Tax Type
BPOL Tax
Description
Manufacturing exempt from the BPOL tax
Topic
Local Power to Tax
Local Taxes Discussion
Property Subject to Tax
Date Issued
03-07-2002
March 7, 2002
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear *****
This is in response to your letter requesting an advisory opinion regarding the local license taxation of a business (the "Taxpayer") that operates a wood chipping plant in the ***** (the "Town").
The local license fee and tax 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 is based on 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. I have enclosed copies of cited material for your review.
FACTS
The Taxpayer states that it acquires trees and logs from unaffiliated parties and transforms them into wood chips. The Taxpayer maintains that such activity is manufacturing and, therefore, is exempt from the BPOL tax under the Code of Virginia § 58.1-3703(C)(4). The Town inquires if this activity is subject to the BPOL tax.
OPINION
Code of Virginia § 58.1-3703(C)(4) states 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.
Manufacturing is not defined in the BPOL statute. However, in Prentiss v. City of Richmond, 197 Va. 724 (1956), the Supreme Court of Virginia offered a definition of manufacturing that has been used in subsequent cases. 1 Manufacturing occurs when: (1) an original product, (2) is subjected to a process, (3) whereby it is substantially transformed into a new and different product. In other words, "there must be a substantial, well-signalized transformation in form, quality and adaptability rendering the material more valuable for man's use than it was before." In Prentiss, the Court found that the mere "slaughtering of poultry, picking and cleaning it does not constitute such change as is essential to manufacturing."
The Attorney General has opined that while the mere grading and drying of herbs would not constitute manufacturing, the drying, crushing, grading and packing of herbs would "appear to meet the criteria of manufacturing." 1984-1985 Op. Att'y. Gen. 398, 400. In the case of a seafood business that engaged in various forms of processing activities involving fish and shellfish, (shelling, boning, steaming, deveining, filleting and packaging the end products in containers for sale) the Attorney General opined that "a seafood manufacturer who transforms a product from one that is unusable by consumers into one that is usable and substantially different in character, would, in my opinion, be a manufacturer." 1993 Op. Att y. Gen. 233.
In the situation you present, trees or logs are brought to the Taxpayer's operation for the purpose of producing wood chips. The operation would appear to meet the three-prong test for manufacturing as set forth above. The trees or logs are original materials that are subjected to a process, resulting in a substantially new and different product (wood chips). The Taxpayer's operations resemble those addressed in the Attorney General's opinions. Therefore, it is my opinion that the business at issue is engaged in manufacturing.
The question becomes, are the resulting products sold at wholesale from the place of manufacture? This is a necessary condition for a business to meet in order to qualify for the manufacturer's exemption under Code of Virginia § 58.1-3703(C)(4). This determination must be made by the local tax official.
I hope this information is helpful. If you have any questions regarding this opinion, you may
call ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/37463/H
1See, for example, Solite Corporation v. County of King George, 220 Va. 661 (1980) and County of Chesterfield v. BBC Brown Boveri, 238 Va. 64. (1989).
Rulings of the Tax Commissioner