INSTITUTIONAL FOOD HOUSE, INC.
v.
J. Howard COBLE, Secretary of Revenue of the State of North Carolina.
No. 71.
Supreme Court of North Carolina.
January 29, 1976.*302 Smith, Anderson, Blount & Mitchell by John H. Anderson and Michael E. Weddington, Raleigh, for plaintiff-appellant.
Rufus L. Edmisten, Atty. Gen., and Myron C. Banks, Sp. Deputy Atty. Gen., Raleigh, for defendant-appellee.
HUSKINS, Justice:
This action presents two questions for decision. The first question is whether the sales of frozen concentrated orange juice herein involved are properly taxable under the provisions of the North Carolina Soft Drink Tax Act, G.S. 105-113.41 et seq. (1969). If this be so, the second question is whether said Act, on its face, or as interpreted and applied by the Secretary of Revenue to these sales, violates the equal protection of the laws guaranteed by Article I, Section 19 of the North Carolina Constitution and the Fourteenth Amendment to the United States Constitution.
The North Carolina Soft Drink Tax Act provides, in pertinent part, as follows:
"§ 105-113.41. Short title.This Article shall be known and cited as the `Soft Drink Tax Act.'
§ 105-113.42. Purpose of Article.It is the purpose of this Article to provide a source of additional revenue which shall be applied to the general fund of the State.
§ 105-113.43. Liability for tax.Every person doing domestic or intrastate business within this State and engaging in the business of selling, manufacturing, purchasing, consigning, using, shipping or distributing, for the purpose of sale within this State, soft drinks of every kind whatsoever, including but not limited to the following articles or things, viz: soda water, ginger ale, Coca-Cola, lime-cola, Pepsi-Cola, near beer, fruit juices, vegetable juices, and all fountain drinks and other beverages and things commonly designated as `soft drinks' shall, for the privilege of carrying on such business, be subject to the payment of a license tax which shall be measured by and graduated in accordance with the sales of such person within the State, except as may be otherwise provided in this Article.
Every person within the State of North Carolina, importing, receiving or acquiring from without the State, or from any other source, beverages commonly designated as soft drinks as contemplated by this Article, for use or consumption within North Carolina, shall be subject to payment of the soft drink tax at the rates provided for the sale, offer for sale, or distribution of such soft drinks.
§ 105-113.44. Definitions.As used in this Article, unless the context otherwise requires:
(1) `Base products' means hot chocolate flavored drink mix, flavored milk shake bases, concentrate products to which milk or other liquid is added to complete a soft drink, and all like items or products as herein defined which will be taxed as syrups.
*303 (2) `Bottled' means enclosed in any closed or sealed glass, metal, paper or other type of bottle, can, carton or container, regardless of the size of such container.
(3) `Bottled soft drink' means any complete, finished, ready-to-use, nonalcoholic drink, whether carbonated or not, such as soda water, ginger ale, Nu-Grape, Coca-Cola, lime-cola, Pepsi-Cola, bud-wine, near beer, fruit juice, vegetable juice, milk drinks when any flavoring or syrup is added, cider, bottled carbonated water and all bottled preparations commonly referred to as soft drinks of whatever kind or description.
* * * * * *
(9) `Natural fruit juice' means the natural liquid which results from the pressing of sound ripe fruit, and the liquid which results from the reconstitution of natural fruit juice concentrate by the restoration of water to dehydrated natural fruit juice.
* * * * * *
(18) `Soft drink syrups and powders' includes the compound mixture or the basic ingredients, whether dry or liquid, practically and commercially usable in making, mixing or compounding soft drinks by the mixing thereof with carbonated or plain water, ice, fruit juice, milk or any other product suitable to make soft drinks, among such syrups being such products as Coca-Cola syrup, Chero-Cola syrup, Pepsi-Cola syrup, Dr. Pepper syrup, root beer syrup, Nu-Grape syrup, lemon syrup, vanilla syrup, chocolate syrup, cherry smash syrup, rock candy syrup, simple syrup, chocolate drink powder, malt drink powder, or any other prepared syrups or powders sold or used for the purpose of mixing soft drinks commercially at soda fountains, restaurants or similar places as well as those powder bases prepared for the purpose of domestically mixing soft drinks such as kool-aid, oh boy drink, tip-top, miracle aid and all other similar products. Concentrated natural frozen or unfrozen fruit juices or vegetable juices when used domestically are specifically excluded from this definition.
