*1
2. Commerce—Constitutional Operational Needs. grants the states a reasonable The United States determining operational what "current amount of latitude it is clear that the manufacturers have so needs” once to lose materials as their distinctive acted imports. character as Operational Commerce—Imports—States—Current 3. Needs. irrevocably importer has committed at their Once manufacturing, journey’s to use the states have a end determining opera- amount latitude "current reasonable tional needs”. Commerce—Imports—Taxation—Constitutional 4. Law. authority taxing quite within Defendant authorities were assessing plaintiffs tax steel coils on hand on the date, year, formula months 31 of each on a of 2-1/2 December usage pоrtion plaintiffs steel needs for where a substantial was on an coils obtained from mills and delivered was average months after same ordered. of 2-1/2 lead time was Commerce—Imports—Taxation—Appeal and Error. 5. Detroit, App Knight Newspapers, Inc v Mich Insofar References in Headnotes Points 2d, 20 Am Jur Courts 197. §§ [I] 2d, 5, 6, [2, 15 Am Jur Commerce 66. §§ 3] 2d, 15 Am Commerce §§ Jur [4-10] 2d, Appeal Am Jur and Error 825. § [II] v Detroit (1969) adopts rule and formula used in "[t]he "Denver v Denver Co, Publishing (1963), 153 Colo 539 which was that once im- ported goods part become of the "current needs” of *2 business, they immunity lose their constitutional to local operational taxation and "current needs” by are determined multiplying days replenish the number of needed to the busi- average quantity goods ness’s stock of which is used daily, Michigan disapproved as the rule in it is and overruled.
Concurring Opinion Kavanagh, T. G. and M. S. Coleman, JJ. Commerce—States—Taxation—Imports—Constitutional 6. Law— Original Package.
Immunity of state taxation under the United States country Constitution survives their arrival in this and contin- sold, they original ues until package, are removed frоm the or put they imported. to the use for which are Commerce—States—Imports—Manufacturing—Taxation. 7. manufacturing,
Commodities
for use in
like commodi-
uses,
immunity
ties
for other
retain their
from state
beyond
importation
they
taxation
until
are used
importer
put
they
imported.
or
to the use for which
are
Commerce—Imports—Manufacturing—Replenishment
8.
Time
Test.
test,
determining
goods
The
time
for
when
im-
ported
purpose
for
they
manufacture are used for the
for which
(1)
imported,
required
is a two-factor test:
time
to obtain
(2)
supplies
commodity,
additional
quantity
of the
and
used
during
period.
Commerce—Imports—Current
Operational
9.
Needs.
"Current
needs” does not seek to measure the im-
porter-manufacturer’s
supplies
need for domestic
but rather the
quantities
foreign supplies required
segment
of
to maintain the
manufacturing operations
of his
he chooses to stoke with
foreign supplies.
Commerce—Imports—States—Taxation.
10.
portion
plaintiffs
inventory
foreign
of
December 31
of
steel
subject
plain-
to state taxation is the amоunt needed to cover
usage
foreign
agreed-
tiff’s actual
of
steel in the
months
2-1/2
required
supplies
time
to obtain new
of
steel.
11. stipulated disposed on the Case should be of facts and issues on both sides framed. which able counsel Appeal Appeals, 1, from Court of Division Hol- brook, J., Danhof, P. T. M. Burns JJ., Fitzgerald, affirming Neal Wayne, Submitted (No. 8 June Term June Docket No. 54,428.) 18, 1973. Decided December App
42 Mich 698 reversed. Complaint by Strip Corporation Production Steel Detroit, against City Board of Education Detroit, Wayne of the City County, the Trea- Detroit, City surer of the and the Treasurer Wayne portion for refund of a County personal Judgment taxes. property plaintiff. Defendants *3 appealed Appeals. to the Court Affirmed. De- appeal. fendants and Reversed remanded to circuit proceedings. court for further Cohn, Shapero, Shapero & for plaintiff. Glusac, M.
Michael Counsel, Corporation and Yim, Morgan Lawrence W and Arthur Assistants Counsel, Corporation for defendants of Detroit City City and its Treasurer.
Aloysius Suchy, Corporation Counsel, and William F. Koney, Counsel, Corporation Assistants for defendants County Wayne County and its Treasurer.
Ostrowski, Wilson, C, Bowman, Belanger & P. for defendant City Board of Education of the Detroit.
