State ex rel. Dravo Corp. v. Spradling

• Decision Date: 12 November 1974
• Docket Number: No. 2,No. 58517,58517,2
• Citation: 515 S.W.2d 512
• Parties: STATE ex rel. DRAVO CORPORATION and Pilot Knob Pellet Company, Appellants, v. James R. SPRADLING, Director of the Department of Revenue, State of Missouri, Respondent
• Court: Missouri Supreme Court

Page 512

515 S.W.2d 512

STATE ex rel. DRAVO CORPORATION and Pilot Knob Pellet Company, Appellants, v. James R. SPRADLING, Director of the Department of Revenue State of Missouri, Respondent.

No. 58517.

Supreme Court of Missouri, Division No. 2.

Nov. 12, 1974.

Greensfelder, Hemker, Wiese, Gale & Chappelow, Mark R. Gale, F. Roger Hemker, St. Louis, Carson, Inglish, Monaco & Coil, Jefferson City, for appellants.

John C. Danforth, Atty. Gen., Mark D. Mittleman, Robert Presson, Asst. Atty. Gen., Jefferson City, for respondent.

HENRY I. EAGER, Special Commissioner.

This proceeding involves the assessment of 'sales and/or use taxes' on machinery and equipment purchased, assembled and installed by Dravo Corporation in a new iron ore pelletizing plant owned and to be operated by Pilot Knob Pellet Company near Pilot Knob, Missouri. The amounts of taxes so assessed, in two assessments, were $98,840.37, of which $93,131.94 is in issue here. The principal issue calls for a construction of § 144.030, subd. 3(4), RSMo 1969, V. A.M.S. ¹, which provides for certain exemptions from the tax. We have jurisdiction because the case involves a construction of the revenue laws.

The facts are stipulated. On or about June 1, 1966, Dravo entered into two contracts with the Pellet Company, one for the construction of the plant buildings themselves (not involved here) and the other for the furnishing of 'all material, labor and equipment' called for in a personal property contract and necessary 'for the establishment' of the new facility. Dravo purchased, assembled and installed all such machinery and equipment during 1967 and 1968. The total contract price for this was $3,294.679; it is conceded that $190,281 of that amount was for personal property not used directly in manufacturing, mining or fabricating' (which is the basis of the exemption). This latter element reduced the present claim for refund from $98,840.37 to $93,131.94. Under the contract the Pellet Company assumed responsibility for 'any sales and use taxes due * * *.' This was a new 'manufacturing mining and fabricating plant consisting of a mine, a concentrator and pelletizer for the recovery and processing of iron ore.' Its capacity was one million tons a year. The final product consists of concentrated iron ore pellets, all of which were and are sold by the Pellet Company to Granite City Steel Company. It is stipulated that the machinery and equipment so furnished 'was used to establish Pellet Company's said new * * * plant.' A copy of the contract is attached to the petition filed in the Circuit Court, but its details are immaterial to our issue. The Pellet Company mines iron ore, grinds it, screens it, separates the foreign materials, and forms the concentrated material into hardened and superheated pellets. Dravo furnished and installed the machinery and equipment for doing all this work and turned over a completed plant. That machinery and equipment is the subject of the present tax.

Dravo paid the assessments under protest, and filed its claim for refund. This was denied by the Director of Revenue on March 24, 1972. On April 18, 1972, Dravo and Pellet Company filed in the Circuit Court of Cole County, in three counts, their Application for a Writ of Mandamus, Petition for Review, and Petition for Declaratory Judgment. An Alternative Writ of Mandamus was issued. The Director duly filed his return to the Alternative Writ and his answers, which, in substance, raised only the legal issues now involved. After a hearing, the Court quashed the Alternative Writ of Mandamus, affirmed the 'Decision and Order' of the Director of Revenue and held that the property in question was subject to the Sales and Use Tax. In so doing it made findings substantially the same as the facts already related. The assessments were made against Dravo, and not the Pellet Company. In its conclusions of law, the Court held that the personal property in question was 'used and consumed' by Dravo in the performance of its contract and that it was not, therefore, exempt from the tax, and it likened the situation to that of a contractor in an ordinary construction contract (City of St. Louis v. Smith, 342 Mo. 317, 114 S.W.2d 1017 (1937)). An appeal was taken before the judgment became final. Rule 81.05, V.A.M.R.

