Court Opinion

ID: 9326269
Source: CourtListenerOpinion
Date Created: 2022-12-15 16:04:11.795873+00
Date Added: 2024-06-11T17:15:03.972069
License: Public Domain

RENDERED: DECEMBER 15, 2022
                                                        TO BE PUBLISHED

               Supreme Court of Kentucky
                               2021-SC-0300-DG

CENTURY ALUMINUM OF KENTUCKY, GP                                     APPELLANT

                   ON REVIEW FROM COURT OF APPEALS
V.                          NO. 2020-CA-0301
                 FRANKLIN CIRCUIT COURT NO. 19-CI-00424

DEPARTMENT OF REVENUE,                                                APPELLEE
FINANCE AND ADMINISTRATION CABINET,
COMMONWEALTH OF KENTUCKY

               OPINION OF THE COURT BY JUSTICE HUGHES

                        REVERSING AND REMANDING

      Kentucky Revised Statutes (KRS) Chapter 139 provides for the collection

of state sales and use taxes, although some sales transactions are tax exempt.

In particular, “supplies” purchased by a manufacturer are tax exempt, but

“repair, replacement, or spare parts” are not. In this case, Century Aluminum

of Kentucky, GP (Century) and the Department of Revenue (Department)

disagree as to the interpretation of the statutes which categorize tangible

personal property as either tax-exempt supplies or taxable repair, replacement,

or spare parts. While the Kentucky Claims Commission (Claims Commission)

agreed with Century’s interpretation, the Franklin Circuit Court and the Court

of Appeals did not. On discretionary review, this Court concludes that,

consistent with the statute, a tax-exempt supply is consumed within the
manufacturing process and has a useful life less than one year, making it an

item which the manufacturer inevitably, regularly, and/or frequently buys to

maintain the manufacturing process. This regularly consumed supply is

distinguishable from a taxable repair, replacement, or spare part, which

maintains, restores, mends or repairs solid machinery or equipment of a long-

term or permanent nature and which does not necessarily have a known,

limited useful life. As to the items at issue in this case, we conclude that the

Claims Commission’s Final Order was supported by substantial evidence in the

record. Consequently, we reverse the Court of Appeals’ opinion affirming the

Franklin Circuit Court and remand this case to the Claims Commission for

reinstatement of its Final Order.

                FACTUAL AND PROCEDURAL BACKGROUND

      Century manufactures aluminum in Hawesville, Hancock County,

Kentucky. As part of that business, Century purchased anode stubs,

Inductotherm lining, thermocouples and tube assemblies, and welding wire

and industrial gases from Kentucky vendors in the relevant time period. The

vendors collected sales tax from Century on the items and remitted the tax to

the Department. Subsequently, Century concluded the purchased items were

properly characterized as tax-exempt supplies, not taxable repair, replacement

or spare parts. Each vendor filed a refund request for purchases made from

November 2010 to May 2015. The Department denied the refund requests and

each vendor timely filed a protest with the Department but the protests were

denied. The vendors then assigned their rights in the refund requests to

                                        2
Century and Century proceeded as assignee in an effort to secure the

refunds. At Century’s request, the Department issued a Final Ruling Letter for

each vendor. Century then filed Petitions of Appeal with the Claims

Commission. The appeals were consolidated into a single case1 and the Claims

Commission conducted a KRS Chapter 13B evidentiary hearing during which

three witnesses testified.

      William Morgan, Jr., Century’s Technical Manager (Manager), having

thirty years of experience in the aluminum industry, testified on Century’s

behalf. The Manager explained Century’s aluminum making process through

testimony and exhibits entered into the record. The Manager testified as to the

necessity of each item to the manufacturing process, how long the item lasts,

and the cause of the item becoming unusable. The Manager further testified as

to whether the newly-purchased item was used to maintain, restore, mend or

repair the old item.2

      Robert C. Clark, a certified public accountant, also testified on Century’s

behalf. Clark, a retired Department employee familiar with the statutes at

issue, testified that the items should have been exempted from sales tax and

the refunds given.3

      1 The Claims Commission consolidated File Numbers K17-R-39 (anode stubs);
K17-R-40 (Inductotherm lining); K17-R-43 (thermocouples and tube assemblies); K17-
R-44 (welding wire and industrial welding gases); and K17-R-45 (refractory materials).
The refractory materials dispute settled and is no longer an issue on appeal.
      2The Department framed its question differently for the industrial gas used for
welding.
      3 Century raises the doctrine of contemporaneous construction as another
reason for a decision in its favor. Because our interpretation of the statutes results in

                                            3
      Richard Dobson, an Executive Director with the Department, testified on

behalf of the Department that the sales and use tax exemption is not applicable

to the items in dispute. He explained that if an item which meets the

qualification of a tax-exempt supply also meets the definition of a taxable part,

then that item will be held taxable. Citing Mansbach Metal Company v.

Department of Revenue, 521 S.W.2d 85, 87 (Ky. 1975), and Century Indemnity

Co. of Chicago, Ill. v. Shunk Mfg. Co., 68 S.W.2d 772, 774 (Ky. 1934), to the

Claims Commission as guidance distinguishing between tax-exempt supplies

under KRS 139.470(10)4 and taxable parts under KRS 139.010(26), the

a decision in Century’s favor, we need not and do not address Century’s argument
that without basis the Department is changing its interpretation of the statutes and
applying the statutes inconsistently.
      4  Between 2010 and 2015, the time frame for the purchases at issue, the
statutory text describing tax-exempt supplies was codified within KRS 139.470(11)
(July 13, 1990 through June 30, 2013) or KRS 139.470(10) (July 1, 2013 through Apr.
26, 2018). See selected Acts: 1990 Ky. Acts ch. 414 (eff. July 13, 1990), 2013 Ky. Acts
ch. 119 (eff. July 1, 2013), 2016 Ky. Acts ch. 111 (eff. Jan. 1, 2017), 2018 Ky. Acts ch.
207 (eff. Apr. 27, 2018). The evidentiary hearing was held September 20, 2018; the
Claims Commission’s Final Order cites KRS 139.470(9), the codification effective April
27, 2018. 2018 Ky. Acts ch. 207. Before this Court, Century cites KRS 139.470(10),
in effect in 2015. The Department, however, cites KRS 139.470(9), containing
amendments to its preceding codification within KRS 139.470(10). While the
Department views the amendments contained within KRS 139.470(9) as immaterial to
the statutory interpretation question presented, KRS 139.470(9)’s codification changed
KRS 139.470(10)’s text describing the calculation of gross receipts. While that and
other changes, some of which the Department incorporated into its statutory
interpretation arguments, may not be material, we need not decide that at this point.
Properly, only KRS Chapter 139 statutes in effect in 2015 are considered within this
Opinion.
      Pertinently, in 2015, KRS 139.470 provided that manufacturing and industrial
businesses are exempt from paying taxes on certain gross receipts as follows.

