Graves v. Texas Co.
Headline: Court forbids Alabama from taxing gasoline sold to the U.S. government, striking down a state fuel excise that would burden federal purchases and protect federal operations from state fuel charges.
Holding: The Court held that Alabama’s excise on gasoline—measured by sales, withdrawals, or storage—could not be applied to sales to the United States because it imposed an unconstitutional burden, and it barred the State from collecting that tax.
- Blocks Alabama from collecting excise on gasoline sold to the U.S. government.
- Protects federal fuel contracts from state-imposed gasoline taxes in this context.
- Could reduce state gasoline tax revenue when selling fuel to federal agencies.
Summary
Background
The Texas Company, a gasoline seller that refines in Texas and stores and ships fuel from terminals and bulk plants in Alabama, sued Alabama state officers to stop collection of state excise taxes (a state fee on gasoline sales or withdrawals) on gasoline sold to the United States under government contracts. Alabama laws imposed taxes on selling, distributing, storing, or withdrawing gasoline; state officials initially treated sales to the United States as taxable, later paused collections after a 1928 opinion, then sought payment and refused deductions for gallonage sold to the United States.
Reasoning
The Court addressed whether applying Alabama’s excise to gasoline sold to the United States would burden federal functions. The majority concluded that storage and withdrawal are practically part of the sale when gasoline is delivered to the United States, and that a tax measured by withdrawals or sales would operate like a tax on the sale itself. Relying on the earlier Panhandle decision, the Court emphasized the practical effect of enforcement, found that the tax as applied imposes an unconstitutional burden on the federal government, and affirmed a permanent injunction because legal remedies would force repeated, impractical suits.
Real world impact
The ruling prevents Alabama from collecting the challenged excise on gasoline sold and delivered to the United States, protecting federal purchases from these state fuel taxes in this situation. The government’s brief warned that widespread collection could add hundreds of thousands to millions of dollars in yearly costs if other States followed. Sellers, federal buyers, and state treasuries will feel immediate financial effects from the injunction.
Dissents or concurrances
Justice Cardozo, joined by Justice Brandeis, dissented, arguing the tax is an excise on the privilege of storing fuel (not a tax on sale) and that any burden on federal activity is remote and speculative; he would have reversed.
Opinions in this case:
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