Case Title: Institutional Food House, Inc. v. Coble

Citation: 221 S.E.2d 297, 289 N.C. 123

Docket Number: 

State: north-carolina

Court: North Carolina Supreme Court

Date: 1976-01-29T00:00:00Z

Document:
221 S.E.2d 297 (1976) 289 N.C. 123 INSTITUTIONAL FOOD HOUSE, INC. v. J. Howard COBLE, Secretary of Revenue of the State of North Carolina. No. 71. Supreme Court of North Carolina. January 29, 1976. *302 Smith, Anderson, Blount & Mitchell by John H. Anderson and Michael E. Weddington, Raleigh, for plaintiff-appellant. Rufus L. Edmisten, Atty. Gen., and Myron C. Banks, Sp. Deputy Atty. Gen., Raleigh, for defendant-appellee. HUSKINS, Justice: This action presents two questions for decision. The first question is whether the sales of frozen concentrated orange juice herein involved are properly taxable under the provisions of the North Carolina Soft Drink Tax Act, G.S. 105-113.41 et seq. (1969). If this be so, the second question is whether said Act, on its face, or as interpreted and applied by the Secretary of Revenue to these sales, violates the equal protection of the laws guaranteed by Article I, Section 19 of the North Carolina Constitution and the Fourteenth Amendment to the United States Constitution. The North Carolina Soft Drink Tax Act provides, in pertinent part, as follows: The threshold question is whether the sales of frozen concentrated orange juice involved in this case are taxable events within the meaning of the Soft Drink Tax Act. The parties have stipulated, and the court has found, that the concentrate involved in these sales is taxable only if it is either a "base product" as that term is defined in G.S. 105-113.44(1), or a "soft drink syrup" as that term is defined in G.S. 105-113.44(18). The trial court heard the case upon stipulations, including the stipulated testimony of plaintiff's witness W. W. Brown, made findings of fact, and concluded as a matter of law that canned frozen concentrated orange juice is a soft drink "base product" as defined in G.S. 105-113.44(1) and therefore taxable. Plaintiff contests the propriety of this conclusion, and we turn to the rules of statutory construction for enlightenment on the question involved. In construing and interpreting the language of a statute we are guided by the primary rule of construction that the intent of the Legislature controls. Watson Industries, Inc. v. Shaw, Comr. of Revenue, 235 N.C. 203, 69 S.E.2d 505 (1952). If the language of a statute is clear and unambiguous, judicial construction is unnecessary and its plain and definite meaning controls. Davis v. North Carolina Granite Corp., 259 N.C. 672, 131 S.E.2d 335 (1963). But if the language is ambiguous and the meaning in doubt, judicial construction is required to ascertain the legislative intent. Underwood v. Howland, Comr. of Motor Vehicles, 274 N.C. 473, 164 S.E.2d 2 (1968); Young v. Whitehall Co., Inc., 229 N.C. 360, 49 S.E.2d 797 (1948); State v. Humphries, 210 N.C. 406, 186 S.E. 473 (1936). Where the meaning of a tax statute is doubtful, it is construed against the State and in favor of the taxpayer unless a contrary legislative intent appears. Colonial Pipeline Co. v. Clayton, Comr. of Revenue, 275 N.C. 215, 166 S.E.2d 671 (1969); Sabine v. Gill, Comr. of Revenue, 229 N.C. 599, 51 S.E.2d 1 (1948); Henderson v. Gill, Comr. of Revenue, 229 N.C. 313, 49 S.E.2d 754 (1948); State v. Campbell, 223 N.C. 828, 28 S.E.2d 499 (1944). "In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed must strongly against the government, and in favor of the citizen." Gould v. Gould, 245 U.S. 151, 38 S. Ct. 53, 62 L. Ed. 211 (1917). Conversely, a provision in a tax statute providing an exemption from the tax, otherwise imposed, is strictly construed against the taxpayer and in favor of the State. In re Clayton-Marcus Co., Inc., 286 N.C. 215, 210 S.E.2d 199 (1974); Distributors v. Shaw, Comr. of Revenue, 247 N.C. 157, 100 S.E.2d 334 (1957); Henderson v. Gill, Comr. of Revenue, supra. Nevertheless, if the intent of the Legislature is discernible from the statute it will prevail regardless of the rule of strict construction against exemptions. Acheson v. Johnson, State Tax Assessor, 147 Me. 275, 86 A.2d 628 (1952). *305 In the absence of a clear indication to the contrary, words in a statute must be given their ordinary meaning unless they have acquired a technical significance. Duke Power Co. v. Clayton, Comr. of Revenue, 274 N.C. 505, 164 S.E.2d 289 (1968); Bleacheries, Inc. v. Johnson, Comr. of Revenue, 266 N.C. 692, 147 S.E.2d 177 (1966). If the statute itself contains a definition of a word used therein, that definition controls and courts must construe the statute as if the definition had been used in lieu of the word. If the words of the definition itself are ambiguous, they must be construed pursuant to the general rules of statutory construction. In re Clayton-Marcus Co., Inc., supra. This brings us to the task of applying these rules of statutory construction to the statutes involved in the controversy before us. The Soft Drink Tax Act establishes a bifurcated scheme of taxation whereby (1) "bottled soft drinks" not otherwise exempt are subjected to a "crown tax" levied upon the sale of each individual bottle of "soft drink," G.S. 105-113.45(b); and (2) "base products," "soft drink syrups," "soft drink powders" and "simple syrups," ingredients used to make "open-cup soft drinks," are subjected to a tax levied upon the sale of individual units of each. G.S. 105-113.45(c) and (d). Since the ingredients used to make "open-cup soft drinks" are taxed, there is no provision in the Act for taxing the "open-cup" (as opposed to "bottled") sales of any soft drink. However, the tax is not levied upon syrups, powders and base products which are used to prepare a bottled soft drink which is itself subject to tax under the Soft Drink Tax Act. G.S. 105-113.45(e). Similarly exempt from taxation are those "bottled soft drinks" which contain 35 percent or more of natural fruit juice, provided no coloring, artificial flavoring or preservative has been added. G.S. 105-113.47(a). Did the Legislature intend, by this statutory scheme, to treat frozen concentrated orange juice as either a "base product" or a "soft drink syrup" and