Warm Springs Lumber Co. v. Horn

• Decision Date: 15 July 1959
• Citation: 217 Or. 219,342 P.2d 143
• Parties: WARM SPRINGS LUMBER COMPANY, a corporation, Respondent, v. S. W. HORN, Carl Chambers and Samuel B. Stewart, constituting the State Tax Commission of the State of Oregon, Appellants.
• Court: Oregon Supreme Court

Page 143

342 P.2d 143

217 Or. 219

WARM SPRINGS LUMBER COMPANY, a corporation, Respondent, v. S. W. HORN, Carl Chambers and Samuel B. Stewart,

constituting the State Tax Commission of the State

of Oregon, Appellants.

Supreme Court of Oregon.

Argued and Submitted at Pendleton May 4, 1959.

Decided July 15, 1959.

Carlisle B. Roberts, Asst. Atty. Gen., and Ira W. Jones, Asst. Atty. Gen., for appellant. With them on the briefs was Robert Y. Thornton, Atty. Gen.

Charles P. Duffy, Portland, for respondent. With him on the brief were Carl E. Davidson and Davidson, Duffy & Stout, Portland.

Before McALLISTER, C. J., and ROSSMAN, LUSK, WARNER, PERRY, CRAWFORD and MILLARD, JJ.

LUSK, Justice.

During the years involved in this case, the Corporation Excise Tax Law of 1929 (ORS ch. 317) contained the following provision:

'Every mercantile, manufacturing and business corporation doing or authorized to do business within this state, except as provided in ORS 317.080 to 317.090, shall annually pay to this state, for the privilege of carrying on or doing business by it within this state, an excise tax according to or measured by its net income, to be computed in the manner provided by this chapter, at the rate of * * * eight * * * per cent.' ORS 317.070.

The exceptions stated in the section are not material here. Each corporation subject to the excise tax was 'entitled to an offset against the tax imposed by * * * [ORS 317.070] in the amount of taxes assessed to and paid by it upon its personal property located in this state * * *.' ORS 317.085. No offset was permitted in excess of 50% of the excise tax.

The plaintiff, Warm Springs Lumber Company, is an Oregon corporation engaged in logging and lumber manufacturing, with its principal place of business in Warm Springs, County of Jefferson, state of Oregon. The defendants, members of the Oregon State Tax Commission, will hereinafter be referred to as the Commission. This case involves the plaintiff's excise taxes for each of the years 1947 to 1953 inclusive, and for its fiscal year ended April 30, 1955.

The controversy arises out of offsets claimed by the plaintiff on account of personal property taxes paid by the plaintiff during each of these years. These taxes were paid to Jefferson and Wasco counties upon assessments which classified the property in question as tangible personal property. Regardless of this fact, it is the view of the Commission that the property is real property within the meaning of the Corporation Excise Tax Law, and the offsets, therefore, are not allowable. Accordingly, the Commission at various times during the years 1956 and 1957 mailed to the plaintiff notices of deficiencies and assessments for each of the years in question. Plaintiff, having paid the alleged deficiencies under protest, appealed to the Commission from these various assessments on the grounds not only that the offsets claimed were proper, but also that the assessments for the years 1947 to 1951 inclusive were barred by the special three-year statute of limitations found in ORS 314.410. After a hearing, the Commission entered an order denying the appeal, and plaintiff then filed this proceeding in the circuit court pursuant to ORS 314.460. The Commission filed a demurrer to the complaint by which it raised the two questions involved on this appeal, namely, whether the taxes paid to the counties should have been classified as real or personal property taxes, and whether the statute of limitations applies. The circuit court overruled the demurrer and, the Commission refusing to plead further, entered a decree vacating the Commission's order and ordering it to refund to the plaintiff the sum of $44,061.92 (the amount paid under protest), together with interest thereon from February 20, 1958. From that decree the Commission has appealed.

1. Was Plaintiff Entitled to the Offsets Claimed?

An exhibit attached to and incorporated in the complaint by reference contains the following statement concerning the property of the plaintiff whose character as real or personal property is in question:

'The buildings in question consist principally of a sawmill, dry kilns, planing mill, factory, warehouse and sorting sheds. These have no solid footings but, for the most part, rest upon concrete posts. There are also about forty temporary dwellings for the workmen.

