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expenditures. The tax consequences passed through to petitioner
as a shareholder of WSC.
WSC is engaged in the business of producing and supplying
fertilizers, agricultural chemicals, seeds, and other
agricultural products for use by farmers. WSC distributes its
products to retail farm centers, wholesale distribution centers,
and independent commission agents. The dispute in this case
relates to WSC's fertilizer operations.
During the years at issue, WSC owned and operated fertilizer
production facilities in North Carolina and Virginia. It
conducted most of its business in North Carolina. WSC
distributes most of its fertilizer in bulk; i.e., by the
truckload.
Fertilizer primarily consists of three active ingredients:
Nitrogen, phosphate, and potash. Fertilizer also contains
smaller amounts of other nutrients known as micronutrients, as
well as inactive ingredients. Farmers or other purchasers select
the concentration of the three fertilizer ingredients depending
on their particular needs. Soil conditions, the type of crop
being planted, the expected weather conditions, and price may
each influence the farmer's selection of fertilizer. For
example, a corn farmer may require fertilizer in the mixture of
5-15-30 (which is 5 percent nitrogen, 15 percent phosphate, and
30 percent potash); a soybean farmer may require fertilizer in
the mixture of 3-9-27.
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