Bridgeport Ethanol v. Nebraska Dept. of Rev.

BRIDGEPORT ETHANOL v. NEBRASKA DEPT. OF REV. 	291
Cite as 284 Neb. 291
V. CONCLUSION
We affirm the district court’s order to the extent it found
that the Wolfs’ daycare violated the “no business activities”
covenant and to the extent it granted summary judgment on the
defenses of estoppel, laches, and unclean hands. But as to the
Wolfs’ affirmative defense of waiver, we reverse the district
court’s grant of summary judgment and remand the cause with
directions to conduct further proceedings not inconsistent with
this opinion.
R eveRsed and Remanded with diRections.
mccoRmack, J., not participating.
BRidgepoRt ethanol, llc, appellant, v. neBRaska
depaRtment of R evenue, a neBRaska administRative
agency, and douglas ewald, in his capacity
as the state tax commissioneR foR the
state of neBRaska, appellees.
818 N.W.2d 600
Filed August 10, 2012. 	No. S-11-916.
1. Administrative Law: Judgments: Appeal and Error. In an appeal under the
Administrative Procedure Act, an appellate court may reverse, vacate, or modify
the judgment of the district court for errors appearing on the record.
2. Administrative Law: Statutes: Appeal and Error. The interpretation of statutes
and regulations presents questions of law, in connection with which an appellate
court has an obligation to reach an independent conclusion irrespective of the
decision made by the court below.
3. Statutes: Appeal and Error. Statutory language is to be given its plain and ordi-
nary meaning, and an appellate court will not resort to interpretation to ascertain
the meaning of statutory words which are plain, direct, and unambiguous.
4. Statutes: Legislature: Intent: Appeal and Error. In discerning the meaning of
a statute, an appellate court must determine and give effect to the purpose and
intent of the Legislature as ascertained from the entire language of the statute
considered in its plain, ordinary, and popular sense.
5. Statutes. If the language of a statute is clear, the words of such statute are the
end of any judicial inquiry regarding its meaning.
6. Sales: Taxation: Words and Phrases. The definition of manufacturing machin-
ery and equipment limits the exemption from sales tax for the purchase of such
machinery and equipment to items purchased by a person engaged in the business
of manufacturing for use in manufacturing.
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/01/2026 04:41 AM CST

292 	284 NEBRASKA REPORTS
7. Statutes: Taxation. Tax exemption provisions are strictly construed, and their
operation will not be extended by construction.
8. ____: ____. Property which is claimed to be exempt must clearly come within the
provision granting exemption from taxation.
9. Statutes: Legislature: Intent. In order for a court to inquire into a statute’s leg-
islative history, the statute in question must be open to construction, and a statute
is open to construction when its terms require interpretation or may reasonably be
considered ambiguous.
10. Taxation: Proof. The burden of establishing a tax exemption is placed upon the
party claiming the exemption.
Appeal from the District Court for Lancaster County: John
a. colBoRn, Judge. Affirmed.
William E. Peters, of Peters & Chunka, P.C., L.L.O., for
appellant.
Jon 	Bruning, Attorney 	General, 	and 	L. 	Jay 	Bartel 	for
appellees.
heavican, c.J., wRight, connolly, mccoRmack, milleR-
leRman, and cassel, JJ.
cassel, J.
INTRODUCTION
After the claimant’s attempt to obtain a refund of sales tax
on building materials used in the construction of an ethanol
production plant was administratively denied in part, the claim-
ant sought judicial review. This appeal turns on a statutory
limitation of the exemption for manufacturing machinery and
equipment and the limited statutory authority for appointment
of a purchasing agent. Because the statute limits the exemption
to purchases by the manufacturer and because a contractual
provision purporting to entitle the manufacturer to all tax cred-
its for taxes paid by a construction contractor was not effective
as a purchasing agent appointment, we affirm.
BACKGROUND
The Nebraska Revenue Act of 19671 exempts from sales
tax the gross receipts from the sale, lease, or rental of
1 Neb. Rev. Stat. §§ 77-2701 to 77-27,135.01 and 77-27,228 to 77-27,236
(Reissue 2003 & Cum. Supp. 2008).

