Amax Inc. Through Amax Coal Co. v. State Bd. of Tax Com'rs of State of Ind., 11T05-8611-TA-00038

• Decision Date: 28 March 1990
• Docket Number: No. 11T05-8611-TA-00038,11T05-8611-TA-00038
• Citation: 552 N.E.2d 850
• Parties: AMAX INC. (through AMAX COAL COMPANY, a division), Petitioner, v. STATE BOARD OF TAX COMMISSIONERS OF the STATE of INDIANA, Respondent.
• Court: Indiana Tax Court

Page 850

552 N.E.2d 850

AMAX INC. (through AMAX COAL COMPANY, a division), Petitioner, v. STATE BOARD OF TAX COMMISSIONERS OF the STATE of INDIANA, Respondent.

No. 11T05-8611-TA-00038.

Tax Court of Indiana.

March 28, 1990.

G. Daniel Kelley, Jr., Barton T. Sprunger, Mark J. Richards, Ice Miller Donadio & Ryan, Indianapolis, for petitioner.

Linley E. Pearson, Atty. Gen. by Ted J. Holaday, Deputy Atty. Gen., Indianapolis, for respondent.

FISHER, Judge.

Amax Inc., (Amax) appeals the State Board of Tax Commissioners' final determination that preparation plant coal washing equipment is not exempt pursuant to IC 6-1.1-10-12. The property was assessed for the years of 1985, 1986, and 1987. This cause is a consolidation of three lawsuits for the three years involved. The coal During the assessment period, Amax, an Indiana corporation, was in the business of mining and marketing coal. Amax's customers were predominantly electric utility companies located within Indiana. Amax owned three coal mines in Indiana. The mines were located in the Illinois Coal Basin and therefore the coal contained high concentrations of sulfur and ash.

                washing equipment is the only exemption in dispute in the present case.  Other exemptions were claimed by Amax and denied by the Department of Environmental Management (DEM) under IC 6-1.1-10-9.  Amax's appeal from the denial of the other exemptions was heard in the case of Indiana Department of Environmental Management v. Amax, Inc.  (1988), Ind.App., 529 N.E.2d 1209.   The Court of Appeals held that Amax was entitled to those exemptions pursuant to IC 6-1.1-10-9.  Id. at 1214.   As a result, this Court will remand, irrespective of the outcome of this case, to the State Board of Tax Commissioners for a full determination of Amax's total assessment for the years of 1985, 1986, and 1987
                

Amax initiated its operations by removing surface layers of soil and rock to expose a coal seam. After the coal was removed from the seam, it was scoured with mechanical brushes and loaded onto a truck which transported the raw coal to a preparation plant. While at the plant, the coal was placed in a rotary breaker crusher to remove impurities. After crushing, the remaining coal was washed. The coal was then shipped directly to the utility customer who paid the transportation costs. The total weight and transportation costs decreased after washing, even though the coal's price per unit increased, because impurities like rock and dirt were removed through the washing and cleaning process prior to transporting. Amax could charge a higher price per ton because the washed coal contained fewer impurities to dilute the pure coal. Amax also charged a higher price to recoup the costs of washing. The transportation costs were calculated after the washing took place.

Unwashed coal generated most of Amax's sales prior to 1970. However, in the early 1970's the federal government imposed stringent air emission standards upon utility companies. One way the utility companies could meet the standards was to burn cleaner coal. Cleaner coal is achieved by washing the coal to remove noncombustible material, including sulfur and ash. At the same time the air emission standards were imposed upon the utilities, Amax began either constructing washing facilities or substantially modifying its existing washing facilities. After Amax installed the new washing facilities, it no longer sold unwashed coal. After the Clean Air Act was passed, Amax's customers no longer demanded unwashed coal.

The Commissioner of the Department of Environmental Management (DEM) denied Amax's request for an exemption for its washing equipment. Subsequently, the State Board of Tax Commissioners reassessed Amax's self-assessment from $17,085,800 to $19,975,850 for the year of 1985; from $19,484,440 to $22,270,810 for the year of 1986; and from $18,738,770 to $21,482,760 for the year of 1987. Part of the increase was due to the State Board's denial of exemptions pursuant to IC 6-1.1-10-12 for the coal washing equipment. The remaining increase was due to the State Board's denial of exemptions under IC 6-1.1-10-9.

