Com., Dept. of Taxation v. Orange-Madison Co-op. Farm Service, ORANGE-MADISON

• Decision Date: 11 January 1980
• Docket Number: ORANGE-MADISON,No. 771422,771422
• Citation: 261 S.E.2d 532,220 Va. 655
• Court: Virginia Supreme Court
• Parties: COMMONWEALTH of Virginia, DEPARTMENT OF TAXATION v.COOPERATIVE FARM SERVICE. Record

Page 532

261 S.E.2d 532

220 Va. 655

COMMONWEALTH of Virginia, DEPARTMENT OF TAXATION v. ORANGE-MADISON COOPERATIVE FARM SERVICE.

Record No. 771422.

Supreme Court of Virginia.

Jan. 11, 1980.

John G. MacConnell, Asst. Atty. Gen. (Marshall Coleman, Atty. Gen., on briefs), for appellant.

George H. Roberts, Jr., Harrisonburg (Donald E. Showalter; Wharton, Aldhizer & Weaver, Harrisonburg, on brief), for appellee.

Before I'ANSON, C. J., and CARRICO, HARRISON, COCHRAN, HARMAN, POFF and COMPTON, JJ.

I'ANSON, Chief Justice.

Orange-Madison Cooperative Farm Service filed an application, pursuant to Code § 58-1130, for correction of an allegedly erroneous assessment of sales and use taxes on certain machinery, fuel, and equipment used in its feed and fertilizer operations. The trial court held that because the machinery, fuel, and equipment were used in manufacturing or processing, they were exempt from sales and use taxes under the provisions of Code § 58-441.6.

The sole question presented is whether Orange-Madison's operation of its feed and fertilizer plants constituted industrial processing within the meaning of Code § 58-441.6. ^*

Orange-Madison is a cooperative formed to aid farmers in their collective purchasing of farm products and supplies. As a part of its operation, it maintains three feed plants and two fertilizer plants. Feed sales comprise 50% Of Orange-Madison's total sales amounting to seven million dollars annually. Fertilizer sales comprise approximately 15% Of Orange-Madison's sales. Orange-Madison sells almost all its feed and fertilizer directly to the farmer. Less than 2% Of the feed is sold to merchants, who then resell the feed to farmers.

At the feed plants, corn, barley, and wheat are passed through a steam cooker, where moisture is added and the grain is cracked. The grain is then flattened by passing through two rollers and is subsequently dried. The process then requires the addition of several different ingredients: soybean or peanut meal, vitamins, minerals, salt, and liquid molasses. All of these elements are then blended to achieve a final product. At the fertilizer plants, nitrogen, potash, phosphate, and other chemicals are blended by machinery into a finished fertilizer product meeting the individual farmer's needs as determined by scientific testing of soil conditions.

Large quantities of raw materials used in making the feed and fertilizer are delivered for processing to Orange-Madison's plants in railroad cars and trucks. After processing, the bulk of the finished products is sold to farmers in large quantities.

The Department of Taxation contends that processing, like manufacturing, entails a transformation of a raw material into an article or product of substantially different character. The Department argues that the ingredients in the feed and fertilizer have not undergone such a transformation and that consequently Orange-Madison's feed and fertilizer operations constitute neither industrial processing nor manufacturing. The Department further argues that commercial retail operations are not entitled to the exemption under the standard set forth in Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 199 S.E.2d 511 (1973).

We first address the Department's contention that processing, like manufacturing, necessarily entails a transformation of raw material into an article of substantially different character. Language in our prior decisions indicates that processing and manufacturing are not synonymous. We have consistently characterized taxpayers' operations as processing even though they failed to meet the requisites of manufacturing. In Prentice v. City of Richmond, 197 Va. 724, 731, 90 S.E.2d 839, 843 (1956), we stated that a taxpayer's chicken "processing operation (lacked) the necessary qualitative element of manufacturing." In Richmond v. Dairy Co., 156 Va. 63, 71, 157 S.E. 728, 730 (1931), we described the pasteurization of milk to be a "process" even though it did not constitute manufacturing. Likewise, in Solite Corp. v. County of King George, --- Va. ---, ---, 261 S.E.2d 535, 536 (1980) (this day decided), we held that the "processing of sand and gravel does not constitute manufacturing within the meaning of Code § 58-266.1 (A)(4)." These decisions indicate that the definition of processing is considerably less stringent than our definition of manufacturing. While all manufacturing is a type of processing, not all processing constitutes manufacturing.

In the absence of a statutory definition, as here, a statutory term is given its ordinary meaning, given the context in which it is used. Loyola Fed. Savings v. Herndon, 218 Va. 803, 805, 241 S.E.2d 752, 753 (1978). "Processing" is defined in Webster's Third International Dictionary (1966), to the extent here pertinent, as follows:

to subject to a particular method, system, or technique of preparation, handling or other treatment designed to effect a particular result: put through a special process: as . . . (1): to prepare for market, manufacture, or other commercial use by subjecting to some process (processing cattle by slaughtering them) (processed the milk by pasteurizing it) (processing grain by milling) (processing cotton by spinning) (2): to make usable by special treatment (processing rancid butter) (processing waste material) (processed the water to remove impurities)

This definition, unlike our definition of manufacturing, does not require transformation of a raw material into an article of substantially different character. It merely requires that the product undergo a treatment rendering the product more marketable or useful. The mixing together of the grains and additives in the production of the feed and the mixing together of the chemicals in the production of the fertilizer satisfies all the requisites of...