When South Dakota's 1966 Dairy Industry Marketing Act exempted nonprofit, charitable, religious, or educational institutions, did the exemption cover purchases by those institutions, sales by those institutions, and dealings with federal military bases?
Plain-English summary
In 1966 the South Dakota legislature passed the Dairy Industry Marketing Act, a price-regulation regime designed to protect the state's dairy industry from what the legislature called unfair trade practices. The Act set minimum prices and other rules for the sale of dairy products. Section 14 carved out an exemption: "The provisions of this Act shall not be construed or interpreted to apply to any private or public non-profit, charitable, religious or educational institutions, organization, association or corporation."
A state administrator wrote the AG with three interpretive questions. Did the exemption protect a processor or distributor that sold dairy products to one of the listed nonprofits? Did it protect the nonprofit when the nonprofit itself sold dairy products? And did it cover federal military installations?
The AG answered yes to all three. The reasoning had two strands.
The first was statutory purpose. Section 2 of the Act said its purpose was to protect the dairy industry under the police power. Under standard rules of statutory construction, exemptions are read in light of the broader purpose. Here the purpose was to police unfair trade practices among commercial dairy actors, not to dictate prices to schools, hospitals, churches, and federal bases.
The second strand was a principle the AG drew from 35 CJS 13: exemption laws are interpreted "in favor of persons within their purview, so as to effectuate their beneficent purposes." The purpose of carving out nonprofits from a minimum-price regime was to lower their costs. Forcing a school district or military base to buy milk above market price would have raised the cost of public services, which was the opposite of what an exemption for public-benefit institutions was supposed to accomplish.
Putting the strands together, the AG read Section 14 to mean: when a nonprofit, charitable, religious, educational, or governmental institution buys or sells dairy products, the minimum-price and unfair-trade rules of the Act do not bind that transaction. The federal military, while not exactly a "nonprofit charitable" entity in the conventional sense, fell within the spirit of the carve-out because it was a federal public institution that purchased dairy products for the use of military personnel and their families.
Currency note
This opinion was issued in 1966. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The 1966 Dairy Industry Marketing Act has been substantially restructured or repealed in the decades since this opinion; modern South Dakota dairy regulation is governed by current SDCL provisions and administrative rules of the Department of Agriculture and Natural Resources, not by Chapter 9 of the 1966 Session Laws. Check current statutes and federal preemption rules before relying on this exemption analysis.
What the opinion meant at the time
For dairy processors and distributors in 1966, the opinion meant they could deal with the listed institutions outside the Act's minimum-price floor. A processor selling milk to a Catholic school, a public school district, a YMCA, a state university, or Ellsworth Air Force Base could quote any price it wanted. The Act's enforcement arm could not penalize a sale at less than the minimum price as long as the buyer was within Section 14.
For nonprofit institutions, the opinion confirmed that they could resell dairy products without triggering the Act, useful for institutions that ran cafeterias, gift shops, or fundraising operations. A church bake sale, a hospital cafeteria, a school milk program: none of these came within the Act's scope.
For school districts and other governmental buyers, the practical takeaway was that competitive bidding for milk supply contracts remained the operative norm. The Act did not require a school to pay the dairy-industry minimum price. Bid awards based on the lowest responsible bid (the standard public-procurement rule) were unaffected by the minimum-price regime.
For the federal government, the opinion meant the Act would not be enforced against transactions with military bases. Even without the supremacy clause question (which the AG did not reach), the state's own exemption read broadly enough to cover federal installations.
Common questions
Q: Did the AG reach the federal supremacy issue?
A: No. The federal military was held within Section 14's exemption as a matter of state-law interpretation, so the AG did not need to discuss whether the Act would have been preempted by federal supremacy in dealings with federal installations.
Q: Why did the AG cite a Michigan and a Vermont milk-control case?
A: Both Miller v. Michigan State Apple Commission and State v. Auclair were cited for the proposition that the dairy/milk industry is "affected with a public interest" and so subject to state police-power regulation. The AG used those decisions to establish the Act's constitutional footing, then used the public-interest framing to support a broad reading of the institutional exemption.
Q: What dairy products fell within the Act?
A: The opinion did not enumerate them. The Act presumably covered milk and milk products in the conventional sense. The exemption analysis was the same regardless of which dairy products were involved.
Q: Could a for-profit corporation that sold dairy products to a nonprofit institution claim the exemption?
A: Yes, that was the first question and the answer was yes. The exemption attached to the transaction by virtue of who was on the other side (the nonprofit institution), not to the seller's identity. A commercial distributor selling to a school was not subject to the minimum-price rule for that sale.
Q: What about partial exemptions: was a religious institution's commercial side covered?