We comment briefly on the various forms of relief sought here. A petition for review was an adequate remedy under § 536.100, since the Director admits that appellants had exhausted their administrative remedies, and this was clearly a 'contested case.' That procedure was recognized in Heidelberg Central, Inc. v. Director of Dept. of Revenue, 476 S.W.2d 502 (Mo.1972), and Southwestern Bell Telephone Company v. Morris, Director of Revenue, 345 S.W.2d 62 (Mo. banc 1961). The application for a writ of mandamus and the petition for declaratory judgment were really surplusage, but did no harm. We consider the matter as on petition for review.

The applicable part of the statute in question, § 144.030, subd. 3, (4), being part of that section providing exemptions from the sales tax, is as follows: '3. There are also specifically exempted from the provisions of sections 144.010 to 144.510 and 144.600 to 144.745 and from the computation of the tax levied, assessed or payable under sections 144.010 to 144.510 and 144.600 to 144.745: * * * (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; * * *.' We note here that the exemption specified above applies not only to the sales tax but also to the use tax, §§ 144.600--144.745.

Appellants say that the requirements of the statute are: (1) that the personal property be of the class described, i.e., 'machinery and equipment'; and (2) that it be used for the purpose described. The Director says that a further requirement is implied, namely, that the person claiming the exemption be the one who uses the property for the purpose specified in the statute. Stated in another way, the Director admits that the ultimate use by Pellet Company was for a purpose provided by statute, but says that Dravo was subject to the tax because it used and consumed the property, not to fabricate or manufacture a product, but to fulfill its contract. The question really boils down to this: Does the fact that Pellet Company procured the machinery and equipment through a contract with Dravo, and not through direct purchase, nullify the exemption? It is stipulated that Pellet Company is, by the terms of its contract, ultimately liable for the tax, if applicable. It is also conceded that the property involved was 'machinery and equipment,' that (by the wording of the stipulation) it 'was used to establish Pellet Company's said new * * * facility' in Missouri, and that it is used directly in 'manufacturing, mining or fabricating.' The evidence is conclusive that the end product was sold 'for final use or consumption.'

There are no Missouri cases really in point. The Director relies on City of St. Louis v. Smith, 114 S.W.2d 1017 (Mo.1937). There the question was whether the City had to pay sales taxes on materials used in paving streets, constructing a sewer and a hospital. The jobs were let under contract and the prices were fixed. The tax involved was stated by the statute to be upon 'retail sales,' and a 'retail sale' was defined as 'any transfer * * * of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale * * *.' The contractor agreed to furnish all labor and material, and it bought the materials. It was held that the contractor used and consumed the materials in creating the projects, which became and were something different from the materials themselves; that he did not resell them, and that he was liable for the tax. That decision did not involve an exemption provision, but merely a determination as to whether there was a retail sale and, if so, who was liable for the tax as the user and consumer. No 'machinery and equipment' were involved, only ordinary building or construction materials which essentially disappear into a job when used. The real holding seems to have been that on a purchase and use of such ordinary building materials, to be used in the construction of a building, sewer or similar project, the contractor is the user. The Director argues that this makes Dravo the user in our case. There are substantial distinctions. Our case does not involve the construction of a building or any similar project; the goods here were not ordinary building materials but a complex and wholly different type of personal property, already fabricated and needing only to be assembled and installed intact as a permanent part of the final project. But the chief difference is that this particular type of property was covered by the specific exemption which broadly specifies the 'use,'--i.e., to 'establish new * * * manufacturing, mining or fabricating plants,' and that there is no doubt that the machinery and equipment were actually applied to that use. Our statute does not refer to the identity of the user, but only to a use for the designated purpose. The determination of who made the 'use' here is only introduced into the case because the Director insists that a question of identity is implied. The question on our facts is whether the use qualifies under the exemption statute upon its own wording. Giving to the word 'use' its plain and ordinary meaning (Berry-Kofron Dental Laboratory v. Smith, 345 Mo. 922, 137 S.W.2d 452 (1940)) it is clear that the real use here was by the Pellet Company and that it does qualify; the 'use' was not the assembly of the machinery, but its installation, inclusion and use in the completed plant. Dravo only had temporary possession for a...