                                                                              FILED
                                                                          November 1, 2017
No. 16-0903 – Pratt & Whitney Engine Services v. Steager                        released at 3:00 p.m.
                                                                            EDYTHE NASH GAISER, CLERK
                                                                            SUPREME COURT OF APPEALS
LOUGHRY, Chief Justice, joined by WORKMAN, Justice, dissenting:                  OF WEST VIRGINIA




              The Freeport Amendment to the West Virginia Constitution, both in its

language and intent, plainly provides an exemption from taxation for personal property

which is stored or maintained for a period of time within the State insofar as it

substantially maintains its character upon departing the State. The majority disregards

the plain language of the Amendment and its analysis is devoid of even the most

rudimentary exercise in logic. Most importantly, however, the majority disregards fully

the Legislature’s edict that the Amendment is to be liberally construed in favor of

exemption. Therefore, I dissent to the majority’s conclusion that the component engine

parts housed by the petitioner Pratt & Whitney Engine Services (hereinafter “Pratt”) in

aid of their repair services are subject to ad valorem tax.



              It is undisputed herein that Pratt operates a jet engine repair and service

facility; to conduct this business it is necessary that it maintain an inventory of

replacement parts. Jet engines needing repair are shipped to Pratt and these same engines

leave repaired. Pratt engages in absolutely no manufacturing of jet engines or any other

product. The repair parts it maintains are used solely to affix or utilize in servicing jet

engines in need of repair.




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              The Freeport Amendment provides that tangible personal property which is

either 1) moving in interstate commerce through or over the territory of the State of West

Virginia; or 2) consigned from outside the State to a warehouse within the State for

storage in transit to a destination outside the State, is exempt from ad valorem tax. W.

Va. Const. Art. 10, § 1c; see also W. Va. Code § 11-5-13. Critically, the Amendment

expressly states that such property remains exempt even if “while in the warehouse the

personal property is assembled, bound, joined, processed, disassembled, divided, cut,

broken in bulk, relabeled, or repackaged for delivery, unless such activity results in a new

or different product, article, substance or commodity, or one of different utility.”

(emphasis added); see also W. Va. Code § 11-5-13(b). West Virginia Code § 11-5­

13a(b) further clarifies that such warehoused goods are exempt from taxation provided

“no substantial alteration takes place” at the place of holding (emphasis added).



              Clearly, the repair parts housed by Pratt can be fairly characterized as

having been “assembled, bound, [or] joined” inasmuch as they are affixed to or integrated

into a jet engine for purposes of repairing it. Id. The question then becomes—did such

assembly, binding, or joining, of the repair parts create a “new” or “different” product?

In a true manufacturing plant, the answer would be unquestionably “yes”: the assembly

of a variety of components ordinarily creates a new product, article, substance or

commodity as such is the very nature of manufacturing. However, in Pratt’s repair

facility, the component parts are merely “assembled, bound, [or] joined,” to an existing


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product of discrete and unaltered utility: a jet engine. Replacing or otherwise utilizing a

grommet or counterweight in a jet engine to repair it substantially alters neither the

engine nor the component part itself. Neither the jet engine nor the component part has a

differing utility upon leaving the facility: the jet engine serves the same function, as do

its component parts. At best, it can be said that the component parts have now fully

realized their intended utility, rather than sitting unused in a box. Therefore, they are

exempt from ad valorem tax pursuant to the Freeport Amendment.



              Despite this relatively effortless reasoning, the majority concludes that the

inoperable jet engine and the warehoused component parts magically transform in

character upon leaving Pratt’s facility. In an exchange that the majority and the circuit

court inexplicably deemed critical, Pratt’s supply chain logistics manager agreed during

his testimony with the profoundly obvious conclusion that a jet engine is a different

product and has a different utility than an individual repair part such as a grommet or

counterweight. Based upon this comically self-evident testimony alone, the majority

concludes that the property is not exempt from taxation. (“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 . . . that the repair parts are not exempt[.]”).



