In the Matter of The Appeal of ASHEVILLE CITIZEN-TIMES PUBLISHING COMPANY from an action of the Buncombe County Board of Tax Supervision, sitting as the Board of Equalization and Review, denying the request for exemption from ad valorem taxation certain imported property owned by the appellant and located in Buncombe County as of January 1, 1970.
No. 109.Supreme Court of North Carolina.
May 10, 1972.*312 McGuire, Baley & Wood by Charles R. Worley, Asheville, for appellant Asheville Citizens-Times Publishing Co.
W. M. Styles, Asheville, for Bd. of Tax Supervision.
BRANCH, Justice.
The constitutional question here presented is when, and to what extent, Buncombe County may levy an ad valorem property tax upon newsprint imported by a taxpayer for use in its printing operation.
Art. I, § 10 [2] was inserted in the United States Constitution to prevent the coastal states, and other states through which imports must pass, from levying a tax on imports before they reach their destination so as to impede the free flow of goods between the states, and so as to prevent encroachment by the state upon taxing powers reserved exclusively to the national government. Brown v. Maryland, 12 Wheat. 419, 6 L. Ed. 678; Youngstown Sheet and Tube Co. v. Bowers, and United States Plywood Corporation v. City of Algoma, *313 358 U.S. 534, 79 S. Ct. 383, 3 L. Ed. 2d 490.
In Brown v. Maryland, supra, Chief Justice John Marshall, writing for the Court, held that the national government had exclusive power to tax the act of importation, and that a state could not tax an imported good while it remained the property of the importer "in his warehouse, in the original form or package in which it was imported." However, the Chief Justice emphasized that there was a point of time when imported goods must lose their immunity and become taxable by the states. In this connection he said: "It is sufficient for the present to say, generally, that when the importer has so acted upon the thing imported, that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the State; . . ."
Without defining just what constituted such act or conduct, the Chief Justice listed some of the acts which would cause loss of the import characteristic. Included in this list was the act of an importer in bringing goods into this country for "his own use" and here using them for the purposes for which they were imported.
The United States Supreme Court again discussed the effect of "use" by an importer in the case of Hooven & Allison Co. v. Evatt, 324 U.S. 652, 65 S. Ct. 870, 89 L. Ed. 2d 1252. There the court concluded that goods imported for "use" by the importer were subject to the same immunity as goods imported for sale, and the goods imported for "use" did not lose their character as imports more readily than did goods imported for sale. When the imported goods are merely in storage in the warehouse of the importer, the goods retain their character as imports, and, consequently, their immunity from state taxation. The court, however, recognized that when a manufacturer begins to use the imported goods in the manufacturing process, the goods lose their character as imports and their immunity from state taxation.
It was not until the United States Supreme Court decided the companion, landmark cases of Youngstown Sheet & Tube Co. v. Bowers, and United States Plywood Corporation v. City of Algoma, supra, that the court delineated the actual use by an importing manufacturer which served to remove the import character from a good.
In Youngstown, the stipulated facts show that imported iron ore was transported to the manufacturing plant and stockpiled with similar imported ore adjacent to the smelters. These stockpiles, segregated as to quality and point of origin, contained enough ore to meet smelting needs at the manufacturer's plant for approximately three months. Ore was removed periodically from these stockpiles and taken directly to the open hearth and blast furnances. The manufacturer kept a one-to-two days supply of ore available continuously at each furnace facility. As ore was removed from the large stockpiles, the stockpiles were replenished with imported ore. It was further stipulated that this ore had been imported for manufacturing and for the purpose of meeting estimated requirements at the plant; that the "importation journey definitely had ended; (and) that the ores were irrevocably committed to use in manufacturing at that plant and point of final destination; . . ."
The United States Plywood Corporation imported unfinished "green" lumber "in bulk" and veneers "in bundles" at its facilities. Upon delivery at its plant, the lumber was unloaded and carried to the company's storage yard, located "adjacent to its plant," where it was stacked so as to allow the air to circulate and dry the lumber. The lumber was then taken from the storage yard and placed in a kiln for drying, and the lumber was thereafter used in the manufacturing process. The veneers, imported from three countries, were received in bundles and kept in that form at the taxpayer's plant for use as needed in the *314 day-to-day operation of the plant. In the Plywood case the state court found as facts that the lumber and veneers had been imported for use in manufacturing at the Algoma plant; that upon arrival there the importation journey ended; that these materials were irrevocably committed to use in manufacturing at that plant; that these materials were "necessarily required to be kept on hand to meet (its) current operational needs"; and that these materials were actually being used at the plant to supply those needs. These findings were not attacked in the appeal to the United States Supreme Court.
In Youngstown the taxing authorities levied an ad valorem assessment against the full value of all the ore in the plant's stockpiles; in Plywood the authorities levied an assessment against only one-half the value of the imported materials located at the manufacturing plant. In affirming these levies, the United States Supreme Court held that the stipulated facts in Youngstown and the facts found by the court from sufficient evidence in Plywood showed that the manufacturers had "so acted upon the imported materials . . . for the purpose for which they were imported, that . . . they must be held to have then entered the manufacturing process."
