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Lafarge North America, Inc. v. Testa

Supreme Court of Ohio

May 31, 2018

Lafarge North America, Inc., Appellant,
v.
Testa, Tax Commr., Appellee.

          Submitted April 10, 2018

          Appeal from the Board of Tax Appeals, No. 2015-763.

          Bingham Greenebaum Doll, L.L.P., and Mark A. Loyd, for appellant.

          Michael DeWine, Attorney General, and Daniel G. Kim and Raina Nahra Boulos, Assistant Attorneys General, for appellee.

          PER CURIAM.

         {¶ 1} This case involves slag, a by-product that separates from molten ore during steelmaking. Once separated from the ore, molten slag cools and solidifies into a stony substance. From there, it may be crushed into different sizes and used in construction applications, often as a base for roads.

         {¶ 2} The Ohio operations of appellant, Lafarge North America, Inc., include manufacturing pelletized slag at a facility in Lordstown. At issue here is whether the Ohio use tax applies to Lafarge's purchases of fuel and repair parts for equipment used to break up and transport solidified slag from what the parties refer to as the "slag mountain, " a large slag mass that numerous steel mills created over several decades. Whether the tax applies depends on whether the activity is part of Lafarge's "manufacturing operation" under R.C. 5739.02(B)(42)(g).

         {¶ 3} After an audit, the Ohio Department of Taxation assessed the use tax, interest, and a penalty against Lafarge for purchases for the equipment in question. Lafarge challenged the assessment, and appellee, the tax commissioner, determined that the breaking up and transport of slag from the slag mountain precedes Lafarge's manufacturing operation. The commissioner concluded that Lafarge's manufacturing operation does not begin until the slag reaches equipment that screens and sorts it by size. The Board of Tax Appeals ("BTA") affirmed the commissioner's final determination.

         {¶ 4} Lafarge appealed to this court. Because the BTA misapplied the law to the undisputed facts, we reverse the BTA's decision and remand the case to the BTA for further proceedings consistent with this opinion.

         Facts and Procedural History

         {¶ 5} In 1926, steel mills near Youngstown began dumping slag at a single waste site. Over the years, the discarded slag accumulated, forming the slag mountain. From this mass, Lafarge manufactures various sizes of pelletized slag, which it sells for use in road construction.

         {¶ 6} Lafarge's manager of the Lordstown facility, Timothy Wirtz, explained in his testimony before the BTA that the slag mountain does not consist of "manageable size pieces" that can be easily removed for processing. So to transform the slag mountain into marketable slag, Lafarge undertakes three basic steps that involve (1) a bulldozer, (2) front-end loaders and dump trucks, and (3) a screening plant.

         {¶ 7} The bulldozer, fitted with a large steel tooth at its rear, rips the slag in a grid pattern, breaking up a section of the slag mountain. The bulldozer then drives back and forth over the broken slag, crushing it into smaller pieces. Next, the bulldozer pushes the broken slag to a "surge pile." From there, front-end loaders transfer the slag to dump trucks that take the material to a screening plant, also at the Lordstown facility. There, the material is placed into a "grizzly" or "vibratory" feeder that separates oversized pieces, removes pieces of iron, and funnels the remaining slag to a conveyor belt that leads to screens that sort the material by size. Once the slag is screened and sorted, the process is finished and the product is ready to be sold. The finished product varies in size from as large as eight inches in diameter to as small as dust.

         {¶ 8} The Department of Taxation audited all of Lafarge's Ohio operations, covering the period April 2009 through March 2013. As a result of the audit, the department assessed a use tax of $656, 871.14, plus a 15 percent penalty of $98, 530.28 and interest totaling $59, 895.12. Lafarge paid a substantial portion of these amounts ($698, 979.15 in total) but challenged the assessment, interest, and penalty associated with its Lordstown slag-manufacturing operation. The department had found that the bulldozer, two front-end loaders, and three dump trucks Lafarge uses to remove slag from the slag mountain and transport it to the screening plant are not part of the manufacturing operation and that purchases of fuel and ...


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