Pan American Sulphur Co. v. State Department of Assessments & Taxation

248 A.2d 354, 251 Md. 620

• Court: Court of Appeals of Maryland
• Decided: January 3, 1969
• Docket: [No. 393, September Term, 1967.]
• Status: Published

Opinions

Finan, J.,

delivered the opinion of the Court. Marbury and Barnes, JJ. dissent. Dissenting opinion by Barnes, J. (See p. 629, infra).

This case involves three appeals, one by Pan American Sulphur Company and two by Pan American Sales Company (collectively referred to as Pan Am), from an order of Judge Joseph L. Carter of the Baltimore City Court affirming a decision of the Maryland Tax Court. The effect of the order was to deny to the appellants the benefit of the Maryland and Baltimore City manufacturer’s exemptions from personal property taxation for a liquid sulphur storage facility located in Baltimore City. The tax years and assessments involved are 1963 in the amount of $432,410.00, 1964 in the amount of $384,-360.00 and 1965 in the amount of $363,320.00.

The parties submitted an agreed statement of facts of which the following is a summary.

Pan Am, a Delaware Corporation, having its principal office in Houston, Texas, has for many years engaged in the business of sulphur exploration, sulphur mining and the sale of sulphur. The main source of supply is located in Mexico. This sulphur which is located in underground “sulphur domes” is pumped to the surface in a heated liquid state. Until recently it would be allowed to cool and harden and then be shipped to various customers. These customers or purchasers would then usually reheat the sulphur and convert it into a liquid state to be useable in their business.

Because of technological advances, it became feasible to maintain the sulphur in its heated, liquid state and to ship it and store it in this same heated, liquid state. After transportation in ships containing heated cargo tanks, the sulphur is stored in heated tanks at or near its ultimate destination. Such a heated storage facility was built in Baltimore by the appellant on land leased to that company by the Baugh Chemical Company (which is now known as Kerr-McGee Chemical Corporation). Kerr-McGee Chemical Corporation is a large user of liquid sulphur and purchases a great quantity of it from the appellant. The liquid sulphur is converted into sulphuric acid which is then used by Kerr-McGee in the manufacture of fertilizer. The American Agricultural Chemical Company (AACC) located on land adjacent to the land leased from Kerr-McGee by the appellants, is also a user of liquid sulphur and draws from the supply stored in the tanks on the property of Kerr-McGee and also has certain of the components of the distribution system located on its own property. It is this heated storage facility which is the subject of the three tax assessments currently under protest.

The facility consists of two large heated tanks, which are specially constructed so that the contents can be maintained at the requisite temperature of 270 degrees Fahrenheit. The liquid sulphur is pumped from the heated vessel by the vessel’s pumping apparatus to these two large storage tanks. There is a pipe running from the Clinton Street dock of Kerr-McGee to the liquid sulphur storage tanks approximately 500 feet away, located on laud leased from Kerr-McGee. There are then two blister pipes running from the storage tanks to the fertilizer manufacturing plant of Kerr-McGee and the AACC which carry the sulphur at the required temperature of 270 degrees Fahrenheit.

The two large storage tanks, the pipe line from the dock to the tanks, and the feeder lines from the tanks to each plant are owned by Pan Am. The steam boiler furnace, and oil storage tanks, which are part of the steam producing system necessary to maintain temperature, are likewise owned by Pan Am. There are also two reservoir tanks on the property which are owned by Pan American.

Although the furnace, steam boiler, and oil tanks, as stated above, are the property of Pan Am, they are within the Kerr-McGee plant and are operated and maintained by Kerr-McGee.

Approximately 38,000 tons of liquid sulphur are imported and stored in the large liquid sulphur storage tanks each year. In the neighborhood of 7,500 tons of liquid sulphur are drawn from these and utilized each year by AACC. The balance of approximately 30,500 tons is consumed each year by Kerr-McGee.

Sulphur in the tanks is the property of Pan Am which company has the right to sell the sulphur to any user. On at least one occasion, Pan Am sold to another company liquid sulphur which was delivered by Pan Am out of the tanks located on the Kerr-McGee property.

The arrangements in connection with the establishment and maintenance of these sulphur facilities are contained in a “Lease and Operating Agreement” between Pan Am and Kerr-McGee (then known as the Baugh Chemical Company), and an “Agreement for Molten Sulphur Facilities” between Pan Am and AACC.

