Tax Type
Intangible Personal Property Tax
Description
Farm winery inventory; Capital not otherwise taxed
Topic
Property Subject to Tax
Date Issued
06-05-1985
June 5, 1985
Re: Section 58.1-1821 Application: CNOT
Dear ****
This will reply to your letter of March 7, 1985 in which you seek relief of assessments of Virginia tax on capital not otherwise taxed against ***** (1982) and ***** (1983 and 1984) (together, "Taxpayer").
FACTS
Taxpayer is a farm winery which makes wine from grapes. Taxpayer asserts that wine is an agricultural product until it leaves the premises of the first processor.
DETERMINATION
Until exempted from taxation effective January 1, 1985, Section 58-405 (now Sections 58.1-1100 and 58.1-1101) of the Code of Virginia imposed a state intangible personal property tax on inventory of a manufacturer. Meanwhile, Virginia Code Section 58-829 (rewritten as Section 58.1-3500, effective January 1, 1985) authorized localities to impose a tax on tangible personal property. Virginia Code '§58-829.1:1 A.l (rewritten as Section 58.1-3505C, effective January 1, 1985) provides that "Grain, tobacco and other agricultural products shall be exempt from taxation while in the hands of a producer."
Thus, the issue is whether the wine made by Taxpayer is the product of manufacturing or is an agricultural product.
In an opinion dated November 30, 1982 to the Honorable Esten 0. Rudolph, Jr. concerning classification of certain storage tanks used in a farm winery, the Attorney General wrote the following:
Manufacturing involves the change or transformation of the original raw material "into an article or product of substantially different character...." Prentice v. City of Richmond, 197 Va. 724, 731, 90 S.E.2d 839, 843 (1956), Grape juice has little resemblance to the original raw material (here grapes) and is substantially different in "form, appearance, taste and use..." than the original raw material. City of Richmond v Richmond Dairy Co., 156 Va. 63, 75, 157 S.E. 728, 32 (1931); see, also, Commonwealth v. Meyer, 180 Va. 466, 473, 23 S.E. 2d 353, 356 (1942). There-fore, the pressing of grapes is a manufacturing activity which occurs after the cessation of farming.
Therefore as a manufacturing activity, the pressed grapes and the resultant wine represents inventory of a manufacturer and, thus, subject to the state intangible personal property tax.
Of course, effective July 1, 1984, Sections 58-405 and 58-829.1:1 were amended to exempt from intangible personal property tax wine while in the hands of a farm winery producer as defined in § 4-2(10a) and from tangible personal property tax wine produced by farm wineries as defined in § 4-2(10a). It is interesting to note that Virginia Code § 4-2(10a) in defining "farm winery" refers to "premises where the owner or lessee manufactures wine" (emphasis added). Also, as ***** noted in his letter of September 21, 1984 to ***** when the General Assembly amends a statute by adding a new provision, it is presumed that the General Assembly acted with full knowledge of the existing law, and the courts will construe the amendment as having made some change in the existing law. Such being the case, the fact that such wine is exempt after July 1, 1984 weakens the argument that it was exempt before July 1, 1984.
Based on the foregoing, I find no grounds to adjust the original assessments, and the outstanding balance remains due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Re: Section 58.1-1821 Application: CNOT
Dear ****
This will reply to your letter of March 7, 1985 in which you seek relief of assessments of Virginia tax on capital not otherwise taxed against ***** (1982) and ***** (1983 and 1984) (together, "Taxpayer").
FACTS
Taxpayer is a farm winery which makes wine from grapes. Taxpayer asserts that wine is an agricultural product until it leaves the premises of the first processor.
DETERMINATION
Until exempted from taxation effective January 1, 1985, Section 58-405 (now Sections 58.1-1100 and 58.1-1101) of the Code of Virginia imposed a state intangible personal property tax on inventory of a manufacturer. Meanwhile, Virginia Code Section 58-829 (rewritten as Section 58.1-3500, effective January 1, 1985) authorized localities to impose a tax on tangible personal property. Virginia Code '§58-829.1:1 A.l (rewritten as Section 58.1-3505C, effective January 1, 1985) provides that "Grain, tobacco and other agricultural products shall be exempt from taxation while in the hands of a producer."
Thus, the issue is whether the wine made by Taxpayer is the product of manufacturing or is an agricultural product.
In an opinion dated November 30, 1982 to the Honorable Esten 0. Rudolph, Jr. concerning classification of certain storage tanks used in a farm winery, the Attorney General wrote the following:
Manufacturing involves the change or transformation of the original raw material "into an article or product of substantially different character...." Prentice v. City of Richmond, 197 Va. 724, 731, 90 S.E.2d 839, 843 (1956), Grape juice has little resemblance to the original raw material (here grapes) and is substantially different in "form, appearance, taste and use..." than the original raw material. City of Richmond v Richmond Dairy Co., 156 Va. 63, 75, 157 S.E. 728, 32 (1931); see, also, Commonwealth v. Meyer, 180 Va. 466, 473, 23 S.E. 2d 353, 356 (1942). There-fore, the pressing of grapes is a manufacturing activity which occurs after the cessation of farming.
Therefore as a manufacturing activity, the pressed grapes and the resultant wine represents inventory of a manufacturer and, thus, subject to the state intangible personal property tax.
Of course, effective July 1, 1984, Sections 58-405 and 58-829.1:1 were amended to exempt from intangible personal property tax wine while in the hands of a farm winery producer as defined in § 4-2(10a) and from tangible personal property tax wine produced by farm wineries as defined in § 4-2(10a). It is interesting to note that Virginia Code § 4-2(10a) in defining "farm winery" refers to "premises where the owner or lessee manufactures wine" (emphasis added). Also, as ***** noted in his letter of September 21, 1984 to ***** when the General Assembly amends a statute by adding a new provision, it is presumed that the General Assembly acted with full knowledge of the existing law, and the courts will construe the amendment as having made some change in the existing law. Such being the case, the fact that such wine is exempt after July 1, 1984 weakens the argument that it was exempt before July 1, 1984.
Based on the foregoing, I find no grounds to adjust the original assessments, and the outstanding balance remains due and payable.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner