The opinion
IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 2017 Term FILED
_______________
November 1, 2017
released at 3:00 p.m.
No. 16-0903 EDYTHE NASH GAISER, CLERK
_______________ SUPREME COURT OF APPEALS
OF WEST VIRGINIA
PRATT & WHITNEY ENGINE SERVICES,
Petitioner
v.
DALE W. STEAGER,
State Tax Commissioner of West Virginia,
Respondent
____________________________________________________________
Appeal from the Circuit Court of Harrison County
The Honorable John Lewis Marks, Jr., Judge
Civil Action No. 15-P-68-1
AFFIRMED
____________________________________________________________
Submitted: October 18, 2017
Filed: November 1, 2017
Herschel H. Rose, III, Esq. Patrick Morrisey, Esq.
Rose Law Office Attorney General
Charleston, West Virginia Sean Whelan, Esq.
Counsel for the Petitioner Assistant Attorney General
L. Wayne Williams, Esq.
Assistant Attorney General
Charleston, West Virginia
Counsel for the Respondent
JUSTICE KETCHUM delivered the Opinion of the Court.
CHIEF JUSTICE LOUGHRY dissents and reserves the right to file a dissenting Opinion.
JUSTICE WORKMAN dissents and reserves the right to file a dissenting Opinion.
SYLLABUS BY THE COURT
1. “In cases where a taxpayer challenges an ad valorem tax
assessment, a circuit court’s conclusions of law are reviewed by this Court de novo.”
Syllabus Point 3, Pope Properties/Charleston Ltd. Liability Co. v. Robinson, 230 W.Va.
382, 738 S.E.2d 546 (2013).
Justice Ketchum:
In this case we consider whether a large inventory of jet engine repair parts
are exempt from ad valorem property taxation. The county assessor, state tax
commissioner, and circuit court all considered this question and concluded that the repair
parts are not exempt from ad valorem property taxation. After review, we agree with the
circuit court’s conclusion and, accordingly, affirm its order.
I. FACTUAL AND PROCEDURAL BACKGROUND
Petitioner Pratt & Whitney Engine Services (“Pratt”) repairs jet engines at
its facility in Bridgeport, West Virginia. It maintains a vast inventory of jet engine repair
parts at its West Virginia facility—the parts at issue are listed on a 39-page single-spaced
document and are valued at $7,438,639.52.
In January 2015, Pratt requested that the Harrison County Assessor conduct
a review of whether the majority of its repair parts were exempt from ad valorem
taxation.1 Pratt argued that the repair parts were exempt from ad valorem taxation2
1
We pause briefly to discuss Pratt’s argument regarding the percentage of its
repair parts that should be exempt from ad valorem taxation. Pratt’s total worldwide
sales for the period ending July 1, 2014, was $277,692,708. Only 1.696% ($4,709,280)
of these sales were made to West Virginia customers. The circuit court described Pratt’s
argument as follows: “Using the allocation of 1.696% sales to West Virginia customers,
[Pratt] argues that the inventory of spare parts valued at $7,438,639 by [the Harrison
County Assessor] should be valued at $126,148 for ad valorem tax purposes for the 2015
TY.” In essence, Pratt argued that because approximately 98.3% of its repair parts are
(continued . . .)
1
pursuant to the Freeport Amendment contained in the West Virginia Constitution. The
Freeport Amendment exempts certain personal property of inventory and warehouse
goods from ad valorem taxation. It provides:
Notwithstanding any other provisions of this
Constitution, tangible personal property which is moving in
interstate commerce through or over the territory of the State
of West Virginia, or which was consigned from a point of
origin outside the State to a warehouse, public or private,
within the State for storage in transit to a final destination
outside the State, whether specified when transportation
begins or afterward, but in any case specified timely for
exempt status determination purposes, shall not be deemed to
have acquired a tax situs in West Virginia for purposes of ad
valorem taxation and shall be exempt from such taxation,
except as otherwise provided in this section. Such property
shall not be deprived of such exemption because while in the
warehouse the personal property is assembled, bound, joined,
processed, disassembled, divided, cut, broken in bulk,
relabeled, or repackaged for delivery out of state, unless such
activity results in a new or different product, article,
substance or commodity, or one of different utility.
W.Va. Const. art. X, § 1c [1986] (emphasis added).
used in jet engines that are shipped to customers outside of West Virginia, 98.3% of the
value of its repair parts inventory should be exempt from ad valorem taxation.
