Ladish Malting Co. v. Stutsman County By and Through Stutsman County Bd. of Com'rs, 10533

• Decision Date: 23 May 1984
• Docket Number: No. 10533,10533
• Citation: Ladish Malting Co. v. Stutsman County By and Through Stutsman County Bd. of Com'rs, 351 N.W.2d 712 (N.D. 1984)
• Parties: LADISH MALTING COMPANY, a foreign corporation, Plaintiff, Appellee and Cross- Appellant, v. STUTSMAN COUNTY, acting By and Through the STUTSMAN COUNTY BOARD OF COMMISSIONERS, and the State of North Dakota, acting by and through the State Board of Equalization, Defendants, Appellants and Cross-Appellees. Civ.
• Court: North Dakota Supreme Court

Page 712

351 N.W.2d 712

LADISH MALTING COMPANY, a foreign corporation, Plaintiff Appellee and Cross- Appellant, v. STUTSMAN COUNTY, acting By and Through the STUTSMAN COUNTY BOARD OF COMMISSIONERS, and the State of North Dakota acting by and through the State Board of Equalization Defendants, Appellants and Cross-Appellees.

Civ. No. 10533.

Supreme Court of North Dakota.

May 23, 1984.

Vogel, Brantner, Kelly, Knutson, Weir & Bye, Fargo, for plaintiff, appellee and cross-appellant; argued by Douglas R. Herman, Fargo.

Charles J. Gilje, States Atty., Jamestown, and Robert W. Wirtz, Asst. Atty. Gen., Bismarck, for defendants, appellants and cross-appellees; argued by Robert W. Wirtz.

ERICKSTAD, Chief Justice.

Stutsman County and the State of North Dakota [State] appeal from a judgment which reduced the assessed value of a malting plant owned and operated by the Ladish Malting Company [Ladish] from $57 million to $28,313,968. The District Court of Stutsman County entered this judgment on July 15, 1983, entitling Ladish to an abatement of taxes. The State contends the district court erred when it classified certain property used by Ladish in the manufacture of malt as personal property exempt from ad valorem taxation pursuant to Sections 57-02-04(2), 57-02-05.1, and 57-02-08(25), N.D.C.C. Ladish also appeals from the judgment and contends the district court erred when it classified certain property as taxable real property.

Locally assessed personal property is generally exempt from assessment and taxation. Sec. 57-02-08(25), N.D.C.C. ¹ "Personal property ... include[s] all property that is not included within the definition of real property." Sec. 57-02-05.1, N.D.C.C. Section 57-02-04, N.D.C.C., defines "real property," for the purpose of taxation, to include:

"1. The land itself, ... and improvements to the land, ... and all rights and privileges thereto belonging or in anywise appertaining, and all mines, minerals, and quarries in and under the same....

"2. All structures and buildings, including systems for the heating, air conditioning, ventilating, sanitation, lighting, and plumbing of such structures and buildings, and all rights and privileges thereto belonging or in anywise appertaining, but shall not include items which pertain to the use of such structures and buildings, such as machinery or equipment used for trade or manufacture which are not constructed as an integral part of and are not essential for the support of such structures or buildings, and which are removable without materially limiting or restricting the use of such structures or buildings.

"3. Machinery and equipment, but not including small tools and office equipment, used or intended for use in any process of refining products from oil or gas extracted from the earth, but not including such equipment or appurtenances located on leased oil and gas production sites." [Emphasis added.]

A brief description of the Ladish plant and the malting process itself, as gleaned from the testimony and exhibits received at trial, will illustrate the magnitude of operations performed and characteristic features of the property owned by Ladish.

The malting process consists of a controlled, limited germination process, designed primarily to produce or activate enzyme systems in the barley kernel. Barley is permitted to sprout, inducing a chemical change within the kernel which converts starches into a malt sugar called maltose. Ladish utilizes a compartment malting system which features separate facilities for each of the five stages of the malting process: (1) initial storage, cleaning and grading (barley elevators), (2) steeping (steep buildings), (3) germinating (malthouses/attemporator buildings), (4) kilning (kiln buildings), and (5) aging and blending (malt elevators). The plant contains intricate systems for conveyance, dust collection, and process plumbing, heating, and refrigeration.

Barley is received by truck or rail shipment, is sampled and tested for variety, moisture content, protein level, etc., weighed and thereafter conveyed to # 1 barley elevator (cap. 1,500,000 bu.) for storage. Barley, when needed, is conveyed to # 2 barley elevator (cap. 2,200,000 bu.) for cleaning and grading. Foreign material is removed and the remaining barley is separated according to size. Barley sprouts, husks, and "screenings" are pelletized and shipped out in bulk for processing as animal feed.

