CHARLESTON, W.Va. (Legal Newsline) - The West Virginia Supreme Court of Appeals ruled Tuesday that a Northern Panhandle steel company's inventory of coils is exempt from a state property tax.
Feroleto Steel Company Inc., based in Weirton, cuts large steel coils into smaller widths, as specified by its customers.
Specifically, the company purchases coils of flat steel from out-of-state suppliers. These coils range in width from 36 inches to 54 inches and vary in gauge from .008 to .200 inches thick.
Feroleto's five out-of-state customers place orders for the steel coils containing specifications and tolerances for how the steel is to be cut. These specifications establish the gauge and the width to which the steel coils are to be cut in thousandths of an inch.
Using a special machine, the company cuts the coils to the custom measurements specified in the orders.
Once Feroleto cuts the steel coils to a customer's specifications, the coil has a single use for a single customer. The coils are then shipped.
State Tax Commissioner Craig Griffith, acting on the recommendation of Brooke County Assessor Thomas Oughton, denied the company an exemption from ad valorem property taxation, or taxes levied on real or personal property.
Griffith found that the cutting of the steel coils to an individual customer's specifications results in a product "of different utility."
Feroleto appealed the decision to Brooke County Circuit Court.
In a March 16, 2011 order, Judge Arthur M. Recht granted summary judgment to Griffith, Oughton and the Brooke County Commission.
Feroleto appealed to the state's high court.
In its nine-page decision this week, the Court reversed the circuit court's order.
Justice Brent Benjamin, who authored the ruling, said the company's cutting of steel coils into narrower steel coils does not result in a product "of different utility" for the purpose of the ad valorem property tax exemption.
"The steel coils arrive at the petitioner's plant as steel coils, and they leave the plant as steel coils, only of a narrower size. While at the petitioner's plant, the composition of the steel is not changed," Benjamin wrote.
"Further, the only thing the petitioner does to the steel coils at its plant is to cut the steel coils to a smaller size. The applicable constitutional and statutory language expressly provides that property shall not be deprived of the tax exemption based solely on the fact that the property is cut."
The Court added that Griffith's construction of the phrase "of different utility" is too broad.
"The question arises that if the cutting of the steel coils in the instant case results in a product of new or different utility, under what circumstances would cutting property not so result?"
Griffith and Oughton -- who were represented by Attorney General Darrell McGraw's office and Brooke County Prosecuting Attorney David B. Cross -- had argued that when the steel coils leave the plant and cut into sizes specified by their customers, they have a specific use to a single customer and are no longer suitable for a variety of other uses.
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