ASARCO, Inc. v. McNeill, 15379

• Decision Date: 29 March 1988
• Docket Number: No. 15379,15379
• Parties: ASARCO, INCORPORATED, Plaintiff-Respondent, v. Paul S. McNEILL, Jr., Director of Revenue, Defendant-Appellant, and Missouri Department of Revenue, Defendant.
• Court: Missouri Court of Appeals

Page 122

750 S.W.2d 122

ASARCO, INCORPORATED, Plaintiff-Respondent, v. Paul S. McNEILL, Jr., Director of Revenue, Defendant-Appellant and Missouri Department of Revenue, Defendant.

No. 15379.

Missouri Court of Appeals,

Southern District,

Division One.

March 29, 1988.

Motion for Rehearing or transfer to

Supreme Court Denied

April 18, 1988.

Application to Transfer Denied June 14, 1988.

William L. Webster, Atty. Gen., Melodie A. Powell, Asst. Atty. Gen., Jefferson City, for defendant-appellant.

J.B. Schnapp, John W. Reid, II, Schnapp, Graham, Reid & Fulton, Fredericktown, for plaintiff-respondent.

CROW, Chief Judge.

To comprehend the primary issue presented by this appeal, one must know the history of the dispute.

On June 7, 1977, the Circuit Court of Iron County entered judgment in a suit wherein ASARCO, Incorporated, and certain other companies were plaintiffs, and the Missouri Director of Revenue ("the Director") and Missouri Department of Revenue ("the Department") were defendants. The suit involved § 144.030.3(1), RSMo 1969, which exempted from the Missouri sales and use tax those "[m]aterials ... which when used in manufacturing, processing, compounding, mining, producing or fabricating become a component part or ingredient of the new personal property resulting from such manufacturing, processing, compounding, mining, producing or fabricating and which new personal property is intended to be sold ultimately for final use or consumption."

In the 1977 action it was stipulated that ASARCO, henceforth referred to as "plaintiff," purchased from its suppliers a number of materials (each of which was specifically named), and used such materials in its mining, milling, smelting and refining processes. It was further stipulated that such materials "are used for the purpose of separating the metals from the by-products of said operations and which materials comingle [sic] with the metals and the by-products to form the new personal properties produced by said operations and which are intended to be sold ultimately for final use or consumption."

In the 1977 judgment, the circuit court found that a controversy existed as to the validity of regulation 030-23 by which the Department had attempted to impose restrictions on the availability of the exemption in § 144.030.3(1) "in excess of those restrictions provided for in said statute." The judgment declared, among other things:

"2. The materials set forth in ... the stipulation are materials which become 'component parts or ingredients' of the new personal property produced by those mining, smelting and refining operations within the meaning of Section 144.030.3 (1) ..., and the purchase of those materials is thus exempt from taxation under Chapter 144, RSMo. 1969.

3. Regulation 030-23 (or 10-3.292) as promulgated by Defendants is invalid in that it attempts to impose restrictions on the availability of the exemption set out in Chapter 144 in excess of those restrictions provided for in said statute."

There was no appeal from the 1977 judgment, nor was there any effort by the Director or the Department from 1978 through 1983 to assess sales taxes or use taxes on the purchase by plaintiff of any of the materials that became component parts or ingredients of its products through its mining, smelting and refining operations.

On July 8, 1987, plaintiff filed in the Circuit Court of Iron County a "Petition for Further Relief after Declaratory Judgment," averring that the 1977 judgment established that the "reagents" identified in the stipulation referred to in that decree were not subject to sales tax and use tax under chapter 144, RSMo 1969, as amended. The petition further alleged that the Director and the Department had conducted a "sales tax audit" for the years 1984 through 1987, and had indicated that the Department would "assess sales and use taxes, interest and penalties, on reagent purchases." The proposed taxes, pled the petition, amount to $12,676.69, and are on "the same identical reagents as are described in" the 1977 judgment. Continuing, the petition averred that the pertinent statutes and regulations remained unchanged since the 1977 judgment, and that plaintiff's use of the reagents during the years 1984 through 1987 was "precisely the same as the uses being made" at the time of the 1977 judgment.

The petition complained that (a) unless prohibited by the circuit court, the Director and the Department would assess the proposed taxes, and (b) plaintiff, by reason of the threatened assessment, had incurred attorney fees and court costs, which the Director and the Department should pay. The petition prayed for an order commanding the Director and the Department to show cause why plaintiff should not be granted relief per § 527.080, RSMo 1986, ¹ and "Missouri Supreme Court Rule

87.11." ²

The circuit court immediately issued to the Director and the Department an "Order to Show Cause," commanding them to appear on August 5, 1987, and show cause "why an Order should not be made prohibiting and enjoining the Defendants from assessing sales and use taxes, interest and penalties, against the Plaintiff on reagents purchased and used by the Plaintiff in the years 1984, 1985, 1986 and 1987, and ordering the Defendants to pay to the Plaintiff its attorney fees and court costs." The show cause order was served on the Director and the Department July 10, 1987.

On July 20, 1987, plaintiff filed a second "Petition for Further Relief after Declaratory Judgment" in the Circuit Court of Iron County. That petition stated that the earlier petition of July 8, 1987, had concerned the impending assessment of sales and use taxes on reagents utilized at plaintiff's "West Fork operation." The July 20 petition averred that the Director and the Department, on July 3, 1987, had assessed sales and use taxes on reagents utilized by plaintiff at its smelter operation at Glover, Missouri, during the period from 1984 through November 30, 1986. The assessment, according to the petition, was $218,598.12, plus interest of $48,117.37 and penalties of $11,671.89, making a total of $278,387.38.

The petition further alleged that the reagents were used for the purpose of separating metals from by-products of the raw material, that the reagents commingle with the metals and the by-products to help form the new properties produced by plaintiff's smelting and refining operation, and that such properties are ultimately sold for final use or consumption. Furthermore, pled the petition, the statutes regarding sales and use taxes and exemptions had not been amended or changed since the 1977 judgment, and plaintiff's use of the reagents at its Glover smelter during the years 1984, 1985 and 1986 was the same as when the 1977 judgment was entered.

Consequently, pled the petition, the Director and the Department should be prohibited and enjoined from collecting sales and use taxes on such reagents, and should be ordered to withdraw the assessment of July 3, 1987. The petition prayed for an order commanding the Director and Department to show cause why the circuit court should not grant the requested relief. Unlike the petition of July 8, 1987, the petition of July 20 did not pray that the Director and the Department pay plaintiff's attorney fees and court costs.

The circuit court immediately issued to the Director and the Department an "Order to Show Cause," commanding them to appear on August 5, 1987, and show cause why the relief prayed for by plaintiff in the July 20 petition should not be granted. The show cause order was served on the Director and the Department July 21, 1987.

On July 30, 1987, the Director and the Department filed in the circuit court a motion to dismiss plaintiff's "action," asserting that the circuit court "lacks subject matter jurisdiction." In written suggestions accompanying the motion, the Director and the Department argued that by reason of S.B. 661, Laws 1978, pp. 441-61, the Administrative Hearing Commission had acquired exclusive jurisdiction to review final decisions of the Director under chapter 144. The suggestions pointed out that prior to the 1978 act, review of a final decision of the Director under chapter 144 had been governed by § 144.261, RSMo 1969, which provided:

"Any final decision, finding, order or ruling of the director, under the provisions of this chapter is subject to judicial review in the manner provided by chapter 536, RSMo."

The suggestions explained that the 1978 act repealed § 144.261, RSMo 1969 (above), replacing it with a new statute, also numbered 144.261. The new § 144.261 provided:

"Final decisions of the director under the provisions of this chapter are reviewable by the filing of a petition with the administrative hearing commission in the manner provided in section 161.273, RSMo...."

Section 161.273, referred to in the new version of § 144.261 (above), was an entirely new statute enacted in S.B. 661, Laws 1978. It (§ 161.273) provided, in pertinent part:

"... any person or entity shall have the right to appeal to the administrative hearing commission from any finding, order, decision, assessment or additional assessment made by the director of revenue. Any person or entity who is a party to such a dispute shall be entitled to a hearing before the administrative hearing commission by the filing of a petition with the administrative hearing commission within thirty days after the mailing or delivery of a decision of the director of revenue.... Decisions of the administrative hearing commission under this section shall be binding subject to appeal by either party...." ³

S.B. 661, Laws 1978, contained another entirely new statute, numbered 161.337. It provided, in pertinent part:

"Final decisions of the administrative hearing commission in cases arising under the provisions of ... section 161.273, RSMo, shall be subject to review pursuant to a petition for review to be filed in the court of appeals in the district...