Title: Dept. of Assessments v. Consolidation

State: maryland

Issuer: Maryland Supreme Court

Document:

State Department of Assessments and Taxation et. al. v. Consolidation Coal Sales Company,
No.  135, September Term 2003
[Tax-Property – Under Section 7-225(c) of the Tax-Property Article, a coal blending facility
that is primarily a storage, shipping, and receiving facility is disqualified from receiving a
manufacturer’s exemption from personal property taxation.]
[Tax-Property – Under Section 1-101(r)(ii) of the Tax-Property Article, coal “blending”
activities do not constitute manufacturing, which requires mining operations to both extract
and process minerals in order to qualify as manufacturing.]
[Tax-Property – Under the more general definition of manufacturing in Section 1-101(r)(1)
of the Tax-Property Article, coal “blending” activities do not constitute manufacturing
because the coal product left the facility in the same state as when it arrived and “a new and
different article” must be produced.]   
IN THE COURT OF APPEALS OF
MARYLAND
No.  135
September Term 2003
__________________________________
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION 
ET AL.
V.
CONSOLIDATION COAL SALES
COMPANY 
_________________________________
Bell, C.J.
Raker
Wilner
Cathell
Harrell
Battaglia
Greene,
JJ.
Opinion by Battaglia, J.
Filed:   August 3, 2004
In this case, we must determine whether Consolidated Coal Sales Company
(hereinafter “CCSC”) is entitled to a manufacturer’s exemption from personal property
taxation pursuant to Maryland Code, Section 7-225 of the Tax-Property Article (1985, 2001
Repl. Vol.) , which excludes storage, shipping, and receiving facilities from receiving the
exemption.  After deciding that CCSC is a storage, shipping, and receiving facility and that
CCSC’s “blending” activities do not constitute “manufacturing” as it is defined by Section
1-101(r) of the Tax-Property Article, the Tax Court concluded that  CCSC does not qualify
for the exemption.  We agree with the Tax Court and hold that CCSC is ineligible for the
manufacturer’s exemption.   
I.   Introduction
A.  Facts
In light of the fact that the parties base their arguments on whether a procedure called
“blending” constitutes “manufacturing” for the purposes of the manufacturing exemption,
we shall review in detail the coal production and shipping process at issue in this case. 
In the Port of Baltimore, CCSC, a subsidiary of Consol Energy, Inc. (hereinafter
“Consol”), operates a terminal that receives, stores, and ships coal to domestic and
international markets on behalf of coal producers,  coal  brokers,  and utilities.   The majority
of the coal that CCSC receives is extracted from Consol’s Bailey Mine Complex in
southwestern Pennsylvania, which covers more than two hundred and seventy-five square
miles and is the world’s largest underground mining complex.  
The coal extracted from the Bailey Mine Complex is processed by the Bailey Central
2
Preparation Plant before it is sent to facilities such as CCSC or sold directly to customers.
Processing consists of “sizing,” “cleaning,” and “blending” the raw coal.  Sizing occurs when
raw coal, which can consist of a mass as large as a basketball, is crushed to form roughly
uniform two-inch squares.  The cleaning process removes rock, wood, and other extraneous
materials from the raw coal that generally comprise 25 percent of the raw coal or
approximately 25 tons of material for every 100 tons of raw coal that is cleaned at the Bailey
plant.  After the coal is cleaned, it then is dried using mechanical processes described by its
engineers as “gravity dewatering” and “thermal dewatering.”
Once the coal is sized, cleaned, and dried, it undergoes a sophisticated “blending”
process while still at the Bailey Central Preparation Plant.  Because coal consists of different
and measurable amounts of BTU, ash, and sulphur, blending is necessary in order to create
a coal product containing specific amounts of those materials that meet customers’ needs.
CCSC describes blending as “the taking of large quantities of coals of different chemical
components and processing those component coals in such a way that the composite, when
complete, meets the customer’s requirements throughout.”  Utilities, for example, prefer coal
having low sulphur levels because of environmental restrictions related to sulphur emissions.
Using equipment estimated to be worth approximately one hundred million dollars,
the blending process at the Plant utilizes “nuclear analytical devices” to measure the sulphur
content of the coal material.  Based on these measurements, the coal is sorted into five
different storage bins.  Each bin contains coal having the same quality and stores 30,000 tons
3
of coal.  The quality of coal in a bin varies somewhat each day, however, depending on what
coal seam is being mined at that time.   According to one Consol manager, “[t]oday it might
be 1.1 to 1.2 sulphur, because that’s what [you’re] producing . . . .  Tomorrow it’s another.”
In addition, within each bin, the coal is broken into ten “increments,” with each increment
reflecting a sulphur amount between the sulphur content limits of that bin.
Although all the coal at the Bailey Central Preparation Plant is blended at the plant to
meet customer specifications, the blended coal still may be “incompatib[le]” with a
customer’s requirements because the instruments predicting the quality of the coal being
currently mined from a seam are “only so accurate.”  Because the Bailey Plant has limited
storage space, it utilizes the CCSC terminal in Baltimore, “a facility that can receive material
on demand in order to keep [Bailey] operating.”  Therefore, in addition to serving as a
shipping facility, the CCSC terminal also operates, in part, as a storage facility to “take[ ] up
. . . the slack” when the Bailey mine produces coal that falls below customer requirements.
CCSC receives the majority of its coal by railway.  When the coal arrives at CCSC,
the trains are brought to its “dumper facility,” which is located in the “thaw shed.”  The thaw
shed contains large heaters used to heat the rail cars in cold weather in order to remove and
separate frozen coal from the sides of the rail cars.  The “dumper” then empties the rail cars
by turning them upside down, and the coal is discharged across what is called a “grisly,”
which screens from the coal unwanted material such as rocks that may get into the coal
during transit. 
