Can a Virginia locality tax a nursery's inventory as merchants' capital and its other business property under BTPP rules?

Subject

A locality may impose both a merchant's capital tax and a business tangible personal property tax on its taxpayers.

Plain-English summary

Virginia answered two local-tax questions about nurseries.

First, a locality may exempt farm machinery and equipment by ordinance. That exemption must apply uniformly to the same property class. Because state law did not define farming for this purpose, a locality could define a nursery as a farm in its ordinance; if it did, qualifying nursery equipment would receive the farm-equipment exemption.

Second, nursery plants and other horticultural products held for sale could be inventory included in merchants' capital. A locality may impose either BPOL tax or merchants' capital tax on a merchant, but not both. It may, however, impose merchants' capital tax on inventory and BTPP tax on other taxable business property because those are separate property classes and merchants' capital is excluded from the tangible-personal-property definition.

What this means for you

Nursery tax treatment depends partly on the locality's ordinance. Separate the analysis for inventory, equipment, and other business property, and confirm whether the locality chose BPOL or merchants' capital taxation for merchants.

Citations and references

• Va. Code §§ 58.1-3505 A, 58.1-3509, 58.1-3510, 58.1-3704, and 58.1-3500.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 17-15

Original ruling text

March 10, 2017

Re: Request for Advisory Opinion

Merchants' Capital Tax

Business Tangible Personal Property Tax

Dear *

This is in response to your letter in which * (the “County”) requests an advisory opinion regarding the application of the merchants' capital tax and the business tangible personal property (BTPP) tax to nurseries.

The merchants' capital tax and the BTPP tax are imposed and administered by local officials. Virginia Code § 58.1-3983.1 authorizes the Department to issue advisory opinions on local business tax matters. The following opinion has been issued subject to the facts presented to the Department summarized below. Any changes in facts or the introduction of new facts may lead to a different result.

The Code of Virginia sections and Attorney General Opinions cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site.

FACTS

The County has requested an advisory opinion to two questions. The questions and the Department's opinions are enumerated below.

OPINION

1) If a locality exempts farm equipment from the BTPP tax by ordinance, does such an exemption extend to nurseries that grow and offer their products for wholesale and/or retail sale to the public?

Article X § 4 or the Constitution of Virginia provides that all real and tangible personal property shall be segregated for local tax in such a manner as the General Assembly provides by law. Virginia Code § 58.1-3505 A segregates farm animals, grains and other feeds, agricultural products, farm machinery, farm implements and equipment as a separate class of tangible personal property. The governing body of any locality may exempt or partially exempt such property from local taxation by ordinance.

Article X, §1 of the Constitution of Virginia provides that “[a]ll taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects.” Accordingly, the exemption from the BTPP tax under local ordinance for farm equipment must apply to all such equipment in the locality. The question therefore, is whether the activities conducted by nurseries are considered farming for purposes of local taxation.

Virginia Code § 58.1-3505 does not define farming. Because a locality may exempt farm equipment by ordinance, it may also define a farm to include nurseries for purposes of the exemption. As such, if a locality defines a nursery in its ordinance as a farm, any such equipment owned by nurseries would also be exempt from local taxation.

2) Can a nursery be assessed for local business taxes such as merchant's capital and/or business personal property?

The capital of merchants is segregated for local taxation only. See Va. Code § 58.1-3509. Merchants' capital, as defined in Va. Code § 58.1-3510, includes inventory for sale as merchandise. The Attorney General has opined that inventory is goods and materials kept on hand by a commercial establishment for sale. See 2006 Op. Va. Att'y Gen 06-036. Based on this interpretation, it would seem reasonable to conclude inventory of a nursery would include the plants and other horticultural products that it offers for sale.

A locality may impose either a BPOL tax or a merchants' capital tax on merchants but is prohibited from assessing both. See Va. Code § 58.1-3704. Accordingly, for those businesses that are selling merchandise, a locality may impose either a license tax on the privilege of doing business, or it may impose a merchants' capital tax on the businesses' inventory.

Merchants' capital and tangible personal property are two separate classes of property in Virginia that have been segregated for local taxable only. See 1985-86 Op. Va. Att'y Gen. 289. Merchants' capital is specifically excluded from the definition of tangible personal property. See Va. Code § 58.1-3500. Therefore, because merchant's capital and tangible personal property are two separate classes of property, a locality may impose both a merchant's capital tax and a business tangible personal property tax on its taxpayers.

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

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1078.B