Opinion
No. 37105
Decided February 14, 1962.
Taxation — Sales and use taxes — Exceptions — Property used or consumed in production of property for sale — Test for determination — When does manufacturing or processing begin and end — Is property used or consumed during such period — "Black top" business.
APPEAL from the Board of Tax Appeals.
This is an appeal from a decision of the Board of Tax Appeals affirming a sales and use tax assessment made by the Tax Commissioner on the purchase of equipment used by the appellant in the manufacture of hot mix bituminous concrete, commonly known as "black top."
The items involved in the assessment fall into three basic categories: (1) Purchases pertaining to vibrating and reciprocating feeders, belts and cold elevators; (2) purchases pertaining to electrical equipment used to operate such belts, feeders and elevators; and (3) purchases of tarpaulins and insulation for trucks used to haul the manufactured black top.
The use of these items in the manufacturing process is described by the Board of Tax Appeals (and there is no substantial disagreement thereon between the parties), as follows:
"* * * Aggregates of the kinds used in formulating hot mix bituminous concrete are placed in bins. * * * The different aggregates which become components of hot mix bituminous concrete are drawn by these bins through a hopper at the bottom of each bin onto a vibrating feeder. * * * The vibrating feeder has previously been set for a certain blend, and a minimum of two feeders, and normally three or four feeders, are used in making the product to highway department specifications.
"The aggregate is drawn from each bin in its proper proportions by the feeders and placed on a moving belt which carries it to the rotary dryer. The feeder belt maintains a proper flow to the dryer. At the end of the feeder the aggregates are mixed as they are dropped into the rotary dryer, where the mixture is then rotated, agitated, and where hot gases are drawn over and around the aggregate for the purpose of heating it to the desired temperature. The coarse and fine aggregates are dried, and their temperature elevated by this process in the dryer; and the aggregates are then deposited onto the boot of the hot elevator. There the material is collected, picked up by elevator buckets and taken to the screening unit. At this point the aggregates are graded more closely and separated into the proper proportion of correct sizes to meet specifications. The aggregates are deposited in the hot bin and then poured from the hot bins in proper size and weight by the weigh hopper. The weigh hopper then deposits these aggregates in the mixer, or pugmill, where it is dry mixed for 15 seconds and then liquid asphalt added for a wet mix cycle of 30 seconds before the completed product is deposited in the truck for delivery to its destination.
"There is testimony in the record relating to the purpose and function of the feeders used in the initial procedure. Such feeders are specifically required by the Ohio Department of Construction and Material Specifications * * *.
"The vibrating feeder is the bottom of a bin, or a plate with sides on it that is set under a bin which is vibrated by means of an electromagnet and which will deliver material from the bin when energy is applied from the electromagnet. The amount of aggregate delivered from the feeder will depend on the electrical energy input. Calibration of the feeders as to amounts of aggregate is accomplished by the use of a rheostat which varies the amperage into the feeder, and the amperage increases the amplitude of the feeder. The rheostats for the feeders are located in a central box where they are set and locked for a particular mixture, with a master rheostat which can be changed to determine total output. [The reciprocating feeder, used in two of appellant's four plants, has the same purpose and is used in substantially the same manner as the vibrating feeder just described.]
"* * *
"The witness [a highway department engineer] testified that the aggregate must come into the dryer in the proper proportion. Otherwise the temperature in the dryer would vary, all sand causing it to overheat, and all coarse aggregate to underheat, and the uniform temperature needed for the finished product could not be maintained. As the belt moves under the feeders, the aggregates are dropped on the belt in proper proportions, and the aggregates are intermingled only to the extent that one size aggregate is placed on top of a different size aggregate. * * *"
The Board of Tax Appeals held, so far as the items in the first category are concerned, that "the actual processing and the manufacturing of appellant's product did not commence until the raw materials, the aggregates, were discharged from the feeder belt onto the dryer. Up until that time there was merely storage and transportation of the raw materials to the place where the processing and manufacturing began."
