Court Opinion

ID: 6785454
Source: CourtListenerOpinion
Date Created: 2022-07-21 01:02:31.429704+00
Date Added: 2024-06-11T16:02:56.566259
License: Public Domain

Lundberg Stratton, J.,
concurring in part and dissenting in part.
{¶ 55} I concur in the majority’s decision to remand this case to the BTA to determine whether EEC’s boom crane is exempt from taxation on the basis that there are two manufacturing processes and to determine whether EEC’s dust collectors are exempt under R.C. 5739.011(B)(4). However, I dissent from the majority’s decision that the cost of EEC’s dust collectors is taxable under R.C. 5739.011(C)(5).
{¶ 56} The majority recognizes that equipment that “totally regulates the environment in a special and limited area of the manufacturing facility where the regulation is essential for the production to occur” is exempt from taxation. R.C. 5739.011(C)(5). However, the majority never reaches the issue of whether EEC’s dust collectors are exempt from taxation under this provision. Rather, the majority confirms that when considering a claim for exemption of equipment under R.C. 5739.01(E)(9), the tax status of the equipment must be determined based on its “primary use.” (Emphasis added.) R.C. 5739.011(D). The majority then cites the BTA’s finding that “[t]he primary purpose of the dust collection system is to prevent silica sand fines from adulterating sand molds that are used as castings.” (Emphasis added.) Based on that finding, the majority concludes that “the primary use of the dust collectors is to control the quality of the material going into the sand castings, not to regulate the environment ‘in a special and limited area of the manufacturing facility where the regulation is essential for production to occur,’ ” and that therefore the cost of the dust collectors is not exempt from taxation. (Emphasis added.) I disagree.
{¶ 57} The tax status of such equipment is determined by its “primary use,” not its primary purpose. R.C. 5739.011(D). Thus, the majority’s reliance on the BTA’s determination of the purpose of EEC’s dust collectors as the basis for denying an exemption is misplaced. The majority and the BTA should have examined the primary use of the EEC’s dust collection system, which is to capture and remove fines from the sand.
{¶ 58} Because I believe that EEC’s dust collectors are exempt from taxation under R.C. 5739.011(C)(5), and because the majority never conducts an analysis under that provision, my dissent addresses the BTA’s determination of that issue. The test under R.C. 5739.011(C)(5) is twofold. “ ‘First, a taxpayer must demonstrate that the regulation of a special and limited area is total.’ ” Aeroquip Corp. v. Zaino (Nov. 15, 2002), BTA No. 2000-S-161, 2002 WL 31622634, quoting Aeroquip Corp. v. Tracy (Dec. 15, 2000), BTA No. 97-T-1312. This language *433means that in order to be exempt, “the equipment must regulate an environment that is enclosed, self contained, or in some way separated from that of the entire manufacturing facility.” Aeroquip Corp. v. Zaino, BTA No. 2000-S-161. Second, the taxpayer “ ‘has the additional burden of demonstrating that the regulation is essential for production to occur.’ ” Id., quoting Aeroquip Corp. v. Tracy, BTA No. 97-T-1312.
{¶ 59} The BTA’s decision finding EEC’s dust collectors taxable under R.C. 5739.011(C)(5) was based in part on the following questions and answers:
{¶ 60} “Q: * * * So the building for the Small Baghouse Dust Collection system, then, would that be like a clean room type environment that I asked you about earlier?
{¶ 61} “A: No.
{¶ 62} “Q: So it’s not a totally controlled environment within that building?
{¶ 63} “A: No.” (Emphasis added.)
{¶ 64} The BTA also relied upon the fact that “significant portions of the dust collection system are located outside of buildings. And the buildings that sand heaters and mixers are located in are made only of corrugated sheet metal.” (Emphasis added.) Based on these findings, the BTA concluded that “[n]o sealed or closed environment is provided. Nor are airlock doors or other such provisions installed to effect total control over the environment.” Thus, the BTA concluded that EEC’s dust collectors were not exempt from taxation under R.C. 5739.011(C)(5). I believe that the BTA’s analysis is flawed.
A. EEC’s Dust Collection System Totally Regulates the Environment in a Limited and Special Area of Its Manufacturing Facility
{¶ 65} In addressing whether the dust collectors totally regulated a special and limited area of EEC’s manufacturing facility, the BTA improperly focused on whether the buildings in which the dust collectors operated were sealed. The proper focus was whether the dust collection system operated as a closed system. Aeroquip Corp., BTA No. 2000-S-161.
{¶ 66} EEC’s plant engineer testified that the sand fines are collected for two purposes. The primary purpose is to prevent the fines from adulterating the molds, but a secondary purpose is to prevent dust from entering the facility. Diagrams indicate that fines are captured from the sand silos and sand heaters and are transported through pipes to a dust collector bin. Thus, the fines are not disbursed into the manufacturing facility or to the environment outside the facility. This is evidence that the dust collectors “totally regulat[e] the environment in a special and limited area of [EEC’s] manufacturing facility” because the pipes and dust collectors are a closed system that is separate from the remainder of the manufacturing facility. R.C. 5739.011(C)(5).
*434B. Capture and Removal of the Fines are Necessary to Production of the Castings
{¶ 67} Fines are smaller-than-average grains of sand that are created when the sand travels through the pipes on its way to being compressed into a mold. The fines must be removed because their presence during formation of the sand mold will cause it to crumble. Therefore, removal of these fines from the sand heaters and silos is “essential for production to occur.”
C. Conclusion
{¶ 68} I believe that EEC’s dust collectors “totally regulat[e] the environment in a special and limited area of the manufacturing facility,” and “the regulation is essential for production to occur,” and that therefore they are exempt from taxation pursuant to R.C. 5739.011(C)(5).
{¶ 69} Thus, I concur with the majority’s holding to remand to determine whether EEC’s boom crane is exempt from taxation on the basis that there are two manufacturing processes and further to determine whether EEC’s dust collectors are exempt under R.C. 5739.011(B)(4). But I dissent from the majority’s holding that EEC’s dust collectors are taxable and would find that they are exempt from taxation under R.C. 5739.011(C)(5). Accordingly, I concur in part and dissent in part from the judgment of the court.