Duval Sierrita Corp. v. Arizona Dept. of Revenue
| Decision Date | 19 May 1977 |
| Docket Number | CA-CIV,No. 1,1 |
| Citation | 568 P.2d 1098,116 Ariz. 200 |
| Parties | DUVAL SIERRITA CORPORATION, a Delaware Corporation, Appellant and Cross-Appellee, v. ARIZONA DEPARTMENT OF REVENUE, statutory successor to the powers and duties of the Arizona State Tax Commission, Appellee and Cross-Appellant. 3224. |
| Court | Arizona Court of Appeals |
Bilby, Thompson, Shoenhair & Warnock, P. C. by David W. Richter, Tucson, for appellant and cross-appellee.
Bruce E. Babbitt, Atty. Gen. by Ian A. Macpherson, Asst. Atty. Gen., Phoenix, for appellee and cross-appellant.
Evans, Kitchel & Jenckes, P. C. by Harold J. Bliss, Jr., Phoenix, for Phelps Dodge Corp.
This appeal involves a case of first impression in Arizona dealing with the statutory interpretation of A.R.S. § 42-1409(A), as amended Laws 1963, exempting from the Arizona use tax "machinery or equipment used directly" in mining and metallurgical operations.
Duval Sierrita Corporation (Duval) operates a copper mining and milling operation in Pima County, Arizona, known as the Duval Sierrita Mine. In order to place the controversy between the parties in proper perspective, an overall description of Duval's mining and milling operation is necessary.
Duval's operation is typical of an open-pit copper mine. It begins with removing the copper-bearing ore from the earth. This is accomplished by drilling, in a pattern, 50-feet deep by 12-inches wide holes, placing explosives into these holes and setting off the explosives. The resulting loosened rock is then loaded into ore trucks by huge shovels. The trucks haul the rock to a primary crusher where it is reduced in size and then placed on a conveyor belt and conveyed approximately five miles to the mill area and dumped into a coarse ore stockpile. From the coarse ore stockpile, the ore is fed into secondary crushers, where it is reduced further and then fed into the tertiary crushers. At the time the ore leaves the tertiary crushers it has been reduced to approximately three quarters of an inch in diameter. From the tertiary crushers the ore is introduced to ball mills where the reduction process is changed from a crushing operation to a grinding operation. At the end of the ball mill process the ore is the consistency of flour or dust.
At this point, water is added to the ore to become a slurry and is transported by steel pipes to the flotation cells. The water used in the Duval mining operation actually comes from the Santa Cruz Valley, located approximately nine miles from the Duval plant. It is carried overland through steel pipes by a series of booster pumps.
The flotation cells themselves consist of many banks where reagents and suppressants are added to the slurry allowing the copper and molybdenum particles to be suspended in bubbles that rise to the surface and are skimmed off. This process is repeated until the desirable minerals have been separated from the undesirable rock. The minerals then move through pipes to filters where the water is removed and the minerals dried and carried to storage bins. The undesirable rock is also carried in pipes to tanks where the water is recaptured and the resulting tailings dumped into a tailings dam.
The water that is recaptured both from the mineral slurry and the tailings slurry is then pumped back to the mill to be used again in the separation process. With this background in mind, the controversy between Duval and the Arizona State Tax Commission (now known as the Arizona Department of Revenue) and hereafter referred to as the "Commission", centers around the use tax liability of Duval for certain equipment and materials purchased by it during the period of July 1, 1968 through December 31, 1969. This equipment and material fall into two general classifications.
The first of these classes consist of an inventory of spare and replacement parts having a value of approximately four million dollars. These spare or replacement parts are for all of the equipment used by Duval in its mining and metallurgical operations starting with the drills that make the holes for explosives, and including the shovels, trucks, motors, crushers, ball mills and flotation cells.
Whether these spare or replacement parts will ever be actually used by Duval is speculative, depending upon whether the parts they are to replace ever wear out or are damaged. However, the facts show that several of the parts are custom made and if breakage should occur, replacement from the manufacturer would take up to eighteen months. If breakage of these should occur, and no spare or replacement parts were available, Duval's operations would have to close until replacement parts were received from the manufacturer. These spare or replacement parts are normally stored by Duval either in warehouses or storage yards until their use becomes necessary. The evidence shows that Duval, at its Sierrita mine, has a turnover in this inventory of approximately two million dollars a month, including expendable items which are not in controversy in this litigation.
