Rowe Contracting Co. v. State Tax Commission

• Citation: 361 Mass. 158,279 N.E.2d 675
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Decision Date: 11 February 1972
• Parties: ROWE CONTRACTING COMPANY v. STATE TAX COMMISSION.

Page 675

279 N.E.2d 675

361 Mass. 158

ROWE CONTRACTING COMPANY v. STATE TAX COMMISSION.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Jan. 3, 1972.

Decided Feb. 11, 1972.

James R. Hopkins, Boston, for the taxpayer.

Daniel J. Johnedis, Asst. Atty. Gen., for the State Tax Commission.

Before CUTTER, REARDON, QUIRICO, BRAUCHER and HENNESSEY, JJ.

CUTTER, Justice.

The commission and the taxpayer each appeal from the decision of the Appellate Tax Board (the board) granting a partial abatement of sales and use taxes assessed under St.1966, c. 14. ¹ The taxpayer contends that, under c. 14, § 1, subsecs. 6(r) and 6(s), and § 2, subsec. (5), machinery parts and supplies purchased for use in its crushed stone business were exempt from the excise imposed by c. 14. The commission claims that the excise was applicable to the purchase or use of the items. Certain facts were agreed. The board made a preliminary order containing certain findings, and also findings and a report in accordance with G.L. c. 58A, § 13, as amended through St.1969, c. 692. The facts are primarily stated on the basis of the board's preliminary order and later report. ² The question for decision is the extent to which the statute (c. 14) exempts from excise the acquisition or use of machinery, machinery parts, and supplies used or consumed in the taxpayer's stone crushing operations.

The taxpayer is engaged primarily in producing for sale crushed stone, manufactured gravel, and treated stone. It owns a quarry of about 100 acres. The process may be described roughly in the following manner. The 'overburden' of soil covering the rock formation is removed and piled for sale. Automatic drills, with compressors, are used to drill holes in the rock formation. These holes are loaded with explosives. A blast takes place. Some larger fragments of the blasted rock are sold for use in shore protection. Some pieces, too large for use in the crushing mill, require further demolition by a drop ball attached to a power crane. A power shovel loads the rock pieces on Euclid trucks, used only on the quarry premises, to take the rock to the first stage in the crushing plant, 'a large building containing machinery that operates crushing mills, conveyor belts, vibrating and sorting equipment, bins, and hoppers.'

There the rock is further crushed into rocks or stone fragments of varying sizes. Some is sold as crushed stone. Other rock, when crushed and sized, is used either (a) to make and place in stockpiles manufactured gravel by mixing it with sand, purchased by the taxpayer, or (b) to produce treated stone by coating small stones with oil and allowing the mixture to settle for twenty-four hours.

In addition to the machinery and Euclid trucks mentioned above, the taxpayer has used front-end loaders about ten per cent of the time for turning over the stockpiles of treated stone and manufactured gravel, and about ninety per cent of the time in placing products on customers' trucks. Other trucks transport overburden soil or crushed stone to their respective stockpiles.

The board, by its preliminary order, held (a) that the production of manufactured gravel and of treated stone constitutes manufacture as used in St.1966, c. 14, § 1, subsecs. 6(r) and 6(s); (b) that preparation before mixing, and stockpiling of such gravel and treated stone, do not constitute manufacturing; (c) that the taxpayer's activities, beginning with the actual crushing of large stones and ending with small stones of merchantable size, constitute 'conversion or processing of tangible personal property,' as do the reduction and demolition of oversized rock by use of a crane and drop ball; and (d) that transportation of large stones to the crusher plant and the subsequent removal of smaller sifted stones to the stockpiles 'are not . . . processing and conversion of the stone.' It concluded that materials, tools, and fuel used directly in the work classified as manufacture are exempt under subsec. 6(r) and that machinery or replacement parts used directly in conversion and processing are exempt under subsec. 6(s).

In its opinion, the board expanded its rulings slightly. (1) It ruled that '(T)he machinery, materials, and Euclid trucks used to separate the rock from the real estate and to transport is to the crushing mill are not used . . . directly in a manufacturing or conversion process of tangible personal property' because, prior to blasting, the rock is real estate. (2) The vehicles used to transport products to a stockpile, it ruled also, were not used directly in manufacturing or processing. (3) The first massive sections of rock obtained by blasting, it ruled, 'are not the product of a manufacturing or conversion process as no change in the rock has been made since rendering it personalty.' (4) The board correctly ruled that it was not confined under this excise to considering whether machinery or parts were used directly in manufacturing, see subsec. 6(s), ³ because in any event sales of machinery or replacement parts used (emphasis supplied) 'in an industrial plant in the manufacture, conversion or processing of tangible personal property to be sold' were exempt under subsec. 6(s). ⁴

