Indiana Waste Systems of Indiana, Inc. v. Indiana Dept. of State Revenue

• Decision Date: 27 April 1994
• Docket Number: No. 49T10-9201-TA-00004,49T10-9201-TA-00004
• Citation: 633 N.E.2d 359
• Parties: INDIANA WASTE SYSTEMS OF INDIANA, INC., d/b/a Waste Management of Indianapolis, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.
• Court: Indiana Tax Court

Page 359

633 N.E.2d 359

INDIANA WASTE SYSTEMS OF INDIANA, INC., d/b/a Waste

Management of Indianapolis, Petitioner, v. INDIANA DEPARTMENT OF STATE REVENUE, Respondent.

No. 49T10-9201-TA-00004.

Tax Court of Indiana.

April 27, 1994.

James E. Freeman, Jr., Sansberry, Dickmann, Freeman & Builta, Anderson, for petitioner.

Pamela Carter, Atty. Gen., Joel Schiff, Deputy Atty. Gen., Indianapolis, for respondent.

FISHER, Judge.

This appeal asks whether garbage constitutes "property," as that word is used in Indiana Code 6-2.5-5-27, the public transportation exemption from the gross retail (sales) and use taxes. The Petitioner, Indiana Waste Systems of Indiana, Inc. d/b/a Waste Management of Indianapolis (Waste Management), operates a garbage hauling business in and around Indianapolis. Waste Management paid sales and use tax on tangible personal property it uses in its business and filed a claim for refund for 1987, 1988, 1989, and 1990 with the Respondent, the Indiana Department of State Revenue (the Department). The Department did not respond to the claim for refund, and Waste Management now appeals.

ISSUES

Waste Management claims its purchases of trucks, truck parts, fuel, tires, utilities, and other miscellaneous items are exempt from sales and use tax under four different exemption statutes.

I. IND.CODE 6-2.5-5-3, the equipment exemption.

II. IND.CODE 6-2.5-5-30, the environmental quality exemption.

III. IND.CODE 6-2.5-5-16, the governmental agency/instrumentality exemption.

IV. IND.CODE 6-2.5-5-27, the public transportation exemption mentioned above.

FACTS

The undisputed material facts reveal that Waste Management is an Indiana for-profit corporation engaged in the business of hauling garbage. Since 1984, Waste Management, along with several other private contractors, has operated under contract with the Indianapolis Board of Public Works (the Board). The Board pays Waste Management to pick up, transport, and deposit solid waste from Marion County businesses, industries, and homes. Waste Management operates approximately fifty trucks, none of which is devoted exclusively to fulfilling Waste Management's contract with the Board.

Until December 1988, Waste Management delivered all the commercial, industrial, and residential garbage to Board designated landfills in and around Indianapolis. Since December 1988, Waste Management has delivered the garbage to the Indianapolis Ogden Martin Resource Recovery Facility (Ogden Martin). Ogden Martin burns almost 100 percent of the residential garbage it receives, which generates steam. Ogden Martin sells the steam to the Indianapolis Power and Light Company (IPALCO), which uses it to generate electricity for downtown Indianapolis buildings, including the State House. Ogden Martin disposes of approximately 60 percent of the commercial and industrial garbage in the same fashion as the residential garbage. The other 40 percent of the commercial and industrial garbage is unsuitable for burning, and Waste Management takes it to Board designated landfills in and around Indianapolis.

A corporation related to Waste Management owns and operates the Danville Recycling & Disposal Facility (Danville RDF) in Danville, Indiana, a few miles west of Indianapolis. Danville RDF is a sanitary landfill that accepts only non-hazardous waste. The

decomposition of the waste it accepts creates, among other things, methane and carbon dioxide. Methane, the principal component of natural gas, is combustible, and a number of landfills around the country recover methane and use it to produce electricity, which is then sold commercially. Waste Management presented evidence Danville RDF planned to embark on a similar program.

DISCUSSION AND DECISION

Standard of Review

Because this is an appeal from the Department, the court reviews the matter de novo and is bound by neither the evidence nor the issues raised at the administrative level. Maurer v. Indiana Dep't of State Revenue (1993), Ind.Tax, 607 N.E.2d 985, 986 (citing IND.CODE 6-8.1-9-1(d); Hoosier Energy Rural Elec. Coop., Inc. v. Indiana Dep't of State Revenue (1988), Ind.Tax, 528 N.E.2d 867, 869, aff'd (1991), Ind., 572 N.E.2d 481, cert. denied, (1991), 502 U.S. 924, 112 S.Ct. 337, 116 L.Ed.2d 277). Waste Management seeks the benefits of exemptions from tax and therefore bears the burden to show it falls within the terms of the exemptions. See id. (citing Harlan Sprague Dawley, Inc. v. Indiana Dep't of State Revenue (1992), Ind.Tax, 605 N.E.2d 1222, 1225). Moreover, the court must construe any ambiguities in the exemptions strictly in favor of the Department. Id.

