Dept. of Assessments v. Consolidation

Annotate this Case

Download PDF

State Department of Asses sments an d Taxatio n et. al. v. Consolidation Coal Sales Company, No. 135, September Term 2003 [Tax-Pr operty Under Section 7-225(c) of the Tax-P roperty A rticle, a coal blend ing facility that is primarily a storage, shipping, and receiving facility is disqualified from receiving a manu facture r s exem ption fr om pe rsonal p roperty tax ation.] [Tax-Pr operty Under S ection 1-101(r)(ii) of the Tax-Property Article, coal blending activities do not constitute manufacturing, which requires mining operations to both extract and pro cess m inerals in order to qualify as manu facturin g.] [Tax-Pr operty Under the m ore general de finition of m anufactu ring in Section 1-101(r)(1) of the Tax-P roperty Article, co al blendin g activities do not constitute manufacturing because the coal pro duct left the f acility in the same state as when it arrived and a new and different article must be prod uced.] IN THE COURT OF APPEALS OF MARYLAND No. 135 September Term 2003 __________________________________ STATE DEPARTMENT OF ASSESSMENTS AND TAXATION ET AL. V. CONSOLIDATION COAL SALES COMPANY _________________________________ Bell, C.J. Raker Wilner Cathell Harrell Battaglia Greene, JJ. Opinion by Battaglia, J. Filed: August 3, 2004 In this case, we must determine whether Consolidated Coal Sales Company (hereinafter CCS C ) is entitled to a ma nufacture r s exemp tion from p ersonal pro perty taxation pursuant to Maryland C ode, Sectio n 7-225 o f the Tax -Property Article (1985, 2001 Repl. Vol.) , wh ich exclud es storage, sh ipping, and receiving f acilities from receiving the exemption. After deciding that CCSC is a storage, shipping, and receiving facility and that CCSC s blending activities do not constitute manufacturing as it is defined by Section 1-101(r) of the Ta x-Property A rticle, the Tax C ourt conclu ded that CCSC does not qualify for the exemption. We agree with the Tax Court and hold that CCSC is ineligible for the manu facture r s exem ption. I. Introduction A. Facts In light of the fact that the parties base their arguments on whether a procedure called blending constitutes manufacturing for the purposes of the manufacturing exemption, we sh all review in detail th e coal p roduct ion and shippin g proce ss at issu e in this c ase. In the Port of Baltimore, CCSC, a subsidiary of Consol Energy, Inc. (hereinafter Consol ), operates a terminal that receives, stores, and ships coal to domestic and international markets o n behalf of coal produce rs, coal brok ers, and utilities. T he majority of the coal that CCSC receives is extracted from Consol s Bailey Min e Comp lex in southwestern Pennsylvania, which covers more than two hund red and seventy-five square miles an d is the w orld s la rgest un dergro und m ining co mplex . The coal extracted from the Bailey Mine Complex is processed by the Bailey Central Preparation Plant before it is sent to facilities such as CCSC or sold directly to customers. Processing consists of sizing, cleaning, and blending the raw coal. Sizing occurs when raw coal, whic h can consist of a mas s as large as a basketball, is c rushed to f orm roug hly uniform two-inch squares. The cleaning process removes rock, wood, and other extraneous materials from the raw coal that generally comprise 25 percent of the raw coal or approxim ately 25 tons of material for every 100 tons of raw coal that is cleaned at the Bailey plant. After the coal is cleaned, it then is dried u sing mech anical proc esses descr ibed by its engine ers as g ravity dew atering and th ermal d ewate ring. Once the coal is sized, cleaned, and dried, it undergoes a sophisticated blending process while still at the Bailey Ce ntral Prepara tion Plant. Because coal consists of different and measurable am ounts of BTU , ash, and sulphur, blending is necessary in order to create a coal produ ct containin g specific amounts of those materials that meet customers needs. CCSC describes blending as the taking of large quantities of coals of different chemical compon ents and processing those component coals in such a way that the composite, when complete, meets the customer s requirements throughout. Utilities, for example, prefer coal having low sulph ur levels because of environmental restrictions related to sulphur emissions. Using equipment estimated to be worth approximately one hundred million dollars, the blending process at the Plant utilizes nuclear analytical devices to measure the sulphur content of the coal material. Based on these measurements, the coal is sorted into five different storage bins. Each bin contains coal having the same quality and stores 30,000 tons 2 of coal. The quality of coal in a bin varies somewhat each day, however, depending on what coal seam is being mined at that time. According to one Consol manager, [t]oday it might be 1.1 to 1.2 sulphu r, becau se that s what [ you re] p roduci ng . . . . Tomorrow it s anoth er. In addition, w ithin each b in, the coal is br oken into ten increm ents, with each increment reflecting a sulphur amount between the sulphur content limits of that bin. Although all the coal at the Bailey Central Preparation Plant is blended at the plant to meet customer specifications, the blended coal still may be incompatib[le] with a customer s requirements because the instruments predicting the quality of the coal being currently mined from a seam are only so accurate. Because the Bailey Plant has limited storage space, it utilizes the CCSC terminal in Baltimore, a facility that can receive material on demand in order to keep [Bailey] operating. Therefore, in addition to serving as a shipping facility, the CCSC terminal also operates, in part, as a storage facility to take[ ] up . . . the slack when the Bailey mine produces coal that falls below customer requirements. CCSC receives the majority of its coal by railway. When the coal arrives at CCSC, the trains are broug ht to its d umpe r facility, which is located in the thaw shed. The thaw shed contains larg e heaters us ed to heat th e rail cars in cold weather in order to remove and separate frozen coal from the sides of the rail cars. The dump er then empties the rail cars by turning them upside down, and the coal is discharged acros s wha t is called a grisly, which screens fro m the coa l unwan ted material su ch as rock s that may get into the coal during transit. 