Summary
In Standard Oil Company v. Zangerle, Auditor, 144 Ohio St. 523, 60 N.E.2d 59, it was held that machinery and equipment of the steam boiler plant of an oil refinery, though firmly affixed to the land or to foundations constructed thereon, but which were specially designed and constructed to produce steam for the purposes of the refinery, were more properly accessory to the business conducted on the realty than to the realty itself and were therefore to be regarded as personal and not real property.
Summary of this case from Foley v. the Pittsburgh-Des Moines Co.Opinion
No. 30072
Decided March 7, 1945.
Taxation — Machinery and equipment of steam boiler plant of oil refinery — Accessory to business carried on upon realty, when — Taxable as personal property and not as real property.
The machinery and equipment of the steam boiler plant of an oil refinery, together with plants therein which supply and prepare water for use in such boiler plant, though firmly affixed to the land or to foundations constructed thereon, but which are specially designed and constructed to produce steam at low pressure for the purposes and use of such refinery, and therefore not usable to produce power for the ordinary manufacturing business, are more properly accessory to the business carried on upon the realty than to the realty itself and therefore taxable as personal property and not as real property. ( Case Manufacturing Co. v. Garven, 45 Ohio St. 289, approved and followed.)
APPEAL from the Board of Tax Appeals.
This case is an appeal from a decision of the Board of Tax Appeals. It arises from the same proceeding relating to the classification and taxation of the property of The Standard Oil Company as does case No. 30071 in this court, Zangerle, Aud., v. Standard Oil Co., ante, 506.
In this case, however, the appeal is by The Standard Oil Company and is based upon its contention that the Board of Tax Appeals, in certain respects, improperly applied the rule adopted by it in the consideration of the issues presented in case No. 30071, which resulted in a decision that is unreasonable and unlawful.
The entry of the Board of Tax Appeals is in part as follows:
"However, the boiler equipment above referred to and located in the two boiler houses, has a dual purpose. It generates steam for the purpose of serving process equipment and also to create power to propel the many hundreds of pumps that are on the premises. It is, therefore, motive-power machinery. While the board realizes that the distinction between motive-power machinery and machinery propelled by it, made by the Supreme Court in several cases, must be based on the theory that in the event an industry moves out of the plant, machinery which furnished power would be more likely to be adaptable to any other industry which might move in; which is not true as to this boiler equipment, and although this board is inclined to the view that under the facts in this case it should be classed as personalty, nevertheless the board feels itself bound by the broad language used by the Supreme Court and, therefore, finds that such equipment is realty. * * *
"What has been said with reference to the boiler plant equipment is applicable to the water-heating plant and the main water-pumping station, and, therefore, the board finds these items to be realty."
Messrs. McAfee, Grossman, Hanning Newcomer and Mr. Rufus S. Day, Jr., for appellant.
Mr. Frank T. Cullitan, prosecuting attorney, Mr. Saul S. Danaceau and Mr. Walter T. Dunmore, for appellees, Zangerle, auditor, and Board of Revision of Cuyahoga county.
The specific question presented in this case is whether the machinery and equipment of two process steam-boiler plants, two water-treating plants and the main water-pumping station of the appellant should be classified for the purpose of taxation as personal or as real property. The Board of Tax Appeals classified them all as real property.
The Standard Oil Company operates two refineries in the city of Cleveland. At each of these refineries is maintained a steam-boiler house which produces the steam used in the process of refining oil. The boilers are housed in brick buildings which concededly are real property.
It is conceded by the appellant that the ordinary factory boiler plant used for the production of power may be properly classified as realty, but it contends that the boiler machinery and equipment at the Standard Oil refineries, as distinguished from the boiler buildings proper, should be classified as personal property for the reason that they are especially designed for refinery purposes and are used primarily for the production of process steam required as an ingredient in the distillation process and cannot be converted into power plants to run machinery or be economically utilized by any other industry. In short, the basis of the appellant's contention in this regard is that "this is a process steam plant adapted solely to the necessities of this oil refinery."
The boilers are designed to operate at low steam pressure and do not contain the superheating equipment found in the usual steam boilers which are designed for power purposes.
