Associated General Contractors of Iowa v. State Tax Commission, 50898

• Decision Date: 15 October 1963
• Docket Number: No. 50898,50898
• Citation: 123 N.W.2d 922,255 Iowa 673
• Parties: ASSOCIATED GENERAL CONTRACTORS OF IOWA, Plaintiff, v. STATE TAX COMMISSION, Andrew L. George, Chairman, X. T. Prentis, Vice Chairman, John J. O'Connor, Member, Defendant-Appellee, Kaser Construction Company, Intervenor-Appellant.
• Court: Iowa Supreme Court

Page 922

123 N.W.2d 922

255 Iowa 673

ASSOCIATED GENERAL CONTRACTORS OF IOWA, Plaintiff, v. STATE TAX COMMISSION, Andrew L. George, Chairman, X. T. Prentis, Vice Chairman, John J. O'Connor, Member, Defendant-Appellee Kaser Construction Company, Intervenor-Appellant.

No. 50898.

Supreme Court of Iowa.

Oct. 15, 1963.

Ross H. Sidney and Thomas W. Carpenter, of Austin, Grefe & Sidney, Des Moines, for intervenor-appellant.

Evan L. Hultman, George W. Murray, John M. Stull and Jerry L. Jones, Des Moines, for defendant-appellee.

THORNTON, Justice.

The trial court held the sales tax assessment, as redetermined, is valid and intervenor is liable for the tax in the sum of $47,121.67, with interest from the date of the decree.

The assessment was based on the theory the activities of intervenor in preparing asphaltic concrete for use and using the same in fulfilling paving contracts makes such a retail sale as the same is defined in section 422.42(11), Code of Iowa, 1958, I.C.A. (This subsection was enacted in 1949 by the 53rd General Assembly as part of House File 237 and is the same in subsequent codes.)

Intervenor is a construction contractor. It builds roads, both with and without hard paving surface. In the course of constructing an asphalt paved roadway it mixes for use in the performance of the work to become a permanent part of the roadway, crushed rock, graded sand or gravel with fluxing oil or other similar materials and heats such combination to regulated temperatures. This asphaltic mix is combined, made, or manufactured, by portable machines at the job site and while hot is placed on the roadbed where it is properly rolled until it becomes a finished pavement known as asphaltic concrete.

It is the mixing of asphaltic concrete to the point in the process of laying permanent pavement where it is ready to be applied to the roadway that is asserted as the basis for the assessment and bringing intervenor within section 422.42(11).

Subsection 11 of section 422.42 is as follows:

'The use within this state of tangible personal property by the manufacturer thereof, as building materials, supplies or equipment, in the performance of construction contracts or for any other purpose except for resale or processing, shall, for the purpose of this division, be construed as a sale at retail thereof by the manufacturer who shall be deemed to be the consumer of such tangible personal property. The tax shall be computed upon the cost to him of the fabrication or production thereof.'

Intervenor contends, that it is not a manufacturer when that term is given its plain ordinary meaning, that the definition of manufacturer as contained in section 428.20, Code of Iowa, 1958, I.C.A., (substantially the same since the Code of 1851) as construed in In re Appeal of Koss Construction Company, 214 Iowa 125, 241 N.W. 495, is controlling, the legislative history of section 422.42(11) is contrary to the trial court's holding, the statute is a taxing statute and should be construed strictly against the taxing authority and in favor of the taxpayer, and 'tax estoppel' should be applied against the tax commission.

The decision of all matters urged except the 'tax estoppel' argument rests on the definition of the word 'manufacturer' as such term is used in section 422.42(11).

Section 428.20 defines manufacturer 'for the purposes of this title.' Both sections 428.20 and 422.42(11) are in Title XVI, Taxation.

Section 428.20 is as follows:

'Any person, firm, or corporation who purchases, receives, or holds personal property of any description for the purpose of adding to the value thereof by any process of manufacturing, refining, purifying, combining of different materials, or by the packing of meats, with a view to selling the same for gain or profit, shall be deemed a manufacturer for the purposes of this title, and shall list such property for taxation.'

