*1 evidence, strictly a matter the record of the trial discretion within the sound DEPARTMENT OF STATE INDIANA court, opinion that the trial it is our REVENUE, Appellant this dis- case did not abuse court in this Below), (Defendant cretion.” v. case that in the instant similarly
We believe the trial court did presented INC., STONE, Appellee on the evidence CAVE not abuse its discretion. (Plaintiff Below). say Elliott was enti Nor can we sought. he He damages OF STATE punitive
tled to the DEPARTMENT INDIANA fla REVENUE, Appellant the counterclaimants essentially argues rights willfully his grantly disregarded (Defendant Below), with wantonly breached their contract v. withholding deposit. his He cites him Rex Insurance support argument of such STONE, INC., Appellee MESHBERGER Baldwin, (1975) 163 Co. Below). (Plaintiff Casualty Fire & 270 and Vernon N.E.2d No. 2-1278A433. (1974) 161 Sharp, Insurance v.Co. 381,35 rev’d in on other N.E.2d Indiana, Appeals Court Ind. grounds, (1976) 264 District. Second however, observe, the evi We 173. the in supports dence in this context Aug. merely response acted in parties ference the regarding the disagreement to an honest When of the lease. application
terms and punitive to award court failed municipal Elliott, negative find it made
damages to only if the set aside
ing which will be no reasona with
evidence is uncontradicted negative support of the
ble inference in v. Weather Corp.
finding. Utopia Coach 518, 526.
wax, (1978) 379 N.E.2d Ind.App., this issue was the evidence on Since bar, find no error
conflict in the case at we award
in the failure of the trial considered
punitive Having thus damages. by Elliott in arguments
the various raised on the appeal, having determined reasoning set
basis of the authorities committed in
out herein error was that no below, the decision awarding judgments is affirmed. municipal court CHIPMAN, J.,
YOUNG, J., con- P.
cur. malice, consequences, regard fraud, general rule that 35. Both stand for the cases oppressive punitive damages may conduct. con- be recovered where wrongdoer dis- duct of the indicates a heedless *2 Sendak, Gen., Wallace Atty. Theodore L. Gen., Indianapolis, Atty. Gray, Deputy T. appellant. Fruewald, paid, after they Indianapolis, R. On October Michael appellee. assessment, tax with in- protest and sup- penalty on terest
SHIELDS, Judge. plies purchased and used in the phase, as follows: Reve- The Indiana State appeals the decision of (Department) nue *3 state ordering the trial court a refund of 670.86 $ 1971 615.94 $ (sales tax and use retail tax and use 540.17 616.56 1972 tax) paid purchase on the 743.92 408.56 repairs, and fuel supplies, and $1,954.95 $1,641.06 equipment. with the connection 288.86 258.60 Interest Stone, Appellees Incorporated Cave 195.50 Penalty 164.11 Stone, (Cave) Incorporated Meshberger and engaged in the business of (Meshberger) Meshberger timely and filed a claim Cave removed from selling aggregate sized stone by Depart- for refund which was denied procedure The respective quarries. their was commenced timely ment. A suit then drilling, blasting, and stripping, involves separate The suits of the trial court. loading crude stone into a truck. The for Meshberger Cave and were consolidated blasting then hauled from the crude stone is purposes. all (hauling crude primary crusher area crude stone is stone). Thereafter Cave,1 specially the trial court As to crushed, washed, and screened separated, found: grades aggregate. The into various hauling activity crude stone “8. The by conveyor to a graded stone is next taken of the haul- operation in Cave’s consisted it onto truck front-end loader loads a which a front- ing by truck of crude stone from separated stockpiles which carries it to a fun- blasting end loader in the area eventually it (stock out) from which is sold. which feeds the crusher. nel-type bin (1) purpose. dual Stockpiling serves a Depart- purchases upon grading prevents of stone and preserves hauling and allows moisture to commingling, ment assessed tax in the crude from the washed evaporate drain and activity of two reducing moisture levels to a stan- thereby fuel, tires, repairs, trucks and re- and acceptable purchas- to stone generally dard placement parts for three trucks used for ers. hauling. pro- controversy involves two of the This Up “9. to 3 trucks were used for haul- hauling crude stone and stock out. cedures: hauling for ing crude. Each truck used Meshberger on October Cave and special appropriate had tires of size and assessment, paid and protest after particular tread for its use at Cave’s on penalty with