Opinion ID: 1796249
Heading Depth: 2
Heading Rank: 3

Heading: Are pay telephone components used directly in manufacturing?

Text: Director contends the AHC wrongly applied the integrated plant doctrine in concluding that Bell's pay telephone components qualified for the manufacturing exemption. [10] She argues that the AHC erred in concluding that these items qualified for the exemption because they operate harmoniously with Bell's manufacturing equipment. She asserts that prior cases have applied the integrated plant doctrine in a way that requires equipment to be used in manufacturing, not merely alongside or in connection with manufacturing. The AHC found: Although pay phones are not absolutely essential to the provision of telephone service, and are not closely connected to those portions of the system that actually effect a change in the signals, they `operate harmoniously with the admittedly exempt machinery to make an integrated and synchronized system.' ... [I]tems such as pay telephone components should not be disqualified for the exemptions on grounds that they are not `directly used in manufacturing' the product. The AHC's holding in this regard clearly conflicts with the three-prong test of the integrated plant doctrine adopted in Floyd Charcoal , which remains the test for determining whether machinery and equipment claimed under the manufacturing exemption is used directly in manufacturing. [11] In applying the integrated plant doctrine, all three prongs should be examined before determining whether an item qualifies for the manufacturing exemption. If an item is not necessary to production, it cannot be exempt. If it is not close physically or causally to the end product, it cannot be exempt. If it does not operate with admittedly exempt items in an integrated and synchronized system, it cannot be exempt. Although the AHC found that there was evidence to satisfy the last prong of the test, that cannot overcome its findings that the pay telephone components are not absolutely essential and not closely connected to production components. The portions of the AHC's decision concluding that all pay telephone components are exempt are reversed, and the cause is remanded to the AHC for new findings and conclusions as to these claimed items. On remand, the AHC should consider all three prongs of the integrated plant doctrine with equal force.