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Panhandle Oil Co. v. Mississippi Ex Rel. Knox
Citations: 277 U.S. 218; 48 S. Ct. 451; 72 L. Ed. 857; 1928 U.S. LEXIS 684; 42 Cont. Cas. Fed. 77,297; 56 A.L.R. 583Docket: 288
Court: Supreme Court of the United States; May 14, 1928; Federal Supreme Court; Federal Appellate Court
Chapter 116 of the Laws of Mississippi (1922) imposed a 1-cent per gallon excise tax on gasoline sales, which was later increased to 3 cents (1924) and 4 cents (1926). The State of Mississippi sought to recover these taxes from a petitioner engaged in selling gasoline to the U.S. government for its Coast Guard Fleet and Veterans' Hospital. The petitioner argued that these statutes were unconstitutional as they imposed taxes on federal transactions. The court of first instance agreed with the petitioner, leading to the State's appeal. The Supreme Court upheld the validity of the privilege tax but ruled that it could not be applied to sales made to the federal government. The court emphasized that the U.S. Constitution grants the federal government the authority to operate its fleet and hospital, making any state-imposed tax on purchases for these purposes unconstitutional. The court clarified that while Mississippi can impose taxes on businesses operating within its jurisdiction, it cannot tax transactions essential for the federal government's operations. The enforcement of the tax on sales to the U.S. would burden the federal government's constitutional powers. Thus, using the number of gallons sold to the government as a tax measure effectively constituted a tax on the U.S. itself, infringing upon its independence in making such purchases. As a result, the petitioner was not liable for the claimed taxes, leading to a reversal of the lower court's judgment.