Bain v. Department of Revenue

JurisdictionOregon
PartiesWilliam BAIN, Director of Assessment and Taxation for Lane County, Oregon, Plaintiff-Respondent, v. DEPARTMENT OF REVENUE, Defendant, Oregon Aqua-Foods, Inc., Intervenor-Appellant. ; SC 27849.
Citation293 Or. 163,646 P.2d 12
Docket NumberNo. 1393,1393
CourtOregon Supreme Court
Decision Date02 June 1982

John C. Caldwell, Oregon City, argued the cause for intervenor-appellant. With him on the briefs was Hibbard, Caldwell, Bowerman, Schultz & Hergert, Oregon City.

Dana A. Anderson, Asst. County Counsel, Lane County Office of Legal Counsel, Eugene, argued the cause and filed the brief for plaintiff-respondent.

ROBERTS, Justice.

The Director of Assessment and Taxation for Lane County assessed an ad valorem property tax against a $4.7 million salmon hatchery operated by Oregon Aqua-Foods, Inc. (Aqua-Foods) for the tax year 1978-79. The Oregon Department of Revenue ordered the cancellation of the tax on the ground that the hatchery is a "manufacturing" facility for the purpose of the tax exemption provided in ORS 307.330 and ORS 307.340. The Oregon Tax Court determined that Aqua-Foods is not entitled to the exemption. The sole issue is whether the activity engaged in by Aqua-Foods is "manufacturing" entitling it to the tax exemption on certain improvements located on its land and used in its business.

The Tax Court adopted the statement of facts provided by the parties in their briefs to that court, and we do likewise.

" 'There is no dispute * * * (that Aqua-Foods) employs rather sophisticated mechanical, chemical and electronic processes in the commercial raising of salmon.

" * * *

" 'Petitioner produced two witnesses in its employ: Daniel A. Hartsook, Financial Manager, and William J. McNeil, General Manager and Vice President. Both gentlemen testified in great detail about the purposes, processes, and attributes of the subject property. Numerous photographic exhibits were produced.

" 'Petitioner is a wholly-owned subsidiary of Weyerhaeuser Corporation. It is described as an 'ocean ranching company.' The subject property is markedly dissimilar to normal and ordinary fish hatcheries and contains a rigorous environmental control system. It is the largest operation of its type in the world.

" 'Waste water is obtained from the nearby Weyerhaeuser pulp mill. This heated water is blended with cold water and disinfected by chlorination. The residual chlorination is later removed. Temperature control of the water is crucial; there are variations between each of the 36 raceways on the subject property. It is a computerized operation.

" 'The release and recapture sites are located on the Oregon coast. After entering the recapture site, the salmon brood stock are held in salt water ponds until reaching maturity. This is from four to six weeks for Coho salmon. The eggs are then removed and artificially fertilized. These, then, are transported to the subject property in Springfield for incubation. Usually, they are then quarantined and held in isolation for approximately 21 days. Subsequently, they are placed in the hatchery raceways.

" 'The hatching, itself, was described in great technical detail. It is a highly complex and intriguing process. The release of a 'hatching enzyme' weakens the egg shell and the embryo escapes.

" 'A PhD in nutrition is on Petitioner's staff. Certain diets are essential; food is specially designed for Petitioner's operation. Pathology and research and development laboratories are present at the subject property. They are supported by groups in the state of Washington.

" 'Along with the disinfection of the water, all of the fish are vaccinated to protect against disease. More than 12 million juvenile salmon were vaccinated in 1978; more than 20 million were expected for 1979. Of all the fish released, over 500,000 were tagged for identification by Petitioner. The precise release dates are determined by observation, experimentation, and scientific techniques. The survival and actual return rates from the ocean after release are much greater for Petitioner's operation than occurs in nature.

" 'Because of the disease prevention measures undertaken, Petitioner's salmon are much more resistant than those produced in nature. Petitioner's products may be differentiated by their bone structure. Petitioner's witness testified that the quality of the subject property's salmon is much greater than 'natural' fish; more survive to be harvested. Additionally, much better growth rates are obtained due to the specialized dietary measures. At the subject property, a salmon may double its body size approximately every 20 days.

