Title: King Estate Winery, Inc. v. Dept. of Rev.

State: oregon

Issuer: Oregon Supreme Court

Document:

Filed:  October 15, 1999

IN THE SUPREME COURT OF THE STATE OF OREGON

KING ESTATE WINERY, INC.,
an Oregon corporation,

	Appellant,

	v.

DEPARTMENT OF REVENUE,
State of Oregon,

	Respondent.

(OTC 3939; SC S44757)

	Appeal from the Oregon Tax Court.*

	Argued and submitted November 2, 1998.

	Richard Baroway, of Garvey, Schubert & Barer, Portland,
argued the cause for appellant.  With him on the briefs was David
L. Canary.

	Joseph A. Laronge, Assistant Attorney General, Salem, argued
the cause for respondent.  With him on the brief were Hardy
Myers, Attorney General, and Douglas M. Adair, Assistant Attorney
General.

	Timothy R. Volpert and Benjamin G. Wolff, of Davis Wright
Tremaine, LLP, Portland, filed a brief on behalf of amicus curiae
Oregon Wine Growers' Association.

	Before Carson, Chief Justice, and Gillette, Van Hoomissen,
Durham, Leeson, and Riggs, Justices.**

	VAN HOOMISSEN, J.

	The judgment of the Tax Court is affirmed.

	*14 OTR 169 (1997).

	Riggs, J., dissented and filed an opinion.

	**Kulongoski, J., did not participate in the consideration
or decision of this case.

		VAN HOOMISSEN, J.

		This case is before the court on direct appeal from a
judgment of the Oregon Tax Court.  King Estate Winery, Inc.
(taxpayer) appeals the denial of a property tax exemption for
tangible personal property used in its winery, contending that
the property is exempt under ORS 307.400(2).  The Tax Court
disagreed and entered judgment for Department of Revenue (the
department).  King Estate Winery, Inc. v. Dept. of Rev., 14 OTR
169 (1997).  For the reasons that follow, we affirm the judgment
of the Tax Court. 

		We take the following undisputed facts from the Tax
Court's opinion:

		"King Estate Winery and King Estate Vineyards are
owned by Edward J. King, Jr., and managed by the same
officers and directors in an integrated operation. 
Grapes grown in the King Estate Vineyards and grapes
from surrounding vineyards are processed by the winery
into wine.  The vineyard and the winery are adjacent to
each other and located in an exclusive farm use (EFU)
zone in Lane County.

		"The winery building, containing approximately
110,000 square feet, houses a crush pad and equipment
used for stemming, crushing, fermenting, storing, and
bottling the wine.  There is also a laboratory for
analysis, a dining room, and guest facilities.  The
dining room and guest rooms, like the tasting room, are
used to entertain guests and clients to promote the
sale of the wine.

		"The tangible personal property in question falls
into different classes.  Class 6 property consists of
barrels, racks, rollers, bungs, staves, portable roto
dumps, fume hoods, hoses, fittings, pumps, valves,
tanks, seals, washers, and other moveable equipment
used to stem and crush the grapes, filter the juice,
and ferment and store the wine.  Class 9 property
consists of furniture and furnishings in the dining
room and guest rooms, including bookcases, tables,
china, silverware, and chairs.  Class 12/14 property
consists of computer equipment and related equipment
used for making wine, keeping fermentation records,
inventory control, sales, accounting, and bookkeeping. 
Class 15 property consists of rolling stock such as
fork lifts, scissor lifts, and an electric generator. 
Finally, there are materials and supplies constituting
both inventory and noninventory items."

King Estates Winery, 14 OTR at 170-71.

		The Lane County Department of Assessment and

Taxation assessed the subject property at its full real market
value for the 1994-95 tax year.  Taxpayer appealed to the
department.  Although taxpayer did not identify explicitly the
subsection of ORS 307.400 under which it claimed an exemption, we
understand taxpayer's argument to be that it was entitled to an
exemption under ORS 307.400(3)(c).  The department denied the
exemption.  Taxpayer appealed to the Tax Court and moved for
summary judgment.  The Tax Court denied the motion, concluding
that taxpayer's "machinery and equipment utilized in a winery is
not farm machinery and equipment and does not qualify for
exemption from property taxes under ORS 307.400."  King Estates
Winery, 14 OTR at 175.  The court thereafter entered judgment in
favor of the department, and taxpayer appealed to this court. 
ORS 305.445.  

