Opinion
Nos. 30302 and 30303
Decided June 20, 1945.
Taxation — Listing and assessing personal property at 50 per cent of value — Articles to be used in manufacturing — Section 5388, General Code — "Manufacturer" defined — Section 5385, General Code — Laws exempting property from taxation, strictly construed — Mining corporation standardizing mineral content of ore, not engaged in manufacturing, when.
1. Under the provisions of Section 5388, General Code, such articles as are purchased, received or otherwise held by a manufacturer for the purpose of being used in whole or in part in manufacturing, combining, rectifying or refining, and also articles which were at any time by him manufactured or changed in any way, either by combining or rectifying or refining or adding thereto, with specified exceptions, are authorized to be listed and assessed at 50% of the value thereof.
2. Under the provisions of Section 5385, General Code, a manufacturer is a "person who purchases, receives or holds personal property, of any description, for the purpose of adding to the value thereof by manufacturing, refining, rectifying, or by the combination of different materials with a view of making a gain or profit by so doing."
3. The provision of any statute which purports to except certain property from general provisions governing taxation is a measure of exemption, and laws relating to exemption of property from taxation being in derogation of equal rights are strictly construed.
4. Where a corporation engaged in the business of mining iron ore for sale to steel manufacturing companies, before the sale and delivery thereof standardizes the mineral content of the ore in such manner as will achieve a uniformity in the mineral content of its product, which is accomplished by crushing, screening, cleaning and removal of foreign material and silica, and by combining ores from various mines in the process of loading same for shipment, such corporation is not engaged in manufacturing within the provisions of Sections 5385 and 5388 (2), General Code, and therefore its personal property may not be listed and assessed at 50% of the true value thereof in money. ( Schumacher Stone Co. v. Tax Commission, 134 Ohio St. 529, approved and followed. Middletown Iron Steel Co. v. Evatt, Tax Commr., 139 Ohio St. 113, and France Co. v. Evatt, Tax Commr., 143 Ohio St. 455, distinguished.)
APPEALS from the Board of Tax Appeals.
This case presents two appeals from the Board of Tax Appeals which involve the same questions relative to personal property taxes of the appellant for the years 1940, 1941 and 1943. The appeals were consolidated for hearing in the Board of Tax Appeals, and were heard and submitted on stipulations of fact.
The tax returns of appellant for the years named listed iron ore held in three counties of this state at fifty per centum of its average monthly inventory value and paid its tax based thereon. The Tax Commissioner found and determined that the iron ore should have been listed at seventy per centum and made increased assessments accordingly.
Upon appeal to the Board of Tax Appeals, the action of the Tax Commissioner was affirmed.
Further facts are stated in the opinion.
Messrs. Jones, Day, Cockley Reavis, Mr. George B. Young, Mr. George H. Rudolph and Mr. Thomas M. Harman, for appellant.
Mr. Hugh S. Jenkins, attorney general, Mr. Aubrey A. Wendt and Mr. Daronne R. Tate, for appellee.
The appellant claims that it is a manufacturer with reference to the iron ore involved in this controversy, within the meaning of Section 5385, General Code, and that such ore constitutes "manufactured articles" within the meaning of Section 5388 (2), General Code.
The facts essential to a consideration of the questions presented may be summarized as follows:
The appellant, The Cleveland-Cliffs Iron Company, is an Ohio corporation with its principal office located in Cleveland, Ohio. For many years it has been engaged in the business of producing and selling iron ore to manufacturers of iron and steel. It operates both open pit and underground mines in the states of Michigan and Minnesota, and the ore produced from these mines is shipped by vessel to lower lake ports. Since the shipping season on the Great Lakes is limited by weather to a period from May to October, inclusive, sufficient ore is transported during that period to supply the steel mills throughout the whole year, which requires storage of ore in stock piles at these lake ports from which deliveries are made as purchased by the steel manufacturing companies.
With rare exception no iron ore is suitable for blast furnace use as mined, since ores vary as to their mineral content. The requirement of the mills for a standard analysis of the ores furnished necessitates the grading of such ores. The most common method of obtaining the desired uniformity of analysis is that of mixing several ores of varying mineral content and chemical analysis to produce a grade of ore containing uniform percentages of iron, silica, phosphorus, sulphur and other ingredients.
After mining operations have begun, extensive sampling of ore is necessary for the purpose of making estimates of available ore and to assist in its preliminary grading. Additional samples are taken from time to time after mining and, since these ores vary in mineral content, it is necessary before shipping to mix them. This mixing is done in several ways. Where ore has been stored in stock piles before loading on the cars, it is mixed by combing the pile with a power shovel. The ores are loaded into cars and thence into vessels. Mixing is accomplished by loading a vessel with different ores from the cars in such amounts that the resulting mixture will attain a predetermined chemical analysis.
During these operations foreign material, lean ore and rock are sorted out, some ore is crushed and screened by machinery, and by a washing process some free silica is removed.
All of the processing of the ores involved in these proceedings was performed by appellant either in Michigan or Minnesota, where the ore was produced.
During the years involved in these appeals, the appellant maintained stock piles of this standardized ore in Cuyahoga, Ashtabula and Lucas counties, Ohio, and these are the subject of the assessments involved herein.
The single question presented in this case is whether these inventories of iron ore should be assessed at 50% of the average monthly inventory value, or at 70% of such value. The determination of that question involves the construction of Sections 5385 and 5388, General Code.