The court held that the "original package" concept as applied to goods imported for the purpose of sale in the case of Brown v. Maryland, supra, did not exempt goods from taxation when such goods were imported for use in manufacturing and were in fact effectively subjected to such use before the original packaging was removed.
In discussing this holding, the court, in part, stated:
"The materials here in question were imported to supply, and were essential to supply, the manufacturer's current operating needs. When, after all phases of their importation had ended, they were put to that use and indiscriminate portions of the whole were actually being used to supply daily operating needs, they stood in the same relation to the State as like piles of domestic materials at the same place that were kept for use and used in the same way. The one was then as fully subject to taxation as the other. In those circumstances, the tax was not on `imports', nor was it a tax on the materials because they had been imported, but because at the time of the assessment they were being used, in every practical sense, for the purposes for which they had been imported. They were therefore subject to taxation just like domestic property that was kept at the same place in the same way for the same use. We cannot impute to the Framers of the Constitution a purpose to make such a discrimination in favor of materials imported from other countries as would result if we approved the views pressed upon us by the manufacturers. Compare May & Co. v. City of New Orleans, 178 U.S. [496] at page 509, 20 S.Ct. [976] at page 980 [44 L. Ed. 1165]."
The opinion in Youngstown Sheet and Tube Co. v. Bowers, supra, furnishes criteria for determining what imported goods are within the classification of "current operational needs" so as to lose their character as imports and their immunity from state taxation. The essence of these criteria may be stated as follows: When goods are needed, imported and irrevocably committed to supply and are actually being used to supply the daily requirements of a manufacturer, they are being used for "current operational needs."
Neither the size of the supply on hand nor the distance the materials are stored from the point of fabrication or consumption, determines whether a good is being used or merely stored. Hooven & Allison Co. v. Evatt, supra; Youngstown Sheet & Tube Co. v. Bowers, supra. The treatment of the imported goods by the importing manufacturer is the critical test.
*315 Thus, a supply of imported ore to meet its estimated requirements for a period of at least three months in the Youngstown case, and one-half of an unspecified supply of imported veneer in the Plywood case were held to be in use for the purposes for which they were imported, and, therefore, subject to taxation by the state. (We note that the one-half determination in the Plywood case was the decision of the local taxing authority and not of the United States Supreme Court. In reaching its decision the Supreme Court apparently did not consider the lapse between the time the manufacturer placed an order with the foreign supplier and the time the manufacturer received the goods.)
Appellant argues that "current operational needs" should be determined by multiplying the number of days necessary for the imported goods to be shipped from the place of origin to destination by the average daily requirement of such goods by the importer-manufacturer. In support of this contention appellant relies on Hooven & Allison Co. v. Evatt, supra, decided ten years prior to Youngstown Sheet & Tube Co. v. Bowers, supra. The later case specifically points out that Hooven & Allison Co. v. Evatt did not reach, but expressly reserved, the crucial question here presented. In that case it is stated:
"[I]t is unnecessary to decide whether, for purposes of the constitutional immunity, the presence of some fibers in the factory was so essential to current manufacturing requirements that they could be said to have entered the process of manufacture and hence were already put to the use for which they were imported before they were removed from the original packages."
Appellant relies heavily on the line of authority represented by City and County of Denver v. Denver Publishing Company, 153 Colo. 539, 387 P.2d 48. In that case the Board of Equalization of the City and County of Denver upheld the assessment of ad valorem taxes on all newsprint which taxpayer imported from Canada and held for storage in its warehouses and publishing plant. The facts show that taxpayer imported 99% of its newsprint and used three separate warehouse facilities to store its large newsprint demands. The Supreme Court of Colorado held that the crucial issue was the amount of newsprint required to meet "current operational needs." It adopted the trial court's holding that "current operational needs" is defined in terms of the 6-day period needed to fill an order for newsprint as multiplied by daily requirements. However, in so holding, the court stated:
"There is no rigid and inflexible rule which can be laid down to determine the `current operational needs' of a taxpayer. This is an area wherein the policy of the law dictates ad hoc determinations based on the facts presented in each particular case. The trial court in the instant case held that since it took six days for the taxpayer to replenish its supply of newsprint from Canada and since the taxpayer used 60 tons of newsprint per day, the amount necessary for `current operational needs' was 360 tons and that this amount was taxable even though all the newsprint remained in its original package until actually being made ready for the presses. We approve the formula in the instant case and cannot conclude that as a matter of law the court made an erroneous determination of the `current operational needs' of the taxpayer."
For other cases in this line of authority, see: Knight Newspapers, Inc. v. City of Detroit, 16 Mich.App. 438, 168 N.W.2d 318; Wheeling Steel Corp. v. Porterfield, 14 Ohio St. 2d 85, 236 N.E.2d 652; Republic Steel Corp. v. Porterfield, 14 Ohio St. 2d 101, 236 N.E.2d 661; Beall Pipe and Tank Corp. v. State Tax Comm., 254 Or. 195, 458 P.2d 420; Roseburg Lumber Co. v. State Tax Comm., 255 Or. 13, 463 P.2d 590; Emhart Corp. v. Town of West Hartford, 28 Conn. Super. Ct. 134, 253 A.2d 670.
