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decided: March 25, 1974.


Appeal from order and judgment of Commonwealth Court, No. 349 T.D. 1970, in case of Commonwealth of Pennsylvania v. Olan Mills Inc. of Ohio.


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

Edward T. Baker, Deputy Attorney General, for Commonwealth, appellee.

Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy and Nix, JJ. Opinion by Mr. Justice Pomeroy. Mr. Justice Manderino took no part in the consideration or decision of this case. Dissenting Opinion by Mr. Justice Roberts.

Author: Pomeroy

[ 456 Pa. Page 79]

This is an appeal from an order of the Commonwealth Court dismissing appellant's appeal from the decision of the Board of Finance and Revenue refusing to strike off a use tax assessment, and entering judgment in favor of the Commonwealth and against appellant in the amount of $871.00, with interest. The appeal was heard by the Commonwealth Court on a stipulation of facts, which is accurately summarized in the majority opinion:

"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 travelling 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 solution, resulting in the formation of negatives.

[ 456 Pa. Page 80]

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 immerced [sic] 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 Tax Act of 1963 for Education*fn1 [the Act] imposes a tax "upon the use . . . within this Commonwealth of tangible personal property purchased at retail . . . which tax shall be paid to the Commonwealth by the person who makes such use."*fn2 In defining the "use" of tangible personal property, the Act specifically excludes the "use . . . of tangible personal property including . . . equipment . . . and supplies in any of the operations of -- (i) The manufacture of personal property."*fn3

[ 456 Pa. Page 81]

"Manufacture" is, in turn, defined 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. . . ."*fn4

The Commonwealth Court held (1) that the making of custom-made portraits constitutes manufacturing within the definition of the Act; (2) that the cameras and film are used in one of the operations of the manufacture of personal property; (3) that use of the cameras and film is nevertheless taxable because all of the "production stages" in the manufacture of the custom-made portraits take place outside the Commonwealth; and (4) that the tax is not unconstitutional. Commonwealth v. Olan Mills Inc. of Ohio, 1 Pa. Commonwealth Ct. 230 (1971), exceptions dismissed, 5 Pa. Commonwealth Ct. 548 (1972).

We agree with the first two holdings of the court below, but conclude on the basis of those findings, as did the dissenters in the Commonwealth Court,*fn5 that the Department of Revenue may not assess a tax on the use of the cameras and film in the manufacture of custom-made portraits. Accordingly, we reverse the judgment below without reaching the constitutional question.

In Commonwealth v. Sitkin's Junk Co., 412 Pa. 132, 194 A.2d 199 (1963), this Court, speaking through Mr. Justice (now Chief Justice) Jones, said: "In its definition of 'manufacture', the Act (Section 2(c)) emphasizes two criteria, i.e., the type of the activity and

[ 456 Pa. Page 82]

    the result of that activity. To constitute "manufacture", first, the type of the activity must fall into one or more categories, i.e., "manufacturing, fabricating, compounding, processing or other operations" and second, as a result of one or more types of the prescribed activities, the personal property must be placed 'in a form, composition or character different from that in which [such personal property]' was acquired." 412 Pa. at 138, 194 A.2d at 202.

The application of this dual test to the facts of the case at bar leads us to the conclusion that appellant's cameras and film are used in the manufacture of personal property in accordance with the Act's definition. In Sitkin's Junk Co., supra, we found the ejusdem generis rule of interpretation inapplicable to the language of this section and adopted the dictionary definition of "operation", i.e., "the action of making or producing something". The Oxford English Dictionary, Vol. VII, p. 145. Such a broad definition would certainly encompass appellant's activities in the instant case. Appellant is engaged in the business of "making or producing" custom-made portraits. An essential step in that process is the "making or producing" of a negative from which the print (which ultimately becomes the finished portrait) is made. The making of the negative in turn involves a series of chemical reactions in the coating of the film, the first of which is caused by the in-camera exposure of the film to light, the "taking" of the picture. Also, when we consider the result of appellant's activity, we readily see that personal property is placed "in a form, composition or character different from that in which it is acquired" by appellant. The sensitized paper, oil and water colors are changed into a portrait. The unexposed film, when developed, becomes the negative. In both instances, the composition and character of the property is "different from that in which it is acquired".

