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International Paper v. B.E.P., revised 9-16-99
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MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 1999 ME 135
Docket: Ken-99-4
Argued: June 8, 1999
Decided: September 15, 1999
Panel:WATHEN, C.J., and CLIFFORD, RUDMAN, SAUFLEY, and ALEXANDER, JJ.
INTERNATIONAL PAPER COMPANY
v.
BOARD OF ENVIRONMENTAL PROTECTION et al.
ALEXANDER, J.
[¶1] International Paper Company and the Town of Jay (the Town)
appeal from a judgment entered in the Superior Court (Kennebec County,
Humphrey, J.) in a Rule 80C appeal, affirming in part a ruling by the Board of
Environmental Protection (the Board) on International Paper's applications
for pollution control tax exemption certifications for an elemental chlorine
free (ECF) system and a low nitrogen oxide (NOx) burner system.{1}
International Paper appeals from the court's decision affirming the Board's
denial of pollution control tax exemption certification for International
Paper's ECF system. See 36 M.R.S.A. §§ 655(1)(N), 656(1)(E)(1) (1990).
The Town appeals from the Superior Court's decision affirming the Board's
approval of pollution control tax exemption certification for International
Paper's low NOx burner system. See 36 M.R.S.A. §§ 655(1)(N),
656(1)(E)(2). Because the Board did not determine whether the ECF
system was "installed . . . primarily for the purpose of reducing, controlling
or eliminating water pollution" as required by section 656, we vacate that
part of the court's judgment addressing the ECF system. Otherwise, we
affirm the judgment.
I. BACKGROUND INFORMATION
[¶2] International Paper owns and operates a pulp and paper mill in
the Town of Jay. This case arises out of applications that International Paper
filed in late January of 1997 with the Department of Environmental
Protection (the Department) to receive personal property and real estate tax
exemption certification pursuant to 36 M.R.S.A. §§ 655(1)(N) and 656(1)(E)
for an ECF system and a low NOx burner system it installed in the mill.
[¶3] Two bleach plants at the mill are used to remove lignin from the
hardwood and softwood pulp and to brighten the fiber that is used to
produce paper. International Paper eliminated the use of elemental
chlorine in these bleach plants and the pulp bleaching system by installing
the ECF system. The system makes it possible to brighten fiber for paper
production without discharging, or discharging substantially less, dioxin,
furans, and other chemicals into the Androscoggin River.
[¶4] International Paper installed the low NOx burner system in two
of the mill's power boilers. This system improves combustion by controlling
the formation of nitrogen oxide, thereby reducing or eliminating high
temperature zones in the vicinity of the burners. By regulating the high
temperature zones, the low NOx burner system controls and reduces
nitrogen oxide emissions.
[¶5] The Commissioner of the Department certified the ECF system
as a water pollution control facility and the NOx burner system as an air
pollution control facility qualifying for tax exemption. The Town appealed
the Commissioner's decision to the Board.
[¶6] The Board affirmed the Commissioner's certification of the low
NOx burner system. It found that the system has two purposes: (1) assisting
with fuel and air delivery to the power boilers; and (2) reducing air pollution
by reducing the creation of nitrogen oxide. The Board then found that the
NOx system was "installed primarily for the purpose of reducing, controlling
or eliminating industrial air pollutants."
[¶7] The Board vacated the Commissioner's certification of the ECF
system. As with the NOx system, it identified two purposes of the ECF
system. Those purposes were: (1) bleaching pulp for the production of
paper; and (2) reducing water pollution by eliminating the use of elemental
chlorine. The Board then found that:
Production, namely bleaching pulp, is the basic function of each
of these pieces of equipment. Pollution reduction, control and
elimination by the substitution of chlorine dioxide for elemental
chlorine is coincident to the basic function of these production
facilities. The primary purpose of this equipment is therefore
bleaching pulp as part of the Mill's paper production process.
Unlike the findings regarding the NOx system, the Board's findings never
addressed International Paper's purpose for the installation of the ECF
system.