The board held that the electrical equipment used to activate the items in the first category was likewise properly assessed "as being used only indirectly in the production of appellant's product for sale."
With respect to the items in the third category the board held "that said items were used by appellant subsequent to the time appellant's product was completely manufactured and processed and that said items had no connection whatsoever with the production of the product."
Messrs. George, Greek, King McMahon and Mr. Kiehner Johnson, for appellant.
Mr. Mark McElroy, attorney general, and Mr. Joseph L. White, for appellee.
The sole question to be decided is whether the purpose of the appellant, in purchasing these items, was "to use or consume the thing transferred directly in the production of tangible personal property for sale by manufacturing," thereby excepting the purchase of such items from the sales or use tax under the provisions of Sections 5739.01 and 5741.01, Revised Code.
With the items in the third category, i.e., the tarpaulins and insulation for trucks used to haul the manufactured product, we have no difficulty. These items were used subsequent to the completion of the manufacturing process, and we agree with the Board of Tax Appeals that they had no connection with the production of the product.
The taxability of the purchase of the electrical equipment used to activate the feeders must stand or fall on the determination of the taxability as to the feeders themselves. The factual determination as to the use of the feeders presents an extremely close question.
This court has adopted a physical test so far as the question involved herein is concerned and has stated the test in several opinions as follows: When does the manufacturing or processing activity begin and end, and is the property used or consumed during and in the manufacturing or processing period? See Youngstown Building Material Fuel Co. v. Bowers, Tax Commr., 167 Ohio St. 363, and cases cited therein.
The determination of any given question under this test almost always involves factual issues, many of which present extremely close questions. The Board of Tax Appeals is charged with the responsibility for making that factual determination, and if its determination is neither unreasonable nor unlawful it must be affirmed, even though some of the members of this court, sitting as members of the Board of Tax Appeals, might have reached different conclusions on the facts.
The following statement of this court in Hercules Galion Products, Inc., v. Bowers, Tax Commr., 171 Ohio St. 176, is appropriate here:
"When the General Assembly provided for a direct appeal to this court from a decision of the Board of Tax Appeals, it was certainly not its intention to make of this court a `super' board of tax appeals. The entire structure of the Department of Taxation and the Board of Tax Appeals, of necessity, requires some measure of finality in the Board of Tax Appeals.
"In a long line of cases this court has laid down certain rules in an attempt to define the words, `used directly in manufacturing,' etc. Having done so it must repose in the administrative appeal board the power to apply those rules to the different factual situations as they arise. It is not the function of this court to substitute its judgment for that of the Board of Tax Appeals on such factual issues but only to determine from an examination of the record whether the decision reached by the board is unreasonable or unlawful."
From an examination of the record in this case, this court is unable to find that the decision of the Board of Tax Appeals is unreasonable or unlawful, and the decision is, therefore, affirmed.
Decision affirmed.
WEYGANDT, C.J., ZIMMERMAN, MATTHIAS and BELL, JJ., concur.
TAFT and O'NEILL, JJ., concur in part and dissent in part.
HERBERT, J., not participating.
I concur in the judgment with regard to the tarpaulins and insulation for trucks used to haul the manufactured black top.
I dissent from the judgment with regard to the vibrating and reciprocating feeders and the electrical equipment used to operate such feeders.
I concur with the Board of Tax Appeals in its summary of the facts which are not in dispute.
It is undisputed that the feeders are used to determine the necessary and proper proportions of material to be used in the manufacture of this product. If this determination is not accurate, this product will fail to meet required specifications and will be unusable.
This process of determination of the proper proportions is a part of the "processing and manufacturing" and not merely storage and transportation of raw materials. The electrical equipment which operates the feeders is, therefore, also a part of the "processing and manufacturing" of this product.
TAFT, J., concurs in the foregoing opinion by O'NEILL, J.