2
The phrase “ad valorem” means, literally, “according to the value” and is used in
taxation to designate an assessment of taxes against property, real or personal, at a certain
rate upon its value. Smith v. American Airlines, Inc., 606 So. 2d 618, 620 (Fla. 1992).
The essential characteristic of an ad valorem tax is that the tax is levied according to the
value of property as determined by an assessment or appraisal. American Airlines, Inc. v.
County of San Mateo, 912 P.2d 1198 (Cal. 1996).
2
After conducting its review, the county assessor determined that the repair
parts were not exempt from ad valorem taxation. The assessor explained its finding as
follows:
[O]ur review indicates that the parts in inventory are used in a
manufacturing process that renders them an integral part of a
jet engine. Clearly, the parts in a functioning jet engine have
a different utility than the parts that are stocked on shelves
and used in the repairs process. Given our review, we are of
the opinion that the parts inventory located in Bridgeport and
used by [Pratt] in its jet engine repairs process are not eligible
for the Freeport exemption . . . as the use of such parts by
[Pratt] . . . results in a product of different utility.
At Pratt’s request, the county assessor certified Pratt’s question to the
Respondent State Tax Commissioner (“tax commissioner”) for “review and issuance of a
taxability ruling.” The tax commissioner issued a detailed, seven-page decision which
concluded that Pratt’s repair parts were not exempt from ad valorem taxation. Pratt
appealed the tax commissioner’s administrative decision to the circuit court.
The circuit court held a bench trial on April 29, 2016.3 The sole witness at
the bench trial was Pratt’s manager of supply chain logistics, Timothy H. Tucker. Mr.
Tucker testified that Pratt buys the repair parts from its parent company, Pratt Whitney
3
Prior to the bench trial, the parties and the circuit court took part in a “site walk”
at Pratt’s Bridgeport facility. During the site walk, the parties observed 1) several jet
engines that were being repaired, which were approximately six to seven feet in length;
2) a jet engine being tested in a wind tunnel; and 3) the storage space where “several
grommets” and other repair parts were maintained.
3
Canada. He stated that Pratt uses the repair parts when manufacturing, overhauling, and
repairing jet engines. All of the repair parts are shipped to the Bridgeport facility from
locations outside of West Virginia. The majority of the repair parts stay in the Bridgeport
facility from “zero to three months.” Mr. Tucker testified that the repair parts that are
used retain their characteristics and identity during their installation into a jet engine. For
example, Mr. Tucker was asked about one particular repair part, a counterweight, and had
the following exchange with counsel for Pratt:
Q. So from the inception of manufacture, to the time it
takes off and flying people hither and yon, it is a
counterweight coming in, it’s a counterweight going out?
A. That’s correct.
During cross-examination, Mr. Tucker discussed the purpose and utility of
a jet engine, and the purpose and utility of the individual repair parts:
Q. What’s the purpose of a jet engine?
A. It is to provide thrust.
Q. To fly an airplane?
A. To fly an airplane, a helicopter, anything that you want
to put it on, whether it’s a jet engine, in general, would have
many uses.
Q. And then you install all of these parts as needed in the
repair of jet engines?
A. That’s correct.
4
Q. Could you tell me what is the – is a grommet vein
retaining4 the same product as a jet engine?
A. It is a component of a jet engine.
Q. But the jet engine, is that the same as a grommet?
A. It would not be the same, as far as a part number goes,
no.
Q. But it’s a different product?
A. It is – it’s a piece of that product, yes. It’s used in
building that product. You can’t have the jet engine without
it.
Q. Does the jet engine have the same utility as a
grommet?
A. The jet engine itself would not have the same utility as
the grommet, but the jet engine wouldn’t exist without what
the grommet does, if that makes sense.
Q. It does. Is a compressor the same product as a jet
engine?
A. It’s a – it would not be the same product itself. It
would have a different part number, but it is a – you can’t
have a jet engine without it.
Q. And all of these parts on this 39-page list [of Pratt
repair parts] would be components of a jet engine, correct?
A. That’s correct.
4
The circuit court’s order notes that a “grommet” is “a reinforced eyelet . . .
through which a fastener may be passed.”
5
Q. At some point?
A. Correct.
Q. But the jet engine is a different product than all these
items on the 39-page list?
