Pollock and Sons, Inc. v. Umatilla County Assessor ( 2013 )


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  •                                     IN THE OREGON TAX COURT
    MAGISTRATE DIVISION
    Property Tax
    POLLOCK AND SONS, INC.                                 )
    an Oregon Corporation,                                 )
    )
    Plaintiff,                            )   TC-MD 120842N
    )
    v.                                              )
    )
    UMATILLA COUNTY ASSESSOR,                              )
    )
    Defendant.                            )   DECISION
    Plaintiff appeals Defendant’s assessment of property identified as Account 164176
    (subject property) for the 2012-13 tax year. Plaintiff asserts that the subject property was farm
    personal property exempt from taxation under ORS 307.394(1). A telephone trial was held on
    May 29, 2013. Garry L. Reynolds, Attorney at Law, appeared on behalf of Plaintiff. Samuel
    Pollock (Pollock), President of Plaintiff, testified on behalf of Plaintiff. Paul Chalmers
    (Chalmers), Director of Assessment and Taxation, appeared and testified on behalf of Defendant.
    Plaintiff’s Exhibits 1-16, and 18-19 were received without objection. Defendant’s Exhibits 1-2,
    and 4-7 were received without objection. Plaintiff objected to part of Defendant’s Exhibit 3,1
    which included a letter from Gregory J. Plass (Plass), Senior Appraiser Analysis, Department of
    Revenue. Plass was not available to testify at trial. The court excluded that part of Defendant’s
    Exhibit 3 including Plass’s letter.
    I. STATEMENT OF FACTS
    Pollock testified that the subject property is located in Hermiston, Oregon, at the same
    site as Plaintiff’s farm. He testified that watermelons are grown on Plaintiff’s farm. Pollock
    testified regarding the functions of the subject property and provided photographs of the subject
    1
    The remainder of Defendant’s Exhibit 3 is ORS 307.394 and OAR 150-307.394.
    DECISION TC-MD 120842N                                                                              1
    property taken in 2012. (See Ptf’s Exs 1-14.) He testified that watermelons are brought in from
    the field in plastic bins or “field totes,” which are “placed on the line.” (Ptf’s Exs 1-2.) Pollock
    testified that the watermelons are “dumped out of the field totes” onto the conveyor belt. (Ptf’s
    Exs 3-4.) He testified that the watermelons move down the conveyor belt individually and travel
    under brushes that remove sand and dirt from the melons. (Ptf’s Exs 5-8.) Pollock testified that
    the watermelons then cross a scale and are weighed. (Ptf’s Ex 9.) He testified that Plaintiff’s
    workers remove watermelons from the line and place them into cardboard bins, or “totes.” (Ptf’s
    Exs 10-12.) Pollock testified that, after the watermelons are placed into the cardboard totes, they
    are stacked in the warehouse for storage until trucks arrive to pick them up. (Ptf’s Exs 13-14.)
    He testified that the warehouse is insulated and has fans to circulate the air.
    Pollock testified that watermelons cannot be packed into the cardboard totes in the field
    because that would present a food safety violation. He testified that the subject property is not
    used to wash the watermelons. Pollock testified that the subject property is not used to label the
    watermelons or to place them into the cardboard totes; rather, Plaintiff’s workers complete those
    tasks. He testified that workers will remove any broken watermelons from the line, but do not
    otherwise sort the watermelons. Pollock testified that the watermelons are not stored by Plaintiff
    for more than 15 days; the typical storage time by Plaintiff is five to seven days. He testified that
    the watermelons are shipped to warehouses, not to retail markets. Pollock testified that the
    subject property is used only for watermelons harvested at Plaintiff’s farm.
    Pollock testified that watermelons are placed into the cardboard totes according to their
    weight and a worker counts watermelons as they are placed into the cardboard totes. He testified
    that the cardboard totes of watermelons are sold “per bin” based on the anticipated number of
    watermelons in the bin. Pollock testified that Plaintiff is required by law to label the cardboard
    DECISION TC-MD 120842N                                                                                 2
    totes with their origin and date picked. He testified that Plaintiff’s workers label the cardboard
    totes and place stickers on the watermelons with numbers that can be used to identify the origin
    of the watermelons and the date the watermelons were picked.
    Pollock testified that, following his conversation with Chalmers, he contacted the Oregon
    Department of Agriculture to inquire whether it would certify the subject property as “qualified
    machinery and equipment [] eligible for exemption under ORS 307.455.” (See Ptf’s Ex 18 at 2
    (ORS 307.457).) He testified that the Department of Agriculture provided him with an excerpt
    of OAR 603-025-0010(10), defining “food processing.” (Ptf’s Ex 19.) That administrative rule
    states that food processing “does not mean the sorting, cleaning or water-rinsing of a food.” (Id.)
