Indiana Dept. of State Revenue, Sales Tax Division v. RCA Corp.
Decision Date | 25 April 1974 |
Docket Number | No. 2--1272A125,2--1272A125 |
Citation | 160 Ind.App. 55,310 N.E.2d 96 |
Parties | INDIANA DEPARTMENT OF STATE REVENUE, SALES TAX DIVISION, Appellant, v. RCA CORPORATION, Appellee. |
Court | Indiana Appellate Court |
Theodore L. Sendak, Atty. Gen., Darrel K. Diamond, Deputy Atty. Gen., Indianapolis, for appellant.
Alan H. Lobley, Leonard J. Betley W. Stephen Perry, Ice, Miller, Donadio & Ryan, Indianapolis, for appellee.
The only issue in this case is whether the trial court erred in finding that certain air conditioning equipment purchased by RCA 'is . . . directly used in the direct production . . . (of) color television picture tubes' and in concluding as a matter of law that such equipment 'is exempt from sales and use tax'. The resolution of that issue is to be found in the meaning of the language of the statute which exempts 'equipment' from those taxes when it is 'directly used' in the 'direct production' of tangible personal property. 1 We hold that the language is ambiguous and, since it provides a tax exemption, it must be strictly construed against the taxpayer. 2 So construed, it provides no exemption for the equipment in question. We therefore reverse.
The judgment we reverse was rendered in a suit RCA brought against the State for a refund of sales and use taxes it had paid on the purchase of environmental control (air conditioning) equipment installed and used in RCA's Marion, Indiana, plant where it manufactures color television picture tubes. The judgment granted the refund.
The basic facts are not in dispute and are stated by the court in its finding No. 5, as follows:
That finding also states conclusions which are undisputed, including the last sentence which the parties tacitly agree means that RCA could not economically produce and test color television tubes without the maintenance of the environmental controls in question--not that such manufacture would be totally impossible. Finding No. 6, however, states conclusions to which the State takes exception. It reads:
The State concedes that the maintenance of a rigidly controlled environment is an integral and essential part of RCA's color picture tube manufacturing process, but contends that essentiality is not the test for determining whether equipment is 'directly' used in the 'direct' manufacturing process. The State also contends that the basic facts found show that the air conditioning equipment itself has no positive causal effect on the tubes (as the court concluded in No. 6) but that its effect is negative in that it prevents the air from adversely affecting the quality of the tubes produced. Such a negative effect, it argues, cannot be considered direct.
In State v. Farmers Tankage, Inc. (1969), 144 Ind.App. 392, 246 N.E.2d 409, the trial court granted Farmers Tankage an exemption from the tax on the purchase of a truck used to collect the dead animals from which it manufactured animal and poultry feed. The statutory exemption there involved read (144 Ind.App. at 393, 246 N.E.2d at 410):
'(1) Sales to farmers and other persons occupationally engaged in the business of producing food and commodities for human, animal or poultry consumption either for sale or further use in producing such food and commodities for sale, of animal and poultry life to be used by the purchaser for such production of food and commodities, feed for such animals and poultry and seeds, plants, fertilizers, fungicides, insecticides and other tangible personal property to be used for such production of food and commodities.'
In affirming the exemption the Appellate Court said:
'The State of Indiana argues in this appeal that the Appellee is not entitled to the above exemption. The Appellant contends that the legislature in the adoption of the exemption did not intend to place such a broad construction so as to allow an exemption for transportation equipment used before the actual production processes begin.
Indiana Statutes Annotated is not, however, ambiguous. The statute does not contain the word 'directly' that Appellant would have us insert to modify 'used in such production." (Id.)
Both the State and RCA appear to be in agreement that the Farmers Tankage opinion implies that had the exemption clause contained the word 'directly', the purchase of the truck would not have been held to be exempt. With that we agree but find in it no help. However we also read Farmers Tankage as implying that had the exemption statute contained the word 'directly' it would have been ambiguous, thereby requiring that it 'be strictly construed against one seeking an exemption.' Storen v. Jasper County Farm Bureau Co-Operative Association, Inc., supra, cited for that principle 3, said that '(s)ince the parties hereto are unable to agree on the meaning of the language of this section, it is a fair assumption that it is ambiguous'. (103 Ind.App. at 80, 2 N.E.2d at 433.) Although we doubt simple disagreement always signifies ambiguity, certainly the well reasoned opposing interpretations in the case at bar are persuasive in suggesting that 'directly used by the purchaser in the direct production . . . of tangible personal property' is ambiguous.
The conflicting conclusions courts of other states have reached in interpreting similar exemptions for sales of things used 'directly' in manufacturing is further indication of the word's ambiguity. That fact was recognized in Powhatan Mining Co. v. Peck (1953), 160 Ohio St. 389, 116 N.E.2d 426, 428:
Our aim, of course, must be the same. In that attempt we also have the duty of adopting a definition which strictly construes the exemption against the taxpayer. 4
Reference to any dictionary will reveal that there are a variety of definitions to choose from. The State has called our attention to one in Ind. Dept. of State Revenue, Gross Income Tax Division v. Colpaert Realty Corp. (1952), 231 Ind. 463, 109 N.E.2d 415: 5
231 Ind. at 477--478, 109 N.E.2d at 422.
Black's Law Dictionary (4th Ed., 1951) also states:
The Supreme Court of Ohio adopted that definition in refusing to hold that purchased tools used to manufacture other tools used directly in the manufacture of a product were also used directly in that manufacture and thus exempt from use and sales taxes. General Motors Corporation v. Bowers (1959), 169 Ohio St. 361, 159 N.E.2d 739, 741, said:
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