A. Yes. The items on the 39-page list, you couldn’t
necessarily make a jet engine out of even the sum of those
yet.
Q. So a jet engine is different than a collection of
grommets, and flywheels, and compressor blades?
A. In their individual states, yes.
Following the bench trial, the circuit court issued a fifteen-page order
affirming the tax commissioner’s ruling that Pratt’s inventory of repair parts was not
exempt from ad valorem taxation pursuant to the Freeport Amendment. In so ruling, the
circuit court noted that Mr. Tucker testified that “a jet engine is a new and different
product than the sum of the component parts installed in the jet engine. Since the
activities of [Pratt] result in a fully operational jet engine which is a new and different
product than the individual repair parts, [Pratt] falls outside the parameters of the
Freeport Amendment.” The circuit court’s order also noted that Mr. Tucker testified that
a jet engine has a different utility than the individual repair parts. Following entry of the
circuit court’s order on August 24, 2016, Pratt filed the present appeal with this Court.
II. STANDARD OF REVIEW
Pratt appeals the circuit court’s order affirming the tax commissioner’s
ruling which concluded that the repair parts were not exempt from ad valorem taxation
6
pursuant to the Freeport Amendment. “In cases where a taxpayer challenges an ad
valorem tax assessment, a circuit court’s conclusions of law are reviewed by this Court
de novo.” Syllabus Point 3, Pope Properties/Charleston Ltd. Liability Co. v. Robinson,
230 W.Va. 382, 738 S.E.2d 546 (2013). To the extent Pratt challenges the circuit court’s
factual findings, our review is set forth in Syllabus Point 2 of Walker v. W.Va. Ethics
Comm’n, 201 W.Va. 108, 492 S.E.2d 167 (1997):
In reviewing challenges to the findings and
conclusions of the circuit court . . . we review the circuit
court’s underlying factual findings under a clearly erroneous
standard. Questions of law are subject to a de novo review.
We now turn to the parties’ arguments.
III. ANALYSIS
There are three main arguments raised in this appeal.5 First, Pratt argues
the repair parts are exempt from ad valorem taxation under the Freeport Amendment
5
Pratt’s brief to this Court begins with a list of ten assignments of error.
However, the brief does not address each of these assignments of error individually under
separate headings. Instead, the discussion section of the brief is only organized under the
generic heading “Argument.” For purposes of our discussion, we group Pratt’s
arguments into the three main categories set forth in our “Analysis.” Pursuant to Rule 10
of the Rules of Appellate Procedure, a brief to this Court must contain “an argument
exhibiting clearly the points of fact and law presented, the standard of review applicable,
and citing the authorities relied on, under headings that correspond with the assignments
of error.” (Emphasis added). “This Court has previously adhered to the rule that
although we liberally construe briefs in determining issues presented for review, issues
which are . . . mentioned only in passing but are not supported with pertinent authority,
are not considered on appeal.” State v. Gray, 217 W.Va. 591, 600, 619 S.E.2d 104, 113
(2005) (citation and internal quotation omitted).
7
because the repair parts do not become a new product, or a product with a different utility
during the repair process. Next, it asserts that the inventory of repair parts are exempt
from ad valorem taxation because they are “at all times moving in interstate commerce
through or over . . . West Virginia.” Finally, Pratt maintains the circuit court erred by
failing to liberally construe the Freeport Amendment in its favor.
A. New Product/Different Utility
We begin with an examination of the Freeport Amendment. In addition to
the constitutional amendment contained in W.Va. Const. art. X, § 1c, the Freeport
Amendment is codified in W.Va. Code § 11-5-13 [1987], which provides, in part:
(a) Tangible personal property which is moving in interstate
commerce through or over the territory of the state of West
Virginia, or which was consigned from a point of origin
outside the state to a warehouse, public or private, within the
state for storage in transit to a final destination outside the
state, whether specified when transportation begins or
afterward, but in any case specified timely for exempt status
determination purposes, shall not be deemed to have acquired
a tax situs in West Virginia for purposes of ad valorem
taxation and shall be exempt from such taxation, except as
otherwise provided herein.
(b) Such property shall not be deprived of such exemption
because while in the warehouse the personal property is
assembled, bound, joined, processed, disassembled, divided,
cut, broken in bulk, relabeled, or repackaged for delivery out
of state, unless such activity results in a new or different
product, article, substance or commodity, or one of different
utility.
