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Mid-american Growers v. Dept. of Rev.





Appeal from the Circuit Court of Putnam County; the Hon. James M. Bumgarner, Judge, presiding.


This is a tax case in which the defendant, Illinois Department of Revenue, appeals from the order of the circuit court of Putnam County granting plaintiff's claim to certain farm machinery or equipment and farm chemical exemptions from the Illinois use tax.

Plaintiff, Mid-American, is a corporation organized for the purpose of growing and wholesaling indoor and outdoor vegetable and garden plants. Mid-American has a large warehouse and office building and approximately 16 acres of growing facility. The warehouse is separate and distinct from the growing facility, and in the warehouse the administrative, production, shipping, and maintenance activities of Mid-American are performed.

Generally described, the facility looks like a greenhouse. The framework is bowed-steel tubing anchored into a concrete base covered with a plastic specifically designed to aid in plant growth. The plastic cover diminishes with age and must be replaced every other year. The specific design of the plastic causes the plants to receive a diffused, rather than a direct, sunlight. This diffusion spreads the sunlight over a broader area and allows all the plants to receive the ultraviolet rays critical to their growth. The floor of the facility is a porous mixture of gravel and cement and is called the growing bed. The growing bed is porous enough that water will not stand on it and serves to absorb the sunlight and hold the heat to be released for the plants' benefit at night. In some instances the plants sit directly on the growing bed and in others the plants sit on metal-mesh tables two feet above the bed.

In a portion of the facility are two banks of artificial light fixtures. These allow Mid-American to grow plants in the winter months when there is not enough natural sunlight. Other systems within the facility, although not in issue, are a sprinkling system, a misting system, a fogging system, a cooling system, a heating system, and a shading system.

The Illinois use tax is a tax upon the privilege of using within this State tangible personal property which is purchased at retail outside the State. The purpose of the use tax is to compensate for the constitutional limitations of the sales tax and to prevent evasion of the sales tax by imposing a tax at the same rate and on the same base as that imposed by the sales tax law, the taxable event being the use, storage, or consumption of property within the State, rather than the sale of such property.

• 1 The fundamental theory of our tax structure is that all taxable property should bear its fair share of the cost and expense of government. Exemption from taxation can arise only from statutory grant, and the universal rule is that a tax-exemption provision is to be construed strictly against the person claiming the exemption, in the absence of expressed legislative intent that the exemption is to be construed otherwise. Exemption from taxation cannot be left to or rest upon implication; every reasonable doubt must be resolved in favor of the taxing power and against exemption, the presumption being against any surrender of taxing power in favor of any particular property or class of property unless the legislature has indicated a deliberate purpose to do so. 68 Am.Jur.2d, Sales and Use Taxes sec. 217 (1973).

At issue is the taxability under section 3 of the Use Tax Act (Ill. Rev. Stat. 1983, ch. 120, par. 439.3) of the materials used to construct the facility, the lighting system, the metal-mesh tables, and the carts used within the facility, and the chemical used to shade the growing plants. Section 3 reads in part as follows:

"Sec. 3. A tax is imposed upon the privilege of using in this state tangible personal property, * * * other than farm chemicals, * * * other than farm machinery and equipment costing $1000 of [sic] more both new and used and including that manufactured on special order, certified by the purchaser to be used primarily for production agriculture, including any individual replacement part for such machinery and equipment which part costs in excess of $1000, * * * purchased at retail from a retailer." Ill. Rev. Stat. 1983, ch. 120, par. 439.3.

• 2 Because it is undisputed that Mid-American's operations involve "production agriculture" as that term is defined by statute (Ill. Rev. Stat. 1983, ch. 120, par. 439.3), the first issue in this case is whether under section 3 the facility is "farm machinery and equipment" within the contemplation of the Illinois legislature and the statute. If it is not farm machinery or equipment, the plaintiff is not eligible for the use tax exemption and the claimed exclusion must be denied. Conversely, if the facility is farm machinery or equipment under this particular statute, then the plaintiff is entitled to the claimed exclusion, the exact dollar amount of which is not in dispute. For the reasons stated, this court finds this issue against the plaintiff taxpayer.

As indicated, the issue with which we are dealing is the meaning of the term "farm machinery and equipment" as used, but not defined, in the Use Tax statute. The general rule that exemptions are to be strictly construed against the claimant calls for no strained construction adverse to the real intention of the legislature and requires a normal and reasonable construction. Construction statutes provide that words and phrases shall be taken in their plain or ordinary sense. Such is also the judicially established rule. To hold this facility a machine would result in a strained construction of the statute.

Plaintiff maintained that the "growth facility" is a "machine" that contributes to the production agriculture process since it allows sunlight to be diffused throughout the facility, that the "growth facility" is "specialty lighting equipment." Plaintiff cites Wisconsin Department of Revenue v. Greiling (1983), 112 Wis.2d 602, 606, 334 N.W.2d 118, for the holding that a greenhouse is a machine used in floriculture: "`Its purpose is to regulate the sunlight and the atmosphere and the temperature * * *. The structure itself acts as a piece of machinery * * *.'" We find Grieling unpersuasive. To be sure, the facility participated in the production of growing plants, but to characterize it as a machine on this account would distort the commonly understood meaning of that term. To hold that the definition of machines can be construed to include a greenhouse would allow any building or structure within which a production process is completed to be classified as a machine.

Plaintiff further cited three cases, Oakdell, Inc. v. United States (CT CL 1978), 78-2 V.S.T.C., par. 9730, Thirup v. Commissioner of Internal Revenue (7th Cir. 1974), 508 F.2d 915, and Stuppy, Inc. v. United States (W.D. Missouri 1978), 454 F. Supp. 1378, for their holdings that for investment tax purposes a greenhouse is not a building. These courts did not hold that a greenhouse is a "machine," and neither will we. In terms of the Mid-American facility's physical appearance and function it was a building in the ordinary sense of that word. It had a tubular steel frame, porous concrete floors, and a plastic roof and walls which completely enclosed a large volume of space. It was built over concrete foundations. The materials of which it was constructed were common building components and the structure was somewhat permanent in nature. It had plumbing, heating, cooling and lighting systems. Mid-American employees regularly spent time inside the structures, engaging in a broad range of activities related to processing commercial vegetables and other plants. None of these characteristics are associated with "machines" as that term is commonly understood.

Construction materials used in the production of greenhouse-like structures, which, when completed become a part of realty, have never before in this State been held to be exempt or excluded from the use tax as "farm machinery or equipment used primarily for production agriculture." Under the doctrine of separation of powers, courts may not legislate or rewrite or extend legislation. If a greenhouse-like structure is to be classified farm machinery or equipment for the purpose of the ...

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