Farmers Co-op v. State , 296 Neb. 347 ( 2017 )


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    www.nebraska.gov/apps-courts-epub/
    06/16/2017 09:13 AM CDT
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    FARMERS CO-OP v. STATE
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    296 Neb. 347
    Farmers Cooperative,                 a cooperative corporation
    organized under the laws of the State of
    Nebraska, appellant, v. State of
    Nebraska et al., appellees.
    Frontier Cooperative Company, a cooperative
    corporation organized under the laws of the
    State      of Nebraska, appellant, v. State                 of
    Nebraska et al., appellees.
    ___ N.W.2d ___
    Filed April 7, 2017.     Nos. S-16-312, S-16-313.
    1.	 Administrative Law: Judgments: Appeal and Error. A judgment or
    final order rendered by a district court in a judicial review pursuant to
    the Administrative Procedure Act may be reversed, vacated, or modified
    by an appellate court for errors appearing on the record.
    2.	 ____: ____: ____. When reviewing an order of a district court under
    the Administrative Procedure Act for errors appearing on the record, the
    inquiry is whether the decision conforms to the law, is supported by com-
    petent evidence, and is neither arbitrary, capricious, nor unreasonable.
    3.	 Administrative Law: Statutes: Appeal and Error. To the extent that
    the meaning and interpretation of statutes and regulations are involved,
    questions of law are presented, in connection with which an appellate
    court has an obligation to reach an independent conclusion irrespective
    of the decision made by the court below.
    4.	 Statutes: Appeal and Error. Statutory language is to be given its plain
    and ordinary meaning, and an appellate court will not resort to inter-
    pretation to ascertain the meaning of statutory words which are plain,
    direct, and unambiguous.
    5.	 Statutes: Legislature: Intent. In discerning the meaning of a statute,
    a court determines and gives effect to the purpose and intent of the
    Legislature as ascertained from the entire language of the statute consid-
    ered in its plain, ordinary, and popular sense.
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    6.	 Statutes. A statute is ambiguous when the language used cannot be
    adequately understood from the plain meaning of the statute or when
    considered in pari materia with any related statutes.
    7.	 Statutes: Legislature. When the Legislature provides a specific defini-
    tion for purposes of a section of an act, that definition is controlling.
    8.	 Taxation: Agriculture: Words and Phrases. The phrase “depreciable
    repairs or parts” in 
    Neb. Rev. Stat. § 77-2708.01
     (Cum. Supp. 2016) is
    ambiguous.
    9.	 Statutes: Legislature: Intent. An appellate court can examine an act’s
    legislative history if a statute is ambiguous or requires interpretation.
    10.	 Statutes: Intent. In construing a statute, a court looks to the statutory
    objective to be accomplished, the evils and mischiefs sought to be rem-
    edied, and the purpose to be served.
    11.	 Statutes: Taxation. Tax exemption provisions are strictly construed,
    and their operation will not be extended by construction.
    12.	 Statutes: Legislature: Intent. The fundamental objective of statutory
    interpretation is to ascertain and carry out the Legislature’s intent. An
    interpretation that is contrary to a clear legislative intent will be rejected.
    13.	 Taxation: Agriculture. Under 
    Neb. Rev. Stat. § 77-2708.01
     (Cum.
    Supp. 2016), the refund for depreciable repairs or parts is to prevent
    double taxation and to ensure that all depreciable repairs and parts are
    subject to personal property tax.
    14.	 Taxation: Agriculture: Words and Phrases. In 
    Neb. Rev. Stat. § 77-2708.01
     (Cum. Supp. 2016), the phrase “depreciable repairs or
    parts” means repairs or parts that appreciably prolong the life of the
    property, arrest its deterioration, or increase its value or usefulness, and
    are ordinarily capital expenditures for which a deduction is allowed only
    through the depreciation recovery allowance.
    15.	 Taxation: Proof. The party claiming an exemption from taxation must
    establish entitlement to the exemption. A tax exemption is analogous to
    a tax refund.
    Appeals from the District Court for Lancaster County:
    A ndrew R. Jacobsen, Judge. Affirmed.
    Thomas E. Jeffers and Andrew C. Pease, of Crosby, Guenzel,
    L.L.P., for appellants.
