Lexplug logoLexplug

Beare Co. v. Tennessee Department of Revenue

Tennessee Supreme Court
858 S.W.2d 906, 1993 Tenn. LEXIS 256 (1993)
ELI5:

Rule of Law:

For purposes of a manufacturer's sales tax exemption, 'processing' is an activity that transforms tangible personal property into a different state or form. An activity that merely preserves property in its existing state, such as cold storage of already-frozen goods, does not constitute processing.


Facts:

  • The Beare Company preserves food products through freezing and cold storage for its customers.
  • The company does not own or sell the food products it handles.
  • Beare performs 'blast freezing,' which involves drastically lowering the temperature of fresh, raw food products, causing chemical and molecular changes.
  • Beare also performs 'preservation,' which involves storing already-frozen goods in holding freezers to maintain their temperature and prevent spoilage.
  • The company operates two plants, one in Humboldt and one in Jackson, Tennessee.
  • At the Humboldt plant, a majority of revenue comes from blast freezing raw products and related services.
  • At the Jackson plant, a majority of revenue comes from the preservation and handling of pre-frozen products.

Procedural Posture:

  • The Beare Company applied to the Tennessee Department of Revenue for authorization to purchase utilities at reduced sales tax rates.
  • The Department of Revenue denied the application.
  • An administrative law judge held a hearing and affirmed the Department's denial.
  • The Beare Company appealed the administrative decision to the Chancery Court of Davidson County (a state trial court).
  • The Chancery Court affirmed the decision of the administrative law judge.
  • The Beare Company appealed the Chancery Court's decision to the Supreme Court of Tennessee.

Locked

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does the 'blast freezing' of raw food products constitute 'processing' under Tennessee's sales tax statute, thereby qualifying a company as a 'manufacturer' eligible for reduced tax rates on utilities if that activity is its principal business?


Opinions:

Majority - Reid, Chief Justice

Yes, 'blast freezing' constitutes 'processing' under the statute. 'Processing' is an activity that transforms materials into a different state or form. The court found that blast freezing raw food changes its condition, analogizing it to cooking, and is therefore processing. In contrast, merely maintaining the temperature of already-frozen goods is preservation or storage, not processing, as it does not change the product's state. Applying the 51% principal business test, the court determined that since the Humboldt plant's revenues were derived primarily from blast freezing, it qualified as a manufacturer. The Jackson plant, deriving most of its revenue from storing pre-frozen goods, did not.


Dissenting - O'Brien, Justice

No, The Beare Company's activities do not constitute 'processing' that qualifies it as a manufacturer. The majority improperly expands the definition of 'processing.' A true manufacturer, as established in Tennessee precedent, makes and sells a product for profit based on the labor applied to raw materials. The Beare Company does not own or sell the goods; it sells a service to the actual manufacturers. The dissent argues that the company is a service provider within the supply chain, not a manufacturer itself, and therefore should not be eligible for a tax exemption intended for entities that fabricate property for resale.



Analysis:

This decision clarifies the definition of 'processing' for purposes of Tennessee's manufacturer sales tax exemption by establishing a 'transformation test.' It distinguishes between activities that fundamentally change a product's state or form (processing) and those that merely preserve it (storage). The ruling requires a fact-intensive, location-by-location analysis of a company's revenue streams to determine its 'principal business.' This creates a clear, albeit potentially burdensome, standard for service-based businesses in a manufacturing supply chain to determine their eligibility for tax benefits.

🤖 Gunnerbot:
Query Beare Co. v. Tennessee Department of Revenue (1993) directly. You can ask questions about any aspect of the case. If it's in the case, Gunnerbot will know.
Locked
Subscribe to Lexplug to chat with the Gunnerbot about this case.

Unlock the full brief for Beare Co. v. Tennessee Department of Revenue