Edison v. Department of Revenue

Smith, J. The question here presented is whether or not a firm of road contractors is engaged 1 in industrial processing within the meaning of section 4(g) of the use tax act. 2 There is no dispute about the facts. The appellants build concrete highways under contract with the Michigan State highway department. They prepare the rough grades and the roadbed, they pave, and they finish. In so doing they use, and eventually consume, major equipment, such as bulldozers, repair parts, and necessary appurtenances, such as tires, tubes, and batteries. This is an action for *160 declaratory judgment, its purnose being to determine the liability of the appellants for use-tax assessments on these articles of tangible personal property. The case comes to us under a stipulation set forth in part in the margin here. 3 Appellants first examine “the entire structure of use and sales acts” and list “four primary evils which might otherwise result from a universal sales tax.” They then seek to demonstrate that exemption of this property from such tax or the use tax would avoid each of such evils. Without passing upon the validity of the arguments made, we note only that distinguished economists and tax experts have for years argued the economic justifications for, and the alleged evils resulting from, both the taxes (sales and use) and the exemptions thereto. 3 4 We do not propose to enter this arena of debate. The tax structure is for the legislature. It has imposed a use tax and has granted the “industrial processing” exemption. Our problem is one of interpretation. It is true, as appellants urge, that they are engaged in an “industrial” pursuit. It is also arguable, although the meaning is strained, that in building highways they “process” real estate. Thus by the simple mechanism of verbal addition they would have us conclude that we have before us a case of industrial processing. But the words “industrial processing,” although undefined in the act, have received a gloss of interpretation over the years and unless we are prepared to overrule the previous cases (and we are not persuaded of their error) we will not approach *161 the problem independently but will be guided by them. We have examined the problem with care in 2 recent cases, the first involving the softening of water. Kress v. Department of Revenue, 322 Mich 590. In holding that the use tax assessment for the water softener units was valid (as against the assertion that they were used in “industrial processing”) the court conceded that, although the water was processed, in a, sense, the whole operation was not an industrial processing. This, it was held, meant the processing of commodities to condition them for a later sale and there was no later sale of the water. The concept here is clear enough: the legislature, in using the questioned words, looked essentially at a commercial market and the preparation of commodities therefor. The later case of Bay Bottled Gas Co. v. Department of Revenue, 344 Mich 326, is complementary thereto. In this case the handling systems for liquefied gases were, under consideration. In denying exemption the court stressed that fact that nothing in the performance of the handling system rendered the product marketable as that term is employed with respect to the use tax, although it cannot be denied that the fuel cannot be used in its designated market without what might be called a “processing,” that is, without a reduction in its pressure and its vaporization, both accomplished in the appurtenances of the handling system. The processing referred to in the act, however, held the court, citing an earlier ease, 5 was the preparation of “raw material * * * for the market.” Id. at 330. The *162 court then related its definition to that given in Webster’s New International Dictionary: “‘to subject (especially raw material) to a process of manufacturing, development, preparation for the market, et cetera; to convert into marketable form, as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurizing, fruits and vegetables by sorting and repacking.’ ” As we said recently in Romeo Homes, Inc., v. Commissioner of Revenue, 361 Mich 128, 137, in commenting upon the use-tax exemption there claimed: “Exemptions from general tax measures of the character here in question are not favored, and the burden rests on one asserting the right thereto to establish his claim.” Such burden has not here been met. The construction of a highway, we conclude upon precedent, is not an industrial processing as that term is used in the act, and the appellants’ machinery is not used in industrial processing within the meaning of section 4(g) of the use tax act. Affirmed. No costs, a public question. Dethmers, C. J., and Carr, Kelly, Black, Edwards, Kavanagh, and Souris, JJ., concurred. Footnotes [1] Appellants use the expression “in whole or in part.” We find no basis upon this record for the “in part” qualification. [2] CL 1948, § 205.94, subd (g), as amended (Stat Ann 1950 Her § 7.555[4], subd [g.], as amended). [3] “It is further stipulated that the court may forthwith enter a declaratory judgment in accordance with the foregoing stipulations, * * * but without prejudice to the right of the plaintiff to take an appeal to the Supreme Court of the State of Michigan upon the sole issue of whether or not all or any part of the remaining tax liability is exempt under section 4(g) of the use tax aet, relating to industrial processing.” [4] See, e.g., Consumption Taxes, 8 Law & Contemp Prob 415. [5] Michigan Allied Dairy Ass’n v. State Board of Tax Administration, 302 Mich 643, which adopted the approach of the supreme court of Arizona in Moore v. Farmers Mutual Manufacturing Ginning Co., 51 Ariz 378, 382 (77 P2d 209, 211).