* * * * * *
§ 105-113.45. Taxation rate.(a) A soft drink excise tax is hereby levied and imposed on and after midnight, September 30, 1969, upon the sale, use, handling and distribution of all soft drinks, soft drink syrups and powders, base products and other items referred to in this section.
(b) The rate of tax on each bottled soft drink shall be one cent (1¢).
(c) The rate of tax on each gallon of soft drink syrup or simple syrup shall be one dollar ($1.00), and on a fraction of a gallon the rate shall be an amount which represents one dollar ($1.00) multiplied by the same fraction of a gallon. The rate of tax on each ounce or fraction of an ounce of soft drink syrup or simple syrup shall be four fifths of a cent (4/5¢), and no exemption or refund shall be allowed on such syrup even though it may subsequently be diverted to some purpose other than the making of soft drinks.
(d) The rate of tax on dry soft drink powders and base products which are used to make soft drinks without being converted into syrup shall be one cent (1¢) per ounce or fraction thereof of the dry powder or base product weight. However, the tax on dry soft drink powder or base product which is to be converted into syrup shall be the same as that which would be due upon the syrup produced, if the syrup were being taxed according to the rates set out in subsection (c) above.
(e) The excise tax herein levied on syrups, powders and base products shall not apply to syrups, powders and base products used by persons in the manufacture of bottled soft drinks which are otherwise subject to tax under this Article. The Commissioner [now Secretary] may by *304 administrative rules or regulation, provide for the storage of such syrups, powders and base products when they are not for use in the manufacture of bottled soft drinks.
* * * * * *
§ 105-113.47. Natural fruit or vegetable juice or natural liquid milk drinks exempted from tax.(a) All bottled soft drinks containing thirty-five percent (35%) or more of natural fruit or vegetable juice and all bottled natural liquid milk drinks containing thirty-five percent (35%) or more of natural liquid milk, are exempt from the excise tax imposed by this Article, except that this exemption shall not apply to any fruit or vegetable juice drink to which has been added any coloring, artificial flavoring or preservative. Sugar, salt or vitamins shall not be construed to be an artificial flavor or preservative."
The threshold question is whether the sales of frozen concentrated orange juice involved in this case are taxable events within the meaning of the Soft Drink Tax Act. The parties have stipulated, and the court has found, that the concentrate involved in these sales is taxable only if it is either a "base product" as that term is defined in G.S. 105-113.44(1), or a "soft drink syrup" as that term is defined in G.S. 105-113.44(18). The trial court heard the case upon stipulations, including the stipulated testimony of plaintiff's witness W. W. Brown, made findings of fact, and concluded as a matter of law that canned frozen concentrated orange juice is a soft drink "base product" as defined in G.S. 105-113.44(1) and therefore taxable. Plaintiff contests the propriety of this conclusion, and we turn to the rules of statutory construction for enlightenment on the question involved.
In construing and interpreting the language of a statute we are guided by the primary rule of construction that the intent of the Legislature controls. Watson Industries, Inc. v. Shaw, Comr. of Revenue, 235 N.C. 203, 69 S.E.2d 505 (1952). If the language of a statute is clear and unambiguous, judicial construction is unnecessary and its plain and definite meaning controls. Davis v. North Carolina Granite Corp., 259 N.C. 672, 131 S.E.2d 335 (1963). But if the language is ambiguous and the meaning in doubt, judicial construction is required to ascertain the legislative intent. Underwood v. Howland, Comr. of Motor Vehicles, 274 N.C. 473, 164 S.E.2d 2 (1968); Young v. Whitehall Co., Inc., 229 N.C. 360, 49 S.E.2d 797 (1948); State v. Humphries, 210 N.C. 406, 186 S.E. 473 (1936).