BRIDGEPORT ETHANOL v. NEBRASKA DEPT. OF REV. 	293
Cite as 284 Neb. 291
manufacturing machinery and equipment.2 The definition of
“[m]anufacturing machinery and equipment”3 includes a num-
ber of categories of machinery or equipment but limits the
definition to such items that are “purchased, leased, or rented
by a person engaged in the business of manufacturing for use
in manufacturing.”4
In June 2007, Bridgeport Ethanol, LLC (Bridgeport), entered
into a contract with ICM, Inc., for the design and construction
of a dry mill fuel-grade ethanol plant located near Bridgeport,
Nebraska. The contract set the total price for completion of
the work at $67,450,000. The contract obligated ICM to fur-
nish such items as materials, equipment, labor, and tools. The
contract also contained a provision stating that the contract
price included all sales and use taxes, that Bridgeport “for all
purposes has paid for such taxes,” and that Bridgeport was
entitled to all tax credits for the payment of such taxes from
any state agency. The sales and use taxes applicable to the
project were estimated to be $2,100,000. Under the contract,
ICM was obligated to keep all receipts and to account for all
taxes it paid and Bridgeport would then use those receipts and
the accounting to obtain the tax credits.
As applicable to the facts of this case, a contractor is
defined as a person who annexes building materials to real
estate.5 A contractor can elect to be taxed as a retailer or as
the consumer of building materials annexed to real estate.6
A contractor’s election status is described by one of three
“option” numbers, depending upon which statutory subsec-
tion the contractor has elected. For example, an “Option 1”
contractor is taxed as a retailer and is not considered the
final consumer of building materials annexed to real estate.7
On the other hand, “Option 2” and “Option 3” contractors
2 § 77-2704.22.
3 § 77-2701.47(1).
4 Id.
5 See § 77-2701.10.
6 Id.
7 See, § 77-2701.10(1); 316 Neb. Admin. Code, ch. 1, § 017.05 (2009).

294 	284 NEBRASKA REPORTS
are taxed as the consumers of building materials annexed to
real estate.8
ICM elected to be an Option 3 contractor. As such, ICM
maintained a tax-free inventory of building materials that were
intended to be annexed to real estate and agreed to remit the
use tax when the materials were withdrawn from ICM’s inven-
tory.9 As an Option 3 contractor, ICM agreed to pay sales tax
on all tools and materials consumed in the completion of its
projects that were not annexed to real estate,10 including proj-
ects performed for an exempt entity. The bill of exceptions
contains records of numerous purchases by ICM, as well as
the sales and use taxes ICM paid, in performing its work under
the contract.
In September 2010, Bridgeport filed a claim for overpay-
ment of sales and use tax. Specifically, the claim requested
reimbursement for sales tax paid on manufacturing equip-
ment for the claim period “[b]eginning 12/01, 2006 and
[e]nding 02/28, 2009.” The claim set forth an overpayment of
$1,602,182.34 in state and local sales and use taxes. Of that
amount, $1,570,294.22 was based on sales and use taxes paid
by ICM and $31,888.12 represented the sales and use taxes
paid by Bridgeport.
In March 2011, the Nebraska Department of Revenue and
Douglas Ewald in his capacity as the State Tax Commissioner
(collectively the Department) partially approved Bridgeport’s
refund claim. The Department approved an overpayment of
$6,324.84 of sales tax for Bridgeport’s direct purchases of
software and equipment used in the manufacturing process.
But the Department disapproved $1,570,294.22 of the claim,
representing sales and use taxes paid by ICM on building
materials and equipment. The Department noted that ICM, not
Bridgeport, was the purchaser of the building materials and
that under § 77-2708(2)(a), the erroneously collected tax could
8 See, § 77-2701.10(2) and (3); 316 Neb. Admin. Code, ch. 1, §§ 017.06 and
017.07 (2009).
9 See § 77-2701.10(3).
10 See § 77-2701.10.

