Opinion
3 Div. 622.
August 27, 1952. Rehearing Granted January 19, 1953.
Appeal from the Circuit Court of Montgomery County, in Equity, Eugene W. Carter, J.
Si Garrett, Atty. Gen., and Robt. Straub, Asst. Atty. Gen., for appellant.
Provisions exempting manufacturers from taxation are to be strictly construed against those claiming the exemption. State v. Tuscaloosa Cotton Seed Oil Co., 208 Ala. 610, 95 So. 52; Pullman-Standard Car Mfg. Co. v. State, 253 Ala. 638, 46 So.2d 500; Title Guarantee Loan Trust Co. v. Hamilton, 238 Ala. 602, 193 So. 107. Where there is nothing to indicate the contrary, words in a statute will be given the meaning which is generally accepted in popular every-day usage. Pullman-Standard Car Mfg. Co. v. State, supra; Ex parte Pepper, 185 Ala. 284, 64 So. 112; Hamilton v. City of Anniston, 248 Ala. 396, 27 So.2d 857; State v. Wertheimer Bag Co., 253 Ala. 124, 43 So.2d 824. Manufacture ordinarily and commonly denotes the process of transforming raw or finished materials by hand or machinery, and through human skill and knowledge, into something possessing a new nature and name and adapted to a new use. Commissioner, etc. v. Assessors of Boston, 321 Mass. 90, 71 N.E.2d 874. The mere use of mechanical devices is not sufficient to make a taxpayer a manufacturer or compounder of tangible personal property. Carter Oil Co. v. Blair, 256 Ala. 650, 57 So.2d 64; American Newspapers v. McCardell, 174 Md. 56, 197 A. 574, 116 A.L.R. 1108; City of Lexington v. Lexington Leader, 193 Ky. 107, 235 S.W. 31; State v. Crounse, 105 Neb. 672, 181 N.W. 562, 16 A.L.R. 533. Photography is a science or an art and the photographer is an artist rather than an artisan. Frankel v. German Tyrolean Alps Co., 121 Mo. App. 51, 97 S.W. 961; Story v. Walker, 79 Tenn. 515, 11 Lea 515, 47 Am.Rep. 305; New Orleans v. Robira, 42 La. Ann. 1098, 8 So. 402, 11 L.R.A. 141; Mullinnix v. State, 42 Tex.Crim. 526, 60 S.W. 768. Even if the science of photography is held to be manufacturing, the film was properly assessed. Tri-State Asphalt Corp. v. Glander, 152 Ohio St. 497, 90 N.E.2d 366; Union Portland Cement Co. v. State Tax Comm., Utah, 170 P.2d 164; E. C. Olsen Co. v. State Tax Comm., Utah, 168 P.2d 324.
Drayton N. Hamilton, Montgomery, and Jos. Van Derveer and Graham Van Derveer, Chattanooga, Tenn., for appellee.
