Tax Type
BPOL Tax
Description
Electropainting and electroplating
Topic
Local Power to Tax
Date Issued
04-11-1995
You ask whether certain processes, including the pasteurization, homogenization and vitamin fortification of milk, the addition of flavorings to milk, and the addition of water to concentrated orange juice, flavored powders and powdered tea, constitute "manufacturing' so as to be exempt from local license taxation under § 58. 1-3703(B)(4) of the Code of Virginia.1
You relate that a company offers a variety of dairy and nondairy consumable products for sale Sales are made at wholesale and at retail to affiliated and nonaffiliated customers The company purchases some of its products complete and ready for resale while other products are subjected to various types of processes before sale.
You relate that one major product of the company which is subjected to a variety of processes is milk. The company receives milk from dairy farms in tanker trucks. Before the milk is unloaded it is checked for antibiotics, standard plate count, titratable acidity and taste analysis. Once the milk is unloaded, it is ready for processing. The milk goes through several processing steps before it is ready for packaging and distribution. Processing includes the pasteurization, homogenization, butterfat adjustment and vitamin fortification of the milk.
"Manufacturing' has not been defined by the General Assembly in the context of the local license tax.2 In Richmond v. Dairy Company,3 however, the Supreme Court of Virginia held that the process of pasteurization of milk and the production of buttermilk do not constitute manufacturing in the context of the local license tax. This case is the only decision of the Supreme Court on the subject matter of your request. In addition, the General Assembly is presumed to be aware of the construction of statutes by the courts.4 The General Assembly's modification or nonmodification of such statutory construction demonstrates its own legislative intent.5 The General Assembly has considered amendments to § 58.1-3703(B) to add exemptions from local license taxes6; however, it has not amended that statute to exempt from local license tax the milk processes you describe. Therefore, the decision of the Supreme Court in that case remains the law on the subject.
The fact that milk now is also homogenized and fortified with vitamins does not alter or modify the basis of the decision in Richmond v. Dairy Company. In that case, the Court wrote:
- Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labor, and manipulation. But something more is necessary.... There must be transformation; a new and different article must emerge, `having a distinctive name, character, or use.'[7]
In a later decision, the Supreme Court of Virginia held that, for a process to be considered manufacturing, three elements are necessary: " `(1) original material referred to as raw material; (2) a process whereby the raw material is changed, and (3) a resulting product which ... is different from the original raw material.' '9 Subsequently, in Solite Corp. v. King George County, the Supreme Court found that "[t]he mere blending together of various ingredients, in the absence of a transformation into a product of substantially different character, is not manufacturing,'10 and thus held that a rock and gravel processor was not a manufacturer.11 The Court also has held, however, that the Solite definition of "manufacturing' should be applied liberally, "[b]ecause the public policy of Virginia is to encourage manufacturing in the Commonwealth.'12
While prior opinions of the Attorney General address whether specific businesses are manufacturers within the local license tax exemption, none is closely related to the business activities about which you inquire.13 Although the determination of whether a business is a "manufacturer' for the purposes of § 58.1-3703(B)(4) is a factual determination to be made on a case-by-case basis by the commissioner of the revenue,14 none of the milk processes you describe would, in my opinion, constitute manufacturing, because the processing does not transform the milk into a product of substantially different character.
The General Assembly has not defined "manufacturing,' and the Supreme Court decisions provide the only guidance on the matter. Consequently, following the Court's definition, I am of the opinion that neither the pasteurization, homogenization, butterfat adjustment or vitamin fortification of milk, nor the addition of sugar and flavorings to milk constitutes manufacturing within the meaning of § 58l-3703(B)(4).
The addition of water to flavored powders and powdered tea, however, has the three required elements to be considered manufacturing contained in Prentice v. City of Richmond. You describe a process whereby water, as the raw material, is changed from plain water into either a fruit-flavored liquid drink or sweetened tea through the addition of flavored powder or powdered tea and sugar. There is, therefore, a transformation of a raw product into a product of substantially different character as is required under the Solite definition of "manufacturing.'15 Consequently, it is my opinion that the addition of flavored powders and powdered tea and sugar to water constitutes manufacturing for the purposes of the exemption from the business license tax found in § 58l-3703(B)(4).
