Camera Center, Inc. v. Revenue Cabinet

GRAVES, Justice,

dissenting.

Respectfully, I dissent.

Appellant, Camera Center, Inc., operates five camera stores in Kentucky under the name Murphy’s Camera & Video (hereinafter “Murphy.”) Two stores process undeveloped film and serve as film processing centers for the other three stores. The two film processing centers in Kentucky also offer retad sales of cameras, film, and other photography equipment, such as tripods and camera bags. These stores were solely retail camera stores pri- or to purchasing the processing equipment in 1988.

From Dec. 1, 1988, to Dec. 31, 1992, Murphy paid Kentucky sales tax on purchases of photo developing machinery. After paying taxes for four years, Murphy filed for a refund with Appellee, the Revenue Cabinet, to recover the sales tax on the photo developing machinery it purchased for use in the two camera stores with processing equipment, claiming that the machinery qualified for the New and Expanded Industry Exemption. KRS 139,480(10)1, KRS 139,170(1)2, and KAR 30:120(1)3.

The Revenue Cabinet denied Murphy’s claim on the grounds that the two camera stores were not “plant facilities” as that term is used in KRS 139.170(1) and KAR 30:120(1). While KRS 139.170(1) never defines “plant facilities,” the Revenue Cabinet for years has interpreted “plant facilities” to mean “a single permanent location that is used almost exclusively for industrial manufacturing or industrial processing activities and does not include locations which are used primarily for retail activities.” Finding that Murphy’s stores were *46predominantly retail, the Revenue Cabinet determined Murphy did not qualify for the exemption. Murphy appealed this ruling to the Kentucky Board of Tax Appeals, which also held that the stores are not plant facilities, as did the Franklin Circuit Court and the Kentucky Court of Appeals. The Court of Appeals’ holding was based, in part, on the proposition that the statute was enacted as a way to encourage volume employers to Kentucky.

Murphy argues that the operative language in the second clause of the definition of “machinery for new and expanded industry” is that which deals with incorporation for the first time. The thrust of Murphy’s argument is that anyone who engages in manufacturing, which both Murphy and the Revenue Cabinet have stipulated that Murphy does, and who incorporates machinery used directly for that process into its Kentucky facilities for the first time, is entitled to the exemption. However, this interpretation effectively nullifies the “plant facilities” language in the statute. There are two reasons Murphy’s interpretation is unsound. First, statutes should be construed, if possible, to leave no part meaningless or ineffective. See Brooks v. Meyers, Ky., 279 S.W.2d 764 (1955). Had the legislature intended Murphy’s interpretation, it would have omitted the “plant facilities” language. Second, while neither this Court nor the legislature has ever defined “plant facilities” within the context of KRS 138, 170, we held in Revenue Cabinet v. Kentucky-American Water, Ky., 997 S.W.2d 2, 5 (1999), that the statute has two requirements: the machinery must be used directly in a manufacturing or processing production process and it must be installed in a plant facility. Thus, this case turns on the meaning of “plant facility.”

Statutes should be construed with two guiding principles in mind. First, under KRS 446.080(4), the legislature has directed us to look “to the common and approved usage of the language.” We reiterated this proposition in Gateway Construction Co. v. Wallbaum, Ky., 356 S.W.2d 247, 249 (1962), stating that words must be given their “usual, ordinary, and everyday meaning.” Furthermore, statutes should be construed according to legislative intent. KRS 446.080(1).

The problem with determining the everyday usage of the words “plant” and “facility” is that they are vague, over-used words in themselves. A number of dictionaries agree that “facility” is either “something that promotes the ease of any action, operation, transaction or course of conduct,” see Webster’s Third New International Dictionary 812 (1993), or “something designed, built, installed, etc. to serve a specific function affording a convenience or service,” see Random House Unabridged Dictionary 690 (2d ed.1987). Several dictionaries define “plant” by specifically mentioning a factory or industrial setting. See Merriam-Webster’s Collegiate Dictionary 890 (10th ed.1999); The American Heritage Dictionary 948 (2d ed.1991); Webster’s Third New International Dictionary, supra; and Random House, supra. These definitions bolster the Revenue Cabinet’s position that “plant facilities” means “a single permanent location that is used almost exclusively for industrial manufacturing or industrial processing activities and does not include locations which was used primarily for retail activities.”

Moreover, legislative intent supports the Revenue Cabinet’s position. In Commonwealth ex rel Luckett v. WLEX-TV, Inc., Ky., 438 S.W.2d 520 (1969), this Court visited this question in 1960, shortly after the statute was enacted. For its decision in the instant case, the Court of Appeals relied upon our reasoning in WLEX-TV, Inc., where we clearly enunciated the reasons for the exemption: “The ultimate purpose of the exemption is to enhance the competitive position of this state as against other states in encouraging the location and expansion of the industries whose manufacturing process requires volume employment of people.” Id. at 522. Em*47ploying a total of five people at a camera store who work interchangeably between the processing and retail areas is hardly the type of expansion that the legislature contemplated when enacting a statute which deprives the state of revenue. Our holding in WLEX-TV, Inc. thirty years ago provides the basis for the Revenue Cabinet’s interpretation of the statute. Most importantly, the legislature has not changed or modified the exemption in any manner during the many years of its application.

