Noranda Aluminum, Inc. v. Missouri Dept. of Revenue

Citation599 S.W.2d 1
Decision Date13 May 1980
Docket NumberNo. 2,No. 61218,61218,2
PartiesNORANDA ALUMINUM, INC., a corporation, Respondent, v. MISSOURI DEPARTMENT OF REVENUE, an agency of the State of Missouri, Appellant
CourtUnited States State Supreme Court of Missouri

John Ashcroft, Atty. Gen., Arnold Day, Asst. Atty. Gen., Jefferson City, for appellant.

Clifton A. Lake, Rooks, Pitts, Fullagar & Poust, Chicago, Ill., for respondent.

ALDEN A. STOCKARD, Commissioner.

The Department of Revenue of the State of Missouri assessed Noranda Aluminum, Inc. (hereafter referred to as "Noranda") $115,456.85 tax and interest, which was paid under protest, for failure to file what the Department considered to be correct sales/use tax returns and pay the tax for the period beginning January 1, 1974 through October 1, 1975. After an administrative hearing the Director of Revenue issued a final decision in which he granted Noranda's protest to some of the disputed items but denied it as to the remainder. Noranda appealed to the Circuit Court which reversed the order affirming the final assessment, and the Director of Revenue has appealed to this court which has exclusive original appellate jurisdiction because a construction of the revenue laws of this State is involved. Mo.Const. Art. V, § 3.

Noranda operates a large complex in New Madrid, Missouri for the production of aluminum metal and aluminum products. During the tax period referred to above, in order to increase productive capacity Noranda made a substantial expansion of facilities which included the addition of what is referred to as "pot-room cranes," the construction of a new bake-room, and the acquisition of new and improved laboratory equipment. In doing so it purchased certain machinery and equipment at a cost in excess of $3,000,000.00 for which it claimed an exemption from sales and use tax on the grounds that such machinery and equipment was used directly in the production of aluminum.

Noranda produces aluminum by an electrolytic process that reduces aluminum oxide to its constituent elements of aluminum and oxygen. The actual production occurs in what is called a pot line located in two buildings, each of which contains 87 pots or reduction cells. Small hoppers containing aluminum oxide located immediately above each pot periodically release their contents into each pot. An electrical conductor, known as a "bus," located in front of each pot, conducts an electric current to the pots, and a busguard made of angle iron covers the bus in order to protect the electrical equipment from damage through spillage of molten aluminum.

An electrical current is conducted through each pot between a cathode located in the pot and a carbon anode assembly which is suspended over and into the pot. Each carbon anode assembly consists of two, 800-pound carbon anode blocks which have a life span of only about eighteen days.

During the production of aluminum, technicians obtain a portion of molten aluminum from each pot which is poured into a mold to form a small disc or "button" of aluminum. These are then transmitted by a pneumatic tube to a nearby laboratory building for testing. The equipment used to test the samples consists of a computerized spectrochemical system, and the purpose is to ensure satisfactory performance of the production process and to identify each constituent element of the aluminum oxide. During the tax period in question, Noranda acquired new and greatly improved laboratory equipment. The computerized spectrochemical system replaced older laboratory equipment and is capable of handling double the amount handled by the replaced equipment and is superior in technical accuracy.

As noted, the anodes used in the production of molten aluminum have a relatively short period of usefulness. Noranda operates facilities to produce the necessary anodes which consist of petroleum pitch and calcine petroleum and require a baking process. Noranda has two buildings in which the baking process occurs, one of which is new. Within the new building are two furnace lines bisected by a roller conveyor. The "green" anodes are received from the production process and moved into the furnace by use of a central roller conveyer which has an eight-ton stacker at one end and a nine-ton stacker at the other. Each of two furnace lines in the new bake-room building consists of eighteen furnace sections with six individual underground furnaces per section. The furnaces are constructed primarily of concrete, and are lined with refractory brick and mortar. Natural gas or propane heat is introduced into the furnace to bake the anodes at 900 degrees centigrade. The refractory brick lining must be constantly monitored and repaired. There is what is referred to as the bake-room crane which is positioned above the two furnace lines on horizontal rails running the entire length of the lines. The crane is used to move the green anodes from the roller conveyor into the furnace, and to cover each anode with a blanket of calcine petroleum. It also is used to remove the baked anodes from the furnaces, and for other work necessary in the production of anodes and the maintenance of the equipment. After baking, the anodes are taken to what is called the "rodding section." There, two anodes are connected by a steel yoke or rod to form the carbon anode assembly, and they are coated with molten aluminum to prevent rapid burning.