Where the meaning of a tax statute is doubtful, it is construed against the State and in favor of the taxpayer unless a contrary legislative intent appears. Colonial Pipeline Co. v. Clayton, Comr. of Revenue, 275 N.C. 215, 166 S.E.2d 671 (1969); Sabine v. Gill, Comr. of Revenue, 229 N.C. 599, 51 S.E.2d 1 (1948); Henderson v. Gill, Comr. of Revenue, 229 N.C. 313, 49 S.E.2d 754 (1948); State v. Campbell, 223 N.C. 828, 28 S.E.2d 499 (1944). "In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed must strongly against the government, and in favor of the citizen." Gould v. Gould, 245 U.S. 151, 38 S.Ct. 53, 62 L.Ed. 211 (1917). Conversely, a provision in a tax statute providing an exemption from the tax, otherwise imposed, is strictly construed against the taxpayer and in favor of the State. In re Clayton-Marcus Co., Inc., 286 N.C. 215, 210 S.E.2d 199 (1974); Distributors v. Shaw, Comr. of Revenue, 247 N.C. 157, 100 S.E.2d 334 (1957); Henderson v. Gill, Comr. of Revenue, supra. Nevertheless, if the intent of the Legislature is discernible from the statute it will prevail regardless of the rule of strict construction against exemptions. Acheson v. Johnson, State Tax Assessor, 147 Me. 275, 86 A.2d 628 (1952).
*305 In the absence of a clear indication to the contrary, words in a statute must be given their ordinary meaning unless they have acquired a technical significance. Duke Power Co. v. Clayton, Comr. of Revenue, 274 N.C. 505, 164 S.E.2d 289 (1968); Bleacheries, Inc. v. Johnson, Comr. of Revenue, 266 N.C. 692, 147 S.E.2d 177 (1966). If the statute itself contains a definition of a word used therein, that definition controls and courts must construe the statute as if the definition had been used in lieu of the word. If the words of the definition itself are ambiguous, they must be construed pursuant to the general rules of statutory construction. In re Clayton-Marcus Co., Inc., supra.
This brings us to the task of applying these rules of statutory construction to the statutes involved in the controversy before us.
The Soft Drink Tax Act establishes a bifurcated scheme of taxation whereby (1) "bottled soft drinks" not otherwise exempt are subjected to a "crown tax" levied upon the sale of each individual bottle of "soft drink," G.S. 105-113.45(b); and (2) "base products," "soft drink syrups," "soft drink powders" and "simple syrups," ingredients used to make "open-cup soft drinks," are subjected to a tax levied upon the sale of individual units of each. G.S. 105-113.45(c) and (d). Since the ingredients used to make "open-cup soft drinks" are taxed, there is no provision in the Act for taxing the "open-cup" (as opposed to "bottled") sales of any soft drink. However, the tax is not levied upon syrups, powders and base products which are used to prepare a bottled soft drink which is itself subject to tax under the Soft Drink Tax Act. G.S. 105-113.45(e). Similarly exempt from taxation are those "bottled soft drinks" which contain 35 percent or more of natural fruit juice, provided no coloring, artificial flavoring or preservative has been added. G.S. 105-113.47(a).
Did the Legislature intend, by this statutory scheme, to treat frozen concentrated orange juice as either a "base product" or a "soft drink syrup" and impose the soft drink excise tax upon it? For the reasons which follow, the answer is no.
Neither the sale of natural orange juice nor the sale of bottled fruit juice drinks containing 35 percent or more of natural orange juice is a taxable event under the Act. G.S. 105-113.44(9); G.S. 105-113.47(a). Nor does the tax apply to "base products used by persons in the manufacture of bottled soft drinks which are otherwise subject to tax under this Article." G.S. 105-113.45(e). In light of these statutory provisions, defendant stipulated, and the trial court found as a fact, that sales of natural fruit juice, including liquids resulting from the reconstitution of concentrated orange juice by the restoration of water, are exempt from the tax "whether or not such natural fruit juices are sold for `commercial' or `domestic' use." This leads us to conclude that when the Soft Drink Tax Act is read aright and considered as a composite whole, the Legislature intended to exclude from taxation the sale of all natural fruit juices, however packaged. Taxation of frozen concentrated orange juice as a "base product" is contrary to such intent and largely nullifies the exemption contained in G.S. 105-113.47(a). We think the Legislature did not intend such an incongruous result. Where possible, "the language of a statute will be interpreted so as to avoid an absurd consequence." Hobbs v. Moore County, 267 N.C. 665, 149 S.E.2d 1 (1966); Young v. Whitehall Co., Inc., supra.
