Is post-production storage and loading equipment 'machinery and tools used in manufacturing' subject to Virginia's local M&T tax, or is it exempt because production is already finished?

Plain-English summary

A business that runs limestone quarries and also makes lime products appealed a county's Machinery & Tools (M&T) tax assessment on three "lime load-out" assets — equipment used to store and load the finished lime for shipment. The question was narrow: are those three post-production assets "machinery and tools used in manufacturing," which a locality may tax, or are they something else?

The classification framework. In Virginia, tangible property used in manufacturing or mining is generally declared "intangible" and taxed by the state only (§ 58.1-1101 A 2) — but the machinery and tools of such a business are carved back out and taxed locally as a separate class under the M&T tax (§ 58.1-3507 A). So whether the load-out assets are "machinery and tools used in manufacturing" decides whether the county can tax them.

This is a sequel. In an earlier ruling (P.D. 24-27), the Department held that extracting limestone from a quarry is "mining" and sent the case back to the county to sort out which equipment was used in the taxpayer's mining or manufacturing. After a site visit, the county agreed most items were not taxable but insisted three lime load-out assets were part of manufacturing — because, it argued, the lime products would not be marketable if they were not stored and delivered using that equipment. The taxpayer appealed just those three assets.

The "actually and directly used" test. Virginia's Supreme Court limits "machinery and tools" to property actually and directly used in the manufacturing process — where new materials are transformed into a substantially different product — or property connected with the operation of machinery that is (City of Winchester v. American Woodmark; The Daily Press, Inc. v. County of Newport News). Not every piece must itself transform the product (P.D. 04-39), but there must be a direct role in production.

Why the taxpayer won. The Department found that when the finished lime reached the load-out facility, production was already complete and the products were already in their final marketable state. The load-out assets maintained that marketability but did not perform any further function to create part of the final product. That distinguishes the county's key precedent, P.D. 08-30, where a food manufacturer's packaging was part of manufacturing precisely because the packaging became a necessary component of the final marketable product. Storing and shipping a finished product is not the same as making it.

Result. The three lime load-out assets were not directly used in mining or manufacturing, so they are classified as "intangible" under § 58.1-1101 A 2 — taxed by the state only, not subject to the local M&T tax. The case was remanded to the county to adjust the 2020 and 2021 assessments and issue updated bills or refunds. (On appeal a local assessment is presumed correct, so the taxpayer carried the burden — and met it here.)

What this means for you

Manufacturers and processors facing a local M&T assessment

The line the Commissioner drew is when production ends. Equipment that transforms your materials into the finished product — or that runs machinery which does — is "machinery and tools" and is locally taxable as M&T. Equipment that only handles the product after it is finished and marketable — storage, load-out, shipping — generally is not, even if the product could not reach customers without it. Map each asset to a point in your process and identify which act before the product is complete versus after.

The packaging/finishing gray zone

Watch the P.D. 08-30 distinction. Packaging or finishing steps can be part of manufacturing when they become a component of the final marketable product (the package is part of what the customer buys). But equipment that merely preserves or moves an already-finished product is post-production. "Necessary to sell it" is not the test; "part of making it" is.

Quarrying, mining, and extractive businesses

This ruling builds on P.D. 24-27's holding that extracting limestone from a quarry is "mining" for these purposes. If you extract and then further process a mineral, both the mining equipment and the manufacturing equipment can fall under M&T — but downstream handling of the finished product may not. Sort your assets across the mining, manufacturing, and post-production stages.

Common questions

Q: Is equipment that stores and loads my finished product subject to the M&T tax?
A: Generally no. If production is already complete and the product is in its final marketable form, equipment that only stores, maintains, or loads it for shipment is not "machinery and tools used in manufacturing" — even if you could not sell the product without it.

Q: My equipment is essential to my business. Doesn't that make it taxable machinery and tools?
A: Not by itself. The test is whether the equipment is actually and directly used in the manufacturing process (transforming materials into a substantially different product) or operates machinery that is — not whether it is essential to overall operations. Post-production handling equipment usually falls outside.