      There are excluded from the computation of the amount of taxes imposed
      by this chapter:

       ....

                                           4
(10) Gross receipts derived from the sale of, and the storage, use, or
other consumption in this state of, tangible personal property to be used
in the manufacturing or industrial processing of tangible personal
property at a plant facility and which will be for sale. The property shall
be regarded as having been purchased for resale. “Plant facility” shall
have the same meaning as defined in KRS 139.010. For purposes of this
subsection, a manufacturer or industrial processor includes an
individual or business entity that performs only part of the
manufacturing or industrial processing activity and the person or
business entity need not take title to tangible personal property that is
incorporated into, or becomes the product of, the activity.

(a) Industrial processing includes refining, extraction of petroleum and
natural gas, mining, quarrying, fabricating, and industrial assembling.
As defined herein, tangible personal property to be used in the
manufacturing or industrial processing of tangible personal property
which will be for sale shall mean:

1. Materials which enter into and become an ingredient or component
part of the manufactured product;

2. Other tangible personal property which is directly used in
manufacturing or industrial processing, if the property has a useful
life of less than one (1) year. Specifically these items are categorized as
follows:

 a. Materials. This refers to the raw materials which become an
    ingredient or component part of supplies or industrial tools exempt
    under subdivisions b. and c. below.

 b. Supplies. This category includes supplies such as lubricating and
    compounding oils, grease, machine waste, abrasives, chemicals,
    solvents, fluxes, anodes, filtering materials, fire brick, catalysts,
    dyes, refrigerants, explosives, etc. The supplies indicated above need
    not come in direct contact with a manufactured product to be
    exempt. “Supplies” does not include repair, replacement, or spare
    parts of any kind.

 c. Industrial tools. This group is limited to hand tools such as jigs,
    dies, drills, cutters, rolls, reamers, chucks, saws, spray guns, etc.,
    and to tools attached to a machine such as molds, grinding balls,
    grinding wheels, dies, bits, cutting blades, etc. Normally, for
    industrial tools to be considered directly used in manufacturing,
    they shall come into direct contact with the product being
    manufactured; and

3. Materials and supplies that are not reusable in the same
manufacturing process at the completion of a single manufacturing
cycle, excluding repair, replacement, or spare parts of any kind. A single

                                     5
Department explained its position as being that all the items in question simply

“wear out,” making them taxable repair and replacement parts, not tax-exempt

supplies which are “used up.”

      After hearing evidence, the Hearing Officer recommended disposition in

favor of Century on all claims. The Claims Commission issued its Final Order

on March 27, 2019, adopting the Hearing Officer’s findings of fact5 and

conclusions of law. Thus, the Claims Commission concluded that the anode

stubs, Inductotherm lining, thermocouples and tube assemblies, and welding

wire and industrial gases used for welding are tax-exempt supplies under KRS

139.470(10)(a)2.b.

      In reaching this conclusion, the Claims Commission rejected the

Department’s interpretation of the statutes, an interpretation that would allow

most tangible personal property that meets the criteria for a tax-exempt supply

to also be categorized as a taxable part. Concluding that the statutes require

harmonization to give each effect, the Claims Commission relied upon

Mansbach (also cited by Century) as supporting a decision in the

      manufacturing cycle shall be considered to be the period elapsing from
      the time the raw materials enter into the manufacturing process until the
      finished product emerges at the end of the manufacturing process.

      (b) It shall be noted that in none of the three (3) categories is any
      exemption provided for repair, replacement, or spare parts. Repair,
      replacement, or spare parts shall not be considered to be materials,
      supplies, or industrial tools directly used in manufacturing or industrial
      processing. “Repair, replacement, or spare parts” shall have the same
      meaning as set forth in KRS 139.010.

(Emphasis added.)
      5   The findings of fact are within the conclusions of law section.

                                            6
manufacturer’s favor. Based upon Mansbach, the Claims Commission

concluded that if an item may be categorized as either a supply or as a part,

the test for final categorization is whether the item is intended to be used up in

the manufacturing process or simply wears out. The Claims Commission also

stated that under the test proposed by Century for determining whether the

tangible personal property is being consumed in the manufacturing process,

the items at issue would be categorized as tax-exempt.6 The Claims

Commission observed that although the Department advocated that Century

Indemnity supports a decision in the Department’s favor, the “supply” test

enunciated in that case actually results in the items at issue being categorized

as tax-exempt supplies, not taxable parts. Notably, the Department did not

cite Century Indemnity in its subsequent appellate briefs.

      6The test Century offered to distinguish between tangible personal property
that may be categorized as both a tax-exempt supply and a taxable part follows:

      A. Determine the useful life of the tangible personal property at issue if
         the machine or equipment that the tangible personal property
         allegedly maintains, restores, mends, or repairs is operating without
         the introduction of the product being manufactured.
      B. Determine the useful life of the tangible personal property at issue if
         the machine or equipment that the tangible personal property
         allegedly maintains, restores, mends, or repairs is operating with the
         introduction of the product being manufactured.
      C. If there is a difference in the useful life of the tangible personal
         property between a. and b. above then the tangible personal property
         is being consumed in the manufacturing process and is exempt from
         tax.
      D. If there is no difference in the useful life of the tangible personal
         property between a. and b. above then the tangible personal property
         is a taxable repair, replacement or spare part.

