HERCULES INC. v. UTAH STATE TAX COM'N

• Decision Date: 21 December 2000
• Docket Number: No. 20000105-CA.,20000105-CA.
• Parties: HERCULES INCORPORATED, Petitioner, v. UTAH STATE TAX COMMISSION, Respondent.
• Court: Utah Court of Appeals

21 P.3d 231

2000 UT App 372

HERCULES INCORPORATED, Petitioner, v. UTAH STATE TAX COMMISSION, Respondent.

No. 20000105-CA.

Court of Appeals of Utah.

December 21, 2000.

Rehearing Denied April 18, 2001.

Kent B. Alderman, Maxwell A. Miller, and Randy M. Grimshaw, Salt Lake City, for Petitioner.

Jan Graham and Mark E. Wainwright, Salt Lake City, for Respondent.

Before Judges BILLINGS, ORME, and THORNE.

OPINION

BILLINGS, Judge:

¶ 1 Hercules Incorporated (Hercules) appeals a final decision by the Utah State Tax Commission (Commission) imposing a sales tax on Hercules for nitrogen gas it purchased and used in manufacturing graphite fiber. We reverse.

BACKGROUND

¶ 2 Hercules purchased nitrogen gas which it used in manufacturing graphite fiber.¹ The nitrogen gas is not used as a fuel in the manufacturing process and is not an ingredient in the product, but rather provides an atmosphere that prevents the carbon, the basic ingredient of the graphite fibers, from being consumed during the high-temperature manufacturing process. ¶ 3 On March 30, 1998, the Auditing Division of the Utah State Tax Commission issued Hercules a Statutory Notice of Deficiency. The deficiency assessment was for Utah sales and use taxes in the amount of $522,131,52 covering the period January 1, 1994 to December 31, 1996.

¶ 4 Hercules conceded liability on all items in the deficiency assessment except the taxability of its purchases of nitrogen gas used in its graphite fiber manufacturing process. Hercules argued that its purchase of nitrogen gas was excluded from taxation because, although the Utah tax code taxes purchases of "gas, electricity, heat, coal, fuel oil, or other fuels" for commercial or residential use, see Utah Code Ann. § 59-12-103(1)(c) (1995), Hercules puts the nitrogen gas to industrial use and thus it is not taxable.

¶ 5 Following a formal adjudication, the Commission concluded the meaning of "gas" in section 59-12-103(1)(c) does not include nitrogen gas. Accordingly, the Commission concluded that Hercules' purchases of nitrogen gas were taxable as retail sales of tangible personal property. Hercules appeals.

ISSUE AND STANDARD OF REVIEW

¶ 6 At issue is whether the term "gas" under section 59-12-103 includes nitrogen gas. The Commission's interpretation of the tax code is a question of law, see Cache County v. State Tax Comm'n, 922 P.2d 758, 763 (Utah 1996),

accordingly, we grant. the Commission's interpretation no deference. See id.; see also Utah Code Ann. 59-1-610(1)(b) (1996).

ANALYSIS

MEANING OF "GAS" IN TAX CODE

¶ 7 Hercules argues that its purchases of nitrogen gas fall under Utah Code Ann. §§ 59-12-103(1)(c) and (d) (1996). Sections 59-12-103(1)(c) and (d) impose a tax on sales of "gas, electricity, heat, coal, fuel oil, or other fuels sold for residential use," id. § 59-12-103(1)(c) (emphasis added), or "commercial use," id. § 59-12-103(1)(d) (emphasis added). Hercules argues: (1) nitrogen is a gas; (2) sales of gas are only taxed if the gas is used residentially or commercially; (3) Hercules uses the gas industrially; and (4) therefore the sales are not taxable.²

¶ 8 The Commission concedes that if "gas" in the subject taxing statute includes nitrogen gas then Hercules' position is correct. However, the Commission argues that "gas" as used in the statute was intended by the legislature to only include natural gas or at least only gas when used as a source of energy. Although the Commission's position is logical, it is not supported by our case law.³

¶ 9 "[I]n construing any statute, we first examine the statute's plain language and resort to other methods of statutory interpretation, only if the language is ambiguous. Accordingly, we read the words of a statute literally ... and give the words their usual and accepted meaning." Gull Lab., Inc. v. State Tax Comm'n, 936 P.2d 1082, 1084 (Utah Ct.App.1997) (citations and internal quotations omitted). "When a statute fails to define a word, we rely on the dictionary to divine the `usual meaning.'" State v. Redd, 954 P.2d 230, 234 (Utah Ct.App.1998) (quoting Gull Lab.,936 P.2d at 1084).

¶ 10 Webster's Dictionary defines "gas" as "a fluid that has neither independent shape nor volume but tends to expand indefinitely." Webster's Third. New International Dictionary 937 (1986). The dictionary meaning of "gas" is certainly broad enough to include nitrogen gas.⁴

¶ 11 The Commission also argues that the phrase in sections 59-12-103(1)(c) and (d) "or other fuels" modifies each term in the statute thus limiting gas to only gas used as a fuel. Again, this is a possible but unclear interpretation. This term "or other fuels" could also just as easily be read to modify only the term it follows, clarifying that "fuel oil" or other liquids used for fuel are subject to the statute.

