tion of Garnac's costs to grain value" demonstrates that Garnac's activities are not "substantial in nature." These arguments, however, ignore much of the evidence. They confuse the third test under the regulations, section 1.9933(c)(2)(iii), Income Tax Regs., quoted above, with the substantial transformation test of subsection (ii) and the percentage of cost test in subsection (iv), described above.

Like the steps performed by the taxpayers in Webb Export Corp., Garnac's operations required trained and experienced personnel employing both skill and judgment in the performance of their duties. The operations performed at Garnac's grain elevators were substantial in nature with respect to the grain passing through them. To be considered "production," however, Garnac's operations must also be generally considered to constitute production.

In applying the DISC regulations to Webb Export Corp.'s logging operations, we did not further define the term "production." Rather, in reaching the conclusion that "the weight of the evidence" established that the taxpayer was engaged in production, we relied on several factors:

(1) Loggers consider themselves to be producers; (2) standing timber is not particularly useful to manufacturers; (3) substantial activities are required before such materials are useful to manufacturers; and (4) the items considered to be raw materials and who is perceived to be a producer, varies depending upon one's position in the manufacturing and/or production process. [91 T.C. at 148.]

Petitioners concede that "because of the nature of the agricultural industry the operations performed by Garnac are sometimes referred to by the special industry nomenclature 'grain handling.'" Petitioners argue, however, that the DISC benefits should not "be conferred or withheld based on the fortuity of a particular industry's nomenclature." Rather, petitioners contend that the words "generally considered" imply an objective test, is the borrower engaged in production, not a subjective test, is the borrower referred to as a producer. We cannot reconcile petitioners' position with the language of the regulations and our analysis in Webb Export Corp. Use of the term "generally considered" necessitates determination of the subjective view of others as to what is-not our view of what should be.

Petitioners ask that we ignore the grain industry nomenclature and look instead to the same types of evidence we considered in Webb Export Corp. v. Commissioner, supra. Specifically, petitioners argue that the complexity of Garnac's operational steps, the judgment required of grain elevator operators, and the requirements and specifications of customers for grain with offgrade or nongrade characteristics are strong indications that Garnac was engaged in production. Petitioners contend that the same four factors that led this Court to conclude that "the weight of the evidence" established that Webb Export Corp. was engaged in production are present in the instant case. Petitioners maintain that (1) grain elevator operators do consider themselves to be producers; (2) grain standing in the field is not particularly useful to manufacturers; (3) substantial activities are required before grain is useful to manufacturers; and (4) whether grain is considered to be a raw material and who is perceived to be a producer can vary depending upon one's position in the grain industry.

Petitioners' arguments are not supported by the evidence in this case, however. (1) The only indications that grain elevator operators consider themselves to be producers are their claim in this case and similar claims made in other litigation. (2) Garnac does not cut the grain standing in the field but receives it from others, who probably are producers, frequently in a condition in which it may be sold to Garnac's customers. (3) We have agreed that their activities are substantial. (4) As indicated above, so far as the record shows, petitioners' perception is based on their litigating position. The relevant test is how their activities are generally perceived in the industry and not perception from a particular viewpoint. Webb Export Corp. v. Commissioner, 91 T.C. at 148. Moreover, petitioners' proposed analysis would merge the "substantial in nature" and "generally considered production" requirements of the statute and regulations.

Respondent argues that, in contrast to Webb Export Corp.'s logging operations, Garnac purchased already harvested grain as a fungible commodity in lots that conformed to Federal grade standards. Similarly, respondent argues that the end result of Webb Export Corp.'s opera

tions was individually identifiable logs, while the grain leaving Garnac's elevators was a commingled mass assembled from lots delivered by farmers or other grain merchants and essentially unchanged enroute to a final user. These factual distinctions are consistent with respondent's characterization of Garnac's activities as assembly and packaging.

Garnac argues that, whenever courts have been called upon to consider the nature of grain elevator operations, they have consistently concluded that the drying, blending, aerating, fumigating, and cleaning operations constitute production. Thus, in Schuyler Grain Co. v. Commissioner, 50 T.C. 265 (1968), affd. 411 F.2d 649 (7th Cir. 1969), this Court was called upon to decide whether the taxpayer's five newly constructed grain storage bins were used "in connection with" a manufacturing or production activity for purposes of the investment tax credit (ITC). The taxpayer in Schuyler, like petitioners herein, aerated, dried, blended, and stored corn, wheat, and soybeans. The Tax Court concluded that the taxpayer's business, "when considered as an integrated operation, consisted of numerous activities which we think were intended to be included within the words 'manufacturing' and 'production,' as these words were used in section 48." 50 T.C. at 272.

