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decided: January 24, 1979.


No. 35 March Term, 1978, Appeal from the Order of the Commonwealth Court of Pennsylvania at No. 1245 C.D. 1976, Reversing the Final Decree of the Court of Common Pleas of Allegheny County, Pennsylvania, Civil Division, at No. 456 January Term, 1970, In Equity, And Remanding To That Court For Further Proceedings.


Frank L. Seamans, Dale E. Williams, Samantha Francis Flynn, Dennis J. Lewis, Eckert, Seamans, Cherin & Mellott, Pittsburgh, for appellants.

Mead J. Mulvihill, Jr., City Sol., Grace S. Harris, Exec. Asst. City Sol., Pittsburgh, for appellees.

Eagen, C. J., and O'Brien, Roberts, Pomeroy, Nix, Manderino and Larsen, JJ. Manderino, J., filed a dissenting opinion. Larsen, J., filed a dissenting opinion in which Manderino, J., joined. Mr. Justice O'Brien and Former Justice Pomeroy did not participate in the decision of this case.

Author: Roberts

[ 483 Pa. Page 527]


The Local Tax Enabling Act authorizes the City of Pittsburgh to "levy, assess and collect" taxes upon "persons, transactions, occupations, privileges, subjects and personal property,"*fn1 but denies the City the authority to tax "manufacturing."*fn2 Pursuant to the Act, the City imposes a "Business Privilege Tax." Appellants, radio and television broadcasters, brought an action in equity, alleging they are "manufacturers" not subject to the City's tax.*fn3 Appellants sought to enjoin the City from collecting its Business Privilege Tax upon their revenues. The chancellor concluded that appellants are "manufacturers" and enjoined collection of the tax. On the City's appeal, the Commonwealth Court reversed. We granted allowance of appeal and now affirm.*fn4


Throughout these proceedings, appellants have maintained that they "derive their revenues from those who seek to convey commercial messages to the public in the same

[ 483 Pa. Page 528]

    fashion that the newspapers derived their advertising receipts from those who buy space in their newspapers."*fn5 Our task is to determine whether the activity which produces appellants' revenues is "manufacturing" for purposes of the Local Tax Enabling Act. The Legislature provides no definition of "manufacturing" for purposes of the Act, and this Court has not yet considered the term as used in the Act. But "[t]his 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." Commonwealth v. Deitch Co., 449 Pa. 88, 92, 295 A.2d 834, 837 (1972) (discussing "Capital Stock Tax" Act*fn6). Deitch summarizes the "judicial definition" that has "emerged" from our "long line of cases:"

[ 483 Pa. Page 529]

"'The meaning of "manufacturing" has been restated by this Court in Philadelphia School District v. Parent Metal Page 529} Products, Inc., 402 Pa. 361, 364, 167 A.2d 257, 258-59 (1961): "'Manufacturing' as used in a legislative enactment is given its ordinary and general meaning.*fn7 It consists in the application of labor or skill to material whereby the original article is changed into a new, different and useful article: Commonwealth v. Weiland Packing Company, 292 Pa. 447, 449, 141 A. 148 (1928); Pittsburgh v. Electric Welding Company, 394 Pa. 60, 145 A.2d 528 (1958). Whether or not an article is a manufactured product depends upon whether or not it has gone through a substantial transformation in form, qualities and adaptability in use from the original material, so that a new article or creation has emerged: General Foods Corp. v. Pittsburgh, 383 Pa. 244, 118 A.2d 572 (1955). If there is merely a superficial change in the original materials, without any substantial and well signalized transformation in form, qualities and adaptability in use, it is not a new article or new production: Commonwealth v. Weiland, supra; Pittsburgh Electric Welding Co., supra."'"

Commonwealth v. Deitch Co., 449 Pa. at 93-94, 295 A.2d at 837, quoting Commonwealth v. Berlo Vending Co., 415 Pa. 101, 104, 202 A.2d 94, 96 (1964).