		At issue is whether the exemption in ORS 307.400
applies to taxpayer's property used to process and sell wine. 
This appeal presents a question of law concerning the
interpretation and application of a statutory provision to
undisputed facts.  We review de novo.  ORS 305.445 (1995).  See 
Delta Air Lines v. Dept. of Rev., 328 Or 596, 603, ___ P2d ___
(1999) (de novo standard of review set out in ORS 305.445 (1995)
applies to cases filed in the Tax Court before September 1,
1997).

		Taxpayer contends that the Tax Court erred in entering
judgment in favor of the department.  Taxpayer argues that, under
ORS 307.400, which grants a personal property tax exemption for
farm equipment and machinery, ORS 215.203(2)(a), which defines 
"farm use" for land use purposes, and this court's decision in
Craven v. Jackson County, 308 Or 281, 779 P2d 1011 (1989),
taxpayer's machinery and equipment used in wine making operations
and wine sales qualify for exemption.  The department responds
that taxpayer's property does not fit the definition of
"inventory" under ORS 307.400 and, therefore, fails to qualify
for an exemption.  For the reasons that follow, we agree with the
department.

		ORS 307.400 provides in part:

		"(2) All inventory shall be exempt from ad valorem
taxation.

		"(3) As used in subsection (2) of this section,
'inventory' means the following tangible personal
property:

		"(a) Farm machinery and equipment used primarily
in the preparation of land, planting, raising,
cultivating, irrigating, harvesting or placing in
storage of farm crops; or

		"(b) Farm machinery and equipment used primarily
for the purpose of feeding, breeding, management and
sale of, or the produce of, livestock, poultry, fur-bearing 
animals or bees or for dairying and the sale of
dairy products; or

		"(c) Farm machinery and equipment used primarily
in any other agricultural or horticultural use or
animal husbandry or any combination thereof[.]"

The statute does not define the terms "farm machinery and
equipment" or "agricultural or horticultural use."

		We proceed to interpret the legislature's intent in
enacting ORS 307.400(3)(c).  ORS 174.020; see PGE v. Bureau of
Labor and Industries, 317 Or 606, 610-11, 859 P2d 1143 (1993)
(establishing template for determining legislative intent in
enacting statutes).  We analyze the text and context of ORS
307.400(3)(c).  See PGE, 317 Or at 610-11 (in determining
legislative intent, court examines statutory text and context,
which includes other provisions of statutes and related
statutes).  

		ORS 307.400 sets out several categories of tax
exemptions.  "All inventory" constitutes one of those categories. 
ORS 307.400(2).  As relevant, ORS 307.400(3)(c), under which
taxpayer seeks exemption, defines "inventory" as:  (1) tangible
personal property; (2) that is farm machinery and equipment; and
(3) that is used primarily in any other agricultural or
horticultural use.  The property at issue is "tangible personal
property."  The remaining elements are at issue in this case.
First, is tangible personal property that is used primarily to
make and sell wine "farm machinery and equipment?"  (Emphasis
added.)  Second, is the operation of a winery an "agricultural or
horticultural use?" 

		We begin with the text of ORS 307.400(3)(c).  No
provision in ORS 307.400 defines "farm machinery and equipment"
or "agricultural or horticultural use."  Therefore, we give those
words of common usage their plain, natural, and ordinary meaning. 
PGE, 317 Or at 611.  In this case, we first look to the
dictionary definition of "farm."

