Court Opinion

ID: 6759328
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:30:00.123878+00
Date Added: 2024-06-11T16:02:32.975719
License: Public Domain

Wright, J.,
concurring. While I agree with the majority’s outcome, I would go further and adopt the integrated plant theory. I believe that when all the component parts of a manufacturing plant are indispensable to the production process, the parts should be excluded from Ohio sales and use taxes.
This court has stated that the primary purposes of the manufacturing exemption are: (1) to encourage the production of more valuable tangible personal property for sale by exempting the property used and consumed by the producer in producing such ultimate tangible personal property, and (2) to avoid double taxation. See, e.g., Bailey v. Evatt (1944), 142 Ohio St. 616, 620 [27 O.O. 534]. The integrated plant theory better serves these purposes than does the physical change theory. Instead of creating an incentive to use modern, efficient systems and machines that enhance economic and industrial growth through improved and effective competition, the physical change theory encourages the use of inefficient plant design and obsolete equipment.
Appellant’s manufacturing process for asphalt concrete presents a perfect example of this technological disincentive. The items in the contested assignment are integral parts of appellant’s plant and are necessary for the manufacture of asphalt. Appellant owns a “drum mix” plant, which is a sophisticated, cost-effective, continuous production plant. In the less efficient “batch” method of production, a physical change in the product occurs in several components rather than just one. Use of the “batch” method would allow a number of the component parts to be deemed tax-exempt under the physical change theory. Application of this theory to the efficient, integrated “drum mix” method in which the actual physical change occurs in only one component of production will increase the cost of utilizing this new technology. Manufacturers will then be discouraged from utilizing the more efficient, technologically superior plant design.
Further, the physical change theory arbitrarily ignores the importance of particular components of the manufacturing process. Equipment that makes small, relatively unimportant changes in a product is tax-exempt. In contrast, equipment that enables a major change to occur or to be preserved is taxable.
The application of the physical change theory has created unnecessary and inappropriate confusion as to which equipment is or is not exempt. Over the last several decades, the Ohio courts and the Board of Tax Appeals have decided, on a case-by-case basis, whether specific machinery or equipment is' excluded from Ohio sales and use taxes under this exemption.1 See, e.g., Southwestern Portland Cement Co. v. Lindley (1981), *12867 Ohio St. 2d 417 [21 O.O.3d 261]; Ohio Ferro-Alloys Corp. v. Kosydar (1973), 34 Ohio St. 2d 113 [63 O.O.2d 195]; Canton Malleable Iron Co. v. Porterfield (1972), 30 Ohio St. 2d 163 [59 O.O.2d 178]; Youngstown Bldg. Material & Fuel Co. v. Bowers (1958), 167 Ohio St. 363 [5 O.O.2d 3]. Because each manufacturing process or system is unique, a decision as to where the physical transformation or conversion begins or ends with respect to a certain manufacturing process applies only to that particular process. Very few, if any, of the numerous cases in this area serve as meaningful precedent in determining whether another piece of equipment or machinery is tax-exempt. Many of the decisions are confusing and apparently irreconcilable.2
The integrated plant theory is entirely consistent with the literal language of R.C. 5739.01(E)(2) which requires that to qualify for exemption the equipment must be used “directly in the production of tangible personal property * * * for sale by manufacturing.” Under the integrated plant theory, all essential and indispensable equipment or components of a manufacturing process are considered to be part of a single, integrated plant and are exempt from sales tax as being used “directly” in the manufacturing process. This theory recognizes that it is simply not practical to break high technology plants into component parts, exempting some parts but taxing others. Today’s systems technology must be treated as an integrated whole. Such systems do not lend themselves to piecemeal treatment.
I find no public policy considerations to support the completely artificial definition of manufacturing under the physical change theory. As stated, it provides a disincentive for technological efficiency. It provides no predictable standard of review and necessitates a case-by-case analysis with results that are at best unpredictable. The application of this theory ignores the impracticability of attempting to break a modern-day plant down into component parts. I would instead adopt the integrated plant theory.
C. Brown, J., concurs in the foregoing opinion.

 A number of courts have criticized the artificial and arbitrary Ohio rule. See Duval Sierrita Corp. v. Arizona Dept. of Revenue (App. 1977), 116 Ariz. 200, 568 P. 2d 1098; Courier *128Citizen Co. v. Commr. of Corps. & Taxation (1971), 358 Mass. 563, 266 N.E. 2d 284; Floyd Charcoal Co. v. Dir. of Revenue (Mo. 1980), 599 S.W. 2d 173. The great weight of authority throughout the country supports adoption of the “integrated plant” theory. See Duval Sierrita Corp., supra; Arkansas Beverage Co. v. Heath (1975), 257 Ark. 991, 521 S.W. 2d 835; Ind. Dept. of State Revenue v. Care Stone, Inc. (Ind. 1983), 457 N.E. 2d 525; Ames v. State Tax Comm. (1955), 246 Iowa 1016, 71 N.W. 2d 15; Ross v. Greene & Webb Lumber Co. (Ky. 1978), 567 S.W. 2d 302; Courier Citizen Co., supra; Niagara Mohawk Power Co. v. Wanamaker (1955), 286 App. Div. 446, 144 N.Y. Supp. 2d 458; Floyd Charcoal Co., supra; Manitowoc Co. v. Sturgeon Bay (App. 1984), 122 Wis. 2d 406, 362 N.W. 2d 432.

 Appellee argues that on analogous facts Southwestern Portland Cement Co. and the cases cited therein support the position that no exemption applies. I believe that, to the extent these authorities are in conflict with the “integrated plant” theory, they should be overruled.