              The logical fallacy in this analysis, however, is that it presupposes that the

component part—the personal property at issue—“becomes” the jet engine when it leaves



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the Pratt facility and therefore is a “different” product, having a “different” utility. A

component part, of course, does not transform into a jet engine upon leaving Pratt’s

facility; it remains the same component part. Nor does the jet engine which enters Pratt’s

facility leave a “new” or “different” product with differing utility—it is still a jet engine

and in fact the same jet engine which entered the facility, maintaining the same use and

purpose.



              In scraping to reach its ultimate conclusion, the majority alternatively

suggests that because a jet engine arrives inoperable and leaves functional, it therefore

becomes a “different” product with a “different” utility in the process. This obtuse

reasoning perhaps best reveals the majority’s result-oriented handling. A broken jet

engine is still a jet engine. A jet engine—operable or inoperable—has the same utility or

purpose: to provide thrust for an airplane. The majority’s desperate attempt to liken the

limited manipulation of the personal property at issue—which is expressly permitted

under the statute—to something tantamount to full-scale manufacturing fails under the

weight of its own strained semantical logic.1




       1
        In fact, the majority blithely refers to the repair of the engines on multiple
occasions as a “manufacturing process . . . [that] results in a finished product” as though
such a characterization is remotely accurate. This mischaracterization is a poorly
disguised attempt to render its ultimate conclusion unassailable.


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              Perhaps the majority’s most fundamental misunderstanding of the scope of

the Freeport Amendment is its apparent belief that nothing short of pure, “hands-off”

warehousing qualifies for the tax exemption. (“[O]ne 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.”)        However, the language of the

Amendment itself belies this conclusion. Providing tax exemption to goods temporarily

housed in the State which are not “substantial[ly] alter[ed]” during that time is the

intended goal of the Amendment as per West Virginia Code § 11-5-13a(b). Nevertheless,

it delineates a list of activities which presumptively do not substantially alter the goods

and therefore does not destroy the exemption: assembly, binding, joining, processing,

disassembling, dividing, cutting, breaking in bulk, relabeling, or repackaging for delivery.

W. Va. Const. art. 10, § 1c; W. Va. Code § 11-5-13(b). Certainly these activities go well

beyond passive storage. It is only if this activity has a transformative effect on the stored

components or their purpose that the exemption is lost. As explained above, there is

nothing transformative about replacing or using a grommet or counterweight in an effort

to make repairs to a discrete, singularly-purposed product such that the product may

actually be used for its intended purpose. To say this minimal utilization of the personal

property at issue creates no “substantial alteration” of the personal property itself is an

understatement.




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              In fact, the lone case to uphold this exemption is frankly even further

removed from exemption than the instant case because the property therein was in fact

altered in some fashion. In Feroleto Steel Co., Inc. v. Oughton, 230 W. Va. 5, 736 S.E.2d

5 (2012), this Court upheld a tax exemption for steel coils which were cut into narrower

steel coils while being housed in a West Virginia facility. Finding that “the composition

of the steel is not changed” simply by cutting it, the Court upheld the exemption and

found such exemption consistent with the intent of the Amendment. Id. at 8-9, 736

S.E.2d at 8-9. In the instant case, however, the component parts at issue themselves are

altered in no way—they are merely integrated into or affixed to the engine. If the

modified steel coils in Feroleto are entitled to tax exemption, there can be little question

that the wholly unaltered repair parts herein likewise qualify.



              Finally, with scarcely a sentence of its own analysis, the majority brushes

aside the statutory requirement that the Freeport Amendment be liberally construed in

favor of the taxpayer with its conclusory statement that the inventory of repair parts

simply does not fall within the exemption. West Virginia Code § 11-5-13a(a) expressly

provides that “[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 [pursuant to the

Freeport Amendment.]” Accordingly, even if one were to dignify the majority’s dubious

assessment that the personal property takes on a differing character once integrated into

the repaired engines, liberal construction would demand that the countervailing


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conclusion (that the property has in no way been “substantially altered” merely because it

was affixed to the engines) must prevail to afford Pratt the tax exemption. Only by

completely ignoring this countervailing argument—which, in fact, it does—can the

majority reach a result against the exemption.



             Accordingly, for the reasons set forth hereinabove, I respectfully dissent.




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