Cleaned and graded barley is conveyed from storage bins in # 2 elevator to one of forty-five steep tanks for water absorption. The purpose of steeping is to raise the moisture content of the barley kernel. Each steep tank (cap. 6,000 bu.) is constructed of steel, and is set upon heavy structural steel frames which incidently brace the columns of each steep building. A concrete platform surrounding the upper part of each tank functions as an access floor for maintenance purposes.

Steeped barley is conveyed by slurry pumps to one of twenty germinating compartments. A compartment (cap. 6,000 bu.) is essentially a large, rectangular, concrete box open on the top. The floor of each compartment is constructed of perforated metal trays which permit air to be drawn upward through the barley. The compartments are fitted with rails which support steel turning machines consisting of a row of spiral rotating helixes which travel the length of the compartment to level and periodically mix the germinating barley. The germinating compartments are divided into five units; each unit separated by a concrete wall for temperature and humidity control. These walls provide structural support for the roof above the malthouse.

Attemporators are large concrete enclosures which control and maintain the temperature and humidity conditions necessary to induce the germination of barley. Air temperature is initially controlled by the use of dampers which regulate the inflow of fresh air. Fans force air to circulate past water sprays which cool the air to the desired temperature, usually between 50 to 60 degrees Fahrenheit, and saturate it to 100 percent humidity. The air is channelled into a large concrete subcompartment located below each germinating compartment. Air is forced up through the perforated trays, is circulated through the growing barley, and is returned, by means of a large concrete air duct, to be recirculated by the fans or exhausted through dampers. Water utilized by the water sprays is chilled by four large refrigeration units. The heat removed from the water is transferred to cooling towers from which it is dispersed into the atmosphere.

When the germinating barley has reached the state of development desired, the resultant "green malt" is transferred to one of five kilns, which are large self-supported enclosures for heating and drying. The kilning process removes moisture from the malt, thereby terminating the growth process. The walls, floor, and roof of each kiln are constructed of concrete. Huge fans at the top of each kiln draw electrically-heated air up through three levels of perforated metal trays upon which the green malt is spread. The malt is first deposited in piles on the upper trays of the kiln. Louvered trays allow malt to be dropped through to the lower levels of the kiln at the appropriate stage in the drying process.

The malthouses and steep, attemporator, and kiln buildings were referred to collectively by William Meyer, Executive Vice President of the firm responsible for the design and construction of the Ladish plant, as the malthouse. He testified that the malthouse is "just an industrial process that has a great deal of equipment in it ... [a]nd part of the equipment looks like a building." He testified that the outer shell or wall surrounding the malthouse, excluding the steep buildings, is constructed of concrete, a layer of insulation, and corrugated asbestos siding. The steep buildings are constructed of steel frame rather than concrete.

The roof and floors of the malthouse are also constructed of concrete. All heat in the malthouse is generated from the kilning or germinating process. Located beneath the steep tanks are rooms for control of the kilns and germinating compartments, electrical control, offices, small maintenance, parts storage, and an employee's lunchroom. Air conditioning is very minimal in the malthouse and is confined to office, lunchroom and control room areas. Plumbing for building needs is also minimal but very heavy for processing needs.

Finished malt is conveyed to one of two malt elevators (cap. 1,500,000 bu. each) to be aged and blended according to customer specifications. Aging is an organic process during which the moisture content in the finished malt stabilizes at a uniform level from the center of each kernel to its outer shell. The malt elevators contain rows of bins in which different types of malt are kept. After the aging process has been completed, the particular mix ordered by the customer is blended through a system of control gates which regulate the flow of various malts onto drag conveyors beneath the bins. The malt is given a final cleaning en route to shipping bins from which it is weighed and loaded out into railcars for shipment to Ladish's customers.

The Spiritwood Township assessor, for the year 1981, determined the assessed value of the Ladish plant to be approximately $110 million. Ladish unsuccessfully appealed the assessment to the Spiritwood Township Board of Equalization and to the Stutsman County Board of Equalization pursuant to Sections 57-09-04 and 57-12-06, N.D.C.C. Ladish then appealed the assessment to the State Board of Equalization pursuant to Section 57-12-06(3), N.D.C.C. The State Board of Equalization retained a professional appraiser, Mr. Peter J. Patchin, who appraised the plant at $61 million, utilizing both the cost approach and income approach to value. On November 4, 1981, the State Board of Equalization, pursuant to Section 57-13-04(3)(a), N.D.C.C.,...