3 After the screened coal moves through the grisly, it then moves into hoppers, which collect and control the rate of the coal and discharge onto a conveyor belt. The coal then leaves the thaw shed area and is conveyed on a belt to Transfer Point #1, a housing station where samples of the coal sometimes are taken in order to be tested at a laboratory off-site. From this point, the coal is moved on conveyor b elts directly to a shipp ing vessel o r to Transfer Point #2," a meeting point for two mo re conveyor b elts that take the c oal either to the stockpiles or to a surge bin, a large storage bin. Coal tak en to the stoc kpiles is moved through stacker reclaimers, large machines that have bu cket whe els that both stack the coal for storage purposes and reclaim the coal when it is to be shipped. The coal is stored in different stacks based on its grade. When coal is reclaimed, it can be mixed with other grades of coal as it is sent back down the conveyor belt and loaded into either the surge bin or onto a shipping vessel. According to CCSC, this remixing process constitutes a continuation of the blending process that began at the B ailey Plan t. The remixing of inventory allows CCSC to combine coal of different sulphur and ash content in order to create a different average sulphur content for a cargo load in order to meet a customer s specifications. When mixed, the chemical content of the coal remains the same, although the average chemical content of a load may change. A typica l CCS C carg o conta ins a mix or blen d of c oal from three to s ix stock piles. B. Administrative History CCSC filed personal property tax returns with the Maryland State Department of 4 Assessm ents and Taxation (hereinafter SDAT ) for the ma chinery and e quipmen t at its Baltimore facility for the 19 97-1999 tax years. CC SC did n ot report any of its personal property as manufacturing property and stated that the nature of its business in Maryland was exportation of coal. According to SDAT, CCS C s personal property, based on its returns, was assessed as follows: Tax Year Date of Assessment Notice Amount of Assessment (Baltimore City) 1997 5/20/97 $14,917,720 1998 1/7/99 $14,596,480 1999 11/23/99 $13,212,260 On May 19, 2000, CCSC filed amend ed returns for 1997-1999, and submitted an exemption application for manufacturing and research and development, stating that most of its property wa s used in m anufactu ring. CC SC soug ht to amen d its returns for the prior three-year period for 1997-1999 based on SDAT s practice at that time under Section 14-505 of the Maryland Tax-Property Article,1 which allowed a taxpayer who had failed to report 1 Maryland Code, Section 14-505 of the Maryland Tax-Property Article (1985, 2001 Repl. Vol.) provides: (a) In general. For personal property assessed by the Departm ent, the owner who reported cost or market information for the personal property to the De partment but failed to repo rt the information accurately may appeal the value or classification of the personal property set forth in the notice of assessment by submitting a petition for review to the Department if: (1) the owner c laims that the p ersonal property is valued at a higher value than if the 5 [cost or market] information accurately [to] appeal the value or classification of personal property set forth in the notice of assessment . . . within 3 years of the date of the notice of assessme nt by filing an amended return re classifyin g the prop erty. In addition to its effort to amend its 1997-1999 returns in order to receive the manufacturing exemption for those years, CCSC claimed in its 2000 tax return that its equipment was used in manufacturing and that the nature of its business in Maryland was coal blending instead of exportation of coal. On January 21, 2001, SD AT rejected CCSC s application for a manufacturing exemption, denied CCSC the manufacturing exemption for the years 1997-2000, and issued a notice of asse ssmen t for CC SC s p roperty at $ 12,641 ,700 fo r 2000 . On February 7, 2001, CCSC appealed the notice of assessments and requested a hearing with SDAT, which held an informal hearing on May 10, 2001. On August 16, SDAT issued fina l notices of a ssessmen t to CCS C and co ncluded th at: 1) [CCSC] did not timely file an application for the exemption for the tax year under review. 2) Tax-P roperty Article §§ 14-906 and 14-915 restrict the time information had been repo rted accu ratel y; and (2) the appeal is made within 3 years of the date of the notice of a ssessmen t. (b) Hearing required. If the requirements of subsection (a) of this section are met, the Department shall hold a hearing as provided under § 14-510 of this subtitle. This se ction w as repe aled ef fective July 1, 200 2. 2002 Md. L aws, ch . 529. 6 for a refund based on a missed exem ption to one year. 3) [CCSC] is not legally entitled to a manufacturing exemption. The final assessment notices also indicated the following assessments for the years 19972000: Amount of Assessment (Baltimore City) Tax Year Date of Assessment Notice 1997 8/16/2001 $13,362,510 1998 8/16/2001 $13,097,690 1999 8/16/2001 $12,825,400 2000 8/16/2001 $12,641,700 During the time CCSC was appealing the assessments, SDAT revised its practice w ith respect to the limitations period regarding the manufacturer s exemption. Prior to its change in practice, SDAT allowed taxpayers to file ame nded returns seeking a manufacturer s exemption for up to three prior years pursuant to Section 14-505(a), the general limitations period allow ed fo r reclassi fica tion of perso nal p rope rty. 2 On August 14, 2001, SDAT issued to its staff an internal memora ndum sta ting that a on e-year limitations p eriod applie d to taxpayers seeking a manu facturer s exemption for prior years in conformance with Sections 14-9063 and 14-9154 of the T ax-Pro perty Arti cle. 2 See supra note 1. 