    Douglas J. Peterson, Attorney General, and L. Jay Bartel for
    appellees.
    Heavican, C.J., Wright, Miller-Lerman, Cassel, K elch,
    and Funke, JJ.
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    Funke, J.
    I. NATURE OF CASE
    Farmers Cooperative (Farmers) and Frontier Cooperative
    Company (Frontier) (collectively the Cooperatives) appeal
    from orders by the district court for Lancaster County affirm-
    ing the decisions of the Nebraska Department of Revenue
    (Department) and the acting Tax Commissioner of the State
    of Nebraska which denied, in part, their requested refunds of
    sales and use taxes paid on the purchase of repairs and parts
    for agricultural machinery and equipment, under 
    Neb. Rev. Stat. § 77-2708.01
     (Cum. Supp. 2016). The district court con-
    solidated the cases for oral arguments. Likewise, this court has
    consolidated the appeals for oral arguments and decision.
    The sole issue presented in each case is how the phrase
    “depreciable repairs or parts,” within § 77-2708.0l, should be
    interpreted. The district court did not err in affirming the par-
    tial denial of the Cooperatives’ requested refunds based upon
    its interpretation of § 77-2708.01. We affirm.
    II. BACKGROUND
    1. Department’s Interpretation
    of § 77-2708.01
    In 1993, the Nebraska Legislature passed 1993 Neb. Laws,
    L.B. 345, which amended § 77-2708.01 to include the refund
    of sales and use taxes for depreciable repairs or parts. The rel-
    evant version of § 77-2708.01(1) states:
    Any purchaser of depreciable repairs or parts for agricul-
    tural machinery or equipment used in commercial agricul-
    ture may apply for a refund of all of the Nebraska sales
    or use taxes and all of the local option sales or use taxes
    paid prior to October 1, 2014, on the repairs or parts.
    (Emphasis supplied.)
    In the September 2014 “Nebraska Agricultural Machinery
    and Equipment Sales Tax Exemption Information Guide”
    (Information Guide), the Department interpreted the phrase
    “depreciable repairs or parts.” The Information Guide defined
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    repairs and parts as depreciable, “if they will appreciably pro-
    long the life of the property, arrest its deterioration, or increase
    its value or usefulness, and are ordinary capital expend­itures
    for which a deduction is allowed only through the depreciation/
    cost recovery allowance.” Conversely, according to the Tax
    Commissioner, the Information Guide explained that nonde-
    preciable repair and replacement parts are those that “keep the
    property in an ordinary or usable condition, do not increase the
    value of the agricultural machinery and equipment repaired, or
    lengthen its life.”
    The Information Guide informed purchasers of depreciable
    repairs or parts that they may receive a refund of the sales and
    use taxes paid thereon by filing a “Nebraska Sales and Use
    Tax Refund Claim for Agricultural Machinery and Equipment
    Purchases or Leases, Form 7AG-1” (Form 7AG-1).
    2. Factual History
    The Cooperatives are buyers and sellers of agricultural
    products and inputs, including purchasing, selling, and storing
    grain. Both also provide on-farm services and products.
    In September 2014, the Cooperatives submitted to the
    Department several Form 7AG-1’s seeking refunds of sales and
    use taxes. Accompanying the forms were spreadsheets listing
    the transactions forming the basis of the claims and invoices
    related to those transactions. Neither of the Cooperatives sub-
    mitted its personal property tax return or depreciation schedule
    to verify it had also paid personal property taxes on the agricul-
    tural machinery and equipment repairs or parts.
    (a) Farmers’ Refund Claim
    Farmers submitted a single Form 7AG-1 for a refund of the
    sales and use taxes paid on repairs or parts for $1,582.48.
    In response, the Department sent an email to Farmers noti-
    fying it that some invoices were determined to be for repair,
    replacement, or maintenance parts. The Department stated that
    it could refund the taxes paid thereon only if Farmers had paid
    personal property taxes on the items and requested Farmers
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    submit a copy of its personal property tax return or depre-
    ciation schedule to verify that it had. In October 2014, the
    Department sent another email to Farmers, asking if Farmers
    had placed any of the claimed purchases on its personal
    property tax return. The record does not show that Farmers
    responded to either email.