4
After the screened coal moves through the grisly, it then moves into “hoppers,”  which
collect and control the rate of the coal and discharge onto a conveyor belt.  The coal then
leaves the thaw shed area and is conveyed on a belt to “Transfer Point #1,” a housing station
where samples of the coal sometimes are taken in order to be tested at a laboratory off-site.
From this point, the coal is moved on conveyor belts directly to a shipping vessel or to
“Transfer Point #2," a meeting point for two more conveyor belts that take the coal either to
the stockpiles or to a “surge bin,” a large storage bin.  Coal taken to the stockpiles is  moved
through “stacker reclaimers,” large machines that have “bucket wheels” that both stack the
coal for storage purposes and reclaim the coal when it is to be shipped.  The coal is stored
in different stacks based on its grade.
When coal is reclaimed, it can be mixed with other grades of coal as it is sent back
down the conveyor belt and loaded into either the surge bin or onto a shipping vessel.
According to CCSC, this remixing process constitutes a continuation of the blending process
that began at the Bailey Plant.  The remixing of inventory allows CCSC to combine coal of
different sulphur and ash content in order to create a different average sulphur content for
a cargo load in order to meet a customer’s specifications.  When mixed, the chemical content
of the coal remains the same, although the average chemical content of a load may change.
A typical CCSC cargo contains a mix or “blend” of coal from three to six stockpiles. 
B.  Administrative History  
CCSC filed personal property tax returns with the Maryland State Department of
1
Maryland Code, Section 14-505 of the Maryland Tax-Property Article (1985, 2001
Repl. Vol.) provides:
(a) In general.  – For personal property assessed by the
Department, the owner who reported cost or market information
for the personal property to the Department but failed to report
the information accurately may appeal the value or classification
of the personal property set forth in the notice of assessment by
submitting a petition for review to the Department if:
(1)
the owner claims that the personal property
is valued at a higher value than if the
5
Assessments and Taxation (hereinafter “SDAT”) for the machinery and equipment at its
Baltimore facility for the 1997-1999 tax years.  CCSC did not report any of its personal
property as manufacturing property and stated that the nature of its business in Maryland was
“exportation of coal.”  According to SDAT, CCSC’s personal property, based on its returns,
was assessed as follows:
Tax Year
Date of
Assessment Notice
Amount of Assessment
(Baltimore City)
1997
5/20/97
$14,917,720
1998
1/7/99
$14,596,480
 1999 
11/23/99
$13,212,260
On May 19, 2000, CCSC filed amended returns for 1997-1999, and submitted an
“exemption application for manufacturing and research and development, stating that most
of its property was used in manufacturing.”  CCSC sought to amend its returns for the prior
three-year period for 1997-1999 based on SDAT’s practice at that time under Section 14-505
of the Maryland Tax-Property Article,1 which allowed a taxpayer who had “failed to report
information had been reported accurately;
and
(2)
the appeal is made within 3 years of the
date of the notice of assessment.
(b) Hearing required.  – If the requirements of subsection (a) of
this section are met, the Department shall hold a hearing as
provided under § 14-510 of this subtitle.
This section was repealed effective July 1, 2002.  2002 Md. Laws, ch. 529. 
6
[cost or market] information accurately [to] appeal the value or classification of personal
property set forth in the notice of assessment . . . within 3 years of the date of the notice of
assessment” by filing an amended return reclassifying the property.  In addition to its effort
to amend its 1997-1999 returns in order to receive the manufacturing exemption for those
years, CCSC claimed in its 2000 tax return that its equipment was used in manufacturing and
that the nature of its business in Maryland was “coal blending” instead of “exportation of
coal.”  
On January 21, 2001, SDAT rejected CCSC’s application for a manufacturing
exemption, denied CCSC the manufacturing exemption for the years 1997-2000, and issued
a notice of assessment for CCSC’s property at $12,641,700 for 2000. 
On February 7, 2001, CCSC appealed the notice of assessments and requested a
hearing with SDAT, which held an informal hearing on May 10, 2001.  On August 16, SDAT
issued final notices of assessment to CCSC and concluded that:
1)  [CCSC] did not timely file an application for the exemption
for the tax year under review.
2) Tax-Property Article §§ 14-906 and 14-915 restrict the time
2
See supra note 1.
3
Maryland Code, Section 14-906 of the Maryland Tax-Property Article (1985, 2001
Repl. Vol.), “Property tax refund criteria,” provides:
(a)  No claim required.  – A person shall receive a refund of
7
for a refund based on a missed exemption to one year.
3) [CCSC] is not legally entitled to a manufacturing exemption.
The final assessment notices also indicated the following assessments for the years 1997-
2000:
Tax Year
Date of Assessment
Notice
Amount of
Assessment
(Baltimore City)
1997
8/16/2001
$13,362,510
1998
8/16/2001
$13,097,690
1999
8/16/2001
$12,825,400
2000
8/16/2001
$12,641,700
During the time CCSC was appealing the assessments, SDAT revised its practice with
respect to the limitations period regarding the manufacturer’s exemption.   Prior to its change
in practice, SDAT allowed taxpayers to file amended returns seeking a manufacturer’s
exemption for up to three prior years pursuant to Section 14-505(a), the general limitations
period allowed for reclassification of personal property.2  On August 14, 2001, SDAT issued
to its staff an internal memorandum stating that a one-year limitations period applied to
taxpayers seeking a manufacturer’s exemption for prior years in conformance with Sections
14-9063 and 14-9154 of the Tax-Property Article. 
excess property tax paid on property without submitting a refund
claim to the collector if the payment is erroneous due to a lower
final property tax liability than:
(1) the advance property tax payment made under
§ 10-205 of this article; or
(2) the estimated property tax payment made
under §10-210 of this article.