¶ 12 Finally, and most important to our analysis, is our rule in taxation cases⁵ that "if any doubt exists as to the meaning of the statute, `our practice is to construe taxation statutes liberally in favor of the taxpayer, leaving it to the legislature to clarify an intent to be more restrictive if such intent exists.'" Wasatch County Bd. of Equalization v. State Tax Comm'n, 944 P.2d 370, 374 (Utah 1997) (quoting Salt Lake County v. State Tax Comm'n, 779 P.2d 1131, 1132 (Utah 1989)). Any intent to restrict the meaning of the term "gas" in the statute is not clear. Therefore, we construe the statute liberally in favor of the taxpayer, which leads us to conclude that the taxpayer, Hercules, should prevail.⁶

¶ 13 Indeed, our conclusion gains additional support from the fact that in 1996 the legislature amended Utah Code Ann. § 59-12-104 to specifically include the term "natural gas." See § 59-12-104(43) (1996).⁷ This makes clear that now only sales of natural gas are exempt from taxation when used for manufacturing purposes.

Ordinarily, "the presumption [is] that an amendment is intended to change existing legal rights." An exception to this presumption exists when the amendment "was intended to clarify a preexisting intention." In this case, however, "we find no indication in the ... amendment or elsewhere that the amendment was intended to clarify a preexisting intention." If anything, this legislative change supports the proposition that the statute previously meant something different from what it now says.

Visitor Info. Ctr. Auth. of Grand County v. State Tax Comm'n, 930 P.2d 1196, 1198 (Utah 1997) (quoting Madsen v. Borthick, 769 P.2d 245, 252 n. 11 (Utah 1988) (citing 1A Norman J. Singer, Sutherland Statutory Construction § 22.30 (4th rev. ed.1985))); see also State v. Amador, 804 P.2d 1233, 1234 (Utah Ct.App.1990)

(stating that "[e]very amendment not expressly characterized as a clarification carries the rebuttable presumption that it is intended to change existing legal rights and liabilities"). Thus, we presume, that the statute, prior to amendment, did not exempt only natural gas from taxation to the exclusion of all other gases used for manufacturing purposes.⁸

¶ 14 Accordingly, we reverse and remand to the Commission for a re-calculation of taxes due by Hercules in harmony with our decision.

¶ 15 I CONCUR: GREGORY K. ORME, Judge.

THORNE, Judge (dissenting):

¶ 16 I respectfully dissent from my colleagues' decision, reversing the Tax Commission's (Commission) ruling imposing a sales and use tax upon Hercules' purchase of nitrogen gas for use in its manufacturing process. I dissent for the following reasons: (1) the Commission levied a sales and use tax upon Hercules' purchase of nitrogen gas under Utah Code Ann. § 59-12-103(1)(a) and not section 59-12-103(1)(c); and (2) Hercules' argument that the term "gas" in section 59-12-103(1)(c) includes nitrogen gas contravenes the rules of statutory interpretation.

¶ 17 First, a review of the Commission's Findings of Fact, Conclusions of Law, and Final Decision clearly shows that the Commission levied the sales and use tax upon Hercules pursuant to Utah Code Ann. 59-12-103(1)(a). The Commission's Conclusions of Law expressly state: "[Hercules'] purchases of the nitrogen gas for use it is [sic] graphite manufacturing process are subject to sales tax pursuant to Utah Code Ann. 59-12-103(1)(a) as they are retail sales of tangible personal property." (Emphasis added.). Hercules does not dispute the Commission's ruling under section 59-12-103(1)(a). Accordingly, I would avoid being drawn into Hercules' convoluted and peripheral argument, which fails to address the Commission's actual ruling.

¶ 18 Section 59-12-103(1)(a) (1995) states "[t]here is levied a tax on the purchaser for the amount paid or charged for the following: (a) retail sales of tangible personal property made within the state." Id. Utah Code Ann. § 59-12-102(18)(a)(ii) (1995) defines tangible personal property as "all tangible or corporeal things and substances which are dealt in or capable of being possessed or exchanged." Id. (emphasis added). Hercules fails to adequately explain why it is exempt from this taxation statute. Indeed, my review of the exemptions to section 59-12-103, contained in section 59-12-104, indicates that there may be no exemptions applicable to the present situation. Accordingly, the majority opinion need not have reached the merits of Hercules' peripheral argument that the term "gas" in section 59-12-103(1)(c) includes nitrogen gas. Based upon Hercules' failure to directly address the Commission's ruling, I would affirm.

¶ 19 Second, Hercules' argument that the term "gas" in section 59-12-103(1)(c) includes nitrogen gas fails because it completely disregards the rules of statutory construction. To support its claim, Hercules argues that section 59-12-103 is a taxation statute that must be construed favorably to the taxpayer. See SF Phosphates Ltd. v. Auditing Div. of Utah State Tax Comm'n, 972 P.2d 384, 386 (Utah 1998)

; Parson Asphalt Prods., Inc. v. Utah State Tax Comm'n, 617 P.2d 397,398 (Utah 1980). The fundamental flaw in Hercules'...