'All of these improvements are constructed on Indian lands. The pertinent part of the agreement of December 1, 1947, between Warm Springs Lumber Company and the Confederated Tribes of the Warm Springs Reservation of Oregon, provides that:

"c. That at the expiration or termination of the 'Timber Contract' the above described lands shall be surrendered to and in a condition acceptable to the Confederated Tribes and the Superintendent.

"d. It is understood and agreed that any buildings or other improvements placed upon said land by the company shall remain its property unless otherwise provided and may be removed by it at any time within two years after the expiration of this lease."

The Commission's demurrer admits the truth of the foregoing averments.

The applicable provisions of ORS are as follows:

307.010(1). "Land,' 'real estate' and 'real property' include the land itself, above or under water; all buildings, structures, improvements, machinery, equipments or fixtures erected upon, under, above or affixed to the same; all mines, minerals, quarries and trees in, under or upon the land; all water rights and water powers and all other rights and privileges in any wise appertaining to the land; and any estate, right, title or interest whatever in the land or real property, less than the fee simple.' (Italics added.)

307.020. '(2) Unless otherwise specifically provided, 'personal property' or 'personal estate,' as used in the laws of this state relating to assessment and taxation of property as such, means 'tangible personal property' as defined in subsection (3) of this section.

'(3) 'Tangible personal property' means and includes all chattels and movables, such as boats and vessels, merchandise and stock in trade, furniture and personal effects, goods, livestock, vehicles, farming implements, movable machinery, tools and equipment and all machinery and equipment used in the manufacture of raw or partially manufactured products.'

317.085(3). 'For the purpose of the offset provided in this section there shall be included only taxes assessed to and paid upon property properly classified as tangible personal property under the definition contained in ORS 307.020, as to personal property locally assessed, and as personal property under the definition contained in ORS 308.510, as to personal property assessed by the State Tax Commission, but taxes paid on property improperly assessed as tangible personal property shall not be included in the offset. * * *.' (Italics added.)

308.115(2). '* * * whenever any building, structure, improvement, machinery, equipment or fixture is owned separately and apart from the land or real property whereon it stands or to which it is affixed, such building, structure, improvement, machinery equipment or fixture shall be assessed and taxed in the name of the owner thereof.'

The meaning of these provisions is entirely clear and it is equally clear that the buildings and structures described in the complaint are erected upon land. They are, therefore, real property within the meaning of ORS 307.010(1) and not tangible personal property as defined in ORS 307.020(2), (3). For the purpose of the offset of personal property taxes paid, the definition in ORS 307.020(1) and (2) determines what is tangible personal property, and the fact that taxes may have been paid on property improperly assessed as tangible personal property is immaterial. Such taxes, the statute says, shall not be included in the offset. ORS 317.035. Consequently, the argument in the Company's brief that the original property tax assessment upon which the taxes were initially paid is presumed to be correct (citing Case v. Chambers, 210 Or. 680, 703, 314 P.2d 256) is without force, as the presumption, if one is to be indulged at all when considering a case like this, cannot stand against the clear command of the statute.

The Company argues that the parties may agree that the annexation of a chattel to the land shall not deprive it of its character as personalty and, therefore, that the buildings were properly assessed as personal property. The rule invoked is valid as between the parties. But there are numerous instances in which it does not hold good where the rights of third persons are involved. Certainly such an agreement cannot control the action of the state when exercising its taxing power. The authorities are reviewed at length in an able opinion by Spence, J., in Trabue Pittman Corp. v. County of Los Angeles, 29 Cal.2d 385, 175 P.2d 512. In that case, it appears that plaintiff was the owner of a building leased to a national banking association. Under the terms of the lease, it was agreed that certain fixtures installed by the bank, such as vault doors, tellers' cages, etc., might be removed by the lessee upon the termination of the lease. The county assessed the fixtures to the owner of the building as improvements to real property; the owner contended that they were personal property of the bank. As such they would not be taxable at all, because Congress has not consented to the taxation by states of the personal property of national banks. See First National Bank of Portland v. Marion County, 1942, 169 Or. 595, 597, 130 P.2d 9. The court sustained the position of the county, one of the grounds of decision being that the statute of California declared that real estate shall include 'improvements,' and improvements were defined as including 'fixtures.' 'It is well settled,' the court said, 'that for purposes of taxation the definitions of real property in the revenue and taxation laws of the state control whether they...