Further, W.Va. Code § 11-5-13a [1997] addresses the purpose of the tax
exemption contained in the Freeport Amendment as follows:
8
(a) This section is intended to clarify the intent of the
Legislature and the citizens in establishing the exemption
from ad valorem property taxation granted by section one-c,
article ten of the West Virginia constitution and section
thirteen of this article as it pertains to goods held in
warehouse facilities in this state awaiting shipment to a
destination outside this state. This section codifies policies
applied by agencies and departments of this state upon which
persons have relied. It is the intent of the Legislature that the
provisions of this section are to be liberally construed in favor
of a person claiming exemption from tax pursuant to section
one-c, article ten of the West Virginia constitution, this
section and section thirteen of this article.
(b) Goods which have been moved to a warehouse or storage
facility, at which no substantial alteration takes place, to await
shipment to a destination outside this state are deemed to be
moving in interstate commerce over the territory of the state
and therefore are exempt from ad valorem property tax and
do not have a tax situs in West Virginia for purposes of ad
valorem taxation.
The main issue in this appeal concerns the following language contained in
the Freeport Amendment:
Such property shall not be deprived of such exemption
because while in the warehouse the personal property is
assembled, bound, joined, processed, disassembled, divided,
cut, broken in bulk, relabeled, or repackaged for delivery out
of state, unless such activity results in a new or different
product, article, substance or commodity, or one of different
utility.
(Emphasis added).
The issue is whether Pratt’s repair parts are used to create a new product or
a product with a different utility. The county assessor, tax commissioner, and circuit
court all analyzed this issue and concluded that Pratt was not entitled to the Freeport
9
exemption because its inventory of repair parts are used to create a product with a
different utility, i.e., a functioning jet engine.
On appeal, Pratt argues that its inventory of repair parts should be exempt
from ad valorem taxation under the Freeport Amendment. It argues that these repair
parts do not “change their character in the course of being assembled at Bridgeport,
become a new or different product while in the [Pratt] facility or become a product with a
different utility.” Instead, according to Pratt, its repair parts are individual components of
a jet engine prior to being installed, and they continue to be individual components of a
jet engine after being installed.
Conversely, the tax commissioner argues that the Freeport Amendment
does not apply to Pratt’s inventory of repair parts. According to the tax commissioner,
“the act of installing a repair part, such as a compressor, into a broken jet engine results
in a new or different product and in a product with a different utility.” The tax
commissioner emphasizes that the lone witness before the circuit court, a Pratt employee,
testified that a jet engine is a different product and has a different utility than the
individual repair parts.
Our resolution of this issue requires us to examine the Freeport Amendment
contained in the West Virginia Constitution. “Questions of constitutional construction
are in the main governed by the same general rules applied in statutory construction.”
Syllabus Point 1, Winkler v. State School Bldg. Auth., 189 W.Va. 748, 434 S.E.2d 420
(1993). This Court has held that in deciding the meaning of a statutory provision, “[w]e
10
look first to the statute’s language. If the text, given its plain meaning, answers the
interpretive question, the language must prevail and further inquiry is foreclosed.”
Appalachian Power Co. v. State Tax Dep’t of West Virginia, 195 W.Va. 573, 587, 466
S.E.2d 424, 438 (1995); see also Syllabus Point 2, Crockett v. Andrews, 153 W.Va. 714,
172 S.E.2d 384 (1970) (“Where the language of a statute is free from ambiguity, its plain
meaning is to be accepted and applied without resort to interpretation.”); and Syllabus
Point 2, State v. Epperly, 135 W.Va. 877, 65 S.E.2d 488 (1951) (“A statutory provision
which is clear and unambiguous and plainly expresses the legislative intent will not be
interpreted by the courts but will be given full force and effect.”).
Additionally, this Court has held that “[a] statute is open to construction
only where the language used requires interpretation because of ambiguity which renders
it susceptible of two or more constructions or of such doubtful or obscure meaning that
reasonable minds might be uncertain or disagree as to its meaning.” Sizemore v. State
Farm Gen. Ins. Co., 202 W.Va. 591, 596, 505 S.E.2d 654, 659 (1998) (internal
quotations and citation omitted). With these rules of construction in mind, we turn to the
Freeport Amendment.