                                          7
      In its petition for review in Franklin Circuit Court, the Department

claimed that the Claims Commission erred both as a matter of fact and as a

matter of law in determining that all of the items in question are exempt under

KRS 139.470(10). The Department sought review of the Claims Commission’s

Final Order on the following grounds: the Claims Commission’s decision is in

violation of constitutional or statutory provisions; in excess of the statutory

authority of the agency; without support of substantial evidence on the whole

record; legally deficient, contrary, or not in conformity to the applicable law and

undisputed facts; arbitrary; and/or subject to reversal for any ground referred

to in KRS 13B.150 that may be apparent from the law and facts presented by

this case and record made before the Claims Commission.7

      7KRS 13B.150(2), pertaining to judicial review of an agency’s final order, states
      in full:

      The court shall not substitute its judgment for that of the agency as to
      the weight of the evidence on questions of fact. The court may affirm the
      final order or it may reverse the final order, in whole or in part, and
      remand the case for further proceedings if it finds the agency’s final order
      is:

      (a) In violation of constitutional or statutory provisions;

      (b) In excess of the statutory authority of the agency;

      (c) Without support of substantial evidence on the whole record;

      (d) Arbitrary, capricious, or characterized by abuse of discretion;

      (e) Based on an ex parte communication which substantially prejudiced
      the rights of any party and likely affected the outcome of the hearing;

      (f) Prejudiced by a failure of the person conducting a proceeding to be
      disqualified pursuant to KRS 13B.040(2); or

      (g) Deficient as otherwise provided by law.

                                            8
      In regard to the evidence, the Department recounted the Manager’s

testimony that: as to the anode stubs, they are used to “maintain the anode

assembly . . . to maintain [the] manufacturing process”; as to the

Inductotherm lining, “changing the lining . . . maintains the furnace in its

operational condition”; as to the welding wire and welding gas, along with the

anode stubs, they are used to “restor[e] the anode assembly to its as-new

condition”; and as to the thermocouples and tube assemblies, the newly-

introduced thermocouples and tube assemblies “replace the existing one[s].”

The Department emphasized that the Manager testified that each of the items

in question was used to “maintain” a manufacturing process or to “maintain”

or “repair” a piece of machinery (referring to anode stubs, Inductotherm lining,

and welding wire and gases as machinery) or was a replacement for an existing

piece of equipment (referring to thermocouples and tube assemblies as

equipment). The Department then argued that the preponderance of the

evidence introduced at the evidentiary hearing establishes, as a matter of fact,

that the anode stubs, Inductotherm lining, thermocouples and tube

assemblies, and welding wire and industrial gases are properly classified as

repair, replacement, or spare parts which do not qualify for sales tax exemption

under KRS 139.470(10).

      The Franklin Circuit Court agreed with the Department that the proper

test for categorizing taxable parts and tax-exempt supplies, respectively, is

whether the tangible personal property is introduced into the manufacturing

process to maintain, restore, mend, or repair a machine or equipment or

                                        9
whether the tangible personal property is used up or consumed as a

consequence of its involvement in the manufacturing process. Also, in

agreement with the Department, the Franklin Circuit Court considered the

initial question to be whether the tangible personal property meets the

qualification of a repair, replacement, or spare part, and if so, no further

analysis is required. The Franklin Circuit Court stated that the evidence in the

record, including testimony by Century’s expert, makes clear that the anode

stubs, Inductotherm lining, thermocouples and tube assemblies, and welding

wire and industrial gases were introduced to maintain, restore, mend, or repair

machinery or equipment used at Century’s facility, so the items are subject to

sales and use tax under KRS 139.470(10).8 The circuit court, further in

agreement with the Department, noted that Century’s proposed test would not

be helpful to distinguish tax-exempt supplies from taxable parts.9

      Century appealed the Franklin Circuit Court’s decision to the Court of

Appeals. The Court of Appeals, in a 2-1 decision, affirmed the circuit court.

Like the circuit court, the Court of Appeals concluded that KRS 139.470(10)

       8 In its appellate brief to the circuit court, the Department also presented a test

for distinguishing tax-exempt supplies from taxable parts. In contrast to its position
that all the items were either repair or replacement parts, the Department offered a
concession on the Inductotherm lining, explaining it may be classified as a tax-exempt
supply under KRS 139.470(10)(a)2.b. Despite the Department’s concession, the
Franklin Circuit Court reversed the Claims Commission’s decision entirely. The
Department did not offer a concession in its subsequent appellate briefs.
       9 The circuit court viewed the proposed test as ignoring the fact that all tangible

personal property used in the manufacturing process wears down or is used up,
therefore, all tangible personal property could have a different useful life once
introduced into the manufacturing process. The circuit court explained that the test
would exempt nearly all tangible personal property from sales and use tax which is
clearly not the intent of KRS 139.470.

                                           10
and KRS 139.010(26) are not in conflict and do not need to be harmonized,

making Century’s proposed test unnecessary. The Court of Appeals,

considering the express language of the statutes, concluded that the circuit

court properly interpreted the statutes. The Court of Appeals, like the circuit

court, then considered the testimony the Department pointed to as supportive

of factual findings that the items at issue met the definition of a repair,

replacement, or spare part. The Court of Appeals agreed with the circuit

court’s “application of the law to the facts” and concluded that the items were

introduced “to maintain, restore, mend, or repair machinery or equipment”

and, therefore, are taxable. This Court granted Century’s request for

discretionary review.

                                       ANALYSIS

      As noted, this appeal stems from the Kentucky Claims Commission’s,

Tax Appeals, decision in favor of Century. Being an appeal from an

administrative agency’s decision, KRS Chapter 13B applies and appellate

review of the Claims Commission’s Final Order is limited. See KRS 13B.150.10

While the Department’s petition to the Franklin Circuit Court for reversal of the

Claims Commission’s Final Order encompassed most of the bases by which the

order could be reversed, the Department’s briefs to the circuit court and to the

Court of Appeals honed the Department’s arguments. The Department alleged

that the Claims Commission erred in its interpretation of KRS 139.470(10) and

      10   The full text of KRS 13B.150 is provided in note 7 above.

                                            11
KRS 139.010(26) and that the Claims Commission’s Final Order violates KRS

13B.150(2)(c), (d), and (g). The Department thus maintained under these KRS

13B.150 provisions that the Claims Commission’s Final Order is “without

support of substantial evidence on the whole record,” KRS 13B.150(2)(c); is

“arbitrary, capricious, or characterized by abuse of discretion,”11 KRS

13B.150(2)(d); and is “deficient as otherwise provided by law,” KRS

13B.150(2)(g).

