Tax Type
BPOL Tax
Description
Tax on machinery and tools
Topic
Basis of Tax
Property Subject to Tax
Date Issued
01-09-2002
January 9, 2002
Re: Taxpayer:
Locality Assessing Tax:
Appeal of Local Business Taxes
Dear *****
This final determination is issued upon an application for correction of an assessment of tangible personal property taxes filed by ***** (the "Taxpayer"). The assessment was made by the Commissioner of Revenue of the ***** (the "City").
The local business tangible personal property tax, the merchant's capital tax and the machinery and tools tax (the "Local Business Taxes") are imposed and administered by local officials. Code of Virginia § 58.1-3983.1(D) authorizes the department to issue determinations on taxpayer appeals of assessments of Local Business Taxes. On appeal, the local assessment is deemed prima facie correct. In other words, the assessment will stand unless the taxpayer proves that it is incorrect. Code of Virginia § 58.1-3983.1(B).
The following determination is based on the facts presented to the department by the Taxpayer and the City as summarized below. Copies of cited sources are enclosed.
FACTS
The Taxpayer distributes a weekly periodical containing advertisements placed by the general public for the sale of property. The Taxpayer does not charge a fee for the placement of these advertisements. Additionally, the periodical contains paid business advertising.
The periodical is edited and formatted on a desktop personal computer. Advertisements are received by telephone, facsimile, email or mail and are typed or electronically entered into a desktop personal computer. A proof copy is created by printing each page on a computer printer and "waxing" it. The proof copy is sent to an unrelated printer in another locality for mass printing. The periodical is distributed by the Taxpayer and independent contractors.
The City has traditionally imposed the local tangible personal property tax authorized by Code of Virginia § 58.1-3500 on the Taxpayer's personal property. The Taxpayer appeals an assessment of tangible personal property taxes made by the City. The Taxpayer contends that it is a manufacturer and that its property should be subject to the local machinery and tools tax authorized by Code of Virginia § 58.1-3507, instead of the tangible personal property tax.
Code of Virginia § 58.1-3507 provides that the rate of tax on machinery and tools shall not exceed the rate imposed upon the general class of tangible personal property. The City imposes the machinery and tools tax at a lower rate than that which it imposes upon the general class of tangible personal property.
ANALYSIS
The Code of Virginia does not define the term "manufacturing" for purposes of the local license tax or the machinery and tools tax. The courts have developed a three-element test. Manufacturing requires that: (1) an original material (2) be processed and (3) changed substantially into a product of a different character from the original material. See 2000 BPOL Guidelines, Appendix A.
The department has applied the manufacturing test to printers and related businesses in Public Document (P.D.) 99-200 (July 23, 1999), P.D. 99-239 (August 23, 1999) and P.D. 99-264 (September 30, 1999). Under Virginia law, "printers" have generally been considered manufacturers. However, the classification of printers as manufacturers has been limited to printing in the traditional sense, in which presses of various types are used. See P.D. 99-264.
In limited circumstances, the department has determined that activities that would not be considered printing in the traditional sense might still be considered manufacturing. For example, in P.D. 99-200, the department opined that a taxpayer that made camera-ready proofs of books from original manuscripts in a very complicated and time consuming process was a manufacturer.
However, the department's opinion in P.D. 99-200 has been circumscribed by later rulings. P.D. 99-230 explains that "(a)s a general rule, typesetting, editing, or graphic design processes, by themselves, are neither printing nor manufacturing processes." Additionally, P.D. 99-264 opines that "desk top publishing . . . does not meet the criteria set forth in P.D. 99-200".
The question of whether or not a business is engaged in printing can only be determined on a case-by-case basis. See P.D. 99-239. The City has reviewed the facts of this case and determined that the Taxpayer is not a printer and not a manufacturer. Under Code of Virginia § 58.1-3983.1(B), this determination is presumed to be correct. As the Taxpayer has not presented, nor am I aware of, facts or legal precedent that prove that the City's assessment is incorrect, it is my determination that the assessment is correct.
If you have any questions about this final determination, you may contact ***** Tax Policy Analyst, in the department's Office of Policy and Administration, Policy Development, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
PD/34208
Rulings of the Tax Commissioner