Production Steel Strip Corp. v. City of Detroit

• Decision Date: 18 December 1973
• Docket Number: No. 8,8
• Citation: 213 N.W.2d 419,390 Mich. 508
• Parties: PRODUCTION STEEL STRIP CORP., a Michigan corporation, Plaintiff- Appellee, v. CITY OF DETROIT, a municipal corporation, et al., Defendants-Appellants.
• Court: Michigan Supreme Court

Page 419

213 N.W.2d 419

390 Mich. 508

PRODUCTION STEEL STRIP CORP., a Michigan corporation Plaintiff- Appellee, v. CITY OF DETROIT, a municipal corporation, et al Defendants-Appellants.

No. 8.

Supreme Court of Michigan.

Dec. 18, 1973.

Harold M. Shapero, for Shapero, Shapero & Cohn, Detroit, for plaintiff-appellee.

Michael M. Glusac, Corp. Counsel, Lawrence W. Morgan, Arthur Yim, Assts. Corp. Counsel, Detroit, for City of Detroit.

Aloysius J. Suchy, Corp. Counsel, William F. Koney, Asst. Corp. Counsel, Detroit, for County of Wayne.

Ostrowski, Wilson, Belanger & Boman, P.C., John L. Belanger, Detroit, for defendant and appellant, Board of Education.

Before the Entire Bench.

WILLIAMS, Justice.

The principal question presented by this case is whether and to what extent plaintiff Production Steel Strip Corporation has so acted upon the materials which it has imported for use in its manufacturing operations as to cause them to lose their distinctive character as imports and their immunity from property taxation within the meaning of 'imports' as used in the Import-Export Clause, Art. I, § 10, c. 1.2 of the United States Constitution. ¹

I--FACTS

Stipulated facts as pertinent are:

'Plaintiff, Production Steel Strip Corporation's business is in part (1) to purchase hot roll steel coils and by descaling, cold reducing, annealing and skin rolling, to produce cold roll strip of restricted tolerances and specialized steel finishes, . . .

'The hot roll steel coils purchased by Taxpayer are a standard product. Such product when imported from foreign mills is identical with, interchangeable with, and cannot be differentiated so far as utility is concerned from steel acquired from domestic mills. Such steel coils are produced to the same specifications and have the same properties.

'Plaintiff purchased its steel coils from domestic mills and from foreign mills. During the Great Lakes navigation season (April 1 of each year to November of such year), a substantial portion of its needs for steel coils in 1965, 1966 and 1967 was obtained from foreign mills and was delivered to Taxpayer at Detroit on an average of a two and one-half months lead time after same was ordered. A substantial portion of such imports were, on December 31, 1965, stored outside of the boat dock, not under customs warehouse bond, some was stored in Taxpayer's warehouse on Humboldt Street near the dock, and small amounts were on tax date stored at other warehouses. Such imported steel is transported to Taxpayer's plant at 20001 Sherwood, fourteen (14) miles from the dock, when there is room at Taxpayer's plant on Sherwood. On tax date Production Steel Strip, Inc. had sufficient steel coils at its plant on Sherwood for its needs for about two months.

'After the close of navigation season between November of 1965 and April 1, 1966 and between November 1966 and April 1, 1967, Taxpayer purchased its supply of steel coils from domestic mills only and not from foreign mills. The time elapsing from date of Order to date of Delivery of such purchases from domestic mills during such periods between November 1965 and April 1, 1966 and between November 1966 and April 1967 was one-half month. . . .'

Defendants are the local governmental authorities who annually assess, levy and collect personal property taxes on such property as is within their corporate limits on the tax date, December 31 of each year. The assessments in question are for the tax years 1966 and 1967. The following facts are not stipulated but are of record as indicated.

The 1966 assessment, made on the basis of property on hand December 31, 1965, was made by both the local Board of Assessors and the State Tax Commission on the basis 'that a 2 1/2 month usage was 'essential to current requirements." (In re Appeal No. 1155 of Production Steel Strip Corporation, 1967, Michigan State Tax Commission, paragraph 5; and see Complaint, paragraph 6, Answer, paragraph 6.) The State Tax Commission stated:

'2. That the City of Detroit has stated that the appellant is the importer of the steel inventories in question but because of the action of taxpayer in processing this steel a portion of the inventory of steel should nevertheless be added to its assessment, representing that part,

". . . essential to current manufacturing requirements . . .' Youngstown Sheet & Tube Co. v. Bowers, 358 U.S. 534, 79 S.Ct. 383, 3 L.Ed.2d 490.'

