Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1969 No. 6 - Feb 27 1969
Attorney General Slade Gorton


(1) In determining the "true and fair value" of beer which is still in storage in the brewer's warehouse, the federal excise tax on beer is not to be regarded as an element of its value.

(2) The exemption from ad valorem property taxation of ore or metal shipped from out the state to any smelter or refining works within the state, while in process of reduction or refinement and for thirty days thereafter, which is provided for by RCW 84.36.181, extends to alumina on the basis that this substance is an ore.

(3) Barley malt which is stored in the elevators of a malting business is not exempt from taxation as "grain or flour" within the meaning of RCW 84.36.140.

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                                                                February 27, 1969

Honorable R. DeWitt Jones
Prosecuting Attorney
Clark County Court House
1200 Franklin Street
Vancouver, Washington 98660

                                                                                                                   Cite as:  AGO 1969 No. 6

Dear Sir:

            By letter previously acknowledged, you have requested the opinion of this office on three questions pertaining to the taxation of personal property.  We paraphrase your questions as follows:

            (1) In determining the "true and fair value" of beer which is still in storage in the brewer's warehouse, is the federal excise tax on beer to be regarded as an element of its value?

            (2) Is alumina exempt from taxation as an "ore or metal" within the scope of RCW 84.36.181?

            (3) Is barley malt which is stored in the elevators of a malting business exempt from taxation as "grain or flour"  [[Orig. Op. Page 2]] within the meaning of RCW 84.36.140?

            We answer questions (1) and (3) in the negative and question (2) in the affirmative, for the reasons set forth in our analysis.


            Question (1):

            As the base point for consideration of your first question, we should note two prior opinions of this office.

            In an opinion dated March 25, 1939, to the Spokane county prosecuting attorney (1939-40 OAG, p. 48), the attorney general distinguished between the then existing state and federal excise taxes on beer and concluded that the latter, but not the former, was to be taken into account by a county assessor in performing his assessment function1/ with respect to beer in storage in the brewer's warehouse.  The reason given for this distinction was that the state tax did not have to be paid until the beer was removed from the warehouse and hence, did not become an element of its value until then whereas the federal tax was due prior to placing the beer in the warehouse for storage.  In this regard, it was noted, in the opinion, that:

            ". . . Under the federal statutes and administrative regulations the federal tax of $5.00 per barrel or $2.50 per half barrel must be paid, and the requisite stamps affixed to the container, before the same is even placed in the brewer's warehouse.  Hence, the payment of the federal tax is just as essential to the production of the finished saleable product found in the warehouse as is the manufacturing process itself. . . ."

            The second prior opinion to be noted was written to the King county prosecuting attorney on June 30, 1945 (1945-46 OAG, p. 245), and simply stands for the proposition that the federal taxes on liquor (including beer) become an element of the taxable value of that liquor when they have been paid.

             [[Orig. Op. Page 3]]

            Clearly, there is no basis for departing from the conclusion stated in the second of these prior opinions.  However, with respect to the first opinion there is such a basis for departure; namely, an intervening change in the federal beer tax statutes.

            This federal tax is now imposed by a statute which has been codified as 26 U.S.C.A. § 5051, subsection (a) of which states in part:

            "(a) Rate of tax. -There is hereby imposed on all beer, brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States, a tax of $9 for every barrel containing not more than 31 gallons and at a like rate for any other quantity or for fractional parts of a barrel. . . ."

            The determining factor is whether the tax has been paid at the time the beer is assessed.  26 U.S.C.A., § 5054, imposes the tax at

            ". . . the time it is removed for consumption or sale, . . ."2/

             The term "removed for consumption or sale" is, in turn, presently defined by 26 U.S.C.A., § 5052 (c), as follows:

            "(c) Removed for consumption or sale. - Except as provided for in the case of removal of beer without payment of tax, the term 'removed for consumption or sale', for the purposes of this subpart, means -

            "(1) Sale of beer. -The sale and transfer of possession of beer for consumption at the brewery; or

            "(2) Removals. -Any removal of beer from the brewery, except that such removal shall not include any beer returned to the brewery on the same day such beer is removed from the brewery."

