Tax Type
BPOL Tax
Local Taxes
Description
Exceptions; Manufacturers; Producer of camera-ready book pages
Topic
Local Power to Tax
Date Issued
07-23-1999
July 23, 1999
Dear*****,
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. 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
***** (the ``Business') was started in 1960. The Business produces camera-ready proofs of the pages which make up a book. It initially used a hot lead press to prepare these proofs, but now primarily uses computers to produce the proofs.
The Business is involved in the production of 1,000 books annually. It bids on manuscripts from institutions around the country, producing camera-ready copy, disks or film for the institutions with which it contracts. The production process involves typesetting, artwork, making camera-ready proofs, and producing galleys, without which a book could not be published. The Business's customers send the final camera-ready materials and finished proofs to a printer. The final book is then sold by the Business's customers [institutions] to the public.
The Business moved to the County in 1998. You ask if your classification of the Business as a business service (computer services) is the proper classification for local license tax purposes, or if the Business is a manufacturer exempt from BPOL taxes and fees.
OPINION
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 Sec. 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) a process whereby the original material is changed; and (3) a resulting 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). 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.
The book pages the Business produces for its customers are substantially different from the original typewritten manuscripts it receives. The Business takes an original manuscript and incorporates it into a process which includes 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].
It can take up to eight months to prepare a camera-ready proof of a book. The Business starts with an original manuscript, and after subjecting it to a very complicated and generally time-consuming process, concludes with the camera-ready pages of a complete book. A camera-ready proof of a book is for all intents and purposes a book that is available for sale to the public. This is quite different in terms of usability, quality and adaptability when compared to the original manuscript. The original manuscript is but one input into the process of making a camera-ready proof of a book. Therefore, it is my opinion that the making of a camera-ready proof from an original manuscript is manufacturing.
Furthermore, it is important to note that for Virginia sales and use tax purposes, the ``department has traditionally considered printing processes and photo processing which is not an incidental part of a retail establishment to be industrial operations.' As a result, these processes meet the definition of industrial manufacturing and the sales and use tax is not applicable to purchases of equipment used directly in these processes. P.D. 94-252. While the BPOL tax is a different tax from the retail sales and use tax, the treatment of printing processes as industrial manufacturing under the sales and use tax is persuasive. Thus, it is my opinion that printing processing qualifies as manufacturing under the BPOL tax.
To be exempt under the BPOL tax, a manufacturer must also sell its goods, wares and merchandise at wholesale at the place of manufacture. Code of Virginia Sec. 58.1-3703(C)(4). The Business sells and ships the goods from the place of manufacturing in the County. For the reasons outlined above, the camera-ready copy is for all intents and purposes a book which the Business's customers [institutions] resell to consumers. In my opinion, this meets the criteria for exempting the
Business as a manufacturer under the BPOL tax.
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 *****.
Dear*****,
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. 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
***** (the ``Business') was started in 1960. The Business produces camera-ready proofs of the pages which make up a book. It initially used a hot lead press to prepare these proofs, but now primarily uses computers to produce the proofs.
The Business is involved in the production of 1,000 books annually. It bids on manuscripts from institutions around the country, producing camera-ready copy, disks or film for the institutions with which it contracts. The production process involves typesetting, artwork, making camera-ready proofs, and producing galleys, without which a book could not be published. The Business's customers send the final camera-ready materials and finished proofs to a printer. The final book is then sold by the Business's customers [institutions] to the public.
The Business moved to the County in 1998. You ask if your classification of the Business as a business service (computer services) is the proper classification for local license tax purposes, or if the Business is a manufacturer exempt from BPOL taxes and fees.
OPINION
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 Sec. 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) a process whereby the original material is changed; and (3) a resulting 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). 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.
The book pages the Business produces for its customers are substantially different from the original typewritten manuscripts it receives. The Business takes an original manuscript and incorporates it into a process which includes 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].
It can take up to eight months to prepare a camera-ready proof of a book. The Business starts with an original manuscript, and after subjecting it to a very complicated and generally time-consuming process, concludes with the camera-ready pages of a complete book. A camera-ready proof of a book is for all intents and purposes a book that is available for sale to the public. This is quite different in terms of usability, quality and adaptability when compared to the original manuscript. The original manuscript is but one input into the process of making a camera-ready proof of a book. Therefore, it is my opinion that the making of a camera-ready proof from an original manuscript is manufacturing.
Furthermore, it is important to note that for Virginia sales and use tax purposes, the ``department has traditionally considered printing processes and photo processing which is not an incidental part of a retail establishment to be industrial operations.' As a result, these processes meet the definition of industrial manufacturing and the sales and use tax is not applicable to purchases of equipment used directly in these processes. P.D. 94-252. While the BPOL tax is a different tax from the retail sales and use tax, the treatment of printing processes as industrial manufacturing under the sales and use tax is persuasive. Thus, it is my opinion that printing processing qualifies as manufacturing under the BPOL tax.
To be exempt under the BPOL tax, a manufacturer must also sell its goods, wares and merchandise at wholesale at the place of manufacture. Code of Virginia Sec. 58.1-3703(C)(4). The Business sells and ships the goods from the place of manufacturing in the County. For the reasons outlined above, the camera-ready copy is for all intents and purposes a book which the Business's customers [institutions] resell to consumers. In my opinion, this meets the criteria for exempting the
Business as a manufacturer under the BPOL tax.
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 *****.
Rulings of the Tax Commissioner