Wheeling Steel Corp. v. Porterfield

• Decision Date: 24 September 1970
• Docket Number: No. 70-2,70-2
• Citation: 24 Ohio St.2d 24,263 N.E.2d 249,53 O.O.2d 13
• Parties: , 53 O.O.2d 13 WHEELING STEEL CORP., Appellant, v. PORTERFIELD, Tax Commr., Appellee.
• Court: Ohio Supreme Court

Page 24

24 Ohio St.2d 24

263 N.E.2d 249, 53 O.O.2d 13

WHEELING STEEL CORP., Appellant, v. PORTERFIELD, Tax Commr., Appellee.

No. 70-2.

Supreme Court of Ohio.

Sept. 24, 1970.

Syllabus by the Court

Standard gauge rails, ties, spikes, switches, plates and other railroad auxiliary equipment used to construct a railroad system, which system is used by a steel manufacturer to transfer tangible personal property within and between its plants in the process of production for sale by manufacturing, processing, assembling, or refining, are transportation equipment excepted from sales and use taxation by virtue of former R.C. 5739.02(B)(18) and R.C. 5741.02(C)(2), without regard to whether the property becomes real property.

Appellant, a steel manufacturer, has plants at Steubenville and Mingo Junction, Ohio. In the steel-making process, beginning with molten iron, essential operations are conducted at both plants, and material in process is continuously moved by rail within and between the plants.

Involved herein are appellant's purchases of standard gauge rails, ties, spikes, switches, and other railroad equipment which were used to construct a railroad system, within and between the two plants, to transport its goods in the process of production. Although intended for permanent use, the rails and other equipment can be moved to different locations if desired. The Tax Commissioner assessed sales and use taxes on the purchases of the equipment. Wheeling Steel contends that such equipment is specifically excepted from sales and use taxes under former R.C. 5739.02(B)(18) (now R.C. 5739.02(B)(16), without change affecting this case), as that section read during the audit period (January 1, 1963, through December 31, 1965), and R.C. 5741.02(C)(2). ¹

A Tax Commissioner's rule (TX-1-01) classifies permanent standard gauge railroad tracks as real property for the purpose of taxation.

The Board of Tax Appeals acknowledged that the items were used to transport steel in various stages of manufacturing, but refused to allow the exception because the rails and related accessories were found to be real estate and therefore not entitled to the exception. From the decision of the Board of Tax Appeals, affirming the assessment order, Wheeling Steel has perfected an appeal to this court.

Dargusch & Day, Roger F. Day, Columbus, and Frances St. C. O'Leary, Pittsburgh, Pa., for appellant.

Paul W. Brown, Atty. Gen., and R. A. Malrick, Columbus, for appellee.

DUNCAN, Justice.

The narrow question before us is whether the property in issue is excepted from sales and use taxation by virtue of former R.C. 5739.02(B)(18) and R.C. 5741.02(C)(2). We hold that the railroad rails, ties, and related items are excepted from sales and use taxation.

Appellant's claimed exception, pursuant to former R.C. 5739.02(B)(18), actually is a case of first impression in this court. The cases cited by the parties (France Co. v. Evatt (1944), 143 Ohio St. 455, 55 N.E.2d 652; and Mead Corp. v. Glander (1950), 153 Ohio St. 539, 93 N.E.2d 19) were decided before former R.C. 5739.02(B)(18) was enacted. Compare G.C. 5546-2 with 129 Ohio Laws 1336 (effective January 2, 1962). The France and Mead cases were directly concerned with the definition of 'retail sale' in G.C. 5546-1, which is comparable to present R.C. 5739.01(E)(2). Former R.C. 5739.02(B)(18), the statute in issue in the present case, was not involved in either of those cases. Therefore, any reliance upon those cases must be made with cognizance of the statutory changes.

During the audit period former R.C. 5739.02(B) read as follows:

'(B). The tax does not apply to the following:

'* * *

'(18) Sales to persons engaged in manufacturing processing assembling, or refining, of protective shipping materials, or handling and transportation equipment, except motor vehicles licensed to operate on the public highways, used in intra or inter plant transfers or shipments of tangible personal property in the process of production for sale by manufacturing, processing, assembling, or refining, where the plant or plants within or between which such transfers or shipments occur are operated by the same person * * *.'

The exception therein covered two types of sales, i. e., sales to certain persons of protective shipping materials and sales to certain persons of handling and transportation equipment where the stated exceptions and qualifications are met. The instant case is concerned only with the latter exception.

For the exception to be available here, former R.C. 5739.02(B)(18) required only that the property be transportation equipment used in intra or inter plant transfers of tangible personal property in the process of production for sale by manufacturing where the plant or plants involved are operated by the same person. Both parties agree that the property involved is used for transportation within and between plants of personal property being processed, but disagree concerning the Tax Commissioner's position which, in effect, will permit exemption only if the property remains tangible personal property.

The fact that the tangible personal property may be used in such a way as to possibly become real estate has no relevance to the exception in question so...