Tax Type
BPOL Tax
Description
Manufacturer selling at wholesale from the place of manufacture
Topic
Basis of Tax
Local Power to Tax
Date Issued
10-06-2002
October 6, 2002
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) tax
Dear *****:
This is in response to your letter in which you request an advisory opinion regarding the BPOL tax liability of the ***** (the "Taxpayer"), which you describe as a printing establishment. The Taxpayer, located in the ***** (the "Town"), claims that it is a manufacturer selling at wholesale from the place of manufacture and, as such, is entitled to the exemption from the BPOL tax provided in Code of Virginia § 58.1-3703(C)(4). You ask if this exemption applies to the Taxpayer because its products are made on a custom basis and, therefore, are not for resale to a third party by the customers placing orders to be filled by the Taxpayer.
The local license fee and tax are imposed and administered by local officials. § 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 made 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 questions raised in your letter, this response is intended to provide advisory guidance only, and does not constitute a formal or binding ruling. Copies of the Code of Virginia, regulations and public documents cited are included for reference purposes. These and other reference documents are also available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us.
FACTS
The Taxpayer states that it "prints custom pocket folders, binders and folios on a custom order basis." It also states that it sells its products at wholesale from the place of manufacture.
The Town contends that the Taxpayer is engaged in retail, rather than a wholesale business, because the products printed on a custom order basis are "obviously not for resale to a third party by [theTaxpayer's] customers."
OPINION
Printers as Manufacturers
Under Code of Virginia § 58.1-3703(C)(4), Virginia localities are prohibited from imposing a license fee or tax "[o]n a manufacturer for the privilege of manufacturing and selling goods, wares and merchandise at wholesale at the place of manufacture." However, the BPOL statutes do not define the term "manufacturer" for purposes of the local business license tax.
In addressing the definition of "manufacturer" for local license tax purposes, the Supreme Court of Virginia has developed a test involving three essential elements in determining whether or not a manufacturing activity is being undertaken. These elements are: (1) original material, referred to as raw material; (2) a process whereby the original material is changed; and (3) a resulting product, which by reason of being subject to such processing, is different from the original material. See County of Chesterfield v. BBC Brown Boveri, 238 Va. 64 (1989). In summary, for BPOL purposes, a manufacturer means one engaged in a processing activity whereby the original materials are transformed into a product that is substantially different in character from the original materials.
Based on the information presented, the Taxpayer is a job printer. A job printer is one who engages in commercial printing, on order, and the production of business forms, books, blank books, pamphlets, advertising, calendars, bill heads, periodicals, etc., which is generally considered to be manufacturing. See P.D. 99-239 (08/23/99).
In Public Document (P.D.) 99-200 (7/23/99), the department held that a printer is a manufacturer provided it meets the criteria for manufacturing. Whether or not a printer is exempt from the BPOL tax is contingent upon whether or not the printer is selling its products at wholesale from the place of manufacture.
Sales at Wholesale
Factors used to discern the difference between a retail and wholesale sale are the characteristics of the purchaser and the purchaser's use of the merchandise and, to a lesser degree, the price and quantity of the product sold. See P.D. 98-160 (10/20/98), citing Dickerson G.M.C., Inc. v. Commonwealth, 206 Va. at 342. However, the 2000 BPOL Guidelines emphasize that "no single factor such as price, purpose, or place of sale may always distinguish between wholesale and other types of sales. [Emphasis added.] The Guidelines further state that a sale to an individual consumer for the consumer's own personal use is "never considered a wholesale sale for BPOL purposes regardless of whether the taxpayer sells the item at a purported ‘wholesale price’." On the other hand, sales to a government, institutional, business or industrial entity for consumption, use or incorporation in an assembly, manufacturing or processing operation are wholesale sales. See 2000 BPOL Guidelines § 5.3.2.
From the facts presented, it is clear that the Taxpayer is a manufacturer. However, to qualify for the manufacturer's exemption from the BPOL tax, the Taxpayer must be selling its product at wholesale from the place of manufacture. The fact that a print job is "custom" does not, by itself, mean the sale cannot qualify as a wholesale sale. The local commissioner of the revenue must determine whether or not the Taxpayer's sales are at wholesale or retail based on all the facts and circumstances.
I hope this information has been helpful to you. If you have any questions regarding this opinion, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely
Kenneth W. Thorson
Tax Commissioner
AR/40769H
Rulings of the Tax Commissioner