Eureka Pipe Line Co. v. Hallanan

Background

A West Virginia pipeline company moved crude oil through lines that connected to neighboring States and carried a continuous stream of more than twenty-two million barrels in the year at issue. The State passed a law imposing a two-cent-per-barrel tax on transporting petroleum in pipelines. The company kept producers’ “credit balances,” charged for gathering and storage, used local tariffs for intrastate deliveries, and required special “tenders of shipment” for interstate deliveries.

Reasoning

The Court considered whether the State could tax the whole stream of oil that the pipeline handled. The majority said the pipeline company, not the producer, controlled the destination of any specific oil and treated the movement as one continuous interstate flow from the start. Storage and gathering charges did not change that practical character. Because a tax that in effect burdens interstate commerce is invalid, the Court reversed the lower court’s decision and refused to let the State’s tax apply to the interstate stream.

Real world impact

The ruling means states cannot impose the same kind of per-barrel tax when, in practical effect, oil is being transported in interstate commerce through pipelines. Pipeline operators who move mixed oil that flows across state lines gain protection from such state occupation or transit taxes. The decision rests on the practical effect of the movement rather than labels placed on initial collection or storage.

Dissents or concurrances

A dissent argued that the company’s gathering lines and local tariff made the movement intrastate until an owner issued a tender for interstate shipment, and that the State should be allowed a reasonable tax on local gathering activity.