Opinion
No. 78-274
Decided December 7, 1978.
Taxation — Personal property — Exemptions — Pollution control facility — Property not exempt, when.
APPEAL from the Board of Tax Appeals.
Appellant, Sun Oil Company, owns and operates a petroleum refinery at Oregon, Ohio, which processes approximately 110,000 barrels of crude oil daily. Until 1973, appellant employed in its refinery houdriflow catalytic crackers which, although not functionally obsolete, failed to operate in compliance with the existing air pollution regulations. Consequently, appellant determined it was necessary to discontinue use of the houdriflow unit and to replace it with a fluid catalytic cracking (FCC) unit. After submitting plans and specifications to state environmental agencies, appellant caused to be constructed and installed, at a cost of $29,990,201, an FCC unit which possessed the capability of operating in compliance with existing environmental regulations.
Pursuant to the requirements of R.C. 5709.21 et seq., appellant filed with the Tax Commissioner an application for the issuance of an air pollution control certificate designating appellant's newly acquired processing machinery a "pollution control facility," as defined by R.C. 5709.20(B), thereby making portions of the FCC unit eligible for exemption from taxation. Appellant also submitted a detailed accounting of the expenditures involved in the construction and installation of the FCC unit. For evaluation purposes, appellant's accounting divided the FCC unit into eight major subdivisions, each representing a primary mechanical part of the unit. Thereafter, the costs relating to the various components were classified into either engineering items, direct labor and materials, or proratables. Each cost was then posted to one of the above major subdivisions of the FCC unit.
Appellant's application and supporting documents were forwarded to the Ohio Environmental Protection Agency (EPA) for the purpose of securing its recommendation for the issuance of an exemption certificate. On March 1, 1976, the EPA determined that appellant's FCC unit qualified in part for a certificate, and that the cost of the portion of the unit which represented equipment used exclusively for air pollution control totaled $5,096,688.75. This finding was adopted by the Tax Commissioner on March 31, 1976, who thereafter issued Air Pollution Control Certificate No. 1931.
Appellant, in accordance with the provisions of R.C. 5709.24 and 5717.02, appealed the Tax Commissioner's determination arguing, inter alia, that the cost of the portion of the FCC unit used exclusively for air pollution control was $26,175,308, this amount representing the difference between the cost of the FCC unit, $29,990,201, and the true value of the houdriflow unit at the time it was replaced, $3,814,893. Appellant argued further that the commissioner erred in refusing to (1) include the cost of various parts of the FCC unit as tax exempt property, and (2) allocate between the tax exempt and non-exempt components of the FCC unit $910,161 in management expenses paid to the general contractor and $3,736,740 in off-site expenses paid to contractors other than the general contractor.
By decision dated January 31, 1978, the Board of Tax Appeals found appellant's FCC unit to be an "air pollution control facility" as defined by R.C. 5709.20(B), but rejected appellant's claim that the difference between the cost of the FCC unit and the value of the houdriflow unit constituted the amount appellant should receive as a tax exemption.
The board concluded that the procedure employed by appellant, which allocated the cost of the FCC unit between its various components and subcomponents and enabled the commissioner to determine which portion of the unit is used exclusively for pollution control, was proper. Based upon an analysis of the function performed by the disputed components of the unit, the board affirmed the commissioner's finding that the disputed items were not exempt from taxation. However, the board reversed the commissioner's decision that the $910,161 in management expenses could not be allocated between the exempt and non-exempt costs of the unit. After adjusting the commissioner's exemption calculations to remedy clerical errors, the board held that the aggregate cost of machinery entitled to a tax exemption was $4,289,378.25.
The cause is now before this court upon an appeal as of right.
Messrs. Eastman, Stichter, Smith Bergman, Mr. James E. Kline, Mr. David L. Kuhl and Mr. C. Steven LeBaron, for appellant.
Mr. William J. Brown, attorney general, and Mr. James C. Sauer, for appellee.
The issue to be resolved in this cause is whether the determination of the Board of Tax Appeals not to exempt from taxation various components and costs of appellant's "pollution control facility," was reasonable and lawful. R.C. 5717.04; Transue Williams, Inc., v. Lindley (1978), 54 Ohio St.2d 351, 376 N.E.2d 1341.
R.C. 5709.21, in applicable part, authorizes the Tax Commissioner to exempt from taxation facilities "designed primarily for the control of air * * * pollution," if such facilities are reasonably adequate and intended for such purpose. The statute provides further that the amount of the exemption shall be calculated based upon the value of that portion or part of the facility "used exclusively for air * * * pollution control."
At the outset, appellant contends that the General Assembly, in providing that only property "used exclusively for air * * * pollution control" is eligible for exemption from taxation pursuant to R.C. 5709.21, did not intend to tax property whose purpose is primarily pollution control but which also provides incidental benefits to the taxpayers's production processes.
