State v. Wertheimer Bag Co.

• Decision Date: 13 October 1949
• Docket Number: 6 Div. 841
• Citation: 253 Ala. 124,43 So.2d 824
• Parties: STATE v. WERTHEIMER BAG CO. et al.
• Court: Alabama Supreme Court

Page 824

43 So.2d 824

253 Ala. 124

STATE v. WERTHEIMER BAG CO. et al.

6 Div. 841.

Supreme Court of Alabama.

Oct. 13, 1949.

Rehearing Denied Dec. 1, 1949.

Further Rehearing Denied Feb. 2, 1950.

A. A. Carmichael, Atty. Gen., and Gardner F. Goodwyn, Jr., Asst. Atty. Gen., for appellant.

D. H. Markstein, Jr., Birmingham (cross-appellants), for appellees.

SIMPSON, Justice.

This case involves an appeal from a decree of the circuit court in equity partially overruling an assessment made by the State Department of Revenue against the appellee for sales taxes alleged to be due on the sale of burlap bags to vendors and marketers of the several products hereafter to be noticed.

There are seven classifications of the products for which the bags were used. The trial court affirmed the assessment on classes 1 and 7-A and overturned the assessment on classes 2-6, inclusive, and 7-B. The State has brought the appeal, claiming error in the ruling as to classes 2-6, inclusive, and 7-B and the appellee has cross-appealed, claiming error in the decision as regards class 1, but does not cross-assign error as to 7-A. We will first dispose of classes 2-6 involved in the direct appeal, because we are in agreement with the decision of the trial court as to these, laying aside for the moment classifications 1 and 7-B, to be considered later.

The bags under class 2 were sold by appellee to owners and operators of peanut hullers, which separate the kernel from the hull, and the hulled peanuts are then bagged and sold by the hullers to confectioners, peanut butter plants, peanut oil mills, peanut roasters, etc. The peanuts are purchased by the huller operators from the farmers. Class 3 represents the bags which are sold to the hullers and used in sacking the hulls, which are sold to fertilizer manufacturers, and the vines, which are sold to feed mills, dairymen or farmers for use as cattle feed. Class 4 represents bags which are sold by appellee to owners and operators of wholesale grain and feed companies, which use the bags for sacking corn and oats for shipment to retailers or wholesalers. Class 5 represents transactions where the bags are sold by the appellee to dealers in cotton planting seeds, which are purchased from ginners, and are used for sacking these cotton seed for shipment. Class 6 has two subclassifications, (A) bags sold to wholesale grocery companies, which use the bags in sacking potatoes, cabbages, beans, and other agricultural, grove or garden products for resale to retail merchants, and (B) the bags purchased by certain wholesale produce companies for sacking potatoes purchased from farmers, which product, after being sacked, is sold to retail dealers.

As stated, we have concluded with the trial court that the character of sales represented by the foregoing five classifications (2-6) are non-taxable. On a careful consideration, this court has become convinced that the said sales were exempt under subsection (i), § 755, of the Sales Tax Statute, Code 1940, Title 51, which, as pertinent, reads: ' § 755. Exemptions.--There are however exempted from the provisions of this article and from the computation of the amount of the tax levied, assessed or payable under this article the following: * * * (i) The gross proceeds of the sale, or sales, of * * * bags * * * used in preparing agricultural products, dairy products, grove or garden products for market * * * when such * * * bags * * * are to be sold or furnished by the seller of the products contained therein to the purchaser of such products.'

It is the contention of the State that this subsection grants an exemption to the farmer only and that he alone is the person who prepares these products 'for market.' In this we cannot agree. The statute is not so worded.

The opinion below prevailed that the various hullers and wholesalers who purchased the bags and sacked the products were engaged in preparing them for market and ruled the sales of the bags as tax exempt. We think this a proper interpretation.

It is true, as argued by the able assistant Attorney General, that exemption provisions in a taxing statute are to be strictly construed in favor of the taxing power. State v. Tuscaloosa Cotton Seed Oil Company, 208 Ala. 610, 95 So. 52.

But, the court will indulge no strained construction to give effect to this rule where a fair interpretation of the legislative intent may lead to a contrary conclusion. Arbitrary rules of construction are of little value when the real intention can be gathered from the act itself. Holt v. Long, 234 Ala. 369, 174 So. 759.

