APPEAL FROM THE SUPREME COURT OF TENNESSEE.*fn*
Vinson, Black, Reed, Douglas, Jackson, Burton, Clark, Minton; Frankfurter took no part in the consideration or decision of this case.
MR. JUSTICE REED delivered the opinion of the Court.
These are appeals from the Supreme Court of Tennessee, affirming a Chancery Court judgment for some $196,000 in favor of the State Commissioner of Finance and Taxation, against Esso Standard Oil Co., the party of record in No. 330. Ultimately liable, the United States intervened in that litigation and brought a separate appeal here, No. 378. It contended that the state tax involved is barred by principles of sovereign immunity. This is a test case. We are told that if the tax is sustained, a liability for upwards of $4,000,000 will result.
The facts are these. During World War II the Government was actively engaged in the production and procurement of high octane aviation fuel. All such gasoline produced was purchased before it left the refinery and, by formal passage of title, became immediately the property of the Defense Supplies Corporation, a corporation wholly owned by the Reconstruction Finance Corporation, 6 Fed. Reg. 2972, as amended 6 Fed. Reg. 3363, and specifically exempt from state storage and use taxes, 55 Stat. 248. Release from storage by the producing companies occurred only on notification by the Petroleum Administration for War, in accordance with allocation of specific lots of fuel to various official consumers, including
the Services and the Allies. The Air Force, in particular, then arranged for transportation of its various allotments -- sometimes by government carrier -- from the refineries to the nearest consuming point.
We are concerned with certain lots of Air Force fuel produced in the South at various plants and shipped through Memphis, Tennessee. It appears that in 1943 a shortage of storage facilities developed in the area, forcing resort to privately owned tanks. Appellant Esso and the Lion Oil Company were able to provide such service through tanks at various points near Memphis. As a result, the Government entered into extensive contracts with Esso which in turn rented the Lion tanks, providing that the Company would "render services . . . in receiving, storing, handling and loading Government-owned fuel." The Company's service charge ranged from 18/100 of a cent to 6 3/10 cents per gallon. The United States agreed to assume liability for all state taxes. Pursuant thereto, allotments of gasoline were moved by barge from refineries to these private tanks, stored there pending need, and later reshipped by truck to consuming airfields on order of the Air Force. The operations continued from 1943 through 1946 under several contracts of similar import.
August 2, 1949, the State, after investigation, demanded that Esso pay taxes in connection with these operations under the Tennessee gasoline tax, 2 Williams Tenn. Code §§ 1126-1147. This statute, in material part, provided:
"Every distributor when engaged in such business in this state, shall pay to the state comptroller, through commissioner of finance and taxation, for the exclusive use of the state, a special privilege tax, in addition to all other taxes, for engaging in and carrying on such business in this state, in an amount equal to six cents for each gallon of gasoline, and six
cents for each gallon of distillate refined, manufactured, produced, or compounded by such distributor and sold, stored or distributed by him in this state, or shipped, transported or imported by such distributor into, and distributed, stored ...