Arizona Tax Commission v. Dairy & Consumers Co-op. Ass'n

• Decision Date: 27 February 1950
• Docket Number: No. 5237,5237
• Citation: 70 Ariz. 7,215 P.2d 235
• Parties: ARIZONA TAX COMMISSION et al. v. DAIRY & CONSUMERS COOPERATIVE ASS'N.
• Court: Arizona Supreme Court

Page 235

215 P.2d 235

70 Ariz. 7

ARIZONA TAX COMMISSION et al. v. DAIRY & CONSUMERS COOPERATIVE ASS'N.

No. 5237.

Supreme Court of Arizona.

Feb. 27, 1950.

Fred O. Wilson and Edward Jacobson Asst. Attorneys General, of Phoenix, attorneys for appellants.

Fred V. Moore, of Phoenix, attorney for appellee.

Jennings, Strouss, Salmon & Trask, J. A. Riggins, Jr., Henry S. Stevens, Rex H. Moore, of Phoenix, attorneys amicus curiae.

Robert & Price, of Phoenix, attorneys amicus curiae.

PHELPS, Justice.

On November 12, 1948, the State Tax Commission passed a resolution to the effect that 'dairies processing milk, whether purchased or produced, when selling for resale, shall be liable for a processing tax of one-fourth per cent. When the milk is sold to ultimate consumers, such sales are taxable as retail sales, and subject to a tax of 2%.' This resolution was adopted pursuant to the provisions of sections 73-1303(a)(1) and 73-1306, A.C.A.1939, being a part of the Excise Revenue Act of 1935.

Since the enactment of this law the commission has at all times collected, and still does collect, these taxes without protest, upon milk and milk products processed and sold by dairies which is not produced by their own herds.

The adoption of the above resolution in November, 1948, constituted the first step taken by it at any time to collect a sales tax on milk and milk products sold by dairies where the milk was produced from herds owned by the processing and selling dairies.

The Dairy and Consumers Cooperative Association, a corporation, appellee, hereinafter called plaintiff, forthwith paid the tax levied against it under protest and demanded a hearing before the commission which was granted. Shortly thereafter a hearing was held and the commission being fully advised in the premises, thereafter unanimously voted to make the added levy.

The plaintiff in due time instituted an action in the Superior Court of Maricopa County against the commission asking for a return of the taxes paid and for a declaratory judgment declaring its rights under the provisions of sections 49-1301 and 49-1302 and sections 73-1303(a)(1) and 73-1306 A.C.A.1939.

The commission filed with the court a motion to dismiss plaintiff's complaint upon the ground that it failed to set up a claim upon which relief could be granted. The court, after hearing arguments of counsel and taking the matter under advisement denied the motion. The commission elected to stand on the motion and judgment was entered for plaintiff for the return of taxes paid by it under protest and declaring it to be not liable under the law for the payment of any taxes under the provisions of the Excise Revenue Act of which sections 73-1303(a)(1) and 73-1306, supra, form a part.

The commission appeals to this court and presents two primary questions for our consideration:

1. Is the language of sections 49-1301 and 49-1302, supra, broad enough to exempt agricultural products from the operation of an Excise Tax levied by the state or is it intended merely to restrict municipalities in imposing licenses and franchise tax burdens on agricultural products?

2. Are sections 49-1301 and 49-1302, supra, repealed by implication by the Excise Revenue Act of 1935 and particularly by sections 73-1303(a)(1) and 73-1306? In order that we may better understand the questions presented we incorporate herein a rescript of the sections above mentioned, to wit:

'49-1301. Right to sell not to be restricted--Terms defined.--The producers of food products on agricultural lands, farms and gardens in this state, shall never under any pretext be denied or restricted in the right to sell and dispose of the same, except in the manner and to the extent herein provided, and subject to inspection by lawful authority, so long as such inspection is uniform as to the same product, and without cost to the producer thereof. 'Producer,' within the meaning hereof shall include the owners, proprietors or tenants of the agricultural lands, orchards, farms and gardens, whereon or whereby such food products are grown, raised, or prepared for market; 'food products,' shall include every product of the soil in its natural or manufactured state, and all swine, fowls, eggs and milk, and all products arising therefrom. The right to sell and dispose of such products shall extend to the producer in person, members of his family, his agents, and all persons in his service, as long as such products are sold or disposed of on his behalf and for his benefit.' (Emphasis supplied.)

