The only issue in this case is whether the trial court erred in finding that certain air conditioning equipment purchased by RCA "is ... directly used in the direct production ... [of] color television picture tubes" and in concluding as a matter of law that such equipment "is exempt from sales and use tax". The resolution of that issue is to be found in the meaning of the language of the statute which exempts "equipment" from those taxes when it is "directly used" in the "direct production" of tangible personal property.
The judgment we reverse was rendered in a suit RCA brought against the State for a refund of sales and use taxes it had paid on the purchase of environmental control (air conditioning) equipment installed and used in RCA's Marion, Indiana, plant where it manufactures color television picture tubes. The judgment granted the refund.
The basic facts are not in dispute and are stated by the court in its finding No. 5, as follows:
That finding also states conclusions which are undisputed, including the last sentence which the parties tacitly agree means that RCA could not economically produce and test color television tubes without the maintenance of the environmental controls in question — not that such manufacture would be totally impossible. Finding No. 6, however, states conclusions to which the State takes exception. It reads:
The State concedes that the maintenance of a rigidly controlled environment is an integral and essential part of RCA's color picture tube manufacturing process, but contends that essentiality is not the test for determining whether equipment is "directly" used in the "direct" manufacturing process. The State also contends that the basic facts found show that the air conditioning equipment itself has no positive causal effect on the tubes (as the court concluded in No. 6) but that its effect is negative in that it prevents the air from adversely affecting the quality of the tubes produced. Such a negative effect, it argues, cannot be considered direct.
In State v. Farmers Tankage, Inc. (1969), 144 Ind.App. 392, 246 N.E.2d 409, the trial court granted Farmers Tankage an exemption from the tax on the purchase of a truck used to collect the dead animals from which it manufactured animal and poultry feed. The statutory exemption there involved read (144 Ind. App. at 393, 246 N.E.2d at 410):
In affirming the exemption the Appellate Court said:
Both the State and RCA appear to be in agreement that the Farmers Tankage opinion implies that had the exemption clause contained the word "directly", the purchase of the truck would not have been held to be exempt. With that we agree but find in it no help. However we also read Farmers Tankage as implying that had the exemption statute contained the word "directly" it would have been ambiguous, thereby requiring that it "be strictly construed against one seeking an exemption." Storen v. Jasper County Farm Bureau Co-Operative Association, Inc., supra, cited for that principle
The conflicting conclusions courts of other states have reached in interpreting similar exemptions for sales of things used "directly" in manufacturing is further indication of the word's ambiguity. That fact was recognized in Powhatan Mining Co. v. Peck (1953), 160 Ohio St. 389, 116 N.E.2d 426, 428:
Our aim, of course, must be the same. In that attempt we also have the duty of adopting a definition which strictly construes the exemption against the taxpayer.
Reference to any dictionary will reveal that there are a variety of definitions to choose from. The State has called our attention to one in Ind. Dept. of State Revenue, Gross Income Tax Division v. Colpaert Realty Corp. (1952), 231 Ind. 463, 109 N.E.2d 415:
The Supreme Court of Ohio adopted that definition in refusing to hold that purchased tools used to manufacture other tools used directly in the manufacture of a product were also used directly in that manufacture and thus exempt from use and sales taxes. General Motors Corporation v. Bowers (1959), 169 Ohio St. 361, 159 N.E.2d 739, 741, said:
Whatever effect (whether positive or negative) that RCA's air conditioning or environmental control equipment may have on the tubes RCA manufactures, or on the process of their manufacture, is exerted through the medium or agency of the environment (i.e., the air). The very name of the equipment, whether "air conditioning" or "environmental control", signifies that its immediate effect is on the surroundings in which the manufacturing process takes place and only remotely, through the intervening agency of those surroundings, on the tubes or on the process by which they are manufactured.
RCA has correctly stated that there are no Indiana cases interpreting the exemption provision here in question. It cites four cases from other jurisdictions in which there is a similar sales and use tax exemption which contains the word "directly". And, just as in the above Ohio case which we have quoted, none of RCA's cases involve environmental control equipment. It contends, however, all its cases reach the conclusion that if the equipment is an integral part of the manufacturing process it is used in the direct production. We have carefully read and considered those cases
Indiana was years behind most other states in enacting a sales tax statute. It had the benefit of other state's experience in judicial interpretation of the exemptions, including the manufacturing exemption. The Indiana Legislature wrote its exemption in words different from those used in any statute construed in the cases RCA cites, or in any cases we have read. Indiana requires that for the sale to be exempt the property purchases must not only be "used directly" in the manufacturing process (as do the statutes of other states) but that it must be "directly used ... in the direct production, manufacture," etc.
This repetition of the requirement that the use be direct cannot be treated as surplusage unless no other course is open. Lincoln National Bank & Trust Co. v. Nathan (1939), 215 Ind. 178, 187, 19 N.E.2d 243, 247; Ind. Dept. of State Revenue, Gross Income Tax Division v. Colpaert Realty Corp. (1952), 231 Ind. 463, 477, 109 N.E.2d 415, 421. Since it is reasonable to assume that the legislative purpose in repeating the directness requirement was to avoid what may have been considered overly broad judicial construction of the single directness requirement in other states, we feel obliged to give it the narrow construction we have indicated.
Almost a century ago the Indiana Supreme Court in Conklin v. Town of Cambridge City (1877), 58 Ind. 130, 133, said:
The basic facts found by the trial court do not sustain its conclusion of ultimate fact that the equipment RCA uses to control the environment in which its color television picture tubes are manufactured is "directly used in the direct production process." As a consequence, the court erred in entering judgment for the refund of the taxes paid. Therefore, the judgment is reversed and the cause is remanded to the trial court with directions to enter judgment that plaintiff take nothing and that defendant recover its costs.
Reversed and remanded.
SULLIVAN, P.J., and BUCHANAN, J., concur.