Cheney v. Georgia-Pacific Paper Corp.

• Decision Date: 04 November 1963
• Docket Number: GEORGIA-PACIFIC,5-3091,Nos. 5-3090,s. 5-3090
• Citation: 237 Ark. 161,371 S.W.2d 843
• Parties: Orville CHENEY, Comm'r of Revenues, Appellant, v.PAPER CORPORATION, Appellee. Orville CHENEY, Comm'r of Revenues, Appellant, v. INTERNATIONAL PAPER COMPANY, Appellee.
• Court: Arkansas Supreme Court

Page 843

371 S.W.2d 843

237 Ark. 161

Orville CHENEY, Comm'r of Revenues, Appellant, v. GEORGIA-PACIFIC PAPER CORPORATION, Appellee.

Orville CHENEY, Comm'r of Revenues, Appellant, v. INTERNATIONAL PAPER COMPANY, Appellee.

Nos. 5-3090, 5-3091.

Supreme Court of Arkansas.

Nov. 4, 1963.

Lyle Williams, A. W. Nisbet and Henry Ginger, Little Rock, for appellant.

Paul Sullins, Crossett, Griffin Smith, Little Rock, Gaughan & Laney, Camden, Bridges, Young & Matthews, Pine Bluff, for appellees.

HOLT, Justice.

The main question presented in these consolidated cases is whether the use tax exemption provided by statute is applicable to the purchase of turbine generators which are being used by both appellees, Georgia Pacific Paper Corporation and International Paper Company, in their respective operations of manufacturing or producing paper products. Georgia Pacific Paper Corporation claims additional exemptions on its purchase of such items as anion resin, a sewer cleaning ball, miscellaneous conveyors, two small turbines, a towmotor and carrier, and recorder chart rolls. The appellant, the Commissioner of Revenues, levied an assessment in the sum of $30,935.84 against Georgia Pacific Paper Corporation based upon the turbine generator plus the other enumerated items. The use tax assessment levied against International Paper Company was upon the turbine generator only in the amount of $27,063.69, or three per cent (3%) of the recent purchase price of $1,908,549.04. The penalties were waived. The assessment against the International Paper Company was paid under protest and action was brought against appellant to recover this sum paid under protest on the basis the turbine generator is exempt from the use tax. Appellee, Georgia Pacific Paper Corporation, sought an injunction to restrain the Commissioner of Revenues from further proceedings to collect the tax assessed against it and sought a Declaratory Judgment to establish that the above named items are primary facilities used directly in their manufacturing or processing operation and therefore, exempt pursuant to Ark.Stat.Ann. § 84-3106 (Supp.1961). This statute provides in pertinent part as follows:

'84-3106. Exemptions.--There are hereby specifically exempted from the taxes levied in this Act [§§ 84-3101-84-3128]: * * *

'Manufacturing or processing machinery, replacement parts, materials, and supplies used directly in the manufacturing or processing operation provided; such materials, machinery, supplies, and equipment are not available within this State by reason of not being manufactured or produced within Arkansas; or are not available from instate sellers' or suppliers' stocks in trade within this State. It is the intent of this subsection to exempt only such equipment, machinery, materials, or supplies that constitute the primary facility engaged in the direct production, processing or manufacturing of articles of commerce at industrial and processing plants in Arkansas and which are not available from the seller's regularly maintained stock in this State.

'The terms 'manufacturing' and 'processing' as used herein, refer to and include those operations commonly understood within their ordinary meaning and shall include mining, quarrying, refining, and the production of natural resources, cotton ginning, and rice drying. Hand tools, buildings, transportation equipment, expendable items, office machines and supplies, and all other materials which are incidental or useful in connection with the manufacturing or processing operations and not directly used in the primary production processing or manufacturing are not included or classified as exempt.'

The appellant controverted the claimed exemptions. The cases were consolidated for trial by agreement.