Under the terms of the agreement with Kerr-McGee, Pah Am leases the tract of land of approximately 15,000 square feet used for the facility. Kerr-McGee superintends the operation of the storage facilities and is required to pay the costs incidental thereto. For this service, Kerr-McGee is compensated at the rate of $1.25 for every ton of sulphur which is delivered from the storage facility. It is also paid $4,000.00 per year as an annual rent for the land. As a result of this arrangement, Pan Am maintains no personnel in Baltimore to supervise the operation of the storage facility. After ten years, the lease will terminate and the entire storage facility located on Kerr-McGee property will become the property of Kerr-McGee.

A similar arrangement exists with AACC. Title to the two small reservoir tanks located on their land is in Pan Am, while responsibility for their maintenance, operation, repair, and replacement is with AACC. After the expiration of 20 years or upon the consumption of 1,000,000 tons of liquid sulphur, title to these reservoir tanks passes to AACC.

Pan Am bases its claim for exemption of the facility from taxation on the fact that it is used entirely or primarily in connection with manufacturing in Baltimore City and thus, is exempt under the provisions of Ordinance No. 1340 (Ordinances and Resolutions of the Mayor and City Council of Baltimore 1957-1958 approved April 7, 1958, effective December 31, 1958), and Section 9 (23) of Article 81 of the Maryland Code, which exempt from city and state personal property taxation property “used” in manufacturing.

The pertinent and essential portions of the ordinance are:

“In order to encourage the growth and development of manufacturing industries in Baltimore City and thereby promote the general welfare of the inhabitants of said City, all personal property of every description used entirely or chiefly in connection with manufacturing in Baltimore City, including * * * mechanical tools or implements, whether worked by hand or steam or other motive power, machinery, manufacturing apparatus or engines, raw material on hand, and manufactured products in the hands of the manufacturers, shall be exempt from taxation for all ordinary municipal purposes of the Mayor and City Council of Baltimore * * *.”

The exemption from State taxation provided by Code (1965 Repl. Vol.) Art. 81, § 9(23) reads in part as follows:

“ * * * Tools (including mechanical tools), implements, whether worked by hand, steam, or other motive power, machinery, manufacturing apparatus, or engines, used in manufacturing * *

The appellants contend that the issue in this case is the “use” which is made of the property for which the exemption is sought. If the facility is used for manufacturing, then under the terms of the ordinance and statute it should be exempted from taxation; and ownership of the property, ownership of the land on which it may be installed, and the business or occupation of the taxpayer is immaterial, as long as the property is used in manufacturing. We would agree with this proposition save for one important exception, namely, that the taxpayer seeking the exemption must be the one using the property for manufacturing purposes, whether it be by virtue of ownership, by lease or by circumstances set forth in Regulation 8 of the Department of Assessments and Taxation.¹

In the instant case the taxpayer Pan Am, who is seeking the exemption, is not a manufacturer but a supplier. Pan Am describes the facility in the lease as a “sulphur terminal and warehousing facility.” The facility for which the exemption is sought does not in any way change the form, shape or character of the product which it receives, from the time it is introduced into the tanks, from the ships berthed at the dock, until it leaves the tanks in the course of its transmission to the plant of the manufacturer. In this respect the facts are distinguishable from Baltimore v. Tax Commission, 161 Md. 234, 155 A. 739 (1931), wherein the exempted facility considerably altered the shape of the material which it processed. However, we do not think that in order to sustain our theory of this case it is necessary to distinguish Baltimore, supra, in this respect, as there are other basic differences between it and the case at bar. In Baltimore, supra, the taxpayer was the one making the claim that it was using the facility for manufacturing purposes, whereas in the instant case Pan Am justifies the exemption on the alleged use of the facility in manufacturing conducted, not by itself, but by customers who purchase the sulphur from it. It should also be kept in mind that Pan Am retains title, not only to the facility but to the product stored in it until it is purchased by the manufacturer, and Pan Am is at complete liberty to sell sulphur to manufacturers other than Kerr-McGee and AACC.

It may be contended that this Court is reading something into subsection (a) of the ordinance which is not there, namely, the requirement that in order to qualify for the exemption the facility must be used for manufacturing purposes by the taxpayer. However, if the ordinance is not so construed, an almost absurd result is reached, to the effect that any supplier or wholesaler supplying a manufacturer with material used in manufacturing could claim a manufacturer’s exemption, not only for those surface storage facilities which may qualify as personal property, but also for the material supplied. Certainly such a result was not intended by the Legislature. One of the cardinal rules of statutory construction is that wherever possible an interpretation should be given to statutory language which will not lead to absurd consequences. B. F. Saul Company v. West End Park North, Inc., 250 Md. 707, 246 A. 2d 591 (1968); Rogan v. Baltimore & O. R. Co., 188 Md. 44, 52 A. 2d 261 (1947) ; Bouse v. Hutzler, 180 Md. 682, 26 A. 2d 767 (1942); Kolb v. Burkhardt, 148 Md. 539, 129 A. 670 (1925).

