Esso Standard Oil Co. v. Evans

Background

During World War II the Government bought high-octane aviation fuel and the Defense Supplies Corporation took title. A local shortage of storage near Memphis led the Government to contract with private companies. Esso agreed to receive, store, handle, and load Government-owned fuel and rented tanks from another company. The United States agreed to assume liability for state taxes. Years later Tennessee demanded a gasoline "privilege" tax for storage. Esso paid the tax for January 1944 and sued to recover, and the United States intervened, arguing the tax was barred by federal immunity from state taxation.

Reasoning

The Court asked whether this tax was effectively a tax on federal property like in United States v. Allegheny County. It concluded the Tennessee levy was a privilege tax tied to Esso’s business activity, not an ad valorem tax based on the value of government property. The Justices found no congressional statement creating an exemption and no implied constitutional immunity for this kind of contracting. Because the tax targeted the private company’s storage privilege, federal ownership of the gasoline did not make the tax unconstitutional, and the trial judgment for the State was affirmed.

Real world impact

The ruling allows states to collect similar privilege taxes from private companies that store or handle federal property, even when the government owns the goods. The opinion notes possible liabilities of upwards of $4,000,000 if the tax is sustained, exposing the United States to substantial state tax bills. Had the Government itself leased the tanks, prior Tennessee precedent might have produced a different result.

Dissents or concurrances

Three Justices — the Chief Justice, Mr. Justice Black, and Mr. Justice Jackson — dissented from the decision.