Nucor Steel, a Div. of Nucor Corp. v. Leuenberger

• Citation: 448 N.W.2d 909,233 Neb. 863
• Decision Date: 01 December 1989
• Docket Number: No. 88-225,88-225
• Court: Supreme Court of Nebraska
• Parties: NUCOR STEEL, A DIVISION OF NUCOR CORPORATION, a Delaware Corporation, Appellant, v. Donald S. LEUENBERGER, Tax Commissioner of the State of Nebraska, et al., Appellees.

Page 909

448 N.W.2d 909

233 Neb. 863

NUCOR STEEL, A DIVISION OF NUCOR CORPORATION, a Delaware Corporation, Appellant, v. Donald S. LEUENBERGER, Tax Commissioner of the State of Nebraska, et al., Appellees.

No. 88-225.

Supreme Court of Nebraska.

Dec. 1, 1989.

Syllabus by the Court

1. Administrative Law. Agency regulations, properly adopted and filed with the Secretary of State of Nebraska, have the effect of statutory law.

2. Taxation. Neb.Rev.Stat. § 77-2702(11)(a) and (20) (Reissue 1986) provides an exemption from the Nebraska sales and use tax.

3. Statutes: Taxation: Proof. Since a statute conferring an exemption from taxation is strictly construed, one claiming an exemption from taxation of the claimant

or the claimant's property must establish entitlement to the exemption.

4. Taxation. Material which only accidentally or incidentally becomes incorporated into a finished product and which is not an essential ingredient of the finished product is subject to sales and use tax because such material is not an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale at retail.

5. Taxation. So long as a material entered into and is an essential ingredient or component part of a product manufactured, processed, or fabricated for ultimate sale at retail, the material is excluded from the Nebraska sales and use tax, notwithstanding that the material may be used for more than one purpose in manufacturing, processing, or fabricating the product.

R. Murray Ogborn and Tim O'Neill, of Nelson & Harding, Lincoln, for appellant.

Robert M. Spire, Attorney General, and L. Jay Bartel, Lincoln, for appellees.

HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, GRANT, and FAHRNBRUCH, JJ.

SHANAHAN, Justice.

Nucor Steel filed two claims with the Tax Commissioner of the State of Nebraska for refunds of sales and use taxes paid for August through December 1983 and for the period from January 1984 to August 1986 regarding Nucor's purchase and use of refractory materials in connection with Nucor's manufacture of steel. The commissioner denied both claims, and on March 13 and August 26, 1987, Nucor appealed to the district court for Lancaster County, which consolidated the appeals and affirmed the Tax Commissioner's decisions. In its appeal to this court, Nucor seeks reversal of the district court's judgment.

STANDARD OF REVIEW

An appeal from a decision by the Tax Commissioner of the State of Nebraska is governed by the Administrative Procedure Act, Neb.Rev.Stat. §§ 84-901 et seq. (Reissue 1987). American Stores Packing Co. v. Peters, 203 Neb. 76, 277 N.W.2d 544 (1979).

In an appeal pursuant to the Administrative Procedure Act,

the Supreme Court tries factual questions de novo on the record and reaches a conclusion independent of the conclusion reached by the administrative agency, provided, where credible evidence is in conflict on a material issue of fact, the Supreme Court considers and may give weight to the fact that the administrative agency heard and observed the witnesses and accepted one version of the facts rather than another.

Department of Health v. Omaha Associates, 232 Neb. 516, 517, 441 N.W.2d 579, 580-81 (1989). See, also, Heithoff v. Nebraska State Bd. of Ed., 230 Neb. 209, 430 N.W.2d 681 (1988); Haeffner v. State, 220 Neb. 560, 371 N.W.2d 658 (1985). See, further, § 84-918 (Supreme Court's de novo review under Administrative Procedure Act).

APPLICABLE TAX STATUTES

"Retail sale or sale at retail shall mean: (a) A sale for any purpose other than for resale in the regular course of business of tangible personal property...." Neb.Rev.Stat. § 77-2702(10) (Reissue 1986).

"Retail sale or sale at retail shall not include the sale of: (a) Tangible personal property which will enter into and become an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale at retail...." § 77-2702(11).

A sale for resale

shall mean a sale of tangible personal property to any purchaser who is purchasing such tangible personal property for the purpose of reselling it in the normal course of his or her business, either in the form or condition in which it is purchased or as an attachment to or integral part of other tangible personal property.

§ 77-2702(14).

Use ... does not include the sale of that tangible personal property in the regular § 77-2702(20).

course of business or the exercise of any right or power over tangible personal property which will enter into or become an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale at retail.

A sale tax is imposed "upon the gross receipts from all sales of tangible personal property sold at retail in this state...." Neb.Rev.Stat. § 77-2703(1) (Reissue 1986). A use tax is imposed "on the storage, use, or other consumption in this state of tangible personal property purchased, leased, or rented from any retailer ... for storage, use, or other consumption in this state...." § 77-2703(2).

