Omega Tube & Conduit Corp. v. Maples

• Decision Date: 05 April 1993
• Docket Number: No. 92-669,92-669
• Citation: 850 S.W.2d 317,312 Ark. 489
• Court: Arkansas Supreme Court
• Parties: OMEGA TUBE & CONDUIT CORPORATION, Appellant, v. Ed MAPLES, Pulaski County Tax Collector, and B.A. McIntosh, Pulaski County Assessor, Appellees.

Page 317

850 S.W.2d 317

312 Ark. 489

OMEGA TUBE & CONDUIT CORPORATION, Appellant, v. Ed MAPLES, Pulaski County Tax Collector, and B.A. McIntosh Pulaski County Assessor, Appellees.

No. 92-669.

Supreme Court of Arkansas.

April 5, 1993.

Supplemental Opinion on Denial of Rehearing May 7, 1993.

Art Givens, Cyril Hollingsworth, Michael O. Parker, Chet Roberts, Little Rock, for appellant.

Larry D. Vaught, Little Rock, for appellees.

NEWBERN, Justice.

This tax case involves a dispute between the appellant, Omega Tube and Conduit Corporation (Omega), and the Pulaski County Assessor and Collector, appellees (the County). The question is whether raw materials used to produce products to be shipped outside this State attain a "situs" here and thus are subject to personal property taxation. The Trial Court held that the controlling Statute, Ark.Code Ann. § 26-26-1102 (1987), is unambiguous and requires the tax to be levied. In response to Omega's request for a declaratory judgment as to the meaning of the Statute, we hold it is ambiguous and that the General Assembly did not intend to tax the raw materials in question; however, in response to Omega's request for refund, Omega may not recover taxes it has paid voluntarily. The Trial Court's decision is thus reversed and remanded.

Omega paid personal property taxes for 1986, 1987, and 1988 on raw materials imported for use in manufacturing goods to be shipped out of Arkansas. In 1989 Omega sought a refund from the Pulaski County Board of Equalization for $94,583.01, the taxes paid in those prior years. The Board denied the refund. Omega ultimately appealed unsuccessfully to the Circuit Court, seeking not only the refund but a declaration of the meaning of the Statute for its benefit and the benefit of other taxpayers similarly situated.

Omega contends the Trial Court erred by (1) holding § 26-26-1102 clear and unambiguous, (2) not considering all the subsections of the Statute, (3) holding contrary to public policy, and (4) concluding that Pulaski County is not estopped to apply § 26-26-1102 in this manner due to assurances given Omega when it located in Arkansas that the raw materials would not be taxed. As we reverse on the first point, we need not address the others.

In 1985, Omega Tube & Conduit built a manufacturing plant in Pulaski County. Omega receives steel coils from outside Arkansas from which it manufactures steel tubing, conduit, fence posts, automobile parts, and related goods. Over 90% of the finished products are then shipped outside the State. Dave Harrington, Director of the Arkansas Industrial Development Commission (AIDC), told Omega officials that Arkansas had a "freeport" statute, which exempts raw materials used in the production of finished goods sold outside Arkansas from ad valorem personal property taxes. Omega officials testified that assurance was a major consideration in its decision to locate in Arkansas.

Pulaski County assessed Omega's raw material inventory as personal property and collected ad valorem personal property taxes on the raw material for 1986, 1987, and 1988. In 1989, Omega's Controller questioned the levy.

1. The statute

Omega questions the Trial Court's holding that § 26-26-1102 is not ambiguous. The Statute, enacted as Act 269 of 1969, is commonly referred to as the "freeport" or "no situs" law. It provides:

Place of assessment.

(a) All real estate and tangible personal property shall be assessed for taxation in the taxing district in which the property is located and kept for use.

(b) (1)(A) Tangible personal property in transit for a destination within this state shall be assessed only in the taxing district of its destination.

(B) Tangible personal property in transit through this state and tangible personal property manufactured, processed, or refined in this state and stored for shipment outside the state shall, for purposes of ad valorem taxation, acquire no situs in this state and shall not be assessed for taxation in this state.

(C) The owner of tangible personal property in transit through this state and of tangible personal property in transit for a destination within this state may be required, by the appropriate assessor, to submit documentary proof of the in-transit character and the destination of the property.

(2) "Tangible personal property in transit through this state" means, for the purpose of this section, tangible personal property:

(A) Which is moving in interstate commerce through or over the territory of this state; or

(B) Which is consigned to or stored in or on a warehouse, dock, or wharf, public or private, within this state for storage in transit to a destination outside this state, whether the destination is specified when transportation begins or afterward, except where the consignment or storage is for purposes other than those incidental to transportation of the property; or

(C) Which is manufactured, processed, or refined within this state and which is in transit and consigned to, or stored in or on, a warehouse, dock, or wharf, public or private, within this state for shipment to a destination outside this state.