1. The board correctly regarded the legislative use in subsec. 6(s) of the words 'conversion or processing' as intended to include preparation of crushed stone 'by converting it into a marketable form.' In effect, the board found it unnecessary for the purposes of subsec. 6(s) to consider whether stone crushing would now be regarded as constituting manufacture. Cf. Wellington v. Belmont, 164 Mass. 142, 143, 41 N.E. 62 (quarrying stone and breaking it up not manufacturing within Pub.Sts. c. 11, § 20, cl. 2); Lowa Limestone Co. v. Cook, 211 Iowa 534, 537--541, 233 N.W. 682; People ex rel. Tomkins Cove Stone Co. v. State Tax Commn., 176 App.Div. 1, 3--6, 162 N.Y.S. 408; Commonwealth v. John T. Dyer Quarry Co., 250 Pa. 589, 591--595, 95 A. 797. Cf. also Commissioner of Corps. & Taxn. v. Assessors of Boston, 321 Mass. 90, 93--95, 71 N.E.2d 874. The board's general conclusion, as far as it went, on the meaning of 'conversion or processing' is supported by cases elsewhere. These cases also tend to give a substantially broader meaning to 'manufacture' than did the Wellington case, 164 Mass. 142, 41 N.E. 62. See e.g. State v. Four States Drilling Co. Inc., 278 Ala. 273, 277--278, 177 So.2d 828; France Co. v. Evatt, 143 Ohio St. 455, 456--457, 55 N.E.2d 652; National Tube Co. v. Glander, 157 Ohio St. 407, 410, 105 N.E.2d 648; See also Commonwealth for Use of Rockcastle County v. W. J. Sparks Co., 222 Ky. 606, 608, 1 S.W.2d 1050; Michigan Allied Dairy Assn. v. State Bd. of Tax Admn., 302 Mich. 643, 646--651, 5 N.W.2d 516; West Lake Quarry & Material Co. Inc. v. Schaffner (Mo.), 451 S.W.2d 140, 143; Tulsa Mach. Co. v. Oklahoma Tax Commn., 208 Okl. 138, 139--140, 253 P.2d 1067.

It, of course, will be noted that the language (fn. 3) of subsec. 6(r), 'in the process of the manufacture,' varies from that used in subsec. 6(s), viz. 'in the manufacture, conversion or processing.' Our earlier cases (see Wakefield Ready-Mixed Concrete Co. Inc. v. State Tax Commn., 356 Mass. 8, 9, 247 N.E.2d 869, fn. 3, and COURIER CITIZEN CO. V. COMMISSIONER OF CORPS. & TAXN., MASS., ⁶ , 266 N.E.2D 284)^A presented no question requiring the making of any distinction between these two provisions. We are of opinion that, in the context of the 1966 statute (despite the holding in the Wellington case, 164 Mass. 142, 41 N.E. 62), the terms are essentially interchangeable and that it would result in meaningless refinement and a great deal of administrative complication to attempt to distinguish between them in the absence of a very clear statutory mandate to do so. The issue under subsec. 6(r) and subsec. 6(s) we treat as being the same in this respect.

2. It must be determined when, in the usual course of the work, the taxpayer's 'processing' activities begin. The initial blasting serves not only to separate the rock from the real estate but also the blasts are so arranged as to produce the maximum breaking up of the separated rock. Prior to the blast, a pierce of rock cliff undoubtedly constitutes real estate. Nevertheless, the steps preparatory to and bringing about its severance from the cliff involve processing in the sense that they result in partial fragmentation of the separated rock. We must decide whether the statutory exemption contemplates that action with respect to rock while it remains real estate be treated as processing.

The commission refers us to decisions which indicate that somewhat similar exemptions of machinery used in manufacture and processing do not extend to machinery and parts used in separating from the land items which are real estate until served. See State v. Joe H. Brady & Associates, 264 Ala. 397, 400--401, 87 So.2d 852 (power saws used to cut down trees), but compare State v. Four States Drilling Co., Inc., 278 Ala. 273, 275--278, 177 So.2d 828 (casing and other materials used to separate oil); Linwood Stone Prods. Co. v. State Dept. of Rev., 175 N.W.2d 393, 394--395 (Iowa) (exemption not applicable on machinery used on rock until it reaches crusher); Tulsa Mach. Co. v. Oklahoma Tax Commn., 208 Okl. 138, 140, 253 P.2d 1067. The taxpayer, on the other hand, argues that c. 14, § 1, subsec. 6(s), refers to 'processing of tangible personal property to be sold' (emphasis supplied) and thus lays stress on the crushed end product, which is personalty, rather than dealing with the unsevered rock. It contends that subsec. 6(s) should be applicable if the end product of the processing is tangible personal property, since sales at retail or use of only such property are subject to the excise. It purports to find authority for this view in the Courier Citizen Co. case, Mass. ^b , 266 N.E.2d 284. See Barrett and Bailey, Taxation (2d ed.) §§ 1317, 1341.

We have recognized (see the COURIER CITIZEN...