The opinion of the court was delivered by: GOURLEY
This is a civil action filed against the United States to recover documentary stamp taxes paid by plaintiffs in or about January of 1962. Claim for refund was filed with the District Director of the Internal Revenue Service on October 21, 1964. The claim for refund was disallowed, and plaintiffs filed this suit for refund on April 26, 1968. This Court has jurisdiction pursuant to Title 28 U.S.C. § 1346(a) (1).
The essential facts are these. Plaintiffs Columbia Gas of Pennsylvania, Inc. (hereinafter Penn) and The Manufacturers Light and Heat Company (hereinafter Manufacturers), are Pennsylvania corporations and are wholly owned subsidiaries of The Columbia Gas System, Inc. (hereinafter System). System is a Delaware corporation registered as a public utility holding company under the Public Utility Act of 1935, Ch. 687, 49 Stat. 803 and is in the business of owning and holding corporate stock in various operating companies.
Prior to 1962, System owned stock in more than thirty subsidiary operating companies which were engaged both in the combined transmission and wholesale sale of natural gas in interstate commerce and also in the intrastate retail distribution of natural gas in various states. Many of the subsidiaries consequently were subject both to the regulatory authority of the Federal Power Commission and to the regulatory authority of one or more State Public Utility Commissions. Since the requirements of the Federal and State regulatory authorities were by no means identical, System's subsidiaries were subject to expensive and complex corporate, regulatory and accounting problems.
Plaintiff Manufacturers was such a subsidiary confounded by the multiplicity of regulatory bodies to which it was subject, those being the Federal Power Commission and the Public Utility Commissions of the States of Maryland, Ohio, Pennsylvania and West Virginia. In 1960, System began a first step in reorganizing the corporate structure of Manufacturers and created a shell corporation, Penn, with the intention that Penn would receive those assets of Manufacturers utilized in the intrastate distribution of gas in the State of Pennsylvania.
The overall purposes of this and other similar reorganizations planned by System were (a) to realign the assets and facilities of System's subsidiaries in order that a given subsidiary would contain only assets and facilities for the intrastate retail distribution of natural gas used in a given state, thus subjecting the intrastate commerce of the given subsidiary to the regulatory jurisdiction of the Public Utility Commission of that state alone, (b) to eliminate expensive and complex corporate, regulatory, and accounting problems that existed within the corporate organizations, and (c) to lower costs of corporate administration.
In accordance with these objectives, Manufacturers transferred to the shell corporation Penn, on January 1, 1962, its tangible and intangible assets used in the intrastate distribution of natural gas in Pennsylvania. In consideration, Penn issued 1,447,518 shares of its $25 par value common stock to Manufacturers. Immediately subsequent to the issuance of said shares by Penn to Manufacturers, Manufacturers exchanged said shares for 537,279 shares of its own $50 par value stock held by System. Upon receipt of the 537,279 shares of its own $50 par value stock, Manufacturers retired these shares.
System, at all relevant times, has been a 100% owner of both Manufacturers and Penn. After the transaction described in the aforementioned paragraph, the sum total of Manufacturers' and Penn's assets, capital stock, indebtedness, and capital surplus was equal to that of Manufacturers before the reorganization, and no change in the shareholder ownership of System resulted from the reorganization.
However, in connection with the issuance of shares by Penn to Manufacturers, Penn purchased documentary stamp taxes in the amount of $36,188, representing 1/10th of 1% of $36,187,950, the par value of the shares issued. Manufacturers on January 30, 1962, purchased documentary stamps in the amounts of $14,475.20, representing 4 cents per $100 or fractional part thereof, on the par value of the Penn shares transferred from Manufacturers to System. In connection with the conveyance and assignment of real property by Manufacturers to Penn, Manufacturers purchased and affixed to the deeds documentary stamp taxes in the amount of $2,598.10, representing 55 cents per $500 or fractional part thereof, of the value of the realty conveyed.
Plaintiffs claim that the documentary stamp taxes were erroneously paid because the transaction was within the excise tax exemption enacted as part of the Excise Tax Technical Changes Act of 1958 and set forth in Section 4382(b) (1) (D) of the Internal Revenue Code of 1954. That provision reads as follows: