Boyer-Campbell Co. v. Fry

• Decision Date: 09 April 1935
• Docket Number: No. 128.,128.
• Citation: 260 N.W. 165,271 Mich. 282
• Court: Michigan Supreme Court
• Parties: BOYER-CAMPBELL CO. et al. (AUTOMOTIVE TOOL & DIE et al., Interveners) v. FRY et al.

271 Mich. 282

260 N.W. 165

BOYER-CAMPBELL CO. et al. (AUTOMOTIVE TOOL & DIE et al., Interveners)

v.FRY et al.

No. 128.

Supreme Court of Michigan.

April 9, 1935.

Action by the Boyer-Campbell Company and another against Theodore I. Fry, treasurer of the state of Michigan, John K. Stack, Jr., auditor general, Frank D. Fitzgerald, secretary of state, and James E. Mogan, managing director of the state board of tax administration, individually and collectively as the state board of tax administration, wherein Automotive Tool & Die and others intervened. From a decree in favor of plaintiffs, defendants appeal.

Decree modified and, as modified, affirmed.

Appeal from Circuit Court, Wayne County, in Chancery; Guy A. Miller, judge.

Argued before the Entire Bench.

Harry S. Toy, Atty. Gen., and Peter J. Monaghan, Jr., and Edmund E. Shepherd, Asst. Attys. Gen., for appellants.

Bulkley, Ledyard, Dickinson & Wright, of Detroit, for Automotive Tool and Die Manufacturers Association, intervening plaintiff.

Berry & Stevens, of Detroit (Raymond H. Berry, Ralph W. Barbier, and Arthur L. Evely, all of Detroit, of counsel), for appellees.

Lawhead & Kenney, of Detroit, for Superior Pattern & Mfg. Co., and City Pattern Works, intervening plaintiffs and appellees.

Lucking, Van Auken & Sprague, of Detroit, for Hoskins Mfg. Co., intervening plaintiff and appellee.

Oxtoby, Robinson & Hull, of Detroit, for Detroit Edison Co. and Holcroft & Co., intervening plaintiffs and appellees.

Howard C. Chilson and Fred H. Dye, both of Detroit, for Ex-Cell-O Aircraft & Tool Corporation, intervening plaintiff and appellee.

H. R. Martin, of Detroit (Goodenough, Voorhies, Long & Ryan and W. D. Gowans, all of Detroit, of counsel), for White Star Refining Co., intervening plaintiff and appellee.

BUSHNELL, Justice.

This appeal is with respect to the meaning of that portion of Act No. 167 of the Public Acts of 1933, approved June 28th, and known as the ‘General Sales Tax Act,’ which reads:

‘The term ‘sale at retail’ means any transaction by which is transferred for consideration the ownership of tangible personal property, when such transfer is made in the ordinary course of the transferor's business and is made to the transferee for consumption or use or for any other purpose than for resale in the form of tangible personal property.' Part of section 1 (b.1)

‘The term ‘sale at retail’ includes sales of electricity for light, heat and power and sale of natural and artificial gas when made to the consumer or user for consumption or use rather than for resale.' (b.2)

The state board of tax administration issued ‘Preliminary Regulations' on June 30, 1933, in which it said, on page 5:

‘Receipts from sales of goods which as ingredients or constituents go into and form part of tangible personal property sold by the buyer are not taxable. It makes no difference that the goods are resold in a different form or condition. * * *

‘In general, the taxes (sic) imposed upon all persons engaged in the business of selling tangible personal property for consumption or use, or for any other purpose but resale, it is intended to cover the receipts from a sale which constitutes the last actual transaction, prior to the ultimate use or consumption, that is, the transaction by the last person in the chain prior to the actual use or consumption.’ Then follow certain illustrations.

Doubt and confusion having arisen during the drafting of the regulations as to the applicability of the act to certain businesses, the Legislature reconvened and on July 17th passed House Concurrent Resolution No. 98, which reads in part:

‘Resolved, that it was the intent of the legislature that the State Board of Tax Administration be empowered and authorized by said act to define and liberalize the definition of a sale at retail; and

‘Resolved, That the legislative intent, in passing Act 167, Public Act of 1933, was to exclude from the provisions of the act any sale of anything used exclusively in the manufacturing, assembling, producing, preparing, or wrapping, crating, and/or otherwise preparing for delivery any tangible personal property to be sold; and be it further

‘Resolved, that the word ‘producing’ as used herein shall include agricultural production.'

