Armco Steel Corp. v. State Tax Commission

Brune, C. J., delivered the opinion of the Court. This is an appeal by the Armco Steel Corporation (Armco) from a final order of the Circuit Court of Baltimore City affirming a decision by the State Tax Commission which denied to Armco an exemption from a Baltimore City tax on certain raw materials which it used in its business for the year 1957. The exemption permitted by the City is limited to “ores and unrefined metals shipped into the City for processing or refining purposes, and metals derived therefrom in the hands of the refiner * * The lower court held that Armco is not a refiner under the exemption and that the exemption applies only to ores and unrefined metals owned by a nonresident and shipped into the city for refining or processing purposes and to the metals derived therefrom in the hands of the refiner. Armco contends that the process which it carries on in the city is a refining process and that there is no basis for limiting the exemption to those ores and unrefined metals owned by non-residents.

The appellees, the State Tax Commission and the Mayor and City Council of Baltimore (the City) argue that Armco is a manufacturer of stainless steel and not a refiner, that most of Armco’s raw materials are not ores .and unrefined metals in the popular sense and thus not covered by the exemption, and that the exemption applies only ³⁷ to those ores and unrefined metals owned by non-residents and the metals derived therefrom in the hands of the refiner. The tax involved in this case resulted from the repeal, with certain exceptions, of the Baltimore City Manufacturers’ exemptions. The Manufacturers’ Exemption is set out in Art. 37, Sec. 50 of the Baltimore City Code (1950 Ed.) and Ch. 82, Sec. 10 of the Laws of Maryland of 1918. (The latter concerns property annexed to the City in 1918).

Both provisions exempt from taxation all personal property used entirely or chiefly in manufacturing, including raw material on hand and manufactured products in the hands of the manufacturers. By Sections 1 and 2 of Ordinance 643, approved December 5, 1956, the City repealed Art. 37, Sec. 50 of the City Code and repealed and reenacted Ch. 82, Sec. 10 of the Laws of Maryland of 1918, leaving out the exemption proviso. Sections 3 and 4 of that Ordinance went on to provide: “SEC. 3. And be it further ordained, That the exemption from taxation for all ordinary municipal purposes of all personal property of every description, with certain exceptions, owned by any person, firm or corporation and used entirely or chiefly in connection with manufacturing in Baltimore City, including mechanical tools or implements, whether worked by hand or steam or other motive power, machinery, manufacturing apparatus or engines, raw material on hand, manufactured products in the hands of the manufacturer, bills receivable and business credits of every kind, due to the manufacturer, or goods manufactured in Baltimore City, is hereby revoked and declared null and void. “SEC. 4.

And be it further ordained, That beginning with the assessment and levying of taxes for the use of the Mayor and City Council of Baltimore for the year 1957 and thereafter, the assessed or assessable value of all personal property of every description used entirely or chiefly in connection with manufacturing in Baltimore City, including machinery and equipment used in the pasteurization ³⁸ and processing of milk, laundry machinery when employed or used in the business of laundering, mechanical tools or implements, whether worked by hand or steam or other motive power, machinery, manufacturing apparatus or engines, raw material on hand, manufactured products in the hands of the manufacturers, shall be taxed for all ordinary municipal purposes in the same manner and to the same extent as other personal property in Baltimore City is or hereafter may be taxed for all ordinary municipal purposes. Provided, however, that $15,000.00 of the assessed or assessable value of all personal property of every description used entirely or chiefly in connection with manufacturing in Baltimore City by any one particular person, partnership, corporation or other legal entity, including the machinery, equipment, tools, apparatus, engines, raw material on hand and manufactured products in the hands of the manufacturer, hereinabove mentioned, shall not be subject to such assessment and levying of taxes' but shall be exempt from assessment and taxation for all ordinary municipal purposes. And provided, further, that ores and unrefined metals shipped into the City for processing or refining purposes, and metals derived therefrom in the hands of the refiner, shall not be subject to such assessment and levying of taxes, but shall be exempt from assessment and taxation for all ordinary municipal purposes.” The validity of Ordinance 643 was upheld in Kimball-Tyler Co. v. Baltimore City, 214 Md. 86 , 133 A. 2d 433 . (The City later reversed this policy and reenacted Sec. 50 of Art. 37 of the City Code, the exemption to be reinstated in installments over a period of years.) Armco was assessed a total of $14,333,010 by the State Tax Commission on its manufactured products and raw materials for the year 1957.

Armco claims that $13,282,386 of this assessment is illegal because $3,458,661 of the assessment is on ores and unrefined metals shipped into the City for process ³⁹ ing or refining purposes and $9,823,725 of the assessment is on metals, in the hands of Armco as the refiner, derived from the above ores and unrefined metals. Armco appealed the assessment to the Circuit Court of Baltimore City. At this stage the City was permitted to intervene as an appellee. The Circuit Court upheld the assessment of the Commission and this appeal followed.

