Golden Skillet Corp. v. Com.

• Decision Date: 08 October 1973
• Parties: GOLDEN SKILLET CORPORATION v. COMMONWEALTH of Virgina.
• Court: Virginia Supreme Court

Page 511

199 S.E.2d 511

214 Va. 276

GOLDEN SKILLET CORPORATION v. COMMONWEALTH of Virgina.

Supreme Court of Virginia.

Oct. 8, 1973.

Thomas J. Markham, Richmond (Aubrey R. Bowles, III, Bowles & Boyd, Richmond, on brief), for plaintiff in error.

Sally Trapnell Warthen, Asst. Atty. Gen. (Andrew P. Miller, Atty. Gen., on brief), for defendant in error.

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

CARRICO, Justice.

The question for decision in this case is whether equipment used in preparation and cooking of chicken for sale at retail is exempt from sales and use taxes under a statutory exemption for 'machinery or tools . . . used directly in processing, manufacturing . . . or conversion of products for sale or resale.' Code § 58--441.6.

The question arose when Golden Skillet Corporation (hereinafter, the taxpayer) was notified by the State Department of Taxation that an assessment had been made against the taxpayer for sales of 'food cooking equipment.' Thereafter, the taxpayer filed in the trial court an application for correction of the assessment on the ground it was erroneous. The trial court denied relief, and the taxpayer appeals.

The record shows that the assessment in question covering the period September 1, 1966 to July 31, 1970, involved a tax in the amount of $4,138.31. The taxpayer, during the indicated period, was engaged in the business of selling franchises for the use of its name, 'Golden Skillet,' and for its method of preparing and cooking chicken. The method of cooking was covered by patent.

The taxpayer's franchisees were engaged in the business of preparing and cooking chicken for sale at retail to 'take-out' and 'on-premises' customers. The taxpayer sold to its franchisees, among other things, equipment in the form of special cookers, also covered by the patent, parts and accessories therefor, and items used to cut, mix, or hold chicken or to bread and marinate chicken pieces. It was for the sale of this type equipment during the stated period that the disputed sales tax was assessed.

The taxpayer relies upon an exemption found in the first paragraph of Code § 58--441.6. The paragraph reads as follows:

'The terms 'sale at retail,' 'lease or rental,' 'distribution,' 'use,' 'storage' and 'consumption' shall not include industrial materials for future processing, manufacturing, refining, or conversion into articles of tangible personal property for resale where such industrial materials either enter into the production of or become a component part of the finished product; nor shall such terms include industrial materials that are coated upon or impregnated into the product at any stage of its processing, manufacture, refining, or conversion for resale; Nor shall such terms include machinery or tools or repair parts therefor or replacements thereof, fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or conversion of products for sale or resale; nor shall such terms include materials, containers, labels, sacks, cans, boxes, drums or bags for future use for packaging tangible personal property for shipment or sale.' (Emphasis added.)

The taxpayer contends that its customers, the franchisees, in preparing and cooking chicken for sale at retail, are engaged in processing, manufacturing, or conversion of products for sale or resale within the meaning of Code § 58--441.6. Therefore, the taxpayer concludes, the equipment sold by it and used by its customers in such processing, manufacturing, or conversion is included within the 'machinery or tools' exemption set forth in the cited Code section.

The Attorney General contends, on the other hand, that the proper interpretation of the exemption paragraph in question, and the one consistently followed by the Department of Taxation, is that it should apply 'only to true manufacturers or industries, and not to retailers such as restaurants.' Under such an interpretation, the Attorney General says, the taxpayer's operation is not entitled to exemption. We agree with the Attorney General.

Code § 58--441.4, a part of the 'Virginia Retail Sales and Use Tax Act,' imposes a tax upon the sale or lease of tangible personal property. Code § 58--441.5 imposes a tax upon the use or consumption of such property. The taxes cover every such sale, lease, use, or consumption unless shown to be specifically exempted by law. Code § 58--441.17(a).

Here, the taxpayer claims to be exempt from the taxes assessed against it, relying upon an exemption contained in the first paragraph of Code § 58--441.6. In determining whether the taxpayer is entitled to that exemption, we follow a rule of strict construction. Exemption from taxation is the exception, and where there is any doubt, the...