Sprint Spectrum LP v. Commissioner of Revenue

*666ANDERSON, RUSSELL A., Justice

(dissenting).

I respectfully dissent. I disagree with the broad definition that the majority applies to words within the tax exemption, MinmStat. § 297A.01, subd. 16(a) (2000) (current version at Minn.Stat. § 297A.68, subd. 5(a) (2002)). The majority ignores the common and approved use of language that we have previously applied to the relevant tax statute.

A few rules are well established when approaching questions of tax exemption and statutory interpretation. First, taxation is the general rule and exemption is an “exception in derogation of equal rights. Therefore, there is a presumption that all property is taxable. In consequence, the burden of proof is on the one seeking the exemption to establish that he is entitled to the exemption.” Camping & Educ. Found, v. State, 282 Minn. 245, 250, 164 N.W.2d 369, 372 (1969) (citations omitted). Second, exemption provisions are to be strictly and narrowly construed. Id. Finally, words and phrases used in statutes are generally to be construed according to them common and approved usage. Minn. Stat. § 645.08(1) (2002). The majority’s analysis and conclusions fail to adhere to these principles.

The key phrase of contention in the present matter is “tangible personal property,” because to qualify for the capital equipment exemption, the equipment for which the exemption is sought must manufacture tangible personal property for sale at retail. Minn.Stat. § 297A.01, subd. 16(a) (2000). For the tax years at issue here, the legislature defined “tangible personal property” as “corporeal personal property of any kind whatsoever, including property which is to become real property as a result of incorporation, attachment, or installation following its acquisition.” Minn. Stat. § 297A.01, subd. 11 (2000) (current version at Minn.Stat. § 297A.61, subd. 10(a) (2002)). In concluding that the equipment at issue does not manufacture tangible personal property, the tax court adhered to its construction of the terms tangible personal property and corporeal personal property in an earlier case, Qwest v. Comm’r of Rev., Nos. 7214-R, 7283-R, 2001 WL 355861 (Minn. T.C. Apr. 2, 2001), ajfd by evenly divided court, 640 N.W.2d 351 (Minn.2002), explaining: “This Court, referring to the 6th edition of Black’s Law Dictionary, found that the common definition of ‘corporeal’ ‘does not include a product that can only be heard and not touched or seen.’ ” Sprint Spectrum LP v. Comm’r of Rev., Nos. 7299-R, 7308-R, 7309-R, 2003 WL 21246600 *5 (Minn. T.C. May 23, 2003) (quoting Qwest, 2001 WL 355861 at *3). The majority apparently rejects the tax court’s reliance on the “common definition” of corporeal as stated in the 6th edition of Black’s, explaining that it does not wish to be restricted by any single dictionary definition.

However, having rejected the definition employed by the tax court, the majority fails to expressly articulate an alternative meaning of either tangible or corporeal personal property. The majority ultimately states that:

The telecommunications product produced here is actually measurable and may be perceived by a variety of bodily senses, including hearing, but also feeling through sound vibrations and, in some instances, the optical forms and light pulses may even be seen. In the case of data, such as facsimiles, the final form product produced may be printed, formatted, and touched.

*667If this statement represents the majority’s definition of corporeal property, it appears more aligned with the language of the 2003 legislative amendment that redefined tangible personal property than with the language of the applicable 1993 statute. See Act of May 25, 2003, ch. 127, art. 1, § 10, 2003 Minn. Laws 731, 741-42 (codified at Minn.Stat. § 297A.61, subd. 10(a) (Supp.2003)) (redefining tangible personal property, in relevant part, as: “personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses.”). This amended statutory language is applicable, however, only to sales occurring on or after January 1, 2004. Id. Further, to the extent the majority notes that sound vibrations may be felt and that data transmissions can ultimately be printed and touched, it goes beyond the product of the equipment at issue here.

More crucial to the majority’s analysis is its review of cases in which electricity, cellular telephone signals and computerized legal research were held to be “products” that qualified their producers for tax exemptions and its conclusion that Sprint’s1 equipment similarly manufactures a “product.”