Section 5385, General Code, provides in part as follows:
"A person who purchases, receives or holds personal property, of any description, for the purpose of adding to the value thereof by manufacturing, refining, rectifying, or by the combination of different materials with a view of making a gain or profit by so doing, is a manufacturer, and, when he is required to return a statement of the amount of his personal property used in business, he shall include therein the average value estimated, as hereinafter provided, of all articles purchased, received or otherwise held for the purpose of being used, in whole or in part, in manufacturing, combining, rectifying or refining, and of all articles which were at any time by him manufactured or changed in any way, either by combination or rectifying, or refining or adding thereto (separately listing finished products not kept or stored at the place of manufacture or at a warehouse in the same county therewith), which, from time to time, he has had on hand during the year next previous to listing day annually, if he has been engaged in such manufacturing business so long, and if not, then during the time he has been so engaged."
Section 5388, General Code, provides in part as follows:
"Excepting as herein otherwise provided, personal property shall be listed and assessed at seventy per centum of the true value thereof, in money, on the day as of which it is required to be listed, or on the days or at the times as of which it is required to be estimated on the average basis, as the case may be. * * *
"Personal property of the following kinds, used in business, shall be listed and assessed at fifty per centum of the true value thereof, in money, on the day as of which it is required to be listed, or on the days or at the times as of which it is required to be estimated on the average basis, as the case may be: * * *
"(2) The average value of all articles purchased, received or otherwise held by a manufacturer for the purpose of being used, in whole or in part, in manufacturing, combining, rectifying or refining; the average value of all articles which were at any time by him manufactured or changed in any way, either by combining or rectifying, or refining or adding thereto, but not including finished products unless kept or stored at the place of manufacture or at a warehouse in the same county therewith; and agricultural products on farms.* * *"
Under Section 5388, General Code, to authorize the listing and assessing of the property of the appellant at 50% of the value thereof, it is essential that appellant be a manufacturer, since this section is applicable only to "articles purchased, received or otherwise held by a manufacturer for the purpose of being used, in whole or in part, in manufacturing, combining, rectifying or refining," and "articles which were at any time by him manufactured or changed in any way, either by combining or rectifying, or refining or adding thereto."
Section. 5385, General Code, defines a manufacturer as a "person who purchases, receives or holds personal property, of any description, for the purpose of adding to the value thereof by manufacturing, refining, rectifying, or by the combination of different materials with a view of making a gain or profit by so doing."
Under the facts presented by the record in this case, is the appellant a manufacturer within the purview of these statutory provisions?
This court has heretofore considered a similar question in the case of Schumacher Stone Co. v. Tax Commission, 134 Ohio St. 529, 18 N.E.2d 405, 120 A. L. R., 1199. The Schumacher Stone Company was engaged in quarrying stone and preparing the stone for sale by successive processes of crushing and screening. Purchasers from the stone company required different sizes of stones and this process prepared the stone to meet the various specifications. This court there held that the "Machinery, used in crushing and screening limestone into various merchantable sizes without the application of any art or process to change the form or appearance of the broken pieces of stone, each grade being designated according to size and use, mostly for road construction but also for other minor purposes, is not, and should not be assessed as, personal property used in manufacturing, within Sections 5385, 5386 and 5388, General Code."
The similarity between the process involved in that case and the operations of the appellant herein is apparent. In neither instance was the product substantially altered. The ore produced by the appellant is still iron ore when sold to the steel manufacturing companies, and it was sold to them as such. Numerous cases were cited in the opinion in the Schumacher case which show the rule to be well established that such operations as above set forth are not deemed to be manufacturing. Neither do the processes performed by the appellant constitute "refining, rectifying, or by the combination of different materials" within the meaning of Section 5385, General Code. Those words have clearly defined meanings and do not include such operations. The mere separation and removal of free silica from the iron ore, which thereby leaves the ore higher in iron and lower in silica, does not constitute either rectifying or refining as those terms are defined. The supporting cases cited in the opinion in the Schumacher case are applicable to this case, as is also the discussion of the term "manufacturing."
It will be observed that the facts disclosed by the record in this case are readily distinguishable from those involved in the cases of the Middletown Iron Steel Co. v. Evatt, Tax Commr., 139 Ohio St. 113, 38 N.E.2d 585, and France Co. v. Evatt, Tax Commr., 143 Ohio St. 455, 55 N.E.2d 652. In the Middletown case, miscellaneous steel articles were reduced by mechanical processes to steel scrap of particular sizes and specifications, and the finished product which resulted from the process employed was quite different in form and substance from the material subjected to such process.
Likewise, the France Company case arose under the sales-tax statutes, Sections 5546-1 to 5546-25, General Code, which exempted from the sales tax property which it was the purpose of the consumer "to use or consume * * * directly in the production of tangible personal property for sale by * * * processing."
The definition of the word "processing" is broader than the word "manufacturing," and while the writer of this opinion continues in disagreement with the conclusion reached by the majority in that case, as shown by his dissenting opinion, that case may be differentiated from the instant case on the facts.
It is well settled that the provision of any statute which purports to except certain property from general statutory provisions governing taxation is a measure of exemption, and that laws relating to exemption of property from taxation being in derogation of equal rights are strictly construed.
Our conclusion is that the finding of the Board of Tax Appeals that the appellant in this case is not engaged in manufacturing and its approval of the increased assessments made by the Tax Commissioner are neither unreasonable nor unlawful. It follows that the decision of the Board of Tax Appeals in each of the two cases here presented should be and is affirmed.
Decisions affirmed.
WEYGANDT, C.J., ZIMMERMAN, WILLIAMS, TURNER and HART, JJ., concur.
BELL, J., not participating.