[¶8] Based on these findings, the Board concluded that: "The [Town]
demonstrated that the [ECF systems] were not installed, acquired, or placed
in operation primarily for the purpose of reducing, controlling or
eliminating water pollution caused by industrial waste." This conclusion,
using language taken directly from 36 M.R.S.A. § 656(1)(E)(1)(a), was not
supported by any finding regarding the purpose of the installation. The
Board also found that although the ECF system contributes to the production
of approximately eight million gallons of wastewater per day, it does not
have "the capacity to handle 4,000 gallons of waste per day" as required by
36 M.R.S.A. § 656(1)(E)(1).
[¶9] Pursuant to M.R. Civ. P. 80C, International Paper appealed the
Board's decision about the ECF system and the Town appealed the Board's
decision about the low NOx burner system. The Superior Court (Kennebec
County, Marden, J.) consolidated the appeals. The Superior Court
(Humphrey, J.) then affirmed both of the Board's decisions. This appeal by
the Town and International Paper followed.
II. ELEMENTAL CHLORINE SYSTEM
[¶10] On an appeal from an intermediate appellate review of an
administrative decision, we directly review an agency's decision for an abuse
of discretion, error of law, or findings not supported by the evidence. See
Herrick v. Town of Mechanic Falls, 673 A.2d 1348, 1349 (Me. 1996).
International Paper challenges the Board's conclusion that the ECF system
was not installed primarily for the purpose of pollution control.
[¶11] A taxpayer protesting the imposition of a tax has the burden of
satisfying the Board that its request falls within the scope of the claimed
exemption. See SST & S, Inc. v. State Tax Assessor, 675 A.2d 518, 521
(Me. 1996). Upon review, the burden of persuasion rests upon the party
seeking to overturn an agency's decision. See Bischoff v. Board of Trustees,
661 A.2d 167, 170 (Me. 1995).
[¶12] This case involves the Board's construction of subsection
656(1)(E)(1)(a), in particular, the phrase "installed . . . primarily for the
purpose of" abating pollution and the Board's conclusion that the ECF
system was installed primarily for the purpose of production. See
36 M.R.S.A. § 656(1)(E)(1)(a) (1990).{2} From the Board's written decision,
it appears that once the Board determined the ECF system's basic function
was production, it ceased its inquiry into whether pollution abatement or
production was the primary purpose for its installation. Unlike its decision
regarding the NOx system, it did not proceed to examine the purpose for
the installation of the ECF system and decide whether, considering the dual
purposes of the installation, International Paper's primary purpose was
pollution control or production.
[¶13] Although we give an administrative agency's construction of a
statute administered by it great deference, the agency's interpretation is not
binding on us. We will not uphold it if the language and purpose of the
statute and the agency's practice in a related case contradict it. See Gulf
Island Pond Oxygenation Project Partnership v. Board of Envtl. Protection,
644 A.2d 1055, 1059 (Me. 1994). In addition, even though an agency is not
obligated to include a complete factual record with its decision, it must
include a written statement of facts sufficient to show a rational basis for the
decision. See 5 M.R.S.A. § 9061 (1989); 1 M.R.S.A. § 401 (1989); Murphy v.
Board of Envtl. Protection, 615 A.2d 255, 260 (Me. 1992).
[¶14] An applicant for tax exemption certification must demonstrate
that a facility is "installed, acquired or placed in operation primarily for the
purpose of reducing, controlling or eliminating water pollution," 36 M.R.S.A.
§ 656(1)(E)(1)(a), in order for the facility to qualify as a water pollution
control facility exempt from tax pursuant to 36 M.R.S.A. § 655(1)(N) and
656(1)(E)(1). Interpreting this language, we have had to balance two
sometimes conflicting principles which underlie sections 655 and 656. By
granting tax exemptions for water pollution control facilities, the Legislature
intended "to encourage more widespread use of modern waste disposal
systems and thus[,] to improve the quality of the [S]tate's water." Gulf Island
Pond, 644 A.2d at 1059. See also International Paper Co. v. Board of Envtl.