(b) When protest not required before refund claim submitted.  –
(1) If a person submits a refund claim to the
collector within the time required by §14-915 of
this subtitle, the person shall receive a refund of
excess property tax paid on personal property if
the payment is erroneous due to:
i) 
a 
determination 
by 
the
appropriate 
supervisor 
or 
the
Department that the payment is
based on an erroneous assessment
that did not allow for an exemption
to which the person was entitled by
r e g ul a t i o n , 
a d ministrativ e
interpretation, or controlling case
law at the time of the assessment;
or
ii) a lower final property tax
liability than the advance property
tax payment made under §10-206
of this article.
(2) The person is eligible for a property tax refund
under paragraph (1)(i) of this subsection whether
or not the person has submitted a protest or
appealed the assessment.
(c) When claim for refund allowed.  – A person may claim a
refund of the excess property tax liability fee if the payment is
erroneous due to a lower final property tax liability than the
advance payment made under § 10-205 of this article.
This section was amended effective July 1, 2002.  2002 Md. Laws, ch. 529. 
4
Maryland Code, Section 14-915 of the Maryland Tax-Property Article (1985, 2001
Repl. Vol.), “Time for filing,” provides:
8
To be eligible for a refund, a person must submit a refund claim
on or before:
(1)  3 years from the date that the property tax is paid, for a
claim under § 14-904, § 14-905(a), (b), or (d), or § 14-906(c) of
this subtitle;
(2) 3 years from the date that the recordation tax is paid, for a
claim under § 14-907 of this subtitle;
(3) 3 years from the date that the transfer tax is paid, for a claim
under § 14-908 of this subtitle;
(4) 1 year from the date of finality of the erroneous assessment
of personal property for which a claim is submitted under §14-
906(b)(1)(i) of this subtitle; or
(5) 1 year from the date that the tax rate is fixed for the taxable
year following an advance payment of property tax on personal
property for which a claim is submitted under § 14-906(b)(1)(ii)
of this subtitle.
This section was amended effective July 1, 2002.  2002 Md. Laws, ch. 529. 
9
On September 13, 2001, CCSC appealed to the Maryland Tax Court the final notices
of assessment that SDAT had issued on August 16.  The State Department of Assessments
and Taxation and the Mayor and City Council of Baltimore responded.  Judge Steven E.
Silberg of the Tax Court held a two-day hearing on May 8, 2002 and June 13, 2002.  On June
26, 2002, in an oral decision, Judge Silberg upheld SDAT’s assessments.  Judge Silberg
determined that CCSC operated a storage and shipping facility, noting that storing and
shipping are  non-manufacturing activities under Maryland Code, Section 7-225(c) of the
Tax-Property Article, which states that “[p]roperty does not qualify for the exemption under
this section if the property is used primarily in administration, management, sales, storage,
5
Maryland Code, Section 7-255 of the Tax-Property Article (1985, 2001 Repl. Vol.)
provides:
(a) General Exception.  — Except as provided in § 7-109 of this
title and in subsection (b) of this section, if used in
manufacturing, the following personal property, however
operated and whether or not in use, is not subject to property
tax:
(1) tools;
(2) implements;
(3) machinery; or
(4) manufacturing apparatus or engines.
(b) County exceptions.  – Except as provided by § 7-108 of this
title, the personal property listed in subsection (a) of this section
is subject to a county property tax on:
(1)  100% of its assessment in Garrett County,
Somerset County, Wicomico County, and
Worcester County; and  
(2) 75% of its assessment in Allegany County.
(c) Property used for nonmanufacturing activity. – Property
does not qualify for the exemption under this section if the
property is used primarily in administration, management, sales,
storage, shipping, receiving, or any other nonmanufacturing
activity.
(d) Application and granting of the exemption. - In order to
qualify for the exemption under this section, a person claiming
the exemption must apply for and be granted the exemption by
the Department.
6
Maryland Code, Section 1-101(r) of the Tax-Property Article (1985, 2001 Repl. Vol.)
provides:
(1) "Manufacturing" means the process of substantially
transforming, or a substantial step in the process of substantially
transforming, tangible personal property into a new and different
article of tangible personal property by use of labor or
10
shipping, receiving, or any other nonmanufacturing activity.”5  
Judge Silberg also concluded that CCSC did not qualify for an exemption under
Section 1-101(r), the general provision defining manufacturing in the Tax-Property Code,6
machinery.
(2) "Manufacturing" includes:
(i) the operation of sawmills, grain mills, or feed
mills;
(ii) the operation of machinery and equipment
used to extract and process minerals, metals, or
earthen materials or by-products that result from
the extracting or processing;
(iii) research and development activities, whether
or not the company has a product for sale;
(iv) the identification, design, or genetic
engineering of biological materials for research or
manufacture; and
(v) the design, development, or creation of
computer software for sale, lease, or license.
(3) "Manufacturing" does not include:
(i) activities that are primarily a service;
(ii) activities that are intellectual, artistic, or
clerical in nature;
(iii) public utility services, including telephone,
gas, electric, water, and steam production
services; or
(iv) any other activity that would not commonly
be considered as manufacturing.
11
because the provision defines manufacturing as “the process of substantially transforming,
or a substantial step in the process of substantially transforming, tangible personal property
into a new and different article of tangible personal property by use of labor or machinery.”
He stated:
Clearly, they are receiving coal primarily from their mine in
Pennsylvania, though, in addition, they get some coal from some
other sources.
It arrives by train.  It is removed from the train and put into piles
[at] the facility.  And in order to satisfy demand from customers,
12
removed from those piles and either shipped by boat or train to
the customer.
In between those two events there is some fairly sophisticated
process of blending that’s taking place.  The blending is to allow
the meeting of specific requirements of the customer for
sulphur, primarily, but also for possibly other chemical
characteristics of the coal.
This blending process can take place either in the way the coal
was stacked or the way the coal is removed from the cars or
using some combination of the variety of equipment that’s at the
facility.
I think the testimony was fairly clear that [the]  individual
nuggets of coal that arrived are shipped out without any change
occurring to them.
