Editors Note: The interpretation
of the state farm capital stock tax
laws often seem to cause a
problem. Lancaster Farming’s
Adams County staff correspon
dent, Ginger Secrist Myers, talked
this week with a farm family who
has this problem. While the farm
family set up corporations to
provide an orderly transfer of the
farming business on to the next
generation, IRS has not yet agreed
on the stock tax exempt status of
the corporation. Here’s the story of
their experience.
BY GINGER SECRIST MYERS
Staff Correspondent
YORK SPRINGS - “We’re a
family farm. The question of the
operations of the Peters Orchard
Company and John B. Peters, Inc.
is simply a matter of how we chose
to run our business .. . Our cor
porations were set up to be a
generation transfer mechanism,
not to evade any taxes. It cen
tralizes our operation and keeps
the operation in Ohe hand.” So
states George M. Peters, one of the
owners and operators of Peters’
Orchards, Adams County.
The Peters family and their
attorneys are scheduled to appear
before the PA Supreme Court on a
suit concerning the Peters’ filing
for an exemption from the Capital
Stock Tax as it applies to family
farm corporations. The Peters
family has been on this arduous
path with the PA Department of
Revenue since 1981 when they filed
for the exemption under House Bill
567.
PA House Bill 567 allows for the
exemption of family farm cor-
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Adams Co. Family Share Feelings About
Stock Tax Exemption For Farmers
porations from paying Capital
Stock Tax if the corporation has at
least seventy-five percent of its
assets devoted to the business of
agriculture and if at least seventy
five percent of its stock is owned by
members of the same family. The
term “Business of Agriculture”
specifically excludes (1)
recreational activities such as
hunting, fishing, camping, skiing,
show competition or racing, (2)
raising, breeding, or training
game animals, birds, fish, cats,
dogs, pets, or animals intended for
use in sporting or recreational
activities, (3) fur farming, (4)
stockyard and slaughter house
operations or, (5) manufacturing
or processing of any kind.
The Peters family certainly
qualifies under the ownership
clause. All restricted stock in their
corporations are owned by family
members. The Peters Orchard
Company owns 2500 acres of or
chard land and equipment. John B.
Peters, Inc. has an operating
budget of roughly $3 million an
nually in the production and sales
of a variety of fruit from that land.
Patriarch John B. Peters and his
wife Mary E. K. founded the
Peters Orchard Company in 1960.
At that time, they were only
working with their son John F.
Peters. Due to failing health, John
B. no longer wanted to be actively
involved in the day to day
operations of the orchard; but,
wanted an orderly way to move his
son John F. and three other sons
and two daughters into the
operation. At that time, all the
family’s real estate was in
corporated jmder the name Peters
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Orchard Company. By 1966, after
both parents and all their children
had become involved in the first
corporation, the family saw a need
to facilitate the entrance of a third
generation into the business. The
John B. Peters corporation was
formed for this purpose. This
corporation operates the farm,
leasing the assets from the first.
George Peters notes that this
arrangement allows another
family member to come into the
business and see if they like the
work without a capital outlay for
real estate and equipment. It also
allows for the continued in
volvement of the older Peters’ with
their real estate assets. Both
corporations are actively involved
in the operations of the orchards.
Stated Peters, “This is all done
with individual investor money.
It’s been advantageous in these
difficult fiscal times to have been
able to retain money within our
family. If we had had to go to the
bank and borrow money in these
existing economic times, we’d be
just like everybody else with a lot
of credit out. Just to say that
families can’t own jointly just
because its not widely done isn’t to
say that everyone involved in this
business doesn’t have an active
interest or that it shouldn’t be
done.”
From the time of incorporation
and until the tax reform code of
1981 was passed that exempted
family farm corporations from
paying Capital Stock Tax, the
Peters’ paid their corporate taxes.
In 1981, when they filed for an
exemption it was denied by the PA
Department of Revenue. The
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Peters filed an appeal and lost.
They then filed an appeal with the
Commonwealth Court and were
again denied the exemption.
In this action, the court per
ceived that the Peters Orchard
Company was only a leasing
company and was involved only
passively with the operation and
the John B. Peters, Inc. was an
active corporation involved in the
“business of agriculture”. The
Court agreed with the Peters’ view
that the legislative intent behind
the exemption is to preserve
farmland by alleviating one of the
tax burdens that often force farm
families to sell their farmland, but
it did not agree with the Peters’
claim that their exemption would
be consistent with that intent. The
Court ruled that a corporation that
leases its assets to another entity
which is actually doing the
production is not entitled to the
exemption.
In the context of this ruling,
George Peters summarizes that
the law cannot dictate the
preservation of the family farm.
He feels that it is a combination of
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LANCASTER - Richard Grubb,
Pennsylvania Secretary of
Agriculture, will be the featured
speaker at the Pennsylvania Egg
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meeting on Friday, May 9.
He will discuss the Department
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the interpretation of the law and
the strength of the economy that
will dictate how the farmer will
survive. He feels the attorneys
view their case from the position of
tax impact; the Peters’ view their
case as to how they will be able to
bring their next generation into
farming.
The next stop on the agenda for
this case is the PA State Supreme
Court. Briefs have been filed by
both parties and they are awaiting
a hearing date. PFA has filed an
Amicus Curiae (friend of the
court) brief in this case. PFA was
instrumental in the passage of the
statue and feels it has information
that would be beneficial to the
court on its decision of intent.
George Peters concluded,
“We’re willing to take a stand on
this. We have the guts to fight it.
It’s clear to us that the court so
clearly mis-interpreted both the
intent of the law and our ap
plication of it. We feel it’s worth
the struggle. We’re fighting for the
preservation of exactly what
people call the ‘family farm’.”
the poultry industry in Penn
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This meeting, to be held at the
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