Opinion
No. 38715
Decided March 31, 1965.
Taxation — Sales and use taxes — Exceptions — Sale and use of material used in processing for sale — Eggs — Washing, candeling, grading, weighing, oiling, packing, etc., constitutes processing.
APPEAL from the Court of Appeals for Henry County.
The Northwestern Ohio Poultry Association, Inc., appellee herein, organized as a co-operative association, is engaged in the business of obtaining, from poultry-farmer members, eggs which it prepares for sale and sells to distributors.
The farmer gathers the eggs, places them on cardboard trays called filler-flats, sprays and cools them and packs them in egg cases containing 30 dozen eggs each, and then delivers them to the appellee, or the appellee picks them up in its trucks. The farmer is paid for his eggs after they have been graded and classified and the price determined.
After being received in appellee's plant, the cases are removed, and the eggs remain on the filler-flats and are started through an assembly line. The eggs are washed and cleaned by water containing a certain formula of cleaning fluid and are then dried by blown hot air. The eggs are then "candled" by passing them over a portion of the assembly line under which are bright lights enabling a trained employee to inspect them for blood spots and irregularities. Eggs not passing this test are removed and placed in other categories or rejected as not fit for market. The eggs are then mechanically placed on a conveyor which takes them over a series of scales which weigh and separate them as to size. They then pass a final visual inspection as to irregularities and color, are oiled with mineral oil to close the pores of the shell, thus preventing the escape of carbon dioxide and halting the process of deterioration, and are then crated and placed in coolers until they are shipped to distributors.
The egg cases, cardboard trays or filler-flats, pads and gummed tape used to seal egg cases are purchased in large quantities by the appellee and furnished to the poultry farmers free of charge. They are purchased without the payment of sales or use tax on the theory that the items are going to be used directly in the production of tangible personal property for sale by processing, and that, therefore, the purchases and use are excepted from the sales and use taxes under the provisions of Sections 5739.01 and 5741.01, Revised Code.
The Board of Tax Appeals held that the appellee was not engaged in the production of personal property by processing or farming and did not use the items in question directly in the production of personal property by processing or farming, and affirmed the order of the Tax Commissioner assessing sales and use taxes, plus a penalty.
On appeal to the Court of Appeals, the decision of the Board of Tax Appeals was reversed and vacated, and final judgment was rendered for the poultry association.
The allowance of a motion to certify the record brings the cause to this court for review.
Messrs. Mayer, Tingley Hurd, Mr. Dwight R. Hurd and Mr. Edmund G. Peper, for appellee.
Mr. William B. Saxbe, attorney general, and Mr. Edgar L. Lindley, for appellant.
The operation performed by the appellee for its poultry-farmer members is a processing and preparing to a suitable condition for market and sale, and the purchase and use of the items in question, used and consumed in such operation, which are the basis for the taxes levied by the Board of Tax Appeals, are excepted from taxation by Sections 5739.01 and 5741.01, Revised Code.
The judgment of the Court of Appeals is affirmed on authority of Kroger Grocery Baking Co. v. Glander, Tax Commr., 149 Ohio St. 120, and France Co. v. Evatt, Tax Commr., 143 Ohio St. 455.
Judgment affirmed.
TAFT, C.J., SMITH, MATTHIAS, O'NEILL, HERBERT and BROWN, JJ., concur.
SCHNEIDER, J., not participating.
SMITH, J., of the Six Appellate District, sitting for ZIMMERMAN, J.