As an initial matter, we conclude that the Freeport Amendment is
unambiguous. Based on the plain language of the Freeport Amendment, and its enacting
statutes, the tax exemption does not apply if Pratt’s installation of its repair parts into a jet
engine “results in a new or different product, article, substance or commodity, or one of
different utility.” The undisputed facts of this matter are that Pratt stores a large number
11
of repair parts at its Bridgeport facility. It installs these parts into malfunctioning jet
engines at the Bridgeport facility. The end result of this process is a fully functional jet
engine.
As noted by the circuit court, Mr. Tucker, a Pratt employee who was the
lone witness at the bench trial, stated that a jet engine is a different product than the
individual repair parts. In fact, Mr. Tucker testified that all of the repair parts “on the 39
page list, you couldn’t necessarily make a jet engine out of even the sum of those yet.”
Further, Mr. Tucker testified that a jet engine does not have the same utility as an
individual repair part. Because Mr. Tucker testified that a repaired, functional jet engine
is a different product with a different utility than the individual repair parts, we agree
with the circuit court’s conclusion that the repair parts are not exempt from ad valorem
taxation pursuant to the Freeport Amendment.
The only previous case from this Court analyzing the Freeport Amendment
supports our conclusion. In Feroleto Steel Co. v. Oughton, 230 W.Va. 5, 7, 736 S.E.2d 5,
7 (2012), this Court considered whether a business that cut “steel coils into narrower steel
coils . . . transforms the steel coils into products of new or different utility so that the steel
coils are not exempt from ad valorem property taxation.” The Court determined that the
taxpayer was entitled to the Freeport exemption in Feroleto because the cutting of the
steel coils into narrower steel coils did not create a new product or a product with a
different utility. In so ruling the Court relied on the fact that “the steel coils arrive at the
petitioner’s plant as steel coils, and they leave the plant as steel coils, only of a narrower
12
size. While at the petitioner’s plant, the composition of the steel is not changed.” 230
W.Va. at 8, 736 S.E.2d at 8. In the present case, the repair parts arrive at Pratt’s facility
as individual parts. The individual repair parts are stored in Pratt’s facility for an average
of “zero to three months.” Finally, the parts are used in a manufacturing process to
overhaul or repair a jet engine. The individual repair parts leave the facility as
components of a functional jet engine—a new product with a different utility than the
individual repair parts.
The Legislature has made it clear that the purpose of the Freeport
Amendment is to exempt “[g]oods which have been moved to a warehouse or storage
facility, at which no substantial alteration takes place, to await shipment to a destination
outside this state” from ad valorem property tax. See W.Va. Code § 11-5-13a. Thus, one
of the purposes of the Freeport Amendment is to promote the warehousing industry in
West Virginia. It is clear that Pratt is not engaged in the warehousing business. Pratt
buys the repair parts from an out-of-state vendor. It stores these parts until they are
needed in its engine repair process. Finally, it installs these repair parts into a
malfunctioning jet engine, producing a new product, a functioning jet engine, which has a
separate and distinct utility from the individual repair parts.
Based on the foregoing, we conclude that the circuit court did not err by
affirming the tax commissioner’s order. We agree with the circuit court’s conclusion that
the repair parts are not exempt from ad valorem taxation under the Freeport Amendment
13
because they are used in the repair process at Pratt’s facility to create a product with a
different utility.
B. Interstate Commerce
Pratt next argues that its repair parts are goods moving through interstate
commerce and should be exempt from ad valorem taxation pursuant to the first sentence
of the Freeport Amendment, which provides:
Notwithstanding any other provisions of this
Constitution, tangible personal property which is moving in
interstate commerce through or over the territory of the State
of West Virginia, or which was consigned from a point of
origin outside the State to a warehouse, public or private,
within the State for storage in transit to a final destination
outside the State, whether specified when transportation
begins or afterward, but in any case specified timely for
exempt status determination purposes, shall not be deemed to
have acquired a tax situs in West Virginia for purposes of ad
valorem taxation and shall be exempt from such taxation,
except as otherwise provided in this section.
Both the circuit court and the state tax commissioner rejected Pratt’s
argument that its inventory of repair parts should be exempt from ad valorem taxation
under the first sentence of the Freeport Amendment. The circuit court explained its
rationale for rejecting this argument as follows:
The 39-page list of inventory repair parts does not
represent goods moving in interstate commerce. The situs of
the transaction is West Virginia under the facts of this case.
