10-236 | Virginia Tax

Tax Type

BTPP Tax

Description

Vertically integrated manufacturer engaged in substantial manufacturing activities.

Topic

Classification

Records/Returns/Payments

Date Issued

09-30-2010

September 30, 2010

Re: Appeal of Final Local Determination
Taxpayer: *****
Locality: *****
Business Tangible Personal Property (BTPP) Tax

Dear *****:

This final state determination is issued upon the application for correction filed by ***** (the "Taxpayer") with the Department of Taxation. The Taxpayer appeals assessments of business tangible personal property (BTPP) taxes issued to the Taxpayer by the ***** (the "County") for tax years 2006 through 2009.

The BTPP tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D 1 authorizes the Department to issue determinations on taxpayer appeals of BTPP tax assessments. On appeal, a local tax assessment is deemed prima facie correct, i.e., 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 Code of Virginia sections and public documents cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov.

FACTS

The Taxpayer operates a poultry processing business in the County. Upon examination, the County classified the Taxpayer's operations and assessed the Taxpayer's BTPP accordingly. The Taxpayer contested the assessment. In its final determination, the County conceded that the Taxpayer did conduct some manufacturing activities at the facility in the County, but found that such activity was not substantial.

The Taxpayer appeals the local determination to the Tax Commissioner, contending that substantial manufacturing activities were conducted at the facility in the County during the taxable years at issue. Further, the Taxpayer argues that it is a vertically integrated manufacturer engaged in substantial manufacturing activities.

ANALYSIS

The issue of whether the particular activities of a taxpayer in a jurisdiction can be separated from the company as a whole for purposes of taxation was addressed by the Virginia Supreme Court in City of Winchester v. American Woodmark, 250 Va. 451, 464 S.E.2d 148 (1995). In that decision, the Court found that the applicable law did not require capital be used in a manufacturing facility in the locality to be used in a manufacturing business. This ruling was based in part on an earlier ruling, County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 389 S.E.2d 890 (1989), in which the Court found:

- When a party is engaged in both manufacturing and non-manufacturing activities, it will nonetheless be classified as a manufacturer for tax purposes if the manufacturing portion of its business is substantial.

In Public Document (P.D.) 02-1 (01/04/2002), the Department found that a taxpayer had factually demonstrated the substantiality of the manufacturing portion of its business. Further, the Department found that the activities of the taxpayer constituted a single business and must be treated as such for purposes of local business license taxation. The Department similarly ruled with regard to the BTPP tax and machinery and tools (M&T) tax in P.D. 08-80 (6/6/2008).

Thus, if the Taxpayer is a vertically integrated business, the activities that occurred at the Taxpayer's facility in the County are not the sole consideration for the purposes of personal property taxation. If the Taxpayer can show that it conducted substantial manufacturing activities as a single business, the facility in the County would be considered to be a manufacturing business.

As a manufacturer, the Taxpayer's machinery and tools used directly in the manufacturing process in the County are subject to the County's M&T tax. All other tangible property located in the County, with the exception of motor vehicles and delivery equipment, would be considered to be intangible, and segregated for state taxation only. See Va. Code § 58.1-1101.

DETERMINATION

During the tax years in question, the Taxpayer asserts that it was a vertically integrated business that conducted substantial manufacturing activities. However, the Taxpayer has failed to provide sufficient documentation to substantiate its assertion. In accordance with this determination, the Taxpayer must provide the County evidence to show it was a vertically integrated manufacturer that conducted substantial manufacturing activities during the 2006 through 2009 tax years. The Taxpayer should provide such evidence to the County within 45 days of the date of this determination.

I am remanding this case to the County with instructions to hold collection action on the BTPP tax assessments for the 2006 through 2009 tax years pending the receipt of evidence to be provided by the Taxpayer. If the required documentation is not provided within the time allowed, the assessments will be upheld as issued and the County may proceed with collection action.

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

- - - - Sincerely,

- - - - Craig M. Burns
        Acting Tax Commissioner

AR/1-4198411233.o

Rulings of the Tax Commissioner