               IN THE COURT OF APPEALS OF TENNESSEE
                            AT JACKSON
                              October 29, 2015 Session

   CENTRAL WOODWORK, INC. v. CHEYENNE JOHNSON, SHELBY
             COUNTY ASSESSOR OF PROPERTY

             Direct Appeal from the Chancery Court for Shelby County
                     No. CH-14-0158-2   Jim Kyle, Chancellor


             No. W2015-00040-COA-R3-CV – Filed November 24, 2015


Taxpayer appealed the Shelby County Assessor of Property‟s tax assessment regarding
unreported tangible personal property and raw materials to the Tennessee State Board of
Equalization. The administrative judge ruled partially in favor of taxpayer but against
taxpayer regarding the raw materials. Taxpayer appealed to the State Board‟s
Assessment Appeals Commission, and the administrative judge‟s ruling was upheld.
Taxpayer then challenged the Appeals Commission‟s ruling in the chancery court. The
chancery court reversed the Appeals Commission‟s ruling, finding that taxpayer was not
a manufacturer and that its inventory should not have been assessed as raw materials. We
affirm.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
                                  and Remanded

BRANDON O. GIBSON, J., delivered the opinion of the court, in which J. STEVEN
STAFFORD, P.J., W.S., and ROGER A. PAGE, SP. J., joined.

John Barnett Turner, Jr., Assistant County Attorney, Memphis, Tennessee, for the
appellant, Cheyenne Johnson, Shelby County Assessor of Property.

Jeremy G. Alpert and George Joseph Nassar, Jr., Memphis, Tennessee, for the appellee,
Central Woodwork, Inc.

Herbert H. Slatery III, Attorney General and Reporter, Andrée Sophia Blumstein,
Solicitor General, and Mary Ellen Knack, Senior Counsel, for the appellee, State Board
of Equalization.
                                              OPINION

                                            BACKGROUND

       Appellee, Central Woodwork, Inc. (“Central Woodwork”), is a business formed
under the laws of Tennessee and located in Shelby County, Tennessee. Central
Woodwork sells doors, doorframes, hinges, casings, moldings, and other related items. A
portion of Central Woodwork‟s business involves the sale of individual door parts, while
the remaining portion involves the assembly of those parts into completed doors for sale.
On February 23, 2011, Central Woodwork received two notices of back
assessment/reassessment certifications for tax years 2009 and 2010 from Appellant, the
Shelby County Assessor of Property (“the Assessor”). The assessment was in the total
amount of $749,520. The Assessor asserted that Central Woodwork had underreported
tangible personal property1 in its personal property schedules for tax years 2009 and
2010. The assessments were based on an electronic paging system owned by Central
Woodwork and the individual door parts used to assemble completed doors that the
Assessor classified as raw materials.2

       On April 21, 2011, Central Woodwork filed appeals for each of the tax years in
question with the Tennessee State Board of Equalization (“the State Board”), arguing that
the paging system constituted real property rather than tangible personal property and that
the individual door parts were inventory excluded under Tennessee Code Annotated

1
 Tennessee Code Annotated section 67-5-901(a) provides for the classification of certain types of tangible
personal property into categories for ad valorem tax assessment purposes. Additionally, Tennessee Code
Annotated section 67-5-903(a) states that:

        All partnerships, corporations, other business associations not issuing stock and
        individuals operating for profit as a business or profession, including manufacturers,
        except those whose property is entirely assessable by the comptroller of the treasury,
        shall be furnished by the assessor not later than February 1 of each year, a schedule
        requiring the taxpayer to list in detail all tangible personal property owned by the
        taxpayer and used or held for use in such business or profession, including, but not
        limited to, furniture, fixtures, machinery and equipment, all raw materials, and supplies,
        but excluding all finished goods in the hands of the manufacturer and the inventories or
        merchandise held for sale or exchange, such schedule to be approved by the director of
        property assessments.
2
 While the property tax code does not define the term “raw materials,” Tennessee State Board of
Equalization Rule 0600-5-.01(8) defines “raw materials” as:

        [I]tems of tangible personal property, crude or processed, which are held or
        maintained by a manufacturer for use through refining, combining, or any process
        in production or fabrication of another item or product.
                                                    2
section 67-5-903(a) rather than raw materials. The administrative judge assigned to the
appeal conducted a hearing in the Shelby County Assessor‟s Office on November 1,
2012, and heard arguments regarding both the paging system and door parts. On January
17, 2013, the administrative judge issued an Initial Decision and Order ruling in favor of
Central Woodwork as to the classification of the paging system but against Central
Woodwork as to the classification of the door parts, finding that the door parts awaiting
assembly were raw materials.