3 Maryland Code, Section 14-906 of the Maryland Tax-Property Article (1985, 2001 Repl. Vol.), Property tax refund criteria, provides: (a) No claim require d. A person shall receive a refund of 7 excess property tax paid on property without submitting a refund claim to the collecto r if the payment is erroneous due to a lower final property tax liability than: (1) the advance property tax payment made under § 10-205 of this article; or (2) the estimated property tax payment made under §10-210 of this article. (b) When protest not required before refund claim submitted. (1) If a person submits a refund claim to the collector within the time required by §14-915 of this subtitle, the person shall receive a refund of excess property tax paid on personal property if the payment is erroneous due to: i) a determination by the appropriate supervisor or the Department that the payment is based on an erroneous assessment that did not allow for an exemption to which the person was entitled by regulation, administrativ e interpretation, or controlling case law at the time of the assessm ent; or ii) a lower final property tax liability than the ad vance pro perty tax payment made under §10-206 of this article. (2) The person is eligible for a property tax refund under paragraph (1)(i) of this subsection whether or not the person has submitted a protest or appealed the assessm ent. (c) When claim for refund allowed. A person may claim a refund of the exc ess property tax liability fee if the paym ent is erroneous due to a lower final property tax liability than the advance payment made under § 10-205 of this article. This se ction w as ame nded e ffectiv e July 1, 20 02. 200 2 Md . Laws , ch. 529 . 4 Maryland Code, Section 14-915 of the Maryland Tax-Property Article (1985, 2001 Repl. Vol.), Time for filing, provides: 8 On September 13, 2001, CCSC appealed to the Maryland Tax Court the final notices of assessment that SDAT had issued on August 16. The State Departm ent of As sessments and Taxation and the Mayor and City Council of Baltimore responded. Judge Steven E. Silberg of the Tax Court held a two-day hearing on May 8, 2002 and June 13, 2002. On June 26, 2002, i n an oral decision, Judge Silberg upheld SD AT s assessme nts. Judge Silberg determined that CCSC operated a storage and shipping facility, noting that storing and shipping are non-manufacturing activities under Maryland Code, Section 7-225(c) of the Tax-Pro perty Article, which states that [p]roperty does not qualify for the exemption under this section if the property is used primarily in administration, management, sales, storage, To be eligible for a refund, a person m ust submit a refund cla im on or before: (1) 3 years from the date that the property tax is paid, for a claim under § 14-904, § 14-905(a), (b), or (d), or § 14-906(c) of this subtitle; (2) 3 years from the date that the record ation tax is paid, for a claim under § 14-907 of this subtitle; (3) 3 years from the date that the tra nsfer tax is paid, for a c laim under § 14-908 of this subtitle; (4) 1 year from the date of finality of the erroneous assessment of personal p roperty for w hich a claim is submitted under §14906(b)(1)(i) of this subtitle; or (5) 1 year from the date that the tax rate is fixed for th e taxable year following an advance payment of property tax on personal property for which a claim is submitted u nder § 14 -906(b)(1) (ii) of this subtitle. This se ction w as ame nded e ffectiv e July 1, 20 02. 200 2 Md . Laws , ch. 529 . 9 shippin g, receiv ing, or a ny other n onma nufac turing a ctivity. 5 Judge Silberg also concluded that CCSC did not qualify for an exemption under Section 1-101(r), the general provision defining manufacturing in the Tax-Property Code,6 5 Maryland Code, Section 7-255 of the Tax -Prope rty Article ( 1985, 2 001 R epl. Vo l.) provides: (a) Gene ral Exc eption. Except a s provided in § 7-109 o f this title and in subsectio n (b) of this se ction, if used in manufacturing, the follow ing personal property, however operated and wh ether or not in use, is not sub ject to property tax: (1) tools; (2) implements; (3) machinery; or (4) manufacturing apparatus or engines. (b) Coun ty excep tions. Except as provided by § 7-108 of this title, the personal property listed in subsection (a) of this section is subject to a county property tax on: (1) 100% of its assessment in Garrett County, Somerset County, Wicomico County, and Worcester County; and (2) 7 5% of its asse ssment in Alle gany Cou nty. (c) Property used for nonmanufacturing activity. Property does not qualify fo r the exem ption under this section if the property is used primarily in administration, management, sales, storage, shipping, receiving, or any other nonmanufacturing activ ity. (d) Application and granting of the exemption. - In order to qualify for the exemption under this section, a person claiming the exemption must apply for and be granted the exemption by the Depa rtment. 6 Maryland Code, Se ction 1-101 (r) of the Ta x-Property A rticle (1985, 2001 R epl. Vo l.) provides: (1) "Manufacturing" means the process of substan tially transforming, or a substantial step in the process of substantially transforming, tangible personal property into a new and different article of tangible personal property by use of labor or 10 because the provision defines manufacturing as the process of substantially transforming, or a substantial s tep in the pro cess of sub stantially transform ing, tangible personal p roperty into a new and different article of tangible personal property by use of labor or mach inery. He stated: Clea rly, they are receiving coal prima rily from their m ine in Pennsylvania, though, in addition, they get some coal from some other sources. It arrives by train. It is remov ed from th e train and put into piles [at] the facility. And in order to satisfy demand from customers, mac hine ry. (2) "Manufacturing" includes: (i) the operation of sawmills, grain mills, or feed mills; (ii) the operation of machinery and equipment used to extract and process minerals, metals, or earthen materials or by-products that result from the extracting or processing; (iii) research and development activities, whether or not the company has a product for sale; (iv) the identification , design, or ge netic engineering of biological materials for research or manufacture; and (v) the design, development, or creation of computer software for sale, lease, or license. (3) "Manufacturing" does not include: (i) activities that are primarily a service; (ii) activities that are intellectual, artistic, or clerical in nature; (iii) public utility services, including telephone, gas, electric, water, and steam production services; or (iv) any other activ ity that would n ot comm only be considered as manufacturing. 