Stoneco, Inc. v. Limbach

• Decision Date: 29 August 1990
• Docket Number: No. 89-1841,89-1841
• Citation: 560 N.E.2d 578,53 Ohio St.3d 170
• Court: Ohio Supreme Court
• Parties: STONECO, INC., Appellant, v. LIMBACH, Tax Commr., Appellee.

Page 170

53 Ohio St.3d 170

560 N.E.2d 578

STONECO, INC., Appellant, v. LIMBACH, Tax Commr., Appellee.

No. 89-1841.

Supreme Court of Ohio.

Submitted May 29, 1990.

Decided Aug. 29, 1990.

Syllabus by the Court

1. For the tangible personal property tax and, consequently, for the R.C. 5733.061 investment credit, manufacturing is the commercial use of engines, machinery, tools, and implements to convert material into a new form, quality, property, or combination and into a more valuable commodity for sale. (Schumacher Stone Co. v. Tax Comm. [1938], 134 Ohio St. 529, 13 O.O. 161, 18 N.E.2d 405, overruled.)

2. Engines, machinery, tools, and implements that are synchronized into the manufacturing operation so that they are indispensable to the manufacture of the marketable commodity are used in manufacturing for the personal property tax and qualify for the R.C. 5733.061 investment credit.

Stoneco, Inc., appellant, produces aggregate, or crushed stone, for the construction industry. It obtains limestone for the aggregate from its quarries. Stoneco first removes the overburden with bulldozers and then blasts the limestone from the quarry's "high wall" with TNT or other explosives, breaking the limestone into "shot rock." With knowledge of the high wall's geological formation, Stoneco can set the dynamite charges strategically and blast the high wall so that the shot rock is of a size that can be readily moved by truck. After blasting, the shot rock falls into a "muck pile."

Stoneco conveys the shot rock in trucks to the primary crusher, which breaks the shot rock into smaller pieces. Stoneco then crushes the smaller pieces into still smaller sizes, screens the aggregate, sorts it into particular sizes, and holds it according to size. (See Appendix.) Using a specification booklet prepared by the Ohio Department of Transportation, Stoneco screens variously sized aggregates to meet a customer's specific order. Stoneco's products range in size from large aggregate to sand and agricultural limestone, a powder.

Stoneco applied for a corporate franchise tax refund for the tax year 1980, alleging erroneous failure to claim an investment tax credit. Before the commissioner, Stoneco claimed that it manufactured aggregate and that equipment employed in its operations qualified for the investment credit under R.C. 5733.061. The Tax Commissioner, appellee, disagreed and denied the application.

On appeal, the Board of Tax Appeals ("BTA") affirmed the commissioner's order. The BTA relied on Schumacher Stone Co. v. Tax Comm. (1938), 134 Ohio St. 529, 13 O.O. 161, 18 N.E.2d 405, in which the court held that crushing and screening limestone into marketable sizes of aggregate was not manufacturing under the personal property tax law. The board concluded that Stoneco's operation was indistinguishable from Schumacher's operation. Member Hammond stated, in a concurring opinion, that she voted as she did because of stare decisis. Chairman Sweeney, on the other hand, dissented and urged the BTA to recognize, and give effect to, modern technology.

This cause is now before this court upon an appeal as of right.

Arter & Hadden, R. Douglas Wrightsel and Brendan W. Kelley, Columbus, for appellant.

Anthony J. Celebrezze, Jr., Atty. Gen., and James C. Sauer, Columbus, for appellee.

PER CURIAM.

For the tax year at issue, R.C. 5733.061 granted the following franchise tax credit for investing in property used in manufacturing:

"A credit shall be allowed against the tax imposed by Chapter 5733. of the Revised Code for each taxable year. The credit shall equal the lesser of the amount of tax otherwise due under such chapter or the difference between:

"(A) The tangible personal property taxes timely paid in the taxable year that were charged against engines, machinery, tools, and implements owned by the taxpayer, listed for taxation in this state under section 5711.16 of the Revised Code as used or designed to be used in refining or manufacturing, and acquired on or after January 1, 1978; minus

"(B) The taxes that would have been charged against such property and paid during such year had it been listed and assessed for taxation at twenty per cent of its true value." Am. Sub. H.B. No. 828 (137 Ohio Laws, Part II, 3500, 3502-3503).

R.C. 5711.16 states:

"A person who purchases, receives, or holds personal property for the purpose of adding to its value by manufacturing, refining, rectifying, or combining different materials with a view of making a gain or profit by so doing is a manufacturer. * * *"

Stoneco argues that it manufactures marketable commodities (aggregate, sand, and agricultural limestone) from unmarketable material (limestone) and, consequently, that its equipment qualifies for credit. The commissioner, conversely, contends that Schumacher Stone Co. is indistinguishable and that the crushing and screening of limestone is not manufacturing. The issue before us is closely balanced and difficult to resolve. Nevertheless, we think Stoneco advances the better argument.

We agree with the commissioner that Schumacher Stone Co. is factually indistinguishable from the instant case. Schumacher blasted stone from its quarry and carted the stone to a primary crusher, where it crushed the stone to smaller stone. It then crushed the stone in successive crushers, separated the larger pieces with vibrating screens, and continued this process until it produced a variety of marketable grades of aggregate. Schumacher also produced agricultural limestone.

The court there held that Schumacher started with stone and sold stone. It reasoned that Schumacher did not apply skill or labor to make the particles of stone conform to any particular shape or design. After reviewing cases from other jurisdictions, the court concluded that the BTA's predecessor, the Tax Commission, had ample reason and authority to find that Schumacher's operations were not manufacturing.

However, we have travelled away from this narrow view in defining "manufacturing" for the personal property tax. In Red Top Brewing Co. v. Bowers (1955), 163 Ohio St. 18, 25, 56 O.O. 8, 11, 125 N.E.2d 188, 192, we admitted our inability to reconcile the conclusion of Cleveland-Cliffs Iron Co. v. Glander (1945), 145 Ohio St. 423, 31 O.O. 39, 62 N.E.2d 94, an ore mining and processing case which relied on and explained Schumacher Stone Co., with the reasoning of Middletown Iron & Steel Co. v. Evatt (1941), 139 Ohio St. 113, 22 O.O. 101, 38 N.E.2d 585, (preparing scrap metal for consumption in steel manufacturing was manufacturing) or the decision in Eastern Machinery Co. v. Peck (1953), 160 Ohio St. 144, 51 O.O. 57, 114 N.E.2d 55 (purchasing and reconditioning used machine tools and then reselling them was manufacturing). We said that failure to recognize that the personal property tax statutes tend to broaden the traditional definition of manufacturer or manufacturing, as we had noted in Eastern Machinery Co., had led to inconsistent decisions.

In Eastern Machinery Co., after explaining that statutes relating to the personal property tax broadened the definition of manufacturing, we stated that the statutes do not require that the articles be used or consumed "directly" in the production of property, as in the sales tax. Instead, " * * * articles which are manufactured or changed in any way either by combining them or adding thereto are entitled to enjoy the status of * * * [manufactured personal property]." Id. at 150, 51 O.O. at 60, 114 N.E.2d at 58. We also quoted from Miller v. Peck (1952), 158 Ohio St. 17, 20, 47 O.O. 485, 486, 106 N.E.2d 776, 778, in which we held that operating a commercial hatchery was manufacturing:

"The term, 'manufacturing,' is otherwise defined as the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand labor or by machinery. * * *

"Usually, where,...