Commissioner of Revenue v. Houghton Mifflin Co.

• Decision Date: 24 June 1996
• Citation: 423 Mass. 42,666 N.E.2d 491
• Parties: COMMISSIONER OF REVENUE v. HOUGHTON MIFFLIN COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 491

666 N.E.2d 491

423 Mass. 42

COMMISSIONER OF REVENUE v. HOUGHTON MIFFLIN COMPANY.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Nov. 9, 1995.

Decided June 24, 1996.

Thomas A. Barnico, Assistant Attorney General, for plaintiff.

Harold Hestnes (Michael J. Nathanson, with him), Boston, for defendant.

Before LIACOS, C.J., and WILKINS, ABRAMS, O'CONNOR and GREANEY, JJ.

LIACOS, Chief Justice.

The Commissioner of Revenue (commissioner) has appealed from a decision of the Appellate Tax Board (board), given under the formal procedure, granting Houghton Mifflin Company (Houghton) an abatement equal to Houghton's 1988 investment tax credit. See G.L. c. 63, § 31A (1994 ed.). We allowed the commissioner's application for direct appellate review.

The board concluded that Houghton was eligible for the credit because it was a "manufacturing corporation" as that term is used in G.L. c. 63, § 38C (1994 ed.). Such classification allows a corporation to take advantage of an investment tax credit, see G.L. c. 63, § 31A(a ), ¹ and certain exemptions from local taxes on machinery. See G.L. c. 59, § 5, Sixteenth (3) (1994 ed.). Decisions of the board are final as to findings of fact. G.L. c. 58A, § 13 (1994 ed.). Thus, the sole question before us is whether the board erred as a matter of law. See First Data Corp. v. State Tax Comm'n, 371 Mass. 444, 446, 357 N.E.2d 933 (1976). "[O]therwise stated, the question is whether a contrary conclusion is not merely a possible but a necessary inference from the findings." Id. We conclude that the board did not err. We affirm the board's decision. ²

The essential facts are not in dispute. We recite these facts as found by the board in its decision. Houghton is a Massachusetts corporation and a well-known publisher of elementary, secondary, and college textbooks, as well as trade, reference, fiction, and nonfiction books. Its book-production process was described by the board as follows: "Initially, editors, ordinarily employed by [Houghton], engage in extensive research and development activities regarding a proposed book. These activities include researching the probable marketability and developing the content and format of a proposed book. [Houghton's] employees then design, write, and produce a manuscript to serve as the content of a proposed book. Various writers and editors working on different portions and aspects of a proposed book combine their work on a network.

"Next, [Houghton's] employees produce and then circulate among the company's marketing, production, and editing personnel thumbnail sketches for further processing and refinement. After that step, electronic-production specialists transform the manuscript and thumbnail sketches into templates which are analogous to blueprints or page outlines without any text. [Houghton's] art department then creates drawings, develops charts and graphs, and creates line art for inclusion in the ultimate product. The art department also selects, retrieves, and transforms photographs for incorporation into the ultimate product.

"Following these steps, all of the aforementioned items are assembled into layouts. First proofs are subsequently produced and marked for changes and corrections, resulting in the production of second proofs which further refine the product. The second proofs are then converted into color proofs. Throughout this process, [Houghton] uses, among other things, human skill and knowledge as well as various implements, materials, and machines or machinery such as computers, digital modems, printers, photocopiers, writing utensils, lighting machines, drawing equipment and materials, graphic art tools, electronic graphic equipment, electronic color collection equipment, photo-retrieval equipment, sophisticated software, and scanners.

"From the color proof stage of the process, [Houghton] either produces CD ROM tapes which are then sent to independent contractors for final packaging in compact disks, or it sends the proofs (usually on computer diskettes) to independent contractors for printing and binding into conventional books."

A "manufacturing corporation" is defined by G.L. c. 63, § 38C, as a corporation "engaged in manufacturing." This "less than illuminating" definition, William F. Sullivan & Co. v. Commissioner of Revenue, 413 Mass. 576, 579, 602 N.E.2d 188 (1992), combined with the desirability of the classification, ³ has spawned a great body of caselaw, ⁴ in which we have concluded that "[t]he words 'engaged in manufacturing' as used in [G.L. c. 63, § 38C,] ... are words of flexible meaning." Commissioner of Corps. & Taxation v. Assessors of Boston, 324 Mass. 32, 36, 84 N.E.2d 531 (1949) (Assessors of Boston II). Accord William F. Sullivan & Co. v. Commissioner of Revenue, supra at 578-579, 602 N.E.2d 188; Tilcon-Warren Quarries, Inc. v. Commissioner of Revenue, 392 Mass. 670, 672, 467 N.E.2d 472 (1984); Southeastern Sand & Gravel, Inc. v. Commissioner of Revenue, 384 Mass. 794, 795, 429 N.E.2d 714 (1981); Joseph T. Rossi Corp. v. State Tax Comm'n, 369 Mass. 178, 181, 338 N.E.2d 557 (1975). "The undefinable nature of the operative terms ... necessitates case-by-case, analogical development of their meaning. Absent legislative instruction, we know of no better direction in which to proceed." William F. Sullivan & Co. v. Commissioner of Revenue, supra at 581, 602 N.E.2d 188.

