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Peterson Produce Co. v. Cheney, 237 Ark. 600, 374 S.W.2d 809

Facts

Peterson Produce Company, an Arkansas corporation, purchased incubators for its hatchery business in Decatur, Arkansas, and was assessed a tax of $1,250.19 by the Commissioner of Revenues for these purchases. The company claimed that the incubators were exempt from the Arkansas Compensating (Use) Tax under a statute that exempts certain tangible personal property used by manufacturers or processors. The court noted that the incubators were used to hatch eggs but did not constitute a processing step in manufacturing.

The Commissioner of Revenues assessed a tax of $1,250.19 against Peterson Produce Company, an Arkansas corporation with principal offices located in Decatur, Benton County, Arkansas, by reason of the purchase of hatchery equipment from outside the state. The company is engaged in a hatchery business at Decatur.

Issue

Are appellant's purchases of incubators, in 1956, 1957 and 1958, for its commercial hatchery exempt from the Arkansas Compensating (Use) Tax?

Only one question is involved on this appeal, viz., are appellant's purchases of incubators, in 1956, 1957 and 1958, for its commercial hatchery exempt from the Arkansas Compensating (Use) Tax?

Rule

The word 'processing' in the tax exemption statute refers only to some step or process of manufacturing, and a tax exemption must be strictly construed.

The tax exemption claimed by the Peterson Produce Company is based on Ark.Stat.Ann. § 84–3106(d) (Repl.1960), which sets out certain property that is exempt from the tax.

Analysis

The court analyzed the statutory language and previous case law, concluding that the use of incubators does not qualify as a processing step in the manufacturing of chicks. The court emphasized that the incubators merely assist in the natural hatching process and do not constitute manufacturing or processing as defined by the law. The court also noted that the legislature had not included incubators in the exemptions despite amending the statute to include other specific exemptions.

We think, under all our decisions, that appellant falls short in establishing that he is a ‘processor’ within the meaning of the Arkansas Compensating (Use) Tax Law exemption provision.

Conclusion

The Supreme Court affirmed the lower court's decision, ruling that the incubators purchased by Peterson Produce Company were not exempt from the Arkansas Compensating (Use) Tax.

Affirmed.

Who won?

The Commissioner of Revenues prevailed in the case because the court found that the incubators did not meet the statutory definition of property used in processing.

The court agreed with the learned Chancellor, who delivered an excellent opinion at the conclusion of the case, to the effect that one does not ‘manufacture’ a baby chick, and the use of incubators is not a ‘processing’ step therein.

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