[ 483 Pa. Page 530]

Pittsburgh, 383 Pa. 244, 118 A.2d 572 (1955), this Court concluded that "decaffeinated and instant coffee, tapioca, and certain canned products" were not manufactured. "None of those articles is a manufactured product, not having gone through a substantial transformation in form, qualities, and adaptability in use so that a new article or creation has emerged." Id., 383 Pa. at 251-52, 118 A.2d at 576.*fn8


Realistically viewed, appellants are not "manufacturers" in the common and approved usage of that term. Advertisers produce and record, either in transcript or on film, virtually all of the commercial messages appellants broadcast.*fn9 Appellants' announcers read transcribed materials

[ 483 Pa. Page 532]

    into electronic microphones and appellants' technicians project light through filmed materials and onto a surface from which an electrical signal can be extracted.*fn10 Appellants then amplify and radiate the resulting electronic signals on appellants' exclusive, governmentally assigned wavelengths. Like the popcorn company which converts popcorn kernels into popcorn and markets the converted product, the firm which distills water, and the company which markets its decaffeinated and instant coffees, appellants effect "merely a superficial change in the original materials." See also Assessors of Springfield v. Commissioners of Corporations and Taxations, 321 Mass. 186, 72 N.E.2d 528 (1947) (conversion of human sound into electrical impulses for use in telephone system not manufacturing). Any changes appellants effectuate are geared to appellants' own transmitting equipment, and do not produce "a new, different and useful article." Deitch, supra. As President Judge Bowman correctly summarized,

"the essential function of broadcasting is the transmission rather than the manufacture of visual and sound information. While broadcasting certainly makes that information more useful and useable, there are many processing functions that do likewise but do not result in the manufacture of a product."

Golden Triangle Broadcasting, Inc. v. City of Pittsburgh, 31 Pa. Commw. 547, 563, 377 A.2d 839, 847 (1977) (footnote

[ 483 Pa. Page 533]

    omitted). See Commonwealth ex rel. Luckett v. WLEXTV, Inc., 438 S.W.2d 520 (Ky.1968).*fn11

It is true that appellants devote substantial energies to the procurement, scheduling, editing, and transmission of the many programs ultimately viewed and heard by their television and radio audiences. Indeed, a portion of these programs, including news broadcasts, are produced in appellants' stations. But to determine appellants' Business Privilege Tax liability on the basis of these activities would be to ignore economic realities. See e. g., Commonwealth v. Arrott Mills Co., 145 Pa. 69, 74, 22 A. 243, 243 (1891) ("the corporation must be measured not by what it calls itself, but what it does"). Through program selection, production, and scheduling, appellants provide advertisers access to a consumer market with predictable characteristics. Just as in Arrott, supra, where this Court concluded that a corporation generating steam power for commercial tenants of the corporation's buildings is not a "manufacturer," but rather a "landlord supplying its tenants with steam-power in order to enable it the more readily to rent its buildings and rooms," 145 Pa. at 74, 22 A. at 243, appellants' program selection and production activities serve to enhance the value of the air time they offer advertisers.*fn12

[ 483 Pa. Page 534]


We are mindful that the Tax Enabling Act withholds from the City the authority to tax "manufacturing," and doubts concerning the status of appellants' activity are to be construed in favor of appellants and against the City. See Fischer v. Pittsburgh, 383 Pa. 138, 142, 118 A.2d 157, 159 (1955) ("[a]ny doubt . . . concerning the construction of the ["Tax Anything Act" (predecessor of Tax Enabling Act)] must be resolved in favor of the taxpayer and against the city"). But in view of the common and approved usage of the term "manufacturing," see supra note 7, our many cases requiring more than a "superficial change in the original materials," and of course, the overriding presumption that "the General Assembly does not intend a result that is absurd, impossible of execution or unreasonable," 1 Pa.C.S.A. ยง 1922(1) (Supp.1978), it must be concluded, upon a proper view of the record, that appellants are not engaged in "manufacturing." The Commonwealth Court correctly reversed the chancellor's decree.*fn13

Order of the Commonwealth Court affirmed. Each party pay own costs.

MANDERINO, Justice, dissenting.

I join in the dissenting opinion of Mr. Justice Larsen. Prior to the hearing of this appeal I might not have thought

[ 483 Pa. Page 535]

    of "broadcasting" as "manufacturing" had the question been raised in general dinner conversation. In this appeal, however, we are called upon to consider the meaning of the word "manufacturing" by litigants who are entitled to have the same definition applied to them as has been applied to past litigants. Fairness requires that we apply a given definition uniformly to all those who claim the benefit of the manufacturing exemption. The Legislature has not provided a definition. If this were a case of first impression the word might be considered so vague or elusive in definition that it would be given no legal effect. As the opinions of Mr. Justice Roberts and Mr. Justice Larsen point out, however, this Court has given legal definition to the term "manufacturing." Having done so, that definition should be controlling. The facts in this case support the appellants' argument that they fall within the definition previously announced by this Court. Accordingly, the appellants are entitled to the relief which they seek.

LARSEN, Justice, dissenting.