Williams, principal question presented J. The Steel v Detroit op the Court plain- case is whether and to what this extent Strip Corporation tiff Production so has acted which it the materials has for use manufacturing operations in its as to cause them to lose their distinctive character as and immunity property from taxation within the meaning "imports” Import-Ex- as used in the port Clause, I, § 10, Art cl 2 of the United States Constitution.1
I—FACTS pertinent Stipulated facts as are: "Plaintiff, Strip Corporation’s Production Steel busi- (1) part purchase ness inis hot roll steel coils and descaling, reducing, annealing cold rolling, and skin produce strip cold roll of restricted tolerances * * * finishes, specialized steel . purchased hot by Taxpayer "The roll steel coils are a product. product standard foreign Such when with, with, mills is identical interchangeable and cannot utility be differentiated far so is con- acquired cerned from steel from domestic mills. Such produced steel specifications coils are to the same have properties. the same purchased
"Plaintiff its steel coils from domestic mills foreign and from During mills. naviga- the Great Lakes (April tion season 1 of year each November such year), portion a substantial of its needs for steel coils in 1966 and 1967 was obtained from mills and was of a Taxpayer average delivered to Detroit on at an two one-half months lead time after same was *4 A portion were, ordered. substantial of such on 31, 1965, dock, December stored of the some outside boat not bond, under customs warehouse in was stored 1 I, 10, provides Article cl 2 § United States Constitution pertinent part: shall, Congress, lay any Imposts "No State without the Consent of Imports Exports, may absolutely except or Duties on necessary or its what be * * * inspection executing .” Laws 508 Mich op the Court Street Humboldt near Taxpayer’s warehouse were on tax date dock, stored at amounts and small transported imported steel is Such warehouses. other Taxpayer’s (14) Sherwood, fourteen miles plant at plant at dock, Taxpayer’s is room there when from the Strip, Production Steel Inc. date On tax on Sherwood. plant its on Sherwood for coils at its had sufficient steel months. two for about needs navigation season between Novem- close of "After the 1, 1966 and between November April ber 1967, purchased 1, Taxpayer supply its April 1966 and only mills and not from from domestic of steel coils elapsing from date of Order to The time mills. purchases from mills domestic Delivery of such date during April 1965 and November periods between such April 1966 and 1, November 1966 and between month.” was one-half authori- governmental local
Defendants assess, personal and collect levy annually ties who as is within property on such taxes property date, December 31 of the tax limits on corporate are for the The assessments year. each following facts are 1967. The years tax as indicated. are of record stipulated but not proр- assessment, on the basis of made The 1966 31, 1965, made was December on hand erty the State Assessors and Board of the local both 2 1/2 month "that a on the basis Tax Commission ” (In requirements.’ to current usage was 'essential Strip Cor- 1155 of Production Appeal No. re Commission, Tax Michigan State poration, páragraph complaint, and see paragraph 6.) Tax Commission answer, The State paragraph stated: has stated city of Detroit "2. That inventories importer of the steel
appellant is the proc- taxpayer of the action question but because inventory of steel portion essing steel a this *5 Steel Production v Detroit 1973] Opinion of the Coukt assessment, should be added to its nevertheless repre- senting part, " ' . . . essential current ’ Youngstown . . requirements . Sheet Tube Co. vs & Bowers, 534, 79 S Ct US L Ed 2d 490 [3 (1959)].”
The 1967 was assessment more complicated. The Board of that, Assessors assessed on the basis the State Tax Commission affirmed amount of imported inventory that had lost its constitutional immunity was taxable "was the of entire amount such and was not limited (2-1/2) to two and one-half months prоcessing and 6; shipment.” (Complaint, answer, 6, ¶ ¶ Detroit, Strip v Corp City 121450; No In re Appeal No 1377 of Production Steel Strip Corp, Commission.) 1968, Michigan State Tax The State Tax Commission noted: city
"The Commission is in accord with the of Detroit in relying on the recent court decision of Virtue Bros. County Angeles, vs App Los Cal 2d 43 Cal. [239 Reporter [1966], with certiorari denied 10, United States Court on October 1966.”
While the Board of Assessors
and State Tax
Commission originally adopted the formula of tax-
ing
31,
all the imported
present
steel
on December
court,
appeal
the circuit
prior
to final
judgment,
position,
defendants
abandoned this
principally
on the basis of the Court of Appeals
Knight
Detroit,
Newspapers,
v
case
Inc
16 Mich
App
Defendant of The Court of Appeals. Ap- ment the Court holding Court affirmed with a divided peals time to the correct be days 14 was taxpayer’s opera- current in computing used 698, 703; 202 App Mich NW2d tional needs. opinion stated: minority 719. of considering the taxable status "We here why foreign inventory, and I cannot see
plaintiffs
of
plaintiff satisfies some
his needs domes-
fact that
App
any
Mich
tically should make
difference.”
