American Stores Packing Co. v. Peters
| Decision Date | 17 April 1979 |
| Docket Number | No. 41919,41919 |
| Citation | 203 Neb. 76,277 N.W.2d 544 |
| Parties | AMERICAN STORES PACKING CO., division of Acme Markets, Inc., a Pennsylvania Corporation, Appellant, v. William E. PETERS, Tax Commissioner of the State of Nebraska, et al., Appellees. |
| Court | Nebraska Supreme Court |
Syllabus by the Court
Property: Taxation: Statutes. Where the primary function of tangible personal property is to aid in the production of goods which are manufactured for ultimate retail sale, the property will not be exempt from the use tax as defined by section 77-2702(20), R.R.S.1943, merely because some undetermined fraction of the property is absorbed into the retail product during its manufacture.
Charles E. Lowe, of Woods, Aitken, Smith, Greer, Overcash & Spangler, Lincoln, for appellant.
Paul L. Douglas, Atty. Gen., and Ralph H. Gillan, Asst. Atty. Gen., Lincoln, for appellees.
Heard before KRIVOSHA, C. J., and BOSLAUGH, McCOWN, CLINTON, BRODKEY, WHITE, and HASTINGS, JJ.
The issue in this case is whether cellulose casings used in the manufacture of skinless meat products such as frankfurters is subject to payment of the use tax prescribed by section 77-2703(2), R.R.S.1943. The Tax Commissioner had assessed against American Stores, a division of Acme Markets, Inc., a use tax deficiency for the period January 1, 1972, to April 30, 1975. The taxpayer protested and a hearing was held as prescribed by statute. The Tax Commissioner, after redetermining the tax, affirmed a deficiency assessment of $47,976.37. Appeal was then taken to the District Court for Lancaster County under the provisions of the Administrative Procedure Act. The District Court affirmed the Tax Commissioner and appeal was than taken to this court. We affirm.
Section 77-2703(2), R.R.S.1943, provides in part: "A use tax is hereby imposed on the storage, use, or other consumption in this state of tangible personal property purchased, leased or rented from any retailer on or after June 1, 1967, for storage, use, or other consumption in this state at the rate set as provided in subsection (1) of this section on the sales price of the property . . . ." Subsection (a) of the above section provides in part: "Every person storing, using, or otherwise consuming in this state tangible personal property purchased from a retailer or leased or rented from another person for such purpose is liable for the use tax." Use is defined by section 77-2702(20), R.R.S.1943, as follows: "Use shall mean the exercise of any right or power over tangible personal property incident to the ownership or possession of that tangible personal property, except that it does not include . . . personal property in the regular course of business or the exercise of any right or power over tangible personal property Which will enter into or become an ingredient or component part of tangible personal property manufactured, processed or fabricated For ultimate sale at retail." (Emphasis supplied.)
The precise issue is whether the casing is used so that it "will enter into or become an ingredient or component part" of the finished meat product and thus not subject to the use tax.
The evidence pertinent to the issue was introduced by stipulation of the parties and the explanatory testimony of a chemist called by American Stores. The testimony of the chemist was founded upon the facts and evidence contained in the stipulation and his observation of the manufacturing process. He conducted no chemical or other tests.
From the evidence, the Tax Commissioner could arrive at the following as fact. American Stores is a meat packer and manufacturer of finished meat products with a plant located in Lincoln, Nebraska. Its products are sold to retail food markets for ultimate resale to consumers. In the process of manufacturing "skinless" frankfurters and certain luncheon meats, it uses cellulose casings purchased from makers outside the state and brings the casings into this state for use in the process of manufacture of the mentioned meat products. Into the cellulose casing have been "absorbed" (the language of the chemist) glycerine and moisture. When received, the three elements are by weight in the following proportions: Cellulose, 60-70 percent; glycerine, 23-25 percent; and moisture, 6-15 percent.
The casing is in long, tubular form. In the course of manufacture of the skinless meat products, the casing is utilized in the following fashion. It is stuffed mechanically with the prepared meat product. The casing, after being tied in segments, then moves onto a conveyor belt and is subjected to a series of processes, among which are a vinegar shower, liquid smoke shower, cooking, and a series of chill showers. The testimony is that, during the vinegar shower, an undetermined amount of the glycerine with which the casing is impregnated, moves by osmosis from the casing into the meat and penetrates the meat slightly. At the end of the process, the cellulose casing is slit by a device with a razor-like edge and the casing is blown off. The casing is still recognizable as a casing, but it is without economic value and is discarded.
The glycerine and moisture in the casing serve several functions. In the words of the chemist, they make the cellulose manageable so that it can be stuffed, shaped, and conveyed. The glycerine permits the casing to be peeled easily from the frankfurter or other product after slitting. The glycerine also coats the outer surface of the product, improves its appearance, and inhibits drying out of the product, thus increasing its shelf life. Two and one-tenth percent of the casings contain dye which moves into the meat with the glycerine and improves the coloration of the product. The chemist testified it would be excessively expensive to conduct tests to determine the amount of glycerine moving from the casing into the meat because there is already glycerine in the meat and the testing would be complex.
The position of American Stores, stated in the briefest form, is that "enough (of the glycerine) goes in (to the product) to make a difference" and this should be the test of whether the casing enters into or becomes an ingredient or component part of the product. The Tax Commissioner emphasizes that the casings as such do not enter into or become components or ingredients of the product in any real sense and American Stores is the ultimate consumer of the casings. He points out the general plan of the sales and use tax is that every item of personal property, not specifically excluded, is to be subject to either one or the other of the taxes at some point of the chain of commerce. Pepsi Cola Bottling Co. v. Peters, 189 Neb. 271, 202 N.W.2d 582. Unless, therefore, the tax is imposed on the use of the casings in the hands of American Stores, the casings escape taxation completely.
We do not propose to discuss in any detail American Stores' highly refined semantic arguments. Nor do we think it necessary to discuss rules of construction of statutes. We find the precedents cited by the Tax Commissioner the most persuasive.
American Stores argues that this case is governed by State v. United States Steel Corporation, 281 Ala. 553, 206 So.2d 358; and State v....
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...Nebraska is governed by the Administrative Procedure Act, Neb.Rev.Stat. §§ 84-901 et seq. (Reissue 1987). American Stores Packing Co. v. Peters, 203 Neb. 76, 277 N.W.2d 544 (1979). In an appeal pursuant to the Administrative Procedure Act, the Supreme Court tries factual questions de novo o......
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