
    The Sandusky Gas & Electric Co. v. The State of Ohio.
    
      Taxation—Excise tax upon public utilities—Sections 5417,5474, 5475 and 5483, General Code—“Entire gross receipts” construed—Receipts from all intrastate business done by utility included—Distributing company purchases gas from producing company—Funds realized from resale to customers constitute gross receipts—Without deducting amount paid producing company for gas—State tax commission may certify omitted gross receipts, when—Section 5461, General Code—Constitutional law.
    
    1. The words “entire gross receipts,” as used in Sections 5417, '5474, 5475 and 5483, General Code, providing for the imposition of an excise tax upon public utility companies, mean and include the entire receipts of such company from the intrastate business done by_ it under the exercise of its corporate powers, whether from the operation of the utility itself or from any other business- done by it.
    2. Where a distributing gas company purchases the gas which it furnishes and delivers to its consumers from a producing company under a contract requiring payment for all gas delivered to its lines through the measuring station of the producing company at a stipulated price per thousand cubic feet, upon statements presented monthly by the producing company to the distributing company, the funds realized from the resale of such gas to its customers by the distributing company belong to it and constitute gross receipts, upon which it is required to pay such excise tax without deduction of the amount paid for gas so purchased.
    3. Where in finding and certifying to the state auditor the amount of gross receipts of such distributing company a portion thereof has been omitted by the tax commission through the failure of the company to fully disclose new contracts which make a change of relationship between it and a producing company from which it purchases its supply of gas, whereby the amount of gross receipts upon which an excise tax may be properly calculated is increased, and such facts were not known by the commis-sion when its finding was made and certified, the commission is authorized, by the provisions of Section 5461, General Code, to certify to the state auditor the omitted portion of said gross receipts for the period of five years next preceding that in which such inquiries and corrections are made, upon which the tax shall be calculated and collected as therein provided.
    
      [1] Taxation, 37 Cyc. p. 820; [2] Id., p. 855 (Anno.); [3] Id., p. 1020.
    
      4. Neither the statutes providing for the levy and collection of such excise tax nor the order of the tax commission herein constitute a violation of any provision of either the federal or state Constitution.
    [4] Id., pp. 820, 855 (Anno.), 1020.
    (No. 19408
    Decided March 30, 1926.)
    Error to the Court of Appeals of Franklin county.
    This action was brought in the court of common pleas of Franklin county by the Attorney General against the Sandusky Gas & Electric Company. That company is a public utility under the laws of Ohio, with its principal office at Sandusky. The petition set up a claim for excise tax due the state, charged against the Sandusky Gas & Electric Company on the delinquent duplicate of the state treasurer, in the sum of $12,077.70, and $1,811.66 penalty. Issue was made by demurrer to the amended answer of the defendant.
    By the amended answer it was shown that the excise tax in question was assessed by virtue of an order of the tax commission of the state entered December 28, 1923, wherein the commission determined that the defendant had failed for a period of four years to make return as a public utility of all its gross receipts subject to state excise tax, which order the defendant asserts is^ contrary to law by reason of facts alleged, which are in substance as follows:
    Prior to and during the year ending April 30, 1920, there was in existence a contract entered into by the Sandusky Gas & Electric Company and the Logan Natural Gas & Fuel Company, under and by virtue of which the latter company produced and delivered gas to the former for distribution through its mains during that portion of the taxable year between the 1st day of May, 1919, and the 7th day of June, 1919, in return for 75 per cent, of. the gross receipts from the sale of natural gas for domestic purposes and 77 per cent, of the gross receipts from the sales for manufacturing purposes, after there had been deducted from the gross receipts the amount of uncollectable bills, the quantity of gas furnished by the said Logan Company and the bills to be rendered for gas sold to be determined by monthly readings of the meters of the Sandusky Company. Prior to June 7, 1919, the Logan Company installed a measuring station for the purpose of measuring all gas delivered to the Sandusky Company for distribution to the city of Sandusky and the inhabitants thereof; and thereupon, from and after June 7, 1919, the contract provided that the Logan Company should receive for all gas delivered 33 cents per thousand cubic feet. Said contract, by agreement between the parties, continued and extended to November 30, 1920, when the two companies entered into a new contract by the terms of which it was agreed that the Sandusky Company should receive natural gas from the Logan Company at the city limits of the city of Sandusky, where a measuring station had been placed by the Logan Company, and that the Sandusky Company should distribute gas through its mains to the city of Sandusky and its inhabitants, for which the Logan Company should receive from the Sandusky Company 40 cents net for each and every thousand cubic feet of gas. This contract continued in force and effect until November 30, 1921, when the two companies entered into a new contract, in which the terms and conditions, so far as this case is concerned, were the same, and which continued and was carried out by the parties to and for the full taxable year ending April 30, 1923.
    The Sandusky Company, on the 1st day of August of each of the years 1920, 1921, 1922 and 1923, upon form provided by the tax commission, reported its entire gross receipts, including all sums earned or charged, whether received or not, from whatever source derived, for business done within this state for the year next preceding the 1st day of May of each of said years, and including the company’s receipts for business done by it within the state in connection with other companies, firms, corporations, persons or associations.
    It is averred that in none of said four years did the Sandusky Company include in its gross receipts the sums of money paid by it to the Logan Natural Gas & Fuel Company for natural gas distributed to the city of Sandusky and its inhabitants, and that the sums of money found by the tax commission of the state not to have been in-eluded in the gross receipts of the Sandusky Company for said respective years were the sums of money so paid to the Logan Company, and it is asserted that under and by virtue of the contracts set forth the Sandusky Company, during all of said period of time, was engaged in a joint enterprise with the Logan Company.
    It is further averred that the defendant company, upon the forms provided by the tax commission, and in response to questions therein, stated the amount paid by it for power purchased and for gas purchased in each of said years, and in each instance by such statement had reference to the amount paid by the Sandusky Company to the Logan Company, and, in answer to a further question in each of said reports, indicated that it had not included the sum so paid the Logan Company for gas in its gross receipts as therein set forth; that each year said returns and statements were filed with the tax commission. It is also averred that the commission thereafter caused its examiner to examine the books, records, and papers of the defendant company at its place of business, and, upon the returns and statements of the defendant, and the report of the commission’s representative and examiner, the commission determined the gross receipts of the defendant company in each of said years, and certified the same as so found to the auditor of state, and, based thereon, the state auditor assessed the excise tax at the lawful rate, and the same was paid by the defendant; that thereafter the tax commission, on December 28, 1923, made an order, wherein it redetermined the amount of the gross receipts of the defendant for the years in question, and assessed as an additional tax in the aggregate for those four years the amount set up in the petition.
    The common pleas court sustained the demurrer to the defendant’s amended answer, and, it appearing that the defendant did not desire to further plead, the prayer of the petition was granted and judgment entered for the amount prayed. Upon proceeding in error, that judgment was affirmed by the Court of Appeals, and, thereafter, upon motion, the cause was ordered certified to this court.
    