In historical interest, the 1969 part but of Not a of the facts this case figure assessment, months Tax used a three the State Commission (In Appeal of Produc requirements.” re No to current "essential 1970). Strip Corporation, tion Steel Steel v Detroit ing imports foreign state taxation from a country, begin opinion with the we must of Chief (12 Maryland, Marshall in Brown v Justice 25 US Wheat) (1827), 419; 6 L Ed landmark case dealing I, § 10, cl 2 of with art the United States Mary- Constitution. Brown was concerned with a declaring importers statute land goods by package the bale or must a secure license goods. in order to sell their The Court held that prohibited impost the statute levied a on was, therefore, unconstitutional and in the opinion course of the Chief Justice Marshall stated point that prohibition be "there must of time when the power ceases, and the of the State to Having premise, tax commences.” stated the he elaborated the vexatious nature of it: *7 prohibition "The constitutional on the States lay to a duty imports, prohibition on a a which vast majority preserving, them come feel may certainly must an interest in acknowledged power conflict with to tax persons property territory. quite power, and within their it, though distinguishable and the on restriction other, they approach when do may yet, not eаch like intervening black, ap- the proach colours between white and nearly perplex
so understanding, as to the as perplex marking colours the vision in the distinction exists, between them. Yet the distinction and must be arise, marked the they might as cases arise. Till do it be premature any being to state rule as in its universal application. It is present say, gener- sufficient for the to ally, importer that when upon the so has acted the thing imported, incorporated that it has become up mixed with it property country, the mass of the has, perhaps, import, lost its an distinctive character as subject taxing and has power become the of the State; remaining but while property the of the im- warehouse, porter, in original pack- his in the or form age in imported, which it was tax it too a is plainly duty imports escape prohibition the Mich op the Court added.) (12 Wheat) 25 US (Emphasis the constitution.” 419, elaborated on Marshall also some Justice Chief which importer would cause of the or conduct acts mass, with the up prop- "mixed to be goods the its distinctive county in the erty [and lose] goods He held that the import”. as an character importer when the as lose their character (2) (1) up packages, them,” his or "sells "[breaks] pedlar,” itinerant or them as an with [travels] (3) country by into this an brought goods that the and here "used” own use” importer "for his part him of "the common as a regarded to be are are not immune state property mass” of 419, 443. 12 Wheat taxation.
Thus,
beyond
went
discourse
Marshall’s
Brown,
actually presented
scope of
subsequently
States
but the United
imported goods them-
that
principle
applied
held in
the states while
taxed
selves cannot be
original package
in the
importer’s
warehouse
Wall)
(13
Austin,
v
80 US
See Low
for resale.
How)
(5
Cases,
License
(1871);
46 US
L Ed 517
504;
The United Marshall, nized, had Chief Justice its constitu- import loses comes when an point They import. to be an ceasing immunity by tional is lost when: immunity have stated (1) broken;3 is original package (2) sold;4 goods *8 (1878); May 3 v 566; & Co L Ed 1015 24 Pennsylvania, 97 US Cook v (1900). 976; Orleans, 496; L Ed 1165 20 Ct 44 178 US S New (1869) (the 4 Wall) (8 110; 342 Waring Mayor, 19 L Ed 75 US v The prior the to importer sale a contract of had entered into initial landing responsible but, goods, he was the contract the since under of loss or place as damage, to take his any held not his vendee was
for
importer).
Austin, supra, May
Co
Cases,
575;
&
supra,
v
Low
License
Orleans, supra.
v New
Steel v
517
Detroit
Opinion of the Court
(3)
goods imported
the
the
character of
is changed
a
subjecting them to
by
manufacturing
process;5
6
(4)
goods.
the
by making
of
use
Evatt,
Co
In Hooven & Allison
v
324
652;
US
(1945)7
870;
legal show them as to cause upon materials acted imports’ irrevoca- character as their distinctive lose them, importation journeys committing after bly Harv L Rev see 73 of the case For a discussion (1959); L (1959); 1959 Wis 594-596 34 Notre Dame Law 176-179 330, 335-336 Rev v Detroit Opinion of the Court ended, 'use in definitely manufacturing’ have at the destination, plant point of final 'entering’ 'using’ manufacturing’ 'in place?” them at that *10 added.) (Emphasis US case, In the St Ohio 122; 140 (which (1957) NE2d 313 involved shipped ores in bulk), Supreme upheld the Court an Ohio ad valo- (used rem on imported tax iron ores in the process steel) of iron and which were piles stored in yards” storage "ore according tо of country origin grade adjacent to the manu- facturing of the importer. portion facilities A foreign ores was periodically removed from these "ore to "stock or yards” bins” "stock houses” located close to the furnaces. These "stock bins” held one or day’s supply a two and were the source from fed which the furnaces were ores. This repeti- tive removal "stock bins” gradually depleted piles stock ores the "ore yards” which in turn replenished by were new bulk iron ores from sources. This resulted in a com- mingling of old and new shipments of iron ores yards”. Supreme "ore The Court of Ohio held the: Import-Export cannot "[P]rotection [of Clause] (1) extend to iron commingled such ore after it has been imported time, with other iron ore at a different even though imported grade such iron ore is the same and was (2) place, portions from the same after manufacturing.” such ore have been removed for use in 122; 166 Ohio St 140 NE2d 314-315. in the United Corpo States Plywood
Similarly, ration case, (1958), 2d Wis NW2d 481 Supreme Wisconsin Court held that raw materials from impоrted foreign countries and at the stored importer’s factory original in their are packages Mich Opinion of the Court general property tax
