07-52 | Virginia Tax

Tax Type

BPOL Tax

Description

Taxpayer's business is an integrated part of its parent's business; Automotive parts

Topic

Classification

Local Power to Tax

Manufacturing

Date Issued

04-26-2007

April 26, 2007

Re: Application for Correction of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: *****
Business, Professional and Occupational License Tax

Dear *****:

This final state determination is issued upon the application for correction filed by you on behalf of ***** (the "Taxpayer") with the Department of Taxation. You appeal a final local determination made by the Commissioner of the Revenue of the ***** (the "County") denying a refund request for Business, Professional and Occupational License (BPOL) taxes paid for tax years 2001 through 2004.

The BPOL tax is imposed and administered by local officials. Virginia Code § 58.1-3703.1 authorizes the Department to issue determinations on taxpayer appeals of BPOL tax assessments. On appeal, a BPOL 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. The public document cited and other reference documents are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website.

FACTS

The Taxpayer is a wholly owned subsidiary of a manufacturer of automotive parts. The Parent manufactures alternators and other automotive parts in locations throughout the United States and in other countries. The Taxpayer handles alternators returned due to manufacturing flaws and trade-ins of worn out alternators. The Taxpayer disassembles the alternator, replaces broken and worn parts, and performs quality control testing on the "new" alternator. Essentially a new alternator is built, with the exception of the casing, which is usually cleaned and put on the "new" alternator.

In some cases, the entire rebuilding of the alternators occurs in the County. However, in many cases the work begins at the Taxpayer's facility in another locality and is completed in the County. Between 10 and 20 percent of the parts used in the rebuilding of the alternators are new; the remainder are refurbished parts. The Taxpayer then wholesales the remanufactured parts to retailers.

Although the majority of the Taxpayer's business is devoted to rebuilding alternators manufactured by the Parent, about 15% of the Taxpayer's business is rebuilding alternators for other manufacturers. These "new" alternators are also sold at wholesale under the Taxpayer's name or some other name to retail markets.

The County treats the Taxpayer as a manufacturer for purposes of personal property taxation, applying the machinery and tools rate to the Taxpayer's tangible personal property used in the remanufacture of the alternators. The County has determined that the Taxpayer is not a manufacturer for BPOL tax purposes, however. The Taxpayer appeals the County's determination.

ANALYSIS

The Department addressed this issue in an advisory opinion concerning the correct classification of the Taxpayer. See Public Document (P.D.) 02-76 (05/02/2002). In that opinion, citing County of Chesterfield v. BBC Brown Boveri 238 Va. 64, 380 S.E.2d. 890, (1989), the Department found that the Taxpayer should be classified as a manufacturer, and its sales at wholesale from the place of manufacture would be exempt from BPOL taxation if either of the two following conditions were present:

- 1. the "new" materials are manufactured at the Taxpayer's plant; or
  2. the company is integrated to such an extent that its activities cannot be segregated for purposes of local taxation.

In the present case, the alternators are indeed rebuilt or manufactured at the Taxpayer's location in the County. Furthermore, the Taxpayer's business is an integrated part of its parent's business, which in part, is the manufacture of alternators for sale at wholesale to retailers.

DETERMINATION

Based on the facts presented, I find no basis to overturn the Tax Commissioner's previous opinion that classified the Taxpayer as a manufacturer for purposes of the BPOL tax. I am remanding this to the County with the instruction to refund any excess taxes paid, including penalties and interest, to the Taxpayer.

If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.

- - - - Sincerely,

- - - - Janie E. Bowen
        Tax Commissioner

1-691206301H

Rulings of the Tax Commissioner