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In re Appeal of LaFarge Midwest/Martin Tractor Co., Inc.

Tax Court of Kansas

September 11, 2013

IN THE MATTER OF THE APPEAL OF LAFARGE MIDWEST/MARTIN TRACTOR CO., INC. FROM AN ORDER OF THE DIVISION OF TAXATION ON ASSESSMENT OF SALES TAX

ORDER DENYING THE KANSAS DEPARTMENT OF REVENUE'S MOTION FOR SUMMARY JUDGMENT

JOELENE R. ELLEN, SECRETARY

NOW the above-captioned matter comes on for consideration and decision by the Court of Tax Appeals of the State of Kansas. On May 15, 2008, oral arguments were heard on a motion for summary judgment filed by the Kansas Department of Revenue (the "Department"), which appeared by its attorney of record, Alice Leslie Rawlings. The taxpayer, LaFarge Corporation ("LaFarge"), appeared by its attorney of record, Gerald Capps.

I.

This is an appeal from a final written determination by the Department denying LaFarge's request for a refund of sales tax in the amount of $16, 217.05, plus interest, paid on purchases of parts for Caterpillar loaders and haulers used by LaFarge in its cement manufacturing enterprise. LaFarge's refund request is based on the statute exempting repair and replacement parts for exempt machinery and equipment under K.S.A. 79-3606(kk)(l)(C).

This court has jurisdiction of the subject matter and the parties pursuant to K.S.A. 2008 Supp. 74-2438.

II.

The Department sets out in its summary judgment memorandum thirty (30) statements of fact which it asserts are uncontroverted. As evidentiary support the Department cites to its own notices and final written determinations as well as to statements contained in the prehearing order filed April 7, 2008. The Department also references an aerial photograph of the LaFarge facility and a DVD about cement manufacturing, in general, and LaFarge's Fredonia operation, in particular. The Department has come forward with no affidavits, deposition testimony, answers to interrogatories, admissions or other evidence to support its factual assertions.

In its responsive memorandum, LaFarge disputes, or otherwise objects to, nine (9) of the Department's statements of fact, pointing to various assertions not supported by the record. LaFarge also offers two affidavits opposing the Department's assertions, one from the LaFarge plant manager and the other from the LaFarge controller.

III.

Summary judgment is appropriate where the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. K.S.A. 60-256(c); Mitzer v. State Department of SRS, 891 P.2d 435 (Kan. 1995). Summary judgment is proper where the only questions presented are questions of law. Holmes v. Unified School Dist. No. 259, 46 P.3d 1158 (Kan. 2002).

An object of summary judgment is to test whether the parties have any real support for their version of the facts. See Mays v. Ciba-Geigy Corp., 661 P.2d 348 (Kan. 1983). Summary judgment, nevertheless, is a drastic remedy. See Herl v. State Bank of Parsons, 403 P.2d 110 (1965). The movant has the strict burden of showing that there is both no genuine issue of material fact and that judgment as a matter of law is warranted. See Saliba v. Union Pacific R.R. Co., 995 P.2d 1189 (1998).

IV.

An independent review of the record reveals that while the parties clearly disagree about how the record evidence should be interpreted and what legal conclusions should be drawn, there is no genuine dispute concerning the basic facts controlling resolution of the issues presented. There is no material disagreement concerning how the LaFarge operation is configured and operated, how ingredients are conveyed and combined to make concrete, or where the various activities are conducted on the premises.

Following is a neutral rendering of the record evidence. LaFarge manufactures cement at its manufacturing plant in Fredonia, Kansas. Its operation consists of various activities, all of which occur on contiguous property owned by LaFarge. The first step in the enterprise is to obtain limestone rock and other raw materials from a quarry on site using controlled explosives. Once blasted from the quarry face, loose raw materials are scooped from the quarry floor by loaders and dumped into haulers. The haulers transport the materials over roads to crushing machines called hammermills, where the materials are crushed into pieces approximately the size of hard hats. These pieces are then conveyed from the hammermills to secondary crushers, where further reduction of the materials occurs. From there the materials are mixed with river water and fed into rotating ball mills, which combine the ingredients into fine slurry. The slurry is pumped into a network of blending and storage tanks and then sent to rotary kilns. During the kiln burning operation a substance called clinker is produced. The clinker is conveyed to finish mills, where gypsum is added. This mixture is then ground into a fine substance called cement. After the cement is tested and approved for sale, it is conveyed to storage silos for shipment throughout the United States.

V.

The exemption statute at issue, K.S.A. 79-3606(kk) (as amended in 2000 by House Bill 2011), is commonly referred to as the "integrated plant" statute because it codifies various aspects of a common law doctrine called the "integrated plant theory." This doctrine is used to assist in the determination of what processes, machinery and equipment within a plant operation are so directly involved in manufacturing that they should be accorded exemption status. The integrated plant theory first emerged in the case of Niagara Mohawk Power Corp. v. Wanamaker, 286 A.D. 446 (N.Y. 1955), where the court determined that coal and ash handling machines (cranes and dumpers) were an integral part of a steam electric generating plant.

In Niagara Mohawk the court held that the cranes and dumpers were necessary to the functioning of the plant as a whole, even though the handling equipment was not as directly, or actively, involved as the other plant equipment. Together, the court noted, all of the equipment formed a system to supply the power to make electricity. The court said that the "directness" of the activity was not the test; the true test was whether all parts of the plant contributed, continuously and vitally, to production and whether they were all integrated and harmonized.

The court explained the tax policy underlying the integrated plant theory as follows:

One purpose of the sales and use tax resolutions is to reduce multiple taxation. The burden would be excessive if purchases for resale were taxed numerous times during the journey of goods to the ultimate consumer. The economic effect is no different where the tax is on raw materials or ...

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