Court Opinion

ID: 7826863
Source: CourtListenerOpinion
Date Created: 2022-09-07 18:09:09.457873+00
Date Added: 2024-06-11T16:30:53.194481
License: Public Domain

Ray Thornton, Justice concurring in part and dissenting in part. I agree with the majority that the statutory exemption from sales and use taxes set out in Ark. Code Ann. § 26-52-402 for equipment used directly in the manufacture of articles of commerce at plants in the State of Arkansas is applicable to chemicals used for milling, shaping, and finishing such products. However, I cannot agree with the majority’s conclusion that the replacement of such equipment is not exempt from sales and use taxes, and respectfully dissent from that holding. The majority is clearly correct when it interprets the exemption statute as applying to chemicals used in the manufacturing process. That intent is expressed in Ark. Code Ann. § 26-52-402(c)(2) which states: (A) Machinery and equipment used in actual production includes machinery and equipment that meet all other applicable requirements and which cause a recognizable and measurable mechanical, chemical, electrical, or electronic action to take place as a necessary and integral part of manufacturing, the absence of which would cause the manufacturing operation to cease. Ark. Code Ann. § 26-52-402(c)(2)(A) (Repl. 1997). All parties agree that without the chemical equipment used by Chem-Fab in this manufacturing plant, the production of these aircraft parts would cease. If any further statutory citation is needed to complete the clear and unambiguous legislative definition of chemicals as part of the equipment used in the manufacture of a finished article of commerce, reference to the language used by the General Assembly in listing specific exclusions from taxation is useful. Some of these exclusions are set out in Ark. Code Ann. § 26-52-402(c)(2) as follows: (B) Machinery and equipment “used directly” in the manufacturing process shall include, but shall not be limited to, the following: (iv) Machinery and equipment that produce steam, electricity, or chemical catalysts and solutions that are essential to the manufacturing process but which are consumed during the course of the manufacturing process and do not become necessary and integral parts of the finished product. Ark. Code Ann. § 26-52-402(c)(2)(B) (Repl. 1997). This statutory language is a clear and unambiguous instruction that chemical catalysts and solutions that are essential to the manufacturing process should be excluded from sales and use taxes. In my view, the statute also suggests that when chemical catalysts and solutions essential to the manufacturing process are depleted, replacement of such chemical equipment should also be excluded from sales and use taxes. Our rules of statutory interpretation are clear. In interpreting a statute, we will give the words in the statute their ordinary and common usage. Burcham v. City of Van Buren, 330 Ark. 451, 455, 954 S.W.2d 266, (1997). Additionally, in construing any statute, we will place the statute beside other statutes relevant to the subject matter in question, giving it meaning and effect derived from the combined whole. Vanderpool v. Fidelity & Cas. Ins. Co., 327 Ark. 407, 415, 939 S.W.2d 280, (1997). With reference to the replacement of equipment excluded from sales and use taxes, Ark. Code. Ann. § 26-52-402 provides in pertinent part the following: (a) There is specifically exempted from the tax imposed by this act, the following: (1) (A) Gross receipts or gross proceeds derived from the sale of tangible personal property consisting of machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing, or packaging of articles of commerce at manufacturing or processing plants or facilities in the State of Arkansas, . . . (2) (A) Machinery purchased to replace existing machinery and used directly in producing, manufacturing, fabricating, assembling, processing, finishing, or packaging of articles of commerce at manufacturing or processing plants or facilities in this state will be exempt under this subdivision; (B)(i) “Machinery purchased to replace existing’machinery” means that substantially all of the machinery and equipment required to perform an essential function is physically replaced with new machinery that performs the essential function more efficiently or with a longer useful life than the old machinery being replaced. Ark. Code. Ann. § 26-52-402 (Repl. 1997)(emphasis supplied). In my view, the plain and unambiguous words used in the statute providing an exemption for replacement of existing machinery and equipment were chosen by the legislature to carry out and accomplish the legislative intent of encouraging the manufacture of articles of commerce within the State of Arkansas. The legislature declared that the State would not impose sales or use taxes upon equipment, or replacement equipment, that is essential to, and directly a part of the manufacturing process. The exemption from taxes was broad enough to include many enterprises and