In the January 2011 edition of the PA Tax Law News newsletter, we offered a broad overview of the production-based exemptions under Pennsylvania’s Sales & Use Tax, Capital Stock and Franchise Taxes, local Business Privilege Taxes and Real Property Tax. This article focuses on a more detailed discussion of the activities qualifying under the Pennsylvania Sales & Use Tax exclusions for Manufacturing, Fabricating, Compounding, Processing and “Other Operations.”

The Tax Reform Code provides a specific listing of activities qualifying as “processing” and a general definition for “manufacture.”

Specifically Defined “Processing”

The Legislature has defined “processing” to include a number of somewhat narrowly proscribed activities, many of which were added after tax auditors challenged their qualification under “manufacturing” or other more broadly-defined exclusions. These activities include the Cooking, Baking or Freezing of Fruits, Vegetables, Mushrooms, Fish, Seafood, Meats, Poultry or Bakery Products and packaging for wholesale distribution; the Electroplating, Galvanizing, Enameling, Anodizing, Coloring, Finishing, Impregnating or Heat Treating of Metals or Plastics; the Production, Processing and Bottling of Non-alcoholic beverages for wholesale distribution; and twenty additional categories of activities which are listed in the January article.

Specifically Deemed “Manufacture”

The statute provides that “manufacture” shall include, but not be limited to, specific activities, including publishing, printing, mining, quarrying, research and several other activities also listed in the January article.

Specifically Deemed Not to be “Manufacture”

The statute also specifically indicates that “manufacture” shall not include: constructing, altering, servicing, repairing or improving real estate; repairing, servicing or installing tangible personal property; producing a commercial motion picture; and the cooking, freezing or baking of fruits, vegetables, mushrooms, fish, seafood, meats, poultry or bakery products.