Taxing statutes are construed strictly against the taxing power. Phenix City v. Ala. Power Co., 251 Ala. 403, 37 So.2d 515; Gotlieb v. Birmingham, 243 Ala. 579, 11 So.2d 363. Words of definition in statutes are to be given their usual meaning in connection with the purpose intended by their inclusion. 50 Am.Jur. 241, 252, §§ 247, 260; State v. Wertheimer Bag Co., 253 Ala. 124, 43 So.2d 824; Curry v. Ala. Power Co., 243 Ala. 53, 8 So.2d 521; Webster's New Int. Dict.; 2 Bouvier's Law Dict. 2086; 8 Words and Phrases, Compensation, 302; State v. Try-Me Bot. Co., 257 Ala. 128, 57 So.2d 537. The legislative intent of an act must be determined from the language of the entire act. May v. Head, 210 Ala. 112, 96 So. 869; Holt v. Long, 234 Ala. 369, 174 So. 759; Lone Star Cement Corp. v. State Tax Comm., 234 Ala. 465, 175 So. 399. The purpose of the act, Code 1940, Tit. 51, Art. 11, is to create a system of taxation by having a use tax integrated with the sales tax. Layne Central Co. v. Curry, 243 Ala. 165, 8 So.2d 839. Under the express definition of "wholesale sale" the purchases of appellee were wholesale sales and not subject to tax. State v. So. Kraft Corp., 243 Ala. 223, 8 So.2d 886. Photography, as engaged in by this taxpayer, is manufacturing. Long v. Roberts Son, 234 Ala. 570, 176 So. 213; State Tax Comm. v. Hopkins, 234 Ala. 556, 176 So. 210; State v. Advertiser Co., 257 Ala. 423, 59 So.2d 576. A long-time construction of a statute by the administrative officials of the taxing authority is persuasive and should be given favorable consideration by the courts, especially where such construction has stood unchallenged for a considerable time. Jones v. Johnson, 240 Ala. 357, 199 So. 539; Cole v. Gullatt, 241 Ala. 669, 4 So.2d 412; State v. Tuscaloosa Bldg. Loan Ass'n, 230 Ala. 476, 161 So. 530, 99 A.L.R. 1019.
The decree of the Circuit Court is as follows:
Finding of Facts
From a careful consideration of the record and the oral testimony of several expert witnesses testifying on behalf of both the Appellant and Appellee in this cause, I find the basic facts to be as follows:
Appellant is a corporation, duly organized and existing by virtue of the laws of the State of Tennessee and is duly qualified, and is doing business in the State of Alabama. That the business of the Appellant is that of photography. I find further that the Appellant's process and method of doing business is as follows:
Under the direct supervision of the Corporation in Chattanooga, Tennessee, an Advance Sales Unit, composed of from three to five Salesmen, will canvass or solicit orders within the various municipalities throughout the State of Alabama for photographs. All orders are accepted for future delivery, to be manufactured, processed and finished in Chattanooga, Tennessee. At the time an order is accepted, the customer is notified where and when to appear to have the "sitting" or "exposure" made. These "sittings" or "exposures" are usually made at the leading hotel within the municipality. An advance deposit of Fifty Cents (50¢) is collected at this time and the customer is given a duplicate of the order. The Corporation reserves the right to accept or reject any order accepted by its Salesman.
Subsequently, at the appointed time and place, a cameraman, also under the direct supervision of the Corporation, takes the "sitting" or "exposure". At this time, an additional deposit of Fifty Cents (50¢) is collected. These exposed negatives are then sent by the United States Mails to the Corporation's Plant in Chattanooga, Tennessee. There they are developed, processed and proofs manufactured. These proofs are then sent by the United States Mails to another representative, also employed by and under the direct supervision of the Corporation. The customer is notified by the United States Mails the day to select the proof and order any additional pictures desired. For the One Dollar ($1.00) deposit paid, the customer is to receive one 8" x 10" Size Unmounted Photograph. These orders are then sent by the United States Mails to the Corporation's Plant in Chattanooga, Tennessee where the finished photograph, or photographs, are finished and manufactured and mailed directly to the customer. Any balance due on the order is paid C. O. D.
All orders are taken for future delivery and mailed directly from the manufacturing or finishing Plant in Chattanooga, Tennessee to the customer in the State of Alabama. No part of the processing, developing, manufacturing, or finishing is carried on within the State of Alabama.
I further find that the manufacturing processes of photography are generally as follows:
A sheet or piece of emulsion-covered, unexposed film is inserted or placed in a camera. The object to be photographed is placed within the range of the lens. The opening of a "shutter", allowing light to be transmitted, then produces an image on the emulsion-covered film. This exposed film, when placed in a chemical developing solution then "fixed", results in a negative. This negative is then dried.
This piece or sheet of film is then placed next to a sensitized sheet of paper, commonly known as Proof Paper. Light is then transmitted through the negative to the sensitized material, resulting in a positive image commonly known as a "Proof".