Pratt purchased an inventory of repair parts for use in [its] jet
engine repair business in Bridgeport, West Virginia. A
customer will ship a jet engine in need of repairs to
Bridgeport for Pratt to repair and recondition as necessary.
According to Mr. Tucker’s testimony, the repair parts are
used by Pratt in Bridgeport to repair jet engines. After a
14
grommet or compressor is installed on the engine and the jet
engine once again becomes operational, the jet engine is
returned to the customer for use in the field. The 39-page list
of repair parts is not moving in interstate commerce any more
than the tires held in inventory by Firestone or Goodyear
would be moving in interstate commerce.
Similarly, in the tax commissioner’s ruling denying Pratt’s request for an
exemption under the Freeport Amendment, it noted:
The inventories maintained by Pratt consist of parts to
be used or consumed in the provision of its aircraft engine
repair service, not of goods or merchandise that merely reside
here temporarily while in transit. The Freeport Amendment
was never intended to exempt the ordinary inventories of
tangible personal property kept on hand for such purposes.
The goods in question are not in transit – they are used or
consumed in the provision of a service which is performed
entirely with the State of West Virginia.
We agree with the rationale set forth by the circuit court and the tax
commissioner. The plain language of the Freeport Amendment and its enacting statutes
provide a straightforward statement of its application: the tax exemption applies to
property or goods delivered “from a point of origin outside the State to a warehouse,
public or private, within the State for storage in transit to a final destination outside the
State.” (Emphasis added).
Pratt’s inventory of repair parts are purchased from out-of-state and stored
in its West Virginia facility until needed to overhaul or repair a malfunctioning jet
engine. Once a customer sends a malfunctioning jet engine to the West Virginia facility,
the repair parts are used in the manufacturing process that occurs in West Virginia,
resulting in the repair parts becoming an integral part of a functioning jet engine. Pratt’s
15
argument that its inventory of parts are simply moving through interstate commerce
stretches the Freeport Amendment far beyond its plain language. If this Court adopted
Pratt’s argument, we would potentially be extending the Freeport Amendment to all
manufacturing businesses that purchase goods from outside of the state for use in a
manufacturing process that occurs in West Virginia, and results in a finished product
being delivered to an out-of-state customer. This expansion of the Freeport Amendment
is not supported by its plain language or by its enacting statutes. In fact, the second
sentence of the Freeport Amendment makes it abundantly clear that goods which are
stored in West Virginia and used to create a new product or a product with a different
utility do not qualify for the ad valorem tax exemption. Plainly, Pratt’s repair parts were
not brought into West Virginia simply “for storage in transit to a final destination outside
the State.”
Based on the foregoing, we conclude that the circuit court did not err by
rejecting Pratt’s argument that its repair goods were exempt from ad valorem taxation
pursuant to the first sentence of the Freeport Amendment.6
6
Pratt’s argument that its repair parts are exempt under the first sentence of the
Freeport Amendment also includes an assertion that its repair parts are exempt from
taxation under the Commerce Clause. U.S. Const. art. 1, § 8, cl. 3 (Congress shall have
the power to “regulate Commerce with foreign Nations, and among the several States.”).
We disagree. We need not linger on this issue because of our determination that the
repair parts at issue are not merely moving through interstate commerce, rather, the
inventory of repair parts are purchased by a West Virginia company and stored at its
West Virginia facility for eventual use in its manufacturing process that occurs in West
(continued . . .)
16
C. Liberal Construction
Finally, Pratt argues that the circuit court “erred in failing to effectively
construe the Freeport [A]mendment liberally in favor of the taxpayer seeking the
exemption, in violation of the specific mandate of the West Virginia legislature” and in
violation of this Court’s ruling in Feroleto Steel. The tax commissioner agrees with Pratt
that the Freeport Amendment is to be liberally construed in favor of the taxpayer seeking
the exemption. However, the tax commissioner disagrees with Pratt’s assertion that the
circuit court failed to liberally construe the Freeport Amendment in Pratt’s favor.
West Virginia Code § 11-5-13a(a) provides, in part, “[i]t is the intent of the
Legislature that the provisions of this section are to be liberally construed in favor of a
person claiming exemption from tax.” Similarly, in Syllabus Point 2 of Feroleto Steel,
Virginia. Assuming arguendo that the repair parts were simply passing through West
Virginia in interstate commerce, our analysis would focus on the Complete Auto Transit,
Inc. v. Brady, 430 U.S. 274 (1977), four-part test. Under Complete Auto, a state tax
imposed on interstate commerce is constitutional if it “is applied to an activity with
substantial nexus with the taxing State, is fairly apportioned, does not discriminate
against interstate commerce, and is fairly related to the services provided.” Id. at 279.
