Linwood Stone Products Co. v. State Dept. of Revenue

• Decision Date: 10 March 1970
• Docket Number: No. 53873,53873
• Parties: LINWOOD STONE PRODUCTS COMPANY, Inc., Plaintiff-Appellant and Cross-Appellee, v. STATE DEPARTMENT OF REVENUE and William H. Forst, Director of Revenue, Defendants-Appellees and Cross-Appellants.
• Court: Iowa Supreme Court

Page 393

175 N.W.2d 393

LINWOOD STONE PRODUCTS COMPANY, Inc., Plaintiff-Appellant and Cross-Appellee, v. STATE DEPARTMENT OF REVENUE and William H. Forst, Director of Revenue, Defendants-Appellees and Cross-Appellants.

No. 53873.

Supreme Court of Iowa.

March 10, 1970.

Lane & Waterman, by James E. Kelly, Davenport, for plaintiff-appellant and cross-appellee.

Richard C. Turner, Atty. Gen., Harry M. Griger, Asst. Atty. Gen., and Stephen J. Petosa, Asst. Atty. Gen., for defendants-appellees and cross-appellants.

LARSON, Justice.

This is an appeal from an assessment of sales and use taxes and penalty against plaintiff by Iowa State Tax Commission dated August 24, 1967. The State Tax Commission, predecessor to the defendant Department of Revenue, imposed a sales tax on diesel fuel used by plaintiff to operate vehicles and machines in its limestone mine. Plaintiff challenged that assessment on the ground that it was exempt under section 422.42(3), 1962 Code. It also challenged the imposition of use taxes on certain industrial equipment allegedly used in processing, on the ground that it was exempt under the provisions of chapter 423 of the Code.

The trial court agreed with the State Tax Commission that the fuel was not used to produce power for processing, but held that three transformers, tank and legs, and two Hewitt-Robbins screens were equipment directly used in processing tangible personal property for resale, that they were not readily obtainable in Iowa and thus exempt from the Iowa Use Tax. It also held that certain shovel parts and a stationary compressor were not directly used in processing, were readily obtainable in Iowa, and were subject to the use tax. It further held that an exhaust conditioner was not used directly in processing and was subject to the use tax although not readily obtainable in Iowa. The Commission's administrative decision was modified to reduce the total sales and use tax, interest and penalty from $3,470.94 to $3,121.63. Being still unhappy, plaintiff appeals those decisions adverse to it, and the Department of Revenue cross-appealed as to the use tax exemptions granted on the transformers and the tank and legs. We affirm the trial court.

I. To better understand the issues raised in this appeal, it seems a statement concerning plaintiff's operation should be made. Linwood Stone Products Company, Inc. owns and operates a large limestone mine or quarry along with a limestone processing plant in Scott County, Iowa. From an open pit entrance one reaches the solid limestone, which is later to be processed into marketable tangible personal property. As limestone is removed, pillars approximately 35 feet square are left as supports and separate the rooms from which the stone has been removed, These rooms are approximately 40 feet wide and 18 to 22 feet high. They are some 120 feet below the earth's ground surface. Eighty feet of dirt and 40 feet of rock are overhead.

Plaintiff utilizes several machines in this underground activity. A machine for drilling holes in the rock operates on compressed air furnished by a stationary compressor in the mine. Dynamite is placed in the holes and about 800 tons of rock is blown down and broken up by each blast. Diesel-powered loaders place 25 tons of 'shot rock' at a time onto diesel-powered trucks which haul the rock to the crushers located about half a mile away, where it is further broken up and graded for size on specially-designed screens. It is transported to the screens on a rubber-covered conveyer belt electrically powered. Various assorted sizes of stone are stockpiled at the mine site. The rest is taken by truck to the lime plant where it is treated by heat in kilns and then run through a large storage tank, with screens to further sort sizes, and placed in different bins. Some pulverized rock is further treated by adding water to obtain hydrated lime. All of these products are reasonably classified as marketable personal property, from flat rock obtained right after the blasting to calcium sulphate at the end of the operation. That the operation from stone crusher to storage bin is processing is not questioned, so perhaps the first and most vital question presented to us in this appeal is, when does plaintiff's processing commence? Appellant contends this process commences when the holes are drilled in the solid, homogenious mass of limestone or at least when it is blasted into small pieces previous to being transported out of the mine. The appellees contend that, until the rock is placed into the crusher, there is no change in the raw material and that the operations in the mine are only preliminary and preparatory and are not processing as is designated and contemplated in the exemption provisions of the state sales and use taxes.

II. The term 'processing' is not defined in chapters 422 or 423 of the Code. Therefore, as has been done in previous cases, we follow the mandate provided in Code section 4(1) which requires the meaning to accord with the approved usages of the language. Fischer Artificial Ice & Cold Storage Co. v. State Tax Commission, 248 Iowa 497, 81 N.W.2d 437; Kennedy v. State Board of Assessment and Review, 224 Iowa 405, 276 N.W. 205.

Although various definitions are referred to in like cases, including one found in Webster's New International Dictionary, Second Edition 1954, the term used in our tax sections must, of course, be in accord with the legislative intent as expressed by the legislation involved. Generally, then, 'processing' as used in chapters 422 and 423 of the Code refers to an operation whereby raw material is subjected to some special treatment by artificial or natural means which changes its form, context, or condition, and results in marketable tangible personal property. For other definitions of 'processing', see Cochrane v. Deener, 94 U.S. 780, 788, 24 L.Ed. 139, 141; National Tube Co. v. Glander, 157 Ohio St. 407, 410, 105 N.E.2d 648, 650; State v. Four States Drilling Co., 278 Ala. 273, 177 So.2d 828, 831. Also see 34 Words and Phrases, p. 261, and pocket parts; annotation 30 A.L.R.2d 1439--1460. In Cochrane, supra, the United States Supreme Court defined it as 'a mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject-matter to be transformed and reduced to a different state or thing.'

Of considerable importance, then, is the question as...