Manufacturing & Distribution Client Alert – A Manufacturer’s Primer on Virginia State and Local Taxes
By , L. Scott Seymour, Manufacturing & Distribution
A Manufacturer’s Primer on Virginia State and Local Taxes
In Virginia, manufacturers qualify for special tax treatment at both the state and local level. Is your manufacturing business taking full advantage of these tax benefits?
- State Sales and Use Tax: Machinery or tools (or repair parts for them), fuel, power, energy, or supplies, used directly in processing, manufacturing, refining, mining or converting products for sale or resale are exempt from state sales and use tax. Virginia Code 58.1-609.3(2)(iii). To qualify for the exemption, the tangible property at issue must be indispensable to the actual production and primarily used or consumed immediately in the actual production of the products. Items such as platforms, special flooring, or other property essential to the operation of the business but not used directly in the manufacturing process do not qualify. VAC 10-210-920(B)(2).
- Local Business Tangible Personal Property Tax: Personal property, tangible in fact, that is used in manufacturing is deemed to be intangible personal property not subject to taxation by Virginia localities. Virginia Code 58.1-1101(A)(2). Machinery and tools, motor vehicles and delivery equipment, however, are deemed to be tangible personal property and are subject to local taxation. For purposes of this statute, an entity engages in manufacturing if its process involves the transformation of new material into an article or product of a substantially different character. The Daily Press, Inc. v. City of Newport News, 265 Va. 304, 311 (2003). M&T remains taxable if it is actually and directly used in the manufacturing process. Id.
- Local Business, Professional and Occupational License Tax: Manufacturers are exempt from BPOL tax. Virginia Code 58.1-3703(C)(4). As with the BTPP tax, an entity is engaged in manufacturing if it transforms materials into articles of a substantially different character, but not if it merely blends together various ingredients. Solite Corp. v. County of King George, 220 Va. 661 (1980) (finding that process of blending sand and gravel was not manufacturing).
- Vertically Integrated Manufacturers: Even if a particular local office of a company is not engaged in manufacturing at that location, the company may still take advantage of tax treatment as a manufacturer if a substantial portion of its overall business consists of manufacturing. City of Winchester v. American Woodmark Corp., 250 Va. 451 (1995). In American Woodmark, the taxpayer’s headquarters were located in Winchester, but its manufacturing facilities were not. The city claimed that the taxpayer’s personal property was therefore taxable by the city, but the Supreme Court disagreed, observing that there was no language in the applicable Virginia statute that would require that a manufacturer maintain a manufacturing facility within the Citys geographical boundaries. Id. at 457. In applying this rule, Virginia’s Tax Commissioner has stated that, if the Taxpayer is a vertically integrated business, the “activities that occurred at the Taxpayer’s facility in the [locality] are not the sole consideration for purposes of personal property taxation. If the Taxpayer can show that it conducted substantial manufacturing activities as a single business, the facility in the [locality] would be considered to be a manufacturing business.” Ruling of the Tax Commissioner, PD 10-236, Va. Dept. of Taxation, Sept. 30, 2010.
Want to learn more? Contact Johan Conrod (757.624.3183) or Scott Seymour (757.624.3113) with your state and local tax questions.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2023.