Amax contends that it is entitled to an exemption for the coal washing equipment because it has satisfied the requirements of IC 6-1.1-10-12; that the final assessment issued by the State Board is illegal and void because it is contrary to IC 6-1.1-10-12 and 13; and that the final assessment issued by the State Board is not supported by substantial evidence, and is arbitrary and capricious because it denies exemptions which were timely claimed by Amax. Amax also asserts that the property is exempt because the legislature has passed other legislation which provides that coal washing equipment is a pollution control facility. Finally, Amax contends that because a utility company which owns coal washing equipment would be entitled to an exemption, so too should Amax.

The State Board contends that the coal washing equipment used in coal washing or cleaning does not constitute air pollution control systems as defined in IC 6-1.1-10-12 and is not entitled to an exemption. The State Board determined that simply because the federal government or other states recognize coal washing equipment as pollution control systems does not mean that it must recognize the same, and this fact has no relevance to the issue in dispute; and furthermore, the possibility that the washing equipment would be exempt if owned by a utility is irrelevant and undetermined at this time. The State Board also contended during trial that IC 6-1.1-10-12 should be construed narrowly in light of Ind. Const. Art. 10, Sec. 1. Specific findings of the State Board will be provided as necessary.

ISSUE

Whether the State Board's denial of a tangible personal property tax exemption for washing equipment installed in the early 1970's to wash all the coal sold by Amax is supported with substantial evidence and is not contrary to law, arbitrary and capricious or an abuse of discretion.

DISCUSSION AND DECISION

The Court will review the State Board's determination to ascertain whether it is made pursuant to proper procedure, is based upon substantial evidence, is not arbitrary and capricious and is not a violation of any constitutional, statutory, or legal principle. State Bd. of Tax Comm'rs v. Gatling Gun Club, Inc. (1981), Ind.App., 420 N.E.2d 1324, 1326. The State Board's determination is supported with substantial evidence if a reasonable person could view the record in its entirety and find enough relevant evidence to support the State Board's determination. "Substantial evidence is more than a scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." South Shore Marina, Inc. v. State Bd. of Tax Comm'rs (1988), Ind.Tax, 527 N.E.2d 738, 742 (quoting Consolidated Edison Co. v. NLRB (1938), 305 U.S. 197, 229, 59 S.Ct. 206, 216, 83 L.Ed. 126). An interpretation of a statute that does not comport with legislative intent would be contrary to law. See Monarch Steel Co. v. State Bd. of Tax Comm'rs (1989), Ind.Tax, 545 N.E.2d 1148, 1153.

Amax claimed an exemption under IC 6-1.1-10-12, which provides:

Sec 12. Personal property is exempt from property taxation if:

(1) it is part of a stationary or unlicensed mobile air pollution control system of a private manufacturing, fabricating, assembling, extracting, mining, processing, generating, refining, or other industrial facility;

(2) it is not primarily used in the production of property for sale;

(3) it is employed predominantly in the operation of the air pollution control system;

(4) the air pollution control system is designed and used for the improvement of public health and welfare by the prevention or elimination of air contamination caused by industrial waste or contaminants;

(5) a sanitary treatment or elimination service for the waste or contaminants is not provided by public authorities; and

(6) it is acquired for the purpose of complying with any state, local, or federal environmental quality statutes, regulations, or standards.

IC 6-1.1-10-12.

Prior to 1980, a petitioner who sought an exemption under the predecessor to IC 6-1.1-10-12 had to prove that the tangible personal property was (1) an "air purification system," (2) was "not used in the production of property for sale," and (3) was "employed exclusively in the operation of the air purification system." Acts 1965, Ch. 119, Sec. 1. Amendments enacted in 1980 enlarged the scope of the exemption by changing the exemption standard from "exclusively employed" to "employed predominantly," and from "not used in the production" to "not primarily used in the production." IC 6-1.1-10-12. (For purposes of this opinion, the Court will hereinafter refer to the previous statute as the "exclusive use test.")

The regulation implementing the current version of IC 6-1.1-10-12 provides in pertinent part:

(A) STATIONARY OR UNLICENSED MOBILE AIR POLLUTION CONTROL SYSTEM.

Any tangible personal property that is a stationary or unlicensed mobile air pollution control system of a privately-owned manufacturing, fabricating, assembling, extracting, mining, processing, generating, refining, or other industrial facility and employed predominantly in the operation of an air pollution control system designed and used for the improvement of public health and welfare by the prevention or elimination of air contamination caused by industrial waste or contaminants and it is acquired for the purpose of complying with state, local, or federal environmental quality statutes, regulations or standards, may be exempt from taxation subject to the limitations contained herein provided no stationary treatment or elimination facility is made available by public authorities and the stationary or unlicensed mobile air pollution control system is not primarily used in the production of property for sale.

50 I.A.C. 4.1-2-3.

IC 6-1.1-10-12 is an exemption statute...