The majority finds the “product” cases relevant because prior to 1993 the statute defined exempt capital equipment as “equipment * * * used * * * for manufacturing * * * a product to be sold at retail.” Minn.Stat. § 297A.01, subd. 16 (1992) (emphasis added). Although the legislature removed the “product” language when it amended the statute in 1993, the court apparently considers the prior language and cases applying it controlling because we stated in Northern States Poiver Co. v. Comm’r of Rev., 571 N.W.2d 573, 576 (Minn.1997) (“NSP”), that the legislature intended the 1993

amendment only to clarify, not to change, the definition of capital equipment. I cannot join in this approach for several reasons.

First, the majority’s rejection of the ea-pable-of-being-touched-and-seen definition of tangible/corporeal property is misguided. While the majority eschews the tax court’s reliance on the definition from the 6th edition of Black’s, it fails to acknowledge the fact that in Zip Sort, Inc. v. Comm’r of Rev., 567 N.W.2d 34 (Minn.1997), this court relied on the very same definition of corporeal property as stated in that dictionary. Black’s defined “corporeal property” as:

Such as affects the senses, and may be seen and handled, as opposed to incorporeal property, which cannot be seen or handled, and exists only in contemplation. * * * In Roman law, the distinction between things corporeal and incorporeal rested on the sense of touch; tangible objects only were considered corporeal. In modern law, all things which may be perceived by any of the bodily senses are termed corporeal, although a common definition of the tvord includes merely that which can be touched and seen.

Black’s Law Dictionary 343 (6th ed.1990) (emphasis added). In Zip Sort, we adopted the narrower, “common” definition, stating that “[t]he question we must consider under the statute, therefore, is whether a bar code printed with ink directly on an envelope is that which can be touched and seen.” Zip Sort, 567 N.W.2d at 40 (emphasis added). This approach was consistent with our principles of interpreting words used in statutes according to their common and approved usage, Minn.Stat. § 645.08(1), and that tax exemptions are to be construed narrowly, *668Camping & Educ. Found., 282 Minn, at 250, 164 N.W.2d at 372. The majority not only abandons the precedent of Zip Sort, but in doing so it forsakes these established canons of statutory interpretation.

Moreover, the Zip Sort definition of corporeal property is not the only source from which a narrower definition properly flows. We cannot reasonably ignore the fact that in the phrase being defined, “tangible personal property,” the crucial adjective “tangible” has a well-understood common meaning: “[cjapable of being touched and seen.” Black’s Law Dictionary 1456 (6th ed.1990).2 The combination of these two adjectives used by the legislature, “corporeal” and “tangible,” leads logically to the conclusion that the primary criterion the legislature intended to convey was that the property manufactured can be perceived by the sense of touch. This reinforces our adoption in Zip Sort of the narrower definition of corporeal property, that is, property that can be touched and seen.

In the end, the majority’s analysis falls back on the previous version of the statute in which the crucial term was instead “product.” As noted, prior to 1993, exempt capital equipment was defined in relevant part as “equipment * * * used ⅜ ⅜ ⅝ for manufactnring * * * a product to be sold at retail.” Minn.Stat. § 297A.01, subd. 16 (emphasis added). In 1993, the legislature amended the definition of capital equipment, substituting new language for the word “product.” The new definition of capital equipment was:

equipment * * * used ⅜ ⅜ * for manufacturing * * ⅞ tangible personal property, for electronically transmitting results retrieved by a customer of an online computerized data retrieval system, or for the generation of electricity or steam, to be sold at retail * * *.

Act of May 24, 1993, ch. 375, art. 9, § 25, 1993 Minn. Laws 2728, 2897 (emphasis added) (codified as amended at Minn.Stat. § 297A.01, subd. 16(a) (Supp.1993)). There is no question that the 1993 “tangible personal property” language, rather than the 1992 “product” language, applies to the refund claims in this case.3

In NSP we stated that the 1993 amendment was only for purposes of clarification and not, as is ordinarily presumed, intended to change the law. 571 N.W.2d at 576. In reliance on this statement, the majority concludes that because the legislature intended to clarify rather than to change the definition of capital equipment, the court’s previous cases broadly construing “product” to include both tangible and intangible items are applicable to the definition of capital equipment in this case.

