Were tire-shredding machines exempt as processing machinery when they cut discarded tires into pieces before municipal landfill disposal?

Plain-English summary

South Carolina Private Letter Ruling 87-3 held that tire-shredding machines used to prepare tires for municipal landfill disposal were subject to sales and use tax.

The machines cut each tire into six segments before disposal. The Commission concluded that this activity was not "processing" within the machinery exemption because it did not prepare or convert tangible personal property into a form suitable for sale.

The result applied whether XYZ sold the machines to local governments or third-party disposal contractors or kept machines to provide disposal services itself.

The tire-shredding business

XYZ manufactured, sold, distributed, used, and maintained machines that cut tires into six pieces before the tires entered municipal landfills.

The machines were manufactured outside South Carolina and shipped to XYZ's distribution center.

XYZ planned three possible uses:

• sale to a city or county government;
• sale to a third party providing tire-disposal services to municipal landfills; or
• retention by XYZ to provide disposal services itself.

XYZ asked whether the machines qualified for the exemption for machinery used in processing tangible personal property.

The machinery exemption

Section 12-35-550(17) exempted qualifying motor-driven or operated machinery used in mining, quarrying, compounding, processing, and manufacturing tangible personal property.

The statute did not define processing. The Commission therefore examined the ordinary meaning of the word and authorities describing processing as a method or operation that produces a result and prepares property for market or converts it into marketable form.

Why landfill preparation was not processing

The Commission described courts as generally giving manufacturer and processor a restricted, popular meaning tied to transforming raw materials into a finished item of personal property ultimately sold.

It also cited its longstanding interpretation that section 12-35-550(17) applied to machines used by taxpayers manufacturing or processing tangible personal property for sale.

XYZ's machines did not make a saleable tire product. They cut discarded tires solely to prepare them for landfill disposal.

The Commission therefore concluded that tire shredding for disposal was not processing and that the machines were taxable.

Administrative interpretation and strict construction

The ruling strictly construed the exemption against the taxpayer and gave weight to the Commission's longstanding interpretation because the legislature had not changed it.

It also cited a South Carolina trial-court decision upholding the view that the machinery exemption applied only when equipment was used to manufacture, process, or compound tangible personal property for sale.

What this means for you

Tire-disposal and landfill operators

PLR 87-3 distinguished disposal preparation from production of a marketable item. Reducing the size of waste for landfill handling did not qualify as processing under the ruling.

Recycling businesses

The stated facts involved disposal, not conversion into a product for sale. A business producing a saleable output would present facts the ruling did not decide.

Equipment manufacturers and sellers

The machine's function in the purchaser's operation controlled the exemption analysis. Calling equipment a processing machine was not sufficient.

Cities and counties

The ruling included planned sales to municipal governments but still concluded that sales or use of the machines was taxable under the issue presented.

Readers applying the ruling today

PLR 87-3 applied a 1987 machinery exemption to tire disposal. Current manufacturing, processing, recycling, pollution-control, waste, government-purchase, and equipment exemptions must be checked independently.

Common questions

Q: Were the tire shredders exempt processing machines?

A: No. The Commission held that shredding tires for landfill disposal was not processing tangible property for sale.

Q: What did each machine do?

A: It cut a tire into six separate segments before landfill disposal.

Q: Why did marketability matter?

A: The Commission interpreted processing as preparing or converting property into a form suitable for sale.

Q: Did sale to a city or county automatically exempt the machine?

A: Not under this ruling's conclusion. Municipal purchasers were part of the stated facts, and the Commission still treated sales or use of the machines as taxable.

Q: Did the ruling address making recycled tire products for sale?

A: No. The machines in the ruling prepared tires only for disposal in landfills.

Q: Can another equipment seller or landfill rely on PLR 87-3?

A: No. The ruling states that it applied only to XYZ's specific facts, had no precedential value, and was not intended for distribution.