Although section 48 did not define the term "production," section 1.48-1(d)(2), Income Tax Regs., provided that "the terms 'manufacturing,' 'production,' and 'extraction' include the construction, reconstruction, or making of property *** from new or raw material, by processing, manipulating, refining, or changing the form of an article, or by combining or assembling two or more articles." In view of this broad definition of manufacturing, production, and extraction, we concluded that the taxpayer's storage and handling of grain was production for purposes of section 48. 50 T.C. at 272. Other cases applying the ITC regulations have similarly applied a broad interpretation of the terms "production" and "processing." See, e.g., Giannini Packing Corp. v. Commissioner, 83 T.C. 526 (1984); Northville Dock Corp. v. Commissioner, 52 T.C. 68 (1969), affd. 427 F.2d 164 (2d Cir. 1970).

Respondent argues that Schuyler Grain Co. v. Commissioner, supra, and other cases interpreting and applying the ITC regulations are not controlling in this case. We agree. The term "production" has no generalized meaning in the Internal Revenue Code. Spalding v. Commissioner, 66 T.C. 1017, 1021 (1976).

The differences between section 1.48-1(d)(2), Income Tax Regs., which defines the term "production" for ITC purposes, and section 1.993-3(c)(2), Income Tax Regs., which defines the same terms for purposes of the DISC statute, are significant. The ITC regulation specifically includes "combining" and "assembling" in the definition of "manufacturing" and "production." In contrast, the DISC regulation at issue herein specifically excludes "assembly" or "packaging" in the definition of "manufactured" and "produced." Further, the ITC regulation, unlike the DISC regulation, does not require that the activity be generally considered production or that it be substantial in nature.

The DISC provisions, sections 991 through 997, were enacted by Congress to provide tax incentives for U.S. firms. Secs. 501-507, Revenue Act of 1971, Pub. L. 92-178, 85 Stat. 497, 535-553. Specifically, the DISC provisions were designed to stimulate exports and to remove tax disadvantages for U.S. firms engaged in exporting through domestic corporations rather than through foreign subsidiaries. H. Rept. 92-533 (1971), 1972-1 C.B. 498, 502, 529; S. Rept. 92-437 (1971), 1972-1 C.B. 559, 565, 609; Dresser Industries, Inc. v. Commissioner, 92 T.C. 1276, 1280 (1989); Foley Machinery Co. v. Commissioner, 91 T.C. 434, 438 (1988).

Both the Senate and the House Committee reports spell out the definitions of export property and producer's loans that were later incorporated in the regulations. H. Rept. 92-533, 1972-1 C.B. 498, 534-535; S. Rept. 92-437, 1972-1 C.B. 559, 615-616. The legislative history, however, does not provide a definition for the critical term "production."

Petitioners argue that the modifier "generally considered," as it is used in the regulation, "envisions the broadest possible construction of the statute's terms" and is "consistent with the legislative purposes of the DISC statute." The legislative history of the DISC statute, however, merely discusses Congress' general desire to encourage

exports. Broad interpretations are not sufficient to qualify Export as a DISC in light of the detailed statutory framework that has been enacted.

Petitioners also cite numerous State court decisions holding that operations similar to Garnac's constituted production or manufacturing. Similarly, petitioners cite various State statutes that define production or manufacturing for ad valorem, sales, and property tax purposes. The DISC provisions, however, are a matter of Federal income tax law, and cases interpreting State law are not dispositive or helpful. United States v. Mitchell, 403 U.S. 190, 197 (1971). Moreover, special legal applications of a term cannot reasonably be construed as equivalent to "generally considered" use of the term within an industry.

Petitioners presented evidence of expert witnesses and company officials and have argued that decisions by this and other courts and the legislative history of the DISC statute demonstrate that Garnac's grain elevator operations constitute production. They have not persuaded us that Garnac's activities with respect to grain storage and handling during the years in issue are generally considered in the industry to constitute production or that these activities were not fairly characterized as assembly and packaging for purposes of section 1.993-3(c)(2)(i), Income Tax Regs. We cannot conclude that legal classification of activities as production in other contexts qualifies them as "generally considered to be production" within the meaning of the DISC regulations and Webb Export Corp. Accordingly, petitioners have not carried their burden of demonstrating that Garnac was engaged in production during the years in issue.

Growing Export Property

As quoted above, section 993(d)(1)(C) provides that a producer's loan may be made to a person engaged in the growing of export property. Garnac contends that the loans from Export are producer's loans because, in the year the loans were made, it was engaged in the business of farming on arable land that it owned in Springfield, Illinois, and Davenport, Iowa.