I disagree with the conclusion the majority reaches from our statement in NSP. In NSP, we were asked whether transformers purchased by a power company both before and after the 1993 amendment were exempt capital equipment. 571 N.W.2d at 574. First addressing the purchases to which the 1992 language applied, we noted that we had previously determined that electricity is a manufactured product, 571 N.W.2d at 575 (citing Minn. *669Poiver & Light Co. v. Pets. Prop. Tax, Taxing Dist., City of Fraser, Sch. Dist. No. 695, 289 Minn. 64, 75, 182 N.W.2d 685, 691 (1970)). Thus, the issue was only whether the transformers performed a manufacturing function. Id. In that context, we analyzed the issue first under the statutory definition prior to the 1993 amendment and concluded that the transformers were “an integral part of the manufacturing process and, as such, are exempt capital equipment under the 1992 definition.” Id. We then addressed the issue under the amended 1993 language. We noted the agreement of all parties that the 1993 legislation was merely a clarification of the 1992 definition of capital equipment. Id. at 576. We also quoted legislative history expressing that intent:

The purpose of [the amendment] is to confirm and clarify the original intent of the legislature in enacting the exemption for capital equipment * * *. [It] does not create a new category of items that are subject to sales and use tax, nor does it exclude from exemption any machinery, equipment, or other items which were intended to be exempted as capital equipment, as defined in Minnesota Statutes, section 297A.01, subdivision 16.

NSP, 571 N.W.2d at 576 quoting S.F. No. 924, 78th Leg. (Minn.1993) (brackets in original). This quotation illustrates two things about the clarifying amendment. First, it addressed the original intent of the legislature, and second, it did not add or delete categories of taxable or exempt items.

That the legislature intended to confirm its original intent does not necessarily mean, however, that it was confirming the broad interpretation applied in the “product” cases relied on by the majority. Rather, the question remains what was the legislature’s original intent in defining capital equipment. The amended language was intended to clarify that intent, so it is appropriate to look at the clarifying language, rather than to ignore it. The majority essentially concludes that because the 1993 amendment did not change the meaning of capital equipment, the legislature intended that the new language, “tangible personal property,” to mean the same as the old language, “product,” as construed in the prior cases. But the interpretation of “product” in those cases included intangibles. It strains credulity to suggest that the legislature intended to confirm an original intent to include both tangible and intangible property by changing the wording to the more limiting phrase “tangible personal property.” The more reasonable explanation is that the new language was intended to clarify that the original intent was to limit capital equipment to that which manufactures tangible personal property.

Indeed, in addition to changing “product” to “tangible personal property,” the 1993 amendment also expressly added to the definition of exempt capital equipment used “for electronically transmitting results retrieved by a customer of an on-line computerized data retrieval system, or for the generation of electricity or steam.” If tangible personal property was intended to include intangibles, as the majority’s approach would mean, the legislature would have had no reason to expressly include the additional categories of on-line data transmission and generation of electricity. Indeed, those categories were likely included in the amended language because, as stated in the legislative history quoted above, in addition to clarifying its original narrow intent, the legislature did not want to delete any existing exempted categories. It therefore explicitly included two categories that had been construed by the courts as included in the previous definition. See Minn. Power & Light Co. v. Pers. Prop. Tax, Taxing Dist, City of Fraser, Sch. Dist. No. 695, 289 Minn. 64, 75, 182 N.W.2d 685, 691 (1970) (holding that elec*670tricity is a manufactured product); West Publ. Co. v. Comm’r of Revenue, No. 5346, 1990 WL 108040 (Minn. T.C. July 11, 1990), aff'd unthout op., 464 N.W.2d 512 (Minn.1991) (holding that computerized legal research is a product).

