420 Mass. 259 | Mass. | 1995
At issue in this case is whether certain pollution control equipment used by V. H. Blackinton & Co., Inc. (taxpayer), in its manufacturing processes is exempt from the Massachusetts sales tax, pursuant to G. L. c. 64H, § 6 (s) (1992 ed.). In 1984, the Commissioner of Revenue (commissioner) assessed a sales tax on the taxpayer’s purchase of the equipment. The taxpayer paid the assessments and filed applications for abatement. The applications were not acted on within six months and, therefore, by operation of G. L.
The board found the following facts. The taxpayer is a Massachusetts corporation with its principal place of business in North Attleborough. It manufactures badges and insignia primarily for police and fire departments and private security organizations. It also produces medals, trophies, novelties, and commemorative coins. The manufacturing process necessary to produce these products involves the use of acids, heavy metals, and other toxic substances. This process produces various types of toxic fumes, dust, and contaminants.
Between April, 1980, and March, 1984, the taxpayer purchased several pieces of equipment for installation at its new plant. This equipment included exhaust, ventilation, and air treatment systems and a waste water treatment system. The exhaust, ventilation, and air treatment systems consisted of fans, hoods, vents, and ducts, which are connected to the plant’s work stations and are designed to capture, to treat, and to dispose of the hazardous fumes and contaminants produced during various phases of the manufacturing process. The equipment was installed in order to protect the employees and the environment, as well as to comply with the requirements of Federal and State agencies and the requirements of the taxpayer’s insurers. The ventilation, particulate collection, and fume treatment systems are necessary to production. The hoods are, in most cases, located within one foot of the work area where manufacturing activities take place and appear to be physically attached to the manufacturing equipment. The exhaust, ventilation, and dust collection systems are fully integrated with the admittedly exempt manufacturing equipment.
The waste water treatment system transports, treats, and disposes of the effluent from the manufacturing operations. The system consists of a network of pipes which carry waste
Whether the machinery at issue is exempt from the tax depends on the scope of the exemption set forth in G. L. c. 64H, § 6 (s).
The board ruled that, in light of the proximity of the equipment to the product being manufactured, its necessity to the manufacturing process, and its integration with the manufacturing machinery, the equipment fits within the statutory exemption of G. L. c. 64H, § 6 (s). The board’s analysis focuses only on whether the equipment is necessary and essential to the manufacturing process. The board failed to consider the added language of the statute, which requires' the machinery to be “used solely during a manufacturing, conversion or processing operation to effect a direct and immediate physical change upon the tangible personal property to be sold.” Although the taxpayer’s pollution control equipment may be required by Federal, State, and local environmental laws and regulations and in that respect, may be viewed as legally necessary to the manufacturing process, the board must make a determination whether the equipment effects any physical change on the property to be sold.
For the foregoing reasons the decision of the board is reversed.
So ordered.
General Laws c. 64H, § 6 (i) (1992 ed.), states: “The following sales and gross receipts therefrom shall be exempt from the tax imposed by this chapter: (s) Sales of machinery, or replacement parts thereof, used directly and exclusively ... in an industrial plant in the actual manufacture of tangible personal property to be sold .... For the purpose of this paragraph . . . machinery shall be deemed to be used directly and exclusively in the actual manufacture, conversion or processing of tangible personal property to be sold only where such machinery is used solely during a manufacturing, conversion or processing operation to effect a direct and immediate physical change upon the tangible personal property to be sold; to guide or measure a direct and immediate physical change upon such property where such function is an integral and essential part of tuning, verifying or aligning the component parts of such property; or to test or measure such property where such function is an integral part of the production flow or function . . . .”