      Messrs. King, Ramsey, Flynn & Pyle, and Mr. Smith W. Bennett, for plaintiff in error.
    
      Mr. G. G. Crabbe, attorney general; Mr. FL. E. Griswold, and Mr. V. E. Gibbs, for defendant in error.
   Matthias, J.

The contention made by the plaintiff in error may be concisely stated as follows :

(1) “The distribution of gas to the city of Sandusky and its inhabitants was a joint enterprise undertaken by two utilities, and the gross receipts of the enterprise should be apportioned between the utilities engaged in the joint venture.”
(2) “Even if the Sandusky Company reported a part only of its gross receipts in each year, it nevertheless made a statement of the remainder, and the tax commission was without authority to reopen its findings.”
(3) “Conceding this to be an excise tax measured by the business done, and not a property tax, it nevertheless amounts to a species of double taxation contrary to the legislative intent where the tax commission includes the same funds in determining, for the purpose of the tax, the gross receipts of two public utilities.”
(4) “The action of the tax commission and the judgments of the lower courts are violative of the Fourteenth Amendment of the Constitution of the United States, of Section 16 of Article I, and Section 2 of Article I, of the Constitution of the State of Ohio.”

The levy of an excise tax upon the gross- receipts of public utility companies is made pursuant to the provisions of Sections 5417, 5474, 5475 and 5483, General Code, and the words “entire gross receipts,” as there employed, mean and include the entire receipts of such company from the intrastate business done by it under the exercise of its corporate powers, whether from the operation of the utility itself or from any other business done by it.

The question whether the relationship of the Sandusky Company and the Logan Company, subsequent to June 7, 1919, was a joint enterprise undertaken by the two utilities, the gross receipts of which should be apportioned between the two companies as being engaged in a joint venture, must be determined from a consideration of the facts disclosed by the contract covering the period in question, which was attached to and made a part of the amended answer. In examining those facts it is quite pertinent to consider first the relationship of the two companies by virtue of the previous contracts between them and to observe what change, if any, was made in that relationship when they came to execute the contract covering the period of time involved in this controversy.

Unquestionably, under the first contract between the companies the enterprise was a joint undertaking, for by virtue of the provisions of that contract there was no purchase or sale of the gas by one company to the other; on the contrary the Logan Company produced and furnished the gas under an arrangement whereby the Sandusky Company was to and. did distribute the same to the inhabitants of the city of Sandusky at rates fixed and prescribed by that contract; losses from bad debts were to be shared by the companies; line losses were to be borne jointly; and the receipts were to be divided between the two companies upon a percentage basis therein stipulated.

