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decided: February 3, 1989.


Appeal from the Order of the Commonwealth Court of Pennsylvania dated July 10, 1987, Docket Nos. 820 C.D. 1982, 889 C.D. 1982 and 890 C.D. 1982. 106 Pa. Commwlth. 608 Nix, C.j., and Larsen, Flaherty, McDermott, Zappala, Papadakos, and Stout, JJ. Nix, C.j., files a concurring opinion which is joined by Papadakos, J. Larsen, J., joins the Majority Opinion and files a concurring opinion. McDermott, J., files a dissenting opinion which is joined by Zappala, J.

Author: Flaherty

[ 520 Pa. Page 228]


Pennsylvania imposes a capital stock tax upon certain business entities, but exempts from taxation those "organized

[ 520 Pa. Page 229]

    for manufacturing, processing, research or development purposes . . . ." The Capital Stock Tax Act of March 4, 1971, P.L. 6, No. 2, art. VI, § 602, 72 P.S. § 7602. The issue presented in this case is whether Ski Roundtop, the taxpayer, should be partially exempted from the capital stock tax under the manufacturing exemption on the theory that some of its otherwise taxable assets are used in a manufacturing process.

The taxes at issue concern the years 1977 through 1979. Ski Roundtop paid its capital stock taxes for these years, but thereafter filed timely petitions for partial refunds, claiming that the assets used for making snow were engaged in a manufacturing activity and were, therefore, exempt from the capital stock tax. The Board of Finance and Revenue refused the taxpayer's petition for refund on the ground that making snow is not manufacturing. Ski Roundtop then filed timely petitions for review with Commonwealth Court. On June 15, 1987, a three-judge panel of Commonwealth Court denied the taxpayer's request for a refund, again on the ground that snow-making activity is not manufacturing, 106 Pa. Commw. 608, 527 A.2d 600. Commonwealth Court dismissed the taxpayer's exceptions and Ski Roundtop filed a timely notice of appeal to this Court pursuant to Pa.R.A.P. 1101(a)(2) and 42 Pa.C.S. § 723(b).

The relevant facts are that Ski Roundtop makes snow by the use of machinery which combines pressurized air and water in the nozzle of a snow gun. As the air decompresses, it cools, freezing the water with which it is mixed into water crystals. These crystals attract moisture from the air as they are sprayed from the guns, building larger crystals which form man-made snow. The water for this operation is pumped from collecting pools at the base of the slopes through underground lines to snow gun nozzles placed at seventy-five foot intervals along each ski trail. Pressurized air is also pumped to each snow gun nozzle through underground lines from large compressors located at the base of the mountain. Using these snow guns,

[ 520 Pa. Page 230]

    trained workers walk the trails and make adjustments to the snow guns so as to direct the correct amount and placement of snow on the trails. Different types of snow, e.g., heavy, dense snow or light fluffy snow, may be produced in the snow guns, depending on what is required by the steepness and condition of the various slopes. Ski Roundtop management decides the amount, placement, and timing of artificial snow to be produced by the machines. Approximately one million gallons of water are used in a full day's operation, in addition to large amounts of electricity to run the compressors and pumps.

Although the manufacturing exemption from the capital stock tax has been in existence for nearly 100 years, it is not statutorily defined. We must turn, therefore, to the caselaw for an understanding of the term. The definition of "manufacturing" as used in our caselaw has been well summarized in Bindex Corp. v. City of Pittsburgh, 504 Pa. 584, 587-88, 475 A.2d 1320, 1322 (1984):

In Philadelphia School District v. Parent Metal Products, Inc., 402 Pa. 361, 167 A.2d 257 (1961) we [stated] . . . that "manufacturing":

Id., 402 Pa. at 364, 167 A.2d at 258-259.

As is evident, the concept underlying the definition is the transformation of material or things into something different from that received. The difference cannot be a

[ 520 Pa. Page 231]

    superficial change that does not alter or change the thing. For example, a cosmetic change performed merely to facilitate the ease of handling, storing, packing or shipping the product or material does not constitute manufacturing. What is required is that the basic materials or goods be given a new identity by the current producer, one which can be easily traced to such producer. This identity must be the product of skill and labor. Skill involves education, learning, experience or knowledge one acquires in a particular business, trade or profession; while labor is the physical characteristics and methods utilized to employ one's skills. When labor is used in conjunction with skill to produce a different product than the original, one with a new identity, manufacturing has occurred.

(Footnote omitted.)

Bindex and the cases which preceded it can be summarized as requiring the following: (1) the application of labor and skill (2) which changes a material (3) ...

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