The blending process may change, which other nuggets of coal
are combined to that one when it’s shipped.  It may not be the
entire batch it arrives with.
It’s my determination that this whole process is not a substantial
transformation or a substantial step in the process of
substantially transforming this coal.  The coal is pretty much the
same form when it leaves as when it arrives.
Judge Silberg further found that Section 1-101(r)(2)(ii), which specifically includes
within the definition of manufacturing “the operation of machinery and equipment used to
extract and process minerals, metals, or earthen materials or by-products that result from the
extracting or processing,” did not apply to the CCSC facility either because “it’s fairly clear
that the facility in Maryland doesn’t extract any minerals . . . . You have to do both extracting
and processing to apply to that section.”  Judge Silberg also noted that CCSC had classified
itself as a “transportation facility of some sort” in “documents that were filed with the
13
government” such as environmental reports.  
Finally, with respect to CCSC’s argument that it was entitled to the three-year
limitations period for the purposes of retroactive relief instead of one year, Judge Silberg
acknowledged that “this [was] a change in the way [SDAT] had been doing things” but found
that the Tax Code “dictate[d] that the shorter time period [was] the appropriate one.”  Judge
Silberg issued an order affirming SDAT’s assessments on July 23, 2002.
C.  Procedural History
On August 1, 2002, CCSC filed a timely petition for judicial review in the Circuit
Court for Baltimore City.  SDAT and the Mayor and City Council of Baltimore responded.
On August 5, 2003, the Circuit Court reversed the Tax Court, concluding it had  “erroneously
interpreted the tax statute, specifically §1-101(r), and misapplied it to the facts” because
“CCSC’s blending activities are a substantial step in the substantial transformation of coal.”
The Circuit Court judge observed:
CCSC’s blending of coal and associated activities are vital
because nuggets of raw coal do not automatically meet the needs
of the end-users of the coal.  The nuggets must be blended into
batches, the chemical composite of which, when burned, meets
the chemical needs of each specific end-user. . . Without
blending, the coal would be of no use to the end-users.  The
blending is crucial despite the fact that each individual nugget
of coal remains unchanged.
With respect to whether the three-year or one-year limitations period applied, the
judge concluded that the one-year statutory limitation period in Section 14-906(b) applied
because it “specifically applies to refunds for assessments of personal property that are
7
The State Department of Assessments and Taxation presented the following questions:
1.  Did the Circuit Court err when it substituted its judgment for
14
erroneous because they do ‘not allow for an exemption to which the person was entitled by
regulation, administrative interpretation, or controlling case law.’”   While acknowledging
that SDAT, in the past, had given taxpayers a three-year period to apply for manufacturing
exemptions, it concluded that, “[a]round the time that CCSC filed it exemption applications,
SDAT began applying the one-year time limitation to all taxpayers that applied for
manufacturing exemptions [and] denied CCSC’s exemption applications for this reason.”
The judge, thus, concluded that CCSC’s 1997 and 1998 exemption applications should be
denied but that the 1999 application was timely filed.
SDAT, the Mayor and City Council of Baltimore, and CCSC noted appeals to the
Court of Special Appeals, and this Court issued, on its own initiative, a writ of certiorari,
Department of Assessments v. Consolidated Coal, 380 Md. 230, 844 A.2d 427 ( 2004), prior
to any proceedings in the intermediate appellate court.  For the sake of clarity, we have
rephrased the parties’ questions presented for our review:
1.   Did the Circuit Court err when it concluded that CCSC was
entitled to the manufacturer’s exemption under Section 7-225 of
the Tax-Property Article?  
2.   Did the Tax and Circuit Courts err when they applied the
one-year limitations period applicable to tax exemptions under
Section 14-906(b) as opposed to the general three-year
limitation period for incorrect reporting under Section 14-505 of
the Tax-Property Article?7
the Tax Court’s judgment where the Tax Court had factually
found that CCSC’s personal property was not used in
manufacturing because it did not extract and process coal, its
property was primarily used in receiving, storage, and shipping,
and its activities did not meet the substantial transformation test?
2.  Even assuming CCSC’s property is used in manufacturing,
did the Tax Court properly find that CCSC was ineligible for a
manufacturing exemption for 1997-1999 because it did not
timely file a manufacturing exemption application, and did not
timely request an exemption under the “retroactive exemption”
statutes?
The Mayor and City Council of Baltimore presented the following questions:
1.  Was the tax court’s decision that CCSC is not entitled to a
manufacturing exemption supported by substantial evidence?
2.  Was the tax court correct in applying a specific one-year
limitation period a retroactive application for a tax exemption,
as opposed to a general three-year limitation period for incorrect
reporting?
Finally, CCSC presented its questions in the following way:
1.  Whether the Circuit Court correctly determined on the
undisputed facts that the sophisticated coal blending at CCSC
entitles CCSC to a manufacturer’s exemption from personal
property taxation?
2.  Whether the courts below erred in concluding that CCSC was
not entitled to a manufacturer’s exemption for the 1997 and
1998 years pursuant to the Department’s longstanding
interpretation of more than 20 years duration based on CCSC’s
amended returns reclassifying its property under Tax-Property
Article §14-505? 
15
We conclude that the Tax Court was correct and reverse the judgment of the Circuit Court
16
for Baltimore City with respect to its determination that CCSC was entitled to the
manufacturer’s exemption under Section 7-225.   Because we determine that CCSC was not
entitled to the exemption, we need not address which statute of limitations period applied.
