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A wildlife and birdseed business that thought it fell under a manufacturing exemption to a local business privilege tax will have to cough up thousands of dollars of tax money because the operation does not constitute manufacturing, a common pleas court judge has ruled. Berks County, Pa., Common Pleas Court Judge Forrest G. Schaeffer said F.M. Brown’s Sons Inc. cannot claim the exemption because the operation does not change the original products — seed and grain — into any new, different or useful article. “The raw grains and seeds remain essentially what they were before they were processed, mainly grains and seeds,” Schaeffer wrote in F.M. Brown’s Sons Inc. v. Wilson School District, PICS Case No. 00-1592 (Aug. 1, 2000) Schaeffer, J. “Brown’s final products are not, therefore, new and different items that would be put to a use other than that which had been intended for the original ingredients,” Schaeffer said. “We find that there has been no substantial transformation in form, qualities and adaptability in use so as to produce a new, different and useful article.” Brown’s, a corporation based in Sinking Spring, Pa., makes 1,500 different products in its seed division and four different kinds of feed for wild birds, caged birds, small animals and pigeons. The business operates out of two separate locations. In 1988, Brown’s got a letter saying that the part of the corporation’s operation involved in “milling” could be exempt from the mercantile tax. Brown’s stopped paying the business privilege tax on the birdseed and small-animal feed. In October 1998, the Wilson School District notified Brown’s that it was going to be audited going back to 1992. The authority estimated that Brown’s owed a balance of more than $38,000 in tax, penalties and interest. Brown’s filed a declaratory judgment action in December 1998, asserting that the revenue derived from the business is exempt from the business privilege tax because the business involved the manufacture of feed. Looking to the Local Tax Enabling Act, Wilson’s business privilege tax and pertinent case law, the court said the threshold determination was whether the preparation methods of the seeds and feeds required a high degree of skill, science and labor. After the court set forth some of the processes the grains and seeds have to undergo to ensure quality and nutrition, the court determined that the operation met the first requirement. “During the blending and mixing process, both a nutritional analysis and corresponding consistent formulation are required so that each type of feed will perform to its guaranteed specifications as provided on the package labels,” Schaeffer wrote. “In some cases, the feeds are vitamin-fortified. We find that formulation of these mixes requires the application of skill, science and labor.” The second requirement for concluding that Brown’s operations constituted manufacturing was that there was “a substantial transformation in form, qualities and adaptability in use so as to produce a new, different and useful article.” The court said that the seeds and grains making up the feeds are essentially the same as they were before they were processed. Therefore, the court ruled, the corporation’s processing of the seeds and feeds didn’t constitute manufacturing, and Brown’s could not be eligible for the manufacturing exemption. One part of the process, however, involves the “cracking” of corn, meaning the corn is chopped into small pieces, cut down further and then screened for dust. Both parties stipulated that cracking of corn constituted milling and therefore the costs of the cracked-corn component of birdseed and feed could be deducted from the corporation’s gross revenues. In its decree nisi, the court ordered Brown’s to pay back taxes pursuant to the results of the audit, in addition to taxes for 1998, 1999 and 2000.

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