Great Northern Nekoosa Corp. v. State Tax Assessor

WATHEN, Justice. The State Tax Assessor appeals from a judgment of the Superior Court (Kennebec County) setting aside a use tax assessment on eight delimbing machines purchased by Great Northern Nekoosa Corporation between June 1,1976 and December 31,1978. The Assessor argues on appeal that the Superior Court erred in finding that the machines qualified under the exemption for production machinery. We agree and we vacate the judgment. Great Northern is primarily engaged in the business of producing pulp and paper. The business involves a series of steps beginning with wood harvesting operations and ending with the production of paper. We are required to determine, for use tax purposes, whether the intermediate step of delimbing the tree is part of the production process or part of the harvesting operation. During the period of time covered by the assessment, Great Northern purchased eight new Logma T-310 delimber-bunchers. The function of these machines and their relationship to the entire process can be briefly summarized as follows: A tree is cut by chainsaw or harvester and transported by skidder to a pile at the side of the logging road. The delimbing machine removes the severed tree from the pile and cuts off the top of the tree and all limbs. The result is a log at least 12 feet long, 4 inches in diameter, with all limbs cut flush to the trunk. A log cut to such specifications is suitable for further cutting into shorter lengths (slashing), the removal of bark (debarking) and conversion to wood pulp (chipping or grinding). When Great Northern purchased the first two of the eight delimbers, the exemption for production machinery provided as follows: “no tax on ... use shall be collected upon or in connection with ... sales of new machinery or equipment for use by the purchaser directly and primarily in the production of tangible personal property ....” 36 M.R.S.A. § 1760(31) (1973). By regulation, the Assessor defined the terms of the statute and distinguished machines used in the procurement of raw materials and machines used in the conversion of raw materials primarily on the basis of their location. As applied to the paper industry, the regulations provided that machinery used in connection with activities traditionally or contemporarily performed in the woods were subject to a use tax, whereas machinery used in connection with activities traditionally or contemporarily performed at the mill site were exempt. Under this regulation, the delimbers purchased by Great Northern would be taxable because of their location in the woods. In 1977, the Legislature for the first time adopted definitions relevant to the exemption for production machinery as follows: [772] “Directly” ... refers to those activities or operations which constitute an integral and essential part of production, as contrasted with and distinguished from those activities or operations which are simply incidental, convenient or remote to production. 36 M.R.S.A. § 1752(2-A). “Production” means an operation or integrated series of operations engaged in as a business or segment of a business which transforms or converts personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed. Production includes manufacturing, processing, assembling and fabricating operations which meet the definitional requisites. Production does not include biological processes, wood harvesting operations, the severance of sand, gravel, oil, gas or other natural resources produced or severed from the soil or water, or activities such as cooking or preparing drinks, meals, food or food products by a retailer for retail sale. The foregoing are examples of activities that are not included within the term “production.” 36 M.R.S.A. § 1752(9-B). Focusing on the first paragraph of subsection 2-A, Great Northern persuaded the Superior Court that the 1977 amendment rejected the interpretative regulations of the Assessor and clarified the Legislature’s intent to distinguish production machinery strictly on the basis of function rather than location. Thus, the Superior Court found that both the two delimbers purchased before the amendment of the statute and the six purchased after are used “directly and primarily in the production of paper” and are therefore exempt from taxation. We need not decide whether the 1977 amendment should be given retroactive effect, nor do we need to decide whether the delimbers qualify functionally as part of the production process defined in the first paragraph of subsection 2-A. Even if we assume that the 1977 amendment was intended to apply retroactively, the delimbers purchased before and after the effective date of the amendment remain taxable because wood harvesting operations are specifically excluded from the definition of production by the third paragraph of section 1752(9-B). Although the amended statute does not define “wood harvesting operations”, we are required to give words their “plain and natural meaning” and construe them in accordance with their “natural import in common and approved usage.” Moyer v. Board of Zoning Appeals, 233 A.2d 311, 317 (Me.1967). Whatever the exact parameters of wood harvesting operations may be, the plain and natural meaning of the term includes not only the cutting of the tree, but the removal of the limbs as well. Whether a severed tree is used for lumber, pulp or firewood, the branches are customarily removed as part of the harvest operation. We are mindful of the fact that significant changes have occurred in the pulp and paper industry. Mobile equipment now performs functions in the woods that would previously have occurred only at the mill site. Notwithstanding the miracles of modem technology, however, removing the limbs from a tree remains a part of wood harvesting. The entry is: Judgment of the Superior Court vacated. Remanded with instructions to affirm the assessment issued by the State Tax Assessor. McKUSICK, C.J., and GLASSMAN, SCOLNIK and CLIFFORD, JJ., concur.