		The plain, natural, and ordinary meaning of the word
"farm" is "a piece of land held under lease for cultivation" or
"a plot of land devoted to the raising of domestic or other
animals."  Webster's Third New Int'l Dictionary, 824 (unabridged
ed 1993).  Based on the plain, natural, and ordinary meaning of
the word "farm," we infer generally that "farm machinery and
equipment" means machinery and equipment used to cultivate farm
land or to raise animals.  None of the tangible personal property
for which taxpayer seeks exemption is used to cultivate farm land
or to raise animals.  For example, taxpayer seeks exemption for
fermenting barrels, laboratory equipment, an armoire, a bed, a
candelabra, and a computer.  None of those items, or any other
items for which taxpayer seeks exemption, fit within the ordinary
meaning of "farm machinery and equipment," because they do not
involve cultivating farm land or raising animals.     

		We also consider the meaning of "farm machinery and
equipment" in the context of other provisions of ORS 307.400,
beginning with provisions of ORS 307.400 that use the word
"farm."  The only provisions of ORS 307.400 that use that word
are found in ORS 307.400(3).  We can infer legislative intent
with respect to the meaning of the word "farm" from the described
uses of "farm machinery and equipment" allowed under ORS
307.400(3).  

		Farm machinery and equipment is exempt from taxation
under ORS 307.400(3)(a) if it is used primarily in the natural
progression of crop cultivation:  "the preparation of land,
planting, raising, cultivating, irrigating, harvesting or placing
in storage of farm crops * * *."  That list of uses does not
include the processing of farm crops; neither does it include the
sale of farm crops or the sale of processed farm crops. 

		ORS 307.400(3)(b) also uses the term "farm."  ORS
307.400(3)(b) expands the plain, natural, and ordinary meaning of
"farm," based on the uses allowed for "feeding, breeding,
management and sale of, or the produce of, livestock, poultry,
fur-bearing animals or bees or for dairying and the sale of dairy
products[.]"  Thus, ORS 307.400(3)(b) allows an exemption for a
greater range of uses than just machinery and equipment used to
raise animals on land, because ORS 307.400(3)(b) allows the
exemption for farm machinery and equipment used primarily for the
"sale of, or the produce of" certain animals, and for "dairying
and the sale of dairy products."  However, despite the broader
range of uses allowed in ORS 307.400(3)(b), we are not persuaded
by that contextual fact alone that the legislature intended a
winery operation to be a "farm" for purposes of the exemption
allowed by ORS 307.400.  We note that ORS 307.400(3)(b) does not
pertain to crops but, instead, to animals and animal products. 
If the legislature had intended to exempt machinery and equipment
used to make and sell wine, such as fermenting barrels and
candelabras, it could have included a reference to the 
processing and selling of crops in ORS 307.400(3)(a) (which
refers to "farm crops" only).  Alternatively, the legislature
could have included grape processing or grape-product selling
(i.e., wine processing or wine selling) specifically in another
provision of ORS 307.400(5) (which exempts specific personal
property without use of the phrase "farm machinery and
equipment"). 

		In our effort to discern legislative intent in the
phrase "farm machinery and equipment," we broaden our contextual
scope and look to the other provisions of ORS 307.400.  All of
the exemptions in ORS 307.400, with the exception of those in ORS
307.400(3)(b) discussed above, correlate with the plain, natural,
and ordinary meaning of "farm," even those that do not use the
word "farm."  For example, ORS 307.400(1) exempts "[l]ivestock,
poultry, fur-bearing animals and bees."  ORS 307.400(5)(a)
exempts "[f]rost control systems used in agricultural or
horticultural activities carried on by the farmer."  ORS
307.400(5)(b) exempts "[t]rellises used for hops, beans or fruit
or for other agricultural or horticultural purposes."  ORS
307.400(5)(c) exempts "[h]op harvesting equipment, including but
not limited to, hop pickers."  ORS 307.400(5)(e) exempts
"[e]quipment used for the fresh shell egg industry that is
directly related and reasonably necessary to produce, prepare,
package and ship fresh shell eggs from the place of origin to
market * * *."  ORS 307.400(6) exempts particular equipment "used
in connection with the operation of the field burning smoke
management program" established by statute.  Finally, ORS
307.400(3)(d) uses the word "farm," exempting certain tools,
machinery and equipment used in the maintenance and operation of
"farm machinery, equipment and other real and personal farm
improvements" that, in turn, are used "primarily in the animal
husbandry, agricultural or horticultural activities * * *."  All
the aforementioned exemptions in ORS 307.400 pertain to
cultivating crops on land or to raising animals on land, which is
how a "farm" ordinarily is defined.  Thus, between the plain
meaning of the word farm and the contextual implications of ORS
307.400, we find no legislative intent to include machinery and
equipment used in fruit processing and fruit-product selling as
part of the definition of "farm machinery and equipment."