[ 456 Pa. Page 83]

It matters not, in our view, that the particular operation here in question, the exposure of the film, results in a change in the composition or character of property which does not itself become an integral part of the finished portrait. The Act specifically defines "manufacture" as "the performance of . . . 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." (Emphasis supplied.) The making of the negative is an operation which is an essential part of appellant's business and involves a change in the composition or character of the film for use by the manufacturer in making the portrait. The process is analogous to the making of a cast or mold in which an object is shaped. The mold is the "negative" of the product to come, and the machines and materials used to make the mold are as much a part of the manufacturing process as those used to make the product itself.

We therefore conclude, as did the Commonwealth Court, that appellant's cameras and film are used directly in one of the operations of the manufacture of personal property. It follows that where, as here, the taxpayer's activity fits within the statutory definition of "manufacture", the use of equipment and supplies in such activity is necessarily excluded from the statutory definition of "use", and the Department of Revenue is without authority to assess a tax on such use. We are unable to agree, however, with the holding of the majority below that, although use of the property in question is within the manufacturing exclusion of the statute, such use may nevertheless be taxed because other steps in the manufacturing process (the "production stages") take place outside the Commonwealth. We can find nothing in the statute to indicate that, unless a certain number or a certain type of the operations in the manufacturing process are performed within Pennsylvania,

[ 456 Pa. Page 84]

    the property used in those operations that are performed within the Commonwealth may be taxed. To the contrary, the Act provides that the "use of . . . equipment . . . and supplies . . . in any of the operations of (i) the manufacture of personal property" is nontaxable. (Emphasis supplied.) "When the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit."*fn6 Once the Commonwealth Court had correctly concluded that property of appellant was used in a manufacturing operation, the Act was clear and free from all ambiguity as to the exclusion of such use from the tax.*fn7

[ 456 Pa. Page 85]

The judgment of the court below is reversed.


Judgment reversed.

[ 456 Pa. Page 86]

Dissenting Opinion by Mr. Justice Roberts:

Anyone who ever snapped the shutter of a camera would be surprised indeed to learn that, in the majority's view, he is engaged in "manufacturing." The majority reaches its result by holding the mere exposure of film to be "manufacturing." Accordingly, the Commonwealth by today's decision is precluded from imposing tax*fn1 on the use by appellant within this state of film and specialized cameras.

I dissent and would affirm the order of the Commonwealth Court. In my view, the principles enunciated in Commonwealth v. Deitch Co., 449 Pa. 88, 295 A.2d 834 (1972), and Commonwealth v. Berlo Vending Co., 415 Pa. 101, 202 A.2d 94 (1964), control this case and compel a result contrary to that reached by the majority.

In Deitch this Court held that "the compression of old automobiles into blocks of steel," 449 Pa. at 97, 295 A.2d at 839, did not constitute manufacturing. This Court in Berlo Vending, held that the "popping" of corn was not manufacturing. Again, I do not see how the majority

[ 456 Pa. Page 87]

    can conclude that the simple act of snapping a shutter is "manufacturing."

Even were appellant's operation viewed as a whole to be considered manufacturing, appellant would nevertheless be foreclosed, by virtue of Commonwealth v. Weldon Pajamas, Inc., 432 Pa. 481, 248 A.2d 204 (1968), from claiming the manufacturing exclusion. See Commonwealth v. Olan Mills, Inc., 1 Pa. Commonwealth Ct. 230, 274 A.2d 272 (1971). Appellant's entire process of developing exposed film, making proofs and prints from negatives, retouching prints, placing oil and water colors on prints, and baking the final product in an oven takes place outside of this Commonwealth. This Court was of the view in Weldon Pajamas that, except in a single circumstance*fn2 not relevant here, "[h]istorically, the manufacturing exemption . . . has been reserved to those corporations organized for manufacturing purposes and actually engaged in manufacturing in Pennsylvania." Id. at 484, 248 A.2d at 205.

What the majority unfortunately overlooks is the legislative policy behind the exemption or exclusion of manufacturing from tax liability. The sole reason for the legislative choice to confer these tax benefits is to stimulate and encourage manufacturing in Pennsylvania. Appellant's manufacturing, as the Commonwealth Court correctly held, took place outside of Pennsylvania; the reason for the exclusion (exemption) does not exist; the tax was here properly assessed.

The majority seeks to buttress its conclusion by gnomic references to the Statutory Construction Act. For my part, the only canon of statutory construction applicable here is that which instructs the court not to

[ 456 Pa. Page 88]

    reach an absurd result. 1 Pa.S. ยง 1901 (Special Pamphlet, 1973).

Only by ignoring this canon can the absurd conclusion that the snapping of a shutter of a camera is manufacturing be reached. If, as the majority believes, the mere snapping of a camera's shutter is manufacturing, what then is not?

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