Frost-Pack Distributing Co. v. City of Grand Rapids

218 N.W.2d 75, 52 Mich. App. 694, 1974 Mich. App. LEXIS 1089

• Court: Michigan Court of Appeals
• Decided: April 29, 1974
• Docket: Docket No. 16044
• Status: Published

Opinions

Bashara, J.

This appeal arises from an order of summary judgment granted by the Kent County Circuit Court to defendant city. By so ruling the court affirmed a holding of the State Tax Commission denying to plaintiff its claimed exemption from the personal property tax levied by the city upon certain farm products stored in a warehouse. Plaintiff is the parent corporation of a wholly owned subsidiary which operates the warehouse. The case was submitted to the trial judge on an agreed statement of facts which will be drawn upon as our discussion requires.

The Court is faced with two primary issues which will be dealt with seriatim.

I.

Does the exclusionary language in the definition of a public warehouse of MCLA 211.9(12); MSA 7.9(12) constitute an unreasonable and arbitrary legislative act of classification for tax purposes, thereby rendering the provision invalid and unconstitutional?

MCLA 211.9(12); MSA 7.9(12), as amended by 1964 PA 275,¹ provides in relevant part:

"The following personal property shall be exempt from taxation, to wit:

"Twelfth, All products, materials and/or goods processed or otherwise and in whatever form * * * located in a public warehouse * * * on December 31 of each year, if such products, materials and/or goods have been designated as in transit to destinations out of state pursuant to the published tariffs of any railroad or common carrier by the filing of the freight bill covering such products, materials and/or goods with the agency designated by such tariffs, so as to entitle the shipper to transportation rate privileges: * * * Provided, That any property located in any public warehouse, * * * on December 31 of each year, which is exempt from taxation under this provision but which is not shipped outside the state of Michigan pursuant to the particular tariff under which such transportation rate privilege was established, shall be assessed upon the next succeeding or any subsequent assessment roll by the assessing officer and taxed at the same rate of taxation as other taxable properties for the year or years for which such property was exempted, to the owner at the time of such omission; or if the owner or person entitled to possession of such products, materials and/or goods shall be a resident of or authorized to do business in Michigan and shall file with the assessing officer, with whom statements of taxable property are required to be filed, a statement under oath that said products, materials and/or goods are not for sale or use in, and will be shipped to a point or points outside the state of Michigan: Provided, That if any person, firm or corporation shall claim exemption by the filing of any such sworn statement, such person, firm or corporation shall append to his statement of taxable property required to be filed in the next year, or if no statement of taxable property is filed for the next year, a sworn statement on a form required by the assessing officer shall be filed showing a complete list of the property for which such exemption was claimed with a statement of the manner of shipment and of the point or points to which said products, materials and/or goods were shipped from said public warehouse, * * * and any such products, materials and/or goods not shipped to a point or points outside the state of Michigan shall be assessed upon the next succeeding assessment roll, or on any subsequent assessment roll by the assessing officer and taxed at the same rate of taxation as other taxable properties for the year or years for which such property was exempted, to the owner at the time of such omission: * * * For the purpose of this section, a public warehouse * * * is defined as any warehouse * * * owned or operated by any person, firm or corporation engaged in the business of storing products, materials and/or goods for hire for profit who issues a schedule of rates for storage of such products, materials and/or goods and who issues warehouse receipts pursuant to the provisions of Act No. 303 of the Public Acts of 1909: Provided, That no portion of a public warehouse * * * leased to a tenant or no portion of any premises owned or leased or operated by a consignor or consignee, or any affiliate or subsidiary of such consignor or consignee shall be deemed to be a public warehouse * * *."

MCLA 211.9(14); MSA 7.9(14), insofar as applicable to the case at bar, provides:

"Fourteenth, Farm products processed or otherwise, the ultimate use of which is for human or animal consumption as food, but expressly excepting wine, beer and other alcoholic beverages, regularly placed in storage in a public warehouse * * * as defined in the twelfth subdivision of this section, shall, while so in storage be considered in transit and only temporarily at rest, and not subject to personal property taxation: Provided, That the assessing officer shall be the determining authority as to what constitutes, is defined as, or classified as, farm products as used in this subdivision: * * * .”

It cannot be denied that the Legislature has the power to classify subjects for purposes of taxation, and that the Legislature has the power to create, grant, and deny exemptions from taxation. United States Cold Storage Corp v Detroit Board of Assessors, 349 Mich 81; 84 NW2d 487 (1957). Plaintiff, however, objects to the unreasonable classification that arises from the exclusion under subparagraph 12 of farm products stored in a warehouse when such a warehouse is owned or affiliated by a consignor of the products. It is hypothesized that a consignor, who deposits goods in a warehouse owned or operated by him would lose the exemption from tax while another consignor, not having any connection with the warehouse, could deposit the identical goods in the warehouse and qualify for exemption. This situation, plaintiff maintains, is an unconstitutional classification based merely on ownership. The validity of this classification is not reviewed by looking at one factor, but proceeds on the question of whether there is clear and hostile discrimination between particular persons and classes. This test was approved in US Cold Storage, supra:

