Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932)

Author: Justice Stone

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Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932)

MR. JUSTICE STONE, dissenting.

I think the judgment below should be reversed, and Gillespie v. Oklahoma, 257 U.S. 501, should be overruled. Neither can stand as the law of this court consistently with the principles recently reaffirmed in Group No. 1 Oil Corp. v. Bass, 283 U.S. 279.

The state of Texas, like the state of Oklahoma, has set apart a portion of its public domain for educational purposes. It has granted oil and gas leases of these lands not differing in any material respect from the Oklahoma lease involved in this case. The royalties received by the state from the leases are devoted to the University of Texas, as Oklahoma devotes the income derived from its leases to its public schools. In Group No. 1 Oil Corp. v. Bass, supra, decided less than a year ago, this court, notwithstanding its decision in the Gillespie case that the income of the lessees of Indian oil lands could not be taxed by Oklahoma, upheld the right of the national government to assess and collect a tax upon the income received by the lessee of one of the Texas leases from the sale of oil produced from the leased land. It was pointed out that, under Texas law, the lessee, by virtue of his lease, became the owner of the oil underground, and that the taxed income was derived from the sale of oil which was his own property. In upholding the tax, the court said (pp. 282-283):

Property sold or otherwise disposed of by the government, either state or national, in order to raise revenue for government purposes, is, in a broad sense, a government instrumentality, with respect to which neither the property itself before sale nor its sale by one government may be taxed by the other. But it does not follow that the same property in the hands of the buyer, or his use or enjoyment of it, or the income he derives from it, is also tax immune. New Brunswick v. United States, 276 U.S. 547; Forbes v. Gracey, 94 U.S. 762; Tucker v. Ferguson, 22 Wall. 527; see Weston v. Charleston, 2 Pet. 449, 468; Veazie Bank v. Fenno, 8 Wall. 533, 547. Theoretically, any tax imposed on the buyer with respect to the purchased property may have some effect on the price, and thus remotely and indirectly affect the selling government. We may assume that, if the property is subject to tax after sale, the governmental seller will generally receive a less favorable price than if it were known in advance that the property in the hands of later owners, or even of the buyer alone, could not be taxed.

But the remote and indirect effects upon the one government of such a nondiscriminatory tax by the other have never been considered adequate grounds for thus aiding the one at the expense of the taxing power of the other. See Willcuts v. Bunn, 282 U.S. 216, 231; Educational Films Corp. v. Ward, 282 U.S. 379; Metcalf & Eddy v. Mitchell, 269 U.S. 514, 523, 524. This Court has consistently held that, where property or any interest in it has completely passed from the government to the purchaser, he can claim no immunity from taxation with respect to it, merely because it was once government owned, or because the sale of it effected some government purpose. New Brunswick v. United States, supra; Forbes v. Gracey, supra; Tucker v. Ferguson, supra; see Gromer v. Standard Dredging Co., 224 U.S. 362, 371; Choctaw, O. & G. R. Co. v. Mackey, 256 U.S. 531, 537; Central Pacific R. Co. v. California, 162 U.S. 91, 125; Railroad Co. v. Peniston, 18 Wall. 5, 35-37; Weston v. Charleston, supra, p. 468.

Property which has thus passed from either the national or a state government to private ownership becomes a part of the common mass of property and subject to its common burdens. Denial to either government of the power to tax it, or income derived from it, in order to insure some remote and indirect antecedent benefit to the other would be an encroachment on the sovereign power to tax not justified by the implied constitutional restriction. See Weston v. Charleston, supra, p. 468.

The doctrine thus announced was not a new one. More than fifty years before, and long before the decision in the Gillespie case, it had been definitely decided in Forbes v. Gracey, 94 U.S. 762, that private mining claims granted by the government in the public lands of the United States, and the ores and minerals derived from them, are subject to state taxation.