             [[Orig. Op. Page 4]]

            The conclusion to be drawn from these federal statutes is that (unlike the federal beer tax law as it existed in 1939) no federal tax is payable on any beer which is still in storage in the brewer's warehouse and has not yet been removed for consumption or sale.  Accord,Ekhardt & Becker Brewing Co. v. Kavanagh, 112 F.2d 751 (1940).  In our opinion, therefore, this federal tax is no longer to be considered in determining the "true and fair value" of beer which is still in this physical status.  Your first question, thus, is answered in the negative.

            Question (2):

            The second question presented involves the application of RCW 84.36.181.  This statute exempts from ad valorem taxation certain property described therein as follows:

            "All ore or metal shipped from without this state to any smelter or refining works within this state, while in process of reduction or refinement and for thirty days after completion of such reduction or refinement, shall be considered and held to be property in transit and nontaxable."

            We are specifically concerned, here, only with the question of whether the phrase "ore or metal" includes "alumina."

            This substance is described in the 1964 Edition of the Encyclopedia Britannica in the following manner:

            "Alumina, the oxide of aluminum, occurs as corundum which is a hard crystalline mineral.  The dark variety of corundum contains magnetite and is known as emery (q.v.); clear transparent crystals, tinted by other metallic oxides, are gem stones such as ruby and sapphire.  Alumina may be prepared by the ignition of aluminum hydroxide, ammonium alum, etc., and from the various natural hydrated oxides of aluminum which occur in the minerals bauxite and gibbsite.  Alumina is used in the manufacture of metallic aluminum, in the manufacture of synthetic gems, as an abrasive, and in the manufacture of refractory materials.  It is polymorphous, existing in a number of crystalline forms,  [[Orig. Op. Page 5]] is close to the diamond in hardness and has the chemical formula A12O3. . . ."3/

             Technically, alumina is classified as an inorganic industrial chemical4/ or as inorganic chemical compound.5/   Although, as the above description indicates, it does have some utility apart from the manufacture of aluminum, it is primarily used in the aluminum industry.  In the aluminum producing process, alumina is an intermediate step between the crude ore, bauxite, and the extracted metal, aluminum.  The metal is obtained from alumina by its electrolysis in molten cryolite.  The alumina is obtained from bauxite by a high temperature leaching process known as the Bayer process.  This process is one of beneficiation, which is treatment of a crude ore to remove minerals which, either chemically or economically, inhibit its refinement.  An ore which has undergone beneficiation is properly referred to as a "concentrated ore."

            The question, then, is whether a concentrated ore is as much within the scope of RCW 84.36.181,supra, as is a crude ore.  In our opinion, it is.

            Although strict construction of tax exemption statutes is an acknowledged practice, resort to strained or technical interpretation is not required.  Crown Zellerbach v. State, 45 Wn.2d 749, 278 P.2d 305 (1954).  Strict construction requires only a fair definition of the words used, consistent with their usual and ordinary meaning.  Group Health Cooperative of Puget Sound, Inc. v. Washington State Tax Commission, 72 W.D.2d 417 [[72 Wn.2d 422]], 433 P.2d 201 (1967); Pacific Etc. Alloys v. State, 49 Wn.2d 702, 306 P.2d 197 (1957).  Such a fair definition does not demand that technical scientific distinctions be observed.  In re Irwin (C.C.S.D. N.Y.), 62 Fed. 150 (1894).

            What is exempt under RCW 84.36.181, supra, is any "ore or  [[Orig. Op. Page 6]] metal" which meets the status qualification set forth therein.  As stated in 58 C.J.S., Mines and Minerals, § 2 (5), p. 24,

            "The word 'ore' has a definite signification, and in its usual acceptation it designates the compound of a metal and some other substance, such as oxygen, sulphur, or arsenic, called its mineralizer, by which its properties are disguised or lost; . . ."