    Chalmers testified that, in his view, the subject property meets the definition of
    “processing” in OAR 150-307.394(1)(b), which defines “sorting” and “boxing” as “processing.”
    He testified that there may be a gap between the statute granting exemption for “farm machinery
    and equipment” and the statute granting exemption for “food processing machinery and
    equipment.” Chalmers testified that Plaintiff and other owners of machinery and equipment used
    to pack fresh produce may need to seek legislation to receive property tax exemption similar to
    the statute that provides property tax exemption for certain “[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[.]” See ORS 307.397(1)(e).
    II. ANALYSIS
    The question before the court is whether the subject property is entitled to property tax
    exemption for the 2012-13 tax year under ORS 307.394.2 Under ORS 307.394(1)(a), an
    exemption is provided for “[f]arm machinery and equipment used primarily in the preparation of
    2
    All references to the Oregon Revised Statutes (ORS) and Oregon Administrative Rules (OAR) are to
    2011.
    DECISION TC-MD 120842N                                                                                         3
    land, planting, raising, cultivating, irrigating, harvesting or placing in storage of farm crops[.]”
    The Oregon Supreme Court in King Estate Winery Inc. v. Dept. of Rev (King Estate) held that
    “farm machinery and equipment” is “machinery and equipment used to cultivate farm land or to
    raise animals.”3 
    329 Or 414
    , 419, 
    988 P2d 369
     (1999). The Court in King Estate held that only
    farm machinery and equipment used for activities that “pertain to cultivating crops on land * * *”
    were meant to be included under ORS 307.394 and found “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.’ ”4 
    Id. at 421
    .
    The primary dispute in this case is whether the subject property is used for “processing”
    rather than for “placing in storage of farm crops.” As determined by the Court in King Estate,
    machinery and equipment used for “processing” is not entitled to property tax exemption as
    “farm machinery and equipment” under ORS 307.394.5 The Department of Revenue has
    promulgated an administrative rule that defines “[p]rocessing” and “[s]torage of farm crops” for
    purposes of ORS 307.394 and provides examples. OAR 150-307.394 states:
    “(1) Definitions:
    “(a) ‘Storage of farm crops’ refers to the holding area in which a product
    is placed before processing begins.
    “(b) ‘Processing’ is altering the crop in any way such as: washing, icing,
    sorting, grading, waxing, boxing, slicing, or cutting.
    “(c) ‘Primary’ is the leading use or the use involving the highest
    3
    King Estate applied former ORS 307.400. Prior to 2001, the identical language at issue in ORS
    307.394(1)(a) was included in former ORS 307.400 (1999). See Or Laws 2001 ch 753 §§ 12, 15.
    4
    The property at issue in King Estate was certain tangible personal property used in the production and sale
    of wine. 329 Or at 417.
    5
    The court notes, however, that an exemption is allowed for certain food processing machinery and
    equipment under ORS 307.455. That exemption is available only upon certification of the machinery and
    equipment by the Oregon Department of Agriculture. ORS 307.455(2)(c).
    DECISION TC-MD 120842N                                                                                             4
    percentage of time relative to all the various uses.
    “Example: If an unlicensed farm vehicle is used 45 percent of the time to move
    cleaned, sorted, washed and bagged carrots ready for market (PRODUCT); 30
    percent of the time to move freshly-picked carrots from the field to the warehouse
    or cold storage facility; and 25 percent of the time sitting idle, then the vehicle is
    used primarily in a nonexempt status and is fully assessable, even though that use
    is not 50 percent or more of the time available.
    “(2) Machinery and equipment used to place a farm crop in storage are exempt
    from taxation. However, once processing of the crop is begun, it is no longer a
    crop, but a product. When the same machinery and equipment are used for both
    placing in storage and processing the primary use is what determines its
    assessment status.
    “Example: Apples are picked and go directly into cold storage. This would be
    considered ‘placing in storage of farm crops.’ When these same apples are sorted,
    washed or boxed it becomes a product and placing back into cold storage until
    sold is not considered ‘placing in storage of a farm crops.’ At this point apples
    change from a crop to a product.”
    This court has previously reviewed the legislative history of the language “placing in
    storage,” which was first added to a predecessor statute to ORS 307.394(1)(a). See Dinsdale v.
    Marion County Assessor (Dinsdale), TC-MD No 110891N, WL 1309162 (Apr 13, 2012). In its
    review of that legislative history, the court noted the testimony of Jim Scherzinger, Legislative
    Revenue Officer, that the addition of “placing in storage” was intended to exempt equipment
    such as “fork lifts” and other equipment used for storing crops. Tape recording, Senate Revenue
