Great Lakes Sales, Inc. v. State Tax Com'n

• Decision Date: 18 May 1992
• Citation: 486 N.W.2d 367,194 Mich.App. 271
• Parties: GREAT LAKES SALES, INC., Petitioner-Appellee, v. STATE TAX COMMISSION, Respondent-Appellant. Docket 136999.
• Court: Court of Appeal of Michigan — District of US

Page 367

486 N.W.2d 367

194 Mich.App. 271

GREAT LAKES SALES, INC., Petitioner-Appellee, v. STATE TAX COMMISSION, Respondent-Appellant.

Docket 136999.

Court of Appeals of Michigan.

Submitted April 21, 1992, at Grand Rapids.

Decided May 18, 1992, at 9:10 a.m.

Released for Publication Aug. 3, 1992.

Mika, Meyers, Beckett & Jones by Scott E. Dwyer, Grand Rapids, for Great Lakes Sales, Inc.

Frank J. Kelley, Atty. Gen., Gay Secor Hardy, Sol. Gen., and Russell E. Prins and Ross H. Bishop, Asst. Attys. Gen., for State Tax Com'n.

Before HOOD, P.J., and SHEPHERD and SANBORN, ^* JJ.

SHEPHERD, Judge.

Respondent, the State Tax Commission, appeals as of right a December 28, 1990, decision by the Kent Circuit Court reversing the commission's denial of petitioner's application for an industrial facilities exemption certificate pursuant to the plant rehabilitation and industrial development districts act, 1974 P.A. 198, M.C.L. Sec. 207.551 et seq.; M.S.A. Sec. 7.800(1) et seq.

Petitioner, Great Lakes Sales, Inc., is engaged in the general business of wholesale distribution of vinyl and carpet floor coverings. In November 1987, petitioner filed an application for an industrial facilities exemption certificate with the City of Wyoming for a 14,480-square-foot addition to an existing building. The existing building had previously been granted an exemption by Kent Circuit Court Judge Roman Snow in 1979. After the City of Wyoming had granted its approval on February 1, 1988, the application was sent to the respondent commission for final approval. In August 1988, the commission notified petitioner that it was denying petitioner's application on the ground that the property did not satisfy the definitional requirements of 1974 P.A. 198, M.C.L. Sec. 207.551 et seq.; M.S.A. Sec. 7.800(1) et seq. (the plant rehabilitation and industrial development districts act). Petitioner then requested a hearing before the commission. After a hearing on November 29, 1988, the commission issued an order denying petitioner's application for an industrial facilities exemption certificate. Subsequently, petitioner requested a rehearing because the commission failed to provide any findings of fact or conclusions of law as required under M.C.L. Sec. 24.285; M.S.A. Sec. 3.560(185). On March 7, 1989, the commission issued another order denying petitioner's application. Petitioner submitted a second request for rehearing, and another hearing was held on October 24, 1989. On December 11, 1989, the commission issued its findings of fact, conclusions of law, and an opinion denying petitioner's application. Subsequently, petitioner sought judicial review in the Kent Circuit Court. On December 28, 1990, the court reversed the commission's denial of petitioner's application and found that petitioner was entitled to the industrial facilities exemption certificate because its property qualified as "industrial property" under Sec. 2(6) of 1974 P.A. 198.

The rehabilitation and industrial development districts act was adopted by the Legislature to provide qualifying facilities an exemption from, or abatement of, ad valorem real and personal property taxes under the General Property Tax Act, 1893 P.A. 206, M.C.L. Sec. 211.1 et seq.; M.S.A. Sec. 7.1 et seq. In general, such facilities must create, maintain, or prevent loss of employment and must primarily restore, replace, or update the technology of obsolete industrial property. M.C.L. Sec. 207.559(2); M.S.A. Sec. 7.800(9)(2); Murco, Inc. v. Dep't. of Treasury, 144 Mich.App. 777, 779, 376 N.W.2d 188 (1985). For a "new facility," a specific tax called the "industrial facility tax" is imposed, which equals fifty percent of what the facility's tax would be under the general property tax. M.C.L. Sec. 207.564(2); M.S.A. Sec. 7.800(14)(2). A "new facility" is defined in Sec. 2(4) of 1974 P.A. 198, M.C.L. Sec. 207.552(4); M.S.A. Sec. 7.800(2)(4), as

new industrial property other than a replacement facility to be built in a plant rehabilitation district or industrial development district.

In this case, petitioner sought an exemption for property valued at approximately $850,000 in 1988.

