Court Opinion

ID: 9578972
Source: CourtListenerOpinion
Date Created: 2023-08-21 21:50:08.345493+00
Date Added: 2024-06-11T13:34:06.196220
License: Public Domain

Levin, J.
(concurring). The immunity from state taxation of imports under the United States Constitution "survives their arrival in this country and continues until they are sold, removed from the original package, or put to the use for which they are imported.” Hooven & Allison Co v Evatt, 324 US 652; 65 S Ct 870; 89 L Ed 1252 (1945).
We know from Hooven that commodities imported for use in manufacturing, like commodities imported for other uses, retain their immunity until they are
—"used” by the importer, per Chief Justice Marshall in Brown v Maryland, 25 US (12 Wheat) 419; 6 L Ed 678 (1827), or
—"put to the use for which they are imported,” per Chief Justice Stone in Hooven & Allison Co v Evatt, supra.
Youngstown Sheet & Tube Co v Bowers, 358 US 534; 79 S Ct 383; 3 L Ed 2d 490 (1959), distinguished Hooven on the basis that the imported *529commodities in the consolidated Youngstown cases had been "found to have been essential to current operational needs”, and had been "used”/"put to use”.
Youngstown does not, however, support the intimation in the opinion of the Court in this case that "all imports present on the taxing day” might be subject to taxation.1 Youngstown, while distinguishing Hooven, was decided within its framework and holding described in Youngstown as follows (p 542):
"In Hooven [citation omitted] it was held that goods imported for 'use’ share the same immunity as goods imported for 'sale,’ and that goods imported 'for manufacture [do not] iose their character as imports any sooner or more readily than imports for sale’ (id., at 667); but when [the imported goods are] used for the purpose for which they are imported, they cease to be imports and their tax exemption is at an end.’ Id., at 665.” (Brackets by the Court.)
The question then is how does one determine when goods imported for manufacture are "used for the purpose for which they are imported,” or, as the Youngstown Court elsewhere phrased the question: "Do the facts as stipulated and found in the cases before us, when considered in the light of applicable legal principles, show that these manufacturers have so acted upon the imported materials as to cause them to lose their distinctive character as 'imports’2 by irrevocably committing them, *530after their importation journeys have definitely ended, to 'use in manufacturing’ at the plant and point of final destination, and by 'entering’ and 'using’ them 'in manufacturing’ at that place?” (Emphasis by the Court.) Youngstown, supra, p 543.
I
The Detroit taxing authorities read the Youngstown case—at least for the purposes of this case— as subjecting Production’s inventory of imported steel to state taxation to the extent only of its "current operational needs.” Both the taxing authorities and Production have agreed, as stated in the brief filed by the taxing authorities, that " 'current operational needs’ are to be measured by the replenishment time of the steel in question.”3
The "replenishment time” test is derived from Denver v Denver Publishing Co, 153 Colo 539; 387 P2d 48 (1963), and was adopted by the Court of Appeals in Knight Newspapers, Inc v Detroit, 16 Mich App 438; 168 NW2d 318 (1969).4
*531Without the benefit of adversary presentation on the appropriateness of this test, the opinion of the Court declares that "[i]nsofar as Knight adopts '[t]he rule and formula used in the Denver Case’as the rule in Michigan, 16 Mich App 438, 442, it is disapproved and overruled.”
The Court so rejects the replenishment time test after explaining its reversal of the Court of Appeals’ decision on a basis neither briefed nor argued, nor mentioned in the decisions and opinions filed by the circuit and appeals courts.
The parties having agreed that the pertinent inquiry is Production’s "current operational needs” and that those needs are to be measured by the replenishment time test, the question before us, again as stated by the taxing authorities, is whether the taxing authorities have "a right to assess foreign steel inventory in the amount of 2 1/2 months’ usage based on a 2 1/2 month replenishment lead time from foreign suppliers” or whether Production is correct in contending that "only 1/2 month’s usage is necessary to satisfy current operational needs and only that amount is assessable, because on tax day Production could replenish steel from domestic sources within 1/2 month.”
Foreign and domestic steel are functionally ("so far as utility is concerned”), or at least the parties so stipulate, the same. Although Production was using foreign steel both during the 1/2 month *532replacement period (contended for by Production) and the 2-1/2 months period (contended for by the taxing authorities), it could have satisfied all its operational needs throughout the 2-1/2 months period with domestic steel having a replacement lead time of 1/2 month.5
The replenishment time test is a two-factor test: (i) time required to obtain additional supplies of the commodity, and (ii) quantity used during that period.
While the parties disagree on whether the applicable time is the time required to obtain additional supplies from foreign sources or from domestic sources, in their stipulation they have computed the quantity factor based on the actual amounts of foreign steel used after the tax day (December 31) during the 1/2 month and 2-1/2 months periods.
