Does making ice cream from a dairy mix count as 'manufacturing' for local Machinery & Tools tax, and how far back can I appeal a county's business property tax?

Plain-English summary

An ice cream and frozen-dessert business claimed to be a manufacturer on the business-property return it filed with its county. That label matters: a manufacturer's production equipment is taxed under the separate Machinery & Tools (M&T) classification rather than as ordinary business tangible personal property (BTPP) — here the M&T treatment produced a lower bill. The county disallowed the manufacturer status and assessed additional BTPP tax; the business appealed all the way to the Tax Commissioner, who held it was a manufacturer for the years the Department could reach, and remanded those years to the county.

Two separate questions had to be answered: (1) which years the Department could even hear, and (2) whether ice-cream-making is manufacturing.

Jurisdiction — the local-tax appeal clock is unforgiving. Local business taxes have their own multi-step appeal track (appeal to the locality first, then to the Department within 90 days of the locality's final determination — § 58.1-3983.1), plus alternative routes (apply to the local assessing official under § 58.1-3980, then to circuit court under § 58.1-3984). The Commissioner split the years:

• 2015–2020: the business asked the county for a refund only in December 2024. A locality cannot refund local taxes requested more than three years after the last day of the tax year (§ 58.1-3990), so the county had no power to refund — and the Department has no jurisdiction where the locality itself lacks it. Barred.
• 2021–2022: the denial of a refund claim counts as an "assessment" that starts the one-year local-appeal window (§ 58.1-3983.1 B 1). The county denied the refund, so the business must complete the local appeal first; until then the Department has no jurisdiction.
• 2023–2024: the business filed a proper local appeal, the county issued a final determination meeting § 58.1-3983.1 B 5, and the business appealed to the Department within 90 days. The Department had jurisdiction for these years.

Manufacturing — the three-part test. "Manufacturer" isn't defined in the Code, so Virginia uses the Supreme Court's test: (1) an original (or "new") material, (2) a process that changes it, and (3) a resulting product substantially different from the original (County of Chesterfield v. BBC Brown Boveri; Prentice v. City of Richmond). The classic contrast: curing hams and bacon is manufacturing (color, texture, taste all change), but slaughtering and cleaning poultry is not (no transformation into a substantially different article).

Applying it to ice cream. The county argued the business "started with ice cream mix and ended with ice cream" — mere manipulation, not transformation. The Commissioner disagreed. The business started with a refrigerated liquid dairy mix (milk, cream, sugar, emulsifiers, stabilizers), added ingredients, and used a precise, complex freezing-and-agitation process to turn it into flavored, textured frozen desserts — as the taxpayer noted, simply mixing and freezing the ingredients would yield "an inedible block of ice," not ice cream. Crucially, the starting material need not be "raw material" in the traditional sense; it need only be "new" or "original" material that is then transformed (P.D. 16-118). An Attorney General opinion had already treated ice-cream-making from raw materials as manufacturing. The Department found all three elements met.

Result. The business is a manufacturer for local tax purposes, so its machinery and tools used directly in production are subject to M&T tax. The 2023 and 2024 assessments were remanded to the county to adjust (updated bills or refunds as warranted). For 2021–2022, the parties were "encouraged" to apply this reasoning if the business pursues its local appeal; 2015–2020 stay barred.

What this means for you

Food, beverage, and other processing businesses

If your operation transforms input materials into a substantially different product, you may qualify as a manufacturer, which changes how your equipment is classified and taxed locally (M&T rather than general BTPP — often a lower rate). Two useful points from this ruling: you do not have to start from "raw" commodities — a purchased intermediate input (like a dairy mix) can still be the "original material" — and the test is about transformation, not whether the end product shares a name with an ingredient. Document your process and how the finished product differs in character from what went in.

The local-tax appeal clock — do not wait

This case is a cautionary tale about deadlines. Refund requests to a locality are dead after three years from the last day of the tax year (§ 58.1-3990) — that alone wiped out 2015–2020. And you must finish the local appeal before the Department can hear you; skipping or leaving that step incomplete cost the taxpayer its 2021–2022 years. If you think you have been misclassified, appeal early and follow the local-then-state sequence precisely.

