Delta Air Lines v. CLAYTON COUNTY BD., No. A00A1658

• Citation: 539 S.E.2d 905,246 Ga. App. 225
• Decision Date: 03 October 2000
• Docket Number: No. A00A1659., No. A00A1658
• Parties: DELTA AIR LINES, INC. v. CLAYTON COUNTY BOARD OF TAX ASSESSORS. Clayton County Board of Tax Assessors v. Delta Air Lines, Inc.
• Court: Georgia Court of Appeals

539 S.E.2d 905

246 Ga. App. 225

DELTA AIR LINES, INC. v. CLAYTON COUNTY BOARD OF TAX ASSESSORS.

Clayton County Board of Tax Assessors v. Delta Air Lines, Inc.

Nos. A00A1658, A00A1659.

Court of Appeals of Georgia.

October 3, 2000.

Alston & Bird, John L. Coalson, Jr., Timothy J. Peaden, Mary T. Benton, Michael Keen, Atlanta, for appellant.

Hancock & Echols, Jack R. Hancock, Forest Park, Brian R. Dempsey, Lilburn, for appellee. MIKELL, Judge.

This appeal arises from an ad valorem property tax dispute between Delta Air Lines, Inc. ("Delta") and the Clayton County Board of Tax Assessors ("Board"). After Delta filed its 1997 Business Personal Property Report, the Board returned an assessment notice (1) denying Delta's claim for an exemption (commonly referred to as the "freeport" exemption) from ad valorem taxation for certain inventory, and (2) disallowing Delta's valuation of certain airplane parts. Delta unsuccessfully appealed the assessment to the Clayton County Board of Equalization and then appealed to the superior court. In superior court, the Board moved for summary judgment on all issues, while Delta moved for partial summary judgment on the question of whether it was entitled to the freeport exemption. In Case No. A00A1658, Delta appeals the grant of summary judgment to the Board on the freeport issue. In Case No. A00A1659, the Board appeals the trial court's denial of its motion for summary judgment on the valuation dispute. For the reasons set forth below, we find that the freeport exemption is available for certain of Delta's aircraft engines and parts and therefore reverse the trial court's grant of summary judgment to the Board on the question of whether Delta was entitled to claim the exemption. We also find that Delta presented triable issues of fact regarding the valuation of its personal property, and we affirm that portion of the trial court's order denying the Board's motion for summary judgment.

Case No. A00A1658

We review a trial court's grant of summary judgment de novo, and we view the evidence in the light most favorable to the nonmovant.¹ On de novo review, we "owe no deference to the trial court's conclusions of law. Instead, we are free to apply anew the legal principles to the facts."² Disposition of this appeal necessitates our interpretation of the statutes authorizing the freeport exemption.

It is a cardinal rule ... that ... exemptions [from taxation] should be strictly construed in favor of the public, and that nothing passes by implication. On the other hand, if the language of a statute is plain and susceptible of but one natural and reasonable construction, the court has no authority to place a different construction upon it, but must construe it according to its terms.³

The Georgia Constitution authorizes the governing authority of any county or municipality, subject to voter approval, to exempt from ad valorem taxation "inventories of goods in the process of manufacture or production, and inventories of finished goods."⁴ The state legislature implemented this "freeport" exemption through enactment of OCGA §§ 48-5-48.1 and 48-5-48.2. A voter referendum approving the freeport exemption in Clayton County was held on September 27, 1979. The county board of commissioners implemented the exemption for each of the three categories authorized by statute.⁵ These categories can be generally described as including: (1) inventory of goods in the process of manufacture or production⁶ ("Category 1"), (2) inventory of finished goods in the hands of the original manufacturer⁷ ("Category 2"), and (3) inventory of finished goods held for shipment outside the state⁸ ("Category 3").

Delta claimed a freeport exemption in its 1997 business personal property tax return for: (1) aircraft engines and engine parts in the process of remanufacture at its Technical Operations Center ("TOC") in Clayton County; (2) parts manufactured at the TOC from raw materials; and (3) parts destined for shipment to a location outside this state. The Board denied the claims.