       Central Woodwork then filed an appeal of the administrative judge‟s Initial
Decision and Order with the Tennessee Assessment Appeals Commission (“the Appeals
Commission”), a subsidiary board appointed by the State Board for intermediate review.
The Appeals Commission conducted a hearing on August 21, 2013, as part of its review
of the administrative judge‟s ruling, where Central Woodwork argued that it was not a
manufacturer and that its assembly of doors for the convenience of its customers did not
rise to the level of creating another product. The Appeals Commission was unable to
reach a decision due to a two-to-two deadlock vote by its four panel members. By rule,
the Initial Decision and Order of the administrative judge became the final order of the
Appeals Commission due to a lack of votes to overturn it. Central Woodwork sought
reconsideration by the Appeals Commission or review by the State Board but was denied.

        Central Woodwork next sought judicial review of the Appeals Commission‟s final
order in the chancery court. During the hearing in the chancery court, Central Woodwork
reiterated that it merely assembled doors from pre-manufactured parts for its customers as
a convenience at no extra cost. Further, Central Woodwork maintained that it was not a
manufacturer, did not do any of the millwork associated with any of the parts, and
likened its process to a father putting together a dollhouse on Christmas Eve. The
Assessor argued that Central Woodwork‟s Christmas Eve analogy was flawed because
forty-five percent of Central Woodwork‟s business involved the assembly of doors for
sale using approximately a million dollars‟ worth of equipment used to assist in the
assembly of doors. The chancery court overturned the Final Decision and Order of the
Appeals Commission, finding that the “doors, frames, hinges and related materials in
question . . . are finished goods inventory rather than raw materials inventory and Central
Woodwork is not a manufacturer.” The chancery court‟s order stated that the basis for
the court‟s decision was that the materials did not change character when assembled and
that Central Woodwork‟s assembly of the parts did not “create a visibly distinct article of
commerce.” The Assessor timely appealed.

                                          ISSUE

        The Assessor presents one issue for review, which we restate as follows: Whether
the trial court erred in determining that the component parts used by Central Woodwork
                                            3
in door frame assemblies were inventory rather than raw materials.

                                 STANDARD OF REVIEW

       Our review is governed by Rule 13(d) of the Tennessee Rules of Appellate
Procedure, which state that we are to review the trial court‟s findings of fact de novo
upon the record, with a presumption of correctness, unless the preponderance of the
evidence is otherwise. Tenn. R. App. P. 13(d); Richardson v. Tenn. Assessment Appeals
Comm’n, 828 S.W.2d 403, 407 (Tenn. Ct. App. 1991). There is no presumption of
correctness attached to the trial court‟s conclusions of law. Richardson, 828 S.W.2d at
407 (citing Adams v. Dean Roofing Co., 715 S.W.2d 341, 343 (Tenn. App. Ct. 1986)).
The proper interpretation of a statute is an issue of law. Accordingly, we review the trial
court‟s interpretation of a statute de novo with no presumption of correctness. See Lind v.
Beaman Dodge, Inc., 356 S.W.3d 889, 895 (Tenn. 2011); Mills v. Fulmarque, 360
S.W.3d 362, 366 (Tenn. 2012).

        Our primary objective when construing a statute is to effectuate the purpose of the
legislature. Lipscomb v. Doe, 32 S.W.3d 840, 844 (Tenn. 2000). The Tennessee
Supreme Court has outlined the applicable principles that apply to the question of
statutory interpretation:

       When dealing with statutory interpretation…our primary objective is to
       carry out the legislative intent without broadening or restricting the statute
       beyond its intended scope. Houghton v. Aramark Educ. Res., Inc., 90
       S.W.3d 676, 678 (Tenn. 2002). In construing legislative enactments, we
       presume that every word in a statute has meaning and purpose and should
       be given full effect if the obvious intention of the General Assembly is not
       violated by so doing. In re C.K.G., 173 S.W.3d 714, 722 (Tenn. 2005).
       When a statute is clear, we apply the plain meaning without complicating
       the task. Eastman Chem. Co. v. Johnson, 151 S.W.3d 503, 507 (Tenn.
       2004). Our obligation is simply to enforce the written language. Abels ex
       rel. Hunt v. Genie Indus., Inc., 202 S.W.3d 99, 102 (Tenn. 2006).