11 removed from those piles and either shipped b y boat or train to the customer. In between those two events there is some fairly sophisticated process of blending that s taking place. The blending is to allow the meeting of specific requirements of the customer for sulphur, primarily, but also for possibly other chemical characteristics of the coa l. This blending process can take place either in the way the coal was stacked or the way the coal is removed from the cars or using some combination of the variety of equipment that s at the faci lity. I think the testim ony was fa irly clear that [the] individual nuggets of coal that arrived are shipped out without any change occurring to them. The blending process may change, which other nuggets of coal are combine d to that one when it s sh ipped. It ma y not be the entire batch it arrives with. It s my determination that this whole process is not a substantial transformation or a substantial step in the process of substantially transfo rming th is coal. The coa l is pretty much the same form when it leaves as when it arrives. Judge Silberg further found that Section 1-101(r)(2)(ii), which specifically includes within the definition of manufacturing the operation of machinery and equipment used to extract and process minerals, metals, or earthen materials or by-products that result from the extracting or proc essing, did not apply to the CCSC facility either because it s fairly clear that the facility in Maryland doesn t extract any minerals . . . . You have to do both extracting and processing to apply to that section. Judge Silberg also noted that CCSC had classified itself as a transp ortation facility of s ome sort in docum ents that were filed with the 12 govern ment such as enviro nmen tal repor ts. Fina lly, with respe ct to CCS C s argum ent that it was entitled to the three-year limitations period for the purposes of retroactive relief instead of one year, Judge Silberg acknowledged that this [was] a change in the way [SDAT] had been doing things but found that the Tax Code dictate[d] that the shorter time period [was] the appropriate one. Judge Silberg issued an order affirming SDAT s assessments on July 23, 2002. C. Procedural History On August 1, 2002, CCSC filed a timely petition for judicial review in the Circuit Court for Baltimore City. SDAT and the Mayor and City Council of Baltimore responded. On August 5, 2003, the Circuit Co urt reversed the Tax C ourt, concludin g it had erro neously interpreted the tax statute, specifically §1-101(r), and misapplied it to the facts because CCSC s blending activities are a substantial step in the substantial transformation of coa l. The Circuit Court judge observed: CCSC s blending of coal and associated activities are vital because nuggets of raw coal do not automatically meet the needs of the end-users of the coal. The n uggets m ust be blend ed into batches, the chemical composite of which, when b urned, me ets the chemical needs of each specific end-user. . . Without blending, the coal would be of no use to the end-users. The blending is crucial despite the fact that each individual nugget of coal remains unchanged. With respect to whether the three -year or one-year limitations period applied, the judge concluded that the one-year statutory limitation period in Section 14-906(b) applied because it specifically applies to refunds for assessments of personal property that are 13 erroneous because th ey do not allow for an exe mption to which the person was entitled by regulation, administrative interpretation, or controlling case law. While acknowledging that SDA T, in the pas t, had given taxpayers a three-year period to apply for manufacturing exemptions, it concluded that, [a]round the time that CCSC filed it exemption applications, SDAT began ap plying the one-year time limitation to all taxpayers that applied for manufacturing exemptions [and ] denied CCS C s ex emptio n applic ations f or this re ason. The judge, thus, c oncluded that CCSC s 1997 and 1998 exemption applications should be denied but that the 1999 application was timely filed. SDAT, the Mayor and City Council of Baltimore, and CCSC noted appeals to the Court of Spe cial Ap peals, an d this C ourt issu ed, on its own in itiative, a writ of certio rari, Department of Assessments v. Consolidated Coal, 380 Md. 230, 844 A.2d 427 ( 2004), prior to any proceed ings in the intermed iate appellate court. For the sake of clarity, we have rephrased the parties questions presented for our review: 1. Did the Circuit Court err when it concluded that CCSC was entitled to the manufacturer s exemption under Section 7-225 of the Tax-Property Article? 2. Did the Tax and Circuit Courts err when they applied the one-year limitations period app licable to tax exemptions under Section 14-906(b) as opposed to the general three-year limitation period for incorrect reporting under Section 14-505 of the Tax-Property Article?7 7 The State Department of Assessments and Taxation presented the following questions: 1. Did the C ircuit Court e rr when it substituted its judgment for 14 We conclude that the Tax Court was correct and reverse the judgment of the Circuit Court the Tax Court s judgment where the Tax Court had factu ally found that CCSC s personal p roperty was n ot used in manufacturing because it d id not extrac t and proce ss coal, its property was prim arily used in receiving, storage, and shipping, and its activities did not meet the substantial transformation test? 2. Even assuming CCSC s property is used in manufacturing, did the Tax Cou rt properly find that CCSC w as ineligible for a manufacturing exemption for 1997-1999 because it did not timely file a manufacturing exemption application, and did not timely request an exemption under the retroactive exemption statutes? The Mayor and City Council of Baltimore presented the following questions: 1. Was the tax court s decision that CCSC is not entitled to a manufacturing exemption supported by substantial evidence? 2. Was the ta x court corr ect in applying a specific one-year limitation period a retroactive application for a tax exemption, as opposed to a general three-year limitation period for incorrect reporting? Fina lly, CC SC p resented its qu estio ns in the f ollowing wa y: 1. Whether the Circuit Court correctly determined on the undispute d facts that the sophisticated coal blending at CCSC entitles CCSC to a manufacturer s exemption from personal property taxation? 2. Whethe r the courts b elow erred in concluding that CCSC was not entitled to a manufacturer s exemption for the 1997 and 1998 years pursuan t to the Department s longstanding interpretation of more than 20 years duration based on C CSC s amended returns reclassifying its property under Tax-Property Article §14-505? 