The constitutional requirement of tax uniformity is pro tanto violated by statutes which exempt property from taxation. Statutory language, when construction is required, must be construed most strongly against the exemption. Transue Williams, Inc., v. Lindley, supra; Ohio Ferro-Alloys Corp. v. Donahue (1966), 7 Ohio St.2d 29, 218 N.E.2d 452.
Thus, this court has generally disallowed a tax exemption when property required to be "used exclusively for charitable purposes," under R.C. 5709.12, serves both a charitable purpose and an incidental private one (see, e.g., Philada Home Fund v. Bd. of Tax Appeals, 5 Ohio St.2d 135, 214 N.E.2d 431) or when public property required by statute to be "used exclusively for a public purpose," pursuant to R.C. 5709.08, is found to serve public and private objectives. See, e.g., Dayton v. Roderer (1977), 50 Ohio St.2d 159, 363 N.E.2d 740; Cleveland v. Perk (1972), 29 Ohio St.2d 161, 280 N.E.2d 653, citing at page 166: Carney v. Cleveland (1962), 173 Ohio St. 56, 180 N.E.2d 14; Troy v. Board (1954), 160 Ohio St. 451, 116 N.E.2d 725; Division v. Board (1948), 149 Ohio St. 33, 77 N.E.2d 242; and Cincinnati College v. State (1850), 19 Ohio 110. Hence it is our conclusion that R.C. 5709.21, which exempts from taxation personal property "* * * used exclusively for air * * * pollution control," does not permit exemption of property which serves a pollution control purpose and also provides an incidental function which benefits the taxpayer's production processes.
The General Assembly defined the meaning of the term "used exclusively for charitable or public purposes" in R.C. 5709.121, effective October 24, 1969. All pertinent prior inconsistent interpretations of the phrase have yielded to this legislative mandate. Galvin v. Masonic Toledo Trust (1973), 34 Ohio St.2d 157, 296 N.E.2d 542. However, no such guidance has been provided for us in the field of air pollution control equipment. Apparently, in this case, the General Assembly intended that "exclusively" should mean "exclusively."
Appellant argues further that the board incorrectly determined that $3,736,740 in off-site costs disbursed by appellant were ineligible for exemption because these costs did not augment the overall aggregate value of the FCC unit. Appellant maintains that these costs constitute a portion of the aggregate value of the unit and that the board's determination not to allocate these off-site costs between the exempt and nonexempt portions of the unit was unreasonable and unlawful.
The record shows that the board included the $3,736,740 in off-site costs when it computed the aggregate value of the FCC unit and, therefore, it incorrectly stated that such costs do not constitute a part of the unit's aggregate value.
This error does not, however, warrant a reversal of this cause. The board, after weighing the evidence, held that appellant did not establish that these costs augmented the value of any of the specific components of the FCC unit found to be exempt. It is a familiar rule that in order for a taxpayer to derive the benefit of a statutory exemption from taxation, it must be proven that the property in question satisfies each and every requirement of the exempting statute. Dayton Sash Door Co. v. Kosydar (1973), 36 Ohio St.2d 120, 304 N.E.2d 388; Ohio Children's Society v. Porterfield (1971), 26 Ohio St.2d 30, 268 N.E.2d 585. Appellant's evidence does not establish that these off-site costs related to specific items of property used exclusively for air pollution control.
For example, appellant's accounting worksheets merely itemized each off-site expenditure without reference to the part of the FCC unit to which they were related. Moreover, appellant demonstrated that various off-site costs were disbursed for the design, construction and installation of the entire unit, but failed to show a relationship between the costs and the specific components of the unit used exclusively for air pollution control.
Wide discretion is given the board in evaluating the evidence presented before it and, absent a showing that the board's findings are unlawful or unreasonable, this court will not impose its judgment on factual matters. Monsanto Co. v. Lindley (1978), 56 Ohio St.2d 59, 381 N.E.2d 939; Buckeye Power v. Kosydar (1973), 35 Ohio St.2d 137, 298 N.E.2d 610 (paragraph one of the syllabus).
The decision of the Board of Tax Appeals is affirmed.
Decision affirmed.
LEACH, C.J., HERBERT, CELEBREZZE, W. BROWN and SWEENEY, JJ., concur.
P. BROWN and LOCHER, JJ., dissent.
Where, in the erection of a facility any portion of expense can be identified as required exclusively for air pollution control, a certificate of exemption is authorized by R.C. 5709.21. The purpose of this and related sections is to encourage design which brings about cleaner air. Inherent in the overall scheme is recognition of the fact that such design usually results in greatly increased expense. Such expense if clearly identifiable is certifiable as exempt. The "black box" or "component" approach to exemption used by the Board of Tax Appeals is in my opinion destructive of legislative intent evident in the statute.
LOCHER, J., concurs in the foregoing dissenting opinion.