BRIDGEPORT ETHANOL v. NEBRASKA DEPT. OF REV. 	295
Cite as 284 Neb. 291
be refunded only to the purchaser. And under §§ 77-2701.47
and 77-2704.22, the exemption for manufacturing machinery
and equipment is limited to purchases made directly by a man-
ufacturer. Thus, the Department concluded that the sales and
use taxes paid by ICM on building materials were not eligible
for a refund.
Bridgeport sought judicial review in the district court,
which affirmed the decision of the Department. The court
observed 	that 	there 	was 	no 	statutory 	authority 	allowing
Bridgeport to claim ICM acted as its purchasing agent. The
court agreed with the Department that Bridgeport was not the
purchaser of building materials and manufacturing machinery
and equipment purchased and annexed at the plant and was
not eligible to claim the manufacturing machinery and equip-
ment exemption.
Bridgeport 	timely 	appealed 	to 	the 	Nebraska 	Court 	of
Appeals, and we moved the case to our docket.11
ASSIGNMENTS OF ERROR
Bridgeport assigns, restated and consolidated, that the dis-
trict court erred in (1) determining that Bridgeport was not the
purchaser of the manufacturing machinery and equipment and
was not entitled to the exemption granted by § 77-2704.22, (2)
finding that the tax provision of the contract with ICM was not
effective as a purchasing agent appointment and that there must
be statutory authority before such an appointment may be used
under the sales tax statutes, and (3) finding that Bridgeport
was not entitled to an exemption on “personal property” in
the nature of manufacturing machinery and equipment or parts
purchased by ICM.
STANDARD OF REVIEW
[1] In an appeal under the Administrative Procedure Act, an
appellate court may reverse, vacate, or modify the judgment of
the district court for errors appearing on the record.12
11 See Neb. Rev. Stat. § 24-1106 (Reissue 2008).
12 Project Extra Mile v. Nebraska Liquor Control Comm., 283 Neb. 379, 810
N.W.2d 149 (2012).

296 	284 NEBRASKA REPORTS
[2] The interpretation of statutes and regulations presents
questions of law, in connection with which an appellate court
has an obligation to reach an independent conclusion irrespec-
tive of the decision made by the court below.13
ANALYSIS
[3-5] Resolution of Bridgeport’s assignments of error entails
statutory interpretation. Thus, we begin by recalling basic
principles of statutory interpretation. Statutory language is
to be given its plain and ordinary meaning, and an appellate
court will not resort to interpretation to ascertain the meaning
of statutory words which are plain, direct, and unambiguous.14
In discerning the meaning of a statute, we must determine and
give effect to the purpose and intent of the Legislature as ascer-
tained from the entire language of the statute considered in its
plain, ordinary, and popular sense.15 If the language of a statute
is clear, the words of such statute are the end of any judicial
inquiry regarding its meaning.16
Manufacturing Machinery and
Equipment Exemption.
[6] The Legislature has provided an exemption from sales
tax for the purchase of manufacturing machinery and equip-
ment.17 But the definition of manufacturing machinery and
equipment limits the exemption to such items purchased by
“a person engaged in the business of manufacturing for use
in manufacturing.”18 There does not appear to be any dispute
that Bridgeport was engaged in the business of manufacturing,
while ICM was not. But ICM, and not Bridgeport, made the
purchases of the machinery and equipment.
13 Anthony, Inc. v. City of Omaha, 283 Neb. 868, 813 N.W.2d 467 (2012).
14 American Amusements Co. v. Nebraska Dept. of Rev., 282 Neb. 908, 807
N.W.2d 492 (2011).
15 See Concrete Indus. v. Nebraska Dept. of Rev., 277 Neb. 897, 766 N.W.2d
103 (2009).
16 Alisha C. v. Jeremy C., 283 Neb. 340, 808 N.W.2d 875 (2012).
17 § 77-2704.22.
18 § 77-2701.47(1).

BRIDGEPORT ETHANOL v. NEBRASKA DEPT. OF REV. 	297
Cite as 284 Neb. 291
[7,8] We are mindful that tax exemption provisions are
strictly construed, and their operation will not be extended
by construction.19 Property which is claimed to be exempt
must clearly come within the provision granting exemption
from taxation.20
Under the plain language of the statutes, Bridgeport is not
entitled to the exemption, because it was not the purchaser
of the manufacturing machinery and equipment. Bridgeport
tries to circumvent this issue by characterizing its payment of
$67,450,000 for a design-built ethanol plant as a purchase of
manufacturing machinery and equipment entitling Bridgeport
to the exemption. But ICM purchased the component parts to
build the plant and paid the applicable sales and use taxes on
such purchases. Bridgeport cannot obtain a refund of taxes that
it never paid.21
Bridgeport 	cites 	to 	our 	opinion 	in 	Concrete 	Indus. 	v.
Nebraska Dept. of Rev.,22 but that case does not support
Bridgeport’s 	position. 	In 	Concrete 	Indus., 	a 	manufacturer
purchased parts that it used to build its own manufacturing
machinery and equipment and filed a claim for overpayment of
sales and use tax. The Department denied the manufacturer’s
claim, and the district court determined that parts purchased
by the manufacturer were not machinery or equipment within
the meaning of the statutes. This court determined that the
purchase was exempt from sales tax. We reasoned that it would
make little sense to exempt from sales and use tax machinery
that is already assembled and each part of that machinery if it
was purchased to replace an original part, but to impose a tax
on the purchase of the same parts when they are purchased to
assemble the machinery in the first place. Significantly, and
unlike the situation in the instant case, the manufacturer made
the purchase of the component parts.
19 See Concrete Indus. v. Nebraska Dept. of Rev., supra note 15.
20 Id.
21 See § 77-2708.
22 Concrete Indus. v. Nebraska Dept. of Rev., supra note 15.

