Stewart Honeybee Products, Inc. v. Commonwealth, Board of Finance & Revenue

LARSEN, Justice,

dissenting.

I dissent, and in support thereof I adopt the erudite opinion authored by President Judge James Crumlish, Jr. of the Commonwealth Court, and liberally quote therefrom as follows:

The Pennsylvania Supreme Court recently refined the definition of manufacturing for purposes of capital stock tax exemption in Ski Roundtop, Inc. v. Commonwealth, *228520 Pa. 227, 553 A.2d 928 (1989). Manufacturing is “(1) the application of labor and skill (2) which changes a material (3) substantially (4) into a new, different and useful item.” Id., 520 Pa. at 231, 553 A.2d at 930.4

Applying that test to these stipulations, we must first determine if the transformation of Honeybee’s product is accomplished through the application of labor and skill. As the Supreme Court reiterated in Ski Roundtop:

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.

Ski Roundtop, 520 Pa. at 231, 553 A.2d at 930 (citing Bindex Corp. v. City of Pittsburgh, 504 Pa. 584, 587-88, 475 A.2d 1320, 1322 (1984)).

Stewart Honeybee’s five-stage process transforms a solid raw material into honey, a liquid, which is only then fit for human consumption under federal standards. The unrefined honey is first tested for moisture content. It is then placed over a stainless steel batch tank in a room where the temperature is raised to 160 degrees Fahrenheit. The raw honey then becomes partially liquified. Next, the honey is pumped into a mixing tank where it is blended with diatomaceous earth. In the fourth phase, the honey is placed in a heat exchanger which destroys bacteria and microorganisms and reduces moisture content. The pasteurized honey is then pumped through an elaborate filtration system which removes foreign matters (beeswax, wood chips, bee body parts, etc.). After filtration, the honey is pumped through a stainless steel plate cooling exchanger. Finally, the honey is transfer*229red to an automatic packaging line used to fill and cap plastic containers. (Stipulations of Fact (S.F.), paras. 19-33).

•This Court has held that the use of elaborate machinery constitutes an application of labor and skill. Kirks Milk Products, Inc. v. Commonwealth, 58 Commonwealth Ct. 230, 427 A.2d 688 (1981). Stewart Honeybee engages in extensive procedures utilizing high-tech machinery to convert unrefined honey into a consummable product; therefore, according to the stipulations, the process detailed above involves the application of labor and skill.

We next turn to whether a new, different and useful product emerges from Stewart Honeybee’s process. In Ski Roundtop, the Supreme Court held that transforming water, a liquid, into snow, a solid, constituted “manufacturing.” The Court emphasized that snow is a different product than water in its liquid form, which was not useful for skiing down a mountain. Id. 520 Pa. at 232, 553 A.2d at 931.

Similarly, unrefined honey has been found to be commercially unfeasible because of such undesirable characteristics as toxicity, flavor changes, and impurities. For example, solid honey cannot be spread on toast, mixed in pastry batter, or blended into coffee or tea. (S/F, paras. 27, 28.) Stewart Honeybee’s conversion of the unrefined honey into a purified liquid constitutes a new, different and useful product because not only is it now fit for human consumption but it has undergone a substantial change in form.

The panel’s conclusion in Stewart Honeybee I — that the process was not manufacturing because the equivalent process might be conducted at home -on a smaller scale— understates the degree of technology and skill involved in making honey fit for human consumption. In comparison, a mechanic’s potential ability to assemble an automobile in his garage would not preclude General Motors from receiving the manufacturing exemption. Moreover, we conclude that granting Stewart Honeybee the exemp*230tion more closely conforms to the legislature’s purpose in exempting manufacturers from the capital stock tax. See Kirks Milk (legislative limits on taxation of manufacturers is intended to encourage the growth of manufacturing in this Commonwealth). We are convinced that the manufacturing exemption should encourage such capital formation and modernization.

Stewart Honeybee Products, Inc. v. Commonwealth, 128 Pa.Commw. 132, 133-35, 562 A.2d 1015, 1016-18 (1989) (emphasis in original).