I dissent. "Manufacturing", as noted by the majority, consists of the application of labor or skill to raw materials such that the materials undergo a "substantial transformation in form, qualities and adaptability in use . . . ." and are changed thereby into a new and different article. Commonwealth v. Deitch, 449 Pa. 88, 93, 295 A.2d 834, 837 (1972). However, the majority has misapprehended the nature of appellants' broadcasting activities and has, therefore, incorrectly concluded that appellants are not manufacturers.

The Chancellor made the following findings:

"The extensive record in this case provides ample support for the proposition that plaintiffs are engaged in manufacturing as that term has been construed by courts. In the broadcast of a TV program, optical information is changed into an electrical signal which is modified in many ways by the application of extremely complex technology.

[ 483 Pa. Page 536]

That electrical signal is eventually encoded and placed on the broadcaster's carrier and sent out to be received by a receiving set, decoded and put into such a state as to be viewed by the ultimate consumer. That which occurs in the television studio before the cameras may be viewed only by those who are in actual visual contact within the television studio, and nothing is available for the benefit of the consuming public until the highly technical process of transforming optical information into an electrical signal and back has been completed by the application of skill and labor, which results in a new, different and useful product. The same thing may be said of the radio broadcasting activities of plaintiffs. There, accoustical energy is changed to an electrical signal and made into a useful product.

What has been here said concerning the manufacturing character of the operations of plaintiffs is true whether the material is produced originally in the broadcasting studio or comes to it by network feed. . . . In each case, however, a manufacturing process occurs. Network feeds must be picked up when transmitted, monitored, taped and prepared for rebroadcast at the particular time that they are to be carried on the air. Each such network feed goes through the process of transformation which occurs when live programing occurs. No matter which form of news or entertainment or feature or sports is being broadcast, the chancellor is convinced that a manufacturing process occurs. One need only read the testimony of the witnesses to establish the highly technical nature of the transformation which must occur between the origination of the material and its consumption by the viewing or listening consumer even if his technical education is insufficient to establish a full understanding of the scientific nuances of the process." 74 D. & C.2d 156, 162, 165-66 (1976) (emphasis added).

My review of the record confirms that, no matter what the source of the broadcast (i. e., whether live studio broadcasts,

[ 483 Pa. Page 537]

    videotape, film or network feed), a substantial transformation of materials does occur. The record establishes that light or sound energy from the various sources are transformed by the use of labor, skill and complex machinery into electricity in the form of electrical signals, which are then amplified, shaped, modulated and further transformed through various processes into electromagnetic waves. These electromagnetic waves are then impressed upon, and combined with, a "carrier wave" so that they can be transmitted in a new and useful form, namely television or radio waves. A substantial metamorphosis occurs in both the form and quality of the materials used in the broadcasting operation -- indeed, the transformation must occur before the materials can be of any use to the viewer or listener. Under the Deitch definition, therefore, appellants' broadcasting activities are "manufacturing" for purposes of the Local Tax Enabling Act.

Further, a proper application of the appropriate standard of appellate review compels the conclusion that appellants are manufacturers. Since the Local Tax Enabling Act imposes a limitation on the authority of the City to tax "manufacturing", any doubts concerning the status of appellants' activity must be resolved in favor of appellants. Fischer v. Pittsburgh, 383 Pa. 138, 142, 118 A.2d 157, 159 (1955). Apparently, the majority has no doubts. In my opinion, however, the evidence produced in the case is more than sufficient to raise doubt regarding appellants' status as a manufacturer.*fn1 Fischer requires us to resolve that doubt by finding appellants' activities to be manufacturing. Therefore, the City is without authority to tax appellants' revenues.

Finally, it is important to remember that the limitation placed by the legislature on the City's authority to tax is intended to encourage the growth of manufacturing in this

[ 483 Pa. Page 538]

Commonwealth. The courts, in their development of standards for determining whether or not a particular enterprise is engaged in manufacturing, should be concerned with achieving that legislative objective. To that end, the standards must be flexible and the courts must be willing to adapt the standards to comport with rapid technological and scientific progress. As research and development in countless areas produces techniques and processes that may have been hitherto unheard of, we must not rigidly bind ourselves to outmoded concepts. That we cannot physically grasp or feel the product of the broadcaster's manufacturing process does not mean manufacturing has not taken place. As the "Star Trek" era is ushered into our lives, this Court must be prepared to keep its perspectives progressive and its definitions flexible, or else this Commonwealth will fail to acquire modern, technological manufacturing operations.

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