Franchise taxes have been assessed against the relators, foreign corporations, for the privilege of carrying on business in New York. The taxes are measured by gross earnings "from all sources within this state" (Tax Law, § 186; Consol. Laws, chap. 60). One of the relators, the Pennsylvania Gas Company, asserts that its sole business is interstate commerce. If that is so, it is here of right, and the state may not charge it with a tax as a condition of its presence (Western Union Tel. Co. v.Kansas, 216 U.S. 1; Oklahoma v. Wells Fargo Co.,223 U.S. 298; Looney v. Crane Co., 245 U.S. 178; International PaperCo. v. Massachusetts, 246 U.S. 135). The other relator, United Natural Gas Company, asserts that the major part of its business, approximately seventy-four *Page 449 per cent, is interstate commerce. If that is so, the franchise tax must be measured, not by its entire business within the state, but only by that part of its business which is intrastate commerce (International Paper Co. v. Massachusetts, supra). We think that each assessment transcends the bounds of local power.
The Pennsylvania Gas Company transports natural gas by means of pipe lines from gas fields in Pennsylvania to homes and offices and factories in New York. We have already held that its business is interstate commerce (Matter of Penn. Gas Co. v. PublicServ. Comm., 225 N.Y. 397), and our ruling has been affirmed by the Supreme Court of the United States (252 U.S. 23).
The United Natural Gas Company transports natural gas by means of pipe lines from gas fields in Pennsylvania to the connecting pipes of local companies in Salamanca and Buffalo, where the gas is distributed without interruption into the buildings of consumers. These local companies have contracts with the relator by which the latter is to furnish and deliver to them, within the limits of capacity, all the natural gas which their customers require. In return, they pay to the relator from eighty to eighty-six and two-thirds per cent of the gross receipts, retaining the residue for themselves. We think the interstate character of the relator's business is untouched by these arrangements. The local companies in Salamanca and Buffalo are either purchasers or agents. If they are purchasers, the sale does not cease to be one in interstate commerce because the price is to be measured by the purchaser's receipts. If they are agents, the interstate transaction is not closed till the agent, as the seller's representative, has made delivery to the consumer. We find nothing inconsistent with these views inPublic Utilities Comm. of Kansas v. Landon (249 U.S. 236). There a gas company transported gas from one state into *Page 450 another, and sold it to local companies, which in turn retailed to consumers. The question at issue was the power of the receiving state to regulate the business, not of the company which transported, but of the companies which resold (249 U.S. at p. 245; Penn. Gas Co. v. Pub. Serv. Comm., 252 U.S. at p. 28). If the tax in controversy here had been laid upon the franchise of the local companies in Salamanca and Buffalo, the decision in Public Utilities Comm. of Kansas v. Landon (supra) would be pertinent. It has no bearing, as we read it, upon the rights of this relator.
We find no such commingling of local and imported gas as to give to the entire business the character of local commerce. Deliveries at Salamanca are made from imported gas exclusively. There can be no question, it would seem, that receipts up to that point are exempt from local burdens. They are included, however, in these assessments like receipts from other sources. Between Salamanca and Buffalo, a small proportion of local gas is commingled in two of the three mains with the gas from Pennsylvania, and thus enters into the total of the Buffalo receipts. Even between those points, one of the three mains, at least as a general practice, carries imported gas exclusively. In two only of the three is there an infusion of the local product. We think, however, that deliveries through those mains as through the other are exempt from local burdens to the extent that the product is imported. As we pointed out in Matter of Penn. GasCo. v. Pub. Serv. Comm. (225 N.Y. 397, 402), "The test to be applied will vary with the method of transportation and the subject of the sale." Here the agency of carriage is a pipe, and the subject of the sale a gas. A carload of grain transported from one state to another and consigned to a single purchaser will not lose its quality as a subject of interstate commerce if a bushel of grain is added to the shipment after crossing the state line. Gas transported from Pennsylvania, consigned to one distributor *Page 451 in Buffalo, does not become subject, without limit, to the taxing power of the locality because on the way there has been an infusion of an insignificant proportion of gas produced within the state. Receipts from sales of local gas make up about twenty-six per cent of the relator's business in New York, but only a minor part of this percentage represents sales of the home product transported through the mains that carry gas from Pennsylvania. Most of the home product is consumed by the localities in the neighborhood of its source. We are unable to persuade ourselves that the incident has absorbed the principal, that the stream has lost itself in the tributary, and that the infusion of the local product, while the imported one is still in transit, before the destination has been reached or a state of rest attained, makes severance of the business into its elements impossible, and fixes upon the transit as a whole the stamp of local commerce.
Our conclusion, therefore, is that the United Natural Gas Company, to the extent that its business involves the transportation and sale in New York of gas produced in Pennsylvania, is engaged in commerce between states. No point is made of our power to separate the statute into its valid and invalid elements. Counsel upon the argument at our bar announced the willingness of his client to submit to an assessment proportioned to the local business. We think, in any event, thatRatterman v. Western Union Tel. Co. (127 U.S. 411), rather than Oklahoma v. Wells Fargo Co. (223 U.S. 298, 302), supplies the applicable rule.
In the case of the Pennsylvania Gas Company, the order of the Appellate Division should be reversed, with costs in all courts, the determination of the state tax commission annulled, and the assessment vacated.
HISCOCK, Ch. J., CHASE, HOGAN, POUND, CRANE and ELKUS, JJ., concur.
Order reversed, etc. *Page 452
In the case of the United Natural Gas Company, the order of the Appellate Division should be reversed, with costs in all courts, the determination of the comptroller annulled, and the proceeding remitted for the revision of the assessments in accordance with this opinion.
HISCOCK, Ch. J., CHASE, HOGAN and ELKUS, JJ, concur; POUND, J., concurs in result as follows: