Appeal from judgment of Court of Common Pleas of Dauphin County, at No. 167 Commonwealth Docket of 1964, Commonwealth Court, No. 915 C.D. 1971, in case of Commonwealth of Pennsylvania v. The Deitch Company.
Melvin Schwartz, with him Cooper, Schwartz, Diamond & Reich, for appellant.
Edward T. Baker, Deputy Attorney General, for Commonwealth, appellee.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Opinion by Mr. Justice Eagen. Mr. Chief Justice Jones dissented. Dissenting Opinion by Mr. Justice O'Brien.
The principal narrow issue for decision in this case is whether the operations of a scrap metal dealer come within the manufacturing exemption of the Capital Stock Tax Act of June 1, 1889, P. L. 420, as amended, 72 P.S. § 1871. Although the manufacturing exemption has generated a substantial amount of litigation over the years, the case is a novel one in that we have never passed on whether scrap metal dealers are within the exemption's compass.
During the calendar year in question, the Capital Stock Tax Act, supra, imposed on domestic corporations a tax at the rate of five mills upon each dollar of the actual value of its whole capital stock. The act contains a proviso that 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."*fn1
The dispute arose from the Department of Revenue's refusal to grant appellant's claimed manufacturing exemption of $5,250 in its capital stock tax return for the tax year which terminated December 31, 1959. An appropriate administrative appeal was taken to the Board of Finance and Revenue which sustained the disallowance of the exemption.*fn2 Appellant then filed an appeal on March 17, 1964, in the Court of Common Pleas of Dauphin County at No. 167 Commonwealth
Docket, 1964. The parties agreed to try the issue non-jury which was done on February 9, 1966. On October 24, 1969, appellant filed a petition to reopen testimony in the matter, alleging that it desired to present additional expert testimony to substantiate its claim for the manufacturing exemption. This request was subsequently denied by the court. After the filing of briefs and oral argument thereon, the court denied the appeal and upheld the original decision of the Board of Finance and Revenue disallowing appellant's claimed exemption.
On October 26, 1971, a timely appeal was taken to the Commonwealth Court. However, by an order of that court dated November 22, 1971, the appeal was transferred to this Court pursuant to the Appellate Court Jurisdiction Act.*fn3
The record discloses that appellant, The Deitch Company, is engaged in what might be termed the recycling of metal. Scrap or waste metal such as railroad locomotives, freight and passenger cars, automobiles, river barges, boilers and mill slag is purchased with the ultimate objective of putting the same in such a condition that the scrap can be sold to steel manufacturers.*fn4 Upon reception of the junk metal at its scrap yard in Sharpesburg, appellant separates out and discards all unwanted and unusable waste. The metallic
scrap remaining is then sorted, graded, classified and segregated into various units. At one stage of the process much of the metal is either broken, cut, pressed, sheared or baled into proper sizes through the use of such machinery as mechanical shears, hydraulic presses and acetylene torches. The trial judge found as a fact that in this business there was no addition of materials to the metal. Undeniably, the mixed, unsorted scrap as purchased has little, if any, commercial value; after handling and preparation by the taxpayer such scrap becomes an article highly useful in the production of steel.
In addition to the exemption question we are asked to decide whether the lower court abused its discretion in refusing to permit appellant to reopen the record for the purpose of introducing additional testimony.
The element of difficulty in this and other cases dealing with the Capital Stock Tax manufacturing exemption arises from the absence of any statutory definition of the term "manufacturing."*fn5
This definitional vacuum has been filled by a judicial definition of the term which has emerged from a long line of cases extending back over a hundred years' time. Our study of these cases and analysis of the challenged operation compels the conclusion that appellant's business activities ...