Armco is an Ohio corporation which has plants located in various parts of the United States. Its principal business is manufacturing steel. It has a plant located in Baltimore which is devoted exclusively to the manufacture of 74 grades of stainless steel. The stainless steel is produced in various sizes and shapes, but Armco does no fabricating and does not sell to consumers.

Armco ships part of the steel to its own plants elsewhere in the country, and sells the rest to fabricators and distributors. To produce this steel Armco imports into the city raw materials classified as scrap metal, ores, and unrefined ferro alloys. All of these imports are owned by Armco; it does not perform a refining service for others. Armco produces stainless steel under a process covered by several patents.

These patents cover the method of coating the furnaces in which the stainless steel is produced and for adding the desired chromium, ferro alloys and other metals to the heated stainless steel scrap. The process includes three separate stages. (The City calls the addition of ferro alloys between the second and third stages a separate stage and thus says the process contains four stages. The disagreement is merely one of description, not of substance.) The process includes an initial melting down stage, the melt down oxidation stage, in which the principal raw materials such as chrome ore, iron ore, high ferrochrome metal and stainless steel scrap in various proportions are melted down in an electric arc furnace at an extreme heat, forming a bath or pool of molten metal.

In addition to melting down the basic ingredients this heating also reduces the carbon content of the raw materials, the excess carbon passing off in the form of carbon dioxide gas. A certain amount of slag is also produced by this heating. In the next stage, the reduction stage, iron oxide and chromium oxide present in the slag are reduced in order to ⁴⁰ recover the metallic values in the form of iron and chromium which are in the slag. The reduction is accomplished by the addition of ferrochrome, ferrosilicon and lime.

At the end of this stage the slag is drawn off the top of the molten metal. Then certain ferro alloys are added to the remaining molten metal prior to or at the beginning of the finishing stage. At this point a finishing slag of chromium fluorspar and high grade silicon is put on top of the bath, the new slag being allowed to work on the heated metal for a period of time to allow the remaining undesirable impurities to be removed from the bath. Small amounts of other metals may be added at this stage to give the steel certain desired qualities.

The product of this process is stainless steel. The appellants maintain this process is a refining process, the appellees argue that because of the addition of foreign matter the end product is an alloy and thus is the result of a manufacturing process and not a refining process. The lower court found that when the Mayor and City Council used the words “processing”, “refining” and “refiner” in the exemption, they used them “in their usual and ordinary meaning, namely, ‘the reduction to a fine, unmixed or pure state.’ ” Following this definition the court held that Armco did not qualify as a refiner or processor under the Ordinance. It stated that any manufacturer processes or refines the raw materials employed in the manufacturing of its products, but that to construe the exemption to cover a process like that of Armco, which combines and mixes materials to produce an alloy, would frustrate rather than effectuate the legislative intent.

The usual rule in tax exemption cases is that the exemption is to be strictly construed, but it should not be so strictly construed as to defeat the intent of the enacting body. Suburban Propane Gas Corp. v. Tawes, 205 Md. 83 , 106 A. 2d 119 ; John McShain, Inc. v. Comptroller, 202 Md. 68, 95 A. 2d 473 ; Shaughnessy v. Linguistic Society of America, 198 Md. 446 , 84 A. 2d 68 ; Clarke v. Union Trust Co. of D. C., 192 Md. 127 , 63 A. 2d 635 . However, “strict construction does not require that an unreasonable or unusual meaning must be given to the words used in exemption statutes.” ⁴¹ State Tax Commission v. Whitehall Foundation, Inc., 214 Md. 316, 320 , 135 A. 2d 298 . The problem here is to discover the usual meaning of the words “processing” and “refining” and then to determine whether the operations of Armco qualify it to be included within the exemption.

The lower court adopted the definition of refining advanced by the appellees, i.e., “the reduction to a fine, unmixed or pure state.” This definition is the first one given in Webster’s New International Dictionary (Merriam-Webster, Unabridged 2d Ed., 1957). The court apparently thought that this definition, by its being placed first in a list of definitions, was the usual and ordinary meaning of the word and thus that definition which the Mayor and City Council had in mind when the Ordinance was adopted. The appellees argue that because this definition is that listed first in Webster, it is the fundamental definition which expresses the usual and ordinary meaning of the word. The error in this reasoning is that it attempts to place the use of the word “refine” in a vacuum without regard to the subject to which the Ordinance is directed.

The exemption was directed at refiners and processors of ores and other unrefined metals. In construing the language of a statute, the court must consider not only the literal or usual meaning of words, but their meaning and effect considered in the light of the nature of the