" 'The respondent produced no witnesses. Instead, he relied solely on legal arguments with no dispute as to Petitioner's factual testimony about the complex, technical process.' "

ORS 307.330 provides:

"(1) Except for property centrally assessed by the Department of Revenue, each new building or structure or addition to an existing building or structure is exempt from taxation for each year of not more than two consecutive years if the building, structure or addition:

"(a) Is in the process of construction on January 1;

"(b) Is not in use or occupancy on January 1;

"(c) Has not been in use or occupancy at any time prior to such January 1 date;

"(d) Is being constructed in furtherance of the production of income; and

"(e) Is, in the case of nonmanufacturing facilities, to be first used or occupied not less than one year from the time construction commences. Construction shall not be deemed to have commenced until after demolition, if any, is completed.

"(2) If the property otherwise qualifies for exemption under this section and ORS 307.340, the exemption shall likewise apply to any machinery or equipment located at the construction site which is or will be installed in or affixed to such building, structure or addition."

ORS 307.340 provides:

"The property described in ORS 307.330 shall be listed for ad valorem taxation, but the assessor shall cancel the assessment upon receipt of sufficient documentary proof that the property meets all of the conditions contained in ORS 307.330. Such proof shall be filed with the assessor on or before April 1 of each year. No cancellation of assessment shall be made unless the required proof is filed within the time prescribed by this section. Any cancellation of assessment will be abated as to any nonmanufacturing property that is used or occupied within one year from the time construction commences and the assessor shall proceed to correct the assessment and tax roll or rolls from which the property was omitted from taxation, in the manner provided in ORS 311.207 to 311.213."

The parties agree that the property met the requirements of ORS 307.330(1)(a), (b), (c) and (d). Because the Aqua-Foods hatchery was used and occupied less than a year from the time its construction began, the hatchery qualifies for a tax exemption only if the production of fish conducted there cannot be construed to be "nonmanufacturing." ORS 307.330(1)(e) excludes from the exemption a nonmanufacturing facility used or occupied less than a year from the time its construction commenced. As the tax court noted, "(i)f the subject property is a 'nonmanufacturing' facility, no tax exemption can be granted." 9 OTR at 35. 1

The order issued by the Department of Revenue was based primarily on cases from other jurisdictions, e.g., a fish hatchery held to be manufacturing, Miller v. Peck, 158 Ohio St. 17, 106 N.E.2d 776 (1952); making of beer held to be manufacturing because it required the application of labor, skill, or sophisticated machinery, Anheuser-Busch Assn. v. U. S., 207 U.S. 556, 28 S.Ct. 204, 52 L.Ed. 336 (1908); and a chicken hatchery held to be a manufacturing enterprise, Master Hatcheries, Inc. v. Coble, 286 N.C. 518, 212 S.E.2d 150 (1975). The one Oregon case relied upon by the Department was cited for the proposition that "manufacturing" occurs with the fermentation from grape juice to wine, State v. Marastoni, 85 Or. 37, 165 P. 1177 (1917). Marastoni was a case in which the defendant was prosecuted for violating a statute prohibiting the manufacture of intoxicating wine.

The Department's order recites:

"After reviewing all the evidence and the numerous authorities cited by the parties, it is my considered opinion that the optimum temperature regime and highly technological controls carried out at the subject property are, indeed, a manufacturing process. Petitioner's operations are quite dissimilar to what occurs in nature or even at a 'normal' hatchery. The weight of the evidence establishes that Petitioner accelerates the basic physiological processes and produces a much better end product, both as to quality and quantity."

The Tax Court, on appeal, concluded that many of the decisions relied upon by the Department in interpreting the terms "manufacturing" or "manufacture" were guided by "differing and often very broad statutory definitions." 2 The Oregon statutes in question here contain no definitions of "nonmanufacturing" or its converse, which the parties and the tax court agreed must be "manufacturing." The Tax Court reasoned that, in the absence of a definition,

"The words used must therefore be regarded as common words and not words of art. When a common term is used in the statute, it should be given its common meaning. The legislature's failure to consider or deal with the particular problem will not prevent courts from construing a legislative act as having a meaning which is consistent with common sense and with the overall purpose of the act. State v. Shumway, 44 Or.App. 657, 607 P.2d 191 (1980). In interpreting a statute, the court must begin with the language used and is bound to give words of common usage their natural, ordinary meaning unless that leads to an absurd or unreasonable result. Photo-Art Commercial Studios, Inc. v. Hunter, 42 Or.App. 207, 600 P.2d 471 (1979); Oregon Oyster Co. v....

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