Tax Type
BPOL Tax
Local Taxes
Description
Printer; Determining if a manufacturer
Topic
Local Power to Tax
Date Issued
08-23-1999
August 23, 1999
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear****
This is in response to your letter requesting an advisory opinion on the local license tax classification of copying and printing businesses. I apologize for the delay in responding to your request.
The local license fee and tax are imposed and administered by local officials. Section 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Sec. 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. However, in no case is the department required to interpret any local ordinance, with the exception of those appeals in which a local ordinance is relevant to the appeal of an assessment. Code of Virginia Sec. 58.1-3701. The following opinion has been made subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.
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. I have enclosed copies of cited material for your review.
FACTS
You have asked several questions regarding the applicability of the local license tax to various types of copying and printing businesses. Specifically, you ask under what conditions, if any, can copying and printing businesses be classified as manufacturers exempt from local license taxes pursuant to Code of Virginia Sec. 58.1-3703(C)(4). You also ask whether or not output volume is important in determining whether or not a business meets the common-law test of manufacturing. You also question whether or not businesses engaged in photocopying, typesetting, editing, or graphic design processes are manufacturers. Finally, you ask for a definition of the term ``job printer,' and whether or not job printers are manufacturers exempt from BPOL tax under Code Virginia Sec. 58.1-3703(C)(4).
OPINION
Certain Manufacturers Exempt from Local License Taxes
Code of Virginia Sec.68.1-3703(C)(4). The Code of Virginia, however, does not define the term "manufacturer' for purposes of this restriction placed upon Virginia's localities. The Supreme Court of Virginia has developed a test involving three essential elements in determining whether a manufacturing activity is being undertaken. These elements are: (1) original material, referred to as raw material; (2) a process whereby the original material is changed; and (3) a resulting product, which by reason of being made subject to such processing, is different from the original material. County of Chesterfield v. BBC Brown Boveri, 238 Va. 64 (1989). In summary, for BPOL purposes, a manufacturer means one engaged in a processing activity whereby the original materials are transformed into a product that is substantially different in character from the original materials. These three elements are all equally important; if any one of these elements is missing, a business cannot fairly be said to be engaged in manufacturing.
In Public Document (P.D.) 99-200 (7/23/99), the department reviewed a business making camera-ready proofs of the pages of a book. The department determined that the business was a manufacturer exempt from BPOL taxes under Sec. 58.1-3703(C)(4), provided the business met certain other conditions set forth in that section. The business made camera-ready proofs of the pages of a book by taking original manuscripts and incorporating the manuscripts into a process which included design and layout [construction of page blueprints, coding copy for production, art, making photographs and figures prepared or created for scanning, submitting sample pages to customers for approval], production [data conversion, camera work, art department scanning and paste up], processing [page assembly, laser proofs, output of final pages as specified by the customer, and stored for future output], and proofreading [making any final corrections before the product is shipped to the customer.] The nature of the functions performed by the business led the department to implicitly conclude that the business in question was a printer, and that a printer is a manufacturer exempt from BPOL tax under Sec. 58.1-3703(C)(4), provided that such printer satisfies all of the conditions contained in that section. Whether or not a business is engaged in printing can only be determined on a case-by-case basis. The facts of each case are fundamental to making this determination. I hope the enclosed P.D. 99-200 will provide the guidance you need to determine which businesses are, in fact, printers.
Importance of Output Volume in Determining Manufacturing
You also ask if output volume is important in determining whether a business is a manufacturer. The volume of goods produced by a business generally has little legal consequence in determining whether the business is a manufacturer for BPOL tax purposes. Output volume, however, may become important when there is a threshold question of whether a business's manufacturing activities are substantial such that these activities rise to the level of a separate licensable privilege. BBC Brown Boveri, 238 Va. at 69.
Does Photocopying. Typesetting. Editing. or Graphic Design Processes Constitute Manufacturing?
