Copperweld Steel Co. v. Lindley

• Decision Date: 08 July 1987
• Docket Number: No. 86-1482,86-1482
• Parties: , 31 O.B.R. 404 COPPERWELD STEEL COMPANY, Appellant, v. LINDLEY, Tax Commr., Appellee.
• Court: Ohio Supreme Court

Page 207

31 Ohio St.3d 207

509 N.E.2d 1242, 31 O.B.R. 404

COPPERWELD STEEL COMPANY, Appellant, v. LINDLEY, Tax Commr., Appellee.

No. 86-1482.

Supreme Court of Ohio.

July 8, 1987.

Letson, Griffith, Woodall & Lavelle, Lynn B. Griffith, Jr., and William P. McGuire, Warren, for appellant.

Anthony J. Celebrezze, Jr., Atty. Gen., and Mark A. Engel, Columbus, for appellee.

PER CURIAM.

The issue presented in this case is whether certain equipment purchased and used by appellant during the audit period in the production of its specialty grade steel alloys is exempt from sales and use taxes.

I

During the period encompassed by the audit, R.C. 5739.01 provided, in pertinent part:

"(E) 'Retail sale' and 'sales at retail' include all sales except those in which the purpose of the consumer is:

" * * *

"(2) * * * [T]o use or consume the thing transferred directly in the production of tangible personal property * * * for sale by manufacturing, processing, refining, or mining * * *."

The terms "manufacturing" or "processing" are defined within R.C. 5739.01(S), now renumbered (R), which provided:

" 'Manufacturing' or 'processing' means the transformation or conversion of material or things into a different state or form from that in which they originally existed and, for the purposes of the exceptions contained in division (E)(2) of this section, includes the adjuncts used during and in, and necessary to carry on and continue, production to complete a product at the same location after such transforming or converting has commenced."

Pursuant to the aforementioned statutory sections it becomes necessary to determine the beginning and end of appellant's manufacturing process, for it is well-settled that those items purchased for use prior to the commencement of the manufacturing process, or after completion of the finished product, do not enjoy exempt status under R.C. 5739.01(E)(2). Southwestern Portland Cement Co. v. Lindley (1981), 67 Ohio St.2d 417, 21 O.O.3d 261, 424 N.E.2d 304; Ohio Ferro-Alloys Corp. v. Kosydar (1973), 34 Ohio St.2d 113, 63 O.O.2d 195, 296 N.E.2d 533.

The commissioner urges that this court determine whether the assessed items are used directly in manufacturing under the theory that manufacturing does not commence until the raw materials are permanently transformed into a different state or form. Stated otherwise, it is the commissioner's position, at least insofar as the steel industry is concerned, that manufacturing does not commence until the "melt"--the point at which the raw materials enter the furnace and heat is applied thereto. We disagree.

In OAMCO v. Lindley (1986), 27 Ohio St.3d 7, 27 OBR 427, 500 N.E.2d 1379, we rejected a similar argument by the commissioner in relation to the taxability of various articles utilized within an asphalt manufacturing facility. In concluding that "transformation or conversion" commenced prior to the ultimate heat treatment process, or at the mixing stage, we stated:

"In the context of this case, it is readily apparent that the transformation or conversion of material or things into a different state or form occurs primarily in the drum mixer. There, the various ingredients are heated and mixed so that they become the product ultimately sold. However, the manufacture of the product is, in no sense, either initiated or ended in the drum mixer.

"As a matter of factual determination, the materials utilized are prepared before they reach the drum mixer. A precise, computerized mixing system composed of various small conveyor belts regulates the flow of aggregates from the bins. The result is a uniform size and weight of aggregate, which is essential to the required standardization of product. Likewise, the feed belt conveyor and scale are utilized to regulate the amount of asphalt cement to be added to a particular weight/volume of aggregate. Without these pieces of equipment there could be no mix specifications, nor constancy of finished product." (Emphasis added.) Id. at 8-9, 27 OBR at 428, 500 N.E.2d at 1380-1381.

