Opinion
No. 7,247.
Submitted April 13, 1934.
Decided April 20, 1934.
Taxation — Railroads — Classification of Machinery Used for Generating Electricity for Railway Use — "Manufacturer" — Definition. Taxation — Classification of "Manufacturing Machinery" — Use to Which Property Put Fixes Rate of Taxation. 1. While machinery capable of being used for and actually used in the generation of electricity as a business falls within the designation of "manufacturing machinery," within the meaning of section 1999, Revised Codes 1921, classifying property for purposes of taxation, it is the use to which it is devoted and its productivity which fix the rate of taxation. Same — Railroads — Machinery Used for Generating Electricity for Railway Purposes — Classification for Purposes of Taxation. 2. Coal-burning steam boilers, electrical generators, etc., owned and used by a railway company in generating electricity for power purposes in its repair-shops and for lighting its yards, depot and offices, but not marketed or sold for profit, held to fall within Class 2 of section 1999, above, and as such are taxable at 20 per cent. of their actual value (sec. 2000), and not within Class 4 as "manufacturing machinery" taxable at 30 per cent. of its value. Statutes and Statutory Construction — Meaning of Words — Primary Rule. 3. A primary rule of statutory construction is that the legislature must be assumed to have meant precisely what the words of the statute, as commonly understood, import. Taxation — "Manufacturer" — Manufacture of Articles as By-Product for Use in Own Business Does not Make Person "Manufacturer" of Article. 4. A "manufacturer" is one who makes an article for the purpose of sale, depending for his profit on the labor which he bestows on the raw material; hence where one engaged in business incidentally manufactures something used in his regular business or as a by-product thereof, his business is not thereby transformed into a manufacturing business. Same — Tools, Implements and Machinery not Used in Manufacture of Article of Trade — Classification for Purpose of Taxation. 5. Tools, implements and machinery employed as an aid to the operation of a business not devoted to the manufacture of an article of trade, fall properly within Class 2 of section 1999, Revised Codes 1921, and as such are taxable at 20 per cent. of their actual value, under section 2000, Id.
Appeal from District Court, Custer County; S.D. McKinnon, Judge.
Messrs. Murphy Whitlock, for Appellant, submitted a brief; Mr. M.N. Whitlock argued the cause orally.
Mr. Rudolph Nelstead and Mr. H.E. Herrick, for Respondents, submitted a brief. Mr. John J. Greene, of Counsel, argued the cause orally.
Citing: City of Lexington v. Lexington Leader, 193 Ky. 107, 235 S.W. 31; In re Rheinstrom Sons Co., 207 Fed. 119, 137 C.C.A. 387; affirmed, 221 Fed. 829, 137 C.C.A. 387; Nebraska v. Crounse, 105 Neb. 672, 181 N.W. 562, 16 A.L.R. 533; Commonwealth v. Keystone Laundry Co., 203 Pa. 289, 52 A. 326; Chicago, M. St. Paul Ry. Co. v. Powell County, 76 Mont. 596, 247 P. 1096; 38 C.J. 968; 1 Fletcher's Cyclopedia of Corporations, p. 129; 38 Cyc., p. 975, note 79.
As stated in appellant's brief, there are cases holding that electricity is a product of nature and that the conversion of one form of energy into another does not constitute manufacturing. ( In re Hudson River Electric Power Co., 173 Fed. 934; affirmed, 183 Fed. 701, 33 L.R.A. (n.s.) 454, and cases there cited.) However, we submit that the tendency of the courts is to construe the generation of electricity as manufacturing because the term "manufacture" has expanded with advancement in science. Electricity is one of the elements existing in a state of nature, but by the generation of electricity by means of machinery adapted to that purpose, it is rendered subject to man's control, serviceable to his use, and it is therefore held that the generation of electricity for the purpose of furnishing light, heat or power is a product of "manufacturing," and that machinery used for the purpose of generation of electricity is "manufacturing machinery." ( In re Charles Town Lighting and Power Co., 183 Fed. 160; People v. Wemple, 129 N.Y. 543, 29 N.E. 808, 14 L.R.A. 708; Beggs v. Edison Electric Illuminating Co., 96 Ala. 295, 11 So. 381, 38 Am. St. Rep. 94; Bates Machine Co. v. Trenton N.B. Ry. Co., 70 N.J.L. 684, 58 A. 935, 103 Am. St. Rep. 811; Kentucky Electric Co. v. Buechel, 146 Ky. 660, 143 S.W. 58, Ann. Cas. 1913C, 714, 38 L.R.A. (n.s.) 907; Vencedor Inv. Co. v. Highland Canal Power Co., 125 Minn. 20, 145 N.W. 611; Henderson v. Shreveport Gas etc. Co., 134 La. 39, 63 So. 616, 51 L.R.A. (n.s.) 448; Utah Power Light Co. v. Pfost, 286 U.S. 165, 52 Sup. Ct. 548, 76 L.Ed. 1038.)