15 for Baltimore City with respe ct to its determin ation that CC SC wa s entitled to the manufacturer s exemption under Section 7-225. Because we determine that CCSC was not entitled to the exemption, we need not address which statute of limitations period applied. II. Standard of Review The parties in this case dispute what stand ard of review ap plies to the Tax Cou rt s conclusions. CCSC maintains that the facts before the Tax Court were undisputed; as such, in CCSC s view, the Tax Court s legal conclusion based on those undispu ted facts sho uld be treated a s an issu e of law and af forded no def erence by the rev iewing court. SDAT and the Mayor an d City Council of Baltimore, on the other hand, argue that the reviewing cou rt should defer to the Tax Court s conclusions because it made three factual rulings, and then applied the law correctly to those facts, namely that 1) CCSC was a shipping and storage facility and thus was excluded from the definition of manu facturing under Sec tion 7-225(c); 2) CCSC does not e xtract and process coal and thus does not meet the definition of manufacturing under Section 1-10 1(r)(2)(ii); and 3) CCSC did no t substantially transform or perform a substantial step in the substa ntial transform ation of tan gible perso nal property and thus does no t meet the definition of m anufacturing und er Section 1-101(r)(1). Because the Maryland Tax Court is an administrative agency, [t]he standard of review for Tax C ourt decision s is generally the same as that for other administrative agencies. Supervisor of Assessments v. Hartge Yacht Yard, Inc., 379 M d. 452, 461, 842 A.2d 732, 73 7 (200 4). When we consider an administrative agency decision, we review the 16 agency s decision applying the same statutory standards as used by the preceding reviewing court. Christopher v. Montgomery County D ept. of Health and Human Services, 381 Md. 188, 197, 849 A.2d 46 (2004); Spencer v. Maryland State Bd. of Pharmacy, 380 Md. 515, 523-24, 846 A.2d 341, 346 (2 004). Under Section 13-532(a) of the Tax-General Article,8 the standards of judicial review found in Sections 10-222 and 10-223 of the State G overnm ent Article ap plicable gen erally to administrative agencies likewise apply when reviewing decisions of the Tax Court. As we have explained: Acc ordingly, under this standard, a reviewing court is under no statutory constraints in reversing a Tax Court order which is premised solely upon an erroneous conclusion of law. On the othe r hand, where the Tax Court's decision is based on a factual determination, and there is no error of law, the reviewing court may not reverse the T ax Cou rt's order if substantial evidence of record supports the agency s decision. Hartge Yacht Yard, Inc., 379 Md. at 461, 842 A.2d at 737 (citations omitted). Similarly, we 8 Section 13-532(a) of the Tax-General Article provides: (a)(1) A final order of the Tax C ourt is subject to judicial review as provided for contested cases in §§ 10-222 and 10-223 of the State Government Article. (2) Any party to the Tax Court proceeding, including a governmental unit, may appeal a final orde r of the Ta x Court to the circuit cou rt. (b) When an order of the Tax Co urt is subject to judicial review, that order is enforceable unless the reviewing court grants a stay upon such con dition, security or bond as it deems prop er. Maryland Cod e, Section 13-532 of the Tax-Gen eral Article (1988, 1997 R epl. Vol.). 17 have held that determinations involving mixed questions of fact and law must be affirmed if, after deferring to the Tax Court's exp ertise and to th e presum ption that the d ecision is correct, a reasoning mind could have reached the Tax Court's conclusion." NCR Corp. v. Comptroller., 313 Md. 118, 133-134, 544 A.2d 764, 771 (1988)(quoting Comp troller v. NCR, 71 Md.App. 116, 133, 524 A.2d 93, 101 (1987 ))(internal quotation marks om itted). See also Colo nial Pipeline Co. v. State Dept. of Assessments and Taxation, 371 Md. 16, 28, 806 A.2d 648, 655 (2002)(stating that [t]he applicable standard of judicial review of the final order of the Tax Court depends on whether the court is reviewing a question of law, questio n of fa ct, or a m ixed qu estion o f law a nd fac t ). Ordinarily, then, a final order of the Tax Court must be u pheld on ju dicial review if it is legally correct and reasonably supporte d by the e videntia ry record. Comptroller v. Clyde s of Chevy Chase, Inc., 377 Md. 47 1, 482, 833 A.2d 10 14, 1020 (2003)(statin g that, when review ing a decision of the T ax Court, we a re limited to determining the legality of the decision of the Tax Court and whether there was substantial evidence in the record to support its findings and conclusions )(quoting Supervisor of Assessments of Baltimore County v. Keeler, 362 M d. 198, 207 -08, 764 A .2d 821, 82 6 (2001). A s we obs erved in Insurance Commissioner v. Engleman, 345 Md. 402, 411, 692 A.2 d 474, 47 9 (1997), [t]his standa rd of re view is both na rrow a nd exp ansive . It is narrow to the extent that reviewing courts, out of deference to agency expertise, are required to affirm an agency's findings of fact, as well as its application of law to those facts, if reasonab ly supported by the administrative record, viewed as a 18 whole. The standard is equally broad to the extent that reviewing courts are under no c onstraint to affirm an agency decision premised solely upon an erroneous conclusion of law. Id. (citations omitted). Under this standard, therefore, our scope of review remains narrow if a reasoning mind could have reached the Tax Court s conclusion based on the evidence. We will not broaden our scope of review and overturn the Tax Court s decision unless it was based on an error of law. See Ad ventist H ealthca re Mid atlantic , Inc. v. Su burba n Hos p., Inc., 350 Md. 104, 120, 711 A.2d 158, 166 (1998)(stating that [a] court's role in reviewing contested case decisions mad e by administrative agencies is limited to determ ining if there is substantial evidence in the record as a whole to support the agency's findings and conclusions, and to determine if the administrative decision is premised on an erroneous conclusion of law )(quoting United Parcel v. People s Counsel, 336 Md. 569, 577, 650 A.2d 2 26, 230 (1994 )). In addition , while a mbigu ous tax statutes a re cons trued in favor o f the tax payer, see Clyde s, 377 M d. at 484, 83 3 A.2d a t 1021, tax e xemption statutes are strictly construed against the taxpayer and in favor of the taxing authority. In Supervisor of Assessments of Baltimore County v. Keeler, 362 Md. 198, 209, 764 A.2d 821, 827 (2001), we explained: It is fundamental that statutory tax exemptions are strictly construed in favor of the taxing authority and if any real doubt exists as to the propriety of an exemption that doubt must be resolved in favor of the State. In other words, to doubt an exemption is to deny it . . . . [T]he State's taxing prero gative is never presumed to be relinquished and the abandonment of this power must be proved by the party asserting the exemption. 