       	Despite the fact that the plain meaning of "farm" and
the contextual meaning of "farm" do not include a winery,
taxpayer argues that a winery meets the statutory definition of a
"farm."  Taxpayer reasons that land use statutes should
constitute part of the context of ORS 307.400, that the land use
statutes list a winery as a permissible use of land in an EFU
zone and, therefore, that the legislature intended a winery to be
a "farm" for tax exemption purposes.  

		In Craven, this court was asked to decide whether a
proposed winery and accompanying retail activity was a lawful
conditional use in an exclusive farm use zone.  The court stated:

		"When interpreting and applying the statutes in
effect at the time of [applicant's] application for a
[conditional use permit], a local land use agency or
LUBA could reasonably conclude, based on the statutes,
that a vineyard is farm use and that the winery and
tasting room are either farm use or commercial activity
in conjunction with farm use." 

Craven, 308 Or at 289.  The quoted passage is dictum that is not
supported by the facts in Craven.  Moreover, Craven was a land
use case, not a tax case.  Land use laws reflect different
policies than tax laws.  The special assessment statutes relating
to farm land specifically refer to ORS 215.203(2)(a) as the
source for the definition of "farm use."  ORS 307.400, the
personal property exemption statute at issue here, makes no
specific reference to a definition of "farm machinery and
equipment," neither does that statute refer to the definition of
"farm use" in ORS 215.203(2)(a).  We conclude that ORS
215.203(2)(a) and Craven have no application in determining
whether taxpayer qualifies for a tax exemption under ORS
307.400(3)(c).  Accordingly, taxpayer's reliance on Craven is
misplaced; Oregon land use laws are not relevant to a resolution
of the issue presented in this case.

		Taxpayer argues that, to satisfy the "agricultural or
horticultural use" element of ORS 307.400(3)(c), subparagraph (c)
(defining exempt inventory as "farm machinery and equipment used
primarily for any other agricultural or horticultural use")
indicates a legislative intent to combine the uses in
subparagraph (b) (farm machinery and equipment used to process
and to sell) with the subject matter in subparagraph (a) (crops). 
In other words, taxpayer asserts that the wording "any other
agricultural or horticultural use" in subparagraph (c) was
intended to liberate the specificity of subparagraphs (a) and
(b).  We disagree.

		As a matter of statutory interpretation, we are not
convinced that the legislature intended machinery and equipment
used in the operation of a winery to be "any other agricultural
or horticultural use," as required by ORS 307.400(3)(c). 
Taxpayer interprets subparagraph (c) as blending together the
uses and the subject matter listed in subparagraphs (a) and (b). 
However, such an interpretation would violate the rule that use
of a term in one section and not in another section of the same
statute indicates a purposeful omission.  See PGE, 317 Or at 611
(stating principle).  The use of the terms "sale," "produce,"
"products, or the produce of animals" and "dairying" in
subparagraph (b), which relates only to animals, and the absence
of those terms in subparagraph (a), which relates only to crops,
indicates that the legislature did not intend to exempt equipment
used for the processing of a crop into another product, or to
exempt equipment used for the sale of crop products, in either
subparagraph (a) or (c).  If the legislature had intended to
include machinery and equipment used to process fruit and to sell
the fruit product, it easily could have included those uses in
subparagraph (a), as it did in subparagraph (b) for dairy
products.  See Oregon Business Planning Council v. LCDC, 290 Or
741, 749, 626 P2d 350 (1981) ("Ordinarily, when the legislature
includes an express provision in one statute, but omits such a
provision in another statute, it may be inferred that such an
omission was deliberate.").  Taxpayer's interpretation of
subparagraph (c) as a "broad catchall provision" that was
intended to blend together subparagraphs (a) and (b) renders the
specificity that defines the scope of subparagraphs (a) and (b)
meaningless. 

