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decided: February 11, 1971.


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.


Arthur Berman, with him Berman and Boswell, for appellant.

Edward T. Baker, Deputy Attorney General, with him Fred Speaker, Attorney General, for appellee.

President Judge Bowman, and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Manderino, Mencer, and Barbieri (who has since been appointed to the Supreme Court of Pennsylvania and did not participate in the decision). Opinion by Judge Mencer. Dissenting Opinion by Judge Crumlish, Jr. Judge Manderino joins in the dissent.

Author: Mencer

[ 1 Pa. Commw. Page 232]

This tax appeal presents the Court with yet another factual situation to be evaluated in order to determine what is "manufacturing" within the meaning of the Tax Act of 1963 for Education*fn1 which exempts manufacturing activities from taxation. The two issues raised in this appeal are whether the use of cameras and films in connection with the making of custom-made portraits is included in the phrase "manufacture of personal property" as defined in the Act, and, if so, whether the manufacturing exclusion applies where the production of the portrait is actually done outside Pennsylvania.

The parties have stipulated of record certain facts which we adopt and which may be summarized as follows:

Olan Mills, Inc. of Ohio, appellant, a Tennessee corporation, is engaged in making and selling portraits in 21 states. It solicits business by telephone and personal contacts made by traveling sales personnel. Appellant has one permanent studio in Harrisburg, Pennsylvania, but in all other locations in Pennsylvania the customers go to hotels and other similar places for picture sittings. Business is solicited on the representation that appellant's photographs are custom-made. Following the taking of pictures in Pennsylvania with a special portrait camera and unexposed film, the then exposed film is sent by mail to appellant's plant in Springfield, Ohio. The film is placed in a chemical developing

[ 1 Pa. Commw. Page 233]

    solution, resulting in the formation of negatives. Light is then transmitted through each negative onto sensitized sheets of paper, resulting in what are commonly known as proofs. The proofs are then sent to appellant's sales personnel whereupon the customer selects the desired proof which in turn is then returned to appellant's Ohio plant and matched with the negative from which the proof was made. Light is again transmitted through the negative and the image is transmitted onto a sensitized sheet of paper which is then immersed in a developing solution, resulting in a permanent print which is then washed and dried. Appellant employs 75 to 85 artists to retouch the negatives and prints and utilizes a permanent finishing technique of placing oil and water colors on the individual portraits followed by baking them in an oven. After the portrait is custom-made, it is sent to the sales representative who completes the sale by delivering it to the customer at which time final payment is made.

Here the alleged deficiency in use tax, for the period from November 1, 1965, to October 1, 1966, amounts to $871.58 which is assessed in the amount of $49.22 on camera equipment and $822.36 on film purchased and used in Pennsylvania.

The Act, by Section 201(b), 72 P.S. § 3403-201, imposes a tax "upon the use . . . of tangible personal property purchased at retail," the tax to be paid to the Commonwealth by the persons who make such use. The Act, in defining "use" of tangible personal property, specifically excludes the "use . . . of tangible personal property including . . . equipment . . . and supplies . . . in any of the operations of -- (i) The manufacture of personal property . . ." Section 2(n)(4)(c)(i), 72 P.S. § 3403-2. The first question then is whether appellant's cameras and films are employed in the "manufacture of personal property" as that phrase is defined in the Act.

[ 1 Pa. Commw. Page 234]

Section 2(c), 72 P.S. § 3403-2(c), defines "manufacture" as: "The performance of manufacturing, fabricating, compounding, processing or other operations, engaged in as a business, which place any personal property in a form, composition or character different from that in which it is acquired whether for sale or use by the manufacturer, and shall include, but not be limited to -- (1) Every operation commencing with the first production stage and ending with the completion of ...

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