Document Number
Tax Type
Refunds due as a result of a correction in classification
Payment and Refund
Property Subject to Tax
Date Issued

August 26, 2005

Re: Appeal of Assessment: Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business Tangible Personal Property Tax

Dear *****:

This final state determination is issued upon the application for correction filed by you with the Department of Taxation on behalf of ***** (the "Taxpayer"). You appeal the ***** (the "County") classification of the Taxpayer's business and subsequent denial of a request for a refund of Business Tangible Personal Property (BTPP) taxes paid to the County.

The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a BTPP tax assessment is deemed prima facie correct. That is, the local assessment will stand unless the taxpayer proves that it is incorrect.

The following determination is based on the facts presented to the Department summarized below. Code of Virginia sections, regulations and public documents cited are available on-line in the Tax Policy Library section of the Department's web site, located at


The Taxpayer provides its customers with a linen service. The service consists of renting textile products to customers, regularly picking up the soiled products and replacing them with clean products of the same type. The soiled products are taken to the Taxpayer's facility where they are laundered, folded and prepared for future use by the Taxpayer's rental customers. Customers contract for specific types and quantities of textiles. Pricing is done on a per unit basis, measured specifically by the number of units laundered. In its appeal, the Taxpayer argues that it should be classified as either a laundry business or as a processor for purposes of tangible personal property taxation.

In its determination, the County found that because the Taxpayer does not accept articles owned by others for laundering and launders only its own textiles for the purpose of renting them to its customers, the Taxpayer is not a laundry business. Rather, the County found the Taxpayer to be a business service for both BPOL and BTPP tax purposes. The County assessed all of the Taxpayer's business tangible property, including its machinery and tools and the machinery and tools of the vendor, at the business tangible personal property rate.

The Taxpayer paid the BTPP taxes under protest. The Taxpayer appeals the assessment on the basis that the County erred in classifying the Taxpayer as a business service rather than as a laundry business for purposes of the BTPP tax. The Taxpayer seeks a refund of excess taxes paid based on the County's classification of its business.

The Taxpayer asserts that, as a laundry business, its tangible personal property should be classified as intangible property reserved for taxation by the state only, pursuant to Va. Code § 58.1-1101. As such, only the Taxpayer's machinery and tools would be subject to local taxation. In support of its position, the Taxpayer notes that 44.6% of its costs are attributed to its laundering activity, 93.7% of its fixed assets are attributable to plant and machinery used to launder textiles, and a substantial portion of its workforce is employed at the laundry facility.

Alternatively, the Taxpayer contends that it should be regarded as a processor, and the machinery and tools in its laundry facility should be subject to the machinery and tools ("M&T") tax rate, pursuant to Va. Code § 58.1-3507. The County's ordinances provide for a lower rate of taxation for machinery and tools than the rate applied to the general classification of tangible personal property.

The Taxpayer leases much of the machinery and tools used in its laundry facility from an outside vendor. The Taxpayer's contract with the vendor stipulates that the Taxpayer shall reimburse the vendor for tangible personal property taxes paid to the County for the leased equipment. The Taxpayer asserts that the leased machines should also be assessed at the M&T rate.


Tangible and Intangible Personal Property

Article X, § 4 of the Virginia Constitution provides that all tangible personal property shall be segregated for local taxation in such a manner as the General Assembly provides for by law. Virginia Code § 58.1-1101 classifies certain property that is tangible in fact as intangible and segregates that property for state taxation only. Intangible property consists of, in part:
    • Capital which is personal property, tangible in fact, used in manufacturing (including, but not limited to, furniture, fixtures, office equipment and computer equipment used in corporate headquarters), mining, water well drilling, radio or television broadcasting, dairy, dry cleaning or laundry businesses. Machinery and tools, motor vehicles and delivery equipment of such businesses shall not be defined as intangible personal property for purposes of this chapter and shall be taxed locally as tangible personal property according to the applicable provisions of law relative to such property . . . . [Emphasis added.]

At issue is whether the Taxpayer should be classified as a "laundry business" pursuant to the provisions of Va. Code § 58.1-1101. While both linen supply businesses and laundry businesses are considered to be in the same general industry sector under the North American Industrial Classification System ("NAICS"), they are classified separately. Under the NAICS, linen supply companies (812331) are defined as businesses "primarily engaged in supplying, on a rental or contract basis, laundered items, such as uniforms, gowns and coats, table linens, bed linens, towels, clean room apparel, and treated mops or shop towels."

Laundry businesses have a separate NAICS classification (812320). Businesses in this classification are defined as being "primarily engaged in one or more of the following: (1) providing dry cleaning services (except coin-operated); (2) providing laundering services (except linen and uniform supply or coin-operated); (3) providing drop off and pickup sites for laundries and/or drycleaners; and (4) providing specialty cleaning services for specific types of garments and other textile items (except carpets and upholstery), such as fur, leather, or suede garments; wedding gowns; hats; draperies; and pillows." [Emphasis added.] The Taxpayer's business, that of linen supply, is specifically excluded from this classification.