		Besides the limited and specific uses allowed in ORS
307.400(3)(a) and (b), which indicate legislative intent not to
allow an exemption for the processing of crops, or for the sale
of processed crops, we conclude that the operation of a winery
does not constitute "agricultural or horticultural use," as
required by ORS 307.400(3)(c).  We are not persuaded that the
legislature intended the processing and sale of grapes to be an
"agricultural or horticultural use," based on the plain, natural,
and ordinary meanings of "agriculture" and "horticulture." 
"Horticulture" is defined as "the cultivation of an orchard,
garden, or nursery on a small or large scale:  the science and
art of growing fruits, vegetables, flowers or ornamental plants." 
Webster's New Third Int'l Dictionary, at 1093.  "Agriculture" is
defined as "the science or art of cultivating the soil,
harvesting crops, and raising livestock:  HUSBANDRY, FARMING[;]
the science or art of the production of plants and animals useful
to man and in varying degrees the preparation of these products
for man's use and their disposal."  Id. at 44.  Neither the
definition of "agriculture" nor the definition of "horticulture"
includes the processing of a crop into another product or the
sale of that product.  

		Although the dictionary definition of "agriculture" is
ambiguous due to the phrase "in varying degrees," we do not find
the dictionary definition of "agriculture" supportive of
taxpayer's assertion that the legislature intended equipment used
to operate a winery to be an "agricultural * * * use."  Rather,
we conclude that the dictionary definition of "agriculture" is
consistent both with the plain definition of a "farm" and with
the contextual meaning of a "farm," as discussed above. 

		Based on the text of ORS 307.400(3)(c) and the context
of other provisions of ORS 307.400, we conclude that tangible
personal property used to make wine and to sell wine is not
"[f]arm machinery and equipment used primarily in any other
agricultural or horticultural use" for tax exemption purposes
within the meaning of ORS 307.400(3)(c). 

		It follows that the Tax Court did not err in holding
that taxpayer's machinery and equipment utilized in its winery
are not farm machinery and equipment within the meaning of ORS
307.400, and, therefore, do not qualify for exemption from
property taxes under ORS 307.400.

		The judgment of the Tax Court is affirmed.	

	RIGGS, J.

	I respectfully dissent.  Although I agree with the
majority that neither Oregon's land use laws nor Craven v.
Jackson County, 308 Or 281, 779 P2d 1011 (1989), bears on the
resolution of this case, I disagree with the majority's
interpretation of ORS 307.400(3)(c). 

	ORS 307.400(3)(c) provides that "[f]arm machinery and
equipment used primarily in any other agricultural or
horticultural use * * * or any combination thereof" shall be
exempt from taxation.(1)  (Emphasis added.)  ORS 307.400(3)(a) and
(b), which contain categories of activities in which the farm
machinery and equipment used are exempt, must be considered when
interpreting the words "any other," as well as "farm machinery
and equipment" and "agricultural or horticultural use."  See PGE
v. Bureau of Labor and Industries, 317 Or 606, 611, 859 P2d 1143
(1993) (noting that in examining context of statutory provision,
courts must include other provisions of same statute); Vannatta
v. Keisling, 324 Or 514, 533, 931 P2d 770 (1997) ("Under the
doctrine of ejusdem generis, a nonspecific or general phrase that
appears at the end of a list of items in a statute is to be read
as referring only to other items of the same kind.").  

