Court Opinion

ID: 6477031
Source: CourtListenerOpinion
Date Created: 2022-06-26 22:43:46.552184+00
Date Added: 2024-06-11T15:54:00.058187
License: Public Domain

EUBANK, Judge,
dissenting.
I dissent. In my opinion the taxpayers are not exempt from taxes under either Art. IX, § 2 or Art. IX, § 13 of the Arizona Constitution, 1 A.R.S.
ARTICLE IX, § 2
It is necessary to determine the intention of the electorate when they amended Art. *312IX, § 2 by Initiative Petition # 102 at the General Election held on November 3, 1964. Their intent is construed at the time of the enactment, Bushnell v. Superior Court, 102 Ariz. 309, 428 P.2d 987 (1967), and subsequent changes in the law or conditions should not be considered. Maricopa County Municipal Water Conservation District No. 1 v. Southwest Cotton Co., 39 Ariz. 65, 77, 4 P.2d 369, 374 (1931), modified, 39 Ariz. 367, 7 P.2d 254 (1932).
The Publicity Pamphlet 1964, published by the Secretary of State pursuant to A.R.S. §§ 19-123, 124, contains the following information:
1. THE TITLE:
PROPOSING AN AMENDMENT TO THE CONSTITUTION OF ARIZONA RELATING TO TAXATION AND EXEMPTIONS FROM TAXATION; PROVIDING THAT INVENTORIES SHALL BE EXEMPT FROM TAXATION; AMENDING ARTICLE IX, SECTION 2 OF THE CONSTITUTION OF ARIZONA.
2. THE CONTEXT:
Section 2. TAX EXEMPTIONS. There shall be exempt from taxation all federal, state, county and municipal property. Property of educational, charitable and religious associations or institutions not used or held for profit may be exempt from taxation by law. Public debts, as evidenced by the bonds of Arizona, its counties, municipalities, or other subdivisions, shall also be exempt from taxation. STOCKS OF RAW OR FINISHED MATERIALS, UNASSEMBLED PARTS, WORK IN PROCESS OR FINISHED PRODUCTS CONSTITUTING THE INVENTORY OF A RETAILER OR WHOLESALER LOCATED WITHIN THE STATE AND PRINCIPALLY ENGAGED IN THE RESALE OF SUCH MATERIALS, PARTS OR PRODUCTS, WHETHER OR NOT FOR RESALE TO THE ULTIMATE CONSUMER SHALL BE EXEMPT FROM TAXATION. There shall be further exempt from taxation the property of widows, honorably discharged soldiers, sailors, United States marines, members of revenue marine service, nurse corps, or of the components of auxiliaries of any thereof, residents of this state, not exceeding the amount of two thousand dollars, where the total assessment of such widow and such other persons named herein does not exceed $5,000.00; provided, that no such exemption shall be made for such persons other than widows unless they shall have served at least sixty days in the military or naval service of the United States during time of war, and shall have been residents of this state prior to September 1, 1945. All property in the state not exempt under the laws of the United States or under this constitution, or exempt by law under the provisions of this section shall be subject to taxation to be ascertained as provided by law. This section shall be self-executing.
3. THE ONLY PUBLISHED ARGUMENT:
If you want greater security for present workers, greater industrial growth, more jobs for Arizona people and higher wages in Arizona vote “Yes” on initiative # 102.
Initiative # 102 is designed solely and simply to eliminate the inventory tax of raw materials, work in process, and finished products on Arizona retailers and wholesalers. A “Yes” vote on proposition # 102 means more warehousing and industrial growth in our state and will provide more jobs for more Arizona people. This tax shuts industries out of Arizona which otherwise would locate here. Such industries would pay taxes on machinery, equipment, buildings, real estate, state income taxes and sales taxes. A “Yes” vote will not pass on any additional tax to small home owners of Arizona. In fact, the only way to reduce the tax burden of small home owners and increase the state’s general tax fund is to bring more business into Arizona and insure new sources of tax revenue. In*313sure more jobs for the people of Arizona and more industrial growth by voting “Yes” on # 102.
