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Michigan Consolidated Gas Co. v. Austin Township

Citations: 128 N.W.2d 491; 373 Mich. 123; 21 Oil & Gas Rep. 496; 1964 Mich. LEXIS 184Docket: Calendar 64-66, Docket 50,364-50,366

Court: Michigan Supreme Court; June 1, 1964; Michigan; State Supreme Court

Narrative Opinion Summary

The case involves the Michigan Consolidated Gas Company, a major natural gas distributor, contesting ad valorem personal property taxes imposed by several townships on natural gas stored within the state. The company argued that the tax was discriminatory and illegal, as the gas was part of interstate commerce. However, the United States Supreme Court's precedents indicate that interruptions in interstate transit for local business purposes subject such property to state taxation. The court found that the stored gas had come to rest in Michigan, thereby ending its interstate journey and validating the tax. The plaintiff's claim for exemption under the Michigan severance tax act was denied due to insufficient proof that the base gas qualified for such an exemption. Ultimately, the court ruled in favor of the appellees, emphasizing that the classification for taxing Michigan gas was equitable and non-discriminatory. This decision underscores the distinction between temporary storage and storage for local business purposes in determining tax liability for commodities believed to be in interstate commerce.

Legal Issues Addressed

Ad Valorem Taxation on Stored Natural Gas

Application: The court upheld the application of ad valorem personal property taxes on natural gas stored within the state, concluding it had ended its interstate journey.

Reasoning: The court concluded that the natural gas, like the coal before it, came to rest in Michigan during storage, marking the end of its interstate journey, thus validating the tax imposed.

Interstate Commerce and Taxation

Application: States cannot tax property in interstate transit unless there is a break in transit and the property has 'come to rest' within the state for local business purposes.

Reasoning: The United States Supreme Court's precedents clarify that states cannot tax property in interstate transit. However, if there is a break in transit, the property may be subject to state taxation if it has 'come to rest' within the state.

Regulatory Authority and Taxation

Application: The plaintiff's operations, regulated by the Michigan Public Service Commission, are subject to state taxation as they are confined within the state and do not constitute interstate commerce.

Reasoning: Michigan Consolidated Gas Company...does not transport natural gas into or out of the state, indicating all its activities and property are confined within Michigan.

Severance Tax Exemption

Application: The plaintiff failed to prove that base gas qualifies for exemption under the Michigan severance tax act, as the burden of proof lies with the entity claiming the exemption.

Reasoning: A critical issue is whether the base gas qualifies for exemption, especially given the burden of proof lies with the plaintiff, who failed to demonstrate that the gas was Michigan gas on the relevant tax date.

Storage and Interstate Commerce

Application: Temporary storage of a commodity does not necessarily interrupt its status in interstate commerce unless the storage is for business purposes that are local in nature.

Reasoning: The plaintiff argues that the entire high-pressure network, including storage, constitutes one vessel in interstate commerce and contends that as a regulated utility, it does not store gas for profit.