not immune from when acquired” "put goods use for to the which such being essential the current the sense of importer. manufacturing requirements of the goods were in this case involved lumber imported in bulk The lumber was veneers. piles cars and stacked in railroad unloaded plant importer’s dry. adjacent to air Since to the "green” in a was of the lumber most condition, it dried before could be used it had to be manufacturing purposes. air-drying This was a for preliminary subsequent drying oper-
step kiln to a readily found ation. The Wisconsin stacking purpose of the was to that the dominant dry it had "entered so that the lumber air "put process thus to the and was of manufacture” *11 imported.” City was] The of [it use for which property Algoma imposed tax on one-half of the ground por- on the and veneer lumber immediate use in manufac- was committed tion upheld Supreme turing. Court the The Wisconsin finding, ground. This not con- the samе tax on by appeal, the United was affirmed on tested Supreme Court. States imported Plywood in the case were veneers
The straps in or wooden in secured bundles metal importer’s packages kept in the in such crates manufacturing pro- until used the warehouse approved Supreme Court Wisconsin cess. The lower findings the amount that one-half of court’s necessary to meet the was the veneers on hand of importer’s and therefore needs current immunity veneers since constitutional had lost being put use for which to the "in substance were though imported, not even materials were the raw yet subjected wrappings or from their removed change.” any physical The United or chemical Steel v Detroit Supreme holding using States Court affirmed this principal Maryland its authorities Brown v Hooven & Co v Evatt. Allison
Perhaps particular significance in this case opinions arguments because of below and appeal Youngstown formulas used Plywood by and United States Ohio and Wis- nothing report consin. is There either the Youngstown Supreme in the Ohio Court or in the United States Court to indicate that Ohio not did present tax the entire amount of ore day. only on tax clue to the amount of present "Youngstown then ore is that endeavors to supply maintain 'a ores to meet its requirements period estimated for a of at least ” three months.’ 358 US 537. In United States Plywood, City Algoma, "[t]he Assessor of the believing that one-half of the lumber and veneers taxing necessarily on hand on the date was re- quired kept to be on hand to meet the current operating petitioner’s manufacturing needs of plant, assessed an ad valorem tax the value of that one-half of the lumber and veneers.” US appears simply
Quite it that the there, assessor assessed all that were probably neighborhood which was in the of a three supply. Plywood, months In United States judged assessor half of what on hand was was necessary operating” for "current needs.
There is no mention and no evidence of interest Youngstown specifics daily monthly in in the or usage figured or of time which have largely arguments opinions so in the and in the case. instant any evidence, such
Without the United States Supreme Court concluded: Mich the Court stipulated and found facts as cases ”[T]he us, light applicable in the before when considered have so legal principles, that these manufacturers show as to upon imported materials cause them acted \imports’ by as their distinctive character irrevoca- lose them, importation committing after bly journeys ended, manufacturing’ 'use in deñnitely at have destination, by \entering’ and plant point of fínal manufacturing’ ’using’ them ’in place at that [.]” added.) 534, (Emphasis 358 US 543. Supreme Court deals with States The United operational needs” test of Hooven as "current follows: Hooven, these are not cases of the mere "Unlike imported
storage materials intended in a warehouse but not found to use in for eventual have been, operational needs. Here to current essential have in effect held that the Ohio and Wisconsin courts the facts show that the stipulated and found by those States were so materials that were taxed mаnufacturing requirements essential to current process of manu- they must said to have entered be facture, judgments, have rested their and those courts least, ground. major part at on that Our the Court did not precisely therefore is the one which 534, the Hooven case.” 358 US 544. or consider reach added.) (Emphasis A to be drawn from fair conclusion grants Supreme United States is that the states a reasonable amount of latitude determining operational needs” are9 "current what have so once it is clear that the "manufacturers lose their materials as to acted 'imports’ ”. 358 US distinctive character added.) (Emphasis determining turn now to whether We Publishing reached, In Citizen-Times Same conclusion re Asheville 210, 220; Co, 281 NC 188 SE2d *13 Steel v Detroit Opinion of the Court what extent the hot roll steel coils in the instant case had lost "their distinctive character as ” 'imports’ under the standards established in Youngstown.
Ill— & YOUNGSTOWN PRODUCTION STEEL begin comparative analysis Youngstown We quotation and Production Steel with a transitional Youngstown: from "And inasmuch as 'the reconciliation compet- of thе ing demands of the constitutional immunity and of the power tax, an extremely practical state’s to is matter’ (Hooven Evatt, supra, 668), & Allison Co. v. at we must approach whether these had materials 'put they (id.,
been to the use for which imported’ [were] 657) at with full awareness realities and treat with 534, in practical way.” them a 358 US quotation
