American Hoechst Corp. v. Norberg

• Decision Date: 15 July 1983
• Docket Number: No. 80-394-M,80-394-M
• Citation: 462 A.2d 369
• Parties: AMERICAN HOECHST CORPORATION v. John H. NORBERG, Tax Administrator. P.
• Court: Rhode Island Supreme Court

Page 369

462 A.2d 369

AMERICAN HOECHST CORPORATION v. John H. NORBERG, Tax Administrator.

No. 80-394-M.P.

Supreme Court of Rhode Island.

July 15, 1983.

Hans P. Olsen, Mark A. Dingley, Providence, for petitioner.

Dennis J. Roberts, II, Atty. Gen., Stephen Lichatin, II, Asst. Atty. Gen., Perry Shatkin, Chief Legal Counsel, Marsha McGair Sppolito, Div. of Tax., Providence, for respondent.

OPINION

KELLEHER, Justice.

This is a certiorari proceeding brought by American Hoechst Corporation (the taxpayer) to contest the assessment of a sale and use tax pursuant to title 44, chapter 18, of the General Laws of Rhode Island on certain supplies utilized in the waste-treatment facility of the taxpayer's manufacturing plant. Specifically, a deficiency in the amount of $29,074.48 plus interest and penalties was assessed on the consumption of electricity, chemicals, and supplies for the period November 1974 through October 1977. On August 13, 1980, the deficiency assessment was affirmed by a justice of the District Court, who rendered a judgment against the taxpayer.

The record certified to us indicates that the taxpayer is the operator of an industrial plant in Coventry, Rhode Island, manufacturing dyes and related products. A brief summary of the taxpayer's plant operation as testified to at the administrative hearing will be helpful in understanding the nature of the controversy before us. In the initial stages of the manufacturing process, certain raw materials are combined with water from the Pawtuxet River to form an intermediate substance. This compound is then consolidated with other materials and water to fabricate yet another substance. The process is repeated with various raw materials as often as is necessary to concoct the desired end product. At that point, the material is placed in drying ovens and then readied for shipment to the taxpayer's customers.

According to the taxpayer's witnesses, waste water is produced at each step in the manufacturing process as the intermediate products are formed. The waste water and resulting sludge is immediately siphoned off to a subsidiary effluent line that eventually merges into a main line carrying effluent from other lines in the manufacturing process. From the main line, the effluent is transported to the waste-treatment facility where it first encounters the neutralization center. Here, certain solids are removed from the waste water in a process referred to as "primary clarification." Following this regimen, the waste water and remaining sludge proceed to biological treatment where they are exposed to activated charcoal filters and aeration pumps that operate twenty-four hours per day, 365 days per year. At the final stage of the treatment process, the water is chlorinated and discharged into the river. We emphasize here that at no point during the various stages of the waste-treatment process are any chemicals or other materials reclaimed for use in the plant operation.

It should be noted that the taxpayer is required by state and federal regulations to maintain the waste-treatment process described above. Indeed, the treatment facilities were designed and constructed in conjunction with the production facility, and if the treatment process were halted, the taxpayer would be forced to cease all manufacturing in the plant. Consequently, the taxpayer maintains that the electricity, chemicals, supplies, and repair parts needed to keep the waste-treatment process operating are exempt under G.L.1956 (1980 Reenactment) § 44-18-30(H), which reads as follows:

"Gross receipts exempt from sales and use taxes.--There are exempted from the taxes imposed by this chapter the following gross receipts:

" * * *

"H. Purchase for manufacturing purposes. From the sale and from the storage, use, or other consumption in this state of tangible personal property, electricity, natural gas, artificial gas, steam, refrigeration, and water, when such property or service is purchased for the purpose of being manufactured into a finished product for resale, and becomes an ingredient, component, or integral part of such manufactured, compounded, processed, assembled, or prepared product; or if such property or service is consumed directly in the process of manufacturing for resale tangible personal property, electricity, natural gas, artificial gas, steam, refrigeration, or water, provided, however, that such consumption occurs within one (1) year from the date such property or service is first used or applied in such process of manufacturing.

" 'Consumed directly' means destroyed, used up, or worn out to the degree or extent that such property cannot be repaired, reconditioned, or rendered fit for further manufacturing use.

" 'Consumed directly' shall not mean or include mere obsolescence.

" 'Manufacturing' means and includes manufacturing, compounding, processing, assembling, preparing or producing.

" 'Process of manufacturing' means and includes all production operations performed in the producing or processing room, shop, or plant, insofar as such operations are a part of and directly connected with the manufacturing for resale tangible personal property, electricity, natural gas, artificial gas, steam, refrigeration, or water.

" 'Process of manufacturing' shall not mean or include administration operations such as general office operations, accounting, collection, sales promotion, and experimental work, nor shall it mean or include distribution operations which occur subsequent to production operations, such as handling, storing, selling, and transporting the manufactured products, even though such administration and distribution operations are performed by or in connection with a manufacturing business."

In support of its argument, the taxpayer basically contends that the disputed items are "consumed directly" in its "process of manufacturing" as defined above. The taxpayer emphatically asserts that both practically and legally industrial chemicals cannot be produced for sale without a functioning waste-treatment facility. Unless waste water is discharged as intermediate chemical compounds are isolated, a finished product cannot be manufactured. Relying upon these exigencies, the taxpayer reasons that the waste-disposal facilities naturally constitute "production operations" that "are a part of and directly connected with the manufacturing for resale" of the taxpayer's dyes and chemicals.

We begin our analysis of the merits of the taxpayer's arguments by recounting the well-settled principle that we will not engage in fact-finding when reviewing a decision of a tribunal...