Technical Operations Center

Delta overhauls airplane engines at the TOC. Work is performed only on engines that have been separated from their aircraft. Delta categorizes the work done on the engines as either "light" or "heavy" maintenance. An engine is subject to heavy maintenance if it contains components that have reached their operational time limit. An engine can also receive heavy maintenance if it is removed for damage or nonperformance, although engines removed for these reasons are most often classified as receiving "light" maintenance. Heavy maintenance involves the complete disassembly of the engine, the piece-by-piece inspection of every component, and the restoration of each component to its original form and specifications. Engines that fall within the light maintenance category are those that do not require a complete overhaul, although the work involved may include a complete restoration of an engine module. Light maintenance may require as little as two to three days or as many as twenty-five to thirty-five days to complete. Heavy maintenance may require from 45 to 70 days to complete, depending on the type of engine. Costs per engine average $400,000 for light maintenance and $600,000 for heavy maintenance. Delta estimates it would incur approximately twice the cost for outsourcing its engine overhauls.

Delta also manufactures aircraft parts from raw materials at the TOC. The types of parts made range from routine to specialized pieces based on blueprint drawings. Delta stores airplane parts in a warehouse and ships them to its airport stations in other states as needed.

Category 1 Freeport Exemption

1. Delta argues that aircraft engines and parts which are being overhauled at the TOC qualify for the Category 1 freeport exemption under OCGA § 48-5-48.2(b)(1).

The exemption applies to: "(1) Inventory of goods in the process of manufacture or production which shall include all partly finished goods and raw materials held for direct use or consumption in the ordinary course of the taxpayer's manufacturing or production business in this state...." In order to qualify for the exemption, the goods must be "substantially modified, altered, or changed."

The statute was amended effective January 1, 1997, to add the following two sentences: "[R]emanufacture of aircraft engines or aircraft engine parts or components shall constitute manufacturing operations in this state. Remanufacture ... means the substantial overhauling or rebuilding of aircraft engines or aircraft engine parts or components[.]"

"Substantial overhauling," in turn, "means the disassembling, repairing, renovating, reassembling, reconstructing, inspecting, or testing, thereby restoring the aircraft engine or aircraft engine parts or components to their original state or an upgraded state."⁹

(a) Engines in the process of remanufacture qualify for the Category 1 exemption. The record contains uncontroverted evidence that engines in the process of "heavy" maintenance satisfy the statutory requirements for a Category 1 exemption. Under the revised statute, remanufacturing of aircraft engines is defined as the substantial overhauling or rebuilding of aircraft engines. The legislature obviously intended that aircraft engines in the process of remanufacture would qualify for the freeport exemption. Even disregarding the language specifically addressing aircraft engine remanufacture, we find that the process of heavy maintenance described by uncontradicted testimony, constituting the disassembly of the engine, the replacement of a number of expendable parts, the machine working of other parts to specification, its reassembly and testing over an approximate six- to eight-week period, is "substantial."

Whether engines in the process of "light" maintenance undergo substantial overhauling or rebuilding is less clear. Delta's director of engine maintenance testified that some light maintenance work required only a few days to complete, while other "light" maintenance work required several weeks, and consisted of the breakdown and refurbishing of one or more, but not all, engine modules. Delta claimed the Category 1 freeport exemption for all engines undergoing heavy maintenance as well as all large engines undergoing light maintenance. Delta did not claim the exemption for small engines undergoing light maintenance. The apparent reason for the division was that work on the larger engines was more costly. While we agree that cost is a factor in determining whether substantial work was performed on an engine, the actual nature of the work performed on the engine would provide the most probative evidence of "substantial overhauling or rebuilding." Light maintenance, unlike heavy maintenance, does not by its nature constitute a substantial modification, alteration, or change to an engine. The record indicates that light maintenance varies from what could best be characterized as a repair lasting several days to substantial and time-consuming rebuilding over a period of several weeks. Whether the engines at the TOC undergoing "light" maintenance were undergoing "substantial overhauling or rebuilding" is unclear from the record. Accordingly, we hold that this issue merits submission to a jury.

The Board has raised a number of issues which they claim preclude the availability of the Category 1 freeport exemption to Delta. Although we discuss each of the Board's contentions in some detail below, we find none have merit.

(b) Engines in the process of remanufacture constitute "inventory." The Board correctly points out that the "freeport" exemption, also known as the "tangible personal property inventory exemption,"¹⁰ applies only to inventory. The Board argues that because the engines at issue are destined for internal reuse and not for sale, they do not constitute "inventory" for purposes of the freeport exemption.¹¹ To support this...