The subsection at the center of this dispute is (b)(1)(B). Omega reads the subsection to mean that tangible personal property manufactured, processed, or refined in this State and stored for shipment outside Arkansas acquires no situs in Arkansas during the processing. The County and the Trial Court read the subsection to mean that only the final product being stored has no situs here but raw materials awaiting manufacture acquire an Arkansas situs.

2. Ambiguity

When the language of a statute is plain and unambiguous, we give the language its plain and ordinary meaning. City of Fort Smith v. Tate, 311 Ark. 405, 844 S.W.2d 356 (1992); McGee v. Amorel Pub. Schools, 309 Ark. 59, 827 S.W.2d 137 (1992); Bishop v. Linkway Stores, Inc., 280 Ark. 106, 655 S.W.2d 426 (1983). If a statute is clear and unambiguous, the primary concern is with what the document says and not what its drafters may have intended. Mourot v. Arkansas Board of Dispensing Opticians, 285 Ark. 128, 685 S.W.2d 502 (1985).

When a statute is ambiguous, however, effect must be given to the legislative intent. McGee v. Amorel Pub. Schools, supra; Graham v. Forrest City Housing Auth., 304 Ark. 632, 803 S.W.2d 923 (1991). To determine the intent of the legislature we must look at the whole act. First State Bank v. Arkansas State Banking Bd., 305 Ark. 220, 806 S.W.2d 624 (1991); Cozad v. State, 303 Ark. 137, 792 S.W.2d 606 (1990). As far as practicable, we must give effect to every part, reconciling provisions to make them consistent, harmonious, and sensible. McGee v. Amorel Pub. Schools, supra; Shinn v. Heath, 259 Ark. 577, 535 S.W.2d 57 (1976).

Marvin Russell, the Director of the State Assessment Coordination Division (ACD) from 1976 to 1988, interpreted § 26-26-1102 as exempting raw material that is received, manufactured, and shipped out-of-state. Larry Crane, the current Director of ACD testified that he interprets the Statute to mean the exemption only applies to the finished product awaiting shipment out and not to raw materials in storage awaiting manufacturing.

Steve Sutterfield, ACD supervisor of personal property research and development, testified he had conducted research with respect to the application of § 26-26-1102. He stated "there was a determination that there was not a consistent application of this statute and the different assessors read it different ways."

Two County Assessors testified as to their application of § 26-26-1102. Larry Fratesi, Jefferson County Assessor for 21 years testified he did not tax raw materials during the production phase when the finished product is destined for shipment out of Arkansas. He said a company in Jefferson County brings pipe in, galvanizes it, and then ships it outside the state. Fratesi testified that he does not tax the pipe brought in, during processing, or as a finished product. Jim Tompkins, Mississippi County Assessor, testified that during his 18 years as an assessor he did assess the raw materials and work in process; however, he did not tax the finished product to be shipped out of state. The Trial Court was thus presented with considerable evidence that the meaning of the Statute was not, at least to others charged with its interpretation, clear on its face. Thus it seems persons hired or elected to interpret and apply the Statute are not clear as to its meaning.

The Trial Court relied upon Eoff v. Kennefick-Hammond Co., 80 Ark. 138, 96 S.W. 986 (1906), to hold that tangible personal property in transit attains a situs here for taxation when its trip is broken and the property is located in Arkansas for purposes other than those incidental to transportation. The issue in the Eoff case was whether property brought into Arkansas by a nonresident and used here to prepare a roadbed acquired a situs here for tax purposes. It did not involve a statutory exemption but turned on whether the State had the legislative authority to impose a tax.

The Eoff case is but one of many in which we have dealt with the power of the State to tax in the face of the Commerce Clause. In the latest of those cases, Pledger v. Arkla, Inc., 309 Ark. 10, 827 S.W.2d 126 (1992), we discussed the Supreme Court's test established in Complete Auto Transit v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), which is much more detailed than the one we used in 1906.

If the issue here were whether Arkansas is constitutionally empowered to impose a tax on the raw materials, the later cases discussing the basic issue confronted in the Eoff decision might be significant, but that is not so. While one aspect of § 26-26-1102 asserts the State's power to tax within the confines of the Constitution, the aspect with which we are concerned here is that which has to do with exemption. Are the steel coils "moving in interstate commerce through or over the...