Appeals from the Order of the Board of Finance and Revenue in the case of In Re: The Kimberton Company, Docket No. R-8678, dated April 30, 1985.
Joseph C. Bright, Jr., Drinker, Biddle & Reath, for petitioner.
Bartholomew J. DeLuca, Jr., Deputy Attorney General, with him, LeRoy S. Zimmerman, Attorney General, for respondent.
President Judge Crumlish, Jr., and Judges Craig, MacPhail, Doyle, Barry, Colins and Palladino. Opinion by Judge Doyle. Judge Colins dissents.
[ 103 Pa. Commw. Page 409]
The Kimberton Company (Kimberton) appeals from two orders of the Board of Finance and Revenue (Board) which determined that Kimberton was not entitled to claim the "manufacturing exemption" from the Capital Stock Tax appearing in Section 602(a) of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, as amended, 72 P.S. § 7602(a) (Code).*fn1
[ 103 Pa. Commw. Page 410]
We adopt the parties' stipulations. Kimberton is engaged in the business of producing and selling custom embroidery on sports shirts and similar items of sportswear, primarily topwear. Generally, Kimberton does not sell unembroidered garments except on occasion when a regular pro-shop customer will request unembroidered garments to fill out its order with the same quality garments as the embroidered ones it has purchased. Kimberton does not manufacture unembroidered topwear. Instead, its business involves receiving customer orders for insignia designs which are usually provided by the customers. These designs are then sent to Kimberton's art department which produces an art card. This card, subsequent to customer approval, is sent to an outside producer of Jacquard pattern tapes. These tapes consist of a series of instructions to an automatic sewing machine coded in the form of punched holes on a stiff cardboard tape approximately four inches in width. Each row of these punched holes dictates the exact position of the material beneath each sewing head which is needed to produce a single stitch. The average insignia requires three thousand stitches.
Kimberton currently has twenty-nine embroidery machines which sew on the insignias, each machine consisting of a tape reading and control mechanism, a series of sewing heads, (most of the machines have twelve heads) and a "panagraph" for each head. A panagraph is a rigid metal frame which holds beneath the sewing head a round hoop to which a garment is attached.
[ 103 Pa. Commw. Page 411]
The panagraph moves in response to the Jacquard pattern tape's instructions. A needle in each sewing machine head, in coordination with a bobbin, supplies thread to embroider the pattern. Mechanical repairs to the machines and threading of the machines are performed by Kimberton employees.
Subsequent to the completion of the embroidering procedure the garments are removed, "jump stitches are cut,"*fn2 and the garments are inspected, ironed, folded and pinned before being boxed and shipped to customers most of whom consist of golf and tennis club professional shops. Kimberton's insignias are embroidered directly onto the garment itself and once embroidered cannot, as a practical matter, be removed without cutting or marking the garment. Additionally it is physically impossible to sell an embroidered insignia unless it is placed on something. Kimberton's embroidered garments sell for more than the same garments unembroidered because of the high quality of Kimberton's work and because of the special attraction the insignia has for a particular retail customer.
Kimberton argued before the Board and continues to maintain before this Court that the above described activity constitutes manufacturing and hence that it is entitled to the exemption appearing in Section 602(a) of the Code. In Kirk's Milk Products v. Commonwealth, 58 Pa. Commonwealth Ct. 230, 427 A.2d 688, 690 (1981) President Judge Crumlish, considering the definition of manufacturing under Section 602(a), reiterated what our ...