You question whether or not businesses engaged in photocopying, typesetting, editing, or graphic design processes are manufacturers. The term "photocopying' means "(t)o reproduce (printed matter) by a photographic process such as xerography.' Webster's II New College Dictionary 828 (1995). The business of providing photocopying services is not manufacturing. This is because photocopying does not involve the transformation of an original material into a new material that is substantially different from the original material. Photocopying entails the reproduction or replication of original materials, without any transformation element. Section 9.2 of the 1997 BPOL Guidelines supports this view in that it lists copying over the counter (including copies made by the customer on the business' equipment) as a taxable business service.
As a general rule, typesetting, editing, or graphic design processes, by themselves, are neither printing nor manufacturing processes. As a result, businesses engaged in typesetting, editing, or graphic design processes generally do not benefit from the tax restriction contained within Sec. 58.1-3703(C)(4). However, when a business engages in more than one or a combination of these processes and by so doing transforms original material, it becomes a question of fact as to whether such business is engaged in manufacturing. As an example, P.D. 99-200 dealt with a business that utilized some of these processes in conjunction with transforming original manuscripts into camera-ready proofs of the pages of books. As discussed above, P.D. 99-200 concluded that this business was a printer exempt from local license taxes under Sec. 58.1-3703(C)(4).
Definition of Job Printing
Finally, you ask for a definition of the term ``job printer.' Under Sec.6.7 of the 1997 BPOL Guidelines, a job printer is classified as a manufacturer engaged in either retail or wholesale sales as to the sales of the items printed. As a result, those job printers meeting the conditions set forth in Code of Virginia Sec. 58.1-3703(C)(4) are exempt from local license taxes. The term ``job printer' does not lend itself to a rigid definition. In general, a job printer is one who engages in ``commercial printing, on order, and the production of business forms, books, blank books, pamphlets, advertising, calendars, bill heads, periodicals, etc.', which is generally considered to be manufacturing. Heidelberg Central, Inc. v. Director of the Department of the Revenue of the State of Missouri, 476 S.W.2d 502 (1972).
I hope that this information is useful to you. Although I believe that this letter conforms with the requirements of the law, it is only written for your guidance. If you have any other questions, please do not hesitate to contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13766
Re: Request for Advisory Opinion
Business, Professional and Occupational License (BPOL) Tax
Dear****
This is in response to your letter requesting an advisory opinion on the local license tax classification of copying and printing businesses. I apologize for the delay in responding to your request.
The local license fee and tax are imposed and administered by local officials. Section 58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, Sec. 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. However, in no case is the department required to interpret any local ordinance, with the exception of those appeals in which a local ordinance is relevant to the appeal of an assessment. Code of Virginia Sec. 58.1-3701. The following opinion has been made subject to the facts presented to the department as summarized below. Any change in these facts or the introduction of facts by another party may lead to a different result.
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. I have enclosed copies of cited material for your review.
FACTS
You have asked several questions regarding the applicability of the local license tax to various types of copying and printing businesses. Specifically, you ask under what conditions, if any, can copying and printing businesses be classified as manufacturers exempt from local license taxes pursuant to Code of Virginia Sec. 58.1-3703(C)(4). You also ask whether or not output volume is important in determining whether or not a business meets the common-law test of manufacturing. You also question whether or not businesses engaged in photocopying, typesetting, editing, or graphic design processes are manufacturers. Finally, you ask for a definition of the term ``job printer,' and whether or not job printers are manufacturers exempt from BPOL tax under Code Virginia Sec. 58.1-3703(C)(4).
OPINION
Certain Manufacturers Exempt from Local License Taxes
-
- No county, city, or town shall impose a license fee or levy any license tax ... (o)n a manufacturer for the privilege of manufacturing and selling goods, wares and merchandise at wholesale at the place of manufacture.
Code of Virginia Sec.68.1-3703(C)(4). The Code of Virginia, however, does not define the term "manufacturer' for purposes of this restriction placed upon Virginia's localities. The Supreme Court of Virginia has developed a test involving three essential elements in determining whether a manufacturing activity is being undertaken. These elements are: (1) original material, referred to as raw material; (2) a process whereby the original material is changed; and (3) a resulting product, which by reason of being made subject to such processing, is different from the original material. County of Chesterfield v. BBC Brown Boveri, 238 Va. 64 (1989). In summary, for BPOL purposes, a manufacturer means one engaged in a processing activity whereby the original materials are transformed into a product that is substantially different in character from the original materials. These three elements are all equally important; if any one of these elements is missing, a business cannot fairly be said to be engaged in manufacturing.