19 (quoting Chesa peake & Potom ac Tel. C o. v. Co mptro ller, 317 Md. 3, 11, 561 A.2d 1034, 1038 (1989)). Of course, while tax exemption statutes are to be strictly construed, the construction must be a fair one, so as to effectuate the legislativ e intent a nd obje ctives. Perdue Foods, Inc. v. State Dep t of Assessments and Taxation, 264 Md. 672, 687-88, 288 A.2d 170, 178 (1972)(quoting Maryland State Fair & Agric. Soc y, Inc. v. Supervisor of Assessm ents of Baltimo re Coun ty, 225 Md. 574, 588, 172 A.2d 132, 139 (1961)). As we have often opined, we discern legislative intent by analyzing the statute s plain language, and we give effect to the statute as it is written where the words of a statute, construed according to their comm on and ev eryday meanin g, are clear and unambiguous. Clyde s, 377 Md. at 483, 833 A.2d at 1021 (establishing the standard of review for a tax statu te)(internal quotation marks omitted)(quoting Moore v. Miley, 372 M d. 663, 6 77, 814 A.2d 5 57, 566 (2003)). Only where the statutory language is ambiguous do we look beyond the statute s plain lan guage in orde r to disce rn legisla tive inten t. Id. III. Discussion SDAT and the Mayor a nd City Council of Baltimore first contend that, because Section 7-22 5(c) excl udes pr operty . . . used primarily in . . . storage, shipping [or] receiving from the manufacturer s exemption, the Tax Court correctly determined that CCSC was disqualified from receiving the tax exem ption. The Circuit Court, in their view, did not afford the Tax Court the appropriate deference when it determined that the processing at CCSC is manufacturing because it is a substantial step in the pro cessing of coa l. 20 SDAT and the M ayor and City Counc il of Baltimore further argue that, if the correctness as a matter of law standard applies in this case at all, it is relevant on ly to the Tax Court s determination that Section 1-101(r)(2)(ii) of the Tax-Property Article requires both the extraction and processing of coal in order for the manufacturing exemption to ap ply. They assert that a plain reading of Section 1-101(r)(2)(ii) requires that manufacturing in a mining and proc essing con text requires th e operation of mach inery that is used to extract and process minerals. Because no extraction of minerals occurs at CCSC, they claim that this definition of manufacturing does not apply and disqualifies CCSC from the exemption. In addition, SDAT and the Mayor and City Council of Baltimore maintain that, under the more general substantial transformation test, CCSC does not transform coal in a significant enough way nor do es its blending process constitute a substantial step in the manufacturing process in order to be eligible for the manufacturer s exemption. The parties support their argument by stating that CCSC handles and ships coal that already has been processed; CCSC handles the processed coal at the end rather than the beginning of the manufacturing process; CCSC s blending process does not meet the common understanding of manufa cturing; CC SC desc ribed itself as a shipping o r transportation facility in government documents; and the scale of the operation and number of CCSC employees indicates that man ufac turin g wa s not occu rring at the CCSC f acility. CCSC, on the other hand, begins its argument by maintaining that the Circu it Court did not err when it found that CCSC s blending activities were a substantial step in the 21 substantial transformation of coal. According to CCSC, Maryland case law regarding the manufacturer s exemption require[s] the conclusion that manufacturing is a continuous process that cannot be segregated by function for the purpose of an exe mption or taxati on. CCSC maintains that there is no final product of coal until afte r the blendin g occurs a t its faci lity, that the Bailey mine could not function as it does without CCSC s blending process, and that b lending . . . is an integral part of the manufacturing chain involved in preparing coal for market. CCSC furthermore argues that it also qualifies for the manufacturer s exemption because its equipme nt is used to extract and process m inerals . . . or by-prod ucts that result from the extracting or processing under Section 1-101(r)(2)(ii). CCSC interprets the sta tute in such a w ay that or is interc hangeab le with a nd, maintaining that [i]t makes no sense to construe the statute as requiring manufacturing to include only the extraction and processing of minerals and earthen material and in addition thereto, construing it to include the processing of byproducts of material extracted or processed. CCSC also conten ds that, because the provision states that manu facturing includes . . . the operation of machinery and equipment used to extract and process minerals, metals, or earthen materials or by-products that result from the extracting or processing , it is indicating b y way of exam ple and not by limitation how manufacturing should be defined. In CCSC s view, because the statute was written in this way, the determ ination whether any other activity constitutes manu facturin g was still left to th e courts . 22 CCSC also asserts that it is not a storage, shipping, [o r] receiving facility disqualifying it for the exemption under Section 7-225(c). Rather, it claims that [t]he evidence before the Tax Court was undisputed and demonstrated as a matter of law that each piece of equipment for which the exemption is sought is used in the manu facturin g proce ss. With respect to the fact that CCSC described itse lf as a transpo rtation and sh ipping fac ility in other documents, CCSC maintains that the Court must look beyond labels to the actual busine ss of the taxpayer . A. When the Tax Court made its decision, it determined that Section 7-225 of the TaxProperty Article, which provides a tax exemption from personal prop erty used in manufacturing, did not apply to CCSC. Section 7-225 provides: (a) Gene ral Exc eption. Except a s provided in § 7-109 of this title and in sub section (b) o f this section, if u sed in manufacturing, the following personal property, however operated and whether or not in use , is not subject to property tax: (1) tools; (2) implements; (3) machinery; or (4) manufacturing apparatus or engines. (b) Coun ty excep