Request By:
Mr. Ronald W. Morgan
Division of Research and Planning
Department of Economic Development
Capital Plaza Office Tower
Frankfort, Kentucky 40601
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your agency needs a legal opinion on a matter relating to computer software production. Officials of the Kentucky Revenue Cabinet suggested that since the computer software industry is so new, state statutes and Kentucky case law do very little to address governmental implications of that industry. See KRS 103.210 et seq., for specifics relating to the financing of "industrial buildings", as defined in KRS 103.200.
Specifically, your question reads:
"The clarification of a point is essential for our agency's program to attract investment in computer software production to Kentucky.
"Is the production of computer software a manufacturing process that qualifies the production facilities for financing by industrial revenue bonds under KRS 103.200?"
For our information, you have mailed us a copy of the "Standard Industrial Classification Manual" of 1972, prepared for the Office of Management and Budget, Executive Office of the President of the United States. On page 304 of that document we find that Industry No. 7372 involves "computer programming and other software services." It is described as follows:
"Establishments primarily engaged in providing services in computer programming, systems design and analysis, and other computer 'software' .
Computer systems analysis and design Development of computer programs or systems (software) Programming services, computer Systems engineering, computer related"
Computer software has been defined in terms of its components: the program, the data base, and documentation. A program is a set of instructions to enable a computer to achieve a certain result. The computer machine must follow precisely the instructions. The data base is a physical representation of information in an organized state. The data base is thus fed into the computer, and the computer acts on it according to its instructions. Examples of data bases are: "A carefully maintained set of economic indices pertinent to the performance of various securities markets over a period of time, as embodied in computer-readable form and organized in some particular order and format; an organized collection of financial data giving various performance characteristics of a company over a long period, embodied in computer readable form; and a set of coefficients for sets of mathematical equations used to solve scientific or engineering problems." David Bender, Computer Law: Evidence & Procedure, § 2.06, page 2-112.4. "Another example of a data base is the text of all federal court cases, which may be used in a retrieval system to supplement (or even replace) legal research." Ibid., § 2.06, page 2-113. The category of documentation is a "collection of all documents explaining or describing the functioning of hardware or software. These documents are written by the persons responsible for designing and producing the hardware and software, and they not only set forth information about the functioning of their subject matter, but they also offer aid on such topics as precisely how to use it." Ibid., pages 2-113 to 2-114.
Computer hardware consists essentially of computer machines and allied equipment, such as plug-compatible peripheral devices (e.g. printers, tape drives) . Such peripheral devices include components like magnetic tape drives, magnetic disc drives, magnetic drums, and magnetic strip files; terminal devices such as printers; memory units, which are specialized storage units, and other similar types. David Bender, Computer Law: Evidence & Procedure, § 1.04, page 1-13. Other allied hardware includes data entry terminals, and data communications (e.g., computer and telephone network).
KRS 103.200(1) and (7) read:
"As used in KRS 103.200 to 103.285, 'building' or 'industrial building' means any land and building or buildings (including office space related and subordinate to any of the facilities enumerated below), any facility or other improvement thereon, and all real and personal properties, including operating equipment and machinery deemed necessary in connection therewith, whether or not now in existence, which shall be suitable for the following or any combination thereof:
"(1) Any activity, business or industry for the manufacturing, processing or assembling of any commercial product, including agricultural, mining or manufactured products, together with storage, warehousing and distribution facilities in respect thereof;
"(7) Any facilities incident to the development of industrial sites, including land costs and the costs of site improvements thereon, such as grading, streets, drainage, storm and sanitary sewers, and other facilities and structures incidental to the use of such site or sites for industrial use;"
The question here is whether or not buildings involving the manufacture of computer software, as defined above, would qualify as "industrial buildings" under KRS 103.200(1) and (7), the purchase of which may be financed with industrial revenue bonds.
ANALYSIS AND CONCLUSION
If you are asking whether or not KRS 103.200, defining "industrial buildings", may be applied to the producing or manufacturing of computer software, the answer is "yes". "Manufacture" is defined as the process or operation of making wares or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery, or by art. Jones Bros. Co. v. Underkoffler, D.C. Pa., 16 F.Supp. 729, 730; and Black's Law Dictionary, page 1117. The Court of Appeals, in Burke v. Stitzel-Weller Distillery, 284 Ky. 676, 145 S.W.2d 861 (1940) 863, stated that the word "manufacture" as used in a tax statute is not susceptible of accurate or all-embracing definition; although generally the term "manufacture" means to work, as raw or partly wrought materials, into suitable forms for use. See also Stearns Coal & Lumber Co. v. Thomas, 295 Ky. 808, 175 S.W.2d 505 (1943) 506. In Dept. of Rev., Etc. v. Allied Drum Serv., Ky., 561 S.W.2d 323 (1978) 325, 326, the Supreme Court of Kentucky defined a manufacturing process: "Material having no commercial value for its intended use before processing has appreciable commercial value for its intended use after processing by the machinery. " Thus the machinery used in bottling whiskey is machinery used in manufacturing. Burke v. Stitzel-Weller Distillery, 284 Ky. 676, 145 S.W.2d 861 (1940). The court said that a process which involves a material having commercial value for its intended use, that merely upgrades the material so as to increase the value obviously would not be manufacturing.
It is our opinion that the manufacturing of computer software in such buildings would qualify, for purposes of industrial revenue bond financing, under KRS 103.200(1) and (7) as a business or industry for the manufacturing, processing or assembling of a particular commercial product, namely, computer software. The Supreme Court of Kentucky, in Schroader v. Atkins, Ky., 657 S.W.2d 945 (1983) 947, wrote this about statutory definitions:
". . . . When the General Assembly specifically provides that a word used in a statute shall have a particular meaning, the courts must accept that statutory definition in construing the statute even though the statutory definition is quite different from the ordinary meaning of the word."
Thus the courts accept at literal value the explicit definitions of words or concepts.
Further, when words in a statute are clear and unambiguous and express legislative intent, as is the case of KRS 103.200, there is no room for construction; and the statute must be accepted as it is written. See Griffin v. City of Bowling Green, Ky., 458 S.W.2d 456 (1970); and Manning v. Kentucky Bd. of Denistry, Ky.App., 657 S.W.2d 584 (1983) 587.
Finally, note the broadness of KRS 103.200(1), as it relates to the manufacturing, processing or assembling of any commercial product. We assume factually that such computer software industry would be involved in the manufacture, or processing, or assembling, or a combination thereof.