A constitutional question arising out of the application of the use tax law of this state.
The Union Pacific Railroad Company purchased eight Diesel engines — Nos. DS-1017-1020-1021-1022-1024-1030-1031- and 1032. It used them in Nebraska in the switching and hauling of interstate cars and intrastate cars. Subsequently it transferred these engines to its Salt Lake City terminal, where, again, they were used in the switching of interstate cars and intrastate cars. The engines came from Nebraska upon their own power, and before use were inspected for refueling and repairing at the railroad's roundhouse. For all practical purposes it is impossible to segregate the interstate switching from the intrastate switching.
The Utah State Tax Commission assessed a use tax upon these engines based upon their purchase price. The railroad requested and received a review of that assessment. Upon that review, the Tax Commission made findings of fact among which is found:
"That a period of time existed before said Diesel engines became engaged in the movement of interstate commerce within the State of Utah, during which said engines were at rest in Utah and removed from operation in interstate commerce."
Upon this finding the Tax Commission concluded:
"That a taxable moment occurred at which time the State of Utah acquired jurisdiction over the Diesel engines in question."
The Tax Commission concluded also that the Railroad Company was liable for the tax and ordered its payment with interest. *Page 101
The Railroad Company has brought the matter before this court on certiorari. There is no dispute as to facts, as they were mostly stipulated.
The sections of the statute involved read:
"80-16-2. Definitions.
"The following words, terms and phrases when used in this act have the meanings ascribed to them in this section, except where the context clearly indicates a different meaning.
"(a) `Storage' means and includes any keeping or retention in this state for any purpose except sale in the regular course of business of tangible personal property purchased from a retailer.
"(b) `Use' means and includes the exercise of any right or power over tangible personal property incident to the ownership of that property, except that it shall not include the sale of that property in the regular course of business. * * *"
"80-16-3. Use Tax.
"There is levied and imposed an excise tax on the storage, use or other consumption in this state of tangible personal property purchased on or after July 1, 1937, for storage, use or other consumption in this state at the rate of two per cent of the sales price of such property.
"Every person storing, using or otherwise consuming in this state tangible personal property purchased shall be liable for the tax imposed by this act, and the liability shall not be extinguished until the tax has been paid to this state."
"80-16-4. Exemptions.
* * *
"(b) Property, the storage, use or other consumption of which this state is prohibited from taxing under the constitution or laws of the United States of America or of this state; property stored in the state of Utah for resale, consumption or use in some state other than the state of Utah."
A recent decision of this Supreme Court entitled SouthernPacific Company v. Utah State Tax Commission et al., 106 Utah 451,150 P.2d 110, 114, written by Mr. Justice McDonough sets out the law applicable to these sections of our code. A number of the cases cited by counsel in the present case are discussed in that decision. The principles of that decision are incorporated herein merely by reference.
Counsel for the Tax Commission upholds the Commission decision and order, as follows: *Page 102
"In the immediate case, the assignment to use in Utah, the appropriation to use in Utah, together with the fact that thediesel engines in question have been withdrawn from interstateswitching activities in Omaha and a period of time elapses before they are further engaged in interstate switching activities in Salt Lake yards, renders the property subject to tax within the definition of the words `storage' and `use' contained in our Use Tax Act." (Italics added.)
This statement, however, contains a conclusion (italicized above) which it is believed is not justified by the facts. It is, of course, true that time elapsed between the use in Nebraska and the use in Utah; but what is the evidence 1 of withdrawal in Nebraska from interstate activities? Merely the transfer from Nebraska to Utah — in other words, the elements of time and distance?
If those engines were withdrawn in Nebraska from interstate commerce then, of course, a good argument can be made to the effect that their shipment or transfer to Utah for use would place them back in interstate commerce in a position analogous to equipment shipped into Utah for assembly and use, and, as stated by Mr. Justice McDonough in the cited case (referring to the holding of the Henneford v. Silas Mason Co. case,300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814)
"* * * after the interstate shipment has terminated, that state may subject such goods * * * to a tax on their use * * *."
Furthermore such a conclusion would not, of necessity, be inconsistent with the fact that the engines used their own power to pass from Nebraska to Utah instead of being hauled or carried. But these are matters that need not be solved here.
These engines were instrumentalities in interstate commerce use in Nebraska. They were transferred to Utah. Does that evidence a withdrawal in Nebraska from interstate commerce? The testimony in this case indicates that the switching of cars at all terminals is similar; and that it is impossible to segregate interstate shipping from intrastate shipping. To test the accuracy of a conclusion that *Page 103 such a transfer evidences a withdrawal from interstate commerce, let it be assumed that the Omaha terminal and the Salt Lake terminal were together as one large square. It must be conceded, under the facts of this case, that each movement of the engines within that square from one interstate car or set of cars to another would be a movement incident to and in furtherance of interstate commerce. Such use of the engines would be as instrumentalities in that commerce. Assume, then, a line drawn from the north to the south through the center of that square, and the resultant rectangles named Omaha terminal (for the one on the east) and Salt Lake terminal (for the one on the west). Obviously, the passing over this line by these engines would not deprive their use of its interstate character. And, finally, it seems obvious that the width of the center line would make no difference — the line could, in fact, be evidenced by intervening land — such as another state or states. The character of the engines' use would not change because of the time or distance consumed by the engines in passing between actual switching operations. Neither the element of time nor that of distance, under the circumstances of this case, breaks the continuity of the interstate use of the engines, as such instrumentalities.
In the cited case, Mr. Justice McDonough uses an expression which is believed appropriate to the present case as well. He said:
"The event here sought to be taxed is one in the furtherance of interstate commerce * * *."
Clearly the movements of these engines either within the terminal or from terminal to terminal were in the furtherance of interstate commerce.
There is some suggestion in the briefs that the inspection and overhauling evidence a period of rest after interstate shipment, upon which the state may rely for judisdiction to assess a use tax. We cannot agree with that suggestion. The maintenance of the instrumentalities of interstate commerce in the course of their use in that commerce is as *Page 104 much in the furtherance of that commerce as the actual operation therein. The cited case passes upon this point in its comparison between the food used, and the lubrication and fueling of the train.
Counsel for the Tax Commission has invited attention to what he terms the liberalized power afforded the states to enable them to collect from interstate commerce its just share of the burdens of taxation. Conceding that interstate commerce should bear its share of those burdens, the difficulty arises 2 in drawing the line between an assessment of that just share and the assessment of a prohibitive tax. In line with this difficulty the following remarks from the opinion of Mr. Justice Rutledge of the United States Supreme Court in the recent case ofNippert v. City of Richmond, 66 S.Ct. 586, 589 are appropriate:
"If the only thing necessary to sustain a state tax bearing upon interstate commerce were to discover some local incident which might be regarded as separate and distinct from `the transportation or intercourse which is' the commerce itself and then to lay the tax on that incident, all interstate commerce could be subjected to state taxation and without regard to the substantial economic effect of the tax upon the commerce. * * * All interstate commerce takes place within the confines of the states and necessarily involves `incidents' occurring within each state through which it passes or with which it is connected in fact. And there is no known limit to the human mind's capacity to carve out from what is an entire or integral economic process particular phases or incidents, label them as `separate and distinct' or `local,' and thus achieve its desired result."
In view of the fact that the subject matter discussed is decisive of the case, the other issues raised will not be discussed.
The order of the Tax Commission is vacated and annulled. Costs to petitioner.
LARSON, C.J., concurs. *Page 105