Hearst Corp. (News American Division) v. State Dept. of Assessments and Taxation
| Decision Date | 17 August 1973 |
| Docket Number | No. 342,342 |
| Citation | 269 Md. 625,308 A.2d 679 |
| Parties | The HEARST CORPORATION (NEWS AMERICAN DIVISION) v. State Department of Assessments and Taxation. |
| Court | Maryland Court of Appeals |
E. Stephen Derby, Asst. Atty. Gen., Baltimore (Francis B. Burch, Atty. Gen., Baltimore, on the brief), for appellee.
Robert W. Kernan and Edward F. Shea, Jr., Baltimore (Sherbow, Shea & Doyle, Baltimore, on the brief), for appellant.
Maryland-Delaware-D.C. Press Association, Inc., E. Dale Adkins, Jr., Henry M. Rutledge and Adkins, Potts & Smethurst, Salisbury, on the brief, for amicus curiae.
Argued before MURPHY, C.J., and BARNES, McWILLIAMS, SINGLEY, SMITH, DIGGES and LEVINE, JJ.
This case, on appeal from the Maryland Tax Court, is a reprise of American Newspapers v. Tax Comm'n [American Newspapers v. McCardell], 174 Md. 56, 197 A. 574 (1938). It involves the same parties and presents the same issue: are the equipment and raw materials used in printing a newspaper exempt from taxation under the Baltimore City ordinance which exempts from local taxation the machinery and raw materials used in manufacturing?
American Newspapers held that the printing of a newspaper did not constitute manufacturing. In the 35 years which have intervened since that decision, there have been a number of significant developments. The provisions of the Baltimore City ordinance which granted the exemption have been substantially altered. The equipment used in printing a newspaper has become much more sophisticated and more fully automated. In the four jurisdictions which have considered the question since the decision in American Newspapers, three have flatly held that the printing of a newspaper is manufacturing. Most important of all, a year ago, in Perdue Foods, Inc. v. State Department of Assessments & Taxation, 264 Md. 672, 288 A.2d 170 (1972), we concluded that a highly automated chicken processing plant was entitled to a manufacturer's exemption. It now becomes necessary to reconsider American Newspapers in the light of these developments.
Hearst Corporation (News American Division) (Hearst) owns a plant which occupies almost an entire city block in Baltimore in which it prints The Baltimore News American, a daily newspaper. Each day, it uses between 86 and 92 tons of newsprint to print some 200,000 newspapers on weekdays and 300,000 on Sundays. There are about 1,000 employees, 300 of whom are directly involved in the printing operation, with an annual payroll in the mechanical departments of about $3,000,000.
For the year 1967, the State Department of Assessments and Taxation (the Department) assessed Hearst's plant for state and city tax purposes. The following portions of the assessment were challenged by Hearst in the petition filed by it in the Tax Court on 31 January 1968:
Subject to Subject to
state and state tax
city taxes only
------------- -----------
Manufactured products and raw material
(consisting principally of Hearst's entire
inventory of newsprint) $ 170,440.00 $113,620.00
Tools and machinery (which the Department
maintained were not used in manufacturing) 3,110,900.00
-------------
3,281,340.00
113,620.00
-------------
Total $3,394,960.00
Hearst argued that the raw material assessment included its entire inventory of newsprint, some of which was located in its plant, some in boxcars on its railroad siding, and some in storage warehouses, which when averaged over the year amounted to a 17.6 days' supply for the year 1967. This, Hearst argued, was not only contrary to the Department's prior practice, which involved an assessment of a 7 days' supply apparently reached by compromise, 1 but was an unconstitutional imposition. Its argument was that since all of the newsprint was imported from either Canada or Finland, the taxation of more than was required for its immediate needs violated the prohibition against a state's levying imposts on imports contained in the United States Constitution, Article I, Section 10, Clause 2, see Youngstown Sheet & Tube Co. v. Bowers, 358 U.S. 534, 79 S.Ct. 383, 3 L.Ed.2d 490 (1959) and Virtue Bros. v. County of Los Angeles, 239 Cal.App.2d 220, 48 Cal.Rptr. 505 (1966), cert. denied, 385 U.S. 820, 87 S.Ct. 45, 17 L.Ed.2d 58 (1966).
Hearst also challenged the assessment of what it regarded as manufacturing tools and machinery and raw materials on the basis not only that they were exempt from taxation in the hands of the manufacturer under the Baltimore City ordinance but also on the ground that similar machinery and materials in the hands of other printers were customarily granted an exemption from taxation by the Department. As Hearst saw it, this was an unlawful discrimination in violation of the Fourteenth Amendment to the Constitution of the United States and of Article XV of Maryland's Declaration of Rights.
By the time the matter was considered by the Tax Court, Hearst's assessments for the years 1968, 1969 and 1970 were also before it and were consolidated with the petition which attacked the 1967 assessment. The amounts of the several assessments need not be considered; they are of consequence only because in each successive year, the Department followed the approach which it had adopted for the year 1967.
By its order, the Tax Court affirmed the assessments entered by the Department for the years 1967-1970, excepting only the item "manufactured products and raw materials" which it modified by including in the assessable basis an 11 days' supply of newsprint, rather than an average of Hearst's entire inventory of newsprint, annualized for each of the years. As a practical matter, this had the effect of reducing the 1967 figures of $170,440.00 and $113,620.00 adopted by the Department to $77,150.00 and $51,430.00, respectively, and of correspondingly reducing the comparable figures for each of the succeeding years.
Hearst appealed from the Tax Court order, mounting its heaviest attack on the denial of the manufacturer's exemption, primarily because, should this be successful, it would carry with it an exemption of the entire inventory of newsprint as a raw material used in manufacturing.
The Department entered a cross-appeal, its argument being that Hearst's entire average inventory of newsprint, and not simply an 11 days' supply was properly taxable.
On appeal to us, Hearst raises three questions:
Baltimore City Code (1966) Art. 28, § 83(a) (the Ordinance) provides, in part:
It should be noted that the exemption is extended to tools and machinery, not to the taxpayer.
This should be carefully compared with the text of the ordinance which was considered by our predecessors in American Newspapers supra, 174 Md. at 58, 197 A. 574. Then, Baltimore City Code (1927) Art. 46, § 80 provided, in part:
"The Appeal Tax Court is authorized and directed upon the application, as hereinafter provided, of any individual, firm or corporation, actually engaged in the business of manufacturing articles of commerce in the City of Baltimore, to abate any and all personal taxes which may be levied hereafter by authority of the Mayor and City Council of Baltimore for any of the corporate uses thereof, upon any mechanical tools or implements, whether worked by hand or by steam or other motive power, or upon any...
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