	The simple growing and harvesting of crops and the
simple raising and managing of animals are not the only
activities listed in ORS 307.400(3)(a) and (b).  ORS
307.400(3)(b) expressly lists "[f]arm machinery and equipment
used primarily * * * for dairying and the sale of dairy products"
as an exempt category.  (Emphasis added.)  The dictionary defines
"dairying" as "the business of conducting a dairy."  Webster's
Third New Int'l Dictionary, 570 (unabridged ed 1993).  "Dairy" is
defined in part as "the department of farming or of a farm that
is concerned with the production of milk, butter, and cheese." 
Id.  Thus, ORS 307.400(3)(b) exempts all farm machinery and
equipment used for processing raw milk.  The wording "the sale of
dairy products," as well as "[the] sale of, or the produce of,
livestock, poultry, fur-bearing animals or bees" in ORS
307.400(3)(b) exempts all farm machinery and equipment used in
the sale of and, in my view, the promotion of those items.    

	The majority attempts to limit the processing and
selling references in ORS 307.400(3)(b) to animals and animal
products.  The majority reasons that ORS 307.400(3)(a) (which the
majority finds is a more narrowly written statute) pertains to
crops, whereas ORS 307.400(3)(b) pertains to animals and animal
products.  Thus, the broader range of uses that the majority
views is allowed in ORS 307.400(3)(b) does not carry over to crop
uses under ORS 307.400(3)(c).(2)  Under that view, however, there
is little need for ORS 307.400(3)(c).

	In ORS 307.400(3)(b), the legislature included
equipment used in processing raw farm products and in the sale of
the end products as exempt property.  That cannot be ignored when
interpreting what farm machinery and equipment is exempt under
the phrase "any other agricultural or horticultural use * * * or
any combination thereof" in ORS 307.400(3)(c).  (Emphasis added.) 
By expressly including equipment used in processing and selling,
the legislature has indicated that such activities are "other
agricultural or horticultural" uses.  Processing milk into
cheese, in my mind, cannot be distinguished meaningfully from
processing grapes into wine.  Both activities involve taking a
raw farm product and converting it into a marketable good.  Both
activities definitionally and necessarily involve farm machinery
and equipment used for farming, processing, and selling farm
products.  Accordingly, ORS 307.400(3)(c) should be interpreted
to exempt the inventory used in producing, harvesting,
processing, and selling farm products if the taxpayer conducts
those activities on farm premises.

	There is, in my view, an equally compelling flaw in the
majority's interpretation.  The majority assumes without
discussion that "farm" modifies both "machinery" and "equipment"
in the phrase "farm machinery and equipment."  King Estate Winery
v. Dept. of Rev., ___ Or ___ (slip op at 5).  That is incorrect. 
The failure to insert the word "farm" before "equipment" evinces
a legislative intent for a broader exemption than the majority
contemplates.  See ORS 174.010 (providing that courts may not
insert what has been omitted from statute).  The exemption of
mere "equipment," unmodified by the word "farm," is consistent
with the statute's references to selling livestock and dairy
products, because equipment used in selling products would
include non-farm items, such as computers, cash registers, and,
perhaps, decorative items that are used to sell the farm products
on-site.  Because I believe that the plain reading of ORS
307.400(3) leads to the conclusion that the legislature did not
intend for "equipment" to be modified by "farm,"  I need not
inquire further.  See PGE, 317 Or at 611 (stating that further
inquiry is unnecessary when legislature's intent of statute is
clear from text and context).  If, on the other hand, my reading
of the statute creates an ambiguity, the majority's task is
incomplete.  It should consider legislative history to complete
its statutory analysis.  See id. at 611-12 (mandating
consideration of legislative history when interpreting ambiguous
statute).  

	The parties do not dispute that the ultimate purposes
of the equipment for which taxpayer seeks an exemption were to
process and to sell wine.  Nor do the parties dispute that the
taxpayer used that equipment on farm premises.  For the reasons
explained above, I would hold that, under these facts, the
equipment used in the wine making here is exempt from ad valorem
taxation under ORS 307.400(3)(c).  I therefore dissent.

1. 	The majority correctly notes that ORS 307.400 does not
define the terms "farm machinery and equipment" and "agricultural
or horticultural use."

2. 	The majority suggests that the legislature could
rewrite ORS 307.400 to include wine making and wine selling as 
specific exemptions, thus avoiding the problem at issue here.  Of
course that is true.  That another sort of legislative fix might
conceivably be available does little to inform the statutory
interpretation required in this case.