Furthermore, we think our construction of subsection (a) of the ordinance is supported by the language found in subsection (d) of the ordinance which reads as follows :

“(d) In case any person, firm, corporation or other legal entity engaged in manufacturing in Baltimore City shall also be engaged in the business of a jobber or wholesaler, nothing in this section shall be construed to exempt from taxation the personal property, other than goods of his own manufacture, used in connection with said business of jobber or wholesaler. (Emphasis supplied.)

It should be noted that subsection (d) uses unequivocal language in referring to those “engaged in manufacturing” as the object and purpose of its intendments and continues to explain that even the manufacturer is not to be given special treatment when engaging in the business of a jobber or wholesaler and that property used in connection with the manufacturer’s activities as a jobber or wholesaler is not to receive the benefit of the exemption. The language used in subsection (d), which is a corollary to subsection (a) leaves no doubt but that the ordinance is directed toward manufacturers and property used by the manufacturer. This Court has said that “in ascertaining the intention of the legislature, all parts of a statute are to be read together to find the intention as to any one part, and all parts are to be reconciled and harmonized if possible. * * McConihe v. Comptroller, 246 Md. 271, 275, 228 A. 2d 432, 434 (1967).

Pan Am endeavors to qualify for the exemption by advancing the argument that the facility in question is actually used as an appendage to Kerr-McGee and AACC, which are manufacturing plants and that the convertible lease agreement it has with Kerr-McGee and its agreement with AACC add up to conditional sales contracts and that the interest of Kerr-McGee and AACC in the respective tanks should be regarded as the equivalent of “almost absolute ownership.”

Assuming, without conceding, the validity of this proposition, we do not think it is material to the case at bar. The point we wish to make being, that it is neither Kerr-McGee nor AACC, the manufacturers, against whom the property is assessed; nor did they return the property on their personal property schedule which they filed with the State Department of Assessments and Taxation; nor are they the ones requesting the exemption. The exemption is being requested by Pan Am the supplier. We think this distinction takes this case out of the usual pattern of the manufacturer-lessee or a manufacturer-conditional vendee, wherein the manufacturer-lessee or manufacturer-vendee returns the property on its schedule filed with the Department of Assessments and Taxation on the premise that it has all the indices of ownership, with the exception of title, and requests an exemption. We know in such instances the equipment does qualify for the exemption (Reg. 8, Department of Assessments and Taxation). In such case the one seeking the exemption is the manufacturer-lessee or manufacturervendee, who is doing the manufacturing. We do not have such a combination of identities in the case at bar.

Furthermore, we do not think that Enterprise Fuel Co. v. Jones, 99 F. 2d 928 (4th Cir. 1948), on which Pan Am relies so heavily is apposite. The question of “use” of the equipment and by whom, was not the pivotal issue in Enterprise, supra. That case turned on the questions of title, possession, the recording statute and creditors’ rights.

Why Pan Am, Kerr-McGee and AACC hit upon the type of arrangement that they did, is a matter best known to them. They may well have entered into a different type of agreement whereby the facility might have become the first step in a manufacturing process rather than the last step or “tailend” of a selling and distributing process. However, we cannot remake their agreements so as to escape the plain language of the ordinance and the statute.

This Court realizes the salutary purpose of the ordinance and the statute which is to encourage and induce the location, growth and development of manufacturing industries in Baltimore City. However, it is a well established rule that tax exemptions must be strictly construed in favor of the state. “* * * If there is a real doubt on the subject, that doubt must be resolved in favor of the state. * * Pittman v. Housing Authority, 180 Md. 457, 460, 25 A. 2d 466, 468 (1942); “* * * To doubt an exemption is to deny it. * * *.” Suburban, etc. Gas Corp. v. Tawes, 205 Md. 83, 87, 106 A. 2d 119, 121 (1954).

For the reasons which we have stated in this opinion we find no error in the action of the lower court affirming the decision of the Maryland Tax Court which denied the exemption.

Order affirmed, appellants to pay costs.

1 . “Reg. 8. Ownership of Personal Property—Where title to personal property is in one person and possession or control of the same in another, as lessee, custodian, consignee, bailee or otherwise, either the title holder or the person in possession or control shall be deemed to be the owner of such property for purposes of ordinary taxation.” (Regulations of the Department of Assessments and Taxation, adopted December 18, 1953.)