    In March 2015, the Department notified Farmers that it had
    completed processing the refund claim and that it had denied
    a portion of the requested refund, because the taxes were on
    purchases of nondepreciable repairs or parts. The items dis-
    allowed by the Department included, but were not limited
    to, alternators, bolts, gaskets, sensors, and an air conditioner
    for “Terragators/Floaters” owned and operated by Farmers.
    Counsel for Farmers responded in an email contesting the deci-
    sion and arguing that the definition of depreciable repair and
    replacement parts used was incorrect.
    Nevertheless, the Tax Commissioner issued a letter deny-
    ing $365.30 of the $1,582.48 refund requested. The Tax
    Commissioner stated its reasoning for denying $365.30 was that
    sales and use taxes paid on nondepreciable repair and replace-
    ment parts are not refundable, referencing its Information
    Guide. Farmers did not request a formal hearing by the
    Department on the Tax Commissioner’s decision. Instead, it
    appealed to the district court for Lancaster County.
    (b) Frontier’s Refund Claims
    Frontier’s claim concerns three Form 7AG-1’s, one filed
    in Frontier’s name and two filed in its predecessor’s name,
    Husker Cooperative. The Form 7AG-1’s requested refunds of
    $39,907.71, $21,473.43, and $9,834.09.
    In March 2015, the Department emailed Frontier to inform
    Frontier that it had not yet completed its review of the refund
    claims and requested an extension to do so. Counsel for Frontier
    responded that it was willing to grant the extension unless
    it was “solely because [the Department] want[ed Frontier’s]
    property tax information.” Counsel for Frontier informed
    the Department that it would not provide the Department its
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    personal property tax return, because “nothing in the statutory
    exemption or relevant definitions requires proof that an item
    was separately scheduled on a property tax return as a condi-
    tion to taking the exemption.”
    The Tax Commissioner timely issued a letter denying
    $20,437.44 of the $49,333.57 refund requested in Frontier’s
    three claims. In April 2015, the Tax Commissioner sent a
    replacement letter correcting the total amount denied as
    $42,319.10 and the total refund requested as $71,215.23. The
    Tax Commissioner stated its reasoning for the partial denial
    was that sales and use taxes paid on nondepreciable repair
    and replacement parts are not refundable, referencing its
    Information Guide. The items disallowed by the Department
    included, but were not limited to, alternators, bolts, gaskets,
    sensors, and hoses for “Terragators/Floaters” owned and oper-
    ated by Frontier. Frontier did not request a formal hearing by
    the Department on the Tax Commissioner’s decision. Instead, it
    appealed to the district court for Lancaster County.
    (c) District Court’s Decisions
    In each order, the district court identified the issue as
    the definition of the phrase “depreciable repairs or parts.” It
    determined that the phrase was ambiguous, because it was
    defined neither in § 77-2708.01 nor elsewhere in Chapter 77
    of the Nebraska Revised Statutes and ordinary definitions of
    “depreciable” did not clarify the meaning. Upon examining the
    legislative history, the court determined that the Department’s
    interpretation of § 77-2708.01 in its Information Guide—which
    relied on the definition of “depreciable” in the Farmer’s Tax
    Guide1 published by the Internal Revenue Service (IRS)—was
    the correct interpretation.
    The court stated that the Cooperatives both had the bur-
    den to prove their purchases qualified as depreciable repairs
    or parts. It determined that both Cooperatives had notice of
    1
    U.S. Dept. of Treasury, Internal Revenue Service, Farmer’s Tax Guide,
    Pub. No. 225 (2016).
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    what repairs and parts were depreciable from the Information
    Guide and failed to provide sufficient evidence to verify
    that the repairs and parts were depreciated. Therefore, the
    court affirmed the Tax Commissioner’s partial denials. The
    Cooperatives each appealed.
    III. ASSIGNMENTS OF ERROR
    The Cooperatives assign, restated, that the court erred in
    affirming the Tax Commissioner’s partial denial of their claims
    and in finding that the Department’s interpretation of the phrase
    “depreciable repairs or parts” under § 77-2708.01 is correct.