There has been no showing that the tax on Pratt’s inventory of repair parts violates any of
these factors. As the tax commissioner notes, “property physically present in West
Virginia [such as Pratt’s inventory of repair parts] has a sufficient nexus for ad valorem
property tax purposes.” The tax commissioner also asserts that the taxes assessed by the
county assessor are used to provide essential county services. Further, the tax
commissioner argues that there has been no showing that the taxes are assessed in a
discriminatory manner. Finally, the tax commissioner states that there has been no
showing that the county assessor has failed to properly apportion the ad valorem taxes.
We agree with the tax commissioner and find Pratt has failed to satisfy the four-factor
Complete Auto test.
17
this Court held: “Pursuant to W.Va. Code § 11-5-13a(a), it is the intent of the Legislature
that the exemption from ad valorem taxation of certain personal property of inventory
and warehouse goods provided for in W.Va. Const. art. X, § 1c; W.Va. Code § 11-5-13;
and W.Va. Code § 11-5-13a(b); is to be liberally construed in favor of a person claiming
the exemption.”
The circuit court’s order affirming the tax commissioner’s ruling
recognizes that the Freeport Amendment is to be liberally construed in favor of the
taxpayer. In fact, the circuit court’s order discusses W.Va. Code § 11-5-13a numerous
times, including the following statement contained under its “conclusions of law”
heading: “According to W.Va. Code § 11-5-13a(a), the Freeport Exemption is to be
liberally construed.”
Additionally, after recognizing that it was required to liberally construe the
Freeport Amendment in Pratt’s favor, the circuit court explained why it nevertheless
determined that the repair parts were not exempt from ad valorem taxation under the
Freeport Amendment. The circuit court’s order provides:
[Pratt] argues that the Freeport Amendment should be
liberally construed by the Courts. [Pratt] is correct as an
abstract statement of law. See W.Va. Code § 11-5-13a(a).
However, Mr. Tucker’s testimony was clear and consistent.
A jet engine is a new and different product than a grommet or
a counterweight. A jet engine has a different utility than a
compressor. Liberal construction should not be cited as a
basis to ignore the undisputed testimony of Pratt’s own
witness. If the activities of any taxpayer results in a new or
different product or a product with a different utility, then the
tangible personal property at issue does not meet the language
of the Freeport Amendment. In the case before the Circuit
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Court today, it is clear that [Pratt’s] activities do not fall
within the parameters of the Freeport Amendment.
(Emphasis added).
Based on this clear statement, the circuit court recognized that the Freeport
Amendment is to be liberally construed and it considered Pratt’s argument under this
standard. The circuit court reasoned that, despite the liberal construction standard, Pratt’s
argument failed based on the undisputed testimony of the only witness who testified
during the bench trial. This witness, a Pratt employee, testified that the manufacturing
process in which the repair parts are used results in a new product with a different
utility—a functional jet engine.
We agree with the circuit court’s reasoning and conclusion. The circuit
court recognized that the Freeport Amendment is to be liberally construed, considered
Pratt’s argument under this standard, and explained its reasons for ruling against Pratt
despite this standard. The testimony of the sole witness demonstrated clearly and
unequivocally that the inventory of repair parts do not fall within the Freeport
Amendment exemption.
Based on the foregoing, we find that the circuit court did not err “in failing
to effectively construe the Freeport [A]mendment liberally” in Pratt’s favor.7
7
Pratt also argues that the circuit court failed to apply the proper standard of proof
in this case. Pratt asserts that the preponderance of the evidence standard should be
applied to taxpayer’s seeking an exemption under the Freeport Amendment. We
(continued . . .)
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IV. CONCLUSION
The circuit court’s August 24, 2016, order is affirmed.
Affirmed.
disagree. In Syllabus Point 5, in part, of In re Tax Assessment of Foster Foundation’s
Woodlands Retirement Community, 223 W.Va. 14, 672 S.E.2d 150 (2008), this Court
held: “A taxpayer challenging an assessor’s tax assessment must prove by clear and
convincing evidence that such tax assessment is erroneous.”
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