Opinion ID: 1674425
Heading Depth: 1
Heading Rank: 2

Heading: exemption for electricity

Text: Pursuant to T.C.A. § 67-6-206(b)(1), a tax is imposed with respect to gas, electricity, fuel oil, coal and other energy fuels when sold to or used by manufacturers. However, T.C.A. § 67-6-206(b)(3) provides the following exemption: Such substances shall be exempt entirely from the taxes imposed by this chapter whenever it may be established to the satisfaction of the commissioner, by separate metering or otherwise, that they are exclusively used directly in the manufacturing process, coming into direct contact with the article being fabricated or processed by the manufacturer, and being expended in the course of such contact. The chancellor found that the electricity used to operate the silicon carbide heating elements was not exempt because it did not come into direct contact with the glass. AFG contends that electricity is heat. Thus, it reasons that since the electricity is the source of energy for the heating elements which emit radiant heat absorbed by the glass, then it must be concluded that the electricity comes into direct contact with the glass. First, we note that electricity is not heat nor is heat considered a form of energy. Heat is the term used to describe energy in transit from one place to another, i.e., the flow of energy. See R.H. Romer, Energy: An Introduction to Physics, 205 (1976). In reviewing this issue, we note that the statutory exemption necessarily contemplates that the substances will be expended in the course of their use as energy sources. Gas, fuel oil, coal and other fossil fuels are used to provide chemical energy resulting from the chemical reactions occurring through the process of combustion or burning. See Romer, supra, at 405. If the chemical energy which is produced by burning fossil fuels comes into contact with articles being made, then the exemption applies. As opposed to the other substances mentioned in the statute, electricity is not a fuel, but is a form of energy, itself, which must be derived from some other source. Romer, supra, at 350. It has characteristics not possessed by the fossil fuels and it may be directly applied, by means of current, to an article being made or processed. This process of electrolysis has some application to industry. On the other hand, when the electrical energy, by means of current, is sent through silicon carbide heating elements, the resistance in the elements converts the electrical energy into thermal energy which, in turn, is transferred to the article being made by the process of heating. See Id. at 305. The electricity does not, by this process, come into direct contact with the glass. In Phillips & Buttorff Mfg. Co. v. Carson, supra , the Court was faced with a claim for exemption for coal and fuel oil used to power generators for operation of machinery in the manufacturing process. At that time, the exemption statute required the energy sources to be used directly in the process. The Court defined such term as meaning in direct contact with, and without the intervention of any person or thing. 217 S.W.2d at 5. In this case, the use of the heating elements constitutes the intervention of another object so as to prevent the electricity from coming into direct contact with the article being made. We recognize that electrical heating units have replaced fossil fuels in many manufacturing processes requiring the direct application of heat in a heating chamber environment. However, under a strict construction of the exemption's application, the statute's requirement that the substance's exemption depends upon its coming into direct contact with the article being fabricated or processed is of particular significance to electricity. Absent clear language to the contrary, we do not interpret the exemption in T.C.A. § 67-6-206(b)(3) to apply to electricity which does not directly contact the article as electrical energy. The chancellor was correct in rejecting the claim for exemption for the electricity used in the silicon carbide heating elements. Also, we have previously stated that in order for the exemption provided by T.C.A. § 67-6-206(b)(3) to be operative `the commissioner [must first determine] that the use of such substances by a manufacturer meets said test' in T.C.A. § 67-6-206(b)(2) and `issue a certificate evidencing the entitlement of the manufacturer to the exemption... .' Tennessee Farmers' Cooperative v. State, 736 S.W.2d 87, 91 (Tenn. 1987). Procedurally, subsection 206(b)(3) provides for review of the commissioner's grant or denial of a certificate solely by a petition for common law certiorari addressed to the chancery court of Davidson County. Thus, by the procedures provided in subsection 206(b)(3), the legislature has required the issuance of the certificate to be a condition precedent to the exemption being available. By requiring that the review of the commissioner's certification action proceed as provided in the subsection, we do not view that the legislature contemplated an after-the-fact attempt to apply the exemption for the first time through means of a tax refund suit. Failure by a manufacturer to seek or obtain certification pursuant to the statutory procedural requirements renders the exemption inapplicable. In this regard, there is no proof in the record of the existence of such an application or certification covering the tax periods in question. See Tennessee Farmers' Cooperative v. State, supra, 736 S.W.2d at 91 n. 2. The lack of compliance with a certificate requirement may defeat the claim for exemption. See Scholl, Inc., v. Jackson, 731 S.W.2d 893, 894-895 (Tenn. 1987).