occupations which encourage economic development. We are told that “mining, quarrying, refining, extracting oil and gas, cotton ginning, the drying of rice, soybeans, and other grains and the manufacturing of feed, the processing of poultry or eggs and livestock and the hatching of poultry, and printing of all kinds, types, and characters, including the services of overprinting, and photographic processing incidental to printing,” together with retreading of tires for resale, all qualify for this tax exemption. See Ark. Code Ann. § 26-52-402(b). With respect to new and replacement equipment used in agricultural production, Ark. Code Ann. § 26-52-403 provides in pertinent part: (a) The sale of new and used farm equipment and machinery shall not be subject to the Arkansas gross receipts tax . . . but shall be exempt therefrom. Ark. Code Ann. § 26-52-403 (Repl. 1997)(emphasis supplied). It seems clear that the legislative intent was to encourage manufacturing, agriculture, and economic development by providing exemptions from sales and use taxes on new or replacement machinery or equipment used for those purposes. Rather than addressing the question of taxation of replacement equipment, the Department’s principal argument was that chemicals used in this process should not be considered as equipment that is qualified for the tax exemption. When the trial court concluded that the chemicals were manufacturing equipment, the Department then argued that they were not substantially replaced. The majority opinion correctly recognizes that the chemicals are replacement equipment for the old chemical solutions which have, through use, lost their efficacy, and no longer will support the manufacturing process. However, the majority then reasons that the new tool is no better than the old tool was at the time it was new, and therefore is not exempted. I do not believe that is a correct interpretation of the statute. I believe the statutory intent to provide an exemption for new replacement equipment that replaces old and worn-out manufacturing equipment is plain and unambiguous. If, as the majority concludes, that intent is not plain and unambiguous, the record before us does not answer a question which is essential to determination of legislative intent: we are not informed as to how the agency has answered the question whether other new equipment that replaces old, worn-out equipment, would be eligible for a tax exemption. We were told in oral argument by the appellee that the Department’s policy has always been: “If you have a 100 horsepower machine that has to be replaced and it has been used ten years . . . that is a replacement and I believe that it [the tax exemption] has always been allowed. [The statute] just says ‘perform the essential function more efficiently.’” In the event the statute is considered ambiguous, certainly this matter should be remanded for a determination by the trial court of the Revenue Department’s rules, regulations, and practices for granting tax exemptions for replacement equipment. The agency’s own interpretations of this provision, while not binding upon the court, would instruct us as to whether the Department’s argument in this case is a novel approach flying in the face of other agency actions. I note that the interpretation of the rule announced by the majority contradicts the rule applied to agricultural equipment. Administrative agencies are better equipped than courts, by specialization, insight through experience, and more flexible procedures to determine and analyze underlying legal issues affecting their agencies. Wacaser v. Insurance Comm’r., 321 Ark. 143, 146, 900 S.W.2d 191 (1995). We should not adopt an interpretation of the statute that the Revenue Department itself has not accepted and adopted without first considering the rationale for its actions. It seems clear to me that a plain-language reading of the statute would require the conclusion that a replacement would be eligible for the exemption since the new machinery would clearly have a longer useful life than the old machinery being replaced. The majority interprets the meaning of the words used in the statute without a showing that the interpretation arrived at by the majority has ever been used by the Department. I believe that when a chemical etching and milling compound has been worn out and has become inefficient for the manufacturing process, its replacement with a new chemical etching and milling compound is both more efficient and has a longer useful life than the worn-out equipment being replaced. For these reasons I cannot agree with the majority’s conclusion that even though the original chemical equipment was eligible for an exemption, the exemption is not available to replacement of that equipment. I respectfully dissent from the majority opinion and express the hope that the General Assembly will address the issue promptly, and before the consequences of this decision result in the loss of manufacturing enterprises from this state. Corbin, J., joins.