Following the above the United States only that finds "the ores were not * ** imported, irrevocably needed, committed * * * supply [and] entered * * * process and to lost have their distinctive 'imports’ immunity character as and all tax (358 546) following such” US from the facts: stipulation "The Youngstown case shows that the Youngstown’s operation ores were essential plant; Ohio that im- had ported them use in manufacturing’ 'for 'to and meet its [manufacturing] requirements’ estimated plant; at that destination, that the ores had arrived at their had been placed 'piles’ yards’ plant, in the 'ore importation journey definitely ended; had irrevocably ores were ing’ committed 'use in manufactur- point plant destination; at that of final daily plant conveyed that from the ore needs of the were 'piles’ in yards’ the 'ore to 'stock or 'stock bins’ 390 Mich Opinion of the Court days’ supply, holding houses,’ or two one which they furnaces.” 358 US into the 545-546. were fed *14 question Steel, there is no In but Production coils] [steel were essential "the that plant, operation” plaintiffs that steel in "for use in were manufac- coils turing” issue requirements”; meet estimated and "to "importation journey that the steel defi- and nitely coils’ "irrevocably were commit- had ended” and manufacturing plant at ted point 'use ” destination.’ No at all of final about this. supply in Production Steel does service " 'piles’ yards’ in the 'ore to 'stock not consist ” exactly. of material from But the flow boat
bins’ surrounding factory to the warehouses docks curtilage factory certainly itself is and into the feeding materials same kind of Michigan everyone process generally is which almost with supply So the line Youngstown. Produc- familiar. strictly comparable to tion Steel is comparative analysis brings The aforementioned Youngstown rule rela- Produсtion Steel within losing character of im- tive to the "distinctive ports”, etc. Hooven’s "current
What about needs”? above, point specifically we considered
This is importer has irrevoca- concluded that once the journey’s bly end committed at their manufacturing, have a reasonable use in the states opera- determining "current of latitude in amount tional needs”. appears to be that The fact of the matter State Tax Commission Board of Assessors and the legal guide- entirely sure what have not been opera- determining "current be in lines should v Detroit Opinion of the Court They employed tional needs”. have at least two assessing imports present formulas, the first all taxing assessing date, the ports the second of the im-
present taxing equivalent on the date the daily requirements multiplied by the number of days replenish requirements such needed to source derived. may justification
There for the first formula be case, and the for which California the United States denied certio- assessing upheld imported property rari, which all (Virtuе taxing present on the date. Bros v Los Angeles County, App Rptr 220; 239 Cal 2d 48 Cal den, [1966], 820; cert US 87 S Ct 17 L [1966].)10 Ed 2d 58
However, since defendants have receded from position argued and since that matter was not *15 question open express us, before we leave the opinion. no
As to the second assessment formula that operational requirements” "current are 2-1/2 usage patent months with a or latent reference to replenishment certainly abroad, time from nothing Youngstown precludes there is in that approving fact, this formula. aAs matter of Pro- usage compares duction Steel’s 2-1/2 months favor- Youngstown’s ably attempted with maintenance of requirements, and, course, 3 months comparable we have no Plywood.
standard from United States
If we look to the facts further we find that on
taxing
plaintiff
date
had about nine months
(derived
usage
Stipula-
V,
on hand
from Exhibit
Facts). Recognizing
tion of
the facts of life Great
shipping,
plaintiff
suggest
Lakes
this would
Smelting
Refining
See also American
&
Co v Contra Costa
County,
App
437;
Rptr
(1969);
In re Asheville
271 Cal
2d
77 Cal
Co,
Publishing
Citizen-Times
281 NC
Insofar rule and formula "[t]he used in the Denver Case” as the rule in Michigan, 438, 442, App Mich it is disapproved and over- to, ruled. This prefers and must rely on the Youngstown. How- original and basic authority ever, whether the decision reached in Knight is corrеct or not before us. As Denver incorrect is says, rigid is no and inflexible rule which "[t]here can be laid down to determine the 'current opera- taxpayer. tional needs’ of a This is an area where policy of the law dictates ad hoc determina- tions presented based on the facts particu- each 539, lar 548-549; case.” Colo 387 P2d Knight appears question raise the assessing the entire import or of an "arbitrarily set” 15 days’ supply App standard. Mich 440. We have expressly question reserved the of assessing and, course, import entire we do not have before us the judge record to whether or not 15 day standard was arbitrary or reasonable. Denver,
toAs we have reserved the rules, it which namely import whether the whole assessable, is purpose limiting and we see no general the broad rules of by raising "the distinction between 'current good needs’ and practices business dictated prudent management,” if necessarily indeed there Denver’s com- any event, is distinction. In any ment, above, quoted against "rigid inflexible cases, rule” these we believe the better lesson Furthermore, from this case. it is not at all certain *17 390 Mich 508 528 Levin, Opinion by J.
that support the decision does not defendant’s formula as it is based on although Canada also taxpayer had a domestic Pipe Corp See Beall & Tank source. v State Tax Commission, 195, 200; 254 Or P2d (1969) interpreting Denver as determining "cur- operational rent needs on the basis of the length of time required to secure additional supply from the foreign source.” Appeals Court of and the circuit court are
reversed. The case is remanded to circuit court for further proceedings consistent with this opinion. costs, public question. No Kavanagh, Brennan, and T. E. J., T. M. C. Swainson, JJ., Williams, concurred with J.
Levin,
(concurring).
The immunity from state
taxation
under
the United States Con-
stitution
"survives
arrival
in this country
sold,
continues until
they are
removed from
original
package,
put
or
to the use for which
they are imported.” Hooven
Evatt,
& Allison Co v
652;
870;
US
65 S Ct
We know from Hooven commodities im- ported for use in manufacturing, like commodities uses, for other retain their immunity until they are
—"used” by
importer,
per
Chief Justice
Wheat)
(12
in Brown v
Marshall
Maryland,
US
419;
(1827),
—"put use for they imported,” which per Justice Stone in Hooven & Co v Chief Allison Evatt, supra.
