4 Or. Tax 545 | Or. T.C. | 1971
Decision for defendant rendered October 20, 1971.
Appeal pending.
These three cases, which were consolidated for trial and decision, concern the definition of "inventory" as used in the 1965 Inventory Tax Relief Act, Or L 1965, ch 604, § 1, codified as ORS
"For purposes of ORS
310.605 to310.625 , 'inventory' means all livestock and all items of tangible personal property described as materials, supplies, containers, goods in process, finished goods and other personal property owned by or in possession of the taxpayer, that are or will become, *546 part of the stock in trade of the taxpayer held for sale in the ordinary course of his business."1
The plaintiff is engaged in the business of manufacturing and selling cement. It maintains at its plants in Oregon an inventory of stores and spare parts consisting of fuel, tools, spare parts for machinery and vehicles, brick for lining the kilns, steel grinding balls, belting, cable, lubricants, tires, office forms and other supplies used in manufacturing cement. In its personal property tax returns for the years 1967-68 and 1968-69 plaintiff listed all of its stores and spare parts as inventory entitled to relief under the 1965 Act. The Baker and Clackamas County Assessors rejected the claim and the Department of Revenue affirmed their actions on the theory that such stores and spare parts do not become a physical part of the stock in trade and therefore do not merit inventory tax relief.
The plaintiff contends that the 1965 Act is not limited to inventory that physically becomes a part of the finished product, but applies also to supplies that will become a part of the finished product in a "commercial or accounting sense." Plaintiff argues, for example, that fuel burned to furnish necessary heat to the product during the process of manufacture, kiln bricks and steel grinding balls that are consumed in the manufacturing process with their residue going into the product because there is no economical way to exclude it, as well as spare parts for plant equipment, machinery and vehicles are costs of manufacturing and thus "a part" of the product in a commercial or accounting sense. *547
It is the court's opinion that the act does not grant any exemption to items that will not become an essential physical ingredient of the finished product. The separate definition of "inventory" in the act shows that the legislature did not intend to grant relief to all personal property that might be classified as inventories but only to inventories of the taxpayer's stock in trade, including the disassembled parts and raw materials thereof. Supplies of fuels, machinery spare parts, conveyor belts, tools and other such items employed in the manufacturing process are not included. The legislature was not talking about manufacturing, accounting or costs, but about merchandise held for sale. There is a significant difference between being a part of the product and being part of the process and cost of producing the product. Had the legislature intended to include in the relief all property that would be used, consumed or applied to the production of the stock in trade, it would have said so. To hold that it did say so would be to alter the statute.
Plaintiff stresses the inclusion of "supplies" in the definition in ORS
In its argument that the legislature intended a commercial or accounting meaning to the exemption, plaintiff relies heavily upon Francisco Sugar Co. v. Commissioner,
*549"Inventories at the beginning and ending of each year are necessary in every case in which the production, purchase or sale of merchandise is an income-producing factor. The inventory should include raw materials and supplies on hand that have been acquired for sale, consumption, or use in the productive processes together with all finished or partly finished goods." 1918 Rev Act, § 203, Art 1581. (Emphasis added.)
The Court of Appeals reversed, holding that the Board had taken:
"* * * too narrow a view of the phrase, 'consumption or use in the productive processes.' Oil needed to keep machinery going, bolts without which it will not go, fabricated parts which must be restored, pumps to keep out water, wiring for dynamos and generators, all these seem to us to be consumed and used in production, though they do not physically become a part of the finished product. * * *"
The decision is not applicable to the statute and case at hand because the provision in question there specifically included all materials and supplies acquired for "consumption or use in the productive process." ORS
Plaintiff also relies on certain regulations of the State Tax Commission, particularly subparagraph 2c of R307.020 (3),2 which was in effect in 1965 and *550
earlier, and published instructions for the annual personal property tax reporting forms.3 The purpose of R307.020 (3) 2c is to explain that supplies which do not enter directly into the finished product whether or not shown on financial statements as inventories are personal property subject to taxation. The regulation is not applicable to the statute here in question, and, of course, its definition of "supplies" is not binding on the legislature. If the cited instructions for the personal property return form were given plaintiff's interpretation they would be in conflict with the statute. In any event, although interpretive regulations and instructions of the responsible administrative agency are persuasive, they are not controlling.Bumble Bee Seafood v. Tax Com.,
1. It is a general rule of law that when the language of a statute is plain and unambiguous, its meaning clear and unmistakable, and when a literal interpretation of the words leads to no unjust or absurd consequence, a court is not permitted to search for its meaning beyond the statute itself.State ex rel Appling v. Chase,
The order of the Department of Revenue is affirmed.
"Property classified as personal property includes:
"* * * * *
"2. 'Merchandise and stock in trade,' commonly referred to as 'inventories,' include the following categories:
"* * * * *
"c. Supplies are auxiliary commodities which do not enter directly into finished products but which are necessary to operation and production. Office supplies, packing and shipping supplies and indirect factory materials are common types. Manufacturing supplies used are normally costed to the finished product through manufacturing expense; and the amount on hand shown on the financial statements as inventories. Other supplies on hand such as office supplies which are normally charged to selling or general expense may not be shown as inventories but nevertheless constitute assessable personal property.
"* * * * *."
"* * * * *
"4. Deductions.
"ORS
310.608 for the purpose of inventory tax exemption defines inventory as all items of tangible personal property described as materials, supplies, containers, goods in process, finished goods and other personal property owned by or in possession of the taxpayer, that are or will become, part of the stock in trade of the taxpayer held for sale in the ordinary course of his business. Therefore deduct the value of such items which are not to be expended in the production of finished goods or not to be sold to customers as non-inventory supplies and transfer to schedule 7 Miscellaneous.
"* * * * *." *552