Collingwood Grain, Inc., Matter of, 71465
Citation | 891 P.2d 422,257 Kan. 237 |
Decision Date | 10 March 1995 |
Docket Number | No. 71465,71465 |
Parties | In the Matter of the Appeal of COLLINGWOOD GRAIN, INC., Garvey Elevators, Inc., and Cairo Cooperative Equity Exchange. |
Court | United States State Supreme Court of Kansas |
Syllabus by the Court
1. Board of Tax Appeals orders are subject to judicial review under the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq.
2. Substantial evidence is such legal and relevant evidence as a reasonable person might accept as being sufficient to support a conclusion.
3. Sales and use tax statutes should generally be construed together.
4. Tax exemption statutes must be construed strictly in favor of imposing the tax and against allowing the exemption for one who does not clearly qualify. The burden of proof is on the person asserting exemption to bring himself or herself within the exemption statute. The same rules apply to tax refund statutes.
5. A fundamental rule of statutory construction is that the purpose and intent of the legislature governs.
6. Electricity used by grain elevators in blending, cleaning, drying, and aerating 7. Where there is a possibility of relevancy in documents subpoenaed and there is no showing that a subpoena is unreasonable or oppressive, the statutes granting the power to subpoena should be liberally construed to permit inquiry.
grain is construed to be exempt from taxation under K.S.A. 79-3606(n) as property consumed in the "production, manufacture, processing, ... refining or compounding of tangible personal property."
8. The enforcement of a subpoena duces tecum is left to the discretion of the enforcing tribunal. A subpoena duces tecum is subject to K.S.A. 60-245(b) and it must be relevant and not unreasonable or oppressive.
John Michael Hale, of the Kansas Dept. of Revenue, argued the cause, and Vernon L. Jarboe, General Counsel, and Thomas E. Hatten, Topeka, of the same dept. were on the briefs for appellant.
Carol B. Bonebrake, of Cosgrove, Webb & Oman, Topeka, argued the cause and was on the brief for appellees.
This is an appeal by the Kansas Department of Revenue (KDR) from a final order of the Board of Tax Appeals (BOTA) which held that the sale of electricity consumed in grain elevator operations, such as for aeration, blending, cleaning, and drying of grain, is exempt from sales tax pursuant to K.S.A. 79-3602(m)(B) and K.S.A. 79-3606(n).
Collingwood Grain, Inc., Garvey Elevators, Inc., and Cairo Cooperative Equity Exchange (taxpayers) are grain elevators. In 1989, taxpayers each submitted claims seeking sales tax exemption on future utility bills and refunds of sales tax paid on previous billings pursuant to K.S.A. 79-3606(n). That statute provides for a sales tax exemption on:
"all sales of tangible personal property which is consumed in the production, manufacture, processing, mining, drilling, refining or compounding of tangible personal property, the providing of services or the irrigation of crops for ultimate sale at retail within or without the state of Kansas; and any purchaser of such property may obtain from the director of taxation and furnish to the supplier an exemption certificate number for tangible personal property for consumption in such production, manufacture, processing, mining, drilling, refining, compounding, irrigation and in providing such services."
It is undisputed that electricity is "tangible personal property" subject to the sales tax exemption. K.S.A. 79-3602(m)(B).
The taxpayers' claims were consolidated. The procedural history is of no real significance and will not be set forth in detail. The first hearing occurred in 1989, and subsequently there was a rehearing by BOTA, following remand by the Court of Appeals. BOTA issued its order on remand in February 1994. The order states in pertinent part:
than to create an improved or more marketable product.
Using the dictionary definitions of "process," "refining," and "compounding," BOTA stated:
BOTA rejected the KDR's argument that "production, manufacturing, processing, mining, drilling, refining, or compounding" is limited to those processes which result in the physical transformation of the product into an article or product of substantially different character. BOTA held that a transformation of tangible personal property into a product of substantially different character is not necessarily required in order to obtain the exemption; it is sufficient if the procedure transforms or converts the product into an improved marketable product. BOTA concluded:
"In this particular case, all of the processes except for turning and fumigation are used to treat, process, and improve the harvested grain into a more marketable and improved product in terms of test weight, protein level, moisture content and grade. Cleaning refines the grain by eliminating "...
foreign matter including damaged grain. Blending, drying and aeration will process and compound the grain into a more marketable product by improving the test weight, protein level, grade and moisture content of the final product. Grain turning and fumigation, however, is performed simply to preserve the grain in its present condition. By grain turning, the grain elevator prevents hot spots and insect...
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