Q: Why was packaging treated as manufacturing in another case but not this equipment?
A: In P.D. 08-30 the packaging became a necessary component of the final marketable product — part of what was manufactured. The lime load-out assets here did not add anything to the product; they only preserved and moved an already-finished product.

Q: What happens to property that isn't "machinery and tools"?
A: For a manufacturing or mining business, tangible property used in the business that is not machinery and tools is declared "intangible" under § 58.1-1101 A 2 and is taxed by the state only — so it is not subject to the local M&T tax.

Citations and references

Statutes:

• Va. Code § 58.1-3983.1 D — the Department's authority to decide taxpayer appeals of local M&T tax assessments; a local assessment is prima facie correct
• Va. Code § 58.1-1101 A 2 — capital that is tangible property used in manufacturing/mining is declared intangible (state tax only); the machinery and tools of such businesses remain locally taxed
• Va. Code § 58.1-3507 A — machinery and tools used in manufacturing are a separate class of tangible personal property, subject to local taxation only

Authorities the Department relied on (described here, not linked): City of Winchester v. American Woodmark, 250 Va. 451 (1995), and The Daily Press, Inc. v. County of Newport News, 265 Va. 304 (2003) (the "actually and directly used" standard); prior Attorney General opinions on "machinery and tools"; and Department public documents P.D. 24-27 (extracting limestone from a quarry is "mining" — the prior stage of this same case), P.D. 04-39 (equipment need not itself touch the product), and P.D. 08-30 (packaging that becomes part of the final marketable product).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-76

Original ruling text

June 4, 2025

Re: Appeal of Final Local Determination

Taxpayer: *

Locality Assessing Tax: County of *

Dear *:

This final state determination is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”) with the Department of Taxation. You appeal an assessment of Machinery and Tools (M&T) tax issued to the Taxpayer by the County of *** (the “County”) for the 2020 and 2021 tax years.

The M&T tax is imposed and administered by local officials. Virginia Code § 58.1-3983.1 D authorizes the Department to issue determinations on taxpayer appeals of M&T tax assessments. On appeal, a local tax assessment is deemed prima facie correct, i.e ., the local assessment will stand unless the taxpayer proves that it is incorrect.

The following determination is based on the facts presented to the Department summarized below.

FACTS

The Taxpayer operated a business that extracted limestone from open pit quarries in the County. It also had similar operations in other Virginia localities and in * (State A). At this site, the Taxpayer also produced various limestone products.

The Taxpayer filed its M&T tax returns for the 2020 and 2021 tax years, excluding assets other than M&T used in its mining and manufacturing operations. The County determined that the Taxpayer was conducting both processing and manufacturing, but not mining, activities at the site and issued assessments accordingly. The Taxpayer appealed to the County, and the County issued a final determination, upholding the assessments on the basis that the Taxpayer was engaged in quarrying and not mining. The Taxpayer appealed that determination to the Department.

In Public Document (P.D.) 24-27 (3/20/2024), the Department determined that the term “mining” in Virginia Code § 58.1-1101 includes the extraction of limestone from a quarry. Accordingly, the Department remanded the case to the County to determine what property was subject to M&T tax as equipment used in its mining operations. Because any property directly involved in a manufacturing process would also have been subject to M&T tax, the issue was effectively narrowed to what equipment, if any, was not involved in either the mining or manufacturing operations. Any such equipment would have been exempt from local property taxation.

In response to the Department’s determination in P.D. 24-27, the Taxpayer provided additional information to the County and the County conducted a site visit. In August 2024, the County issued a new final local determination letter, listing the equipment it had determined was not taxable and the equipment that the Taxpayer had agreed was taxable. In addition, the County determined that three assets used in the lime load-out process were critical components of the Taxpayer’s manufacturing process and thus subject to M&T tax. The Taxpayer appealed to the Department regarding the classification of these three assets.

