The opinion of the court was delivered by: CASHIN
In these three actions, which I consolidated at the opening of trial for all purposes (Rule 42(a), Federal Rules of Civil Procedure, 28 U.S.C.), plaintiff seeks the refund of taxes which are claimed to have been unlawfully collected.
Civ. 78-377, for the sum of $ 22,300.99, covers taxes applicable to the period July 11, 1947, to May 31, 1951.
Civ. 94-256, for the sum of $ 10,666.05, covers taxes applicable to the period May 31, 1951, to April 30, 1953.
Civ. 144-57, for the sum of $ 13,092.27, covers taxes applicable to the period May 1, 1953, to November 30, 1955.
The Government claims the right to collect the taxes under Section 3460(a) and (b) of Title 26 U.S.C. Internal Revenue Code of 1939, or Section 4281 of Title 26 U.S.C. Internal Revenue Code of 1954. Since Section 4281 of the 1954 Act substantially re-enacted Section 3460(a) and (b) of the 1939 Act, only the relevant portions of the 1939 Act will be set out in the margin.
Plaintiff claims that the activities upon which taxes were collected were exempt from such taxation under subdivision (c) of Section 3460 of the 1939 Code
re-enacted in haec verba in the 1954 Code as Section 4283.
In Linden, New Jersey, plaintiff operates a refinery. The refinery premises consisted, in July 1947 to April 1954, of approximately 46 acres. Subsequently, 26 acres of adjacent land were also acquired by plaintiff. At the refinery area, in addition to the refining equipment, there were located some storage tanks as well as docks, railway sidings, loading racks and internal pipe lines. Plaintiff also owned a tract of land, approximately 1 1/2 miles from the refinery, known as the Tremley Tank Farm, at which are located only storage tanks and pumping facilities. The two areas are connected by 4 - 10' pipe lines and 1 - 12' pipe line. The 10' pipe lines are owned, and, during the entire period under consideration, had been owned by plaintiff. Plaintiff has an easement giving it a right of way for these pipe lines over the intervening land. The 12' pipe line has, since 1948, been owned by Texas Eastern Transmission Company from whom plaintiff has a lease. Prior to that time plaintiff had the right to all use of the pipe lines under an agreement with its then owner, the Reconstruction Finance Corporation.
For the most part the movement of petroleum taxed was as follows:
(a) Movement of incoming crude or processed oil from the dock to Tremley;
(b) Movement of crude and some finished oil between the refinery installation at Linden and the storage tanks at Tremley in both directions as part of refining operations;
(c) Movement of refined product from Tremley to Linden for shipment out by vessel, truck or tank car.
The tax upon the transportation of petroleum by pipe lines was originally contained in Section 731 of the Revenue Act of 1932, 26 U.S.C.A.Int.Rev.Acts, page 636. The exemption provision, which plaintiff seeks to take advantage of herein, was not then part of the statute. Under the law, as it then existed, it was held that purely internal pipe line movement at a refinery was subject to the tax (McKeever v. Fontenot, 5 Cir., 1939, 104 F.2d 326). To meet the harsh result of the McKeever decision, Congress enacted subsection (c) of Section 3460 of the Internal Revenue Code of 1939.
The first definitive interpretation of the exemption provision was in the case of Republic Oil Refining Co. v. Granger, 3 Cir., 1952, 198 F.2d 161. That case held exempt from the transportation tax the movement of crude oil and finished products between a storage area and a refining area located on noncontiguous parcels of land through pipe lines. Both parcels were owned by the taxpayer. Such movement was entirely related to the refining process.
Subsequent to the Republic Oil Refining Co. case the Court of Appeals for the Fifth Circuit, which had decided the McKeever case, followed the decision of the Third Circuit in Republic Oil Refining Co. and found that the enactment of subsection (c) of Section 3460 of the Internal Revenue Code of 1939 required the overruling of its prior McKeever decision (United States v. Pan American Refining Corporation, 5 Cir., 1955, 219 F.2d 685). In the Pan American case the taxpayer owned docksite facilities and an inland refinery. The refinery and the docksite were connected by pipe lines. The transportation of crude oil from the docksite to the ...