interest and exclusively for plant and was used almost purchased for the supplies although it could be hauling crude stone stone, as follows: hauling of crude clean-up. hauling used for Cave The trucks were not and could not be 447.48 $ 541.21 $ public highways. licensed for use on 364.25 186.91 by trucks “10. The distance travelled 6,062.05 706.26 on depending crude stone varies $1,518.00 $6,798.17 but quarry, the location of work in the mile. Neither the was not more than xh 212.16 Interest 688.95 trucks nor the crusher feeder bin 151.80 Penalty 679.82 Fact, Meshberger Findings ger” 1. The for Conclu- “Cave” and the substitution interest, taxes, Judgment appropriate sions of Law amounts were identical except penalty paid. Cave’s for the substitution of “Meshber- transported during “17. materials No stone. storage of crude used for step yet stock had not been al- out into a truck un was loaded crude stone final, marketable most tered their crush transported less was to form, through accomplished which was immediately er feeder bin crushed drainage stockpiles. thereafter. transporta- out stock constituted di- crude stone “11. never sold of unfinished work in tion to customers. quarry rect from production step flow one continuous use or commercial There was no market operations.” to another in Cave’s crude stone. The stone became only further product after marketable entered, on findings Based crushing, screening, washing steps of following of law: part, conclusions sizing had occurred. delayed payment “3. Cave’s activity “12. The stock in Cave’s out in this involved action sales and use tax the movement operations consisted of interpretation of due bona fide was to a *4 to graded separate stone crushed and prior supported by ad- the tax statutes step used in this stockpiles. Equipment was not and due practice ministrative conveyors the end of the included from disregard of the negligence or intentional of build- step to the outside grading penalties no should have law. loader, and ing, at least one front-end of against on account been assessed Cave upon which the truck(s). The Department, by the deficiencies asserted with Department respect assessed of the deficien- regardless validity of the tires, fuel, were activity the stock out cies, of is entitled to refund and Cave parts repairs, replacement and penalties paid with interest. equipment. machinery, and parts “4. related conveyors used in “13. The and trucks hauling crude by items used Cave in its pur- for no other stock out were used directly out were steps and stock stone poses. production, in Cave crushed, graded and Stockpiles “14. manufacture, of mining, or fin- shaped washed stone stored cone personal ishing tangible property of with- activity. Storage of piles in the stock out 39(b)(6) of in the terms of Section stockpiles neces- processed stone Ind.Code Income Tax Act of Gross sary to of the stone preserve grading (1976). purchas- 6-2-l-39(b)(6) Cave’s § comingling and to prevent and machinery, parts related [sic] es of that aggregate separate in the grades of exempt from the im- are therefore items stockpiles. retail tax. position of the stone Stockpiling
“15. allowed Regulations 39- Department’s “5. The evaporate drain from 39-620, moisture to and 600, 39-610, 1 Burns Ind. and so -16, washed stone that moisture levels (6-2-l-39)-15, -17 Regs. Adm.R. & accepted by levels generally reduced to Ed.1976), to trans- (Code inapplicable are pur- purchasers Many stone as standard. occurring their effective before actions Indiana, chasers, including the State The Court con- April date had specifically required stone which operations entire of Cave cludes that the period, and stockpiled specified been for a ‘production’ or above constitute described adjustments some sought customers tangible property personal ‘processing’ mois- price purchased if had excess stone Regulations 39-600 and 39- as defined in stockpile. ture time in due to insufficient stone and hauling crude steps exempted step con- stock out constitute hauling “16. The crude stone regula- two transportation under those of unfinished stituted to the extent work in in a continuous flow tions. above, portions regulations another within cited one require would regulations, of those integrated operations. Cave’s ’ finishing personal property; expressed in Conclu- contrary to that suit presented in the circumstances sion No. 4