A Proof is made from each negative and is shown for the customer. The customer then selects the proof, or proofs, and the same being returned to the Manufacturing Plant, aforesaid, is then matched with the negative.
These negatives are then placed in a printer where the following process takes place, to-wit:
Light is transmitted through the negative, then through a lens which transmits the image on a sensitized sheet, or piece, of emulsion-covered, unexposed paper. The sensitized material is then placed in a developing solution where it is agitated for approximately two minutes. After the material has been completely developed, it is placed in a "fixed bath" which makes the positive print permanent. It is then washed and dried.
I further find that the Appellant is a "manufacturer or compounder" of tangible personal property for resale as the quoted terms are used within the meaning of the Alabama Use Tax Law.
I further find that the film consumed and used in such manufacture enters into and becomes an ingredient and component part of said tangible personal property to-wit: the finished manufactured photograph or picture.
I further find that the purchase of this film by Appellant from its foreign supply is a "wholesale sale" as such term is used in the Alabama Use Tax Law.
Opinion
Subsection (d), Section 787, Title 51, Code of Alabama, 1940, defines the term "wholesale sale" or "sale at wholesale" as follows:
"The term 'wholesale sale' or 'sale at wholesale' means a sale of tangible personal property by wholesalers to licensed retail merchants, jobbers, dealers, or other wholesalers for resale and does not include a sale by wholesalers to users or consumers not for resale. The term 'wholesale sale' shall include a sale of tangible personal property or products (including iron ore) to a manufacturer or compounder which enters into and becomes an ingredient or component part of the tangible personal property or products which he manufactures or compounds for sale, and the furnished container and label thereof."
Webster's Dictionary defines the words "compound" and "manufacture", respectively, as follows:
Compound: "To put together, as elements, ingredients, or parts, in order to form a whole; to combine, mix, or unite * * * to form or make up, as a composite product, by combining different elements, ingredients, or parts;" etc.
Manufacture: "To make (wares, or other products) by hand, by machinery, or by other agency; * * * to produce by labor, esp., now, according to an organized plan and with division of labor, and usually with machinery. * * *"
The Court is of the opinion that appellant is a manufacturer or compounder as these terms are employed in Subsection (d), Section 787, Title 51, Code of Alabama 1940, as quoted above and further that the sale to the Appellant of the film is a wholesale sale since it enters into and becomes an ingredient or component part of the tangible personal property it manufactures, namely, the finished, manufactured photograph or picture.
Final Decree
This cause coming on to be heard before me, came the parties by their attorneys, and the cause was submitted upon the pleadings and the proof as noted by the Register, for final decree.
Upon consideration thereof, the Court is of the opinion and finds that Appellant, Olan Mills Incorporated of Tennessee, a corporation, is entitled to relief to the extent herein recited. It is therefore,
Ordered, Adjudged and Decreed by the Court that:
(1) The assessment by the Department of Revenue of the State of Alabama against Appellant for use tax, for the period of April 1, 1947 through March 31, 1950 based upon the film consumed and used by Appellant is illegal and void and invalid and said assessment as to such film be and the same hereby is set aside, vacated and held for naught.
This is an appeal by the State from a final decree of the circuit court of Montgomery County, in equity, vacating an assessment made by the Department of Revenue of Alabama against appellee taxpayer for use tax. The question for decision is whether the film used by appellee in making photographs or pictures is subject to a use tax or whether the film is nontaxable within the terms and definition of subdiv. (d), Sec. 787, Tit. 51, Code 1940.
The use tax was imposed by the legislature as a complement to the sales tax so that resident taxpayers in the state acquiring by purchase or otherwise goods and chattels at retail without the state might be subject to tax for the use and consumption of said articles within the state. State of Alabama v. Advertiser Co., 257 Ala. 423, 59 So.2d 576; Layne Central Co. v. Curry, 243 Ala. 165, 8 So.2d 839.
