Jackson Excavating Co. v. Administrative Hearing Com'n

• Decision Date: 23 February 1983
• Docket Number: No. 63768,No. 1,63768,1
• Citation: 646 S.W.2d 48
• Parties: JACKSON EXCAVATING COMPANY, Petitioner-Appellant, v. ADMINISTRATIVE HEARING COMMISSION of the State of Missouri, Michael C. Horn, Commissioner, and Department of Revenue of the State of Missouri, Ray S. James, Director of Revenue, Respondents
• Court: Missouri Supreme Court

Page 48

646 S.W.2d 48

JACKSON EXCAVATING COMPANY, Petitioner-Appellant, v. ADMINISTRATIVE HEARING COMMISSION of the State of Missouri, Michael C. Horn, Commissioner, and Department of

Revenue of the State of Missouri, Ray S.

James, Director of Revenue, Respondents.

No. 63768.

Supreme Court of Missouri,

Division No. 1.

Feb. 23, 1983.

John L. Oliver, Jr., Cape Girardeau, for petitioner-appellant.

John Ashcroft, Atty. Gen., Richard L. Wieler, Asst. Atty. Gen., Jefferson City, for respondents.

JAMES R. REINHARD, Special Judge.

The sole question presented on this appeal is whether machinery and equipment used to process "raw" water into potable water is machinery used in manufacturing and, thus, exempt from the sales and use tax.

In 1977, petitioner, Jackson Excavating Company, entered into a contract with Missouri Utilities Company of Cape Girardeau, Missouri, to construct a water treatment purification plant, known as Treatment Plant No. 2. In the course of completing the contract, petitioner purchased and installed certain machinery and equipment necessary to purify water for human consumption. On December 27, 1979, respondent, the Missouri Department of Revenue, assessed petitioner for unpaid use tax in the amount of $4,378.52, based upon an audit covering the period from January 1, 1977, to December 31, 1978. On January 9, 1980, petitioner filed a petition for review with the Administrative Hearing Commission claiming the machinery and equipment was exempt from the use tax pursuant to § 144.030.3(4), RSMo. 1978. ¹

The Administrative Hearing Commission determined that the machinery and equipment installed in Treatment Plant No. 2 were not exempt from the tax because they were not used in a manufacturing process. Following that decision, petitioner filed with this Court a petition for judicial review pursuant to § 161.337. This Court has jurisdiction to review the final decision of the Administrative Hearing Commission because construction of a revenue law of this State is involved. Mo. Const. Art. V, § 3; Goldberg v. Administrative Hearing Commission, 609 S.W.2d 140, 142 (Mo.banc 1980).

Section 161.338 provides that a decision of the Administrative Hearing Commission:

shall be upheld when authorized by law and supported by competent and substantial evidence upon the whole record, ... and if the approval or disapproval of the exercise of authority in question by the administrative hearing commission does not create a result or results clearly contrary to that which the court concludes were the reasonable expectations of the general assembly at the time such authority was delegated to the agency.

But of course, where a question of law is involved, it is a matter "for the independent judgment of the reviewing court, and correction where erroneous." Daily Record Company v. James, 629 S.W.2d 348, 351 (Mo.banc 1982).

Section 144.030.3(4) provides that the following machinery and equipment shall be exempt from sales tax: ²

Machinery and equipment, and the materials and supplies solely required for the installation or construction of such machinery and equipment, purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state if such machinery and equipment is used directly in manufacturing, mining or fabricating a product which is intended to be sold ultimately for final use or consumption;

The facts are undisputed. The following machinery and equipment were incorporated into Treatment Plant No. 2: aerator tank, induced draft aerator with accessories, blowers, header-lateral overdrain with accessories, a rapid mix device, backflow preventor, manganese greensand, and hardware.

The water purification process entails no less than five major steps and at least eight separate functions which are performed in order to make the water potable and salable. First, raw water is drawn from the ground table in a 120-foot well and brought up to the purification plant. The raw water is then channeled into the aerator where oxygen is introduced to oxidize the iron and manganese contained in the water. In addition, this process removes carbon dioxide and hyrogen sulfide from the water. After the water passes through the aerator, chemical polymers and chlorine are added at the chemical feeds. The water then proceeds to the rapid mix where these chemicals are thoroughly mixed with the water. After it leaves the rapid mix, the water is transported to the clarifier where a polymer precipitates the oxidized iron and manganese particles. In addition, potassium manganate, a strong oxidizer, is added to oxidize any remaining iron and manganese and to regenerate the manganese greensand. Flouride is also added at this point for tooth protection. The next step involves filtering, where the iron and manganese oxide particles are removed. The water is drawn from the filters and transferred to a large pipe where zinc polyphosphate is added for corrosion control. A final chlorination then takes place to entirely disinfect the water and prevent bacteria from invading the system, thereby completing the water purification process. At each stage of the process, the backflow preventor operates to prevent processed or partially processed water from flowing into unprocessed water and also to prevent substances already removed from flowing back into the potable water.

The water purification plant installed in Cape Girardeau was required by the regulations promulgated by the Missouri Department of Natural Resources, Division of Environmental Quality, under the Missouri Public Drinking Water Program, which are set forth in 10 CSR 60-4.070. These regulations make it illegal to dispense water having secondary contaminants above certain stipulated levels.

The Missouri Sales/Use Tax Law does not define "manufacturing." The term is not easy to define since it has many applications and meanings that vary depending upon the circumstances of its use. State ex rel. AMF Incorporated v. Spradling, 518 S.W.2d 58, 60 (Mo.1974).

This Court has used two different definitions of "manufacturing" within the context of § 144.030.3(4). In West Lake Quarry & Material Co. v. Schaffner, 451 S.W.2d 140 (Mo.1970), this Court held that the process of grinding, crushing, and sorting quarried rock into various sizes for many different commercial uses was manufacturing. The Court quoted with approval from City of Louisville ex rel. v. Howard, 306 Ky. 687, 208 S.W.2d 522, 527 (Ky.1947), which defined manufacturing as a process that "takes something practically unsuitable for any common use and changes it so as to adapt it to such common use...." 451 S.W.2d at 143.

In Heidelberg Central, Inc. v. Director Dept. of Rev., 476 S.W.2d 502 (Mo.1972), this Court without reference to West Lake Quarry or its definition of manufacturing held that printing presses used to produce business forms, stationery, printed advertising, postcards, and church bulletins, were entitled to the use tax manufacturing exemption because "[t]he printers ... did produce new and different articles from raw materials by the use of machinery, labor and skill, and they produced products for sale which had an intrinsic and merchantable value, and were in forms suitable for new uses." 476 S.W.2d at 506.

In State ex rel. AMF Incorporated v. Spradling, 518 S.W.2d 58 (Mo.1974), we ruled that the process of retreading a worn tire carcass and making it usable was not manufacturing. There, we cited both West Lake Quarry and Heidelberg Central and held that the process fit within neither definition; that is it neither involved the "transformation of original raw material" nor did it involve "taking something practically unsuitable for any common use and changing it so as to adapt it to such common use." 518 S.W.2d at 62.

Finally, in Wilson & Co., Inc., v. Department of Revenue, 531 S.W.2d 752 (Mo.1976), this Court held that the conversion of live hogs into marketable portions of food for human...