here, portions those IC position takes the enabling stat- contrary invalid as 6-2-l-39(b)(6) requires purchased ma- ute. tools, must chinery, refund is entitled to a “6. Cave change in the basic material sub- effect a interest, tax, penalties gross retail qualify exemp- stance hauling its crude and paid respect with tion. above, steps, plus as set forth argue equip- payment the date of interest at 6% from contacts because ment judgment.” to the date during its processing. and moves the entered for Cave in the Judgment was of the trial They contend the decision n $10,230.71plus prejudgment in- plain meaning amount of supported by $1,636.91. Meshberger statute, exempt- received decisions terest of recent Indiana $4,321.27 interest of plus prejudgment ing transportation equipment, regulations, Department’s own $691.40. juris- well-reasoned authorities from other part. and reverse in We affirm in dictions. the trial court erred: Department asserts Court, in examining provisions This finding machinery, parts 6-2-l-39(b)(6), of IC has declared its lan- Mesh- related items used Cave and guage ambiguous. berger crude stone and *5 simple disagree- “Although we doubt procedures exempt were always signifies ambiguity, ment certain- from sales and use tax IC 6-2-1- interpreta- ly opposing the well reasoned Ed., 39(b)(6) (Burns Supp.1979) Code persuasive in in tions the case at bar are applicable Department regula- and suggesting pur- ‘directly used 2 tions; chaser . in the direct (2) declaring applicable Department in personal property’ ambigu- they invalid insofar as ous. quire finding a contested conflicting “The courts of conclusions were items from sales interpreting other states have reached in tax; and use things exemptions similar for sales of (3) finding delayed payments in manufacturing is fur- ‘directly’ used in negligence not due to or intentional ambiguity.” ther of the word’s indication law; disregard of and Rev., Dept. Indiana Tax Div. v. St. Sales (4) finding Meshberger in Cave and 55, 59, Corp., (1974) RCA entitled to a refund.3 N.E. 2d 99. This case held environmen (air conditioning tal control I integral was an and essential manufacturing 6-2-l-39(b)(6) picture color IC reads as follows: RCA’s tube process) was not used in the direct “(b) Nor shall the state retail tax tubes. manufacture of the color television following transac- apply tions. statute, exemption Because it is an
(6) manufacturing machinery, Sales against the ambiguity must be construed and to be ago tools taxpayer. century More than a purchaser production, in the direct in v. Town Supreme Court Conklin manufacture, fabrication, assembly, (1877) ex- Cambridge City, 58 Ind. traction, mining, processing, refining or said: by (1), (2), (6-2-l-39)-15 Regs. 3. This is subsumed and claimed error Ind.Admin.Rules & (Bums Ed.) separately will not be addressed. and states, obliged give it the nar- we feel not, taxation are “Exemptions from indicated.” we have row construction be, especially favored ought not to courts; exemption where and other the trucks Unquestionably ' claimed, claiming the same party by Cave devices used evidence, case, by sufficient must show crusher and to the crude stone transfer the exact letter of within the are an clearly stockpiles which is from the crusher proce- integral part
the law.” essential stone is unquarried which the dures attention to cases has directed our product. a marketable into transformed which there are jurisdictions in from other is not determinative that fact exemptions albeit use tax similar sales and Rather, Corp. exempt status. RCA their “directly.” This only the word they contain transportation is whether the issue distinction, however, is critical. in the direct a direct use product White, the statute Judge analyzing aggre- of the sized mining jurisdictions, observed and case law of other gate stone. 61-62, 310 Corp., at in RCA exempts cer applicable statute The at 100: categories produc tain and considered carefully “We have read fabrication, manufacture, assembly, tion, unconvinced that cases and remain those refining or extraction, mining, processing, it was the intent of the Indiana General statute and its examining this finishing. In meaning a broad Assembly give give we exempt procedures, categories of ‘directly used ... words category.4 separate meaning to each production.’ Hence, procedure particular to the extent a exemption category, years was behind most other a definite “Indiana falls within It is therefore category is exclusive. tax statute. enacting states categorize the necessary to appropriate and experi- states’ had the benefit of other Meshberger. of Cave and operations of the ex- judicial interpretation ence manufacturing emptions, including steps of parties initial describe Legislature The Indiana exemption. drilling, stripping, as Cave and in words different exemption in its wrote within the blasting. steps These fall any statute construed “mining.” from those used in of the term plain meaning *6 Third in Webster’s we have read. is defined in the cases ... verb “mine” (Una- Dictionary 1437 the sale to be New International requires that for 1976): bridged ed. must not exempt property purchases ore, natural (as metal or other directly’ get in the manufactur- “to only be ‘used constituent) (as by dig- from the earth (as of other ing process do the statutes blasting pumping).” ging, or ‘directly used states) but that it must be production, manu- . in the direct Hence, directly used purchases facture, etc. prop tangible personal mining direct However, stone) exempt. erty (quarry repetition requirement of the “This concludes at mining exemption cannot be treated that the use be direct (i. e., mining time when the point in other course is surplusage unless no as ground) is from the removal of reasonable to open. . . it is Since Thereafter, subsequent completed. legislative purpose assume that exempt cate within another steps must fall requirement was repeating the directness apply. gory for the benefit have been considered may to avoid what has been defined “processing” construction of overly judicial broad The term in other as: requirement single directness 1I1.A) phase (Rule con- -16 Regs. (6-2-1-39) [6-2-1-39] -16 Ind.Admin.Rules & physically (Burns Ed.), April specifi- item has been cludes when the filed quarry. mining phase. The focus then shifts cally from the moved deals with the extraction encompasses processing. By regulation which to Rule 17 definition contained within the “(b) shall the retail tax Nor state It
“[Processing is a relative term. em- following transac- many apply modes of treatment of vari- braces produce given materials to results. tions: ous regard or a series of acts with
is an act persons “(1) to farmers and other Sales in its transformation subject matter in the business of engaged occupationally thing. into a different state or a different for hu- producing food and commodities form, contour, change It effectuates consumption ei- man, poultry animal or combination, physical appear- chemical producing use in ther for sale or further ance or otherwise artificial or natural sale, such food and commodities means.” life to be used poultry animal and of food and C., (7th Refining purchaser v. F. T. Corn Products Co. commodities, 1944) (citations omit- feed for such animals 144 F.2d Cir. fertilizers, affirmed, seeds, fun- ted), plants, poultry 324 U.S. S.Ct. other gicides, insecticides and L.Ed. 1320. for such property to be used personal Thus, con “processing” the term production of food and commodities.” operation places product an which *7 extent, any, if the enabling statute to the equipment integral part be an of a subject regulations deny purchas- would the ongoing during transportation. which is the tax-exempt es status. being transported, Here the while by processing. remains unaffected subject Department contends the Inc., regulations; its (1969) In are taxable under Tankage, State v. Farmers 392, 409, Meshberger purchas Cave and contend the 246 N.E. 2d a truck We, however, not need exempt. used to collect dead animals used in the es are do manufacturing poultry of animal and feed particular regulations to the to examine exempt was this How- by they give pur held tax court. determine what status the ever, statutory exemption the therein in- imposes chases. As we hold the statute the exempt subject pur- volved read: tax and does not the 24, April applicable regulations, 5. until only 1972 and hence are These rules and Ind.Admin.Rules Regs. (6-2-1-39) & 15 and 17 were not filed to tax thereafter accrued. the sales and use tax due layed payment of chases, must likewise tax regulations the interpreta- not, regula- dispute a fide over the they If do to bona purchases. and not from applicable tion tax statutes tions invalid.6 disregard of the negligence or intentional Dept. Revenue v. In Indiana of State law. Co., (1976) Ind.App., Petro. Sohio recognized 95, 101, Court at this N.E.2d 6-2-l-16(f) argues IC Department that Ed.)7 imposes penalty a (Burns Code Comp- in Baker v. Supreme
“Our
Court
payment
pos-
late
without consideration of
ton,
(1965)
211 N.E.2d
disregard
247 Ind.
intentional
negligence
sible
or
interpretation of
noted that an incorrect
Meshberger filed re-
the law. Cave and
with ad-
agency charged
an
statute
and use tax in each of
paid
turns and
binding
on
ministering the statute
not
The amounts
years
at issue.