The second class of equipment consists of the water booster pumps which facilitate the transportation of water from the Santa Cruz Valley to Duval's Sierrita Mine, the conveyor belt that transports the ore from the primary crusher to the secondary crushers, and the various steel pipes which are used to transport slurry and water both to and from the mill to the flotation cells, including tailing piping.
Both of these classes were determined by the Commission to be subject to the Arizona use tax, 1 resulting in an additional tax liability to Duval in the sum of $57,190.30. This amount of additional tax was paid by Duval under protest and this action was brought for its recovery.
The matter was tried to the trial court on stipulated facts and cross-motion for summary judgment. The trial court determined that the first class of items (the spare and replacement parts) were subject to use tax liability and Duval has appealed that portion of the trial court's judgment. The trial court also determined that the second class of items (the pumps, conveyor belt and piping) were not subject to use tax liability and the Commission has cross-appealed from that portion of the judgment.
At time of trial, various amici curiae were allowed by stipulation to file briefs and orally argue the position adopted by Duval in this litigation. These amici curiae were also allowed to file briefs before this court. Amici curiae are Phelps Dodge Corporation which operates copper mines and mills at Ajo, Bisbee and Morenci, Arizona, and which also operates smelters at Ajo, Morenci and Douglas, Arizona; Inspiration Consolidated Copper Company, which operates a copper mine, mill and smelter at Miami, Arizona; Kennecott Copper Corporation, which operates a copper mine, mill and smelter at Hayden, Arizona; Magma Copper Company, which operates a copper mine and mill at Superior, Arizona, and a copper mine, mill and smelter at San Manuel, Arizona; and Empire Machinery Corporation which sells various machines, machinery and equipment to most of the copper mines in the state.
The "use tax" involved here is imposed by A.R.S. § 42-1408, which provides in pertinent part " As amended Laws 1973, Ch. 123, § 125 (Supp.1976).
The statute which Duval contends allows it to avoid this tax and which requires our interpretation is A.R.S. § 42-1409(B) which provides in pertinent part that:
As amended Laws 1963, Ch. 60, § 1, Laws 1967, 3rd. S.S., Ch. 2 § 3 (Supp.1976)
It is important at the outset of this discussion to point out that the Commission concedes that the spare or replacement parts in controversy are for "machinery or equipment" that is itself exempt from taxation under A.R.S. § 42-1409(B).
The issue as to the tax liability of these items has somewhat narrowed from the administrative level to the appellate court level. It was apparently first contended by the Commission that these items did not constitute "machinery or equipment" as that term is used in A.R.S. § 42-1409(B). Apparently that position has now been abandoned, and the question has now become whether these spare or replacement parts are "used directly" either in the metallurgical or mining operation. Both parties agree that there are no Arizona cases directly on point as to whether replacement parts for exempt machinery are also exempt.
The Commission's basic contention concerning the taxability of these spare or replacement parts is that during the period of time these replacement parts are being stored they are not actually being "used directly" in the mining or metallurgical processes and therefore are not exempt under A.R.S. §...
To continue reading
Request your trial
-
Sharp v. Tyler Pipe Industries, Inc.
... ... See, e.g., North Alamo Water Supply Corp. v. Willacy County Appraisal Dist., 804 S.W.2d ... multiple taxation and the need to raise revenue for the state. See, e.g., Niagara Mohawk Power ... 2 See generally Duval Sierrita Corp. v. Arizona Dep't of Revenue, 116 ... ...
- Carter Oil Co. v. Ariz. Dep't of Revenue
-
RenalWest L.C. v. Arizona Dept. of Revenue
... ... See State Tax Comm'n v. Anderson Dev. Corp., 117 Ariz. 555, 574 P.2d 43 (App.1977) (use tax exemption for mining allowed for contractor ... Department of Revenue v. Cyprus Sierrita Corp., 177 Ariz. 301, 303, 867 P.2d 871, 873 (Tax Ct.1994) (chemicals meet the definition of ... Sonee Heat Treating, 178 Ariz. 278, 279, 872 P.2d 682, 683 (1994); Duval Sierrita Corp. v. Department of Revenue, 116 Ariz. 200, 205, 568 P.2d 1098, 1103 (App.1977) ... ...
-
OAMCO v. Lindley, 85-1114
... ... N.E.2d 1 [5 O.O.2d 3], and Ohio Ferro-Alloys Corp. v. Kosydar (1973), 34 Ohio St.2d 113, 296 N.E.2d ... Federated Dept. Stores v. Lindley (1983), 5 Ohio St.3d 213, 215, ... See Duval Sierrita Corp. v. Arizona Dept. of Revenue ... ...