Citations and references

• S.C. Code section 12-35-550(17) — historical machinery exemption
• S.C. Code sections 12-35-510 and 12-35-810 — sales and use taxes
• Southern Equipment Sales Company, Inc. v. South Carolina Tax Commission — machinery used to process property for sale, as described in the ruling
• Owen Industrial Products, Inc. v. Sharpe, 274 S.C. 193, 262 S.E.2d 33 (1980); Hollingsworth on Wheels, Inc. v. Greenville County Treasurer, 276 S.C. 314, 278 S.E.2d 340 (1981); and York County Fair Association v. South Carolina Tax Commission, 249 S.C. 337, 154 S.E.2d 361 (1967) — strict construction of exemptions
• Marchant v. Hamilton, 309 S.E.2d 781 (1983); Ryder Truck Lines, Inc. v. South Carolina Tax Commission, 248 S.C. 148, 149 S.E.2d 435; and Etiwan Fertilizer Company v. South Carolina Tax Commission, 217 S.C. 354, 60 S.E.2d 682 — administrative interpretation
• S.C. Code section 12-3-170 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR87-3.pdf

Original ruling text

SC PRIVATE LETTER RULING #87-3

TO:

XYZ Corporation

SUBJECT:

Taxation of Tire Shredding Machines

REFERENCE:

S.C. Code Section 12-3-170

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer, upon
request, and it applies only to the specific facts or circumstances related in the
request. Private Letter Rulings have no precedential value and are not
intended for distribution.

Question:
Are tire shredding machines used to prepare tires for disposal in municipal landfills exempt from
sales and use tax as machines used in processing tangible personal property?
Facts:
XYZ Corporation is a corporation engaged in the business of manufacturing, selling,
distributing, using and maintaining machines. The XYZ machine is a machine which cuts tires
into six separate segments prior to their being disposed of in a municipal landfill. The machines
are currently being manufactured out of state and shipped to the XYZ Corporation. Once
received at the Distribution Center, XYZ Corporation will then either sell the machines to a city
and/or county government, or a third party purchaser who will utilize the machines to provide
tire disposal services to municipal landfills. XYZ Corporation may also retain some of the
machines and provide tire disposal services itself.
Discussion:
Code Section 12-35-550(17), an exemption section, reads, in part:
"The gross proceeds of the sale of animal or motor drawn or operated machinery.... used
in mining, quarrying, compounding, processing and manufacturing of tangible personal
property;...(emphasis added)."
One of the primary rules of statutory construction is that words used in a statute should be taken
in their ordinary and popular meaning, unless there is something in the statute which requires a
different interpretation. Hughes v. Edwards, 265 S.C. 529, 220 S.E. 2d 231; Investors Premium

