Perdue, Inc. v. State Department of Assessments & Taxation

DIGGES, J., delivered the opinion of the Court. This case adds new monetary dimensions to that timeworn maxim “don’t count your chickens before they hatch” for here the validity of a $183,870.00 tax assessment hinges on the supposition that an egg is an egg and not a chicken. This dispute arose when the State Department of Assessment and Taxation, appellee, levied a tax against Perdue, Inc., appellant, on its average inventory of hatchery eggs during the year 1969. Appellant objected to this levy claiming statutory exemptions because these eggs are “poultry,” and the “raw materials of a manufacturer.” When the tax department made this assessment final, Perdue sought relief, though unsuccessfully, first from the Maryland Tax Court and later in the ²³¹ Circuit Court for Wicomico County.

It then appealed to this Court but to no avail for we conclude the assessment is proper. The testimony at the hearing in the Tax Court established that Perdue is a Maryland corporation operating principally in Wicomico County where it is engaged in the business of breeding and raising broiler chickens for sale to processing plants. Its completely integrated operation consists of all necessary steps in the breeding and raising cycle. This cycle begins with the purchase of breeder hens when they are day-old chicks.

For the next ten to twelve weeks, these chicks are raised on brooding farms which though privately owned work under contract for Perdue. The chicks are then placed on privately owned farms where they are reared for appellant. When the hens mature, and natural fertilization takes place, they begin to lay eggs which are gathered by the contract farmer and put in coolers, chilled to a temperature of 60-65 degrees, in order to arrest embryonic development. Usually within two or three days the eggs are delivered to Perdue’s hatcheries where they may remain chilled for a few more days before being placed in incubators.

Once there, the fertilized egg resumes its development and hatches in about three weeks. Perdue’s many hatcheries all contain a receiving room, an incubation area, and a dispatching room. Each incubator is a large box-type oven that accommodates about 60,000 eggs. They are designed to simulate the natural conditions necessary for hatching by controlling ventilation, humidity and maintaining the temperature at 99to 100 degrees.

On any given day there are about two and a half million eggs in incubation of which about 80% eventually hatch, producing 800,000 new chicks a week. 1 When the chicks are ready to hatch they, after pecking a hole, “kick their way out of the shell”, and are then sent to the dispatching room where they are put in boxes for shipment to contract growing farms. Here, as on the brooding and ²³² rearing farms, title to the poultry always remains with Perdue. The broilers are kept on the grower farms for eight or nine weeks until they weigh approximately four pounds and are then sold to processing plants to be prepared for the consumer market, eventually to end up adorning someone’s dinner table. We will first consider appellant’s contention that these eggs constitute poultry within the meaning of the Maryland Code (1957,1969 Repl.

Vol.) Art. 81, § 9 (38) which exempts “all poultry” from state, city, and county taxation. The parties agree that the chick, once it emerges from the egg, is exempt poultry. But, appellant analogizes this situation with fertilized eggs in various stages of embryonic development and argues that these are also exempt since they are living organisms. This analysis is premised on the belief that the ordinary meaning of the word poultry, as used in this statute, was intended by the Legislature to include appellant’s inventory of hatchery eggs.

Appellant requests in its brief that we read the exemption “all poultry” to embrace “all domestic birds in all their forms, [including eggs].” We decline the invitation to place such an unnatural construction on this statutory language. Before discussing the specific language employed here we must initially consider the general rules governing the construction of any tax exemption law. To determine the applicability of a legislative exemption to particular facts it is necessary to ascertain whether the language of the act clearly and unambiguously included the claimed items by words used in their ordinary and popularly understood meaning. A court cannot extend the scope of an exemption by giving to the language creating it a forced, strained, and unnatural construction.

