November 7, 2025
Re: Appeal of Final Local Determination
Taxpayer: *****
Locality Assessing Tax: County of *****
Business Tangible Personal Property Tax
Machinery and Tools Tax
Dear *****
This final state determination and notice of jurisdiction is issued upon the application for correction filed by you on behalf of ***** (the “Taxpayer”) with the Department of Taxation. You are appealing assessments of business tangible personal property (BTPP) tax issued to the Taxpayer by the County of ***** (the “County”) for the 2015 through 2024 tax years.
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, 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 cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website.
FACTS
The Taxpayer operated an ice cream business in the County. On its 2023 Business Filing Return filed with the County, the Taxpayer claimed status as a manufacturer. As a result, the listed equipment was initially assessed at Machinery and Tools (M&T) tax rates. Under review, however, the County disallowed the Taxpayer’s claimed manufacturer designation and issued an assessment for additional BTPP tax due.
The Taxpayer verbally appealed to the County, a site visit was conducted, and the County issued a purported final local determination, concluding that the Taxpayer’s operations did not constitute manufacturing. The Taxpayer appealed to the Department, contending that it was a manufacturer. The Taxpayer also requested that this qualification be retroactively applied to reduce its BTPP tax liability for the 2015 through 2022 tax years.
In Public Document (P.D.) 24-150 (11/14/2024), the Department determined that it did not have jurisdiction to consider the Taxpayer’s appeal since the local administrative appeal process was incomplete. The Department instructed the Taxpayer to file a local appeal of the 2023 assessment and, if the County issued a determination with which the Taxpayer disagreed, the Taxpayer would then be eligible to appeal to the Department. The Department also advised the Taxpayer that it would need to request a refund of tax for the 2015 through 2022 tax years before the local appeals process could begin.
Subsequent to the Department’s determination, the County issued an assessment of BTPP tax for the 2024 tax year. In December 2024, the Taxpayer appealed to the County contending that it was a manufacturer and requesting this status be applied to reduce its BTPP tax liability for the 2015 through 2024 tax years. In February 2025, the County issued a final determination, upholding the assessments on the basis that the Taxpayer was not engaged in manufacturing. The Taxpayer filed an administrative appeal with the Department, claiming that it qualified as a manufacturer for each of the tax years at issue.
ANALYSIS
Jurisdiction
2015 Through 2020 Tax Years
The Taxpayer requested a refund from the County in December 2024 for the 2015 through 2020 tax years. Pursuant to Virginia Code § 58.1-3990, a locality cannot issue a refund for requests made more than three years after the last day of the tax year so assessed. As such, the refund request for the 2015 through 2020 tax years is outside the limitations period. The Department does not have jurisdiction to address an appeal in which a locality also lacks jurisdiction. See P.D. 19-111 (9/27/2019).
2021 And 2022 Tax Years
Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes “may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof.” Under this procedure, if the taxpayer disagrees in whole or in part with the local assessing officer’s determination, the taxpayer may then seek correction with the circuit court under the provisions of Virginia Code § 58.1-3984.
Virginia Code § 58.1-3983.1 B 1 provides that any person assessed with a “local business tax ... may appeal such assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of such assessment, whichever is later, to the commissioner of the revenue or other assessing official.” Under this provision, if the taxpayer’s appeal is denied in part or completely by the local assessing official, the taxpayer may, within 90 days, appeal the assessment to the Department. For purposes of this section, the denial of a refund claim constitutes an assessment which triggers the running of the one year period within which the taxpayer may file a local appeal.
In this case, the Taxpayer requested a refund of BTPP tax paid for the 2021 and 2022 tax years in its December 2024 appeal to the County. The County issued a response denying the refund claim, and the Taxpayer should now be afforded an opportunity to participate in the local appeals process. Until the local appeals process is complete, the Department does not have jurisdiction over the refund claims for the 2021 and 2022 tax years. See P.D. 22-113 (6/21/2022).
2023 And 2024 Tax Years
The Taxpayer filed its local appeal with the County in December 2024 for the 2023 and 2024 BTPP tax assessments as permitted under Virginia Code § 58.1-3983.1. The County issued a final determination which met the requirements of Virginia Code § 58.1-3983.1 B 5. The Taxpayer submitted its appeal of that final determination to the Tax Commissioner within 90 days. As such, the Department has jurisdiction to address the Taxpayer’s appeal for the 2023 and 2024 tax years.
Manufacturing
All tangible personal property, unless declared intangible under the provisions of Virginia Code § 58.1-1100 et seq., is reserved for local taxation by Article X § 4 of the Constitution of Virginia. Included in the category of tangible property that is declared intangible and subject to state taxation only is “[c]apital 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 ) . . . .” See Virginia Code § 58.1-1101 A 2.
