CHEVRON U.S.A. INC., a Pennsylvania corporation v. ARIZONA DEPARTMENT OF REVENUE, an agency of the State of Arizona
No. 1 CA-TX 14-0013
Court of Appeals of Arizona, Division 1
Dec. 3, 2015
363 P.3d 136
See id. at 120 (“What would otherwise be an unliquidated claim on which no prejudgment interest is owed becomes liquidated, memorialized, and enforceable only when judgment is entered, even though the time frame for which prejudgment interest is owed obviously predates the judgment.“).
¶ 36 The superior court awarded prejudgment interest to La Paloma at 10 percent. Because the interest should have been calculated at prime-plus-one percent, pursuant to
CONCLUSION
¶ 37 For the foregoing reasons, we affirm the superior court judgment, except insofar as it specified the amount of prejudgment interest, and remand the judgment so that the superior court may modify the interest calculation.8
CHEVRON U.S.A. INC., a Pennsylvania corporation, Plaintiff/Appellant,
v.
ARIZONA DEPARTMENT OF REVENUE, an agency of the State of Arizona, Defendant/Appellee.
Cavanagh Law Firm by James G. Busby, Jr., Phoenix, Co-Counsel for Plaintiff/Appellant.
Arizona Attorney General‘s Office by Jerry A. Fries, Phoenix, Counsel for Defendant/Appellee.
Snell & Wilmer, LLP by Craig R. McPike and Robert I. Schwimmer, Phoenix, Co-Counsel for Amicus Curiae Arizona Tax Research Association, Arizona Chamber of Commerce and Industry, Arizona Manufacturers Council, and Arizona Mining Association.
Fennemore Craig, PC Phoenix by Patrick Irvine, Co-Counsel for Amicus Curiae Arizona Tax Research Association, Arizona Chamber of Commerce and Industry, Arizona Manufacturers Council, and Arizona Mining Association.
Presiding Judge DONN KESSLER delivered the opinion of the Court, in which Chief Judge MICHAEL J. BROWN and Judge ANDREW W. GOULD joined.
OPINION
KESSLER, Judge:
¶ 1 Chevron U.S.A., Inc. appeals from the tax court‘s entry of summary judgment in favor of the Arizona Department of Revenue. We hold that the industrial oils and greases used in mining and metallurgical operations involved in this case are exempt from the transaction privilege tax. Accordingly, we reverse the decision of the tax court and remand for entry of summary judgment in favor of Chevron.
FACTUAL AND PROCEDURAL HISTORY
¶ 2 This case involves the application of Arizona‘s transaction privilege tax to Chevron‘s sale of oils and greases to Freeport-McMoRan, Inc. for use in its mining and metallurgical operations. Freeport uses the oils and greases in conjunction with its machinery and equipment.
¶ 3 Chevron filed a refund claim for $324,233.79 in taxes paid between July 2002 and March 2006 on products sold to Freeport. Chevron asserted that the sales of oils and greases are exempt from the transaction privilege tax under Arizona Revised Statutes (“A.R.S.“) sections
¶ 4 In response, the Department granted Chevron a refund of $8,357.26 for taxes paid on the sale of hydraulic oils and transmission fluids only. The Department denied the remainder of Chevron‘s refund claim pertaining to engine oil, gear oil, grease, and open gear lube.
¶ 5 After exhausting its administrative remedies, Chevron filed a complaint in tax court pursuant to
DISCUSSION
¶ 6 “We review de novo the tax court‘s grant[] of summary judgment to the Department.” See Ariz. Dep‘t of Revenue v. Salt River Project Agric. Improvement and Power Dist., 212 Ariz. 35, 38, ¶ 13, 126 P.3d 1063 (App.2006). We also review de novo the tax court‘s interpretation of
¶ 7 Arizona‘s transaction privilege tax is “an excise tax on the privilege or right to engage in an occupation or business in the State of Arizona.” Ariz. Dep‘t of Revenue v. Mountain States Tel. and Tel. Co., 113 Ariz. 467, 468, 556 P.2d 1129 (1976). The retail classification imposes a tax on the gross proceeds of sales or the gross income derived from the “business of selling tangible personal property at retail.”
