State ex rel. AMF Inc. v. Spradling
| Decision Date | 16 December 1974 |
| Docket Number | No. 58594,No. 1,58594,1 |
| Citation | 518 S.W.2d 58 |
| Parties | STATE ex rel. AMF INCORPORATED, Relator-Appellant, v. James R. SPRADLING, Director of Revenue, State of Missouri, Respondent |
| Court | Missouri Supreme Court |
Thompson & Mitchell, William G. Guerri, W. David Wells, St. Louis, for relator-appellant, AMF Incorporated.
John C. Danforth, Atty. Gen., Walter W. Nowotny, Jr., Asst. Atty. Gen., Daniel P. Card, II, Asst. Atty. Gen., Jefferson City, for respondent.
HIGGINS, Commissioner.
Appeal from judgment that rentals from relator's machinery and equipment used in recapping and retreading of tires are not exempt from Missouri Sales Tax under the exemption provided by Section 144.030.3(4), RSMo.1969, V.A.M.S.
Section 144.030.3(4), supra, provides an exemption from sales tas for 'Machinery and equipment purchased and used to establish new or to expand existing manufacturing, mining, or fabricating plants * * * 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.' The exemption, where applicable, applies also to 'leased' as well as to 'purchased' machinery and equipment. Section 144.020.1(8), RSMo.1969, V.A.M.S.
A substantial part of the business of AMF Incorporated is the manufacture of machinery for sale and lease. The Orbitread machine is a development of AMF's Tire Equipment Division and is used in the tire recapping and retreading industry. The Orbitread machine is leased by AMF to lessees under contract which provide for monthly rental payments based upon a fixed charge per pound of rubber put through the machine.
The retreaded tires are sold primarily to owners of motor vehicles for final use or consumption.
A sales tax is paid on the sale of the retreaded tire to the ultimate consumer. The lessee who produces tread rubber from the Orbitread machine is also liable for the United States excise tax imposed by Internal Revenue Code, Section 4071(a)(4).
AMF has been paying the Missouri Sales Tax attributable to Orbitread rentals under protest, contesting the legal application of the Missouri Sales Tax Law to rentals received under leases of Orbitread machines.
The Orbitread machine encompasses an electronically controlled process that receives compounded rubber in slab, strip, or pellet form which is not then suitable for use as tread rubber. The machine changes the physical characteristics of and converts the uncured rubber by an extrusion process into a die size tread rubber which is then applied by the machine to a tire casing to build a tread of any desired depth and contour.
The Orbitread process begins with the selection of a usable worn tire carcass. The selected carcass is subjected to a machine buffing operation in which the old tread design and upper sidewall are ground off. A layer of the old tread material is left on the carcass. after the carcass has been buffed, it is coated with a thin layer of rubber base cement. At this point, the treated carcass is known as a 'tire casing.' The buffed and cemented tire casing that is about to be retreaded is placed on the freely rotating mandrel or spindle of the Orbitread machine and it starts to rotate. The operator of the Orbitread machine feeds uncured rubber into the machine and selects the proper data processing card corresponding to the desired specifications of the retreaded tire. From that point the machine is activated by the data processing card and the uncured rubber, by an extrusion process, is converted into tread rubber of the required die size. The narrow strip of tread rubber which begins to emerge from the machine is attached to the rim of the tire casing and the machine proceeds to lay a continuous ribbon of tread rubber around the tire casing in the proper thickness and profile, the machine automatically compensating for uneven spots.
Multiple stitching rollers carefully stitch down the leading and trailing edges of each strip so that it cannot move its position once applied, thus providing a uniform dense tread. When the completed tread has been applied by one or two passes across the buffed surface, the machine stops automatically. The freshly retreaded tire is then removed and cured in a mold, which also forms a tread design on the tire.
The freshly retreaded tire in the mold is subjected to pressure and heat to 400 Fahrenheit. As a result, further chemical reactions occur through the process known as vulcanization during which a molecular cross-linkage occurs in which the materials are bonded together chemically. This bond is brought about by the linkage of two items, sulphur and rubber, to form a new product with new physical characteristics. In addition, the metal mold is equipped with a tread design which is embossed on the retreaded tire. Upon completion of the curing process in the mold, the tire is finally inspected and is then ready for use as a retreaded tire.
The tread rubber that is applied to the tire casing by the Orbitread process cannot be used to retread a tire again. The molecular structure and chemical characteristics of the rubber are so altered by the curing process in the Orbitread machine that the viscosity of the rubber needed in retreading cannot be restored.
Under conventional processes tread rubber manufacturers convert slab stock rubber by an extrusion process, similar to the process performed by the Orbitread machine, into the form of tread rubber (camelback) suitable for use in recapping or retreading tires. Various die sizes of camelback are then sold to retreaders. The retreader manually applies bands of tread rubber to cement-coated buffed tire casings. Lengths of tread rubber are cut from rolls and fitted on the casing. Adjacent strips on the casing are spliced together. The retreaded tire is then cured in a mold in mcuh the same manner that the retreaded tire from the Orbitread machine is cured.
Under the conventional method, retreaders are required to maintain large inventories of various die sizes of tread rubber because of the great varieties of tires on the market and other factors. The operator of the Orbitread machine is not required to maintain any inventory of tread rubber. He carries only uncured rubber in strip, slab, or pellet form because the Orbitread machine will convert the uncured rubber into tread rubber and the size required can be obtained by selecting the proper data processing card.
A retreaded tire sells at retail at a price which is, on the average, about fifty percent of the price of a new tire. The average wholesale price of a retreaded tire is $8.50 and the average retail price is about $12.50. A customer may furnish his own tire carcass for retreading by the Orbitread process. The average price charged to such customer for retreading is about $12.50, same as the average retail price of a retreaded tire. A worn tire carcass has little or no economic value except for its use for retreading purposes. The advertising brochure accompanying the Orbitread machinery is entitled 'How to Apply a Better splice-free Tread,' and characterizes the Orbitread process as 'Better retreads at a lower cost.'
Appellant contends the court erred in adjudging that rentals from leases of Orbitread machines are not exempt from Missouri Sales Tax, asserting that the Orbitread machines and process fall within the exemption of Section 144.030.3(4), supra, for machinery and equipment used directly in manufacturing a product intended to be sold ultimately for final use or consumption.
'Manufacturing' is not defined in the Missouri Sales Tax x Law, and, as recognized by appellant, it has meanings which vary depending upon the circumstances of its use. Union Wire Rope Corp. v. Atchison, T. & S.F. Ry. Co., 66 F.2d 965 (8th Cir. 1933).
West Lake Quarry & Material Co. v. Schaffner, 451 S.W.2d 140, 143 (Mo.1970), cited City of Louisville v....
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