Tax preparers

Map each disputed year to the correct procedural track before arguing the merits: (1) is a refund still within the § 58.1-3990 three-year window; (2) has the § 58.1-3983.1 local appeal been completed (a refund denial starts a fresh one-year clock); and (3) was the appeal to the Department filed within 90 days of a compliant local final determination. Only then does the manufacturing question matter — and there, build the record around the three-element transformation test and the "new/original material" gloss from P.D. 16-118.

Common questions

Q: My business turns a purchased mix or intermediate product into something else. Can I still be a "manufacturer"?
A: Yes. The starting material does not have to be a traditional raw commodity — it only has to be "new" or "original" material that your process transforms into a substantially different product. Making ice cream from a purchased dairy mix qualified here.

Q: Why does being a "manufacturer" matter for local property tax?
A: A manufacturer's machinery and tools used directly in production are a separate class of property taxed under the Machinery & Tools (M&T) tax, rather than as ordinary business tangible personal property. Depending on the locality's rates, that classification can significantly change the bill.

Q: How far back can I get a refund of local business property tax?
A: A locality cannot refund local taxes if you request the refund more than three years after the last day of the tax year (§ 58.1-3990). Requests older than that are barred, and the Department cannot revive them.

Q: Do I have to appeal to the county before the state Tax Commissioner will hear me?
A: Yes. For local business taxes you appeal to the locality first; only after the locality issues a compliant final determination can you appeal to the Department, and you must do so within 90 days. An incomplete local appeal means the Department has no jurisdiction.

Citations and references

Statutes and constitutional provision:

• Article X, § 4, Constitution of Virginia; Va. Code § 58.1-1100 et seq., § 58.1-1101 A 2 — tangible property reserved for local taxation; certain manufacturing capital declared intangible
• Va. Code § 58.1-3507 A — machinery and tools used in manufacturing as a separate class, locally taxed
• Va. Code § 58.1-3983.1 D, B 1, B 5 — Department's authority over local business property appeals; local appeal window; final-determination requirements
• Va. Code § 58.1-3990 — three-year limit on local tax refunds
• Va. Code § 58.1-3980, § 58.1-3984 — application to the local assessing official and correction by the circuit court

Authorities the Commissioner relied on (described here, not linked): County of Chesterfield v. BBC Brown Boveri, 238 Va. 64 (1989); Prentice v. City of Richmond, 197 Va. 724 (1956); Commonwealth v. Meyer, 180 Va. 466 (1942); a 1976–1977 Virginia Attorney General opinion treating ice-cream production as manufacturing; and prior Department public documents on the manufacturing standard and on local-appeal jurisdiction (P.D. 16-118, 19-111, 22-113, and 24-150).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 25-114

Original ruling text

November 7, 2025

Re: Appeal of Final Local Determination
Taxpayer: *
Locality Assessing Tax: County of ***
Business Tangible Personal Property Tax
Machinery and Tools Tax

Dear *

This final state determination and notice of jurisdiction is issued upon the application for correction filed by you on behalf of * (the “Taxpayer”) with the Department of Taxation. You are appealing assessments of business tangible personal property (BTPP) tax issued to the Taxpayer by the County of *** (the “County”) for the 2015 through 2024 tax years.

The BTPP 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 BTPP tax assessments. On appeal, a BTPP 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. 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.

FACTS

The Taxpayer operated an ice cream business in the County. On its 2023 Business Filing Return filed with the County, the Taxpayer claimed status as a manufacturer. As a result, the listed equipment was initially assessed at Machinery and Tools (M&T) tax rates. Under review, however, the County disallowed the Taxpayer’s claimed manufacturer designation and issued an assessment for additional BTPP tax due.

The Taxpayer verbally appealed to the County, a site visit was conducted, and the County issued a purported final local determination, concluding that the Taxpayer’s operations did not constitute manufacturing. The Taxpayer appealed to the Department, contending that it was a manufacturer. The Taxpayer also requested that this qualification be retroactively applied to reduce its BTPP tax liability for the 2015 through 2022 tax years.

