John P. Boggio and Evan Schneider of DuCharme, McMillen & Associates, Inc., for Imperial Sugar Company.

Cathleen D. Parker, Assistant Attorney General, Wyoming Attorney General’s Office, for the Wyoming Department of Revenue.

This matter came on for hearing on June 6, 2003 by the State Board of Equalization (Board), consisting of Chairman Roberta A. Coates, Vice Chairman Alan B. Minier, Board Member Thomas R. Satterfield, and Gayle R. Stewart, Hearing Officer. Petitioner’s representatives appeared by telephone from Phoenix, Arizona. This appeal arises from the Department’s denial of a request for a sales tax refund for sales tax paid on pallets leased by the Imperial Sugar Company from Chep USA.

Upon application of any person adversely affected, the Board is mandated to review final Department actions concerning state excise taxes and to “[h]old hearings after due notice in the manner and form provided in the Wyoming Administrative Procedure Act and its own rules and regulations of practice and procedure.” Wyo. Stat. §39-11-102.1(c)(iv). The Board is required to “[d]ecide all questions that may arise with reference to the construction of any statute affecting the assessment, levy and collection of taxes, in accordance with the rules, regulations, orders and instructions prescribed by the department.” Wyo. Stat. §39-11-102.1(c)(viii). The rules of practice and procedure for appeals before the Board involving tax matters contemplate appeals from final administrative decisions of the Department. Rules, Wyoming State Board of Equalization, Chapter 2, § 3. The rules require that appeals be filed with the Board within thirty days of any final administrative decision. Rules, Wyoming State Board of Equalization, Chapter 2, § 5(e).

Petitioner processes and sells sugar. It ships the processed product on pallets. The pallets are leased from a company which operates a pallet pooling system. The pallets are transferred to Petitioner’s customers with each shipment, pursuant to arrangements which contemplate re-use of the pallets.

The Petitioner sought a refund for sales tax it has already paid on its pallet leasing transactions, arguing that the pallet lease falls under an exemption related to packaging. The Department denied the Petitioner’s request for refund. We affirm the Department’s decision.

1. Petitioner Imperial Sugar Company processes sugar, and packages the processed sugar for sale. The packaged sugar is shipped on pallets to customers. Some of the pallets Petitioner uses are leased from Chep USA. [Hearing tape].

2. Chep USA provides pallet pooling services. These services are described by Chep as “the shared use of high quality pallets .... by multiple customers or users.” The system works in this fashion:

CHEP issues ready-for-use pallets and containers from CHEP Depots to manufacturers and growers. The manufacturers and growers load their goods and ship their products through the supply chain using a CHEP pallet or container. At the end of the supply chain, the receiving retailer or distributor off-loads the goods and returns the CHEP pallets or containers to the nearest CHEP Depot. CHEP inspects the pallet or container and ensures it meets [CHEP’s] quality standards for the next customer use.

The ready-for-use pallet or container is then issued to the next customer for its customized use and movement through the supply chain. This system, where high quality pallets and containers are constantly maintained, controlled, tracked and reused to the benefit of the entire supply chain is CHEP pooling services.

3. On May 29, 1998, Imperial Holly Corporation, apparently as an authorized representative of Petitioner, entered into a lease agreement with Chep USA. [Exh. 103] Petitioner has directed the Board’s attention to Section 3 of that agreement. It states as follows:

Transfer of Equipment – LESSEE, ACTING AS TRANSFEROR, MAY TRANSFER RENTAL OF EQUIPMENT TO ANOTHER PERSON, CORPORATION OR OTHER ENTITY (A “TRANSFEREE”), PROVIDED THAT CHEP HAS GIVEN PRIOR APPROVAL TO SUCH A TRANSFER OR THAT TRANSFEREE HAS SIGNED AN AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO CHEP, INCORPORATING THIS AGREEMENT. As of the date of such transfer, the transfer shall have the effect of increasing (by the quantity so transferred) the Quantity of Equipment on Rental to Transferee. The transfer shall have the effect of decreasing (by the quantity so transferred) the Quantity of Equipment on Rental to Transferor as of the date following the date of such transfer.