Denver differs from Youngstown, Plywood, and instant case in that in Denver *316 the taxpayer's use of three large, storage warehouses indicates storage rather than use. However, we think that the primary reason for the different results in these cases lies in the fact that the local factfinding bodies found facts which compelled different conclusions. Obviously Denver and the other cases which reached like results recognized the desirability and practicality of retaining a broad discretion in the local fact-finding body. This is entirely consistent with the holdings in Youngstown and Plywood.
Our research discloses that none of the cases in the line of authority represented by Denver have been before the United States Supreme Court upon appeal; nor do we find that the United States Supreme Court has considered a petition for certiorari in any of these cases.
We find two recent decisions by the California Court of Appeals which reject the "time necessary for delivery" rule as adopted in Denver, and specifically apply the criteria as set forth in Youngstown and Plywood. Virtue Bros. v. County of Los Angeles, 239 Cal. App. 2d 220, 48 Cal. Rptr. 505, and American Smelting & Refining Co. v. County of Contra Costa, 271 Cal. App. 2d 437, 77 Cal. Rptr. 570. The United States Supreme Court denied taxpayer's petition for certiorari in Virtue Bros. v. County of Los Angeles, 385 U.S. 820, 87 S. Ct. 45, 17 L. Ed. 2d 58. In American Smelting & Refining Co. v. County of Contra Costa, the taxpayer appealed to the United States Supreme Court, and this appeal was dismissed for want of a substantial federal question. 396 U.S. 273, 90 S. Ct. 553, 24 L. Ed. 2d 462. Taxpayer's motion for a rehearing was denied by that same court. 397 U.S. 958, 90 S. Ct. 940, 25 L. Ed. 2d 144.
In instant case the imported newsprint had reached the end of its importation journey and had there been indiscriminately comingled with domestic newsprint. The uncontroverted statement of the taxpayer's general manager that, "inside our 14 O'Henry Avenue building and adjacent to our printing press area in that building, we have space for and maintain on hand the necessary quantity and sizes of newsprint for four to six days of our anticipated production needs from time to time," leads us to the inescapable conclusion that there was a continuous day-to-day use of the newsprint stored in the underground warehouse in connection with taxpayer's printing operation.
On 1 January 1970 (the taxable date) appellant had on hand approximately a four-to-six weeks supply of newsprint, of which 40.2612% was domestic newsprint. The domestic newsprint was unquestionably subject to the ad valorem tax assessed by the county, and it follows that the assessment on the entire supply as it affected the imported newsprint was nondiscriminatory.
The tax was not on imports. It was a nondiscriminatory tax on newsprint which had lost its character as an import because at the time of the assessment it was being used, in every practical sense, for the purpose for which it had been imported. The newsprint was, therefore, subject to taxation in the same manner as the domestic newsprint which was kept at the same place, in the same manner, and for the same use.
We have difficulty connecting the importation of the newsprint with the tax assessed on the newsprint. Certainly, assessment of the tax by the North Carolina authorities upon personal property which had been received and manufactured, and the finished product distributed in this state, could not possibly contravene the intent of the framers of the Constitution that free flow of goods between the states be not impeded by state taxation. The newsprint, imported and domestic, stored in taxpayer's underground warehouse was as much a *317 part of taxpayer's "manufacturing process" as was the four-to-six days' supply of newsprint stored adjacent to the printing press area.
We see no reason to construe the appropriate tax statutes and ordinances of this jurisdiction so as to require, as a matter of law rather than fact, that the term "current operational needs" be given a more restricted meaning than that set forth in Youngstown and Plywood.
The evidence in this case supports the facts found by the State Board of Assessment, and these findings support the conclusion of law entered by the reviewing judge of the Superior Court, "that a four to six weeks supply of newsprint paper. . . did on 1 January 1970 (the taxing date) constitute the current operational needs of the appellant taxpayer." This conclusion and the resulting affirmance of the decision of the State Board of Equalization and Review by the Judge of Superior Court is entirely in accord with the principles of law set forth in the cases of Youngstown and Plywood.
We conclude that the case of Youngstown Sheet & Tube Co. v. Bowers, supra, is controlling and that the four-to-six weeks supply of newsprint on hand on 1 January 1970 constituted taxpayer's current operational needs and was subject to the ad valorem taxes.
The "original package" doctrine has no application under the facts of this case, since on 1 January 1970 the newsprint was being used for the purposes for which taxpayer imported it. Hooven & Allison Co. v. Evatt, supra; Youngstown Sheet & Tube Co. v. Bowers, supra.
The judgment of Judge Harry L. Martin, entered in the Buncombe County Superior Court on 8 October 1971, is
Affirmed.