Allis-Chalmers Mfg. Co. v. Iowa State Tax Commission

• Decision Date: 16 September 1958
• Docket Number: ALLIS-CHALMERS,No. 49481,49481
• Citation: 92 N.W.2d 129,250 Iowa 193
• Parties: MANUFACTURING CO., Appellee, v. IOWA STATE TAX COMMISSION et al., Appellants.
• Court: Iowa Supreme Court

Page 129

92 N.W.2d 129

250 Iowa 193

ALLIS-CHALMERS MANUFACTURING CO., Appellee, v. IOWA STATE TAX COMMISSION et al., Appellants.

No. 49481.

Supreme Court of Iowa.

Sept. 16, 1958.

Rehearing Denied Nov. 21, 1958.

Norman A. Erbe, Atty. Gen. of Iowa, Francis J. Pruss, Sp. Asst. Atty. Gen., and J. M. Barrett, Special Counsel, Des Moines, for appellants.

Gibson, Stewart & Garrett, Des Moines, for appellee.

PETERSON, Justice.

Farley & Loetscher Manufacturing Company is a large industrial plant in Dubuque, occupying 21 acres and employing approximately 1,000 employees. They are engaged in the manufacture of mill work and plastics.

In 1946 they decided to install a modern turbo-generator unit and all auxiliary equipment, for the purpose of generating the electricity needed for the plant, operating a large number of wood working machines, and to provide steam at high pressure for preparation of plastic material.

There was no plant of the capacity and size needed by them on the market in Iowa, nor anywhere in the country. They retained a firm of power plant engineers in Chicago to design the plant and to procure bids from suppliers over the nation who were equipped to manufacture such a turbine and generator and all auxiliary appliances. They secured bids from five large firms, all located outside of Iowa.

Contract was entered into with plaintiff for manufacture and installation of the industrial equipment. The final cost was $85,914.58.

By reason of the provisions of Sections 423.1 and 423.2, 1950 Iowa Code, I.C.A., neither plaintiff nor Farley & Loetscher paid use tax on the cost of the installation.

In 1950 a representative of the Iowa State Tax Commission made a check of the records of plaintiff at its home office at West Allis, Wisconsin, discovered the sale, and that no use tax had been paid. The State Tax Commission levied a use tax against plaintiff of $1,718.29, together with interest of $430.18, which was paid.

Plaintiff filed claim for refund, which was rejected. According to statutory provision, plaintiff appealed to Polk County District Court. Judgment and decree was entered ordering the State Tax Commission to refund the tax. The Commission has appealed.

Chapter 423, 1950 Code, I.C.A., pertains to 'use tax.' Section 423.2 provides: 'Imposition of tax. An excise tax is hereby imposed on the use in this state of tangible property purchased * * * for use in this state, at the rate of two percent of the purchase price of such property. Said tax is hereby imposed upon every person using such property within this state until such tax has been paid directly to the county treasurer, to a retailer, or to the commission as hereinafter provided.'

Section 423.1 defines words, terms and phrases of the 'Use Tax Act.' 423.1(1) provides: "Use' means and includes the exercise by any person of any right or power over tangible personal property * * * except that it shall not include * * * (c) industrial materials and equipment, which are not readily obtainable in Iowa, and which are directly used in the actual fabricating, compounding, manufacturing, or servicing of tangible personal property intended to be sold ultimately at retail.'

Chapter 193 of the 53rd General Assembly amended the definition as to 'readily obtainable', which amendment became effective on April 1, 1949. The amendment is now 423.1(10), 1958 Iowa Code, I.C.A.: "Readily obtainable in Iowa' shall mean kept in Iowa for sale or manufactured in Iowa for sale as distinguished from being obtainable by giving an order to an agent in Iowa for delivery from some point outside the state of Iowa.'

This case has been tried on the theory of liability of Farley & Loetscher Mfg. Co. as to the use tax under consideration, although plaintiff paid the tax and is asking for refund. If there was use tax liability it would be the ultimate obligation of Farley & Loetscher. This is the entity in Iowa 'using' the personal property involved. Since there is no liability we only mention the situation for clarification.

Appellant assigns eleven propositions relied on for reversal. They can all be combined and considered under four propositions. 1. The Farley & Loetscher installation was subject to use tax because there were three national firms maintaining order houses in Iowa where the industrial material involved in the case could be readily obtainable. 2. Murray Iron Works of Burlington was equipped to erect the industrial installation built by plaintiff, and the improvement was therefore readily obtainable in Iowa. 3. The turbo-generator installation by Farley & Loetscher was not directly used in fabricating, compounding, manufacturing or servicing tangible personal property intended to be sold ultimately at retail. 4. The procedure adopted by appellee for refund of the tax paid was not correct.