Youngstown
Bowers,
Sheet & Tube Co v
358 US
534;
(1959),
S Ct
Youngstown support does the inti- of the Court opinion mation the this case on the imports present taxing that "all day” might Youngstown, taxation.1 subject be while distin- Hooven, was decided within guishing its frame- in Youngstown holding work and described as 542): (p follows "In it goods goods Hooven was held that omitted] [citation
imported
imported
immunity
share the same
for 'use’
as
'sale,’
goods imported
and that
'for manu-
imports
their character
as
any
facture
iose
[do not]
(id.,
readily
imports
sooner or more
667);
than
for sale’
at
imported goods
but when
used for the
[the
are]
purpose
they
imported,
they
for which
are
cease to be
Id.,
exemption
and their
tax
is at an end.’
at
Court.)
(Brackets by the
665.”
The
then is how does one determine
goods imported
when
for manufacture
are "used
or,
purpose
they
imported,”
for the
for which
phrased
as the
Court elsewhere
the
question:
stipulated
"Do the facts as
and found in
us,
light
the cases before
when considered in the
applicable legal principles,
show that
these manu-
upon
imported
facturers have so acted
the
materi-
als as to cause them to lose their distinctive
char-
them,
'imports’2
committing
acter as
by irrevocably
Court,
opinion
stipulation
The
of the
in accordance with the
of the
9)
(see
parties,
year
year
limits taxation in the
fn
as well as the
usage.
1966 to 2-1/2 months’
phrase
upon
their
"so acts
the
materials as to lose
”
'imports’
as
from words written
distinctive
is derived
characteristics
Wheat)
(12
by
Maryland,
Chief Justice Marshall in Brown v
25 US
(1827):
419, 441;
thing imported,
I taxing Youngs- The Detroit authorities read the purposes town case—at least for the of this case— subjecting inventory Production’s only steel to state taxation to the extent of its operational taxing "current needs.” Both the au- agreed, thorities and Production have as stated in taxing authorities, brief filed " 'current needs’ are to be measured ques- of the steel in time *19 tion.”3 "replenishment
The
time” test is derived from
Publishing Co,
Denver v Denver
539;
153 Colo
387
(1963),
adopted by
P2d 48
and was
the Court of
Appeals
Knight Newspapers,
Detroit,
Inc v
App 438;
Mich
168 NW2d 318 (1969).4
applied
subsequent import
import
in both
for sale and
for use cases
through
decision,
down
the latest United States
Court
Youngstown,
began
opinion by stating
where the
"prin-
its
the
cipal question presented” in those terms.
Appeals
question
The Court of
stated the
as follows:
question
"Therefore the
we are called
to decide is whether or
replenishment
application
operational
not
time for the
of 'current
by
replenishment
needs’ formula is to be measured
the
time from
foreign
by
replenishment
immediately
sources or
the actual
time
Strip Corp Detroit,
after the tax date.” Production Steel
v
42 Mich
(1972).
698, 702;
202 NW2d
App
replenishment
adopted
The
time test was also
and followed in Orr
Schneider,
14;
(1965);
Felt & Blanket Co v
3 Ohio St 2d
The Court so the time test explaining Ap- after its reversal the Court of peals’ decision on a basis neither briefed nor ar- gued, opinions nor mentioned in the decisions and by appeals filed circuit and courts. parties having agreed pertinent that
inquiry operational is Production’s "current needs” those needs are to be measured test, the us, time before
again tаxing authorities, as stated is taxing right whether authorities "a have inventory assess steel in the amount of 2 usage replen- 1/2 months’ on a 2 based 1/2 month foreign suppliers” ishment lead time from or contending whether Production is correct "only usage necessary satisfy 1/2 month’s is only current needs that amount is day assessable, because on tax Production could replenish steel domestic within sources 1/2 month.” ("so
Foreign functionally and domestic steel are concerned”), utility parties far is or at least stipulate, Although so using foreign the same. Production was during
steel both 1/2 month commingled supplies. of the were whole” used or were other with *20 220, Angeles 231; App County, Virtue Los Bros. v 239 Cal 48 2d Cal (1966); Co, Rptr Publishing In 505 re Asheville Citizens-Time 281 NC (1972). 316 188 SE2d See, Glander, Approach generally, Immunity Tax A Practical Imports Manufacturing, (1965); Note, 18 for Use Nat’l Tax J 328 Imports Imports Manufacture, (1964); v for Sale for La L Rev Note, May Imports Smelting Refining Tax States in Bonded Held Warehouses, Vand L Rev 437 390 Mich Opinion by (contended replacement period for by Production) (contended and the 2-1/2 period months for by taxing authorities), it сould have satisfied all its operational throughout needs the 2-1/2 months period with domestic having steel a replacement lead time of 1/2 month.5 The time test is a two-factor test:
(i) time required to obtain additional supplies of (ii) the commodity, and quantity used during that period. parties
While the disagree on whether the appli- cable time is required time to obtain additional supplies foreign from sources or from domestic sources, stipulation they have computed the quantity factor based on the actual amounts of foreign (December 31) steel used after the tax day during the 1/2 month and 2-1/2 periods. months thus, parties,
