lines to the blending tanks is not considered transportation, but is purely a loading operation; and likewise the movement of the finished products from the blending tanks to the tankers over the loading lines is not transportation, but purely a loading operation.
34. Prior to the loading of the products into the tankers, the only movements of oil are the various movements during the refining process, between tanks, stills and other installations entirely within plaintiff's premises: these, defendant concedes, are not taxable because expressly excluded from qualifying as 'transportation service' by Section 3460(c). Prior to the unloading from the tankers into the tanks on the refinery premises, there is no taxable pine line transportation service as defined by Section 3460; this defendant also concedes.
35. In order to carry on loading operation similar to the operation involved in this case, the tanks of the refinery could only be a mile or two from the docks because at any greater distance the refinery would lose control of the loading operation; there would be improper coordination; and the safety of the operation would be impaired.
36. Loading operations as performed by a pipe line carrier company differ greatly from those conducted by Republic through its own lines. In such case a refinery employing the service of a carrier company meters its products and pumps them into the lines of the carrier company. These lines extend to the carrier company's waterside tract where it has erected its shore tanks. The products are stored in these tanks and from there, as required, are loaded into tankers.
Delivery of crude oil to a refinery employing the services of a carrier company would be accomplished by the reverse of the route just described.
37. Of all the refineries in the five States of the Southwestern area, Southwestern Oil and Refining Company, Maritime Oil Company and Atlantic Refining Company are the only three that employ pipe line carrier companies to deliver crude oil to them and carry away their products. Two of these are shut off from the water front by intervening lands owned by the carrier or terminal companies. Perforce, if these refineries wish to receive and ship by water, they must employ and carrier companies to transport the oil and products through the latter's lines, across the latter's property, to be stored in and loaded from the latter's tanks.
The third refinery uses an affiliated carrier company, with the result that (a) income is divided between them, and (b) the same management is in control of the entire operation.
38. The loading operations as conducted by Republic through its own lines could not be carried out by employment of an outside pipe line carrier company because:
(1) The integrated operation of the refinery, of which loading is a part, would be lost.
(2) The refinery would have no control of the pipe line company's employees who would be working on the refinery premises.
(3) The safety factor, so important in oil refineries, would be threatened.
(4) Necessary security measures could not be enforced.
(5) The refinery itself is responsible for the loading and unloading of its products and for metering the quantities delivered and received, and
(6) The refinery could not carry on its blending operations in its loading lines unless they are under its own constant supervision and operation.
Conclusions of Law
1. This is a suit involving the construction of Section 3460 of the Internal Revenue Code and the regulations issued thereunder, and is a suit arising under the internal revenue laws of the United States of America. Therefore, the District Court of the United States for the Western District of Pennsylvania has jurisdiction of this action pursuant to Title 28, U.S. Code § 1340.
2. The definition of the term 'premises' as contained in Section 3460(c) was not defined by Congress, and accordingly, the definition of that term is dependent upon the Texas law.
3. Under the Texas law plaintiff was granted easements appurtenant to the adjoining refinery properties by the lease dated April 1, 1931, and the deed dated June 21, 1940, from Texas City Terminal Railway Company. The loading lines are installed on said easements appurtenant which easements are an interest in land and are an inherent part of the premises to which they are appurtenant. Since the easements appurtenant under the Texas law are part and parcel of the plaintiff's refinery premises, these premises extend to and onto the docks. Under Section 3460(c), therefore, the movements of oil over these easements appurtenant are within the premises of the refinery and exempt from taxation.
4. The movement of the oil over the loading lines from the tankers to the tanks and the movement of the finished products from the tanks to the tankers under the usages and parlance of the oil industry is not transportation but is purely a loading movement not in connection with taxable transportation of oil by pipe line and are, therefore, exempt from tax under Treasury Regulation 42, Sections 130.21 and 130.22.
5. The loading lines are an integral part of plaintiff's plant installations and their use is incidental and necessary to the operation of plaintiff's refinery.
6. The interest allowed by Section 3771 of the Internal Revenue Code upon overpayments in respect of any internal revenue tax is computed at the rate of six per centum per annum and commences from the date the check is received by the Collector of Internal Revenue.
7. The assessment of the transportation of oil by pipe line taxes made by the Commissioner is erroneous, and the collection thereof by the defendant is illegal and void.
8. Plaintiff is entitled to judgment against the defendant in the amount of $ 23,495.35 with interest thereon from June 11, 1948.
An appropriate Order is entered.
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