4. The lease agreement allows Petitioner to use the pallets to ship its products to customers that have prior approval from Chep USA to use the pallets. Those customers are termed the “transferee” under the lease. [Exh. 103]. At all times, the ownership of the pallets remains with Chep. [Exh. 103, Section 2]. Compensation to Chep is based on the outstanding Quantity of Equipment chargeable to the lessee on a calendar day basis, as regularly invoiced to the lessee. [Exh. 103, Section 4].

5. Evan Schneider and John Boggio testified on behalf of Petitioner, in support of the foregoing facts. Based on their testimony, we find that all pallets used by Petitioner for shipping are transferred to the possession of other persons, to be returned to Chep and then reused. [Hearing tape].

6. On June 30, 2002, Petitioner sought a refund of the sales tax it had paid on its lease of pallets from June 1999 through June 2002. [Exhs. 101; 102].

7. By letter of September 16, 2002, Daniel W. Noble, Administrator of the Excise Tax Division of the Wyoming Department of Revenue, denied the refund request. [Exh. 101].

8. By letter of September 23, 2002, Petitioner filed a timely appeal of the Department’s denial of the refund request. [Exh. 102]. Petitioner’s appeal stated that the Department’s error lies in the fact that the lease transaction would have been exempt if it were a sale. Since Petitioner “uses the pallets as shipping cases to ship the sugar it processes...Imperial’s use of the pallets is an exempt use.” [Exh. 102]. Petitioner cited

Wyo. Stat. Ann. § 39-15-105(a)(iii)(A) as the source of the exemption, and points out that the definition of “sale” in Wyo. Stat. Ann. § 39-15-101(a)(vii) includes both leases and rentals.

9. Daniel Noble testified at the hearing of this matter, and explained his reasons for acting on the request as he did. First, Wyoming law imposes a sales tax on the lease transaction in question. Second, the exemption on which the Petitioners rely is only available for shipping cases which are consumed. As an example, Noble explained that the cardboard box in which a computer is packaged for sale is consumed, since there is no anticipation that the cardboard box will be re-used by the customer. He further explained that the pallets in this case are not consumed. To the contrary, the terms of the lease contemplate re-use. [Hearing tape].

10. A “sale” is defined, in pertinent part, as “any transfer of title or possession in this state for consideration...” Wyo. Stat. Ann. §39-15-101(a)(vii). We conclude that a transfer of possession occurred when Chep delivered each pallet to the Petitioner.

11. “Except as provided in W. S. 39-15-105,” Wyoming levies an excise tax upon “[t]he gross rental paid for the lease or contract transferring possession of tangible personal property if the transfer of possession would be taxable if a sale occurred.” Wyo. Stat. Ann. §39-15-103(a)(i)(B). We conclude that Wyoming imposes an excise tax on the lease transaction which has been presented to the Board.

(a) The following sales or leases are exempt from the excise tax imposed by this article:

(iii) For the purpose of exempting sales of services and tangible personal property consumed in production, the following are exempt:

(A) Sales of tangible personal property to a person engaged in the business of manufacturing, processing or compounding when the tangible personal property purchased becomes an ingredient or component of the tangible personal property manufactured, processed or compounded for

sale or use and sales of containers, labels or shipping cases used for the tangible personal property so manufactured, processed or compounded....

Except as specifically provided by law or in this section, the Petitioner shall have the burden of going forward and the ultimate burden of persuasion, which burden shall be met by a preponderance of the evidence. If Petitioner provides sufficient evidence to suggest the Department determination is incorrect, the burden shifts to the Department to defend its action. For all cases involving a claim for exemption, the Petitioner shall clearly establish the facts supporting an exemption... (Emphasis added).

Petitioner has the burden of going forward and the ultimate burden of persuasion, to be met by the preponderance of the evidence. Rules, Wyoming State Board of Equalization Chapter 2 § 20; Wyo. Stat. Ann. §16-3-114(c).