      The circuit court and the Court of Appeals concluded that the Claims

Commission erred in its statutory interpretation but as reflected in the factual

and procedural background, rather than acting in accordance with KRS

13B.150(2)’s directive that an appellate court “shall not substitute its judgment

for that of the agency as to the weight of the evidence on questions of fact,” the

circuit court acted as a fact-finder and the Court of Appeals agreed with the

circuit court’s application of the law to the facts.12 Upon review, we reverse the

Court of Appeals’ decision and accordingly, the circuit court’s decision. We

agree with the Claims Commission’s ultimate conclusion that a distinguishing

difference between a tax-exempt supply and a taxable part is whether the

tangible personal property is consumed in the manufacturing process and has

      11In its circuit court brief, the Department asserted that: “Failure to take into
consideration the unrefuted testimony of Century’s own expert witness . . . is clearly in
disregard of the substantial evidence on the whole record, which is, in itself, arbitrary
and capricious.”
      12The Department presents new arguments in its brief to this Court, such as
Century does not directly use welding gas in its manufacturing of aluminum for sale.
These arguments were not presented to or addressed by the fact-finder and are beyond
this Court’s purview.

                                           12
a useful life less than one year, but our decision is reached based upon the

plain language of the statutes. We also conclude that the Claims Commission’s

findings of fact are supported by substantial evidence and that the Claims

Commission’s Final Order did not violate KRS 13B.150(2)(d) or (g).

         With Century’s aluminum making process providing the context for

understanding KRS 139.470(10) and KRS 139.010(26)’s application and the

parties’ respective statutory interpretation arguments, we first provide a simple

description of the aluminum making process used by Century at its Hawesville

plant.

                          Century’s Aluminum Making Process

         Century manufactures aluminum through a process call “electrolysis”

during which high voltage electricity is passed through an “anode assembly” to

a carbon anode in a molten electrolyte bath in which alumina13 is dissolved.

An anode assembly consists of (1) an aluminum stem or rod, (2) a transition

joint, and (3) a steel anode yoke including its arms and steel anode stubs. The

transition joint allows the aluminum rod to be joined to the steel yoke. The

steel yoke is joined to the carbon anode by inserting the steel anode stubs into

formed holes at the top of the carbon anode and joining the anode stubs to the

carbon anode using cast iron. Thus, a carbon anode is attached to an anode

assembly by the anode stubs, and the anode stubs then allow DC electrical

current from the anode assembly through the carbon anode and into the

         13   Alumina is the raw material from which aluminum is made.

                                             13
molten electrolyte bath so that electrolysis can take place and aluminum can

be manufactured.

        Loss of anode stub material occurs as part of the manufacturing process.

One mechanism for this loss occurs when the anode stub comes into contact

with molten electrolyte. When this happens, part of the anode stub is dissolved

in the bath. The anode stub loss will reach the point that a new anode stub

will need to be attached to the yoke in order for the electrolysis procedure to

continue. Century uses welding wire and welding gas to attach a new anode

stub.

        The Inductotherm furnace is the place where the cast iron used to join

the anode stubs and carbon anode is melted. The furnace has a lining, the

Inductotherm lining, between the induction coils and the molten metal. The

lining must be thick enough to fully protect the coils and to prevent metal run

out in order to avoid severe accidents. The lining is subject to normal wear as

a result of the scraping action of metal on the furnace walls. When the

minimum lining thickness is detected, the furnace is taken out of service and

relined.

                         Relevant Statutes and Caselaw

        Under KRS 139.470, manufacturers and industrial processers—

businesses which use machinery; equipment; repair, replacement, and spare

parts for machinery and equipment; materials; supplies; and industrial tools—

receive a tax break when purchasing tangible personal property meeting the

                                        14
statutory definition of materials, supplies or industrial tools.14 The criteria for

determining whether an item is a tax-exempt material, supply or industrial tool

is explained within KRS 139.470 or within KRS 139.010’s definitions.

         As an initial matter, the gross receipts15 exempt from tax collection must

be “derived from the sale of,[16] and the storage,[17] use,[18] or other consumption

in this state of, tangible personal property[19] to be used in the

manufacturing[20] or industrial processing[21] of tangible personal property at a

plant facility[22] and which will be for sale.” KRS 139.470(10). Notably, in

contrast to other terms in this provision, “consumption” is not a defined term

in KRS 139.470 or KRS 139.010.

         Categorization of an item as a supply is, of course, at the heart of this

dispute. Beyond being tangible personal property, criteria for an item to be

categorized as a supply include the item’s consumption when used in the

       14 KRS 139.480(10) provides a sales and use tax exemption for machinery

qualifying as “machinery for new and expanded industry.” 2014 Ky. Acts ch. 129 (eff.
Aug. 1, 2014).
         15   KRS 139.010(12) defines “gross receipts.” 2011 Ky. Acts ch. 33 (eff. July 1,
2011).
         16   KRS 139.010(30) defines “sale.” Id.
         17   KRS 139.010(32) defines “storage.” Id.
         18   KRS 139.010(36) defines “use.” Id.
          KRS 139.010(33) defines “tangible personal property” as “personal property
         19

which may be seen, weighed, measured, felt, or touched, or which is in any other
manner perceptible to the senses and includes natural, artificial, and mixed gas,
electricity, water, steam, and prewritten computer software.” Id.
         20   KRS 139.010(16) defines “manufacturing.” Id.
         21   KRS 139.470(10)(a) describes “industrial processing.” 2013 Ky. Acts ch. 119.
         22   KRS 139.010(21) defines “plant facility.” 2011 Ky. Acts ch. 33.

                                               15
manufacturing or industrial processing, KRS 139.470(10), being directly used

in manufacturing or industrial processing, KRS 139.470(10)(a)2, and having a

useful life of less than one (1) year, id. Examples of supplies are “lubricating

and compounding oils, grease, machine waste, abrasives, chemicals, solvents,

fluxes, anodes, filtering materials, fire brick, catalysts, dyes, refrigerants,

explosives, etc.” KRS 139.470(10)(a)2.b. Supplies do “not include repair,

replacement, or spare parts of any kind.” Id.

      In regard to “repair, replacement, or spare parts,” KRS 139.470(10)(b)

states:

      [I]n none of the three (3) categories [identifying tangible personal
      property which is tax-exempt] is any exemption provided for repair,
      replacement, or spare parts. Repair, replacement, or spare parts
      shall not be considered to be materials, supplies, or industrial
      tools directly used in manufacturing or industrial processing.
      “Repair, replacement, or spare parts” shall have the same meaning
      as set forth in KRS 139.010.

      As defined in KRS 139.010, unless the context otherwise provides,

      (a) “Repair, replacement, or spare parts” means any tangible
          personal property [(“personal property which may be seen,
          weighed, measured, felt, or touched, or which is in any other
          manner perceptible to the senses and includes natural,
          artificial, and mixed gas, electricity, water, steam, and
          prewritten computer software”)] used to maintain, restore,
          mend, or repair machinery or equipment.

      (b) “Repair, replacement, or spare parts” does not include machine
          oils, grease, or industrial tools.

KRS 139.010(26).

      In this case, using Mansbach as guidance, the Claims Commission found

that the items in dispute met the criteria to be categorized as tax-exempt

                                         16
supplies because all of the items at issue are tangible personal property, have a

direct use in manufacturing in a manufacturing facility, and have a useful life

of less than one year. Consistent with its citations to the Claims Commission

and the other appellate courts, Century cites Mansbach to this Court in

support of a decision in its favor. Century maintains that Mansbach, decided

in 1975 and dealing with interpretation of a regulation, Regulation No. SU-5

(the contents of which were subsequently incorporated in KRS Chapter 139’s

statutory framework and are at issue in this case), is guidance for

distinguishing tangible personal property which seemingly constitutes both

tax-exempt supplies and taxable parts.

      In Mansbach, the Department disagreed with Mansbach Metal

Company’s treatment of various items as tax exempt under Regulation No. SU-

5, adopted in 1960, which provided that sales and use taxes were not collected

on “tangible personal property to be used in the manufacturing or industrial

processing of tangible personal property,” including

      2. Materials, supplies (including molds, lubricating and
      compounding oils, grease, machine waste, abrasives, grinding
      balls, grinding wheels, chemicals, solvents, fluxes, anodes, fire
      brick, catalysts, filtering materials, dyes, refrigerants, explosives,
      etc.), and industrial tools (jigs, dies, drills, cutters, rolls, reamers,
      chucks, saws, spray guns, etc.) which are directly used in
      manufacturing or industrial processing, if such materials, supplies
      or industrial tools have a useful life of less than one year.

521 S.W.2d at 86-87.

      Mansbach Metal Company’s tax return had described most items

purchased using specific descriptions identifying the item as a part for a

machine having a relatively short useful life due to wearing out with use. The
                                         17
other items were described generally using terms such “miscellaneous parts

and supplies,” “repair material,” “supplies,” “material,” and “repair parts.”

When Mansbach Metal Company appealed the Department’s tax assessment to

the then-Kentucky Board of Tax Appeals, the parties stipulated that the

disputed items were “materials and supplies” purchased by Mansbach Metal

Company “which have a useful life of less than one (1) year and which were

necessary for the operation, maintenance and repair of certain machinery and

equipment directly used in the processing and producing functions of

petitioner’s business.” Id. at 86.

      Finding that the items in question were primarily repair and replacement

parts, the Board of Tax Appeals concluded that the items were not exempt from

sales and use tax. The Franklin Circuit Court upheld the Board’s decision.

Our predecessor Court also upheld the Board’s decision, noting that the

regulation did not use the word “parts” and that none of the things listed in the

regulation as a material or supply could be considered a part. The Court was

unpersuaded by Mansbach Metal Company’s argument that the basis for

materials’ and supplies’ tax-exempt status—the characteristic of having a

useful life of less than one year—applied equally to parts. The Court also

explained that while the regulation must be narrowly construed, even under a

liberal construction, a distinction could be drawn between materials and

supplies and parts, that distinction being that materials and supplies are

designed and intended to be used up in the manufacturing process and parts

simply wear out. Id. at 86-87.

                                        18
      While the parties apparently agree with Mansbach’s characterization of

the difference between supplies and parts, the parties do not agree on the role

Mansbach should play in the interpretation of KRS 139.470(10)(a)2.b. and KRS

139.010(26). Because the General Assembly in 1994, after the Revenue

Cabinet v. Armco, Inc., 838 S.W.2d 396 (Ky. App. 1992), decision,23 amended

KRS 139.470 to state that “repair, replacement and spare parts,” are not tax-

exempt, defined “repair, replacement and spare parts” at the same time, and

added the provision that “supplies” do not include repair, replacement, or spare

parts of any kind,24 the Department argues that there is no need to look

      23 Armco held that replacement ball bearings which were used as part of a
lubricating system were not excluded from tax exemption under 103 KAR 30:130,
embodied at that point in KRS 139.470(11). The Armco court stated that “there is no
reason to exclude parts which have a useful life of less than a year, are used directly
in the manufacturing process and properly fall within either category of supplies or
industrial tools.” Id. at 402.
      24   After its amendment in 1992, then KRS 139.470(11)(b) provided:

      It shall be noted that in none of the three (3) categories is any exemption
      provided for repair parts. KRS 139.170 specifically holds replacement
      machinery shall be taxable. Since replacement machinery is subject to
      tax, it necessarily follows that repair or replacement parts shall be
      subject to tax. Repair parts shall not be considered to be materials,
      supplies, or industrial tools directly used in manufacturing or industrial
      processing.

1992 Ky. Acts ch. 214.

      After its amendment in 1994, then KRS 139.470(11)(b) provided:

      It shall be noted that in none of the three (3) categories is any exemption
      provided for repair, replacement, or spare parts. . . . Repair,
      replacement, or spare parts shall not be considered to be materials,
      supplies, or industrial tools directly used in manufacturing or industrial
      processing.

1994 Ky. Acts. ch. 501. Within the same Act, under KRS 139.470(11)(a)(2)b, the
General Assembly added the sentence, “‘Supplies’ does not include repair,
replacement, or spare parts of any kind[,]” and under KRS 139.170(2), defined

                                           19
beyond the statutory language and asserts that only those items listed as

supplies in KRS 139.470(10)(a)2.b. and items that are of the same kind, class

or nature as the listed items are exempt from sales and use tax. The

Department further argues that tangible personal property items which

“maintain, restore, mend or repair machinery or equipment” at a

manufacturing plant are expressly taxable and that the legislature intended

that the limited sales and use tax exemption should never be applied to repair,

replacement, or spare parts. Therefore, if the item may be categorized as a

taxable part, whether the item has characteristics of a tax-exempt supply is of

no consequence. Seeing no conflict between the statutes, the Department

maintains no harmonization of KRS 139.010(26) and KRS 139.470(10) is

required.25

      While we agree with the Department that the plain language of the

statutes resolves this dispute, that plain language results in a decision in

Century’s favor. Furthermore, upon consideration of the statutory language as

a whole, that plain language incorporates the principles expressed in Mansbach

and Century Indemnity.

“[r]epair, replacement, or spare parts” to mean “any tangible personal property used to
maintain, restore, mend, or repair machinery or equipment. ‘Repair, replacement, or
spare parts’ does not include machine oils, grease, or industrial tools.”
      25 In relation to this argument, the Department asserts that Century’s own
expert witness testimony made clear that all the tangible personal property at issue in
this case was used to “maintain, restore, mend, or repair machinery or equipment” in
Century’s plant facility.

                                          20
      When presented with an issue of statutory interpretation, we begin with

the plain words of the statute. Revenue Cabinet v. O’Daniel, 153 S.W.3d 815,

819 (Ky. 2005). “Our ultimate goal when reviewing and applying statutes is to

give effect to the intent of the General Assembly. We derive that intent from the

language the General Assembly chose, either as defined by the General

Assembly or as generally understood in the context of the matter under

consideration.” Commonwealth v. Wright, 415 S.W.3d 606, 609 (Ky. 2013); see

KRS 446.080(1), KRS 446.080(4). Furthermore, “[t]he statute must be read as

a whole and in context with other parts of the law. All parts of the statute

must be given equal effect so that no part of the statute will become

meaningless or ineffectual.” Lewis v. Jackson Energy Co-op. Corp., 189 S.W.3d

87, 92 (Ky. 2005); accord Department of Revenue v. Cox Interior, 400 S.W.3d

240, 242 (Ky. 2013). When the meaning of the statutory language is plain and

unambiguous, a court cannot base its interpretation on any other method or

source. Mills v. City of Barbourville, 117 S.W.2d 187, 188 (Ky. 1938). “Only if

the statute is ambiguous, however, or otherwise frustrates a plain reading, do

we resort to the canons or rules of construction, such as the rule that tax

exemption statutes are to be narrowly construed against the exemption.” King

Drugs v. Commonwealth, 250 S.W.3d 643, 645 (Ky. 2008) (citing Stephenson v.

Woodward, 182 S.W.3d 162 (Ky. 2005)). Furthermore “when interpreting a

provision of a statute, a court should not, if possible, adopt a construction that

renders a provision meaningless or ineffectual or interpret a provision in a

manner that brings about an absurd or unreasonable result.” Schoenbachler v.

                                        21
Minyard, 110 S.W.3d 776, 783 (Ky. 2003) (citations omitted). However, when

“there is an apparent conflict between statutes or sections thereof, it is the

duty of the court to try to harmonize the interpretation of the law so as to give

effect to both sections or statutes if possible.” Ledford v. Faulkner, 661 S.W.2d

475, 476 (Ky. 1983).

      Resolution of the dispute between the parties comes down to whether the

tangible personal property is consumed within the manufacturing process and

has a useful life of less than one year, KRS 139.470(10)(a)2.b., or constitutes

part of the machinery or equipment which supports the manufacturing

process, KRS 139.010(26). See also KRS 139.010(16) (defining

“manufacturing” and reflecting, as commonly understood, that while related

there is a difference between the manufacturing process and the operation of

machinery).26 Although the Department’s focus has been on the use of repair

and replacement parts “to maintain, restore, mend or repair” and the

Department emphasizes the Manager’s use of those very words in his testimony

(i.e., “replaces” and “maintains,” words which refer to the defined term itself or

are included in its definition), review of the statutes makes clear that the terms

      26 “Manufacturing” means any process through which material having
      little or no commercial value for its intended use before processing has
      appreciable commercial value for its intended use after processing by the
      machinery. The manufacturing or processing production process
      commences with the movement of raw materials from storage into a
      continuous, unbroken, integrated process and ends when the product
      being manufactured is packaged and ready for sale.

KRS 139.010(16).

                                         22
“machinery” and “equipment” play an important role in defining taxable parts

and must be given effect.

      Neither “machinery” nor “equipment” is defined within KRS 139.470 or

KRS 139.010, but “common and everyday” meanings of those terms are a

starting point. KRS 446.015 (statutes to be “written in nontechnical language

and in a clear and coherent manner using words with common and everyday

meaning”). Once it is determined that machinery or equipment is involved, the

question of whether the tangible personal property is a repair, replacement or

spare part can then be addressed. However, if no machinery or equipment is

being repaired or replaced, according to the definition of a repair or

replacement part in KRS 139.010(26), the tangible personal property at issue

cannot be a repair or replacement part.

      Machinery and equipment are commonly understood to be a solid device

made up of solid parts of a long-term or permanent nature. 27 See Century

      27 A machine may be described as “a piece of equipment with several moving
parts that uses power to do a particular type of work.” Cambridge Dictionary,
https://dictionary.cambridge.org/us/dictionary/english/machine (accessed Nov. 2,
2022). Definitions of “machine” also include “a mechanically, electrically, or
electronically operated device for performing a task” and “an assemblage of parts
that transmit forces, motion, and energy one to another in a predetermined
manner;” Merriam-Webster, https://www.merriam-webster.com/dictionary/machine
(accessed Nov. 2, 2022), whereas “machines in general or as functioning unit” are
the machinery performing a task, id., https://www.merriam-
webster.com/dictionary/machinery.

       This understanding is also present within the Department’s regulations
related to KRS 139.480 which creates tax-exempt status for the sale, use, storage, or
other consumption of “machinery for new and expanded industry.” Regulation 103
KAR 30:120, Section 2 (2016) defines “machinery” as:

      machines, in general, or collectively; also, the working parts of a
      machine, engine, or instrument; such as, the machinery of a watch.

                                         23
Indemnity, 68 S.W.2d at 774. However, the parts have the potential to

deteriorate, wear out, or break, statuses which may be avoided or delayed

with care beforehand or which may be addressed after the fact. See KRS

139.010(26). Given this understanding of machinery and equipment and

using parlance within KRS 139.470 to contrast tax-exempt supplies vis-a-vis

machinery and equipment, machinery and equipment parts have the

characteristic of not being consumed in the manufacturing process. See

Century Indemnity, 68 S.W.2d at 774; Mansbach, 521 S.W.2d at 87. While

“consumption” is another term not defined in KRS 139.470 or KRS 139.010,

Century Indemnity, the non-tax case cited favorably by the Department to the

Claims Commission, noted acceptance of the idea that what may initially be

thought of as machinery or equipment may lose that identity because of its

consumption, resulting in its categorization as a supply.