SPONSORED BY: Small Business Association, Juanita B. Ames, President; Allen A. Jones, Executive Secretary.
4. THE SUMMARY OF 102 WHICH APPEARED ON THE BALLOT:
AN AMENDMENT EXEMPTING FROM TAXATION, IN ADDITION TO EXEMPTIONS PRESENTLY MADE BY ARTICLE IX, SECTION 2, INVENTORIES OF RAW OR FINISHED MATERIALS, UNASSEMBLED PARTS, WORK IN PROCESS OR FINISHED PRODUCTS OF ARIZONA RETAILERS AND WHOLESALERS PRINCIPALLY ENGAGED IN THE RESALE THEREOF WHETHER TO THE ULTIMATE CONSUMER OR NOT.
Nothing I read in Initiative Petition # 102 or in the Publicity Pamphlet indicates an intention on the part of the electorate to include the agriculture pursuits of farming and cattle raising within the tax exemption. The plain and ordinary meaning of the exemption language should be limited to the inventories of wholesalers and retailers and not extended to growing crops before harvest or the raising of cattle, hogs, sheep, chickens, etc., before they are slaughtered. Historically, in Arizona we have recognized this difference. Range livestock is listed on the tax roll and taxed as a part of the real property, while transient livestock is assessed as the personal property of the taxpayer. (A.R.S. §§ 42-234, 235; Class Four Tax Classification — A. R.S. § 42-136(A)(4)). The slaughter of animals and warehousing of the meat has been regulated since territorial days (A.R.S. § 24-601 et seq.). Tovrea Packing Co. v. The Livestock Sanitary Board, 44 Ariz. 151, 34 P.2d 420 (1934); Territory v. Kenney, 11 Ariz. 353, 95 P. 93 (1908). The arguments made here by the taxpayers and accepted by the majority, merely reflect the scientific revolution that has occurred throughout all agriculture since World War II. New techniques and methods have increased production in all aspects of agriculture, but this is not a valid basis for granting a tax exemption to the taxpayers. The same arguments made by the taxpayers here can equally be made by the cotton grower, chicken raiser, lettuce farmer, and sunflower seed raiser.1
The general rule is that the interpretation of a tax exemption shall be strictly construed against granting the tax exemption. Kunes v. Samaritan Health Service, 121 Ariz. 413, 590 P.2d 1359 (1979); Wenner v. Dayton-Hadson Corp., 123 Ariz. 203, 598 P.2d 1022 (App.1979). This rule is especially important where an initiative exemption is involved, since it is drafted and proposed by those special interests desiring a tax exemption. Applying the rule here, where as I believe the legislative intent was not to include growing crops, livestock or fowl, the taxpayers should be denied relief.
ARTICLE IX, § 13
Although the majority does not deem it necessary to discuss the taxpayers’ claim to a “manufacturer’s” exemption under Art. IX, § 13 of the Arizona Constitution, I do. I agree with the appellants that no tax exemption is available to appellees by this section.
Article IX, § 13 came into the constitution as a legislative referendum. House Concurrent Resolution No. 6, 1950 Ariz. Sess.Laws, 1st S.S., filed with the Secretary of State on March 20, 1950 reads:
PROPOSING AN AMENDMENT TO THE CONSTITUTION OF ARIZONA RELATING TO PUBLIC DEBT, REVENUE AND TAXATION.
Be it resolved by the House of Representatives of the State of Arizona, the Senate concurring:
1. The following amendment to Article IX, constitution of Arizona, relating *314to public debt, revenue and taxation, is proposed, to become valid as a part of the constitution and of Article IX thereof, when' approved by a majority of the qualified electors voting thereon and upon proclamation of the governor:
No tax shall be levied on raw or unfinished materials, unassembled parts, work in process or finished products, constituting the inventory of a manufacturer or manufacturing establishment located within the state and principally engaged in the fabrication, production and manufacture of products, wares and articles for use, from raw or prepared materials, imparting thereto new forms, qualities, properties and combinations, which materials, parts, work in process or finished products are not consigned or billed to any other party.