In 1982, the General Assembly amended Va. Code § 58-405 (recodified in § 58.1-1101 in 1984) to include dry cleaning and laundry businesses in the classification of those businesses owning capital that is tangible in fact, but considered to be intangible for purposes of property taxation. The 1982 amendments did not include linen supply service businesses in this limited classification. In examining statutory construction, the Virginia Supreme Court has emphasized that "when a statute is clear and unambiguous, its plain meaning must be accepted without resort to extrinsic evidence or to the rules of construction. Legislative intent is determined from the plain meaning of the words used." City of Richmond v. Confrere Club of Richmond, Virginia, Inc., 239 Va. 77, 387 S.E.2d 471 (1990). Here, the General Assembly included only dry cleaning and laundry businesses in the special classification under Va. Code § 58-405, and did not include linen supply businesses.

The Taxpayer holds itself out as a linen service, not as a laundry business in both its Internet and traditional advertising mediums. An examination of other linen services reveals that some, like the Taxpayer, have their own laundry facilities, whereas others contract with commercial laundry businesses to launder the textiles they rent to customers. In both cases, customers of the linen services are contracting for the supply of fresh linen, not the laundry service. The Taxpayer states that while it does take in some outside laundry, that portion of its business is "insignificant." Consequently, the Taxpayer cannot be considered to be a laundry business for the purposes of Va. Code § 58.1-1101.


Alternatively, the Taxpayer asks that it be classified as a processor for purposes of tangible personal property taxation. As such, its machinery and tools would be subject to the M&T tax under the provisions of Virginia Code § 58.1-3507 A. This section provides:
    • Machinery and tools . . . used in a . . . processing or reprocessing . . . business shall be listed and are hereby segregated as a class of tangible personal property separate from all other classes of property and shall be subject to local taxation only. The rate of tax imposed by a county, city or town on such machinery and tools shall not exceed the rate imposed upon the general class of tangible personal property. [Emphasis added.]

The Supreme Court of Virginia has determined qualifying characteristics of processors to be far less restrictive than those applied to manufacturers. In Commonwealth of Virginia, Department of Taxation v. Orange-Madison Cooperative Farm Service, 220 Va. 655, 261 S.E.2d 532 (1980), the Court turned to the plain meaning of the definition as found in Webster's Third International Dictionary (1966), finding that processing "merely requires that the product undergo a treatment rendering the product more marketable or useful."

In the present case, the Taxpayer's laundry facility takes soiled linens it rents to customers and cleans them so that they are rendered more useful to the Taxpayer's customers.

Title 23 of the Virginia Administrative Code 10-210-860, the sales and use tax regulation applying to linen supply companies, provides an exemption for:
    • Tangible personal property including machinery, tools, repair parts or replacements thereof and supplies and materials used directly by an industrial processor engaged in maintaining and preparing textile products for rental or lease . . . . [Emphasis added.]

That is, for purposes of the sales and use tax, linen supply companies are regarded as industrial processors. I see no reason to classify such companies differently for purposes of the tangible personal property tax.

Machinery and Tools Leased from Vendor

The Taxpayer leases much of the machinery used in its facility from a third party vendor. This property was also assessed at the BTPP rate. The Taxpayer contends that, because the property is actually used in the laundering process, it too should be subject to the M&T tax rate. In City of Martinsville v. Tultex Corporation, et al., 238 Va. 59, 381 S.E.2d 6 (1989), the Court examined the taxation of leased equipment used in a manufacturing business. In the decision, the Court concluded that the test was "whether the property is in fact 'used or employed in a manufacturing . . . business,' not necessarily how the owner uses the property." 1

That is, the test to be used in classification for purposes of the tangible personal property taxation is use of the property, not ownership, even though the owner is liable for the tax.


For BTPP tax classification purposes, a linen service business is separate and distinct from a laundry business. In adding dry cleaning and laundry businesses to the list of property that is tangible in fact but classified as intangible, the General Assembly did not include the linen service business. It is my determination that the County was correct in its assessment of the Taxpayer's business tangible personal property other than its machinery and tools.

The Taxpayer is, however, engaged in processing at its laundry facility. As such, the Taxpayer's machinery and tools used in processing are segregated for special classification under the provisions of Virginia Code § 58.1-3507 A.

Likewise, the machinery and tools it leases from a vendor are subject to the special machinery and tools tax rate. The vendor, not the Taxpayer, would be the recipient of any refunds due as a result of a correction in classification.

I am returning this matter to the County with the instruction to refund the Taxpayer the incremental tax it paid on the machinery and tools used in processing the linens, and to refund the vendor the incremental taxes it paid for machinery and tools leased to the Taxpayer. The Taxpayer and the vendor must resolve any refunds to the Taxpayer from the vendor for monies reimbursed to the vendor.

If you have any questions about this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
                    • Sincerely,

                • Kenneth W. Thorson
                  Tax Commissioner


1In this case, the Court was deciding whether the property in question should be classified as business tangible personal property or as capital regarded as intangible property for purposes of local taxation. The dispute was whether ownership or use of the property was the controlling factor in determining classification of tangible personal property for local tax purposes. The same principles apply in this case.

Last Updated 08/25/2014 16:46