Galamet, Inc. v. Director of Revenue, No. 78064

CourtUnited States State Supreme Court of Missouri
Writing for the CourtLIMBAUGH; HOLSTEIN, C.J., BENTON, PRICE, ROBERTSON and COVINGTON, JJ., and PREWITT; WHITE
Citation915 S.W.2d 331
PartiesGALAMET, INC., and Rig Industries, Inc., Appellants, v. DIRECTOR OF REVENUE, Respondent.
Docket NumberNo. 78064
Decision Date20 February 1996

Page 331

915 S.W.2d 331
GALAMET, INC., and Rig Industries, Inc., Appellants,
v.
DIRECTOR OF REVENUE, Respondent.
No. 78064.
Supreme Court of Missouri,
En Banc.
Feb. 20, 1996.

Page 332

Petition for Review of a Decision of the Administrative Hearing Commission; Honorable Edward F. Downey, Commissioner.

William B. Prugh, Dean Kuckelman, Kansas City, for appellants.

Jeremiah W. (Jay) Nixon, Atty. Gen., Gretchen Garrison, Asst. Atty. Gen., Jefferson City, for respondent.

LIMBAUGH, Judge.

Galamet, Inc., and Rig Industries, Inc., ("Galamet") appeal two decisions by the Administrative Hearing Commission ("AHC"), one upholding an assessment against Galamet of unpaid sales tax on purchases of machinery and equipment and the other denying Galamet a refund of sales tax paid on purchases of electricity. Because this appeal involves the construction of revenue statutes, this Court has jurisdiction. Mo. Const. art. V, § 3. We reverse the decision upholding the assessment of unpaid sales tax and affirm the decision denying the refund of sales tax.

I.

Galamet produces shredded steel for use by steel mills. For the production of this shredded steel, Galamet obtains useless scrap metal called "inputs." The inputs consist of automobile bodies, old pipes, "white goods" (e.g., refrigerators, water heaters) and other materials, which vary in size, shape, source, use, and metallurgical content and which are unsuitable for use by steel mills and foundries. Galamet's cranes and conveyors feed the inputs into a five-story mill, where the inputs are crushed and chopped into fist-size pieces by a series of bell-shaped hammers powered by a 2,500 horsepower electric motor. The resulting shreds are then sent through a system of cyclones and blowers to remove dirt, foam, and other nonmetal material called "fluff". Finally, Galamet uses a series of electromagnets to remove ferrous metal from the nonferrous. The end results are small pieces of steel, known in the industry as "shredded auto scrap," which meet industry requirements for size and metallurgical content. Steel mills and foundries may specify the requisite size and shape of the steel shreds necessary for their particular operation. The mills and foundries that purchase Galamet's steel shreds melt them down and use them to manufacture various steel products, such as grinding balls, steel pipe, tie rod bars, etc. In the marketplace, a ton of shredded auto scrap is worth about three times the value of a ton of inputs.

From October 1, 1989 through September 30, 1992, Galamet purchased machinery and equipment in order to expand its operations. To avoid paying sales tax on these transactions, Galamet presented its vendors with a certificate asserting that Galamet qualified for the manufacturing plant expansion exemption under § 144.030.2(5), RSMo. That statute exempts from sales tax purchases of machinery and equipment acquired to expand existing manufacturing operations. The Director of Revenue ("Director"), upon conducting a sales tax audit, determined that Galamet did not qualify for the exemption and assessed unpaid sales taxes, interest and additions totaling over $100,000.

Galamet also applied for an electrical energy direct pay authorization for the calendar year 1991 so that it could avoid paying sales tax to Kansas City Power & Light Company ("KCP & L") and instead report and remit sales tax on electricity purchases directly to the Director. The Director denied Galamet's application, determining that the total cost of electrical energy for Galamet's operation did not exceed 10% of its total cost of production, as required by § 144.030.2(12), RSMo. Therefore Galamet paid sales tax on all electricity purchases in 1991 directly to KCP & L.

Galamet challenged both of the Director's decisions, and the matters were consolidated for hearing before the AHC. With regard to the sales tax exemption on the machinery purchases, the AHC found that Galamet did not engage in "manufacturing" as contemplated by § 144.030.2(5) because the shredded steel was not a product intended to be sold ultimately for final use or consumption.

Page 333

Therefore, Galamet did not qualify for the sales tax exemption. 1

On the second claim, the AHC ruled that Galamet did qualify for the electrical energy direct pay authorization. However, no refund was ordered because the AHC determined that only KCP & L--the party that actually remitted the tax to the Director--had standing to claim a refund.

This Court will affirm the decisions of the AHC if they are authorized by law and supported by competent and substantial evidence upon the whole record. § 621.193, RSMo 1994.

II.