If we understand plaintiff's position correctly, it claims that the words "manufacturing machinery" mean machinery which is actually used in the business of manufacturing. We contend that "manufacturing machinery" should be given a broader interpretation for the reason that, if it had been the intention of the legislature to confine assessments in Class 2 to machinery used in the business of manufacturing, the legislature would have said so. We make this statement with full appreciation of the rule laid down in Chicago etc. Ry. Co. v. Powell County, 76 Mont. 596, 599, 247 P. 1096: "The use to which the property is devoted and its productivity is the measuring stick in determining its proper classification under the Act for the purpose of fixing the tax. Although such machinery may be used in manufacturing, yet we are of opinion that the use to which it is actually devoted is controlling for the purposes of taxation." We construe the clause above, "although such machinery may be used in manufacturing," to mean "although such machinery is capable of being used in manufacture."
In 1932 the plaintiff duly listed all of its property in Custer county for assessment and therein included the item "Power Plant, Machinery and Boilers" of the estimated value of $65,000. The assessor classified this property as falling within "class 4" of section 1999, Revised Codes of 1921, which fixed its "taxable value" at 30 per cent. of its actual value.
Contending that this property properly falls within class 2, which would render it taxable at 20 per cent. of its actual value, the plaintiff exhausted its statutory remedies, paid the first half of the 1932 taxes under protest, and instituted timely action for the recovery of the alleged excess payment, or $245.67. A trial before the court, without a jury, resulted in a judgment in favor of the defendant. The plaintiff has appealed from the judgment and assigns numerous errors, predicated upon the findings of fact and conclusion of law made and filed, but raising the sole question as to the proper classification of the property in dispute.
Section 1999, above, provides that: "For the purpose of taxation the taxable property in this state shall be classified as follows: * * * Class Two. * * * All agricultural and other tools, implements and machinery, gas and other engines and boilers * * * Class Three. Livestock, * * * agricultural products; stocks of merchandise of all sorts * * *. Class Four. * * * Manufacturing and mining machinery, fixtures and supplies * * *."
The property under consideration consists of "6 Marine type coal burning boilers, * * *; 2 Westinghouse electrical engines and generators combined, 2 Watertown electric generators and engines combined; 2 air compressors; several water pumps and fittings * * *."
All of this property constitutes a part of the plaintiff's repair-shops at Miles City, and is used primarily for the repair and maintenance of the rolling stock of the railroad. By the use of coal as fuel, the boilers produce steam power by which the electric generators are operated to produce electric current for the propulsion of the machinery in the repair-shops. The business of the plaintiff is transportation, and all of its activities are but necessary adjuncts to that business; while the shops occasionally "manufacture" a part of the replacement or breakage, the company manufactures nothing to be marketed.
While there are cases holding that electricity is a produce of [1, 2] nature and its generation by the use of power is but the conversion of one form of energy into another and not the manufacture of an article of trade. ( In re Hudson River Electric Power Co., (D.C.) 173 Fed. 934, affirmed (C.C.A.) 183 Fed. 701, 33 L.R.A. (n.s.) 454, and cases cited), the electricity which exists in nature is not subject to use; the current which will cause the wheels of industry to turn, or will light a city, must be produced by the employment of labor and machinery and is, therefore, generally said to be manufactured. ( Utah Power Light Co. v. Pfost, 286 U.S. 165, 52 Sup. Ct. 548, 76 L.Ed. 1038; In re Charles Town Light Power Co., (D.C.) 183 Fed. 160; People v. Wemple, 129 N.Y. 543, 29 N.E. 808, 14 L.R.A. 708; Bates Machine Co. v. Trenton N.B. Ry. Co., 70 N.J.L. 684, 58 A. 935, 103 Am. St. Rep. 811; Beggs v. Edison Electric Illuminating Co., 96 Ala. 295, 11 So. 381, 38 Am. St. Rep. 94; Kentucky Electric Co. v. Buechel, 146 Ky. 660, 143 S.W. 58, Ann. Cas. 1913C, 714, 38 L.R.A. (n.s.) 907.)
