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Arkansas Glass Container Corp. v. Pledger
Citations: 320 Ark. 10; 894 S.W.2d 599; 1995 Ark. LEXIS 206Docket: 94-1139
Court: Supreme Court of Arkansas; March 20, 1995; Arkansas; State Supreme Court
Arkansas Glass Container Corporation, the appellant, manufactures thirty-two ounce jars from clear flint soda lime glass. Following an audit, the Director of the Department of Finance and Administration and the Commissioner of Revenues assessed Arkansas Glass with additional gross receipts tax totaling $126,637.84, alongside a penalty of $17.92 and interest of $40,507.06 for the period from December 1, 1986, to February 28, 1990. Arkansas Glass contested the assessment, leading to a hearing where an administrative law judge upheld the findings. After Arkansas Glass's petition for revision was denied, the company paid a total of $167,162.82 under protest and subsequently filed a lawsuit in December 1992, claiming the natural gas used in glass manufacturing was tax-exempt and seeking a refund of taxes paid under protest and an additional $159,292.63 for post-audit taxes. The chancellor ruled against Arkansas Glass, determining the natural gas was not exempt from sales tax, a decision that Arkansas Glass is now appealing. The court emphasized that a taxpayer must prove their entitlement to a tax exemption beyond a reasonable doubt, with any uncertainty leading to denial of the exemption. Arkansas Glass argued for a 'sale for resale' exemption under the relevant Arkansas Code, but the court noted that this exemption requires the property to be an 'integral part' of the final product. The manufacturing process involves substantial use of natural gas, which contributes to the heating of raw materials to produce molten glass. However, the court's review concluded that a recent legislative act providing an exemption for natural gas used in glass manufacturing does not retroactively apply to this case. The decision affirms the chancellor's ruling that the natural gas used in manufacturing glass is subject to sales tax. S03, a sulphur compound present in salt cake used in glass manufacturing, was found in trace amounts in the finished glass product. The chancellor determined that the product contained between .0013 to .003 integral parts of S03, which enhances the glass's integrity and longevity. However, it remained unclear whether the S03 originated from natural gas or salt cake. Under Arkansas Code Annotated § 26-52-401(12)(B), property can be classified for resale only if it becomes an integral part of the manufactured product. Arkansas Glass sought a tax exemption for all natural gas used in production, but evidence showed that most gas was used for heating the furnace and did not integrate into the product. Arkansas Glass failed to measure the gas contributing to the product, leading to the rejection of their exemption claim. The case referenced, Hervey v. International Paper Co., illustrated that trace amounts of a compound do not justify a resale exemption. The natural gas used in glass production was consumed in the process, not resold. Additionally, Arkansas Glass did not prove whether the S03 came from natural gas or salt cake, and the burden of proof for tax exemption lies with the taxpayer. The chancellor's ruling denying the exemption was affirmed, rendering any arguments for a tax refund during the post-audit period moot.