Duke Power Co. v. Clayton, 274

• Decision Date: 27 November 1968
• Docket Number: No. 274,274
• Citation: 274 N.C. 505,164 S.E.2d 289
• Court: North Carolina Supreme Court
• Parties: DUKE POWER COMPANY, a corporation v. I. L. CLAYTON, North Carolina Commissioner of Revenue.

Page 289

164 S.E.2d 289

274 N.C. 505

DUKE POWER COMPANY, a corporation v. I. L. CLAYTON, North Carolina Commissioner of Revenue.

No. 274.

Supreme Court of North Carolina.

Nov. 27, 1968.

John D. Hicks and William I. Ward, Jr., Charlotte, for plaintiff appellee.

Thomas Wade Bruton, Atty. Gen.; Robert L. Gunn, Asst. Atty. Gen., for defendant appellant.

SHARP, Justice.

This appeal presents two primary questions: (1) Is the fly-ash precipitator, which plaintiff installed in 1961, mill machinery or an accessory thereto within the meaning of G.S. § 105--164.13(12), and (2) was the cleaned and crushed coal plaintiff purchased from the corporations which mined it a product of the mine in its 'original or unmanufactured state' within the meaning of G.S. § 105--164.13(3)? The purchases of coal from the three mining corporations which used the services of sales agents raise a third question: Were those sales made by the producers of the coal as that term is used in G.S. § 105--164.13(3)? (The designated statutes are those which were applicable at the time of the installation of the fly-ash precipitator and the purchase and delivery of the coal. S.L.1957, Ch. 1340, § 5(a), p. 1380 and p. 1379, codified in N.C. Gen. Stat., Replacement Vol. 2C (1958).)

Prior to 1 July 1961 sales of mill machinery or mill-machinery parts and accessories 'to manufacturing industries and plants' were totally exempt from retail sales and use taxes. (G.S. § 105--164.13(12), supra.) Since then they have been subject to the retail sales or use tax at the rate of 1%, with a maximum tax of $80.00 per article. G.S. § 105--164.4, subd. 1(h). The fly-ash precipitator in suit, having been purchased, installed, and put to use prior to 1 July 1961, is exempt from sales and use tax if it is mill machinery Or an accessory to mill machinery used by plaintiff in manufacturing. Atwater-Waynick Hosiery Mills, Inc. v. Clayton, Comm'r of Revenue, 268 N.C. 673, 151 S.E.2d 574.

Plaintiff's primary activity is the generation of electricity--a manufacturing enterprise. City of Louisville v. Howard, 306 Ky. 687, 208 S.W.2d 522 (1948). It also produces and sells fly ash. Plaintiff concedes, however, that the precipitator was installed for the purpose of preventing the fly ash produced in the furnaces of its generating plant from polluting the air and surrounding area. In 1960 its sales of fly ash were minimal and incidental. However, our view of the case makes it unnecessary to decide whether the precipitator is exempt as machinery used in the manufacture of an incidental by-product.

It is an elementary rule of statutory construction that words must be given their common and ordinary meaning unless another is apparent from the context, or unless they have acquired a technical significance. Sayles Biltmore Bleacheries, Inc. v. Johnson, Comm'r of Revenue, 266 N.C. 692, 147 S.E.2d 177, 17 A.L.R.3d 1; 7 N.C. Index 2d, Statutes § 5 (1958). Despite the fact that electricity can be generated without the precipitator, that piece of machinery is obviously essential to the operation of a generating plant, which would have to be abandoned without it. More we need not say; for G.S. § 105--164.13(12) exempted not only manufacturing machinery but also Accessories thereto. Accessory, as defined by Webster's Third New International Dictionary (1964) is 'a thing of secondary or subordinate importance; an object or device that is not essential in itself but that adds to the beauty, convenience, or effectiveness of something else.' (For a discussion of the problem posed by question (1), see generally Annot., 30 A.L.R.2d 1439 (1953) and 3 A.L.R.2d, Later Case Service 1266 (1965).) Indubitably, the fly-ash precipitator is an accessory to machinery which plaintiff used in the manufacture or generation of electricity.

Defendant's tax assessment upon plaintiff's use of the precipitator was based upon his ruling that equipment must be 'used in direct production or extractive processes' to be exempt under G.S. § 105--164.13(12). For this position he attempts to apply Revenue Department's Sales and Use Tax Regulation No. 30, Section III--D.1. (a) (from which the quoted words are taken) to the sale and use of all mill machinery and to rely upon Campbell v. Currie, Comm'r of Revenue, 251 N.C. 329, 111 S.E.2d 219. Regulation 30, issued 14 May 1962, was introduced in evidence by defendant without objection from plaintiff. Defendant asserts in his brief that the direct production test has been in force since 1944 when it was denominated Regulation No. 4. Citing Campbell v. Currie, supra, he argues that since Regulation No. 4, now Regulation No. 30, Section III--D.1. (a), has been unchanged by legislative action this Court should uphold it. No evidence in the transcript supports defendant's assertion of continuity, but--assuming the premise--Section III--D.1. (a) relates expressly to 'mining'; it has no application to the fly-ash precipitator. The section provides: '(a) Sales of articles of tangible, personal property used in direct production or extractive processes inside the mine, including dynamite and other explosives, are deemed to be sales of mill machinery or mill machinery parts and accessories. * * *' The section of Regulation 30 which relates specifically to 'electric power companies,' is Section III--C.1. (a). It declares 'all production machinery and accessories thereto' to be within the purview of G.S. § 105--164.4, subd. (1)(h).

