Frost-Pack Distributing Co. v. City of Grand Rapids

• Decision Date: 02 May 1977
• Docket Number: FROST-PACK,No. 18,18
• Citation: 252 N.W.2d 747,399 Mich. 664
• Parties: DISTRIBUTING COMPANY, Plaintiff-Appellant, v. The CITY OF GRAND RAPIDS, Defendant-Appellee.
• Court: Michigan Supreme Court

Page 747

252 N.W.2d 747

399 Mich. 664

FROST-PACK DISTRIBUTING COMPANY, Plaintiff-Appellant, v. The CITY OF GRAND RAPIDS, Defendant-Appellee.

No. 18.

Supreme Court of Michigan.

May 2, 1977.

Clary, Nantz, Wood & Van Orden by Richard M. Van Orden, Grand Rapids, for plaintiff-appellant.

Rhoades, McKee & Boer by Philip A. Balkema, Grand Rapids, for defendant-appellee; George A. Weible, City Atty., by Philip A. Balkema, Special City Atty., Grand Rapids, on brief.

LEVIN, Justice.

The issue is whether a person who stores in a public warehouse agricultural products that are not in transit to out of state destinations is a "consignor" within the purpose of a personal property tax exemption.

The act exempts, in paragraph 12th of the section delineating the personal property tax exemptions, products and goods located in a public warehouse when "in transit to destinations out of state" ¹ (emphasis supplied).

Farm products in a public warehouse are exempted, in paragraph 14th, whether or not actually in transit to destinations out of state: farm products "regularly placed in storage in a public warehouse * * * shall, while so in storage be considered in transit and only temporarily at rest, and not subject to personal property taxation". ² (Emphasis supplied.)

The constructional issue arises under a proviso to paragraph 12th stating that "no portion of any premises owned or leased or operated by a consignor or consignee or any affiliate or subsidiary of such consignor or consignee shall be deemed to be a public warehouse" (emphasis supplied); ³ paragraph 14th adopts paragraph 12th's definition of the term "public warehouse."

In this case, farm products that were not actually in transit to destinations out of state were stored by their owner in a wholly-owned subsidiary's public warehouse. ⁴

We hold that an owner of farm products placed in storage in a public warehouse that are not in transit to out of state destinations is not a consignor and therefore can claim the exemption.

I

There are two pertinent paragraphs in the section delineating the exemptions from the personal property tax. The paragraph 12th exemption provides:

"All products, materials and/or goods processed or otherwise and in whatever form but expressly excepting alcoholic beverages, located in a public warehouse, dock or port facility on December 31 of each year, if such products, materials and/or goods have been designated as in transit to destinations out of state pursuant to the published tariffs of any railroad or common carrier by the filing of the freight bill covering such products, materials and/or goods with the agency designated by such tariffs, so as to entitle the shipper to transportation rate privileges * * * ." M.C.L.A. § 211.9; M.S.A. § 7.9 (paragraph 12th) (emphasis supplied).

A second, unnumbered paragraph of paragraph 12th provides:

"For the purpose of this section, a public warehouse, dock or port facility is defined as any warehouse, dock or port facility owned or operated by any person, firm or corporation engaged in the business of storing products, materials and/or goods for hire for profit who issues a schedule of rates for storage of such products, materials and/or goods and who issues warehouse receipts pursuant to the provisions of Act No. 303 of the Public Acts of 1909: Provided, That no portion of a public warehouse, dock or port facility leased to a tenant or no portion of any premises owned or leased or operated by a consignor or consignee or any affiliate or subsidiary of such consignor or consignee shall be deemed to be a public warehouse, dock or port facility." Id. (emphasis supplied).

The paragraph 14th exemption provides:

"Farm products processed or otherwise, the ultimate use of which is for human or animal consumption as food, but expressly excepting wine, beer and other alcoholic beverages, regularly placed in storage in a public warehouse, dock or port facility, as defined in the twelfth subdivision of this section, shall, while so in storage be considered in transit and only temporarily at rest, and not subject to personal property taxation * * * ." Id. (paragraph 14th) (emphasis supplied).

Frost-Pack paid the personal property tax under protest and filed this action for refund. ⁵ The circuit judge was of the opinion that Frost-Pack's "position is the better reasoned one in view of the context and technical language used throughout the General Property Tax Act." He felt bound, however, by the implications of Frigid Food Products, Inc. v. City of Detroit, 31 Mich.App. 402, 187 N.W.2d 916 (1971), where an owner of farm products stored in a public warehouse was denied an exemption on other grounds.

