Tax Type
BPOL Tax
Local Taxes
Description
Furniture refinishing
Topic
Local Power to Tax
Date Issued
04-08-1999
April 8, 1999
Dear*********************
This is in response to your letter requesting an advisory opinion on the licensing of an undisclosed taxpayer (the "Taxpayer) who produces custom designed furniture and architectural elements. I apologize for the delay in responding to your request.
The local license fee and tax are imposed and administered by local officials. §58.1-3701 of the Code of Virginia authorizes the department to promulgate guidelines and issue advisory opinions on local license tax issues. Additionally, § 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. Code of Virginia § 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
The Taxpayer produces custom designed furniture and architectural elements in a local warehouse in the town. The items of furniture are primarily produced under contractual arrangements with individuals, although selected items are shown for general sale. The Taxpayer also enters into contracts with individuals to refinish specific items of furniture. The Taxpayer states that it has a state contractor's license. It has not applied for a local business license. You ask whether the Taxpayer is subject to the BPOL tax and, if so, what is the proper license tax classification for the Taxpayer.
OPINION
Contractor Classification for BPOL Tax Purposes
A contractor is defined for purposes of BPOL license taxation as any person, firm or corporation: 1) accepting or offering to accept orders or contracts for doing any work on or in any building or structure, requiring the use of paint, stone, brick, mortar, wood, cement, structural iron or steel, sheet iron, galvanized iron, metallic piping, tin, lead or other metal or any other building material; 2) engaged in paving or curbing; 3) excavating for foundation work; 4) constructing sewers; 5) providing electrical wiring and its maintenance; and 6) engaged in work related to plumbing. Code of Virginia § 58.1-3714(B). Given the description of the Taxpayer's occupation from the local town official, it would appear that it is, at the most, only tangentially involved with the creation of architectural design elements. The local town official also states that the Taxpayer's primary business within the town consists of the repair and manufacture of furniture and sales thereof and that the taxpayer is not actively engaged in the design of architectural elements. Based on the information provided, the Taxpayer would not be properly classified as a contractor for BPOL tax purposes.
Manufacturing Classification for BPOL Tax Purposes
The term "manufacturing' is not defined by Virginia statutory law for local taxation purposes. However, in County of Chesterfield v. BBC Brown Boveri, 238 Va. 64, 69 (1989), the Virginia Supreme Court reaffirmed the test of manufacturing as being an activity in which original or raw material is substantially transformed into a new product. See also 1993 Op. Va. Att'y Gen., 231, 233. From the description provided, the Taxpayer appears to be a manufacturer of furniture, transforming raw lumber into usable furniture products significantly different in character than the original lumber.
Further, because the Taxpayer sells to individuals, it would appear that he is selling his products at retail, or for "personal use by consumers.' BPOL Guidelines, page 106. "Retail sale' means a sale of goods, wares and merchandise for use or consumption by the purchaser or for any other purpose other than resale by the purchaser, but does not include sales at wholesale to institutional, commercial and industrial users which are classified as wholesale sales. BPOL Guidelines, page 8. For BPOL tax purposes, manufacturing for later retail sale is a taxable event, while the privilege of manufacturing and selling goods at wholesale at the place of manufacture is tax-exempt. Code of Virginia §58.1-3703(C)(4).
Business Services Classification for BPOL Tax Purposes
The term "business services' generally refers to all services not specifically classified as "financial, real estate or professional services.' BPOL Guidelines, page 120. The Taxpayer also appears to be providing a business service in refinishing furniture for individuals.
Determining Classifications Under the BPOL Statutes
It is the local commissioner of the revenue's responsibility to determine the appropriate license tax classification under the BPOL statutes. As such, the local commissioner of the revenue must decide on a factual basis whether or not two or more distinctly separate businesses are operating out of the same location and the appropriate classification for each. See 1993 Op. Va. Att'y Gen. supra at 234; 1984-1985 at 367.
In 1994, the Attorney General opined that if the local commissioner of the revenue determines that a taxpayer's business involves separate activities that could each be performed independently of the other they could be taxed separately. "If, however, [a company's] business activities are not separated, but are so integrated as to comprise a single business, then the [company] is taxed on whichever constitutes the "substantial' activity of the [c]ompany, and not on its ancillary activities.' 1994 Op. Va. Att'y Gen. at 104.
In my opinion, there is nothing to preclude the town from taxing the retail sale of manufactured custom made furniture and the business service of refinishing furniture, provided that each such activity indeed is a separate activity that could operate independently of the other. The local commissioner of the revenue can best apply the facts of the case in determining which, of any of the Taxpayer's activities, are ancillary to the others. For the appropriate license tax rates for retailers and providers of business services, consult Code of Virginia § 58.1-3706.
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 and based on the facts presented. If you have any other questions, please do not hesitate to contact * * * * * at * * * * *.
Sincerely,
Danny Payne
Tax Commissioner
Rulings of the Tax Commissioner