      Century Indemnity, a road construction contract case, addressed whether

the rental of machinery, its damage by negligent use, certain items of freight,

and the loss or misplacement of equipment were either “materials” or

“supplies” within the meaning of those terms as used in the surety bond at

issue. In its review of dictionaries, a treatise and other state cases which had

also considered the meaning of the terms, Century Indemnity described the

      (Webster’s New International Dictionary). This definition does not require
      machinery to have working parts and be able to perform a function in
      and of itself, as a “machine” would. The machinery of a manufacturing
      operation is composed of all the components making up the process,
      including the fixed and nonmoving parts as well as the moving parts.
      This is illustrated in the example of the machinery of a watch.

                                         24
terms as universally defined. As might be expected in comparison, Century

Indemnity defined “materials” consistent with the meaning expressed in KRS

139.470. See Century Indemnity, 68 S.W.2d at 773. For “supplies,” Century

Indemnity’s definition reflects the examples KRS 139.470 uses to describe

“supplies.” See id. at 773-74. In particular, Century Indemnity cites “supplies”

as being defined as “articles furnished for carrying on work, which, from its

nature, are necessarily consumed by the use in the work.” Id. at 774. Of

particular importance to this case, Century Indemnity also noted, “Where

articles are totally used up in the usual and ordinary performance of a

contract, so that nothing remains in excess of normal salvage, they lose their

identity as tool, appliances, implements and machinery, and are included in

the broader definition of ‘supplies.’” Id. (citing 60 Corpus Juris 1167, then

U. S. Rubber Co. v. American Bonding Co., 149 P. 706 (Wash. 1915), and Royal

Indemnity Co. v. Day & Maddock Co., 150 N.E. 426 (Ohio 1926)).

      We agree with the Department’s position as stated to the Claims

Commission that the preceding quote from Century Indemnity is relevant for

distinguishing tax-exempt supplies and taxable parts.28 In particular, while

not including the condition established for identifying “other tangible personal

property” as tax-exempt, i.e., a useful life of less than one year, Century

      28 The Department cited the preceding quote from Century Indemnity to the
Claims Commission as guidance (along with Mansbach) for distinguishing tax-exempt
supplies and taxable parts. The Department argued, prehearing, that the items at
issue are not “used up” in the manufacturing process such that “nothing remains in
excess of normal salvage.” Based upon the Manager’s testimony at the evidentiary
hearing, the Claims Commission concluded Century Indemnity did not support the
Department’s argument.

                                        25
Indemnity, consistent with the understanding that machinery and equipment

are not consumed, expresses an objective manner for understanding

consumption of tangible personal property within the context of manufacturing

and industrial processes.29

      Reading KRS 139.470(10) and KRS 139.010(26) together and giving KRS

139.010(26) its full effect, they establish that tangible personal property will

either fall within the categorization of a repair, replacement, or spare part or a

supply. Based upon the characteristics of a supply and the manufacturing

process within which its employed, a manufacturer knows it must purchase

that supply on a regular basis to keep the manufacturing process going. The

consumed, used up, spent supply must be replenished by a new supply. There

is a known absolute that without replenishing the supply routinely, the

manufacturing process will not last. With machinery and equipment being

durable and of a more permanent nature, the time frame for repair and

replacement part use is less predictable and may not be routinely scheduled,

      29  This expression is similar to that in the Department’s test contained in its
circuit court brief. When addressing KRS 139.470(10)(a)2.b., the Department stated
that tangible personal property may be classified as a supply when its interaction with
the heat, cold, physical forces, waste material accumulation, and/or chemical and
physical corrosion caused by the manufacturing process cause the item to be
physically or chemically altered in a permanent and irreparable manner within the
one-year useful life limitation set forth in the statute. In regard to KRS
139.470(10)(a)3., the Department stated that tangible personal property may be
classified as a supply if it loses a significant portion of its physical mass or is
otherwise rendered substantially useless for its primary purpose in the manufacturing
process as a result of its interaction with the heat, cold, physical forces, waste
material accumulation, or chemical and physical corrosion caused by the particular
manufacturing process, in a single manufacturing cycle or several manufacturing
cycles.

                                          26
yet in contrast to tax-exempt supplies, taxable machinery and equipment parts

are generally expected to have a useful life of one year or more.

      In this case, if we conclude that the Claims Commission’s findings of fact

are supported by substantial evidence (and we do), the newly-purchased anode

stubs, Inductotherm lining, welding wire and gases, and thermocouples and

tube assemblies are not repair or replacement parts for their old counterpart.

Instead, based upon their consumption within the manufacturing process and

having a useful life of less than one year, the newly-purchased anode stubs,

Inductotherm lining, welding wire and gases, and thermocouples and tube

assemblies are supplies.

      The Department, however, views the definition of a repair, replacement,

or spare part as not being limited to maintaining, restoring, mending or

repairing its counterpart. As explained above, the Manager’s responses at the

evidentiary hearing did not describe the newly-purchased items as

maintaining, restoring, mending or repairing the old item. Instead, the

Manager described the newly-purchased anode stubs, Inductotherm lining,

and welding wire and gases as maintaining either 1) the furnace; 2) the anode

assembly, which beyond the anode stubs at issue, consists of the aluminum

stem or rod, the transition joint, and the steel yoke arms; or 3) the

manufacturing process. The Claims Commission considered the Department’s

broad interpretation of the statute—i.e., any part that can be construed as

affecting any piece of machinery or equipment in the plant is a taxable repair,

replacement or spare part—to be resolved by whether the part is intended to be

                                        27
used up in the manufacturing process or whether it is intended to simply wear

out, because otherwise, in most cases, the Department’s interpretation renders

the supplies exemption meaningless.

      With the plain language of the definition of repair, replacement and spare

parts restricting the part’s use to maintaining, restoring, mending or repairing

the actual machinery or equipment, it is clear that tangible personal property

which maintains the “manufacturing process,” but does not actually replace an

existing part of the permanent machine, does not fit within the definition of a

taxable part. As for the Department’s assertion that the “repair, replacement

or spare part” definition may be construed as allowing tangible personal

property meeting the criteria of a supply to nonetheless maintain machinery or

equipment, we consider that proposition in light of the preceding analysis.

