Mich. Allied Dairy Ass'n v. Auditor Gen.

• Decision Date: 08 September 1942
• Docket Number: No. 10.,10.
• Citation: 5 N.W.2d 516,302 Mich. 643
• Parties: MICHIGAN ALLIED DAIRY ASS'N v. AUDITOR GENERAL et al.
• Court: Michigan Supreme Court

302 Mich. 643

5 N.W.2d 516

MICHIGAN ALLIED DAIRY ASS'N

v.AUDITOR GENERAL et al.

No. 10.

Supreme Court of Michigan.

Sept. 8, 1942.

Action by the Michigan Allied Dairy Association against Vernon J. Brown, Auditor General of the State of Michigan, and others for a declaratory judgment as to the judicial interpretation of the term ‘industrial processing’ as used in the General Sales Tax Act and in the Use Tax Act. From an adverse decree, defendants appeal.

Affirmed.

Appeal from Circuit Court, Wayne County, in Chancery; George B. Murphy, Judge.

Before the Entire Bench, except WIEST and BOYLES, JJ.

Herbert J. Rushton, Atty. Gen., Edmund E. Shepherd, Sol. Gen., and T. Carl Holbrook and Daniel J. O'Hara, Asst. Attys. Gen., for appellant.

Sidney E. Doyle, of Detroit, for appellee.

BUTZEL, Justice.

Plaintiff asks for a declaratory judgment to obtain a judicial interpretation of the term ‘industrial processing’ as used in the General Sales Tax Act, Act No. 167, § 1(b), Pub. Acts 1933, as amended, Comp.Laws Supp. 1940, § 3663-1, Stat.Ann.1941 Cum.Supp. § 7.521, and in the Use Tax Act, Act No. 94, § 4(g), Pub. Acts 1937, Comp.Laws Supp.1940, § 3663-44, Stat.Ann.1941 Cum.Supp. § 7.555( 4), when applied to milk bottles and cans sold to creameries and dairies and by them used as milk containers and loaned to customers.

Section 1 of the General Sales Tax Act, supra, provides: ‘(b) The term ‘sale at retail’ means any transaction by which is transferred for consideration the ownership of tangible personal property, when such transfer is made in the ordinary course of the transferor's business and is made to the transferee for consumption or use other than for consumption or use in industrial processing or agricultural producing, or for any other purpose than for resale in the form of tangible personal property * * *.'

Section 4 of the Use Tax Act, supra, provides that it shall not apply to ‘(g) Property sold to a buyer for consumption or use in industrial processing or agricultural producing.’

The question may be resolved into whether milk bottles and cans purchased by milk processors are used in industrial processing, or whether they only are convenient containers in which to deliver the contents. The State board of tax administration first held that the cans and bottles were not used in industrial processing but on November 23, 1936, entered an order as follows:

‘That milk bottles are used in the industrial processing of milk and therefore such bottles are exempt from the sales tax. Milk bottles are considered as used in industrial processing, inasmuch as they have to be filled at a higher temperature than State requirements in order to avoid foaming, and after this filling the industrial processing is continued in the refrigeration room.’

On March 1, 1940, however, the board reversed its decision and ruled that inasmuch as containers are used for the purpose of delivering tangible personal property to the consumers and are to be returned to the seller, they are taxable. They further ruled that milk cans used on the farm itself to keep milk in a cool place before it is picked up by the creameries were not consumed or used for agricultural producing, and were not exempt from the general sales and use taxes. The dairies' bottles and cans are not sold, but are repeatedly loaned to consumers and then returned. We principally confine our discussion to whether milk bottles and cans are used by dairies and creameries for such industrial processing as is exempted by the general sales and use tax acts. After raw milk reaches the dairy or creamery plant and after it has been tested for butter fat content, inspected for flavor and condition, sampled for chemical content, weighed and emptied into special receiving equipment, it is then treated or handled in two steps. First: It is heated to just over 142°>>Fahrenheit and kept at that temperature for at least thirty minutes. It is then properly cooled to 50°F. or lower, and as a rule to 40°F., the latter being the lowest temperature at which it can be poured into bottles without foaming. Second: The milk is then poured into bottles or cans emerging from a sterilization chamber at about 80° F., the heat of the bottles causing the temperature of the milk to rise by about 8°F. The bottles are capped, the milk cooled in the bottles to just over 32°F. (freezing), then held at that temperature for the period (as a rule longer than 12 hours) prior to being loaded on wagons for delivery to consumers. By the first step about 99 per cent. of the pathogenic bacteria are killed immediately; by the second step the remaining 1 per cent. is rendered inactive and slowly killed.

By retaining the capped bottles of milk and cans in a refrigeration room for at least 12 hours, and then delivering them in a cooled condition to the consumers, the milk is kept fresh and free from germs. During the prolonged period of refrigeration in the bottles and cans, the cream line forms and deepens so that the public can see the amount of cream in the bottles. This is one of the conditions of marketability of bottled milk. If the 1 per cent. of germ life not destroyed by the heating process in the first step were left at normal temperature, the bacteria would multiply very rapidly and cause the milk to sour. Only refrigeration for a long period before being put on delivery wagons enables the milk to remain free from bacteria and from souring during the interval between the time the milk leaves the refrigeration room of the creamery until it is placed in the consumer's ice...