Blackmon v. J. D. Jewell, Inc.

Hall, Presiding Judge. The Commissioner appeals from the judgment for the taxpayer setting aside a sales tax assessment. The taxpayer is engaged in the business of producing poultry in great- volume and for an international market. It maintains a vertical operation, i.e., it produces virtually all the necessary supplies and operates the necessary facilities which result in the finished poultry product. It operates research facilities, breeder flocks, hatcheries, growing farms, a feed mill, a processing plant (slaughtering, freezing, packaging, cooking) a by-products plant, and a large sales and administrative organization. The Commissioner made an assessment for taxes claimed due on purchases of antibiotics, vaccines, disinfectants, vitamins and other drug items used in the raising of poultry. Many of these items are mixed with the grains at the feed mill. Others are administered in drinking water or by inoculation. The taxpayer contends that all these items are exempt as industrial materials. [680] The Sales Tax Act provides that no tax be imposed on purchases of ". , . industrial materials for further processing, manufacture or conversion into articles of tangible personal property for resale where such industrial materials become a component part of the finished product . . . [or] that are coated upon or impregnated into the product at any stage of its processing, manufacture or conversion. . Code Ann. § 92-3403a (C) (2). The Commissioner concedes that these drug items are necessary for the large scale, commercial production of poultry and that the term "industry” is appropriate to describe this business, in a lay sense; but that these items are not exempt industrial materials under the Act. While industrial materials impregnated into the product need not remain in it permanently (Hawes v. Bibb Mfg. Co., 224 Ga. 141 (160 SE2d 355)), the Commissioner contends they must be administered during a stage of "processing, manufacture or conversion,” rather than during a natural growth stage for biological purposes. In other words, "processing” (as defined by Webster) does not begin until the slaughterhouse is reached. We believe the trial court answered this contention in its findings. "It would be an unrealistic construction of the word 'industry’ to exclude from that definition any part of the entire production process; that is, all the interdependent phases or segments of the commercial production of poultry. . . Certainly in this state . . . the 'poúltry industry’ ... is not a backyard process. It is not merely agriculture. . . 'Industry’ is inclusive of agricultural production of a growth product such as poultry as commercially produced, processed and converted for market under the large-scale conditions utilizing [these] scientific methods, research and marketing techniques. . . It would be unacceptable to say that the materials here involved in the growth and production of poultry are not used in industry. . . They are essential to the product produced. . . The expressed intention of the General Assembly ... was to prevent a duplication of the tax im [681] posed by the Act. To tax something that becomes a part of the poultry . . . prior to the time when the consumer product is processed, constitutes a duplication of the tax within the meaning of Section 2 (6) of the Act and is not permissible.” Argued May 3, 1972— Decided June 16, 1972— Rehearing denied July 14, 1972 The trial court said, in effect, that the operative word is "industry” rather than "manufacture,” "process” or some equivalent. The Commissioner further contends that the General Assembly intended any natural growth process to be considered as something completely distinct from an industrial process. His evidence for this intent is a separate exclusion in the Act for feeds, fertilizer, etc. Code Ann. § 92-3403a (C) (2) (b). We cannot agree with this logic. That particular exclusion shows no more than a clear intent to favor traditional agriculture. Growth of living substances can be part of an industrial process when it is but one stage in the development of the end product and when the growth itself is so artificially controlled as to be "unnatural.” A parallel with the drug industry suggests itself. Growth of molds, viruses and other organisms is a substantial part of the manufacturing process, but we doubt the Commissioner would contend that the culture materials of that industry should be subject to the sales tax because the Act excludes feeds and fertilizers. As the trial court recognized, the key is in non-duplication of the tax. The cost of the final poultry product will reflect all the items which went into it and the sales tax will be collected upon that final price. In this respect, the taxpayer will be in the same position as any other industry in the state. .We believe this is where the legislature intended it to be. Judgment affirmed. Bell, C. J., Eberhardt, P. J., Quillian, Evans, Clark and Stolz, JJ., concur. Deen, J., concurs specially. Pannell, J., dissents. Arthur K. Bolton, Attorney General, Harold N. Hill, Jr., Executive Assistant Attorney General, Richard L. Chambers, H. Perry Michael, Timothy J. Sweeney, Assistant Attorneys General, for appellant. . Norton, Smith & Majors, William L. Norton, Jr., Raymond A. Majors, Harmon T. Smith, Troy R. Millikan, for appellee.