It is clear that as long as the majority insists upon pursuing a formulaic, rigid approach in these cases, we will defeat the purpose of the capital stock tax exemption which purpose is to encourage the growth of manufacturing in this Commonwealth. See Kimberton Co. v. Commonwealth, 520 A.2d 238, 553 A.2d 934 (1989) (Larsen, J., dissenting); Ski Roundtop, Inc. v. Commonwealth, 520 Pa. *231227, 553 A.2d 928 (1989) (Larsen, J., concurring); Golden Triangle Broadcasting, Inc. v. City of Pittsburgh, 483 Pa. 525, 397 A.2d 1147 (1979) (Larsen, J., dissenting); see also Commonwealth v. Northern Electric Light & Power Co., 145 Pa. 105, 22 A. 839 (1891) (exemption intended to bring and keep within state borders capital and labor to be used in the development of mineral wealth and the production of the staples of commerce).

Unfortunately, the majority is tripping over semantics and is basically concluding that honey is honey is honey is honey (to paraphrase writer Gertrude Stein — “Rose is a rose is a rose is a rose.” Sacred Emily, 1913). Raw honey is a product with a tendency to crystallize that contains pollen, enzymes, amino acids, aromatic oils, flavoring compounds, vitamins, and minerals. These substances “exert a very great influence on the properties of honey,” including its color, aroma, viscosity, and flavor. Root, The ABC and XYZ of Bee Culture at 350 (1947). These substances are removed by heating honey and by passing the honey under pressure through fine filters.1 The product that emerges from the manufacturing process of appellee, Stewart Honeybee Products, Inc., is a bright, sparkling fluid with no suspended particulates, having a good appearance and a long shelf-life. To some experts, this product is no longer honey. Meyer, The Beekeeper’s Handbook at 120-21 (1983). Anyone who has actually consumed raw honey can attest to the fact that the product sold in grocery stores with a “honey” label does not have the taste, texture, color, or aroma of raw honey.

Testing or blending or heating or cooling or filtering or pasteurizing, separately, have not been considered to be manufacturing. Commonwealth v. Tetley Tea Co., 421 Pa. 614, 220 A.2d 832 (1966); Rieck-McJunkin Dairy Co. v. Pittsburgh School District, 362 Pa. 13, 66 A.2d 295 (1945). However, these processes, in the aggregate, unite to create a new and different product, herein. How the majority *232writer can conclude that freezing water under pressure is manufacturing and that the processing of honey is not manufacturing is beyond my comprehension. Ski Roundtop, Inc. v. Commonwealth, 520 Pa. 227, 553 A.2d 928 (1989). Either we are going to consistently encourage manufacturing in this Commonwealth or we should hang out a sign that says, “MANUFACTURERS AND JOBS ARE NOT WELCOME IN THE COMMONWEALTH OF PENNSYLVANIA.”

Accordingly, I would affirm the order of the Commonwealth Court reversing the order of the Department of Revenue, Board of Finance and Revenue.

. The Supreme Court expressly stated that this formulation was á summary of prior precedent, relying specifically on the "well summarized” case law cited in Bindex Corp. v. City of Pittsburgh, 504 Pa. 584, 475 A.2d 1320 (1984). The Ski Roundtop opinion does not radically change existing law on this subject and, therefore, prior case law remains a valid guide as to what constitutes manufacturing. The following have been held to be examples of manufacturing: Pillsbury Mills, Inc. v. Pittsburgh School District, 408 Pa. 369, 184 A.2d 236 (1962) (milling of wheat into flour; Atlantic Refining Co. Case, 398 Pa. 30, 156 A.2d 855 (1959) (refining crude oil into motor oils, fuel oils, etc.); Commonwealth v. Snyder’s Bakery, 348 Pa. 308, 35 A.2d 260 (1944) (converting raw potatoes into potato chips); Kirks Milk Products, Inc. v. Commonwealth, 58 Pa.Commonwealth Ct. 230, 427 A.2d 688 (1981) (converting liquid buttermilk and skim milk into powdered milk products.) The following have been held not to constitute manufacturing: Kimberton Co. v. Commonwealth, 520 Pa. 238, 553 A.2d 934 (1989) (placing custom embroidery on ready-made shirts); Commonwealth v. Tetley Tea Co., 421 Pa. 614, 220 A.2d 832 (1966) (removing impurities from tea); Rieck-McJunkin Dairy Co. v. Pittsburgh School District, 362 Pa. 13, 66 A.2d 295 (1949) (pasteurization of milk); Commonwealth v. Sunbeam Water Co., 284 Pa. 180, 130 A. 405 (1925) (distilling water to remove impurities.)

. This manufacturing process also removes harmful yeast and foreign matter from the raw honey.