Shelby County Board of Assessment Appeals v. Gro-Green Chemical Co.

CLAYTON, Justice. Gro-Green Chemical Company, Inc. (Gro-Green), operates a fertilizer plant in Shelby County. Gro-Green takes various chemical elements such as nitrogen, phosphate, potash, sulfur, potassium, and boron and blends them in the correct proportion according to the needs of a particular customer. The mixture, or blend, of these fertilizing components is determined primarily by a scientific soil analysis and by the crop and yield the farmer intends to grow. The issue to be decided by the court is whether the respondent’s business operation falls within the definition of “manufacturing” so as to exempt machinery and materials used by the respondent from local taxation.1 The Court of Appeals, in reversing the Board of Tax Appeals and the Shelby Circuit Court, held that the process by [156] which the separate chemicals are combined in order to produce the proper fertilizing mixture is manufacturing. We concur in that judgment. This court defined “manufacturing process” as “[mjaterial having no commercial value for its intended use before processing has appreciable commercial value for its intended use after processing by the machinery.” Department of Revenue ex rel. Luckett v. Allied Drum Service, Inc., Ky., 561 S.W.2d 323, 325-26 (1978). In Department of Revenue v. State Contracting and Stone Co., Inc., Ky., 572 S.W.2d 421 (1978), we held that the process by which crushed stone and various asphaltic materials were combined in order to produce a usable substance for the building of roads was manufacturing and that the hot-mix storage bins used to homogenize and stabilize the asphalt mixture were directly related to the manufacturing process. This case is substantially analogous. Both Gro-Green and State Contracting manufacture finished products out of the raw materials they have on hand. The fact that a separate component of the final product, whether it be tar or potash, has, by itself, some commercial monetary value is not dispositive of the issue here. A substance as common as water has commercial value. But when a business operation takes raw materials and combines them to make a viable substance which conforms to the wants and needs of a particular customer the business has, in effect, manufactured something new. Simply because the individual components are not chemically altered does not prevent the process from being labeled “manufacturing.” The decision of the Court of Appeals is affirmed and the cause is remanded to the Shelby Circuit Court for entry of a judgment consistent herewith. PALMORE, C. J., and AKER, CLAYTON, LUKOWSKY, STEPHENSON and STERNBERG, JJ., sitting. PALMORE, C. J., and AKER, STEPHENSON and STERNBERG, JJ., concur. LUKOWSKY, J., dissents. Footnotes [1] The statute in question, KRS 132.200, reads in part as follows: All property subject to taxation for state purposes shall also be subject to taxation in the county, city, school district or other taxing district in which it has a taxable situs, except those classes of property described in KRS 132.030 and 132.050, and the following classes of property which shall be subject to taxation for state purposes only: * * * * * * [156] (4) Machinery and products in the course of manufacture, of individuals or corporations actually engaged in manufacturing, and their raw materials actually on hand at their plant for the purpose of manufacture; .