In the Koss Construction Company case, 214 Iowa 125, 241 N.W. 495, we held the construction company doing the same identical work intervenor does here was not a manufacturer within the meaning of section 428.20. The Koss case dealt with the total activity of the taxpayer, that of laying permanent pavement. We said, at page 128 of 214 Iowa, at page 497 of 241 N.W.:

'We think the legislative intent was to exempt from taxation manufacturers who are engaged in manufacturing personal property for sale, and not builders or 'constructors' who are engaged in erecting permanent structures, such as paving, which become a permanent part of the real estate.'

Defendant, tax commission, concedes intervenor is not a manufacturer if its total activity, laying permanent pavement, is considered. Its contention is the intervenor is the manufacturer or maker of the asphaltic concrete in its plastic state. This is used as building material by intervenor in the performance of construction contracts.

Such mixing of the ingredients of asphaltic concrete for sale in a plastic state has been held to be manufacture. City of Wauwatosa v. Strudell, 6 Wis.2d 450, 95 N.W.2d 257, 259, 260. The making and sale of ready mixed concrete has been held to be manufacture. Passaic Transit Concrete Co. v. Martin, 19 N.J.Misc. 369, 19 A.2d 681; and Commonwealth v. McCrady-Rogers Co., 316 Pa. 155, 174 A. 395. See also Clarion Ready Mixed Concrete Co. v. Iowa State Tax Commission, 252 Iowa 500, 107 N.W.2d 553.

The tax commission's position is that in section 422.42(11) the legislature used 'manufacturer' in a sense different than used in section 428.20, in the sense of one who performs construction contracts making an article for use in performance of such contracts.

We need only to turn to the dictionary definitions of 'manufacturer' to see it may be used as contended by each party.

In Webster's Third New International Dictionary 'manufacturer' is defined as 'one who changes the form of a commodity or creates a new commodity.' The word 'manufacture' is derived from the Latin words, 'manu', meaning hand, and 'facere', to make. Literally it means to make by hand. As a noun, 'manufacture' is defined, in part, as, 'The act or process of making, inventing, devising, * * *;' as a verb, 'to make (as raw material) into a product suitable for use.' Synonyms are, make, fabricate. See also 55 C.J.S. Manufactures §§ 1b., 4b., pp. 672, 690.

There is no question that intervenor's mixing of rock, sand or gravel with fluxing oils and heating the mixture to regulated temperatures creates a new commodity. We think the question here is whether the use of 'manufacturer' in section 422.42(11) is reasonably susceptible to the meaning ascribed to it by intervenor. If it is the statute is ambiguous and must be construed strictly against the taxing authority. To be subject to the tax intervenor must come clearly within the terms of the statute.

In Morrison-Knudson Company v. State Tax Commission, 242 Iowa 33, 36, 44 N.W.2d 449, 451, 41 A.L.R.2d 523, and Iowa Mutual Tornado Insurance Association v. Fischer, 245 Iowa 951, 955, 65 N.W.2d 162, 165, we said, 'It must appear from the language of the statute the tax assessed against plaintiff was clearly intended.'

This is also applicable to definitions bringing the taxpayer within the application of the statute imposing the tax. Phillips Petroleum Co. v. Nelson, 232 Iowa 246, 249-250, 5 N.W.2d 1. Here section 422.43 imposes the tax upon the gross receipts of all sales of tangible personal property consisting of goods, wares and merchandise sold at retail in the state to consumers or users. Section 422.42(11) defines as a sale at retail a use of tangible personal property by the manufacturer thereof in the performance of construction contracts and provides the manufacturer shall be deemed the consumer. It is apparent if the taxpayer is denied the benefit of strict construction of the definition he is denied the benefit of the rule.

Intervenor's position is that the word 'manufacturer' as used in section 422.42(11) leads to this result, the statute is limited to those whose principal business is manufacturing but use tangible personal property manufactured by them in performing a construction contract. The tax commission's position is that the statute relates to all who perform construction contracts and use tangible personal property made or manufactured by them in performing such contracts. If intervenor's position is a reasonable one, i. e., it is not clearly excluded by the language of the statute, it does not come within the statute.

Section 4.1(2) requires us to construe words and phrases according to the context and the approved usage of the language. Actually we...