Wisconsin Dept. of Revenue v. Bailey-Bohrman Steel Corp., BAILEY-BOHRMAN

Decision Date07 February 1980
Docket NumberNo. 77-526,BAILEY-BOHRMAN,77-526
Citation287 N.W.2d 715,93 Wis.2d 602
CourtWisconsin Supreme Court

Richard R. Teschner, Steven R. Duback, argued and Quarles & Brady, Milwaukee, on brief, for appellant.

John J. Glinski, Asst. Atty. Gen., argued, Bronson C. La Follette, Atty. Gen., on brief, for petitioner-respondent.


The only question on this appeal is whether the Bailey-Bohrman Steel Corporation was engaged in manufacturing as defined in sec. 77.51(27), 1 Stats., and is therefore exempt from use taxes under the provisions of sec. 77.54(6)(a). 2 We conclude that, under these statutes and in light of the undisputed facts, the machinery used by the taxpayer, Bailey-Bohrman Steel Corporation, was exempt from the Wisconsin use tax. Accordingly, we reverse the judgment of the trial court.

This litigation arises out of an assessment of use taxes levied upon the taxpayer for the period commencing on December 1, 1972, and ending on September 30, 1974. Following the levy by the Wisconsin Department of Revenue, the taxpayer petitioned for a redetermination of the tax. That petition was denied. The Department's action was reversed by the Wisconsin Tax Appeals Commission on April 27, 1977. Subsequently, pursuant to the provisions of ch. 227, Stats., the Department commenced an action in the circuit court for Dane county to review the decision of the Tax Appeals Commission that Bailey-Bohrman was exempt from use taxes. The circuit court reversed the Commission's order of nontaxability and held that the taxpayer was not a manufacturer. A judgment ordering Bailey-Bohrman to pay the use tax was entered, and it is from that judgment that the taxpayer has appealed to this court.

Bailey-Bohrman advertised itself as an independent "steel service center and 'Processor.' " Its claim for exemption is based upon the assertion that it is a "manufacturer" as that term is defined in sec. 77.51(27), Stats.

The taxpayer's business essentially consists of purchasing large rolls of hot rolled coiled steel and cutting the steel into narrower widths by the use of the machinery whose tax status is in question on this appeal. The record shows that the taxpayer purchases hot rolled sheets of steel stock having a width of not more than 48 inches and a thickness of less than one-half inch. Each of these rolls or coils of steel weighs approximately 15 tons.

The first step in the process involves lifting the coils by crane onto a line, where they are unrolled on a decoiler. This decoiled or flattened steel is then conveyed by rollers through a slitter, which consists of two rotary knives, adjusted to accord with the eventual width of steel desired. This machine also trims off the rough outside edge of the steel sheet. Oil is sometimes added during the cutting operation upon a customer's request or because it facilitates cutting by acting as a lubricant. After the steel is cut into narrower widths, the strips are recoiled, lifted off the line, tagged with a customer's part number, and made ready for shipment to customers. The cutting is generally done in accordance with specific customer requests, and the width is cut to conform to the use to be made of it by the customer. The only thing the taxpayer does in addition to cutting the steel into the narrower widths is to occasionally cut the length of the coil in half. The taxpayer's plant consists of the large rollers, cutting devices, and the cranes. The cranes are used for handling the original hot rolled coils and the steel which has been split and recoiled in accordance with the customer's order.

The Commission found, and the Department concedes, that the large coils of hot rolled steel stock have no practical use prior to Bailey-Bohrman's splitting them into the desired width. The narrower widths are specified by the taxpayer's customers in order that the steel can be fed into the presses or other machinery at a customer's plant. The steel is tailored by the taxpayer for a particular succeeding manufacturing step in a customer's operation. Almost all of the cut steel is tagged with a part number conforming to the customer's intended use.

After processing by the taxpayer, the steel has a different dimension and configuration than it had when it came from the steel mill. However, after being cut, the narrower strips are recoiled into rolls resembling the original uncut roll of steel. The taxpayer does not press, stamp, or in any way change the thickness of the steel. Ordinarily, the length of the steel strip is left unchanged. The taxpayer's president, in response to a question, stated that he would categorize the operation as "slitting steel."

Because these facts are undisputed, whether or not the taxpayer is a manufacturer poses only a question of law. Department of Revenue v. Sterling Custom Homes, 91 Wis.2d 675, 677, 283 N.W.2d 573 (1979). Where, as here, the material facts are undisputed and only a question of law is presented, this court may review the record Ab initio and substitute its own conclusion for that of the Tax Appeals Commission or of the trial court. H. Samuels Co., Inc. v. Department of Revenue, 70 Wis.2d 1076, 1083, 236 N.W.2d 250 (1975). The Department asserts the familiar rule that one who seeks to have property exempted from taxation must show that it falls within the terms of an exemption statute. That rule, derived from a long series of cases, was restated in Engineers & Scientists of Milwaukee, Inc. v. City of Milwaukee, 38 Wis.2d 550, 157 N.W.2d 572 (1968):

" 'Statutes exempting property from taxation are to be strictly construed and all doubts are resolved in favor of its taxability. To be entitled to tax exemption the taxpayer must bring himself within the exact terms of the exemption statute.' " (at 553, 157 N.W.2d at 574.) Accord : Ramrod, Inc. v. Department of Revenue, 64 Wis.2d 499, 219 N.W.2d 604 (1974).

This rule of construction is applicable, however, only where the statutory provision is ambiguous. State ex rel. Wisconsin Trust Co. v. Leuch, 156 Wis. 121, 129, 144 N.W. 290 (1914). There is no ambiguity in secs. 77.51(27) or 77.54(6)(a), Stats. The exemption for manufacturers is specific and unambiguous. The term, "manufacturing," is defined in detail by sec. 77.51(27). Moreover, even if the statutory provision were ambiguous, as we have pointed out in Columbia Hospital Asso. v. Milwaukee, 35 Wis.2d 660, 668, 151 N.W.2d 750 (1967):

"(A) strict construction is nonetheless a construction, and an exemption statute need not be given an unreasonable construction or the narrowest possible construction."

That case went on to point out that strict construction was applicable only "where the meaning of the language expressing the objective intent of the legislature is doubtful." (at 668, 151 N.W.2d at 754)

In this case, the objective intent of the language is clear. Sec. 77.51(27), Stats., demonstrates the objective intent of the legislature to grant an exemption to those who use machinery in the course of manufacturing. A strict construction is inappropriate in the present case.

The only question is one of law whether the undisputed facts revealed in this record satisfy the objective standards for exemption detailed in sec. 77.51(27). The six objective elements set forth therein require that, for the exemption to apply, there must be production by machinery, of a new article, with a different form, with a different use, with a different name, and by a process popularly regarded as manufacturing. The Department of Revenue does not dispute that the taxpayer used machinery, that the split steel had a different use from the uncut steel, and that the process is popularly regarded as manufacturing. The Commission found that all of the elements of the definition were satisfied. The circuit court, however, set aside the Commission's finding that the taxpayer produced "a new article with a different form," and it also found it to be "debatable whether there has been a change in name within the meaning of the statute."

The Department asserts that the taxpayer's machinery is not exempt because the process does not result in a new article with a different form and name. The Department contends that a new article is not produced because the material before the taxpayer's processing is coiled steel and after processing it remains coiled steel. The Department also asserts that the only change in the steel by the taxpayer's...

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