The Court of Appeals affirmed and held that the term consignor "encompasses more than entrustment for shipment. It includes delivery of goods for care or storage." ⁶ Also rejected was Frost-Pack's alternative challenge on constitutional grounds to the classification resulting from the Court of Appeals' construction of the term consignor. Justice O'Hara dissented on constitutional and constructional grounds. The City's construction, he said, "runs squarely into the interdiction of United States Cold Storage Corp. v. Detroit Board of Assessors, 349 Mich. 81, 84 N.W.2d 487 (1957)", where this Court declared that the classification "must not be exercised in 'clear and hostile discriminations between particular persons and classes'. 349 Mich. 92, 84 N.W.2d at 493." Addressing the constructional issue, he continued:

"I believe that the legislative intent of subsection 12 was to eliminate the danger of the holding that Michigan was placing an unreasonable burden on interstate commerce, which, of course, is proscribed under the commerce clause of the Federal Constitution. The whole thrust of the subsection speaks to this purpose because it specifically provides for reassessment in any succeeding year if the materials and goods are not in fact shipped outside this state.

"In the case at bar plaintiff did none of the things which would place it in the category of a consignor. It did not designate the goods as in transit to destinations out of state pursuant to the published tariffs of any common carrier. It filed no freight bills covering the products with any agency designated by such tariffs. Consignor is not a mysterious nor an occult term. Simply put, a consignor is one who places property in transit via a certificated carrier pursuant to a published tariff. If the product is committed to shipment and placed in a warehouse under a freight bill so as to entitle it to transportation rate privileges the owner by most known usage becomes a 'consignor'. The consignee is simply the one to whom the shipment is consigned. Because in transportation law there often are questions as to when the title to the consigned goods passes, the Legislature included the term 'consignee' so that the assessing authority would not be bugged by a lot of Mickey Mouse as to whether title on the assessing date was in the 'consignor' or 'consignee'. It has to be in one or the other dependent upon the terms of the contract of carriage. So if, as I noted earlier, the product never actually enters the stream of interstate commerce either the consignor or consignee is going to have to pay the tax in some succeeding year. Thus, the device of phony warehousing for tax avoidance is foiled" (emphasis in original; footnotes omitted). ⁷

He also noted that the issue in Frigid Foods was whether the owner of the public warehouse was an "affiliate", and no other question was presented or decided.

Without reaching the constitutional issue, we reverse the Court of Appeals on the constructional issue for the reasons cogently stated by Justice O'Hara.

II

Farm products are exempt under paragraph 14th whether or not actually in transit to destinations out of state. The City agrees. ⁸ As stated, albeit in dissent, by three members of this Court in United States Cold Storage Corp. v. Detroit Board of Assessors, supra, 349 Mich. p. 94, 84 N.W.2d p. 494:

"It appears that the plain intent of the legislature in the quoted language is to exempt from personal property taxation such farm products, as defined above, as are found in public warehouses in the State of Michigan on tax date, regardless of whether such products are destined for use inside or outside the State of Michigan, or whether such destination is unascertained at the time."

The majority did not disagree with that construction; it held that such an absolute exemption for storage of farm products in a public warehouse was not, when compared with the taxation of other personal property, violative of Const. 1908, art. 10, § 3, providing for uniformity in taxation.

This construction is also borne out by a comparison of paragraph 12th with paragraph 14th: paragraph 12th provides, at considerable length, regarding proof that products and goods are in fact in transit to destinations out of state, that reports be filed with the assessor when goods for which exemption has been claimed are shipped from the warehouse, ⁹ and that if such goods are not shipped out of state they shall be assessed upon the next succeeding or any subsequent assessment roll. ¹⁰ Comparable language does not appear in paragraph 14th, nor is it incorporated from paragraph 12th by reference; paragraph 14th incorporates by reference only paragraph 12's definition of the term "public warehouse".

My colleague recognizes but argues against the irrebuttability of the paragraph 14th presumption that farm products stored in a public warehouse are in transit and not subject to personal property taxation. ¹¹ Farm products need not, contrary to his argument, be in transit to be within the "reason for the exemption"; they are exempt under paragraph 14th whether or not actually in transit. It undermines the statutory differentiation between goods that must be "in transit" to destinations out of state to be entitled to exemption (...