Armco Steel Corp. v. State Department of Assessments & Taxation

Prescott, J., delivered the opinion of the Court. Having successfully “bearded the lion” on two previous occasions 1 to the tune of some one million or more dollars, appellant makes its third bid to avert paying to Baltimore City ¹⁷² a tax on certain of its tangible personal property. The origin of this litigation occurred in December, 1956, when the Mayor and City Council (Mayor and Council), by Ordinance 643, repealed a tax exemption extended to certain personal property and raw materials of manufacturers. 2 Section 4 of the Ordinance continued the exemption in favor of “ores and unrefined metals shipped into the City for processing or refining purposes, and metals derived therefrom in the hands of the refiner * * The meaning of these terms as used in Section 4 is fully explained in Armco I. In April, 1958, the Mayor and Council adopted Ordinance 1340, which reinstated, by stages, the old general manufacturers’ exemption, and continued the full exemption in favor of “ores and unrefined metals” in practically the same, if not the same, language as that used in Section 4 of Ordinance 643. See Section 50 (e) of Ordinance 1340.

In Armco I, supra, we held that Armco qualified for full exemption under the terms of the ordinance. In December, 1959, twenty-four days after our decision in Armco I, the Mayor and Council ordained Ordinance 156. Sections 2 and 3 of that Ordinance, which would have applied retroactively to the years 1958 and 1959, were considered and found to be “ineffective” in Armco II. Section 4 of Ordinance 156, which became effective on January 1, 1960, repealed and reordained with amendments Section 50 (e) of Ordinance 1340 so as to read as follows: “Provided, further, that in the year 1960 and each year thereafter, ores and unrefined metals shipped into the City for refining by others than the owners thereof, and the metals derived therefrom, while the said ores and unrefined metals, and metals derived therefrom, are in the hands of the refiner, shall be exempt from assessment and taxation for all ordinary municipal purposes * * *.

The term ‘refining’ as used herein, means the reduction of ores and unrefined metals to a fine and pure state, unmixed and not alloyed with other metals or compounds.” ¹⁷³ Armco claimed an exemption under the above section for 1960 and 1961 (after 1961 the full exemption was restored) on its ores and scrap metals which were shipped into the City for manufacture of its various grades of stainless steel. The parties stipulated as to the assessed value of said ores and metals; that they were owned by Armco; that they were not reduced to a fine and pure state, unmixed and not alloyed with other metals or compounds; and that Armco’s operations in 1960 and 1961 were the same as those described by this Court in Armco I. The State Department of Assessments and Taxation (the successor of the State Tax Commission) denied Armco’s claim for exemption, and this denial was sustained by the Maryland Tax Court and the Baltimore City Court, Judge Prendergast presiding. Armco has again appealed. Judge Prendergast below quite accurately observed “the record is quite voluminous, including not only extensive testimony * * *, but innumerable exhibits * * (The record extract contains 546 pages; appellant’s brief 100 pages; appellees’ brief 110 pages; and appellant’s reply brief 30 pages.) He then stated the case could be determined by answering three questions, and proceeded to answer them.

Although the “questions presented” by the appellant are, in reality, merely different alleged reasons as to why certain provisions of Section 4 of Ordinance 156 are invalid and hence there is but one basic question to be answered (Are certain of the provisions of Section 4 invalid?), we shall consider the questions as presented by appellant and answer them. It should be noted at this time that Section 5 of Ordinance 156 provides that in case “it be judicially determined that any word, phrase, clause [etc.] * * * is invalid, the remaining provisions * * * shall not be affected thereby * * It is Armco’s aim to have the provisions in said Section 4 “by others than the owners thereof” and the definition of “refining” stricken down, and, if this be done, Armco claims that it is entitled to the exemption under the section as it now reads. We approach a determination of whether Section 4 is valid or invalid (other sections of the ordinance are not challenged), not from a consideration as to whether it is a classification or ¹⁷⁴ subclassification of property for the purposes of taxation, but from a consideration of what it really is. In its present form, Section 4 is no more and no less than a section of an ordinance which grants a total exemption from taxation “for all ordinary municipal purposes” to certain specified classes of property.

Even before the amendment of Article 15 of the Declaration of Rights in 1915, when it read “every other person [except paupers] * * * ought to contribute his proportion of public taxes for the support of government, according to his actual worth in real or personal property,” exemptions have been upheld when not constituting an arbitrary discrimination in favor of a particular person or class. Judge Alfred S. Niles, in his work “Maryland Constitutional Daw, at page 32, says concerning exemptions in Maryland: “This exception seems to be somewhat hard to maintain on principle, but as our court has said, the power of the legislature to grant such exemption ‘has been exercised from the origin of the government.’ ” When approached in the manner mentioned above, many of the alleged illusory and ephemeral constitutional objections to the section, like the Arabs, “silently steal away,” although the analogy between the tests to be applied in determining the validity of an exemption of property from taxation and a classification of property for the purpose of taxation is apparent. I and VI These questions may conveniently be considered together. Armco opens its attack against the validity of Section 4 by claiming the exemption provided for therein was an “ad hoc” and “tailored” one to grant relief to only one company, and this was done by a “special” ordinance instead of a general one as required by Section 6, subsection (33) (e) of the Baltimore City Charter.

The City answers by stating Section 4 was not adopted pursuant to Section 6, subsection (33) (e), but was adopted under the authority of subsection 33^2, and, in any event, it was not a “special” ordinance. The respective contentions are partially answered in Kimball-Tyler v. Balto. City, supra, 214 Md. 86 , wherein Judge Henderson, for the Court, said “The language [of subsection 33^] is sweeping and confers the power to tax to the same extent as ¹⁷⁵ the State and to modify or repeal existing or future exemptions, * * *. The mere fact that they are included in a subsection following § 33 is not controlling.

