Tax Type
BPOL Tax
Description
Exceptions; Dental laboratory.
Topic
Local Power to Tax
Date Issued
11-13-1997
November 13, 1997
Re: Request for Advisory Opinion: BPOL
Dear****************
This will reply to your JuIy 10th letter to your local assessing officer questioning your license tax classification. The local assessing officer has forwarded your letter to the department asking for an advisory opinion as to the proper license tax classification for your business.
The license tax is a local tax that 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
The local assessing officer has stated that the ********** ("Taxpayer") is a dental laboratory. It prepares crowns and bridges following the instructions of the dentists with whom they work. The dentists have no ownership interest or other affiliation with the taxpayer. The taxpayer's work consists of molding crown and bridges.
OPINION
License Tax Classification
The license tax classification for this taxpayer depends upon whether it engages in manufacturing in producing crowns and bridges. 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 statutes. The Supreme Court of Virginia in Prentice v City of Richmond,197 Va. 724, 729-730 (1956) (copy enclosed) held that three elements must be present for an activity to be considered manufacturing: "(1) original material referred to as raw material; (2) a process whereby the raw material is changed; and (3) a resulting product which . . . is different from the original raw material".
However, not all processing using original material is manufacturing. The mere manipulation or rearrangement of original or raw materials is not manufacturing. "(T)here must be a substantial, well-signalized transformation in form, quality and adaptability rendering the material more valuable for . . . use than it was before." Prentice, 197 Va. at 730.
The question of whether a dental laboratory is a manufacturer has been answered by the Attorney General on more than occasion. Attorney General opinions in 1971 and 1973 (copies enclosed) conclude that a dental laboratory, not operated by a dentist in connection with his own dental practice, is a manufacturer. While these opinions do not expressly apply the test set forth in Prentice, there should be little doubt that the Attorney General was cognizant of the Prentice test at the time of rendering the opinions. Therefore it is my opinion that manufacturing takes place at the taxpayer's dental laboratory.
License Tax Treatment of Manufacturers
Unless otherwise exempt, localities may charge a fee for issuing BPOL licenses and may levy a BPOL tax on businesses, trades, professions, occupations, and callings, and upon the persons, firms, and corporations engaged therein within the locality(Legislation passed in 1997 provides that, effective July 1, 1998, localities may impose either a BPOL license fee or a tax, but not both. Acts of Assembly 1997, c. 903.). Code of Virginia § 58.1-3703 (copy enclosed). Among the limitations are Code of Virginia § 58.1-3703 C 4, which states that no locality shall impose a license fee or levy any license tax on a manufacturer for the privilege of manufacturing and selling goods or merchandise at wholesale at the place of manufacture.
As a manufacturer, this taxpayer cannot be charged a license fee or assessed with a license tax for wholesale sales made at the place of manufacture. In light of the facts presented, it is my opinion that the locality may not assess a license fee or a license tax for crowns, bridges, and other products made at the request of dentists.
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, and the final determination is with the locality.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12922C
Rulings of the Tax Commissioner