Tax Type
Local Taxes
Property Tax
Description
Equipment Used in Multiple Localities
Topic
Property Subject to Tax
Date Issued
08-20-1984
[Opinion - Virginia Attorney General: 1984 at 399]
REQUEST BY: Honorable Danny C. Ball Commissioner of the Revenue for Wise County
OPINION BY: Gerald L. Baliles, Attorney General
OPINION:
You have asked two questions concerning matters of local taxation. Your first question is whether a tractor trailer owned by a resident of Wise County, used for cross-country transit and garaged in many different localities throughout the year, is assessable for personal property taxes in Wise County.
The answer to this question is governed by § 58-834 of the Code of Virginia. The pertinent statutory language reads:
"The situs for the assessment and taxation of . . . motor vehicles . . . as personal property shall be the county, district, town or city where the vehicle is normally garaged . . . or parked . . . provided further that in the event it cannot be determined where such personal property, described herein, is normally araged, stored or parked, the situs shall be the domicile of the owner of such personal property."
Section 58-835 establishes January one as the annual date of reference for taxation of personal property.1 This Office has consistently held that under § 58-834 the property situs for taxation is the place where the vehicle is ordinarily garaged or parked as of January one of the tax year. See 1982-1983 Report of the Attorney General at 615. Situs for taxation under this statute would not, however, include the casual presence of property in a locality while in the course of transit. Hogan v. County of Norfolk, 198 Va. 733, 96 S.E.2d 744 (1957). If it cannot be determined where the vehicle is normally kept, the situs is the domicile of the owner of such personal property. See 1983-1984 Report of the Attorney General at 400.
The determination of situs is a factual one which you must make in light of the principles set forth above. If the tractor trailer is normally kept and garaged in Wise County when not in use, the property would have the requisite situs in that jurisdiction and would be taxable there. If it cannot be determined where the tractor trailer is normally garaged or parked, the situs is the domicile of the owner, and again, because the owner's domicile is in Wise County, the tractor trailer would be assessable for personal property taxes in Wise County.
Your second question is whether a certain business would be considered a merchant subject to the local merchants' capital tax2 or a manufacturer3 exempt from this local tax. You have explained that the business at issue crushes and compacts scrap metals, grades and packs herbs for sale and shipment to other locations, and sells scrap metal or junk items, including parts from cars, to walk-in customers. You were unable to advise whether the process involving herbs begins with a plant or some dried or crushed product.
The key to answering this question is the difference between the terms " merchant" and "manufacturer." These terms are not defined in the Code;4 however, on several occasions the Supreme Court of Virginia has considered their meaning. See Prentice v. City of Richmond, 197 Va. 724, 90 S.E.2d 839 (1956); Commonwealth v. Meyer, 180 Va. 466, 23 S.E.2d 353 (1942); and Richmond v. Dairy Company, 156 Va. 63, 157 S.E. 728 (1931). In Meyer, "merchant" is defined as "one who is engaged in the business of buying commercial commodities and selling them again for the sake of profit." Id. 180 Va. at 472, 23 S.E.2d at 356 (citation omitted). On the other hand, "manufacture" is defined as "the production of articles for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand-labor or by machinery . . . ." Id. 180 Va. at 472, 23 S.E.2d at 355 (citations omitted).
4 But see § 58-441.3(p) which defines "manufacturing, processing, refining, or conversion" for purposes of Virginia's sales and use tax law. I am of the opinion that this definition has no applicability to the question at hand. See 1983-1984 Report of the Attorney General at 372, holding that the meaning of " manufacturer," for purposes of § 58-266.1(A)(4), is not governed by § 58-441.3(p).
Every change does not constitute manufacturing. The Court in Prentice set forth three essential elements needed to constitute manufacturing: "(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." Id. at 197 Va. at 729, 90 S.E.2d at 843. The Prentice Court noted that:
"The conflict in the authorities results largely in the different viewpoints as to the degree of change necessary to satisfy the third requirement. It may be said, however, that mere manipulation or rearrangement of the raw materials is not sufficient; there must be a substantial, well-signalized transformation in form, quality and adaptability rendering the material more valuable for man's use . . . ."5
5 The degree of change needed can be illustrated by the contrast between a packing plant for hogs where the original product (the hog) comes out as hams, sausage, etc., and butchers or slaughterers who sell fresh meat without curing or changing the texture of the meat. The packing plant has been deemed a manufacturer, while the butchers and slaughterers have not. Prentice, supra, 197 Va. at 729, 90 S.E.2d at 842. See also 1976-1977 Report of the Attorney General at 284 (holding that a business producing ice cream from raw materials for sale to customers on the same premises is a manufacturer).
Id. 197 Va. at 730, 90 S.E.2d at 843.
The foregoing guidelines established by case law must be applied to your fact situation. If the process related to the herbs consists only of grading and packing, it is my opinion the company would be a merchant as to this portion of its business because no substantial change in the original materials occurs. Accordingly, this part of the company's business would be subject to the local merchants' capital tax. See 1976-1977 Report of the Attorney General at 283 (holding that the blending of fertilizer ingredients is not manufacturing). If, however, the raw materials consist of plants which are dried, crushed, graded and packaged, such an operation would appear to meet the criteria for manufacturers exempt from the tax.
As to the other activities of the company, I find that the selling of scrap metal or junk items, including parts from cars, is a merchant's activity subject to the local tax on merchants' capital, because the items are not transformed in any way prior to their sale. By way of contrast, the crushing and compacting of scrap metals results in a substantial transformation in the form and adaptability for use of the original material. I, therefore, conclude that this part of the business is manufacturing exempt from the local tax on merchants' capital.
1 The January one tax day is not controlling as to fiscal year localities ( see § 58-851.7) or localities which prorate personal property taxes as authorized under § 58-835.1.
2 Sections 58-9, 58-10 and 58-832 segregate for local taxation the capital of merchants. §58-833 defines merchants' capital to include "inventory of stock on hand . . . and all other taxable personal property of any kind whatsoever, except money on hand and on deposit and except tangible personal property not offered for sale as merchandise . . . ."
3 The inventory of manufacturers is subject to a State tax on intangible personal property pursuant to § 58-405. For tax years beginning January 1, 1985, this State tax is effectively eliminated via repeal of the rate section. See Ch. 729, Acts of Assembly of 1984.
Attorney General's Opinion