected by the federal tax collector. The company charged its affiliate 5 or 10 cents per barrel for moving crude through its gathering lines. The tax commissioner assessed the tax as if the charge were 20 cents per barrel, and the collector collected the additional sums. The company sued for refunds on several claims; two claims were left for this Court to review while two others were treated as settled by the lower courts.

Reasoning

The core question was whether the tax should be based on what the pipeline actually charged or on a reasonable commercial rate for the gathering service. The Court looked at the 1917 and 1918 tax statutes and concluded they cover all oil transportation by pipe line and allow using other carriers’ customary rates when the charge is not appropriate. The Court found the company only rendered a gathering service and that the customary gathering charge was 12.5 cents per barrel. Because the commissioner had used 20 cents as the tax base, the Court held those excess assessments invalid and reversed the prior judgments on the two contested claims, sending the case back for recalculation consistent with this view.

Real world impact

Pipeline operators that provide gathering-only service can expect taxes to be measured by customary gathering rates, not merely by nominal or varied charges. Affected companies may recover amounts collected in excess of proper gathering-based taxes, and lower courts must recalculate refunds accordingly. The other two claims remain as the Court of Appeals decided them and were not reopened here.