Subdivision (f) of § 755 does, as pointed out to sustain the contrary view, show that the exemption provision as regards the 'gross proceeds of poultry and other products of the farm * * * when such sale or sales are made by the producer or members of his immediate family * * *' is designed to benefit the farmer alone. And such was the holding in Curry v. Reeves, 240 Ala. 14, 195 So. 428. Subsection (f) was similarly construed, as regards the provision exempting the gross proceeds of livestock, until it was amended to include livestock 'by whomsoever sold.' Bowman v. State Tax Commission, 235 Ala. 190, 178 So. 216.

But subdivision (i) does not so provide, nor does it indicate any such intent. It makes no suggestion that the preparation for market be done on the farm or by the farmer and we think if the bags are used--as described--by the producer, the huller, or the wholesaler in bagging and making ready these products to be placed in the channels for distribution for consumption, the bags are used in preparing the products for market within the meaning of the exemption provision considered.

The rationale in the opinion by Judge Sibley in Fleming v. Farmers Peanut Co., 5 Cir., 128 F.2d 404, is somewhat persuasive to the result here attained, where a construction was given a provision of the wage and hour law exempting wages of persons employed in 'preparing * * * agricultural commodities for market.' The act empowered the administrator to define the 'area of production' but it was noticed that the statute made no point as to whether the preparation for market occurred on the farm or elsewhere in the 'area of production.' It was first observed in that opinion, as is the case here, that 'an indefinite definition may well be given a broad application.' Then passing to the precise question under decision, the court stated: 'We pass then to enquire whether the work of shelling and cleaning peanuts is 'preparing them in their raw or natural state for market.' Without doubt peanuts are an agricultural commodity, whether shelled or unshelled. * * * The small Spanish peanuts raised in Georgia, Florida and Alabama are marketed shelled, to make candy, peanut butter and salted peanuts. Some are ground and pressed for oil. Preparing them for market may well include shelling, since they are not marketable in the shells or pods. * * * The statute makes no point about the preparation being done on the farm or by the farmer, but only that it occur in the area of production. * * *' 128 F.2d 407.

We are also impressed with the argument of appellee that the legislative history of § 755, with amendments, also tends to indicate the intention not to limit subsection (i) to farmers alone. Subsection (f), after decision in the Bowman case to the effect that the exemption as regards the sale of livestock was for the farmer alone, was amended to include livestock 'by whomsoever sold', and subsection (h), after decision in the Curry v. Reeves case, was amended with reference to the sale of baby chicks. Throughout these successive changes (i) has remained unchanged, and we think that had the legislature intended to restrict the exemption there provided to sales made to farmers--which in language it does not do--it would have amended that subsection so to indicate, while others were being amended in order to make the restriction reasonably clear to that end.

In reaching this conclusion, we are not unmindful of the argument that the administrative construction accorded the subsection in the past as being restricted to farmers, is entitled to favorable consideration by the court, Cole v. Gullatt, 241 Ala. 669, 4 So.2d 412; Jones v. Johnson, 240 Ala. 357, 199 So. 539; State v. Tuscaloosa Building & Loan Association, 230 Ala. 476, 161 So. 530, 99 A.L.R. 1019. Yet this rule of construction is to be laid aside where it seems reasonably certain that the administrator's interpretation has been erroneous and that a different construction is required by the language of the act. United States v. Jackson, 280 U.S. 183, 50 S.Ct. 143, 74 L.Ed. 361; Interstate Commerce Commission v. Love, D.C., 77 F.Supp. 63.

So considered, the judgment overturning the assessment of taxes under classes 2, 3, 4, 5, and 6 is due to be affirmed.

It remains next to consider classification 7-B, which the court also ruled exempt from sales tax.

The sales of the bags in this classification were made by appellee to the Alabama Marble Company. Following is the status, as indicated by the agreed statement of facts: The Alabama Marble Company is engaged in the business of quarrying marble. In the process of quarrying and dressing the marble there are obtained small chipped pieces of marble varying in size, of irregular shapes, from a fraction of an inch to several inches. These chipped pieces are ground in a mill to a size varying from a fine dust to particles a fraction of an inch. The ground marble is sacked in the burlap bags and sold by the Alabama Marble Company to contractors for use mainly in constructing terrazzo floors. The title to the burlap bags passes from the Alabama Marble Company to the purchaser of the ground marble, and is furnished to the purchaser when the marble is sold, without a separate breakdown or listing as to price of the burlap bags.

Claim of exemption by appellee under this class was made under § 752(i), Title 51, Code 1940, as...