As long as exemptions are not arbitrary or unreasonable, the legislature may make classifications and limitations for tax exemption purposes. See Department of Revenue v. Spalding Laundry and Dry Cleaning Co., Ky., 436 S.W.2d 522, 523 (1969). In Spalding Laundry, the issue was the meaning of the “manufacturing” requirement. We stated:

[I]t is peculiarly a matter of legislative selection, in balancing the public benefits against the tax loss, to determine what type of industry will best promote the general welfare. Considering the public purpose involved, surely the legislature could distinguish between large plants and small plants.
It is entirely reasonable for such a body to conclude that the development of manufacturing plants would have a greater impact on the state economy than the development of other industries.

Id. at 524.

The “plant facilities” requirement can be used just as easily as the “manufacturing” requirement to further the legislature’s goal.

By limiting the statute to machinery used in primarily industrial settings, Murphy argues that the lower courts adopted an outdated mentality which ignores vertically integrated industries engaged in both retail and manufacturing. However, these are precisely the settings which the legislature contemplated in enacting the statute. . Were they not, the legislature has had more than ample opportunity to clarify the issue during the past forty years, particularly since the Revenue Cabinet has consistently interpreted the statute with an eye toward larger industries. It is the function of the legislature, not this Court or Murphy, to change the statute’s intent.

Murphy also argues that the definition of “plant facilities” set forth in KRS 139.480(3), should be applied in interpreting KRS 139.170. However, the definition of “plant facilities” in KRS 139.480(3) does not logically work with KRS 139.170. KRS 139.480(3) exempts “all energy or energy-producing fuels used in the course of manufacturing, processing, mining, or refining to the extent that the cost of the energy or energy-producing fuels used exceeds three percent of the cost of production.” Cost of production is based on the extent of the “plant facilities,” which are defined as “all permanent structures affixed to real property at one location.” Id. But this definition only describes the limitations on energy to be included under the exemption and not the requirements for a “plant facility.” For example, in Revenue Cabinet v. James B. Beam Distilling Co., Ky., 798 S.W.2d 134 (1990), we held that Beam could use “all permanent structures affixed” to its distillery to compute its energy tax exemption, while excluding its separate warehouse and bottling plants. This definition of plant facility limits energy computation only; it is not a test for whether a location is a “plant facility” within the meaning of KRS 139.170. If it did act as such a test, the definition would exclude nothing so long as it was affixed to one location, making the use of “plant facilities” in KRS 139.170 superfluous, which, once again, is impermissible under our holding in Kentucky-American Water Co., supra, and Brooks, supra. Murphy’s line of reasoning with regard to KRS 139.480(3) would also conflict with the Board of Tax Appeals’ decision in H.G. Mays Corp. v. Revenue Cabinet, Ky. Bd. Tax.App., Dkt K88-R-1, Order No. K-12078, 1998 WL 153930 (Sept. 15, 1988), in *48which the Board determined that mobile concrete mixers mounted onto trucks, and obviously not affixed to one location, were not excluded from the new and expanded industry exemption merely because they were not permanently affixed to real property.

In light of the ambiguity cast by the above arguments, it is worth noting that this Court has held that “exemptions from taxes are disfavored” and “all doubts are resolved against any exemption .” See Delta Air Lines, Inc. v. Commonwealth, Revenue Cabinet, Ky., 689 S.W.2d 14, 18 (1985). Furthermore, “in construing an ambiguous statute, the Court will give great weight to long-continued constructions and applications by authorities entrusted with its administration.” See Allphin v. Joseph E. Seagram & Sons, Inc., Ky., 294 S.W.2d 515, 517 (1956). The Revenue Cabinet points out that its interpretation of KRS 139.170 is long-standing. We certainly know it has been so held between these parties since 1989, when the Revenue Cabinet sent a letter to Murphy’s counsel in an unrelated matter which stated:

A plant facility means a single permanent location that is used almost exclusively for manufacturing or industrial processing. A facility in which a machine or group of machines produce [sic] tangible personal property in conjunction with a servicé or retail enterprise does not constitute a “plant facility.” Thus, a location used almost exclusively for photo finishing which results in'finished products such as negatives, prints, slides or movies would constitute a plant facility. However, retailers such as shopping center photo shops or photographers which perform photo processing functions would not constitute a plant facility, and would not qualify for the exemption.

Expanding the term “plant facilities” to include the photo processing areas of two camera stores, which are predominantly retail sales centers, in an attempt to shoehorn their equipment purchases into a tax exemption for new and expanded industry, goes well beyond the legislative intent of KRS 139.170. In the absence of the legislature providing a definition, the Revenue Cabinet administered its tax exemption policy based on its own definition, which coincided with legislative intent and common usage. Under Allphin, supra, it is not this Court’s place to overturn that definition.

COOPER, J. and JOHNSTONE, J., join in this dissent.

. KRS 139.480(10) exempts "machinery for new and expanded industry” from Kentucky sales and use tax.

. KRS 139.170(1) defines "machinery for new and expanded industry” as "machinery used directly in the manufacturing process, which is incorporated for the first time into plant facilities in this state.”

. 103 KAR 30:120 repeats the four requirements for application of the statutory exemption:

1. It must be machinery;
2. It must be used directly in a manufacturing process;
3. It must be incorporated for the first time into plant facilities in Kentucky; and
4. It must not replace other machinery.