Case Title: Q3 Stamped Metal, Inc. v. Zaino

Citation: 2001-Ohio-1270

Docket Number: 20000914

State: ohio

Court: Ohio Supreme Court

Date: 2001-08-15T00:00:00Z

Document:
[Cite as Q3 Stamped Metal, Inc. v. Zaino , 92 Oho St.3d 493, 2001-Ohio-1270] 
 
 
Q3 STAMPED METAL, INC., APPELLEE, v. ZAINO, TAX COMMR., APPELLANT. 
[Cite as Q3 Stamped Metal, Inc. v. Zaino (2001), 92 Ohio St.3d 493.] 
Taxation — Use tax — Exceptions — Forklift used to remove and replace dies in 
stamping presses used in manufacturing process does not qualify for 
exception contained in R.C. 5739.011(B)(4) — Purchases of welding 
helmets, glasses, and lenses used in manufacturing process involving 
stamping presses excepted from taxation under R.C. 5739.011(B)(4). 
(No. 00-914 — Submitted July 17, 2001 — Decided August 15, 2001.) 
APPEAL from the Board of Tax Appeals, No. 98-A-506. 
__________________ 
 
Per Curiam.  Q3 Stamped Metal, Inc. (“Q3”), appellee, located in 
Columbus, primarily manufactures parts for auto and truck companies, but it also 
manufacturers other products, such as dishwasher parts.  These parts are 
manufactured by inserting blank metal sheets into one or more stamping presses 
that shape the metal. 
 
Each stamping press contains metal dies that define the shape that the 
sheet metal will take when the press is closed.  When Q3 changes the product, it 
changes the dies used in a press.  Since these dies can weigh from a few hundred 
to seventy thousand pounds, Q3 uses a designated forklift to remove and replace 
them. 
 
As part of its production process, Q3 may also conduct welding 
operations.  In the welding operation, welders spot-weld parts together or rework 
other parts.  Welders operating in the welding area wear eye shields or goggles. 
 
For the audit period April 1, 1992 through June 30, 1996, the Tax 
Commissioner, appellant, assessed a use tax against Q3’s rental payments and 
purchases of repair parts for the forklift used to change dies in the stamping 
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presses.  In addition, the commissioner assessed a use tax against Q3’s purchases 
of welding helmets, glasses, and lenses (“welding equipment”).  Q3 filed a 
petition for reassessment with the commissioner, who denied the objections.  Q3 
appealed to the Board of Tax Appeals (“BTA”), which reversed the 
commissioner’s decision. 
 
This cause is now before the court upon an appeal as of right. 
 
The tax in question is the use tax; however, under R.C. 5741.02(C)(2) we 
apply the sales-tax exceptions contained in R.C. Chapter 5739. 
 
First, the commissioner contends that the forklift used to remove and 
replace dies in the stamping presses does not qualify for the exception contained 
in R.C. 5739.011(B)(4), while Q3 argues that this statute does apply.  We agree 
with the commissioner. 
 
R.C. 5739.01(E)(9) excepts sales from taxation when the purpose of the 
consumer is “[t]o use the thing transferred, as described in section 5739.011 of the 
Revised Code, primarily in a manufacturing operation to produce tangible 
personal property for sale.”  The property included in the term “thing transferred” 
in R.C. 5739.01(E)(9) is described in R.C. 5739.011(B)(4): 
 
“(B) For purposes of division (E)(9) of section 5739.01 of the Revised 
Code, the ‘thing transferred’ includes, but is not limited to, any of the following: 
 
“* * * 
 
“(4) Machinery, equipment, and other tangible personal property used 
during the manufacturing operation that control, physically support, produce 
power for, lubricate, or are otherwise necessary for the functioning of production 
machinery and equipment and the continuation of the manufacturing operation.” 
 
The commissioner argues that the forklift does not perform its work 
during the manufacturing process and is not “otherwise necessary for the 
functioning of production machinery and equipment and the continuation of the 
manufacturing operation.”  On the other hand, Q3 argues that the forklift is used 
January Term, 2001 
3 
during the manufacturing process and is vital for the continued functioning of the 
stamping presses and the continuation of the manufacturing process. 
 
