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Farmers Cooperative v. State

Supreme Court of Nebraska

April 7, 2017

FARMERS COOPERATIVE, A COOPERATIVE CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF NEBRASKA, APPELLANT,
v.
STATE OF NEBRASKA ET AL., APPELLEES. FRONTIER COOPERATIVE COMPANY, A COOPERATIVE CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF NEBRASKA, APPELLANT,
v.
STATE OF NEBRASKA ET AL., APPELLEES.

         1. Administrative Law: Judgments: Appeal and Error. A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified by an appellate court for errors appearing on the record.

         2. __:__: __ . When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable.

         3. Administrative Law: Statutes: Appeal and Error. To the extent that the meaning and interpretation of statutes and regulations are involved, questions of law are presented, in connection with which an appellate court has an obligation to reach an independent conclusion irrespective of the decision made by the court below.

         4. Statutes: Appeal and Error. Statutory language is to be given its plain and ordinary meaning, and an appellate court will not resort to interpretation to ascertain the meaning of statutory words which are plain, direct, and unambiguous.

         5. Statutes: Legislature: Intent. In discerning the meaning of a statute, a court determines and gives effect to the purpose and intent of the Legislature as ascertained from the entire language of the statute considered in its plain, ordinary, and popular sense.

         [296 Neb. 348] 6. Statutes. A statute is ambiguous when the language used cannot be adequately understood from the plain meaning of the statute or when considered in pari materia with any related statutes.

         7. Statutes: Legislature. When the Legislature provides a specific definition for purposes of a section of an act, that definition is controlling.

         8. Taxation: Agriculture: Words and Phrases. The phrase "depreciable repairs or parts" in Neb. Rev. Stat. § 77-2708.01 (Cum. Supp. 2016) is ambiguous.

         9. Statutes: Legislature: Intent. An appellate court can examine an act's legislative history if a statute is ambiguous or requires interpretation.

         10. Statutes: Intent. In construing a statute, a court looks to the statutory objective to be accomplished, the evils and mischiefs sought to be remedied, and the purpose to be served.

         11. Statutes: Taxation. Tax exemption provisions are strictly construed, and their operation will not be extended by construction.

         12. Statutes: Legislature: Intent. The fundamental objective of statutory interpretation is to ascertain and carry out the Legislature's intent. An interpretation that is contrary to a clear legislative intent will be rejected.

         13. Taxation: Agriculture. Under Neb. Rev. Stat. § 77-2708.01 (Cum. Supp. 2016), the refund for depreciable repairs or parts is to prevent double taxation and to ensure that all depreciable repairs and parts are subject to personal property tax.

         14. Taxation: Agriculture: Words and Phrases. In Neb. Rev. Stat. § 77-2708.01 (Cum. Supp. 2016), the phrase "depreciable repairs or parts" means repairs or parts that appreciably prolong the life of the property, arrest its deterioration, or increase its value or usefulness, and are ordinarily capital expenditures for which a deduction is allowed only through the depreciation recovery allowance.

         15. Taxation: Proof. The party claiming an exemption from taxation must establish entitlement to the exemption. A tax exemption is analogous to a tax refund.

         Appeals from the District Court for Lancaster County: Andrew R. Jacobsen, Judge. Affirmed.

          Thomas E. Jeffers and Andrew C. Pease, of Crosby, Guenzel, L.L.P., for appellants.

          Douglas J. Peterson, Attorney General, and L. Jay Bartel for appellees.

          Heavican, C.J., Wright, Miller-Lerman, Cassel, Kelch, and Funke, JJ.

         [296 Neb. 349] FUNKE, J.

         I. NATURE OF CASE

         Farmers Cooperative (Farmers) and Frontier Cooperative Company (Frontier) (collectively the Cooperatives) appeal from orders by the district court for Lancaster County affirming the decisions of the Nebraska Department of Revenue (Department) and the acting Tax Commissioner of the State of Nebraska which denied, in part, their requested refunds of sales and use taxes paid on the purchase of repairs and parts for agricultural machinery and equipment, under Neb. Rev. Stat. § 77-2708.01 (Cum. Supp. 2016). The district court consolidated the cases for oral arguments. Likewise, this court has consolidated the appeals for oral arguments and decision.

         The sole issue presented in each case is how the phrase "depreciable repairs or parts, " within § 77-2708.01, should be interpreted. The district court did not err in affirming the partial denial of the Cooperatives' requested refunds based upon its interpretation of § 77-2708.01. We affirm.

         II. BACKGROUND

         1. Department's Interpretation of § 77-2708.01

         In 1993, the Nebraska Legislature passed 1993 Neb. Laws, L.B. 345, which amended § 77-2708.01 to include the refund of sales and use taxes for depreciable repairs or parts. The relevant version of § 77-2708.01(1) states:

Any purchaser of depreciable repairs or parts for agricultural machinery or equipment used in commercial agriculture may apply for a refund of all of the Nebraska sales or use taxes and all of the local option sales or use taxes paid prior to October 1, 2014, on the repairs or parts.

(Emphasis supplied.)

         In the September 2014 "Nebraska Agricultural Machinery and Equipment Sales Tax Exemption Information Guide" (Information Guide), the Department interpreted the phrase "depreciable repairs or parts." The Information Guide defined [296 Neb. 350] repairs and parts as depreciable, "if they will appreciably prolong the life of the property, arrest its deterioration, or increase its value or usefulness, and are ordinary capital expenditures for which a deduction is allowed only through the depreciation/ cost recovery allowance." Conversely, according to the Tax Commissioner, the Information Guide explained that nondepreciable repair and replacement parts are those that "keep the property in an ordinary or usable condition, do not increase the value of the agricultural machinery and equipment repaired, or lengthen its life."

         The Information Guide informed purchasers of depreciable repairs or parts that they may receive a refund of the sales and use taxes paid thereon by filing a "Nebraska Sales and Use Tax Refund Claim for Agricultural Machinery and Equipment Purchases or Leases, Form 7AG-1" (Form 7AG-1).

         2. Factual History

         The Cooperatives are buyers and sellers of agricultural products and inputs, including purchasing, selling, and storing grain. Both also provide on-farm services and products.

         In September 2014, the Cooperatives submitted to the Department several Form 7AG-l's seeking refunds of sales and use taxes. Accompanying the forms were spreadsheets listing the transactions forming the basis of the claims and invoices related to those transactions. Neither of the Cooperatives submitted its personal property tax return or depreciation schedule to verify it had also paid personal property taxes on the agricultural machinery and equipment repairs or parts.

         (a) Farmers' Refund Claim

         Farmers submitted a single Form 7AG-1 for a refund of the sales and use taxes paid on repairs or parts for $1, 582.48.

         In response, the Department sent an email to Farmers notifying it that some invoices were determined to be for repair, replacement, or maintenance parts. The Department stated that it could refund the taxes paid thereon only if Farmers had paid personal property taxes on the items and requested Farmers [296 Neb. 351] submit a copy of its personal property tax return or depreciation schedule to verify that it had. In October 2014, the Department sent another email to Farmers, asking if Farmers had placed any of the claimed purchases on its personal property tax return. The record does not show that Farmers responded to either email.

         In March 2015, the Department notified Farmers that it had completed processing the refund claim and that it had denied a portion of the requested refund, because the taxes were on purchases of nondepreciable repairs or parts. The items disallowed by the Department included, but were not limited to, alternators, bolts, gaskets, sensors, and an air conditioner for "Terragators/Floaters" owned and operated by Farmers. Counsel for Farmers responded in an email ...


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