" 'Granting the power of classification, we must grant government the right to select the differences upon which the classification shall be based, and they need not be great or conspicuous. (Citing case.) The State is not bound by any rigid equality. This is the rule;—its limitation is that it must not be exercised in "clear and hostile discrimination between particular persons and classes”. (Citing case.) Thus defined and thus limited, it is a vital principle, giving to government freedom to meet its exigencies, not binding its action by rigid formulas, but apportioning its burdens, and permitting it to make those "discriminations which the best interests of society require”.’ ”

The discrimination here is not hostile nor arbitrary but would appear to rest on a rational basis in distinguishing "public” warehouses from others for exemption purposes. Subparagraph 14 has been drafted to establish a presumption that farm products stored in public warehouses, as those facilities are defined in subparagraph 12, are conclusively presumed to be "in transit”.² The Legislature may well have determined that in most cases, farm products are perishable, and that when placed in a public warehouse it is the usual intent of the owner to ship such products within a short period of time before they lose their value and become a liability rather than an asset. However, it may also be the case that farm products are placed in a warehouse to await ripening or some other economically beneficial change before sale is attempted and shipment intended. In the latter case, the owner of the product would usually want to maintain some control over the chemical processes which affect his agricultural commodities. Thus, these processes would usually be allowed to proceed in a warehouse owned, or controlled by, or affiliated with the owner of the products, since it may not be the usual business of public warehouses to supervise goods in their care. Differentiation on a case-by-case basis as to the "true purpose” with which goods are stored in an owned or affiliated warehouse would place an intolerable burden on the taxing authorities. Thus, it appears that the Legislature resolved to apply a conclusive presumption to products stored in each category of warehouses, without regard to a factual inquiry as to individual circumstances.

And where administrative expense or convenience is a factor in establishing a classification, the legislative action has ordinarily been upheld. In 51 Am Jur, Taxation, § 520, p 523:

"A legislature is not bound to tax every member of a class, or none. It may make distinctions of degree having a rational basis, and when subjected to judicial scrutiny such distinctions must be presumed to rest on that basis if there is any conceivable state of facts which would support it. * * * Administrative convenience and expense in the collection or measurement of a tax may constitute a valid basis for exemption therefrom.”

Having found a rational basis for distinguishing between warehouses for exemption purposes and no clear hostile discriminátion, the validity of the statute is upheld.

II.

Do the terms "Consignor” and "Consignee”, as used in MCLA 211.9(12), include those persons or companies which simply deposit products in a warehouse for storage?

Plaintiff admits that the warehouse is its corporate subsidiary, but contends that the mere act of storage did not cause plaintiff to become a "consignor” or "consignee” as to the farm products. Because the terms are not defined in the statute, we must follow tenets of statutory construction in ascertaining their proper meaning. The parties have referred this Court to MCLA 8.3a; MSA 2.212(1) which directs courts to construe words according to the common usage of the terms except where they have acquired a peculiar meaning in the law. But plaintiff and defendant cannot agree on which of the two directives apply or even as to what "common usage” means. This dilemma is evidence of the fact that "consignor” has not acquired a meaning understood by all segments of the business community. These considerations compel us to use another approach in determining the Legislature’s intent.

In analyzing MCLA 211.9(12), it must be remembered that imposition provisions of a taxing statute are construed in favor of the taxpayer while exemption provisions must be strictly construed in favor of the taxing agency. Evanston YMCA Camp v State Tax Commission, 369 Mich 1; 118 NW2d 818 (1962).

Plaintiff asserts that the term "consignor”, as generally used in the business world, denotes one who puts goods into transit or shipment to another party, the consignee, for purposes of their ultimate disposition. We disagree with the proposition that such a narrow application of the term was intended. One plausible meaning ascribed to the term consign is found in 15A CJS, Consign, p 585, and is stated as follows:

"In mercantile law, the term has a well-defined legal meaning, and signifies to deliver goods to a carrier to be transmitted to a designated factor or agent; to deposit with another to be sold, disposed of or called for, as merchandise or movable property.

"The term implies an agency, and, applied in a commercial sense, means that the property is committed or intrusted to the consignee for care or sale and does not by any express or fair implication mean sale by one or purchase by another. It connotes delivery, and carries decided implication that the property consigned is not the property of the consignee, the title remaining in the consignor, the consignee being his agent.” (Emphasis supplied.)

The term thus encompasses more than entrustment for shipment. It includes delivery of goods for care or storage. Applying the recognized rule that tax exemption statutes are to be strictly construed and exemptions are not lightly given, Detroit v General Foods Corp, 39 Mich App 180; 197 NW2d 315 (1972), we believe the Legislature’s intent was to give "consignor” a broad meaning, thereby limiting the scope of the exemption. Plaintiff was properly denied an exemption from the taxing provisions of MCLA 211.1; MSA 7.1.

Affirmed. No costs, a public question being involved.

Holbrook, P. J., concurred.

1 Subsequent amendments have not changed the language under discussion here.

2 Once products of a state are committed to a common carrier for transportation out of the state, or once those products have started their ultimate passage to another state, they are no longer taxable as part of the general mass of property in the original state. Diamond Match Co v Village of Ontonagon, 188 US 82; 23 S Ct 266; 47 L Ed 394 (1902).