Missouri Public Service Co. v. Director of Revenue, 69055

• Decision Date: 14 July 1987
• Docket Number: No. 69055,69055
• Citation: 733 S.W.2d 448
• Parties: MISSOURI PUBLIC SERVICE COMPANY, Petitioner, v. DIRECTOR OF REVENUE, State of Missouri, Respondent.
• Court: Missouri Supreme Court

Page 448

733 S.W.2d 448

MISSOURI PUBLIC SERVICE COMPANY, Petitioner, v. DIRECTOR OF REVENUE, State of Missouri, Respondent.

No. 69055.

Supreme Court of Missouri En Banc.

July 14, 1987.

Barry V. Cundiff, James C. Swearengen, Johnny K. Richardson, Jefferson City, for petitioner.

William L. Webster, Atty. Gen., Melodie A. Powell, Asst. Atty. Gen., Jefferson City, for respondent.

ROBERTSON, Judge.

Taxpayer appeals from a decision of the Administrative Hearing Commission upholding a use tax assessment of the Director of Revenue. The issue is whether a substance known as "Rolfite" is a "fuel" within the meaning of Section 144.030.2(1), RSMo 1986, and therefore exempt from use tax. As this case involves the construction of revenue laws in this State, we have jurisdiction. Mo. Const. art. V, sec. 3. The decision of the Administrative Hearing Commission is reversed.

I.

Taxpayer Missouri Public Service Company is a Missouri corporation engaged in the manufacture of electrical current sold at retail to its customers. Taxpayer operates a coal-fired generating plant at Sibley, Missouri. The basic electric generating process employed at the plant involves four steps: (1) Coal is burned in cyclone furnaces to heat water in boilers. (2) The heated water produces steam. (3) The steam drives turbines. (4) The turbines drive the generator which produces electric current.

Coal contains sulphur. In addition to producing heat, the combustion process also produces sulphur trioxide (SO sub3 ), a form of sulphuric acid gas which poses several problems for taxpayer. First, the SO sub3 fouls or plugs the air heater, reducing the generating capacity of the furnace. Second, the acid gas causes rear end corrosion in the boiler. Third, another product of the combustion process, fly ash, retains a high acid level so that water from the ponds where fly ash is held cannot be drained without violating Department of Natural Resources environmental regulations.

Rolfite is a suspension of magnesium oxide powder in No. 2 fuel oil. The product is 70 percent fuel oil by weight. Rolfite produces 13,500 British Thermal Units per pound when burned; coal produces 10,800 BTU's per pound. Taxpayer injects Rolfite into the coal fireball during the first step of the combustion process. The Rolfite is completely consumed in the fireball and, at least minimally, increases both the heat of the fireball and the amount of steam produced.

Rolfite neutralizes SO sub3 . Taxpayer uses Rolfite primarily to reduce air heater plugging, rear-end boiler corrosion and the acidity of the fly ash.

II.

Section 144.030.2(1) provides in pertinent part:

2. There are also specifically exempted from the provisions of sections ... 144.600 to 144.745 ["The Compensating Use Tax Law"] and from computation of the tax levy, assessed or payable under sections ... 144.600 to 144.745:

(1) The sale at retail of ... fuel to be consumed in manufacturing or creating gas, power, steam, electrical current or in furnishing water to be sold ultimately at retail....

Tax exemptions are strictly construed against the taxpayer. King v. Franco, 653 S.W.2d 259, 260 (Mo.App.1983).

Taxpayer argues that Rolfite is a fuel within the meaning of Section 144.030.2(1) and is therefore exempt from use tax taxation by the State. Respondent urges, and the Administrative Hearing Commission agreed, that taxpayer failed to prove that it purchased Rolfite as a fuel for use in manufacturing electricity. Consistent with this argument, Respondent contends that Rolfite is an "additive."

Respondent's argument proceeds...