taxable
despite the axiom that
an
appellate
assessed were
upon
penalties
great weight to
give
such
should
a court
Department as
later calculated
amounts
Depart-
interpretation.
such
And the
protest.
assessed after
deficiencies and
authority to estab-
statutory
ment lacks
6-2-l-16(f)
inap-
Hence, they argue, IC
lish
that
or detract
from the
rules
add
have to be
penalties would
plicable and
Act.”
6-2-l-16(d).8
Subsec-
justified under IC
only
v.
where the
(d) provides
penalty
Division Col
tion
Tax
See
Gross Income
463, 109
negligence
or intention-
deficiency
due
paert Realty Corp., (1952) 231 Ind.
rules,
laws,
415;
Evansville,
regu-
tax
or
City
disregard
al
Mobley
Ill tax, ferring pay to a does failure did, however, taxpayer good trial court correct refer to items basis does and within a reasonable that Cave and de- faith ly conclude 7. 1C would not plicability ment. used to this explained, 15 is We pay chapter, of such person fails to file a return as section cases where his sand dollars no a case dollars [$2.00] penalty. “If requirement. 6-2-l-16(f) (Burns to another inapplicable do tax be be any taxpayer fails to file a return or to transport note, however, 15(a) [6-2-1-15(a)] quarry. less than two dollars person ceases when the stone exempts transportation within due, subject department [$1,000] processing step. ten shall be assessed. because work from one Rule gross percent specific penalty of time or (6-2-1-39) income shall add to the tax more, prescribed penalty of this [10%] definition Rule Ed.) states: [$2.00], If does is one thou- even As we have required by is removed (6-2-1-39) shall in no chapter in thereof as not meet If, how- though its III.C.3 equip- two *8 any ap- 8.IC ever, tive evidence that the failure to tions, thirty filing penalty ment.” to chapter such tax within the time chapter shall be added collected per est able [10%] “If 6-2-l-16(d) negligence annum upon a return any part tax from time was tax, [30] but may was due to a reasonable penalty shall or of authorized rules return, at the rate notice without and interest in such case shall days on the amount of be waived.” is filed or the tax is satisfactory total amount or intentional states: after the date as a and demand all of file such return intent to it it is become penalty, eight percent shown due, specified deficiency disregard defraud, due and specified which inter- ten cause, department paid the deficiency deficiency affirma- percent depart- in this regula- of this within is due there [8%] pay- pay not include as taxable under the The trucks used in the seem use tax.” to me to directly be used in the direct production considering of the In Id. at stone. used, plain meaning language State categorize good Thus this Court refused to Bynum Superior ex rel. LaPorte Court disputes (f) faith within subsection and to (1973), We, 259 Ind. 291 N.E.2d nullify (d). subsection We agree. therefore, affirm the decision of the trial “production” as word used in the context of court on this issue. this statute variously has been defined as: part, Affirmed in reversed in part, and sense, In an economic in- proceedings remanded for further not in- activity all increasing cludes directed to consistent with opinion. goods. the number of scarce economic It not simply manual, is physical labor SULLIVAN, J., concurs. changing involved in or utility form BUCHANAN, J.,C. concurs and dissents a tangible article. by separate opinion. (1945), Borden Co. v. Borella 325 U.S. BUCHANAN, Judge, concurring Chief in 1865, 1869. 65 S.Ct. 89 L.Ed. part dissenting part. something produced Production: I dissent as to One Issue and Two because naturally or as a result of and ef- labor I majority believe the has narrowly too fort; process producing, the act or construed terms of Ind. 6-2-1- bringing making; forth or the creation of 39(b)(6), part: which reads utility, making goods available for (b) Nor shall the state retail human wants. apply any following of the transac- Webster’s Third Law International Diction- tions: ary (unabridged 1971). ed. manufacturing machinery, Sales of majority forth a sets test which the equipment tools and to be directly used equipment purchaser in the must meet order to be ex- production, direct manufacture, fabrication, assembly, empt. transportation ex- I believe that traction, mining, processing, refining or equipment under consideration here satis- finishing personal of tangible property; test, fies