'49-1302. No license tax or penalty can be imposed on a producer.--No tax, license, or other burden or fee shall be imposed or levied upon, demanded or collected from any producer because of any sale of any such products; nor shall any penalty or punishment be imposed upon him on account of any such sale, except a penalty for violation of laws regarding inspection; nor shall any municipal ordinance, which in any manner seeks to impose or subject him to any such tax, fee or penalty, have any force or effect, save and except that all such products shall, in common with similar products offered for sale by persons who are not the producers thereof, be subject to inspection; but no municipal ordinance providing for such inspection shall be valid unless it applies in the same manner and on the same terms, to others offering similar products for sale.' (Emphasis supplied.) and pertinent portions of sections:

'73-1303. Imposition of the tax.--From and after the effective date of this act, there is hereby levied and shall be collected by the tax commission for the purpose of raising public money to be used in inquidating the outstanding obligation of the state and county governments, to aid in defraying the necessary and ordinary expenses of the state and the counties, to reduce or eliminate the annual tax levy on property for state and county purposes, and to reduce the levy on property for public school education to the extent hereinafter provided, annual privilege taxes measured by the amount of volume of business done by the persons on account of their business activities and in the amounts to be determined by the application of rates against values, gross proceeds of sales, or gross income, as the case may be, in accordance with the following schedule:

'(a) At an amount equal to one-fourth of one per cent of the gross proceeds of sales or gross income from the business upon every person engaged or continuing within this state in the following businesses:

'1. Manufacturing, baling, crating, boxing, barrelling, canning, bottling, sacking, preserving, processing, or otherwise preparing for sale, profit or commercial use, agricultural and horticultural products, including livestock prepared for sale, or commercial use, or any product or products, article or articles, substance or substances, commodity or commodities not classified in paragraph 1, subsection (c) or in subsection (g). (Emphasis supplied.)

* * *

* * *

'73-1306. Producers selling at retail.--Any person engaging in any business classified in subsection (a), paragraph 1, or in subsection (g), who sells the products of such business at retail in this state shall be required to make return of the gross proceeds of such sales and to pay the tax at the rate imposed by subsection (d), paragraph 1.'

Sections 49-1301 and 49-1302 supra, were enacted by the legislature in 1917. At that time for instance the Roosevelt Dam had only recently been constructed through the aid of the Federal Government at a heavy cost to the land owners within the Salt River Valley project who had obligated themselves to repay the entire cost of construction to the Government within a specified period. The construction of the Dam tended to stabilize agriculture in Arizona which theretofore had been fraught with considerable instability because of the uncertainty of the water supply available. Later numerous other irrigation projects were completed and additional acreage brought under cultivation.

The legislature at that time recognized agriculture as a basic industry of the state. It undoubtedly felt that legislative recognition of its importance to the economy of the state would further tend to stabilize it and thus effect the development of arid land in the Valley and elsewhere which would greatly increase the productive wealth of the state and form the basis of additional ad valorem taxes.

We must presume that the members of the 1917 legislature knew the constitutional limitations of that body and that it could not restrict future legislatures in the exercise of their legislative functions. Therefore the circumstances then existing and the language employed by it in enacting sections 49-1301 and 49-1302 compel the conclusion that the legislature intended such law as a declaration of policy of the state toward agriculatural pursuits and intended to exempt producers of agriculatural products as defined therein from taxes of any and all kinds as a result of any sale thereof. The exemption, of course, was intended to exist only until modified or repealed by a subsequent legislature. We find nothing either in the letter or context of the exemption statute justifying the interpretation claimed by the commission that the law was intended to apply only to a franchise or excise tax of a municipality. No reference is made to municipal ordinances in the first portion of section 49-1302 prohibiting the levy of the tax, license or other burden or fee upon producers. The injunction is allinclusive and would have effectively prohibited the levying of any such tax by a municipality without a specific reference to municipal ordinances later in the section. We suspect that the specific reference to municipal ordinances was prompted by the fact that the Arizona constitution, section 6, article 9 thereof, provides that: '* * * For all corporate purposes, all municipal corporations may be vested (by law) with authority to assess and...