Tax Type
BPOL Tax
Description
Paper converting unit/sheeting facilit; Manufacturing
Topic
Basis of Tax
Local Power to Tax
Local Taxes Discussion
Date Issued
05-20-2002
May 20, 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 on the BPOL tax classification of ***** (the "Taxpayer"), a multinational corporation that operates a paper converting unit or sheeting facility in the ***** (the "City"). You ask whether the activities at this facility should be considered manufacturing and therefore exempt from the BPOL tax as provided for in Code of Virginia § 58.1-3703.
The local license fee and tax are imposed and administered by local officials. 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 and other 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
You state that the Taxpayer receives rolls of paper and board weighing 4,000 pounds to 6,000 pounds via rail from the manufacturer. These rolls are placed in a raw material inventory until orders are received for specific sheet sizes as required by the merchants for sale to their customers.
The large rolls are cut to the specific sizes specified by the Taxpayer's customers. This process is called "sheeting." During this process, the Taxpayer is responsible for the quality of the product, testing the sheet caliper and basis weight, sheet color, and sheet size, cut quality and surface defects. After sheeting, the product is sent either to the skid wrap line for bulk packaging or to the ream wrap line for packing into packages of 100 sheet reams.
In the ream wrap operation, the sheets are wrapped into vapor barrier wrapper in packages of 100 sheets and then prepared for shipping to the merchant who will sell the product to small printers. The product coming from the sheeter that is to be bulk packed goes directly to the shrink-wrap line to be packaged and labeled and prepared for shipment to the merchant who distributes the product to commercial printers.
The Taxpayer also has a roll-rewinding process that converts large rolls of paper and board into sizes that will be useable by the end user. These rolls are prepared for export shipment and sent to merchants around the world for distribution to the customer, who usually prints and converts the roll for the end user.
OPINION
Manufacturing
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.
The term "manufacturing" is not defined in the Code of Virginia. However, 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) 1
Based on the facts presented, the Taxpayer is merely cutting and packaging rolls of paper. Therefore, it appears that the third element of the test cited above (a resulting product, which by reason of being subject to such processing, is different from the original material) is not satisfied. Accordingly, it is my opinion that the Taxpayer does not qualify as a manufacturer for purposes of BPOL taxation.
I hope this information is 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/39053H
1BBC Brown Boveri cited Solite Corp. v King Georges County, 220 Va. 661 (1980), as the precedent for this finding. .
Rulings of the Tax Commissioner