The material and equipment for which Noranda claimed exemption, all of which are located in the new pot-room building, the new bake-room building, or the old laboratory building, include the following:

(a) refractory brick and mortar used in the carbon anode baking furnace,

(b) the baking room crane used to move unbaked and baked carbon anodes in the baking furnaces,

(c) four carbon anode change cranes used in the pot-rooms to remove and replace anodes in the reduction cells,

(d) two pot-room cranes used to transport hoppers containing aluminum from the storage facility to each reduction cell and in the periodic tapping of molten aluminum metal from the reduction cells,

(e) the carbon anode conveyor system used in the baking room to convey and stock anodes prior to and after the baking process,

(f) walkways and stairs located on the upper structure of each reduction cell to enable employees to perform duties in connection with the removal and replacement of spent carbon anodes,

(g) bus-guards designed to prevent spillage of molten aluminum onto portions of the electrical system of each reduction cell,

(h) laboratory equipment designed for chemical and physical analysis of aluminum metal and to monitor the efficiency of the reduction process.

In his final decision the Director of Revenue sustained the protest of Noranda as to the items designated above as (c), (d), and (f). Therefore, the only items as to which a sales or use tax exemption is in dispute on this appeal are the remaining five.

Section 144.030.3 RSMo 1969 provided a specific exemption from the provisions imposing a sales or use tax, among other things, of the following:

"(4) Machinery and equipment purchased and used to establish new or to expand existing manufacturing, mining or fabricating plants in the state if such machinery is used directly in manufacturing, mining or fabricating a product which is intended to be sold ultimately for final use or consumption; * * *." 1

In the final decision of the Director of Revenue it is stated that the "only issue upon which (that) decision (was) rendered" was whether any or all of the contested items are exempt by reason of § 144.030.3(4), and on this appeal it is contended that the trial court erred because (a) the disputed equipment is not "used directly in the manufacturing of aluminum and related products," and (b) the "refractory brick, mortar, bake-room cranes and anode conveyor system were purchased and used for the fabrication of products (anodes) which are in turn utilized in the manufacture of aluminum and therefore are not machinery and equipment used directly in manufacturing a product which is intended to be sold for final use and consumption." In this way the Director of Revenue has limited the issue on this appeal to whether the disputed equipment is "used directly" in the manufacture of aluminum as that term was used in § 144.030(4) prior to its amendment.

In the recent case of Floyd Charcoal Company, Inc. v. Director of Revenue (Mo.1980) 599 S.W.2d 173 (Mo.1980), this court considered for the first time the meaning of the language in § 144.030, RSMo 1969, providing an exemption from the sales or use tax when machinery or equipment is purchased to be "used directly in manufacturing * * * a product." In that opinion previous cases in...

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  • House of Lloyd, Inc. v. Director of Revenue, State of Mo.
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    ...a higher stage of development. T.D. Downing Co. v. U.S., 282 F.Supp. 801, 807 (U.S.Cust.Ct.1968); see also Noranda Aluminum, Inc. v. Department of Revenue, 599 S.W.2d 1 (Mo.1980), where items purchased and used in a laboratory to test the quality of aluminum were deemed essential to and par......
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    ...it to a processing area was "used directly in manufacturing." This Court also applied the integrated plant theory in Noranda Aluminum, Inc. v. Missouri Department of Revenue.9 There, machines used to produce anodes, which in turn were used on an aluminum production line, were "essential to ......
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