Case Name: DEPARTMENT OF REVENUE, Movant, v. STATE CONTRACTING AND STONE CO., INC., Respondent
Court: Supreme Court of Kentucky
Jurisdiction: Kentucky
Decision Date: 1978-09-19
Citations: 572 S.W.2d 421
Docket Number: 
Parties: DEPARTMENT OF REVENUE, Movant, v. STATE CONTRACTING AND STONE CO., INC., Respondent.
Judges: PALMORE, C. J., and CLAYTON, JONES, LUKOWSKY and REED, JJ., concurring.
Reporter: South Western Reporter Second Series
Volume: 572
Pages: 421–423

Head Matter:
DEPARTMENT OF REVENUE, Movant, v. STATE CONTRACTING AND STONE CO., INC., Respondent.
Supreme Court of Kentucky.
Sept. 19, 1978.
William S. Riley, Asst. Atty. Gen., William P. Sturm, Atty., Legal Staff, Dept, of Revenue, Frankfort, for movant.
Clarence McCarroll, Bartlett, McCarroll & Nunley, Owensboro, for respondent.

Opinion:
JONES, Justice.
The question presented is whether certain pollution control equipment and hot-mix storage bins used by State Contracting and Stone Co., Inc. are exempt from sales and use tax as "machinery used in new and expanded industry" as defined in KRS 139.-170.
State Contracting and Stone is a corporation engaged in quarrying limestone at Hartford, Kentucky, and manufacturing asphalt at Owensboro, Kentucky. After the limestone is quarried it is broken into various sizes by a "crusher". It is then transported by State Contracting and Stone to its Owensboro plant where it is manufactured into asphalt.
In conformity with federal law and regulations State Contracting and Stone added pollution control equipment to its crusher so as to regulate the emission of dust. It is conceded by the parties that the pollution control equipment was required by federal law as a prerequisite to the continued operation of the Hartford plant.
Prior to the installation of two "hot-mix storage bins" by State Contracting and Stone Company, as soon as the asphalt was manufactured it was necessary to immediately transport it by truck to designated job sites because it would harden and become unuseable. In the operation of an asphalt plant it is necessary to have a constant temperature. That is difficult if it is dumped directly into trucks. However, when the asphalt is placed in the bins it continues to be heated and blended. Thus, the asphalt is "homogenized and the temperature is stabilized".
The Department of Revenue assessed a use tax deficiency against State Contracting and Stone in the amount of $8,688.86, excluding interest, for the audit period of January 1, 1970, through December 31, 1973, on the pollution control equipment, the hot-mix storage bins and a scoop loader. State Contracting and Stone appealed the assessment to the Kentucky Board of Tax Appeals. The board affirmed the ruling of the Department of Revenue. State Contracting and Stone appealed to the circuit court of Ohio County. The trial court held the pollution control equipment and hot-mix storage bins exempt. The Department of Revenue appealed to the Court of Appeals which affirmed the trial court. This court granted discretionary review.
This court now directs its attention to the question whether the pollution control equipment and the hot-mix storage bins are "used directly in the manufacturing process". If so, then by the terms of KRS 139.170 the property in question is exempt from state sales and use tax for "machinery used in new and expanded industry". KRS 139.480(8).
The Pollution Control Equipment
It is conceded by the Department of Revenue that the limestone crusher is directly used in manufacturing of asphalt. This court is of the view that the pollution control equipment is indispensible to the operation of the "crusher", which is directly engaged in manufacturing. The pollution control equipment is mandated by federal law and regulations. Without it, State Stone and Contracting could not operate. There would of necessity be a cessation of its manufacturing of asphalt. To hold that the pollution control equipment is not an essential part of the manufacturing process of asphalt would thwart the legislative intent of KRS 139.480(8) "to enhance Kentucky's competitive position in manufacturing". Ross v. Greene and Webb Lumber Co., Inc., Ky., 567 S.W.2d 302 (1978).
The Hot-Mix Storage Bins
It is the view of a majority of the members of this court that the component parts of the asphalt bituminous product as it flows into the hot-mix storage bins is an unfinished product, not sufficiently blended and not uniformly heated. There are baffles in the bin which cross blend the component parts of the asphalt bituminous material, thus producing a homogenous finished product. The manufacturing of the asphalt is not finished until it is homogenized, blended and the fine and coarse particles of the aggregate are properly and uniformly mixed, and the product is uniformly mixed and heated. Thus, the hot-mix storage bins are used "directly in the manufacturing process" of the asphalt.
The pollution control equipment and the hot-mix storage bins are exempt from the Kentucky sales and use tax as machinery for new and expanded industry and are "directly used in the manufacturing process."
The judgment of the Court of Appeals is affirmed.
PALMORE, C. J., and CLAYTON, JONES, LUKOWSKY and REED, JJ., concurring.
STEPHENSON and STERNBERG, JJ., dissent. STEPHENSON, J., filed a dissenting opinion in which STERNBERG, J., joined.
. "That machinery used directly in the manufacturing process, which is incorporated for the first time into plant facilities established in this state, and which does not replace [new] machinery in such plants".
. The scoop loader is not involved in this appeal.