298 	284 NEBRASKA REPORTS
[9] ICM’s election to be an Option 3 contractor had impor-
tant consequences under the sales and use tax statutes and regu-
lations. “Contractors may choose how they want to treat build-
ing materials for tax purposes.”23 An Option 3 contractor “must
pay use tax on all manufacturing machinery and equipment
and any related repair or replacement parts [it] purchase[s] and
annex[es] for a customer.”24 Such contractor has to pay use
tax on manufacturing machinery and equipment even if the
contractor had a purchasing agency appointment from a manu-
facturer.25 As earlier mentioned, an Option 3 contractor is taxed
as the consumer of building materials annexed to real estate
and remits tax on building materials when withdrawn from
inventory for the purpose of being annexed to real estate.26
And because property that will be attached to real estate or an
improvement to real estate constitutes building materials,27 any
manufacturing machinery and equipment annexed to real estate
are building materials. Bridgeport quotes legislative history
regarding the exemption and argues that the exemption is not
affected by the classification of a contractor. But in order for
a court to inquire into a statute’s legislative history, the statute
in question must be open to construction, and a statute is open
to construction when its terms require interpretation or may
reasonably be considered ambiguous.28 Seeing no ambiguity,
we need not resort to legislative history.
We reject Bridgeport’s argument that the Department’s regu-
lation effectively repeals the manufacturing machinery and
equipment exemption. Bridgeport contends that the regulation
requiring Option 3 contractors to pay use tax on manufactur-
ing machinery and equipment that the contractor purchases
and annexes for a customer29 had the effect of voiding the
23 316 Neb. Admin. Code, ch. 1, § 017.03 (2009).
24 316 Neb. Admin. Code, ch. 1, § 017.07F(1) (2009).
25 Id., § 017.07F(1)(a).
26 See § 77-2701.10(3).
27 § 77-2701.44.
28 Knapp v. Village of Beaver City, 273 Neb. 156, 728 N.W.2d 96 (2007).
29 See 316 Neb. Admin. Code, ch. 1, § 017.07F(1).

BRIDGEPORT ETHANOL v. NEBRASKA DEPT. OF REV. 	299
Cite as 284 Neb. 291
manufacturing machinery and equipment exemption. But, based
on the definition of manufacturing machinery and equipment,30
in order to obtain the exemption under § 77-2704.22, the
purchases of manufacturing machinery and equipment must
be made by a person engaged in manufacturing for use in
manufacturing. An Option 3 contractor who makes qualifying
purchases but is not engaged in manufacturing will not be enti-
tled to the exemption. On the other hand, manufacturers who
make the purchases are entitled to the exemption. So, too, are
manufacturers who buy qualifying manufacturing machinery
and equipment from an Option 1 contractor. This is because
an Option 1 contractor is considered a retailer and does not
collect sales tax on qualifying manufacturing machinery and
equipment sold to a manufacturer, regardless of whether the
equipment remains tangible personal property or is annexed.31
On the other hand, an Option 3 contractor is considered a
consumer of annexed materials32 but is a retailer for sales of
building materials or other property that is not annexed and
must collect sales tax on the amount charged.33 We conclude
that the district court correctly determined that Bridgeport was
not entitled to the exemption based upon purchases of building
materials, including manufacturing machinery and equipment,
made by ICM.
Purchasing Agent Appointment.
The provision in the contract concerning taxes did not con-
stitute an appointment of a purchasing agent. Bridgeport claims
that for sales tax purposes, the contractual provision had the
effect of making Bridgeport the purchaser of materials.
Nebraska statutes specifically authorize the appointment
of purchasing agents by certain entities. Such agents may
be appointed by certain nonprofit religious, service for the
blind or developmentally disabled, educational, medical, child-
caring, or child placement organizations “for the purpose of
30 § 77-2701.47(1).
31 See 316 Neb. Admin. Code, ch. 1, § 017.05F(1) (2009).
32 § 77-2701.10(1) and (3).
33 316 Neb. Admin. Code, ch. 1, § 017.07D(1) (2009).