For its first point, Galamet contends that it qualifies for the tax exemption under § 144.030.2(5) because it engages in manufacturing. The sales tax exemption is only allowed, however, if the machinery and equipment purchased "is used directly in manufacturing ... a product which is intended to be sold ultimately for final use or consumption." Id. The contention that Galamet is not entitled to the exemption rests upon two separate grounds. One, as propounded by the Director in the briefs, is that Galamet does not engage in manufacturing as this Court has previously defined the term because Galamet does not produce a product substantially different from the input material. The other ground, on which the AHC based its decision, is that steel shreds are not "products ... intended to be sold ultimately for final use or consumption," and hence, the production of steel shreds is not manufacturing.

A.

We first address whether Galamet's operations constitute manufacturing as we have defined that term in previous cases. The meaning and application of the word "manufacturing" vary somewhat with the factual settings in which it is used. L & R Egg Co. v. Director of Revenue, 796 S.W.2d 624, 626 (Mo. banc 1990). This Court, in West Lake Quarry & Material Co. v. Schaffner, 451 S.W.2d 140 (Mo.1970), defined manufacturing by setting forth the following language from a Kentucky decision: "[I]f a process takes something practically unsuitable for any common use and changes it so as to adapt it to such common use, then such a process may be legally considered as manufacturing within the meaning of the tax exemption statutes." Id. at 143 (citing City of Louisville v. Howard, 306 Ky. 687, 208 S.W.2d 522, 527 (1947)). Two years later, this Court addressed the question again and determined that commercial printers that purchased printing presses were manufacturers of stationery products because they produced "new and different articles from raw materials" and made "products for sale which had an intrinsic and...

To continue reading

Request your trial
16 practice notes
  • Utilicorp United v. Director of Revenue, No. SC 83599.
    • United States
    • United States State Supreme Court of Missouri
    • 18 Diciembre 2001
    ...75 S.W.3d 728 v. Director of Revenue, 6 S.W.3d 885, 887 (Mo. banc 1999). This Court's decision in Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331, 333 (Mo. banc 1996), traces the various factual settings of manufacturing, which includes the changing of an item or product so as to make ......
  • Six Flags Theme Parks v. Director of Rev., No. SC 86519.
    • United States
    • United States State Supreme Court of Missouri
    • 22 Noviembre 2005
    ...(Mo. banc 2003); Buchholz Mortuaries, Inc. v. Director of Revenue, 113 S.W.3d 192 (Mo. banc 2003); Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331 (Mo. banc 1996). Any change in this scheme is for the legislature to make, not the For the foregoing reasons, the decision and judgement of......
  • Swb v. Director of Revenue, SC83859
    • United States
    • United States State Supreme Court of Missouri
    • 11 Junio 2002
    ...Com'n, 646 S.W.2d 48 (Mo. banc 1983), and shredding and shaping scrap metal into salable pieces, Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331 (Mo. banc (FN9). The exemption has not been given for machinery and equipment used to repair tires by recapping and retreading them, State ex......
  • Southwestern Bell Tel. v. Director of Rev., No. SC 83859.
    • United States
    • United States State Supreme Court of Missouri
    • 11 Junio 2002
    ...Com'n, 646 S.W.2d 48 (Mo. banc 1983), and shredding and shaping scrap metal into salable pieces, Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331 (Mo. banc 9. The exemption has not been given for machinery and equipment used to repair tires by recapping and retreading them, State ex rel......
  • Request a trial to view additional results
16 cases
  • Utilicorp United v. Director of Revenue, No. SC 83599.
    • United States
    • United States State Supreme Court of Missouri
    • 18 Diciembre 2001
    ...75 S.W.3d 728 v. Director of Revenue, 6 S.W.3d 885, 887 (Mo. banc 1999). This Court's decision in Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331, 333 (Mo. banc 1996), traces the various factual settings of manufacturing, which includes the changing of an item or product so as to make ......
  • Six Flags Theme Parks v. Director of Rev., No. SC 86519.
    • United States
    • United States State Supreme Court of Missouri
    • 22 Noviembre 2005
    ...(Mo. banc 2003); Buchholz Mortuaries, Inc. v. Director of Revenue, 113 S.W.3d 192 (Mo. banc 2003); Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331 (Mo. banc 1996). Any change in this scheme is for the legislature to make, not the For the foregoing reasons, the decision and judgement of......
  • Swb v. Director of Revenue, SC83859
    • United States
    • United States State Supreme Court of Missouri
    • 11 Junio 2002
    ...Com'n, 646 S.W.2d 48 (Mo. banc 1983), and shredding and shaping scrap metal into salable pieces, Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331 (Mo. banc (FN9). The exemption has not been given for machinery and equipment used to repair tires by recapping and retreading them, State ex......
  • Southwestern Bell Tel. v. Director of Rev., No. SC 83859.
    • United States
    • United States State Supreme Court of Missouri
    • 11 Junio 2002
    ...Com'n, 646 S.W.2d 48 (Mo. banc 1983), and shredding and shaping scrap metal into salable pieces, Galamet, Inc. v. Director of Revenue, 915 S.W.2d 331 (Mo. banc 9. The exemption has not been given for machinery and equipment used to repair tires by recapping and retreading them, State ex rel......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT