Opinion ID: 1248183
Heading Depth: 1
Heading Rank: 2

Heading: Substantiality of Manufacturing Activities

Text: A business engaged in manufacturing does not lose its status as a manufacturer for tax purposes merely because it conducts some non-manufacturing activities. See Arkansas Beverage Co. v. Heath, 257 Ark. 991, 1002, 521 S.W.2d 835, 840-42 (1975); Commonwealth v. Interstate Amiesite Corp., 412 Pa. 180, 183, 194 A.2d 191, 193 (1963). Cf. Kansas City v. Manor Baking Co., 377 S.W.2d 545, 547-48 (Mo.App.1964); McDonald's Corp. v. Oklahoma Tax Commission, 563 P.2d 635, 639 (Okla.1977) (incidental manufacture and preparation of foodstuffs does not transform retail food business into manufacturer). See generally Annotation, What Constitutes Manufacturing and Who Is a Manufacturer Under Tax Laws, 17 A.L. R.3d 7 (1968). When a party is engaged in both manufacturing and non-manufacturing activities, it will nonetheless be classified as a manufacturer for tax purposes if the manufacturing portion of its business is substantial. Fernandes Super Markets, Inc., 371 Mass. at 322, 357 N.E.2d at 298; Assessors of Boston v. Commissioner of Corps. & Taxation, 323 Mass. 730, 751, 84 N.E.2d 129, 142 (1949). Indeed, the County and BBPE agree that BBPE can be classified as a manufacturer only if its manufacturing activities, when compared to its total activities, are substantial. The test of substantiality of manufacturing activities for determining whether a multi-purpose business qualifies as a manufacturer for tax purposes does not lend itself to a rigid definition. Rather, the business must be considered as a whole in determining whether it qualifies as a manufacturer. Assessors of Boston, 323 Mass. at 746, 84 N.E.2d at 140. To be considered substantial, the manufacturing component of a business must not be de minimis, merely trivial, or only incidental to its principal business. Fernandes Super Markets, Inc., 371 Mass. at 323, 357 N.E.2d at 299; Commissioner of Corps. & Taxation, 321 Mass. at 96, 71 N.E.2d at 879. The factors that a court may consider in determining whether the manufacturing component of a multi-purpose business makes a substantial contribution to the entire business include the manufacturing component's financial receipts, its proportion of the total corporate income, the percentage it comprises of the total capital investment, the number of employees working in the manufacturing component as compared with the total number of employees, or the ratio of manufacturing activities to the entire business. Fernandes Super Markets, Inc., 371 Mass. at 322-23, 357 N.E.2d at 299. Here, the trial court considered these factors and concluded as follows: Based upon the nature of the capital investment at [BBPE's] facility, the size and scope of the plant itself, the composition of the work force, the substantial manufacturing revenues generated at the facility and the nature of the work being performed during the tax years in question, [BBPE's] facility must be considered as conducting the business of manufacturing. In deciding whether the evidence is sufficient to support the trial court's judgment, the testimonies of Malcolm Preece and Michael Wright are most illuminating. Preece, BBPE's factory and manufacturing manager, testified in detail about 18 major manufacturing jobs performed by BBPE during the audit period. Wright, BBPE's accountant, testified as to the amount of the gross receipts from the 18 jobs. Preece testified that in some of the 18 jobs, BBPE used raw material and converted that to a finished product. In other jobs, BBPE added value to product which originally started as raw material but had not been completed, and [BBPE] did in fact make completions. Preece further stated that [t]here [were] other instances where [BBPE] not only purchased raw material but actually did the design and engineering work ... and then ... procured, fabricated, and completed the assembly and whatever was necessary to get a final product. The following chart shows a comparison of the gross receipts from the 18 jobs with the gross receipts from all of BBPE's activities during the audit period: Percentage Total Manufacturing of Total Year Receipts Receipts Receipts 1980 $6,941,505 $4,334,336 62.44% 1981 6,826,481 3,295,296 48.27% 1982 5,187,633 1,761,376 33.95% 1983 4,881,367 1,780,560 36.48% 1984 6,281,732 2,849,085 45.36% The evidence presented by Preece and Wright was confined to only a portion of BBPE's manufacturing activities for the period. Additional evidence establishes that numerous other manufacturing jobs also were performed during the period. Viewing, as we must, the evidence and all reasonable inferences in the light most favorable to BBPE, we conclude that the evidence is sufficient to support the trial court's finding that BBPE's manufacturing activities were substantial when compared with its total activities. Thus, the trial court did not err in ruling that BBPE was a manufacturer and that its machinery and tools should be taxed accordingly.