The are in apparent agreement that the term "current needs” refers not importer-manufacturer’s to the entire need for supplies the commodity but rather to so much of his need as is filled with supplies, and quantitative amount of his foreign supply needs is to be determined by his actual usage of foreign supplies during the relevant replacement period.6 time
Turning to factor, the time both parties urge us to look at thе "actual” time of replacement. Pro- duction contends the actual time replace- ment is the 1/2 month required lead time 5Indeed, argument might support Production’s be extended to conclusion that none subject of the inventories of steel were apparent supplied taxation since it is that Production could have day during domestic steel on hand on the tax all its needs January first 1/2 of period. as well as the balance of the 2-1/2 months quantitative foreign supply usage amount of so determined importer-manufacturer’s would not be affected the fact that functually equivalent needs could supplies be met with of the com modity purchased domestically. *21 v Detroit by J. Levin, supplies acquiring the domestic steel Production receiving actually purchasing was the Jan- taxing uary-March period. The authorities contend replacement the time of is that required actual the time supply foreign a new from to obtain the being importer-manu- actually used the sources facturer, stipulation, case, in this 2-1/2 months. persuaded tаxing We are that the authorities argument. have the better of the agreed-upon inquiry operational is current agreed-upon determining test for needs. The cur- operational replenishment rent agreed-upon quantity needs is time. The applying to be
factor used usage during test is the actual relevant re- placement inventory acquired time of December foreign sources. concept
It seems more consonant with the of a designed test to measure current needs —by stipulation meaning importer-manufac- the usage foreign supplies during turer’s the rele- replacement period—to vant determine the time portion equation required of the based on the time replacement supplies foreign to obtain from being actually sources used. might
While Production have covered with do- requirements during steel mestic its customer agreed-upon acquiring 2-1/2 months time for new supplies foreign steel, chose, it for whatever requirements reasons, to meet those with steel purchased abroad. operationаl needs”—assuming
"Current as the parties do that it is the relevant criterion—does importer-manufacturer’s not seek to measure the quanti- supplies need for domestic but rather foreign supplies required ties of segment to maintain operations he
of his foreign supplies. to stoke with chooses Under 390 Mich Opinion by importer-manufac- test, if an time supplies needs from domestic dur- turer meets his period, replacement ing time if the relevant he actually his inventories not use dur- does ing quantity period, factor of two- *22 replenishment and, time test would be zero factor therefore, foreign his inventories
none of would be subject In such a case it would to taxation. make collector to no to allow the tax substitute the sense usage domestic actual manufacturer’s might ground have met his that the manufacturer foreign requirements his out of invento- customer ries.
Similarly, it would be reason that inconsist- we of the time ent with the function foreign quantity sup- test, plies a measure of the replacement required time to obtain used foreign usage supрlies, multiply inventory times supplies replacement time for which are not a actually foreign supplies displace in meet- used to ing requirements. customer Schneider, Co v 3 Ohio St
In Orr Felt & Blanket Opinions 150, 156; 2d 24; 209 32 Ohio 2d NE2d (1965), Supreme Court, faced with a the Ohio question, similar said: taxpayer "[Although the indicates that evidence grease supply could secured a new have tax-; importers days, within 30
wool from eastern foreign import grease wool from payer chose to its own * * * . countries choice, the rule having this taxpayer "The made the amount applied taxpayer to the should be that and in grease warehouse removed from the bonded wool opera- inventory required is to meet 'current which secure an length time it takes to tional needs’ for the which supply from the source additional is tax- grease wool supply its taxpayer has selected to (Emphasis supplied.) able.” Production v Detroit Opinionby distinguishes this case on ground
that, in contrast with the taxpayer in the Ohio case, it actually buying was steel on the tax date true, domestiс sources. While that is it was its relevant not meeting operating needs with the domestic supplies purchased. were, so If it then the would, amount of quantity factor to that ex- tent, have been reduced.
If Production had met all customer require- ments from supplies, domestic if domestic supplies replaced dependence on the December 31 inven- then, tory of foreign supplies, as of the end of the 1/2 month period Production would have us adopt, the quantity factor of the two-factor equation would be zero and Production would have achieved by its operation own method of what it seeks to accomplish by this action. conclude,
We subject to the agreed-upon compu- tations set forth in the stipulation parties,. *23 portion that the of Production’s December 31 in- ventory of foreign steel subject to taxation is the amount needed cover Production’s actual usage of foreign in steel the 2-1/2 agreed-upon months required time to obtain new supplies of foreign steel.
