Tuesday, July 24, 2012

Board Finds Personal Property of Contracter "Used by" Integrated Steel Mill and Therefore Entitled to Pool 5 Depreciation

The outcome of this case is governed by Ind. Code § 6-1.1-3-23.  The parties, however, have substantially different views about what this statute means.


It is undisputed that USS is an “integrated steel mill” and TCIMS is not.  According to the Respondent, that reason alone precludes TCIMS from the benefit of Pool 5 depreciation: “TCIMS is not an integrated steel mill; therefore, the equipment for which TCIMS is claiming Pool 5 treatment does not qualify because TCIMS‘s equipment is not the equipment of an integrated steel mill.” Assessor’s Reply Brief at 2. Citing Ind. Code § 6-1.1-3-23(a)(7)-(9), the Respondent also argues “the General Assembly unequivocally limits Pool 5 treatment to the equipment of integrated steel mills. *** [I]n the case at hand the General Assembly unequivocally provided special tax treatment for integrated steel mills. No other persons are eligible for Pool 5 valuation.”  Assessor’s Post-Hearing Brief at 15-17. The Respondent argues that any allowance of Pool 5 treatment for TCIMS‘s equipment would unreasonably and incorrectly broaden the scope of the statute beyond what was intended by the General Assembly. If the Respondent were correct the analysis for this case would need to go no further.


The Board acknowledges the preamble language in Ind. Code § 6-1.1-3-23(a), but does not agree that the references to valuing the equipment of integrated steel mills lead to the conclusion that only an integrated steel mill can claim Pool 5 depreciation. Section 23(a) starts by recognizing the economy of northern Indiana has historically been heavily dependent upon the domestic steel industry, particularly the integrated steel mill business (which produces steel from basic raw materials through blast furnace and related operations), and by recognizing 30 years of significant financial difficulties in the domestic steel industry. “More than one-half (½) of the integrated steel mills in the United States were shut down or deintegrated, with the remainder requiring significant investment and the addition of new processes to make the facilities economically competitive with newer foreign and domestic steelmaking facilities and processes.”  Specifically recognizing these points indicates a broader concern with the domestic steel industry, particularly the integrated steel mill business. Furthermore, the later parts of this preamble explain that the option of Pool 5 “recognizes the loss of value and difficulty in valuing equipment at integrated steelmaking facilities” as a way to avoid contentious and lengthy appeals about abnormal obsolescence. This reasoning applies as much to TCIMS Equipment at the Gary Works as it does to USS equipment at the same facility. Accordingly, Ind. Code § 6-1.1-3-23(a) does not dictate the limited application of Pool 5 as proposed by the Respondent.

This conclusion becomes even clearer when the provisions in the balance of Ind. Code § 6-1.1-3-23 are examined. Indiana Code § 6-1.1-3-23(c) provides that a taxpayer can elect Pool 5 for the taxpayer’s special integrated steel mill equipment. And Indiana Code § 6-1.1-3-23(b) defines “special integrated steel mill equipmentas “depreciable personal property … that is owned, leased, or used by an integrated steel mill … and falls within Asset Class 33.4 as set forth in IRS Rev. Proc. 87-56, 1987-2, C.B. 647.

The General Assembly defined certain terms in the statute with great precision. Obviously, with such a careful definition of “integrated steel mill” it would have been easy to expressly provide that only an integrated steel mill is permitted to claim Pool 5 depreciation for its equipment. As previously noted, however, there is no such express limitation. Rather, the statute provides in quite general fashion that a “taxpayer” may elect to claim Pool 5 depreciation on its return.

The Respondent has given no substantial argument or reason about why language such as “equipment of an integrated steel mill would exclude equipment “used by an integrated steel mill when it is owned by someone else. Perhaps most importantly, no part of this statute should be regarded as meaningless or surplus. Including the words “or used” must mean something other than “owned” or “leased” by an integrated steel mill. Ind. Code § 6-1.1-3-23(b)(7)(A)(i).

For all these reasons, TCIMS is not precluded from using Pool 5 for the Equipment at the Gary Works simply because it is not an integrated steel mill.

Nevertheless, that conclusion is only the first part of our analysis. The Equipment can qualify for Pool 5, but does it?


The Board finds that USS “uses” the Equipment, because USS employs the Equipment and applies it for steel production purposes to USS‘s benefit. Tr. 301:15–24 (“All the equipment that's on site there is used exclusively for U.S. Steel's purposes to make steel.); Tr. 302:13–24 (“all the equipment that's on site there is used in some form or other in the making of the steel.); Tr. 307:24–308:2. USS has the right and privilege under written contracts to use the Equipment. Tr. 301:25–302:11; Exhibit TCIMS–17. USS puts the Equipment into service by integrating the Equipment into its steel production operations. Tr. 308:3–5. USS avails itself of the Equipment by directing the objectives to be attained by the Equipment. Tr. 303:3–6. USS carries out its steel production purposes by means of the Equipment; and USS puts the Equipment to its steel production purposes. Tr. 303:7–14; 308:8–12.

Simply stated, if the Equipment did not move or process scrap, USS would lack an essential ingredient for making steel. USS would need to find alternatives or it would have to shut down the operation. Tr. 303:15–304:9; 400:10–401:8; 401:20–402:3; 435:19–436:13; 437:1–8; 457:11–16. If the Equipment did not move and process the slag, steelmaking operations in the BOF shop would literally grind to a halt. Tr. 304:10–305:6; 438:2–11; 476:14–23. If the Equipment did not move slabs, USS would have to shut down its caster lines after the backlog of slabs left no room to continue casting more slabs. Tr. 305:7–19; 475:13–17; 404:5–20. If the Equipment did not scarf slabs, USS would not be able to perform a necessary part of the production process and would not be able to provide a finished steel product that met its customers‘ specifications. Tr. 305:20–306:19; 440:25–441:21; Exhibit TCIMS–19 (74:24–75:12). USS needs all of these functions to happen in order to produce steel. It chose to use TCIMS and TCIMS‘s Equipment to perform these critical functions. Without them, USS would actually cease to be an “integrated steel mill as defined by Indiana Code § 6-1.1-3-23(b)(3) because it would be unable to produce steel.


Regardless of who owns it and regardless of who operates it, the Equipment is necessary for USS to produce steel. The Equipment functions for USS‘s ultimate purposes under USS‘s direction. Therefore, USS uses the Equipment.

http://www.in.gov/ibtr/files/Tube_City_IMS_REDACTED_45-001-10-1-7-00001_and_2.pdf