In the case of Georgia-Pacific Paper Corporation, the Chancellor found that 'the items on which the tax is sought are all directly used in the manufacturing or processing operation, within the meaning of the exemption'. As to International Paper Company, the Court found 'that the 20,000 K. W. steam turbine generator as employed in the Pine Bluff Mill of the plaintiff is a primary facility used directly in the processing and manufacturing operation of making wood, pulp and paper * * * that it is exempt from * * *' the use tax.

On appeal appellant relies for reversal upon four points which are aptly encompassed by appellant's statement that:

'The question as to all of the above mentioned articles is whether or not such are directly used in manufacturing or processing within the meaning of the compensating tax exemption statute, Ark.Stat., Sec. 84-3106(D) (Pocket Supp) * * *'.

There appears to be no dispute about the fact that these items were unavailable for purchase in Arkansas.

The appellant does, however, strenuously dispute that the evidence presented by the appellees was sufficient to bring the questioned items within the purview of the statute. We agree with appellant that the burden is on appellees to clearly show they are entitled to the exemption from the use tax. There is no implied exemption from a tax and a claimant must clearly establish an exemption, since taxation is the rule and exemption the exception. Biscoe v. Coulter, 18 Ark. 423; Scurlock v. Henderson, 223 Ark. 727, 268 S.W.2d 619. With this rule of law in mind, we now proceed to review the pertinent facts as adduced by the testimony in the cases at bar.

In the Georgia Pacific Paper Corporation plant the logs are debarked in a 'barking drum'. The debarked logs are moved to a knife clipping machine where they are cut into small chips. The wood chips are placed in a silo for storage. They are withdrawn as needed and loaded into 'digesters' where a cooking liquor compound is mixed with the chips. The 'digester' is closed and then steam pressure at 160 pounds is admitted from the turbine generator. The chips are cooked for three hours at 100 pounds pressure. This dissolves the bonding material that holds the cellulose together in the wood. When the cooking is complete, then the cellulose fibers known as pulp remain. The pulp is then further washed and screened in the assembly line process. The wood fiber or pulp, in a suspension of water, is delivered to the paper making machines. These machines have continuous fine mesh bronze wire which holds the cellulose on the wire while permitting the water to drain through this mesh. The fibers form a mat on top of this mesh screen. It is pressed to further remove moisture and then goes into and around a series of heated cylindrical driers. These driers operate under 40 to 60 pounds of steam pressure received from the turbine generator. The purpose is to further dry the product, the mat of fibers, into a finished sheet of unbleached paper such as paper for newsprint and telephone directories. A further process is required to produce bleached pulp from which is made a heavier, stronger product such as milk cartons and drinking cups.

There are several boilers which utilize as fuel the waste material such as the bark, the chipper residue and the concentrated spent cooking liquor from the 'digesters'. This fuel is used to generate steam in the boilers at 850 pounds pressure. The steam is then funneled to the turbine at this high pressure. As the steam passes through the turbine, turning parts of it, the energy is gradually spent or the steam pressure reduced. At the reduced level of 160 pounds pressure some of the steam is extracted and supplied to the 'digesters' for the cooking of the pulp. The balance of the steam continues on through the turbine until the pressure level is further reduced to 60 pounds. At this point some of the steam is further withdrawn and funneled to that portion of this assembly line process where it is used in drying, evaporation in the tubular heat exchangers and various other applications. As the turbine is turning because of the steam pressure, thus reducing the pressure, it drives the generator which generates the electricity. Thus is provided the motive power for the various machines, pumps and other equipment in the paper making process. Therefore, the turbine generator performs a dual function. It utilizes the steam to generate electrical energy and in so doing it reduces the steam pressure and emits it at certain levels to component parts of the paper manufacturing process where it is used for various purposes, such as cooking, drying and heating.

The turbine generator in the plant of International Paper Company performs basically the same functions. The steam pressure enters the turbine from the boilers at 1,250 pounds where it is reduced and discharged to component parts in the mill at pressure levels of 400, 140 and 60 pounds. This machine was built according to specifications to fit a particular need. Thirty-two per cent (32%) of...