Hudson Pulp & Paper Corp. v. Johnson

• Decision Date: 14 April 1952
• Citation: 88 A.2d 154,147 Me. 444
• Parties: HUDSON PULP & PAPER CORP. v. JOHNSON.
• Court: Maine Supreme Court

Page 154

88 A.2d 154

147 Me. 444

HUDSON PULP & PAPER CORP. v. JOHNSON.

Supreme Judicial Court of Maine.

April 14, 1952.

Locke, Campbell, Reid & Hebert, Augusta, for appellant.

Alexander A. LaFleur, Atty. Gen., Boyd Bailey and Miles P. Frye, Asst. Attys. Gen., for the State.

Before MURCHIE C. J., and THAXTER, FELLOWS, MERRILL, NULTY and WILLIAMSON, JJ.

MERRILL, Justice.

On report. This case is an appeal to the Superior Court for the County of Kennebec from a decision of Ernest H. Johnson, State Tax Assessor, declining to abate taxes. The assessor levied a use tax upon certain lubricating oils and greases used to lubricate machinery, and certain wires, wet felts and dry felts used upon paper machines, all purchased by the appellant for use in its business as a manufacturer of paper. Proper procedure was followed to obtain a reconsideration and abatement of the assessment in question by the assessor, and to bring the case before the Superior Court on appeal. See P.L.1951, c. 250, §§ 29 and 30. In the Superior Court the case was reported to this Court for final determination. By the terms of the report it is agreed that there is only one issue and that is 'Is the purchase by the Appellant, the taxpayer, of wires, wet felts and dry felts (all paper machine clothing) and lubricants a purchase of 'tangible personal property which becomes an ingredient or component part of, or which is consumed or destroyed or loses its identity in the manufacture of, tangible personal property for later sale by the purchaser * * *' within the meaning of the fourth sentence of the definition of 'retail sale' or 'sale at retail', Section 2, Chapter 250, P.L.1951?'

By Chapter 250 of the Public Laws of 1951, the Legislature enacted Chapter 14-A of the Revised Statutes known as the 'Sales and Use Tax Law', hereinafter called the Act.

The lubricating oils and greases used to lubricate the machinery, and the wires and felts used in connection with and on the machinery employed to manufacture paper, were all expendibles. By being used in connection with the paper-making machinery and during the process of making paper, they will be consumed or destroyed within the meaning of those terms as used in Section 2 of the Act. As to the oils and greases it is self evident that their use for the intended purpose destroys them. True it is that the wires and felts are not completely annihilated by the intended use, but as a result of chemical action and mechanical abrasion both wires and felts are rendered useless after varying but relatively short periods of use; the wires having a life of one to four weeks, the wet felts six to ten days and the dry felts up to five months. After these periods the felts and wires become of no use in the paper-making business.

We hold that these articles of personal property by use for the purposes intended are consumed or destroyed within the meaning of those words as used in the Act. However, the fact that these articles of personal property are either consumed or destroyed is not necessarily determinative of the issue. They must not only be consumed or destroyed but they must also be consumed or destroyed in the manufacture of tangible personal property for sale.

So much of Section 2 of the Act as is pertinent to the question at issue is as follows:

"Retail sale' or 'sale at retail' means any sale of tangible personal property, in the ordinary course of business, for consumption or use, or for any purpose other than for resale in the form of tangible personal property. * * * 'Retail sale' and 'sale at retail' do not include the sale of tangible personal property which becomes an ingredient or component part of, or which is consumed or destroyed or loses its identity in the manufacture of, tangible personal property for later sale by the purchaser, but shall include fuel and electricity.'

Although the parties agree that the articles of personal property in question are consumed or destroyed, they are not in agreement as to whether or not they are consumed or destroyed in the manufacture of tangible personal property within the meaning of the foregoing provision of Section 2 of the Act.

Purporting to act under authority of Section 20 of the Act the assessor promulgated Regulation 3. This regulation, in part, declared and set forth the categories of personal property consumed or destroyed to which the exclusion from the definition of 'retail sale' or 'sale at retail' in Section 2 of the Act applied. The pertinent part of Regulation 3 is as follows:

'The exemption applies to substances, as distinguished from machines or tools, affecting the physical nature of tangible personal property in the process of manufacture, but which do not enter into the final product in an identifiable form so as to be considered an ingredient or component part of the finished product. The exemption does not apply to machines, replacement parts, or tools.'

By this regulation the assessor sought to divide those things which are consumed or destroyed into two categories or classes, one of which would be taxable and one of which would not be taxable. Those things which were being acted upon in the process of manufacture, and by being acted upon were consumed or destroyed and thus lost their identity in the end product were treated as exempt from taxation. Those things which acted upon the material which was being processed, even if they were destroyed or consumed, would not be exempt from the tax.

As stated in the assessor's brief:--'The distinction is functional and extremely simple--as simple as the distinction between that which acts and that which is acted upon. It is possible for the most practical person--little versed in theory--to proceed rapidly through a manufacturing plant and classify what he sees as in one category or the other instantly.'

To the class of non-taxable things so determined, the assessor added one other group, to wit, those things which were totally destroyed by a single use.

Desirable as the result reached by the assessor's classification may be, and despite the fact that it is logical and workable, the said classification set forth in Regulation 3 cannot be sustained. Whether or not the purchase or sale of an article of personal property subjects the purchaser to a sales or use tax, and if so to which one, depends, not upon the regulations of the assessor, but upon the Act itself. Although the assessor is authorized by Section 20 of the Act to promulgate and enforce rules and regulations, by the very terms of that section such rules and regulations must be consistent with the Act. The assessor by regulation can neither make that which is non-taxable under the Act taxable, nor can he render that which is taxable under the Act non-taxable. It is ...