Appeal to the Court of Common Pleas of Dauphin County from the decision of the Board of Finance and Revenue. Appeal transferred September 1, 1970, to the Commonwealth Court of Pennsylvania.
Thomas L. Wenger, with him Rhodes, Sinon and Reader, for appellant.
Edward T. Baker, Deputy Attorney General, with him Fred Speaker, Attorney General, for appellee.
President Judge Bowman, and Judges Kramer, Wilkinson, Jr., Manderino, and Mencer. Opinion by President Judge Bowman.
In this tax appeal the Babcock Lumber Company contests a decision of the Board of Finance and Revenue which sustained a resettlement by the Department of Revenue of Babcock's capital stock tax for the calendar year 1966.
All of the facts have been stipulated of record. We adopt them as our findings of fact and shall discuss those facts which, in our judgment, are essential to the disposition of this appeal.
The narrow issue presented is whether a particular business activity of Babcock qualifies for the manufacturing or processing exemption within the meaning of the Act of June 1, 1889, P.L. 420, as amended, 72 P.S. 1871, known as the Capital Stock Tax Act.
Babcock is a domestic corporation which has as one of its corporate purposes the manufacture, purchase and sale of wood, lumber and other forest products and articles and structures made in whole or in part therefrom.
For the calendar year 1966, Babcock's total gross receipts were $6,400,818. Of this amount, $4,624,398 represents receipts from items purchased by Babcock for resale and resold during the year in question. The remainder of gross receipts ($1,776,420) represents those derived from the sale of lumber purchased from others as green lumber and kiln dried by Babcock. Of this remainder sum of gross receipts, $941,503 represents sales of lumber which Babcock simply kiln dried; $393,621 represents sales of kiln dried lumber which was also subjected to a "presurfacing process";*fn1 and
$441,296 represents sales of kiln dried lumber made into finished millwork items by Babcock.
In making resettlement of Babcock's capital stock tax for the year in question, the taxing authorities recognized as qualifying for the manufacturing exemption Babcock's gross receipts from the sale of finished millwork items ($441,296) and related tangible property. Babcock asserts, however, that its total gross receipts from the sale of kiln dried lumber ($1,776,420) and related tangible property also qualify for the manufacturing exemption; or alternately, that its gross receipts from the sale of kiln dried lumber subjected to presurfacing qualifies for the processing exemption ($392,621).
The Capital Stock Tax Act, supra, imposes upon a domestic corporation a tax at the rate of five mills upon the actual value of its whole capital stock but further provides that after the year 1957 the tax shall not apply to the capital stock of corporations ". . . organized for manufacturing, processing, research or development purposes, which is invested in and actually and exclusively employed in carrying on manufacturing, processing, research or development within the State . . . but every corporation . . . shall pay the State tax . . . upon such proportion of its capital stock, if any, as may be invested in any property or business not strictly incident or appurtenant to the manufacturing, processing, research or development business . . . it being the object of this proviso to relieve from State taxation only so much of the capital stock as is invested purely in the manufacturing, processing, research or development plant and business."
The act does not define "manufacturing", which omission has generated ...