II.  Standard of Review
The parties in this case dispute what standard of review applies to the Tax Court’s
conclusions.  CCSC maintains that the facts before the Tax Court were undisputed; as such,
in CCSC’s view, the Tax Court’s legal conclusion based on those undisputed facts should
be treated as an issue of law and afforded no deference by the reviewing court.  SDAT and
the Mayor and City Council of Baltimore, on the other hand, argue that the reviewing court
should defer to the Tax Court’s conclusions because it made three factual rulings, and then
applied the law correctly to those facts, namely that 1) CCSC was a shipping and storage
facility and thus was excluded from the definition of manufacturing under Section 7-225(c);
2) CCSC does not extract and process coal and thus does not meet the definition of
manufacturing under Section 1-101(r)(2)(ii); and 3) CCSC did not substantially transform
or perform a substantial step in the substantial transformation of tangible personal property
and thus does not meet the definition of manufacturing under Section 1-101(r)(1).
Because the Maryland Tax Court is an administrative agency, “[t]he standard of
review for Tax Court decisions is generally the same as that for other administrative
agencies.”  Supervisor of Assessments v. Hartge Yacht Yard, Inc., 379 Md. 452, 461, 842
A.2d 732, 737 (2004).  “When we consider an administrative agency decision, we review the
8
Section 13-532(a) of the Tax-General Article provides:
(a)(1) A final order of the Tax Court is subject to judicial review
as provided for contested cases in §§ 10-222 and 10-223 of the
State Government Article.
(2) Any party to the Tax Court proceeding, including a
governmental unit, may appeal a final order of the Tax Court to
the circuit court.
(b) When an order of the Tax Court is subject to judicial review,
that order is enforceable unless the reviewing court grants a stay
upon such condition, security or bond as it deems proper.
Maryland Code, Section 13-532 of the Tax-General Article (1988, 1997 Repl. Vol.).
17
agency’s decision applying the same statutory standards as used by the preceding reviewing
court.”  Christopher v. Montgomery County Dept. of Health and Human Services, 381 Md.
188, 197, 849 A.2d 46 (2004); Spencer v. Maryland State Bd. of Pharmacy, 380 Md. 515,
523-24, 846 A.2d 341, 346 (2004). 
Under Section 13-532(a) of the Tax-General Article,8 the standards of judicial review
found in Sections 10-222 and 10-223 of the State Government Article applicable generally
to administrative agencies likewise apply when reviewing decisions of the Tax Court.  As we
have explained:
Accordingly, under this standard, a reviewing court is under no
statutory constraints in reversing a Tax Court order which is
premised solely upon an erroneous conclusion of law.
On the other hand, where the Tax Court's decision is based on
a factual determination, and there is no error of law, the
reviewing court may not reverse the Tax Court's order if
substantial evidence of record supports the agency’s decision.
Hartge Yacht Yard, Inc., 379 Md. at 461, 842 A.2d at 737 (citations omitted). Similarly, we
18
have held that “determinations involving mixed questions of fact and law must be affirmed
if, after deferring to the Tax Court's expertise and to the presumption that the decision is
correct, a reasoning mind could have reached the Tax Court's conclusion."  NCR Corp. v.
Comptroller., 313 Md. 118, 133-134, 544 A.2d 764, 771 (1988)(quoting Comptroller v.
NCR, 71 Md.App. 116, 133, 524 A.2d 93, 101 (1987))(internal quotation marks omitted).
See also Colonial Pipeline Co. v. State Dept. of Assessments and Taxation,  371 Md. 16, 28,
806 A.2d 648, 655 (2002)(stating that “[t]he applicable standard of judicial review of the
final order of the Tax Court ‘depends on whether the court is reviewing a question of law,
question of fact, or a mixed question of law and fact’”).  
Ordinarily, then, a final order of the Tax Court must be upheld on judicial review if
it is legally correct and reasonably supported by the evidentiary record.  Comptroller v.
Clyde’s of Chevy Chase, Inc., 377 Md. 471, 482, 833 A.2d 1014, 1020 (2003)(stating that,
when reviewing a decision of the Tax Court, “we are limited to determining the legality of
the decision of the Tax Court and whether there was ‘substantial evidence’ in the record to
support its findings and conclusions”)(quoting Supervisor of Assessments of Baltimore
County v. Keeler, 362 Md. 198, 207-08, 764 A.2d 821, 826 (2001).  As we observed in
Insurance Commissioner v. Engleman, 345 Md. 402, 411, 692 A.2d 474, 479 (1997), “[t]his
standard of review is both narrow and expansive.”
It is narrow to the extent that reviewing courts, out of deference
to agency expertise, are required to affirm an agency's findings
of fact, as well as its application of law to those facts, if
reasonably supported by the administrative record, viewed as a
19
whole.  The standard is equally broad to the extent that
reviewing courts are under no constraint to affirm an agency
decision premised solely upon an erroneous conclusion of law.
Id. (citations omitted).  Under this standard, therefore, our scope of review remains narrow
if a reasoning mind could have reached the Tax Court’s conclusion based on the evidence.
We will not broaden our scope of review and overturn the Tax Court’s decision unless it was
based on an error of law.  See Adventist Healthcare Midatlantic, Inc. v. Suburban Hosp., Inc.,
350 Md. 104, 120, 711 A.2d 158, 166 (1998)(stating that “[a] court's role in reviewing
contested case decisions made by administrative agencies ‘is limited to determining if there
is substantial evidence in the record as a whole to support the agency's findings and
conclusions, and to determine if the administrative decision is premised on an erroneous
conclusion of law’”)(quoting United Parcel v. People’s Counsel, 336 Md. 569, 577, 650
A.2d 226, 230 (1994)).  
In addition, while ambiguous tax statutes are construed in favor of the taxpayer, see
Clyde’s, 377 Md. at 484, 833 A.2d at 1021, tax exemption statutes are strictly construed
against the taxpayer and in favor of the taxing authority.  In Supervisor of Assessments of
Baltimore County v. Keeler, 362 Md. 198, 209, 764 A.2d 821, 827 (2001), we explained:
It is fundamental that statutory tax exemptions are strictly
construed in favor of the taxing authority and if any real doubt
exists as to the propriety of an exemption that doubt must be
resolved in favor of the State. In other words, ‘to doubt an
exemption is to deny it’ . . . . [T]he State's taxing prerogative is
never presumed to be relinquished and the abandonment of this
power must be proved by the party asserting the exemption.
