Tax Type
BPOL Tax
Local Taxes
Description
Cement sales
Topic
Local Power to Tax
Date Issued
04-16-1999
April 16, 1999
Re: BPOL
Dear*****
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 Business, a local maker of cement, has requested that its business be reclassified from a wholesaler to an exempt manufacturer for BPOL purposes. The Business makes cement by mixing dry ingredients with water in a cement mixer at its plant. The Business sells the cement and transports it for use at numerous local construction sites. You ask whether the Business is an exempt manufacturer for BPOL purposes.
A second question involves the Cemetery, located within the town, that sells both plots and mausoleum space for burial purposes. The cemetery's owners and employees solicit sales of burial plots by telephone. You state that the Cemetery does not perform burial services; instead, the local funeral homes handle that part of the business independently. You ask whether or not the cemetery owners are subject to a BPOL tax, and if so, what is the proper license tax classification.
OPINION
The Business
Virginia localities are prohibited from imposing a license fee or 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 § 58.1-3703(C)(4).
The BPOL statutes do not define the term "manufacturer' for purposes of the local business license tax. However, 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) undergoes a process whereby the original material is changed; and (3) the result is a product, which by reason of being subject to such processing, is different from the original material. County of Chesterfield v. BBC Brown Boveri, 238 Va. 64 (1989). 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.
You ask whether the Business is subject to a BPOL tax or fee, or is exempt pursuant to the prohibitions of Code of Virginia § 58.1-3703(C)(4). The department has already issued an advisory opinion on this same question. In Public Document 97-146 (3/27/97) the department opined that the mixing of dry ingredients and water to create cement is a manufacturing activity. This is because cement is a product of substantially different character from the raw materials processed to make it.
As a result, to the extent that the Business is making wholesale sales of the cement it manufactures at the place of manufacture, it is exempt from the BPOL tax. The determinative questions are whether the Business's sales of cement are retail or wholesale, and if the sales are wholesale, whether or not they are being made at the place of manufacture. Sales at wholesale are sales of goods for resale including sales to institutional, commercial, industrial and governmental users when factors surrounding such sales are consistent with sales at wholesale. BPOL Guidelines, page 9. "In retail sales the purchaser buys to satisfy his personal wants and needs. In wholesale sales, the purchaser buys to make a profit, either by reselling the goods or by using them in his business as supplies or equipment.' 1990 Op. Va. Att'y Gen. 220.
This Public Document describes which sales of a cement manufacturer are wholesale, and which are retail. It concludes that:
-
- some of the sales may be retail or wholesale depending on the facts and circumstances surrounding the sales of the cement to the customers. For example, sales of cement directly to homeowners are retail sales since homeowners are not institutional, commercial, industrial or governmental users. Gross receipts derived from such sales are subject to the BPOL tax. Sales made to institutional, commercial, industrial or governmental users are clearly wholesale.
- some of the sales may be retail or wholesale depending on the facts and circumstances surrounding the sales of the cement to the customers. For example, sales of cement directly to homeowners are retail sales since homeowners are not institutional, commercial, industrial or governmental users. Gross receipts derived from such sales are subject to the BPOL tax. Sales made to institutional, commercial, industrial or governmental users are clearly wholesale.
In summary, it is my opinion that you may not assess a BPOL fee or tax on the Business for its wholesale sales at the place of manufacture.
The Cemetery
Subject to limits set forth in Code of Virginia § 58.1-3703(C), localities may charge a fee for issuing BPOL licenses or may levy a tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia Secs. 58.1-3700 and 58.1-3703(A). Business means "a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit. It implies a continuous and regular course of dealing rather than an irregular or isolated transaction.' Code of Virginia § 58.1-3700.1. The Attorney General has opined that "(t)he license tax may be imposed only if the activity of an individual buying and selling land, or options to purchase land, in his own name constitutes that individual's "business' or "occupation' under both the state and local license tax provisions.' 1987-1988 Op. Va. Att'y Gen. 513. In this case, the ongoing solicitation of burial plots by the Cemetery at its location within the town clearly indicates that the incorporated cemetery is engaged in a continuous and regular business within the town. The Cemetery is clearly engaged in a licensable activity.
The locality is unable to furnish the department with a copy of a typical contract made between the Cemetery and its customers. Such a contract would delineate the business activities and functions that must be performed by the parties to the contract. In some cases, such as this one, without the opportunity to review the provisions of a contract it is impossible for the department to determine the taxable privilege being conducted by a business. In summary, while it is clear that the Cemetery is engaged in business and subject to the locality's BPOL tax, absent a copy of the Cemetery's typical contract with the purchasers of plots and mausoleum space, I cannot provide an opinion as to the proper license tax classification for the Cemetery. Accordingly, that determination will need to be made by the locality.
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 Payne
Tax Commissioner
Rulings of the Tax Commissioner