Tax Type
BPOL Tax
Description
Exceptions; Manufacturing vs. service
Topic
Local Power to Tax
Date Issued
10-24-1997
October 24, 1997
Re: Request for Advisory Opinion: BPOL
Dear***************
This will respond to your letter of October 7, 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 the proper BPOL treatment of a business which provides fabric dyeing services for other businesses. The business performs two types of dyeing work. In some cases the business takes newly manufactured fabric items and colors them to the order of the customer. The business also takes previously worn and soiled uniforms and subjects them to a chemical process whereby the original dye and any stains are removed. Uniforms treated in this process can then be redyed to their original color or any other color that the customer requires. The dyeing business has asserted that is a manufacturer for BPOL purposes and thus exempt from the tax.
OPINION
Subject to the limits in Code of Virginia § 58.1-3703 C, 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. Under Code of Virginia § 58.1-3703 C. 4. "manufacturers" are exempt from the tax to the extent that they are selling manufactured goods, at wholesale, at the place of manufacture. 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 definition of "manufacturing" does not appear 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 license 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. t/a 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 metal 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 business takes finished fabric goods and adds color to them according to the specification of the customer. In some cases the good is uncolored, in others it is colored but soiled to the extent that ordinary washing cannot restore its original appearance. Although this dyeing process may involve the precise and complex use of chemicals and dyes to remove or manipulate the color of the fabric, there is little or no actual transformation of the dyed goods to a finished good of a substantially different character. The business begins with a finished fabric good and ends ups with the same good in a different color. Because the transformation element is lacking and there is no "new good" produced, the dyeing process is more akin to a service than the manufacturer of a good from raw materials.
Based on the foregoing, it is my opinion that the dyeing business your described should be classified as a business service for local license tax purposes.
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/13058D
Rulings of the Tax Commissioner