20
(quoting Chesapeake & Potomac Tel. Co. v. Comptroller, 317 Md. 3, 11, 561 A.2d 1034,
1038 (1989)).  Of course, while tax exemption statutes are to be strictly construed, the
construction must be “a fair one, so as to effectuate the legislative intent and objectives.”
Perdue Foods, Inc. v. State Dep’t of Assessments and Taxation, 264 Md. 672, 687-88, 288
A.2d 170, 178 (1972)(quoting Maryland State Fair & Agric. Soc’y, Inc. v. Supervisor of
Assessments of Baltimore County, 225 Md. 574, 588, 172 A.2d 132, 139 (1961)).  As we
have often opined, we discern legislative intent by analyzing the statute’s plain language, and
we give effect to the statute as it is written where “the words of a statute, construed according
to their common and everyday meaning, are clear and unambiguous.” Clyde’s, 377 Md. at
483, 833 A.2d at 1021 (establishing the standard of review for a tax statute)(internal
quotation marks omitted)(quoting Moore v. Miley, 372 Md. 663, 677, 814 A.2d 557, 566
(2003)).  Only where the statutory language is ambiguous do we look beyond the statute’s
plain language in order to discern legislative intent.  Id.  
III.  Discussion
SDAT and the Mayor and City Council of Baltimore first contend that, because
Section 7-225(c) excludes “property . . . used primarily in . . . storage, shipping [or]
receiving” from the manufacturer’s exemption, the Tax Court correctly determined that
CCSC was disqualified from receiving the tax exemption.  The Circuit Court, in their view,
did not afford the Tax Court the appropriate deference when it determined that the processing
at CCSC is manufacturing because it is a substantial step in the processing of coal. 
21
SDAT and the Mayor and City Council of Baltimore further argue that, if the
“correctness as a matter of law” standard applies in this case at all, it is relevant only to the
Tax Court’s determination that Section 1-101(r)(2)(ii) of the Tax-Property Article requires
both the extraction and processing of coal in order for the manufacturing exemption to apply.
They assert that a plain reading of Section 1-101(r)(2)(ii) requires that manufacturing in a
mining and processing context requires the operation of machinery that is used to “extract
and process” minerals.  Because no extraction of minerals occurs at CCSC, they claim that
this definition of manufacturing does not apply and disqualifies CCSC from the exemption.
In addition, SDAT and the Mayor and City Council of Baltimore maintain that, under
the more general “substantial transformation” test, CCSC does not transform coal in a
significant enough way nor does its blending process constitute a substantial step in the
manufacturing process in order to be eligible for the manufacturer’s exemption.  The parties
support their argument by stating that CCSC handles and ships coal that already has been
processed; CCSC handles the processed coal at the “end” rather than the “beginning” of the
manufacturing process; CCSC’s blending process does not meet the common understanding
of manufacturing; CCSC described itself as a shipping or transportation facility in
government documents; and the scale of the operation and number of CCSC employees
indicates that manufacturing was not occurring at the CCSC facility.
CCSC, on the other hand, begins its argument by maintaining that the Circuit Court
did not err when it found that CCSC’s blending activities were a substantial step in the
22
substantial transformation of coal.  According to CCSC, Maryland case law regarding the
manufacturer’s exemption “require[s] the conclusion that manufacturing is a continuous
process that cannot be segregated by function for the purpose of an exemption or taxation.”
CCSC maintains that there is no “final product” of coal until after the blending occurs at its
facility, that the Bailey mine could not function as it does without CCSC’s blending process,
and that “blending . . . is an integral part of the manufacturing chain involved in preparing
coal for market.” 
CCSC furthermore argues that it also qualifies for the manufacturer’s exemption
because its equipment is used to “extract and process minerals . . . or by-products that result
from the extracting or processing” under Section 1-101(r)(2)(ii).  CCSC interprets the statute
in such a way that “or” is interchangeable with “and,” maintaining that “[i]t makes no sense
to construe the statute as requiring manufacturing to include only the extraction and
processing of minerals and earthen material and in addition thereto, construing it to include
the processing of byproducts of material extracted or processed.”  CCSC also contends that,
because the provision states that “‘manufacturing’ includes . . . the operation of machinery
and equipment used to extract and process minerals, metals, or earthen materials or
by-products that result from the extracting or processing,” it is indicating by way of example
and not by limitation how manufacturing should be defined.  In CCSC’s view, because the
statute was written in this way, “the determination whether any other activity constitutes
manufacturing was still left to the courts.”
23
CCSC also asserts that it is not a “storage, shipping, [or] receiving” facility
disqualifying it for the exemption under Section 7-225(c).  Rather, it claims that “[t]he
evidence before the Tax Court was undisputed and demonstrated as a matter of law that each
piece of equipment for which the exemption is sought is used in the manufacturing process.”
With respect to the fact that CCSC described itself as a transportation and shipping facility
in other documents, CCSC maintains that the Court must “look beyond labels to the actual
business of the taxpayer.”
A.
When the Tax Court made its decision, it determined that Section 7-225 of the Tax-
Property Article, which provides a tax exemption from personal property used in
manufacturing, did not apply to CCSC.  Section 7-225 provides:
(a) General Exception.  — Except as provided in § 7-109 of this
title and in subsection (b) of this section, if used in
manufacturing, the following personal property, however
operated and whether or not in use, is not subject to property
tax:
(1) tools;
(2) implements;
(3) machinery; or
(4) manufacturing apparatus or engines.
(b) County exceptions. . . . 
(c) Property used for nonmanufacturing activity. – Property
does not qualify for the exemption under this section if the
property is used primarily in administration, management, sales,
storage, shipping, receiving, or any other nonmanufacturing
activity.
