Union Oil Co. v. Johnson

DOOLING, J. pro tem. Plaintiff is in the business of producing and refining crude oil and selling the refined products. [637]In the course of its business it both produces and purchases crude oil, intermingles the two and refines the oil so commingled.

Between August 1, 1933, and June 30, 1935, plaintiff produced 22,681,553 barrels of crude oil and purchased 24,197,-006 barrels. Of the refined products of the commingled oil so purchased and produced plaintiff used and consumed in its own business about 4 per cent. The State Board of Equalization determined that a sales tax was due from plaintiff on that proportion of its refined products so used by itself which was equal to the proportion that the purchased crude oil bore to the total crude oil refined. Plaintiff paid this tax under protest and sued to recover it back. From a judgment denying recovery this appeal is taken.

Under the California Retail Sales Tax Act (Stats. 1933 p. 2599; Deering’s Gen. Laws, 1937, Act 8493) plaintiff gave to the sellers from whom it purchased crude oil the certificates, provided for in section 17 (Id. p. 2604), that such crude oil was purchased by plaintiff for resale. As a result no sales tax was paid thereon at the times of such purchases.

The theory on which the tax was collected is that by intermingling the purchased oil with the oil produced by itself and refining the mixture plaintiff used and did not resell a portion of the crude oil purchased under such certificates. That this is true as a matter of fact plaintiff does not dispute nor, if the tax was properly assessed as a matter of law, does it question the propriety of the manner of its calculation. Plaintiff’s sole contention on this appeal is that because it intended to use only the refined products of the crude oil produced by itself and intended to resell all of the refined products of the crude oil which it had purchased from others, such intention should be given controlling weight and no tax collected from it for the portion of the refined products of the oil purchased by it which it did in fact use and consume.

To simplify its claim, plaintiff admits that if the crude oil purchased by it had been separately refined and it had used a portion of such refined products it would be liable for a tax thereon, but it denies that where the refined products are produced from a mixture of such purchased oil with oil produced by itself it is liable for a tax upon the part of the refined products which are produced from purchased oil.