Red Top Brewing Co. v. Bowers

• Decision Date: 02 March 1955
• Docket Number: No. 34090,34090
• Citation: 163 Ohio St. 18,125 N.E.2d 188
• Parties: , 56 O.O. 8 RED TOP BREWING CO., Appellant, v. BOWERS, Tax Com'r, Appellee.
• Court: Ohio Supreme Court

Page 18

163 Ohio St. 18

125 N.E.2d 188, 56 O.O. 8

RED TOP BREWING CO., Appellant, v. BOWERS, Tax Com'r, Appellee.

No. 34090.

Supreme Court of Ohio.

March 2, 1955.

Syllabus by the Court.

1. Although the Tax Commissioner may give consideration to the fact that machinery and equipment are idle, in determining that the 'true value of' such machinery and equipment 'in money' is less than their 'depreciated book value,' there is no statutory authority for his valuing (or, apart from the 50-per-cent provision of Section 5388, General Code, for the taxpayer listing) such personal property used in business at any arbitrary percentage of its cost without regard to its 'depreciated book value' or its 'true value * * * in money.' (Sections 5328, 5388 and 5389, General Code, construed and applied.)

2. Labels, held by a beer manufacturer for the purpose of applying them to beer bottles in order to conform with regulations of the federal government and of the Ohio Department of Liquor Control and to identify the beer in the bottles as to quality and proper grading, and caustic soda, held by such manufacturer for the purpose of use in cleaning and washing used bottles before filling them with beer, are, within the meaning of Section 5388, General Code, 'articles * * * held by a manufacturer for the purpose of being used * * * in manufacturing' or 'combining.'

3. Where glass beer bottles owned by a brewer have been delivered with beer therein to his customers on payment to the brewer of a deposit of two cents per bottle redeemable on the return of the bottle and where some of those bottles have not been returned to the brewer, it is unreasonable to tax such brewer as owner of those unreturned bottles unless a reasonable allowance is made for such of those unreturned bottles as appear to have been lost or destroyed.

4. Where the Board of Liquor Control has fixed a price of two cents as the amount of deposit to be made for the bottle on a purchase of a bottle of beer and the amount to be paid back on the return of the empty glass bottle, and where it is conceded that not less than 96 per cent of all such bottles of a brewer in the possession of its Ohio customers at the end of each year will be returned in exchange for such amount of two cents per bottle, a decision, that such used bottles have a true value in money in excess of two cents each, is unreasonable.

Paxton & Seasongood, Robert P. Goldman and Harry Stickney, Cincinnati, for appellant.

C. William O'Neill, Atty. Gen., and Ralph N. Mahaffey, Columbus, for appellee.

TAFT, Judge.

It is contended by Red Top that the machinery and equipment located in its plant No. 2 should be valued at 10 per cent of their original cost.

Plant No. 2 was completely shut down during a substantial part of the tax year 1949 and almost all the tax year 1950. Its machinery was placed in a preservative state, it was not used for any manufacturing purpose whatsoever, and the plant was closed down and locked up during that period of time.

Section 5328, General Code, Section 5709.01, Revised Code, provides that 'all personal property located and used in business in this state' is subject to taxation. Section 5325-1 General Code, Section 5701.08, Revised Code, provides in part:

'Within the meaning of the term 'used in business,' * * * personal property shall be considered to be 'used' * * * when kept and maintained as a part of a plant capable of operation, whether actually in operation or not * * *.'

Under the provisions of that statute, the machinery and equipment in Red Top's plant No. 2 were being used in business and were taxable during the tax years 1949 and 1950. See Standard Oil Co. v. Glander, 155 Ohio St. 61, 98 N.E.2d 8.

The only basis claimed for classifying this property as idle property and valuing or listing it at 10 per cent of its original cost is a directive of the Tax Commissioner.

Section 5388, General Code, Section 5711.22, Revised Code, provides in effect that machinery and equipment of a manufacturer, used in business, 'shall be listed and assessed at fifty per centum of the true value thereof, in money, on the day as of which it is required to be listed.' Section 5389, General Code, Section 5711.18, Revised Code, provides in part:

'In the case of personal property used in business, the book value thereof, if any, less book depreciation, at such time of times, shall be listed and such depreciated book value shall be taken to be the true value of such property, unless the assessor shall find that such depreciated book value is greater or less than the then true value of such property in money. Claim for any deduction from * * * depreciated book value of personal property must be made in writing by the taxpayer at the time of making returns * * *.'