Clearly, the fly-ash precipitator is embraced by the definition contained in Section III--C.1. (a), and Section III--D.1(a) is totally irrelevant. In any event, the Commissioner's regulation construing the Revenue Act cannot change the meaning of a statute or control the Court's interpretation of it. '(T)his Court will not follow an administrative interpretation which, in its opinion, is in conflict with the clear intent and purpose of the statute under consideration.' In re Vanderbilt University, 252 N.C. 743, 747, 114 S.E.2d 655, 658.

Campbell v. Currie, supra, does not support defendant's premise that the fly-ash precipitator installed in a power plant must be used in the 'direct production' of electricity to come within the exemption which G.S. § 104--164.13(12) afforded mill machinery, etc. In Campbell, the plaintiff sold lumber in 1957 to Tungsten Mining Company, which used it underground in the stoping process of its mining operations. At that time, mill machinery, etc., was exempt from the retail sales tax but was subject to a wholesale tax of 1/20th of 1%. The Commissioner, contending that lumber was not mill machinery, or accessories thereto, assessed the plaintiff's sales to the mine at 3%. Plaintiff paid the tax under protest and sued for its recovery. The trial judge found that the lumber 'was used in the direct production and extractive process inside the mine' and its sale was 'embraced within the term sales of mill machinery, mill machinery parts and accessories' as defined by the Revenue Department's Sales and Use Tax Regulation No. 4. From the opinion it appears that Regulation No. 4, specifically applicable to Mining, was practically identical with Section III--D.1. (a) of Regulation 30. Judgment was entered that plaintiff recover the amount of the tax paid. Upon appeal, defendant Commissioner contended that his Department's Regulation No. 4 went 'beyond the authority granted by the legislature to the Commissioner in classifying mill machinery, mill machinery parts and accessories.' In affirming the judgment of the trial judge, this Court noted that Regulation No. 4, after having been duly promulgated, had been in effect for more than fifteen years. It held that The taxpayer was entitled to claim the protection of Regulation 4, which, under G.S. § 105--264, was 'prima facie correct and a protection to the officers and taxpayers affected thereby.' Obviously, under the facts of this case, defendant is in no need of 'protection.'

The two cases which defendant cites from other jurisdictions, Union Carbide & Carbon Corp. v. Bowers, 166 Ohio St. 419, 143 N.E.2d 710 (1957) and Tulsa Mach. Co. v. Oklahoma Tax Comm'n, 208 Okl. 138, 253 P.2d 1067 (1953), are likewise not pertinent to a consideration of G.S. § 104--164.13(12). Respectively they involved the construction of Ohio and Oklahoma statutes, which exempted machinery only if used Directly in the manufacturing process. Therefore, the answer to question (1) is YES. Defendant's assignments of error relating to the fly-ash precipitator are, therefore, overruled.

Between 1 July 1955 and 1 July 1961 all sales of fuel to manufacturers were exempt from sales and use tax. S.L.1955, Ch. 1313, § 3(e), p. 1356; S.L.1957, Ch. 1340, § 5(a), p. 1380. Thereafter the legislature subjected sales of fuel for the operation of manufacturing plants to a sales or use tax at the rate of 1% Of the sales price. G.S. § 105--164.4(1)(d), G.S. § 105--164.6(1). The presumption is that the General Assembly enacted these statutes with care and deliberation and with full knowledge that G.S. § 105--164.13(3)--which it left in full force and effect--exempted 'products of farms, forests, and mines' when sold by the producers in their original or unmanufactured state. State v. Lance, 244 N.C. 455, 94 S.E.2d 335. The two enactments are not irreconcilable, and it is the duty of the Court to give effect to both. State v. Humphries, 210 N.C. 406 186 S.E. 473. Therefore, when fuel is the product of a mine and sold by the producer in its original or unmanufactured state, it is exempt from sales and use taxes. Had the legislature intended otherwise, obviously it would have eliminated fuel from the exemption.

The second question, therefore, is whether coal, after having been separated from the rock and slate mined with it and then crushed, remains in its 'original or unmanufactured state' within the meaning of G.S. § 105--164.13(3). The phrase, 'original or unmanufactured state,' must be construed in relation to...