The parties have filed cross motions for summary judgment. The court may grant summary judgment only if there is no genuine issue of material fact and one of the parties is entitled to judgment as a matter of law. Harlan Sprague Dawley, Inc., 605 N.E.2d at 1224 (citing C & C Oil Co. v. Indiana Dep't of State Revenue (1991), Ind.Tax, 570 N.E.2d 1376, 1378).

Since January 1991, parties cannot "rely without specificity on the entire assembled record--depositions, answers to interrogatories, and admissions--to fend off or support motions for summary judgment." Rosi v. Business Furniture Corp. (1993), Ind., 615 N.E.2d 431, 434. Instead, "each party to a summary judgment motion [must] 'designate to the court all parts of pleadings, depositions, answers to interrogatories, admissions, matters of judicial notice, and any other matters on which it relies for purposes of the motion.' " Id. (quoting Ind.Trial Rule 56(C)) (alteration in original).

I

Waste Management claims many of its purchases fall within IC 6-2.5-5-3, referred to as the equipment exemption. See General Motors Corp. v. Indiana Dep't of State Revenue (1991), Ind.Tax, 578 N.E.2d 399, 401, aff'd (1992), Ind., 599 N.E.2d 588. The equipment exemption provides in pertinent part that "[t]ransactions involving manufacturing machinery, tools, and equipment are exempt from the state gross retail tax if the person acquiring that property acquires it for his direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property." IC 6-2.5-5-3(b) (emphasis added). The double direct standard, arising from the emphasized statutory language, is the touchstone of the equipment exemption. General Motors Corp., 578 N.E.2d at 401. It "is met when the ... equipment used is an essential and integral part of an integrated production process." Id. An integrated production process, whether of few steps or many, lies at the heart of the equipment exemption. See, e.g., Indiana Dep't of State Revenue v. Cave Stone, Inc. (1983), Ind., 457 N.E.2d 520; Harlan Sprague Dawley, Inc., 605 N.E.2d 1222; General Motors Corp., 578 N.E.2d 399, aff'd, 599 N.E.2d 588; Energy Supply, Inc. v. Indiana Dep't of State Revenue (1990), Ind.Tax, 549 N.E.2d 1110; State Dep't of Revenue v. Calcar Quarries, Inc. (1979), 182 Ind.App. 84, 394 N.E.2d 939. Waste Management asserts it is entitled to the equipment exemption because it begins an integrated production process for electricity, methane, and carbon dioxide by compressing the garbage it puts in its trucks. Specifically leaving all other issues this claim raises for another day, Waste Management fails to show it is entitled to the exemption because the minimum threshold requirement of the double direct standard is that the taxpayer who purchases the equipment in question be the

                entity that uses the equipment "for his direct use in the direct production, manufacture, fabrication, assembly, extraction, mining, processing, refining, or finishing of other tangible personal property."  IC 6-2.5-5-3(b) (emphasis added).  See Cave Stone, 457 N.E.2d at 525.   Waste Management, though, does not engage in any of the listed activities.  It simply transports garbage.  That it compresses the garbage is irrelevant:  to have a colorable claim for the equipment exemption, it would have to compress the garbage as part of its own process to produce other tangible personal property, not as part of an alleged process of another taxpayer.  If there is an integrated production process involving the garbage that will satisfy the double direct standard of the equipment exemption, and the court expresses no opinion on this question, it is Ogden Martin or Danville RDF that employs it, not Waste Management. 1
                

II

Next, Waste Management claims some of its purchases fall within IC 6-2.5-5-30, the environmental quality exemption, which provides:

Sales of tangible personal property are exempt from the state gross retail tax if:

(1) the property constitutes, is incorporated into, or is consumed in the operation of, a device, facility, or structure predominantly used and acquired for the purpose of complying with any state, local, or federal environmental quality statutes, regulations, or standards; and

(2) the person acquiring the property is engaged in the business of manufacturing, processing, refining, mining, or agriculture.

Waste Management fares no better under this exemption than under the equipment exemption. Waste Management is simply not "engaged in the business of manufacturing, processing, refining, mining, or agriculture," as required by subsection (2). Rather, Waste Management is engaged in the business of picking up, transporting, and disposing of garbage. Even if either or both Ogden Martin and the corporation that operates Danville RDF are engaged in a business within the ambit of subsection (2), Waste Management cannot claim the benefit; like the equipment exemption, the environmental quality exemption requires the person acquiring the property to be engaged in a business within the ambit of subsection (2).

III

Waste Management also claims it is entitled to the benefits of IC 6-2.5-5-16, the sales tax exemption for governmental agencies and instrumentalities. The statute provides:

Transactions involving tangible personal...