¶ 8 The legislature has carved out numerous exemptions to the retail transaction privilege tax. See
I. Legislative Intent
¶ 9 This Court‘s primary goal in “interpreting a statute is to discern and give effect to legislative intent.” People‘s Choice TV Corp. v. City of Tucson, 202 Ariz. 401, 403, ¶ 7, 46 P.3d 412 (2002). “[B]ecause a statute‘s plain language provides the best evidence of intent,” Martineau v. Maricopa Cty., 207 Ariz. 332, 334, ¶ 9, 86 P.3d 912 (App.2004), we begin our analysis with the plain language of
¶ 10 Section
Mining machinery, or equipment, used directly in the process of extracting ores or minerals from the earth for commercial purposes, including equipment required to prepare the materials for extraction and handling, loading or transporting such extracted material to the surface.
Subsections (B)(1) and (B)(18) provide similar exemptions for machinery and equipment used in metallurgical operations and for pollution control equipment used in mining and metallurgical operations. Chevron argues that these exemptions apply to the industrial greases and oils at issue here.
¶ 11 Although the Department concedes that Freeport‘s mining machinery and equipment are exempt from transaction privilege tax, it argues that the greases and oils required by that machinery and equipment are taxable because they are “expendable materials” that are used up “in minutes, days or months in mining operations.” Pursuant to
The deductions provided by subsection B of this section do not include sales of: 1. Expendable materials. For the purposes of this paragraph, expendable materials do not include any of the categories of tangible personal property specified in subsection B of this section regardless of the cost or useful life of that property.
(Emphasis added.)
¶ 12 The legislature added the above-italicized portion of subsection (C)(1) in 1999.3 See 1999 Ariz. Sess. Laws, ch. 153, § 1 (1st Reg. Sess.). In doing so, the legislature intentionally expanded the scope of the subsection (B) exemptions to include expendable materials “regardless of the cost or useful
¶ 13 In light of the 1999 amendment to
II. Capitol Castings
¶ 14 Five years after the legislature amended subsection (C)(1) of A.R.S. §§ 42-5061 and 42-5159, our supreme court applied the amended use tax statute in Capitol Castings.5 In Capitol Castings, the court adopted a “more expansive definition of machinery or equipment” by applying “flexible and commonly used definitions” of those terms. 207 Ariz. at 450-51, ¶ 24, 88 P.3d 159. In applying these definitions, the supreme court instructed lower courts to:
[E]xamine the nature of the item and its role in the operations. Items essential or necessary to the completion of the finished product are more likely to be exempt. The prominence of an item‘s role in maintaining a harmonious “integrated synchronized system” with the indisputably exempt items will also directly correlate with the likelihood that the exemption applies.
Id. at 451, ¶ 25, 88 P.3d 159 (citing Duval Sierrita Corp. v. Ariz. Dep‘t of Revenue, 116 Ariz. 200, 205-07, 568 P.2d 1098 (App.1977)).6 The supreme court explained that whether an item is exempt from the transaction privilege tax should be determined not by the material it is made from (metal or non-metal) but rather by the function it performs. Capitol Castings, 207 Ariz. at 451 n. 4, ¶ 25, 88 P.3d 159. Thus, we look to see if the item is essential or necessary to the completion of the finished product and whether it maintains a harmonious “integrated synchronized system” with the indisputably exempt items regardless of whether the item is a viscous liquid or a solid item. If that test is met, the item is exempt from the tax.
¶ 15 Applying this reasoning, the supreme court determined that a variety of materials utilized by Capitol Castings in its manufacturing operations were exempt. Id. at ¶ 26. Of particular note, the supreme court found that “mold wash,” a substance sprayed on the mold to prevent the sand from sticking to the casting, was exempt. Id. at 447, ¶ 3, 451, ¶ 26, 88 P.3d 159. Likewise, the court found that hot topping, a powder employed to keep the molten metal from cooling, was exempt. Id.
¶ 16 In concluding that such items were exempt from taxation, the supreme court emphasized the purpose of the machinery and equipment exemptions, which is to “stimulate business investment in Arizona in order to
¶ 17 Following the guidance of our supreme court in Capitol Castings, we begin our examination of Chevron‘s oils and greases by reference to commonly used definitions of “equipment.”7 As referenced by the court in Capitol Castings, Webster‘s College Dictionary defines equipment to include “the articles, implements, etc., used or needed for a specific purpose or activity.” 207 Ariz. at 448, ¶ 12, 88 P.3d 159 (quoting Webster‘s College Dictionary 442 (2d ed.1997)). The online Merriam-Webster dictionary similarly defines equipment to include “supplies or tools needed for a special purpose.” Merriam-Webster online dictionary, http://www.merriam-webster.com/dictionary/equipment (last visited Nov. 12, 2015).
