Tax Type
Retail Sales and Use Tax
Description
Reclassification as manufacturer denied
Topic
Exemptions
Date Issued
04-12-1990
April 12, 1990
Re: Request for Ruling/Sales and Use Tax
Dear ****
This will reply to your letter of March 6, 1990 in which you are seeking a reclassification of ***** (the Taxpayer) to an industrial manufacturer's status for sales and use tax purposes.
As a result of your appeal under Virginia Code §58.1-1821, it was determined on November 7, 1988 that the Taxpayer was classified under group number 73 of the Standard Industrial Classification Manual as a graphics design business, not as an industrial manufacturer. This determination was restated in my ruling of September 21, 1989. The Taxpayer is now requesting reconsideration based on a recent reclassification by the office of Assessments for **********x County for local business license tax purposes.
Virginia Code §58.1-3703(B)(4) states that no county, city or town shall impose a license tax "on a manufacturer for the privilege of manufacturing and selling goods, wares and merchandise at wholesale at the place of manufacture." The term "manufacturer" is not defined in the Virginia Code for purposes of the local business license tax. However, in Prentice v. City of Richmond, 197 Va. 724 at 729-730, the Virginia Supreme Court set forth three essential elements of manufacturing: "(1) original materials referred to as raw material; (2) a process whereby raw material is changed; and (3) a resulting product which, by reason of being subjected to the processing, is different from the raw material... ." The definition of manufacturing for local business license tax does not require a manufacturer to be "industrial" in nature.
The Virginia sales and use tax law requires a manufacturing operation to be "industrial" in nature in order to enjoy the manufacturing exemption. Virginia Code 58.1-602(9) defines "industrial in nature" to include, but not be limited to, "those businesses classified in codes 10 through 14 and 20 through 39 published in the Standard Industrial Classification Manual...". The Taxpayer, according to my determination of November 7, 1988, is a graphic and exhibit designer. Commercial art and graphic design businesses are classified in Industry Group Number 7336 of the 1987 edition of the Standard Industrial Classification Manual.
I have reviewed my previous rulings and absent additional information as to a change in the Taxpayer's business practices and procedures, I do not find basis to reverse my original determination. The fact that the Taxpayer is classified as a manufacturer for local tax purposes, does not alter its status for purposes of the sales and use tax.
If you should have any further questions, please feel free to contact the department.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner