Court Opinion

ID: 7823252
Source: CourtListenerOpinion
Date Created: 2022-09-07 18:01:16.583932+00
Date Added: 2024-06-11T16:30:47.719295
License: Public Domain

Steele Hays, Justice, dissenting. I disagree with the majority’s approval of the test applied by the chancellor, i.e., that the crane is a necessary part of the operation on the basis of economics. There is no authority for this rationale. The chancellor was analogizing to tests in our decisions used to determine whether certain machinery was “directly” used in manufacturing. The test, however, was applied to the mechanics of the manufacturing operation and not the economics: If a particular piece of equipment or machinery were removed from the manufacturing process, would the operation come to a physical halt? Arkansas Rwy. & Equip. Co. v. Heath, 257 Ark. 651, 519 S.W.2d 45 (1975); Cheney v. Georgia-Pacific Corp., 237 Ark. 161, 371 S.W.2d 843 (1963). The Cheney case, supra, which the majority cites as pertinent to this issue had nothing to do with economics. The turbine in question was used to generate electricity for the plant, but the steam from the turbine was also directly used in the paper making process of the plant. The physical operation of the plant was dependant on the turbine for its operation, not the economic viability of the plant. Nor does the language of the statute creating the exemption give any indication that the legislature intended such an interpretation. The language is clear and straightforward: Ark. Stat. Ann. § 84-3106. There are hereby specifically exempted from the taxes levied in this Act: (D)(1) * * * (2) Machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing, or packaging an article of commerce. . . Ark. Stat. Ann. § 84-3106(D)(2)(c) provides: It is the intent of this subsection to exempt only such machinery and equipment as shall be utilized directly in the actual manufacturing or processing operation at any time from the initial stage where actual manufacturing or processing begins through the completion of the finished article. . .The term “directly” as used in this Act is to limit the exemption to only the machinery and equipment used in actual production during processing, fabricating or assembling raw materials or semifinished materials into the form in which such personal property is to be sold in the commercial market. The statute is obviously concerned with limiting the exemption to the actual manufacturing process and the language doesn’t begin to embrace the meaning the chancellor and the majority have given it. Furthermore, any exemption provision must be strictly construed against the exemption and to doubt is to deny the exemption. C & C Machinery v. Ragland, 278 Ark. 629, 648 S.W.2d 61 (1983); Ragland v. Ark. Writer’s Project, 287 Ark. 155, 697 S.W.2d 94 (1985). I find no support for the majority position under the statute or our prior cases. The issue I believe is whether a piece of equipment which is used preliminarily to the manufacturing process will be considered as being used “directly” in the “actual manufacturing process.” The clarification provided by the legislature in § 84-3106(D)(2)(c), would indicate not. Neither would our prior cases. Ark. Rwy. & Equip. Co. v. Heath, supra, cited by the majority as being similar, is readily distinguishable. In Heath, the cranes were used to unload old railroad cars that were converted into culverts. However, the cranes were also used throughout the manufacturing process to hold the cars and reposition them as the transformation process took place. The initial part of the crane’s function of unloading the cars comprised only five percent of its total work time. The chancellor also had before him regulations and a policy statement promulgated by the Commissioner which was in effect during the time of the audit and which further delineated the meaning of “directly”: Machinery and equipment used in actual production include 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. “Directly” does not mean that the machinery and equipment must come into direct physical contact with any of the material that become necessary and integral parts of the finished product. Machinery and equipment which handle raw, semi-finished or finished materials or property before the manufacturing process begins are not utilized directly in the manufacturing process. The above regulation was enacted as an amendment to § 84-3106 by the 1985 legislature. While I think the plain language of our statute is clear enough to eliminate the crane from exemption status, should there be any doubt, it must be resolved against allowing the exemption.