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contractdefendantliabilitycorporation
contractliabilitycorporationoverruledappellant

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Western Pipe Line Constructors, Inc. v. Dickinson, 7 McCanless 248, 203 Tenn. 248, 310 S.W.2d 455

Facts

The complainant is a Delaware corporation that constructs oil and gas pipelines in Tennessee for various clients, including the Tennessee Gas Transmission Company. During the relevant period, the complainant completed several contracts requiring extensive labor and specialized equipment, but it did not own any real estate or tangible personal property in Tennessee, nor did it sell any merchandise. The complainant filed a tax return based on the manufacturing formula but was later advised to use a different formula applicable to its actual business activities, leading to the payment of additional taxes under protest.

The complainant is a Delaware corporation engaged in the business of constructing oil and gas pipe lines across the State of Tennessee. These pipe lines are constructed on behalf of different concerns transmitting oil and gas to customers by means of such pipe lines. During the period from March 1, 1951, through February 29, 1952, the complainant completed several contracts with the Tennessee Gas Transmission Company.

Issue

The main legal issue is whether the complainant should be taxed under the manufacturing formula or the formula applicable to corporations whose principal business is not the manufacture or sale of tangible property.

The assignments of error singly and collectively complain that the Chancellor ‘should have adjudged that said appellant was engaged either in manufacturing in its broad and comprehensive sense, or in some form of collecting, assembling or processing of materials and hence was entitled to compute its tax liability either as a manufacturer, assembler or processor of materials, citing 67–2707 and 67–2913, T.C.A.

Rule

The court applied statutory provisions that differentiate between corporations engaged in manufacturing and those whose principal business is other than manufacturing, specifically Sections 67–2707, 67–2710, 67–2913, and 67–2916 of the Tennessee Code Annotated.

The Chancellor by decree, sustaining the Commissioner's assessment, held that the Legislature ‘did not intend to create a new classification of taxpayers whose principal business was other than that of ‘manufacturing”, etc.

Analysis

The court analyzed the nature of the complainant's business and determined that it primarily engaged in construction work rather than manufacturing. The court noted that the complainant did not own the materials used in its contracts and that its operations were limited to providing labor and specialized equipment for the construction of pipelines. Therefore, the court concluded that the complainant's tax return should be based on the formula applicable to non-manufacturing businesses.

When due consideration is given to all the probative evidence in the instant case we find that the complainant is not a manufacturer, assembler or processor of materials. While the argument of complainant's counsel is not without merit in its persuasive effect, we cannot view the operations of the complainant otherwise than as a construction undertaking pursuant to its contract with Tennessee Gas Transmission Company.

Conclusion

The court affirmed the Chancellor's decree, holding that the complainant was correctly assessed additional tax liability under the provisions applicable to corporations whose principal business is not manufacturing.

The assignments of error are overruled and the Chancellor's decree is affirmed.

Who won?

The defendant, Commissioner of Finance and Taxation, prevailed in the case because the court upheld the assessment of taxes based on the appropriate statutory formula for the complainant's business activities.

The Commissioner's answer to the bill was that the complainant was liable under the formulae as prescribed in 67–2710 and 67–2916, T.C.A., and that liability attached pursuant to these Sections of the Code.

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