The contract entered into on June 7, 1919, which controls the situation here presented, is vastly different. It is a clear contract for the purchase and sale of gas to the Sandusky Company by the Logan Company, the point of delivery by the Logan Company to the Sandusky Company being at the city limits' of the city of Sandusky, where the Logan Company maintained a measuring station. It was expressly stipulated that delivery should be there made, and that all expense, risk, and danger thereafter were assumed and borne exclusively and wholly by the Sandusky Company. There was no agreement by the Sandusky Company to account to the Logan Company for the proceeds of sales of gas made by it upon a percentage basis or otherwise. On the contrary, it was agreed that the San-dusky Company should pay the Logan Company 40 cents for each and every thousand cubic feet of gas delivered to it, for which statements were to be rendered by the Logan Company on the 10th of each month, and the Sandusky Company was required to pay the Logan Company at its office in the city of Columbus for all gas delivered during the preceding month at a price stipulated.

These facts clearly show the contract to be one for the purchase and sale of gas, and absolutely refute and repel the theory of joint enterprise or joint undertaking. The only liability created is that of the Sandusky Company to pay the Logan Company for the gas delivered to it at the measuring station, and, under the terms of the contract, that liability is absolute and unconditional. The transaction was no more a joint enterprise or joint undertaking than that involved in the sale by a wholesale to a retail grocer.

The case of State v. Coshocton Gas Co., 22 O. D. N. P., 412, affirmed without opinion in 88 Ohio St., 608, 106 N. E., 1078, relied upon by counsel for plaintiff in error, instead of being an authority in support of its contention, is, in its reasoning, and because of the clear distinction in the facts involved, an authority for the defendant in' error. The clear distinction between the two cases, as stated in the language of the court in the decision of the Coshocton case, is that “the Buckeye Company did not sell and the defendant did not buy the gas.” The facts upon which that decision was based were that there was a mutual agreement between the two gas companies wherein one company produced the gas and delivered it into the pipe lines of the other, and the latter disposed of it to its local consumers, making collection therefor and dividing the proceeds with the producing company upon a percentage basis stipulated in the contract. It was upon these facts that such relationship was held to be a common or joint enterprise for the sale of gas to private consumers, and to share the receipts thereof, rather than a sale of property from one company to the other. As therein suggested by the court, the Buckeye Company had the general ownership in the gas at all times, but by special agreement furnished and delivered it to the Coshocton Company for distribution and collection of the amount due at the stipulated rates and thereupon to account to the Buckeye Company for its proportion of the gross receipts. The situation of the parties in that case is clearly stated in the following language:

“On disposition of the product by defendant, and receipt of the proceeds, the relation of debtor and creditor did not arise; rather, defendant’s relation to the fund was that of trustee to its principal, unless the latter saw fit to waive-that relation. * * * Neither, at any time, was entitled to the whole fund as a right of property, but each was entitled to a proportionate share as belonging to it. * * * I am clearly of the opinion that the contract between the two companies did not contemplate a sale of the gas to the defendant.”

It was under such state of facts that the court found that the portion of the gross receipts from such transaction which actually belonged to the Coshocton Company was all upon which an excise tax could be levied as against that company, and that the same could not be levied against it upon receipts in its hands to which it had no property right, but which were merely passing through its hands to the company in fact owning the gas, and to which such proceeds therefrom belonged. We adhere to the rule adopted and applied by the court upon the facts found in the Coshocton case, but it has no application here except as an argument in favor of the action taken by the tax commission.

The provision of Section 5474, General Code, that the statement to be filed shall include “the company’s proportion of gross receipts for business done by it within this state in connection with other companies,” etc., obviously can have no application to a situation such as presented here, where there is no apportionment of gross receipts between two companies engaged in a joint- undertaking or enterprise.

The contention that the tax commission was without authority to reopen its finding is based upon the averment that the Sandusky Company duly filed the annual statements required of it, wherein the total amount of its gross receipts appeared, and, further, that examiners of the tax commission examined the books, records, and papers of the San-dusky Company, and that the finding of the commission with reference to the taxable gross receipts of the defendant company was based upon such statements of the company and the report of the commission’s representative or examiner.

It is quite apparent that the finding of the commission, as reported to the state auditor in each of the four years in question, was based upon the assumption that the relationship between the San-dusky Company and the Logan Company had continued as it had been under the preceding contract. The burden was upon the company to make full disclosures, and it does not appear that either the tax commission or its representatives or examiners, at the time its former findings were made, had any knowledge of the true relationship between the Sandusky Company and the Logan Company. Under these circumstances the tax commission was fully authorized by the provisions of Section 5461, General Code, to correct its findings and make the same in accordance with the facts, and, as thus corrected, to certify to the state auditor for collection the portion of the excise tax theretofore assessed against and unpaid by the defendant company.

The fact that from a situation such as presented a species of double taxation results does not render the statute invalid or the order of the tax commission violative of any provision of either the federal or the_state Constitution. It follows that the judgment of the Court of Appeals should be affirmed.

Judgment affirmed.

Marshall, C. J., Jones, Day, Allen, Kinkade and Robinson, JJ., concur.  