    IV. STANDARD OF REVIEW
    [1,2] A judgment or final order rendered by a district court
    in a judicial review pursuant to the Administrative Procedure
    Act may be reversed, vacated, or modified by an appellate
    court for errors appearing on the record.2 When reviewing an
    order of a district court under the Administrative Procedure Act
    for errors appearing on the record, the inquiry is whether the
    decision conforms to the law, is supported by competent evi-
    dence, and is neither arbitrary, capricious, nor unreasonable.3
    [3] To the extent that the meaning and interpretation of
    statutes and regulations are involved, questions of law are
    presented, in connection with which an appellate court has an
    obligation to reach an independent conclusion irrespective of
    the decision made by the court below.4
    V. ANALYSIS
    1. Phrase “Depreciable R epairs or Parts”
    in § 77-2708.01 Is A mbiguous
    All the parties argue that the phrase “depreciable repairs
    or parts” is unambiguous. However, the phrase “depreciable
    2
    Stewart v. Nebraska Dept. of Rev., 
    294 Neb. 1010
    , 
    885 N.W.2d 723
    (2016).
    3
    
    Id.
    4
    
    Id.
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    repairs or parts” is defined in neither § 77-2708.01 nor any
    related statutes. Further, the parties provide different interpre-
    tations of the phrase.
    [4-6] Statutory language is to be given its plain and ordinary
    meaning, and an appellate court will not resort to interpreta-
    tion to ascertain the meaning of statutory words which are
    plain, direct, and unambiguous.5 In discerning the meaning of
    a statute, a court determines and gives 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.6 However, a statute is ambiguous when the
    language used cannot be adequately understood from the plain
    meaning of the statute or when considered in pari materia with
    any related statutes.7
    The Cooperatives argue that the proper interpretation of
    depreciable repairs and parts within § 77-2708.01 should be as
    set forth in 
    Neb. Rev. Stat. § 77-119
     (Reissue 2009). Section
    77-119 defines “[d]epreciable tangible personal property” as
    “tangible personal property which is used in a trade or busi-
    ness or used for the production of income and which has a
    determinable life of longer than one year.” The Cooperatives’
    contention that § 77-119’s definition of the phrase “depreciable
    tangible personal property” should apply is based upon 
    Neb. Rev. Stat. § 77-101
     (Reissue 2009), which states that “[f]or
    purposes of Chapter 77 and any statutes dealing with taxation,
    unless the context otherwise requires, the definitions found in
    sections 77-102 to 77-132 shall be used.”
    An obvious problem arises with the Cooperatives’ argu-
    ment—despite that both § 77-119 and § 77-2708.01 contain
    the word “depreciable,” the statutes use the term to describe
    5
    Id.
    6
    Archer Daniels Midland Co. v. State, 
    290 Neb. 780
    , 
    861 N.W.2d 733
    (2015).
    7
    Project Extra Mile v. Nebraska Liquor Control Comm., 
    283 Neb. 379
    , 396,
    
    810 N.W.2d 149
    , 164 (2012).
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    two different things. In § 77-119, “depreciable” is used to
    describe “tangible personal property,” while in § 77-2708.01,
    “depreciable” is used to describe “repairs or parts.” As a result,
    it is evident that the phrases “tangible personal property” and
    “repairs or parts” are different. Though parts may be tangible
    personal property, repairs, such as labor and services, are not.
    The presence of “repairs” in § 77-2708.01 makes the context
    different from mere tangible personal property.
    The Cooperatives counter that pursuant to the Nebraska tax
    regulation 316 Neb. Admin. Code, ch. 1, § 094.03 (2005), sales
    of repair and replacement parts for agricultural machinery and
    equipment used in commercial agriculture are subject to sales
    tax, but charges for labor to repair agricultural machinery and
    equipment are not subject to sales tax, provided the charges are
    separately itemized on the billing invoice. However, this argu-
    ment is unavailing, because § 77-2708.01 still applies to labor
    when it is not separately itemized. Therefore, § 77-119’s defi-
    nition of the phrase “depreciable tangible personal property” is
    not informative.