In Public Document (P.D.) 24-150 (11/14/2024), the Department determined that it did not have jurisdiction to consider the Taxpayer’s appeal since the local administrative appeal process was incomplete. The Department instructed the Taxpayer to file a local appeal of the 2023 assessment and, if the County issued a determination with which the Taxpayer disagreed, the Taxpayer would then be eligible to appeal to the Department. The Department also advised the Taxpayer that it would need to request a refund of tax for the 2015 through 2022 tax years before the local appeals process could begin.

Subsequent to the Department’s determination, the County issued an assessment of BTPP tax for the 2024 tax year. In December 2024, the Taxpayer appealed to the County contending that it was a manufacturer and requesting this status be applied to reduce its BTPP tax liability for the 2015 through 2024 tax years. In February 2025, the County issued a final determination, upholding the assessments on the basis that the Taxpayer was not engaged in manufacturing. The Taxpayer filed an administrative appeal with the Department, claiming that it qualified as a manufacturer for each of the tax years at issue.

ANALYSIS

Jurisdiction

2015 Through 2020 Tax Years

The Taxpayer requested a refund from the County in December 2024 for the 2015 through 2020 tax years. Pursuant to Virginia Code § 58.1-3990, a locality cannot issue a refund for requests made more than three years after the last day of the tax year so assessed. As such, the refund request for the 2015 through 2020 tax years is outside the limitations period. The Department does not have jurisdiction to address an appeal in which a locality also lacks jurisdiction. See P.D. 19-111 (9/27/2019).

2021 And 2022 Tax Years

Virginia Code § 58.1-3980 provides that any person aggrieved by an assessment of local taxes “may, within three years from the last day of the tax year for which such assessment is made, or within one year from the date of the assessment, whichever is later, apply to the commissioner of the revenue or such other official who made the assessment for a correction thereof.” Under this procedure, if the taxpayer disagrees in whole or in part with the local assessing officer’s determination, the taxpayer may then seek correction with the circuit court under the provisions of Virginia Code § 58.1-3984.

Virginia Code § 58.1-3983.1 B 1 provides that any person assessed with a “local business tax ... may appeal such assessment within one year from the last day of the tax year for which such assessment is made, or within one year from the date of such assessment, whichever is later, to the commissioner of the revenue or other assessing official.” Under this provision, if the taxpayer’s appeal is denied in part or completely by the local assessing official, the taxpayer may, within 90 days, appeal the assessment to the Department. For purposes of this section, the denial of a refund claim constitutes an assessment which triggers the running of the one year period within which the taxpayer may file a local appeal.

In this case, the Taxpayer requested a refund of BTPP tax paid for the 2021 and 2022 tax years in its December 2024 appeal to the County. The County issued a response denying the refund claim, and the Taxpayer should now be afforded an opportunity to participate in the local appeals process. Until the local appeals process is complete, the Department does not have jurisdiction over the refund claims for the 2021 and 2022 tax years. See P.D. 22-113 (6/21/2022).

2023 And 2024 Tax Years

The Taxpayer filed its local appeal with the County in December 2024 for the 2023 and 2024 BTPP tax assessments as permitted under Virginia Code § 58.1-3983.1. The County issued a final determination which met the requirements of Virginia Code § 58.1-3983.1 B 5. The Taxpayer submitted its appeal of that final determination to the Tax Commissioner within 90 days. As such, the Department has jurisdiction to address the Taxpayer’s appeal for the 2023 and 2024 tax years.

Manufacturing

All tangible personal property, unless declared intangible under the provisions of Virginia Code § 58.1-1100 et seq ., is reserved for local taxation by Article X § 4 of the Constitution of Virginia . Included in the category of tangible property that is declared intangible and subject to state taxation only is “[c]apital 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 ) . . . .” See Virginia Code § 58.1-1101 A 2.

The machinery and tools, motor vehicles, and delivery equipment of a manufacturing business are not defined as intangible personal property. Such property is to be taxed locally as tangible personal property. Virginia has elected to create a separate classification of tangible personal property for machinery and tools used in manufacturing. Virginia Code § 58.1-3507 A also provides:

Machinery and tools . . . used in a manufacturing . . . business . . . shall be listed and are hereby segregated as a class of tangible personal property separate from all other classes of property and shall be subject to local taxation only.