This resolution was followed by certain supplementary regulations and decisions, issued by the board and dated July 20, 1933. Trade ruling No. 3 thereof reads in part:

‘In general, the tax is imposed upon all persons engaged in the business of selling tangible personal property to the consumer for use. It is intended to cover receipts from a sale which constitutes the last actual transaction prior to ultimate use or consumption; that is, the transactions by the last person in the chain prior to actual use or consumption. * * *

‘The manufacturer of the ice cream in the example mentioned may require machinery, freezers, fuel, power, ammonia or ice and similar equipment and supplies. The tax would apply to the receipts from the sale of these things to the ice cream manufacturer. They are consumed in the production or manufacture of the ice cream. They do not go into and form a part of the product sold as ingredients or constituents. They are purchased for consumption and not for resale within the meaning of the act.’

On August 30th the board took a contradictory position and by resolution declared that it should be the policy to interpret the act ‘to comply with the clear intent of the legislature,’ so as ‘to exclude tangible personal property used in the processing, producing and/or manufacturing of tangible personal property to be ultimately sold at retail, including any article used in the wrapping, crating and/or otherwise preparing for delivery any tangible personal property to be sold.’

And further declared that: ‘The intent of this Act is recognized by the Board to include only sales commonly known as counter sales of tangible personal property to be used or consumed by the individual. * * *’

This action was rescinded on September 25, 1933, on advice of the Attorney General (see Opinions of Attorney General, 1933, 1934, p. 321), and the present attitude of the board is now expressed in article 26 of its supplemental regulations and decisions as of January 1, 1934:

‘ Sales to Manufacturers, Producers or Processors. Gross proceeds from sales of tangible personal property to manufacturers, producers or processors, which is consumed by them in manufacturing, producing or processing and does not become an ingredient or component part of the tangible property manufactured, produced or processed, are taxable. The manufacturer, producer or processor is the final buyer or ultimate consumer of such tangible personal property and does not purchase it for resale.

‘Gross proceeds from sales of tangible personal property to manufacturers, producers or processors, which enters into and becomes an ingredient or component part of the tangible personal property which they manufacture, produce or process, are not taxable. The fact that the article manufactured, produced or processed is in a different form or of a different character is immaterial.

‘To illustrate: Machinery, fuel, pattern paper, needles, chalk, etc., sold to a clothing manufacturer are purchased by him for consumption or use and not for resale. Receipts from such sales are taxable, as these materials do not become a component part of the clothes manufactured. On the other hand, woolens, linings, buttons, and thread sold to a clothing manufacturer do become a component part of the clothes manufactured. Gross proceeds from such sales are not taxable, as the manufactured clothing is resold.

‘To illustrate further: Certain chemicals, such as sulphuric acid and chlorine, are sold to paper manufacturers for treating and cleaning raw materials. They do not become a part of the finished product; the paper manufacturer is the final buyer or ultimate consumer thereof, and such sales to him are taxable. Pulp wood sold to paper manufacturers becomes a component part of the finished product, therefore is not taxable, as the manufactured paper is resold.’

The Legislature on December 20, 1933, after the board had changed its construction of the act, ‘resolved * * * That the legislature hereby requests the state board of tax administration to abide by the legislative intent relative to Act No. 167 of the Public Acts of 1933, as contained in House Concurrent Resolution No. 99 of the 1933 session of the legislature’; etc.

Plaintiff Boyer-Campbell filed a petition for a declaratory judgment of its rights under the provisions of Act. No. 36, Pub. Acts 1929, C. L. 1929, §§ 13903-13909, and other parties named in the title of this opinion were granted leave to intervene. We have noted in the margin hereof the general nature of the property sold by the various plaintiffs and the decree entered in their favor from which the defendants have appealed.¹Appellants' brief contains certain concessions which, because of their importance, are quoted in full in the margin under the heading ‘Restricting the Issue,’ the references being to pages of the record before us. ²

Appellants say the sole question presented by this record is: ‘Does the statutory definition of ‘sale at retail’ include a transaction by which is transferred for consideration the ownership of machinery, tools, materials,and/or supplies, when such transfer is made in the ordinary course of the transferor's business, and is made to a manufacturer for his use and consumption in the processing, assembly, production and/or preparation of the produce of the manufacturer, it appearing, however, that such machinery, et cetera, so transferred, used and/or consumed, does not become, in a physical sense, a tangible component of such manufactured product?'

The question was stated by the learned trial judge to be: ‘Must personal property sold to a manufacturer, in order that the sale thereof be exempt from tax, reappear tangibly in tangible personal...