Pressman v. Barnes, 209 Md. 544, 558 , 121 A. 2d 816 (1956); State Tax Comm. v. Block & Tile Co., 180 Md. 620 , 26 A. 2d 371 (1942). It is fundamental that statutory tax exemptions are strictly construed in favor of the taxing authority and ²³³ if any real doubt exists as to the propriety of an exemption that doubt must be resolved in favor of the State. In other words, “to doubt an exemption is to deny it.” Pan Am Sulphur v. State Dep’t, 251 Md. 620, 629 , 248 A. 2d 354 (1968) ; Macke Co. v. State Dep’t of Assessments and Taxation, 264 Md. 121 , 285 A. 2d 593 (1972). Suburban, etc. Gas Corp. v. Tawes, 205 Md. 83, 87 , 106 A. 2d 119 (1954) ; Pittman v. Housing Authority, 180 Md. 457, 460 , 25 A. 2d 466 (1942).

In addition the Legislature has explicitly stipulated in § 9 of Art. 81 that all exemptions are to be strictly construed. Furthermore, the State’s taxing prerogative is never presumed to be relinquished and the abandonment of this power must be proved by the party asserting the exemption. Std. Properties v. Emp.

Security Bd., 201 Md. 1, 8 , 92 A. 2d 459 (1952) ; Knights of Pythias v. Baltimore, 157 Md. 542, 549 , 146 A. 744 (1929) and cases cited therein. In order to benefit from the “all poultry” exemption of § 9 (38) Perdue must establish that the General Assembly intended the word poultry, in its popular, nonscientific or technical meaning, to include eggs before they hatch. We have digested many definitions of the word “poultry” and in none is an “egg” included within the boundaries of its meaning. On the contrary, eggs are normally considered to be a product of poultry.

An interpretation of the term poultry accepted by the parties here and adopted by the Maryland Tax Court is: “Domestic fowls, generally or collectively, reared for the table or for their eggs or feathers, as hens, ducks, geese and turkeys, specif., a number of domestic hens.” Funk & Wagnalls New Standard Dictionary of the English Language, Funk & Wagnalls Co. (1959). See also Webster’s Third New International Dictionary (1961); The Oxford English Dictionary — Vol ume VII, Oxford (1933). An egg according to Webster’s New International Dictionary (2d Ed. 1959) is: ²³⁴ “The oval or spheroidal reproductive body produced by birds and many reptiles, from which, after a period of incubation or development, the young hatches out; esp., in common usage, that of the domestic hen. . . .” These explanations make it clear that eggs and poultry are separate and distinct from each other. As popularly regarded, an egg is an egg regardless of embryonic development until hatched, at which time the newborn chick is poultry.

James P. Smith & Co. v. United States, 168 F. 462 (S.D.N.Y. 1909); Town of Wolcott v. Stickles, 85 Conn. 322 , 82 A. 572 (1912). If this exemption is to be expanded it cannot be accomplished by judicial fiat but instead must be achieved through legislation. 2 In a further effort to obtain an exemption Perdue relies on Armco Steel v. State Tax Comm., 221 Md. 33, 41 , 155 A. 2d 678 (1959) and uses the following language as its sword: “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 subject matter and the purposes to be accomplished. . . . When terms in a statute are used relating to trade or commerce, absent legislative intent to the contrary, the terms are presumed to be used in their trade or commercial meaning.” (Citations omitted.) Thus appellant says, in accepting arguendo that hatchery eggs are not poultry as the term is popularly used, the ²³⁵ exemption is directed at the poultry industry and must be viewed in its trade or commercial meaning which includes hatchery eggs. Any dependence on that case is misplaced.

The lesson of Armco is that only when the language or terminology used in a statute is unclear or ambiguous may the court construe its meaning by resorting to evidence of custom or usage in light of the legislative intent and purpose. Atlantic, Gulf v. Dep’t of Assess. & T., 252 Md. 173 , 249 A. 2d 180 (1969) ; Hunt v. Montgomery County, 248 Md. 403 , 237 A. 2d 35 (1968).