The definition of "base product" contained in G.S. 105-113.44(1) "may not be lifted out of its context so as to universalize its meaning. A word or phrase or clause or sentence may vary greatly in color and meaning according to the circumstances of its use. . . . It is axiomatic, therefore, that a provision in a statute must be construed as a part of the composite whole and must be accorded only that meaning which other modifying provisions and the clear intent and purpose of the act will permit. Its meaning must sound a harmoniousnot *306 a discordantnote in the general tenor of the law." Watson Industries, Inc. v. Shaw, Comr. of Revenue, supra. This is particularly true here in light of the settled rule that tax statutes shall be strictly construed against the State, while the converse rule as to tax exemptions must yield in the face of a legislative intent to the contrary. See Acheson v. Johnson, State Tax Assessor, supra; In re Clayton-Marcus Co., Inc., supra. Thus the definition of "base product" contained in G.S. 105-113.44(1) must be construed in the broad context of the Act as a whole, giving effect, as we must, to the necessary implications arising from the fact that natural orange juice, including reconstituted frozen concentrated orange juice, is expressly excluded from taxation under the Act. G.S. 105-113.44(9); G.S. 105-113.45(e); G.S. 105-113.47(a). See the stipulation of the parties embodied verbatim as Finding of Fact No. 8.
So construed, we hold that the term "base product" refers to a product which is used to complete a drink not specifically exempted from the Act. Stated differently, "base products" are taxable as such only when used to complete a soft drink which, if sold bottled, would be subject to the tax. This interpretation of G.S. 105-113.44(1) is consistent and harmonious with G.S. 105-113.45(e), which exempts base products, syrups, and other enumerated soft drink ingredients when used in the manufacture of bottled soft drinks which are otherwise subject to tax under the Act. It also comports with the statutory scheme for administering the bifurcated system of taxation which characterizes the Act. The effect of this scheme is to tax the sale or distribution of the soft drink itself when practical but tax the sale or distribution of the ingredients thereof when this would be impractical. The taxation of "soft drinks" sold "bottled" can most easily and precisely be accomplished by imposing a "crown tax" on each individual bottle and affixing the appropriate tax indicia. Therefore, base products and other defined ingredients used in the preparation of "bottled" soft drinks are not taxed. On the other hand, it would be impractical to levy and collect a tax on each open-cup soft drink sale. Accordingly, base products and other specified ingredients used to complete soft drinks intended for open-cup sales are taxed in lieu of the open-cup drink itself. Since these same soft drink ingredients are excluded from taxation when used in the manufacture of "bottled soft drinks" subject to the crown tax, G.S. 105-113.45(e), the clear implication is that sales of these ingredients are taxable only when intended for use in a soft drink which, if sold "bottled," would be subject to the tax.
In summary, then, we hold that by enactment of the Soft Drink Tax Act the Legislature intended to tax only those "soft drinks," including fruit juice drinks, to which coloring, artificial flavoring or preservative has been added, or which contain less than 35 percent of natural fruit juice. The Act imposes a crown tax on the sale of soft drinks when sold in bottles and upon the ingredients thereof when used to make the identical soft drink for sale in open cups. Unless a soft drink is subject to taxation if sold bottled, its ingredients cannot be taxed. Since natural orange juice is exempt from taxation when sold bottled, it follows that frozen concentrated orange juice, as an ingredient of natural orange juice, cannot be taxed under the Act.
Frozen concentrated orange juice is not a fruit juice drink; rather, it is merely one dehydrated form of natural orange juice and, however packaged and however sold, is exempt from taxation unless color, artificial flavoring or preservative has been added to it.
Accordingly, the tax paid by plaintiff under protest upon the sales of frozen concentrated orange juice herein involved was improperly assessed and as to said sum plaintiff is entitled to judgment.
In view of our resolution of the first question posed, we neither reach nor decide the constitutional question presented by this appeal.
*307 The judgment below is reversed and the case remanded to Wake Superior Court for entry of judgment in accordance with this opinion.
Reversed and remanded.