Although the Tax Commissioner may give consideration to the fact that machinery and equipment are idle, in determining that the 'true value of' such machinery and equipment 'in money' is less than their 'depreciated book value', we are of the opinion that there is no statutory suthority for his valuing (or, apart from the 50-per-cent provision of Section 5388, General Code, for the taxpayer listing) such personal property used in business at any arbitrary percentage of its cost without regard to its 'depreciated book value' or its 'true value * * * in money.'

We have been referred to nothing in the record, apart from the fact that this machinery and equipment were idle, to show that 'the true value * * * in money' of the machinery and equipment in question was less than their 'depreciated book value.' This machinery and equipment were not valued at a figure in excess of their 'depreciated book value.' It follows that this contention of appellant cannot be sustained.

Red Top contends that its inventory of new labels and its inventory of caustic soda should have been assessed at 50 instead of 70 per cent of their true value.

It is necessary to apply labels to the bottles in order to conform with regulations of the federal government and the Ohio Department of Liquor Control and to identify the beer in the bottles as to quality and proper grading. The caustic soda is used in a cleaning and washing machine which washes the used bottles before they are filled with beer.

Section 5388, General Code, Section 5711.22, Revised Code, provides in part:

'Excepting as herein otherwise provided, personal property [used in business] shall be listed and assessed at seventy per centum of the true value thereof, in money, on the day as of which it is required to be listed, or on the days or at the times as of which it is required to be estimated on the average basis * * *.

'Personal property of the following kinds, used in business, shall be listed and assessed at fifty per centum of the true value thereof, in money, on the day as of which it is required to be listed, or on the days or at the times as of which it is required to be estimated on the average basis, as the case may be.

* * *

* * *

'(2) The average value of all articles purchased, received or otherwise held by a manufacturer for the purpose of being used, in whole or in part, in manufacturing, combinning, rectifying or refining; the average value of all articles which were at any time by him manufactured or changed in any way, either by combining or rectifying, or refining or adding thereto * * *.' (Emphasis added).

We agree with the contentions of the Attorney General that all the articles used by a manufacturer are not automatically entitled to a 50-per-cent classification; that Red Top manufactures beer and does not manufacture labels; and that caustic soda is not a material used to make beer and does not give beer any new quality or property. But, even if these contentions are sound, it does not follow that the labels and the caustic soda are not, within the meaning of Section 5388, General Code, 'articles * * * held by a manufacturer for the purpose of being used * * * in manufacturing [or] combining.' If they are, they come within the statutory words providing for a listing and assessment at 50 per cent.

Admittedly the labels and the caustic soda are, within the meaning of the statutory language, 'articles held by a manufacturer for the purpose of being used.' The only remaining question is whether the proposed use is in 'manufacturing' or 'combining.'

Certainly, the proposed use of the caustic soda is to combine it with the used bottles so as to get them in such a condition that they may be filled with beer for sale. Until they are cleaned, there can be no bottles of beer. The proposed use of the labels is to combine them with the bottles so as to create something which can be sold. Until the beer bottle is labeled, the manufacturer has no product which he can sell.

The word 'manufacturer' is derived from the Latin. Literally, it means one who makes by hand. In our times, it has a much broader meaning. This is recognized in the words of Section 5385, General Code, Section 5711.16, Revised Code, which state that 'a person who purchases, receives or holds personal property, of any description, for the purpose of adding to the value thereof by manufacturing * * * or by the combination of different materials with a view of making a gain or profit by so doing, is a manufacturer.'

Red Top is a manufacturer because it 'holds personal property * * * for the purpose of adding to the value thereof * * * by the combination of different materials with a view of making a gain or profit by so doing.'

Among other things, it holds materials such as this caustic soda, used glass bottles, beer which it has made by combining certain other materials, and these labels for the bottles. It combines the used bottles with the caustic soda to make the bottles usable as containers for the beer. It then combines the beer with the bottles when it fills the bottles. It then combines the labels with the bottles. All these combinations of materials must be and are...