In deciding the Group No. 1 Oil Corp. case, it was not necessary to determine whether the result in that case would have been different if the oil, from the sale of which the taxpayer derived his income, had become his only when severed from the soil, or whether there were other distinguishing features between that case and the Gillespie case. It was enough, there, that, as the taxed income was derived from the lessee’s sale of the oil, title to which was, by the lease, vested in him before severance, the case was definitely controlled by precedents whose avowed principles the court approved. Now, we are concerned with a lease identical with that involved in the Gillespie case, and comparison of it with the Texas lease is unavoidable. If we can find no distinction of substance between the operation and effect of the Texas leases and the Oklahoma leases, the Gillespie case should no longer be followed. That no such distinction can be drawn is obvious.

The leasing by the national government of Indian oil lands in Oklahoma to private lessees, for the benefit of the Indians, and the leasing by Oklahoma of its school lands in like fashion, for the benefit of the schools of the state, are no more and no less governmental enterprises than the leasing by Texas of its oil lands for the benefit of the state university. Whatever the genesis of the particular public duty which each sovereignty has undertaken to perform, the method chosen and the instruments selected for its performance are the same. In each case, there was the exercise of a function concededly governmental; but, in each, the only result, so far as the lessee was concerned, was the acquisition by him of certain property rights exclusively for his own benefit. In each, the lessee was taxed on his profits, derived from his private business in the production and sale of oil and gas, which was his property. It cannot be said that the identical tax, thus levied, has any effect on Oklahoma differing from that on Texas. The fact, if it is a fact, that, under the Oklahoma leases, the lessees do not acquire ownership of the oil or gas until they have severed it from the soil, but before its sale, while the lessees under the Texas leases acquire it immediately on receipt of their leases, presents no distinguishing feature. All acquire private rights by governmental grant, from the exploitation of which they have derived income which, upon principles consistently applied by this court, except in the Indian oil lease cases, and reiterated in the Group No. 1 Oil Corp. case, may be taxed as other income is taxed.

Since comparison of the two methods of disposing of state assets reveals only formal differences, this court must now deal with an irreconcilable conflict in the theories upon which two of its decisions rest. One, the Gillespie case, extends the doctrine of tax immunity, beyond any other case, to income from private business enterprises, merely because the property used in the business was acquired from a sovereign government which applies the proceeds of it to a governmental purpose. The other, and more recent, case, decided by the court after full consideration of all the arguments now advanced as supporting the Gillespie case, restricted the immunity to the property of the sovereign government itself, and to the income which the government derives from it.

It is plain that, if we place emphasis on the orderly administration of justice, rather than on a blind adherence to conflicting precedents, the Gillespie case must be overruled. It is true that, for ten years, the state of Oklahoma has been deprived, by the decision in that case, of taxes upon the income derived from private business of lessees of Indian lands in that state, but that is no reason why it should continue to be so deprived, or why the national government should now be denied the right to like taxes, and, at the same time, be permitted to tax the income of the lessees under the Texas leases. No interest which could be subserved by so rigid an application of stare decisis is superior to that of a system of justice based on a considered and consistent application of the Constitution of the United States.



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Chicago: Stone, "Stone, J., Dissenting," Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932) in 285 U.S. 393 285 U.S. 402–285 U.S. 405. Original Sources, accessed August 22, 2019, http://www.originalsources.com/Document.aspx?DocID=PWRWDQU5JLVT4CU.

MLA: Stone. "Stone, J., Dissenting." Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932), in 285 U.S. 393, pp. 285 U.S. 402–285 U.S. 405. Original Sources. 22 Aug. 2019. www.originalsources.com/Document.aspx?DocID=PWRWDQU5JLVT4CU.

Harvard: Stone, 'Stone, J., Dissenting' in Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932). cited in 1932, 285 U.S. 393, pp.285 U.S. 402–285 U.S. 405. Original Sources, retrieved 22 August 2019, from http://www.originalsources.com/Document.aspx?DocID=PWRWDQU5JLVT4CU.