Hawes v. Custom Canners, Inc.

• Decision Date: 16 February 1970
• Docket Number: Nos. 45103,45125,No. 2,s. 45103,2
• Citation: Hawes v. Custom Canners, Inc., 121 Ga.App. 203, 173 S.E.2d 400 (Ga. App. 1970)
• Court: Georgia Court of Appeals
• Parties: Peyton S. HAWES, Commissioner v. CUSTOM CANNERS, INC. CUSTOM CANNERS, INC. v. Peyton S. HAWES, Commissioner

Page 400

173 S.E.2d 400

121 Ga.App. 203

Peyton S. HAWES, Commissioner v.CUSTOM CANNERS, INC.

CUSTOM CANNERS, INC. v.Peyton S. HAWES, Commissioner.

Nos. 45103, 45125.

Court of Appeals of Georgia, Division No. 2.

Feb. 16, 1970.

Syllabus by the Court

Items of machinery or equipment not used directly in the manufacture of tangible personal property are not exempt from the sales and use tax under Code Ann. § 92-3403a C(2)(n)(2)(Ga.L.1963, p. 13).

The State Revenue Commissioner denied to Custom Canners a certificate to exemption from the sales and use tax on certain items of machinery or equipment which it purchased for expansion of its manufacturing plant.The tax was paid and a claim for refund was made, which the Commissioner denied, and the taxpayer appealed to the superior court.After hearing, the court found that five of the six contested items were used directly in the manufacture of products and thus exempt from the tax, but that one item was not so used and was properly taxed.The Commissioner appeals as to the five items and taxpayer cross appeals as to the one.

Arthur K. Bolton, Atty. Gen., harold N. Hill, Jr., Exec. Asst. Atty. Gen., William L. Harper, Asst. Atty. Gen., Timothy J. Sweeney, Deputy Asst. Atty. Gen., Atlanta, for appellant.

Terry P. McKenna, Paul L. Hanes, Jack Adams, Atlanta, for appellee.

EBERHARDT, Judge.

The sole issue in this appeal is whether the six items, or any of them, qualify for the exemption from sales and use tax under Code Ann. § 92-3403a C(2)(n)(2), which provides an exemption when 'the sale of machinery which is used directly in the manufacture of tangible personal property when such machinery is incorporated, as additional machinery, for the first time into a manufacturing plant presently existing in this State; Provided, the acquisition of such machinery results in a substantial increase in the productive capacity of such plant.'(Emphasis supplied).It is conceded that the several items all qualify otherwise for the exemption.

What is meant by the phrase used directly in the manufacture of tangible personal property?This particular provision of the Sales and Use Tax Act has not been interpreted by our courts.We must keep in mind that in interpreting provisions of a tax law by which exemptions are provided we must resolve all doubts in favor of the taxing authority.Cherokee Brick & Tile Co. v. Redwine, 209 Ga. 691, 75 S.E.2d 550;Oxford v. J. D. Jewell, Inc., 215 Ga. 616, 619, 112 S.E.2d 601.A similar provision ( § 3(c) 2 of the Act of 1951) exempting industrial materials 'used directly in the fabricating, converting, or processing of articles of tangible personal property or parts thereof for resale' was dealt with in State of Ga. v. Cherokee Brick & Tile Co., 89 Ga.App. 235, 79 S.E.2d 322, where we held that 'flaming natural or artificial gas used to produce heat, which produces physical and chemical changes in the raw materials used to produce brick and clay products, is not directly used in the fabricating, converting, or processing of those products' within the meaning of that provision of the Act, and that the gas was subject to the tax.

Property which is manufactured for resale is not subject to the tax.It was conceded in that case that the gas did not become a component part of the finished product.If it had done so the exemption would have been applicable.Whether the gas was exempt, then, depended upon the matter of whether it was used directly in manufacturing.Analogizing the use of gas as an energy source to the use of electricity as an energy source for driving machinery in the manufacturing process, we concluded that its use was indirect rather than direct, citing Phillips & Buttorff Mfg. Co. v. Carson, 188 Tenn. 132, 217 S.W.2d 1 where in interpreting a similar provision of the Tennessee Act it was held that the use of coal or of oil as energy supplying materials in the manufacturing process were not exempt because their use in the process was indirect rather than direct.

Another case which clearly illustrates the difference in a direct and indirect use is Ohio Stove Co. v. Bowers, 171 Ohio St. 484, 172 N.E.2d 295 which dealt with machinery for making sand molds and cores for the pouring of castings.There the court pointed out that 'the test is not whether the property is essential to the operation of the plant, but whether it is an actual part of the process of...