Brandenburg Indus. Serv. Co. v. Ind. Dep't of State Revenue

• Decision Date: 10 August 2016
• Docket Number: No. 49T10–1206–TA–00037.,49T10–1206–TA–00037.
• Citation: 60 N.E.3d 300
• Parties: BRANDENBURG INDUSTRIAL SERVICE COMPANY, an Illinois corporation, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

60 N.E.3d 300

BRANDENBURG INDUSTRIAL SERVICE COMPANY, an Illinois corporation, Petitioner,

v.INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10–1206–TA–00037.

Tax Court of Indiana.

Aug. 10, 2016.

Randal J. Kaltenmark, Ziaaddin Mollabashy, Barnes & Thornburg, LLP, Indianapolis, IN, Deputy Attorneys General, Mark S. Bernstein, Akerman LLP, Chicago, IL, Attorneys for Petitioner.

Gregory F. Zoeller, Indiana Attorney General, John P. Lowrey, Andrew T. Grein, Indianapolis, IN, Attorneys for Respondent.

ORDER ON RESPONDENT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

WENTWORTH

, J.

Brandenburg Industrial Service Company has appealed the Indiana Department of State Revenue's denials of its claims for a refund of the sales and use tax remitted in 2006 and 2007 as well as its assessments of sales and use tax for the same period (the period at issue). The matter is currently before the Court on the Department's Motion for Partial Summary Judgment and presents one issue for the Court to decide.¹ The Court restates the issue as whether Brandenburg was a producer of scrap steel eligible for exemption under Indiana Code § 6–2.5–5–3

(the Equipment Exemption) and Indiana Code § 6–2.5–5–5.1 (the Consumption Exemption) during the period at issue.² Upon review, the Court finds in favor of Brandenburg.

FACTS AND PROCEDURAL HISTORY

Brandenburg is an Illinois corporation that primarily processes and sells ferrous and non-ferrous metal to steel manufacturers throughout the United States. (See Pet'r Des'g Evid., Aff. Jack Jasinowski (“Jasinowski Aff.”) ¶¶ 27–28, 48.) Brandenburg engages in related businesses that provide access to the metal it processes and sells from its facilities in Illinois, Indiana, Pennsylvania, and Puerto Rico, such as the demolition of retired assets, environmental remediation (e.g., asbestos abatement, soil remediation, or hazardous material removal), and site preparation. (See Pet'r Des'g Evid., Jasinowski Aff. ¶¶ 27–28, 30–32; Resp't Des'g Evid., About the Company, BRANDENBURG.COM, http://www.brandenburg.com/AboutTheCompany.aspx (last visited Apr. 29, 2016).) Brandenburg's Indiana facility is located inside the United States Steel Corporation's Gary Works steel mill and is comprised of a scrap metal yard, a fabrication shop, a data processing center, a technology department, and a receiving department. (See Pet'r Des'g Evid., Jasinowski Aff. ¶ 27.)

Brandenburg acquires the metal that it processes either by directly purchasing retired assets (e.g., boats, machinery, or railroad scrap) or by performing services in its related businesses, such as building demolition or environmental remediation, in exchange for the metal. (See Pet'r Des'g Evid., Jasinowski Aff. ¶¶ 34–37; Resp't Des'g Evid., Ex. 9 (“L. Jasinowski Depo.”) at 15–16.) (See also Resp't Des'g Evid., Ex. 12 at 3837–38, Ex. 13 at 3871–72, Ex. 15 at 3882–83 (sample contract excerpts).) Since 1993, Brandenburg has processed the metal using the following seven-step process:

1. Identification: Identify the location, quantity, and alloy content/chemistry of the metal by reviewing pertinent documentation, visually inspecting the metal, and using a portable spectrometer;

2. Removal: Remove the metal from the retired asset/building by either surgically extracting it from the object or demolishing the object and removing the metal from the debris;

3. Decontamination: Remove contaminants, such as concrete, brick, wood, or insulation, from the metal retrieved in Step 2;

4. Cutting: Reduce the oversized pieces of decontaminated metal for further transporting and processing by cutting the metal to more manageable sizes;

5. Sorting: Separate the cut metal into various categories of ferrous (e.g., No. 1 heavy melt or plate and structural steel) and non-ferrous (e.g., copper

, brass, nickel, aluminum, or stainless steel) metal;

6. Preparation: Ensure the metals sorted in Step 5 meet customer specifications, which may require additional size, shape, or thickness alterations as well as additional sorting; and

7. Staging: Stockpile the prepared metals in specific locations for future loading and transport to customers.

(See Pet'r Des'g Evid., Jasinowski Aff. ¶¶ 38–47, 51, 59–65, Exs. S–T.) (See also Resp't Des'g Evid., Ex. 8 (“J. Jasinowski Depo.”) at 84–85, 93–100.)