Since the adoption of the act, "industrial property" has been defined in Sec. 2(6) of 1974 P.A. 198, M.C.L. Sec. 207.552(6); M.S.A. Sec. 7.800(2)(6), as follows:

"Industrial property" means land improvements, buildings, structures, and other real property, and machinery, equipment, furniture, and fixtures or any part or accessory thereof whether completed or in the process of construction comprising an integrated whole, the primary purpose and use of which is the manufacture of goods or materials or the processing of goods and materials by physical or chemical change....

Industrial property shall include facilities related to a manufacturing operation under the same ownership, including but not limited to office, engineering, research and development, warehousing, or parts distribution facilities.

In 1982, the act was amended by 1982 P.A. 417, which added Sec. 2(10) to define the phrases "manufacture of goods or materials" and "processing of goods or materials:"

"Manufacture of goods or materials" or "processing of goods or materials" means any type of operation that would be conducted by an entity included in the classifications provided by division D, manufacturing, of the standard classification manual of 1972, published by the United States office of management and budget, regardless of whether the entity conducting such an operation is included therein.

The first question presented in this case involves the interpretation of the statute providing an exemption for qualified property. Respondent contends that petitioner failed to qualify for the exemption under 1974 P.A. 198 because the facility must be used primarily for the manufacture of goods or materials. Petitioner argues that the new facility qualifies as industrial property entitled to an exemption because it comprises an integrated whole whose primary purpose and use, as set forth in Sec. 2(6), involves the type of operation that falls within the definition of "manufacture of goods or materials" or "processing of goods or materials" under Sec. 2(10) of the act.

The primary goal of judicial interpretation of statutes is to ascertain and give effect to the intent of the Legislature. William Mueller & Sons, Inc. v. Dep't. of Treasury, 189 Mich.App. 570, 572, 473 N.W.2d 783 (1991). Where the meaning of a statute is clear and unambiguous, judicial construction or interpretation is precluded. People v. Willie Miller, 186 Mich.App. 238, 241, 463 N.W.2d 250 (1990). When ascertaining legislative intent, the language of the statute should be given a reasonable construction, considering the statute's purpose and the object sought to be accomplished. Id. Unless defined in the statute, every word or phrase should be accorded its plain and ordinary meaning. M.C.L. Sec. 8.3a; M.S.A. Sec. 2.212(1); People v. Tracy, 186 Mich.App. 171, 176, 463 N.W.2d 457 (1990). Tax exemption statutes are to be strictly construed in favor of the taxing unit. Mueller, supra. Courts are to give deference to an administrative agency's interpretation of a statute it is entrusted to enforce. Bar Processing Corp. v. State Tax Comm., 171 Mich.App. 472, 478, 430 N.W.2d 753 (1988).

Under 1974 P.A. 198, as amended, a facility qualifies as industrial property under Sec. 2(6) if it comprises an "integrated whole, the primary purpose and use of which is the manufacture of goods or materials or the processing of goods and materials by physical or chemical change." Section 2(10) defines "manufacture of goods or materials" and "processing of goods or materials" to mean "any type of operation that would be conducted by an entity included in the classifications provided by division D ... regardless of whether the entity conducting such an operation is included therein." Accordingly, the manufacture of goods or materials or processing of goods or materials, as defined in Sec. 2(6), includes any type of operation that would be conducted by an entity classified as a manufacturer under division D of the Standard Classification Manual, regardless of whether the entity performing the operation is classified as a manufacturer under division D.

The terms "the primary purpose and use" and "by physical or chemical change" as used in Sec. 2(6) are not defined by the statute, and thus must be accorded their ordinary and customary meaning. Tracy, supra. Webster's Seventh New Collegiate Dictionary (1967) (based on Webster's Third New International Dictionary) defines "primary" as "of first rank, importance, or value." Webster's Third New International Dictionary Unabridged Edition (1964) defines "change" as:

to make different in some particular but short of conversion into something else ... to become different in one or more respects without becoming something else.

Webster's Seventh New Collegiate Dictionary adds that

change implies making either an essential difference often amounting to a loss of original identity or a substitution of one thing for another; ... change may imply any variation whatever whether affecting a thing essentially or superficially.

We note that in rendering its December 11, 1989, opinion, the commission committed several errors in interpreting the relevant statutory provisions. In its findings of fact, the commission found that 1974 P.A. 198 was amended by adding Sec. 2(10) "requiring that the entity would be included in the classifications provided by division D, Manufacturing, of the Standard Classification Manual of 1972." In its conclusions of law and opinion, the commission stated:

The Commission concluded that the amendment to 1974 PA 198 which added section 2(10) requires that the facility must be engaged in manufacturing instead of only causing a physical or chemical change to a product.

Contrary to respondent's construal, the plain language of Sec. 2(10) does not require that...