Current Tax Developments
Concept of "Manufacturing" Defined in Wisconsin John P. Fitzgerald

IN A 1999 DECISION, the Tax Appeals Commission of the State of Wisconsin determined what is to be considered a "manufacturing property" for property tax purposes.

This opinion may have a long-lasting effect in Wisconsin and that state should be added to the list of forums that narrowly construe the concept of manufacturing.

In this case, the petitioner, Zip Sort, Inc., a company that applies bar codes to envelopes, thus allowing mail to be sorted by machine, applied to the Wisconsin Department of Revenue for a "manufacturing property" classification. The department denied the petitioner's request and concluded that its operations did not meet the definition of a manufacturing establishment under the relevant state statute.

In affirming the department's finding, the tax commission held that in order to be classified as "manufacturing," an activity must be listed specifically in the 1987 Standard Industrial Classification (SIC) Manual or be specifically defined as manufacturing by the statute. The commission also acknowledged that the petitioner's technology did not exist until 1990, well after the enactment of the enabling statute.

The commission then went on to consider the Wisconsin Property Assessment Manual (WPAM):

WPAM recognizes that the SIC Manual may not cover every type of business in existence and instructs that three questions should be asked in considering the criteria and general definition...

The commission then applied the three-part test as follows:

1. Is the activity more similar to those specifically classified manufacturing by law and the SIC Manual, or more similar to those specifically classified non-manufacturing by law and the SIC Manual?
   
   Applying this test, the commission found that the petitioner's activity of applying bar codes to envelopes was far more similar to the nonmanufacturing classification "Business Services" than to any manufacturing classification. The commission specifically referred to the SiC classification "presorting mail service," which is within the major group known as ''Business Services Not Elsewhere Classified."
2. Is the activity more closely aligned with the general description of producing, assembling, fabricating, making or milling by machinery and equipment of a new article with a different form, use and name from existing materials, or is it more aligned with the general activities involved with services as generally described in the SIC Manual, wholesale trade, retail trade, agriculture, or construction?
   
   Under this test, the commission found that the petitioner's activity was more closely aligned with the SIC business services classifications of data processing mailing than with the general description of producing a new product from machinery and equipment.
3. Does the activity produce products more Jar wholesalers, interplant transfer, to order for industrial users or more for direct sale to domestic consumers?
   
   The commission attached less importance to this question and found that the record did not provide a clear answer.

The commission concluded that under the WPAM three-part test, the petitioner's activities did not fall within the definition of manufacturing property. Thus, the petitioner did not qualify for certain economic incentives.

This decision has been appealed to the Circuit Court of Dane County. The outcome of this case will be closely watched.

Return to top