    Also relied upon by the Cooperatives is 
    Neb. Rev. Stat. § 77-2704.36
     (Cum. Supp. 2016), which states that “[s]ales
    and use tax shall not be imposed on the gross receipts from
    the sale . . . of depreciable agricultural machinery and equip-
    ment purchased . . . for use in commercial agriculture.” While
    the phrase “depreciable agricultural machinery and equipment”
    is defined in neither § 77-2704.36 nor related statutes, it has
    been defined by the Department in its own regulations. The tax
    regulation 316 Neb. Admin. Code, ch. 1, § 094.01C (2005),
    defines “depreciable agricultural machinery and equipment”
    as “agricultural machinery and equipment that has a determin-
    able life of longer than one year.” As a result, the Cooperatives
    contend that the phrase “depreciable repairs or parts” used in
    § 77-2708.01 should be interpreted consistently with the phrase
    “depreciable agricultural machinery and equipment” used in
    § 77-2704.36, and thus comprise all repairs and parts with a
    determinable life of longer than 1 year.
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    Again, we disagree with the argument that “depreciable”
    must be defined consistently throughout our statutes when
    it is used in differing contexts. Pursuant to the Nebraska tax
    regulation 316 Neb. Admin. Code, ch. 1, § 094.02 (2005),
    depreciable agricultural machinery and equipment are exempt
    from sales and use taxes. However, pursuant to § 094.03 and
    316 Neb. Admin. Code, ch. 1, § 094.03A (2005), depreciable
    repairs and replacement parts are taxable, but are eligible for
    a refund. The Legislature’s decision to treat “depreciable agri-
    cultural machinery and equipment” and “depreciable repairs
    or parts” differently for sales and use tax purposes, providing
    an exemption for the former and a refund for the latter, further
    shows there is a difference.
    The Department argues that the definition of the phrase
    “depreciable repairs or parts” included in its Information
    Guide is supported by both the dictionary definitions of depre-
    ciable, depreciation, and depreciate and the IRS’ definition of
    depreciable in its Farmer’s Tax Guide.
    [7] When the Legislature provides a specific definition
    for purposes of a section of an act, that definition is control-
    ling.8 However, in the case before us, we have found no clear
    definition of the phrase “depreciable repairs or parts” in our
    statutes, and therefore we look to whether the ordinary mean-
    ing of “depreciable” may provide the plain meaning of the
    phrase. One dictionary definition of “depreciable” is “capable
    of depreciating or being depreciated in value [or] capable
    of being depreciated for tax purposes.”9 Merriam-Webster’s
    definition of “depreciate” is “to lower the price or estimated
    value of [or] to deduct from taxable income a portion of
    the original cost of (a business asset) over several years as
    8
    Trumble v. Sarpy County Board, 
    283 Neb. 486
    , 
    810 N.W.2d 732
     (2012).
    9
    “Depreciable,” Dictionary.com Unabridged, http://www.dictionary.com/
    browse/depreciable (last visited Mar. 31, 2017).
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    the value of the asset decreases.”10 Finally, the Black’s Law
    Dictionary definition of “depreciation” is “[a] reduction in the
    value or price of something . . . a decline in an asset’s value
    because of use, wear, obsolesence, or age.”11
    These definitions show that neither parties’ interpretation of
    the phrase “depreciable repairs or parts” is supported by the
    ordinary meaning of depreciable or its variations. We agree
    with the Department’s argument that many items with a deter-
    minable life of greater than 1 year, such as a bolt or gasket,
    cannot properly be placed on a depreciation schedule. However,
    the definitions also lend no support to the Department’s inter-
    pretation that it is the repair or parts enhancement of another
    object that makes it depreciable. Further, many repairs or parts
    that do not enhance the value of another object are capable of
    being depreciated.
    The Department also argues that the IRS’ Farmer’s Tax
    Guide supports its definition of depreciable repairs and parts.
    The Farmer’s Tax Guide states that taxpayers can generally
    “deduct most expenses for the repair and maintenance of
    . . . farm property. . . . However, repairs to, or overhauls of,
    depreciable property that substantially prolong the life of the
    property, increase its value, or adapt it to a different use are
    capital expenses.”12 It defines a “capital expense” as “a pay-
    ment, or a debt incurred, for the acquisition, improvement, or
    restoration of an asset that is expected to last more than one
    year.”13 As an example of a capital expense, it lists “[r]epairs
    10
    “Depreciate,” Merriam-Webster.com, https://www.merriam-webster.com/
    dictionary/depreciate (last visited Mar. 31, 2017). Accord “Depreciate,”
    Dictionary.com Unabridged, http://www.dictionary.com/ browse/depreciate
    (last visited Mar. 31, 2017). See, also, “Depreciate,” Oxford English
    Dictionary Online, http://www.oed.com/view/Entry/50419 (last visited
    Mar. 31, 2017).