A: The opinion read the exemption broadly enough to cover the listed institutions without distinguishing their commercial and noncommercial activities. A church-run cafeteria, for example, would have been within the exemption even if it operated at a small margin.
Q: Did the opinion address inverse situations: a nonprofit purchasing from a non-exempt distributor?
A: That was effectively the first question, yes. The Act did not apply to that transaction.
Background and statutory framework
State milk-control acts were a common mid-twentieth-century legislative response to the problem of unstable dairy prices and the fear that aggressive discounting would drive small dairy operators out of business. Several states had similar regimes, with constitutional challenges generally resolved in favor of the states under the police-power rationale articulated in the cited cases.
South Dakota's 1966 Act fit the standard pattern. It set minimum prices, regulated trade practices, and gave a state body enforcement authority. Section 14's nonprofit-institutional exemption was likewise standard: it recognized that schools, hospitals, churches, and government buyers were politically and economically unable to absorb above-market prices, and that the public interest in their cost-sensitivity outweighed the dairy-protection purpose for those transactions.
The AG's reading of "exemption laws... liberally, in favor of persons within their purview" was a well-settled canon of construction in 1966. Modern statutory-construction principles in South Dakota and elsewhere have not displaced that canon, although strict-construction rules sometimes apply to specific kinds of exemptions (notably tax exemptions). The dairy-act exemption was an institutional exemption, not a tax exemption, so the liberal-construction canon controlled.
The AG did not address: enforcement mechanics, recordkeeping requirements for exempt transactions, what counted as a "nonprofit" for borderline cases, or how to handle mixed transactions (part exempt, part not). Those would have been left to administrative interpretation and later opinions.
Citations and references
Statutes:
- Chapter 9, Section 14, 1966 Session Laws (nonprofit exemption)
- Chapter 9, Section 2, 1966 Session Laws (purpose; police power)
Cases:
- Miller v. Michigan State Apple Commission, 296 N.W. 245, 247 (Mich.)
- State v. Auclair, 4 A.2d 107, 112, 110 Vt. 147 (1939)
Treatises:
- 35 CJS 13 (rules for construction of exemption laws)
Source
Original opinion text
Statutes. Interpretation of Section 14 of Chapter 9 of the 1966 Session Laws regarding exemptions from the Dairy Industry Marketing Act.
You have requested an official opinion interpreting Section 14 of Chapter 9 of the 1966 Session Laws which reads as follows:
"Exemptions: The provisions of this Act shall not be construed or interpreted to apply to any private or public non-profit, charitable, religious or educational institutions, organization, association or corporation."
You have asked the following specific questions:
"1. Does the exemption apply to sales by a processor or distributor to the organizations listed therein?
"2. Does the exemption apply to sales of dairy products made by these organizations?
"3. Would the answers to the above questions also apply to Federal Military installations?"
Our answer to these questions is in the affirmative. Section 2 of the Act reads in part as follows:
"...It is the purpose of this Act, under the police powers of the state of South Dakota, to promote the public interest so declared by outlawing the continuance of such trade practices."
"The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of a great portion of the population of the state is affected to such an extent by 'public interest' that it is within the 'police power' of the sovereign." Miller v. Michigan State Apple Commission 296 NW 245, 247.
The prime issue in interpreting the exemption section of the Act is determine the intent of the Legislature when the Act was passed. It would seem evident from the context of the Act that this purpose was the protection and control of the dairy industry in South Dakota from unfair trade practices.
"As respect validity of Milk Control Act, the milk industry of the state is affected with a 'public interest' and hence subject regulation under police power of State." State v. Auclair, 4 A 2d 107, 112, 110 Vt. 147.
"One of the cardinal rules of construction of exemption laws is that the intention of the lawmakers must be ascertained and carried out... and the spirit and intention of the statute must prevail over its strict letter; that where a statute is ambiguous the court will in construing it, have regard to its object and spirit and follow that construction which carries out the purpose for which it was passed... Although it has been held that exemption laws are to be strictly construed, the rule adopted by practically all of the courts is that they are to be construed liberally, in favor of persons within their purview, so as to effectuate their beneficent purposes." 35 CJS 13.
The grant of exemptions of this nature rests upon the theory that such an exemption will benefit the body of the people and not upon any idea of lessening the burdens of the individuals benefiting from the exemption. The granting of exemptions of this nature is justified on the ground that such institutions perform a work which would otherwise have to be carried on by the public at the taxpayers' expense. To this extent then, the institutions deriving the benefit of the exemption decrease the taxpayers' burden. This theory is readily apparent when considering the purchase of milk by the public school systems on a competitive bid basis. To require that commercial enterprises be bound by a minimum price when dealing with these organizations would increase the price of milk to the governments thereby creating a greater drain on tax moneys.