Tangible personal property purchased at wholesale is not subject to the tax. The trial court held that such was the status of the property under consideration, in consonance with the contention advanced by appellee. Such sales are thus defined by the subdivision of the Code section, supra:
"(d) The term 'wholesale sale' or 'sale at wholesale' means a sale of tangible personal property by wholesalers to licensed retail merchants, jobbers, dealers, or other wholesalers for resale and does not include a sale by wholesalers to users or consumers not for resale. The term 'wholesale sale' shall include a sale of tangible personal property or products (including iron ore) to a manufacturer or compounder which enters into and becomes an ingredient or component part of the tangible personal property or products which he manufactures or compounds for sale, and the furnished container and label thereof."
The question for decision is whether or not appellee is a "manufacturer or compounder" in the production or manufacture of pictures and if so, whether the film used in making the finished product which is sought to be taxed "enters into and becomes an ingredient or component part of the tangible personal property or products" appellee manufactures.
In holding to the affirmative of the question on a hearing orally before the court, the learned judge made a finding of facts and rendered an opinion illustrative of the decree, which will appear in the report of the case. We are in accord with that opinion and decree.
Our recent cases of State v. Advertiser Co., supra, and State v. Progressive Farmer Co., Ala.Sup., 60 So.2d 144, confirm the correctness of the decree. These cases hold that the publishing of a newspaper is compounding, processing and manufacturing within the terms of the use tax act and that printer's ink used in printing the newspaper and forming a substantial part of the assessment became "absorbed in and is an ingredient or component part of the paper itself" [59 So.2d 581] and was nontaxable. The opinion in the Advertiser case refers to many previous decisions which we think illustrate the soundness of that holding and point to the correctness of the decree in the instant case.
That these two cases, ubi supra, make it conclusive that the production of photographs in the manner stated constitutes manufacturing within the terms of the quoted provision of the statute is beyond question. The definition of manufacturing and processing given in the opinion of the court in the instant case is likewise apt. The Advertiser case, quoting from Curry v. Alabama Power Co., 243 Ala. 53, 8 So.2d 521, and Webster's New International Dictionary, appropriately defined the terms pertinent here as follows:
"(Manufacturing) 'Making of anything by hand or artifice, or the process of making anything by the art of reducing materials into a form fit for use, by the hand or by machinery, or the production of articles for use from raw or prepared materials, by giving such materials new forms, qualities, properties, or combinations, whether by hand labor or by machinery.'
"* * * Webster's New International Dictionary, * * * 'processing' * * *:
" '* * * d. to produce or copy by photo-mechanical methods; to develop, fix, wash and dry, or otherwise treat (an exposed film or plate).' "
Cases to the opposite effect cited by aplant, such as City of Lexington v. Lexington Leader Co., 193 Ky. 107, 235 S.W. 31, 33, holding that a publisher of a newspaper is not "engaged in manufacturing" within the tax statutes there construed cannot be considered of any force to a different conclusion here in the light of our own recent decisions. It is perhaps well to mention, as was mentioned in the Advertiser case, that we are dealing with a particular statute which is not identical with the statutes construed in the other cases cited by appellant. We think our cases point so clearly to the conclusion reached that we will not here attempt to rationalize a distinction.
Also that the film used in the production or manufacture of photographs became an ingredient or component part of the product manufactured is reasonably to be concluded from a consideration of the quoted section of the use tax act, just as printer's ink used in the printing of a newspaper was so construed in the Advertiser case, and as various chemicals entering into the manufacture of pulp and paper from sap pine was so construed in our case of State v. Southern Kraft Corp., 243 Ala. 223, 8 So.2d 886. Though the film, after having been developed into the negative, does not altogether lose its identity, its properties by the process described in the opinion of the trial court have entered into and become a component part of the finished product. It is thereafter worthless for any other use and and in our view comes within the quoted definition of a wholesale sale. The fact that the entire film did not enter into and become a component part of the finished product impresses us as of little moment. Undoubtedly the same was true of the printer's ink in the manufacture of the newspaper and the chemicals in the making of the pulp.