We must read both subsections together * * (We shall refer below to appellant’s claim relative to being in the same “branch of manufacturing industry” as the American Smelting & Refining Company [Asarco] as that phrase is used in subsection 33 [e].) The quotation from Kimball-Tyler, supra, that subsection 33j4 empowered the City “to tax to the same extent as the State and to modify or repeal existing or future exemptions,” and a reading of subsection 33}4 show of course, that the City has authority, under proper circumstances and within constitutional limitations, to grant exemptions, a fact that Armco does not deny. The Legislature may exempt any class of property from the payment of taxes where no constitutional provisions are violated. 3 Oursler v. Tawes, 178 Md. 471 ; Williams v. Mayor and City Council, 289 U.S. 36 . Of course, if an exemption is purely arbitrary or capricious, or made to depend upon considerations having no connection with the exemptee’s duties as a citizen and a taxpayer, and therefore bears no relation to State policy or public interest, it cannot stand against constitutional attack. Brown v. State, 177 Md. 321 .

Mr. Justice Cardozo in the Williams case, supra, wherein an exemption was attacked as being violative of the Equal Protection Clause of the Fourteenth Amendment and Article 15 of our Declaration of Rights, aptly stated the principle as follows: “The courts of Maryland hold that the rule of uniformity established by these provisions does not forbid the creation of reasonable exemptions in furtherance of the public good. * * * [citing cases] * * *. It does not even prohibit an exemption in favor of an individual as distinguished from one for the benefit of the members of a class. All that it exacts in respect of the narrower exemption is the presence of a relation, fairly discernible, between the good of the individual and the ¹⁷⁶ good of the community. There must be something more than an arbitrary preference of one among many. * * * “* * * The judicial function is exhausted with the discovery that the relation between means and end is not wholly vain and fanciful, an illusory pretense.

Within the field where men of reason may reasonably differ, the legislature must have its way. * * See also State Tax Commission v. Gales, 222 Md. 543 . And compare National Can Corp. v. State Tax Comm., 220 Md. 418 . We think these authorities correctly and sufficiently state the controlling law with reference to the point under consideration; hence it will be unnecessary to discuss other authorities cited. We proceed, therefore, to a consideration of the trial judge’s evaluation of the facts of the case, and a determination of whether they are sufficient to support his conclusion on the question.

In 1956 when the City repealed (or was considering the repeal of) the manufacturers’ exemption, there were numerous protests by the owners of plants in Baltimore. All protests were ineffective except that of Asarco. It was shown that Asarco was (and is) engaged in the business of refining copper ores to a commercially pure state, 4 and it does this for others who own the ore. Asarco and other concerns in the country make this their regular business, usually refining for miners who do not have refineries of their own, but ship the ore to the refineries (in the present case of Asarco to Baltimore) for refining purposes.

Operators of this kind are known as “toll refiners.” The record clearly established and the trial judge found that the profits normally realized by Asarco for each ton of ore refined for others was approximately $1.50. The trial judge further found (with ample evidence to support the finding) that without the exemption the tax on each ton would amount to about $9.00. (The same situation, relatively speaking, existed in December, 1959, the time of the enactment of the present Section 4.) Thus it was shown that Asarco would ¹⁷⁷ have to operate at a very substantial loss if its exemption were repealed (or its customers would certainly go elsewhere). The testimony showed that there were numerous other toll refiners, not subject to a tax for refining, some as close as northern Virginia and New Jersey, to which the customers of Asarco in Baltimore could resort for the refining of their ores.

(The evidence also shows that in 1960 Kennecott Refining Corporation opened a $30,000,000 plant in Anne Arundel County, where no personal property tax is imposed, for toll refining.) Asarco complained bitterly and stated it would have to close its Baltimore plant entirely and carry on its operations in a more favorable economic climate, if its exemption were not continued. This would have resulted in the loss of jobs for some 1000 to 1500 workers in Baltimore City, and the Mayor and Council, apparently, were aware of the unfortunate public consequences if this occurred. Arinco and the other protestants were unable to show a comparable economic result to them or probable damage to the public good if they were not exempted from the tax. In Section 1 (b) of the Ordinance, the City Council said that it had before it certain facts which showed that the failure to grant an exemption from taxation of ores and unrefined metals and metals derived therefrom (not owned by the refiner) in the hands of a refiner and where the function of the refiner was to reduce said ores and unrefined metals to a fine, unmixed and pure state without the addition of other metals or compounds “would impose an undue economic hardship on such refiner, and adversely affect Baltimore City, its residents and taxpayers, because any increased taxation” thereon would cause the owners to ship the ores and unrefined metals elsewhere for refining.

We think, and therefore hold, that the evidence supports this statement of the City Council; and the facts, as above stated, show that Section 4 meets the requirement that an exemption must be based upon “the presence of a relation, fairly discernible, between the good of the individual and the good of the community,” and not be merely “an arbitrary preference of one among many.” It is, therefore, a valid and duly enacted section within constitutional limitations. It will be noted that in this instance the exemption is not granted to an individual or a single ¹⁷⁸ corporation, but is granted to all refiners who are able to qualify therefor under the provisions of Section 4. It, therefore, did not go so far as Williams , where an exemption was granted to a specific public utility corporation. The above is a determination of the heart of the case; however appellant raises several questions, which we consider subsidiary in nature, which we shall answer.

First, we take up the objections specifically raised by appellant under question I. Section 6, subsection 33 of the Baltimore City Charter (Flack, 1949) provides, inter alia, that the City may, “by general ordinance,” whenever it shall seem expedient “for the encouragement of the growth and development of the manufacturing industry,” exempt from taxation certain specified property. And it further provides that any such exemption from taxes “shall apply to all persons, firms and corporations engaged in the branches