    11
    Black’s Law Dictionary 535 (10th ed. 2014).
    12
    Farmer’s Tax Guide, supra note 1 at 20.
    13
    Id. at 23.
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    to ­machinery [and] equipment . . . that prolong their useful
    life, increase their value, or adapt them to different use.”14
    [8] While the Farmer’s Tax Guide shows that the IRS
    treats depreciable repairs or parts as capital expenses, which
    comports with the Department’s definition, we cannot glean
    from § 77-2708.01 that this was the meaning intended by the
    Legislature, because it did not incorporate the phrase “capi-
    tal expenses” into the statute. Therefore, we find the phrase
    “depreciable repairs or parts” ambiguous.
    2. Legislative Intent
    [9-12] An appellate court can examine an act’s legislative
    history if a statute is ambiguous or requires interpretation.15
    In construing a statute, a court looks to the statutory objec-
    tive to be accomplished, the evils and mischiefs sought to
    be remedied, and the purpose to be served.16 Tax exemption
    provisions are strictly construed, and their operation will not
    be extended by construction.17 Nevertheless, the fundamental
    objective of statutory interpretation is to ascertain and carry out
    the Legislature’s intent.18 An interpretation that is contrary to a
    clear legislative intent will be rejected.19
    All the parties agree that the intent of § 77-2708.01 was to
    avoid double taxation. More specifically, the legislation sought
    to provide a sales tax refund to purchasers of certain repairs
    and parts for agricultural machinery and equipment which were
    subject to personal property tax.
    The Department argues that the Legislature, by referencing
    the IRS standard, stated that it intended the phrase “depreciable
    14
    Id. at 24.
    15
    Dean v. State, 
    288 Neb. 530
    , 
    849 N.W.2d 138
     (2014).
    16
    State v. Duncan, 
    294 Neb. 162
    , 
    882 N.W.2d 650
     (2016).
    17
    Bridgeport Ethanol v. Nebraska Dept. of Rev., 
    284 Neb. 291
    , 
    818 N.W.2d 600
     (2012).
    18
    Dean, supra note 15.
    19
    Id.
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    repairs or parts” to be defined as it is in the Information Guide.
    Finally, the Department agrees applicants are not statutorily
    required to submit their personal property tax returns, but
    acknowledges that taxpayers have the burden to show that they
    are entitled to a refund.
    The 1993 amendment to § 77-2708.01 which included the
    refund for depreciable repairs or parts was added to L.B. 345
    as amendment 2590, referred to as the “Wickersham amend-
    ment.” Senator W. Owen Elmer introduced the “Wickersham
    amendment,” which contained the same language as an amend-
    ment Senator William Wickersham had added to another bill
    earlier that session. Senator Elmer explained the purpose of the
    Wickersham amendment as follows:
    Anytime that you purchase a piece of farm machinery,
    you . . . put it on the depreciation schedule . . . and now
    you don’t have to pay the sales tax but you do have to
    pay the personal property tax on the piece of machinery.
    Now, you have a piece of equipment that needs repair. If
    it is major in nature, those repairs have to be put on the
    personal property tax depreciation schedule and you also
    have to pay sales tax on that. Double taxation like that is
    not very fair . . . .20
    Senator Elmer then relinquished his opening time to Senator
    Wickersham to explain further. Senator Wickersham stated:
    [C]urrently repair parts on farm machinery and equipment
    can be subject to double taxation. They can have both a
    sales tax and personal property tax applied to them that
    is unlike the treatment of the primary piece of equip-
    ment that might be repaired if it’s depreciable. And I
    want to emphasize, we are only talking about depreciable
    repair parts.21
    Senator George Coordsen provided further explanation of
    what the Wickersham amendment would apply to:
    20
    Floor Debate, L.B. 345, 93d Leg., 1st Sess. 7317-18 (June 3, 1993).