One other principle will be adverted to as persuasive to the result attained. That is, appellee has been transacting similar operations in this state for a period of some ten years with no effort having been made by appellant to exact payment of the tax. While such inaction on the part of the State is not conclusive against the assessment, such administrative construction must be looked upon as importing some favor toward the taxpayer. As was said in Jones v. Johnson, 240 Ala. 357, 361, 199 So. 539, 542:
"* * * the administrative construction given by the highest officials charged with the duty of administration of tax laws should be given favorable consideration by the courts especially if such construction has stood unchallenged for considerable time."
Appellant argues that subdiv. (d), Sec. 787, Title 51, is an exemption from the use tax act and therefore should be strictly construed against the taxpayer. The contention cannot be sustained. Subdiv. (d) provides for no exemption from the sales tax. That provision deals with coverage, not with exemptions. State v. Southern Kraft Corp., supra, 243 Ala. 223, 227, 8 So.2d 886. The provision exempting uses from the tax is Sec. 789 of the title. Hence the rule of construction called for is that the stated provision of the statute is to be construed strictly against the taxing power, with favor indulged toward the taxpayer. Phenix City v. Alabama Power Co., 251 Ala. 403, 37 So.2d 515; Gotlieb v. City of Birmingham, 243 Ala. 579, 11 So.2d 363.
So considered, the doubt, if one, is resolved in favor of the appellee.
We find no error in the decree.
Affirmed.
FOSTER, LAWSON, and STAKELY, JJ., concur.
On Rehearing
We see no occasion to pass on the question of whether appellee is a manufacturer or compounder. Conceding, without deciding, such to be the case, we do not think the evidence supports the finding that the film became an ingredient or component part of the finished product.
The evidence shows that after the films are exposed they are then developed by use of chemicals. This process results in producing what is termed a "negative," on which appears the image of the object which was before the camera when the film was exposed. Then comes what is termed the printing process, whereby the image from the negative is transferred to sensitized paper. Light, which is held above the negative, passes through it and causes the silver "halides" in the emulsion on the sensitized paper to change color, thereby producing a positive image on the paper from the negative. The sensitized paper is then treated chemically in order to bring out the image which has been placed thereon by means of the printing process. When so "printed" the sensitized paper is called the proof. None of the physical qualities of the negative remain in or on the sensitized paper. When the film is once exposed, it cannot be used for the purpose of placing thereon another image, but the negative as developed can be repeatedly used in the printing of the image which appears thereon.
The authorities cited in the original opinion are distinguishable on the facts from the instant case.
Even if it be conceded that appellee is a manufacturer or compounder and that the film becomes an ingredient or component part of the finished product, we hold that the judgment should be reversed.
In our opinion the provisions of subd. (d) of § 787, Title 51, Code 1940, have application only where the manufacturing or compounding is done in this state. A part of the tax included in the assessment here involved is on the use of films in this state by the exposure thereof, but where all other acts connected with the production of the photographs were performed in the State of Tennessee.
Application for rehearing granted, judgment of affirmance set aside, and judgment of the trial court reversed and one will be rendered here for the amount of the assessment made against appellee by the Department of Revenue of the State of Alabama.
LIVINGSTON, C. J., and BROWN and GOODWYN, JJ., concur.
FOSTER, J., is of the opinion that the appellee is a manufacturer or compounder and that the films enter into and become an ingredient or component part of the tangible personal property or products which appellee produces. He concurs in the reversal of the judgment of the trial court, however, on the ground that taxpayer is liable for use tax on those films used in this state but developed or otherwise processed in the State of Tennessee.
SIMPSON and STAKELY, JJ., adhere to the views expressed in the opinion prepared on original submission and therefore dissent.