Murray Bakery Products, Inc. v. Board of Tax Assessors

McMurray, Presiding Judge.

In this case of first impression, we are called upon to decide whether certain inventory of a taxpayer is exempt from taxation pursuant to the freeport exemption. OCGA § 48-5-48.2. The superior court determined that the inventory was not exempt.

The taxpayer, Murray Bakery Products, Inc., manufactures cookies in Richmond County. In 1986 the taxpayer filed an inventory tax return seeking an exemption with regard to inventory which was designated by the taxpayer as finished goods, raw materials, packaging materials and general stores. An exemption was allowed only for the inventory which the taxpayer designated as finished goods and raw materials. The taxpayer claims that the other inventory items (which are the subject of this case) are also exempt from taxation. These items are used to package and merchandise the taxpayer’s cookies. They consist of plastic trays, cellophane wrappers, caddies, cartons, cases, tapes, labels and liners. Held:

It is axiomatic that laws granting an exemption from taxation must be construed strictly in favor of the taxing authority. Rayle Elec. Membership Corp. v. Cook, 195 Ga. 734, 735 (2) (25 SE2d 574); Chilivis v. Cleveland Elec. Co., 142 Ga. App. 751, 752 (1) (236 SE2d 872). All doubts must be resolved against the taxpayer. Blackmon v. Screven County Indus. Dev. Auth., 131 Ga. App. 265, 267 (205 SE2d 497). Thus, an exemption will not be allowed unless it was clearly and distinctly intended by the legislature. Chilivis v. Marble Prods. Co., 135 Ga. App. 187 (1) (217 SE2d 441).

Under OCGA § 48-5-48.2 certain inventory may be exempt from tangible personal property taxation. Subsection (1) permits the following exemption: “Inventory of goods in the process of manufacture or production which shall include all partly finished goods and raw materials held for direct use or consumption in the ordinary course of the taxpayer’s manufacturing or production business ...” The taxpayer contends that its packaging materials are “raw materials” which are exempt under the statute. We cannot accept this contention. OCGA § 48-5-48.2 defines “raw materials” as “any material whether crude or processed that can be converted by manufacture, processing, or combination into a new and useful product. . .” In our view, the packaging materials are not “raw materials.” They are not converted by the taxpayer into a “new and useful product.” They merely aid the taxpayer in its marketing and distribution efforts. After all, the taxpayer produces cookies. Its raw materials are, therefore, flour, sugar and like items which are converted into cookies. Simply put, the packaging materials in question are not so converted.

The taxpayer asserts that it manufactures packaged cookies, not just cookies, and that, therefore, the packaging materials are a part of the taxpayer’s product. Assuming, arguendo, the taxpayer’s product is packaged cookies, we nevertheless fail to see how the packaging materials fit within the freeport exemption. In part, OCGA § 48-5-48.2 (1) provides: “The exemption provided for herein shall apply only to tangible personal property which is substantially modified, altered or changed in the ordinary course of the taxpayer’s manufacturing, processing or production operations ...” The packaging materials used by the taxpayer are not substantially changed in the production process. These packaging materials remain virtually unchanged after the taxpayer’s cookies are packaged.

The superior court did not err in holding that the inventory in question was not exempt from taxation pursuant to the freeport exemption.

Judgment affirmed.

Birdsong, C. J., Banke, P. J., Carley, Sognier and Pope, JJ., concur. Deen, P. J., Benham and Beasley, JJ., dissent.