Monarch Steel Co., Inc. v. State of Ind. Tax Com'rs, 45T05-8810-TA-00054

• Citation: 545 N.E.2d 1148
• Decision Date: 25 October 1989
• Docket Number: No. 45T05-8810-TA-00054,45T05-8810-TA-00054
• Parties: MONARCH STEEL CO., INC. Petitioner, v. STATE OF INDIANA TAX COMMISSIONERS, Respondent.
• Court: Tax Court of Indiana

Page 1148

545 N.E.2d 1148

MONARCH STEEL CO., INC. Petitioner, v. STATE OF INDIANA TAX COMMISSIONERS, Respondent.

No. 45T05-8810-TA-00054.

Tax Court of Indiana.

Oct. 25, 1989.

Kenneth D. Reed, Hammond, for petitioner.

Linley E. Pearson, Atty. Gen. by Terry G. Duga, Deputy Atty. Gen., Indianapolis, for respondent.

FACTS AND ISSUES

FISHER, Judge.

Monarch Steel Company, Inc. appeals the State Board of Tax Commissioners' final determination that a portion of Monarch's inventory sold to out-of-state customers is not exempt from personal property tax as provided by IC 6-1.1-10-30 and IC 6-1.1-10-29. The assessment date was March 1, 1987.

During the assessment period, Monarch, an Indiana corporation, was a steel service center located in East Chicago, Indiana. Monarch purchased and resold steel bars, plates, and coils. The steel was shipped to Monarch in plates as large as 96 inches wide by 300 inches long. The steel arrived at the warehouse without any packaging except for a band encircling steel bundles to keep them from rolling. After the steel arrived, it was stored in Monarch's warehouse until ordered by a customer. Depending upon the size or shape the customer ordered, the steel was either left in its current shape and size, cut into smaller rectangular pieces, or cut to a specific size or shape as requested by the customer. The requested shaped steel was achieved through a burning procedure using a template furnished by the customer or prepared at the customer's direction. Irrespective of the size or shape of steel the customer ordered, the customer paid for the entire plate of steel as it existed before the burning procedure.

Monarch calculated its business tangible personal property assessment on March 1, 1987 in the amount of $30,110. Subsequently, the State Board of Tax Commissioners reviewed the self-assessment and reassessed the property in the amount of $100,950. The increase is attributed to the Board's denial of exemptions under IC 6-1.1-10-30 and IC 6-1.1-10-29.

DISCUSSION AND DECISION

The following issues are now before the court:

I. Is Monarch entitled to an exemption under IC 6-1.1-10-30(a)?

II. Is the Board's determination denying Monarch an exemption under IC 6-1.1-10-30(b) supported by substantial evidence?

III. Is Monarch entitled to an exemption under IC 6-1.1-10-29?

ISSUE I

IC 6-1.1-10-30(a) provides in pertinent part:

(a) Subject to the limitation contained in subsection (d) of this section, personal property is exempt from taxation if:

(1) the property is owned by a nonresident of this state;

(2) the owner is able to show by adequate records that the property has been shipped into this state and placed in its original package in a public or private warehouse for the purpose of transshipment to an out-of-state destination; and

(3) the property remains in its original package and in the public or private warehouse.

Monarch is not entitled to any exemption under IC 6-1.1-10-30(a) because section (a)(1) requires that the personal property be owned by a nonresident. Monarch is an Indiana corporation. Therefore, the Board's determination denying the requested exemption under IC 6-1.1-10-30(a) is affirmed.

ISSUE II

IC 6-1.1-10-30(b) provides in pertinent part:

(b) Subject to the limitation contained in subsection (d) of this section, personal property is exempt from property taxation if:

(1) the property has been placed in its original package in a public or private warehouse for the purpose of shipment to an out-of-state destination;

(2) the property remains in the original package and in the public or private warehouse; and

(3) the property had been ordered and is ready for shipment in interstate commerce to a specific known destination to which the property is subsequently shipped.

50 I.A.C. 4.1-3-3 expands on the statute in providing that the property must be ordered prior to the assessment date, which may be proven by a purchase order indicating an out-of-state destination.

The Board denied an exemption under IC 6-1.1-10-30(b) for inventory that Monarch could not substantiate was committed to interstate commerce. Monarch contends that the Board erred in denying an exemption under this section because: 1) the documentation required to substantiate its exemption claim was too costly and time consuming to maintain, and 2) Monarch is not a processor and thus, the inventory remains in its original package for shipment. Monarch alleged the same points of error for its 1986 assessment. Since that time, neither Monarch's business practices have changed, nor has IC 6-1.1-10-30(b) been amended to reflect Monarch's concerns.