The parties, thus, are in apparent agreement that the term "current operational needs” refers not to the importer-manufacturer’s entire need for supplies of the commodity but rather to so much of his need as is filled with foreign supplies, and that the quantitative amount of his foreign supply needs is to be determined by his actual usage of foreign supplies during the relevant replacement time period.6
Turning to the time factor, both parties urge us to look at the "actual” time of replacement. Production contends that the actual time of replacement is the 1/2 month lead time required for *533acquiring the domestic supplies of steel Production was actually purchasing and receiving in the January-March period. The taxing authorities contend that the actual time of replacement is the time required to obtain a new supply from the foreign sources actually being used by the importer-manufacturer, in this case, by stipulation, 2-1/2 months.
We are persuaded that the taxing authorities have the better of the argument.
The agreed-upon inquiry is current operational needs. The agreed-upon test for determining current operational needs is replenishment time. The agreed-upon quantity factor to be used in applying that test is actual usage during the relevant replacement time of December 31 inventory acquired from foreign sources.
It seems more consonant with the concept of a test designed to measure current operational needs —by stipulation meaning the importer-manufacturer’s usage of foreign supplies during the relevant replacement period—to determine the time portion of the equation based on the time required to obtain replacement supplies from the foreign sources actually being used.
While Production might have covered with domestic steel its customer requirements during the 2-1/2 months agreed-upon time for acquiring new supplies of foreign steel, it chose, for whatever reasons, to meet those requirements with steel purchased abroad.
"Current operational needs”—assuming as the parties do that it is the relevant criterion—does not seek to measure the importer-manufacturer’s need for domestic supplies but rather the quantities of foreign supplies required to maintain the segment of his manufacturing operations he chooses to stoke with foreign supplies. Under the *534replenishment time test, if an importer-manufacturer meets his needs from domestic supplies during the relevant replacement time period, if he does not actually use his foreign inventories during that period, the quantity factor of the two-factor replenishment time test would be zero and, therefore, none of his foreign inventories would be subject to taxation. In such a case it would make no sense to allow the tax collector to substitute the manufacturer’s actual domestic usage on the ground that the manufacturer might have met his customer requirements out of his foreign inventories.
Similarly, we reason that it would be inconsistent with the function of the replenishment time test, as a measure of the quantity of foreign supplies used and time required to obtain replacement supplies, to multiply foreign inventory usage times a replacement time for supplies which are not actually used to displace foreign supplies in meeting customer requirements.
In Orr Felt & Blanket Co v Schneider, 3 Ohio St 2d 14, 24; 209 NE2d 150, 156; 32 Ohio Opinions 2d 13 (1965), the Ohio Supreme Court, faced with a similar question, said:
"[Although the evidence indicates that the taxpayer could have secured a new supply of imported grease wool from eastern importers within 30 days, the tax-; payer chose to import its own grease wool from foreign countries * * * .
"The taxpayer having made this choice, the rule applied to the taxpayer should be that the amount of grease wool removed from the bonded warehouse and in inventory which is required to meet 'current operational needs’ for the length of time it takes to secure an additional supply from the foreign source which the taxpayer has selected to supply its grease wool is taxable.” (Emphasis supplied.)
*535Production distinguishes this case on the ground that, in contrast with the taxpayer in the Ohio case, it was actually buying steel on the tax date from domestic sources. While that is true, it was not meeting its relevant operating needs with the domestic supplies so purchased. If it were, then the amount of the quantity factor would, to that extent, have been reduced.
If Production had met all customer requirements from domestic supplies, if domestic supplies replaced dependence on the December 31 inventory of foreign supplies, then, as of the end of the 1/2 month period Production would have us adopt, the quantity factor of the two-factor equation would be zero and Production would have achieved by its own method of operation what it seeks to accomplish by this action.
We conclude, subject to the agreed-upon computations set forth in the stipulation of the parties,. that the portion of Production’s December 31 inventory of foreign steel subject to taxation is the amount needed to cover Production’s actual usage of foreign steel in the 2-1/2 months agreed-upon time required to obtain new supplies of foreign steel.