(d) Application and granting of the exemption. - In order to
qualify for the exemption under this section, a person claiming
the exemption must apply for and be granted the exemption by
24
the Department.
Maryland Code, §7-225 of the Tax-Property Article (1985, 2001 Repl. Vol.).  Because the
statute clearly and unambiguously excludes “property . . . used primarily in . . . storage,
shipping [or] receiving” from the exemption, we believe the Tax Court was legally correct
when it determined that Section 7-225(c) disqualifies CCSC from receiving the tax
exemption based on its finding that the CCSC facility is “a very large scale and sophisticated
storage, shipping,[and] receiving facility.”  
The basic facts that CCSC is primarily a shipping and storage facility that utilizes a
“blending” procedure when it loads cargos of coal are undisputed.  The record more than
demonstrates that CCSC is, as the Tax Court decided, “a very large scale and sophisticated
storage, shipping,[and] receiving facility.”  As we explained in Comptroller v. SYL, Inc., 375
Md. 78, 105, 825 A.2d 399, 415 (2003), “where the facts before the administrative agency
were undisputed, the legal conclusion based on those facts has been treated as an issue of
law.”  We hold that CCSC, a shipping, storage, and receiving facility, is ineligible for the
manufacturer’s exemption because Section 7-225(c) specifically disqualifies such facilities
from receiving the exemption.   
 B.
In addition to concluding that CCSC is excluded under Section 7-225(c) from the
exemption because it is a storage, shipping, and receiving facility, the Tax Court also
determined that CCSC’s activities did not qualify as manufacturing under Section 1-101(r)
25
of the Tax-Property Article.  CCSC argued that it qualified both under Section 1-
101(r)(2)(ii), which specifically pertains to mining operations, and Section 1-101(r)(1), the
general definition of “manufacturing.”  Section 1-101(r), in its entirety, provides:
(1) "Manufacturing" means the process of substantially
transforming, or a substantial step in the process of substantially
transforming, tangible personal property into a new and different
article of tangible personal property by use of labor or
machinery.
(2) "Manufacturing" includes:
(i) the operation of sawmills, grain mills, or feed
mills; 
(ii) the operation of machinery and equipment
used to extract and process minerals, metals, or
earthen materials or by-products that result from
the extracting or processing;
(iii) research and development activities, whether
or not the company has a product for sale;
(iv) the identification, design, or genetic
engineering of biological materials for research or
manufacture; and
(v) the design, development, or creation of
computer software for sale, lease, or license.
(3) "Manufacturing" does not include:
(i) activities that are primarily a service;
(ii) activities that are intellectual, artistic, or
clerical in nature;
(iii) public utility services, including telephone,
gas, electric, water, and steam production
services; or
(iv) any other activity that would not commonly
be considered as manufacturing.
With respect to Section 1-101(r)(2)(ii), the definition of manufacturing includes “the
operation of machinery and equipment used to extract and process minerals, metals, or
earthen materials or by-products that result from the extracting or processing.”  In this
26
instance, the Tax Court decided as a matter of law that the statute required machinery to
extract and process minerals in order to qualify as manufacturing equipment.  When it
applied this conclusion of law to the facts of this case, the Tax Court decided that, because
CCSC did not extract minerals at its facility, it did not meet the definition of manufacturing
under Section 1-101(r)(2)(ii).  We agree.  
As the Tax Court pointed out, the plain language of the statute requires machinery to
extract and process minerals in order to be classified as manufacturing equipment.  In
Comptroller v. Fairchild Industries, Inc., 303 Md. 280, 285, 493 A.2d 341, 343 (1985), we
explored how we ordinarily construe the word “and”:
According to Black's Law Dictionary 79 (5th ed. 1979), the
word "and" is used as "[a] conjunction connecting words or
phrases expressing the idea that the latter is to be added to or
taken along with the first . . . . It expresses a general relation or
connection, a participation or accompaniment in sequence,
having no inherent meaning standing alone but deriving force
from what comes before and after. In its conjunctive sense the
word is used to conjoin words, clauses, or sentences, expressing
the relation of addition or connection, and signifying that
something is to follow in addition to that which proceeds and its
use implies that the connected elements must be grammatically
co-ordinate, as where the elements preceding and succeeding the
use of the words refer to the same subject matter.”
Given the above, we then concluded that “and” ordinarily is not interchangeable with “or.”
Id. at 285-86, 493 A.2d at 343-44.  Although some circumstances may require courts to
construe “and” as “or,” see Little Store, Inc. v. State, 295 Md. 158, 163, 453 A.2d 1215, 1218
(1983), we do so only “where it is necessary to effectuate the obvious intention of the
27
legislature.”  Fairchild Indus.,  303 Md. at 286, 493 A.2d at 344.  We discern no obvious
intent on the General Assembly’s part that “and” should be read as “or” here.  In fact, when
the provision was first introduced in 1965 in Senate Bill 43, the original language stated
“extraction or processing.”  1965 Md. Laws, ch. 94.  This language was rejected, however,
and the language  “extraction and processing” was included instead.  Id.  Affirmatively
rejecting “or” and opting for the word “and” suggests the General Assembly’s strong intent
to require equipment to both extract and process minerals in order to meet the definition of
manufacturing established in Section 1-101(r)(2)(ii).