    and School Finance Committee, SB 398, April 8, 1981, Tape 71, Side B (testimony on proposed
    amendment SB 398-4). He testified that a line exists between harvesting, storing, and processing
    and that the inclusion of “placing in storage” was to clarify that equipment used for storing was
    separate and distinct from processing and more akin to harvesting. Id.
    This case bears obvious similarities to the facts presented in Dinsdale and the parties
    discussed the court’s decision in Dinsdale at trial. In Dinsdale, this court considered whether
    three “conveyers” and a “packing line” used to sort, inspect, pack, and label fresh blueberries
    DECISION TC-MD 120842N                                                                              5
    qualified for property tax exemption under ORS 307.394. Dinsdale, WL 1309162 at *1-2. The
    blueberries remained in the packing shed until they were shipped to market. The plaintiff in
    Dinsdale described the activity as “fresh packing.” Id. at *2-3. In Dinsdale, as here, the Oregon
    Department of Agriculture declined to certify the property at issue as qualified “food processing”
    machinery and equipment. Id. at *1. The court in Dinsdale found that the property at issue was
    not used to place the blueberries into storage; rather, it was used “to sort and pack the
    blueberries, both of which are activities characterized as ‘processing’ under the [administrative]
    rule.” Id. at *4. The court concluded that the property at issue was not “farm machinery and
    equipment” exempt from taxation under ORS 307.394(1)(a). Id. at *5.
    Plaintiff argues that the subject property is distinguishable from that property at issue in
    Dinsdale. Plaintiff asserts that the function of the subject property is to take watermelons from
    the field, weigh them, and place them into storage. Defendant disagrees, noting that it granted
    property tax exemption for the plastic totes used to carry the watermelons from the field into the
    packing shed. It is difficult for the court to find any meaningful distinction between the use of
    the subject property in this case and the use of the property at issue in Dinsdale. The subject
    property is used to brush, weigh, label, and pack watermelons. Plaintiff suggested at trial that its
    workers, rather than the subject property, labeled the watermelons and placed them into
    cardboard totes. That may be, but the subject property is used in aid of that process and serves
    no other apparent function. As discussed in Dinsdale, “sorting” and “boxing” crops are both
    deemed “processing” under OAR 150-307.194. The court finds that the subject property is used
    primarily for “processing” watermelons rather than placing them into storage.
    “[W]ashing, icing, sorting, grading, waxing, boxing, slicing, or cutting” are all defined as
    “processing” in OAR 150-307.194. “[S]orting, cleaning or water-rinsing of a food” are
    DECISION TC-MD 120842N                                                                                6
    specifically excluded from the definition of “food processing” in OAR 603-025-0010(10). If it
    was the intent of the legislature to provide property tax exemption for machinery and equipment
    such as the subject property in this case and the packing line in Dinsdale, then it appears that
    such property used to sort and pack fresh produce lies in a gap between the property exempt
    under ORS 307.394 and the property exempt under ORS 307.455. The gap between those
    statutes is due in part to the conflicting definitions of “processing” for purposes of those statutes.
    Chalmers testified that owners of fresh produce packing machinery and equipment may need to
    seek legislation to receive property tax exemption similar to the exemption provided for
    “[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 307.397(1)(e). The court cannot “insert what has been omitted” from ORS
    307.394(1)(a). ORS 174.010.
    III. CONCLUSION
    After careful consideration, the court concludes that the subject property is used primarily
    for “processing” as defined in OAR 150-307.394(1)(b). As a result, the subject property is not
    “farm machinery and equipment” entitled to exemption under ORS 307.394. Now, therefore,
    IT IS THE DECISION OF THIS COURT that Plaintiff’s appeal is denied.
    Dated this       day of July 2013.
    ALLISON R. BOOMER
    MAGISTRATE
    If you want to appeal this Decision, file a Complaint in the Regular Division of
    the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;
    or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
    ///
    DECISION TC-MD 120842N                                                                               7
    Your Complaint must be submitted within 60 days after the date of the Decision
    or this Decision becomes final and cannot be changed.
    This document was signed by Magistrate Allison R. Boomer on July 18, 2013.
    The Court filed and entered this document on July 18, 2013.
    DECISION TC-MD 120842N                                                           8
    

Document Info

Docket Number: TC-MD 120842N

Filed Date: 7/18/2013

Precedential Status: Non-Precedential

Modified Date: 10/11/2024