S. Clark Jenkins and Mary P. Jenkins - Page 3

          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                    
               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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