In deciding Monarch's 1986 assessment, this court held:

IC 6-1.1-10-30(b) plainly requires that an order be in existence on the assessment date, that the specific known destination be evident, and that the property be ready for shipment. Predictions of what will ultimately happen to inventory, no matter how accurate those predictions may be, do not meet the requirements of the statute.... [I]nventory which had been ordered for a specific known destination is not exempt under IC 6-1.1-10-30(b) when the inventory is removed from the warehouse for custom cutting subsequent to the assessment date. The statute requires that the inventory be ready for out-of-state shipment on or before the assessment date. IC 6-1.1-10-30(b)(3). In addition, the concept of original packaging requires that the inventory be placed in the warehouse in the form in which it will later be shipped. The fact that the customer may pay for both the cutout and the resultant scrap is irrelevant. Monarch Steel Co. v. State of Indiana Tax Comm'rs (1988), Ind.Tax, 527 N.E.2d 1171, 1172-73.

Because of the similarity with the 1986 assessment, the outcome for the 1987 assessment will be the same unless there is not substantial evidence in the record, viewed in its entirety, to support the Board's findings, or unless the Board's findings were arbitrary or capricious and an abuse of discretion. Stokely-Van Camp v. State Bd. of Tax Comm'rs (1979), 182 Ind.App. 91, 94, 394 N.E.2d 209, 211.

In reviewing the record, a reasonable person could find enough relevant evidence to support the Board's findings. The Court therefore finds that the Board's determination under IC 6-1.1-10-30(b) is supported by substantial evidence and is hereby affirmed.

ISSUE III

Monarch next alleges that the Board erred when it denied an exemption for part of Monarch's property under IC 6-1.1-10-29. The statute provides:

Personal property owned by a manufacturer or processor is exempt from property taxation if the owner is able to show by adequate records that the property is stored and remains in its original package in an instate warehouse for the purpose of shipment, without further processing, to an out-of-state destination. IC 6-1.1-10-29.

In its application of this statute to Monarch, the Board found,

The Hearing Officer was correct in disallowing an exemption on that portion of the Taxpayer's inventory that is cut to size or formed into parts. A common thread running throughout the interstate commerce exemptions found in IC 6-1.1-10-29 and IC 6-1.1-10-30 is that the property must be in its original package, finished and ready for shipment.

The Hearing Officer testified at trial that she denied an exemption under IC 6-1.1-10-29 when she could tell that a piece of steel had been cut to a specific shape, as indicated by a customer purchase order. Because this was "further processing", she denied the exemption. The Hearing Officer also denied an exemption for the steel which was merely stored as inventory at Monarch. The Hearing Officer contended that because Monarch did not "further process" this steel, Monarch was not a processor as required under IC 6-1.1-10-29.

Monarch contends that it acts as a processor to parts of its inventory and therefore falls under IC 6-1.1-10-29. Monarch also contends that when it cuts steel to a requested shape using a template, it is not "further processing" the steel and, thereby this part of its inventory also qualifies Monarch for an exemption. Monarch claimed this same exemption in its 1986 assessment. Once again, the Board denied Monarch's exemption. However, on appeal, this court did not affirm the Board's findings as it did under IC 6-1.1-10-30 for the 1986 assessment, but rather remanded the issue back to the Board for it to consider and document its decision.

In order for the reviewing court to [determine whether the finding is supported by substantial evidence or is an abuse of discretion or is arbitrary or capricious], it is ... necessary that written findings be before the court. Otherwise, we will find the remarkable situation as we have before us of a Commissioner testifying to explain to the trial court why the Board made the final determination they did. Stokely-Van Camp, 182 Ind.App. at 93, 394 N.E.2d at 211.

Although in sparse fashion, the Hearing Officer and the Board did state the reasons why an exemption was denied under IC 6-1.1-10-29 for 1987. The Board's findings were based upon the determination that Monarch was not a processor and was "further processing" the steel when it shaped the steel by using the burning procedure with the template.

The determinative factor in the State Board's findings is the definition of the terms "processor" and "processing." On many occasions, the State Board has interpreted the taxation statutes through its rules and regulations. For example, the Board has defined the term "original package" where the legislature has remained silent. 50 I.A.C. 4.1-3-3(1)(f). However, nowhere in its rules or regulations pertaining to IC 6-1.1-10-29 has the Board defined the term processor or processing. Therefore, the court will show less deference to the State Board's definition in this case and will review the interpretation of the statute to determine if the State Board has upheld the intent of the legislature.

In its interpretation of IC 6-1.1-1...