    21
    Id. at 7318.
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    Bear in mind, this is not all major farm equipment. It
    relies totally upon the definition in [IRS] statutes as it
    applies to that individual piece of equipment within the
    individual farming operation. So not all what we might
    interpret as being major repairs do, in fact, enhance the
    value of that piece of equipment substantially. Therefore,
    they would never be required by the person preparing the
    . . . income tax form to be depreciated but rather would
    be taken as an ordinary expense in the year of purchase.
    Again, to reiterate what Senator Wickersham is trying
    to accomplish is a situation where the parts in a major
    repair are liable for the sales tax, where the parts and
    the labor involved are then required to be depreciated
    for a period of time that is reckoned to be the life of that
    repair . . . .22
    Senator Coordsen also discussed the reason that the issue
    of double taxation on depreciable repairs or parts occurs. He
    said, “I was not aware that the federal government mandated
    the depreciation of repairs that appreciably enhanced the value
    of a piece of equipment . . . on the farmer’s federal income tax
    [return,] which then force[s] it to show up on [the farmer’s]
    report for personal property tax purpose[s].”23
    In response to a question about whether a tractor blade
    would qualify as a depreciable part, Senator Ron Withem
    explained:
    [T]he triggering mechanism is whether the repair part or
    the repair becomes part of a product that is, in fact, depre-
    ciated, and whether or not the tractor or the blade on the
    tractor would be depreciable property on which the owner
    of it would pay property tax on its depreciated value. That
    case then they’d get the rebate back. If it was not depreci-
    ated, then they wouldn’t get the rebate back.24
    22
    Id. at 7327-28.
    23
    Id. at 7322-23.
    24
    Id. at 7335.
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    Senator Coordsen then provided further insight on the ques-
    tion, stating:
    One, it has to be depreciable in a trade or business, and,
    two, and, number two, and more importantly, that repair
    and the labor associated with it, must appreciably, and I
    don’t know what the measure is, it takes an [IRS] audit
    to determine that, appreciably enhance the value of that
    piece of equipment that it must be depreciated. For all
    practical purposes, 90 or more percent, and I suspect it
    is more than that, of all farm equipment repaired would
    remain subject to the sales tax under the Wickersham
    amendment. It is a very narrow double taxation when
    viewed from what I believe to be the intent of all of our
    personal property tax . . . .25
    To solve the double taxation problem, the Legislature chose
    to employ a refund system, rather than the exemption system
    currently in effect for depreciable agricultural machinery and
    equipment, so that a paper trail would exist to prove the per-
    sonal property taxes were actually being paid, before the sales
    and use tax was refunded. Senator Wickersham explained:
    “[T]he amendment that you have before you calls for a rebate
    only on depreciable repair parts because that makes that sys-
    tem accountable and, in fact, it is my belief that that is the
    only way to make that accountable, and certainly wish it to be
    accountable.”26 However, the Legislature recognized that its
    decision to use a refund system would result in some individ­
    uals continuing to be subjected to double taxation. This deci-
    sion was evidenced by Senator Wickersham’s statement that
    “[w]e’d have folks, I suppose, who might . . . might not be
    able to take advantage or would not take advantage of a rebate
    provision simply because of the passage of time and maybe the
    loss of records.”27
    25
    Id. at 7336.
    26
    Id. at 7321.
    27
    Id. at 7326.
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    The Cooperatives argue that their interpretation of
    § 77-2708.01 accomplishes the legislative intent of preventing
    double taxation by requiring sale taxes to be paid on repairs
    and parts with a determinable life of less than 1 year and
    requiring property taxes to be paid on repairs and parts with a
    determinable life greater than 1 year. The Cooperatives further
    argue that because the Department’s regulations treat depre-
    ciable repairs or parts as depreciable tangible personal property
    to make it subject to personal property taxes, under its regula-
    tory interpretation of 
    Neb. Rev. Stat. § 77-202
    (3) (Cum. Supp.
    2016), we must apply the definition of depreciable in § 77-119
    to repairs or parts to prevent double taxation.