impose the soft drink excise tax upon it? For the reasons which follow, the answer is no. Neither the sale of natural orange juice nor the sale of bottled fruit juice drinks containing 35 percent or more of natural orange juice is a taxable event under the Act. G.S. 105-113.44(9); G.S. 105-113.47(a). Nor does the tax apply to "base products used by persons in the manufacture of bottled soft drinks which are otherwise subject to tax under this Article." G.S. 105-113.45(e). In light of these statutory provisions, defendant stipulated, and the trial court found as a fact, that sales of natural fruit juice, including liquids resulting from the reconstitution of concentrated orange juice by the restoration of water, are exempt from the tax "whether or not such natural fruit juices are sold for `commercial' or `domestic' use." This leads us to conclude that when the Soft Drink Tax Act is read aright and considered as a composite whole, the Legislature intended to exclude from taxation the sale of all natural fruit juices, however packaged. Taxation of frozen concentrated orange juice as a "base product" is contrary to such intent and largely nullifies the exemption contained in G.S. 105-113.47(a). We think the Legislature did not intend such an incongruous result. Where possible, "the language of a statute will be interpreted so as to avoid an absurd consequence." Hobbs v. Moore County, 267 N.C. 665, 149 S.E.2d 1 (1966); Young v. Whitehall Co., Inc., supra. The definition of "base product" contained in G.S. 105-113.44(1) "may not be lifted out of its context so as to universalize its meaning. A word or phrase or clause or sentence may vary greatly in color and meaning according to the circumstances of its use. . . . It is axiomatic, therefore, that a provision in a statute must be construed as a part of the composite whole and must be accorded only that meaning which other modifying provisions and the clear intent and purpose of the act will permit. Its meaning must sound a harmoniousnot *306 a discordantnote in the general tenor of the law." Watson Industries, Inc. v. Shaw, Comr. of Revenue, supra. This is particularly true here in light of the settled rule that tax statutes shall be strictly construed against the State, while the converse rule as to tax exemptions must yield in the face of a legislative intent to the contrary. See Acheson v. Johnson, State Tax Assessor, supra; In re Clayton-Marcus Co., Inc., supra. Thus the definition of "base product" contained in G.S. 105-113.44(1) must be construed in the broad context of the Act as a whole, giving effect, as we must, to the necessary implications arising from the fact that natural orange juice, including reconstituted frozen concentrated orange juice, is expressly excluded from taxation under the Act. G.S. 105-113.44(9); G.S. 105-113.45(e); G.S. 105-113.47(a). See the stipulation of the parties embodied verbatim as Finding of Fact No. 8. So construed, we hold that the term "base product" refers to a product which is used to complete a drink not specifically exempted from the Act. Stated differently, "base products" are taxable as such only when used to complete a soft drink which, if sold bottled, would be subject to the tax. This interpretation of G.S. 105-113.44(1) is consistent and harmonious with G.S. 105-113.45(e), which exempts base products, syrups, and other enumerated soft drink ingredients when used in the manufacture of bottled soft drinks which are otherwise subject to tax under the Act. It also comports with the statutory scheme for administering the bifurcated system of taxation which characterizes the Act. The effect of this scheme is to tax the sale or distribution of the soft drink itself when practical but tax the sale or distribution of the ingredients thereof when this would be impractical. The taxation of "soft drinks" sold "bottled" can most easily and precisely be accomplished by imposing a "crown tax" on each individual bottle and affixing the appropriate tax indicia. Therefore, base products and other defined ingredients used in the preparation of "bottled" soft drinks are not taxed. On the other hand, it would be impractical to levy and collect a tax on each open-cup soft drink sale. Accordingly, base products and other specified ingredients used to complete soft drinks intended for open-cup sales are taxed in lieu of the open-cup drink itself. Since these same soft drink ingredients are excluded from taxation when used in the manufacture of "bottled soft drinks" subject to the crown tax, G.S. 105-113.45(e), the clear implication is that sales of these ingredients are taxable only when intended for use in a soft drink which, if sold "bottled," would be subject to the tax. In summary, then, we hold that by enactment of the Soft Drink Tax Act the Legislature intended to tax only those "soft drinks," including fruit juice drinks, to which coloring, artificial flavoring or preservative has been added, or which contain less than 35 percent of natural fruit juice. The Act imposes a crown tax on the sale of soft drinks when sold in bottles and upon the ingredients thereof when used to make the identical soft drink for sale in open cups. Unless a soft drink is subject to taxation if sold bottled, its ingredients cannot be taxed. Since natural orange juice is exempt from taxation when sold bottled, it follows that frozen concentrated orange juice, as an ingredient of natural orange juice, cannot be taxed under the Act. Frozen concentrated orange juice is not a fruit juice drink; rather, it is merely one dehydrated form of natural orange juice and, however packaged and however sold, is exempt from taxation unless color, artificial flavoring or preservative has been added to it. Accordingly, the tax paid by plaintiff under protest upon the sales of frozen concentrated orange juice herein involved was improperly assessed and as to said sum plaintiff is entitled to judgment. In view of our resolution of the first question posed, we neither reach nor decide the constitutional question presented by this appeal. *307 The judgment below is reversed and the case remanded to Wake Superior Court for entry of judgment in accordance with this opinion. Reversed and remanded.