Therefore, although I would adhere to our statement in NSP that the amendment was intended to clarify rather than to change the definition of capital equipment and did not change the categories of products that satisfy the exemption criterion, unlike the majority, I conclude that in clarifying its original intent, the legislature made clear that the product must be tangible, that is, capable of being touched and seen, unless included in the express additional categories added by the legislature. Indeed, had the legislature intended to specifically exempt telephone electronic pulses, it could have clearly expressed this intention, as it did with the related categories of on-line computer systems of the generation of electricity.

The majority seeks to further support its expansive reading of the exemption by reference to legislative intent, ultimately concluding that:

It appears that the legislature desired that Minnesota remain competitive with its neighboring states in these industries. It is readily apparent the telecommunications industry is one that the legislature hoped to retain and expand in Minnesota by providing sales tax exemptions for significant capital investment that produces substantial sales at retail. Although modern telecommunications products may not always be “touched or seen” in the traditional sense, the legislative intent to encourage the investment in capital equipment in Minnesota is the same for each.

(Footnotes omitted.) Unfortunately, absent from the majority opinion is any reference to actual legislative action or history that supports these broad conclusions about the legislature’s intent with regard to technology and the telecommunications industry. Instead, the majority relies only on a statement from a dissenting opinion about the general intent of the legislature to stimulate economic development and to provide incentives for businesses to relocate to or remain in the state — notably with no reference at all to technology or telecommunications. Next, the majority relies on decisions from this court and the tax court that recognized “newer forms of technology,” electricity and computerized legal research, in particular, as a “product.” But those decisions hardly constitute legislative action.4

Moreover, as discussed above, when the legislature chose to “clarify” its original intent with its 1993 amendments, rather than adopting expansive language that could easily have made clear an intent to *671embrace newer technologies among the industries that would qualify for the exemption, the legislature redefined the exemption with the restrictive phrase “tangible personal property.”5 And most telling, the legislature also expressly included in the exemption electricity and computerized legal research. If the legislature thought that such new technologies were included within its “tangible personal property” definition, there would have been no need to specifically provide for electricity and computerized legal research. Alternatively, had it wished to broadly embrace new technology products, it could easily have used a more expansive definition as it did when it amended the definition of tangible personal property in 2003.6

Because a more narrow definition is consistent with the language employed by the legislature, the common usage of the terms tangible and corporeal, and our established principles regarding construction of tax exemption statutes, I would affirm the tax court’s holding that the electronic pulses7 produced by Sprint’s equipment are not tangible personal property.

Even assuming, arguendo, that we should utilize the majority’s reasoning and conclude that Sprint’s electronic pulses are tangible personal property, the property must be sold ultimately at retail to qualify for exemption. In Fingerhut Products Co. v. Commissioner of Revenue, 258 N.W.2d 606, 609-10 (Minn.1977), and later in Zip Sort, we developed a test that dealt with circumstances in which intangible property, such as information, was transferred by means of tangible media and later sold at retail. Under this test:

[I]f the medium in which the information resides is merely incidental to the reason for the purchase, the transferred information is intangible property. But if the medium in which the information resides is essential or necessary to the reason for purchase, then the transferred information is tangible property.

Zip Sort, 567 N.W.2d at 40. Unlike the majority, I would conclude that the electronic pulses produced by Sprint’s equipment are a medium that is merely incidental to the reason for the purchase of telephone service.

Although the majority concludes that the Fingerhut/Zip Sort test should be construed to classify Sprint’s product as tangible personal property, that is ultimately sold at retail, a close reading of the test shows otherwise. In Zip Sort, we concluded that bar codes were tangible, because they were a medium by which intangible information was presented that was essen*672tial to the purchase. 567 N.W.2d at 40. However, in Fingerhut, we found that typed mailing lists were merely incidental to the use of intangible information contained within the lists. 258 N.W.2d at 610.

