Aluminum Co. of America v. Weiss

ALUMINUM COMPANY of AMERICA v. Richard A.
WEISS, Director, Arkansas Department of
Finance and Administration

97-258                                             ___ S.W.2d ___

                    Supreme Court of Arkansas
                 Opinion delivered June 23, 1997


1.   Taxation -- tax cases reviewed de novo on record -- chancellor
     reversed only if clearly erroneous. -- Tax exemption cases are
     reviewed de novo upon the record; the supreme court will not
     reverse the chancellor's findings unless they are clearly
     erroneous.

2.   Statutes -- interpretation of -- agency interpretations of
     statutes highly persuasive. -- Agency interpretations of a
     statute, while not conclusive, are highly persuasive; the
     first rule in interpreting a statute is to construe it just as
     it reads by giving words their ordinary and usually accepted
     meaning. 

3.   Taxation -- applicability of exemption provided by statute --
     exemption does not apply to monitoring equipment. -- The
     exemption provided by Ark. Code Ann.  26-52-402(a)(3) (Supp.
     1995) is applicable to machinery or equipment installed to
     mitigate pollution resulting from the continuing operation of
     the plant or facility; the exemption does not apply to
     monitoring equipment, however useful, that does not mitigate
     environmental pollution.

4.   Taxation -- tax-exempt provisions must be strictly construed -
     - strong presumption operates in favor of taxing power. --  
     Tax-exemption provisions must be strictly construed against
     exemption; if there is any doubt concerning its application,
     the exemption must be denied; it is the taxpayer's burden to
     establish an entitlement to an exemption from taxation beyond
     a reasonable doubt; a strong presumption operates in favor of
     the taxing power.  

5.   Taxation -- appellee's interpretation of exemption based on
     plain language of statute -- supreme court agreed with
     appellee's determination that statutory exemption did not
     apply to appellant's lease of equipment for reclamation
     project. -- In denying the tax refund, appellee reasoned that
     the leased equipment was not exempt from taxation pursuant to
     Ark. Code Ann.  26-52-402(a)(3) because it was used in a
     post-mining reclamation project rather than to reduce
     pollution from ongoing mining operations; appellee's
     interpretation was based on the plain language of the statute
     that bases the exemption from taxes upon a requirement that
     pollution-control equipment be installed and used to prevent
     or reduce air or water pollution that results from the
     operation of a plant or facility; the supreme court agreed
     with appellee's determination that the statutory exemption did
     not apply to appellant's lease of equipment for a reclamation
     project; because appellant did not establish that it was
     entitled to the exemption beyond a reasonable doubt, and
     because a tax-exemption provision must be strictly construed
     against the exemption, the chancery court's grant of summary
     judgment in appellee's favor was affirmed.


     Appeal from Pulaski Chancery Court; Robin L. Mays, Chancellor;
affirmed.
     Mitchell, Williams, Selig, Gates & Woodyard P.L.L.C., by: 
Marcella J. Taylor and Marsha Talley, for appellant.
     Kenneth R. Williams, for appellee.

