R.W. Sidley, Inc. v. Limbach - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO
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R.W. Sidley, Inc., Appellant, v. Limbach, Tax Commr., Appellee.
[Cite as R.W. Sidley, Inc. v. Limbach (1993), Ohio
St.3d .]
Taxation -- Sales and use taxes -- Items used in manufacturing
components at precast concrete plant excepted under R.C.
5739.01(E)(2) only when those items are used to
manufacture tangible personal property for sale -- Silica
processing plant structure and concrete block plant
structure are real property under R.C. 5701.02, when.
(No. 92-174 - - Submitted October 30, 1992 -- Decided May
19, 1993.)
Appeal from the Board of Tax Appeals, No. 87-G-1082.
Appellant, R.W. Sidley, Inc. ("Sidley") manufactures and
sells concrete products and processes silica at its Precast
Plant, Silica Processing Plant, and Block Plant. The Tax
Commissioner assessed certain items used in those facilities
for sales and use taxes. The BTA affirmed the assessment and
Sidley appealed here.
The cause is now before the court upon an appeal as of
right.

Arter & Hadden, R. Douglas Wrightsel and David W. Mason,
for appellant.
Lee I. Fisher, Attorney General, and Lawrence D. Pratt,
Assistant Attorney General, for appellee.

Per Curiam. For the reasons which follow, we affirm the
decision of the Board of Tax Appeals ("BTA").
Before the BTA, in its notice of appeal and briefs before
this court, and in oral argument, Sidley has consistently
contested three general categories of items which the
commissioner held taxable: items at its precast plant, its
silica plant, and its block plant.
I
At the precast plant, Sidley casts and prestresses
concrete construction components (e.g., beams and columns)
beams for buildings, parking garages, and bridges. Sidley then
assembles or erects the components under construction contracts

to furnish finished products. It also sells some components to
other construction contractors. To manufacture the components,
Sidley hauls liquid concrete from a concrete batch plant to the
precast plant, pours it into forms (usually made by Sidley) and
processes it with vibration, heat and a cleaning process.
Sidley claimed it was entitled to a sales and use tax
exception for items used in manufacturing components at the
precast plant, including forms, a crane system, beds, supplies,
and equipment. The commissioner claimed the exception was
available only where those items were used to manufacture
tangible personal property for sale, and not for its own
consumption, as a construction contractor. The BTA affirmed
the commissioner.
During the audit period, R.C. 5739.01(E)(2) excepted items
used "directly in the production of tangible personal property
* * * for sale by manufacturing [or] processing." Am. Sub.
H.B. No. 1, 137 Ohio Laws, Part I, 1412, 1658. Also, former
R.C. 5739.01(S) defined manufacturing or processing as
"transformation or conversion of material or things into a
different state or form from that in which they originally
existed and, for the purpose of the exceptions contained in
division (E)(2) of this section, includes the adjuncts used
during and in, and necessary to carry on and continue,
production to complete a product at the same location after
such transforming or converting has commenced." Id. at 1661.
Sidley presents an imaginative argument, relative to its
vertically integrated manufacturing, that suggests that
concrete products produced by its manufacturing division are
"sold" within the contemplation of the statute when transferred
to its construction contract division. It argues that the
refusal to apply the manufacturer's exception to a vertically
integrated manufacturer and contractor discriminates against
those who engage in both manufacturing and the performance of
construction contracts using their own manufactured products.
Therefore, Sidley says:
"This Court should remedy the inherent inequities of R.C.
5739.01(E)(2) as it is being applied and implement the 'direct
use' exemption in a neutral manner to permit Appellant an
exemption for items in the precast concrete plant used directly
in manufacturing tangible personal property."
Sidley thus asks this court to engage in blatant judicial
fiat: to eliminate the words "for sale" from the applicable
statute, in order to avoid purported discrimination. This we
cannot do. The Ohio General Assembly has selected the language
of the statute and our obligation is to employ it as written.
Wheeling Steel Corp. v. Porterfield (1970), 24 Ohio St. 2d 24,
53 O.O.2d 13, 263 N.E.2d 249.
The BTA found that the majority of the components was
assembled and erected by Sidley under contracts to make
finished products, as a construction contractor.
The BTA determined that the disputed items in the precast
plant were properly assessed. We agree.
II
Sidley was assessed sales tax for items used in
constructing its silica plant. It claims that the items are
excepted from sales tax as items used directly in processing.
The issues, therefore, are whether the silica plant structure