tions. . . . (c) Property used for nonmanufacturing a ctivity. Property does not qualify for the exemption under this section if the property is used prim arily in administratio n, manag ement, sales, storage, shipping, receiving, or any other nonmanufacturing activ ity. (d) Application and granting of the exemption. - In order to qualify for the exemption under this section, a person claiming the exemption must apply for and be granted the exemption by 23 the Depa rtment. Maryland Code, §7 -225 of th e Tax-Pr operty Article (1985, 2001 R epl. Vol.). Because the statute clearly and unambiguously excludes property . . . used primarily in . . . storage, shipping [or] receiving from the exemption, we believe the Tax Cou rt was legally correct when it determined that Section 7-22 5(c) disqualifies CCS C from receiving the tax exemption based on its finding that the CCSC facility is a very large s cale and sophisticated storage, shipping,[and] receiving facility. The basic facts that CCSC is primarily a shipping and storage facility that utilizes a blending procedure when it loads cargos of coal are undisputed. The record more than demonstrates that CCSC is, as the Tax C ourt decide d, a very large s cale and sophisticated storage, shipping,[and] receiving facility. As we explained in Com ptroller v. SYL , Inc., 375 Md. 78, 105, 825 A.2d 399, 415 (2003), where the facts before the administrative agency were undispute d, the legal co nclusion b ased on th ose facts has been treated as an issue of law. We hold that CCSC, a shipping, stora ge, and receiving facility, is ineligible for the manufacturer s exemption because Section 7-225(c) specifically disqualifies such facilities from re ceiving the exe mption . B. In addition to concluding that CCSC is excluded under Section 7-225(c) from the exemption because it is a storage, ship ping, and re ceiving fa cility, the Tax Co urt also determined that CCS C s activities d id not qualify as manufacturing under Section 1-10 1(r) 24 of the Tax-Property Article. CCSC argued that it qualified both under Section 1- 101(r)(2)(ii), which specifically pertains to mining operations, and Section 1-101(r)(1), the general definition of manufacturing. Section 1-101(r), in its entirety, provides: (1) "Manufacturing" means the pro cess of sub stantially transforming, or a substantial step in the process of substantially transforming, tangible personal property into a new and different article of tangible personal p roperty by use of labor or mac hine ry. (2) "Manufacturing" includes: (i) the operation of sawmills, grain mills, or feed mills; (ii) the operation of machinery and equipment used to extract and process m inerals, meta ls, or earthen materials or by-products that result from the extracting or processing; (iii) research and development activities, whether or not the company has a product for sale; (iv) the identification, design, or genetic engineering of biological materials for research or manufacture; and (v) the design, development, or creation of computer software for sale, lease, or license. (3) "Manufacturing" does not include: (i) activities that are primarily a service; (ii) activities that are intellectual, artistic, or clerical in nature; (iii) public utility services, including telephone, gas, electric, water, and steam production services; or (iv) any other activity tha t would n ot commonly be considered as manufacturing. With respect to Section 1-101(r)(2)(ii), the definition of manufacturing includes the operation of machinery and equipment used to extract and process minerals, metals, or earthen materials or by-products that result from the extracting or processing . In this 25 instance, the Tax C ourt decide d as a matte r of law tha t the statute required m achinery to extract and process m inerals in order to qualify as m anufactu ring equipm ent. Whe n it applied this conclus ion of law to the facts of this case, the Tax Court decided that, because CCSC did n ot ex tract minerals at its f acility, it did not meet the definition of manufacturing under S ection 1 -101(r) (2)(ii). W e agree . As the Tax Court pointed out, the plain language of the statute require s machine ry to extract and process minerals in order to b e classified as manufa cturing equipment. In Comptroller v. Fairchild Industries, Inc., 303 Md. 280, 285, 493 A.2d 341, 343 (1985), we explored how we ordinarily construe the word and : According to Black's Law Dictionary 79 (5th ed. 1979), the word "and" is used as "[a] conjunction connecting words or phrases expressing the idea that the latter is to be added to or taken along with the first . . . . It expresses a general relation or connection, a participation or accompaniment in sequence, having no inheren t meaning standing alo ne but deriving force from what comes before and after. In its conjunctive sense the word is used to conjoin words, clauses, or sentences, expressing the relation of addition or connection, and signifying that something is to follow in addition to that which proceeds and its use implies that the connected elements must be gramm atically co-ordinate, as where the elements preceding and succeeding the use of the wo rds refe r to the sa me sub ject ma tter. Given the above, we then co nclude d that a nd ord inarily is no t interch angea ble with or. Id. at 285-86 , 493 A.2d at 343-44 . Although some circu mstances may require c ourts to construe and as or, see Little Store, In c. v. State , 295 Md. 158, 163, 453 A.2d 1215, 1218 (1983), we do so only where it is necessary to effectuate the obvious intention of the 26 legislatu re. Fairchild Indus., 303 Md. at 286, 493 A.2d at 344. We discern no obvious intent on the General Assembly s part that and should be read as or he re. In fact, when the provision was first introduced in 1965 in Senate Bill 43, the original language stated extraction or processing. 