The machinery and tools, motor vehicles, and delivery equipment of a manufacturing business are not defined as intangible personal property. Such property is to be taxed locally as tangible personal property. Virginia has elected to create a separate classification of tangible personal property for machinery and tools used in manufacturing. Virginia Code § 58.1-3507 A also provides:
Machinery and tools . . . used in a manufacturing . . . 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 definition of a “manufacturer” is not 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). See also Prentice v. City of Richmond, 197 Va. 724 (1956). As such, for local tax purposes, a manufacturer is 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.
In this case, the Taxpayer contends that it meets the definition of manufacturer because it took various ingredients and transformed them into substantially different products. The County asserts that the Taxpayer was not a manufacturer because it started with an ice cream mix and ended with ice cream.
In 1976-1977 Op. Atty. Gen. Va. 284 (1976-1977), the Attorney General opined that a business producing ice cream from raw materials and selling the ice cream on the same premises to consumers was a manufacturer. In addition, the Supreme Court of Virginia held that the slaughtering, picking, and cleaning of poultry does not constitute manufacturing because there was no change or transformation of the live poultry into an article or product of substantially different character. See Prentice at 731. However, the curing of hams and bacon was held to be manufacturing because “[t]he color . . . is changed; its texture is changed; its taste is changed; putrefaction is prevented, and it may be kept wholesome for an indefinite time.” See Commonwealth v. Meyer, 180 Va. 466, 473 (1942).
The Taxpayer states that it made a variety of frozen desserts, including ice cream, gelato, sherbet, sorbet, frozen yogurt, and ices, that were sold in the Taxpayer’s retail stores and as wholesale products to other businesses. The Taxpayer indicates that its process for making ice cream and some of its other products began with a plain refrigerated liquid dairy mix containing milk, cream, sugar, emulsifiers, and stabilizers. The Taxpayer added other ingredients to the dairy mix and transformed the mix and other ingredients into a flavored, textured, frozen dessert by a precise and complex process involving freezing, agitation, and activation of emulsifiers and stabilizers. The Taxpayer contends that the dairy mix had no semblance to ice cream and was only one of many ingredients used in the final product. According to the Taxpayer, the dairy mix was generally not available to the public nor did it have any retail purpose or usage other than as an ingredient to make ice cream and other frozen desserts. Further, the Taxpayer did not use the dairy mix in all of its products and sometimes made its own dairy mix.
The County argues that the dairy mix was just a form of ice cream and, since the Taxpayer’s final product was ice cream, the Taxpayer was merely manipulating the materials rather than transforming the materials into a product of substantially different character. As the Taxpayer points out, however, if the dairy mix and additional ingredients were merely mixed together and frozen, the resulting product would not be ice cream but rather an inedible block of ice.
The County admits that, if the Taxpayer were making its own dairy mix, rather than using a pre-made dairy mix, it would have been engaged in manufacturing because then the Taxpayer would have been starting with raw materials. In P.D. 16-118 (6/13/16), however, the Department emphasized that the standard for manufacturing is starting with “new material” or “original material.” As such, the manufacturing process does not necessarily have to begin with “raw material” in the traditional sense. Whatever the starting material is, a manufacturing activity occurs as long as the starting material is subjected to a process whereby it is changed into a substantially different material.
DETERMINATION
Based on the information provided, the Department has determined that the Taxpayer mixed original materials, subjected them to a transforming process, and the resultant product was substantially different from the original materials. As such, the Department finds that the Taxpayer was a manufacturer for local tax purposes. A manufacturer is subject to M&T tax on machinery and tools used directly in the manufacturing process.
The case will be remanded to the County in order to adjust the assessments of BTPP tax for the 2023 and 2024 tax years in accordance with this determination and issue updated bills or refunds, as warranted.
As discussed above, the Department does not have jurisdiction to decide the Taxpayer’s appeal for the 2021 and 2022 tax years on the merits. If the Taxpayer appeals the denied refunds for such years to the County, the parties are encouraged to consider the analysis and conclusions set forth in this determination in order to resolve the prior years’ claims. Finally, the Department lacks jurisdiction to address the taxpayer’s refund claims for the 2015 through 2020 tax years because more than three years had already passed before the Taxpayer made the claims at the local level.
If you have any questions regarding this determination you may contact ******* in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at ***** or *****@tax.virginia.gov.
Sincerely,
James J. Alex
Tax Commissioner
Commonwealth of Virginia
AR/5188.T