The types of machinery, equipment, and other tangible personal property 
excepted by R.C. 5739.011(B)(4) are those that are “used during the 
manufacturing operation” and that either (1) control, (2) physically support, (3) 
produce power for, (4) lubricate, or (5) are otherwise necessary “for the 
functioning of production machinery and equipment and the continuation of the 
manufacturing operation.” 
 
The term “manufacturing operation” used in R.C. 5739.011(B)(4) is 
defined in R.C. 5739.01: 
 
“(S) ‘Manufacturing operation’ means a process in which materials are 
changed, converted, or transformed into a different state or form from which they 
previously existed and includes refining materials, assembling parts, and 
preparing raw materials and parts by mixing, measuring, blending, or otherwise 
committing such materials or parts to the manufacturing process. ‘Manufacturing 
operation’ does not include packaging.” 
 
The insertion of the definition of “manufacturing operation” into R.C. 
5739.011(B)(4) results in the requirement that the machinery, equipment, and 
other tangible personal property must be “used during [the process in which 
materials are changed, converted, or transformed into a different state or form 
from which they previously existed].” 
 
In order for the forklift to remove and replace the dies, the press must be 
stopped.  When the press is stopped, no manufacturing operation is being 
conducted. The removal and replacement of dies are not themselves 
manufacturing operations.  Thus, when the forklift is being used to remove and 
replace dies, it is not being used “during” a time when manufacturing operations 
are being conducted.  Furthermore, since the press can function and production 
can continue without the forklift, it is not necessary for the functioning of the 
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production machinery and equipment and the continuation of the manufacturing 
operation.  Thus, the forklift is not excepted under R.C. 5739.011(B)(4). 
 
The commissioner next argues that Q3’s purchases of welding equipment 
should not have been excepted by the BTA under R.C. 5739.011(B)(4).  The 
commissioner argues that the welding equipment is the type of safety equipment 
included in R.C. 5739.011(C)(6) and therefore not excepted from taxation.  To the 
contrary, Q3 maintains that the welding equipment is necessary for the 
continuation of its manufacturing operation and excepted by R.C. 5739.011(B)(4). 
 
R.C. 5739.011(C) provides that the term “thing transferred” for purposes 
of R.C. 5739.01(E)(9) does not include: 
 
“(6) Tangible personal property used for the protection and safety of 
workers, unless the property is attached to or incorporated into machinery and 
equipment used in a continuous manufacturing operation.” 
 
At the hearing before the BTA, Q3’s witness testified that its welding 
operations produced a lot of light, and one could not weld unless one had a shield 
because “[y]our eyes will get burned after a flash or two and you’ll be at the 
hospital.”  When asked if one would be able to see what one is welding without 
the shield, the witness answered, “no.” 
 
Q3 contends that the welding equipment is used primarily in a 
manufacturing operation and analogizes its use of the welding equipment to that 
of the equipment used in Example 17 contained in Ohio Adm.Code 5703-9-21.  
Ohio Adm.Code 5703-9-21 contains hypothetical situations facing manufacturers 
and the commissioner’s application of the sales tax statutes to the situation.  
Example 17 poses the following: 
 
“A manufacturer of high technology electronic equipment provides its 
workers with microscopes which enable them to manipulate the components as 
they are assembled into the product.” 
January Term, 2001 
5 
 
In his response to this hypothetical, the commissioner states, “The 
microscopes are not taxable because they are necessary for the continuation of the 
manufacturing operation.”  Q3 contends that its welding equipment, like the 
microscopes in the Tax Commissioner’s example, are necessary for the 
continuation of its manufacturing operation. 
 
The testimony of Q3’s witness discloses two functions for the welding 
equipment.  The welding equipment fulfills a safety function by protecting the 
welder’s eyes from the bright light and also fulfills a manufacturing function by 
permitting the welder to observe the welding being done.  Because the two 
functions coexist, the primary function of the welding equipment cannot be 
quantified on a time basis.  The BTA found that the items of welding equipment 
“are necessary and primarily used in the continuation of the manufacturing 
operation, for it is impossible to weld without use of the lenses and welding 
glasses.”  This court “will not overrule findings of fact of the Board of Tax 
Appeals that are based upon sufficient probative evidence.”  Hawthorn Mellody, 
Inc. v. Lindley (1981), 65 Ohio St.2d 47, 19 O.O.3d 234, 417 N.E.2d 1257, 
syllabus. 
 