I. Various principles involved in the interpretation of the statutory provisions heretofore cited have received the consideration of this court in recent years. The fact situation in the case at bar is somewhat different from cases heretofore considered. However, we have announced principles which are either directly or indirectly helpful in arriving at our conclusion in this case. The principal recent cases pertaining to various phases of use tax exemption, or where use tax was held not payable, are: Zoller Brewing Co. v. State Tax Commission, 232 Iowa 1104, 5 N.W.2d 643, 6 N.W.2d 843; Dain Manufacturing Co. v. State Tax Commission, 237 Iowa 531, 22 N.W.2d 786; Peoples Gas & Electric Co. v. State Tax Commission, 238 Iowa 1369, 28 N.W.2d 799; Morrison-Knudsen Co. v. State Tax Commission, 242 Iowa 33, 44 N.W.2d 449, 41 A.L.R.2d 523; City of Ames v. State Tax Commission, 246 Iowa 1016, 71 N.W.2d 15; Bruce Motor Freight, Inc., v. Lauterbach, 247 Iowa 956, 77 N.W.2d 613.

One fact situation in this case different from our previous cases is that Farley & Loetscher Manufacturing Company decided they needed a complete new electric and steam pressure plant, to be erected on the factory premises. They were not buying certain specific articles of industrial installation. No plant of the size and nature involved was stockpiled in Iowa nor in the nation. The general name of the installation is turbo-generator plant, which name we will use. Technically, it consisted of one 200 KW automatic bleeder turbine generator unit and one 1500 sq. ft. surface condenser, with many auxiliary items. The installation has a dual purpose. One is to furnish electrical energy for the complete plant and for the many dozens of machines operated by electric motors for manufacturing woodwork of all types. The other is to furnish steam under high pressure for preparation of plastic material.

Farley & Loetscher retained the engineering firm of Laramore & Douglass, Inc., of Chicago to prepare plans and specifications for this extensive installation and to submit same, together with contract forms, to manufacturing companies over the nation who had sufficient experience and capacity to manufacture a dual purpose plant of the type required. Bids were submitted by the five following companies: Worthington Pump & Manufacturing Company; General Electric Company; Westinghouse Electric & Manufacturing Company; The Elliott Company; Allis-Chalmers Manufacturing Company.

Two factors were taken into consideration by Farley & Loetscher in connection with the bids. One was the price, and the other was the minimum of time within which the installation could be completed. A large amount of the material necessary for the erection of the plant was in critical shortage in the years immediately after World War II and the spread in the bids as to time for erection and completion varied from 300 working days to 450 working days. Partly because of the amount of its bid, and also because of its agreement as to shorter number of days of installation, the bid of Allis-Chalmers Manufacturing Company was accepted.

The new industrial plant was in the process of installation from 1947 until 1949. It was completed and turned over to Farley & Loetscher in July, 1949. Chapter 193, 53rd General Assembly (heretofore quoted), became effective on April 1, 1949. This date was of importance in City of Ames v. Tax Commission, supra. It is of importance in this case.

The contracts for the purchase of eleven items of improvements for the Ames electric plant were made prior to April 1st. The Tax Commission contended the date of the contract was the date on which the use tax became due. City of Ames claimed the date on which the various items were delivered was the effective date as to the use tax obligation. One item was delivered prior to April 1st and all other items were delivered thereafter. We held the date of delivery was the effective date because on that date the personal property came at rest upon the property of the city. We held seven items delivered after April 1st were not subject to use tax by reason of provisions of Chapter 193.

In the case at bar hundreds of items were delivered on the manufacturing plant property of Farley & Loetscher from time to time from 1947 to 1949. There is a distinction between these items and the items delivered to the City of Ames. The items delivered to Ames immediately became the property of the city and promptly became a part of the electric light plant. The items delivered by and to Allis-Chalmers Manufacturing Company on the Farley & Loetscher factory ground were not in fact delivered to Farley & Loetscher until the plant was completed by plaintiff and ready for delivery in July 1949. Mr. Loetscher testified: '* * * this power plant did not operate, was not accepted by us as purchaser of equipment until July 1949.' As far as Farley & Loetscher were concerned the industrial material and equipment did not come at rest until that date. They exercised no 'right or power' over the property until then. Under these circumstances Chapter 193, 53rd General Assembly, was in force and effect,...