¶ 18 The oils and greases at issue here function to reduce friction, disperse heat, and suspend contaminants. They also create hydrodynamic pressure, which “cushions loads on components in various systems.” They enable the machinery to function. We conclude that the oils and greases satisfy the commonly used definitions of “equipment” because they are articles, implements, and supplies needed by Freeport in its mining and metallurgical activities.
¶ 19 Next, we analyze the nature of Chevron‘s oils and greases and the role they play in Freeport‘s mining and metallurgical operations by reference to the evidence presented to the tax court. Chevron‘s expert explained that the oils and greases function to “main-tain the separation of two surfaces in relative motion when loads, speeds, and temperature conspire to induce metal to metal contact.” He further testified that the oils and greases perform the following functions: “dissipation of heat, occlusion and suspension of contaminants.” A Freeport employee, who submitted a declaration supporting Chevron‘s motion for summary judgment, explained:
Without these products, the machinery (and the systems within the machinery) would not function. They are as essential as any other component of Freeport‘s machinery and equipment, and are a critical, integral part of the machinery. In other words, the oils and greases are not used solely to protect or extend the life of the machinery—although that is obviously a critical function in and of itself—but to make it operable in the first place.
Furthermore, as stated in Chevron‘s statement of facts, “given the size and weight of the machinery, it must be transported with these products in place. Otherwise, much of it would simply collapse on itself.” See Sato v. Van Denburgh, 123 Ariz. 225, 228, 599 P.2d 181 (1979) (affirming that if a party fails to controvert the moving party‘s statement of facts in a motion for summary judgment, the moving party‘s facts may be considered true).
¶ 20 The Department did not controvert this evidence.8 Indeed, the Department concedes that the oils and greases are essential to Freeport‘s mining and metallurgical activities and that they are “used directly” in those operations. Nevertheless, the Department argues that the oils and greases do not qualify for the exemption because they are “not the functional equivalent of machinery and equipment.” We disagree.
¶ 21 In Capitol Castings, our supreme court concluded that:
[S]ilica sand, chemical binders, exothermic sleeves, mold cores, mold wash, and hot
topping qualify for the exemption because they were used directly in and were an integral part of a qualifying process under A.R.S. § 42-5159(B)(1) . The items functioned the way machinery or equipment might in an integrated, synchronized system within the industry.
207 Ariz. at 451, ¶ 26, 88 P.3d 159. Similarly, Chevron‘s oils and greases are “used directly in” and are “an integral part of” Freeport‘s mining and metallurgical operations. Moreover, based on the uncontroverted evidence, we conclude that the oils and greases function as equipment in Freeport‘s operations. Accordingly, under the supreme court‘s holding in Capitol Castings, the oils and greases are exempt from taxation under
¶ 22 Our conclusion is consistent with the Department‘s policy relating to the statutory exemption from transaction privilege tax for lessors of motor vehicles subject to the motor carrier fee. See Transaction Privilege Tax Ruling TPR 2003-2, 2003 WL 23178083 (Ariz. Bd. Tax App. Dec. 4, 2003). In TPR 2003-2, the Department declared that “[a]lthough items such as antifreeze, motor oil, transmission fluid, bearing grease and windshield washer solution may be replaced with frequency, they are, nevertheless, a part of the vehicle, and therefore, qualify for exemption” pursuant to
¶ 23 Chevron contends that the issue before this Court “is purely one of law, on an undisputed factual record.” We agree. “[W]here the issues can be decided as a matter of law, we have the authority both to vacate the trial court‘s grant of summary judgment in favor of one party and to enter summary judgment for the other party if appropriate.” See Anderson v. Country Life Ins. Co., 180 Ariz. 625, 628, 886 P.2d 1381 (App.1994).
CONCLUSION
¶ 24 For the foregoing reasons, we reverse summary judgment in favor of the Department and direct entry of judgment for Chevron on remand. Chevron requests attorneys’ fees and expenses pursuant to
Notes
Duval Sierrita, 116 Ariz. at 206, 568 P.2d 1098 (emphasis added). In Capitol Castings, the supreme court characterized the “Duval Sierrita approaches” as allowing “items that would not ordinarily be considered ‘machinery’ or ‘equipment’ to qualify for the exemption if they function as a necessary part of an integrated process.” 207 Ariz. at 450, ¶ 21, 88 P.3d 159.[T]he boundaries of the exempt operation must be drawn taking into consideration the entire operation as it is “commonly understood” which operation must, of necessity, include those items which are essential to its operation and which make it an integrated system.