We conclude that the facts support the BTA’s finding that the welding 
equipment meets the requirements of R.C. 5739.011(B)(4).  Just as the 
microscopes in Example 17 of Ohio Adm.Code 5703-9-21 are necessary to enable 
the workers to see the manufacturing operation they are conducting, the welding 
equipment is necessary to enable the welders to see the manufacturing operation 
they are conducting.  Therefore, like the microscopes in Example 17 of Ohio 
Adm.Code 5703-9-21, the welding equipment used by Q3 is necessary for the 
continuation of the manufacturing operation and excepted from taxation. 
 
Accordingly, we hold that the BTA’s decision regarding the forklift used 
for dies is unreasonable and unlawful, and we reverse it.  However, we find that 
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the decision of the BTA regarding welding equipment is reasonable and lawful 
and affirm it. 
Decision affirmed in part 
and reversed in part. 
 
MOYER, C.J., DOUGLAS, RESNICK and F.E. SWEENEY, JJ., concur. 
 
PFEIFER and LUNDBERG STRATTON, JJ., concur in part and dissent in part. 
 
COOK, J., concurs in part and dissents in part. 
__________________ 
 
COOK, J., concurring in part and dissenting in part.  I agree with the 
majority that the forklift designated for removal and replacement of dies does not 
meet R.C. 5739.011(B)(4)’s definition of “thing transferred” and thus does not 
qualify for R.C. 5739.01(E)(9)’s exception to the use tax.  Unlike the majority, 
however, I believe that the BTA’s decision regarding the welding helmets, 
glasses, and lenses was unreasonable and unlawful.  This property fits R.C. 
5739.011(C)(6)’s exception to R.C. 5739.011(B)(4), and that should be the end of 
the matter.  The majority’s analogy between this property and the microscopes 
described in Ohio Adm.Code 5703-9-21, Example 17, is unpersuasive.  Such 
microscopes, unlike the welding helmets, glasses, and lenses at issue here, are not 
“used for the protection and safety of workers.”  R.C. 5739.011(C)(6).  I would 
reverse the decision of the BTA. 
__________________ 
 
LUNDBERG STRATTON, J., concurring in part and dissenting in part.  I 
concur with the majority in affirming the BTA as to the use of welding helmets, 
glasses, and lenses but respectfully dissent as to the reversal of the BTA on the 
forklift issue. 
 
We state in our opinion in affirming the helmets, glasses, and lenses 
portion that “[t]his court ‘will not overrule findings of fact of the Board of Tax 
Appeals that are based upon sufficient probative evidence,’ ” quoting Hawthorn 
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Mellody, Inc. v. Lindley (1981), 65 Ohio St.2d 47, 19 O.O.3d 234, 417 N.E.2d 
1257, syllabus.  Yet overruling such a finding of fact is precisely what we do in 
reversing as to the forklift. 
 
The BTA made a factual determination, based on the testimony of several 
witnesses, that the forklift was essential to the manufacturing process.  The BTA 
in its opinion found,  “Obviously, the die setter forklift is ‘necessary for the 
functioning of production machinery and equipment and the continuation of the 
manufacturing operation,’ considering the average die weights involved in Q3’s 
manufacturing processes.  Clearly, it would not be humanly possible to lift, move, 
and maneuver these dies into place without the assistance of the forklift, and 
without the dies, the production equipment would not operate and the 
manufacturing process would cease.  Accordingly, transactions involving the die 
setter forklift shall be removed from the assessment,” quoting R.C. 
5739.011(B)(4). 
 
Yet we now substitute our opinion on this factual finding and determine 
that the forklift is not essential to the manufacturing process. 
 
The factual findings of the BTA were not unlawful or unreasonable.  We 
merely differ.  Such is not a basis for a reversal. 
 
Therefore, I would respectfully affirm the BTA decision in its entirety. 
 
PFEIFER, J., concurs in the foregoing opinion. 
__________________ 
 
Brickler & Eckler, L.L.P., Mark A. Engle and Mary L. Robins, for 
appellee. 
 
Betty D. Montgomery, Attorney General, and Robert C. Maier, Assistant 
Attorney General, for appellant. 
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