II Court, This without briefing argument or di- rected to question the propriety of the of the test, time rejects that test and de- rives its own which at begs once both the and seems to large leave the matter at in the discretion of the tax super- assessor to the subject vision of the State Tax This Commission. Court writes:
- n "Afair conclusion Youngstown to be is drawn 390 Mich grants Court States the that the United states determining of latitude reasonable amount what are once it is clear operational needs’ 'current 'manufacturers have so the upon imported acted mate- "imports” character as rials as to 358 US their distinctive ’. lose supplied.) (Emphasis 543.” "current thereby operational treats This Coiirt separate from "so concept act[ing] needs” as a as to lose materials their dis- imported ”. 'imports’ But the tinctive character as rationale that because of the Youngstown proven was importer-manu- needs of the current facts, facturers, would, record and they cases, findings consolidated be deemed to materials. upon” have so "acted The distinction which Chief Justice Marshall marked said exists and "must be cases supra, p Maryland, Brown v arise”, ceases rule of law insofar as com- perceptible exist as a modities for use if Michigan are concerned as soon as the commod- becomes, apparently it as a ty hits the dock and, law, line”,7 part "supply ergo, of the matter manufacturing’ to 'use in "irrevocably committed for which it is destined. Cf. Beall plant” at [the] Commission, 254 Or Pipe Corp & Tank v State Tax 195; 458 P2d Hooven distinguished
In the Court cases of the ground on the "these are not opinion states: supply in does not consist of "The service of Production Steel ' ’ exactly. "piles” yards” But the flow of in the "ore to "stock bins” factory surrounding to the same kind of material curtilage manufacturing from boat docks and warehouses *24 factory certainly and into the itself is everyone feeding process materials with which almost Michigan generally supply in Production is familiar. So the line strictly comparable Youngstown. Steel is to brings comparative analysis Steel Production "The aforementioned losing Youngstown charac- the 'distinctivе within the rule relative to imports’, of etc.” ter v Detroit Opinionby storage imported a mere in warehouse materials manufacturing”. use in eventual intended for Clearly yet a line must be then drawn between storage "use”/"put- for use” mere ting "eventual and use”/"acting upon”. The courts of
to other approaches varying states have taken drawing in their line- (see approaches efforts, and the several fn 4) arguably are each correct. signifi- it is difficult to Sometimes evaluate the phrases lengthy cance opinion statements of the United States Court, descriptive they merely are whether or áre limit- ing lay or intended to down a rule. We would reserve until a case thé where is briefed argued any explicate attempt Youngstown to generalize or to about where the line should be drawn.
Reasoning analogy from one to ánother can carry infinity. Merely one into because the Youngstown upheld taxation all the Youngstown’s plant ores at and said it could see distinguishing no valid for basis between the ores containing days’ supply in stoсk bins or one two (con- proximity located in close to the furnaces taxation) subject be ceded to piles yard ores in the ore a short distance (claimed taxable), away further not be does not mean that the Court hold be would taxable separately located, identifiable steel coils not at plant perhaps part waterfront, at but coils or, indeed, an lot or an unbroken order unbro- shipment. ken Youngstown,
In iron ore had been "commingled with other iron ore at a "[P]ortions [had] different time.” of such ore iron manufacturing.” (Empha- been removed use in supplied.) portions "[Indiscriminate sis *25 Mich 508 390 Levin, Opinion by J. veneers were actually of importation being whole” sense, Thus, the consolidated in a used. cases Youngstown, larger the "package”— with in dealt see In re Similarly, been broken. "whole”—had Co, Publishing Time 281 NC Asheville Citizens’ Virtue (1972); Bros v 210, 220; SE2d 220, 231; 2d Angeles County, App 239 Cal Los Rptr 505 Cal not, lumber, iron ore or like a coils are
Steel (received "loose, in "bulk” or as fungible mass piece indistinguishable one pieces”), individual coils, in contrast with Steеl ores or from another. veneer, guage, another vary one lumber or finishes width, components, length, alloy, other quality. course, opinion empha- of this Court as the Of sizes, imported Production by steel was manufacturing”, "to meet its estimated "for use plant. at [manufacturing] requirements” Youngstown, supra, p every 546. That is true of pur- supplies manufacturing importation imported for use in manu- commodities poses; all imported supply facturing unloading, indeed even before needs and line”. unloading, part "supply are a dock, 14 warehoused near The coils still had not "arrived at plant, from Production’s miles Pro-, Youngstown, supra, p 546.8 their destination”. court, concede, there the circuit duction did not find, fore, imported not and did not could "irrevoca operation” to the or "essential steel was $974,070 appears Produc steel was located at It found plant steel on December 1965. The value tion’s $79,000 $1,053,000 more in 1966 was or to he taxable the assessors plant. at the than the value of such steel located stipulation tax date Production states that "[o]n at [imported or Strip, both?] domestic had sufficient steel coils or Inc. plant months.” Sherwood for its needs for about two its Steel v Detroit bly manufacturing’ committed to 'use in at that plant point of final destination” within the meaning Youngstown, supra, pp 545-546.9 Pro stipulated, try rather, duction this case on agreed-upon facts certain replenishment narrow issue—
time. *26 dispose stipulated We would of this on case facts able issues which counsel on both sides framed. Kavanagh JJ.,
T. G. and M. S. Coleman, con- curred with year Tax order of the State Commission for tax 1966 does inventory appraisal state that amount valued in "[t]he [of estimating commission’s was determined 2-1/2 staff] a month ” usage requirements.’ was 'essential to current appears complaint It further from Production’s in the circuit court year tax for to have 1967 that the "amounts so determined the Assessors exemption lost so its was the entire amount of such (2 1/2) processing and was not and limited to two one-half months shipment”. us, seeking paid The actions now a refund of before taxes for tax 1967, were, however,
years stipulation 1966 and tried of facts not which does concede the correctness of such determinations.