Estate of French v. Stratford House, 333 S.W.3d 546, 554 (Tenn. 2011). With these
principles in mind, we turn to the substance of the appeal.

                                        ANALYSIS

       This appeal requires us to construe the provisions of the property tax statutes as
codified at Tennessee Code Annotated sections 67-5-101, et seq., and section 903 of the
chapter in particular. Specific canons of construction exist when interpreting tax statutes.
                                             4
See Crown Enters., Inc. v. Woods, 557 S.W.2d 491, 493 (Tenn. 1977). First, “laws
imposing taxes must be construed strongly against the taxing authority.” Id. Where there
are doubts and ambiguities contained in the statute, they must be resolved in favor of the
taxpayer. Id. The opposite rule has developed, however, when “the issue under
consideration is whether a particular taxpayer is exempt from a tax.” Id. Exemption
provisions are construed strongly against the person claiming the exemption. Id. (citing
J. Hellerstein, State & Local Taxation 33 (1969)).

       Here, Central Woodwork was assessed taxes on unreported raw materials,
specifically door parts, for the tax years 2009 and 2010 pursuant to Tennessee Code
Annotated section 67-5-903(a). In pertinent part, this section reads:

      (a) All partnerships, corporations, [and] other business associations…shall
      be furnished by the assessor…a schedule requiring the taxpayer to list in
      detail all tangible personal property owned by the taxpayer and used or held
      for such business or profession, including, but not limited to, furniture,
      fixtures, machinery and equipment, all raw materials, supplies, but
      excluding all finished goods in the hands of the manufacturer and the
      inventories of merchandise held for sale or exchange[.]

Tenn. Code Ann. § 67-5-903(a)(emphasis added). The Assessor argues that the door
parts used in the assembly of doors are raw materials subject to tax under Section 67-5-
903(a), while Central Woodwork argues that the door parts are inventory “held for sale or
exchange.” The tax code does not provide a definition of “raw materials,” but the State
Board defines raw materials as

      items of tangible personal property, crude or processed, which are held or
      maintained by a manufacturer for use through refining, combining, or any
      process in production or fabrication of another item or product.

Tenn. Comp. R. & Regs. 0600-5-.01(8)(emphasis added). By definition, then, items of
tangible personal property may only be assessed as raw materials if they are held by a
manufacturer. Accordingly, this case hinges on whether Central Woodwork is a
manufacturer for the purpose of personal property taxes.

         The Assessor argues that the rule‟s inclusion of “processed” items demonstrates
that it is unimportant whether Central Woodwork performed any of the milling operations
on its door parts. Rather, the Assessor argues that the determinative factor is whether
Central Woodwork combined those items into another product. The Assessor cites the
State Board‟s ruling in Economy Pencil Company, Inc. to support its argument that the
assembly of component parts into a useful whole constitutes manufacturing. In Economy
                                            5
Pencil, the State Board was tasked with determining whether certain component parts
used to assemble pens and pencils were properly assessed to the taxpayer as raw
materials. Economy Pencil Company, Inc. (Tenn. SBOE 2008). The State Board
determined that Economy Pencil was “engaged in manufacturing at least to the extent
that the company assemble[d] those items which are received as component parts.” Id.
A significant portion of the analysis in Economy Pencil centered on whether the bulk of
the company‟s business, which involved stamping corporate logos on pens and pencils,
constituted manufacturing. The State Board determined that it did, finding that the
stamping process unmistakably altered “the appearance of the products in such a way as
to enhance their economic utility and value to the ultimate consumers.” Id.