Protection, 629 A.2d 597, 601 (Me. 1993) (quoting L.D. 72, Statement of
Fact (106th Legis. 1973)). Exemptions from taxation, however, are not to be
broadly construed or extended by application to situations not clearly within
the scope of the exemption language. They are entitled to a reasonable
interpretation. See Gulf Island, 644 A.2d at 1058-59.
[¶15] In view of the language and purposes of section 656, we have
emphasized the importance of allowing the fact finder to determine, based
on the record before it, the purpose for which a facility is primarily
installed. See Ethyl Corp. v. Adams, 375 A.2d 1065, 1069 (Me. 1977)
(vacating trial court's judgment and holding that Board did not make an
error of law or fact in deciding that a bark-oil burner was neither a water
nor an air pollution control facility);{3} Statler Indust., Inc. v. Board of Envtl.
Protection, 333 A.2d 703 (Me. 1975) (vacating entry of summary judgment
and remanding to court to determine from conflicting record evidence
whether pollution abatement or manufacturing was the primary purpose of
the installation).
[¶16] We also have recognized that section 656 does not instruct the
fact finder about how to determine the reason for which a facility is
primarily installed. See Ethyl, 375 A.2d at 1075. See also Statler, 333 A.2d
at 706-07. The Legislature intended the phrase "primarily for the purpose"
to be construed in accordance with its common meaning and, thus, we have
held that "this phrase connotes a basic, fundamental or principal purpose as
opposed to one which is secondary or merely incidental." Statler, 333 A.2d
at 706. Unless a statute reveals a contrary intent, "the particular words
used in the statute must be given their plain, common and ordinary
meaning." Murphy, 615 A.2d at 258 (citation omitted).
[¶17] The language of section 656 recognizes that a facility can serve
more than one purpose. For example, a facility may increase efficiency as
well as abate pollution. The fact finder, therefore, first must identify the one
or several purposes for which the facility was installed, and then find which
of these is the primary purpose for which it was installed. New equipment
may have a primary function of production, but that production equipment
change may qualify for exemption if the applicant can demonstrate that the
primary purpose of its installation was to reduce pollution rather than to
improve production.
[¶18] Our first case interpreting section 656, Statler, like the instant
case, involved a dual purpose installation with new equipment replacing
existing paper making machinery that also reduced the water and air
pollution resulting from the paper making process. See Statler, 333 A.2d at
707. Statler was decided by summary judgment in the trial court,
apparently without an administrative record from the Board. See id. at 704.
We remanded, determining there were disputes as to material fact that
needed to be resolved as to what segments of the several pieces of
equipment in dispute were entitled to exemption. See id. at 708.
Interpreting the exemption statutes we observed that:
the tax exemption was extended only to those facilities which
were "installed, acquired or placed in operation" for the
primary purpose of attaining pollution abatement. It thus
becomes clear that the Legislature did not intend to extend tax
exemption to such equipment so purchased or installed unless
such was its basic function.
Id. at 706.
[¶19] The inquiry suggested in Statler, requiring consideration of the
purpose of an installation, among other issues, follows the plain meaning of
the statute and the analytical approach taken in this case. In contrast, Ethyl
involved a very different fact situation than the dual purpose manufacturing
process at issue here and in Statler. Ethyl involved an application for
certification for a water pollution exemption for a bark disposal burner. See
Ethyl, 375 A.2d at 1066. The application was denied by the Board but
approved, on Ethyl's appeal, by the Superior Court. See id. at 1066-67.
[¶20] On the Board's appeal, we determined that "the primary
purpose for which the bark-oil boiler is utilized is to dispose of waste bark."
Id. at 1076. But we also determined the bark boiler could not be a facility
with a primary purpose to reduce or eliminate pollution since bark itself was
not pollution. See id. at 1077. Pollution was caused by leachate from piles
of decaying bark. Future creation of bark piles would be eliminated or
reduced by burning the bark, but we determined that "this consequence,
however, is entirely incidental to the boiler's primary function of bark
disposal." Id.
