Pledger v. Noritsu America Corp.

• Decision Date: 01 May 1995
• Docket Number: No. 94-1289,94-1289
• Citation: 320 Ark. 371,896 S.W.2d 595
• Parties: Jim PLEDGER, Director of the Department of Finance and Administration, Appellant, v. NORITSU AMERICA CORPORATION, Appellee.
• Court: Arkansas Supreme Court

Page 595

896 S.W.2d 595

320 Ark. 371

Jim PLEDGER, Director of the Department of Finance and Administration, Appellant, v. NORITSU AMERICA CORPORATION, Appellee.

No. 94-1289.

Supreme Court of Arkansas.

May 1, 1995.

Beth B. Carson, Little Rock, for appellant.

William Thomas Baxter, Barry E. Coplin, Little Rock, for appellee.

NEWBERN, Justice.

The Appellee, Noritsu America Corporation (Noritsu), sells automated equipment, or "minilabs," purchased and used by businesses which process film. The Department of Finance and Administration (DF & A) assessed a use tax against Noritsu for its 1983 through 1988 Arkansas sales. The tax was paid under protest. The assessment was upheld in an administrative proceeding, and Noritsu sued to recover the tax and interest paid. The Chancellor agreed with Noritsu's contention that the equipment falls within the manufacturing exemption from use tax found in Ark.Code Ann. § 26-53-114 (Supp.1993). We reverse the decision because the equipment is not used to produce "articles of commerce."

We review tax exemption cases de novo on the record, although we do not reverse the Chancellor's factual findings unless they are clearly erroneous. Martin v. Riverside Furniture Corp., 292 Ark. 399, 730 S.W.2d 483 (1987). There is no factual dispute in this case. It was tried largely on stipulations. The question is whether, given the facts before the Chancellor, it was, as a matter of law, error to hold Noritsu entitled to the exemption. The taxpayer must establish an entitlement to an exemption from taxation beyond a reasonable doubt. Pledger v. C.B. Form Co., 316 Ark. 22, 871 S.W.2d 333 (1994). Tax exemption provisions must be strictly construed against exemption, and if there is any doubt concerning its application, the exemption must be denied. Martin v. Riverside Furniture Corp., supra.

Section 26-53-114(a)(1)(A) exempts from use tax "Machinery and equipment used directly in producing, manufacturing, fabricating, assembling, processing, finishing, or packaging of articles of commerce...." Prior to 1983, Ark.Stat.Ann. § 84-1904(r)(2)(E), the predecessor of § 26-53-114(b), defined the words "manufacturing" and "processing" for purposes of the statute to mean, "those operations commonly understood within their ordinary meaning." Following that general statutory guidance was a list of specific exemptions including items such as "mining, quarrying, refining, extracting oil and gas, cotton ginning," etc., but nothing about photographs or printing.

In Western Paper Co. v. Qualls, 272 Ark. 466, 615 S.W.2d 369 (1981), exemption was urged as to equipment used for commercial printing of stationery, wedding and business announcements, flyers, books, and business cards. We observed that, "in the ordinary use of the term we do not think of printing, photography, and binding as manufacturing." We concluded our opinion as follows:

Commercial printing has certainly undergone technological changes over the years, but the final product remains the same--images on paper. The printer starts with manufactured paper and ink and through the use of manufactured machinery and equipment produces images on paper, a product which generally has no commercial market value other than to the individual for whom the commercial printer performed the service. "Ordinarily, we think of a manufactured article as something to be placed on the market for retail to the general public in the usual course of business." Morley v. E.E. Barber Construction Co., 220 Ark. 485, 248 S.W.2d 689 (1952).

Subsequent to the decision in the Western Paper Co. case, the General Assembly amended § 26-53-114(b) to include in the list of specific exemptions "the services of overprinting and photographic processes incidental to printing." Noritsu contends the equipment it sells falls within the exemption because it is the same equipment as is used to process photographs "incidental to...