Without question, the holding in OAMCO specifically negates the commissioner's contention that "transformation or conversion" for purposes of direct use in manufacturing commences at the point that heat is applied to a mixture. Instead, OAMCO recognized that the manufacturing process commences when materials are measured or mixed, for "[w]ithout these pieces of equipment, there could be no mix specifications, nor constancy of finished product." Id. ¹

Alternatively, the commissioner maintains that even if the application of OAMCO would operate to exempt some of the taxpayer's previously assessed purchases, nevertheless the court's clarification entry in OAMCO v. Lindley (1987), 29 Ohio St.3d 1, 29 OBR 122, 503 N.E.2d 1388, serves to prohibit its application in this case. Therein, we clarified the question of whether OAMCO should receive retroactive or prospective application, and concluded in the syllabus as follows:

"Consistent with the broad authority of state courts to determine whether their decisions shall operate prospectively only, as recognized by the United States Supreme Court in Great Northern Ry. Co. v. Sunburst Oil & Refining Co. (1932), 287 U.S. 358 [53 S.Ct. 145, 77 L.Ed. 360], the court hereby declares that its decision in this case shall, with the exception of the subject litigants, only receive prospective application to transactions occurring subsequent to the date of the issuance of the decision on rehearing. Accordingly, this decision will have no application to transactions occurring prior to this date, regardless of whether such transactions were the subject of litigation pending before any administrative body or court as of the above-noted date [November 26, 1986]."

Appellant does not argue with the meaning of our clarification in OAMCO v. Lindley (1987), supra, but argues that its effect is to treat similarly situated taxpayers differently. In principle, appellant relies upon Justice Harlan's statements in Desist v. United States (1969), 394 U.S. 244, dissenting at 258-259, 89 S.Ct. 1030, dissenting at 1039, 22 L.Ed.2d 248, that " * * * when another similarly situated defendant comes before us, we must grant the same relief or give a principled reason for acting differently. We depart from this basic judicial tradition when we simply pick and choose from among similarly situated defendants those who alone will receive the benefit of a 'new' rule of * * * law." Accord United States v. Johnson (1982), 457 U.S. 537, 102 S.Ct. 2579, 73 L.Ed.2d 202.

Continuing, appellant makes the arguable point that our clarification in 29 Ohio St.3d 1, 29 OBR 122, 503 N.E.2d 1388, overlooks all appeals pending before the BTA or this court at the time of our decision on rehearing in November 1986. It is asserted that by making OAMCO prospective to transactions occurring subsequent to November 26, 1986, that the taxpayer in OAMCO gained a happenstance windfall simply because its appeal was decided before the other pending appeals raising the identical issue. Viewed in this context, a litigant, whose opponent obtains permission to file its brief beyond the time constraints set forth in the Rules of Practice of the Supreme Court, could be prejudiced simply because another appeal subsequently filed, raising the same issue, is fully briefed and ready for oral argument before the court.

We agree with appellant that it would not be equitable for OAMCO not to be extended to those appeals pending in this court at the time of our decision therein. Cf. Chevron Oil Co. v. Huson (1971), 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296, which, although distinguishable from the instant case, demonstrates some of the inequities that can apply regarding the retroactivity of a judicial holding. Soon after our decision in OAMCO, the General Assembly enacted Am.H.B. No. 159, effective March 13, 1987. Section 4 of that Act declares it "to be an emergency measure necessary for the immediate preservation of the public peace, health, and safety" in order to " * * * protect the state from any potential revenue loss resulting from" the decision in OAMCO.

Without question, the General Assembly is concerned with the effect OAMCO will have on potential tax revenues. At the time of our decision in November 1986, thirteen tax-related appeals were pending before this court. ² Of those cases, perhaps one half present an issue to which OAMCO would be applicable. In view of the assessments at issue in these limited cases, and the amounts of tax revenue involved, we do not deem the application of OAMCO to have a significant impact upon the state's tax revenues. On the other hand, given the numerous cases pending before either the BTA, or the commissioner for purposes of reassessment, the retroactive application of OAMCO could have a significant impact upon the state's tax revenues. Since the General Assembly did not make Am.H.B. No. 159 retroactive (see R.C. 1.48), and because of its heretofore expressed concern about the financial impact created by OAMCO, we conclude that OAMCO will only be retroactively applied to those cases pending in this court at the time of our decision on rehearing in November 1986. Since appellant's appeal was pending at that time, the principles of OAMCO are applicable to its appeal.

II

A

Appellant contends that various cranes, weighing bins, scales and clamshell buckets are all used either directly in manufacturing or as adjuncts thereto, and should therefore have been exempt from taxation pursuant to R.C. 5739.01(E)(2) and (S). The record demonstrates that appellant uses various containers, primarily charging, clamshell and scrap buckets, in which to weigh and mix its raw materials prior to placement in the furnace. Various large cranes, equipped with scales or other similar devices, transport the buckets and ladles from the location where the raw materials are stored and measured until they are placed in the furnace.

As noted...