       While we recognize that administrative regulations and interpretations are not
controlling, see Carr v. Chrysler Credit Corp., 541 S.W.2d 152, 156 (Tenn. 1976), “a
state agency‟s interpretation of a statute that the agency is charged to enforce is entitled
to great weight in determining legislative intent.” Consumer Advocate Div. v. Greer, 967
S.W.2d 759, 761 (Tenn. 1998)(citing Nashville Mobilphone Co. v. Atkins, 536 S.W.2d
335, 340 (Tenn. 1976)). With those principles in mind, we consider the application of
Economy Pencil to the instant case. First, the facts of this case are distinguishable from
Economy Pencil. Economy Pencil was exempt from the Business Tax Act, codified at
Tennessee Code Annotated section 67-4-701 et seq., as a “manufacturer.” The State
Board in that case expressed concern that declaring Economy Pencil‟s component parts
“inventory” would “lead to an anomalous result that the property in question would
generate neither gross receipts nor ad valorem taxes.” Economy Pencil Company, Inc. at
4 (Tenn. SBOE 2008). Here, Central Woodwork is subject to a gross receipts tax on all
its sales and is not for any other taxation purposes considered a manufacturer.
Additionally, while Economy Pencil occasionally sold products to its customers in the
same state it received them from another manufacturer, such sales accounted for less than
ten percent of its total annual volume. Id. at 2. In contrast, approximately 55% of
Central Woodwork‟s sales involve products that go out of the business in the exact same
form and configuration they came in. There is also no indication that Economy Pencil
sold individual pen components; rather, the entire purpose of acquiring the components
was for assembly into completed pens for sale. Central Woodwork primarily sells
individual components and only assembles those components into a completed door upon
request.

       We conclude the State Board‟s decision in Kele, Inc. is more analogous to the
facts of the case at bar. In Kele, the State Board analyzed whether a company‟s practice
of connecting valves and actuators, which it typically sold individually, upon customer
request amounted to manufacturing. Kele, Inc. (Tenn. SBOE 2011). The State Board
determined that it did not and that the component parts were therefore not raw materials
for the purpose of the personal property tax. Id. at 4. As in Kele, Central Woodwork
                                             6
primarily sells its components separately but will assemble them upon request at no
additional charge to the customer. Central Woodwork‟s business model, like Kele‟s,
primarily involves the distribution of products, as opposed to combining or altering
virtually everything they sell.

        While there is no statutory definition of a “manufacturer” for purposes of the
personal property tax, other sections of Title 67 do offer some clarification of what makes
a business a “manufacturer” for other purposes. Statutes “„in pari materia,‟ those relating
to the same subject or having a common purpose, are to be construed together.” Lyons v.
Rasar, 872 S.W.2d 895, 897 (Tenn. 1994). The construction of one such statute, if
doubtful, “may be aided by considering the words and legislative intent indicated by the
language of another statute.” Wilson v. Johnson Cnty., 879 S.W.2d 807, 809 (Tenn.
1994). For example, Tennessee Code Annotated section 67-6-206(b)(1) provides for
reduced sales tax rates with respect to water, gas, electricity, fuel oil, coal, and other
energy sources when sold to or used by manufacturers. Tenn. Code Ann. § 67-6-
206(b)(1). In that context, “manufacturer” is defined as “one whose principal business is
fabricating or processing tangible personal property for resale.” Tenn. Code Ann. § 67-6-
206(b)(2)(emphasis added). The Tennessee Supreme Court has interpreted “principal
business” with regard to that particular statute to mean at least 51% of a taxpayer‟s
revenues. See Beare Co. v. Tenn. Dep’t of Revenue, 858 S.W.2d 906, 908 (Tenn.
1993)(citing Tenn. Farmers Coop. v. State, 736 S.W.2d 87, 91-92 (Tenn. 1987)).
Additionally, Tennessee Code Annotated section 67-4-2121, part of the Franchise Tax
Law of 1999, also defines “manufacturer” as “any person whose principal business is
fabricating or processing tangible personal property for resale….” Tenn. Code Ann. §
67-4-2121(b)(emphasis added). These statutory definitions demonstrate the legislature‟s
intent to require more than just any act of manufacturing in order to be considered a
“manufacturer” for tax purposes.

        By admission of both parties, only forty-five percent of Central Woodwork‟s sales
involve the assembly of component door parts into completed doors. The remaining
fifty-five percent of sales are of the individual component parts. Using either the logic of
the State Board‟s previous rulings or the analysis set forth by our supreme court in Beare
Company, Central Woodwork does not appear to be a “manufacturer.” We hold,
therefore, that Central Woodwork is not a manufacturer, and the component door parts
used in the assembly of completed doors are not raw materials under the meaning of
Tennessee Code Annotated section 67-5-903(a) and Tenn. Comp. R. & Regs. 0600-5-
.01(8). Finding no error with the chancery court‟s decision, we affirm.

                                      CONCLUSION

       For these reasons, we affirm the order of the chancery court. Costs of this appeal
                                             7
are taxed to the appellant, Cheyenne Johnson, Shelby County Assessor of Property and
her surety, for which execution may issue, if necessary.



                                             _________________________________
                                             BRANDON O. GIBSON, JUDGE




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