[¶21] In Ethyl, we did not prohibit the fact finder from considering
the taxpayer's intended use of equipment as one of several factors relevant
to whether the taxpayer installed, acquired, or placed the equipment in
operation primarily for the purpose of reducing, controlling, or eliminating
water pollution caused by industrial, commercial, or domestic waste. We
merely held that the taxpayer's intended use could not control the decision.
See id. at 1076. We addressed the relevance of the taxpayer's motivation in
the following language:
If § 1760(29)(B) were to be construed to authorize an
exemption merely because, in installing a facility, the taxpayer
was primarily motivated by an intention to reduce, control, or
eliminate "water pollution caused by industrial waste," this
would mean that a facility might qualify for the exemption,
regardless of whether it performed as intended. We cannot
believe that the legislation was designed to make the intention
of the taxpayer, as distinguished from the use of the facility, the
touchstone of the exemption.{4}
Id. at 1076. The "touchstone," as used in Ethyl, means the pivotal test or
criterion in an assessment of an object or concept. Our descriptive language
in Ethyl therefore discloses an intention to make clear what we said
implicitly in Statler: the taxpayer's intent cannot, by itself, control the
determination of the "primary purpose."
[¶22] That holding does not, however, render the taxpayer's
motivation irrelevant. The Board must weigh a number of factors in
determining the primary purpose of the facility. Among those are the actual
use to which the equipment will be put, its actual pollution control effect,
and the purpose for its installation. As we held in Ethyl, if the facility does
not actually reduce, control or eliminate water pollution in any significant
amount, the fact finder need look no further, regardless of the motivation of
the taxpayer in installing the equipment. See id. at 1077-78. See also 36
M.R.S.A. § 1760(29) (1990). If, however, the equipment does abate water
pollution, even if it also performs other tasks, the fact finder must consider
the purposes for which it was "installed, acquired or placed in operation."
36 M.R.S.A. § 656(1)(E)(1)(a) (1990).
[¶23] Ethyl must be distinguished from the present case where the
discharge of chlorine, dioxin, furans, and other chemicals are immediately
polluting chemical discharges which the ECF process is designed to
eliminate. Here, the purpose of the ECF system installation is a factor that
must be considered in deciding the exemption.
[¶24] In its findings the Board gives no indication that it considered
the purposes for which the ECF system was installed. Thus, the Board
completed only part of the analysis required by section 656 and by our
precedents since Statler. Based on the evidence before it, the Board
identified the purposes of the ECF system as: (1) bleaching pulp to be used
in the paper production process; and (2) controlling pollution by replacing
the use of elemental chlorine with the use of chlorine dioxide. However,
unlike its determination in the NOx case, it did not determine the primary
purpose for the system's installation. Instead, the Board appears to have
concluded that because the ECF system aids production, it could not have
been installed primarily for the purpose of pollution control.
[¶25] The Board's failure to determine the primary purpose for the
installation of the ECF system leaves unresolved a critical finding that
section 656 requires it to make. Consequently, we vacate the Superior
Court's judgment with respect to the ECF system and order that the issue be
remanded to the Board for further findings to determine the primary
purpose for the installation of the ECF system.
[¶26] International Paper also challenges the Board's determination
that the ECF system is not a water pollution control facility that has "a
capacity to handle at least 4,000 gallons of waste per day." 36 M.R.S.A.
§ 656(1)(E)(1). The Board found that: (1) the ECF system contributes to the
production of approximately eight million gallons of wastewater per day; and
(2) does not handle waste either individually or as part of a system. The
Board appears to have concluded that the ECF system cannot satisfy the
4,000 gallon per day requirement because it contributes to the production
process that generates waste.