The steam produced by these boilers is used to operate numerous pumps located throughout the refinery, but its principal use is to heat and vaporize the oils being refined.
The record discloses that the low pressure steam produced is used primarily in the process of refining, and that these boilers could not be used economically except in a refinery or similar industry. It is shown that boilers producing steam essential for power purposes are designed to operate at much higher pressure. These boilers are of the horizontal tube type and are supported by structures resting upon foundations. The boiler houses contain, in addition to the boilers, certain stoking equipment, feed water pumps, gauges and other equipment.
Each of the company's plants also contains a water-treating plant housed in a building separate from the boiler house. These water-treating plants contain numerous tanks and the necessary pipes, meters and connections to permit continuous operation. The water after treatment is used to produce steam and for no other purpose. The water-treating plants are fed with water taken from the Cuyahoga river through a concrete intake well, and is conveyed through the main water-pumping station. This pumping station consists of five pumps, together with the necessary steam and water-flow meters and starting equipment for the pump motors, all housed in a single building. It supplies all water used in the boilers, but does not supply the water used for general purposes in the refinery building, that being obtained from the city of Cleveland.
The conclusion seems inescapable that use in the process of refining is the primary and paramount purpose of these pumps and that they, together with the boilers and water-treating plants, constitute essential parts of the processing equipment and machinery used in the refining operation.
It is to be observed that the Board of Tax Appeals was "inclined to the view" that the property above described "under the facts in this case * * * should be classed as personalty." However, the board announced a finding "that such equipment is realty," stating as a reason for such finding, "the broad language used by the Supreme Court," in Case Manufacturing Co. v. Garven, 45 Ohio St. 289, 13 N.E. 493. A portion of the opinion of the court in that case which is particularly applicable here is as follows:
"The machinery furnishing the motive power is generally more closely annexed to the freehold, and of a more permanent nature, as the power furnished by it may be adapted to the propulsion of the machinery of a variety of mills without any substantial change in the motive power itself or in the building other than by substituting one kind of machinery for another; whilst the machinery that is propelled, has more of the general character of personalty, is not as a rule so closely annexed to the freehold, and may be removed, and frequently is, from one mill to another, as any other article of personalty; and is more properly 'accessory to the business' carried on upon the realty than to the realty itself."
The foregoing description of the property involved in this controversy, and particularly the purpose for which such property was designed and for which it is in fact used, as well as the manner of its use, shows it "is more properly 'accessory to the business' carried on upon the realty than to the realty itself."
The case of Teaff v. Hewitt, 1 Ohio St. 511, 59 Am. Dec., 634, is recognized as the leading case in this country on the law of fixtures. It has been followed in innumerable decisions and in all jurisdictions. The legal principle therein stated has become an established rule of property in Ohio. That principle is stated as follows:
"* * * the united application of the following requisites will be found the safest criterion of a fixture.
"1st. Actual annexation to the realty, or something appurtenant thereto.
"2d. Appropriation to the use or purpose of that part of the realty with which it is connected.
"3d. The intention of the party making the annexation, to make the article a permanent accession to the freehold — this intention being inferred from the nature of the article affixed, the relation and situation of the party making the annexation, the structure and mode of annexation, and the purpose or use for which the annexation has been made."
It is to be observed that the test is to be made by the united application of the specified requisites. That test should be applied in this case. The facts disclosed by the record are convincing that all of the machinery and equipment involved in this controversy are firmly affixed to the land or to foundations constructed thereon, for they could not otherwise be operated.
As hereinbefore pointed out, however, no appropriation to the use or purpose of that part of the realty to which the machinery is connected, is disclosed by the record; on the contrary, it is disclosed that such machinery and equipment are accessory to the business conducted on the premises.
The record further shows the intention of the company to have been to retain such property as personal property, such intention being clearly evidenced by the special design of the boiler houses in question and the purpose and use for which the annexation was made and to which all such machinery and equipment are devoted.
The decision of the Board of Tax Appeals in the respect presented by the appeal herein is therefore reversed.
Decision reversed in part.
BELL, TURNER and HART, JJ., concur.
WEYGANDT, C.J., ZIMMERMAN and WILLIAMS, JJ., dissent.