II
This Court, without briefing or argument directed to the question of the propriety of the replenishment time test, rejects that test and derives its own which at once both begs the question and seems to leave the matter at large in the discretion of the tax assessor subject to the supervision of the State Tax Commission. This Court writes:
-■"A fair conclusion to be drawn from Youngstown is *536that the United States Supreme Court grants the states a reasonable amount of latitude in determining what 'current operational needs’ are once it is clear that the 'manufacturers have so acted upon the imported materials as to lose their distinctive character as "imports” ’. 358 US 534, 543.” (Emphasis supplied.)
This Coiirt thereby treats "current operational needs” as a concept separate from "so act[ing] upon the imported materials as to lose their distinctive character as 'imports’ ”. But the rationale of Youngstown was that because of the proven current operational needs of the importer-manufacturers, they would, on the facts, record and findings in the consolidated cases, be deemed to have so "acted upon” the imported materials.
The distinction which Chief Justice Marshall said exists and "must be marked as the cases arise”, Brown v Maryland, supra, p 441, ceases to exist as a perceptible rule of law insofar as commodities imported for use in manufacturing in Michigan are concerned if as soon as the commodty hits the dock it becomes, apparently as a matter of law, part of the "supply line”,7 and, ergo, "irrevocably committed to 'use in manufacturing’ at [the] plant” for which it is destined. Cf. Beall Pipe & Tank Corp v State Tax Commission, 254 Or 195; 458 P2d 420 (1969).
In Youngstown the Court distinguished Hooven on the ground that "these are not cases of the *537mere storage in a warehouse of imported materials intended for eventual use in manufacturing”. Clearly then a line must yet be drawn between mere storage for "eventual use” and "use”/"putting to use”/"acting upon”. The courts of other states have taken varying approaches in their line-drawing efforts, and the several approaches (see fn 4) are each arguably correct.
Sometimes it is difficult to evaluate the significance of statements and phrases in a lengthy opinion of the United States Supreme Court, whether they are merely descriptive or áre limiting or are intended to lay down a rule. We would reserve until a case where thé question is briefed and argued any attempt to explicate Youngstown or to generalize about where the line should be drawn.
Reasoning from one analogy to ánother can carry one into infinity. Merely because the Youngstown Court upheld the taxation of all the ores at Youngstown’s plant and said it could see no valid basis for distinguishing between the ores in stock bins containing one or two days’ supply located in close proximity to the furnaces (conceded by Youngstown to be subject to taxation) and ores in the ore yard piles a short distance further away (claimed not to be taxable), does not mean that the Court would hold to be taxable separately identifiable steel coils located, not at the plant but at the waterfront, coils perhaps part of an unbroken lot or order or, indeed, an unbroken shipment.
In Youngstown, the imported iron ore had been "commingled with other iron ore imported at a different time.” "[P]ortions of such iron ore [had] been removed for use in manufacturing.” (Emphasis supplied.) "[Indiscriminate portions of the *538whole” importation of veneers were actually being used. Thus, in a sense, in the consolidated cases dealt with in Youngstown, the larger "package”— the "whole”—had been broken. Similarly, see In re Asheville Citizens’ Time Publishing Co, 281 NC 210, 220; 188 SE2d 310, 316 (1972); Virtue Bros v Los Angeles County, 239 Cal App 2d 220, 231; 48 Cal Rptr 505 (1966).
Steel coils are not, like iron ore or lumber, a fungible mass (received in "bulk” or as "loose, individual pieces”), one piece indistinguishable from another. Steel coils, in contrast with ores or lumber or veneer, vary from one another in guage, width, length, alloy, other components, finishes and quality.
Of course, as the opinion of this Court emphasizes, the foreign steel was imported by Production "for use in manufacturing”, "to meet its estimated [manufacturing] requirements” at the plant. Youngstown, supra, p 546. That is true of every importation of supplies for manufacturing purposes; all commodities imported for use in manufacturing are imported to supply manufacturing needs and upon unloading, indeed even before unloading, are a part of the "supply line”.
The coils still warehoused near the dock, 14 miles from Production’s plant, had not "arrived at their destination”. Youngstown, supra, p 546.8 Pro-, duction did not concede, the circuit court, therefore, could not and did not find, that the imported steel was "essential to the operation” or "irrevoca*539bly committed to 'use in manufacturing’ at that plant and point of final destination” within the meaning of Youngstown, supra, pp 545-546.9 Production stipulated, rather, to try this case on certain agreed-upon facts and a narrow issue— replenishment time.
We would dispose of this case on the stipulated facts and issues which able counsel on both sides framed.
T. G. Kavanagh and M. S. Coleman, JJ., concurred with Levin, J.

