Gulf Oil Corp. v. Delaware County Board of Assessment Appeals

Opinion by

Judge Barry,

Appellant, Gulf Oil Corporation (Gulf), owns a ninety-seven acre crude oil tank farm in Darby Township, Delaware County. In 1982, the oil, which was received from ships, was placed in the tanks whose tax-ability is at issue. The oil contains water which must be removed for the refining process. When the water has been pumped, the oil is heated to control viscosity and agitated to standardize the mix for refining purposes. The oil is then delivered by pipeline under the Schuylkill Eiver to a refinery in Philadelphia where it is processed.

Gulf appealed an initial $310,000.00 assessment of the storage tanks to the Delaware County Board of Assessment Appeals (Board) which dismissed the appeal. Gulf then appealed to the Court of Common Pleas of Delaware County where the issues were the excludability of these oil tanks from taxation, the applicable ratio of assessed value to fair market value, the fair market value of the taxable property and the assessment for the 1982 tax year. It was the trial court’s view that the tanks were not subject to tax because of their direct role in the refining process. It concluded that the proper ratio was ten per cent and the fair market value of taxable property was $2,697,-500.00 based on evidence presented by the taxing authorities. The trial court, therefore, assessed the subject taxable property at $269,750.00 for 1982. Before us Gulf appeals the ratio determination and the taxing authorities (Darby Township, Southeast Delco School District and the County of Delaware) and the Board cross-appeal the exclusion of the tanks from taxation.

Gulf alleges error because the trial court admitted a summary of a ratio study and testimony based on the summary which was, it contends, inadmissible hearsay evidence. This summary was produced on a single computer printout sheet. Mr. John Deitch, the Board *344Chairman, testified that the study was initiated at his direction (6/28/83, R. p. 101) and carried out by the Data Processing Department of the Board (6/28/83, R. p. 104). He testified that the study w¡as based on 10,546 sales of real estate recorded in the Recorder of Deeds Office in Delaware County from July 1, 1980 to June 30, 1981 (6/28/83, R. p. 101), of which 3,701 sales were eliminated because they comprised sales that were not arm’s length transactions (6/28/83, R. p. 106). Mr. Deitch further stated that this information was placed into the computers by employees of the Board (6/28/83, R. p. 106); he was, however, unable to verify the technique by which the employees eliminated certain sales nor could he vouch for the underlying data used to compute the summary (6/28/83, R. pp. 108-114). Mr. Deitch apparently did not personally analyze the sales (6/28/83, R. pp. 108-114) and was unable to produce the data which supported the conclusions of the summary (6/28/83, R. pp. 109-111). In our view, the trial court erred by admitting the summary and allowing Mr. Deitch to testify on this subject.

We held in Appeal of Chartiers Valley School District, 67 Pa. Commonwealth Ct. 121, 447 A.2d 317 (1982), dismissed in 500 Pa. 341, 456 A.2d 986 (1983), that the trial court properly excluded from evidence the results of computer studies which allegedly demonstrated a lower assessment to market value ratio because the taxpayers ’ witnesses were not personally familiar with the data used and could not guarantee the accuracy of the information filed or trustworthiness of the individuals responsible for placing the data into the computers. The situation is similar here. Mr. Deitch had no personal knowledge concerning the compilation of the data, did not participate in programming the information for the computers, and did not vouch for the employees who gathered the data or who *345fed it into the computers. We conclude, therefore, that the trial court erred by admitting this hearsay evidence.

We, moreover, note that the elimination of such a large number (over 35%) of the actual real estate .sales transactions in the Board’s ratio study deprived it of significant evidential value. Chartiers Valley. Although evidence of every recent sale need not be produced by a taxpayer in a taxing district, Deitch Co. v. Board of Property Assessment, 417 Pa. 213, 209 A.2d 397 (1965), he must produce a sufficient number of sales to substantiate his contention. Appellees have failed to provide such information.

For these and other reasons we, furthermore, reject the contention of the appellees that the ratio study qualified as a hearsay exception because it was prepared in the ordinary course of business. The ratio study may indeed have been compiled by the Board for use in normal governmental functions, Chartiers Valley; however, it does not necessarily follow that the study qualifies as a business record exception to the hearsay rule. Section 2 of the Uniform Business Records Act (Act), 42 Pa. C. S. §6108(b) provides:

(b) General Rule. — A record of an act, condition or event shall, insofar as relevant, be competent evidence if the custodian or other qualified witness testified to its identity and the mode of its preparation, and if it was made in the regular course .of business a,t or near the time of the act, condition or event, and if, in the opinion of the tribunal, the sources of information, method and time of preparation were such as to justify its admission.

