St. Louis County v. State Tax Commission

• Decision Date: 13 March 1978
• Docket Number: No. 59494,59494
• Parties: ST. LOUIS COUNTY, Missouri, a body corporate and politic, Appellant, v. STATE TAX COMMISSION of Missouri, J. E. (Jim) Riney, Don G. Williams, and Robert F. Love, Members of the State Tax Commission of Missouri, and McDonnell-Douglas Corporation, Respondents.
• Court: Missouri Supreme Court

Page 334

562 S.W.2d 334

ST. LOUIS COUNTY, Missouri, a body corporate and politic, Appellant, v. STATE TAX COMMISSION of Missouri, J. E. (Jim) Riney, Don G Williams, and Robert F. Love, Members of the State Tax Commission of Missouri, and McDonnell-Douglas Corporation Respondents.

No. 59494.

Supreme Court of Missouri, En Banc.

March 13, 1978.

Thomas W. Wehrle, George W. Lang, II, Clayton, for appellant.

Robert G. Brady, James E. Reynolds, Jr., Bryan, Cave, McPheeters & McRoberts, St. Louis, for respondents.

Larry B. Luber, John H. Quinn, St. Louis, amici.

MORGAN, Chief Justice.

This case involves construction of a revenue law of this state, specifically the Manufacturers' License Tax, §§ 150.300 et seq., RSMo 1969, which provide (§ 150.310), in part, that: "Every manufacturer in this state shall be licensed and taxed on all raw material and finished products, as well as all the tools, machinery and appliances used by them, in the same manner as provided by law for the taxing and licensing of merchants . . . "

By notice dated 4 June 1974, the St. Louis County Board of Equalization raised the inventory valuation of McDonnell-Douglas Corporation, for purposes of the 1974 Manufacturers' License Tax, from $35,642,766 to $44,187,766, which increased the assessed valuation from $11,880,922 to $14,729,250. It seems agreed that said increase reflected the added value given to work-in-process in excess of the value of the raw material content of such work-in-process.

McDonnell-Douglas appealed to the State Tax Commission which reinstated the lesser figure after concluding that § 150.310 "does not contemplate or authorize the taxation of work-in-process, other than the true value of the material content thereof . . . " The county sought review of that decision (§§ 536.100 et seq., RSMo 1969) where the instant case was consolidated with seven other actions pending on the same issue. By judgment, the trial court affirmed the commission.

The county has appealed to this court only with respect to McDonnell-Douglas although General Steel Industries, Inc., and Debron Corporation, parties to the consolidated action in the trial court, have filed a brief as amicus curiae.

The first question is whether, for purposes of the manufacturers' tax, work-in-process should be assessed only to the extent of the aggregate cost of raw material content or whether work-in-process valuation should include "value added" to raw materials, if any, by labor and overhead during the manufacturing process.

The statute in question, and heretofore noted, does not refer explicitly to "work-in-process" but allows a tax on all "raw material and finished products . . . " Nevertheless, this court has held that work-in-process is subject to the tax as "raw materials." Mesker Brothers Industries, Inc. v. Leachman, 529 S.W.2d 153 (Mo.1975). As said at 157-58: " . . . the legislature intended to tax all the material at any stage, entering into the final product; hence . . . raw material must be construed to include work-in-process. To rule otherwise . . . would accomplish an unreasonable and absurd result. There could be no reasonable purpose in omitting from the tax a very substantial portion of plaintiff's taxable personal property simply because some work (little or much) had been done upon it . . . We believe that the legislature intended to tax all of plaintiff's tangible personal property used in the manufacturing process." At that time, the court declined to rule on the contention of amicus curiae (one of the respondents in this case) that work-in-process, if taxable, should be valued and taxed merely at the value of the raw material content and not including the "value added" by other factors such as labor.

Article X, § 4(b), of the Missouri Constitution requires that all real and tangible personal property be assessed for tax purposes at the value as may be fixed by law. This has been interpreted to mean that " . . . such property must be assessed on the basis of 'actual or real value.' " Robert Williams & Co. v. State Tax Commission, 498 S.W.2d 527, 528 (Mo.1973). Thus, the question is: should not factors, which are essential to the creation of a salable product and which constitute money invested in the merchandise, properly be included in the valuation of an inventory which includes that product?

In Stephen and Stephen Properties, Inc. v. State Tax Commission, 499 S.W.2d 798 (Mo.1973), this court declared, l.c. 802, that: "A tax assessment, though presumed valid, will not be upheld where it is clear that the assessment does not take into account all factors relevant to a determination of 'true value in money.' " See also Meadowbrook Country Club v. State Tax Commission, 538 S.W.2d 310 (Mo.1976); and, compare McKay Buick, Inc. v. Spradling, 529 S.W.2d 394 (Mo.banc 1975).

The county cites three cases from foreign jurisdictions thought to sustain its position.

The first is Aeronautical Communications Equipment, Inc. v. Metropolitan Dade County, 219 So.2d 101 (Fla.App.), cert. denied, , Fla., 225 So.2d 911 (1969). Therein, the court considered the question of valuation of plaintiff's "stock in trade," and concluded that where the taxpayer's stock in trade consisted of work-in-process, labor applied to raw materials must be considered. At 105, it was said that: " . . . appreciation is one of the criteria, as it affects the condition of the goods. Labor applied to raw materials appreciates the value of the raw materials." We recognize McDonnell-Douglas's argument that in the cited case the taxpayer sought an unreasonably low "junk value" assessment and that the court, faced with this unrealistic scrap value approach, approved the county's more convincing method of valuation. Regardless of the validity of the argument, it is true nevertheless that the opinion does stand for the fact that an assessor should consider factors other than original costs.

The second is Appeal of AMP, Inc., 287 N.C. 547, 215 S.E.2d 752 (1975), wherein the Supreme Court of North Carolina stated that: " . . . in determining the true value in money of AMP's nondefective in-process inventory, we believe that the proper valuation standard would be the cost of replacing the inventory plus labor and overhead. In terms of a formula, this equals replacement cost plus labor and overhead." Id. at 768.

The third is General Motors Corp. v. State Board of Tax Appeals, 125 N.J.L. 574 16 A.2d 632 (Ct.Err. & App.1940). It is apparently cited by the county by reason of the court's use of the "cost" method of valuation; but, McDonnell-Douglas submits that the case supports its "cost method of valuation." We do not believe the case is persuasive or helpful to either side. It does not resolve whether a cost method should include all costs, i. e., labor and overhead or whether it should include only the aggregate costs of raw materials.

The county, thereafter, cites American Mfg. Co. v. City of St. Louis, 270 Mo. 40, 192 S.W. 402 (banc 1917), to emphasize the tax upon merchants and manufacturers is a tax upon property. It is then submitted that one may not, consistent with § 4(b), Article X of the Missouri Constitution, arbitrarily state that work-in-process can be valued only at its raw material content regardless of how much value has been added thereto; and, that to do so would be totally foreign to an "ad valorem" tax, which must be based on true or real value.

Respondent, McDonnell-Douglas, does not refer us to any case, factually comparable, which rejects the county's position. Argument is made, however, that (1) "there is no definition in the record defining the term 'added value,' no description of the exact composition or make-up of that figure, and no evidence as to how the 'value added' figure was computed," and that (2) "The Commission's...