Phillips v. Sinclair Refining Co.

The record shows that the taxpayer's net income for the calendar year 1941 from its pipeline department was substantially more than $9,000,000, while the rest of its income for that year derived from its manufacturing and marketing operations was slightly in excess of $3,000,000; and that the net income from the pipeline department was excluded by the taxpayer in arriving at the net business income subject to apportionment to Georgia.

The business of the taxpayer was transporting, refining and marketing crude oil and petroleum products. The showing that the taxpayer was transporting and refining crude petroleum products, and then selling them to the general public, all being done by the same corporation as the common owner, where each division or department of the whole enterprise enjoys benefits from the others, establishes more than a mere unity of ownership. *Page 51 The three businesses, if each may be described as a business, although distributed throughout different states, are united in a single specific use as stated in Adams Express Co. v. Ohio,165 U.S. 194 (17 Sup. Ct. 305, 41 L. ed. 683), a case cited and relied on by the taxpayer. Transporting the crude products to the refineries is the first step, refining these products is the second step, and selling them to the ultimate consumer is the final goal towards which the first two steps in the operation are directed. The property and business of the taxpayer, although located in different States, whether devoted to transporting, refining or selling, is united under one ownership in one specific use, namely, the supplying of petroleum products to the consuming public. The character and kindred nature and necessities of the business make this so.

The evidence shows that the taxpayer could not have made its aggregate profits in 1941 without engaging in all three of the activities involved in the entire operation, and its own witness testified that the transportation (which was the business of the pipeline department) was an essential part of the business of the taxpayer. Mr. Wagon, assistant comptroller of Sinclair Refining Company, testified in part as follows: "The Sinclair Refining Company is engaged in three phases of business; first, the pipeline business which it uses to transport crude oil to some of its refineries; secondly, the refining of crude oil; and third, the marketing of petroleum products. The Sinclair Refining Company could not have made the aggregate profit which it did in 1941 without engaging in all three of these activities. The transportation of crude oil was an essential part of the business of the Sinclair Refining Company in 1941." It seems to me that the whole enterprise, under the record before this court, was a unitary business, its several departments joined in one ownership and each department deriving some advantage from the common ownership.

Furthermore, it appears from the evidence that certain expenses in the operation of the pipeline were charged against the income of the other two departments of the corporation, that is, to refining and marketing. This appears in officer's salaries, general administrative expenses, and in capital stock taxes amounting to $288,000 which were paid to the Federal Government. *Page 52

I think that the taxpayer failed to carry the burden of showing that the business was not of a unitary character, and failed also to show that it had overpaid the taxes due the State of Georgia. For these reasons, in addition to those stated by Judge Felton, I concur in the judgment of reversal.