2011 – Death and Taxes … and Chickens

The sole issue in this case was at what point in the life of a chicken does the chicken lose its tax-exempt status as poultry?

When this lawsuit was filed in 2011, Pilgrim’s Pride was the second-largest chicken producer in the world.  A vertically-integrated company, Pilgrim’s Pride controlled every phase of the production of its poultry – from egg, to hatchling, to chicken, to drumstick, to chicken salad. As such, Pilgrim’s Pride owned and operated feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, Puerto Rico and Mexico.

Following the denial of a tax protest regarding the valuation of the contents of a cold storage warehouse located in Tarrant County, Texas, Pilgrim’s Pride filed suit in the 352nd District Court seeking a de novo review[1].  Housed inside the warehouse in question was boxed, frozen chicken meat (also described as “chicken flesh,” “dead chicken, without giblets” and “breaded, baked, par-fried chicken”) on which the Tarrant Appraisal District had levied an ad valorem tax.

Texas Tax Code Section 11.16, the enabling legislation for Article VIII, Section 16 of the Texas Constitution, exempts from ad valorem taxation “farm products, livestock and poultry” held by “producers” while the producer is “financially providing for the physical requirements of such livestock and poultry.”  Pilgrim’s Pride relied on these provisions to claim tax exempt status for the contents of the warehouse.

In summary judgment motions presented to Judge Bonnie Sudderth in which both sides agreed that there was no material fact in dispute, the parties – Pilgrim’s Pride and the Tarrant County Appraisal District - submitted the case for a legal determination by Judge Sudderth.  Pilgrim’s Pride argued that the contents of its cold storage facility warehouse constituted tax-exempt “poultry” the physical requirements of which Pilgrim’s Pride, the producer, was financially providing for. As the owner and producer of the poultry, Pilgrim’s Pride contended that it was financially responsible for all of their poultry’s physical requirements from egg to chicken part storage, and all points in between, until the chicken was sold to a third party.  For that reason, Pilgrim’s Pride sought a summary judgment ruling that its warehoused chicken would retain its tax-exempt status until it was sold in the market.

Tarrant Appraisal District filed a summary judgment motion as well, taking the position that once the chickens were no longer alive, Pilgrim’s Pride became a “processor” rather than a “producer” within the meaning of the Constitution and Statute.  The District also argued that frozen chickens would no longer have “physical requirements” requiring financial support, which the statute requires in order to support a tax exemption.  The Tarrant Appraisal District sought a summary judgment ruling by Judge Bonnie Sudderth that the chicken stored in Pilgrim’s Pride warehouse were properly subject to ad valorem taxation under state law.

Judge Bonnie Sudderth ruled that just as livestock, once slaughtered, would no longer enjoy tax exempt status as “livestock” under the constitutional and statutory provisions, poultry, once slaughtered, would not longer enjoy tax exempt status as “poultry” under these same provisions.

In explaining her ruling, Judge Sudderth pointed to the idiosyncrasy of the English language that changes the name of some farm animals once they are slaughtered.  In polite company, one would not purchase steaks or pork chops by asking the butcher for a pound of “livestock” or “pig,” whereas, “poultry” and “chicken” are permissible nouns to to describe chicken, whether located in the coop or behind the meat counter.  The statute clearly identifies “livestock” as tax exempt, but not “beef” or “pork,” so there is no confusion in the law with regard to bovines or swine.  Once the cow and the pig are slaughtered, their tax exempt status ends. Judge Sudderth reasoned that even though the English language calls for no name change upon the death of a chicken, it would make no sense for there to be a distinction between dead cows, pigs or poultry when it comes to ad valorem taxation.

Furthermore, Judge Sudderth reasoned, the purpose of the tax-exemption laws would not extend to cold-storage warehousing of meat products.  These laws were designed to provide tax exemptions to farmers and ranchers who were tending to the daily needs (such as food, water and veterinary care) of their flocks and herds, not for warehousemen who simply store the frozen meats.

Finally Judge Sudderth agreed with the Tarrant Appraisal District in her opinion that neither the livestock nor the chickens, once slaughtered, would have “physical requirements” necessitating financial support, as required under the tax exemption statute.

In denying Pilgrim’s Pride’s summary judgment motion, Judge Bonnie Sudderth held that Pilgrim’s Pride, who bore the legal burden of clearly establishing that its operations fell within the tax exemption, failed to meet its burden.  In granting Tarrant Appraisal District’s motion for summary judgment, Judge Sudderth upheld the Tarrant Appraisal District’s interpretation of the constitutional and statutory provisions as reasonable and not in conflict with the plain meaning of the statute.

Judge Bonnie Sudderth’s ruling was not appealed, leaving undisturbed those two certainties in life – even in the life of a chicken - Death and Taxes.


[1] For a discussion and explanation of the concept of de novo review, go to: http://bonniesudderth.wordpress.com/2011/08/28/when-can-i-get-a-trial-de-novo/

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