Brier Mfg. Co. v. Norberg

• Decision Date: 30 August 1977
• Docket Number: Nos. 74-334-M,s. 74-334-M
• Parties: BRIER MANUFACTURING CO. v. John H. NORBERG, Tax Administrator. P., 75-5-M.P.
• Court: Rhode Island Supreme Court

Page 345

377 A.2d 345

119 R.I. 317

BRIER MANUFACTURING CO. v. John H. NORBERG, Tax Administrator.

Nos. 74-334-M.P., 75-5-M.P.

Supreme Court of Rhode Island.

Aug. 30, 1977.

[119 R.I. 325] Isadore Paisner, Providence, for plaintiff.

Julius C. Michaelson, Atty. Gen., Allen P. Rubine, Asst. Atty. Gen., Gregory L. Benik, Sp. Asst. Atty. Gen., Perry Shatkin, Chief Legal Officer (Taxation), Providence, for defendant.

OPINION

BEVILACQUA, Chief Justice.

These petitions for certiorari to review a Superior Court judgment upholding in part and reversing in part a decision of the tax administrator determining that molds used by the Brier Manufacturing Company (the taxpayer) in its manufacturing process are subject to taxation under G.L.1956 (1970 Reenactment) § 44-18-30(H) and that the taxpayer is liable for a penalty assessed thereunder.

The parties submitted this case on an agreed statement of facts which may be summarized briefly. The taxpayer is engaged in the manufacturing of jewelry and small decorated plastic packages which are made principally from various kinds of base metals and plastics. The significant operation concerning this suit involves the molds used in the production of the plastic packages. The molds are custom made and are used directly in the manufacturing process to form the package after a thermoplastic material is injected into the cavities of the mold. In the interest of efficiency, the injection process must be run on a continuous 24 hour per day basis. Under such conditions the cavities of the mold eventually would be worn to the point where they would be unable to produce items of the required specificity and would no longer be suitable for manufacturing purposes. The amount of use required to render a mold unfit for further manufacturing is unpredictable and depends upon a number of factors including demand for the product and the nature and amount of maintenance work done on the mold. Nonetheless, it was agreed that if the molds had been operated continuously for 7 days a week they would have been rendered physically unfit for use in the manufacturing process within a period of time of 1 year. None of the molds which are the subject matter of this suit have been used to such a degree. However, because a mold can be used only for manufacturing the item for which it was specifically designed, it no longer has any economic value once that item has been produced in the required quantity. With the exception of two large molds, the so-called "Ivanhoe" molds, the principal molds involved in this case were used up, in the economic sense, within 1 year after first being used in the manufacturing process.

Section 44-18-30(H) exempts from liability tangible personal property which is consumed directly in the process of manufacturing, provided however, that such consumption occurs within 1 year from the date the property is first so used. ¹ The tax administrator determined that the taxpayer's molds did not fall within this exemption since they were never physically unfit for use in the manufacturing process and, accordingly, he upheld the tax use levied on the molds which with interest and a 10 percent penalty amounted to $19,509.96. The taxpayer paid that amount and sought review in Superior Court wherein the trial justice reversed the decision of the tax administrator. The trial justice based his decision upon the tax administrator's regulation interpreting the scope of § 44-18-30(H) and ruled that since the taxpayer's molds were economically, although not physically, used up within a year, they were exempt from tax liability. Additionally, the trial justice concluded that the regulation was reasonable in light of the language used in § 44-18-30(H) and the intent of the Legislature in enacting that statute. A judgment was entered in accordance with the trial justice's decision. Thereafter, the tax administrator filed a motion to amend the judgment with respect to the amount of the refund. The disputed portion of the judgment related to the levy upon the so-called "Ivanhoe" molds and the penalty assessment. The trial justice granted the motion. He concluded that since the parties agreed that the "Ivanhoe" molds were not economically consumed within 1 year, they were not entitled to exemption and, relying upon the reasoning expressed in Western Elec. Co. v. Weed, 185 Colo. 340, 524 P.2d 1369 (1974), he found that the tax administrator's penalty assessment was proper. Judgment was entered in favor of the taxpayer in the amended amount of $12,943.94. The taxpayer then filed a timely petition for a writ of certiorari to review the judgment while the tax administrator sought a similar writ to review that portion of the judgment exempting the principal molds from use tax liability. Thereafter we granted the petitions and the cases were consolidated for hearing before this court.

As we perceive it the dispositive issue in this case is whether the molds which within 1 year after initially being used in the manufacturing process no longer had any economic value, although still physically fit for further manufacturing use if the demand existed, can be said to have been directly consumed within the literal meaning of the operative words contained in § 44-18-30(H). For the reasons which follow we hold that they cannot.

In determining whether an item is "consumed directly" in the manufacturing process so as to be exempt from liability under the Sales and Use Tax Act we are bound by the definition of that term provided in § 44-18-30(H). Broadway Auto Sales, Inc. v. Asselin, 93 R.I. 403, 406, 176 A.2d 714, 716 (1961). And in construing that section, the words used are to be given their plain meaning unless a contrary intention clearly appears; except where the language admits of ambiguity, the words of a statute cannot be interpreted or extended but must be applied literally. In re Shepard Co., 115 R.I. 290, 342 A.2d 918 (1975); Andreozzi v. D'Antuono, 113 R.I. 155, 319 A.2d 16 (1974); Podborski v. William H. Haskell Mfg. Co., 109 R.I. 1, 279 A.2d 914 (1971). The pertinent portion of § 44-18-30(H) reads as follows:

" '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."

The definitional language used contains no ambiguity or inconsistency and clearly refers to the type of consumption directly resulting from an item's physical and not economic unfitness for use in the manufacturing process. This conclusion is supported by the Legislature's reference to the fact that consumption does not include mere obsolescence. Obsolescence, as it is used in revenue acts, is generally understood to mean the "process * * * whereby property, because of causes other than physical deterioration, loses its economic usefulness to the taxpayer." 4 Mertens, The Law of Federal Income Taxation § 23.104 & n.24 (rev. ed. 1973). Obsolescence may be attributable to a variety of conditions having no physical relation to the property including loss of trade. Real Estate Land-Title & Trust Co. v. United States, 309 U.S. 13, 16, 60 S.Ct. 371, 372, 84 L.Ed. 542, 546 (1940); Becker v. Anheuser-Busch Inc., 120 F.2d 403, 415 (8th Cir. 1941); See Colorado & Utah Coal Co. v. Rorex, 149 Colo. 502, 510, 396 P.2d 796, 801 (1962); Northern Natural Gas Co. v. Dwyer, 208 Kan. 337, 356-57, 492 P.2d...