In Public Document (P.D.) 99-200 (7/23/99), the department reviewed a business making camera-ready proofs of the pages of a book. The department determined that the business was a manufacturer exempt from BPOL taxes under Sec. 58.1-3703(C)(4), provided the business met certain other conditions set forth in that section. The business made camera-ready proofs of the pages of a book by taking original manuscripts and incorporating the manuscripts into a process which included design and layout [construction of page blueprints, coding copy for production, art, making photographs and figures prepared or created for scanning, submitting sample pages to customers for approval], production [data conversion, camera work, art department scanning and paste up], processing [page assembly, laser proofs, output of final pages as specified by the customer, and stored for future output], and proofreading [making any final corrections before the product is shipped to the customer.] The nature of the functions performed by the business led the department to implicitly conclude that the business in question was a printer, and that a printer is a manufacturer exempt from BPOL tax under Sec. 58.1-3703(C)(4), provided that such printer satisfies all of the conditions contained in that section. Whether or not a business is engaged in printing can only be determined on a case-by-case basis. The facts of each case are fundamental to making this determination. I hope the enclosed P.D. 99-200 will provide the guidance you need to determine which businesses are, in fact, printers.
Importance of Output Volume in Determining Manufacturing
You also ask if output volume is important in determining whether a business is a manufacturer. The volume of goods produced by a business generally has little legal consequence in determining whether the business is a manufacturer for BPOL tax purposes. Output volume, however, may become important when there is a threshold question of whether a business's manufacturing activities are substantial such that these activities rise to the level of a separate licensable privilege. BBC Brown Boveri, 238 Va. at 69.
Does Photocopying. Typesetting. Editing. or Graphic Design Processes Constitute Manufacturing?
You question whether or not businesses engaged in photocopying, typesetting, editing, or graphic design processes are manufacturers. The term "photocopying' means "(t)o reproduce (printed matter) by a photographic process such as xerography.' Webster's II New College Dictionary 828 (1995). The business of providing photocopying services is not manufacturing. This is because photocopying does not involve the transformation of an original material into a new material that is substantially different from the original material. Photocopying entails the reproduction or replication of original materials, without any transformation element. Section 9.2 of the 1997 BPOL Guidelines supports this view in that it lists copying over the counter (including copies made by the customer on the business' equipment) as a taxable business service.
As a general rule, typesetting, editing, or graphic design processes, by themselves, are neither printing nor manufacturing processes. As a result, businesses engaged in typesetting, editing, or graphic design processes generally do not benefit from the tax restriction contained within Sec. 58.1-3703(C)(4). However, when a business engages in more than one or a combination of these processes and by so doing transforms original material, it becomes a question of fact as to whether such business is engaged in manufacturing. As an example, P.D. 99-200 dealt with a business that utilized some of these processes in conjunction with transforming original manuscripts into camera-ready proofs of the pages of books. As discussed above, P.D. 99-200 concluded that this business was a printer exempt from local license taxes under Sec. 58.1-3703(C)(4).
Definition of Job Printing
Finally, you ask for a definition of the term ``job printer.' Under Sec.6.7 of the 1997 BPOL Guidelines, a job printer is classified as a manufacturer engaged in either retail or wholesale sales as to the sales of the items printed. As a result, those job printers meeting the conditions set forth in Code of Virginia Sec. 58.1-3703(C)(4) are exempt from local license taxes. The term ``job printer' does not lend itself to a rigid definition. In general, a job printer is one who engages in ``commercial printing, on order, and the production of business forms, books, blank books, pamphlets, advertising, calendars, bill heads, periodicals, etc.', which is generally considered to be manufacturing. Heidelberg Central, Inc. v. Director of the Department of the Revenue of the State of Missouri, 476 S.W.2d 502 (1972).
I hope that this information is useful to you. Although I believe that this letter conforms with the requirements of the law, it is only written for your guidance. If you have any other questions, please do not hesitate to contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/13766
Rulings of the Tax Commissioner