Sprint’s business revolves around selling-communication, not selling electronic pulses. The electronic pulses are incidental to the overall purpose of the consumer purchase. The average consumer may not even be aware of how his message is transmitted from one phone to another, and would likely be equally satisfied if a future method is developed that did not rely on electronic pulses. Indeed, this is amply illustrated by evolution of the technology from land lines using electrical current, then optical fiber transmission, to the now ubiquitous wireless telephone that employs radio waves. The electronic pulses are not the essential medium that is purchased, but rather an incidental device to deliver communications. This makes Sprint’s pulses more similar to the mailing lists in Fingerhut. In Fingerhut, the information on the mailing lists, not the lists themselves, was essential to the purchase. Fingerhut, 258 N.W.2d at 610. Similarly, it is the information delivered by Sprint’s electronic pulses that is essential to the consumer, not the pulses themselves. Therefore, the product that Sprint sells at retail is the communication of the telephonic message, not the electronic pulses it uses to transmit that message. Accordingly, because those pulses are incidental to the product that is ultimately sold at retail, even if they were construed to be tangible personal property, the definition of capital equipment would not be satisfied.

For these reasons, I see no basis to adopt the majority’s broad interpretation of the capital equipment tax exemption, and would narrowly construe the exemption, as we are required to do. Accordingly, I would affirm.

. Indeed, this common definition of tangible is found in non-legal dictionaries as well. E.g., American Heritage College Diet. 1385 (3d ed.1997) (defining tangible as "Discernible by the touch; palpable”); Webster’s Seventh New Collegiate Diet. 901 (1971) ("capable of being perceived esp. by the sense of touch”); Webster's Third New Int'l Diet. 2337 (1976) ("capable of being touched: able to be perceived as materially existent esp. by the sense of touch: PALPABLE, TACTILE”).

. The definitions of "capital equipment,” "tangible personal property” and "corporeal personal property” have been amended since 1993. Those changes do not apply to the claims at issue here.

. The majority cites a 1994 report which apparently notes that Illinois, Wisconsin and North Dakota did not impose a sales tax on manufacturing capital equipment as evidence that the legislature intended to remain competitive with neighboring states in the telecommunications industry. However, a 1994 report sheds no light on the intent of the legislature in the previous years relevant here. Moreover, currently each of those three states generally exempt manufacturing equipment from their sales tax only if it is used to produce "tangible personal property.” 35 Ill. Comp. Stat. Ann. 120/2-5(14) (West Supp. 2003); N.D. Cent.Code § 57-39.2-04.3(6)(b)(l) (Supp.2003); Wis. Stat. § 77.54(6)(a) (Supp.2001). Without knowing the meaning ascribed to that crucial phrase in those states in the years when the relevant Minnesota legislation was enacted, citation to the report tells us nothing about the competitive relationship among the states in this regard. For example, in Illinois, the supreme court held that the legislature intended tangible personal property to mean "[c]apable of being touched” and therefore electrical energy was not tangible personal property. Parrand Coal Co. v. Hatpin, 10 Ill.2d 507, 140 N.E.2d 698, 700-01 (1957).

. The majority notes its agreement with Sprint that the "legislative history of the 1993 amendment does not reveal support for the notion that this telecommunication equipment was meant to be ineligible for tax exemption." But the presumption is that all property is taxable, and consequently the burden is on the taxpayer to establish qualification , for ’ an exemption, Camping & Educ. Found., 282 Minn, at 250, 164 N.W.2d at 372, not on the legislature to affirmatively state that property is ineligible for the exemption.

. In 2003, the legislature broadened the definition of "tangible personal property.” See pp. D-2 — D-3, infra. In 2001, the legislature had amended the sales tax statute to expressly exempt telecommunications equipment. Act of June 30, 2:001, ch. 5, art. 12, § 54, 2001 Minn. Laws (1st Spec.Sess.) 1411, 1698-99 (codified at Minn.Stat. § 297A.68, subd. 35 (2002)). Obviously, when the legislature wanted to expand the scope of the exemption, it knew how to do so. I cannot help but note, regarding these expansions, our long-standing presumption ' that an amendment is intended to change the law. See NSP, 571 N.W.2d at 575-76.

.The equipment at issue produces various types of signals that are used to transport the telephonic message, including electrical current, light pulses, and radio waves. For convenience, they are collectively referred to herein as electronic pulses.