The 1967 assessment was more complicated. The Board of Assessors assessed on the basis that, and the State Tax Commission affirmed that the amount of imported inventory that had lost its constitutional immunity and was taxable 'was the entire amount of such imports and was not limited to two and one-half (2 1/2) months processing and shipment . . .' (Complaint, 6; Answer, 6, Production Steel Strip Corp. v. City of Detroit, et al, No 121450; In re Appeal No 1377 of Production Steel Strip Corp., 1968, Michigan State Tax Commission.) The State Tax Commission noted:

'. . . The Commission is in accord with the city of Detroit in relying on the recent court decision of Virtue Bros. v. County of Los Angeles, 239 Cal.App.2d 220, 43 Cal.Rptr. 505, with certiorari denied by the United States Supreme Court on October 10, 1966.'

While the Board of Assessors and State Tax Commission originally adopted the formula of taxing all the imported steel present on December 31, 1966, on appeal to the Circuit Court, prior to final judgment, the defendants abandoned this position, principally on the basis of the Court of Appeals case of Knight Newspapers, Inc. v. Detroit, 16 Mich.App. 438, 168 N.W.2d 318 (1969). The defendants resumed their 1966 assessment position 'that a 2 1/2 months usage was 'essential to current requirements." Plaintiff, of course, continued to argue for a 1/2 month basis. (Affidavit in Support of Motion for Partial Summary Judgments, September 1, 1970, No. 121450, Supra.) ²

The Circuit Court relying on Denver v. Denver Publishing Co., 153 Colo. 539, 387 P.2d 48 (1963); Orr Felt & Blanket Co. v. Schneider, 3 Ohio St.2d 14, 209 N.W.2d 150 (1965) and Knight Newspapers, Inc. v. Detroit, 16 Mich.App. 438, 168 N.W.2d 318 (1969) accepted plaintiff's 1/2 month replenishment from domestic sources formula.

Defendant Taxing Authorities appealed this judgment to the Court of Appeals. The Court of Appeals with a divided court affirmed holding that 14 days was the correct replenishment time to be used in computing the taxpayer's current operational needs. 42 Mich.App. 698, 703, 202 N.W.2d 719. The minority opinion stated:

'We are here considering the taxable status of the plaintiff's foreign inventory, and I cannot see why the fact that the plaintiff satisfies some of his needs domestically should make any difference.' 42 Mich.App. 698, 705, 202 N.W.2d 719, 723.

We granted leave to appeal. 388 Mich. 808 (1972).

II--STATE TAXATION OF IMPORTS--

U.S. SUPREME COURT ANALYSIS OF ART. I, SEC. 10, CL. 2

As this is a case involving the interpretation of the United States Constitution and a case of first impression before this Court, an analysis of controlling United States Supreme Court decisions is essential.

In any historical analysis of the decisions relating to state taxation of imports from a foreign country, we must begin with the opinion of Chief Justice Marshall in Brown v. Maryland, 25 U.S. (12 Wheat.) 419, 6 L.Ed. 678 (1827), the landmark case dealing with Art. I, Sec. 10, cl. 2 of the United States Constitution. Brown was concerned with a Maryland statute declaring that importers of foreign goods by the bale or package must secure a license in order to sell their goods. The Court held that the statute levied a prohibited impost on imports and was, therefore, unconstitutional and in the course of the opinion Chief Justice Marshall stated that '. . . there must be a point of time when the prohibition ceases, and the power of the state to tax commences.' Having stated the premise, he elaborated on the vexatious nature of it:

'The constitutional prohibition on the states to lay a duty on imports--a prohibition which a vast majority of them must feel an interest in preserving--may certainly come in conflict with their acknowledged power to tax persons and property within their territory. The power, and the restriction on it, though quite distinguishable when they do not approach each other, may yet, like the intervening colors between white and black, approach so nearly as to perplex the understanding, as colors perplex the vision in marking the distinction between them. Yet the distinction exists, and must be marked as the cases arise. Till they do arise, it might be premature to state any rule as being universal in its application. It is sufficient for the present to say, generally, that When the importer has so acted upon the thing imported that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the state; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the constitution.' (Emphasis added.) 25 U.S. (12 Wheat.) 419, 439, 6 L.Ed. 678.

Chief Justice Marshall also elaborated on some acts or conduct of the importer which would cause the goods to be 'mixed up with the mass of property in the county (and to lose) its distinctive character as an import.' He held that the goods lose their character as imports when the importer (1) 'sells them,' or (2) '(breaks) up his packages, and (travels) with them as an itinerant pedlar,' or (3) that the goods brought into this country by an importer 'for his own use' and here 'used' by him are to be regarded as a part of 'the common mass' of property and are not immune from state taxation. 25 U.S. (12 Wheat.) 419, 443, 6 L.Ed. 678.

Thus, Marshall's...