As for the more general definition of manufacturing in Section 1-101(r)(1), we also
agree with the Tax Court that CCSC does not meet its requirements either.  Enacted in 1996,
Section 1-101(r)(1) codifies, in large part, the common law “substantial transformation”
test.”  1966 Md. Laws, ch. 174; 1996 House Committee on Ways and Means Floor and
Concurrence Reports on House Bill 2 (stating that the “language [of Section 1-101(r)]
conforms to the court decisions that have been made relating to property tax and sales tax
exemptions for manufacturing”).  Under Section 1-101(r)(1), “‘[m]anufacturing’ means the
process of substantially transforming, or a substantial step in the process of substantially
transforming, tangible personal property into a new and different article of tangible personal
property by use of labor or machinery.”  In both instances, whether the entire process or a
substantial step of the entire process transforms a product, the definition turns on whether a
“new and different article of tangible personal property by use of labor or machinery” is
28
produced.  Id. (emphasis added).  See State Dept. of Assessments and Taxation v. Consumer
Programs, Inc.,  331 Md. 68, 73, 626 A.2d 360, 363 (1993)(stating that the “determinative
factor” for the definition of manufacturing is “whether a product has gone through a
substantial transformation in form and uses from its original state”).   A review of our
decisions applying the “substantial transformation” test prior to its codification in Section 1-
101(r)(1) reveals that CCSC’s activities fall short of what it requires because a “new and
different article of tangible personal property” is not produced at the CCSC facility.   
In Perdue Foods, 264 Md. at 690, 288 A.2d at 179, for example, we held that a
chicken processing plant was engaged in manufacturing because the live chicken that arrived
at the plant was much different from the packaged broiler that left it.  In that case, live
chickens were slaughtered, de-feathered, washed, eviscerated, cut into pieces, wrapped,
chilled, and packaged before being shipped from the plant to be sold at the supermarket.  Id.
at 676-77, 288 A.2d at 172-73.  Emphasizing  how the product had changed, see id. at 689,
288 A.2d at 179, we thus concluded that the equipment at the Perdue facility fell under the
manufacturer’s exemption because the live chicken that had arrived at the plant had changed
into a new and different product, namely, a broiler fit to be cooked.   
In Perdue, Inc. v. State Dept. of Assessments and Taxation, 264 Md. 228, 286 A.2d
165 (1972), however, we declined to find that Perdue’s artificial incubation of eggs
constituted manufacturing.  Id. at 237, 286 A.2d at 170.  In that case, we defined
manufacturing as “the application to material of labor or skill whereby the original article is
29
changed to a new, different and useful article” and “emerges through the utilization of
ingenuity and labor.”  Id. at 236, 286 A.2d at 169.  Placing an egg in an environment
conducive to its hatching, we concluded, did not constitute manufacturing because the egg
was not changed due to effort on Perdue’s part.  Id. at 238, 286 A.2d at 170.  We
acknowledged, however, that “the line of demarcation between manufactured and non-
manufactured products may at times be rather indistinct,” and thus “the determinative factor
[is] whether the product has gone through a substantial transformation in form and uses from
its original state.”  Id. at 237, 286 A.2d at 170.
Similarly, we have found on many occasions that manufacturing exists when an article
has undergone a substantial transformation into a new and different article as a result of
human labor.  Manufacturing occurred, for example, when paper documents became
electronic documents when recorded on magnetic tape, Comptroller v. Disclosure, Inc., 340
Md. 675, 681, 667 A.2d 910, 912 (1995), film became pictures, Consumer Programs, 331
Md. at 76, 626 A.2d at 365, cotton became shirts, Mayor and City Council of Baltimore v.
Hanover Shirt Co., 168 Md. 174, 181-82, 177 A. 160, 163 (1935), raw corn became canned
corn, County Comm’r v. B.F. Shriver Co., 146 Md. 412, 418, 126 A. 71, 73 (1924), and
wheat became flour, Carlin v. the Western Assurance Co., 57 Md. 515, 527-28 (1882).  
On the other hand, we repeatedly have not found a substantial transformation where
products left the facility in essentially the same form in which they arrived, even though, in
some cases, some human labor was involved.   For example, liquid sulphur remained liquid
30
sulphur, even though the sulphur was heated while it was stored, Pan Am. Sulphur Co. v.
State Dept. of Assessments and Taxation, 251 Md. 620, 626, 248 A.2d 354, 358 (1968), gas
remained gas, but the application of changing pressure “performed no function whatever  in
the manufacture of gas,” Suburban Propane Gas Corp. v. Tawes, 205 Md. 83, 93-94, 106
A.2d 119, 124 (1954), and pre-printed sheets remained sheets, even though they were placed
in a binder before delivery to the customer, H.M. Rowe Co. v. State Tax Comm’n, 149 Md.
251, 257, 131 A. 509, 511 (1925).   
Here, as the Tax Court found, the coal remained coal:  the product left the CCSC
facility in the same state as when it arrived.  According to the Tax Court, it is “fairly clear
that [the] individual nuggets of coal that arrive[] are shipped out without any change
occurring to them” and “[t]he coal is pretty much the same form when it leaves as when it
arrives.”  Because the CCSC facility does not change the coal into a “new and different
article,” we hold that its activities do not constitute manufacturing under Section 1-101(r)(1)
of the Tax-Property Article.  
III.
The Tax Court correctly determined that CCSC was disqualified from receiving the
manufacturer’s exemption from personal property taxation under Section 7-225(c) of the Tax-
Property Article because CCSC is primarily a storage, shipping, and receiving facility.  The
Tax Court also was correct when it concluded that CCSC’s “blending” activities do not
constitute manufacturing under Section 1-101(r)(2)(ii) of the Tax-Property Article, which
31
requires mining operations to both extract and process minerals in order to qualify as
manufacturing, or under Section 1-101(r)(1) of the Tax-Property Article, which requires “a
new and different article” to be produced.   Accordingly, the Tax Court did not err when it
decided that CCSC is not eligible for the manufacturer’s exemption.     
JUDGMENT OF THE CIRCUIT COURT FOR
BALTIMORE CITY REVERSED; CASE
REMANDED TO THE CIRCUIT COURT
FOR BALTIMORE CITY FOR ENTRY OF
JUDGMENT AFFIRMING THE ORDER OF
THE MARYLAND TAX COURT; COSTS TO
B E  
P A I D  
B Y  
T H E  
A PP E L L E E
C O N S O L I D A T I O N  
C O A L  
S A L E S
COMPANY.