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10/15/87 INDIANA DEPARTMENT STATE REVENUE v. AMAX

Filed: October 15, 1987.

INDIANA DEPARTMENT OF STATE REVENUE, DEFENDANT-APPELLANT,
v.
AMAX, INC. (THROUGH AMAX COAL COMPANY, A DIVISION), PLAINTIFF-APPELLEE



APPEAL FROM THE MARION SUPERIOR COURT, ROOM 61, The Honorable Edward Madinger, Judge, Cause No. S685 0849.

Ratliff, C.j., Robertson, J. and Miller, P.j., concur.

Author: Ratliff

STATEMENT OF THE CASE

RATLIFF, C.J.

Indiana Department of State Revenue appeals a decision which allowed an exemption from state gross retail tax and use tax and which found that haulage rock and haulage road graders were directly used or consumed in the direct production of personal property. We affirm.

FACTS

AMAX, Inc. operates several surface coal mines in Indiana. Each mine typically consists of drainage diversion ditches, open pits up to several square miles in area, a preparation plant, railroad line, and an access road for transporting coal to AMAX's customers. The surface mining activities encompass an integrated series of operations for removing raw coal and its impurities from pits and transforming raw coal into saleable form.

The process begins with removal of layers of soil and rock to expose a coal seam. Raw coal and impurities are then loosened and loaded into specially manufactured haulage trucks which transport the material over private haulage roads within the mine to a preparation plant. After numerous processing steps, the coal is stored in a silo from which it is delivered to railroad cars and highway trucks. AMAX has never sold coal in the form in which it is removed from surface pits. The coal becomes a marketable product only after undergoing further processing steps at the preparation plant.

In AMAX's surface mining operations, the haulage trucks and roads are the connecting link between the pit and the preparation plant. AMAX's operations in Indiana require that it continuously build, maintain, and reclaim haulage roads during the working life of its surface mines. Normally, in the initial stages of a mine, haulage roads are comparatively short, approximately one quarter (1/4) mile in length. As coal is mined, the pit faces recede from the preparation plant, requiring continuous extension of the haulage roads. The roads are used only during the working life of the mine and are removed when the land upon which the mine is located is reclaimed. AMAX is required, pursuant to the Surface Mining Control and Reclamation Act (Public Law 95-87, H.R. 2, 30 U.S.C. § 1201 et seq.) and the Indiana Reclamation Act and regulations (IC 13-4.1-1-1 et seq. and 310 IAC 12-1 et seq.) to reclaim all mined lands, including land used for haulage roads.

AMAX's haulage trucks are purchased and used exclusively to transport raw coal from the pit to the preparation plant and could not be licensed for highway use. Each truck's weight ranges from approximately 70 to 110 tons empty, and each one can carry payloads of 110 to 180 tons for total gross weights of up to 290 tons. Consequently, the construction of haulage roads capable of handling such weight is a necessary and integral part of AMAX's mining operation. The haulage roads are typically 100 feet wide and four (4) feet thick. The rock used to construct these roads is unusable for any other purpose after it becomes part of the roadbed of a haulage road. The haulage road graders are used to reallocate rock which is displaced by the haulage trucks and generally to maintain the haulage roads.

In 1984, the Indiana Department of State Revenue assessed AMAX additional retail tax and use tax for the years 1979 through 1983, treating AMAX as subject to tax for the purchase or use of haulage road rock, graders, and supplies. AMAX timely filed Claims for Refund which the Department denied. AMAX then filed this action, and on December 12, 1986, the trial court found that AMAX was, as a matter of law, entitled to a refund of $261,222.22 in state gross retail tax and use tax plus interest.

ISSUE

Did the trial court err in concluding that AMAX directly used or consumed haulage rock and haulage road graders in the direct production, extraction, mining, processing, refining, or finishing of personal property so as ...


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