Opinion ID: 1796249
Heading Depth: 2
Heading Rank: 1

Heading: How broad is Bell I's definition of manufacturing?

Text: Director first argues that the AHC erred in finding that Bell's telephone network equipment was used directly in manufacturing because the AHC too broadly interpreted this Court's holding in Bell I as to what part of telephone service constitutes manufacturing. She asserts that Bell I holds that the product that Bell manufactures is the reproduction of the human voice via transformation of voice to electronic signal, which occurs in customer-owned telephone sets on customers' premises. Director incorrectly maintains that Bell I limits manufacturing in this case to the transformation of a voice that occurs in a customer's telephone set. Bell I held that [b]asic telephone services and the various vertical services involved herein are intangible products that are manufactured. 78 S.W.3d at 768. Bell I makes no statement limiting Bell's manufacturing only to the conversion of voice to electronic signals. Instead, Bell I holds that the product that Bell manufactures is the ability to hear a reproduction of the human voice over appreciable distances. Id. [9] While voice-to-signal and signal-to-voice transformations occur on customers' telephone sets, those transformations are valueless unless the signals are moved over the distances between customers so that a reproduction of the voice ultimately can be heard. The components located at the customers' premises are the beginning and the end of the telephone system, but the customers' components cannot produce telephone service without Bell's components. To the extent that Director argues that Bell's middle-of-the-system components are not a part of the manufacture of telephone services as discussed in Bell I and, thereby, do not qualify for the manufacturing exemption, the arguments are without merit. Bell I's holding remains: [b]asic telephone services and the various vertical services involved herein are intangible products that are manufactured. 78 S.W.3d at 768. As such, the machinery and equipment used to provide these basic and vertical services could qualify for the manufacturing exemption, if all the required elements of the exemption are met. The AHC was instructed to determine on remand if Bell's claimed purchases were machinery and equipment that qualified for the exemption. To that end, the AHC was required to explore whether the claimed items were used directly in manufacturing.