The definition of a “manufacturer” is not in the Code of Virginia . 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). See also Prentice v. City of Richmond , 197 Va. 724 (1956). As such, for local tax purposes, a manufacturer is 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.

In this case, the Taxpayer contends that it meets the definition of manufacturer because it took various ingredients and transformed them into substantially different products. The County asserts that the Taxpayer was not a manufacturer because it started with an ice cream mix and ended with ice cream.

In 1976-1977 Op. Atty. Gen. Va. 284 (1976-1977), the Attorney General opined that a business producing ice cream from raw materials and selling the ice cream on the same premises to consumers was a manufacturer. In addition, the Supreme Court of Virginia held that the slaughtering, picking, and cleaning of poultry does not constitute manufacturing because there was no change or transformation of the live poultry into an article or product of substantially different character. See Prentice at 731. However, the curing of hams and bacon was held to be manufacturing because “[t]he color . . . is changed; its texture is changed; its taste is changed; putrefaction is prevented, and it may be kept wholesome for an indefinite time.” See Commonwealth v. Meyer , 180 Va. 466, 473 (1942).

The Taxpayer states that it made a variety of frozen desserts, including ice cream, gelato, sherbet, sorbet, frozen yogurt, and ices, that were sold in the Taxpayer’s retail stores and as wholesale products to other businesses. The Taxpayer indicates that its process for making ice cream and some of its other products began with a plain refrigerated liquid dairy mix containing milk, cream, sugar, emulsifiers, and stabilizers. The Taxpayer added other ingredients to the dairy mix and transformed the mix and other ingredients into a flavored, textured, frozen dessert by a precise and complex process involving freezing, agitation, and activation of emulsifiers and stabilizers. The Taxpayer contends that the dairy mix had no semblance to ice cream and was only one of many ingredients used in the final product. According to the Taxpayer, the dairy mix was generally not available to the public nor did it have any retail purpose or usage other than as an ingredient to make ice cream and other frozen desserts. Further, the Taxpayer did not use the dairy mix in all of its products and sometimes made its own dairy mix.

The County argues that the dairy mix was just a form of ice cream and, since the Taxpayer’s final product was ice cream, the Taxpayer was merely manipulating the materials rather than transforming the materials into a product of substantially different character. As the Taxpayer points out, however, if the dairy mix and additional ingredients were merely mixed together and frozen, the resulting product would not be ice cream but rather an inedible block of ice.

The County admits that, if the Taxpayer were making its own dairy mix, rather than using a pre-made dairy mix, it would have been engaged in manufacturing because then the Taxpayer would have been starting with raw materials. In P.D. 16-118 (6/13/16), however, the Department emphasized that the standard for manufacturing is starting with “new material” or “original material.” As such, the manufacturing process does not necessarily have to begin with “raw material” in the traditional sense. Whatever the starting material is, a manufacturing activity occurs as long as the starting material is subjected to a process whereby it is changed into a substantially different material.

DETERMINATION

Based on the information provided, the Department has determined that the Taxpayer mixed original materials, subjected them to a transforming process, and the resultant product was substantially different from the original materials. As such, the Department finds that the Taxpayer was a manufacturer for local tax purposes. A manufacturer is subject to M&T tax on machinery and tools used directly in the manufacturing process.

The case will be remanded to the County in order to adjust the assessments of BTPP tax for the 2023 and 2024 tax years in accordance with this determination and issue updated bills or refunds, as warranted.

As discussed above, the Department does not have jurisdiction to decide the Taxpayer’s appeal for the 2021 and 2022 tax years on the merits. If the Taxpayer appeals the denied refunds for such years to the County, the parties are encouraged to consider the analysis and conclusions set forth in this determination in order to resolve the prior years’ claims. Finally, the Department lacks jurisdiction to address the taxpayer’s refund claims for the 2015 through 2020 tax years because more than three years had already passed before the Taxpayer made the claims at the local level.

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/5188.T

Related Documents

16-118

19-111

22-113

24-150