Tax Type
BPOL Tax
Description
Manufacturing engaged in commercial printing
Topic
Basis of Tax
Local Power to Tax
Property Subject to Tax
Date Issued
04-17-2002
April 17, 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 proper classification of the ***** (the "Taxpayer") for BPOL tax purposes.
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 is a multi-national company that has a printing facility and an administrative office building in the ***** (the "Town"). The Taxpayer is headquartered in another state and operates three other facilities, two of which are in other countries. You state that the Town has historically treated the Taxpayer as a non manufacturer for business license tax purposes.
The Taxpayer prints complex color graphics and text on roles of plastic ranging in gauge for a variety of end users, including poultry producers, vegetable producers, and pharmaceutical companies. It operates several different sized four-color presses, each of which is capable of operating at different speeds. The number of presses in the facility enables the Taxpayer to run several different jobs simultaneously.
The printing press used for a particular job is selected according to the complexity of the colors used in the graphic design and text chosen for imprinting on the packaging. The roll of plastic is processed through the presses where the various graphics and text are added through a series of injections of inks and dyes.
The Taxpayer's facility also separates the final printed designed labels into (i) smaller units, (ii) c-folded packaging, or (iii) in the case of vegetable bags, subjects it to hot needle perforation, depending upon the requirements of the customer. The end product is then shipped to the customer (the poultry producer, the vegetable producer, the pharmaceutical manufacturer, etc.) for use in packaging its products.
The Taxpayer has a graphics design office and a sales force on site. It sells its pre-ordered products to other wholesalers from the place of manufacture, and it also ships at wholesale from the facility. It also maintains a small administrative office on the site.
OPINION
Definition of a Manufacturer
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.
Nonetheless, for local license tax purposes, the Supreme Court of Virginia has developed a test involving three essential elements in determining whether 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. 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.
Printing as Manufacturing
In Public Document (P.D.) 99-200 (July 23, 1999), the department held that a printer is a manufacturer provided it meets the criteria for manufacturing. Moreover, in the 1997 BPOL Guidelines § 6.7 1 a job printer was classified as a manufacturer engaged in either retail or wholesale sales as to the sales of the items printed.
In another case addressing the question of when a printer is a manufacturer, the department found in P.D. 99-239 (Aug. 23, 1999) that:
-
- [t]he term "job printer" does not lend itself to a rigid definition. In general, 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. (Citation of numerous references found in Heidelberg Central, Inc. v. Director of the Department of the Revenue of the State of Missouri, 476 S.W.2d 502 [1972]).
Conclusion
In this instance, the Taxpayer takes a plain roll of plastic, subjects it to a printing press that incorporates the complex colors of the graphic design and text to produce a product that is substantially different from the initial product. Additionally, three different final types of packaging can emerge from this process: the smaller cut packages, c-folded packaging and the hot needle perforated packaging, each incorporating a design and text that is specific to the customer's needs on any given job. Given these facts, it is my opinion that the Taxpayer meets the three-pronged test of a manufacturer as set forth in Brown Boveri. Moreover, the Taxpayer is engaged in commercial printing on order, thus qualifying the Taxpayer as a "job printer." Under P.D. 239, a job printer is generally considered to be manufacturing.
Provided the Taxpayer is selling at wholesale from the place of manufacture, it is exempt from BPOL taxation. The local commissioner of the revenue must make a determination as to whether or not the sales are being made at wholesale from the place of manufacture. These determinations are dependent upon the facts and circumstances surrounding the sales.
I hope this is helpful. If you have any questions regarding this opinion, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely
Danny M. Payne
Tax Commissioner
AR/38019H
1 This definition was dropped from the 2000 BPOL Guidelines because it had been fully incorporated in P.D. 99-239.
Rulings of the Tax Commissioner