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Corp. v. South Carolina Tax Commission, 260 S.C. 13, 193 S.E. 2d 642. Also, where the terms
of a statute are clear and unambiguous and leave no room for construction, they must be applied
according to their literal meaning. Mitchell v. Mitchell, 266 S.C. 196, 222 S.E. 2d 217; Green v.
Zimmerman, 269 S.C. 535, 238 S.E. 2d 323.
The Code does not provide a definition for the word "processing", as found at 12-35-550(17);
therefore, it is necessary to determine the "ordinary and popular meaning" of the term.
It is an accepted practice in South Carolina to resort to the dictionary to determine the literal
meaning of words used in statutes. For cases where this has been done, see Hay v. S.C. Tax
Commission, 255 S.E. 2d 837; Fennell v. S.C. Tax Commission, 102 S.E. 2d 424; Etiwan
Fertilizer Co. v. S.C. tax Commission, 60 S.E. 2d 682.
Black's Law Dictionary defines "process" as:
"A series of actions, motions, or occurrences; progressive act or transaction; continuous
operation; method, mode or operation, whereby a result or effect is produced, normal or
actual course of procedure; regular proceeding, as, the process of vegetation or
decomposition; a chemical process; processes of nature."
"Process is mode, method or operation whereby a result is produced; and means to
prepare for market or to convert into marketable form (emphasis added)." Employment
Security Commission of Ariz. v. Bruce Church, Inc., 109 Ariz. 183, 507 P. 2d 108, 112.
The following discussion is from 68 Am. Jur. 2d, 224: "In determining the preliminary question
as to whether the taxpayer was a manufacturer or processor within the general terms of the
statute, the courts have tended to give these terms a restricted, popular meaning, generally
limiting the term to those who transform raw materials into a finished item of personal property
to be ultimately sold and produce a sales tax, ..." Kress v. Dept. of Revenue, 34 NW 2d 501;
National tube Co. v. Glander, 105 NE2d 648.
There are other court cases which tend to support the position that "processing" involves the
preparation of property for market. See Auricchi's v. U.S., 49 F. Supp. 184; Huron Fish Co. v.
Glander, 67 N.E. 2d 546; France Co. v. Evatt, 55 N.E. 2d 652; Rawls, Inc. v. Peck, 111 N.E. 2d
916; State v. Joe H. Brady and Associates, 87 So. 2d 852; State v. Try Me Bottling Co., 57 So.
2d 537; National Tube Co. v. Glander, 105 N.E. 2d 648; Colbert Mill & Feed Co. v. Oklahoma
Tax Commission, 109 P. 2d 504; and, Kennedy v. State Board of Assessment and Review, 276
N.W. 205.
As a general rule, tax exemption statutes are strictly construed against the taxpayer. Owen
Industrial Products, Inc. v. Sharpe, 274 S.C. 193, 262 S.E. 2d 33 (1980) Hollingsworth on
Wheels, Inc. v. Greenville County Treasurer et al, 276 S.C. 314, 278 S.E. 2d 340 (1981). This
rule of strict construction simply means that constitutional and statutory language will not be
strained or liberally construed in the taxpayer's favor. York County Fair Association v. S.C. Tax
Commission, 249 S.C. 337, 154 S.E. 2d 361 (1967).

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The Commission has consistently interpreted Section 12-35-550(17) as applicable to those
machines used by taxpayers in the business of manufacturing or processing tangible personal
property for sale. For example, vendors of ice milk or cream using freezers are considered to be
in a mercantile business and not in the business of manufacturing or processing tangible personal
property for sale. (Memorandum #38, dated 3-16-66).
Administrative interpretations of statutes by the agency charged with their administration and not
expressly changed by the legislative body are entitled to great weight. Marchant v. Hamilton 309
S.E. 2d 781(1983). When as in this case, the construction or administrative interpretation of a
statute has been applied for a number of years and has not been changed by the legislature, there
is created a strong presumption that such interpretation or construction is correct. Ryder Truck
Lines, Inc. v. South Carolina Tax Commission, 248 S.C. 148, 149 S.E. 2d 435; Etiwan Fertizler
Company v. South Carolina Tax Commission, 217 S.C. 354, 60 SE 2d 682.
In Southern Equipment Sales Company, Inc. v. the South Carolina Tax Commission, the Court
of Common Pleas upheld the Master for Richland County who held that Section 12-35-550(17)
is applicable only when a machine is used in the manufacture, processing or compounding of
tangible personal property for sale. The plaintiff asserted that any construction "which requires
that an exemption is to be based upon a manufacture of tangible personal property for 'sale' or
'resale' is an unauthorized alteration and restriction of the exemption clause...." However, the
Court disagreed and ruled "the construction thereof by the Master is sound, logical and correct."
Conclusion:
We conclude that it is a reasonable interpretation of Code Section 12-35-550(17) to define
"processing" as an operation whereby tangible personal property is prepared or converted into a
form suitable for sale. Therefore, based upon the facts presented, the shredding of tires for
disposal in a landfill is not processing and the sale and/or use of the machines in question is
subject to taxation pursuant to Code Sections 12-35-510 and 12-35-810.
SOUTH CAROLINA TAX COMMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/John M. Rucker
John M. Rucker, Commissioner
s/Howard E. Duvall Jr.
Howard E. Duvall, Jr., Commissioner
Columbia, South Carolina
, 1987
April 22

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