How did Virginia BPOL apply to a beverage maker's plants, warehouses, cross-docks, and vending-machine sales?

Subject

Manufacturing facilities and ancillary distribution were exempt, but vending was retail

Plain-English summary

Virginia advised that qualifying manufacturing plants and ancillary warehouses and cross-docks were exempt from BPOL on wholesale product sales, while vending-machine receipts were retail. The beverage company operated plants, storage warehouses, staffed cross-docks, and vending machines across multiple localities.

The plant exemption depended on meeting Virginia's manufacturing test—raw material, a transforming process, and a different finished product—and selling at wholesale at the place of manufacture.

Storage and cross-docking appeared ancillary to manufacturing and wholesaling. The warehouses and cross-docks had offices, phones, employees, records, and mail, but those facilities were not subject to BPOL on the exempt wholesale product receipts under the facts presented.

Vending sales were different because customers bought beverages for consumption rather than resale. Those receipts took the retail rate. A vending machine itself was not a definite place of business; the vending activity's situs followed the location from which the taxpayer operated that business.

What this means for you

• The manufacturer exemption depends on both qualifying production and wholesale sales.
• Off-site storage and distribution can remain ancillary to manufacturing.
• Vending sales are retail even when the vendor also manufactures the product.
• Staffed facilities can be definite places of business, while unattended machines are not.

Common questions

Were the manufacturing plants automatically exempt?

Only if the activities met the manufacturing test and the goods were sold wholesale at the place of manufacture.

Were warehouses and cross-docks taxable?

The opinion treated their described activities as ancillary and the wholesale receipts as exempt.

How were vending receipts treated?

At the retail BPOL rate.

Citations and references

• Va. Code §§ 58.1-3700.1(3), 58.1-3701, and 58.1-3703(C)(4).
• 23 VAC 10-500-10 and 23 VAC 10-500-360(A).
• Prentice v. City of Richmond, 197 Va. 724, 90 S.E.2d 839 (1956).
• Virginia Public Documents 04-160, 03-36, 99-300, 97-201, and 04-154.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 10-35

Original ruling text

April 8, 2010

Re: Request for Advisory Opinion

Business, Professional and Occupational License Tax

Dear *:

This is in response to your letter in which you request an advisory opinion regarding the application of the Business, Professional and Occupational License (BPOL) tax to your business. I apologize for the delay in the Department's response.

The local license fee and tax are imposed and administered by local officials. Virginia Code § 58.1-3701 authorizes the Department to issue advisory opinions on local license tax issues. The following opinion has been made subject to the facts presented to the Department summarized below. Any change in these facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections, regulations and public documents cited are available on-line at www.tax.virgini,a.gov in the Tax Policy Library section of the Department's web site.

FACTS

* (the "Taxpayer") manufactures, distributes and sells beverage products. It has manufacturing facilities in three different localities. The Taxpayer has warehouses in six other localities. It also has three "cross docking" facilities located in different localities where product is delivered by transport truck and immediately transferred onto another truck for delivery. Both the warehouse and cross docking facilities have offices, telephones, and employees who engage in record keeping. The Taxpayer also has vending machines in all localities where there are manufacturing, warehouse, and cross docking facilities. The Taxpayer raises a number of questions concerning the application of BPOL tax to these facilities and has requested an advisory opinion.

OPINION

Question 1

Are the three manufacturing facilities covered under the manufacturing exemption in the localities in which they are located?

Virginia Code § 58.1-3703 C 4 provides that 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."

The term "manufacturing" is not defined in Title 58.1 of the Code of Virginia for BPOL tax purposes. The Supreme Court of Virginia (the "Court"), however, has developed a test involving three essential elements to use 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. See Prentice v. City of Richmond , 197 Va. 724, 90 S.E.2d 839 (1956).

Assuming the Taxpayer's manufacturing activities meet the tests established by the Court and the Taxpayer sells its goods at wholesale at the place of manufacture, the Taxpayer would be exempt from BPOL license tax on the three manufacturing facilities.

Question 2

Are the three cross docking facilities covered under the manufacturer's exemption due to inventory not being stored at these facilities?

Title 23 of the Virginia Administrative Code (VAC) 10-500-360 A provides that a manufacturer that engages in sales functions that are ancillary to the manufacturing function are not subject to the BPOL tax. The Department has also addressed this issue in a number of rulings. See Public Document (P.D.) 04-160 (10/1/2004), P.D. 03­36 (4/15/2003), and P.D. 99-300 (11/18/1999).

Based on the facts presented, it appears that the cross docking activities would be ancillary to the manufacturing and wholesaling of the Taxpayer's products and qualify for exemption from the BPOL tax.

Question 3

Should the wholesale rate be applied to the gross revenues of all product sold to retailers and should the retail rate be applied to gross revenues from the Taxpayer's vending machine sales?

Under Title 23 VAC 10-500-360 A 3, storage of manufactured goods is ancillary to manufacturing even if the storage takes place in a different locality than the manufacturing plant. In the instant case, the storage of the product in warehouses appears to be ancillary to Taxpayer's manufacturing activities. Under these circumstances, the Taxpayer's gross revenues of all product sold to retailers would be exempt pursuant to Va. Code § 58.1-3703 C 4. Based on the facts as presented, the Taxpayer would not be subject to BPOL tax at any of its warehouse or cross docking facilities in Virginia.

Title 23 VAC 10-500-10 defines "retail sale" as "a sale of goods, wares and merchandise for use or consumption by the purchaser or for any purpose other than resale by the purchaser." Typically, sales made through vending machine are made to purchasers for consumption or purposes other then resale. Therefore, the retail sales rate would be applied to gross revenues from the Taxpayer's vending machine sales.

Question 4

For both wholesale and vending operations, would the Taxpayer pay the locality where the facility is located or in the locality where the transactions occurs?

Virginia Code § 58.1-3700.1 3 defines a "definite place of business" as "an office or a location at which occurs a regular and continuous course of dealing for thirty consecutive days or more".

Some characteristics that may help determine whether the location is a definite place of business include, but are not limited to, the following on-site activities: (1) a continuous presence; (2) having an office with a phone; (3) the reception of mail; (4) having employees; (5) record keeping; (6) and advertising or otherwise holding oneself out as engaging in business at the particular location. See P.D. 97-201 (4/25/1997).

The Taxpayer has stated that the manufacturing facilities, warehouses and cross docking locations all have offices, phones, employees engaged in record keeping, and receive mail. Based on the facts presented, it appears that the Taxpayer is conducting a regular and continuous course of business at all of its manufacturing, warehouse and cross docking facilities in Virginia. Whether or not the Taxpayer pays a BPOL tax to the localities in which these facilities are located depends on whether it qualifies for the exception under Va. Code § 58.1-3703 C 4.

Vending machines are not considered to be a definite place of business. Instead, the definite place of business for a taxpayer conducting a vending machine business is the location from which that taxpayer operates such business. See P.D. 04­-154 (9/17/2004).

If you have any questions regarding this advisory opinion, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-3650806132.B