 The opinion of the Court, in accordance with the stipulation of the parties, limits taxation in the year 1967 (see fn 9) as well as the year 1966 to 2-1/2 months’ usage.

 The phrase "so acts upon the imported materials as to lose their distinctive characteristics as 'imports’ ” is derived from words written by Chief Justice Marshall in Brown v Maryland, 25 US (12 Wheat) 419, 441; 6 L Ed 678 (1827): "so acted upon the thing imported, that it has become incorporated and mixed up with the mass of property in the country”. This concept- of "so acting upon” the import has been *530applied in both subsequent import for sale and import for use cases down through the latest United States Supreme Court decision, Youngstown, where the Court began its opinion by stating the "principal question presented” in those terms.

 The Court of Appeals stated the question as follows:
"Therefore the question we are called upon to decide is whether or not replenishment time for the application of 'current operational needs’ formula is to be measured by the replenishment time from foreign sources or by the actual replenishment time immediately after the tax date.” Production Steel Strip Corp v Detroit, 42 Mich App 698, 702; 202 NW2d 719, 721 (1972).

 The replenishment time test was also adopted and followed in Orr Felt & Blanket Co v Schneider, 3 Ohio St 2d 14; 209 NE2d 150 (1965); Beall Pipe & Tank Corp v State Tax Commission, 254 Or 195; 458 P2d 420 (1969); Emhart Corp v Town of West Hartford, 28 Conn Sup 134; 253 A2d 670 (1968).
Other courts have permitted taxation of the entire inventory without regard to the replenishment time where "indiscriminate portions *531of the whole” were used or were commingled with other supplies. Virtue Bros. v Los Angeles County, 239 Cal App 2d 220, 231; 48 Cal Rptr 505 (1966); In re Asheville Citizens-Time Publishing Co, 281 NC 210, 220; 188 SE2d 310, 316 (1972).
See, generally, Glander, A Practical Approach to the Tax Immunity of Imports for Use in Manufacturing, 18 Nat’l Tax J 328 (1965); Note, Imports for Sale v Imports for Manufacture, 24 La L Rev 909 (1964); Note, States May Tax Imports Held in Bonded Smelting and Refining Warehouses, 23 Vand L Rev 437 (1970).

 Indeed, Production’s argument might be extended to support the conclusion that none of the inventories of imported steel were subject to taxation since it is apparent that Production could have supplied from domestic steel on hand on the tax day all its needs during the first 1/2 of January as well as the balance of the 2-1/2 months period.

 The quantitative amount of foreign supply usage so determined would not be affected by the fact that the importer-manufacturer’s needs could be met with functually equivalent supplies of the commodity purchased domestically.

 The opinion of the Court states:
"The service of supply in Production Steel does not consist of ' "piles” in the "ore yards” to "stock bins” ’ exactly. But the flow of material from boat docks and surrounding warehouses to the factory curtilage and into the factory itself is certainly the same kind of manufacturing materials feeding process with which almost everyone in Michigan is generally familiar. So the supply line in Production Steel is strictly comparable to Youngstown.
"The aforementioned comparative analysis brings Production Steel within the Youngstown rule relative to losing the 'distinctive character of imports’, etc.”

 It appears that $974,070 of imported steel was located at Production’s plant on December 31, 1965. The value of imported steel found to he taxable by the assessors in 1966 was $1,053,000 or $79,000 more than the value of such steel located at the plant.
The stipulation states that "[o]n the tax date Production Steel Strip, Inc. had sufficient steel coils [imported or domestic or both?] at its plant on Sherwood for its needs for about two months.”

 The order of the State Tax Commission for tax year 1966 does state that "[t]he amount of inventory valued in the appraisal [of the commission’s staff] was determined by estimating that a 2-1/2 month usage was 'essential to current requirements.’ ”
It further appears from Production’s complaint in the circuit court for tax year 1967 that the "amounts so determined by the Assessors to have so lost its exemption was the entire amount of such imports and was not limited to two and one-half (2 1/2) months processing and shipment”.
The actions now before us, seeking a refund of taxes paid for tax years 1966 and 1967, were, however, tried on a stipulation of facts which does not concede the correctness of such determinations.