State v. U.S. Steel Corp.
| Decision Date | 11 January 1968 |
| Docket Number | 6 Div. 395 |
| Parties | STATE v. UNITED STATES STEEL CORPORATION. |
| Court | Alabama Supreme Court |
MacDonald Gallion, Atty. Gen., Willard W. Livingston and Herbert I. Burson, Jr., Asst. Attys. Gen., for appellant.
Thomas, Taliaferro, Forman, Burr & Murray, Birmingham, for appellee.
This case was tried in Circuit Court of Jefferson County, in Equity, as an appeal by the United States Steel Corporation from a final assessment of sales taxes and interest in the amount of $217,154.47. The assessment was for sales taxes asserted to be due upon sales of oxygen to United States Steel during the period 1 May 1961 through 30 April 1964. The oxygen was used in the course of manufacturing steel in the open hearth furnaces of the company at its Fairfield Works in Jefferson County, Alabama.
The basic issue in the case was whether the sales of oxygen on which the assessment was based were retail sales subject to the retail tax, or whether they were wholesale sales which were not subject to the tax.
The taxing statutes involved in this appeal are Sections 786(2)(1)(i) and 786(2)(1)(j) of Title 51 Code of Alabama 1940 (Pocket Part).
The portion of Section 786(2)(1)(i) pertinent to this review reads:
'The term 'wholesale sale' shall include a sale of tangible personal property or products (including iron ore) to a manufacturer or compounder which enters into and becomes an ingredient or component part of the tangible personal property or products which he manufactures or compounds for sale, and the furnished container and label thereof * * *.'
The pertinent portion of Section 786(2)(1)(j) provides:
'The term 'sale at retail' or 'retail sale,' shall mean all sales of tangible personal property except those above defined as wholesale sales * * * Sales of tangible personal property or products to manufacturers, quarry operators, mine operators, or compounders, which are used or consumed by them in manufacturing, mining, quarrying or compounding and do not become an ingredient or component part of the tangible personal property manufactured or compounded are retail sales * * *.'
Also involved in this review are two rules promulgated by the Department of Revenue in January 1951, as amended in August 1960.
Rule W27--151, in pertinent part, reads:
'Raw Materials and Supplies Purchased by Manufacturers and Compounders.--The ingredients and/or materials purchased by manufacturers and compounders to become a part of the property manufactured or compounded for sale are purchased at wholesale, tax free, by such manufacturers and compounders * * *.'
Rule W27--171 reads:
'For Example:
'Detergents used in textile manufacturing and chlorine used in purifying aluminum which can be found in small amounts in the finished products where they serve no useful purpose are subject to tax.
'Softeners used in finished textiles which give the finished product a desired 'soft feel' are purchased at wholesale tax free.'
After a hearing, the Chancellor entered a final decree as follows:
'Upon careful consideration, this Court is of the opinion and concludes that the Appellant has successfully met the burden resting upon it to prevail on its appeal, the Court being persuaded that the sales of oxygen to Appellant used by it in steel manufacturing were wholesale sales under the statutes and departmental rules and the governing case law inasmuch as a portion of this oxygen became an ingredient or component part of products manufactured for sale serving a useful purpose in same and being intended to remain therein.
'It is accordingly ORDERED, ADJUDGED, DECLARED AND DECREED by the Court that that certain final assessment of sales tax against Appellant, United States Steel Corporation, entered by the Department of Revenue of Appellee, State of Alabama, on to-wit the 4th day of August 1965, in the amount of $217,154.47, inclusive of interest, be and the same hereby is vacated and set aside, same being erroneously based upon wholesale sales not subject to the sales tax, and the Appellant, United States Steel Corporation is entitled to a refund of the aforesaid amount paid by it on August 18, 1965, together with interest thereon at the rate of 6% Per annum from the said date of payment until said refund is made.'
From this decree the state has perfected this appeal.
The appellee manufactures steel in open hearth furnaces. In this operation it uses large quantities of lance, or pure oxygen, which is injected into the molten metal in the furnace by means of 'lances' lowered through the roof of the furnace. The oxygen is blown into the molten metal under high pressure, and is dispersed throughout the molten metal.
Steel cannot be manufactured in open hearth furnaces without oxygen from some source, and prior to the use of lance oxygen it was necessary to continue adding iron ore to the molten metal in the furnace.
The primary purpose of adding oxygen is to regulate the carbon content of the steel.
All steel produced in open hearth furnaces contains some amount of oxygen, and the presence of oxygen in steel is detectable by analysis.
Slag, a by-product of the manufacture of steel in open hearth furnaces, is composed almost exclusively of various oxides, the oxides of phosphorous and manganese in the slag being the basis of its value as a fertilizer or soil conditioner. In the three years covered by the assessment, the appellee sold $3,070,000 worth of slag.
It is undisputed that a considerable quantity of oxygen remains in the slag, and that some oxygen also remains in the steel.
Some five metallurgists testified as experts in the proceedings below, four for the appellee company and one for the state. All of the witnesses are recognized as of outstanding competency in the field of metallurgy.
Mr. Robert J. King, of the Applied Science Research Laboratory of the United States Steel Corporation, stated he had observed steel making in the open hearth furnaces of the appellee in its Fairfield Works. Motion pictures of this process, including the injection of lance oxygen were received in evidence. Mr. King testified that it was the intent and purpose in injecting lance oxygen in the manufacturing process to cause the oxygen to enter into and become a component part of the molten metal, and that the oxygen was an essential raw material without which steel could not be produced.
Mr. King further testified that an experiment had been performed at the Applied Science Laboratory, under his supervision, which simulated the steel making process at appellee's works. A tracer isotope of oxygen was used to determine whether a portion of the lance oxygen remained in the finished steel. By this experiment, Mr. King determined that 1.77% Of the lance oxygen remained in the steel produced in the laboratory. A detailed report of this experiment was received in evidence.
Mr. King further testified that based on his general knowledge, education, and experience, as well as the experiment he performed, it was his opinion that from 1/10 of 1% To 1% Of the lance oxygen used in manufacturing steel at the Fairfield Works remained in the steel as an ingredient or component part of the finished steel.
Mr. King testified that the presence of oxygen in all types of steel--rimmed, capped, killed, and semi-killed--controls the qualities and characteristics of its ingot structure, and contributes to a degree to the strength, hardness, and smoothness of steel.
The films received in evidence also tend to establish the effect of oxygen on ingot...
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