BURDEN OF PROOF

The tax statutes involved in Nucor's appeal contain definitions which exclude or except personal property from the Nebraska sales and use tax. See § 77-2702(11)(a) and (20). Nucor contends that the statutory definitions which relate to exclusion or exception from the sales and use tax should be liberally construed.

However, in addition to the specific tax statutes which we have mentioned as applicable to Nucor's appeal, we note provisions of the Nebraska "Sales and Use Tax Regulations," promulgated by the Nebraska Tax Commissioner, namely, 316 Neb.Admin.Code § 1-012 (1984), which provides:

012.02 There are exempted from the computation of the amount of sales and use taxes the gross receipts from the sale, lease, or rental of and the storage, use, or other consumption in this state of the following:

....

012.02D Transactions given exempt status due to the purchaser's intended use of the property purchased, leased, or rented. Included in this group are sales of:

....

012.02D(2) Property which will be incorporated as an ingredient or component part of tangible personal property manufactured, processed, or fabricated for ultimate sale at retail....

(Emphasis supplied.)

Agency regulations, properly adopted and filed with the Secretary of State of Nebraska, have the effect of statutory law. See, Douglas County Welfare Administration v. Parks, 204 Neb. 570, 284 N.W.2d 10 (1979); Kansas Gas & Elec. v. Com'n on Civ. Rights, 242 Kan. 763, 750 P.2d 1055 (1988); State v. Jenkins, 469 So.2d 733 (Fla.1985); Eastman Kodak Co. v. Fair Emp. Prac. Com., 86 Ill.2d 60, 55 Ill.Dec. 552, 426 N.E.2d 877 (1981). See, also, § 84-902.

As a result of our examination of the language in § 77-2702(11)(a) and (20), coupled with our reading of the sales and use tax regulations, we conclude that § 77-2702(11)(a) and (20) provides an exemption from the Nebraska sales and use tax. Our construction that § 77-2702(11)(a) and (20) affords an exemption from a sales and use tax is consistent with the decisions of several other courts which have construed exclusionary language substantially similar to that found in § 77-2702(11)(a) and (20); for example, see, North Star Steel v. Iowa Dept. of Revenue, 380 N.W.2d 677, 680 (Iowa 1986) (" ' "use" ... shall not include processing, or the sale of ... property in the regular course of business,' " expressed in the Iowa use tax statute, "creat[ed] an exemption from tax"); Hospital Utilization Project v. Com., 507 Pa. 1, 487 A.2d 1306 (1985) (sales and use tax statute which excluded manufacturers involved in certain types of research provided an exemption from sales and use tax); Chicago, B. & Q.R. Co. v. State Tax Comm., 259 Iowa 178, 142 N.W.2d 407 (1966); Burroughs Corp. v. State Bd. of Equalization, 153 Cal.App.3d 1152, 200 Cal.Rptr. 816 (1984) (statutory language, use "does not include the sale of ... property in the regular course of business," constitutes a resale exemption); Federated v. Kosydar, 45 Ohio St.2d 1, 340 N.E.2d 840 (1976) (statutory exceptions from sales and use taxation pertain to a right to an exception (exemption)); Matter of Shanty Hollow Corp. v Since a statute conferring an exemption from taxation is strictly construed, one claiming an exemption from taxation of the claimant or the claimant's property must establish entitlement to the exemption. Vulcraft v. Karnes, 229 Neb. 676, 428 N.W.2d 505 (1988); Bethphage Com. Servs. v. County Board, 221 Neb. 886, 381 N.W.2d 166 (1986).

New York State Tax Commn., 111 A.D.2d 968, 490 N.Y.S.2d 67 (1985) (sales tax law excepting charges to a patron for admission to use of facilities for sporting activities provided an exemption from taxation); Timken Co. v. Lindley, 29 Ohio App.3d 181, 504 N.E.2d 455 (1985) (sales and use tax statute which contains certain exceptions allowed exemptions from such tax).

Thus, to prevail on its refund claim, Nucor must establish that it is entitled to exemption from the Nebraska sales and use tax.

BACKGROUND

Nucor Steel is engaged in manufacturing steel at its plant in Norfolk, Nebraska. Nucor's steelmaking process begins with its smelter operations of melting scrap metal in an electric arc furnace and subsequent refining of the molten mass through addition of lime to remove impurities in the metal. After refinement under an appropriately high temperature, the molten steel is poured from the furnace into a ladle for additional lime. The ladle transports the molten steel to the tundish, from which the molten metal is poured into molds which form steel billets.

Throughout smelting, Nucor must keep the steel in a molten state until the metal is poured into the billet molds. The furnace, ladle, tundish, and other manufacturing equipment used to melt metal and transfer molten steel are also made of steel. To protect the furnace and other manufacturing equipment from damage by...