their requires that before agricultural machinery, sales of tools and equipment be tax may exempt it must equipment directly pur- to be used integral be part “an of a which is production, chaser in the direct extrac- on-going during transportation.” tion, harvesting processing agricul- appears to while is being me that the stone commodities; tural and sales of transported transportation equipment is personal be property used being directly used the direct purchaser in the direct production or majority of the marketable stone. The does manufacturing manufacture transportation equipment admit the is “an or agricultural machinery, tools proce- essential and integral equipment. unquarried dures which the stone is (Emphasis added). transformed into product.” a marketable majority concludes that trucks ISo would conclude that because transportation other equipment are not “di- transportation equipment is essential and rectly” used in the “direct” integral stone, to the production the stone. I Although would rationalize should be tax exempt. Any other view lets genie out of the bottle-it will virtu- used in the direct “processing” of the impossible ally taxpayers taxing perhaps argument even can be stronger authorities to “directly” determine what is made that this directly used in “production” processing, “direct” manufacturing, of marketable stone. production.
699
life,
law,
lines have to be
In
as
transportation equipment
the
Because
has
integral
produc-
fact
a line
to be
part
drawn. But the
an essential and
it can be
justify
of
marketable
be-
tion
the
does not
its
drawn somewhere
air-conditioning
distinguished
from the
fol-
The line must
ing
anywhere.
drawn
of Reve-
Department
in Indiana
policy,
of
whether
low some direction
55,
(1974),
Ind.App.
160
Corp.
nue v. RCA
experience.
logic
rooted
conditioning
of air
helmets in its worn
casting satisfy did this test. business can purchased
But the trucks here be distin-
guished safety helmets because use affect in a trucks causal fashion the
positive and stone.
of marketable Defendant-Appellant, JOHNSON, Joann Depart- My view finds succor in Indiana Ev- Dairy ment of v. American Revenue v. ansville, 367, (1975), Inc. Indiana, Plaintiff-Appellee. STATE that milk cans that N.E.2d which held hold, were used manufacturer No. 2-480A99. convey raw materials were measure and Indiana, Appeals Court of of Rev- milk. See also First District. Drilling Brothers Co. enue Mumma Sept. 167. In Ameri-
(1977), Ind.App., our court said: Dairy can reading of the the most narrow [E]ven 1971, 6-2-1-
foregoing subsections of IC a conclusion supra, support fails exemptions therein are provided
that the items contribu-
limited to and substances
ting physical composition of authority product,
final has been no support such a construction.
advanced to N.E.2d at 702. The at per- Dairy American more
rationale of
suasive, majori- than the and realistic to me Lines drawn
ty view here. do have law. Justice observed As Frankfurter v. Commissioner:
in his dissent Pearce notes 410. Farmers 246 N.E.2d at form, Id. at composition, or charac in a different significance of Tankage, illustrates the Inc. quarried rock processing ter. The requirement. the double direct in the crusher. placed commences when it is decide, assume, process We but do not Thus, pur for the conceding only natural occurrence of the ing occurs undergoes pro argument the stone poses evaporation of moisture while drainage and drains, cessing stockpile in the in that Nevertheless, stockpiled. we the rock is nevertheless, undergoing process it is not supplies, repairs hold the equipment, being transported. while it It does ing stocking crude stone and in used form, contour, undergo any change not min out are not direct combination, physical appearance, chemical of the stone. While the ing processing or otherwise. transportation quarried stone to the trial court’s we reverse the stockpiles crusher and the essential exempt decision that product, a final marketable integral part of from sales and use tax. mining no occurs dur ing transportation. Transportation II merely serves as a means subject purchases The trial court held the product go for a from one to anoth sales tax certain from the positive er does have a effect and causal Department.5 regulations rules relationship graded to the held those the trial court further “directly stone. We hold used in direct contrary same invalid as processing” requires