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June 1, 1983


Review of a decision of the Court of Appeals. Reversing Steinmetz, J.

The opinion of the court was delivered by: Steinmetz

The issue in this case is whether a greenhouse with shading, irrigation and ventilation systems is a machine used in floriculture thereby qualifying its components for an exemption from the state use tax under sec. 77.54(3), Stats. *fn1 More specifically, the issue is whether the purchase by the taxpayer (Gene L. Greiling) of shaped metal tubing and polyethylene film from out-of-state retailers to construct a greenhouse is exempt from the use tax.

The taxpayer owns and operates a wholesale bedding and potted plant business in Denmark, Wisconsin. He produces potted plants and bedding plants, both flower and vegetable, which are then sold to other greenhouses, commercial farmers or retailers in a four-state area, including Wisconsin, Michigan, Illinois and Minnesota.

The plant material sold by the taxpayer is produced in a commercial greenhouse which extends over an area of approximately nine acres of land. The greenhouse consists of an enclosure constructed out of metal tubing and polyethylene film with shading, irrigation and ventilation systems which operate together to provide the optimum environment for plant production. It closely monitors and controls the temperature, humidity, airflow and sunlight to enable maximum plant growth. No retail selling is done out of the greenhouse, and employee work areas and storage areas are located in the permanent buildings which are adjacent to the greenhouse. Those buildings are not subject to this appeal.

In 1978, the Department of Revenue (department) issued a use tax assessment against the taxpayer based on the precut, shaped metal tubing and polyethylene film that formed the framework for the greenhouse. These materials were purchased from out-of-state retailers during the years 1972 through 1976. No assessment was levied on any of the other components to the greenhouse.

The taxpayer appealed to the Wisconsin Tax Appeals Commission. The commission reversed the department's action on grounds not relevant to this appeal on January 25, 1980. The department filed a petition for review with the circuit court for Dane county, the Honorable William F. Eich, pursuant to ch. 227, Stats. The circuit court reversed the decision of the Tax Appeals Commission on November 11, 1981. The circuit court's judgment was affirmed by the court of appeals in three separate, unpublished decisions issued September 10, 1982.

Wisconsin imposes a tax on the "storage, use or other consumption in this state of tangible personal property . . . purchased from any retailer." Sec. 77.53(1), Stats. *fn2 Exempt from this tax are "machines, including accessories, attachments, fuel and parts therefor, used directly in farming, including dairy farming, agriculture, horticulture or floriculture . . . ." Sec. 77.54(3).

It is the claim of the taxpayer that a modern, commercial greenhouse is a machine exempt from the use tax. It is a well-established rule of statutory construction that tax exemptions, since they are matters of legislative grace, are strictly construed against granting the exemption. Ramrod, Inc. v. Department of Revenue, 64 Wis. 2d 499, 504, 219 N.W.2d 604 (1974). However, the interpretation of an exemption need not be unreasonable or the narrowest possible. Columbia Hospital Asso. v. Milwaukee, 35 Wis. 2d 660, 668, 151 N.W.2d 750 (1967). One who claims an exemption has the burden of showing that the property is clearly within the terms of the exception. Doubts are resolved against the exemption and in favor of taxability. First Nat. Leasing Corp. v. Madison, 81 Wis. 2d 205, 208, 260 N.W.2d 251 (1977).

The word "machine" is not defined in the statutes; however, it must be noted the section refers to machines used directly in floriculture. The department relies on a definition which defines a machine as "an assemblage of parts that transmit forces, motion and energy one to another in a predetermined manner." Webster's New Collegiate Dictionary (1977). That definition is only concerned with the engineering aspects of a machine and is not necessarily a relevant nor proper definition when applied to floriculture. "Machine" may be a non-technical common-place word; however, it is not the word "machine" by itself that is to be analyzed, but the word in conjunction with its use in floriculture that must be considered. More appropriate definitions are:

(1) "a structure consisting of a framework and various fixed and moving parts, for doing some kind of work." Webster's New World Dictionary Second College Edition (1980).

(2) "every mechanical device or combination of devices to perform some function and produce a certain effect or result." 69 C.J.S. Patents, sec. 10 at 183 (1951).

Testimony introduced before the Tax Appeals Commission described the function of the greenhouse at issue. It stated:

"Its purpose is to regulate the sunlight and the atmosphere and the temperature over the area in which the plant material is growing. The structure itself acts as a piece of machinery, in that it filters the sunlight, regulates the amount of evaporation and the temperature, and that if we modified the structure or changed the structure, it would interfere with the growth of the plants."

It is obvious from this record that a greenhouse such as the one in this case does not function simply as a shelter or storage area for plants. Instead, it actively produces the artificial environment necessary to produce plants ...

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