Opinion ID: 1450018
Heading Depth: 1
Heading Rank: 2

Heading: Plant Facilities

Text: The Court of Appeals erred in adopting the interpretation of the Cabinet of KRS 139.170(1) because the new and expanded industry exemption is based on the type and use of machinery, not the extent of the industrial manufacturing occurring at a location. The term plant facilities includes more than just factories or industrial manufacturing establishments. The Court of Appeals erroneously concluded that the new and expanded industry exemption does not apply to manufacturing equipment that is located in a retail facility which is not predominantly related to manufacturing. Neither the statutes, nor the regulations, require almost exclusive use for manufacturing. The plain language of the exemption set out in the statutes indicates that the applicability of such exemption is based on the type and use of the machinery or equipment and not the extent of the industrial manufacturing occurring at a particular location. The application of the exemption is a function of the type of machinery and how it is used. New machinery that is incorporated for the first time in Kentucky and used directly and primarily in a manufacturing process is entitled to the exemption. See Department of Revenue v. Spalding Laundry & Dry Cleaning Co., Ky., 436 S.W.2d 522 (1968). The exemption was also applied to computers and monitors purchased for use in writing news stories and advertisements, editing, and to operate typesetters for a daily afternoon newspaper operation. See Ashland Publishing Co., Inc. v. Revenue Cabinet, Ky. Board of Tax Appeals, 1990 WL 185772 (July 12, 1990). The use of this equipment to increase productivity and competitive position was held to be sufficient without focus on how exclusive the plant was in manufacturing and in spite of the fact that the newspapers which were the end product were sold by the manufacturer at retail to its subscribers. We are persuaded by the decision of the Maryland Court of Appeals in State Department of Assessments & Taxation v. Consumer Programs Inc., 331 Md. 68, 626 A.2d 360 (1993) which states in part: Whether it (photo processing and finishing) is performed at a large plant in an industrial area, or at a small location in a retail area, the photo-finishing process is absolutely identical. If the process has been determined to be manufacturing for the purpose of the statute, the physical location or scale of the operation cannot change that characterization. Id. at 365. Here, the Cabinet stipulated that Murphy's photo processing equipment is machinery used directly in the manufacturing process. Because both the energy exemption and the new and expanded industry exemption are found in KRS Chapter 139, the definition of plant facilities in KRS 139.480(3) controls with respect to the new and expanded industry exemption. We must disagree with the position of the Cabinet and Court of Appeals that the definition of plant facilities found in KRS 139.480(3) applies only to the energy exemption. There is no case authority to support such a proposition. As stated in Dixon v. Caudill, 143 Ky. 623, 136 S.W. 1043 (1911), wherever it may appear in the statutes, the definitions therein must control elsewhere, unless there be some statutory interdiction. Here, there is none. See also Barnes v. Department of Revenue, Ky.App., 575 S.W.2d 169 (1978). H.G. Mays Corp. v. Revenue Cabinet, Ky. Bd. of Tax Appeals, 1988 W.L. 153930 (Sept. 15, 1988), does not reject the definition of the term plant facilities as found in KRS 139.480(3). Mays, supra, and the cases following it, simply create an exemption to the requirement that machinery be affixed to real property. Neither the statute nor case law restricts the application of the definition found in KRS 139.480. Thus, when the definition in KRS 139.480(3) is applied to the term plant facilities in KRS 139.170(1), it means that more than just factories or locations exclusively and almost exclusively engaged in industrial manufacturing can be exempt. The statutes in question do not use any terms of exclusion in reference to the term plant facilities. If the legislature had intended to limit plant facilities to those sites where taxpayers are engaged almost exclusively in industrial manufacturing, it could have taken such a position by using words of exclusion such as only or solely. Such was done in Connecticut when it limited the exemptions exclusively to manufacturing at industrial plants. See Regulations of Connecticut State Agencies, § 12-426-11b(a)(11), and discussed in Stop'N Save, Inc. v. Dept. of Revenue Services, 212 Conn. 454, 562 A.2d 512 (1989). The fact that the legislature did not use similar exclusionary language indicates an intention not to limit the new and expanded industry exemption to those businesses almost exclusively in industrial manufacturing. The question of the common meaning of the term plant facilities must be considered. The circuit judge stated in part that it was common understanding that a plant or factory is a place in which manufacturing is the primary focus. The majority of the Court of Appeals stated in part that, We do not believe that Murphy's two stores are plant facilities envisioned when the statutory exemptions were enacted by the legislature. The term plant can have many commonly accepted meanings. One of the frequently used meanings of plant facilities is physical plant, such as buildings, machinery and total facilities of an institution. We are persuaded by the definition used by the Kansas Court of Appeals in the matter of Tax Appeal of Geiger Ready Mix Company of Kansas, Inc., 25 Kan.App.2d 101, 958 P.2d 41 (1998), which noted with approval the language of the Kansas Board of Tax Appeals as follows: The words plant and facility are words of common usage .... The natural and ordinary meaning of these words is the land, building or factory at which manufacturing operations take place. As stated in Barnes, supra, at 172: It is well settled that when there is confusion, ambiguity or doubt about the meaning of a statute, such doubt must be resolved in favor of the taxpayer. Brown-Forman Distillers Corp. v. Comm., Dept. of Revenue, Ky., 346 S.W.2d 752 (1961). The definition used by the Cabinet for plant facilities which was adopted by the Court of Appeals is restrictive and contradicts the legislative intent because such a definition limits the plain language of KRS 139.170(1). Cf. Brown, supra. As long as it is the public policy of Kentucky to permit certain tax exemptions, such a system must be uniformly and fairly applied. It is of particular importance in the modern commercial electronic area of industrial development that businesses which combine manufacturing and retail sales at a common location are eligible to be encouraged in that development by means of appropriate tax exemptions.