is real property under R.C. 5701.02 or personal property, and
whether the structure is used directly in processing or used as
an adjunct to processing.
The silica processing plant was constructed by Sidley,
acting as its own construction contractor. Sidley dries and
separates sand by grain size at the silica processing plant.
In the building, which is one hundred eight feet high and
thirty-five to forty feet wide, Sidley dries sand by heating it
to as much as two hundred degrees. The sand is then cooled to
one hundred ten degrees, and transported to the top of the
building. Then, by gravity and the use of screening equipment,
Sidley separates the various sized particles.
The BTA rejected the argument that the building was a
special purpose structure. The BTA found that the "[s]ilica
structure is real property" and, since Sidley acted as its own
construction contractor, it was the consumer of the items in
question. The BTA also found no evidence that the building
itself was used to process the sand, although the dryer and the
propane system, located within the building, were excepted from
taxation as property used directly during the manufacturing
process, or as an adjunct to such property.
Sidley contends that the silica plant structure retained
its classification as personal property and was used directly
in manufacturing or processing, or as an adjunct to property so
used, and should be excepted from tax.
There is no evidence that the building itself functions in
connection with the actual processing of sand. Under Thomas
Steel Strip Co. v. Limbach (1992), 61 Ohio St. 3d 340, 575 N.E.
2d 114, the structure was real property; it is, therefore, not
qualified for the exception afforded transactions in personal
property. We affirm the BTA's decision.
III
At the block plant, Sidley manufactures concrete block
from aggregate, water and cement. The shell which houses the
block plant equipment was also constructed by Sidley, acting as
its own contractor. As with the silica plant structure, the
block plant shell itself was not used in manufacturing or
processing and is not entitled to exception as personal
property used directly in manufacturing.
The aggregate handling system consists of bins, weigh
batchers and conveyors. Aggregate is trucked to bins at the
plant. The aggregate drops to a weigh batcher below the bins,
which measures quantities, then onto a conveyor for
transportation to the mixer, where water and concrete are added
to the aggregate. The mixture is conveyed to a block machine
for forming, and then to a kiln, where the blocks are cured by
steam. After that, blocks are moved to a cubing machine, which
arranges the blocks in cubes. Towmotor lift trucks then move
blocks to storage, or to a shrink wrap operation.
With regard to the block plant items, the BTA determined
that block manufacturing began at the mixer, when aggregate was
combined with water and cement to produce concrete. The BTA
found, correctly, that the manufacturing process was completed
when the blocks were cured in the dryer. The aggregate
handling system, utilized prior to the mixer, was used before
manufacturing and was taxable; the cubing machine and the
Towmotors were used subsequent to the completion of

manufacturing at the dryer and were also taxable. Youngstown
Bldg. Material & Fuel Co. v. Bowers (1958), 167 Ohio St. 363,
5 O.O.2d 3, 149 N.E. 2d 1.
Finally, the BTA's determination that Sidley's notice of
appeal to the BTA did not raise the issue of the "packaging
exception" was not unreasonable or unlawful. The decision of
the BTA is affirmed.
Decision affirmed.
Moyer, C.J., A.W. Sweeney, Douglas, Resnick and F.E.
Sweeney, JJ., concur.
Wright and Pfeifer, JJ., concur in part and dissent in
part.

Pfeifer, J., concurring in part and dissenting in part.
"[T]he power to tax is the power to destroy." McCray v.
United States (1904), 195 U.S. 27, 56, 24 S.Ct. 769, 776, 49
L.E. 78, 96. These words should always be kept in mind when
this court considers taxation matters.
The majority has used an overly technical interpretation
of the state Tax Code to unwisely penalize vertically
integrated operations, as well as to narrowly define
"manufacturing" and "adjuncts" to manufacturing in a manner
unintended by the General Assembly. Accordingly, I respectfully
dissent.
The crane, heaters, boilers, and lumber forms and beds at
the precast plant should be exempt from sales and use taxes
because they are used to manufacture items which are "for
sale," pursuant to R.C. 5739.01(E)(2). The majority has
propounded an unjust result in this case: the manufacturer who
sells his manufactured products to an independent contractor
will be eligible for the direct use exemption, but a
manufacturer, who is also an independant contractor that uses
the manufactured products, is somehow not exempt. This
construction of R.C. 5739.01(E)(2) unfairly penalizes the
vertically integrated operation. Ohio's sales and use taxes
were not intended to be antitrust taxes as the majority has
permitted by its decision.
In addition to the items in the precast plant being exempt
from sales and use taxes, the appellant's silica manufacturing
structure and foundation should also be exempt because they are
personal property used in manufacturing. The plant is one
hundred eight feet high and thirty-five to forty feet wide.
These dimensions are necessary to provide enough energy,
through gravity, to separate the silica into various grades.
Because of these dimensions, the plant is a unique structure
designed for one purpose: manufacturing silica. It is highly
unlikely that the building could be utilized for any purpose
other than as a silica plant. The manufacturing structure is
personal property and not real property.
When there is such a high correlation between the unique
design of the structure and the structure's role in the
manufacturing process, the building is either directly used in
manufacturing or processing, or serves as an adjunct. Thus,
the BTA's determination that the silica plant is not used
directly in the manufacturing process is unreasonable.
Finally, this court should hold the aggregate handling
system, the mixer, and the towmotors used in appelant's block

plant exempt from sales and use taxes because these items are
used in manufacturing. The majority has too narrowly defined
when the manufacturing process begins. The application of the
direct use exemption for personal property used in manufaturing
or as an adjunct to manufacturing should begin when raw
materials are first handled and moved into the manufacturing
process and should continue until the finished products are
readied for shipment. When this common-sense test is applied
to the contested items located in the block plant, all items
fall within the direct use exemption. The sales or use tax
should not be levied upon them.
Thus, with the exception of imposing a use or sales tax
upon the storage bins located in appellant's silica plant, I
reject the BTA's decision, and dissent from the majority's
opinion.
Wright, J., concurs in the foregoing opinion.