With the conclusion that specific tangible personal property is a supply, its

defining characteristics exclude it from being categorized as a repair,

replacement or spare part and the statute cannot be construed in an absurd,

inconsistent manner to allow the same tangible personal property to be viewed

also as a part. Schoenbachler, 110 S.W.3d at 783. For example, in this case,

with the anode stubs being a consumed supply, the newly-purchased anode

stubs may not then be also categorized as a part which “maintains” the other

components of the anode assembly. See also KRS 139.010(26). As exemplified

in this case, categorization of tangible personal property as a tax-exempt

supply or a taxable part involves multiple criteria and goes beyond portraying

                                       28
testimony as describing tangible personal property as “maintaining” machinery

or equipment.

      Based upon our review of KRS 139.470(10) and KRS 139.010(26) then,

the question whether tangible personal property is a tax-exempt supply or a

taxable part, if all the other characteristics of a tax-exempt supply are met,

may be resolved by whether the tangible personal property has the

characteristics of being consumed in the manufacturing process and having a

useful life of less than one year. With this conclusion being in agreement with

the Claims Commission’s interpretation, we turn to the Department’s claim

that the Claims Commission’s Final Order was not supported by substantial

evidence in the record.

Substantial Evidence Supports the Claims Commission’s Findings of Fact

      The Claims Commission found that all of the items at issue are tangible

personal property, have a direct use in manufacturing in a manufacturing

facility, and have a useful life of less than one year. To determine whether

there was substantial evidence to support the Claims Commission’s findings of

fact upon which its conclusions of law are based, we examine the Manager’s

testimony for each item in dispute.

      Anode Stubs

      The Manager testified that the anode stubs are “necessary in order to

complete the electrical circuit that produces the aluminum”; that “[t]he biggest

issue is the carbon-stub interface, and that’s where the damage occurs. That’s

where the bath washes over the anode and cuts the stub”; that “in [Century’s]

                                        29
process, [the anode stubs] typically last less than a year”; and that once the

anode stub is used up, “[i]t is valued at the scrap price of steel.”

      Inductotherm Lining

      The Manager testified that the “Inductotherm lining is a refractory lining

that separates the molten cast iron from the actual furnace assembly itself,

including the heating components and the cooling components.” “If that lining

wasn’t there, [the furnace] couldn’t be operated without the lining because cast

iron would attack the steel shell and . . . would actually destroy the furnace.”

In terms of how long the Inductotherm lining lasts, the Manager testified that it

will “typically be around a month.” The Manager also testified that the

Inductotherm lining “actually has no value” after it is used up and has “very

little” value for scrap.

      Thermocouples and Tube Assemblies

      The Manager testified: “[T]he thermocouples and tube assemblies are

basically just a thermometer. We use those in the reduction cells to measure

the temperature of the bath. That’s a critical piece of our control of the

aluminum process because it gives us specific information about how the pot

may be performing and if it’s approaching an abnormal condition.” “Each

thermocouple can last somewhere between 300 and 500” dips into the pots and

based upon the number of pots tested per day “the thermocouples would last

less than a week.” When asked how long the thermocouples and tube

assemblies last, the Manager reiterated, “They’ll typically last about a week.”

                                         30
In terms of their value after being used up, the Manager testified that they have

no value.

      Welding Wire and Industrial Gases

      The Manager explained that in the rodding department, welding wire is

used to join the anode stubs to the anode yokes and that industrial gases are

used in the welding process to provide an inert atmosphere as the weld is

taking place. The Manager testified that the welding wire and industrial gases

are necessary for the manufacturing process; in order to produce an anode

assembly that can be used in the electrolytic cells in the pots, it’s necessary to

have the anode assembly with four stubs. The Manager stated that the welding

wire used in the rodding department lasts “[t]he entire life cycle of the stub”

and that after that use, its value is scrap steel. As for the industrial gases used

in the rodding department, “[i]t lasts the entire time that the weld is intact.”

The Manager further stated that the industrial gases have zero value after they

are consumed.

      Substantial evidence is “evidence of substance and relevant consequence

having the fitness to induce conviction in the minds of reasonable men.”

Owens–Corning Fiberglas Corp. v. Golightly, 976 S.W.2d 409, 414 (Ky. 1998)

(citations omitted). Upon review, we conclude that the Manager’s testimony is

substantial evidence which supports the Claims Commission’s findings of fact.

Cobb v. Commonwealth, 509 S.W.3d 705, 709 (Ky. 2017).

                                        31
                                  CONCLUSION

      For the foregoing reasons, we reverse the Court of Appeals. This case is

remanded to the Claims Commission for further proceedings consistent with

this Opinion.

      All sitting. All concur. Keller, J., also concurs by separate opinion.

      KELLER, J., CONCURRING: I concur with the Majority’s opinion and its

interpretation of KRS Chapter 139. However, I write separately to express my

concern with the lack of factual findings made by the hearing officer and

adopted by the Claims Commission. The final order was factually deficient,

including no real justification for its conclusion that “each of the items at issue

are designed to be used up during the manufacturing process and, therefore,

exempt as supplies under KRS 139.470(10).” The order makes no credibility

determinations, nor does it explain how it reached its conclusion for each of

the items at issue. I am troubled by this deficiency in light of the importance of

the result of the Claims Commission for both the manufacturing industry and

the Commonwealth at large, as it represents potentially millions of dollars in

taxable or tax-exempt expenses.

      The Claims Commission’s lack of factual findings put the trial court in an

untenable position in the face of an incorrect application of law and limited

findings. Both the trial court and this Court were forced to scour the record as

they resolved the issue in the case at bar. In the interest of judicial economy, I

support the Majority’s disposal of the issues before us. However, I reiterate that

                                        32
hearing officers must make sufficient findings to support their legal

conclusions.

COUNSEL FOR APPELLANT:

Steven Lowell Lenarz

COUNSEL FOR APPELLEE:

Richard William Bertelson, III

COUNSEL FOR AMICUS CURIAE,
KENTUCKY ASSOCIATION OF
MANUFACTURERS AND
KENTUCKY CHAMBER OF COMMERCE:

Mark Allen Loyd, Jr.
Bailey Roese
Stephanie Marie Bruns
Dentons Bingham Greenebaum LLP

                                       33