This provision was adopted by the voters on September 12,1950. Its purpose as stated in the Publicity Pamphlet issued by the Secretary of State is “... solely and simply to eliminate the inventory tax on raw materials, work in process, and finished products of Arizona manufacturers ...” in order to encourage “... greater industrial development in our state and . .. provide more jobs for more Arizona people.”
The intent of Art. IX, § 13 was construed by our supreme court in County of Apache v. Southwest Lumber Mills, Inc., 92 Ariz. 323, 376 P.2d 854 (1962) to include lumber mills and lumber products within the definition of manufacturer and manufactured products. The court said:
The appellant, however, contends that the appellee has failed to show itself within the provision of the constitution which grants the tax exemption, since it does not impart to its products “ * * * new forms, qualities, properties and combinations * * * ” as required by the definition of the constitutional amendment. The county admits that standing timber is converted into new forms by the milling process, but denies that the process imparts new qualities, properties and combinations. We will assume but do not decide that the provision speaks of these attributes in the conjunctive, as the appellant asserts, and that a change in each must be shown before a product is “manufactured.”
“Qualities” and “properties” are synonymous terms meaning attributes or characteristics. In size, shape, appearance, texture, utility and perhaps composition a board differs from the standing tree. As to “combination,” the undisputed evidence showed that the kiln drying process used by appellee involves the addition of moisture by surrounding the lumber with live steam, followed by a controlled extraction of moisture to a uniform level by means of heat. Thereafter, a waxy substance is applied to the ends of each piece of lumber to prevent moisture loss. We hold that this process results in a new “combination” of materials within the meaning of the constitutional provision. [Emphasis in original].
92 Ariz. at 327, 328, 376 P.2d at 856-7. Thus the court distinguished between the mere growing of trees (forestry) and the process of converting them into lumber and various lumber products (manufacturing). The same distinction should be made as between growing trees, and raising crops, livestock and foul (farming). The slaughtering of livestock with the resultant conversion of steers into meat products, and the conversion of trees into lumber and lumber products results in manufactured products. Id.
Other jurisdictions have insisted on a substantial change in the processed item in order for it to be deemed manufactured. Thus, the removal of plastic from wire or cable was not “manufacturing” for tax exemption purposes in Eastern Diversified Metals Corp. v. Commonwealth, 6 Pa. Cmwlth. 605, 297 A.2d 167, aff’d 453 Pa. 611, 306 A.2d 300 (1973). “A superficial change in the original materials without any substantial and well-signalized transformation in form” is not a new article or new product included within the manufacturing definition qualifying manufacturing for tax exemption. Commonwealth v. Perfect Photo, Inc., 29 Pa.Cmwlth. 316, 371 *315A.2d 580 (1977). “A process which involves a material having commercial value for its intended use, that merely upgrades the material so as to increase the value obviously would not be manufacturing”. Department of Revenue v. Allied Drum Service, 561 S.W.2d 323, 326 (Ky.1978). (Allied contains an excellent analysis of the problem involving a number of cases and factual situations).
In the case sub judice, after the cattle are injected, or after they ingest a variety of hormones, minerals and vitamins, and undergo other treatment, the end product still remains exactly what it was in the beginning — a steer. True, the steers are bigger and better, but they are still steers. (See footnote 1).
The intent of the legislature and electorate did not, in my opinion, intend to extend an exemption to the agricultural pursuits of tree farming, land farming, or cattle raising by the enactment of Art. IX, § 13.
For the reasons stated above and under the prior discussion of Art. IX, § 2,1 would deny the taxpayers their claimed exemption and reverse the trial court’s judgment.

. Technicalities in the cattle raising can be fully appreciated by reading Martinez v. Territory, 5 Ariz. 55, 44 P. 1089 (1896) where an indictment charging the defendant with stealing a steer was held to be in fatal variance when the proof showed he stole a cow.