We believe that Mr. Deitch did not qualify as a witness able to testify concerning the preparation and maintenance of the ratio study so as to justify a presumption of trustworthiness in the .study. In re Indyk’s *346Estate, 488 Pa. 567, 413 A.2d 371 (1979). Because Mr. Beitck did not possess adequate knowledge of the ratio study, we conclude that it lacked credibility and legal sufficiency, Chartiers Valley; the case, therefore, should be remanded on this issue.

Appellees cross-appeal the trial court’s decision which excluded the oil tanks from taxation. They argue that the fair market value of the tanks should be included in the assessment because the assessment applied only to those tanks located in Darby Township and not to those located at the Philadelphia refinery and because the tanks were used for storage and not for direct use in the manufacturing process.

The .trial court determined that the tanks were used in the refining process to heat the oil, remove water from the crude and agitate the oil to effect a standard mix. It concluded that the tanks where an integral and direct part of the refining process and therefore not taxable. We agree.

Under Section 201 of the General County Assessment Law (Law), Act of May 22, 1933, P.L. 853, as amended, 72 P.S. §5020-201, machinery or equipment used as part of the manufactory process are not included as real estate for tax assessment purposes. A number of cases are instructive on this proposition. The Supreme Court held in Gulf Oil Corporation v. Philadelphia, 357 Pa. 101, 53 A.2d 250, that oil storage tanks in which physical 'and chemical processes necessary to the processing of the manufactured product take place are excluded from tax assessment as machinery. In United States Steel Corporation v. Board of Assessment and Revision of Taxes, 422 Pa. 463, 223 A.2d 92 (1966), the Supreme Court reviewed the real estate tax .assessments of a steel mill and concluded that although ore yard facilities were used incidentally or temporarily for storage, they were necessary and integral parts of the steel manufacturing process and *347thus not subject to taxation. It determined that the ore yards did not fall within the ambit of Jones and Laughlin Tax Assessment Case, 405 Pa. 421, 175 A.2d 856 (1961), which stated that “ [a] structure used for storage, for example, is part of the realty and -subject to the real estate taxation.” 405 Pa. at 431, 175 A.2d at 861.

In Gordon Lubricating Company v. Allegheny County Board of Property Assessment, Appeals and Review, 204 Pa. Superior Ct. 441, 205 A.2d 704 (1964), aff’d per curiam 418 Pa. 625, 211 A.2d 284 (1965), a ease which interpreted ‘Section 201 of the Law, the Superior Court reviewed the assessment of oil tanks and determined that oil tanks generally are not merely storage facilities but rather are an integral part of the manufacturing process, indispensable to the operation of the company’s business, and, therefore excluded from real estate assessment and taxation. It concluded that the Jones and Laughlin pronouncement regarding the exclusion of -storage tanks from taxation did not apply to the tanks of Gordon.

Our Court has also interpreted Section 201 of the Law in United States Steel v. Board of Revision of Tax and Appeals, 27 Pa. Commonwealth Ct. 422, 366 A.2d 637 (1976), where we examined the assessment of ammonia tanks and determined that the storage capabilities of the ammonia tanks were neither incidental or temporary -but rather were primarily for storage of ammonia. Under the criteria set forth in Jones and Laughlin and United States Steel Corporation, we concluded that the ammonia tanks were not used directly in manufacturing ammonia nor were they necessary and integral parts of the manufacturing process.

In the present case, the trial court accepted the testimony of Gulf’s expert, Mr. Jo-seph Patella, who testified regarding the use of the oil tanks (2/8/83, E. *348pp. 44-78). Clearly, the tanks are not storage facilities but rather are used to disengage water from the crude oil, heat the oil to retain a liquified rather than solidified state and homogenize the various crude oils to create a stable mixture. These steps, a three to five day process, are essential to refining the crude oil. We, therefore, concur with the trial court’s conclusion that the oil tanks are an integral and direct part of the refining process and thus are excluded from assessment and taxation.

Accordingly, we remand this case on the ratio issue and affirm the trial court order regarding the exclusion of the oil tanks.

Order

Now, March 22, 1985, the order of the Court of Common Pleas of Delaware 'County, entered June 30, 1983, at No. 81-19355, is vacated and the case remanded for further consideration of the issue of the ratio of assessed value to fair market value. That portion of the 'order regarding the excludability of the oil tanks is affirmed.

Jurisdiction relinquished.

Judge Williams, Jr., did not participate in the decision in this case.