Our lodestar in these cases has been the rule that, where a dominant statutory term is undefined, "the Legislature should be supposed to have adopted the common meaning of the word, as assisted by a consideration of the historical origins of the enactment." Westinghouse Broadcasting Co. v. Commissioner of Revenue, 382 Mass. 354, 357, 416 N.E.2d 191, appeal dismissed, 452 U.S. 933, 101 S.Ct. 3071, 69 L.Ed.2d 948 (1981), quoting First Data Corp. v. State Tax Comm'n, 371 Mass. 444, 447, 357 N.E.2d 933 (1976). Accord William F. Sullivan & Co. v. Commissioner of Revenue, supra at 579, 602 N.E.2d 188; Charles River Breeding Lab., Inc. v. State Tax Comm'n, 374 Mass. 333, 335-336, 372 N.E.2d 768 (1978); Franki Found. Co. v. State Tax Comm'n, 361 Mass. 614, 617-618, 281 N.E.2d 865 (1972). As to the term's common meaning, "our decisions have embraced the basic concept of manufacturing articulated in Boston & Me. R.R. v. Billerica, 262 Mass. 439, 444-445, 160 N.E. 419 (1928): '[C]hange wrought through the application of forces directed by the human mind, which results in the transformation of some preexisting substance or element into something different, with a new name, nature or use.' " William F. Sullivan & Co. v. Commissioner of Revenue, supra. Accord Tilcon-Warren Quarries, Inc. v. Commissioner of Revenue, supra (quoting same language); Joseph T. Rossi Corp. v. State Tax Comm'n, supra at 180, 338 N.E.2d 557 (quoting same language).

General Laws c. 63, § 38C, first appeared in § 5 of St.1930, c. 220. It was subsequently incorporated in St.1936, c. 362, § 1, and it is to the 1936 act that we have looked for guidance regarding legislative intent. See, e.g., Fernandes Super Mkts., Inc. v. State Tax Comm'n, 371 Mass. 318, 321, 357 N.E.2d 296 (1976); Franki Found. Co. v. State Tax Comm'n, supra; Commissioner of Corps. & Taxation v. Assessors of Boston, 321 Mass. 90, 95-96 & n. 1, 71 N.E.2d 874 (1947) (Assessors of Boston I ). It was enacted pursuant to 1936 House Doc. No. 143, entitled "Report of the Special Commission Relative to Taxation of Tangible and Intangible Property and Certain Related Matters." Franki Found. Co. v. State Tax Comm'n, supra. The commission reported, in part, as follows: "Long regarded as a great industrial State, in which prosperous cities and thriving towns found their inhabitants busily employed in mills and factories, few there were who ever conceived the possibility of such a decline in industrial manufacturing as has occurred.... Idle factories and abandoned mills are the silent and convincing evidence of the disaster that has come upon our people. We do not attempt to give all the reasons for the loss of this industry, but it is clear that among the many causes high taxes play an important part.... It is imperative, therefore, that the State shall provide sufficient relief to save the factories and mills now operating from closing their doors and seeking locations in other States.... The effect of such [tax relief] undoubtedly will be to retain within the State the factories now operating, the possible reopening of factories now closed, and the attracting of new industries to locations within our borders." Id. at 618 n. 1, 281 N.E.2d 865, quoting 1936 House Doc. No. 143 at 5-6.

Although "[t]he statutory goal was not to encourage and preserve all industry in the Commonwealth but only that portion of industry represented by manufacturing corporations," Charles River Breeding Lab., Inc. v. State Tax Comm'n, supra at 336, 372 N.E.2d 768, we have nevertheless stressed that the words "engaged in manufacturing" are not to be given a narrow or restricted meaning" and that "the statute should be construed, if reasonably possible, to effectuate th[e] legislative intent [of fostering industrial expansion]." Joseph T. Rossi Corp. v. State Tax Comm'n, supra at 181, 338 N.E.2d 557, quoting Assessors of Boston v. Commissioner of Corps. & Taxation, 323 Mass. 730, 741, 84 N.E.2d 129 (1949). Accord William F. Sullivan & Co. v. Commissioner of Revenue, 413 Mass. 576, 579, 602 N.E.2d 188 (1992); Assessors of Boston II, supra; Assessors of Boston I, supra at 97, 71 N.E.2d 874.

Our past cases in this area have focused on whether the processes under study "effect[ed] the kind of change and cause[d] a correlative degree of refinement to the source material" sufficient to qualify as "manufacturing." William F. Sullivan & Co. v. Commissioner of Revenue, supra at 581, 602 N.E.2d 188. Accord York Steak House Sys., Inc. v. Commissioner of Revenue, 393 Mass. 424, 426, 472 N.E.2d 230 (1984); Hopkinton LNG Corp....