The addition of water to orange juice concentrate, however, does not contain the three required elements to be considered manufacturing, because it does not amount to the transformation of a raw product into a product of substantially different character. The addition of water to concentrate is merely a blending together of the orange juice concentrate and water that had been removed so as to restore the juice to its original consistency. I am, therefore, of the opinion that the addition of water to orange juice concentrate is not manufacturing for the purposes of assessing local business license taxes.
1 Section 58.1-3703(A) authorizes localities to impose a local license tax:
"The governing body of any county, city or town may levy and provide for the assessment and collection of county, city or town license taxes on businesses, trades, professions, occupations and callings and upon the persons, firms and corporation, engaged therein within the county, city or town subject to the limitations provided in subsection B of this section.'
§58.1-3703(B)(4) prohibits the imposition of a local license tax "[o]n a manufacturer for the privledge of manufacturing and selling goods, wares and merchandise at wholesale at the place of manufacture[.]'
2 Prior opinions of the Attorney General conclude that the definition of "manufacturing' found in § 58.1-602 for purposes of the Virginia Retail Sales and Use Tax Act is not controlling in interpreting the exemption from local license taxes for manufacturing found in § 58.l-3703(B)(4). See Op. Va. Att'y Gen.: 1984-1985 at 399, 401 n4; 1983-1984 at 372 (both opinions applying former §§ 58A41.3(p) and 58-266.i(A)(4), respectively).
3 156 Va. 63, 157 S.E. 728 (1931).
4 See Mace v. Merchants Delivery, 221 Va. 401, 270 S.E.2d 717 (1980), Jones Construction Co. v. Martin, 198 Va. 370, 378, 94 S. E. 2d 202, 207-08 (1956) (legislative response to interpretation of Workmen's Compensation Act by Supreme Court and Industrial Commission).
5 See 1993 Op Va. Att'y Gen. 121, 124.
6 House Bill No. 1868, introduced January 20 at the 1995 Session of the General Assembly. would have added a new subdivision 18 to § 58.1-3703(B) to exempt from local license tax certain types of "plating' companies The bill did not pass.
[7] 156 Va. at 75, 157 S.E at 732.
8 1d.
9 Prentice v. City of Richmond, 197 Va. 724, 729-30, 90 S.E.2d 839, 843 (1956) (citation omitted).
10 220 Va. 661, 665, 261 S.E.2d 535, 537 (1980).
11 Id. at 665, 261 S.E.2d at 538.
12 County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 69, 380 S.E.2d 890, 893 (1989); see also 1993 Op. Va. Att'y Gen. 231.
13 See Op. Va. Att'y Gen.: 1993, supra (seafood processor who transforms product from one that is unusable by consumers into one that is usable and substantially different in character is manufacturer) 1991 at 248. 250 (development of computer software and related consulting are not manufacturing, but "hardware-engineering' may qualify as manufacturing); 1986-1987 at 289,289 (wholesaler of raw nitrate is not manufacturer because coropration does not substantially change character of raw nitrate); 1984-1985 at 356 (mixing sand, rock and cement is not manufacturing); id. at 399, 400 (grading and packing of herbs is not manufacturing, but drying. crushing, grading and packing of herbs would appear to be manufacturing; selling scrap metal or junk items is not manufacturing).
14 See 1993 Op. Va. Att'y Gen., supra note 12, at 233.
15 See Arkansas Beverage Co. v. Heath, 257 Ark. 991, 1002,521 S.W.2d 835, 842(1975) (holding that soft drink bottling company was engaged in manufacturing bottled carbonated beverage from raw ingredients such as water, sugar, Pepsi Cola concentrate, vanilla, citric acid and carbon dioxide, and that plant where process takes place is manufacturing plant).
Attorney General's Opinion