Opinion
No. 91-116
Submitted October 31, 1991 —
Decided February 12, 1992.
APPEAL from the Board of Tax Appeals, No. 88-F-297.
Appellee, Union Carbide Corporation ("Union Carbide"), manufactured batteries at its plant in Fremont, Ohio, which it sold in blister packs. The Tax Commissioner assessed Union Carbide for sales and use taxes due on its purchases of an automatic tray-forming machine and an air conveyor system ("airveyor") used at the plant. Union Carbide claims that the equipment is entitled to exception from sales and use taxes based upon R.C. 5739.02(B)(15) as "equipment * * * for use in packaging tangible personal property produced for sale." The commissioner claims that the equipment does not package property, but produces and conveys packaging material.
In packaging batteries, Union Carbide inserts loose batteries into plastic "blisters" which are attached to a cardboard backing. Blisters, which hold two batteries, are formed at the "blister former" from rolls of plastic. The blisters are then conveyed to a "mini-max machine," where blisters and cards are united and batteries are inserted. The blister packs are then moved to the "auto tray packer," where groups of six blister packs are placed into specially formed slotted chipboard trays. The trays are formed by the automatic tray-forming machine, which folds and glues precut chipboard into trays. The airveyor transports the finished trays to the "auto tray packer," where blister packs are inserted into the trays. After the trays are loaded, they are transported to a station, where they are combined in units of two and covered with protective pads. These are then conveyed to the "automatic unit cartoner" and placed into a small cardboard box, known as a "unit carton." Finally, unit cartons are combined in groups of four and inserted into a larger box, known as a "standard carton," for shipment.
The Board of Tax Appeals ("BTA") found that the equipment in issue was entitled to exception, and the commissioner appealed.
The cause is now before this court upon an appeal as of right.
Jones, Day, Reavis Pogue, Roger F. Day, Laura A. Kulwicki and Robert A. Fiscella, for appellee.
Lee I. Fisher, Attorney General, David G. Lambert and M. Linda Weigand, for appellant.
R.C. 5739.02(B)(15) excepts from the sales tax a manufacturer's purchases:
"* * * of machinery [and] equipment * * * for use in packaging tangible personal property produced for sale * * *. Packages include * * * cartons, crates, boxes, * * * and other similar devices and containers and `packaging' means placing therein." (R.C. 5741.02[C][2] makes the same exception from the use tax.)
In analyzing the applicability of this exception we "* * * focus upon the distinct function of each item of tangible personal property subject to assessment and its relationship to" the packaging process. Bird Son, Inc. v. Limbach (1989), 45 Ohio St.3d 76, at 79, 543 N.E.2d 1161, at 1165.
In Kroger Co. v. Limbach (1990), 53 Ohio St.3d 245, at 247, 560 N.E.2d 192, at 194, we stated:
"The BTA was correct to follow the analysis of Hawthorn Mellody and its action was reasonable and lawful."
In Kroger, supra, the BTA had found that "the items comprising the product-packaging lines * * * were used in `an integrated activity and an essential part of the packaging activity' * * *." Id. at 246, 560 N.E.2d at 193. The Kroger decision ratified our holding in Hawthorn Mellody, Inc. v. Lindley (1981), 65 Ohio St.2d 47, 19 O.O.3d 234, 417 N.E.2d 1257. In Hawthorn Mellody, supra, we acknowledged the correctness of the Tax Commissioner's strict construction requirement for exceptions from taxation, but granted exception because the particular portion of the taxpayer's conveyor system was not "considered as a separate piece of * * * equipment used to unstack, clean and convey milk cases (packages)" but rather "as an integral part of * * * equipment used in placing milk cartons (tangible personal property produced for sale) in milk cases (packages)." Id. at 52, 19 O.O.3d at 238, 417 N.E.2d at 1261. By affirming the finding of the BTA and by embracing the language of Hawthorn Mellody, supra, we do not reject our earlier determinations relative to the appropriate construction of tax statutes or to the propriety of separating items of tangible personal property from a system of manufacturing, processing, or packaging. Rather, we reiterate our conclusion that we will examine particular items of machinery, equipment or material alleged to be excepted from taxation by reason of the function they perform.
Union Carbide manufactures batteries and sells them in blister packs. The blisters are packaged in slotted chipboard trays, inserted in a unit carton, and then placed in a standard carton. We agree with the BTA that the packaging line is a series of machines in continuous operation. The machinery in question is an integral and essential part of the equipment used in placing batteries in packages. Accordingly, we affirm the BTA's decision.
Decision affirmed.
MOYER, C.J., SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.