     Ray Thornton, Justice.
     Beginning in August 1990, Aluminum Company of America,
appellant, leased heavy equipment to mitigate environmental damages
resulting from mining operations that it had conducted for many
years until mining ended in 1990.  ALCOA brings this appeal from an
Arkansas Department of Finance and Administration decision that
denied the company a refund of $61,196.50 paid by appellant as
gross receipts taxes on the amounts paid in leasing that equipment. 
ALCOA claims that it is entitled to an exemption from gross
receipts taxes for the lease of equipment used to prevent or reduce
pollution, in accordance with the provisions of Ark. Code Ann. 
26-52-402(a)(3) (Supp. 1995).  
     ALCOA filed a complaint in chancery court, appealing the DF&A
decision, and after hearing arguments on cross motions for summary
judgment, the chancery court granted DF&A's motion for summary
judgment.  ALCOA brings its appeal to this court from that chancery
court order, arguing that the trial court erred in (1) its
construction of the pollution-control exemption; (2) in considering
arguments from DF&A that were not presented at the agency level; 
and (3) in finding that DF&A's decision to deny the exemption was
not arbitrary and capricious.  We review tax exemption cases de
novo upon the record and we will not reverse the chancellor's
findings unless they are clearly erroneous.  Martin v. Riverside
Furniture Corp., 292 Ark. 399, 730 S.W.2d 483 (1987).  We have
decided that the denial of the exemption by DF&A was based upon a
correct interpretation of the statute, and that the trial court
agreed with that result; therefore it is not necessary to reach the
remaining arguments.  
     DF&A informed ALCOA of the denial of payment of the requested
tax refund, stating: 
     With respect to ALCOA's claim for refund of sales tax
     accrued and reported on rentals of equipment from J.A.
     Riggs, the Department has determined that the rental of
     tractor scrapers, a backhoe, a tractor and a dozer are
     not exempt from tax under the "pollution control"
     exemption (Ark. Code Ann.  26-52-402(a)(3)).  This
     equipment was used in completing a post-mining
     reclamation project and was not used to reduce pollution
     from actual mining operations.
In denying the tax refund, DF&A reasoned that the leased equipment
was not exempt from taxation pursuant to Ark. Code Ann.  26-52-
402(a)(3) because it was used in a post-mining reclamation project
rather than to reduce pollution from ongoing mining operations. 
The statute provides exemptions from gross receipts taxes including
the following:
     Gross receipts or gross proceeds derived from the sale of
     tangible personal property consisting of machinery and
     equipment required by state law or regulations to be
     installed and utilized by manufacturing and processing
     plants or facilities in this state to prevent or reduce
     air or water pollution or contamination which might
     otherwise result from the operation of the plant or
     facility.
Id.  26-52-402(a)(3).
The legislative intent is articulated as follows:
     It is the intent of this section to exempt only such machinery
     and equipment as shall be utilized directly in the actual
     manufacturing or processing operations at any time from the
     initial stage where actual manufacturing or processing begins
     through the completion of the finished article of commerce and
     the packaging of the finished end product.  The term
     "directly" as used in this act is to limit the exemption to
     only machinery and equipment used in actual production during
     processing, fabricating, or assembling raw materials or
     semifinished materials into the form in which such personal
     property is to be sold in the commercial market.
Ark. Code Ann.  26-52-402(c)(1).
     Agency interpretations of a statute, while not conclusive, are
highly persuasive.  In Re Sugarloaf Mining Co., 310 Ark. 772, 840 S.W.2d 172 (1992).  The first rule in interpreting a statute is to
construe it just as it reads by giving words their ordinary and
usually accepted meaning.  Board of Trustees v. Stodola, 328 Ark.
194, 942 S.W.2d 255 (1997). 
     The exemption provided by the statute is applicable to
machinery or equipment installed to mitigate pollution resulting
from the continuing operation of the plant or facility.  In Heath
v. Research-Cottrell, Inc., 258 Ark. 813, 529 S.W.2d 336 (1975), we
held that a cooling tower used by the taxpayer was exempt as
pollution control equipment because it was used to remove heat, as
a pollutant, from water, before the water was discharged into the
environment.  The cooling tower was used in the operation of the
facility and was also installed.  By contrast, we have determined
that the exemption does not apply to monitoring equipment, however
useful, that does not mitigate environmental pollution.  Southern
Steel & Wire Co. v. Wooten, 276 Ark. 37, 631 S.W.2d 835 (1982).  
     Tax exemption provisions must be strictly construed against
exemption, and if there is any doubt concerning its application,
the exemption must be denied.  Martin v. Riverside Furniture Corp.,
292 Ark. 399, 730 S.W.2d 483 (1987).  It is the taxpayer's burden
to establish an entitlement to an exemption from taxation beyond a
reasonable doubt.  Pledger v. Baldor Int'l Inc., 309 Ark. 30, 827 S.W.2d 646 (1992); Heath v. Research-Cottrell, Inc., 258 Ark. at
816, 529 S.W.2d  at 337.  A strong presumption operates in favor of
the taxing power.  Ragland v. General Tire & Rubber Co., 297 Ark.
394, 763 S.W.2d 70 (1989).
     We find that the interpretation by DF&A is based on the plain
language of the statute.  The language of Ark. Code Ann.  26-52-
402(b)(3) bases the exemption from taxes upon a requirement that
pollution-control equipment be installed and used to prevent or
reduce air or water pollution that results from the operation of a
plant or facility.  We agree with DF&A's determination that the
statutory exemption does not apply to appellant's lease of
equipment for a reclamation project.   
     ALCOA has not established that it is entitled to the exemption
beyond a reasonable doubt, and because a tax-exemption provision
must be strictly construed against the exemption, we affirm.
     Affirmed.