Bedford v. Colorado Fuel & Iron Corp.
| Decision Date | 11 July 1938 |
| Docket Number | 14246. |
| Citation | 102 Colo. 538,81 P.2d 752 |
| Parties | BEDFORD, State Treasurer, v. COLORADO FUEL & IRON CORPORATION. |
| Court | Colorado Supreme Court |
Error to District Court, City and County of Denver; Otto Bock Judge.
Suit for declaratory judgment by Homer F. Bedford, as Treasurer of the State of Colorado, against the Colorado Fuel & Iron Corporation to determine the tax liability of the defendant under the Colorado Retail Sales Tax Act and the Use Tax Act. To review the decree, the plaintiff brings error, and the defendant assigns cross-error.
Affirmed in part, and reversed in part and cause remanded for further proceedings.
Byron G. Rogers, Atty. Gen., and Elmer P. Cogburn Asst. Atty. Gen., for plaintiff in error.
Fred Farrar and Wilbur M. Alter, both of Denver, for defendant in error.
Barney L. Whatley and Walter E. Schwed, both of Denver, amici curiae.
Involved here, upon its petition for a declaratory judgment, is the determination of the tax liability of the Colorado Fuel and Iron Corporation under the Colorado retail sales tax act (S.L. '35, c. 189, p. 1000, and use tax act S.L. '36 Second Extraordinary Session, c. 11, p. 86): (1) Upon hundreds of specific items of tangible personal property said to be necessarily purchased and used by it in its manufacturing and mining operations; and (2) upon hospital and dispensary supplies and equipment purchased and used in conducting its hospital, which it claims is a charitable institution specifically exempt under the provisions of the two statutes. The company, a domestic corporation, is engaged in the manufacture of steel and steel products and the operation of coal mines--about one-half of its coal production being used in its steel plant located at Pueblo Colorado--and in the operation of mines or quarries producing iron ore, fluorspar, dolomite and limestone, all of which are used in connection with the manufacture of steel at the steel plant.
The sales tax act relates to retail sales made in Colorado. The use tax act is supplemental to it and apparently was designed to apply to the use and consumption of commodities elsewhere purchased at retail, which, if purchased in Colorado, would have been subject to the sales tax. The particular portions of the two statutes here pertinent are substantially similar in import because of which, and in furtherance of brevity, we shall use the provisions of the sales tax act as a basis for our conclusions, which will apply to corresponding sections of the use tax act. The controversy upon the first question involved is primarily based upon the diversity of opinion between the parties as to the interpretation to be accorded section 2(n) of the sales tax act, p. 1003, which reads as follows: 'Sales to and purchases of tangible personal property by a person engaged in the business of manufacturing, compounding for sale, profit or use, any article, substance or commodity, which tangible personal property enters into the processing of or becomes an ingredient or component part of the product or service which is manufactured, compounded or furnished and the container, label, or the furnished shipping case thereof, shall be deemed to be wholesale sales and shall be exempt from taxation under this Act.'
Pursuant to the authority vested in him by section 18 of the act, p. 1018, the state treasurer has promulgated rules and regulations for its administration, those relating to section 2(n), supra, being in part as follows: 'However, sales of tangible personal property to manufacturers, producers, or processors, which tangible personal property is used or consumed but does not enter into the actual processing and does not become an ingredient or component part of the commodity or service manufactured, produced or furnished, are taxable.'
In conformity with this rule the treasurer has demanded the payment of the use tax from the company itself, and the payment of sales tax from the company's vendors, upon whom rests the primary duty of collecting and remitting taxes imposed, upon all tangible personal property purchased and used by the company in connection with the steel production and manufacturing business which does not become an ingredient or component part of the finished product and which is not otherwise exempted by the act. The company contends that in addition to those items of tangible personal property which actually become an ingredient or component part of the commodities manufactured, such tangible personal property as is necessarily used or consumed in the manufacturing process, although not be coming a constituent part of the finished product, is likewise not subject to the tax. Upon this theory the company asserts that the numerous specific commodities and articles enumerated in its complaint, ranging from the hay fed to the mine mules to the refractories used in the steel furnaces and including machinery and tools, office supplies and equipment, trucks, chemicals, workmen's equipment and many other items, the great majority of which by neither physical nor chemical process ever becomes an ingredient part of the finished articles, are not within the purview of the acts.
The trial court declared that such items of tangible personal property as are directly and proximately used in, and necessary for, the processes of manufacture by the company, as well as those which become an ingredient or component part of the product manufactured, are exempt from taxation under both acts. The original pronouncement by the trial court on the meaning and intent of the acts was made at the request of the parties preliminary to the submission of the case for specific rulings on the various items of property involved. After this preliminary ruling and upon the basis thereof, although both sides excepted thereto, the parties attempted to agree on the taxable status of the enumerated articles, but in this effort they were only partially successful and the matter later was submitted to the court upon stipulated facts resulting in a judgment declaring some of the questioned items taxable and others exempt. Both parties excepted to the final decree and assign error. The treasurer asserts that the trial court erred in connection with the items declared to be not subject to the tax, and the company claims that the decision was erroneous in holding taxable certain specific articles, including all mining machinery and equipment, and alleges that the court was mistaken in not exempting the hospital and dispensary supplies and equipment under specific provisions of the act.
While the solution of the first question primarily hinges upon the precise meaning of section 2(n), supra, we shall proceed under the elementary rule of statutory construction to the effect that all the language of the act must be considered and that construction favored which gives effect to every part thereof. The rule is well stated in the case of Paxson v. Cresson Gold Mining & Milling Co., 56 Colo. 206, 139 P. 531, in the following words (page 533): 'The fundamental rule to be followed in construing a statute is to ascertain and give effect to the intention of the Legislature in adopting it, and give effect, if possible, to every word it contains, and as far as practicable reconcile the terms therein employed so as to render it consistent and harmonious.' See, also, Calhoun G. M. Co. v. Ajax G. M. Co., 27 Colo. 1, 59 P. 607, 50 L.R.A. 209, 83 Am.St.Rep. 17; People v. Texas Co., 85 Colo. 289, 275 P. 896; Leyden Lignite Co. v. Buddy, 98 Colo. 452, 56 P.2d 52; 59 C.J. 993-995, §§ 594, 595; 25 R.C.L. 1006.
As has been said the act is designed to tax retail sales. The general definition of a retail sale is found in section 2(g) of the act and the definition of a wholesale sale is found in section 2(e) of the act, p. 1001. These two subsections respectively are:
It will be observed that the definitions of 'wholesale sale' and 'retail sale' pronounced by the legislature for the purpose of the acts, differ materially from the ordinarily accepted general conception of the meaning of these terms. It seems certain from these provisions that the statute was fundamentally intended to impose a tax upon that which is consumed and used and exempts only that which is sold for resale. The controlling factor in the classification is the disposition of the goods made by the buyer, and not the character of the business of the seller or the buyer. The ultimate consumer of all articles purchased and used by a manufacturer in its manufacturing operations is the manufacturer and upon the basis of the definitions alone the manufacturer would be liable for the tax on all of such items. It is definitely evident, however, that the legislature had well in mind that in the ordinary course of our complex industrial and commercial systems many articles and commodities are used and consumed by processors and manufacturers for later resale in an altered form. In the event an intermediate sales tax was charged upon the intervening transactions and upon each of the articles involved, consecutive taxes would be pyramided upon the final product offered for resale to the ultimate consumer. The extent to which there should be relief from this condition, certain of occurrence, and the limitations which should apply with respect thereto, were...
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