Tax Type
BPOL Tax
Description
Exceptions; Liquid oxygen producers
Topic
Local Power to Tax
Date Issued
04-11-1997
April 11, 1997
Re: Request for Advisory Opinion: BPOL
Dear****************
This will respond to your letter of March 5, 1997 requesting an advisory opinion.
The license tax is a local tax which is imposed and administered by local officials. The Code of Virginia limits the involvement of the Department of Taxation to promulgating guidelines and issuing advisory opinions. However, the department shall not be required to interpret any local ordinance.
While addressing the questions raised in your letter, this response is intended to provide advisory guidance only and does not constitute a formal or binding ruling.
FACTS
You have inquired concerning painters in general and the proper BPOL treatment of a resident of your location that produces paintings, "mostly as a hobby." He hangs some of these paintings at a local business for the purpose of having them sold. The store where the paintings are hung does not receive a commission, incentive or other consideration.
You have also inquired concerning the proper BPOL treatment of a business which has installed highly specialized equipment to produce supercooled liquid oxygen (LOX) on land owned by a local manufacturing plant. The equipment is owned operated and maintained by a industrial gas specialties company which will sell the LOX to the adjacent manufacturing plant to be used in its waste water treatment and materials processing.
OPINION
Artists
Subject to the limits in § 58.1-3703 C Code of Virginia, localities may charge a fee for issuing BPOL licenses and may levy, assess and collect BPOL license taxes on businesses, trades, professions occupations and callings, and upon the persons, firms and corporations engaged therein within the locality. Before an individual can be subject to imposition of the BPOL tax must be "engaged in a enterprise which requires his time, attention and labor for the purpose of earning a livelihood. It is purpose which distinguishes between a hobby, which is not subject to licensure, and a licensable avocation. A hobbyist produces works for personal gratification purposes, not to earn a livelihood. The fact that he occasionally offers his works for sale does not alter the character of the activity that produces them.
To the extent that an individual produces paintings to earn a livelihood he would be subject to licensure under the general classification of personal services in the jurisdiction where he has a definite place of business. An artist's definite place of business is where he produces his works-generally his home or studio. The maximum rate for this classification is .36 per $100.00 of gross receipts.
LOX Producer
The BPOL tax treatment of this producer depends upon whether it is properly classified as a manufacturing or processing operation. Guidance on identifying manufacturing businesses and a discussion of the exemption from the BPOL tax that manufacturers enjoy is provided in Appendix B of the 1997 BPOL Guidelines.
The term "manufacturing" is not defined in the BPOL statute. However, a number of Virginia Supreme Court cases, including County of Chesterfield v. BBC Brown Boveri, 238 Va. 64 (1989), have defined the term with respect to local taxation. These cases have made it clear that a business that merely processes material is not necessarily a manufacturer. The Supreme Court has held for example, that a business which grades and blends gravel mixtures is an industrial processor but not a manufacturer for purposes of the BPOL exemption. Solite Corp. v. King George County, 220 Va. 661 (1980). In Money Point Land Holding Corp. Va Jacobson Metals Co. v. City of Chesapeake, (letter opinion dated 2/14/95), the Circuit Court held that a business that shredded junk cars and sorted the metals products derived was engaged in processing not manufacturing.
In deciding the foregoing cases, the courts have established that the key inquiry in distinguishing a manufacturer from a processor is whether there is a transformation of new material to a finished good of substantially different character. There must be a substantial, well signified, transformation in form, usability, quality and adaptability rendering the original material more valuable for use than it was before.
In this case, the producer is engaged in a very complex manufacturing process utilizing high-tech equipment that involves increasingly cooling and compressing atmospheric gases in a number of stages to produce LOX. The resulting product, a supercooled bluish liquid that rapidly boils away at room temperature, is unquestionably a finished good of substantially different character from atmospheric oxygen. LOX is oxygen in its ultimate state of concentration. An insulated vessel holds much more oxygen in a liquid state than a similarly sized pressure vessel holds in a compressed gas state. Its use, distribution and storage in a manufacturing plant is thus much more efficient than the use, distribution and storage of compressed gas.
Based on the complexity of the process and the fact that LOX is a radically different form of oxygen whose usefulness is greatly enhanced compared to gaseous oxygen, I find that the LOX producer in this case is a manufacturer for purposes of the BPOL tax. Since the LOX is produced and sold for industrial use, (i.e. wholesale), from its place of manufacture, I conclude that the LOX producer is exempt from imposition of the BPOL tax pursuant to § 58.1-3703 C 4.
I hope that the above information will be beneficial to you. Although I believe this letter conforms with the law, it is written only for your guidance. If you have any further questions or comments, please do not hesitate to let me know.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12374D
Rulings of the Tax Commissioner