Opinion ID: 1674425
Heading Depth: 1
Heading Rank: 1

Heading: exemption for industrial machinery tin

Text: Pursuant to T.C.A. § 67-6-206(a), industrial machinery is exempt from sales and use taxes. In T.C.A. § 67-6-102(12), as amended in 1984, industrial machinery is defined, in pertinent part, as follows: (A) Machinery, apparatus, and equipment with all associated parts, appurtenances, and accessories, including repair parts ..., which is necessary to and primarily for the fabrication or processing of tangible personal property for resale... . The chancellor found that the tin purchased and used in the tin bath did not qualify as industrial machinery under this statutory definition. He relied upon the analysis by this Court in Tibbals Flooring Co. v. Olsen, 698 S.W.2d 60 (Tenn. 1985) and noted that Tibbals dealt with the same statute and claim for exemption. Tibbals dealt with the status of a twenty thousand square foot metal building with fans (called a pre-dryer) used to dry lumber and large cylindrical concrete structures with metal cyclones on top (called dust collectors) used to hold sawdust collected through an air filter pollution control system. For the tax year in question, the pertinent part of the statutory definition of industrial machinery was contained in T.C.A. § 67-6-102(8) (1983) as follows: Machinery, including repair parts ..., which is directly and primarily utilized in fabricating or processing tangible personal property for resale, or equipment primarily used for air pollution control .. . where the use of such machinery or equipment is by one who engages in such fabrication or processing as his principle business... . The plaintiff claimed that the pre-dryer was industrial machinery and that the dust collectors were equipment used for air pollution control. In Tibbals , this Court looked to ordinary dictionary definitions of machinery and equipment and compared the predominate characteristics of the items in issue to such definitions. Under such an analysis, the predominate characteristic of the pre-dryer was held to relate to it being a structure and not machinery. In similar fashion, the dust collectors were determined to be structures used primarily for storage, not being machinery or pollution control equipment. The Tibbals analysis is appropriate in this case, but, as previously indicated, the statutory definition of industrial machinery has been expanded since the tax year involved in Tibbals to include apparatus, and equipment with all associated parts, appurtenances, and accessories. We hold that the tin comes within this expanded definition. An apparatus is defined as the totality of means by which a designated function is performed or a specific task executed, The American Heritage Dictionary (1969), and as a set of materials or equipment designed for a particular use. Webster's Ninth New Collegiate Dictionary (1990). It contemplates a collection of component parts designed for a specific mechanical or chemical action or operation. Webster's Third New International Dictionary (1976). Under these definitions, it is apparent that the tin bath operates as an apparatus whose primary function is to shape and cool the molten glass while conveying the glass from the furnace to the annealing oven for ultimate tempering. The molten tin is an integral part of the bath, performing several functions previously done by rollers and polishers. It is both an accessory to and an associated part of the tin bath apparatus. Also, its primary character in the glass making process is not changed by the fact it is used in its liquid state. The commissioner, also, seeks to defeat exemption for the tin by arguing that it is industrial material which is not consumed within twenty-five consecutive days in the manufacturing process. Pursuant to T.C.A. § 67-6-102(22)(E), tax exempt status is provided for the use, storage or consumption of industrial materials in the processing, manufacturing, or conversion into a finished product for sale where the materials become a component part of the product or are used directly in the fabrication, conversion or processing of such materials or parts thereof. In this regard, the department of revenue issued Rule 1320-5-1-.40(2) (Rule 40) which added a requirement that the materials coming into direct contact, to be exempt, must be consumed within twenty-five consecutive days. The term material is not otherwise defined by the statute. Obviously, the tin does not become a component part of the finished product, but it does come into direct contact with the glass during the process. However, the direct contact is no different than that of rollers, polishers and conveyance systems used in the industry before the tin bath became state of the art. In Phillips & Buttorff Mfg. Co. v. Carson, 188 Tenn. 132, 217 S.W.2d 1 (1949), the taxpayer sought to exempt, as industrial materials, fire brick used to line furnaces and clay used to line ladles which transferred molten metal from the furnaces to molds. At that time, there was no exemption for industrial machinery. In holding that the brick and clay were not industrial materials, this Court stated: It can hardly be doubted but that these materials are part of the machinery equipment. 217 S.W.2d at 6. Similarly, in this case, the tin is an accessory to and a part of the tin bath apparatus. Its inclusion within the exemption for industrial machinery precludes any need to assess its status under the industrial materials provisions.