14. “The general rule is taxation; exemptions are the exception. There is a presumption created against granting exceptions and in favor of taxation.” State Board of Equalization v. Tenneco Oil Co., 694 P.2d 97, 100 (Wyo. 1985). “As a general rule tax exemptions are given a strict interpretation against an assertion of a taxpayer and in favor of the taxing power.” 3A Sutherland Stat. Const. §66.09, at 42 (5^th ed. 1992). Appeal of Chicago & North Western Railway Company, 70 Wyo. 84, 246 P.2d 789, 795 (Wyo. 1952).” Eastern Laramie County Solid Waste Disposal Dist. v. State Bd. Of Equalization, 9 P.3d 268, 271(Wyo. 2000). See also: Wyoming Central Irrigation Co. v. Farlow, 19 Wyo. 68, 114 P. 635, 636 (1911); State Board of Equalization v. Wyoming Auto Dealers Association, 395 P.2d 741, 742 (Wyo. 1964).

15. “A statutory exemption from taxation must be clearly conferred in plain words.” Commissioners of Cambria Park v. Board of Commissioners of Weston County, 62 Wyo. 446, 174 P.2d 402, 405 (Wyo. 1946). A tax exemption must be strictly construed against the one who asserts it, and the party claiming the exemption bears the burden of demonstrating its existence. 68 Am. Jur. 2d Sales and Use Taxes §112, 113 (2000). See also: State v. Capital Coal Co., 88 P.2d 481 (Wyo. 1939). Thus, Petitioner bears the burden of demonstrating the existence of a tax exemption for the lease of the pallets.

16. Our reading of the statute is governed by well established principles. The Board must look to the intent of the legislature when enforcing or construing statutes, and legislative intent must be ascertained initially and primarily from the words used in the statute. Allied-Signal, Inc. v. Wyoming State Board of Equalization, 813 P.2d 214, 219 (Wyo. 1991).

17. Consume means “to destroy, as by fire...; to use up...; to absorb completely....” Webster’s New World Collegiate Dictionary (4^th Edition)(2001), p. 313. We conclude that the mere transfer of pallets to or by Petitioner does not consume the pallets.

18. In this case, the taxpayer must show that the tangible personal property in question becomes a component of tangible personal property processed for sale. The exemption for sales of containers of shipping cases only applies where the containers of shipping cases become part of the product sold. This requirement arises from the statutory reference which ties the sale of containers and shipping cases to tangible personal property “so....processed.” Petitioner would have us ignore the words “so....processed,” and by doing so read into the statute a broad exemption for “containers, labels or shipping cases.” What Petitioner requests would be contrary to both the specific words of Wyo. Stat. Ann. §39-15-105(a)(iii)(A) and the more general “consumed in production” requirement that appears in the prefatory language of Wyo. Stat. Ann. §39-15-105(a)(iii). We conclude that Petitioner’s position is incorrect as a matter of law.

19. The record establishes that the pallets in question are not components of the product sold by Petitioner. Title remains in Chep USA, and it is contemplated that the pallets will remain a part of a pooling network. There is no sense in which the pallets are consumed.

IT IS THEREFORE HEREBY ORDERED: The Department’s denial of Petitioner’s request for a refund is affirmed.

Pursuant to Wyo. Stat. § 16-3-114 and Rule 12, Wyoming Rules of Appellate Procedure, any person aggrieved or adversely affected in fact by this decision may seek judicial review in the appropriate district court by filing a petition for review within 30 days of the date of this decision.

I hereby certify that on the _____ day of June, 2003, I served the foregoing FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER by placing a true and correct copy thereof in the United States Mail, postage prepaid, and properly addressed to the following:

John P. Boggio

Evan Schneider

DuCharme, McMillen & Associates, Inc.

3050 W. Agua Fria Freeway, Ste 250

Phoenix AZ 85027

Cathleen D. Parker

Assistant Attorney General

123 Capitol Building

Cheyenne WY 82002