Summary
In Ford Motor Co. v. Limbach (1987), 32 Ohio St.3d 136, 512 N.E.2d 658, we determined that similar scrap metal handling and conveying equipment was not exempt.
Summary of this case from General Motors Corp. v. LimbachOpinion
No. 86-855
Decided August 19, 1987.
Taxation — Sales and use taxes — Metal chip handling and conveying equipment not exempt from taxation, when — R.C. 5739.01(E)(2).
APPEAL from the Board of Tax Appeals.
Appellee, the Ford Motor Company, owns and operates the Maumee Stamping Plant which produces roof nails, panels, rear bumper supports, and various metal and thermoplastic stampings for incorporation into Ford cars and light trucks.
Steel is received at the plant and stored until needed. When needed, the steel is transported to the slitters where it is cut to length. The cut steel is taken to the stamping area where the stampings are made. The metal stampings are then shipped to other Ford plants for further assembly.
As the steel goes through the stamping process, excess metal in the form of chips is produced. The metal chips are removed from the stamping area through a chute and conveyor system which transports the metal chips to the baler building. In the baler building, the chips are compressed into bales which are then sold to industrial customers as scrap metal.
The Tax Commissioner issued a sales and use tax assessment against the Maumee Stamping Plant for a period covering July 1, 1974 through June 30, 1977. Included in the assessment were purchases relating to the scrap metal chip handling and conveying equipment. On appeal, the Board of Tax Appeals ("BTA") reversed the assessment of tax on the purchase and use of the metal chip handling equipment on the grounds that this equipment was used directly in the production of tangible personal property for sale by manufacturing and exempt pursuant to R.C. 5739.01(E)(2) and (S).
The cause is now before this court upon an appeal as of right.
Taft, Stettinius Hollister and Stephen M. Nechemias, for appellee.
Anthony J. Celebrezze, Jr., attorney general, and Mark A. Engel, for appellant.
The issue presented in the case sub judice concerns the tax status of a conveyor system which transports a scrap metal by-product of appellee's stamping operation to a baling facility which, in turn, prepares the scrap material for sale to industrial customers. The BTA rationalized the exemption of this equipment under R.C. 5739.01(E)(2) as follows:
"In the present situation, Ford Motor's excess metal is in the form of chips which result after a product is pressed out from the sheet metal. The metal chips are not waste materials, but rather, are materials which are further processed into a final saleable product. The chips undergo a transformation in shape and form when processed by appellant's tax exempt stamping machinery. The chips are then directly transported to appellant's tax exempt baler machinery where they undergo an additional transformation in shape and form. Once compressed, the metal is a finished end product ready for sale."
Based upon this analysis, the board found that the metal chips were in-process material and that the metal chip conveyor system qualified for exemption under R.C. 5739.01(E)(2) as equipment which transported in-process material between the stages of production.
Appellant challenges the BTA's determination that the metal chips undergo a transformation of shape and form when the metal is processed in the stamping press. This conclusion is said to be dependent upon the BTA's erroneous assumption that the sheet metal fed into the stamping equipment is a raw material for scrap metal chips. Appellant argues that the sheet metal fed into the stamping press is not intended as a raw material for baled scrap, but was purchased for the sole purpose of producing automotive stampings. The appellant further argues that metal chips are an unintended by-product of the stamping process and do not undergo a change in shape and form until they are compressed in the baler room. Hence, the equipment in issue is said to perform a function which is prior to the manufacturing process.
This court has long adhered to a policy of strict construction when considering a claim for exemption from taxation. American Handling Equipment Co. v. Kosydar (1975), 42 Ohio St.2d 150, 71 O.O. 2d 120, 326 N.E.2d 660; White Cross Hospital Assn. v. Bd. of Tax Appeals (1974), 38 Ohio St.2d 199, 67 O.O. 2d 224, 311 N.E.2d 862; Wallover Oil Co. v. Ohio Water Pollution Control Bd. (1972), 32 Ohio St.2d 233, 61 O.O. 2d 461, 291 N.E.2d 469. One seeking an exemption from taxation bears the burden of affirmatively establishing his right thereto. American Handling Equipment Co., supra; Dayton Sash Door Co. v. Kosydar (1973), 36 Ohio St.2d 120, 65 O.O. 2d 306, 304 N.E.2d 388. Bearing this principle in mind, we find the BTA's perception that the metal chips undergo a transformation of shape and form while in the stamping machinery to be erroneous. Appellee's sole purpose for running the stamping equipment is to produce automotive stampings to be incorporated into its cars and trucks. Although appellee may find it profitable to sell the scrap metal by-product which results from its stamping operation, we find that the transformation of shape and form which takes place in the stamping press relates to the formation of automotive stampings, not scrap metal chips. The metal chips are the raw material for baled scrap and this material does not undergo a transformation in shape and form until it is compressed in appellee's baler facility.
Accordingly, we find that the metal chip handling and conveying equipment does not perform a function which qualifies it for exemption under R.C. 5739.01(E)(2), and reverse the decision of the BTA as being unreasonable and unlawful.
Decision reversed.
MOYER, C.J., LOCHER, HOLMES, DOUGLAS, WRIGHT and H. BROWN, JJ., concur.
SWEENEY, J., dissents.