            Since the usual meaning accepted for the word "ore" is not restricted to crude ores, and since it specifically refers to compounds of the metallic element and oxygen, it is our opinion that alumina, whether processed or taken directly from nature, is an ore within the meaning of the exemption statute, RCW

             Question (3):

            By your third question, you ask whether malted barley is eligible for exemption from ad valorem taxes under RCW 84.36.140, which states:

            "All grains and flour, fruit and fruit products, vegetables and vegetable products, and fish and fish products, while being transported to or held in storage in a public or private warehouse shall be exempt from taxation if actually shipped to points outside the state on or before April 30th of the first year for which they would otherwise be taxable: Provided, That proof of shipment be furnished as required in RCW 84.36.150."

             [[Orig. Op. Page 7]]

            If malted barley is exempt, it must be because it falls within the category of "grains and flour."  The phrase is defined by RCW 84.36.160 as follows:

            "The term 'grains and flour' shall mean and include all raw whole grains in their usual marketable state; and grain flour in the hands of the first processor;but not any other grain product."  (Emphasis supplied.)

            Again, let us look to the Encyclopedia Britannica for assistance in understanding the nature of the substance or material under consideration.  We find, in this work, the following:

            "Malt is a food product prepared from cereal grain by allowing partial germination to modify the seeds' natural food substances.  Except for wrinkling of the husk, malt has mostly the physical appearance of the grain from which it was prepared.  Malt itself is seldom a constituent of human food.  It is rather an extract or the result of an enzymatic digestion by malt that is found in 'malted' foods. . . . The starch of malt is mellower and more soluble than that of the original grain.  Its protein has become partially hydrolyzed.  The enzymes (q.v.) developed during the malting process are responsible for its industrial importance.

            "Any cereal grain may be converted to malt by germination but barley (q.v.) is the favoured [[favored]]grain and has been hybridized to improve its malting quality wherever it is grown. . . ."7/

             It appears to us from this description that malted barley should properly be classified as a "grain product."  Hence, it cannot, by definition, come within the category "grains and flour" to which the tax exemption is granted by RCW 84.36.140, supra, for RCW 84.36.160 excludes "any other grain product" than those specifically mentioned in the definition.

             [[Orig. Op. Page 8]]

            We are aware that RCW 84.36.162 requires that the statutes quoted above be liberally construed.  We are also aware that on one occasion, malted barley has been held to be a grain within the meaning of a taxing statute.  See,Jos. Schlitz Brewing Co. v. City of Milwaukee, 232 Wis. 118, 286 N.W. 602, 122 A.L.R. 1431 (1939).  This decision must be distinguished, however.

            It is not at all unusual to apply the word "grain" to grain products.  Trenton Chemical Co. v. United States (C.A. Mich.), 201 F.2d 776 (1953);German Fire Ins. Co. v. Walker, 146 S.W. 606 (1912).  The court was entitled to take the word in that sense in the Schlitz case, where, unlike the statute being considered here, the statute being interpreted contained no qualifying language.

            RCW 84.36.160,supra, excludes from its definition of the word "grain" all grain products except grain flour.  By doing so, the legislature has necessarily provided that grain products be considered separate from raw whole grains.  This action is not unprecedented (e.g., 19 U.S.C.A. § 202, items 130.10 and 132.20).  In the face of such a provision, the most liberal construction possible could not bring malted barley within the statutory definition of a "grain."

            We trust the foregoing will be of assistance to you.

Very truly yours,

Attorney General

Assistant Attorney General

                                                         ***   FOOTNOTES   ***

1/See, RCW 84.40.040, under which the legislature has made it a duty of the various county assessors to determine the taxable value of both real and personal property.

2/See, also, 26 U.S.C.A. § 506 1 (a), with respect to the procedure for computation and collection of the tax.

3/Encyclopedia Britannica, 1964 Ed., Vol. 1, page 693.

4/1967 Standard Industrial Classification, U.S. Office of Statistical Standards.

5/See, 19 U.S.C.A., § 1202, Item 417.12.

6/In further support of this conclusion, note should be made of the anamoly which would exist if alumina were not thus exempt.  Clearly, the bauxite itself, from which the alumina is derived, is an ore.  On the other hand, the end product, aluminum, is clearly a metal.  Thus, both of these are exempt, one as an ore and the other as a metal.  Why, then, should alumina, the middle state, be treated differently?

7/Encyclopedia Britannica, 1964, Vol. 14, p. 736.