ANALYSIS

Tangible and Intangible Personal Property

Virginia Code § 58.1-1101 A 2 classifies certain property that is “tangible in fact” as intangible and segregates that property for state taxation only. Intangible property consists of, in part:

Capital which is personal property, tangible in fact, used in manufacturing (including, but not limited to, furniture, fixtures, office equipment and computer equipment used in corporate headquarters), mining, water well drilling, radio or television broadcasting, dairy, dry cleaning or laundry businesses. Machinery and tools, motor vehicles and delivery equipment of such businesses shall not be defined as intangible personal property for purposes of this chapter and shall be taxed locally as tangible personal property according to the applicable provisions of law relative to such property . . . .

As such, certain tangible personal property owned by a mining or manufacturing business would be classified as intangible property not subject to local property tax, but any machinery and tools used in mining or manufacturing would be subject to the M&T tax. See Virginia Code § 58.1-3507 A. The County’s position is that the assets in question were used in the manufacturing of limestone products because the finished lime products would not have been marketable without being stored and delivered using the three assets at issue.

Used in Manufacturing

In City of Winchester v. American Woodmark , 250 Va. 451, 458 (1995), the Virginia Supreme Court (the “Court”) stated, “Since 1950, the Tax Commissioner has opined that the phrase ‘machinery and tools’ contained in Virginia Code § 58.1-1101 A 2 and its precursors means “machinery used in the actual process of manufacturing.” The Court also cited previous opinions of the Attorney General in deriving the meaning of “used in manufacturing.”

[T]he Attorney General has consistently opined that “machinery and tools used in a particular manufacturing business are the machinery and tools that are necessary in the particular manufacturing business and which are used in connection with the operation of machinery which is actually and directly used in the manufacturing process.” Id . at 458 (citing 1985-1986 Att’y Gen. Ann. Rep. 316 at 317; see also 1987-1988 Att’y Gen. Ann. Rep. 590).

In T he Daily Press, Inc. v. County of Newport News , 265 Va. 304, 311 (2003), the Court amplified the principles set forth in American Woodmark :

The principle gleaned from American Woodmark can be simply stated: personal property that may be essential to the overall operations of a manufacturing business is not “machinery and tools” subject to local taxation unless the property is actually and directly used in the manufacturing process where new materials are transformed into a substantially different product or the property is connected with the operation of machinery actually and directly used in the manufacturing process.

This language does not imply that each piece of machinery or each tool used directly in the manufacturing process must be directly connected to the complete transformation of a material into something substantially different in character. In P.D. 04-39 (8/2/2004), the Department found equipment and tools that did not directly transform or even touch the product being produced could be used directly in the manufacturing process. The question, therefore, is not whether a particular piece of machinery transforms a product, but whether such machinery or tool is used directly in a manufacturing process.

The County argues that the lime load-out assets were a crucial component of the manufacturing process because the marketability of the lime products would have been destroyed if they were not stored and delivered using such assets. The County compares this case to the facts in P.D. 08-30 (4/2/2008), where the Department found that certain packaging assets of a food manufacturer were part of the manufacturing process. In that case, however, the packaging at issue formed a necessary component of the final marketable food product.

Here, the production process was complete and the lime products were already in their final marketable state when they arrived at the lime load-out facility. Although the lime load-out assets maintained the products in a marketable state, these assets did not perform any further function to create a part of the final marketable product like the packaging assets at issue in P.D. 08-30. In the Department’s opinion, therefore, the lime load-out assets in question were not directly involved in the Taxpayer’s mining or manufacturing operations.

DETERMINATION

Based on the information and arguments presented, the Department has determined that the lime load-out assets at issue were not directly used in the mining or manufacturing of the Taxpayer’s products. Therefore, such assets are properly classified as “intangible” under the provisions of Virginia Code § 58.1-1101 A 2 and are not subject to the M&T tax.

The case will be remanded to the County in order to adjust the assessments of M&T tax for the tax years at issue in accordance with this determination and issue updated bills or refunds, as warranted.

The Code of Virginia sections cited are available online at law.lis.virginia.gov. The public documents cited are available at tax.virginia.gov in the Laws, Rules, & Decisions section of the Department’s website. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy and Legal Affairs, Tax Adjudication and Resolution Division, at or **@tax.virginia.gov.

Sincerely,

James J. Alex

Tax Commissioner

Commonwealth of Virginia

AR 5074.Q

Related Documents

04-39

08-30

18-133

24-27