300 	284 NEBRASKA REPORTS
altering the status of the construction contractor as the ultimate
consumer of building materials which are physically annexed
to the structure and which subsequently belong to the owner of
the organization or institution.”34 The appointment of purchas-
ing agents by the state or certain governmental units is simi-
larly authorized for the same purpose.35
But there is no statutory authority for the appointment of a
purchasing agent under the facts of this case. Our conclusion
is supported by A & D Tech. Supply Co. v. Nebraska Dept. of
Revenue.36 In that case, we stated that because the Legislature
set forth the circumstances under which an agent of a tax-
exempt organization could assume the benefit of tax-exempt
status, the Legislature intended to exclude the possibility that
an agent of a tax-exempt organization could assume the ben-
efit of tax-exempt status under other circumstances. We fur-
ther reasoned:
Were we to conclude that the existence of an agency
relationship generally allows the agent to assume the tax-
exempt status of the principal, then the statutes providing
for such an assumption of status would be an unneces-
sary redundancy. Instead, basic principles of statutory
interpretation require us to interpret §§ 77-2704.12(3)
and 77-2704.15(2) as delimiting the circumstances under
which the agent of a tax-exempt organization may assume
the tax-exempt status of the principal.37
We think similar reasoning applies here. If Bridgeport could
alter the parties’ statuses by including a provision in the con-
tract, the statutes specifically authorizing a purchasing agent
appointment in only a few circumstances would be unneces-
sary. Further, we find no authority for such an appointment
under a tax incentive program.38
34 § 77-2704.12(3).
35 § 77-2704.15(2).
36 A & D Tech. Supply Co. v. Nebraska Dept. of Revenue, 259 Neb. 24, 607
N.W.2d 857 (2000).
37 Id. at 31, 607 N.W.2d at 863-64.
38 See Neb. Rev. Stat. §§ 77-27,187.02(4) and 77-5723(5) (Cum. Supp. 2008)
and 77-4104(4) (Reissue 2009).

BRIDGEPORT ETHANOL v. NEBRASKA DEPT. OF REV. 	301
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Personal Property.
Finally, Bridgeport claims that it was error to “consider all
personal property involved in the building of the manufactur-
ing plant as real estate.”39 Bridgeport points to a statute defin-
ing tangible personal property,40 which statute is found outside
of the Nebraska Revenue Act of 1967. The Nebraska Revenue
Act of 1967, on the other hand, sets forth a different definition
of tangible personal property.41
[10] But these definitions ultimately have no effect upon
the issues in this case because there is simply no evidence that
ICM sold personal property to Bridgeport or that ICM col-
lected sales tax from Bridgeport. The burden of establishing
a tax exemption is placed upon the party claiming the exemp-
tion.42 Because ICM was the purchaser and consumer of the
property annexed to real estate, Bridgeport failed to establish
entitlement to the exemption from sales tax for purchases of
manufacturing machinery and equipment.
CONCLUSION
We conclude that under the plain language of the statutes,
Bridgeport was not entitled to the exemption from sales tax
based upon ICM’s purchases of manufacturing machinery and
equipment. Because the statutes specifically allow for the
appointment of purchasing agents in certain circumstances not
present here, we conclude that the provision in the contract
purporting to entitle Bridgeport to all tax credits for taxes paid
by ICM was not effective as a purchasing agent appointment.
Accordingly, we affirm the judgment of the district court.
affiRmed.
stephan, J., participating on briefs.
39 Brief for appellant at 19.
40 See Neb. Rev. Stat. § 77-105 (Cum. Supp. 2008).
41 § 77-2701.39.
42 See Concrete Indus. v. Nebraska Dept. of Rev., supra note 15.