    The Cooperatives are correct that § 77-202(3) requires the
    payment of property taxes on tangible personal property which
    is not depreciable tangible personal property as defined in
    § 77-119. Further, pursuant to 316 Neb. Admin. Code, ch. 1,
    § 094.05 (2005), personal property tax must be paid on depre-
    ciable repair parts, even if sales tax is paid on the item. Lastly,
    pursuant to § 094.03, repairs and replacement parts for agricul-
    tural machinery and equipment are subject to sales tax.
    However, the Department’s definition of depreciable repairs
    and parts does not create inconsistency between the meaning
    of “depreciable” for sales and use taxes and for personal prop-
    erty taxes, because 350 Neb. Admin. Code, ch. 20, § 001.02C
    (2009), makes only repairs or parts that qualify as capital
    expenses subject to personal property taxes. Further, as set
    forth in the tax regulation § 094.03A, “[t]he [sales] tax paid on
    purchases of depreciable repair and replacement parts is eli-
    gible for a refund, including the [sales] tax paid on the related
    repair or maintenance labor charges.” Therefore, double taxa-
    tion is avoided by providing documentation that repairs and
    parts are included on personal property tax returns or depre-
    ciation schedules.
    The Cooperatives also argue that § 77-2708.01, which must
    be narrowly construed, does not require personal property tax
    returns be submitted to obtain the tax refund. However, as
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    mentioned later, the claimant maintains the burden to show that
    personal property tax has been paid on depreciable repairs and
    parts before the claimant is entitled to a sales tax refund.
    [13] The legislative history set forth above shows that the
    intent of creating the refund for depreciable repairs or parts, in
    § 77-2708.01, was to prevent double taxation but also to ensure
    that all depreciable repairs and parts were subject to personal
    property tax. It also establishes that the Legislature intended
    the phrase “depreciable repairs or parts” to be defined under
    the guidance of the IRS.
    [14] The Legislature’s example that a refund pursuant to
    § 77-2708.01 would apply to a tractor blade attached to a
    tractor provides further confirmation that the Department’s
    interpretation is correct by fully detailing the definitions of
    “depreciable” and “nondepreciable” repairs and parts included
    in the Information Guide. Therefore, we interpret the phrase
    “depreciable repairs or parts” as repairs or parts that appre-
    ciably prolong the life of the property, arrest its deterioration,
    or increase its value or usefulness, and are ordinarily capital
    expenditures for which a deduction is allowed only through the
    depreciation recovery allowance.
    3. The Cooperatives Failed to Establish They
    Were Entitled to R efund of Taxes
    Denied by Tax Commissioner
    [15] The party claiming an exemption from taxation must
    establish entitlement to the exemption.28 A tax exemption is
    analogous to a tax refund.29 The Department’s Information
    Guide provided the correct definition of the phrase “deprecia-
    ble repairs or parts,” which informed the public of what items
    qualified for the tax refund. Accordingly, the Cooperatives had
    notice of items of which they were entitled to a refund.
    28
    Bridgeport Ethanol, supra note 17.
    29
    See Goodyear Tire & Rubber Co. v. State, 
    275 Neb. 594
    , 
    748 N.W.2d 42
    (2008).
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    Neither party provided the Department with the informa-
    tion it needed to verify that the claimed repairs and parts were
    taxed as personal property. The Department provided Farmers
    with notice that it needed to submit its personal property tax
    return or depreciation schedule before it could receive a refund
    of certain taxes it requested, but Farmers never submitted such
    documents. Frontier preemptively notified the Department that
    it would not provide its personal property tax return or depre-
    ciation schedule unless it was being audited. Neither of the
    Cooperatives requested a formal hearing from the Department
    to review the Tax Commissioner’s decision, so no additional
    evidence was developed on the record regarding the denied
    claims. Further, the Cooperatives did not submit any additional
    evidence to the district court on its appeal.
    Accordingly, the court concluded that it could not determine
    whether the items submitted for a refund were taxed as per-
    sonal property and qualified for a refund based on the invoices
    alone. The court’s decisions conformed to the law, were sup-
    ported by competent evidence, and were neither arbitrary,
    capricious, nor unreasonable. Accordingly, we find no errors on
    the record in either case.
    VI. CONCLUSION
    For the reasons discussed above, we affirm both decisions of
    the district court.
    A ffirmed.
    Stacy, J., not participating.