1965 Md. Laws, ch. 94. This language was rejected, however, and the language extraction and processing was inc luded inste ad. Id. Affirma tively rejecting or and o pting for the word a nd sugg ests the General Asse mbly s strong intent to require equ ipment to both extrac t and process minerals in order to meet the definition of manufacturing e stablished in Section 1-101 (r)(2)(ii). As for the more general definition of manufacturing in Section 1-101(r)(1), we also agree with the Tax Court that CCSC does not m eet its requirements either. Enacted in 1996, Section 1-101(r)(1) codifies, in large part, the common law substantial transformation test. 1966 Md. Laws, ch. 174; 1996 House Committee on Ways and Means Floor and Concurrence Reports on House Bill 2 (stating that the language [o f Section 1-101(r)] conforms to the court decisions that have been made relating to property tax and sales tax exemptions for manufacturing ). Under Section 1-101(r)(1), [m]anufacturing means the process of substantially transforming, or a substantial step in the process of substantially transforming, tangible personal property into a new and different article of tangible personal property by use of labor or mach inery. In both instances, whether the e ntire process or a substantial step of the entire process transforms a product, the definition turns on whether a new and differen t article of tangible personal p roperty by use of labor or m achinery is 27 produced. Id. (emph asis add ed). See State Dept. of Assessments and Taxation v. Consumer Programs, Inc., 331 Md. 68, 73, 626 A.2d 360, 363 (1993)(stating that the determinative factor for the definition of manufacturing is whether a product has gone through a substantial transformation in form and uses from its original state ). A review of our decisions applying the substantial tra nsforma tion test prior to its codification in Section 1101(r)(1) reveals that CCSC s activities fall short of what it requires because a new and differe nt article o f tangib le perso nal pro perty is n ot prod uced a t the CC SC fa cility. In Perdue Foods, 264 Md . at 690, 288 A.2d at 17 9, for exam ple, we he ld that a chicken processing plant was engaged in manufacturing because the live chicken that arrived at the plant was much different from the packaged broiler that left it. In that case, live chickens were slaughtered, de-feathered, w ashed, eviscerated, cut into pieces, wrapped, chilled, and packaged before being shipped from the plant to b e sold a t the sup ermark et. Id. at 676-77, 288 A.2d at 172-73. Emph asizing how th e produ ct had c hange d, see id. at 689, 288 A.2d at 179, we thus concluded that the equipment at the Perdue facility fell under the manufacturer s exemption because the live chicken that had arrived at the plant had changed into a ne w and differe nt prod uct, nam ely, a broile r fit to be cooke d. In Perdue, Inc. v. State Dept. of Assessments and Taxati on, 264 Md. 228, 286 A.2d 165 (1972), however, we declined to find that Perdue s artificial incubation of eggs constituted manu facturin g. Id. at 237, 2 86 A.2 d at 170 . In that case, we defined manufacturing as the application to material of labor or skill w hereby the orig inal article is 28 changed to a new, different and useful article and emerges through the utilization of ingenuity and labor. Id. at 236, 286 A.2d at 169. Placing an egg in an environment conduciv e to its hatching, w e conclud ed, did not c onstitute manufacturing because the egg was not changed due to effort on Perdue s part. Id. at 238, 286 A.2d at 170. We acknowledged, however, that the line of demarcation between manufactured and nonmanufactured products may at times be rather indistinct, and thus the determinative factor [is] whether the produ ct has gon e through a substantial tra nsforma tion in form and uses from its original state. Id. at 237, 286 A.2d at 170. Similarly, we have found on many occasions that manufacturing exists when an article has undergone a substantial transformation into a new and different article as a result of human labor. Manufacturing occurred, for example, when paper documents became electronic documents when recorded on magn etic tape , Comptroller v. Disclosure, Inc., 340 Md. 675, 681, 667 A.2d 910, 912 (1995 ), film be came p ictures, Cons umer Progr ams, 331 Md. at 76, 626 A.2d at 365, cotton b ecame shirts, Mayor and City Council of Baltimore v. Hanover Shirt C o., 168 Md. 174, 181-82, 177 A. 160, 163 (19 35), raw corn became canned corn, County Comm r v. B.F . Shriver Co., 146 Md. 412, 418, 126 A. 71, 73 (1924), and whea t becam e flour, Carlin v. the Western Assurance Co., 57 M d. 515, 5 27-28 (1882 ). On the other hand, we repeatedly have no t found a substantial transform ation where products left the facility in essentially the same form in w hich they arrive d, even tho ugh, in some cases, some human labor was involved. For example, liquid sulph ur remaine d liquid 29 sulphur, even th ough th e sulph ur was heated while it w as stored , Pan Am. Sulphur Co. v. State Dept. of Assessments and Taxation, 251 Md. 620, 626, 248 A.2d 354, 358 (1968), gas remained gas, but the application of ch anging pressure performed no function w hatever in the manufacture of gas, Suburban Propane Gas Corp. v. Tawes, 205 Md. 83, 93-94, 106 A.2d 119, 124 (1954), and pre-printed sheets remained sheets, even though they were placed in a binder before delivery to the custom er, H.M. Row e Co. v. State Tax C omm n , 149 Md. 251, 25 7, 131 A . 509, 51 1 (192 5). Here, as the Tax Court fo und, the co al remained coal: the produ ct left the CCSC facility in the same state as when it arrived. According to the Tax Court, it is fairly clear that [the ] individual n uggets of coa l that arriv e[] a re sh ippe d out without any change occurring to them a nd [t]he c oal is pretty much th e same fo rm whe n it leaves as w hen it arrives. Because the CCSC facility does not change the coal into a new and different article, we hold that its activities do not constitute manufacturing under Section 1-101(r)(1) of the T ax-Pro perty Arti cle. III. The Tax Court correctly determined that CCSC was disqualified from receiving the manufacturer s exemption from personal property taxation under Section 7-225(c) of the TaxProperty Article because CCSC is primarily a storage, shipping, and receiving faci lity. The Tax Court also was correct when it concluded that CCSC s blending activities do not constitute manufa cturing under Section 1-101(r)(2)(ii) of the Tax-Property Article, which 30 requires mining operatio ns to both extract and process minerals in order to qualify as manufacturing, or under Section 1-1 01(r)(1) of th e Tax-Pr operty Article, which requires a new and different article to be pro duced. Accord ingly, the Tax Court did not err w hen it decide d that C CSC is not elig ible for the ma nufac turer s e xemp tion. JUDGMENT OF THE CIRCU IT COURT FOR BALTIMORE CITY REVERSED; CASE REMANDED TO THE CIRCUIT COURT FOR BALTIMORE CITY FOR ENTRY OF JUDGMENT AFFIRMING THE ORDER OF THE MARYLAND TAX COURT; COSTS TO B E P A I D B Y T H E A PP E L L E E CONSO LIDATIO N COAL SALES COMPANY. 31

Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.