It follows that machinery capable of being used for, and actually used in, the generation of electricity as a business, falls within the designation of "manufacturing * * * machinery"; but, regardless of what specific machinery might be used for, it is the use to which it is actually devoted that controls for purposes of taxation. ( Barnard Realty Co. v. City of Butte, 50 Mont. 159, 145 P. 946.) "The use to which the property is devoted and its productivity is the measuring stick in determining its proper classification * * * for the purposes of fixing the tax." ( Chicago etc. Ry. Co. v. Powell County, 76 Mont. 596, 247 P. 1096, 1097.) Thus a gasoline engine, while held for sale by a hardware merchant, is but a part of his stock of merchandise, and would fall in Class 3; if sold to a farmer and used to pump water for his stock, it would become "machinery" within the meaning of the provisions of Class 2, and if sold to a miner and used to operate a hoist, it would become "mining machinery," and fall in class 4; so that three identical machines might be respectively taxed on the basis of 20 per cent., 33 1/3 per cent. and 30 per cent.
Evidence was adduced to the effect that the machinery and the uses to which it was put was identical at Miles City with that at Deer Lodge, held to belong in Class 2 in the Powell County Case, above, with the exception that the generators at Deer Lodge were operated by electricity furnished by the Montana Power Company. It is immaterial to the question here considered whether the machinery used in the shops for the maintenance and repair of the rolling stock is powered by the use of energy purchased from the Power Company, or by coal purchased elsewhere; as a witness in the Powell County Case aptly phrased it: It is immaterial whether "white coal" (electricity) or black coal furnishes the power to drive the motors to run the generators.
In like manner you "manufacture" electricity by the operation of an internal combustion motor whenever you run your automobile, but in neither case is the manufacturing of the commodity the purpose of the operation; it is but a means to the end. "The use to which the property is devoted," in the case of your car, is locomotion, travel; in the case of the railroad shops, "the repair and maintenance" of their means of transportation.
However, it appears in evidence here that an incidental use of the electricity generated is the lighting of the shops where the work is done, and the lighting of the yards, depot, and offices of the company at Miles City — a use not mentioned in the Powell County Case. While this use of the electricity saves the company the expense of purchasing electricity from some company engaged in the business of manufacturing electricity for sale, it has no "productivity"; the electricity so used is not generated with the idea of profit, and none of it is marketed. On this phase of the case, the operation is no different than that of the farmer who installs a Delco system for the lighting of his home and farm buildings.
The word "manufacturing" is not a technical word, but has a [3, 4] "common, ordinary meaning." ( Sharpe v. Hasey, 134 Wis. 618, 114 N.W. 1118, 1119.) "A primary rule of construction is that the legislature must be assumed to have meant precisely what the words of the law, as commonly understood, import." ( Northern P. Ry. Co. v. Sanders County, 66 Mont. 608, 214 P. 596, 599.) All persons who can be said to have "manufactured" an article are not to be classed as "manufacturers," regardless of circumstances, but rather only those who manufacture articles of trade as the principal part of their business. ( In re Kenyon, 1 Utah, 47.) "A manufacturer * * * makes to sell, and depending for his profit on the labor which he bestows on the raw material." ( State v. American Sugar-Ref. Co., 51 La. Ann. 562, 25 So. 447, 453. See, also, Nixa Canning Co. v. Lehmann-Higginson Co., 70 Kan. 664, 79 P. 141, 70 L.R.A. 653; In re Church Con. Co., (D.C.) 157 Fed. 298; Walker Roofing Heating Co. v. Merchant Evans Co., 173 Fed. 771, 97 C.C.A. 495, and lengthy note in 64 L.R.A. 33.) Where a person, engaged in a business other than manufacturing, incidentally manufactures something used in his regular business or as a by-product thereof, his business is not thereby transformed into a manufacturing business. ( Commonwealth v. Keystone Laundry Co., 203 Pa. 289, 52 A. 326; State ex rel. Ernst v. State Board of Assessors, 36 La. Ann. 347; 38 C.J. 968; 1 Fletcher's Cyc. of Corp. 129.)
The clear intention of the legislature is that machinery used in the business of manufacturing, "manufacturing machinery," and machinery used in carrying on mining operations, "mining [5] machinery," should fall within "Class 4," while tools, implements and machinery employed as an aid to the operation of a business not devoted to the manufacture of any article of trade should be placed in "Class 2."
The judgment is reversed and the cause remanded to the district court of Custer county, with direction to enter judgment in favor of the plaintiff.
MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES ANGSTMAN, STEWART and ANDERSON concur.