In December of 2009 and 2010, Brandenburg filed four refund claims with the Department in which it asserted that several items it used in processing metal were exempt from sales and use tax under the Equipment and Consumption Exemptions. (See Pet'r Des'g Evid., Jasinowski Aff. ¶¶ 8–9, 19–20, Exs. A–B, K–L.) The Department ultimately denied all four of Brandenburg's refund claims by, among other things, issuing Proposed Assessments that in effect rescinded its prior approval of two of the four claims. (See Pet'r Des'g Evid., Jasinowski Aff. ¶¶ 10–15, 21–22, Exs. C–H, M–N.) Brandenburg protested the Department's denials of its refund claims and the Proposed Assessments, which the Department subsequently denied. (See Pet'r Des'g Evid., Jasinowski Aff. ¶¶ 16–17, 23–26, Exs. I–J, O–Q.)

On June 22, 2012, Brandenburg initiated this original tax appeal. On November 16, 2015, after the Court resolved a procedural matter,³ the Department moved for partial summary judgment and designated, among other things, its Proposed Assessments as evidence. (See Resp't Des'g Evid., Exs. 1G–1H.) On April 21, 2016, the Court held a hearing on the Department's Motion. Additional facts will be supplied when necessary.

STANDARD OF REVIEW

Summary judgment is proper only when the designated evidence demonstrates that no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Ind. Trial Rule 56(C)

. A genuine issue of material fact exists when a fact concerning an issue that would dispose of the case is in dispute or when the undisputed material facts support conflicting inferences regarding the resolution of an issue. Miller Pipeline Corp. v. Indiana Dep't of State Revenue, 995 N.E.2d 733, 734 n. 1 (Ind.Tax Ct.2013). “When any party has moved for summary judgment, the court may grant summary judgment for any other party upon the issues raised by the motion although no motion for summary judgment is filed by such party.” T.R. 56(B).

LAW

During the period at issue, Indiana imposed a sales tax on retail transactions made in Indiana. IND.CODE § 6–2.5–2–1(a) (2006)

. Indiana also imposed a use tax when sales tax was not remitted on tangible personal property that was acquired in a retail transaction and was subsequently stored, used, or consumed in Indiana, regardless of where the retail transaction occurred or where the retail merchant was located. See IND.CODE § 6–2.5–3–2(a) (2006)

. See also

Horseshoe Hammond, LLC v. Indiana Dep't of State Revenue, 865 N.E.2d 725, 727 n. 4 (Ind.Tax Ct.2007) (providing that the use tax is complementary to the sales tax because it is designed to reach out-of-state purchases of tangible personal property that are subsequently used in Indiana), review denied.

Indiana also exempted certain retail transactions by the producers of goods from the imposition of sales and use tax (the Manufacturing Exemptions). See, e.g., Harlan Sprague Dawley, Inc. v. Indiana Dep't of State Revenue, 605 N.E.2d 1222, 1228 (Ind.Tax Ct.1992)

; IND.CODE § 6–2.5–3–4(a) (2006). For example, the Equipment Exemption exempted transactions involving manufacturing machinery, tools, and equipment from sales and use tax “if the person acquiring that property acquire[d] it for direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property.” IND.CODE § 6–2.5–5–3(b) (2006) (amended 2007). Likewise, the Consumption Exemption exempted transactions from sales and use tax “if the person acquiring the property acquire[d] it for direct consumption as a material to be consumed in the direct production of other tangible personal property in the person's business of manufacturing, processing, refining, repairing, mining, agriculture, horticulture, floriculture, or arboriculture.” IND.CODE § 6–2.5–5–5.1(b) (2006).

ANALYSIS

The question before the Court is whether Brandenburg was a producer of scrap steel during the period at issue. The parties do not dispute where Brandenburg's process begins and ends, the absence of a chemically induced change in its raw material metals, or the marketability of its scrap metal end product. (See, e.g., Resp't Reply Supp. Resp't Mot. Summ. J. (“Resp't Reply Br.”) at 3–5; Hr'g Tr. at 36

–37, 48 –51.) The Department's claim for partial summary judgment focuses on whether Brandenburg's process 1) falls within the scope of the Equipment and Consumption Exemptions and 2) substantially transforms its raw materials into new, marketable goods, i.e., produces “other tangible personal property.” (Compare, e.g., Resp't Mem. Supp. Partial Summ. J. (“Resp't Mem.”) at 5–7, 9–16 and Hr'g Tr. at 7 –15with Pet'r Resp. Resp't Mot. Partial Summ. J. (“Pet'r Resp. Br.”) at 19–20, 26–30 and Hr'g Tr. at 55 –60.)

(1)

The Department claims that it is entitled to partial summary judgment because Brandenburg's demolition process is not an activity that is expressly stated in either the Equipment or the Consumption Exemption statutes. (See Resp't Mem. at 5–9.) The Department explains that each exemption statute contains a specific list of activities that is “a ‘comprehensive description of [the] various means of production[,]’ ” and the absence of an activity from either list “indicates that the activity probably is not production.” (Resp't Mem. at 6–7 (citation omitted).) As a result, the Department asserts that because Brandenburg's demolition activities are not specifically listed exempt activities and are “inextricable” from its seven metal processing steps, Brandenburg is simply not engaged in production within the meaning or scope of either exemption as a matter of law.⁴ (See Resp't Mem. at 6–7.)

Previously, this...