Tax Type
BPOL Tax
Description
Retail and Manufactured Sales Discussed
Topic
Basis of Tax
Taxability of Persons and Transactions
Date Issued
08-08-2001
August 8, 2001
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear *****
This is in response to your request for an advisory opinion as to the appropriate tax treatment of ***** (the "Taxpayer") under the BPOL tax.
The local license tax and fee are imposed and administered by local officials. Section 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. The following opinion has been issued subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.
While addressing the issues raised in your submission, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. I have enclosed copies of cited material for your review.
FACTS
The Taxpayer is a corporation that both manufactures goods that it sells at wholesale to resellers and industry specific companies, and acts as a distributor of other companies' goods to the same customers. The Taxpayer proposes that the distributed sales be classified as retail sales and that the sale of manufactured items be classified as "manufactured sales."
OPINION
Code of Virginia § 58.1-3708(C)(4), the 2000 BPOL Guidelines, case law and various advisory opinions issued by the department offer guidance as to appropriate method of taxation of the various aspects of the Taxpayer's business.
Manufacturing
Code of Virginia § 58.1-3703(C)(4) provides that no county, city, or town shall impose a license fee or levy any license tax on a manufacturer for the privilege of manufacturing and selling goods, wares and merchandise at wholesale at the place of manufacture. Therefore, to the extent that the Taxpayer is a manufacturer and selling the goods at wholesale from its place of manufacture, it is exempt from the BPOL tax.1 However, sales at retail from the place of manufacture are not exempt from the BPOL tax.
Wholesale Sales
A wholesale sale is described in the 2000 Guidelines as follows:
-
- Wholesale trade is generally recognized as the selling at such prices and in such quantities to others who will then resell such goods either to ultimate consumers or further down the normal distribution chain. Wholesale trade may also include sales to industrial, commercial, or governmental users where goods sold will be used by the buyer in its productive processes. 2000 BPOL Guidelines § 5.3.2.
Distribution Centers
Generally, separate distribution centers are classified as wholesalers. Their gross receipts are usually measured by purchases. If the Taxpayer receives substantial gross receipts from the sale of those products that it receives from other manufacturers and sells at wholesale to retailers, the Taxpayer should apply for a separate license as a wholesaler. Further, if the Taxpayer is engaged in substantial activity in terms of sales and marketing of its own goods at the distribution center, away from the place of manufacture, then these activities would require the Taxpayer to obtain a separate license as a wholesaler.
Retail Sales
Finally, those sales that the Taxpayer makes directly to the ultimate consumer would be classified as retail sales, and potentially would require a separate business license. If the Taxpayer is not engaged in directly selling its manufactured items to the ultimate consumer, a retail license would not be required. See Caffee v. City of Portsmouth, 203 Va. 928, 930-31 (1962).
CONCLUSION
It is unclear from the facts presented as to whether or not the Taxpayer is licensable as both a wholesaler and a retailer. Therefore, using the background provided in this opinion, I would encourage the City and the Taxpayer to come to a resolution of the matter. The City may either impose separate licenses on each segment of the business, or tax those segments of the business that are licensable at the highest rate incurred by the Taxpayer, if it is amenable to such a methodology. (2000 BPOL Guidelines § 2.9.)
I hope this has been helpful to you. If the department can be of further assistance, please contact ***** in my Office of Tax Policy at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/31450H
1................The three-pronged test that guides the determination of "manufacturers" for BPOL tax purposes was set forth in a series of Virginia Supreme Court decisions. These decisions held that manufacturing is a three-part process which involves taking an original material, and subjecting it to a process which results in a product of substantially different than the original product. (See, for example, Commonwealth v. Meyer, 180 Va. 466 (1942), Prentice v. City of Richmond, 197 Va. 724, Solite Corp v. King Georges County, 220 Va. 661 (1980), and BBC Brown v. Boveri, 238 Va. 64 (1989). For purposes of this advisory opinion, I am assuming that the Taxpayer satisfies the established criteria and is considered a "manufacturer" for BPOL tax purposes.
Rulings of the Tax Commissioner