[¶27] We disagree with the Board's narrow construction of the 4,000
gallon per day standard. Neither the language of 36 M.R.S.A. § 656(1)(E)
nor the purposes of the section, see Gulf Island, 644 A.2d at 1059;
International Paper, 629 A.2d at 601, supports the Board's interpretation
that water pollution control facilities serving a production function cannot
"handle" waste. We have not interpreted section 656 to preclude facilities
involved in the production process from being capable of meeting the 4,000
gallon per day requirement. See, e.g., Gulf Island, 644 A.2d at 1059-60
(holding that waste is not required to be treated prior to discharge);
International Paper, 629 A.2d at 600-01 (holding that water pollution
included pollutants that are not waterborne). Moreover, just as the statute
does not distinguish between facilities that treat or reduce waste prior to its
discharge into the water and those that treat or reduce waste subsequent to
its discharge, see Gulf Island, 644 A.2d at 1059-60, it does not distinguish
between those facilities that treat or reduce waste after the completion of
the production process and those that treat or reduce waste during the
production process.
[¶28] Here, the Board found both that the ECF system: (1) controls
pollution by eliminating or reducing the presence of elemental chlorine in
the mill; and (2) contributes to the production of eight million gallons of
wastewater per day. These findings establish that every day the ECF system
effects millions of gallons of water containing waste and therefore satisfies
the 4,000 gallons of waste requirement. The Board's decision to the
contrary cannot be upheld because it is based on an erroneous interpretation
of section 656.
III. LOW NITROGEN OXIDE BURNER SYSTEM
[¶29] The Town contends that substantial evidence on the record
does not support the Board's decision that the low NOx burner system is a
tax exempt air pollution control facility pursuant to subsections 655(1)(N)
and 656(1)(E)(2).{5} This Court does not substitute its judgment for that of an
agency and must affirm findings of fact if they are supported by substantial
evidence in the record. See Gulf Island, 644 A.2d at 1059; Aviation Oil Co. v.
Department of Envtl. Protection, 584 A.2d 611, 614 (Me. 1990). We
examine the entire record to determine whether, on the basis of all the
testimony and exhibits before it, the agency could fairly and reasonably find
the facts as it did. See Imagineering, Inc. v. Superintendent of Ins., 593
A.2d 1050, 1053 (Me. 1991).
[¶30] A facility must be "installed, acquired or placed in operation
primarily for the purpose of reducing, controlling, eliminating or disposing
of industrial air pollutants," to qualify as an air pollution control facility.
36 M.R.S.A. § 656(1)(E)(2) (1990). We have construed this language as we
have construed the language in section 656(1)(E)(1) governing water
pollution control facilities. See Ethyl, 375 A.2d at 1078. Thus, it is the
Board's responsibility to determine, based on the record before it, the
purpose for which a facility is primarily installed.
[¶31] Here, the Board identified two purposes of the low NOx burner
system: (1) assisting with fuel and air delivery to the power boilers; and
(2) reducing air pollution by reducing the creation of nitrogen oxide. Based
on its findings that the system's delivery function is small and its pollution
control function is significant, the Board concluded that the system was
installed primarily for the purpose of reducing nitrogen oxide levels.
[¶32] The record supports the Board's decision. The evidence shows
the low NOx burners serve both of the functions the Board identified. The
Town does not dispute that nitrogen oxide is a pollutant. The record also
shows that the parts comprising the low NOx burners constitute only a small
part of the fuel delivery system that is merely one part of the larger system
comprising the power boilers.
[¶33] The record, therefore, indicates that the low NOx burner
system serves only a limited function in delivering fuel and air to the power
boilers and an extensive function in reducing nitrogen oxide. Consequently,
in examining the record before it, the Board did not err in concluding that
the low NOx burner system was equipment installed "primarily for the
purpose" of reducing air pollution and in certifying the system as an air
pollution control facility qualifying for tax exemption pursuant to
36 M.R.S.A. §§ 655(1)(N) and 656(1)(E)(2).
The entry is:
Judgment vacated and remanded to the
Superior Court for remand to the Board of
Environmental Protection for consideration
consistent with this opinion with regard to the
ECF system; judgment affirmed with regard to
the low NOx burner system.
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